Registration No.1-13479
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
AGRIBRANDS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1794250
(State of Incorporation) (I.R.S.Employer
Identification No.)
9811 South Forty Drive
St. Louis, Missouri 63124
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 812-0500
Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class to be so registered each class is to be
registered
Common Stock, $.01 par value New York Stock Exchange, Inc
Common Stock Purchase Rights New York Stock Exchange, Inc
Securities to be registered pursuant to Section 12(g) of the Act: None
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AGRIBRANDS INTERNATIONAL, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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Item
No. Item Caption Location in Information Statement
1. Business BUSINESS AND PROPERTIES
2. Financial Information SUMMARY SELECTED HISTORICAL
FINANCIAL INFORMATION;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
3. Properties BUSINESS AND PROPERTIES--Properties
4. Security Ownership of Certain Beneficial
Owners and Management SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF AGRIBRANDS
STOCK
5. Directors and Executive Officers MANAGEMENT
6. Executive Compensation EXECUTIVE COMPENSATION; AGRIBRANDS
COMPENSATION AND BENEFIT PLANS;
RALSTON COMPENSATION PROGRAMS
7. Certain Relationships and Related Transactions AGREEMENTS BETWEEN RALSTON AND
AGRIBRANDS; CERTAIN TRANSACTIONS
8. Legal Proceedings BUSINESS AND PROPERTIES--Litigation
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters THE DISTRIBUTION--Listing and Trading of
Agribrands Stock
11. Description of Registrant's Securities to be
Registered DESCRIPTION OF AGRIBRANDS CAPITAL
STOCK; ANTI-TAKEOVER EFFECTS OF
CERTAIN PROVISIONS
12. Indemnification of Directors and Officers INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
OF AGRIBRANDS
13. Financial Statements and Supplementary Data INDEX TO FINANCIAL INFORMATION OF
AGRIBRANDS INTERNATIONAL, INC.
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II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
Item 10. Recent Sales of Unregistered Securities.
Agribrands International, Inc., ("Agribrands") was incorporated as a
Missouri corporation under the name of Tradico Missouri, Inc. on October 6,
1997. It issued 1000 shares of its $.01 par value common stock to Ralston
Purina International Holding Company, Inc. ("RPIHCI") on that date in
consideration of a capital contribution of $10. Such issuance was exempt from
registration under the Securities Act of 1933, as amended, (the "Act"),
pursuant to Section 4(2) of the Act, because such issuance did not involve any
public offering of securities.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements--See Index to Financial Information
(b) Exhibits:
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Exhibit No.
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*
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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*
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* To be filed by amendment
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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.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 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 5, 1998
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RALSTON PURINA COMPANY
Ralston Purina Company W. Patrick
McGinnis
Checkerboard Square J. Patrick
Mulcahy
St. Louis, Missouri 63164 Co - Chief
Executive Officers
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
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INFORMATION STATEMENT
AGRIBRANDS INTERNATIONAL, INC.
COMMON STOCK
($.01 par value)
This Information Statement is being furnished by Ralston Purina Company
("Ralston") in connection with the distribution (the "Distribution") by
Ralston to holders of its $.10 par value common stock ("Ralston Stock") of
shares of the $.01 par value common stock and related Common Stock Purchase
Rights ("Agribrands Stock") of its subsidiary, Agribrands International, Inc.
("Agribrands").
The Distribution will be made as of 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.
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AVAILABLE INFORMATION
Ralston is (and, following the Distribution, Agribrands will be) subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files (and
Agribrands will file) reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Ralston (and to be filed by
Agribrands) with the Commission may be inspected and copied at the Public
Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C., 20549, as well as at the public reference
facilities maintained at the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
information may be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains an Internet site on the World Wide Web at
http://www.sec.gov that contains reports, proxy statements and other
information regarding public companies. Shares of Ralston Stock are listed,
and shares of Agribrands Stock have been approved for listing, on the NYSE and
reports, proxy statements and other information concerning Ralston and
Agribrands can also be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
Agribrands intends to furnish holders of Agribrands Stock with annual
reports beginning with its fiscal year ending August 31, 1998, containing
consolidated financial statements audited by an independent public accounting
firm.
Agribrands has filed with the Commission a Registration Statement on Form
10 (the "Registration Statement") under the Exchange Act covering the
Agribrands Stock. This Information Statement does not contain all of the
information in the Registration Statement and the related exhibits and
schedules thereto, to which reference is hereby made. Statements in this
Information Statement as to the contents of any contract, agreement or other
document are summaries only and are not necessarily complete. For more
complete information as to any contract, agreement or other document filed
with the Registration Statement, reference is made to the applicable exhibit
or schedule to the Registration Statement. The Registration Statement and the
related exhibits filed by Agribrands may be inspected at the public reference
facilities of the Commission listed above.
The principal office of Agribrands is located at 9811 South Forty Drive,
St. Louis, Missouri 63124 (telephone: 314/812-0500).
Questions concerning the Distribution should be directed to Ralston's
Investor Relations Department, Ralston Purina Company, Checkerboard Square,
7T, St. Louis, Missouri 63164 (telephone: 314/982-2161). After the
Distribution, holders of Agribrands Stock having inquiries related to their
investment in Agribrands should contact Shareholder Inquiries, Agribrands
International, Inc., 9811 South Forty Drive, St. Louis, Missouri 63124
(telephone: 314/812-0590).
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED.
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INFORMATION STATEMENT
TABLE OF CONTENTS
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Page
AVAILABLE INFORMATION 2
QUESTIONS AND ANSWERS ABOUT THE
SPIN-OFF OF AGRIBRANDS STOCK 3
SUMMARY OF CERTAIN INFORMATION 6
SUMMARY OF SELECTED HISTORICAL
FINANCIAL INFORMATION 9
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION 10
FORWARD-LOOKING STATEMENTS 14
INTRODUCTION 14
THE DISTRIBUTION 14
Background and Reasons for the
Distribution 14
Risk Factors 17
No Operating History as an Independent
Company 17 No Prior Market for Agribrands
Stock 18
Possibility of Substantial Sales of
Agribrands Stock 18
Risks Associated with Foreign
Operations 18
Risks Associated with the Animal
Feeds Industry 19
Significant Competitive Activity 19
Raw Material Price Volatility 20
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
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QUESTIONS AND ANSWERS ABOUT THE SPINOFF OF AGRIBRANDS STOCK
Q. When will the spinoff occur?
A. The spinoff of Agribrands will occur 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.
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Q. Will Agribrands Stock be listed on any exchange?
A. Yes, the Agribrands Stock has been approved for listing on the NYSE and
will trade under the symbol "AGX".
Q. What will happen to the trading of Ralston and Agribrands Stock?
A. Beginning on or about March __, 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>
STATEMENT OF EARNINGS DATA
Net Sales
Depreciation and Amortization
Earnings Before Income Taxes
As a Percent of Sales
Income Taxes
Net Earnings (a,b)
November 30,
BALANCE SHEET DATA
Working Capital
Net Property
Additions (during the period)
Depreciation (during the period)
Total Assets
Long-Term Debt
Ralston Equity Investment
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
Distribution
<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 $ 40.5 (a) 70.7
Marketable securities 6.1 8.2 (a) 14.3
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 48.7 318.2
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 $ 42.4 $515.7
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 239.6 (d) 239.6
Total $ 473.3 $ 42.4 $515.7
</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 and Korea, certain lines of pet food
which the Agribrands Business has historically produced in those countries 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 source such pet foods for exclusive distribution through its
agricultural dealer channels from other producers. The facilities in Canada
and Korea which have historically produced the limited lines of pet food
described above, as well as animal feeds, will be retained by Agribrands
following the Distribution. A facility in Colombia which has historically
produced both animal feeds and pet food products for general distribution by
Ralston will remain with Agribrands' Colombian subsidiary, while a facility in
Venezuela which produces both animal feeds and pet food will be acquired by a
Ralston subsidiary 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. Instead, 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 facility 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 $10 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 $10 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, or in
connection with operations of the Agribrands Business prior to the
Distribution, 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 ten percent (10%) 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, with
Agribrands' international animal feeds and agricultural products business, as
conducted as of the Distribution Date. 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, with any business conducted by Ralston as of the
Distribution Date. Agribrands may, however, manufacture and offer,
exclusively in its agricultural dealer channels in Canada and Korea, certain
lines of pet food which the Agribrands Business has historically produced in
those countries 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 source such pet foods for exclusive distribution
through its agricultural dealer channels from other producers, 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, 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.
Retirement Plans. Agribrands Employees who, prior to the Distribution,
are participants in the Ralston 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 Plan and upon retirement
will receive retirement benefits from such Plan in accordance with its terms.
However, Agribrands Employees who are participants in such 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, but local plans in certain countries are
expected to continue.
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 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, risk management, 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. 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
$125 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 cash balance net of outstanding external debt.
Under this arrangement, management anticipates that Agribrands will have
approximately $85 million of cash 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
Bessenay (2)(4)
Chatillon (2)
Courchelettes
Limoges (2)
Longue
Montvendre (2)(4)
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
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. If the appeal
is unsuccessful, Agribrands believes that it will be able to adapt its method
of procuring and/or warehousing corn and rice in a manner that complies with
the applicable laws and without adverse material effect on the local
operations. Agribrands is also 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 phased 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
Age Term
Expires
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 resident 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. 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
Strategic 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
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 1,500,000 (approximately 15% 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
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 at least 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. 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 50 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. If the appeal
is unsuccessful, Agribrands believes that it will be able to adapt its method
of procuring and/or warehousing corn and rice in a manner that complies with
the applicable laws and without adverse material effect on the local
operations. Agribrands is also 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 phased 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.
9
BYLAWS
------
OF
AGRIBRANDS INTERNATIONAL, INC.
------------------------------
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ARTICLE I - SHAREHOLDERS
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SECTION 1. ANNUAL MEETING: The annual meeting of shareholders shall
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be held at the principal office of the Company, or at such other place either
within or without the State of Missouri as the Directors may from time to time
determine, at 10:30 A.M. on the last Friday in January in each year, or such
other time as may be determined by the Chairman of the Board, or if said day
be a legal holiday then on the next succeeding business day, to elect
Directors and transact such other business as may properly come before the
meeting.
SECTION 2. SPECIAL MEETINGS: Special meetings of shareholders may be
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called by the Chairman of the Board, the President or the Secretary, or in any
other manner permitted by law; and each such meeting shall be held at such
time, and at such place either within or without the State of Missouri, as may
be specified in the notice thereof.
SECTION 3. NOTICE: Notice of each annual or special meeting of
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shareholders, stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes thereof, shall be served upon or
mailed to each shareholder of record entitled to vote at such meeting at least
ten days but not more than seventy days prior to the meeting. Such other or
additional notice shall be given as may be required by law.
SECTION 4. QUORUM: At any meeting of shareholders, every shareholder
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having the right to vote shall be entitled to vote in person, by a telephonic
voting system established by a proxy solicitation firm, proxy support service
organization or like agent, or by proxy appointed by a proper instrument in
writing and subscribed by the shareholder or by his or her duly appointed
attorney-in-fact. A shareholder may authorize another person or persons to
act for him as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided that
any such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the shareholder. Each shareholder shall have such voting power
as is prescribed by the Articles of Incorporation with respect to the shares
registered in his or her name on the books of the Company. At any meeting of
shareholders, the holders of shares having a majority of the outstanding
voting power entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for all purposes, except as otherwise
provided by statute. If, however, such quorum shall not be present or
represented at any meeting of shareholders, the holders of shares having a
majority of the outstanding voting power present and entitled to vote at any
meeting may adjourn the same from time to time for successive periods of not
more than ninety days after such adjournment, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the
original meeting.
At any meeting of shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. In addition to any other
requirements imposed by or pursuant to law, the Articles of Incorporation or
these Bylaws, each item of business to be properly brought before a meeting
must (i) be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board or the persons calling the meeting
pursuant to these Bylaws; (ii) be otherwise properly brought before the
meeting by or at the direction of the Board; or (iii) be otherwise properly
brought before the meeting by a shareholder of record. For business to be
properly brought before a meeting by a shareholder of record, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Company. To be timely, a shareholder's notice must be delivered to or mailed
and received by the Secretary of the Company at the principal executive
offices of the Company not less than 90 days prior to the meeting; provided,
however, that in the event that less than 90 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the seventh
day following the day on which such notice of the date of the meeting was
mailed or on which such public notice was given. A shareholder's notice to
the Secretary shall set forth as to each matter he or she proposes to bring
before the meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting; (ii) the name and address, as they appear in the Company's
shareholder records, of the shareholder(s) proposing such business; (iii) the
class and number of shares of the Company's capital stock which are
beneficially owned by the proposing shareholder(s), and (iv) any material
interest of the proposing shareholder(s) in such business. Public notice
shall be deemed to have been given if a public announcement is made by press
release reported by a national news service or in a publicly available
document filed with the United States Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (or any successor of such statute or regulation promulgated thereunder).
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at a meeting except in accordance with the procedures set forth in
this Article I, Section 4. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Article
I, Section 4, and if he or she should so determine, shall so declare to the
meeting, and any such business not properly brought before the meeting shall
not be transacted. The Chairman of the meeting shall have absolute authority
to decide questions of compliance with the foregoing procedures, and his or
her ruling thereon shall be final and conclusive
SECTION 5. WRITTEN CONSENT OF SHAREHOLDERS: Any action which may be
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taken at any meeting of the shareholders, except the annual meeting of the
shareholders, may be taken without a meeting if consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof. Such consent may be
executed in counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
SECTION 6. ORGANIZATION: Each meeting of shareholders shall be
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convened by the Chairman of the Board, President, Secretary or other officer
or person calling the meeting by notice given in accordance with these Bylaws.
The Chairman of the Board, or any person appointed by the Chairman of the
Board prior to any meeting of shareholders, shall act as Chairman of each such
meeting of shareholders. In the absence of the Chairman of the Board, or a
person appointed by the Chairman of the Board to act as Chairman of the
meeting, the shareholders present at the meeting shall designate a Chairman of
the meeting. The Secretary of the Company, or a person designated by the
Chairman, shall act as Secretary of each meeting of shareholders. Whenever
the Secretary shall act as Chairman of the meeting, or shall be absent, the
Chairman of the meeting shall appoint a person present to act as Secretary of
the meeting.
ARTICLE II - BOARD OF DIRECTORS
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SECTION 1. ELECTION; TENURE; QUALIFICATIONS: The Board of Directors
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shall consist of not less than three (3) nor more than twelve (12) members,
such Directors to be classified in respect of the time for which they shall
severally hold office by dividing them into three classes of approximately
equal size, each class to be elected for a term of three years; and the number
of Directors shall be fixed by a resolution of the Board of Directors adopted
from time to time.
Directors shall be elected at each annual meeting of shareholders, to
hold office until the expiration of the term of their respective class, or
until their respective successors shall be elected and shall qualify.
Directors need not be shareholders unless the Articles of Incorporation at any
time so require.
Nominations of persons for election to the Board of Directors of the
Company may be made at a meeting of shareholders by or at the direction of the
Board or any committee thereof designated by the Board, or by any shareholder
of record of the Company entitled to vote for the election of Directors at the
meeting who complies with the procedures set forth herein. In order for
persons nominated to the Board, other than those persons nominated by or at
the direction of the Board or any committee thereof designated by the Board,
to be qualified to serve on the Board, such nominations shall be made pursuant
to timely notice in writing to the Secretary of the Company. To be timely, a
shareholder's notice shall be delivered to or mailed and received by the
Secretary of the Company not less than 90 days prior to the meeting; provided,
however, that in the event that less than 90 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders by the
Company, notice by the shareholder to be timely must be so received not later
than the close of business on the seventh day following the day on which such
notice of the date of the meeting was mailed or on which such public notice
was given. Such shareholder's notice shall set forth (i) as to each person
whom the shareholder proposes to nominate for election or re-election as a
Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person for the
previous five years, (C) the class and number of shares of the Company's
capital stock which are beneficially owned by such person, (D) such person's
written consent to being named as a nominee and to serving as a Director if
elected, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act (or any successor of such regulation or statute), and
(ii) as to the shareholder(s) making the nomination (A) the name and address,
as they appear in the Company's shareholder records, of such shareholder(s)
and (B) the class and number of shares of the Company's capital stock which
are beneficially owned by such shareholder(s). "Public notice" shall be
deemed to have been given if a public announcement is made by press release
reported by a national news service or in a publicly available document filed
with the United States Securities and Exchange Commission pursuant to the
Exchange Act (or any successor of such statute or regulation promulgated
thereunder). No person shall be qualified for election as a Director of the
Company unless nominated in accordance with the procedures set forth in this
Article II, Section 1. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made
in accordance with the procedures prescribed by the Bylaws, and if he or she
should so determine, shall so declare to the meeting, and the defective
nomination shall be disregarded. The Chairman of a meeting shall have
absolute authority to decide questions of compliance with the foregoing
procedures, and his or her ruling thereon shall be final and conclusive.
SECTION 2. POWERS: The Board of Directors shall have power to direct
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the management and control the property and affairs of the Company, and to do
all such lawful acts and things which, in their absolute judgment and
discretion, they may deem necessary and appropriate for the expedient conduct
and furtherance of the Company's business.
SECTION 3. CHAIRMAN: The Directors shall elect one of their number
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to be Chairman of the Board. The Chairman shall preside at all meetings of
the Board, unless absent from such meeting, in which case, if there is a
quorum, the Directors present may elect another Director to preside at such
meeting.
SECTION 4. MEETINGS: Regular meetings of the Board, or of any
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committee designated by the Board, may be held without notice at such time and
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place either within or without the State of Missouri as shall from time to
time be determined by the Chairman of the Board. Special meetings of the
Board, or of any committee designated by the Board, may be held at any time
and place upon the call of the Chairman of the Board, President or Secretary
of the Company.
Members of the Board, or of any committee designated by the Board, may
participate in a meeting of the Board or committee by means of a conference
telephone or similar communication equipment whereby all persons participating
in the meeting can hear each other, and participants in a meeting in this
manner shall constitute presence in person at the meeting.
SECTION 5. QUORUM: A majority of the full Board of Directors shall
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constitute a quorum at all meetings of the Board, and the act of the majority
of the Directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors unless a greater number of Directors is
required by the Articles of Incorporation, the Bylaws or by law. At any
meeting of Directors, whether or not a quorum is present, the Directors
present thereat may adjourn the same from time to time without notice other
than announcement at the meeting.
SECTION 6. WRITTEN CONSENT OF DIRECTORS: Any action which may be
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taken at any meeting of Directors, or of any committee of the Board, may be
taken without a meeting if consents in writing, setting forth the action so
taken, shall be signed by all of the members of the Board or committee. Such
consent may be executed in counterparts, each of which shall be deemed an
original but all of which together shall constitute but one and the same
instrument.
SECTION 7. VACANCIES: Vacancies on the Board and newly created
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directorships resulting from any increase in the number of Directors to
constitute the Board of Directors may be filled by a majority of the Directors
then in office, although less than a quorum, or by a sole remaining Director,
until the next election of Directors by the shareholders of the Company.
SECTION 8. COMPENSATION OF DIRECTORS:The Board of Directors may, by
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resolution passed by a majority of the whole Board, fix the terms and amount
of compensation payable to any person for his or her services as Director, if
he or she is not otherwise compensated for services rendered as an officer or
employee of the Company; provided, however, that any Director may be
reimbursed for reasonable and necessary expenses of attending meetings of the
Board, or otherwise incurred for any Company purpose; and provided, further,
that members of special or standing committees may also be allowed
compensation and expenses similarly incurred.
SECTION 9. COMMITTEES OF THE BOARD OF DIRECTORS: The Board of
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Directors may, by resolution passed by a majority of the whole Board,
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designate two or more Directors to constitute an Executive Committee of the
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Board which shall have and shall exercise all of the authority of the Board of
Directors in the management of the Company, in the intervals between meetings
of the Board of Directors. In addition, the Board may appoint any other
committee or committees, with such members, functions, and powers as the Board
may designate. The Board shall have the power at any time to fill vacancies
in, to change the size or membership of, or to dissolve any one or more of
such committees. Each such committee shall have such name as may be
determined by the Board, and shall keep regular minutes of its proceedings and
report the same to the Board of Directors for approval as required.
ARTICLE III - OFFICERS
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SECTION 1. OFFICERS; ELECTION: The officers of the Company shall be a
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Chairman of the Board, a Chief Executive Officer, a President, and a
Secretary, and may also include, as the Board may from time to time designate,
one or more Vice Chairmen of the Board, one or more Executive Vice Presidents,
one or more Senior Vice Presidents, one or more Group Vice Presidents, one or
more Vice Presidents, a General Counsel, a Treasurer, a Controller, and one or
more Assistant Secretaries, Assistant Treasurers and Assistant Controllers.
The Board of Directors shall elect all officers of the Company, except that
Assistant Secretaries, Assistant Treasurers and Assistant Controllers may be
appointed by the Chairman of the Board. The Board of Directors may appoint
such other officers and agents as it shall deem necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as the Board of Directors shall from time to time determine. Any two
or more offices may be held by the same person except the offices of Chairman
of the Board and Secretary.
SECTION 2. TERMS; COMPENSATION: All officers of the Company shall
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hold office at the pleasure of the Board of Directors. The compensation each
officer is to receive from the Company shall be determined in such manner as
the Board of Directors, excluding assistant officers, shall from time to time
prescribe.
SECTION 3. POWERS; DUTIES: Each officer of the Company shall have
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such powers and duties as may be prescribed by resolution of the Board of
Directors or as may be assigned by the Board of Directors or the Chief
Executive Officer.
SECTION 4. REMOVAL: Any officer elected by the Board of Directors
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may be removed by the Board of Directors whenever in its judgment the best
interest of the Company will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the officer so removed.
The Chairman of the Board may suspend any officer until the Board of Directors
shall next convene.
ARTICLE IV - CAPITAL STOCK
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SECTION 1. STOCK CERTIFICATES: All certificates representing shares
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of stock of the Company shall be numbered appropriately and shall be entered
in the books of the Company as they are issued. They shall be signed by the
Chairman of the Board or the President or a Vice President and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of
the Company, and shall bear the corporate seal of the Company. To the extent
permitted by law, the signatures of such officers, and the corporate seal,
appearing on certificates of stock, may be facsimiles, engraved or printed.
In case any such officer who signed or whose facsimile signature appears on
any such certificate shall have ceased to be such officer before the
certificate is issued, such certificate may nevertheless be issued by the
Company with the same effect as if such officer had not ceased to be such
officer at the date of its issue.
The Company shall not issue a certificate for a fractional share;
however, the Board of Directors may issue, in lieu of any fractional share,
scrip or other evidence of ownership upon such terms and conditions as it may
deem advisable.
Notwithstanding any other provision of this Article IV, the Board of
Directors may by resolution determine to issue certificateless shares, for
registration in book entry accounts for shares of stock in such form as the
appropriate officers of the Company may from time to time prescribe, in
addition to or in place of shares of the Company represented by certificates,
to the extent authorized by applicable law.
SECTION 2. RECORD OWNERSHIP: The Company shall maintain a record of
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the name and address of the holder of each certificate, the number of shares
represented thereby, and the date of issue and the number thereof. The
Company shall be entitled to treat the holder of record of any share of stock
as the holder in fact thereof, and accordingly it will not be bound to
recognize any equitable or other claim of interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Missouri.
SECTION 3. TRANSFERS: Transfers of stock shall be made on the books
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of the Company only by direction of the person named in the certificate, or by
such person's duly appointed attorney-in-fact, lawfully constituted in
writing, and upon the surrender of the certificate therefor or by appropriate
book-entry procedures.
SECTION 4. TRANSFER AGENTS; REGISTRARS: The Board of Directors shall,
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by resolution, from time to time appoint one or more Transfer Agents, that may
be officers or employees of the Company, to make transfers of shares of stock
of the Company, and one or more Registrars to register shares of stock issued
by or on behalf of the Company. The Board of Directors may adopt such rules
as it may deem expedient concerning the issue, transfer and registration of
stock certificates of the Company.
SECTION 5. LOST CERTIFICATES: Each person whose certificate of stock
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has been lost, stolen or destroyed shall be entitled to have a replacement
certificate issued in the same name and for the same number of shares as the
original certificate, provided that such person has first filed with such
officers of the Company, Transfer Agents and Registrars, as the Board of
Directors may designate, an affidavit stating that such certificate was lost,
stolen or destroyed and a bond of indemnity, each in the form and with such
provisions as such officers, Transfer Agents and Registrars may reasonably
deem satisfactory.
SECTION 6. TRANSFER BOOKS; RECORD DATES: The Board of Directors shall
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have power to close the stock transfer books of the Company as permitted by
law; provided, however, that in lieu of closing the said books, the Board of
Directors may fix in advance a date, not exceeding seventy days preceding the
date of any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of shares shall go into effect, as a record date to
allow for the determination of shareholders entitled to receive notice of, and
to vote at, any such meeting, and any adjournment thereof, or entitled to
receive payment of any such dividend, or to receive any such allotment of
rights or to exercise the rights in respect of any such change, conversion or
exchange of shares, and in such case such shareholders, and only such
shareholders, as shall be shareholders of record on the date of closing the
transfer books or on the record date so fixed shall be entitled to receive
notice of, and to vote at, such meeting, and any adjournment thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or
to exercise such rights, as the case may be, notwithstanding any transfer of
any shares on the books of the Company after such date of closing of the
transfer books or such record date fixed as aforesaid.
SECTION 7. DIVIDENDS: Dividends upon the outstanding shares of the
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Company may be declared by the Board of Directors at any regular or special
meeting pursuant to law. Before payment of any dividend, there may be set
aside out of any funds of the Company available for dividends such sum or sums
as the Directors from time to time, in their absolute discretion, think proper
as a reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Company, or for such other
purpose as the Directors shall think conducive to the interest of the Company,
and the Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE V - OFFICES, SEAL, BOOKS, NOTICE, CHECKS, FISCAL YEAR
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SECTION 1. OFFICES: The principal office of the Company shall be
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located at 9811 South Forty Drive, St. Louis, Missouri 63124.
SECTION 2. SEAL: The corporate seal of the Company shall be a
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circular seal; the words "AGRIBRANDS INTERNATIONAL, INC." shall be embossed
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in the outer margin; and the words "Corporate Seal" shall be embossed in the
interior; and impression of the same is set forth hereon.
SECTION 3. PLACE FOR KEEPING BOOKS AND SEAL: The books of the
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Company, and its corporate minutes and corporate seal, shall be kept in the
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custody of or under the direction of the Secretary at the principal office of
the Company, or at such other place or places and in the custody of such other
person or persons as the Board of Directors may from time to time determine.
SECTION 4. NOTICES: Whenever, under the provisions of the statutes,
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the Articles of Incorporation, or these Bylaws, notice is required to be given
to any Director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, by depositing the
same in the post office or in a letter box, in a post-paid sealed wrapper,
addressed to such Director or shareholder at such address as appears on the
books of the Company, and such notice shall be deemed to be given at the time
when the same shall be thus mailed.
Whenever any notice is required to be given a waiver thereof in writing
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
SECTION 5. CHECKS: All checks or demands for money and notes of the
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Company shall be signed by or at the direction of such officer or officers, or
such other person or persons as the Board of Directors may from time to time
designate.
SECTION 6. FISCAL YEAR: The fiscal year of the Company shall commence
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with the first day of September in each year.
ARTICLE VI - INDEMNIFICATION OF DIRECTORS,
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OFFICERS, EMPLOYEES AND AGENTS
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Each person who is or was a Director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a Director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall be indemnified by the Company in the manner
and to the full extent that the Company has power to indemnify such person as
set forth in the Articles of Incorporation.
ARTICLE VII - ALTERATION, AMENDMENT
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OR REPEAL OF BYLAWS
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These Bylaws may be altered, amended or repealed at any regular meeting
of the Board of Directors, or at any special meeting of the Board of Directors
if a description of the proposed alteration, amendment or repeal is provided
in the materials presented at such regular or special meeting, by the
affirmative vote of a majority of the Board of Directors, provided that such
authority has been delegated to the Board of Directors by the Articles of
Incorporation and further provided that in no event shall the Bylaws be
inconsistent with law or, in substance to a material degree, with any of the
terms, conditions or provisions of the Articles of Incorporation of the
Company.
ARTICLE VIII - CONTROL SHARE ACQUISITIONS
Section 351.407 of the General and Business Corporation Law of Missouri,
as amended from time to time, (relating to control share acquisitions) shall
not apply to control share acquisitions of the capital stock, whether common
or preferred, of the Company.
15
APPENDIX A
ARTICLES OF INCORPORATION
OF
AGRIBRANDS INTERNATIONAL, INC.
ARTICLE ONE - NAME
The name of the corporation (the "Corporation") is "Agribrands
International, Inc.".
ARTICLE TWO - REGISTERED OFFICE
The address of the Corporation's registered office in the State of
Missouri is 9811 South Forty Drive, St. Louis, Missouri 63124 and the name of
the registered agent at such address is Michael J. Costello.
ARTICLE THREE - AUTHORIZED SHARES
A. CLASSES AND NUMBER OF SHARES
The aggregate number, class and par value of shares of capital stock
which the Corporation shall have authority to issue is Sixty Million
(60,000,000) shares of stock, consisting of:
(i) 50,000,000 shares of common stock, par value $.01 per share
("Common Stock"); and
(ii) 10,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock").
All preemptive rights of shareholders are hereby denied, so that no
stock or other security of the Corporation shall carry with it and no holder
or owner of any share or shares of stock or other security or securities of
the Corporation shall have any preferential or preemptive right to acquire
additional shares of stock or of any other security of the Corporation. All
cumulative voting rights are hereby denied, so that no stock or other security
of the Corporation shall carry with it and no holder or owner of any share or
shares of such stock or security shall have any right to cumulative voting in
the election of directors or for any other purpose. The foregoing provisions
within this paragraph are not intended to modify or prohibit any provisions of
any voting trust or agreement between or among holders or owners of shares of
stock or other securities of the Corporation.
In addition to those general qualifications, limitations and
restrictions applicable to each and every class and series of capital stock of
the Corporation as a matter of law or as stated in the immediately preceding
paragraph, the preferences, qualifications, limitations, restrictions, and the
special or relative rights, including convertible rights, if any, in respect
of the shares of each class are as follows:
<PAGE>
B. TERMS OF PREFERRED STOCK
1. Subject to the requirements of the General and Business
Corporation Law of Missouri, as amended from time to time (the "GBCL"), and to
the provisions of these Articles of Incorporation, the Preferred Stock may be
issued from time to time by the Board of Directors as shares of one or more
series. The description of shares of each series of Preferred Stock,
including any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption shall be as set forth in these Articles of
Incorporation or any amendment hereto, or in a resolution or resolutions duly
adopted by the Board of Directors and, to the extent set forth in any such
resolution or resolutions, such information shall be certified to the
Secretary of State of Missouri and filed as required by law from time to time,
prior to the issuance of any shares of such series.
2. The Board of Directors is expressly authorized, prior to issuance,
by adopting resolutions providing for the issuance of, or providing for a
change in the number of, shares of any particular series of Preferred Stock
and, if and to the extent from time to time required by law, by filing
certification thereto with the Secretary of State of Missouri, to set or
change the number of shares to be included in each series of Preferred Stock
and to set or change (in any one or more respects) the designations,
preferences, conversion, relative, participating, optional or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms and conditions of redemption relating to the shares of each such series.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, setting or changing the
following:
(a) the distinctive serial designation of such series and the
number of shares constituting such series (provided that the aggregate number
of shares constituting all series of Preferred Stock shall not exceed the
aggregate number of authorized shares set out in Section A(ii) of this Article
Three);
(b) the annual dividend rate, if any, on shares of such series,
whether and the extent to which dividends shall be cumulative or
non-cumulative, the relative rights of priority, if any, of payment of any
dividends, and the time at which, and the terms and conditions on which, any
dividends shall be paid;
(c) whether the shares of such series shall be redeemable or
purchasable and, if so, the terms and conditions of such redemption or
purchase, including the date or dates upon and after which such shares shall
be redeemable or purchasable, and the amount per share payable in case of
redemption or purchase, which amount may vary under different conditions and
at different redemption or purchase dates;
(d) the obligation, if any, of the Corporation to retire shares
of such series pursuant to a sinking fund and the terms and conditions of any
such sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other series, class or classes, now
or hereafter authorized, and, if so, the terms and conditions of such
conversion or exchange, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights,
in addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
(g) the rights of the holders of shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of such holders
with respect thereto; and
(h) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof relating to such series.
C. TERMS OF COMMON STOCK.
1. Voting Rights. Subject to the provisions of Article Four hereof
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or as otherwise provided by the GBCL, each holder of the Common Stock shall be
entitled to one vote per share of Common Stock held by such holder on all
matters to be voted on by the shareholders.
2. Dividend Rights. Subject to the express terms of any outstanding
----------------
series of Preferred Stock, dividends may be declared and paid upon the Common
Stock out of funds of the Corporation legally available therefor, in such
amounts and at such times as the Board of Directors may determine. Funds
otherwise legally available for the payment of dividends on the Common Stock
shall not be restricted or reduced by reason of there being any excess of the
aggregate preferential amount of any series of Preferred Stock outstanding
over the aggregate par value thereof.
ARTICLE FOUR- RESTRICTIONS ON VOTING STOCK,
CERTAIN BUSINESS COMBINATIONS
A. CERTAIN DEFINITIONS.
For purposes of this Article Four, the following words have the
meanings indicated:
1. "Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such Person. The term
"control" (including the terms "controlling," "controlled by" and "under
common control with") means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
2. "Associate" means, with respect to any Person, (i) any other Person
(other than the Corporation or a Subsidiary of which a majority of each class
of equity securities is owned by the Corporation) of which such Person is an
officer, director, trustee or partner or is directly or indirectly the
beneficial owner of ten percent (10%) or more of any class of equity
securities; (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar fiduciary capacity; (iii) any relative or spouse of such
Person, or any relative of such spouse, who has the same home as such Person
or who is a director or officer of the Corporation or any of its Affiliates or
Subsidiaries; or (iv) any investment company registered under the Investment
Company Act of 1940, as amended, for which such Person or any Affiliate of
such Person serves as investment adviser.
3. "Business Combination" means:
a) any merger or consolidation of the Corporation or any Subsidiary with
(i) any Substantial Shareholder or (ii) any other Person which, after such
merger or consolidation, would be a Substantial Shareholder, regardless of
which entity survives;
b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or in a series of transactions) to or with any
Substantial Shareholder, of any assets of the Corporation or any Subsidiary,
or both, that have an aggregate Fair Market Value of more than twenty percent
of the book value of the total assets of the Corporation as shown on its
consolidated balance sheet as of the end of the calendar quarter immediately
preceding any such transaction;
c) the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation proposed by or on behalf of a Substantial Shareholder;
d) the acquisition by the Corporation or any Subsidiary of any securities
of any Substantial Shareholder;
e) any transaction involving the Corporation or any Subsidiary, including
the issuance or transfer of any securities of, any reclassification of
securities of, or any recapitalization of, the Corporation or any Subsidiary,
or any merger or consolidation of the Corporation with any Subsidiary (whether
or not involving a Substantial Shareholder), if the transaction would have the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary of which shares a Substantial Shareholder is the
beneficial owner; or
f) any agreement, contract or other arrangement entered into by the
Corporation providing for any of the transactions described in this definition
of Business Combination.
4. "Continuing Director" shall mean any member of the Board of Directors
of the Corporation who is not an Affiliate or an Associate of a Substantial
Shareholder and who was a member of the Board of Directors prior to the time
that any Substantial Shareholder became a Substantial Shareholder, and any
successor of a Continuing Director if such successor is not an Affiliate or an
Associate of any Substantial Shareholder and is designated as a Continuing
Director by a majority of the then Continuing Directors.
5. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute thereto.
6. "Fair Market Value" shall mean:
a) in the case of stock, the highest closing sale price per share of a
share of such stock during the 30-day period immediately preceding the
approval of the Business Combination by the Board of Directors as reported by
any United States securities exchange registered under the Exchange Act on
which such shares are listed, or, if such shares are not listed on any
exchange, then the highest closing bid quotation for any of such shares, as
reported on the National Association of Securities Dealers, Inc. Automated
Quotations System or any such system then in use, or if no such closing sales
price or bid quotation is reported, the fair market value as determined on the
date in question by a majority of Continuing Directors; or
b) in the case of property or securities other than cash or stock, the
fair market value of said property or securities on the date in question as
determined by a majority of the Continuing Directors.
7. "Grandfathered Person" shall mean any of the members of the
Corporation's Board of Directors as of the date of filing these Articles of
Incorporation, who are David R. Banks, Jay W. Brown, M.Darrell Ingram, H.
Davis McCarty, Joe R. Micheletto, Martin K. Sneider and William P. Stiritz,
together with his immediate family and any other Grandfathered Person;
provided, however, that a Grandfathered Person shall cease to be a
Grandfathered Person at the time that (i) such person is no longer a member of
the Corporation's Board of Directors, and (ii) thereafter such Person becomes
the owner of any Common Stock of the Corporation, other than as a result of
(A) a dividend or distribution on the Common Stock, payable in Common Stock or
securities convertible into Common Stock, which such dividend or distribution
is payable to all holders of Common Stock, (B) a subdivison, combination,
recapitalization or reclassification of the Common Stock, or (C) an
acquisition of Common Stock as a result of exercise of rights issued under any
shareholder rights agreement (or any other similar agreement) of the
Corporation.
8. "Group", with respect to any Person, shall include:
a) such Person;
b) any Affiliates and Associates of such Person; and
c) those additional Persons that, together with such Person, jointly file,
or would be required to jointly file (notwithstanding whether such Persons
have ever actually filed), or would be mentioned as a holder of shares with
either sole or shared voting power and/or sole or shared dispositive power in
an individual filing of, a statement of beneficial ownership with respect to
securities of the Corporation pursuant to Section 13(d) of the Exchange Act or
any rules and regulations promulgated thereunder, as in effect from time to
time, or any similar successor provisions, irrespective of any disclaimers of
beneficial ownership.
9. A Person shall be deemed to "own" any shares of Voting Stock:
a) that such Person beneficially owns directly or indirectly, whether or
not of record; or
b) that such Person has the right to acquire pursuant to any agreement,
arrangement or understanding or upon exercise of conversion rights, exchange
rights, warrants or options or otherwise, whether or not conditional; or
c) that are beneficially owned, directly or indirectly (including shares
deemed to be owned through application of clause b) above), whether or not of
record, by an Affiliate or Associate of such Person; or
d) that are beneficially owned, directly or indirectly, whether or not of
record, by any other Person (including any shares which such other Person has
the right to acquire pursuant to any agreement, arrangement or understanding
or upon exercise of conversion rights, warrants or options or otherwise,
whether or not conditional) with whom such Person has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of Voting Stock; provided, however, that (A) directors, officers and
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employees of the Corporation shall not be deemed to have any such agreement,
arrangement or understanding solely on the basis of their status, or actions
taken in their capacities, as directors, officers or employees of the
Corporation or any Affiliates of the Corporation, and (B) a Person shall not
be deemed the owner of or to own any shares of Voting Stock solely because (x)
such shares of Voting Stock have been tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered shares of Voting Stock are accepted for payment
or exchange or (y) such Person or any of such Person's Affiliates or
Associates has or shares the power to vote or direct the voting of such shares
of Voting Stock pursuant to a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in accordance with,
applicable rules and regulations under the Exchange Act, except if such power
(or arrangements relating thereto) is then reportable under Item 6 of Schedule
13D under the Exchange Act (or any similar provision of a comparable or
successor report).
The outstanding shares of capital stock of the Corporation shall include those
shares deemed owned through the application of clauses b) and c) above, but
shall not include any other shares that may be issuable pursuant to any
agreement, arrangement or understanding or upon exercise of conversion rights,
warrants, options or otherwise, whether or not conditional.
For all purposes hereof "beneficial" ownership, with respect to any
securities, shall include, without limitation, (i) the power to vote, or
direct the voting of, such securities or (ii) the power to exercise investment
discretion over such securities, including the power to dispose, or to direct
the disposition, of such securities. Furthermore, a Person shall be deemed to
own "beneficially" any securities that such Person owns beneficially for
purposes of Sections 13(d) of the Exchange Act or any rules and regulations
promulgated thereunder, as in effect from time to time (or any similar
successor provisions of law).
"Person" means any individual, corporation, association, partnership,
joint venture, trust, organization, business, government or any government
agency or political subdivision thereof or any other entity.
11. "Subsidiary" means any Person of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of Section D of this Article Four,
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the term "Subsidiary" shall mean only a Person of which a majority of each
class of equity security is owned, directly or indirectly, by the Corporation.
12. "Substantial Shareholder" shall mean and include any Person which,
together with its Affiliates and Associates, is the Beneficial Owner of shares
of Voting Stock in the aggregate of twenty percent (20%) or more of the
outstanding Voting Stock. Notwithstanding the foregoing, the term
"Substantial Shareholder" shall not include a Grandfathered Person.
Notwithstanding anything to the contrary in this Article Four, any Common
Stock owned by a Grandfathered Person shall not be taken into account when
computing the amount of Common Stock beneficially owned by an Affiliate or
Associate of a Grandfathered Person, provided that such Affiliate or Associate
(i) does not constitute a member of a group (as defined for purposes of
Section 13(d) of the Exchange Act) including such Grandfathered Person, or
(ii) is not otherwise acting in concert with such Grandfathered Person, each
with respect to the Corporation.
13. "Voting Stock" means all outstanding shares of capital stock of the
Corporation entitled to vote in the election of Directors; and each reference
to a portion of shares of Voting Stock shall refer to such proportion of the
votes entitled to be cast by such shares.
B. RIGHT OF INQUIRY OF THE CORPORATION.
The Corporation shall have the right but not the obligation to
inquire of any Person whom the Corporation believes may be a Substantial
Shareholder or any other Person who purports to exercise similar voting rights
with respect to any Voting Stock, and each such Person shall have the
obligation to provide such information to the Corporation as the Corporation
may reasonably request, with respect to any matters pertinent to the operation
or implementation of this Article Four, including, without limitation, (i) the
number of shares owned by such Person, (ii) whether shares owned of record by
such Person are owned by other Persons and the identity of such other Persons
and the nature of their ownership interest, (iii) whether any Affiliates or
Associates of such Person own any Voting Stock, (iv) whether such Person is a
member of a Group of Persons owning Voting Stock, or (v) whether such Person
or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding with any other Person with respect to any Voting
Stock. Any determinations made by the Board of Directors pursuant to this
Article Four in good faith, and on the basis of such information as was
actually known by the Board of Directors and such advice as was then actually
provided to the Board of Directors for such purpose, shall be conclusive and
binding upon the Corporation and its shareholders.
C. ADDITIONAL SHAREHOLDER VOTE REQUIRED FOR CERTAIN BUSINESS
COMBINATIONS.
The approval of any Business Combination shall, in addition to any
affirmative vote required by the GBCL or otherwise, require the affirmative
vote of the holders of not less than two-thirds of the aggregate voting power
of the outstanding shares of the Voting Stock entitled to vote at a meeting of
shareholders called for such purpose and of a majority of the voting power of
all such shares of which a Substantial Shareholder is not a Beneficial Owner;
provided, however, that any such Business Combination may be approved upon any
affirmative vote required by the GBCL if:
(a) there are one or more Continuing Directors, and the Business
Combination shall have been approved by a majority of them; or
(b) the cash, or Fair Market Value of the property, securities or other
consideration to be received per share by the shareholders of each class of
stock of this Corporation in the Business Combination is not less than the
higher of:
(i) the highest per share price paid by the Substantial Shareholder for
the acquisition of any shares of such class, with appropriate adjustments for
stock splits, stock dividends and like distributions, or
(ii) the Fair Market Value of such shares, on the date the Business
Combination is approved by the Board of Directors.
D. PERSONS TO WHOM THIS ARTICLE DOES NOT APPLY.
The provisions of Section C of this Article Four shall not apply to
(i) any savings, profit-sharing, stock bonus or employee stock ownership plan
or plans established by the Corporation or a Subsidiary and qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended, or any
successor provision, which holds shares of Voting Stock on behalf of
participating employees and their beneficiaries with the right to instruct the
trustee how to vote such shares of Voting Stock with respect to all matters
submitted to shareholders for voting or (ii) participating employees and
beneficiaries under the plans referred to in the immediately preceding clause
(i) because of their participation in such savings, profit-sharing, stock
bonus or employee ownership plans.
E. AMENDMENT.
In addition to such other vote or consent as shall then be required
by the GBCL, and by Article Eleven hereof, this Article shall be amended or
repealed only upon the affirmative vote of not less than two-thirds (2/3) of
the voting power of all shares of Voting Stock not owned by a Substantial
Shareholder; provided however, that this Article may be amended or repealed
upon any affirmative vote otherwise required by the GBCL, (i) if there is not
a Substantial Shareholder, such amendment has been approved by a majority of
the Board of Directors, or (ii) if there is a Substantial Shareholder, such
amendment has been approved by a majority of the Continuing Directors.
ARTICLE FIVE - INCORPORATOR
The name and place of residence of each incorporator is as follows:
Janet M. Andis
1336 Wolf Road
Freeburg, Illinois 62243
ARTICLE SIX - DIRECTORS
A. NUMBER AND CLASSIFICATION
The current number of Directors to constitute the Board of Directors
of the Corporation is seven (7). Hereafter, the number of Directors shall be
fixed by or in the manner provided in the Bylaws of the Corporation. Any
changes in the number of Directors shall be reported to the Missouri Secretary
of State within thirty (30) calendar days of such change. The Directors shall
be divided into three classes, as nearly equal in number as reasonably
possible, with the mode of such classification to be provided for in the
Bylaws of the Corporation. Directors other than Directors constituting the
initial Board of Directors shall be elected to hold office for a term of three
(3) years, with the term of office of one class expiring each year.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of stock of the Corporation, other than shares of Common Stock,
shall have the right, voting separately by class or series, to elect
Directors, then the election, term of office, filling of vacancies and other
features of such directorship shall be governed by the terms of the Articles
of Incorporation of the Corporation or any certificate of designation
thereunder applicable thereto; and such directors so elected shall not be
divided into classes pursuant to this Article Six unless expressly provided by
such terms. As used in these Articles of Incorporation, the term "entire
Board of Directors" or the "entire Board" means the total number fixed by, or
in accordance with, these Articles of Incorporation and the Bylaws of the
Corporation.
B. REMOVAL OF DIRECTORS.
Subject to, and in addition to, the rights, if any, of the holders
of any class of capital stock of the Corporation (other than the Common Stock)
then outstanding or any limitation imposed by law, (1) any Director, or the
entire Board of Directors, may be removed from office at any time prior to the
expiration of his, her or their term of 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 the Corporation then entitled to vote generally in the election of
Directors, voting together as a single class at a special meeting of
shareholders called expressly for that purpose (such vote being in addition to
any required class or other vote); and (2) any Director may be removed from
office by the affirmative vote of a majority of the entire Board of Directors
at any time prior to the expiration of his or her term of office, 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 the Corporation relating
to the Director's service as a Director or employee of the Corporation.
C. VACANCIES.
Subject to the rights, if any, of the holders of any class of
capital stock of the Corporation (other than the Common Stock) then
outstanding, any vacancies in the Board of Directors which occur for any
reason prior to the expiration of the respective term of office of the class
in which the vacancy occurs, including vacancies which occur by reason of an
increase in the number of Directors or the removal of a Director, shall be
filled only by the Board of Directors, acting by the affirmative vote of a
majority of the remaining Directors then in office (although less than a
quorum). Any replacement Director so elected shall hold office only for so
long as the respective term of office of the class in which the vacancy occurs
has not expired, unless removed prior to the expiration of such term, pursuant
to Section B hereof.
<PAGE>
ARTICLE SEVEN - DURATION
The duration of the Corporation is perpetual.
ARTICLE EIGHT - PURPOSES
The Corporation is formed to engage in the manufacture,
distribution, marketing and sale of animal nutrition and health services and
products, processing and marketing of products therefrom, the services and
products related thereto, and to engage in any lawful act or activity for
which the corporation now or hereafter may be organized under the laws of the
State of Missouri.
ARTICLE NINE- BYLAWS
Only a majority of the entire Board of Directors may make, amend,
alter, change or repeal any provision or provisions of the Bylaws of the
Corporation; provided, however, that in no event shall the Bylaws be
inconsistent with law or, in substance to a material degree, with any of the
terms, conditions or provisions of these Articles of Incorporation.
ARTICLE TEN - INDEMNIFICATION
A. ACTIONS INVOLVING DIRECTORS, OFFICERS AND EMPLOYEES.
The Corporation shall indemnify each person (other than a party
plaintiff suing on his or her own behalf or in the right of the Corporation)
who at any time is serving or has served as a Director, officer or employee of
the Corporation against any claim, liability or expense incurred as a result
of such service, or as a result of any other service on behalf of the
Corporation, or service at the request of the Corporation (which request need
not be in writing) as a director, officer, employee, member, or agent of
another corporation, partnership, joint venture, trust, trade or industry
association, or other enterprise (whether incorporated or unincorporated,
for-profit or not-for-profit), to the maximum extent permitted by law.
Without limiting the generality of the foregoing, the Corporation shall
indemnify any such person (other than a party plaintiff suing on his or her
behalf or in the right of the Corporation), who was or is a party or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, but not limited to, an action by or in the right of the
Corporation) by reason of such service against expenses (including, without
limitation, costs of investigation and attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding.
<PAGE>
B. ACTIONS INVOLVING AGENTS.
1. Permissive Indemnification. The Corporation may, if it deems
appropriate and as may be permitted by this Article Ten, indemnify any person
(other than a party plaintiff suing on his or her own behalf or in the right
of the Corporation) who at any time is serving or has served as an agent of
the Corporation against any claim, liability or expense incurred as a result
of such service, or as a result of any other service on behalf of the
Corporation, or service at the request of the Corporation as a director,
officer, employee, member or agent of another corporation, partnership, joint
venture, trust, trade or industry association, or other enterprise (whether
incorporated or unincorporated, for-profit or not-for-profit), to the maximum
extent permitted by law or to such lesser extent as the Corporation, in its
discretion, may deem appropriate. Without limiting the generality of the
foregoing, the Corporation may indemnify any such person (other than a party
plaintiff suing on his or her own behalf or in the right of the Corporation),
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, but not limited to, an action by
or in the right of the Corporation) by reason of such service, against
expenses (including, without limitation, costs of investigation and attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding.
2. Mandatory Indemnification. To the extent that an agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section B.1 of this Article Ten, or
in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the action, suit or
proceeding.
C. DETERMINATION OF RIGHT TO INDEMNIFICATION IN CERTAIN
CIRCUMSTANCES.
Any indemnification required under Section A of this Article Ten or
authorized by the Corporation in a specific case pursuant to Section B of this
Article Ten (unless ordered by a court) shall be made by the Corporation
unless a determination is made reasonably and promptly that indemnification of
the Director, officer, employee or agent is not proper under the circumstances
because he or she has not met the applicable standard of conduct set forth in
or established pursuant to this Article Ten. Such determination shall be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
Directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or even if obtainable a quorum of
disinterested Directors so directs, (3) by independent legal counsel in a
written opinion, or (4) by majority vote of the shareholders; provided that no
such determination shall preclude an action brought in an appropriate court to
challenge such determination, and further provided that there shall be no
presumption that the Corporation is released from any obligation under
Sections A or B of this Article Ten, unless a written instrument, subscribed
by an appropriate officer of the Corporation expressly so provides by making
reference to this Subsection C of this Article Ten.
<PAGE>
D. ADVANCE PAYMENT OF EXPENSES.
Expenses incurred by a person who is or was a Director, officer or
employee of the Corporation in defending a pending or threatened civil or
criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of an action, suit or proceeding, and
expenses incurred by a person who is or was an agent of the Corporation in
defending a pending or threatened civil or criminal action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors, in either
case upon receipt of an undertaking by or on behalf of the Director, officer,
employee or agent to repay such amount, without interest, if it shall
ultimately be finally determined that he or she is not entitled to be
indemnified by the Corporation as authorized in or pursuant to this Article
Ten.
E. ARTICLE TEN PROVISIONS NOT EXCLUSIVE RIGHT.
The indemnification provided by this Article Ten shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled, whether under the Bylaws of the Corporation or any statute,
agreement, vote of shareholders or disinterested Directors or otherwise, both
as to action in an official capacity and as to action in another capacity
while holding such office.
F. INDEMNIFICATION AGREEMENTS AUTHORIZED.
Without limiting the other provisions of this Article Ten, the
Corporation is authorized from time to time, without further action by the
shareholders of the Corporation, to enter into agreements with any Director,
officer, employee or agent of the Corporation providing such rights of
indemnification as the Corporation may deem appropriate, up to the maximum
extent permitted by law. Any agreement entered into by the Corporation with a
Director may be authorized by the other Directors, and such authorization
shall not be invalid on the basis that different or similar agreements may
have been or may thereafter be entered into with other Directors.
G. STANDARD OF CONDUCT.
Except as may otherwise be permitted by law, no person shall be
indemnified pursuant to this Article Ten (including without limitation
pursuant to any agreement entered into pursuant to Section F of this Article
Ten) from or on account of such person's conduct which is finally adjudged to
have been knowingly fraudulent, deliberately dishonest or willful misconduct.
The Corporation may (but need not) adopt a more restrictive standard of
conduct with respect to the indemnification of any agent of the Corporation.
H. INSURANCE.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of the
Corporation, or who is or was otherwise serving on behalf or at the request of
the Corporation in any capacity against any claim, liability or expense
asserted against him or her and incurred by him or her in any such capacity,
or arising out of his or her status as such, whether or not the Corporation
would have the power to indemnify him or her against such liability under the
provisions of this Article Ten.
I. CERTAIN DEFINITIONS.
For the purposes of this Article Ten:
1. Service in Representative Capacity. Any Director, officer or
employee of the Corporation who shall serve as a director, officer or employee
of any other corporation, partnership, joint venture, trust or other
enterprise of which the Corporation, directly or indirectly, is or was the
owner of 20% or more of either the outstanding equity interests or the
outstanding voting stock (or comparable interests), shall be deemed to be so
serving at the request of the Corporation, unless the Board of Directors of
the Corporation shall determine otherwise. In all other instances where any
person shall serve as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise of which
the Corporation is or was a stockholder or creditor, or in which it is or was
otherwise interested, if it is not otherwise established that such person is
or was serving as a director, officer, employee or agent at the request of the
Corporation, the Board of Directors of the Corporation may determine whether
such service is or was at the request of the Corporation, and it shall not be
necessary to show any actual or prior request for such service.
2. Predecessor Corporations. References to a corporation include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a
director, officer, employee or agent of a constituent corporation or is or was
serving at the request of a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under the provisions of this
Article Ten with respect to the resulting or surviving corporation as he or
she would if he or she had served the resulting or surviving corporation in
the same capacity.
3. Service for Employee Benefit Plan. The term "other enterprise"
shall include, without limitation, employee benefit plans and voting or taking
action with respect to stock or other assets therein; the term "serving at the
request of the Corporation" shall include, without limitation, any service as
a director, officer, employee or agent of a corporation which imposes duties
on, or involves services by, a director, officer, employee or agent with
respect to any employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he or she reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have satisfied any standard of care required
by or pursuant to this Article Ten in connection with such plan; the term
"fines" shall include, without limitation, any excise taxes assessed on a
person with respect to an employee benefit plan and shall also include any
damages (including treble damages) and any other civil penalties.
J. SURVIVAL.
Each person who was or is a Director, officer or employee of the
Corporation is a third party beneficiary to this Article Ten and shall be
entitled to enforce against the Corporation all indemnification rights
provided or contemplated by this Article Ten. Such indemnification rights
shall continue as to a person who has ceased to be a Director, officer or
employee, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
This Article Ten may be hereafter amended or repealed; provided
however, no such amendment or repeal shall reduce, terminate or otherwise
adversely affect the right of any person who was or is a Director, officer or
employee to obtain indemnification or an advance of expenses with respect to a
proceeding that pertains to or arises out of actions or omissions that
occurred prior to the Deadline Indemnification Date. For purposes of this
Section J of this Article Ten, the term "Deadline Indemnification Date" shall
mean the later of: (a) the effective date of any amendment or repeal of this
Article Ten which reduces, terminates or otherwise adversely affects the
rights hereunder of any person who was or is a Director, officer or employee;
(b) the expiration of such person's then current term of office with, or
service for, the Corporation (provided such person has a stated term of office
or service and completes such term); or (c) the effective date such person
resigns his office or terminates his service (provided such person has a
stated term of officer or service but resigns prior to the expiration of such
term).
K. LIABILITY OF THE DIRECTORS, OFFICERS AND EMPLOYEES.
It is the intention of the Corporation to limit the personal
liability of the Directors, officers and employees of the Corporation, in
their capacity as such, whether to the Corporation, its shareholders or
otherwise, to the fullest extent permitted by law. Consequently, should the
GBCL or any other applicable law be amended or adopted hereafter so as to
permit the elimination or limitation of such liability, the liability of the
Directors and/or officers and/or employees of the Corporation shall be so
eliminated or limited without the need for amendment of these Articles or for
further action on the part of the shareholders of the Corporation.
ARTICLE ELEVEN- AMENDMENT OF THE
ARTICLES OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation in the manner now
or hereafter prescribed by law, and all rights and powers conferred herein on
the shareholders, Directors, officers, employees or agents of the Corporation
are subject to this reserved power; provided, that (in addition to any
required class or other vote, including, without limitation, the vote required
by Article Four, Section E hereof) the affirmative vote of the holders of
record of outstanding shares representing not less than two-thirds of all of
the outstanding shares of capital stock of the Corporation then entitled to
vote generally in the election of Directors, voting together as a single
class, shall be required to amend, alter, change or repeal, or adopt any
provision or provisions inconsistent with, Articles Four, Six, Nine, Ten, or
this Article Eleven of these Articles of Incorporation, notwithstanding the
fact that a lesser percentage may be specified by the laws of Missouri.
SUBSIDIARIES OF AGRIBRANDS INTERNATIONAL, INC.
----------------------------------------------
Agribrands International Holding Company, Inc. (Delaware)
Ralston International Service Corporation (Delaware)
Industrias Purina Ltd. (Grand Cayman Islands)
Purina Besin Maddeleri Sanayi Ve Ticaret A.S. (Turkey)
Industrias Purina, S.A. de C.V. (Mexico)
Purina, S.A. de C.V. (Mexico)
Alimentos Nutritivos, S.A. de C.V. (Mexico)
Proveedora de Alimentos Ave-Pecuarios S.A. de C.V. (Mexico)
Ralston de Mexico S.A. de C.V. (Mexico)
Purina Nanjing Feed Mill Company Ltd. (China)
Purina (Fushun) Feedmill Co., Ltd. (China)
Agribrands Purina (Langfang) Feedmill Co., Ltd. (China)
Purina Yantai Feedmill Company Limited (China)
Purina Korea, Inc.
Purina Philippines, Inc.
Puriphil Realty Development (Philippines)
Ralston Purina France
Sarl Ferard Freres (France)
Sa Sofidelf France
Establissements Leandre Ferard et Fils S.A. (France)
Cofanimo Sarl France
Sorelap SA (France)
Purina SUD EST (France)
Purina Hungaria Animal Feed and Trading Company Limited (Hungary)
Purina Italia S.p.A. (Italy)
Ralston Purina Trading Italia S.r.l. (Italy)
Purina Portugal-Alimentacao de Sanidade Animal Lda.
Purina Espana, S.A. (Spain)
Agribrands Purina Brazil Ltda. (to be formed)
Purina Colombiana S.A.
Purina de Guatemala, S.A.
Auto-Cafes Purina, S.A. (Guatemala)
Purina Peru S.A.
Purina de Venezuela, C.A.
Granjas Geneticas Porcinas de Venezuela, C.A.
Nutrimentos Lomgimar, C.A. (Venezuela)
Latin American Agribusiness Development Corporation (Panama)
Agribrands Purina Canada Inc. (to be formed)
10
MANAGEMENT CONTINUITY AGREEMENT
AGREEMENT between Agribrands International, Inc., a Missouri corporation
("Agribrands"), and (the
"Executive"), WITNESSETH:
WHEREAS, the Board of Directors (the "Board") has authorized Agribrands
to enter into Management Continuity Agreements with certain key executives of
Agribrands; and
WHEREAS, the Executive is a key executive of Agribrands and has been selected
by the Board to be offered this Management Continuity Agreement; and
WHEREAS, should a third person take steps which might lead to a Change in
Control of Agribrands (as defined herein), the Board believes it imperative
that Agribrands be able to rely upon the Executive to continue in the
Executive's position, and that Agribrands be able to receive and rely upon the
Executive's advice, if it is requested, as to the best interests of Agribrands
and its shareholders without concern that the Executive might be distracted by
the personal uncertainties and risks created by such a Change in Control or
influenced by conflicting interests;
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, Agribrands and the Executive agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings set forth below:
a. "Base Amount" shall be the Executive's Base Amount as defined and
determined pursuant to Section 280G of the Code and regulations applicable at
the time of the Executive's Qualifying Termination.
b. "Base Compensation" shall consist of:
(i) The Executive's monthly gross salary for the last full month preceding
the Executive's Qualifying Termination or for the last full month preceding
the Change in Control, whichever is higher. If Executive has elected to
accelerate or defer salary (including the Executive's pre-tax contributions
under the [Agribrands International, Inc. Savings Investment Plan] Agribrands
International, Inc. Deferred Compensation Plan and under any benefit plan
complying with Section 125 of the Code, and any successor plans thereto), said
monthly gross salary shall be calculated as if there had been no acceleration
or deferral.
(ii) One-twelfth of the Executive's last annual bonus, whether paid or
deferred, preceding the Executive's Qualifying Termination or the Change in
Control, whichever is higher (or if the Executive has not been awarded an
annual bonus by Agribrands prior to the Change in Control, then the
Executive's last annual bonus awarded by Ralston Purina Company, Agribrands'
former parent company).
c. "Change in Control" means (i) the acquisition by any person, entity or
"group" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
the aggregate voting power of the then outstanding shares of Stock, other than
acquisitions by Agribrands or any of its subsidiaries or any employee benefit
plan of Agribrands (or any Trust created to hold or invest in issues thereof)
or any entity holding Stock for or pursuant to the terms of any such plan; or
(ii) individuals who shall qualify as Continuing Directors shall have ceased
for any reason to constitute at least a majority of the Board of Directors of
Agribrands. Notwithstanding the foregoing, a Change-in-Control shall not
include a transaction (commonly known as a "Morris Trust" transaction)
pursuant to which a third party acquires one or more businesses of the Company
by acquiring all of the common stock of the Company while leaving the
Company's remaining businesses in a separate public company, unless the
businesses so acquired constitute all or substantially all of the Company's
businesses.
d. "Code" shall mean the Internal Revenue Code of 1986, as amended.
e. "Company" shall mean Agribrands International, Inc. and its wholly
owned subsidiaries.
f. "Continuing Director" means any member of the Board of Directors of
Agribrands, as of April 1, 1998 while such person is a member of the Board,
and any other director, while such other director is a member of the Board,
who is recommended or elected to succeed the Continuing Director by at least
two-thirds (2/3) of the Continuing Directors then in office.
g. "Disability" shall exist when the Executive suffers a complete and
permanent inability to perform any and every material duty of the Executive's
regular occupation because of injury or sickness.
To determine whether the Executive is Disabled, the Executive shall undergo
examination by a licensed physician and other experts (including other
physicians) as determined by such physician, and the Executive shall cooperate
in providing relevant medical records as requested. The Company and Executive
shall jointly select such physician. If they are unable to agree on the
selection, each shall designate one physician and the two physicians shall
designate a third physician so that a determination of disability may be made
by the three physicians. Fees and expenses of the physicians and other
experts and costs of examinations of the Executive shall be shared equally by
the Company and the Executive. The decision as to the Executive's Disability
made by such physician or physicians shall be binding on the Company and the
Executive.
h. "Discount Rate" means 120% of the applicable Federal rate determined
under Section 1274(d) of the Code and the regulations thereunder at the time
the relevant payments are made.
i. "Employment Agreement" shall mean an agreement so styled providing for
continuation of salary and bonus payments under certain circumstances and
entered into between Agribrands and Executive prior to a Change in Control.
j. "Employment Agreement Termination Payments" shall mean the aggregate of
any payments made to Executive pursuant to the Employment Agreement respecting
periods following Executive's termination of employment contemporaneous with
or subsequent to a Change-in-Control.
k. "Involuntary Termination" shall be any termination of the Executive's
employment with the Company (a) to which the Executive objects orally or in
writing or (b) which follows any of the following:
(i) without the express written consent of the Executive, (a) the
assignment of the Executive to any duties materially inconsistent with the
Executive's positions, duties, responsibilities and status immediately prior
to the Change in Control or (b) a material change in the Executive's titles,
offices, or reporting responsibilities as in effect immediately prior to the
Change in Control and with respect to either (a) or (b) the situation is not
remedied within thirty (30) days after the receipt by the Company of written
notice by the Executive; provided, however, (a) and (b) herein shall not
constitute an "Involuntary Termination" if either situation is in connection
with the Executive's death or disability.
(ii) without the express written consent of the Executive, a reduction in
the Executive's annual salary or opportunity for total annual compensation in
effect immediately prior to the Change in Control which is not remedied within
thirty (30) days after receipt by the Company of written notice by the
Executive.
(iii) without the express written consent of the Executive, the Executive
is required to be based anywhere other than the Executive's office location
immediately preceding the Change in Control, except for required travel on
business to an extent substantially consistent with the business travel
obligations of the Executive immediately preceding the occurrence of the
Change in Control.
(iv) without the express written consent of the Executive, following the
Change in Control (a) failure by the Company to continue in effect any
material benefit or compensation plan, stock ownership plan, stock purchase
plan, stock option plan, life insurance plan, health and accident plan, or
disability plan in which the Executive is participating or entitled to
participate at the time of the Change in Control (or plans providing
substantially similar benefits); or (b) the taking of any action by the
Company that would (1) adversely affect the participation in or materially
reduce the benefits under any of such plans either in terms of the amount of
benefits provided or the level of the Executive's participation relative to
other participants; (2) deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control; or (3) cause a
failure to provide the number of paid vacation days to which the Executive was
then entitled in accordance with Agribrands' normal vacation policy in effect
immediately prior to the Change in Control, which in either situation (a) or
(b) is not remedied within thirty (30) days after receipt by the Company of
written notice by the Executive.
(v) the liquidation, dissolution, consolidation, or merger of the Company
or transfer of all or substantially all of its assets, unless a successor or
successors (by merger, consolidation, or otherwise) to which all or a
significant portion of its assets have been transferred expressly assumes in
writing all duties and obligations of the Company as here set forth.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to any circumstances set forth above.
l. "Normal Retirement Date" shall be the date on which the Executive
attains age 65.
m. "Parachute Payment" shall mean a parachute payment as defined and
determined pursuant to Section 280G of the Code and regulations applicable at
the time of the Executive's Qualifying Termination.
n. The "Payment Period" shall be the following period commencing with the
first day of the month following that in which a Qualifying Termination
occurs:
(i) if the Qualifying Termination is an Involuntary Termination that
occurs at any time during the ______________year following the Change in
Control -- _____ months;
(ii) if the Qualifying Termination is an Involuntary Termination that
occurs at any time during the ________ year following the Change in Control
- --______ months; or
(iii) if the Qualifying Termination is a Voluntary Termination that occurs
at any time during the ___________ years following the Change in Control --
______months,
but in no event shall the Payment Period extend beyond the Executive's Normal
Retirement Date.
o. "Qualifying Termination" shall be the Executive's Voluntary Termination
or Involuntary Termination of employment with the Company except any
termination because of the Executive's death, retirement at or after the
Executive's Normal Retirement Date or Termination for Cause. "Qualifying
Termination" shall not include any change in the Executive's employment status
due to Disability.
p. "Stock" means the common stock of Agribrands or such other security
entitling the holder to vote at the election of Agribrands' directors or any
other security outstanding upon its reclassification, including, without
limitation, any stock split-up, stock dividend or other recapitalization of
Agribrands or any merger or consolidation of Agribrands with any of its
Affiliates.
q. "Termination for Cause" shall be a termination because of:
(i) the continued failure by the Executive to devote reasonable time and
effort to the performance of the Executive's duties (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness) after written demand therefor has been delivered to the Executive by
the Company that specifically identifies how the Executive has not devoted
reasonable time and effort to the performance of the Executive's duties; or
(ii) the willful engaging by the Executive in misconduct which is
materially injurious to the Company, monetarily or otherwise; or
(iii) the Executive's conviction of a felony or a crime involving moral
turpitude;
in any case as determined by the Board upon the good faith vote of not less
than a majority of the directors then in office, after reasonable notice to
the Executive specifying in writing the basis or bases for the proposed
Termination for Cause and after the Executive has been provided an opportunity
to be heard before a meeting of the Board held upon reasonable notice to all
directors; provided, however, that a Termination for Cause shall not include a
termination attributable to:
(i) bad judgment or negligence on the part of the Executive other than
habitual negligence; or
(ii) an act or omission believed by the Executive in good faith to have
been in or not opposed to the best interests of the Company and reasonably
believed by the Executive to be lawful; or
(iii) the good faith conduct of the Executive in connection with a Change
in Control (including the Executive's opposition to or support thereof).
r. "Voluntary Termination" shall be any termination of the Executive's
employment with the Company other than an Involuntary Termination or a
Termination for Cause.
2. Operation of Agreement. This Agreement shall not create any
-----------------------
obligation on the part of the Company or the Executive to continue their
employment relationship. Anything in this Agreement to the contrary
notwithstanding, no payments shall be made hereunder unless and until there
has been a Change in Control of the Company. This Agreement is not exclusive
with regard to benefits to be provided to the Executive on the Executive's
termination of employment with the Company and shall not affect any other
agreement or arrangement providing for such benefits.
3. Severance Benefits. Provided that the Executive remains in the
------------------
employ of the Company until a Change in Control has occurred, then upon the
Executive's Qualifying Termination within three years after that Change in
Control, the Executive shall be entitled to the following "Severance
Benefits":
a. Payment in a lump sum in cash, within 60 days after the Executive's
Qualifying Termination, of the present value as of the date of the Qualifying
Termination of an income stream equal to the Executive's Base Compensation
payable each month throughout the applicable Payment Period. For purposes of
this subparagraph, present value shall be calculated by application of the
Discount Rate;
b. Continuation during the Payment Period of the Executive's participation
in each savings, life, health, accident and disability plan in which the
Executive was entitled to participate immediately prior to the Change in
Control, upon the same terms and conditions, including those with respect to
spouses and dependents, applicable at such time; provided, however, that if
the terms of any such benefit plan do not permit continued participation by
the Executive, then the Company will arrange, at the Company's sole cost and
expense, to provide the Executive a benefit substantially similar to, and no
less favorable than, on an after-tax basis, the benefit the Executive was
entitled to receive under such plan immediately prior to the Change in
Control; provided further, however, that the benefit to be provided or
payments to be made hereunder may be reduced by the benefits provided or
payments made (in either case on an after-tax basis) by subsequent employer
for the same occurrence or event;
c. Payment, on a current basis, of any actual costs and expenses of
litigation incurred by the Executive, including costs of investigation and
reasonable attorney's fees, in the event the Executive is a party to any legal
action to enforce or to recover damages for breach of this Agreement, or to
recover or recoup from the Executive or the Executive's legal representative
or beneficiary any amounts paid under or pursuant to this Agreement,
regardless of the outcome of such litigation, plus interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.
Notwithstanding anything to the contrary contained in this Agreement, the
Executive may, but is not required to, elect to reduce the Severance Benefits
to be provided under this paragraph three of this Agreement so that the
present value of such Severance Benefits, calculated by application of the
Discount Rate, if they constitute Parachute Payments, together with the
present value of all Parachute Payments made by Company to the Executive, are
less than three times the Employee's Base Amount. Whether or not such
Severance Payments shall be reduced and the identity of the Severance Benefits
to be reduced and the amount by which each benefit shall be reduced shall be
within the sole discretion of the Executive. Any such election, if made,
shall be made by the Executive's written notice to Company sent by regular
U.S. mail, postage paid, not later than 45 days following such Executive's
Qualifying Termination.
Notwithstanding anything to the contrary contained herein payments
hereunder will be reduced by the amount of any Employment Agreement
Termination Payments.
The Executive may file with the Secretary or any Assistant Secretary of
Agribrands a written designation of a beneficiary or contingent beneficiaries
to receive the payments described in subparagraph (a) and (b) above in the
event of the Executive's death following the Executive's Qualifying
Termination but prior to payment by the Company. The Executive may from time
to time revoke or change any such designation of beneficiary and any
designation of beneficiary pursuant to this Agreement shall be controlling
over any other disposition, testamentary or otherwise; provided, however, that
if the Company shall be in doubt as to the right of any such beneficiary to
receive such payments, it may determine to pay such amounts to the legal
representative of the Executive, in which case the Company shall not be under
any further liability to anyone. In the event that such designated
beneficiary or legal representative becomes a party to a legal action to
enforce or to recover damages for breach of this Agreement, or to recover or
recoup from the Executive or the Executive's estate, legal representative or
beneficiary any amounts paid under or pursuant to this Agreement, regardless
of the outcome of such litigation, the Company shall pay their actual costs
and expenses of such litigation, including costs of investigation and
reasonable attorneys' fees, plus interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that the
Company shall not be required to pay such costs and expenses in connection
with litigation to determine the proper payee, among two or more claimants, of
the payments described in subparagraph (a) and (b).
4. Successors to Company: Binding Effect: Assignment. This Agreement
-------------------------------------------------
shall inure to the benefit of and be binding upon the Company and its
successors. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise. The Company may not assign this Agreement
other than to a successor to all or substantially all of the business and/or
assets of the Company. The Executive shall have no right to transfer or
assign the right to receive any severance benefit under this Agreement except
as noted in paragraph three above.
5. Missouri Law to Govern. This Agreement shall be governed by the
----------------------
laws of the State of Missouri without giving effect to the conflict of laws
provisions thereof:
6. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by the Executive and a duly authorized officer of the
Company. No waiver by a party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
7. Taxes; Set-off. All payments to be made to the Executive
--------------
under this Agreement will be subject to required withholding of federal, state
and local income and employment taxes. The right of the Executive to receive
benefits under this Agreement however, shall be absolute and shall not be
subject to any set-off, counter-claim, recoupment, defense, duty to mitigate
or other right the Company may have against the Executive's or anyone else.
8. Severability. The invalidity and unenforceability of any
------------
particular provision of this Agreement shall not affect any other provision of
this Agreement, and the Agreement shall be construed in all respects as if the
invalid or unenforceable provision were omitted.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement this ___
day of April, 1998.
AGRIBRANDS INTERNATIONAL, INC.
___________________________________ By:_________________________________
Executive W. P. Stiritz
Chief Executive Officer
and President
256148.5 ii
RIGHTS AGREEMENT
__________________
AGRIBRANDS INTERNATIONAL, INC.
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Rights Agent
___________________
Dated as of March 31, 1998
<PAGE>
------
i
<TABLE>
<CAPTION>
INDEX
-----
Page
----
<S> <C>
Section 1 - Certain Definitions 1
Section 2 - Appointment of Rights Agent 5
Section 3 - Issue of Rights Certificates 5
Section 4 - Form of Right Certificates 7
Section 5 - Countersignature and Registration 8
Section 6 - Transfer, Split Up, Combination and Exchange
of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates 8
Section 7 - Exercise of Rights; Purchase Price; Expiration
Date of Rights 9
Section 8 - Cancellation and Destruction of Right Certificates
10
Section 9 - Availability of Common Shares
10
Section 10 - Record Holders of Common Shares Issued Upon Exercise of Rights
11
Section 11 - Adjustment of Purchase Price, Number and Kind of Common Shares or
Number of Rights
11
Section 12 - Certificate of Adjustment
16
Section 13 - Consolidation, Merger or Sale or Transfer of Assets or Earning
Power 16
Section 14 - Fractional Rights and Fractional Shares
19
Section 15 - Rights of Action
20
Section 16 - Agreement of Right Holders
20
Section 17 - Right Certificate Holder Not Deemed a Stockholder
20
Section 18 - Concerning the Rights Agent
21
Section 19 - Merger or Consolidation or Change of Name of Rights Agent
21
Section 20 - Duties of Rights Agent
22
Section 21 - Change of Rights Agent
23
Section 22 - Issuance of New Right Certificates
24
Section 23 - Redemption
24
Section 24 - Exchange
25
Section 25 - Notice of Certain Events
26
Section 26 - Notices
26
Section 27 - Supplements and Amendments
27
Section 28 - Successors
28
Section 29 - Determinations and Actions by the Board of
Directors 28
Section 30 - Benefits of This Rights Agreement
28
Section 31 - Severability
28
Section 32 - Governing Law
28
Section 33 - Counterparts
29
Section 34 - Descriptive Headings
29
Exhibit A - Form of Right Certificate
Exhibit B- Summary of Rights to Purchase Common Shares
</TABLE>
<PAGE>
RIGHTS AGREEMENT
This Rights Agreement (the "Rights Agreement"), effective as of March 31,
1998, between AGRIBRANDS INTERNATIONAL, INC., a Missouri corporation (the
"Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York banking
corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on March ___, 1998, the Board of Directors of the Company
authorized and declared a dividend of one common share purchase right for each
share of the Company's common stock outstanding at the close of business on
March 31, 1998, (the "Record Date"), each such right representing the right to
purchase one share of the Company's common stock upon the terms and subject to
the conditions herein set forth. At that time the Board further authorized
and directed the issuance of one common share purchase right with respect to
each share of the Company's common stock that became outstanding between the
Record Date and the Distribution Date (as hereinafter defined);
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1 - Certain Definitions. For purposes of this Rights
------------- --------------------
Agreement, the following terms have the meanings indicated:
--
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall become, at any time after
the date of this Rights Agreement (whether or not such status continues for
any period), the Beneficial Owner of Common Shares representing 20% or more of
the Common Shares then outstanding, other than as a result of a Permitted
Offer. Notwithstanding the foregoing, (A) the term "Acquiring Person" shall
not include (i) the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan, (ii) any
Person, who or which together with all Affiliates and Associates of such
Person becomes the Beneficial Owner of 20% or more of the then outstanding
Common Shares as a result of the acquisition of Common Shares directly from
the Company (provided, however, that if, after such acquisition, such Person,
or an Affiliate or Associate of such Person, becomes the Beneficial Owner of
any additional Common Shares in an acquisition not made directly from the
Company, then such Person shall be deemed an Acquiring Person), or (iii) a
Grandfathered Person, and (B) no Person shall be deemed to be an "Acquiring
Person" (X) as a result of the acquisition of Common Shares by the Company
which, by reducing the number of Common Shares outstanding, increases the
proportional number of shares beneficially owned by such Person together with
all Affiliates and Associates of such Person; except that if (i) a Person
would become an Acquiring Person (but for the operation of this subclause (X))
as a result of the acquisition of Common Shares by the Company, and (ii) after
such share acquisition by the Company, such Person, or an Affiliate or
Associate of such Person, becomes the Beneficial Owner of any additional
Common Shares, then such Person shall be deemed an Acquiring Person, (Y) if
such Person, or an Affiliate or Associate of such Person, inadvertently
becomes the Beneficial Owner of 20% or more of the outstanding Common Shares,
or (Z) if a Person, or an Affiliate or Associate of such Person, is the
involuntary transferee of Common Shares from a Grandfathered Person
(including, but not limited to, when such involuntary transfer is as a result
of the death of a Grandfathered Person), provided that, in the case of any
situation referred to in subclause (Y) or (Z) above (1) within 8 days
thereafter such Person notifies the Board of Directors that such Person
acquired the Common Shares in question inadvertently or involuntarily,
respectively, and (2) within 2 days after such notification, such Person is
the Beneficial Owner of less than 20% of the outstanding Common Shares.
Notwithstanding anything to the contrary herein, any Common Shares owned by a
Grandfathered Person shall not be taken into account when computing the number
of Common Shares beneficially owned by an Affiliate or Associate of a
Grandfathered Person, provided that such Affiliate or Associate (i) does not
constitute a member of a group (as defined for purposes of Section 13(d) of
the Exchange Act) including such Grandfathered Person, or (ii) is not
otherwise acting in concert with such Grandfathered Person, each with respect
to the Company.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act. A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to have acquired "beneficial ownership" of, or to
"beneficially own", any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, as determined pursuant
to Rule 13d-3 of the General Rules and Regulations under the Exchange Act as
in effect on the date hereof;
(ii) which such Person or any of such Person's Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy
or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) Which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso
to Section 1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of "Beneficial Owner" to the
contrary, the phrase "then outstanding", when used with reference to a
Person's beneficial ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
(c) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
(d) "Close of Business" on any given date shall mean 5:00 P.M., New York
time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 P.M., New York time, on the next succeeding Business Day.
(e) "Common Shares" when used with reference to the Company shall mean
shares of the Company's common stock, par value $.01 per share, and any other
class or classes or series of common stock of the Company resulting from any
subdivision, combination, recapitalization or reclassification of shares of
such common stock.
(f) "Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.
(g) "Company" shall have the meaning set forth in the recitals to this
Rights Agreement.
(h) "Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, as in effect on the date of this Rights Agreement.
(j) "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
(k) "Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(l) "Grandfathered Person" shall mean any of the members of the
Company's Board of Directors as of the date of this Rights Agreement, who are
David R. Banks, Jay W. Brown, M. Darrell Ingram, H. Davis McCarty, Joe R.
Micheletto, Martin K. Sneider and William P. Stiritz, together with his
immediate family and any other Grandfathered Person; provided, however, that a
Grandfathered Person shall cease to be a Grandfathered Person at the time that
(i) such Person is no longer a member of the Company's Board of Directors, and
(ii) thereafter such Person becomes the Beneficial Owner of any Common Shares
of the Company, other than as a result of (A) a dividend or distribution on
the Common Shares, payable in Common Shares or securities convertible into
Common Shares, which such dividend or distribution is payable to all holders
of Common Shares, (B) a subdivision, combination, recapitalization or
reclassification of the Common Shares, or (C) an acquisition of Common Shares
as a result of exercise of Rights.
(m) "NASDAQ" shall have the meaning set forth in Section 11(d)
hereof.
(n) "Permitted Offer" shall mean a tender or exchange offer which is for
all outstanding Common Shares at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by at least a majority
of the members of the Board of Directors who are not officers of the Company
and who are not (or would not be, if the offer were consummated) Acquiring
Persons or Affiliates, Associates, nominees or representatives of an Acquiring
Person, to be adequate and otherwise in the best interests of the Company and
its stockholders (other than the Person or any Affiliate or Associate thereof
on whose basis the offer is being made). In determining whether an offer is
adequate or in the best interests of the Company and its shareholders, the
Board may take into account all factors that it deems relevant including,
without limitation,
(1) the consideration being offered in the proposal in relation to the
Board's estimate of: (i) the current value of the Company in a freely
negotiated sale of either the Company by merger, consolidation or otherwise,
or all or substantially all of the Company's assets, (ii) the current value of
the Company if orderly liquidated, and (iii)the future value of the Company
over a period of years as an independent entity discounted to current value;
(2) then existing political, economic and other factors bearing on
security prices generally or the current market value of the Company's
securities in particular;
(3) whether the proposal might violate federal, state or local laws;
(4) social, legal and economic effects on employees, suppliers, customers
and others having similar relationships with the Company, and the communities
in which the Company conducts its businesses;
(5) the financial condition and earnings prospects of the person making
the proposal including the person's ability to service its debt and other
existing or likely financial obligations; and
(6) the competence, experience and integrity of the person making the
acquisition proposal.
(o) "Person" shall mean any individual, firm, partnership, corporation,
trust, association, joint venture or other entity, and shall include any
successor (by merger or otherwise) of such entity.
(p) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(q) "Purchase Price" shall have the meaning set forth in Section 7(a)
hereof.
(r) "Record Date" shall have the meaning set forth in the recitals to this
Rights Agreement.
(s) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(t) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
(u) "Rights" shall mean the rights to purchase Common Shares authorized by
the Board of Directors of the Company after the Record Date.
(v) "Rights Agent" shall have the meaning set forth in the recitals to
this Rights Agreement.
(w) "Rights Agreement" shall have the meaning set forth in the recitals to
this Rights Agreement.
(x) "Rights Certificates" shall have the meaning set forth in Section 3(a)
hereof.
(y) "Securities Act" shall mean the Securities Act of 1933, as amended, as
in effect from time to time during the term of this Rights Agreement.
(z) "Shares Acquisition Date" shall mean the first date of a public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act)
by the Company or an Acquiring Person that an Acquiring Person has become
such; provided, that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
(aa) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(bb) "Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
(cc) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
(dd) "Voting Securities" shall have the meaning set forth in Section 13(a)
hereof.
Section 2 - Appointment of Rights Agent. The Company hereby appoints the
- ------------ ---------------------------
Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution
Date also be the holders of the Common Shares) in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment.
The Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3 - Issue of Rights Certificates.
- ------------- --------------------------------
(a) Until the earlier of (i) the close of business on the tenth Business
Day after the Shares Acquisition Date or (ii) the close of business on the
tenth Business Day (or such later date as may be determined by action of the
Board of Directors of the Company prior to such time as any Person becomes an
Acquiring Person) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, or any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) is first
published or sent or given within the meaning of Rule 14d-2 of the General
Rules and Regulations under the Exchange Act, if upon consummation thereof,
such Person would be the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding; the earlier of such dates being herein referred
to as the "Distribution Date"), (x) the Rights will be evidenced (subject to
the provisions of Section 3(b) hereof) by the certificates for the Common
Shares, or other documents or book-entries evidencing Common Shares,
registered in the names of the holders thereof (which certificates, other
documents or book-entries shall also be deemed to be certificates for Rights)
and not by separate certificates, and (y) the Rights (and the right to receive
separate certificates ("Right Certificates" as defined below)) will be
transferable only in connection with the transfer of the underlying Common
Shares (including a transfer to the Company) as more fully set out below. As
soon as practicable after the Distribution Date, the Company will either (I)
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, a Right Certificate, which shall
be in substantially the form of Exhibit A hereto, or (II) if the Board of
Directors deems appropriate, make arrangements for such other certificates,
other documents or book entries to evidence the Rights (in either case (I) or
(II) the evidence of Rights is referred to herein as the "Right Certificate"),
evidencing one Right for each Common Share so held, subject to adjustment as
provided herein. As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) As promptly as practicable following the Record Date, the Company will
send a copy of a Summary of Rights to Purchase Common Shares, in substantially
the form of Exhibit B hereto (the "Summary of Rights"), by first-class,
postage- prepaid mail, to each record holder of Common Shares as of the close
of business on the Record Date, at the address of such holder shown on the
records of the Company. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of
any certificate for Common Shares outstanding, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with the Common Shares.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired shares which are subsequently disposed of by
the Company) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them a legend
substantially to the following effect:
"This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Agribrands International,
Inc. (the "Company") and Continental Stock Transfer & Trust Company (the
"Rights Agreement"), as it may from time to time be supplemented or amended,
the terms of which are incorporated herein by reference and a copy of which is
on file at the principal executive offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such rights may expire or
may be redeemed, exchanged or be evidenced by separate certificates or book
entry and no longer be evidenced by this certificate. The Company will mail
to the holder of this certificate a copy of the Rights Agreement without
charge promptly after receipt of a written request therefor. Under certain
circumstances, rights issued to or held by Acquiring Persons or their
Affiliates or Associates (as defined in the Rights Agreement) and any
subsequent holder of such rights may become null and void."
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated therewith. In the event that the Company
purchases or acquires any Common Shares prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
unless and until such Common Shares are subsequently issued by the Company so
that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4 - Form of Right Certificates.
------------- ------------------------------
(a) The Right Certificates (and the forms of election to purchase and of
assignment to be printed on the reverse thereof) shall be substantially the
same as provided for in Exhibit A hereto, or, if the Board of Directors deems
appropriate, such other certificates, other documents or book entries
evidencing the Rights, and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with the provisions
of this Rights Agreement, or as may be required to comply with any applicable
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Section 22
hereof, the Right Certificates, whenever issued, shall be dated as of the
Record Date, and shall entitle the holders thereof to purchase such number and
kind of Common Shares as shall be set forth therein at the price per share set
forth therein, but the number and kind of such Common Shares and the price per
share shall be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights which are null and void pursuant to Section
11(a)(ii) of this Rights Agreement and any Right Certificate issued pursuant
to Section 6, Section 11 or Section 22 hereof upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
sentence, shall contain (to the extent feasible) a legend substantially to the
following effect:
"The Rights represented by this Right Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement). Accordingly, this Right Certificate and the Rights represented
hereby are null and void."
Notwithstanding the above provision, failure to place such legend on any
Rights Certificate representing Rights which are otherwise null and void
pursuant to the terms of this Rights Agreement, shall not affect the null and
void status of such Rights.
Section 5 - Countersignature and Registration. The Right
------------- -----------------------------------
Certificates, unless the Board of Directors deems it appropriate for the
------
Rights to be evidenced in book entry form only, shall be executed on behalf of
the Company by its Chairman of the Board, its Chief Executive Officer, its
President, its Chief Financial Officer, or its Treasurer, either manually or
by facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, if any, and shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile signature.
The Right Certificates, unless the Board of Directors deems it appropriate for
the Rights to be evidenced in book entry form only, shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose
unless countersigned. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery
by the Company, such Right Certificates, nevertheless, may be countersigned by
the Rights Agent and issued and delivered by the Company with the same force
and effect as though the person who signed such Right Certificates had not
ceased to be such officer of the Company; and any Right Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company
to sign such Right Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer. Following the
Distribution Date, the Rights Agent will keep or cause to be kept, at its
principal office or offices designated as the appropriate place for surrender
of such Right Certificate or transfer, books for registration and transfer of
the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6 - Transfer, Split Up, Combination and Exchange of Right
- ------------- -------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
- ----------------------------------------------------------------------------
Subject to the provisions of Section 14 hereof, at any time after the Close of
- ------
Business on the Distribution Date, and at or prior to the Close of Business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
respectively, entitling the registered holder to purchase a like number and
kind of Common Shares as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate or
Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office or
offices of the Rights Agent designated for such purpose. Thereupon, the
Rights Agent shall countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. Upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of
the loss, theft, destruction or mutilation of a Right Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request, reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will make and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7 - Exercise of Rights; Purchase Price; Expiration Date of Rights.
- ----------- --------------------------------------------------------------
(a) Subject to Section 11(a)(ii) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for
such purpose, together with payment of the price per share (rounded to the
nearest cent) provided for in paragraph (b) below (the "Purchase Price") for
each Common Share as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on March 31, 2008 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section
23 hereof (the "Redemption Date"), or (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each Common Share pursuant to the exercise of a
Right shall initially be $_____, subject to adjustment from time to time as
provided in Sections 11 and 13 hereof, and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the Common Shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent
shall thereupon promptly (i) requisition from any transfer agent of the Common
Shares certificates, or such other documents or book-entries then evidencing
Common Shares, for the number and kind of Common Shares to be purchased (or
depository receipts when appropriate) and the Company hereby irrevocably
authorizes its transfer agents to comply with all such requests, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in
lieu of issuance of fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates, or such other documents or
book-entries then evidencing Common Shares, cause the same to be delivered to
or upon the order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such holder and (iv)
when appropriate, after receipt, deliver such cash to or upon the order of the
registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
(e) So long as the Common Shares issuable upon the exercise of Rights may
be listed on any national securities exchange, the Company shall use its best
efforts to cause all shares reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
Section 8 - Cancellation and Destruction of Right Certificates. All
- ------------- --------------------------------------------------
Right Certificates surrendered for the purpose of exercise, transfer, split
- ----
up, combination or exchange shall, if surrendered to the Company or to any of
- --
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Right Certificate purchased
or acquired by the Company otherwise than upon the exercise thereof. The
Rights Agent shall deliver all canceled Right Certificates to the Company, or
shall, at the written request of the Company, destroy such canceled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 9 - Availability of Common Shares.
- ------------- ---------------------------------
(a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued Common Shares or any Common
Shares held in its treasury, the number and kind of Common Shares that will be
sufficient to permit the exercise in full of all outstanding Rights in
accordance with this Rights Agreement.
(b) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Common Shares delivered upon exercise of
Rights shall, at the time of delivery of the certificates, other documents or
book-entries then evidencing such shares (subject to payment of the Purchase
Price), (i) be duly and validly authorized and issued and fully paid and
nonassessable Common Shares, and (ii) be registered under the Securities Act
of 1933, as amended, and "blue sky laws" of the various states.
(c) The Company covenants and agrees that it will pay when due and payable
any and all federal and state transfer taxes and charges which may be payable
in respect of the issuance or delivery of the Right Certificates or of any
Common Shares upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates, or other documents or book-entries then
evidencing Common Shares, or depository receipts for the Common Shares in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or to deliver any
certificates, other documents or book-entries then evidencing Common Shares
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10 - Record Holders of Common Shares Issued Upon Exercise of
- -------------- -------------------------------------------------------
Rights. Each person in whose name any certificate, other document or
- ------
book-entry for Common Shares is issued upon the exercise of Rights shall for
- ------
all purposes be deemed to have become the holder of record of the Common
Shares represented thereby on, and such certificate, other document or
book-entry shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Company's transfer
books for the Common Shares are closed, such person shall be deemed to have
become the record holder of such shares on, and such certificate, other
document or book-entry shall be dated, the next succeeding Business Day on
which such transfer books are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Common Shares for which the Rights evidenced thereby
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11 - Adjustment of Purchase Price, Number and Kind of Common
- -------------- -------------------------------------------------------
Shares or Number of Rights. The Purchase Price, the number of Common Shares
- ----------------------------
or other securities covered by each Right, and the number of Rights
outstanding are subject to adjustment from time to time as provided in this
Section 11.
(a) (i) In the event the Company shall at any time after the Record
Date (A) declare a dividend on the Common Shares payable in Common Shares, (B)
subdivide the outstanding Common Shares into a greater number of such shares,
(C) combine the outstanding Common Shares into a smaller number of such
shares, or (D) issue any shares of its capital stock in a reclassification of
Common Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the Purchase
Price in effect for Rights at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification,
and the number and kind of shares of capital stock issuable on such date,
shall be proportionately adjusted so that the holder of any Right exercised
after such time shall, upon payment of the Purchase Price then in effect, be
entitled to receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date and at
a time when the Common Shares transfer books of the Company were open, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one such Right be less than the per share par value of the Common Shares.
If an event occurs which would require an adjustment under both Section
11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Rights Agreement, in the event any
Person becomes an Acquiring Person, then the Purchase Price for each Common
Share issuable upon exercise of Rights shall be reduced to an amount equal to
33-1/3% of the current market price per share of such Common Share (determined
pursuant to Section 11(d)) on the Shares Acquisition Date. Notwithstanding the
above, if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof, then only
the provisions of Section 13 hereof shall apply and no adjustment shall be
made pursuant to this Section 11(a)(ii). From and after the occurrence of the
event described above, any Rights that are or were acquired or beneficially
owned by any Acquiring Person (or any Associate or Affiliate of such Acquiring
Person) shall be null and void and any holder of such Rights shall thereafter
have no right to exercise such Rights under any provision of this Rights
Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to or from an Acquiring Person whose Rights would be void pursuant
to the preceding sentence or any Associate or Affiliate thereof or to or from
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to or from an Acquiring
Person (or any Associate, Affiliate or nominee of such Acquiring Person) whose
Rights would be void pursuant to the preceding sentence shall be canceled.
(iii) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit the exercise in full
of the Rights in accordance with the foregoing subparagraph (ii), the Company
shall, to the extent permitted by applicable law, take all such action as may
be necessary to authorize additional Common Shares for issuance upon exercise
of the Rights, including the calling of a meeting of shareholders; provided,
however, if the Company is unable to cause the authorization of additional
Common Shares then the Company, to the extent necessary and permitted by
applicable law and any agreements or instruments in effect on the date hereof
to which it is a party, shall, at its option (A) pay cash equal to twice the
applicable Purchase Price (as adjusted pursuant to this Section 11) in lieu of
issuing any such Common Shares and requiring payment therefor, or (B) issue
equity securities having a value equal to the market price of Common Shares
which otherwise would have been issuable pursuant to the foregoing
subparagraph (ii), which value shall be determined by the Board of Directors
of the Company, whose determination shall be described in a statement filed
with the Rights Agent, or (C) distribute a combination of Common Shares, cash
and/or other equity securities having a value equal to the market price of the
shares of the Common Shares which otherwise would have been issuable pursuant
to the foregoing subparagraph (ii), determined in accordance with the
preceding clause (B), upon exercise of the related Rights.
(b) In case the Company shall fix a record date for the issuance of
rights (other than the Rights), options or warrants to all holders of Common
Shares entitling them (for a period expiring within 45 calendar days after
such record date) to subscribe for or purchase Common Shares, or securities
convertible into Common Shares at a price per share (or having a conversion
price per share, if a security convertible into Common Shares) less than the
then current per share market price (as defined in Section 11(d)) of the
Common Shares on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Common Shares outstanding on such record date
plus the number of Common Shares which the aggregate offering price of the
total number of shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would
purchase at such current market price and the denominator of which shall be
the number of Common Shares outstanding on such record date plus the number of
additional Common Shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the per share par value of the shares
of capital stock of the Company issuable upon exercise of one Right. In case
such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be
as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
Common Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Shares (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), of evidences of indebtedness or assets
(other than a regular periodic cash dividend, a dividend payable in Common
Shares or other distribution referred to in Section 11(a) hereof) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the then
current per share market price of the Common Shares on such record date, less
the fair market value (as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent) of the portion
of such assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Common Share and the
denominator of which shall be such current per share market price of the
Common Shares; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the per share par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so made, the
Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current per share
market price" of a Common Share on any date shall be deemed to be the average
of the daily closing prices per share of a Common Share for the 30 consecutive
Trading Days immediately prior to such date; provided, however, that in the
event that the current per share market price of a Common Share is determined
during a period following the announcement by the Company of (A) a dividend or
distribution on the Common Shares, payable in Common Shares or securities
convertible into Common Shares, or (B) any subdivision, combination or
reclassification of the Common Shares, and prior to the expiration of 30
Trading Days after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then,
and in each such case, the current per share market price shall be
appropriately adjusted to reflect the current market price per share of a
Common Share. The closing price for each day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or, if
the Common Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Common Shares are listed or admitted to trading or, if
Common Shares are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date Common
Shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market
in Common Shares, selected by the Board of Directors of the Company. If on
any such date no market-maker is making a market in Common Shares, the fair
value of Common Shares on such date as determined in good faith by the Board
of Directors of the Company shall be used, whose determination shall be
described in a statement filed with the Rights Agent. The term "Trading Day"
shall mean a day on which the principal national securities exchange on which
Common Shares are listed or admitted to trading is open for the transaction of
business or, if Common Shares are not listed or admitted to trading on any
national securities exchange, a Business Day. If Common Shares are not
publicly held or so listed or traded, "current per share market price" shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the
nearest cent or to the nearest one ten-thousandth of a share as the case may
be.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Common Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
the Common Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Common Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made hereunder to the Purchase Price applicable thereto shall
evidence the right to purchase, at the adjusted Purchase Price, the number of
Common Shares or other capital stock purchasable from time to time hereunder
upon exercise of such Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each related Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, the number of Common
Shares (calculated to the nearest one ten-thousandth of a share) obtained by
(i) multiplying (x) the number of shares covered by such Right immediately
prior to this adjustment by (y) the Purchase Price in effect immediately prior
to such Purchase Price adjustment and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such Purchase Price adjustment.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights in substitution for any
adjustment in the number of Common Shares purchasable upon the exercise of a
Right. Each of such Rights outstanding after such adjustment of the number of
such Rights shall be exercisable for the number of Common Shares for which
such Right was exercisable immediately prior to such adjustment. Each such
Right held of record prior to such adjustment of the number of Rights shall
become that number of such Rights (calculated to the nearest one
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of such Purchase Price by the Purchase Price in effect
immediately after such adjustment. The Company shall make a public
announcement of its election to adjust the number of Rights indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of such Rights pursuant to this Section 11(i), the Company shall,
as promptly as practicable, cause to be distributed to holders of record of
such Right Certificates on such record date additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for such Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by
the Company, new Right Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of Common Shares issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of Common Shares which were expressed in such
Right Certificates theretofore issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the Common Shares issuable
upon exercise of the Rights, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Common Shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any related Right exercised after such record date of
the Common Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Common Shares and other
capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that (i) any consolidation or subdivision of the Common Shares, (ii)
issuance wholly for cash of any Common Shares at less than the current market
price, (iii) issuance wholly for cash of Common Shares or securities which by
their terms are convertible into or exchangeable for Common Shares, (iv)
dividends on Common Shares payable in Common Shares or (v) issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made
by the Company to holders of Common Shares, shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Sections 23 or 27 hereof, take (or permit any
Subsidiary to take) any action the purpose of which is to, or if at the time
such action is taken it is reasonably foreseeable that the effect of such
action is to, materially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights.
Section 12 - Certificate of Adjustment. Whenever an adjustment is made as
- ------------ -------------------------
provided in Sections 11 or 13 hereof, the Company shall promptly (a) prepare a
certificate setting forth such adjustment, and a brief statement of the facts
accounting for such adjustment, (b) file with the Rights Agent and with each
transfer agent for the Common Shares a copy of such certificate and, (c)
include a brief summary thereof in the next quarterly or current report filed
pursuant to the Exchange Act by the Company, and, following the Distribution
Date, mail such summary to each holder of a Right Certificate in accordance
with Section 25 hereof.
Section 13 - Consolidation, Merger or Sale or Transfer of Assets or
- -------------- ------------------------------------------------------
Earning Power.
- ---------------
(a) In the event that, on or following the Distribution Date, directly or
indirectly, (x) the Company shall consolidate with, or merge with and into any
other Person, (y) the Company shall consolidate with, or merge with, any other
Person, and the Company shall be the continuing or surviving corporation of
such consolidation or merger (other than, in a case of any transaction
described in (x) or (y), a merger or consolidation which would result in all
of the securities generally entitled to vote in the election of directors
("voting securities") of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into securities of the surviving entity) all of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation and the holders of such securities not having changed as a
result of such merger or consolidation), or (z) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person (other than the
Company or any Subsidiary of the Company in one or more transactions each of
which does not violate Section 11(n) hereof), then, and in each such case
(except as provided in Section 13(d) hereof), proper provision shall be made
so that (i) each holder of a Right, except as provided in Section 11(a)
hereof, shall thereafter have the right to receive, upon the exercise thereof
at a price equal to the then current Purchase Price (without giving effect to
any adjustment to such Purchase Price pursuant to Section 11(a(ii)) multiplied
by the number of Common Shares for which such Right is then exercisable, in
accordance with the terms of this Rights Agreement, such number of freely
tradable Common Shares of the Principal Party, not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (A) multiplying the then current Purchase Price
(without giving effect to any adjustment to such Purchase Price pursuant to
Section 11(a(ii)) by the number of Common Shares for which such Right is then
exercisable and dividing that product by (B) 50% of the then current per share
market price of the Common Shares of such Principal Party (determined pursuant
to Section 11(d) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; (ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to this
Rights Agreement; (iii) the term "Company" shall thereafter be deemed to refer
to such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall apply only to such Principal Party following the first
occurrence of an event described in this Section 13; and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof)
in connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise
of the Rights.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Company are converted in such
merger or consolidation, and if no securities are so issued, the Person that
is the other party to such merger or consolidation (including, if applicable,
the Company if it is the surviving corporation); and
(ii) in the case of any transaction described in clause (z) of the first
sentence of Section 13(a), the Person that is the party receiving the greatest
portion of the assets or earnings power transferred pursuant to such
transaction or transactions; provided, however, that in any of the foregoing
cases, (1) if the Common Shares of such Person are not at such time and have
not been continuously over the preceding twelve (12) month period registered
under Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of
the Common Shares having the greatest aggregate market value; and (3) in case
such Person is owned, directly or indirectly, by a joint venture formed by two
or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in (1) and (2) above shall apply to each of the
chains of ownership having an interest in such joint ventures as if such party
were a "Subsidiary" of both or all of such joint ventures and the Principal
Parties in each such chain shall bear the obligations set forth in this
Section 13 in the same ratio as their direct or indirect interests in such
Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
its authorized Common Shares which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer mentioned in paragraph (a) of this
Section 13, the Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Securities
Act of 1933, as amended, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, and will use
its best efforts to cause such registration statement to (A) become effective
as soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of such Act) until the Final
Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial statements for
the Principal Party which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act. The provisions of this
Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers. In the event that the events described in this
Section 13 shall occur at any time after the occurrence of the events
described in Section 11(a)(ii), the Rights which have not theretofore been
exercised shall thereafter become exercisable in the manner described in
Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (I) such transaction is consummated with a
Person or Persons who acquired Common Shares pursuant to a Permitted Offer (or
a wholly owned subsidiary of any such Person or Persons), (ii) the price per
share of the Common Shares offered in such transaction is not less than the
price per share of Common Shares whose shares were purchased pursuant to such
tender offer or exchange offer and (iii) the form of consideration being
offered to the remaining holders of shares of Common Shares pursuant to such
transaction is the same as the form of consideration paid pursuant to such
tender offer or exchange offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
Section 14 - Fractional Rights and Fractional Shares.
- -------------- -------------------------------------------
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current
market value of a whole Right. For the purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of such
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Rights are
listed or admitted to trading or, if such Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in
use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in such Rights selected by the
Board of Directors of the Company. If on any such date no such market maker
is making a market in the Rights, the fair value of such Rights on such date
as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent,
shall be used.
(b) The Company shall not be required to issue fractions of Common Shares
upon (i) exercise of the Rights or exchange of the Rights for Common Shares
pursuant to Section 24 of this Rights Agreement, or to distribute
certificates, other documents or book-entries that evidence fractional shares
of such securities. Fractions of Common Shares may, at the election of the
Company, be evidenced by depository receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided that
such agreement shall provide that the holders of such depositary receipts
shall have the rights, privileges and preferences to which they are entitled
as beneficial owners of the Common Shares represented by such depositary
receipts. In lieu of fractional Common Shares or depositary receipts, the
Company may pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of one Common Share. For the
purposes of this Section 14(b), the current market value of a Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d) hereof) for the Trading Day immediately prior
to the date of such exercise.
(c) The holder of a Right by the acceptance of such Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15 - Rights of Action. All rights of action in respect of this
- -------------- ----------------
Rights Agreement, excepting the rights of action given to the Rights Agent
- --
under Section 18 hereof, are vested in the respective registered holders of
- --
the Right Certificates (and, prior to the Distribution Date, the registered
- --
holders of the Common Shares); and any registered holder of any Right
- --
Certificate (or, prior to the Distribution Date, of the Common Shares),
- --
without the consent of the Rights Agent or of the holder of any other Right
- --
Certificate (or, prior to the Distribution Date, of the Common Shares), may,
- --
in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right Certificate and in
this Rights Agreement. Without limiting the foregoing or any remedies
available to the holders of Rights, it is specifically acknowledged that the
holders of Rights would not have an adequate remedy at law for any breach of
this Rights Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Rights Agreement.
Section 16 - Agreement of Right Holders. Every holder of a Right, by
- -------------- --------------------------
accepting the same, consents and agrees with the Company and the Rights Agent
- ----
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper
instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated certificates for Common Shares ) is registered as the absolute
owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Right Certificates or the associated
certificates for Common Shares made by anyone other than the Company or the
Rights Agent) for all purposes whatsoever, and neither the Company nor the
Rights Agent shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Rights Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any
holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this Rights
Agreement by reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of
such obligation; provided, however, the Company must use its best efforts to
have any such order, decree or ruling lifted or otherwise overturned as soon
as possible.
Section 17 - Right Certificate Holder Not Deemed a Stockholder. No
- -------------- -------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote, receive
- ------
dividends or be deemed for any purpose the holder of the Common Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of
any Right Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or
to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18 - Concerning the Rights Agent. The Company agrees to pay to
- -------------- ---------------------------
the Rights Agent reasonable compensation for all services rendered by it
- --
hereunder and, from time to time, on demand of the Rights Agent, its
- --
reasonable expenses and counsel fees and other disbursements incurred in the
- --
administration and execution of this Rights Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Rights Agreement,
including the costs and expenses of defending against any claim of liability
in the premises. The indemnity provided for herein shall survive the
expiration of the Rights and the termination of this Rights Agreement.
The Rights Agent shall be protected and shall incur no liability for, or
in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Rights Agreement in reliance upon any Right
Certificate or certificate for the Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19 - Merger or Consolidation or Change of Name of Rights
-------------- ---------------------------------------------------
Agent. Any corporation into which the Rights Agent or any successor Rights
-
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or all or substantially all of the corporate trust business of
the Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Rights Agreement without the execution or filing of
any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at
the time such successor Rights Agent shall succeed to the agency created by
this Rights Agreement any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Rights Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in
its changed name; and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Rights Agreement.
Section 20 - Duties of Rights Agent. The Rights Agent undertakes
-------------- ----------------------
the duties and obligations imposed by this Rights Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company or its own in-house counsel), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this Rights Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company and delivered to the Rights Agent;
and such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Rights Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except its countersignature on such Rights Certificates)
or be required to verify the same, but all such statements and recitals are
and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability
of the Rights (including the Rights becoming void pursuant to Section
11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Sections 3, 11, 13, 23 or
24, or the ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights evidenced
by Right Certificates after actual notice that such change or adjustment is
required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Common Shares to be issued pursuant to this Rights Agreement or any Right
Certificate or as to whether any Common Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to
apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
Section 21 - Change of Rights Agent. The Rights Agent or any successor
- -------------- ----------------------
Rights Agent may resign and be discharged from its duties under this Rights
- --
Agreement upon 30 days' notice in writing mailed to the Company and to each
- --
transfer agent of the Common Shares by registered or certified mail, and to
- --
the holders of the Right Certificates by first-class mail. The Company may
- --
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
- --
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares by registered or certified
mail, and to the holders of the Right Certificates by first-class mail. If
the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights
Agent. If the Company shall fail to make such appointment within a period of
30 days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then the
registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be (a) a
corporation organized and doing business under the laws of the United States
or of any state of the United States, in good standing, which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $25 million, or (b) an affiliate of a corporation
described in clause (a) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares and mail
a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22 - Issuance of New Right Certificates. Notwithstanding any of
- -------------- ----------------------------------
the provisions of this Rights Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Rights Agreement.
In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the earlier of the Redemption
Date and the Final Expiration Date, the Company (a) shall with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) the Company shall not be obligated to issue any
such Right Certificates if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (ii) no Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23 - Redemption.
-------------- ----------
(a) The Board of Directors of the Company may, at its option, at any
time prior to such time as any Person becomes an Acquiring Person, redeem all
but not less than all of the then outstanding Rights at an initial redemption
price of $.01 per Right ("Redemption Price"). The Redemption Price shall be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof. The redemption of the Rights by
the Board of Directors may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights pursuant to paragraph (b) of this
Section 23 and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that
the failure to give, or any defect in, any such notice shall not affect the
validity of such redemption. Within 10 days after such action of the Board of
Directors ordering the redemption of the Rights, the Company shall mail a
notice of redemption to all the holders of the then outstanding Rights at
their last addresses as they appear upon the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.
Section 24 - Exchange.
- -------------- --------
(a) The Board of Directors of the Company may, at its option, at any time
after any Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the
Board of Directors shall not be empowered to effect such exchange at any time
after any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan or any
trust agreement entered into by the Company to secure benefits payable under
any employee benefit plan of the Company or any Subsidiary of the Company),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of Common Shares representing 50% or more of the Common
Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall promptly mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Shares for Rights
will be effected and, in the event of any partial exchange, the number and
kind of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights being exchanged (other than Rights
which have become void pursuant to the provisions of Section 11(a)(ii) hereof)
held by each holder of such Rights. (c) In the event that there shall not be
sufficient Common Shares issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary to
authorize additional Common Shares for issuance upon exchange of the Rights.
Section 25 - Notice of Certain Events.
- -------------- ---------------------------
(a) In case the Company, following the Distribution Date, shall propose
(i) to pay any dividend payable in stock of any class or series to holders of
Common Shares or to make any other distribution to holders of Common Shares
(other than a regular periodic cash dividend), (ii) to offer to holders of
Common Shares rights or warrants to subscribe for or to purchase any
additional Common Shares or any other securities, rights or options, (iii) to
effect any reclassification of Common Shares (other than a reclassification
involving only the subdivision of outstanding Common Shares), (iv) to effect
any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person (other than the Company and/or any of its Subsidiaries in one or
more transactions each of which does not violate Section 11(n) hereof), or (v)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to each holder of a Right Certificate,
in accordance with Section 26 hereof, a notice of such proposed action to the
extent feasible, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by holders of Common Shares if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (i) or
(ii) above at least 10 days prior to the record date for determining holders
of Common Shares for purposes of such action, and in the case of any such
other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by holders of Common
Shares, whichever shall be the earlier. The failure to give notice required
by this Section 25 or any defect therein shall not affect the legality or
validity of the action taken by the Company or the vote upon any such action.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice
of the occurrence of such event, which notice shall describe such event and
the consequences of such event to holders of Rights under Section 11(a)(ii)
Section 26 - Notices. Notices or demands authorized by this Rights
- -------------- -------
Agreement to be given or made by the Rights Agent or by the holder of any
- ------
Right Certificate to or on the Company shall be sufficiently given or made if
- ----
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Rights Agent) as follows:
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Rights Agreement to be given or made by the Company or by
the holder of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Compliance Department
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of any Right Certificate shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 27 - Supplements and Amendments. Prior to the Distribution
-------------- --------------------------
Date, the Company and the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Rights Agreement without the
approval of any holders of certificates, other documents or book-entries
representing Common Shares. From and after the Distribution Date, the Company
and the Rights Agent shall, if the Company so directs, supplement or amend
this Rights Agreement without the approval of any holders of Right
Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, (iii) to shorten or lengthen any time period
hereunder or (iv) to change or supplement the provisions hereunder in any
manner which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Right Certificates (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, however, that this Rights Agreement may not be supplemented or
amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time
period relating to when the Rights may be redeemed at such time as the Rights
are not then redeemable, or (B) any other time period unless such lengthening
is for the purpose of protecting, enhancing or clarifying the rights of,
and/or the benefits to, the holders of Rights. Without limiting the
foregoing, the Company may at any time prior to such time as any Person
becomes an Acquiring Person amend this Rights Agreement to lower the
thresholds set forth in Sections 1(a) and 3(a) hereof from 20% to not less
than the greater of (i) any percentage greater than the largest percentage of
the then outstanding Common Shares then known by the Company to be
beneficially owned by any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms of
any such plan) together with all Affiliates or Associates of such Person, or
(ii) 10%. Upon the delivery of a certificate from an appropriate officer of
the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment, provided that such supplement or amendment does
not adversely affect the rights or obligations of the Rights Agent under
Section 18 or Section 20 of this Rights Agreement. Prior to the Distribution
Date, the interests of the holders of Rights shall be deemed coincident with
the interests of the holders of Common Shares.
Section 28 - Successors. All the covenants and provisions of this Rights
- ------------- ----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29 - Determinations and Actions by the Board of Directors. For
- -------------- ----------------------------------------------------
all purposes of this Rights Agreement, any calculation of the number of Common
- --
Shares outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares of
which any Person is the Beneficial Owner, shall be made in accordance with the
last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company shall have the
exclusive power and authority to administer this Rights Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Rights Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Rights Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement (including a determination to redeem or not redeem the Rights
or to amend the Rights Agreement or a determination that an adjustment to the
Redemption Price or Exchange Ratio is or is not appropriate). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board to any liability
to the holders of the Rights.
Section 30 - Benefits of This Rights Agreement. Nothing in this Rights
- -------------- ---------------------------------
Agreement shall be construed to give to any person or corporation other than
- --
the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares) any
legal or equitable right, remedy or claim under this Rights Agreement; but
this Rights Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares).
Section 31 - Severability. If any term, provision, covenant or
- -------------- -------------
restriction of this Rights Agreement is held by a court of competent
- ----------
jurisdiction or other authority to be invalid, void or unenforceable, the
- ---------
remainder of the terms, provisions, covenants and restrictions of this Rights
- ----
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 32 - Governing Law. This Rights Agreement and each Right
- -------------- --------------
Certificate issued hereunder shall be deemed to be a contract made under the
- --------
laws of the State of Missouri and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33 - Counterparts. This Rights Agreement may be executed in any
- -------------- ------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34 - Descriptive Headings. Descriptive headings of the several
- -------------- --------------------
Sections of this Rights Agreement are inserted for convenience only and shall
- --
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement
to be duly executed and attested, all as of the day and year first above
written.
Attest: AGRIBRANDS INTERNATIONAL, INC.
Name: Name:
Title: Title:
Attest:
Name:
Name: Title:
Title:
<PAGE>
EXHIBIT A
FORM OF RIGHT CERTIFICATE
Certificate No. R-______ ______ Rights
NOT EXERCISABLE AFTER MARCH 31, 2008 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
AGRIBRANDS INTERNATIONAL, INC.
This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of March 31, 1998 (the "Rights Agreement"),
between AGRIBRANDS INTERNATIONAL, INC., a Missouri corporation (the "Company")
and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York banking corporation
(the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior
to 5:00 P.M., New York time, on March 31, 2008, at the principal office of the
Rights Agent, or at the office of its successor as Rights Agent, one fully
paid non-assessable share of Agribrands International, Inc. Common Stock, par
value $.01 per share (the "Stock"), at a purchase price of $_____ per share
(the "Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed. The number
of Rights evidenced by this Right Certificate (and the number of shares of
Stock which may be purchased upon exercise hereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of March
31, 1998, (the "Record Date") based on the shares of Stock of the Company as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of shares of Stock which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices
of the Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Certificates of like tenor and date evidencing
Rights entitling the holder to purchase a like aggregate number of shares of
Stock as the Rights evidenced by the Right Certificate or Certificates
surrendered shall have entitled such holder to purchase. If this Right
Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Certificates for
the number of whole Rights not exercised. Subject to the provisions of the
Rights Agreement, the Rights evidenced by this Right Certificate (i) may be
redeemed by the Company at its option at a redemption price of $.01 per Right
or (ii) may be exchanged in whole or in part for shares of Stock.
No fractional shares of Stock will be issued upon the exercise of any
Right or Rights evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the shares of Stock or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in the Rights Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.
Witness the facsimile signature of the proper officers of the Company and its
corporate seal.
Attest: AGRIBRANDS INTERNATIONAL, INC.
Name: Name:
Title: Title:
Dated:
Authorized Officer
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _________________________________________ hereby
sells, assigns and transfers unto
___________________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________ Attorney to
transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ___________, ____
____________________________________
Signature
(Signature must conform in all respects to name of holder as specified on the
face of this Right Certificate)
Signature Guaranteed:
Signatures must be guaranteed by a member or a participant in the
Securities Transfer Agent Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion Program.
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as
such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: , __
Signature
(Signature must conform in all respects to name
of holder as specified on the face of this Right Certificate)
<PAGE>
FORM OF ELECTION TO PURCHASE
--------------------------------
(To be executed if holder desires to
exercise the Right Certificate.)
To Agribrands International, Inc.:
The undersigned hereby irrevocably elects to exercise Rights
represented by this Right Certificate to purchase the shares of Common Stock
issuable upon the exercise of such Rights and requests that certificates for
such shares be issued in the name of:
Name:
Address:
Social security
or taxpayer identification
number:
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Name:
Address:
Social security
or taxpayer identification
number:
Dated: , ___
Signature
(Signature must conform in all respects to name
of holder as specified on the face of this Right Certificate)
Signature Guaranteed:
Signatures must be guaranteed by a member or a participant in the
Securities Transfer Agent Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion Program.
<PAGE>
CERTIFICATE
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The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such
terms are defined pursuant to the Rights Agreement);
(2) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as
such terms are defined pursuant to the Rights Agreement);
(3) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: , 19___
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Signature
(Signature must conform in all respects to name
of holder as specified on the face of this Right Certificate)
NOTICE
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The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the form of
Assignment or the form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored as described in Section
7(e) of the Rights Agreement.
<PAGE>
Exhibit B
SUMMARY OF RIGHTS TO
PURCHASE COMMON SHARES
Effective as of __________, the Board of Directors of Agribrands
International, Inc. (the "Company") adopted a Rights Agreement (the "Rights
Agreement") and authorized and declared a dividend of one common share
purchase right (a "Right") for each outstanding share of common stock, par
value $.01 per share of the Company (the "Common Shares"). The dividend is
payable on March 31, 1998, to the shareholders of record on that date (the
"Record Date"), and with respect to Common Shares issued thereafter until the
Distribution Date (as hereinafter defined) or the expiration or earlier
redemption or exchange of the Rights. Except as set forth below, each Right
entitles the registered holder to purchase from the Company, at any time after
the Distribution Date one Common Share at a price per share of $_____, subject
to adjustment (the "Purchase Price"). The description and terms of the Rights
are as set forth in the Rights Agreement.
Initially the Rights will be attached to all certificates, other documents or
book-entries representing Common Shares than outstanding, and no separate
Right Certificates will be distributed. The Rights will separate from the
Common Shares upon the earlier to occur of (i) 10 business days after the
public announcement of a person's or group of affiliated or associated
persons' having acquired beneficial ownership of 20% or more of the
outstanding Common Shares (such person or group being hereinafter referred to
as an "Acquiring Person"); or (ii) 10 business days (or such later date as the
Board may determine) 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's becoming an Acquiring Person (the earlier
of such dates being called the "Distribution Date"). An Acquiring Person does
not include the Company, any subsidiary of the Company, any employee benefit
plan of the Company or any subsidiary of the Company or certain "grandfathered
persons" (being the members of the Company's Board of Directors at the time of
the execution of the Rights Agreement together with their immediate families,
for so long as they remain on the Board of Directors, and provided that, after
they are no longer members of the Board of Directors, they do not acquire any
more Common Shares except in certain limited circumstances).
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with, and only with, the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates, other documents or book-entries representing Common
Shares issued after the Record Date upon transfer or new issuance of Common
Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration
of the Rights), the surrender for transfer of any certificates, other
documents or book-entries for Common Shares outstanding as of the Record Date,
even without such notation or a copy of this Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate, other document or book-entry.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of
record of the Common Shares as of the close of business on the Distribution
Date (and to each initial record holder of certain Common Shares issued after
the Distribution Date), and such separate Right Certificates alone will
evidence the Rights.
The Rights are not exercisable until the 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 the Company, 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 Common Shares at a price
and on terms which a majority of the members of the Board of Directors who are
not officers of the Company and who are not (or would not be, if the offer
were consummated) Acquiring Persons or affiliates, associates, nominees or
representatives of an Acquiring Person determines to be adequate and in the
best interests of the Company, its stockholders and other relevant
constituencies, other than such Acquiring Person, its affiliates and
associates) determines to be adequate and in the best interests of the
Company, its stockholders and other relevant constituencies, other than such
Acquiring Person, its affiliates and associates (a "Permitted Offer")), each
holder of a Right will thereafter have the right (the "Flip-In Right") to
acquire a Common Share for a purchase price equal to 33 1/3% of the then
current market price. Notwithstanding the foregoing, all Rights that are, or
were, beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void and not exercisable.
In the event that, at any time following the Distribution Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the holders of all of the outstanding Common Shares immediately prior to
the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, then each holder of a Right
(except Rights which have previously been voided as set forth above) shall
thereafter have the right (the "Flip-Over Right") to receive, upon exercise
and payment of the Purchase Price, common shares of the acquiring company
having a value equal to two times the Purchase Price. If a transaction would
otherwise result in a holder's having a Flip-In as well as a Flip-Over Right,
then only the Flip-Over Right will be exercisable; if a transaction results in
a holder's having a Flip- Over Right subsequent to a transaction resulting in
a holder's having a Flip-In Right, a holder will have Flip-Over Rights only to
the extent such holder's Flip-In Rights have not been exercised.
The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of 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 Common
Shares, (ii) upon the grant to holders of Common Shares of certain rights or
warrants to subscribe for or purchase Common Shares at a price, or securities
convertible into Common Shares with a conversion price, less than the then
current market price of Common Shares, or (iii) upon the distribution to
holders of Common Shares of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Common Shares) or of subscription rights or warrants
(other than those referred to above). However, no adjustment in the Purchase
Price will be required until cumulative adjustments require an adjustment of
at least 1%.
No fractional Common Shares will be issued and in lieu thereof, an adjustment
in cash will be made based on the market price of Common Shares 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 Board
of Directors of the Company 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 Board of Directors 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.
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of Common Shares representing 50% or more
of the then outstanding Common Shares, the Board of Directors of the Company
may exchange the Rights (other than Rights which have become null and void),
in whole or in part, at an exchange ratio of one Common Share per Right
(subject to adjustment).
All of the provisions of the Rights Agreement may be amended prior to the
Distribution Date by the Board of Directors of the Company for any reason it
deems appropriate. Prior to the Distribution Date, the Board is also
authorized, as it deems appropriate, to lower the thresholds for distribution
and Flip-In Rights 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 Distribution Date, the provisions of the Rights Agreement may be amended
by the 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.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders of the Company, shareholders may, depending upon
the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to the Company's Registration Statement on
Form 10 filed with the Securities and Exchange Commission. A copy of the
Rights Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.
