SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended November 30, 1999
Commission File No. 1-13479
AGRIBRANDS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1794250
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(State of Incorporation) (I.R.S. Employer Identification No.)
9811 SOUTH FORTY DRIVE, ST. LOUIS MISSOURI 63124
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(Address of principal executive offices) (Zip Code)
(314) 812-0500
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(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
Number of shares of Agribrands common stock, $.01 par value, outstanding as of
the close of business on January 11, 2000:
10,199,101
<PAGE>
PART I - FINANCIAL INFORMATION
AGRIBRANDS INTERNATIONAL, INC.
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, operating
segment results, liquidity and capital resources. Management has also included a
section on key measures and concepts for understanding the business.
Agribrands International, Inc. (the "Company") is a leading
international producer and marketer of formula animal feeds and other
agricultural products. Prior to April 1, 1998, the Company was a wholly-owned
subsidiary of Ralston Purina Company ("Ralston"). On that date, Ralston
distributed the common stock of the Company to its shareholders in a tax-free
spin-off (the "Distribution"). The Company is a successor to Ralston's over 100
years of experience in the animal feeds and agricultural products industry.
The production and sale of animal feed was the primary business of
Ralston when it was established in 1894. From that date until the Distribution,
Ralston built and maintained its industry position by consistently providing
high-quality, research-proven products and customer service. Although this
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. The Company now operates 70 manufacturing plants in 16 countries,
and has more than thirty years' experience operating across four continents. The
primary animal feed business of Agribrands is conducted almost exclusively
outside the United States. In 1986, Ralston sold Purina Mills, Inc., its U.S.
animal feeds and agricultural products business, to an unrelated third party.
Purina Mills is unrelated to Agribrands.
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS
Unless otherwise noted, all references to prices, costs and margins
reflect U.S. Dollar results after translation of foreign currency financial
statements in accordance with Statement of Financial Accounting Standards No. 52
(FAS 52).
Net Sales
Consolidated net sales for the three months ended November 30, 1999
decreased $31.5 million or 9.5% compared to the same period last year. The
decrease in net sales was the result of both lower volume and lower average
selling prices. Feed volume declined 51,900 tons or 4.1% in the first quarter
with all of the decline occurring in the Americas and Europe segments. Average
selling prices declined $15 per ton or 5.6% due to lower commodity costs
relative to the same period last year. This is consistent with the feed
industry's practice of adjusting prices to reflect changes in ingredient costs.
Operating Profit
Operating profit decreased $2.2 million or 10.0% for the three months
ended November 30, 1999 compared to the same period last year. Operating profit
decreased primarily due to lower volume and lower margins in the Americas and
Europe regions, which were only partially offset by better results from the Asia
region. Operating profit for last year's first quarter was reduced by a $1.8
million charge to settle a claim by a former joint venture partner in Chile.
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Interest Expense and Other Income/Expense
Interest expense totaled $0.9 million for the three months ended
November 30, 1999 compared to $2.9 million for the same period last year. The
decrease is due to both lower average borrowings and lower interest rates in the
markets where the Company had outstanding borrowings.
Other income/expense, net changed unfavorably by $0.5 million for the
three months ended November 30, 1999 compared to the same period last year. The
Company recognized a $0.3 million foreign exchange loss in the first quarter of
this year versus a $0.1 million foreign exchange gain last year. Investment
income was $0.1 million lower for the three months ended November 30, 1999
despite an increase in the level of interest bearing investments. This was
mainly a result of a change in the Company's investment portfolio which now
includes more tax-free securities which have slightly lower stated returns.
Net Earnings
Net earnings were $13.9 million for the three months ended November 30,
1999 compared to $11.1 million for the same period last year. Income taxes,
which include United States and foreign taxes, were 33.8% of pre-tax earnings
for the current period and 48.8% for the same period last year. The higher
effective rate for last year's first quarter primarily resulted from higher
foreign tax expense and higher withholding taxes on repatriation of foreign
earnings.
<TABLE>
<CAPTION>
REVIEW OF SEGMENT RESULTS
(Dollars in millions)
Corporate and
Americas Europe Asia Tradico Consolidated
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Quarter Ended November 30, 1999:
Net sales $ 134.5 $ 76.9 $ 89.4 $ 0.1 $ 300.9
Operating profit $ 7.8 $ 4.5 $ 10.7 $ (3.3) $ 19.7
Tons of feed product sold 524,700 358,000 343,000 400 1,226,100
Income over ingredient cost $ 35.5 $ 26.4 $ 26.5 $ (0.1) $ 88.3
Quarter Ended November 30, 1998:
Net sales $ 149.3 $ 95.5 $ 87.6 - $ 332.4
Operating profit $ 9.4 $ 5.8 $ 9.6 $ (2.9) $ 21.9
Tons of feed product sold 557,000 392,000 329,000 - 1,278,000
Income over ingredient cost $ 40.3 $ 32.1 $ 22.5 - $ 94.9
</TABLE>
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Americas
Net sales in the Americas segment (which excludes the United States)
decreased $14.8 million or 9.9% for the three months ended November 30, 1999
compared to the same period last year. The decrease in net sales was the result
of both lower volume and lower average selling prices. Feed volume declined
32,300 tons or 5.8% in the first quarter as a result of weakness in consumer
purchasing power in Brazil, Colombia and Peru and a depressed hog market in
Mexico. Average selling prices declined $12 per ton in the current quarter
primarily as a result of lower ingredient costs in most of the countries where
the Americas segment is located.
Operating profit in the Americas segment decreased $1.6 million or
17.0% in the first quarter compared to the same period last year as a $4.8
million decline in income over ingredient cost (IOIC) was only partially offset
by lower operating expenses. IOIC declined primarily due to both lower volume
and lower margins in Brazil and Colombia. Dollar-translated margins in Brazil
are still well below the levels experienced prior to the January 1999
devaluation of the Brazilian Real. Operating expenses decreased by $3.2 million
in the first quarter as last year's quarter included a $1.8 million charge
incurred to settle a claim by a former joint venture partner in Chile. The
remaining decrease in operating expenses is a result of translating slightly
higher local currency costs at significantly weaker foreign currency exchange
rates versus the U.S. Dollar.
Europe
Net sales in the Europe segment decreased $18.6 million or 19.5% for
the three months ended November 30, 1999 compared to the same period last year.
The decrease in net sales was due to a combination of lower volume and lower
average selling prices. Feed volume declined by 34,000 tons or 8.7% in the first
quarter due in part to the December 1998 sale of an unprofitable subsidiary of
the Company's subsidiary in France. Volumes also declined in Hungary, Italy and
Spain, contributing to the overall decline for the European region. Average
selling prices declined $29 per ton or 11.8% in the first quarter. The lower
selling prices are a result of both lower ingredient costs (consistent with the
feed industry's practice of adjusting prices to reflect changes in ingredient
costs) and translation of local currency revenues at weaker foreign currency
exchange rates.
Operating profit in the Europe segment decreased $1.3 million or 22.4%
for the three months ended November 30, 1999 compared to the same period last
year as a $5.7 million decline in IOIC was only partially offset by lower
operating expenses. IOIC declined due to both lower volume and lower margins in
France, Hungary, Italy and Spain. Operating expenses decreased by $4.4 million
in the first quarter primarily as a result of translating relatively stable
local currency costs at significantly weaker foreign currency exchange rates
versus the U.S. Dollar.
Asia
Net sales in the Asia segment increased $1.8 million or 2.1% for the
three months ended November 30, 1999 compared to the same period last year due
to higher volume. Feed volume in Asia increased 14,000 tons or 4.3% primarily as
a result of new sales promotional campaigns in Korea. Average selling prices for
the quarter declined by $6 per ton or 2.1% due to lower ingredient costs.
Operating profit in the Asia segment increased $1.1 million or 11.5%
for the quarter ended November 30, 1999 compared to the same period last year as
a $4.0 million increase in IOIC was mostly offset by higher operating expenses.
IOIC increased mainly due to both higher volume and higher margins in Korea
(particularly for hog feeds). Operating expenses increased by $2.9 million in
this year's quarter as a result of both expenses incurred for new Korean sales
promotional campaigns and translation of local currency costs at stronger
foreign currency exchange rates versus the U.S. Dollar.
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Corporate and Tradico
The corporate and Tradico segment is located in the United States. This
segment contains certain corporate items which are not allocated to other
segments. Tradico, a division within the Company, acquires and resells
ingredients, equipment and feed products primarily to affiliates. In the first
quarter of fiscal year 2000, Tradico recorded intercompany sales of $22.8
million.
On an operating profit basis, the corporate and Tradico segment
recorded losses (primarily related to unallocated corporate administrative
items) of $3.3 million and $2.9 million for the quarters ended November 30, 1999
and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $16.3 million and $34.7 million for the
quarter ended November 30, 1999 and 1998, respectively. The decrease in
operating cash flows between the two periods primarily resulted from changes in
working capital during the respective periods including a significant decrease
in inventories during the quarter ended November 30, 1998. Inventories declined
significantly during last year's first quarter particularly in Korea, Colombia
and Mexico primarily due to better than expected sales volume.
Capital expenditures, primarily to replace or enhance existing
production facilities and equipment, totaled $6.5 million and $7.4 million for
the three months ended November 30, 1999 and 1998, respectively. The Company has
a formal review procedure for the authorization of capital expenditures.
Anticipated capital expenditures are expected to be funded with existing cash
reserves as well as cash generated from operations.
The Company's working capital requirements for inventories and
receivables are influenced somewhat by seasonality, the availability of raw
materials and changes in commodity costs, and as a result may fluctuate widely.
The Company has generally financed its seasonal and other working capital needs
through short-term borrowings provided by local foreign banks and branches of
multi-national banks. Intercompany loans are also used by the Company to finance
working capital if the loans reduce external local borrowing costs by more than
the opportunity cost of lower U.S. invested reserves.
Cash on hand, cash flow from operations and local affiliate borrowings
under various lines of credit are Agribrands' primary sources of liquidity.
Management has a strong focus on cash flow and the effective use of excess cash
flow. 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.
On September 25, 1998, the Company's Board of Directors authorized the
purchase by the Company of up to 2,000,000 shares of Agribrands' common stock in
open market transactions at management's discretion and depending on market
conditions. During the quarter ended November 30, 1999, the Company purchased
16,289 shares of Agribrands' common stock for $0.8 million. In December 1999,
the Company purchased an additional 164,000 shares of its common stock for
approximately $7.5 million.
KEY MEASURES AND CONCEPTS FOR UNDERSTANDING THE BUSINESS
Income Over Ingredient Cost (IOIC)
The commercial animal feed industry generally prices products on the
basis of aggregate ingredient cost plus a per-unit margin. As ingredient prices
fluctuate, the changes are generally passed on to customers through changes in
the Company's product pricing. Income over ingredient cost (which is equal to
net sales minus the cost of ingredients), rather than sales dollars, is the key
5
<PAGE>
indicator of revenue performance because of the distortions in sales dollars
caused by changes in commodity prices. Management also monitors IOIC per ton to
evaluate trends in pricing and relative product value.
Dollar-Responsive Economics of International Feed Operations
Feed is manufactured by processing a combination of grains, proteins,
vitamins, and minerals. Approximately 80% of the Company's total costs is the
cost of these ingredients, most of which are widely traded in Dollar-denominated
global commodity markets. Excluding logistics costs, the Dollar values (and
costs) of ingredients around the world are broadly comparable. Local currency
prices for ingredients, therefore, typically adjust quickly to reflect changes
in quoted dollar prices and changes in the exchange rate between the local
currency and the Dollar. As raw materials inventories are replenished after an
exchange rate change, new local currency ingredient costs are reflected in local
currency feed prices.
The margin added to ingredient costs is less responsive to exchange
rate changes because industry pricing is influenced by local competitors.
Nevertheless, exchange rates between the U.S. Dollar and other currencies
(particularly in countries with systemic high inflation like many of those where
the Company operates) are related closely to differentials between the U.S. and
local inflation and interest rates. As a result, Dollar-translated IOIC levels
of the Company's international operations generally fluctuate closely around
long-term norms, particularly on a consolidated basis.
Dollar-Based Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA)
Management believes the required method of translating foreign currency
financial statements for most of the Company's foreign affiliates (that is using
the local currency as the functional currency) can distort the economic impact
of certain items, specifically costs of goods sold and foreign exchange gains
and losses. Because of the Company's earnings mix, these distortions can have a
disproportionate effect on reported results. For this reason, management
believes it is important to understand the Company's operational results
computed using the U.S. Dollar as the functional currency.
Dollar-based accounting was required practice prior to the issuance of
FAS 52 in 1981 and continues to be required for U.S. affiliates operating in
hyper-inflationary environments. This exception is in recognition of the
possible distortions of local-currency based accounting. "Hyper-inflationary"
accounting is limited under FAS 52 to countries with cumulative inflation
greater than 100% over three years. This fails to cover numerous countries
(including those in which the Company generates the majority of its earnings)
with consistently higher inflation than the U.S., whose currency values remain
unstable (typically devaluing over time versus the Dollar).
When exchange rates fluctuate, earnings results using U.S. Dollar-based
accounting differ from results under local currency based accounting in three
important ways. Under U.S. Dollar-based accounting:
o Cost of goods sold are measured using the exchange rate at the
time inventory was purchased rather than the exchange rate at the
time finished product was sold.
o Foreign exchange gains and losses are computed on assets and
liabilities denominated in currencies other than the Dollar
instead of assets and liabilities denominated in currencies other
than local currency.
o Depreciation is computed by applying the appropriate factor to
the historical Dollar value of the asset rather than by applying
the appropriate factor to the historical local currency value and
translating the result at the current exchange rate.
Because of its principal focus on cash flows, management uses
Dollar-based EBITDA as a key determinant of awards for corporate management
under its annual incentive plan. The following table provides a reconciliation
of pre-tax earnings to Dollar-based EBITDA for the quarters ended November 30,
1999 and 1998:
6
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<TABLE>
<CAPTION>
Dollar-based EBITDA
(Dollars in millions)
Quarter Ended
November 30,
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1999 1998
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<S> <C> <C>
Earnings before Income Taxes $ 21.0 $ 21.7
Add: Depreciation and amortization 6.3 5.7
Interest expense 0.9 2.9
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EBITDA reported under FAS 52 28.2 30.3
Adjustments to report EBITDA on a U.S. Dollar basis:
1) Difference in cost of sales for ingredient costs (0.9) (2.5)
2) Reversal of foreign exchange loss/(gain) reported under 0.3 (0.1)
FAS 52
3) Dollar-based foreign exchange gain/(loss) 1.6 (3.6)
-------- -------
EBITDA reported on a U.S. Dollar basis $ 29.2 $ 24.1
======== =======
</TABLE>
Explanation of adjustments to EBITDA:
1) Difference in cost of sales for ingredient costs. Under Dollar-based
accounting, inventories are initially recorded and maintained in Dollars.
Ingredient costs were lower under FAS 52 in the first quarter of both years
due to devaluation of the local currencies against the Dollar. The
operations in Europe and the Americas accounted for nearly all of the
adjustment in the quarter ended November 30, 1999. The operations in the
Americas accounted for the bulk of the adjustment in last year's first
quarter.
2) Reversal of foreign exchange gains and losses reported under FAS 52.
Foreign exchange gains and losses reported under FAS 52 were minor in the
first quarter of both years. This is a result of stable exchange rates in
both the highly inflationary countries where Agribrands has exposure in the
local currencies (i.e. where Agribrands uses the Dollar as the functional
currency) and non-highly inflationary countries where Agribrands has
exposure in U.S. Dollars.
3) Dollar-based foreign exchange gains and losses. If Agribrands had used
Dollar-based accounting worldwide, it would have recognized a foreign
exchange gain of $1.6 million in the quarter ended November 30, 1999. Most
of this gain occurred in Europe, where the Company has net monetary local
currency liability exposure. The European currencies weakened against the
Dollar in the recently completed quarter, resulting in an exchange gain.
During last year's first quarter, the local currencies in Europe and the
Philippines strengthened against the Dollar, resulting in an exchange loss.
YEAR 2000 COSTS
Many old computer systems, and other systems with embedded chip
technology, processed dates based on two digits for the year of a transaction
rather than a full four digits. These systems were unable to properly process
dates in the year 2000 and beyond. Agribrands utilizes a number of computer
systems across its worldwide operations. All of the Company's key computer
systems appear to be year 2000 compliant. The Company is currently monitoring
whether it has any significant software coding issues related to the recognition
of February 29, 2000 given that the year 1900 was not a leap year.
The Company has resolved its year 2000 coding issues through either
replacement of old systems with new year 2000 compatible systems or
reprogramming of existing systems. Agribrands spent approximately $0.1 million
to replace old hardware and software during the quarter ended November 30, 1999.
7
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The Company incurred costs for year 2000 reprogramming of existing systems of
approximately $0.2 million during the quarter ended November 30, 1999 and $0.2
million during the quarter ended November 30, 1998. All costs related to the
reprogramming of existing systems for the year 2000 issue were expensed as
incurred. Costs of new hardware and software were capitalized. To date, the
Company is not aware of any significant year 2000 problems involving its major
customers and suppliers.
EUROPEAN ECONOMIC MONETARY UNION (EMU)
On January 1, 1999, eleven of the European Union countries (including
four countries where Agribrands' operations are located) adopted the Euro as
their single currency, and there is now a fixed conversion rate between their
existing currencies ("legacy currencies") and the Euro. Following the
introduction of the Euro, the legacy currencies remain legal tender in the
participating countries during the transition period from January 1, 1999
through January 1, 2002. Beginning on January 1, 2002, the European Central Bank
will issue Euro-denominated bills and coins for use in cash transactions. On or
before July 1, 2002, the participating countries will withdraw all legacy bills
and coins and use the Euro as their legal currency.
The Company's key financial information systems in Europe are equipped
to process both Euro and legacy currency transactions during the transition
period from January 1, 1999 through January 1, 2002; however, they are not ready
to handle the July 1, 2002 withdrawal of all legacy currencies. Management is
currently planning to modify the Company's key financial systems so they can
handle the July 1, 2002 mandatory conversion to the Euro. The Company has not
yet incurred any material costs related to the conversion, and future costs for
replacing computer equipment and reprogramming existing systems are not expected
to be material. The Company plans to complete system modifications and
necessary testing by August 31, 2001.
From a broader business perspective, conversion to the Euro may cause
pricing disparities in different markets to narrow, lowering the Company's
margins. Nevertheless, the Company believes the conversion to the Euro will not
have a material impact on the Company's consolidated financial results.
OUTLOOK
It is difficult to forecast short-term operating results due to the
number of environmental factors that may impact current results. Local
agricultural markets are highly responsive to a number of variables including
macro-economic conditions, weather, and current concerns over food and
environmental safety. Typically, large and small changes in factors like these
in locations where the Company operates will randomly influence consolidated
earnings.
Based on unusually high unit margins in the first quarter of the prior
year, the Company did expect lower first quarter operating profit in the current
year. Volume declines in Europe and the Americas added to the year-over-year
differential. Under current circumstances, management expects operating profit
performance in the next three quarters combined to track more closely to that of
the prior year. Fully meeting or exceeding prior year results during the coming
period remains a challenge given recent volume performance.
Pre-tax earnings are even more difficult to forecast due, in
particular, to foreign exchange gains and losses generated by volatile exchange
rates and changing capital structures within the foreign affiliates. Currently,
the Company's most significant exposures to foreign exchange gains and losses
impacting net earnings are in Brazilian Real, Canadian Dollars, Colombian Pesos,
Mexican Pesos and Korean Won. Management focuses on foreign exchange gains and
losses as computed using U.S. Dollar-based accounting. These too can be volatile
as management generally does not hedge Dollar-based exchange risks because the
cost often outweighs the apparent benefit.
8
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With respect to income taxes, management projects an ongoing effective
tax rate of around 35%, absent unforeseen foreign losses. This rate may be
subject to one-time reductions should it become more likely than not that the
Company will be able to utilize excess foreign tax credits and net operating
loss carryforwards whose benefits have not been recognized due to uncertainty
about the Company's long-term tax position.
FORWARD-LOOKING STATEMENTS & BUSINESS RISKS
Certain statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
report constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions or future events or performance (which
may use words or phrases such as "will likely result," "are expected to," "will
continue," "anticipates," "expects," "estimates," "intends," "plans,"
"projects," and "outlook") are not historical facts and may be forward-looking.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, levels of activity, cost
savings, performance or achievements of the Company, or industry results, to be
materially different from any future results, levels of activity, cost savings,
performance or achievements expressed or implied by such forward-looking
statements, and accordingly, such statements should be read in conjunction with
and are qualified in their entirety by reference to, such risks, uncertainties
and other factors, which are described below and elsewhere in this report. Such
factors include, among others, the following: (i) changing conditions or market
trends in the animal feeds and agricultural products industries; (ii) general
economic and business conditions, including a regional recession in any of the
various regions of the world in which Agribrands operates; (iii) the ability of
the Company to implement its business strategy and maintain and enhance its
competitive strengths; (iv) the ability of the Company to recover its raw
material costs in the pricing of its products, (v) political and economic
instability in countries or regions where the Company's business is conducted,
(vi) the level of demand for Agribrands' products,(vii) the ability of the
Company to obtain financing for specific or general corporate purposes; (viii)
actions of competitors and government entities; (ix) availability of key
personnel; (x) industry capacity trends; and (xi) changes in the economic or
financial impact of, or failure to comply with, government regulations. As a
result of the foregoing and other factors, no assurance can be given as to
future results, levels of activity and achievements, and neither Agribrands nor
any other person assumes responsibility for the accuracy and completeness of
these forward-looking statements. Any forward-looking statements contained
herein speak solely as of the date as of which such statements are made, and
Agribrands undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which such statements were
made or to reflect the occurrence of unanticipated events.
The Company, 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 the following: the market price of livestock, poultry and
other animals and their food products; alternative feed sources; changes in
consumer demand for, and consumption of, grain, meat, fish, milk and eggs;
outbreaks of diseases in humans or animals (such as BSE or "mad cow disease"
foot and mouth disease or aviarian virus); real estate values; urban
development; weather conditions; government farm programs; government
regulations; restrictive quota policies and trade policies and tariffs;
production difficulties, including capacity and supply surpluses and
constraints; and general economic conditions, either local, regional or global.
In certain markets, the increasing nutritional efficiency of available feeds has
resulted in lower volume demand for feeds. Profit pressure and overcapacity in
various markets have 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.
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The animal feeds and agricultural products business is expected to
remain highly competitive in the foreseeable future. Future growth opportunities
are expected to depend on the Company's ability to implement its strategies for
competing effectively in new, growing agricultural markets, maintaining
effective cost controls, making strategic acquisitions, effectively managing
customers changing preferences for complete feeds, concentrates or premixes, 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.
10
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<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions except per share data)
Quarter Ended
November 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net Sales $ 300.9 $ 332.4
---------- ----------
Costs and Expenses
Cost of products sold 247.2 273.7
Selling, general and administrative 34.0 36.8
Interest .9 2.9
Other (income)/expense, net (2.2) (2.7)
---------- ---------
279.9 310.7
---------- ---------
Earnings before Income Taxes 21.0 21.7
Income Taxes 7.1 10.6
---------- ---------
Net Earnings $ 13.9 $ 11.1
========== =========
Earnings Per Share
Basic $ 1.34 $ 1.04
========== =========
Diluted $ 1.29 $ 1.03
========== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
11
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<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions)
November 30, August 31,
1999 1999
------------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 178.8 $ 174.5
Short-term investments 1.7 3.5
Receivables, less allowance for doubtful accounts 76.9 77.0
Inventories 82.7 81.3
Other current assets 5.5 4.6
---------- ----------
Total Current Assets 345.6 340.9
---------- ----------
Investments and Other Assets 55.5 51.3
Property at Cost 349.2 346.3
Accumulated Depreciation (175.8) (172.3)
---------- ----------
173.4 174.0
---------- ----------
Total $ 574.5 $ 566.2
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term debt $ 2.2 $ 2.4
Notes payable 17.8 18.5
Accounts payable and accrued liabilities 119.0 125.1
Income taxes 8.5 8.5
---------- ----------
Total Current Liabilities 147.5 154.5
---------- ----------
Long-Term Debt 11.4 11.5
Deferred Income Taxes and Other Liabilities 29.4 26.9
Shareholders' Equity
Common stock .1 .1
Capital in excess of par 419.5 419.5
Retained earnings 64.0 50.1
Accumulated other comprehensive loss (85.8) (85.6)
Common stock in treasury, at cost (11.6) (10.8)
---------- ----------
Total Shareholders' Equity 386.2 373.3
---------- ----------
Total $ 574.5 $ 566.2
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
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<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
Three Months Ended
November 30,
------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Cash Flow from Operations
Net earnings $ 13.9 $ 11.1
Non-cash items included in income
Depreciation and amortization 6.3 5.7
Foreign exchange loss/(gain) 0.3 (0.1)
Deferred income taxes 2.6 1.4
Changes in operating assets and liabilities used in operations (6.8) 15.7
Other, net - 0.9
--------- ---------
Net cash provided by operations 16.3 34.7
--------- ---------
Cash Flow from Investing Activities
Property additions (6.5) (7.4)
Proceeds from the sale of property 0.4 0.7
Purchase of key man life insurance (5.0) (5.0)
Other, net 1.3 0.1
--------- ---------
Net cash used by investing activities (9.8) (11.6)
--------- ---------
Cash Flow from Financing Activities
Proceeds from issuance of long-term debt - 0.2
Principal payments on long-term debt, including current maturities (0.3) (0.4)
Net (decrease) increase in notes payable (0.5) 3.2
Treasury stock purchases (0.8) -
--------- ---------
Net cash (used by) provided by financing activities (1.6) 3.0
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (0.6) 0.5
--------- ---------
Net Increase in Cash and Cash Equivalents 4.3 26.6
Cash and Cash Equivalents, Beginning of Period 174.5 136.5
--------- ---------
Cash and Cash Equivalents, End of Period $ 178.8 $ 163.1
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
13
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Note 1 - GENERAL INFORMATION. Effective April 1, 1998, Agribrands
International, Inc. (the Company) became an independent, publicly
owned company as a result of the distribution by Ralston Purina
Company (Ralston) of the Company's $.01 par value Common Stock to
holders of Ralston Purina Company Common Stock at a distribution
ratio of one for ten (the Distribution). Prior to the
Distribution, the Company was formed as a wholly-owned subsidiary
of Ralston for the purpose of effecting the Distribution. Ralston
did not retain any ownership interest in the Company.
Note 2 - UNAUDITED FINANCIAL STATEMENTS. The accompanying unaudited
financial statements have been prepared in accordance with
generally accepted accounting principles and applicable SEC
guidelines pertaining to interim financial information. In the
opinion of management, all adjustments, consisting only of normal
recurring adjustments considered necessary for a fair
presentation, have been included. Operating results for any
quarter are not necessarily indicative of the results for any
other quarter or for the full year. These statements should be
read in conjunction with the Company's financial statements and
notes thereto for the year ended August 31, 1999.
Note 3 - COMPREHENSIVE INCOME:
Quarter Ended
November 30,
-----------------------
1999 1998
--------- --------
Net earnings $ 13.9 $ 11.1
Foreign currency translation adjustment (0.2) 3.8
--------- --------
Comprehensive income $ 13.7 $ 14.9
========= ========
Note 4 - BUSINESS SEGMENT INFORMATION. Sales, operating profit and total
assets are presented below for each of the Company's reportable
segments along with a reconciliation of operating profit for the
reportable segments to total earnings before income taxes:
Quarter Ended
November 30,
-----------------------
1999 1998
--------- --------
Net Sales - External:
Americas $ 134.5 $ 149.3
Europe 76.9 95.5
Asia 89.4 87.6
Corporate and Tradico (U.S.) 0.1 -
--------- --------
Total $ 300.9 $ 332.4
========= ========
Net Sales - Intersegment:
Americas $ - $ -
Europe - -
Asia - -
Corporate and Tradico (U.S.) 22.8 17.0
--------- --------
Total $ 22.8 $ 17.0
========= ========
14
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
November 30,
----------------------------
1999 1998
----------- ---------------
<S> <C> <C>
Operating Profit:
Americas $ 7.8 $ 9.4
Europe 4.5 5.8
Asia 10.7 9.6
Corporate and Tradico (U.S.) (3.3) (2.9)
---------- ---------
19.7 21.9
Interest expense (0.9) (2.9)
Other income/(expense), net 2.2 2.7
--------- ----------
Earnings before Income Taxes $ 21.0 $ 21.7
========== ==========
Depreciation and Amortization:
Americas $ 1.8 $ 1.8
Europe 1.9 2.0
Asia 2.4 1.7
Corporate and Tradico (U.S.) 0.2 0.2
---------- ----------
Total $ 6.3 $ 5.7
========== ==========
November 30, August 31,
1999 1999
------------ ----------
Total Assets:
Americas $ 159.5 $ 169.3
Europe 111.1 116.0
Asia 149.8 144.5
Corporate and Tradico (U.S.) 154.1 136.4
---------- ----------
Total $ 574.5 $ 566.2
========== ==========
Note 5 - SUPPLEMENTAL BALANCE SHEET INFORMATION:
November 30, August 31,
1999 1999
------------ ----------
Receivables:
Gross receivables $ 89.0 $ 88.4
Allowance for doubtful accounts (12.1) (11.4)
---------- ----------
$ 76.9 $ 77.0
========== ==========
Inventories:
Raw materials and supplies $ 63.5 $ 61.1
Finished products 19.2 20.2
---------- ----------
$ 82.7 $ 81.3
========== ==========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
November 30, August 31,
1999 1999
--------------- -----------
<S> <C> <C>
Investments and Other Assets:
Goodwill, net of accumulated amortization of $ 28.6 $ 29.1
$6.9 at November 30 and $6.5 at August 31
Investments in affiliated companies 6.6 6.3
Cash surrender value of key man life insurance 10.0 5.0
Deferred charges and other assets 10.3 10.9
--------- ---------
$ 55.5 $ 51.3
========= =========
Accounts payable and accrued liabilities:
Trade accounts payable $ 74.5 $ 75.2
Incentive compensation, salaries and vacations 13.0 15.4
Other items 31.5 34.5
--------- ---------
$ 119.0 $ 125.1
========= =========
</TABLE>
Note 6 - OTHER (INCOME)/EXPENSE, NET:
<TABLE>
<CAPTION>
Quarter Ended
November 30,
-------------------------------
1999 1998
----------- ---------
<S> <C> <C>
Foreign exchange loss/(gain) $ 0.3 $ (0.1)
Investment income (2.5) (2.6)
----------- ---------
$ (2.2) $ (2.7)
=========== =========
</TABLE>
Note 7 - COMMON STOCK. There were 10,363,016 and 10,379,305 shares of
common stock outstanding at November 30, 1999 and August 31, 1999,
respectively.
Note 8 - EARNINGS PER SHARE. Basic earnings per share is based on the
average number of common shares outstanding during the period.
Diluted earnings per share is based on the average number of
shares used for the basic earnings per share calculation,
adjusted for the dilutive effect of stock options. The following
table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Quarter ended
November 30,
-----------------------------
1999 1998
------------ -------------
<S> <C> <C>
Numerator:
Net earnings $ 13.9 $ 11.1
============ =============
Denominator:
Weighted average shares outstanding 10,368,308 10,668,571
Assumed conversion of stock options (1) 397,798 75,393
------------ -------------
Weighted average shares - assuming dilution 10,766,106 10,743,964
============ =============
Basic earnings per share $ 1.34 $ 1.04
============ =============
Diluted earnings per share $ 1.29 $ 1.03
============ =============
</TABLE>
16
<PAGE>
(1) Stock options to purchase 1,114,500 shares of common stock were
outstanding during the quarter ended November 30, 1998 but were
not included in the computation of diluted earnings per share
because the exercise prices of the options were greater than the
average market price of the common shares.
Note 9 - NEW ACCOUNTING STANDARD. The Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in June 1998. The Company is still
evaluating the effect this statement will have on its financial
reporting and disclosures. Agribrands will adopt FAS 133 in
fiscal year 2001.
PART II - OTHER INFORMATION
There is no information required to be reported under any items
except those indicated below.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Report:
(10.1) Form of Technology and Trademark License Agreement
entered into with the Company's affiliates.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Company during
the quarter ended November 30, 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGRIBRANDS INTERNATIONAL, INC.
----------------------------------------
Registrant
By: / s / David R. Wenzel
----------------------------------------
David R. Wenzel
Chief Financial Officer
Date: January 11, 2000
18
<PAGE>
EXHIBIT INDEX
- -------------
Exhibits
- --------
EX-10.1 Form of Technology and Trademark License Agreement entered into
with the Company's affiliates.
EX-27 Financial data schedule for 1st Quarter of Fiscal 2000.
(Documents prepared on Edgar and provided electronically)
Exhibit 10.1
TECHNOLOGY AND TRADEMARK LICENSE AGREEMENT
THIS TECHNOLOGY AND TRADEMARK LICENSE AGREEMENT (this "Agreement"),
dated as of _______________, by and between a corporation duly organized and
validly existing under the laws of _______________________________, (AGX"), and
________________________________________, a corporation duly organized and
validly existing under the laws of ______ with its principal offices at
__________________________________________________________________ ("Licensee").
WHEREAS, Ralston Purina Company, a corporation organized and validly
existing under the laws of the State of Missouri, U.S.A., ("Ralston") has
developed since 1894 a world-wide reputation with manufacturing facilities
located on four continents for the quality of its animal feed products which is
reflected in the preference for animal feed products bearing its trademarks;
WHEREAS, Agribrands International, Inc., a corporation organized and
validly existing under the laws of the State of Missouri, U.S.A., ("Agribrands")
is engaged in the international agricultural animal feeds business which prior
to April 1, 1998 had been conducted by Ralston;
WHEREAS, Ralston is record owner of many registrations and applications
to register various trademarks consisting of or containing the words "PURINA,"
"CHOW," "Checkerboard," Checkerboard designs, and variations on such marks,
including, but not limited to, the applications and registrations identified as
Ralston Trademarks shown on Schedule A hereto (the "Ralston Trademarks"); and
WHEREAS, Ralston has granted Agribrands a license to use the Ralston
Trademarks on certain Agricultural Products (as hereafter defined) excluding Pet
Products (as hereafter defined); and
WHEREAS, Agribrands is record owner of registrations and applications
to register various trademarks, including the registrations and applications
identified as Agribrands Trademarks shown on Schedule B hereto (the "Agribrands
Trademarks"); and
WHEREAS, Ralston has granted Agribrands a license to use certain
technology relating to Agricultural Products excluding Pet Products (the
"Ralston Technology"); and
WHEREAS, Agribrands is the owner of certain technology relating to
Agricultural Products (the "Agribrands Technology") which Agribrands acquired
from Ralston pursuant to the terms of that certain Technology Transfer and
License Agreement effective April 1, 1998 and such further technology as
developed independently of Ralston; and
WHEREAS, Agribrands has granted AGX a sublicense to use the Ralston
Trademarks and Ralston Technology, subject to the licenses from Ralston,
1
<PAGE>
together with a license to use the Agribrands Trademarks and Agribrands
Technology;
WHEREAS, AGX is the record owner of registrations and applications to
register various trademarks, including the registrations and applications
identified as AGX Trademarks on Schedule C hereto (the "AGX Trademarks");
WHEREAS, AGX has developed and is the owner of certain technology (the
"AGX Technology");
WHEREAS, Licensee desires to secure from AGX and AGX desires to grant
to Licensee pursuant to the terms set forth in this Agreement the right to use
the Ralston Trademarks, Agribrands Trademarks, the AGX Trademarks, Ralston
Technology, Agribrands Technology and AGX Technology within the Territory;
NOW, THEREFORE, the parties, in consideration of the mutual premises
set forth herein-above and the mutual covenants contained herein, agree as
follows:
1. DEFINITIONS.
a. "Affiliate" shall mean any person and/or entity that directly,
or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with the person
or entity specified.
b. "Agricultural Products" shall mean products formulated to
provide nourishment to or care of horses (whether or not
agricultural), laboratory or zoo animals (but not including
Pet Products sold to such institutions) and agricultural
animals (whether terrestrial, aquatic, or aviary) including by
way of illustration, but not limitation, commercial livestock,
commercial poultry, fish, reptiles or shellfish raised in
commercial aquaculture facilities; rabbits raised for
commercial purposes; animals raised for fur; wild or game
birds; and services for the care and feeding of such animals.
Except as provided elsewhere in this Agreement, "Agricultural
Products" shall also include accessories, health products and
services for the care and feeding of horses, zoo animals,
laboratory animals and agricultural animals.
c. "Fiscal Quarter" shall mean the three-month quarters ending on
the last business day of February, May, August and November.
d. "Fiscal Year" shall mean the period beginning on the first day
of September and ending of the last day of the following
August.
e. "Licensed Products" shall mean the Agricultural Products
produced by Licensee as of April 1, 1998, new Agricultural
Products produced by Licensee subsequent thereto with the
prior written approval of AGX and other products Licensee is
2
<PAGE>
authorized in writing by AGX to make or sell using certain
trademarks and technology licensed hereunder.
f. "Licensed Technology" shall mean all Ralston Technology,
Agribrands Technology, and AGX Technology supplied or given
access to Licensee during the effective period of this
Agreement or any prior agreement between Licensee and AGX or
between Licensee and any Affiliate of AGX.
g. "Licensed Trade Name" shall mean use by Licensee of one or
more of the Licensed Trademarks in its trade name in the
Territory pursuant to and as permitted by Section 3.c.
h. "Licensed Trademarks" shall mean the Ralston Trademarks
identified on Schedule A, Agribrands Trademarks identified on
Schedule B and the AGX Trademarks identified on Schedule C,
all of which are attached hereto and incorporated herein by
reference. Schedules A, B and C may from time to time be
amended by mutual agreement signed by both parties to add or
delete trademarks to the relevant Schedule.
i. "Net Sales" as used herein shall mean actual gross sales of
Licensed Products to all customers, including sales by
sublicensees of Licensee of Licensed Products and Licensed
Products used in Licensee's integrated operations, if any,
less: (a) trade, quantity or cash discounts, (b) commissions
to brokers or agents, if any, (c) return credits or
allowances, (d) sales taxes, excise taxes or other
governmental charges; (e) freight and insurance during
carriage; and (f) inter-company sales between Affiliates of
AGX upon which a royalty has already been charged.
j. "Owners" as used herein shall mean the owners of the Ralston
Trademarks, the Agribrands Trademarks and AGX Trademarks,
namely, Ralston, Agribrands and AGX, respectively.
k. "Pet Products" as used herein shall mean products for and
services related to the nourishment or care of pets other than
horses.
l. "Product Standards" shall mean the standards and
specifications prescribed in Section 4.a hereof and the
Appendices referred to therein.
m. "Ralston Trademarks" shall mean the trademarks listed on
Schedule A attached hereto and incorporated hereto and
incorporated herein by reference which schedule may be amended
from time to time by the parties hereto.
n. "Technology" shall mean technical information, Product
Standards, know-how, formulation systems, computer modelling
3
<PAGE>
programs for animal and feeding simulations, laboratory
standards and data, new ingredient developments, manufacturing
equipment advances, information which improves the processes
and procedures for the manufacture of Licensed Products,
sales/marketing programs, systems developed for the delivery
of proprietary technology and information, as well as
conferences, training and seminars provided by or on behalf of
AGX.
o. "Territory" shall mean the territory described on Schedule D
attached hereto and incorporated herein by reference which
schedule may be amended from time to time by the parties
hereto.
p. "Trade Name" shall mean corporate name and/or other business
name including, but not limited to, names of partnerships and
joint ventures (whether or not contained in the schedules of
Trademarks).
q. "U.S.A.", "US" and "United States" shall each refer to the
United States of America.
2. GRANT OF LICENSES.
a. License to Use Licensed Technology. Subject to the terms and
conditions of this Agreement, AGX, on its own behalf and as
representative for the Owners, hereby grants to Licensee a
non-exclusive and non-transferable license to use, in the
manner provided herein, the Licensed Technology in the
manufacture of the Licensed Products; anything herein to the
contrary notwithstanding, this sublicense to use the Ralston
Technology is subject to the terms and conditions of the
licenses from Ralston pursuant to which AGX has granted this
sublicense. Unless otherwise agreed by the parties in writing,
the Licensed Technology shall be supplied by AGX from its
offices in written form in the English language utilizing the
standard units of measures used in the United States.
It is understood and agreed that nothing in this Agreement
shall preclude Owners or AGX from licensing its Technology to
any other persons or entities, subject to the terms and
conditions of the Ralston license pursuant to which AGX has
granted this sublicense.
b. Trademark License. Subject to the terms and conditions of this
Agreement, AGX, as representative for the Owners and itself,
grants to Licensee a non-exclusive and non-transferable
license to use the Licensed Trademarks on or in connection
with the manufacture, marketing, distribution, sale and/or
advertising of the Licensed Products within the Territory;
anything herein to the contrary notwithstanding, this
sublicense to use the Ralston Trademarks is subject to the
4
<PAGE>
terms and conditions of the licenses from Ralston pursuant to
which AGX has granted this sublicense.
c. Sublicenses. The licenses granted to Licensee pursuant to
Sections 2.a and 2.b and the other rights granted under this
Agreement do not include the right to grant further
sublicenses except as follows:
i. prior to entering into any sublicense, Licensee shall
have first obtained the prior written consent of AGX
and, if deemed necessary by AGX, the prior written
consent of Agribrands and/or Ralston;
ii. no such sublicense shall be granted to the extent it
is inconsistent with or not permitted by the terms of
this Agreement or the terms of any agreement to which
AGX or Agribrands is subject, including but not
limited to the licenses from Ralston ;
iii. the sub-licensee shall have agreed in writing to be
bound by the provisions of Sections 3, 6 and 8.d;
iv. Licensee shall promptly provide AGX with a copy of
all executed sublicense agreements and if appropriate
an English translation thereof;
v. all sublicenses granted hereunder shall terminate
upon the earlier of the termination, for any cause
whatsoever, of this Agreement, the Ralston to
Agribrands license of Ralston Trademarks, or the
Ralston to Agribrands license of the Ralston
Technology; and
vi. Licensee shall include all Net Sales by any
sublicensee in the calculation of the amounts due to
AGX under this Agreement.
d. Toll Milling or Contract Manufacturers. Each proposed use of
independent, unrelated,third party manufacturers to produce
Licensed Products shall require the prior written approval of
AGX.
e. Governmental Registration and Approval. Licensee shall be
responsible for obtaining at its sole cost and expense, all
licenses, permits or governmental approvals necessary to give
effect to this Agreement and to effect timely payment of the
fees due to AGX. AGX agrees to reasonably cooperate with
Licensee, at Licensee's sole cost and expense, in connection
therewith.
3. ADDITIONAL TRADEMARK LICENSE TERMS AND RESTRICTIONS.
a. Trademark License for Ralston Trademarks Limited to
Agricultural Products. The Trademark License with respect to
5
<PAGE>
the Ralston Trademarks granted pursuant to Section 2.b shall
be limited to Agricultural Products; provided, however that
Licensee may use the Ralston Trademarks for publications such
as educational, training, advertising and promotional
material, relating to the Agricultural Products business it is
permitted to conduct.
b. Pet Products. Notwithstanding any other provision of this
Agreement, Licensee shall not use the Ralston Trademarks or
the Ralston Technology in connection with the production,
distribution or sale of Pet Products. Licensee shall not
produce, distribute or sell any Pet Products without the prior
written consent of AGX. In the event that Licensee is
authorized, in writing, by AGX to produce, market or sell one
or more Pet Products, then Licensee shall not:
(i) display, accompany or otherwise associate the
Ralston Trademarks with such Pet Products; and
(ii) the Trade Name of Licensee if it contains
a Ralston Trademark shall not appear on the packaging or
promotional materials for any Pet Product; unless,
expressly authorized in writing in advance by AGX and
then only if:
(a) Licensee is required by law to include
the manufacturer's full and true corporate name on
the package and alternatives thereto (including
but not limited to, the use of names of an
Affiliate (although not required to establish
specifically therefor), a fictitious name or an
abbreviation) are not permitted; and
(b) Then such corporate name shall only
appear on a side panel of the packaging in the
smallest typeface legally permissible.
Licensee shall at all times endeavor in good faith to
prevent any association of Licensee's Pet Products with
those of Ralston's.
c. Trade Name. Subject to the terms and conditions of this
Agreement, the license from Ralston and upon the prior written
consent of AGX, Licensee may use, where legally feasible, one
or more Licensed Trademarks in its trade name in the
Territory. In the event that Licensee is authorized in advance
in writing by AGX to use a Ralston Trademark in its Trade
Name, the Trade Name shall include a word reflecting the
agricultural or aquacultural related nature of the business of
Licensee, such as "Agribrands Purina", and provided such use
is not likely to cause confusion with any other use of the
Ralston Trademarks by Ralston, its Affiliates or licensees.
6
<PAGE>
d. Creation of New Trademarks. Licensee shall not coin new
trademarks which are, in whole or in part, derived from,
incorporate or are similar to any of the Ralston Trademarks or
names or elements of those marks or names.
e. Use of Licensed Trademarks. Except as otherwise specifically
provided for in this Agreement, Licensee hereby agrees, for
itself and its Affiliates and sublicensees, to limit its and
their use of the Licensed Trademarks and Trade Names to the
Licensed Products within the Territory. Licensee agrees to
cooperate to resolve conflicts resulting from sales of
Licensed Products violating third-party rights or jeopardizing
trademark rights of the Owners or contractual obligations of
the Owners to third parties.
f. Permission to Sell Trademarked Products Outside of the
Territory. Licensee may apply, in writing, to AGX for
permission to market Licensed Products bearing the Licensed
Trademarks outside the Territory. The decision to grant or
refuse such requests shall be within the sole discretion of
AGX and the Owners, provided however, that AGX and the Owners
shall not be required to grant any permission to Licensee
which would conflict or interfere with any rights granted to
any other person or entity for such Licensed Trademarks.
Except to the extent permitted by AGX, Licensee hereby agrees,
for itself and for its Affiliates and sublicensees, to limit
its use of the Licensed Trademarks and Licensed Trade Names to
the Territory; not to export from the Territory products on or
in connection with which Licensed Trademarks are used and not
to sell, deliver or otherwise convey such products to anyone
Licensee believes or has reason to believe will take the same
outside the Territory.
g. Permission to Use the Licensed Trademarks on Other Than
Licensed Products. Licensee may apply, in writing, to AGX for
permission to market products, other than Licensed Products,
bearing the Licensed Trademarks. The decision to grant or
refuse such requests shall be within the sole discretion of
AGX and the Owners, provided however, that AGX and the Owners
shall not be required to grant any permission to Licensee
which would conflict or interfere with any rights granted to
any other person or entity for such Licensed Trademarks.
h. Conflict with Owners' Agreements. Licensee shall cease use of
any Licensed Trademark with respect to any Licensed Product or
other manner of use upon notice from AGX or the Owners that
such use may conflict with the existing contractual
obligations of AGX or the Owners.
i. Ownership of Trademarks. Licensee hereby acknowledges that
Ralston, Agribrands and AGX are and will forever remain the
sole and rightful owner of the Ralston Trademarks, Agribrands
Trademarks and AGX Trademarks, respectively, and any use of a
7
<PAGE>
Licensed Trademark, or use of a Licensed Trademark in Trade
Names by Licensee or any Affiliate or other sublicensee
pursuant to this Agreement shall inure to the benefit of the
Owner of the specific trademark. Licensee agrees that during
the continuance and after a termination of this Agreement,
Licensee will not claim any right in or to any of the Licensed
Trademarks and Licensed Trademarks used in Trade Names, other
than the license to use the same as specifically provided
herein, nor will Licensee dispute or assist others to dispute
the ownership or validity of any of the Licensed Trademarks
and Licensed Trade Names. Licensee shall not acquire or have
any right, title or interest in and to the Licensed Trademarks
as a result of the use of the Licensed Trademarks.
j. Trademark Notices and Usage. Licensee agrees to make
reasonable efforts to use the Licensed Trademarks properly as
trademarks or service marks, by, for example: (i) using
(R),(TM), *, MD or MR or other appropriate trademark
registration symbols, (ii) employing notices indicating
Owner's ownership of the Licensed Trademarks; and (iii) using
Licensed Trademarks as adjectives followed by generic terms.
Licensee shall make advertising, packaging and labeling
available to AGX and the Owners upon their request from time
to time for the purposes of satisfying the Owners or AGX of
Licensee's compliance with this Agreement.
k. Registration. Licensee shall provide AGX with evidence of use,
specimens or other materials the Owners or AGX may reasonably
request to facilitate renewal or maintenance of registrations
of, or applications to register, the Licensed Trademarks. AGX
and the Owners shall have no further obligations to Licensee
under this Agreement with respect to any Licensed Trademark or
Licensed Trade Name in a given jurisdiction which has been or
will be abandoned as determined by the law of the applicable
jurisdiction or to the extent a registration covering the same
is canceled for any reason not caused by the Owners or is
canceled or rendered cancellable for non-use by Licensee for
Licensed Products in such country or for which Licensee has
not timely provided supporting evidence of use and paid for
renewal or maintenance of such trademarks.
l. Registration of This Agreement for Trademark Purposes.
Licensee agrees to assist the Owners in the filing of this
Agreement, subsequent agreements or any other instruments
before any governmental body or agency, including but not
limited to registered user agreements, which may be required
by the Owners and/or AGX and/or any government authority in
order to protect the trademark rights of the Owners and/or AGX
under this Agreement.
m. Use Only on Licensed Products. Except as specifically provided
elsewhere in this Agreement, Licensee shall not use any
Licensed Trademark, or term confusingly similar thereto, as a
trademark for, or Trade Name associated with, any product or
8
<PAGE>
service other than a Licensed Product. If Licensee
manufactures or sells any other product or renders any other
service, it shall conduct its business with respect to such
product or service not licensed to it hereunder under a Trade
Name which is approved by AGX. Licensee shall, however, have
the right to refer to its ownership of such business in its
annual reports and other contexts in which it is appropriate
to impart information about such ownership with the prior
written consent of AGX.
n. Infringements. Licensee shall forthwith notify AGX of any
infringement or suspected infringement of a Licensed Trademark
or any application for the registration of a mark which
Licensee believes should be opposed, any registration for a
mark which Licensee believes should be canceled, or any matter
or circumstance which would likely adversely affect the
trademark interest of the Owner or AGX. The initiation of any
action against any person using or infringing the Licensed
Trademarks shall be within the sole discretion of the Owner or
AGX, as appropriate; provided, however, that the cost of any
such proceedings (including but not limited to fees and
disbursements paid to counsel of the Owner's choice) within
the Territory shall be borne by Licensee. Licensee shall
supply such assistance and information as the Owner may
reasonably require in support of such action as the Owner
elects to take. Unless otherwise directed by the Owner or AGX,
Licensee shall not initiate any action against any person
using the Licensed Trademarks.
o. Reserved Rights of Owners. Licensee acknowledges that Ralston
reserved the right to use, and license other parties to use,
the Licensed Trademarks anywhere in the world for all products
and services other than Licensed Products and Agribrands and
AGX have reserved the right to use, and license other parties
to use, the Licensed Trademarks, other than the Ralston
Trademarks anywhere in the world for all products and
services.
p. Products to Bear Trademarks. Unless otherwise agreed in
writing by AGX, all Licensed Products produced and sold by
Licensee shall bear one or more of the Licensed Trademarks for
which a trademark registration is in effect in the Territory
at the time of the sale of the Licensed Product.
q. No Use of Similar or Confusing Trademarks. Licensee agrees
that neither it nor any of its Affiliates, sublicensees and
contract manufacturers, shall use a mark or name which is
likely to be similar to or confusing with the Licensed
Trademarks or which it is precluded from using pursuant to
this Agreement.
r. Promotional Products. Licensee may sell or distribute in the
Territory on a non-exclusive basis promotional products, such
as caps, T-shirts, hats and agriculturally oriented apparel
(e.g. jackets, shirts, pants, boots, belts), pens, balloons,
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mugs, key chains, calendars, pocket knives and the like
bearing Licensee's Trade Name and/or one or more Licensed
Trademarks for the purpose of developing goodwill and
promoting the Licensed Products for which Licensee are allowed
to use the Licensed Trademarks pursuant to this Agreement
provided such items do not infringe or otherwise violate
third-party rights. Licensee shall not object to use or
licensing by AGX or the Owners, Affiliates, sublicensees,
dealers , franchisees or other customers of the Licensed
Trademarks within the Territory.
s. Market Development. Licensee shall use its best efforts to
promptly develop and satisfy the broadest possible market for
Licensed Products within the Territory.
4. PRODUCT STANDARDS.
a. Quality Standards. Licensee shall at all times manufacture,
distribute and sell Licensed Products in accordance with the
Product Standards (products which are of a good and
merchantable quality), and the Legal Standards (products which
are in compliance with applicable laws and governmental
regulations relating to the nature and quality of the products
and all health, sanitation and other regulations and
requirements under the law of the Territory for the
manufacture, distribution and sale of such products). The
Product Standards and the Legal Standards shall be
collectively referred to as the "Quality Standards."
b. Samples. Licensee shall provide notice in writing to AGX in
advance of introduction of all new articles of Licensed
Products sufficiently in advance of sale or distribution to
afford AGX and the Owners an opportunity to request samples.
Upon request of AGX, at least two samples of each new article
of Licensed Products shall be furnished free of charge to AGX
from Licensee for the purpose of AGX's and the Owners'
examination and approval hereunder sufficiently in advance of
any sale or distribution thereof. Thereafter, any reduction in
the quality or change in the style of any of the Licensed
Products shall be submitted in like fashion for approval by
AGX in advance. From time to time reasonable quantities of
samples of Licensed Products shall be submitted at AGX's
request without charge to AGX for its examination and approval
as to the maintenance of the approved standards of quality and
style. Any material variation of a Licensed Product will be
submitted to AGX for approval by AGX and the Owners. The
absence of any objection by the Owners or AGX to submitted
samples within 20 days following submission thereof shall be
deemed to be acceptance.
c. Laws of Jurisdiction. Anything in this Agreement to the
contrary notwithstanding, if the laws of a particular
jurisdiction require a product to be of a higher quality than
that imposed by this Section 4 in order to preserve the
viability of the Licensed Trademarks, then such higher
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requirement shall apply hereunder in such jurisdiction.
d. Inspection. Upon request of AGX and without prior notice,
Licensee shall permit duly authorized representatives of AGX
and the Owners to inspect and examine during normal business
hours places of manufacture of Licensed Products bearing a
Licensed Trademark, to determine whether the Quality Standards
are being met. At such inspections, such representative shall
have the right to observe the production of Licensed Products
and the delivery of the services concerned. Licensee shall
reimburse AGX and the Owners for their incremental costs
reasonably incurred by them in connection with the inspections
carried out pursuant to this Section 4.d.
e. Product Standards
(i) Ingredients. Licensee shall at all times
strictly adhere to the Ingredient Specifications
established from time to time by AGX for the manufacture
of each Licensed Product. All raw materials used in
formulating the Licensed Products shall be of an
appropriate quality and type.
(ii) Production and Facilities. Licensee shall
manufacture each Licensed Product in a safe and sanitary
manner. Licensee shall strictly adhere to the Production
and Facilities Specifications established from time to
time by AGX.
(iii) Packaging. Licensee shall strictly adhere to
the Packaging Specifications established from time to
time by AGX.
(iv) Product Storage. The Licensed Products shall
be stored in accordance with the Licensed Product
Storage Specifications established from time to time by
AGX.
(v) Finished Product Specifications. The Licensed
Products shall meet all of the Legal Standards for the
sale of Licensed Products in the Territory and the
Finished Product Specifications established from time to
time by AGX.
f. Tests and Records. Licensee shall on a regular and continuous
basis conduct all appropriate tests as may be necessary to
manufacture Licensed Products in compliance with the above
referred to Quality Standards. In addition thereto Licensee
shall conduct the tests and provide to AGX the reports
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reasonably requested from time to time by AGX. Furthermore,
Licensee agrees to maintain the original records pertaining to
all such tests and reports regarding the Licensed Products for
a period of not less than six (6) months beyond the latest
date by which the product may be consumed by an animal.
g. Governmental Notices. Licensee shall notify AGX, in writing,
within 24 hours of receipt of any notice from any governmental
agency or public authority of any action to be taken by such
agency or authority which may pertain to the Licensed
Products.
h. Deficient Products. Licensee shall notify AGX, in writing,
within twenty-four (24) hours of receipt by Licensee of any
complaint by any customer that any Licensed Product is
adulterated, unsafe, mislabeled or otherwise unfit for sale.
Licensee shall, at its sole cost, promptly withdraw from the
market any Licensed Product which may be adulterated, unsafe,
mislabeled or otherwise unfit for sale.
i. Product Standards Are Confidential. The Product Standards
provided under the terms of this Agreement are confidential.
During the term of this Agreement and following expiration or
termination of this Agreement, Licensee shall preserve and
protect the confidential nature of the Product Standards and,
subject to the exceptions in Section 6, shall not disclose the
Product Standards to third parties without the prior written
consent of AGX.
5. LICENSE FEE.
a. License Fee. For the use of the Licensed Technology and
Licensed Trademarks, Licensee agrees to pay to AGX a fee equal
to two and one-quarter percent (2.25%) of the Net Sales (the
"Percentage of Net Sales Method"). In no event, however, shall
the fee be less than One Hundred Thousand (U.S.$100,000.00)
United States Dollars per Fiscal Year (the "Minimum Fee"). The
determination of whether the fee is to be based on the
Percentage of Net Sales Method or the Minimum Fee shall be
determined on a yearly basis for each Fiscal Year. In the
event of a partial Fiscal Year, the Minimum Fee amount shall
be prorated.
b. Where Payable. The fee shall be paid to AGX, or to such
accounts as AGX may designate from time-to-time.
c. How and When Payable.
i. Prior to the start of each Fiscal Year, Licensee and AGX
shall reasonably determine which of the Percentage of
Net Sales Method or Minimum Fee is expected to be
applicable for such upcoming Fiscal Year (the "Estimated
Method"). Licensee will calculate and pay an estimated
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fee during the first three Fiscal Quarters of such
upcoming Fiscal Year based upon the Estimated Method. If
at any time during the Fiscal Year, it appears that the
alternative method would be a more accurate estimate of
the fee payable for such Fiscal Year, then the Estimated
Method shall be changed to the more accurate estimate,
and, to the extent reasonably necessary, the payment
schedule shall be modified to reflect any overpayment or
underpayment from the amount of the fee payable for such
Fiscal Year using the method determined pursuant to
Section 5.a. .
ii. The payment of the fee for the final Fiscal Quarter for
such Fiscal Year shall correct for any underpayment or
overpayment of fees paid during such Fiscal Year using
the Estimated Method as compared to fees payable for
such Fiscal Year using the method determined pursuant to
Section 5.a. In all events, the final payment for the
Fiscal Year shall be of the amount necessary so that the
total fee paid for such Fiscal Year equals the fee
determined pursuant to Section 5.a.
iii. The fee shall be calculated and accrued on a monthly
basis as of the last business day of each month. The
total amount owed to AGX at the end of each month shall
be converted into United States Dollars at the official
rate of exchange for purchasing United States Dollars in
effect as of the last business day of each month. The
United States Dollar amount so obtained will then become
the obligation payable by Licensee to AGX, regardless as
to whether the available exchange rate in effect on the
date of the actual wire transfer is different. The fee
for each month shall be payable within thirty (30) days
following the end of such month.
iv. Notwithstanding the immediately preceding sentence, (i)
if the fee payable for the first month of a Fiscal
Quarter is less than US $100,000, then Licensee may
defer payment of such fee and pay such monthly fee with
the fee for the second month of such Fiscal Quarter;
(ii) if the total fee payable for the first and second
months (if the first month fee is rolled over) or the
second month of a Fiscal Quarter is less than US
$100,000, then Licensee may defer payment of such fees
and pay such fees with the fee for the third month of
such Fiscal Quarter; and (iii) by not later than thirty
(30) days following the end of each Fiscal Quarter the
amount payable for each Fiscal Quarter shall be paid.
d. Payable in U.S. Dollars; Late Payment. The fee shall be
payable in United States Dollars which shall be deemed to be
the legal currency of payment. In the event that Licensee
shall fail to timely deliver payment to AGX, then interest
shall accrue on the amount payable at three (3%) percent over
the London Inter Bank Offer Rate for a loan of a like amount
in United States Dollars for a like period. Licensee shall
indemnify and hold harmless AGX from any exchange risk to
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which AGX may be exposed in the event that Licensee fails to
timely deliver payment to AGX.
e. Withholding Taxes. All withholding taxes on payments to AGX
under the terms of this Agreement shall be deducted from the
gross amount due hereunder and paid by Licensee to the
appropriate government authority. Each payment shall be
accompanied by one or more receipts evidencing the withholding
and payment by Licensee for the account of AGX of the
corresponding amount of income and/or withholding tax levied
thereon by the appropriate authorities within the Territory.
f. Report. By not later than the fifth (5th) day following the
end of each month Licensee shall deliver to AGX a report in
the form established from time to time by AGX.
g. Records; Audit. Licensee agrees to keep complete and accurate
production, inventory and sales books and records relating to
the production, marketing and sale of Licensed Products. AGX
and its duly authorized representatives shall have the right,
during normal business hours, to inspect, audit and copy such
records. In the event that any such audit reveals an
underpayment of the license fee, Licensee shall reimburse AGX
for the costs and expenses of such audit, including but not
limited to the professional accounting and legal fees and
expenses incurred in connection therewith.
6. CONFIDENTIALITY.
a. Acknowledgments and Covenants. Licensee acknowledges,
understands and agrees that: (i) the Owners have expended
substantial time, money and effort researching and developing
their respective Licensed Technology; (ii) the Licensed
Technology provides them with a significant competitive
advantage in the marketplace; (iii) the Licensed Technology,
together with all improvements, enhancements and modifications
thereto, is the confidential, proprietary and trade and
industrial secret information and property of the Owners; (iv)
if the Licensed Technology was disclosed or misused, the
Owners would suffer substantial irreparable harm and likely
lose their competitive advantage in the marketplace; (v) as of
the date of this Agreement, Licensee is not aware of any facts
or allegations which would, in any way or manner, compromise
the confidentiality, propriety and trade and industrial secret
status of any of the Licensed Technology; and (vi) Licensee
will not make any use of any portion of the Licensed
Technology in a manner inconsistent with the provisions of
this Agreement.
b. Security Measures. Licensee agrees it will use commercially
reasonable security measures and efforts to ensure that the
Licensed Technology is kept and retained in confidence and
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secret; however, in no event shall the degree of care
exercised by Licensee be any less than the degree of care it
employs to maintain and protect the confidentiality of its own
confidential or proprietary information.
c. No Disclosure. Licensee agrees that it will not disclose or
reveal to any other person or entity (except as permitted
herein) the Licensed Technology subject to the provisions of
Section 6.h.
d. Permitted Disclosure; Improvements. Licensee agrees that it
will only disclose the Licensed Technology to its suppliers,
customers, sublicensees, employees, agents, officers, and
directors which have a need to know such information in
connection with the purpose of any licenses granted Licensee
herein and, further, that prior to disclosing any Licensed
Technology to any such persons it will require any such
suppliers, customers, sublicensees, employees, agents,
officers, and directors to agree in writing to be bound by and
comply with the provisions of this Section 6 to the same
extent as Licensee herein. Licensee further agrees that all
rights in and to any inventions, improvements, enhancements
and modifications made by any such persons related to the
Licensed Technology, including any intellectual property
rights therein, are owned by and are hereby transferred to
AGX. Licensee further agrees that each of its employees,
consultants and agents engaged in research, development and/or
formulation shall sign and deliver to the Licensee, as an
agent for AGX, Agribrands, and Ralston, an acknowledgment in
the form of Schedule E attached hereto and incorporated herein
by reference which schedule may be amended from time to time
by the parties hereto. The original executed copies of
Schedule E shall be maintained in the offices of the Human
Resources Department of the Licensee and upon request Licensee
shall furnish the originals or copies to AGX.
e. Unauthorized Use by Others. Licensee agrees to promptly notify
AGX of any unauthorized use of any Licensed Technology to the
extent Licensee learns or otherwise becomes aware of any
unauthorized use and to reasonably cooperate with Owners in
pursuing and protecting the legal rights of the Owner in
regard to such unauthorized use.
f. Breach or Threatened Breach. In the event of a breach or
threatened breach of any of Licensee's duties and obligations
under the terms and provisions of this Section 6, each of AGX
and the Owners shall be entitled, in addition to any other
legal or equitable remedies that they, respectively, may be
entitled to (including any rights to damages that such party
may suffer), temporary, preliminary and permanent injunctive
relief restraining such breach or threatened breach.
g. Disposal. Prior to disposing of any documentation, media,
software, or the like, containing or reflecting any Licensed
Technology, Licensee agrees that it will first destroy,
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obliterate, and/or otherwise remove any and all Licensed
Technology from such materials. Prior to disposing of any X4X
extruders supplied by Ralston, Licensee shall notify AGX in
writing and request what, if any, alterations need to be made
to said extruders to remove any Licensed Technology prior to
such disposal and Licensee shall make such alterations prior
to said disposal. AGX shall respond to Licensee within 30 days
of the receipt of said notice.
h. Exceptions. Notwithstanding any other provision of this
Agreement, Licensee shall not have any obligations respecting,
nor be liable for, the use and disclosure thereof, if Licensee
can prove that the information: (a) was known to the trade or
public at the time that the information was disclosed to it;
or (b) is or becomes generally known to the trade or public
through no fault on the recipient party's part; or (c) is
independently generated after the date of this Agreement by
employees of a party, or on its behalf by its agents,
contractors, or consultants, without the use or benefit of any
Licensed Technology; or (d) is legally required to be
disclosed by Licensee under non-confidential circumstances
pursuant to the laws of any exchange on which the shares of
Licensee are traded or legal process only so long as Licensee:
(i) first provides AGX with reasonable advance written notice
of any such impending disclosure and/or service of legal
process; and (ii) Licensee takes all necessary steps to ensure
that the Licensed Technology retains its confidential status
through the implementation of, among other things, the use
and/or entry of appropriate confidentiality agreements and/or
protective orders.
7. WARRANTIES.
a. Licensed Technology. Licensee understands, acknowledges and
agrees that neither AGX nor the Owners have made any, makes
no, and expressly disclaims any and all, representations or
warranties (and Licensee expressly waives and releases AGX and
the Owners from any and all representations or warranties),
express or implied, regarding AGX's and the Owners' and/or
Licensee's right to make, use, offer for sale, license, and/or
sell any of the rights transferred, granted and/or licensed to
Licensee under this Agreement, and/or any goods and/or
services employing any of the rights transferred, granted
and/or licensed to Licensee under this Agreement, including,
but not limited to, any implied warranties of title, claims of
superior rights, infringement, right to use, or the like, in
or to any of the Licensed Technology.
b. AGX and Owner Liability. Licensee understands, acknowledges
and agrees that in no event shall AGX or the Owners be liable
to Licensee, any permitted sub-licensee under this Agreement,
and/or any other persons or entities, regardless of the form
of a cause of action, whether in contract, tort or under a
statute, including, but not limited to, negligence, strict
liability, product liability, environmental liability, patent
infringement, misappropriation of trade secrets, trademark
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infringement, copyright infringement, unfair competition, or
the like, which in any way arises out of and/or is related to
Licensee's, any permitted sub-licensee's, and/or any other
person's and/or entity's, manufacture, use, offer for sale,
license, and/or sale of any of the rights granted to licensed
to Licensee under this Agreement, and/or any goods and/or
services employing any of the rights granted or licensed to
Licensee under this Agreement.
c. Trademarks. AGX hereby represents and warrants that it is the
Licensee or sub-licensee of the Owners of the Licensed
Trademarks and that AGX, Agribrands or Owners, as appropriate,
are the owners of record of the Licensed Trademarks in the
class indicated on the Schedules hereto. The Owners are under
no obligation to maintain the trademark registrations
pertaining to the Licensed Trademarks. AGX and the Owners
collectively disclaim any warranty of validity, right to use
or right exclusively to use or register the Licensed
Trademarks or any of them.
8. TERM AND TERMINATION.
a. Term. This Agreement shall be effective from the date first
above written and shall continue in effect, unless sooner
terminated as provided below, for ______ (#) years from such
date. The parties agree to extend the Agreement for successive
and consecutive _________ (#) year terms, subject to the
approval of the appropriate governmental agency, if required,
unless by notice in writing a party notifies the other party
not less than one hundred and eighty (180) days prior to the
end of the initial term or any subsequent renewal term of its
intention not to renew this Agreement.
b. Termination Upon Notice. Notwithstanding any other provision
of this Agreement, the parties by mutual consent may terminate
this Agreement at any time.
c. Termination. This Agreement shall, unless the parties
otherwise agree, terminate upon the occurrence of any of the
following:
i. If Licensee fails to timely make any payment when due;
ii. If Licensee breaches the observance or performance of
any of the provisions of this Agreement, including,
but not limited to, the provisions of Section 6,
thirty (30) days after notice in writing of said
breach;
iii. If Licensee shall be unable to fulfill any provision
of this Agreement by reason of force majeure for a
period of more than twelve (12) months and AGX shall
have given Licensee notice, in writing, terminating
this Agreement;
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iv. At AGX's option, if any of the assets of Licensee are
or if ownership of Licensee is taken or expropriated
by any governmental agency or body or:
v. If Licensee makes an assignment of assets or business
for the benefit of its creditors, a trustee or
receiver is appointed to administer or conduct its
business or affairs, it is adjudged in any proceeding
to be bankrupt or insolvent or it is unable to pay
its debts when said debts become due in the ordinary
course of business;
vi. In the event of a significant change (more than 25%)
in the voting, profits or ownership interest of
Licensee without the prior written consent of AGX; or
vii. The license with respect to the Ralston Trademarks or
Ralston Technology is terminated.
d. Upon Termination of This Agreement. Upon the termination of
this Agreement for any reason whatsoever:
i. All amounts unpaid by Licensee shall accrue and
immediately become due and payable to AGX and
Licensee's right to use the Licensed Technology and
Licensed Trademarks shall terminate immediately;
ii. Licensee will promptly execute and deliver to AGX
within thirty (30) days following the date of
termination, all assignment documents and instruments
deemed necessary by AGX and/or Owners to divest
Licensee of any and all rights or claims to the
Technology and Licensed Trademarks under or arising
out of this Agreement;
iii. Licensee shall immediately cease and desist from all
use of any of the Licensed Trademarks, and shall
deliver to AGX all products, advertising, packaging
and promotional material bearing the Licensed
Trademarks and Licensee shall deliver such material
to AGX within 30 days from the date of termination;
and
iv. Licensee shall immediately cease and desist from all
use of any of the Licensed Technology in case of
early termination of this Agreement due to reasons
attributable to the Licensee, and shall promptly
deliver to AGX all copies of any documentation and
things embodying or containing any such Licensed
Technology and Licensee shall deliver such material
to AGX within 30 days from the date of termination.
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e. Survivability. The provisions of Sections 5, 6, 8.d and 9
shall survive the termination of this Agreement.
9. INDEMNIFICATION AND INSURANCE.
a. Indemnification. Licensee agrees to defend, indemnify and hold
Owners, AGX, and their respective Affiliates, officers,
directors, employees, agents, successors and assigns harmless
from and against any and all claims, demands, actions, causes
of action, judgments, losses, damages, costs and expenses
(including, but not limited to, attorneys' and expert witness
fees and expenses) arising out of or relating to: (i) the
breach by Licensee of any warranty, representation, covenant,
commitment or undertaking made hereunder; (ii) any act or
omission of Licensee, its agents or employees; (iii) any
allegation relating to the production, manufacture, shipment,
disposal, marketing, advertising, promotion, distribution,
use, offer for sale, or sale of any goods and/or services by
Licensee and/or on Licensee's behalf including: (iv) any and
all alleged negligent acts, fraud or omissions of or by
Licensee, its officers, directors, employees, agents,
independent contractors, and/or sub-licensees, in connection
with the production, manufacture, marketing, advertising,
promotion, distribution, use, offer for sale, or sale of any
goods and/or services including: (v) any and all allegations
relating in any way or manner to products liability, defective
goods, failure to warn, environmental law, or the like, as
applied to goods and/or services produced, manufactured,
marketed, advertised, promoted, distributed, used, offered for
sale, or sold by or on behalf of Licensee; or (vi) Licensee's
alleged or actual failure to comply with any governmental
and/or other laws, statutes, ordinances, rules, and/or
regulations.
b. Indemnification Procedure. AGX or the Owners shall promptly
notify Licensee of such liability, claim, demand, action or
cause of action; provided, however, that failure to give such
prompt notification shall not release Licensee from its
indemnity obligation. Licensee shall have the right to control
the defense of such claim; provided, however, that Licensee
shall not settle any claim affecting any Owner's right to use
any Licensed Trademark or Licensed Technology without the
prior written consent of such Owner. The Owner shall not
unreasonably delay or withhold its consent. Licensee may elect
to defend against any claim without thereby waiving any
objection as to Licensee's obligation to defend AGX and the
Owners therefrom. AGX and the Owners shall have the right to
participate in the defense of such claim through counsel of
its own selection at its own expense. If Licensee does not
defend against a claim for which it is obligated to indemnify
AGX and the Owners, then AGX and the Owners may defend against
all such claim at Licensee's expense.
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c. Required Insurance. Licensee at all times shall maintain
adequate levels of public liability insurance, including
products liability which protects Licensee, AGX and the
Owners. Such coverage shall also include broad-form
contractual coverage applicable to all indemnities given by
Licensee under this Agreement. Such insurance shall provide
for thirty (30) days advance written notice of termination,
revocation or diminution of coverage. AGX from time to time
may advise Licensee, in writing, of the minimum amounts of
coverage it deems to be adequate.
d. Certificates of Insurance. At all times during the term of
this Agreement, Licensee, upon request by AGX, in writing,
shall furnish AGX with a certificate from its insurer
verifying that it has the foregoing insurance in effect. Such
certificate of insurance shall require Licensee's insurance
carrier to give AGX not less than thirty (30) days written
notice of any cancellation or change in the coverage.
10. ASSIGNMENT. Licensee may not assign, license, sublicense or otherwise
transfer its rights or obligations under this Agreement either by
affirmative act, by operation of law, by share ownership or otherwise,
without the prior written consent of AGX and the Owners which may be
withheld in their respective sole discretions. "Transfer" as used in
this Section 10 shall mean: (a) the transfer, assignment, or conveyance
(by any means including, but not limited to, operation of law) of all
or part of Licensee's interest in, to, or under this Agreement or its
rights or obligations hereunder; and/or (b) to one or more
third-party(ies) acquiring, purchasing, and/or gaining (by any means
including, but not limited to, operation of law) a voting, profits or
equity interest of 10% or more in Licensee. AGX may transfer all or
some of its rights and obligations under this Agreement at any time or
times. This Agreement shall bind and inure to the benefit of the
parties, and their respective successors and permitted assigns.
11. INDEPENDENT CONTRACTOR. This Agreement shall not make or constitute
Licensee the legal representative or agent of AGX or the Owners, nor
shall Licensee have the right or authority to assume, create or incur
any liability or obligation of any kind, express or implied, against
the interest or in the name of AGX or the Owners.
12. NON-WAIVER OF RIGHTS. Neither party shall be deemed to have waived or
impaired any right, power or option created or reserved by this
Agreement (including without limitation, each party's right to demand
compliance with every term herein, or to declare any breach a default
and exercise its rights in accordance with the terms hereof) by virtue
of: (i) any custom or practice of the parties at variance with the
terms hereof; (ii) any failure, refusal or neglect to exercise any
right hereunder, or to insist upon compliance with any term; (iii) any
waiver, forbearance, delay, failure or omission to exercise any right
or option, whether of the same, similar or different natures, under
this Agreement or in any other circumstances; or (iv) the acceptance by
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either party of any payment or other consideration from the other
following any breach of this Agreement.
13. NOTICES. All notices required under this Agreement shall be in writing
and may be sent via facsimile or international air courier and shall be
deemed to be properly delivered upon receipt by the appropriate party.
If to AGX at:
If to Licensee at:
or to such other address as either party may from time to time
designate to the other party in writing.
14. ENTIRE AGREEMENT. This Agreement and the Schedules, constitute the
entire agreement between Licensee and AGX (on its own behalf and as the
representative for the Owners) in connection with the subject matter
thereof and supersedes all documents and correspondence entered into
prior to the date hereof.
15. AMENDMENT. This Agreement may be amended pursuant to a written
agreement between the parties. This Agreement may also be amended upon
notice by AGX to Licensee of (i) any amendments to this Agreement
necessary to reflect any termination of or amendment by the Ralston to
the Agribrands trademark license or the Ralston to Agribrands
technology license; and (ii) such other amendments as deemed necessary
or reasonable by AGX.
16. FORCE MAJEURE. Neither party shall be liable in damages or otherwise
for any delay or default in performance under this Agreement (except
for the prompt payment of the fees due under Section 5) where such
delay or default is due to any cause beyond its control. In the event
that any such delay shall be continuing for a period in excess of 12
months, then AGX upon notice, in writing, to Licensee may terminate
this Agreement.
17. DISPUTE RESOLUTION. In the event that any dispute is not resolved as
provided for above, then all such disputes arising under this
Agreement, including but not limited to the validity and enforceability
of any provision of this Agreement shall be finally submitted to
binding arbitration in accordance with the International Arbitration
Rules of the American Arbitration Association in effect as of the date
of this Agreement. The number of arbitrators shall be one and shall be
a person familiar with the legal system of the United States and
____________________. All arbitral proceedings will be held in
Wilmington, Delaware, U.S.A. and shall be conducted in the English
language. The decisions of the arbitrator shall be final and
21
<PAGE>
nonappealable. The arbitration award shall be final and binding upon
the parties, not subject to appeal and shall deal with the question of
the costs and legal fees incurred in connection with the arbitration
proceeding.
18. CUMULATIVE REMEDIES. The rights and remedies set forth in this
Agreement are in addition to any other rights or remedies which may be
granted by law.
19. SEVERABILITY. If any obligation or provision of this Agreement or the
application thereof shall, to any extent, be invalid or unenforceable,
then the remainder of the Agreement or application of such obligation
or provision other than that which is held invalid or unenforceable,
shall be given full force and effect.
20. GOVERNING LANGUAGE. The official text of this Agreement is in the
English language. If the Agreement is translated into any other
language for the convenience of the parties or any other person, the
English language text shall govern any question with respect to
interpretation.
21. GOVERNING LAW. The construction, interpretation and performance of this
Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this Agreement on the day and year first above set forth.
AGX SERVICES, INC.
("AGX") ("Licensee")
By:__________________________ By: _________________________
Name:________________________ Name: _______________________
Title:_______________________ Title: ______________________
Its Authorized Representative Its Authorized Representative
22
<PAGE>
LIST OF SCHEDULES AND APPENDICES
Schedule A - Ralston Trademarks
Schedule B - Agribrands Trademarks
Schedule C - AGX Trademarks
Schedule D - Territory
Schedule E - Confidentiality and Intellectual Property Rights Acknowledgment
23
<PAGE>
SCHEDULE A
Ralston Trademarks
Agreed by and between the parties to that certain Technology and Trademark
License Agreement dated as of ________________.
AGX SERVICES, INC.
("AGX") ("Licensee")
By:__________________________ By: _________________________
Name:________________________ Name: _______________________
Title:_______________________ Title: ______________________
Its Authorized Representative Its Authorized Representative
24
<PAGE>
SCHEDULE B
Agribrands Trademarks
Agreed to by and between the parties to that certain Technology and Trademark
License Agreement dated as of ___________________.
AGX SERVICES, INC.
("AGX") ("Licensee")
By:__________________________ By: _________________________
Name:________________________ Name: _______________________
Title:_______________________ Title: ______________________
Its Authorized Representative Its Authorized Representative
25
<PAGE>
SCHEDULE C
AGX Trademarks
Agreed to by and between the parties to that certain Technology and Trademark
License Agreement dated as of ________________.
AGX SERVICES, INC.
("AGX") ("Licensee")
By:__________________________ By: _________________________
Name:________________________ Name: _______________________
Title:_______________________ Title: ______________________
Its Authorized Representative Its Authorized Representative
26
<PAGE>
SCHEDULE D
Territory
Licensee shall apply for and seek the prior written consent of AGX for the
amendment of this Schedule to expand the Territory.
Agreed to by and between the parties to that certain Technology and Trademark
License Agreement dated as of _____________________
AGX SERVICES, INC.
("AGX") ("Licensee")
By:__________________________ By: _________________________
Name:________________________ Name: _______________________
Title:_______________________ Title: ______________________
Its Authorized Representative Its Authorized Representative
27
<PAGE>
SCHEDULE E
Confidentiality and Intellectual Property Rights Acknowledgment
I, the undersigned employee, consultant or agent of _______________ ("Licensee")
hereby acknowledge and agree as follows:
1. I have been informed that Licensee has been granted a license to
certain technology and trademarks of Ralston Purina Company, a
corporation organized under the laws of Missouri, United States of
America ("Ralston"), Agribrands International, Inc., a corporation
organized under the laws of Missouri, United States of America
("Agribrands") and ("AGX") pursuant to that Technology and Trademark
License Agreement between Licensee and AGX dated ______, 199_ (the
"License Agreement"). I understand that I may review a copy of the
License Agreement at the Licensee's offices at such times as I
reasonably request.
2. Licensee proposes to disclose to me all or a portion of the Licensed
Technology which has been licensed to Licensee under the License
Agreement.
3. In consideration of such disclosure to me, I agree that I am bound by
and subject to the terms, conditions and restrictions set forth in
Section 6 of the License Agreement to the same extent that Licensee is
obligated therein. Without limiting such obligation, I further
understand and acknowledge that Section 6 of the License Agreement
provides in part as follows:
1. the Licensed Technology, together with all inventions,
improvements, enhancements and modifications thereto, is the
confidential, proprietary and trade secret information and
property of Ralston, Agribrands and AGX;
2. I will not make any use of any portion of the Licensed
Technology in a manner inconsistent with the provisions of the
License Agreement;
3. I will not disclose or reveal the Licensed Technology to any
other person or entity except as permitted in and subject to
the provisions of the License Agreement; and
4. In the event of my breach or threatened breach of any of my
duties and obligations under the terms and provisions of
Section 6 of the License Agreement, each of AGX, Agribrands
and Ralston shall be entitled, in addition to any other legal
or equitable remedies that they, respectively, may be entitled
to (including any rights to damages that such party may
suffer), to temporary, preliminary and permanent injunctive
relief restraining such breach or threatened breach.
28
<PAGE>
4. I further agree that all rights in and to any inventions, improvements,
enhancements and modifications made by me related to the Licensed
Technology, including any intellectual property rights therein, are
owned by and are hereby transferred to AGX.
Signature:
-----------------------------
Name:
----------------------------------
Date:
----------------------------------
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 11/30/99
AGRIBRANDS INTERNATIONAL, INC. BALANCE SHEET AND STATEMENT OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001047598
<NAME> AGRIBRANDS INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 178,800
<SECURITIES> 1,700
<RECEIVABLES> 89,000
<ALLOWANCES> 12,100
<INVENTORY> 82,700
<CURRENT-ASSETS> 345,600
<PP&E> 349,200
<DEPRECIATION> 175,800
<TOTAL-ASSETS> 574,500
<CURRENT-LIABILITIES> 147,500
<BONDS> 11,400
<COMMON> 100
0
0
<OTHER-SE> 386,100
<TOTAL-LIABILITY-AND-EQUITY> 574,500
<SALES> 300,900
<TOTAL-REVENUES> 300,900
<CGS> 247,200
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<OTHER-EXPENSES> 31,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 900
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<INCOME-TAX> 7,100
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<FN>
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