REGISTRATION NO. 1-15401
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
ENERGIZER HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-1863181
(STATE OF INCORPORATION) (I.R.S.EMPLOYER
IDENTIFICATION NO.)
800 CHOUTEAU
ST. LOUIS, MISSOURI 63102
(ADDRESS OF PRINCIPAL OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 982-2970
Securities to be registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH EACH CLASS IS TO BE
TITLE OF EACH CLASS TO BE SO REGISTERED REGISTERED
------------------------------------------ -------------------
Common Stock, $.01 par value New York Stock Exchange, Inc.
Common Stock Purchase Rights New York Stock Exchange, Inc.
Securities to be registered pursuant to Section 12(g) of the Act: None
<PAGE>
ENERGIZER HOLDINGS, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- -------------- ---------------------------------
1. Business BUSINESS AND PROPERTIES
2. Financial Information SUMMARY SELECTED HISTORICAL
FINANCIAL INFORMATION;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATION
AND FINANCIAL CONDITION
3. Properties BUSINESS AND PROPERTIES--Properties
4. . Security Ownership of Certain Beneficial
Owners and Management STOCK OWNERSHIP INFORMATION
5. Directors and Executive Officers MANAGEMENT
6. Executive Compensation EXECUTIVE COMPENSATION; ENERGIZER
COMPENSATION AND BENEFIT PLANS
7. Certain Relationships and Related Transactions AGREEMENTS BETWEEN RALSTON AND
ENERGIZER; CERTAIN TRANSACTIONS
8. Legal Proceedings BUSINESS AND PROPERTIES-Legal
Proceedings
9. . Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters THE DISTRIBUTION--Listing and Trading of
Energizer Stock
11.. Description of Registrant's Securities to be DESCRIPTION OF ENERGIZER CAPITAL
Registered STOCK; ANTI-TAKEOVER EFFECTS OF
CERTAIN PROVISIONS
12. Indemnification of Directors and Officers INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
OF ENERGIZER
13. Financial Statements and Supplementary Data INDEX TO FINANCIAL INFORMATION OF
ENERGIZER HOLDINGS, INC.
</TABLE>
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
Item 10. Recent Sales of Unregistered Securities.
Energizer Holdings, Inc. was incorporated as a Missouri corporation on
September 23, 1999. It issued 1000 shares of its $1.00 par value common stock
to Eveready Battery Company, Inc. on that date in consideration of a capital
contribution of $1,000. The issuance was exempt from registration under the
Securities Act of 1933, pursuant to Section 4(2) of the Act, because the
issuance did not involve any public offering of securities.
.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements--See Index to Financial Information
(b) Exhibits:
EXHIBIT NO. DESCRIPTION
- ------------ -----------
2.1 Form of Agreement and Plan of Reorganization
2.2 Form of Tax Sharing Agreement
2.3 Form of Bridging Agreement
2.4 Form of Aircraft Joint Ownership Agreement
2.5 Form of Lease Agreement
2.6 Form of Intellectual Property Agreement
3.1 Articles of Incorporation of Energizer Holdings, Inc.
3.2 Bylaws of Energizer Holdings, Inc.
4.1 Form of Rights Agreement between Energizer Holdings, Inc. and
Continental Stock Transfer & Trust Company, as Rights Agent
10.1 Form of Energizer Holdings, Inc. Incentive Stock Plan
10.2 Form of Energizer Holdings, Inc. Non-Qualified Deferred
Compensation Plan
10.3 Form of Change of Control Employment Agreements
10.4 Form of Indemnification Agreements with Executive Officers
and Directors
10.5 Form of Executive Savings Investment Plan
10.6 Form of Executive Health Insurance Plan
10.7 Form of Executive Long Term Disability Plan
10.8 Form of Financial Planning Plan
10.9 Form of Executive Group Personal Excess Liability Insurance Plan
10.10 Form of Executive Retiree Life Plan
10.11 Form of Supplemental Executive Retirement Plan
10.12 Financing Term Sheet
21 List of Energizer Subsidiaries
27 Financial Data Schedule
ENERGIZER HOLDINGS, INC.
800 Chouteau Avenue
St. Louis, Missouri 63102
April 1, 2000
Dear Shareholder:
I am pleased to welcome you as a shareholder of Energizer Holdings, Inc.,
the world's largest manufacturer of primary batteries and flashlights.
Although Energizer is a new public company, its business is well
established. Our "Eveready" brand has been synonymous with batteries and
flashlights for almost 100 years, and today our world-class "Energizer" brand
products are known globally for long-lasting service and dependability. Our
"Energizer" and "Eveready" brand products are distributed in more than 160
countries. We carry forward a reputation for providing products of the highest
quality and value, and a tradition of innovation and continuously improved
batteries and lighting products.
I welcome your participation as an Energizer shareholder and look forward
to continuing our tradition of working on your behalf.
Sincerely,
J. Patrick Mulcahy
Chief Executive Officer
Energizer Holdings, Inc.
<PAGE>
RALSTON PURINA COMPANY
April 1, 2000
Dear Ralston Purina Shareholder:
I am pleased to inform you that on March 16, 2000, the Board of Directors
of Ralston Purina Company declared a distribution to Ralston's stockholders of
shares of the common stock and related common stock purchase rights of Energizer
Holdings, Inc., currently a wholly owned subsidiary of Ralston. The
distribution will occur as of 12:01 a.m. CST on April 1, 2000.
Energizer and its subsidiaries will continue to operate their worldwide
battery business. Following the distribution, Energizer will conduct that
business as a separate, publicly-owned company.
If you are a shareholder of record of Ralston Stock as of the close of
business on March 31, 2000, the record date for the distribution, you will
receive one share of Energizer Stock for every three shares of Ralston Stock you
own (and a cash payment instead of any fractional share of Energizer Stock). No
action is required on your part in order to receive your distribution. The
distribution of Energizer Stock will generally be tax-free to you for federal
income tax purposes, but any cash that you receive instead of fractional shares
will be taxable to you. You will receive your Energizer Stock certificate (and
any cash payment for fractional shares) in a separate mailing shortly after
April 1, 2000.
The attached Information Statement describes the distribution in detail and
contains important information about Energizer, including financial statements
and other financial information. The Information Statement is being provided to
all Ralston stockholders in connection with the distribution of Energizer Stock.
Energizer Stock will be listed and traded on the New York Stock Exchange,
and its stock symbol will be "ENR".
Your Board of Directors has carefully considered the spin-off of the
Energizer business. The Board and I believe that the spin-off is in the best
interests of the shareholders of Ralston, and will result in changes that should
benefit both Energizer and Ralston. After the spin-off, Ralston and Energizer
will each be an independent company with its own board of directors and
management group. We believe that each group will be able to be more focused on
the challenges and competition facing their businesses.
Sincerely,
W. Patrick McGinnis
Chief Executive Officer and President
Ralston Purina Company
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 3 to Form 10
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized.
ENERGIZER HOLDINGS, INC.
By:/s/ Daniel E. Corbin, Jr.
Daniel E. Corbin, Jr.
Executive Vice President,
Finance and Control
Energizer Holdings, Inc.
March 16, 2000
INFORMATION STATEMENT
ENERGIZER HOLDINGS, INC.
COMMON STOCK
($.01 par value)
Ralston Purina Company is furnishing you with this Information Statement in
connection with its distribution to its stockholders of 100% of the shares of
the common stock of its subsidiary, Energizer Holdings, Inc. (as well as related
common stock purchase rights). Following the distribution, Ralston will not own
any Energizer Stock and Energizer will be an independent public company.
Ralston's common stock is referred to as "Ralston Stock", Energizer's common
stock is referred to as "Energizer Stock", and the distribution of the Energizer
Stock is referred to as the "distribution", throughout the rest of this
document.
The distribution will be made on April 1, 2000. You will receive one share
of Energizer Stock for every three shares of Ralston Stock which you hold as of
the close of business on March 31, 2000.
No stockholder action is necessary to receive the shares of Energizer Stock
in the distribution. This means that:
- - You do not need to pay any consideration to Ralston or to Energizer.
- - You do not need to surrender or exchange any shares of Ralston Stock to
receive your shares of Energizer Stock in the distribution.
In addition, a stockholder vote is not required for the distribution to occur.
Ralston is not asking you for a proxy, and requests that you do not send a
proxy. Neither Ralston nor Energizer will receive any cash or other proceeds
from the distribution.
Energizer Stock will be listed and traded on the New York Stock Exchange,
Inc. ("NYSE") under the symbol "ENR". There has been no trading market for
Energizer Stock. However, we expect that a limited market for the Energizer
Stock will develop on or shortly before March 31, 2000, the record date for the
distribution.
As you review this Information Statement, you should carefully consider the
matters described under the caption "THE DISTRIBUTION -- Risk Factors."
---------------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
Information Statement is truthful or complete. Any representation to the
contrary is a criminal offense.
- --------------------------
THE DATE OF THIS INFORMATION STATEMENT IS MARCH 20, 2000.
INFORMATION STATEMENT
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE
DISTRIBUTION OF ENERGIZER STOCK 4
INTRODUCTION 7
SUMMARY 8
SUMMARY OF SELECTED HISTORICAL
FINANCIAL INFORMATION 11
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION 12
FORWARD-LOOKING STATEMENTS 15
THE DISTRIBUTION 15
Background and Reasons for the
Distribution 15
Advice Provided by Financial Advisor 18
Risk Factors 19
Manner of Effecting the Distribution 27
Federal Income Tax
Consequences of the Distribution 28
Listing and Trading of Energizer Stock 29
Energizer Stock Received by
Benefit Plans 30
REGULATORY APPROVALS 31
AGREEMENTS BETWEEN RALSTON AND
ENERGIZER 31
Agreement and Plan of
Reorganization 31
Tax Sharing Agreement 37
Bridging Agreement 37
Lease Agreement 37
Foreign Distribution Agreements 38
Aircraft Joint Ownership Agreement 38
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION 39
BUSINESS AND PROPERTIES . 52
Background 52
Patents, Technology and Trademarks 54
Energizer's Objectives and Strategy 54
Sales and Distribution 57
Competition 57
Employees 60
Raw Materials 60
Governmental Regulation; Environmental
Matters 60
Legal Proceedings 61
Properties 63
MANAGEMENT 64
Directors of Energizer 64
Directors' Meetings and
Committees 65
Director Compensation 66
Compensation Committee Interlocks
and Insider Participation 67
Executive Officers of Energizer 67
EXECUTIVE COMPENSATION 69
ENERGIZER COMPENSATION AND
BENEFIT PLANS 71
Energizer Incentive Stock Plan 71
Savings Investment Plan 76
Deferred Compensation Plan 78
Change of Control Employment Agreements 79
Other Executive Benefit Plans 79
CERTAIN TRANSACTIONS 79
STOCK OWNERSHIP INFORMATION 80
DESCRIPTION OF ENERGIZER CAPITAL
STOCK 82
Authorized Capital Stock 82
Energizer Common Stock 82
Preferred Stock 83
Common Stock Purchase Rights 84
Transfer Agent 86
ANTI-TAKEOVER EFFECTS OF CERTAIN
PROVISIONS 87
Classified Board of Directors;
Removal 87
Shareholder Action by Written
Consent; Special Meetings 88
Advance Notice Provisions 88
Preferred and Common Stock 88
Business Combinations 89
Amendment of Certain Provisions of the
Energizer Articles and Bylaws 90
Rights 90
Change of Control Employment Agreements;
Other Severance Arrangements 90
Missouri General and
Business Corporations Law 90
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES OF ENERGIZER 92
SHAREHOLDER PROPOSALS 93
INDEPENDENT ACCOUNTANTS 93
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION 93
INDEX TO FINANCIAL INFORMATION
OF ENERGIZER HOLDINGS, INC. 95
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION OF ENERGIZER STOCK
---------------------------------------------------------------
The following questions and answers highlight important information about the
- --------------------------------------------------------------------------------
distribution of Energizer Stock. Because this is a summary, it does not contain
- --------------------------------------------------------------------------------
all the information that may be important to you. You should read the entire
- --------------------------------------------------------------------------------
Information Statement for more complete information.
- ---------------------------------------------------------
Q. WHAT WILL HAPPEN IN THE DISTRIBUTION?
A. Ralston Purina Company is separating its battery business from Ralston's
pet products business. It will accomplish this by distributing all of the
outstanding shares of Energizer Stock to the Ralston stockholders. Ralston will
not retain any shares of Energizer Stock following the distribution. This type
of distribution is often referred to as a spin-off. If you are a Ralston
stockholder as of the close of business on March 31, 2000 you will be entitled
to receive shares of Energizer Stock in the distribution.
Upon completion of the distribution, you will own shares in two separately
traded public companies, Ralston Purina Company and Energizer Holdings, Inc.
Ralston will remain the world's largest producer of dry dog food and dry and
soft-moist cat foods, and a leading manufacturer of cat box filler in the United
States and Canada. Energizer will be the world's largest manufacturer of
primary batteries and flashlights, including Energizer and Eveready brand
products. This document refers to Ralston Purina Company as Ralston and to
Energizer Holdings, Inc. as Energizer.
Q. WHAT DO I HAVE TO DO TO PARTICIPATE IN THE DISTRIBUTION?
A. Nothing. No proxy or vote is necessary for the distribution to occur.
You do not need to, and should not, mail in any certificates of Ralston Stock to
receive shares of Energizer Stock in the distribution.
Q. WHAT WILL I RECEIVE IN THE DISTRIBUTION?
A. You will receive one share of Energizer Stock for every three shares of
Ralston Stock you own, with a cash payment instead of any fractional share of
Energizer Stock. All fractional shares which would otherwise be distributed to
you will be combined with those of all other Ralston stockholders and will be
sold by Continental Stock Transfer & Trust Company, the distribution agent, in
the open market at then-current prices. You will receive your pro-rata portion
of the sale proceeds shortly after the distribution. This document refers to
Continental as the Transfer Agent.
You will receive your Energizer Stock certificate (and any cash payment in
lieu of any fractional shares) in a separate mailing shortly after April 1,
2000.
The shares of Energizer Stock will also include an associated common stock
purchase right similar to those you have with your existing Ralston Stock.
These rights are designed to encourage a potential acquirer of at least 20% of
the outstanding Energizer Stock to negotiate with the Energizer Board of
Directors rather than proceed unilaterally. The rights are also designed to
protect stockholders in the event that someone acquires a large percentage of
the outstanding Energizer Stock and the Energizer Board of Directors concludes
that the acquisition is not in the best interests of Energizer and its
stockholders. For more information about the common stock purchase rights, see
"DESCRIPTION OF ENERGIZER CAPITAL STOCK - Common Stock Purchase Rights."
Q. DO I HAVE TO PAY TAXES ON THE RECEIPT OF ENERGIZER STOCK?
A. Ralston has received a ruling from the IRS that the distribution of
Energizer Stock will be tax-free to Ralston stockholders for Federal income tax
purposes. However, any cash that you receive instead of fractional shares of
Energizer Stock will be taxable to you. In addition, if you are an employee of
Ralston or Energizer and hold any restricted shares of Ralston Stock, the shares
of Energizer Stock which you receive with respect to those shares will be
taxable at the time that the restrictions lapse. To review the tax consequences
of the distribution in greater detail, see "THE DISTRIBUTION - Federal Income
Tax Consequences of the Distribution."
Q. WILL ENERGIZER STOCK BE LISTED ON ANY EXCHANGE?
A. Yes, the Energizer Stock has been approved for listing on the New York
Stock Exchange and will trade under the symbol "ENR".
Q. WHAT WILL HAPPEN TO THE TRADING OF RALSTON AND ENERGIZER STOCK?
A. Beginning on or about March 27, 2000, and continuing through April 3,
2000, you will only be able to sell your Ralston Stock with due bills for
Energizer Stock. This means that you will give up your right to receive
Energizer Stock if you sell your Ralston Stock during this time. The shares of
Energizer Stock which you receive in the distribution must be delivered by you
to the buyer of your Ralston Stock.
Beginning on or about March 27, 2000, we expect that investors will be able to
buy and sell Energizer Stock on a when-issued basis until certificates for
Energizer Stock are actually delivered by the Transfer Agent.
You should consult your own broker if you intend to sell your Ralston Stock
after March 27, 2000 and before you receive your certificate for Energizer
Stock. Make sure that your broker understands your intentions with respect to
such sales.
Q. HOW CAN I OBTAIN MORE INFORMATION ABOUT THE DISTRIBUTION?
A. If you have questions about the distribution, please contact:
Ralston Purina Company
Investor Relations Department
Checkerboard Square, 7T
St. Louis, Missouri 63164
(314) 982-2161
If, following the distribution, you have questions about the shares of
Energizer Stock which will be credited to your book entry account with the
Transfer Agent, please contact:
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
(888) 509-5580
<PAGE>
INTRODUCTION
During the past several years, Ralston's board of directors and management have
comprehensively reviewed Ralston's management, organization and businesses. The
primary goal of this review was to generate maximum value for Ralston's
stockholders and to focus the resources of the organization on its key strategic
businesses. Most recently, this review has focused on improving and sustaining
the performance of its remaining businesses - pet products and batteries.
After much consideration of the issues involved, as well as the views of the
management of both Ralston and Energizer, and financial advice provided by
Wasserstein Perella and Co., Inc., the board of directors determined that a
separation of the pet products business of Ralston from the battery business of
Energizer would serve the goal of improved business performance and would be in
the best interests of both businesses as well as the stockholders of Ralston.
The pet products and battery businesses are large, complex businesses with
different challenges, strategies and means of doing business and it is expected
that the separation will permit the management of each business to focus solely
on the opportunities and challenges specific to that business. It will also
allow Energizer to design more effective compensation programs, including an
employee stock ownership plan, linked to the performance of the battery
business, as reflected in the trading value of the Energizer Stock. In
approving the separation, the board considered that:
- - having two separate public companies may improve the ability of each
business to respond to the opportunities and challenges in its industry and
achieve its maximum value;
- - the separation will allow Energizer to establish an employee stock
ownership plan offering investment in Energizer Stock, which will give employees
a strong financial interest in the success of Energizer; and
- - having two separate public companies will enable the financial markets to
evaluate each company more effectively, which should maximize shareholder value
over the long-term for both Ralston and Energizer.
To review the reasons for the separation of Ralston and Energizer in greater
detail, see "THE DISTRIBUTION - Background and Reasons for the Distribution."
To accomplish the separation, on March 16, 2000, the board of directors of
Ralston declared a distribution, by means of a dividend payable on April 1,
2000, of one share of Energizer Stock (and a related common stock purchase
right) for every three shares of Ralston Stock held of record as of the close of
business on March 31, 2000. Following the distribution, Energizer will be an
independent publicly-owned company.
The following summary highlights selected information from this document
regarding Energizer and the distribution. It may not contain all of the
information that is important to you. To better understand the distribution and
the challenges and opportunities facing Energizer, you should read carefully the
entire Information Statement, including the historical and pro forma
consolidated financial statements of Energizer and the notes to those financial
statements, all of which are included in this Information Statement.
<PAGE>
SUMMARY
THE ENERGIZER BUSINESS. Following the distribution, Energizer will be the
world's largest manufacturer of primary batteries and flashlights and a global
leader in the dynamic business of providing portable power. Energizer's
subsidiaries manufacture and market a complete line of primary
(non-rechargeable) alkaline and carbon zinc batteries under the brands
"Eveready" and "Energizer", as well as miniature batteries and flashlights and
other lighting products. They also market a line of rechargeable batteries.
Energizer and its subsidiaries operate 23 manufacturing facilities in 16
countries on 4 continents. Energizer's worldwide work force of approximately
11,000 employees is responsible for the production of approximately 6 billion
battery cells annually.
Energizer has a long-standing reputation for providing consumers with
batteries and lighting products that deliver long-lasting, dependable
performance. Global demand for alkaline batteries continues to grow and
Energizer is well-positioned to capitalize on that growth:
- - the "Energizer" alkaline brand franchise has worldwide recognition;
- - Energizer's alkaline battery manufacturing facilities have sufficient
capacity for expected increases in demand, and offer broad geographic
distribution;
- - Energizer has a significant market position in most of the geographic
markets in which it competes;
- - Energizer's well-trained workforce, experienced management and innovative
research and product development teams enable it to create growth opportunities;
- - Energizer's focus on continuous innovation and research on alkaline and
future technologies enable it to provide the highest quality products in
response to constantly changing market demands.
For more information about Energizer's business, see "BUSINESS AND PROPERTIES -
Background" and " - Competition".
BUSINESS STRATEGY. Energizer's goal is to increase its revenue growth and
profitability by:
- - forging new cooperative relationships with its major retail customers;
- - introducing more effective workforce incentives;
- - delivering premium-quality battery and lighting products and increasing
consumer perceptions of the advantages of Energizer's products;
- - maintaining its strong market positions in North America, Europe and Asia
and expanding its presence in battery markets with opportunities for significant
growth; and
- - managing manufacturing, sales and marketing efforts in the most
cost-efficient manner possible.
Energizer plans to achieve its objectives by:
- - providing its major retail customers with significant retail support;
- - redesigning its compensation programs to create more effective incentives
directly linked to the value of Energizer Stock, including an employee stock
ownership plan with a significant company match for employee investments in
Energizer Stock;
- - maintaining its strong research and development orientation but focusing
on more effective advertising and promotional efforts;
- - aggressively pricing and promoting its products to establish strong
market share in new and growing markets, and favorably positioning the
"Energizer" brand as consumers continue to shift from carbon zinc to alkaline
batteries; and
- - maintaining effective cost control programs, and developing and
implementing methods for more efficient manufacturing and distribution
operations.
For more information, see "BUSINESS AND PROPERTIES - Energizer's Objectives and
Strategy".
RISK FACTORS. An investment in Energizer Stock is subject to a number of
risks, among which are:
- - Energizer's lack of an operating history as a separate independent
company;
- - the potential of a decrease in value, or wide fluctuations in the market
price, of Energizer Stock;
- - the need for Energizer to service its approximately $615 million of debt
and the effect of that debt on Energizer's debt rating and its ability to invest
in research and development, make acquisitions or pay dividends;
- - the potential that Energizer's market share in the United States and other
key areas will continue to decline;
- - the potential negative effect on the Energizer business from competition,
retailer consolidation, technological advances, or increases in the price of
commodities and raw materials;
- - the potential negative effect on the Energizer business of government
intervention or regulation, currency fluctuations, foreign and U.S. tax laws,
tariffs or quotas, and restrictions on the flow of capital;
- - political and economic instability in countries or regions where the
Energizer business is conducted; and
- - the potential anti-takeover effects of certain terms of Energizer's
Articles of Incorporation, Bylaws and Rights Agreement.
For more information about these risk factors, see "THE DISTRIBUTION - Risk
Factors".
RELATIONSHIP BETWEEN ENERGIZER AND
RALSTON AFTER THE DISTRIBUTION. After the distribution, Energizer will be a
separate company from Ralston. Energizer and Ralston will enter into agreements
to assist in the separation of the Energizer business, and its operation as a
public corporation. The agreements deal with many issues, including:
- - the orderly separation of Energizer and Ralston;
- - services to be provided by Ralston and Energizer to each other on a
transitional basis following the distribution;
- - the allocation between Energizer and Ralston of assets that are not
specifically identified with the business of either company; and
- - the allocation of certain tax and other liabilities between Energizer and
Ralston.
Under these agreements, Energizer and Ralston agree to compensate each
other after the distribution for certain losses, damages, claims and liabilities
that may result from the operation of their respective businesses, as well as
for other allocated liabilities. For more information about these agreements,
see "AGREEMENTS BETWEEN RALSTON AND ENERGIZER."
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth Summary Selected Historical Financial
Information for Energizer Holdings, Inc. (Energizer). The historical
financial information presented below may not necessarily be indicative
of the results of operations or financial position that would have been
obtained if Energizer had been an independent company during the periods
shown or of Energizer's future performance as an independent company. The
financial data set forth below should be read in conjunction with
Energizer's Combined Financial Statements and the notes thereto found
elsewhere in this Information Statement. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" and
"INDEX TO FINANCIAL INFORMATION OF ENERGIZER HOLDINGS, INC." Earnings per
share data is presented elsewhere in this Information Statement on a pro
forma basis only. (See "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION".)
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
(IN MILLIONS)
FOR THE THREE MONTHS
ENDED DECEMBER 31, FOR THE YEAR ENDED SEPTEMBER 30,
------------------ --------------------------------
STATEMENT OF EARNINGS DATA
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
Net Sales . . . . . . 673.6 $ 582.4 $1,872.3 $1,921.8 $2,005.8 $2,023.5 $1,991.8
Depreciation and Amortization . 21.9 24.6 94.9 101.2 112.3 122.6 125.8
Earnings from Continuing
Operations before Income
Taxes (a) . . . . . . . . . 173.7 97.4 248.2 262.5 203.9 271.4 141.9
Income Taxes. . . . . 69.0 42.6 88.4 54.3 44.6 106.3 76.3
Earnings from Continuing
Operations (b).. . . . . 104.7 54.8 159.8 208.2 159.3 165.1 65.6
Net Earnings. . . . . . . 104.7 52.0 80.0 164.7 159.8 169.1 78.1
DECEMBER 31,. . . . . . . . SEPTEMBER 30,
BALANCE SHEET DATA. . . . . . . . 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
Working Capital . . . . . . . . . $ 513.7 $ 478.1 $ 478.5 $ 489.6 $ 532.3 $ 434.4
Property at Cost, Net . . . . . . 465.6 472.8 476.9 494.2 543.2 545.3
Additions (during the period) . 11.0 69.2 102.8 98.8 95.7 73.3
Depreciation (during the period) 15.8 68.4 74.1 79.5 81.4 82.4
Total Assets. . . . . . . . . . . 1,850.8 1,833.7 2,077.6 2,113.6 2,146.9 2,106.7
Long-term Debt. . . . . . . . . . 1.4 1.9 1.3 21.3 43.1 57.3
</TABLE>
(a) Includes restructuring provisions of $6.1 for the three months ended
December 31, 1998, $9.9, $21.3, $83.7, $3.4, and $90.8 for the years ended
September 30, 1999, 1998, 1997, 1996 and 1995, respectively.
(b) Earnings from continuing operations were reduced due to after-tax
restructuring provisions and increaseddue to income tax benefits as follows:
<TABLE>
<CAPTION>
For the three months
ended December 31, For the year ended September 30,
------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1999 1998 1997 1996 1995
----- ------ ------- -------- ------- ------ -------
After-tax restructuring provisions $ - ($6.2) ($8.3) ($12.8) ($72.0) ($2.2) ($70.0)
Capital loss tax benefits. . . . . - - 16.6 48.4 35.9 - -
Foreign tax credit refunds.. . . . - - - - 20.5 - -
----- ------ ------- -------- ------- ------ -------
Total . . $ - ($6.2) $ 8.3 $ 35.6 ($15.6) ($2.2) ($70.0)
===== ====== ======= ======== ======= ====== =======
</TABLE>
ENERGIZER HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Ralston will transfer its global battery products business to a wholly owned
subsidiary of Ralston, Energizer Holdings, Inc. The stock of Energizer
Holdings, Inc. will be spun-off to the Ralston shareholders in a tax-free
distribution. The historical combined financial statements of Energizer reflect
periods during which the various spun-off businesses operated as divisions or
subsidiaries of Ralston.
The pro forma combined statement of earnings for the year ended September 30,
1999 presents the combined results of Energizer's operations assuming that the
distribution had occurred as of October 1, 1998. Such statement of earnings has
been prepared by adjusting the historical statement of earnings to indicate the
effect of estimated costs and expenses and the recapitalization associated with
the distribution.
The pro forma combined statement of earnings for the three months ended December
31, 1999 presents the combined results of Energizer's operations assuming that
the distribution had occurred as of October 1, 1999. Such statement of earnings
has been prepared by adjusting the historical statement of earnings to indicate
the effect of estimated costs and expenses and the recapitalization associated
with the distribution.
The pro forma combined balance sheet at December 31, 1999, presents the combined
financial position of Energizer, assuming the distribution had occurred at that
date. Such balance sheet has been prepared by adjusting the historical balance
sheet for the effect of changes in assets, liabilities, and capital structure
associated with the distribution.
The pro forma financial statements may not necessarily reflect the combined
results of operations or financial position that would have existed had the
distribution been effected on the dates specified nor are they necessarily
indicative of future results.
ENERGIZER HOLDINGS, INC.
------------------------
Pro Forma Combined Statement of Earnings
Year Ended September 30, 1999
(In millions, except per share data - unaudited)
------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO
<S> <C> <C> <C>
HISTORICAL DISTRIBUTION PRO FORMA
------------ -------------- -----------
Net Sales . . . . . . . . . . . . . . . . . . . . $ 1,872.3 $ 1,872.3
Costs and Expenses
Cost of products sold . . . . . . . . . . 997.9 997.9
Selling, general and administrative . . . 398.0 8.0(a) 400.9
(3.3)(b)
(1.8)(c)
(d)
Advertising and promotion . . . . . . . . 164.3 164.3
Research and development. . . . . . . . . 48.5 48.5
Provisions for restructuring. . . . . . . 7.8 7.8
Interest. . . . . . . . . . . . . . . . . 7.6 36.9(e) 44.5
------------ -------------- -----------
1,624.1 39.8 1,663.9
------------ -------------- -----------
Earnings from continuing operations . . . . . . .
before Income Taxes . . . . . . . . . . . 248.2 (39.8) 208.4
Income Taxes. . . . . . . . . . . . . . . . . . . (88.4) (11.2)(f) (91.5)
8.1 (g)
------------ -------------- -----------
Earnings from continuing operations . . . . . . . $ 159.8 $ (42.9) $ 116.9
============ ============== ===========
Earnings per share from continuing operations (h) - - $ 1.14
===========
Weighted average shares of common stock (h) . . . - - 102.6
===========
<FN>
(a) To reflect the incremental costs associated with becoming a stand-alone company, including
board of director costs, stock exchange registration fees, shareholder record keeping
services, external financial reporting, treasury services, tax planning and compliance,
certain legal expenses and compensation planning and administration.
(b) To reflect pension income on plan assets to be transferred to Energizer plans upon the
distribution.
(c) To eliminate expense of certain post retirement benefits to be retained by Ralston.
(d) In addition to costs described above, compensation for certain executive officers will be
higher than the costs included in the historical financial statements. The amount of the
increase cannot be determined at this time.
(e) To reflect the increase in interest expense associated with debt levels to be assumed at
Distribution Date. The adjustment reflects an average interest rate of 7.0% for $150.0 of
incremental notes payable and 7.7% for $343.9 of incremental long-term debt. Approximately
$343.9 of the incremental debt will have a variable interest rate. A 1/8% variation in the
interest rate would change interest expense by $.4.
(f) To reflect taxes as if Energizer was a single, stand-alone U.S. taxpayer.
(g) To reflect tax effect of the above pro forma adjustments.
(h) The number of shares used to compute earnings per share is based on the weighted average
number of basic shares of Ralston stock outstanding during the twelve months ended
September 30, 1999, adjusted for the anticipated distribution of one share of Energizer stock
for each three shares of Ralston stock.
</TABLE>
ENERGIZER HOLDINGS, INC.
------------------------
Pro Forma Combined Statement of Earnings
Three Months Ended December 31, 1999
(In millions, except per share data - unaudited)
------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO
<S> <C> <C> <C>
HISTORICAL DISTRIBUTION PRO FORMA
------------ -------------- -----------
Net Sales . . . . . . . . . . . . . . . . . . . . $ 673.6 $ - $ 673.6
Costs and Expenses
Cost of products sold . . . . . . . . . . 322.2 - 322.2
Selling, general and administrative . . . 95.6 2.0(a) 97.6
0.4(b)
(0.4)(c)
(d)
Advertising and promotion . . . . . . . . 67.6 - 67.6
Research and development. . . . . . . . . 11.9 - 11.9
Provisions for restructuring. . . . . . . - - -
Interest. . . . . . . . . . . . . . . . . 2.6 8.9(e) 11.5
------------ -------------- -----------
499.9 10.9 510.8
------------ -------------- -----------
Earnings from continuing operations
before Income Taxes. . . . . . . . . . . . 173.7 (10.9) 162.8
Income Taxes. . . . . . . . . . . . . . . . . . . (69.0) 3.3(f) (63.6)
- 2.1(g)
------------ -------------- -----------
Earnings from continuing operations . . . . . . . $ 104.7 $ (5.5) $ 99.2
============ ============== ===========
Earnings per share from continuing operations (h) - - $ 1.02
===========
Weighted average shares of common stock (h) . . . - - 97.4
===========
<FN>
(a) To reflect the incremental costs associated with becoming a stand-alone company, including
board of director costs, stock exchange registration fees, shareholder record keeping
services, external financial reporting, treasury services, tax planning and compliance, certain
legal expenses and compensation planning and administration.
(b) To adjust pension income on plan assets to be transferred to Energizer plans upon the
distribution.
(c) To eliminate expense of certain post retirement benefits to be retained by Ralston.
(d) In addition to costs described above, compensation for certain executive officers will be
higher than the costs included in the historical financial statements. The amount of the
increase cannot be determined at this time.
(e) To reflect the increase in interest expense associated with debt levels to be assumed at
Distribution Date. The adjustment reflects an average interest rate of 7.0% for $150.0 of
incremental notes payable and 7.7% for $324.1of incremental long-term debt. Approximately
$324.1 of the incremental debt will have a variable interest rate. A 1/8% variation in the
interest rate would change interest expense by $.1.
(f) To reflect taxes as if Energizer was a single, stand-alone U.S. taxpayer.
(g) To reflect tax effect of the above pro forma adjustments.
(h) The number of shares used to compute earnings per share is based on the weighted average
number of basic shares of Ralston stock outstanding during the three months ended
December 31, 1999, adjusted for the anticipated distribution of one share of Energizer stock
for each three shares of Ralston stock.
</TABLE>
ENERGIZER HOLDINGS, INC.
------------------------
Pro Forma Combined Balance Sheet
As of December 31, 1999
(Dollars in millions - unaudited)
-------------------------------------
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO
<S> <C> <C> <C>
HISTORICAL DISTRIBUTION PRO FORMA
----------- -------------- -----------
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . $ 19.9 $ - $ 19.9
Trade receivables, net. . . . . . . . . 605.5 - 605.5
Inventories . . . . . . . . . . . . . . 345.6 - 345.6
Other current assets. . . . . . . . . . 104.2 - 104.2
----------- -------------- -----------
Total Current Assets . . . . . . . . 1,075.2 - 1,075.2
----------- -------------- -----------
Investments and Other Assets . . . . . . . . 310.0 91.8(a) 408.4
- 6.6(b)
Net Investment in Discontinued Operations. . - - -
Property at Cost . . . . . . . . . . . . . . 1,004.0 12.9(c) 1,016.9
Accumulated Depreciation . . . . . . . . . . 538.4 9.3(c) 547.7
----------- -------------- ---------
465.6 3.6 469.2
----------- -------------- ---------
Total. . . . . . . . . . . . . . . . $ 1,850.8 $ 102.0 $ 1,952.8
=========== ============== ===========
LIABILITIES AND NET INVESTMENT
IN ENERGIZER
Current Liabilites
Current maturities of long-term debt 0.3 - 0.3
Notes payable. . . . . . . . . . . . 130.9 150.0(d) 280.9
Accounts payable . . . . . . . . . . 121.3 - 121.3
Other current liabilities. . . . . . 309.0 1.4(e) 310.4
----------- -------------- -------
Total Current Liabilities. . . . . . 561.5 151.4 712.9
----------- -------------- --------
Long-Term Debt . . . . . . . . . . . . . . . 1.4 324.1(d) 325.5
Other Liabilities. . . . . . . . . . . . . . 22.7 104.2(f) 126.9
Net Investment in Energizer. . . . . . . . . 1,265.2 (1,265.2)(g) -
Shareholders Equity. . . . . . . . . . . . . 787.5(g) 787.5
----------- -------------- --------
Total. . . . . . . . . . . . . . . . $ 1,850.8 $ 102.0 $ 1,952.8
=========== ============== ===========
<FN>
(a) To reflect net pension asset to be included in Energizer Pension Plans at Distribution
Date.
(b) To reflect deferred tax effect of other pro forma adjustments.
(c) To reflect assets to be assumed by Energizer at the Distribution Date.
(d) To reflect debt levels to be assumed by Energizer at the Distribution Date.
(e) To reflect medical benefit liabilities of Energizer at the Distribution Date.
(f) To reflect post-retirement benefit and deferred compensation liabilities of Energizer at
the Distribution Date.
(g) To reflect the elimination of Ralston's investment in Energizer and the issuance of
Energizer Stock.
</TABLE>
FORWARD-LOOKING STATEMENTS
This document contains certain statements about Energizer that may be
"forward-looking statements." "Forward-looking statements" are statements that
are not historical facts, but instead are expectations, projections or
assumptions which involve a degree of risk and uncertainty. You may find these
statements under the captions "THE DISTRIBUTION", "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION " and "BUSINESS AND
PROPERTIES" in this Information Statement, or they may be preceded by the words
"anticipates", "believes", "expects", "intends", "projects", "forecasts" and
similar expressions. In making any of these forward-looking statements,
Energizer believes that the expectations are based on reasonable assumptions.
However, they are still only predictions. Because predictions involve risk and
uncertainty, there are many factors which could cause actual events or results
to differ significantly from what Energizer is currently expressing or implying.
The most significant of these factors are discussed under the caption "THE
DISTRIBUTION -- Risk Factors." Additional risks and uncertainties not presently
known to Energizer, or that it currently believes to be immaterial, may also
adversely affect Energizer's business.
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Energizer Holdings, Inc. is a Missouri corporation which was incorporated
in September of 1999 as an indirect wholly owned subsidiary of Ralston.
Ralston's battery operations in the United States are conducted by Eveready
Battery Company, Inc., and international battery operations are conducted by a
number of foreign subsidiaries. Prior to the distribution, the capital stock of
Eveready Battery Company, Inc. will be contributed to Energizer and the capital
stock of Energizer International, Inc., which owns the capital stock of the
various foreign battery subsidiaries, will be contributed to Eveready Battery
Company, Inc. At the time of the distribution, Energizer will directly or
indirectly own all of the worldwide battery operations currently conducted by
Ralston.
Energizer is the successor to over 100 years' expertise in the battery and
flashlight business. During Ralston's ownership of the battery business, it has
expanded the "Eveready" and "Energizer" franchises to new, growing markets, and
it has made technological advances which have set the pace for the battery
industry.
Ralston was incorporated in 1894 and began its operations as a supplier of
animal feeds in the midwestern United States. By the 1980's, however, it had
grown to become a large multi-national corporation with a number of significant
businesses. Its primary business was pet food and other pet products, but it
also operated restaurant operations, a canned tuna business, a worldwide cereal
products business, a baby food business, ski resorts, a soy protein products
business, an international animal feeds business and a fresh bakery products
business. As part of its expansion into diverse, internationally known
businesses, Ralston acquired the worldwide "Eveready" battery and lighting
products business from Union Carbide Corporation in 1986.
By the mid-1990's, however, in light of changing business environments, Ralston
reassessed its investment in such a diverse group of businesses. During the
past several years, Ralston's board of directors and management have
comprehensively reviewed Ralston's management, organization and businesses. The
primary goal of this review was to generate maximum value for Ralston
stockholders and to focus the resources of the organization on its key strategic
businesses. Ralston's management has sought to gain competitive advantage by
serving world-wide markets through globally coordinated production, purchasing,
distribution and marketing initiatives. Ralston's board of directors concluded
that Ralston's stockholders were better served by having management focus on
specific, core businesses than attempt to manage a number of global businesses
with limited opportunities for coordination. To date, Ralston has taken a
number of actions towards this goal:
- - In 1994, Ralston spun-off Ralcorp Holdings, Inc., a subsidiary to which
Ralston had contributed its breakfast cereal, baby food, cracker and cookie,
coupon redemption and ski resort businesses.
- - In 1995, Ralston sold its fresh bakery products business, and acquired the
assets of Golden Cat Corporation, a large cat litter business.
- - In 1997, Ralston sold its international soy protein technologies business.
- - In 1998, Ralston spun-off Agribrands International, Inc., a subsidiary to
which Ralston had contributed its international animal feeds and agricultural
products business.
Most recently, Ralston's review has focused on improving and sustaining the
performance of Ralston's remaining businesses - pet products and batteries.
Although the pet products business has done well since 1995, market share for
the battery business in the United States and other key markets declined during
that period, and operating profits failed to grow at a satisfactory rate. Since
1995, Ralston's board has approved a number of measures to address these
problems, including capital expenditures for improved battery technology, the
sale or termination of unprofitable battery operations, and the closing of
plants and other reductions in battery manufacturing capacity. However, such
measures alone were not sufficient to reverse the trend in operating results.
Furthermore, the trading price of the Ralston Stock began to decline in 1998 and
has remained at a level which the board does not believe properly reflects
Ralston's value and prospects, due, in large part, in the board's opinion, to
investor concerns about operating difficulties in the battery business. The
board was also advised that there has been confusion in the investment community
regarding Ralston's valuation as a food company or as an international consumer
products company. Following a significant decline in sales during the key first
quarter of 1999, the board undertook an intensive look at ongoing problems in
the operation of the battery business.
After much consideration of the issues involved, including consideration of the
recommendations of the management of both Ralston and Energizer, and financial
advice provided by Wasserstein Perella and Co., Inc., the board of directors
determined that a separation of the pet products business of Ralston from the
battery business of Energizer would serve the goal of improved business
performance for both businesses and would be in the best interests of Ralston,
Energizer and the stockholders of Ralston. That decision was based on the
following factors:
- - The pet food and battery businesses are large, complex businesses with
different challenges, strategies and means of doing business. The opportunities
for coordination of production, purchasing, distribution or marketing between
the two businesses are extremely limited.
- - It is expected that the separation will permit the management of each
business to focus solely on the opportunities and challenges specific to that
business, and to be responsive to changes in their business environments.
- - As an independent publicly held company, Energizer will be able to design
more effective stock-based incentive compensation programs for its management
and employees by linking their compensation much more directly to the
performance of the Energizer business, as reflected in the stock market's
evaluation of the Energizer Stock. These stock-based programs should provide
great motivation to Energizer's employees. It is anticipated that an Energizer
employee stock ownership plan with a significant company match, as well as
Energizer grants of stock options and other equity-based compensation, will
place a meaningful number of shares of Energizer Stock in the hands of Energizer
employees.
- - The separation will permit investors to choose whether to invest in the
pet products business, the battery business, or both. It will also enable the
investment community to better understand and evaluate the two businesses.
Ralston's board considered a number of alternatives to a spin-off of the
battery business, including sale of the business, a partial public offering of
battery stock, and a Ralston "letter stock" targeting the battery business, but
the board ultimately concluded that none of these alternatives would benefit the
stockholders of Ralston as much as a spin-off. The board also considered
negative factors regarding the spin-off, including:
- - the additional expenses associated with Energizer's becoming a stand-alone
public company;
- - the fact that Energizer will no longer benefit from its association with
Ralston for financial support, favorable credit or the purchase of goods or
services; and
- - the potential loss to Ralston of tax benefits associated with Energizer
capital losses.
However, the board concluded that these factors were not likely to be
significant enough to outweigh the benefits of separation.
On June 10, 1999, the Board of Directors of Ralston approved in principle a plan
to spin-off its battery business to the Ralston stockholders. On February 4,
2000, Ralston received a tax ruling from the U.S. Internal Revenue Service to
the effect that the distribution would be tax-free to both Ralston and its
stockholders for Federal income tax purposes.
On March 16, 2000, the Ralston Board formally approved the distribution and
declared a distribution in the form of a dividend of one share of Energizer
Stock (and an associated common stock purchase right) for every three shares of
Ralston Stock held. The dividend will be payable on April 1, 2000 (the
"Distribution Date"), to each holder of record of Ralston Stock as of the close
of business on March 31, 2000.
Prior to the distribution, Ralston will borrow approximately $490 million
and assign the repayment obligation to Energizer. Ralston will use the proceeds
for repayment of debt, for working capital requirements and for other corporate
purposes.
The Ralston board of directors believes that cash generated by Energizer's
operations should be sufficient to fund Energizer's presently anticipated
operating and capital expenditures, as well as its debt service obligations.
Under the terms of the debt facilities, Energizer will be subject to a number of
restrictions, including:
- - the ratio of Energizer's total indebtedness to its EBITDA (earnings before
interest, taxes, depreciation and amortization) cannot be less than 3:1, the
ratio of its EBIT (earnings before interest and taxes) to its total interest
expense cannot exceed 3:1, and the ratio of its consolidated indebtedness to its
consolidated total capitalization cannot exceed 65%;
- - during the term of the debt facilities, Energizer will be restricted from
making business acquisitions if it is not in compliance with the above financial
covenants or if it is otherwise in default under the terms of the facilities; it
cannot make hostile acquisitions; and it cannot make acquisitions outside of the
consumer products industry or otherwise unrelated to Energizer's businesses,
unless the acquisition would involve less than 5% of Energizer's net
consolidated assets; and
- - customary negative covenants, including restrictions on liens,
sale/leaseback transactions, mergers and non-arm's length transactions.
For more information about the effect of Energizer's debt, you should review
"Risk Factors" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATlONS AND FINANCIAL CONDITION -- Financial Condition".
Debt is being allocated between Ralston and Energizer in connection with the
distribution in a manner which is intended to create a capital structure for
each company that is reasonable in relation to each of their businesses, assets
and current and presently anticipated operating earnings. For more information
about the capital structure of Energizer, you should review "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION -
Liquidity and Capital Resources."
ADVICE PROVIDED BY FINANCIAL ADVISOR
As described above, Ralston's board of directors received financial advice
from Wasserstein Perella and Co., Inc., regarding the benefits of separation of
the pet products and battery businesses. The points described above under "THE
DISTRIBUTION - Background and Reasons for the Distribution" include the factors
discussed by Wasserstein. Wasserstein also advised the board regarding the
benefits and disadvantages of various alternatives to a spin-off of Energizer,
including sale of the business, a partial public offering of battery stock, and
a Ralston "letter stock" targeting the battery business. Wasserstein's
financial advice was based on its analysis of various spin-offs and the
financial benefits that resulted, as well as on an analysis of Ralston's trading
price and trading multiples and the trading price and trading multiples of
approximately 25 of the largest food companies and consumer products companies
which Wasserstein believed provided relevant comparisons. Wasserstein also
analyzed the various alternatives to a spin-off of Energizer from the standpoint
of the likely market reaction to those alternatives, but noted that the universe
of potential buyers and the significant taxes due could negatively affect the
potential of a sale of the business, that Energizer's weak performance in recent
years might hinder a public offering, and that a letter stock could potentially
trade at a discount. Wasserstein has also provided financial advice to
Ralston's board with respect to potential distribution ratios and debt levels
for Energizer.
Subsequent to the time that the advice described above was provided to
Ralston's board, Mr. Robert Pruzan, the president of Wasserstein Perella and
Co., Inc., was named a member of the board of directors of Energizer. For more
information regarding the background of Mr. Pruzan see "MANAGEMENT - Directors
of Energizer".
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should carefully
review the following factors which may affect Energizer's financial condition or
results of operations and/or the value of the Energizer Stock.
RISK FACTORS RELATING TO SEPARATING ENERGIZER FROM RALSTON
Energizer faces a number of risks in connection with its separation from
Ralston which could affect the value of your investment in both the Energizer
Stock and the Ralston Stock.
BECAUSE ENERGIZER WILL NO LONGER BENEFIT FROM THE BUSINESS RELATIONSHIPS THAT
RALSTON EXTENDS TO IT OR THE SERVICES THAT RALSTON PROVIDES TO IT, IT MAY INCUR
GREATER EXPENSES IN OPERATING AND FINANCING ITS BUSINESSES.
Before the distribution, Energizer operated as a wholly owned subsidiary of
Ralston and it was not an independent public company. Following the
distribution, Energizer will no longer be able to rely on Ralston for financial
support, or benefit from its relationship with Ralston to obtain credit or
receive favorable terms for the purchase of certain goods and services. In
addition, except for certain transitional services, Energizer will be
responsible for obtaining its own sources of financing and for its own corporate
administrative services such as tax, treasury, accounting, information systems,
benefits administration and human resources. Energizer's future operating
results as an independent company cannot be guaranteed.
THE PRICE OF ENERGIZER STOCK MAY FLUCTUATE SIGNIFICANTLY AFTER THE DISTRIBUTION,
AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT AS A RESULT.
There has been no prior trading market for Energizer Stock, and there can
be no guarantee as to the prices at which the Energizer Stock will trade before
or after the distribution on April 1, 2000. The shares of Energizer Stock have
been approved for listing on the New York Stock Exchange under the symbol "ENR."
Until the Energizer Stock is fully distributed and an orderly market develops,
the prices at which the Energizer Stock trades may fluctuate significantly.
Prices for the Energizer Stock will be determined in the trading markets, and
may be influenced by many factors, including:
- - the depth and liquidity of the market for Energizer Stock;
- - investor perceptions of Energizer and the battery business;
- - Energizer's dividend policy; and
- - general economic and market conditions throughout the world.
In addition, the stock market often experiences significant price fluctuations
that are unrelated to the operating performance of the specific companies whose
stock is traded. Such fluctuations have affected the share prices of many newly
public issuers. Market fluctuations, as well as economic conditions, may
adversely affect the market price of the shares of Energizer Stock.
THE COMBINED PRICES OF THE RALSTON STOCK AND THE ENERGIZER STOCK, TRADING
SEPARATELY, MAY BE LESS THAN THE CURRENT PRICE OF RALSTON STOCK.
After the distribution, Ralston Stock will continue to be listed and traded
on the New York Stock Exchange and certain other stock exchanges. As a result
of the distribution, the trading price of Ralston Stock is expected to be lower
than the trading price of Ralston Stock immediately prior to the distribution.
The combined trading prices of Ralston Stock and Energizer Stock after the
distribution may be less than, equal to or greater than the trading price of
Ralston Stock prior to the distribution.
IF LARGE NUMBERS OF STOCKHOLDERS SELL THEIR ENERGIZER STOCK, THE PRICE OF THE
ENERGIZER STOCK COULD DECLINE SIGNIFICANTLY.
Approximately 100 million shares of Energizer Stock will be distributed to
the Ralston stockholders, representing all of the outstanding shares of
Energizer Stock. Substantially all of the shares of Energizer Stock will be
eligible for immediate resale in the public market. Possible reasons for an
increase in sale activity of Energizer Stock following the distribution include:
- - Investment criteria of certain investment funds and other large holders of
Ralston Stock may dictate the immediate sale of the Energizer Stock received by
them in the distribution. Certain investment funds use total market
capitalization, industry sector, dividend yield and other financial measures as
criteria upon which they select or hold stocks. S&P 500 Index Funds only hold
shares of companies added to the S&P 500 Index. To the extent that Energizer
Stock does not meet these criteria, the investment funds would be required to
dispose of any shares received in the distribution. Such sales, however, could
be countered by purchases by a different investor base.
- - Fractional shares which would otherwise be issued in the distribution will
be aggregated by the Distribution Agent and sold on the open market as soon as
practicable after April 1, 2000.
Neither Ralston nor Energizer is able to predict whether substantial amounts of
Energizer Stock will be sold in the open market following the distribution, or
when the sales may occur. Substantial sales of Energizer Stock, whether as a
result of the distribution or otherwise, could adversely affect its market
price.
ENERGIZER WILL INCUR A SIGNIFICANT AMOUNT OF DEBT WHICH IT MAY NOT BE ABLE TO
SERVICE.
Prior to the distribution, Ralston will borrow approximately $490 million
in bank debt and assign the repayment obligations to Energizer, which will
assume and become obligated to repay such debt. It is expected that Energizer
will bear approximately $615 million in indebtedness following the distribution,
consisting of this new, assumed bank debt, and pre-existing obligations of
certain foreign operations. Energizer's level of indebtedness could have
significant consequences, including:
- - limiting cash flow available for working capital, capital expenditures,
research and development and other corporate purposes because a significant
portion of Energizer's cash flow from operations must be dedicated to servicing
its debt;
- - limiting Energizer's ability to obtain additional financing in the future
for working capital or other purposes; and
- - limiting Energizer's flexibility to react to competitive and other changes
in the battery industry, and economic conditions generally.
Energizer's ability to pay or to refinance its indebtedness will depend upon its
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond its control.
In addition, the debt covenants which Energizer will assume restrict
Energizer's ability to make certain acquisitions and require Energizer to
maintain certain debt and interest coverage ratios. See "THE DISTRIBUTION -
Background and Reasons for the Distribution." These restrictions could have
significant consequences, including:
- - Required interest and debt coverage ratios, and restrictions on certain
acquisitions, may limit Energizer's flexibility to make strategic business
investments, as well as its ability to pay dividends to shareholders.
- - Failure to maintain debt and interest coverage ratios could limit
Energizer's ability to obtain additional advances under its credit facilities,
or could result in a default allowing the lenders to accelerate the maturity of
Energizer's debt.
Energizer anticipates that its operating cash flow, together with monies
available under its credit facilities will be sufficient to meet its anticipated
future operating expenses, to fund capital expenditures and to service its debt
as it becomes due. Energizer cannot guarantee, however, that it will be able to
maintain compliance with its debt covenants, that its business will generate
sufficient cash flow, or that future borrowings will be available to enable it
to fund its cash needs. If Energizer needs to refinance all or a portion of its
debt on or before maturity, it cannot guarantee that it will be able to do so on
commercially reasonable terms, or at all.
IF ENERGIZER AND RALSTON DO NOT COMPLY WITH THE IRS RULINGS, THE DISTRIBUTION OF
THE ENERGIZER STOCK COULD BE TAXABLE TO YOU.
Ralston has received rulings from the IRS that, for Federal income tax
purposes, the transfer of certain assets and liabilities of the battery
business to Energizer, and other internal restructurings necessary to effect the
distribution, will be tax-free to Ralston and Energizer. It has also received a
ruling that the distribution will be tax-free to the Ralston stockholders.
These rulings are subject to the continuing validity of certain factual
representations made to the IRS and assumptions set out in the ruling request.
In order to assure that the distribution will continue to qualify as tax-free,
Energizer and Ralston have also agreed to certain restrictions on their future
actions for a period of time following the distribution.
If, however, the viability of the IRS rulings were challenged on audit and
the distribution of the Energizer Stock were ultimately determined to be
taxable, then:
- - corporate level income taxes would be payable by Ralston (as the common
parent of a consolidated group), based upon the amount by which the fair market
value of the Energizer Stock distributed to Ralston stockholders exceeds
Ralston's net tax basis in the battery business, and corporate level taxes could
also be payable with respect to the subsidiary restructurings necessary to
effect the distribution; and
- - the fair market value of the shares of Energizer Stock which you receive
in the distribution would be subject to tax as a dividend.
Energizer has agreed to indemnify Ralston and the Ralston stockholders if its
actions or the actions of any of its affiliates result in such tax liability.
Ralston has agreed to indemnify Energizer for any losses which it may incur in
the event that Ralston or any of its affiliates take any action which adversely
impacts the tax-free nature of the distribution. For more information regarding
the tax consequences of the distribution, see "-- Federal Income Tax
Consequences of the Distribution" and "AGREEMENTS BETWEEN RALSTON AND ENERGIZER
- -- Tax Sharing Agreement".
RISK FACTORS RELATING TO ENERGIZER'S BUSINESS
Energizer's business faces a number of risks, which include risks relating
to the industry in which it operates. Ralston also faces a number of these same
risks.
BECAUSE OF THE IMPORTANCE OF ENERGIZER'S FOREIGN OPERATIONS, POLITICAL OR
ECONOMIC TURMOIL IN OTHER COUNTRIES MAY CAUSE ENERGIZER'S PROFITS TO DECLINE OR
PUT ITS ASSETS AT RISK.
The Energizer business is currently conducted on a worldwide basis.
Consequently, Energizer is subject to a number of significant risks associated
with its subsidiaries doing business in foreign countries. The operating
profits of Energizer may decline because of changes in the value of local
currencies, or because of hyperinflationary conditions in developing economies.
Other risks and considerations include:
- - the effect of foreign income and withholding taxes and the U.S. tax
implications of foreign source income and losses;
- - the possibility of expropriation, confiscatory taxation or price controls;
- - adverse changes in local investment or exchange control regulations;
- - difficulties inherent in operating in countries with less developed legal
systems;
- - political instability, government nationalization of business or
industries, government corruption and civil unrest; and
- - restrictions on the flow of capital between countries.
While these risks can affect any business with foreign operations, they assume
special importance for Energizer because of the nature of Energizer's business
and the significance of its foreign operations to Energizer. Approximately half
of Energizer's sales and a third of its profits arise out of foreign operations,
and a significant portion of its production capacity is located overseas.
Negative economic conditions in Asian and Latin American countries in the past
several years have significantly decreased Energizer's operating profits, and
although those conditions appear to be improving, Energizer's operations in
those countries may not be able to regain their former levels of profitability.
Energizer's subsidiaries have manufacturing facilities in several Asian
countries that have undergone or are currently undergoing political unrest, and
any ongoing instability in those countries could affect Energizer's production
levels.
Because the manufacture of batteries involves the use of industrial
materials, chemicals and other potentially hazardous substances, Energizer's
facilities in the U.S. and other developed nations are subject to a broad range
of laws and regulations relating to the environment. In many developing
countries in which the Energizer business is operated there has not been
significant governmental regulation relating to the environment, occupational
safety, employment practices or other business matters routinely regulated in
the United States. As such economies develop, it is possible that new
regulations may increase the expense and risk of doing business in such
countries. In addition, social legislation in many countries in which the
Energizer business operates may result in significantly higher expenses
associated with terminating employees, distributors, or joint ventures and with
closing manufacturing facilities.
CHANGES IN TECHNOLOGY MAY CAUSE ENERGIZER'S SALES AND PROFITS TO DECLINE IF THE
PRIMARY BATTERIES WHICH ENERGIZER PRODUCES CANNOT COMPETE, ON A PRICE OR
PERFORMANCE BASIS, WITH NEW BATTERY TECHNOLOGIES OR OTHER SOURCES OF PORTABLE
POWER.
The battery industry has been notable for the pace of innovations in
product life, product design and applied technology. Energizer and its
competitors have made and continue to make significant investments in research
and development with the goal of further innovation. If competitors introduce
new or enhanced products that significantly outperform Energizer's, or if they
develop or apply manufacturing technology which permits them to manufacture
batteries at a significantly lower cost relative to Energizer's, Energizer may
be unable to compete successfully in the market segments affected by these
changes. For example, new battery technologies that are currently being
investigated, but are not yet commercially viable, may make currently marketed
alkaline batteries obsolete. Pre-emptive patent rights, restrictions on
Energizer's ability to expand or modify manufacturing capacity or constraints on
Energizer's research and development activity may limit Energizer's ability to
introduce products that are competitive on a performance basis. Technological
or design changes in portable electronic and other devices that utilize
batteries as a power source may significantly affect the demand for batteries.
Continuing improvements in the service life of primary (non-rechargeable)
batteries, improvements in rechargeable battery performance (including
improvements in size, the time required for recharge, and the duration of each
discharge) and increasing consumer acceptance of rechargeable batteries, may
also negatively affect the number of primary batteries sold by Energizer. As of
September 30, 1999, approximately 65% of Energizer's sales were attributable to
alkaline batteries, 19% to carbon zinc batteries, and 2% to rechargeable
batteries for retail outlets.
ENERGIZER MAY CONTINUE TO LOSE SALES AND HAVE ITS PROFITS DECLINE IF IT IS NOT
ABLE TO COMPETE SUCCESSFULLY IN ITS INDUSTRY.
The battery industry is highly competitive, both in the United States and
on a global basis, as a number of large battery manufacturers compete for
consumer acceptance and, increasingly, limited retail shelf space. Competition
is based upon brand perceptions, product performance, customer service and
price. Energizer's ability to compete effectively may be affected by a number
of factors:
- - Energizer's primary competitor, Duracell International, Inc., a subsidiary
of The Gillette Company, has substantially greater financial, marketing and
other resources, and greater market share, than Energizer does. Because of its
ownership by Gillette, it also has significant advantages in distribution, sales
and negotiating leverage with retailers.
- - Energizer's competitors may have lower production, sales and distribution
costs, and higher profit margins, than Energizer, which may enable them to
compete more aggressively in offering retail discounts and other promotional
incentives.
- - The offering of private-label batteries by retail chains may create
significant pricing pressure and may also increase consumer perceptions that
batteries are a commodity product.
- - Loss of key retail customers to competitors, or significant penetration of
the U.S. market by foreign battery manufacturers, may further erode Energizer's
market share.
- - Product improvements or effective advertising campaigns by competitors, or
increased demand for rechargeable batteries, may weaken consumer demand for
Energizer's products.
- - Changes in consumer preferences from carbon zinc to alkaline batteries in
developing countries may benefit Energizer's competitors and erode Energizer's
market share in those countries.
CONSOLIDATION OF THE RETAIL TRADE MAY PUT ENERGIZER AT A DISADVANTAGE IN ITS
DEALINGS WITH RETAILERS AND CAUSE ENERGIZER'S PROFITS TO DECLINE.
During the past decade, retail sales of consumer products, including
battery and lighting products, have been increasingly consolidated in a small
number of regional and national mass merchandisers and warehouse clubs. This
trend towards consolidation is occurring on a worldwide basis as well as in the
United States. As a result of this consolidation, a significant percentage of
Energizer's sales are attributable to a very limited group of customers. In the
United States, 35 customers account for approximately 75% of Energizer's sales.
For the fiscal year ended September 30, 1999, Wal-Mart Stores, Inc. and its
subsidiaries accounted for, in the aggregate, approximately 13.5% of Energizer's
sales. This consolidation gives Energizer's customers great leverage in
demanding price and promotional concessions. Because of the importance of these
key customers to Energizer, price or promotional demands by such customers, or
reductions in purchases or loss of their accounts, could have a significant
adverse impact on Energizer's operating profits.
ENERGIZER'S BUSINESS STRATEGIES MAY NOT BE SUCCESSFUL IN REVERSING ITS LOSS OF
MARKET SHARE.
Energizer's share of the U.S. primary battery market on both a dollar and a
unit sales basis has declined significantly from 1995 levels. According to A.C.
Nielsen, Energizer's share of the U.S. primary battery market declined from
37.7% in 1995 to 34.4% in 1998 and to 31.6% in 1999. Energizer estimates that
market share for primary batteries has also declined in Europe from 27% to 21%
from 1995 to 1998. Worldwide, primary battery revenues declined approximately
7% from 1995 to 1999. Energizer's market share in foreign markets could
continue to decline as the demand for primary batteries in developing countries
shifts from carbon zinc batteries to alkaline, and its decline in the United
States and other developed countries could continue because of competitive
pressure. Energizer has identified its strategies for reversing this decline,
but if those strategies prove ineffective and if the decline in market share, in
the U.S. and/or globally, continues, it could have a significant adverse effect
on Energizer's sales volumes, operating profit and financial condition.
INCREASES IN THE PRICE OF RAW MATERIALS MAY CAUSE THE COST OF MANUFACTURING TO
INCREASE AND CONSEQUENTLY CAUSE ENERGIZER'S PROFITS TO DECLINE.
The principal raw materials used in the Energizer business - manganese
dioxide, zinc, acetylene black and potassium hydroxide -- are sourced on a
regional or global basis, and the prices of those raw materials are susceptible
to currency fluctuations and price fluctuations due to transportation,
government regulations, price controls, economic climate, or other unforeseen
circumstances. Energizer manages exposure to changes in the prices of its raw
materials by hedging certain of its requirements and by making forward
purchases, but there is no guarantee that those efforts will be effective, and
operating profits may decline if raw material price increases are not able to be
passed on to customers. Energizer believes that adequate supplies of the raw
materials required for its operations are available at the present time, but
cannot predict the future availability or prices of such materials.
ENVIRONMENTAL LIABILITIES AND COMPLIANCE WITH ENVIRONMENTAL LAWS MAY INCREASE
ENERGIZER'S EXPENSES OF DOING BUSINESS AND CONSEQUENTLY CAUSE ENERGIZER'S
PROFITS TO DECLINE.
Because the manufacture of batteries involves the use of industrial
materials, chemicals and other potentially hazardous substances, Energizer's
facilities are subject to a broad range of federal, state, local and foreign
laws and regulations relating to the environment. While Energizer has not
experienced any material adverse impact on its operations as a result of such
laws and regulations, Energizer cannot guarantee that current or future
regulations might not have such an impact on its business, financial condition
or results of operations.
Energizer has been and is subject to a number of proceedings related to its
disposal of industrial and hazardous material at off-site disposal locations.
These proceedings have been brought under federal and state statutes requiring
clean-up of such locations, regardless of fault or the lawfulness of the
original disposal. Liability under these statutes is typically joint and
several, meaning that a liable party may be responsible for all of the costs
incurred in investigating and cleaning up contamination at a site. As a
practical matter, however, liability is generally shared by all of the
financially viable responsible parties. Although Energizer does not currently
anticipate that its liability under these proceedings, individually or as a
whole, will have a materially adverse impact on its business, financial
condition or results of operation, it cannot guarantee that such will be the
case. Energizer also cannot estimate the impact of environmental regulations or
proceedings which may be enacted or brought in the future. For more information
regarding environmental matters, see "BUSINESS AND PROPERTIES - Governmental
Regulation; Environmental Matters."
RISK FACTORS RELATING TO YOUR OWNERSHIP OF ENERGIZER STOCK
In connection with your ownership of Energizer Stock, you should consider
the following risks relating to Energizer's payment of dividends and its
anti-takeover protections.
THE ENERGIZER BOARD MAY DECIDE THAT ENERGIZER WILL NOT PAY DIVIDENDS ON THE
ENERGIZER STOCK.
The payment and level of cash dividends, if any, by Energizer after the
distribution will be at the discretion of the Energizer board of directors. It
is expected that this decision will be based primarily upon the earnings, cash
flow and financial requirements of the Energizer business. Restrictions on the
flow of international capital may restrict the amount of funds available in the
United States for the payment of dividends. In addition, although its credit
facilities do not prohibit the payment of dividends by Energizer, restrictions
in those facilities may significantly limit the amount of funds available for
the payment of dividends. The Energizer board of directors will determine
whether or not cash dividends will be paid on Energizer Stock in order to make
funds available for working capital, repayment of debt, possible future
acquisitions, capital expenditures, and possible repurchases of Energizer Stock.
If the Energizer board of directors elects to pay cash dividends on the
Energizer Stock, the board may still decide to change that policy at any time.
ENERGIZER'S ANTI-TAKEOVER PROTECTIONS COULD DELAY OR PREVENT A CHANGE IN
CONTROL, WHICH COULD ADVERSELY AFFECT THE PRICE OF THE ENERGIZER STOCK.
The Energizer Articles of Incorporation and Bylaws, the Missouri General
and Business Corporations Law, the common stock purchase rights which are being
distributed with the Energizer Stock, and the agreements that Ralston and
Energizer will enter into as part of the distribution, contain provisions that
could prevent or delay a change of control of Energizer in a transaction that is
not approved by its board of directors. These include provisions:
- - creating a classified board;
- - limiting the power of stockholders to increase the size of the board,
remove directors and fill vacancies on the board;
- - requiring stockholder approval for certain business combinations; and
- - requiring advance notice for director nominations or other proposals by
stockholders.
In addition, Energizer's board has the authority, without further action by
Energizer's stockholders, to set the terms of, and to issue, preferred stock,
which could adversely affect the common stockholders' voting power.
Furthermore, the common stock purchase rights will cause substantial dilution to
a person or group of persons that acquires 20% or more of the outstanding
Energizer Stock without the rights having been redeemed. The Reorganization
Agreement that Ralston and Energizer will enter into in connection with the
distribution also includes restrictions on the ability of Energizer to make
share repurchases and engage in specified transactions in certain circumstances.
The credit facilities which will be assumed by Energizer provide that debt
obligations will be accelerated upon a change in control of Energizer. These
provisions could deter or prevent an acquirer that is interested in acquiring
Energizer on a leveraged basis from doing so. For more information regarding
provisions which could hinder a takeover of Energizer, see "ANTI-TAKEOVER
EFFECTS OF CERTAIN PROVISIONS."
MANNER OF EFFECTING THE DISTRIBUTION
The distribution will be made as of 12:01 a.m. CST on April 1, 2000 (the
"Distribution Date") on a pro-rata basis to holders of record of the issued and
outstanding Ralston Stock as of the close of business on March 31, 2000.
On the Distribution Date, the Energizer Stock will be delivered by Ralston to
the Distribution Agent. As soon as practicable thereafter, the Distribution
Agent will begin mailing share certificates for the Energizer Stock which
Ralston stockholders will receive in the distribution. You will receive shares
of Energizer Stock on the basis of one share of Energizer Stock for every three
shares of Ralston Stock you hold. No fractional shares of Energizer Stock will
be issued to you.
The Distribution Agent will aggregate fractional shares into whole shares and
sell them in the open market at then prevailing prices on behalf of everyone who
otherwise would be entitled to receive fractional share interests. You will
receive a cash payment in the amount of your pro-rata share of the total sale
proceeds. Proceeds from sales of fractional shares will be paid by the
Distribution Agent based upon the average gross selling price per share of all
such sales. For more information about the tax consequences of the cash payment
for fractional shares, see "- Federal Income Tax Consequences of the
Distribution." Ralston will bear the cost of commissions incurred in connection
with these sales. It is expected that the sales will be made as soon as
practicable after the Distribution Date. NEITHER RALSTON, ENERGIZER NOR THE
DISTRIBUTION AGENT GUARANTEES THAT YOU WILL RECEIVE ANY MINIMUM SALE PRICE FOR
YOUR FRACTIONAL SHARES OF ENERGIZER STOCK, AND NO INTEREST WILL BE PAID TO YOU
ON THE PROCEEDS OF THE SALE.
Based on the number of shares of Ralston Stock issued and outstanding at March
1, 2000, approximately 100 million shares of Energizer Stock will be issued in
the distribution. All of the shares of Energizer Stock will be fully paid,
nonassessable and free of preemptive rights.
The board of directors of Energizer has also declared a distribution of one
common stock purchase right for every outstanding share of Energizer Stock.
These rights will be indicated on your Energizer stock certificate. For more
information about the common stock purchase rights, see "DESCRIPTION OF
ENERGIZER CAPITAL STOCK--Common Stock Purchase Rights".
Shares of Energizer Stock distributed with respect to any shares of Ralston
Stock you hold in the Ralston Purina Dividend Reinvestment Plan will be
distributed to you as soon as practicable following April 1, 2000. Any cash
payable instead of fractional shares of Energizer Stock will also be distributed
to you. The number of whole shares and fractional share interests, if any, of
Energizer Stock which you are entitled to receive in the distribution will be
determined by adding the number of shares of Ralston Stock that you hold of
record to the number of shares of Ralston Stock held for your account in the
Ralston Purina Dividend Reinvestment Plan, and dividing the total by three.
Following the distribution, approximately 200 million shares of Energizer
Stock will remain authorized but unissued, of which approximately 15 million
will be reserved for issuance under the Energizer Incentive Stock Plan.
No action is necessary on your part in order to receive the shares of
Energizer Stock in the distribution. This means that:
- - You do not need to pay any consideration to Ralston or to Energizer.
- - You do not need to surrender or exchange any shares of Ralston Stock to
receive your shares of Energizer Stock in the distribution.
The distribution will not affect the number of outstanding shares of Ralston
Stock, or the number of shares of Ralston Stock that you own.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
As indicated above, Ralston has received tax rulings from the IRS providing
that the transfer of certain assets and liabilities of the battery business to
Energizer in connection with the distribution, and certain internal
restructurings, will be tax-free to Ralston under Sections 368(a)(1)(D), 332,
367 and 351 of the Internal Revenue Code of 1986, as amended (the "Code"). The
tax rulings also provide that the distribution of the Energizer Stock to
stockholders of Ralston will qualify as a tax-free transaction under Section 355
of the Code. The rulings provide, among other things, that for Federal income
tax purposes:
- - No gain or loss will be recognized by you, or be includable in your
income, solely as a result of your receipt of Energizer Stock in the
distribution;
- - No gain or loss will be recognized by Ralston upon the distribution;
- - If you hold your Ralston Stock as a capital asset, your holding period for
the Energizer Stock which you receive in the distribution will include the
period during which you have held the Ralston Stock;
- - Your tax basis in your Ralston Stock immediately prior to the distribution
will be apportioned (based upon relative market values at the time of the
distribution) between the Ralston Stock which you hold and the Energizer Stock
which you receive in the distribution; and
- - Any cash which you receive instead of fractional shares of Energizer Stock
will be taxable to you as a sale or exchange of the fractional shares.
As soon as practicable following the distribution, Ralston will provide
information to you regarding the allocation of tax basis between your Ralston
Stock and your Energizer Stock.
If you are an employee of Ralston and you receive shares of Energizer Stock
in the distribution on restricted shares of Ralston Stock which were previously
awarded to you as compensation, Ralston will treat the Energizer Stock which you
receive as additional compensation. As compensation, these shares of Energizer
Stock will not qualify for tax-free treatment under Section 355 of the Code.
Rather, pursuant to Section 83 of the Code and the underlying Treasury
regulations, the shares distributed to you will be taxable as ordinary
compensation income. If you are an employee of Energizer and hold Ralston
restricted stock awards at the time of the distribution, all restrictions will
automatically lapse at the time of the distribution, and Energizer will treat
the then-unrestricted shares of Ralston and Energizer Stock as ordinary
compensation income pursuant to Section 83 of the Code.
For a description of the agreements under which Ralston and Energizer have
provided for various tax matters, see "AGREEMENTS BETWEEN RALSTON AND ENERGIZER
- --Agreement and Plan of Reorganization" and "AGREEMENTS BETWEEN RALSTON AND
ENERGIZER -- Tax Sharing Agreement".
THE ABOVE INFORMATION IS ONLY A SUMMARY OF MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED FOR YOUR
GENERAL INFORMATION ONLY. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE
PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO YOU, INCLUDING THE APPLICATION OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
LISTING AND TRADING OF ENERGIZER STOCK
There is currently no public trading market for Energizer Stock, and
Energizer cannot predict the prices at which Energizer Stock may trade either
prior to the distribution on a "when-issued" basis, or after the distribution.
In particular, until the Energizer Stock is fully distributed and an orderly
market develops, the trading prices may fluctuate significantly. The trading
prices for the Energizer Stock will be determined in the securities trading
markets and may be influenced by many factors, including:
- - the depth and liquidity of the market for Energizer Stock;
- - investor perceptions of Energizer and its business prospects;
- - Energizer's dividend policy; and
- - general economic and market conditions.
The trading prices may also be affected by certain provisions of Energizer's
Articles of Incorporation, Bylaws and the common stock purchase rights which may
discourage a potential takeover of Energizer. For more information about these
provisions, see "ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS".
The shares of Energizer Stock have been approved for listing on the NYSE under
the symbol "ENR". As of the Distribution Date, Energizer initially is expected
to have approximately 24,000 shareholders of record, based upon the number of
holders of record of Ralston Stock as of March 1, 2000. The Transfer Agent and
Registrar for the Energizer Stock will be Continental Stock Transfer & Trust
Company, located at 2 Broadway, New York, New York 10004.
The shares of Energizer Stock distributed to you in the distribution will be
freely transferable by you, unless after the distribution you are deemed to be
an "affiliate" of Energizer under the Securities Act of 1933. Affiliates of
Energizer would include individuals or entities that control, are controlled by,
or are under common control with, Energizer. This may include certain officers
and directors of Energizer as well as principal shareholders of Energizer.
Persons who are affiliates of Energizer will be permitted to sell their shares
of Energizer Stock only if:
- - the shares are sold under an effective registration statement filed under
the Securities Act, or
- - the shares are sold in reliance upon an exemption from the registration
requirements of the Securities Act, such as the exemptions afforded by Section
4(2) of the Securities Act and Rule 144 which was issued under that Section.
ENERGIZER STOCK RECEIVED BY BENEFIT PLANS
Energizer Stock distributed with respect to the shares of Ralston Stock
held in the Ralston Purina Master Collective Trust for the Ralston Purina
Retirement Plan will either be
- - sold over time;
- - retained in the trust; or
- - transferred to the trust for the Energizer defined benefit pension plan,
as part of the transfer of assets and liabilities described in "AGREEMENTS
BETWEEN RALSTON AND ENERGIZER -Agreement and Plan of Reorganization-Retirement
Plans".
The decision will be at the discretion of the Ralston Retirement Plan trustees,
J.R. Elsesser, L.L. Fraley, C.S. Sommer and A.M. Wray, all of whom are employees
of Ralston. Shares of Energizer Stock distributed with respect to the shares of
Ralston Stock held by the trustee for the Ralston Purina Company Savings
Investment Plan ("Ralston SIP"), Vanguard Fiduciary Trust Company, will be
maintained in the Ralston SIP or sold as directed by the individual participants
who are credited with such shares.
If you are a Ralston employee and a participant in the Ralston SIP, you will not
be permitted to invest additional monies in Energizer Stock, and after a period
of time all of your shares of Energizer Stock in the Ralston SIP must be sold
and the proceeds invested, according to your election, in other funds offered by
the Plan.
If you are an Energizer employee and you participate in the Ralston SIP
immediately prior to the distribution, the shares of Energizer Stock credited to
you at the time of the distribution will be transferred, along with your other
account balances (including balances in the Ralston ESOP Common Stock Fund), to
a defined contribution plan to be established by Energizer - the Energizer
Savings Investment Plan ("Energizer SIP"). Following the distribution, you will
not be able to invest additional monies in Ralston Stock and after a period of
time, the shares of Ralston Stock credited to you in the Energizer SIP must be
sold and the proceeds invested, according to your election, in other funds
offered by the Energizer SIP, including the Energizer ESOP Common Stock Fund.
REGULATORY APPROVALS
All material federal, state or foreign regulatory approvals required in
connection with the distribution have been obtained.
AGREEMENTS BETWEEN RALSTON AND ENERGIZER
This section describes the primary agreements between Ralston and Energizer
that will define the ongoing relationship between them after the distribution
and will provide for an orderly separation of the battery business from
Ralston's pet products business. The following description summarizes the
material terms of these agreements. The agreements have been filed as exhibits
to Energizer's Registration Statement on Form 10 which has been filed with the
Securities and Exchange Commission, and are available for public review. The
following description is only a summary; for the full text of the agreements,
you should review the exhibits which have been filed with the Securities and
Exchange Commission.
AGREEMENT AND PLAN OF REORGANIZATION
Ralston and Energizer will, prior to the distribution, enter into an
Agreement and Plan of Reorganization (the "Reorganization Agreement") providing
for the principal corporate transactions required to effect the distribution.
The Reorganization Agreement addresses a number of other issues between Ralston
and Energizer as a result of the distribution, including indemnification
arrangements, restrictions on Energizer's ability to engage in specified
transactions, and employee benefit arrangements.
Effecting the Distribution.
Certain transactions described in the Reorganization Agreement will be
required to separate the battery business from Ralston's pet products business.
The U.S. battery business is currently conducted by Eveready Battery Company,
Inc., a Delaware subsidiary of Ralston, and the
international battery business is currently conducted principally through
foreign subsidiaries of Energizer International, Inc. ("Energizer
International"), a holding company subsidiary of Ralston. The Reorganization
Agreement provides that, prior to the distribution:
- - Eveready Battery Company, Inc., the initial holder of all outstanding
Energizer Stock, will transfer the Energizer Stock to VCS Holdings, Inc., its
parent which is a directly wholly owned subsidiary of Ralston. VCS will then
merge into Ralston, leaving Ralston as the direct parent of both Energizer and
Eveready;
- - in Canada and Argentina, pet products and battery operations will be
effectively split into separate subsidiaries of Energizer International and
Ralston;
- - in Chile, the assets and liabilities of the pet products business will be
purchased by a newly formed subsidiary of Ralston, and in Spain, the capital
stock of the local subsidiary engaged in the pet products business will be
purchased by an existing subsidiary of Ralston;
- - in Mexico, the capital stock of the local battery subsidiary will be
transferred to Energizer International prior to the distribution in exchange for
Energizer International's interest in a Mexican holding company subsidiary of
Ralston;
- - in the United Kingdom and Brazil, assets of the battery business, as well
as, in the United Kingdom, stock of local battery subsidiaries, will be
acquired by newly formed subsidiaries of Energizer International;
- - the outstanding capital stock of Energizer International will be
contributed to Eveready Battery Company, Inc.;
- - the capital stock of the Japanese subsidiary engaged in the battery
business will be contributed to Energizer International; and
- - Ralston will transfer to Energizer the outstanding capital stock of
Eveready Battery Company, Inc. immediately prior to the distribution.
The effect of all of these transactions will be to place direct or indirect
ownership of all U.S. and foreign battery operations under Energizer prior to
the distribution.
In addition, the Reorganization Agreement provides that Energizer will
assume the obligation to repay approximately $ 490 million which will be
borrowed by Ralston prior to the distribution, as well as retain approximately
$125 million of pre-existing debt of the international battery subsidiaries.
The actual amount which Ralston will borrow is subject to change based upon the
actual amount of cash in excess of $15 million held by Energizer at the time of
the distribution. Ralston itself will retain or assume certain liabilities
associated with the Energizer business.
Indemnification. Subject to certain exceptions, the Reorganization
Agreement provides for indemnification by the parties as follows:
Ralston has agreed to indemnify Energizer against any liabilities assumed
or retained by Ralston in the Reorganization Agreement, and liabilities relating
to:
- - any breach by Ralston of any covenant made in the Reorganization Agreement
or any other agreement summarized in this section (the "Ancillary Agreements");
- - any third party claim primarily relating to the actions of the Ralston
board of directors in authorizing the distribution; and
- - the operation of the businesses conducted, or to be conducted, by Ralston
and its subsidiaries or the ownership of its assets (other than the operation or
assets of the battery business) both prior to and following the distribution.
Energizer has agreed to indemnify Ralston against any liabilities assumed
or retained by Energizer in the Reorganization Agreement, including the
approximately $615 million of debt for which Energizer will assume or retain the
obligation to repay, and liabilities relating to:
- - any breach by Energizer of any covenant made in the Reorganization
Agreement or any Ancillary Agreement;
- - the operation of the Energizer business and former battery operations
controlled by Energizer, or the ownership of the assets used in those
businesses, except to the extent those liabilities are assumed or retained by
Ralston in the Reorganization Agreement or any Ancillary Agreement; and
- - all liabilities arising out of Ralston's continuing guarantee of any
obligation of Energizer or any subsidiary of Energizer.
The indemnification payments described above will be limited to the amount of
the loss, less insurance proceeds (net of any deductibles or allocated paid-loss
retro-premiums) which may be received for the loss by the party seeking
indemnification.
Neither Ralston nor Energizer will have any liability to the other for taxes
except as provided in the Tax Sharing Agreement, described below.
Certain Post-Distribution Covenants. The Reorganization Agreement also
provides that, in order to avoid adversely affecting the intended favorable tax
consequences of the distribution, neither Energizer nor any of its subsidiaries
will engage in certain transactions for a period of time following the
Distribution Date unless, in the sole discretion of Ralston, either:
- - a legal opinion satisfactory to Ralston is obtained from counsel selected
by Energizer and approved by Ralston, or
- - a supplemental ruling is obtained from the IRS,
and such opinion or ruling provides that the transactions would not adversely
affect the Federal income tax consequences of the distribution, as set forth in
the private letter rulings which have already been obtained from the IRS by
Ralston.
Energizer does not expect that these limitations will significantly inhibit
its activities or its ability to respond to business developments. The
transactions subject to this provision, and the periods such transactions will
be limited, are:
- - material sales, exchanges or distributions to shareholders by Energizer,
or other material dispositions of any of Energizer's assets, except in the
ordinary course of business - 30 months;
- - repurchases of Energizer Stock, unless the repurchase satisfies certain
IRS Ruling criteria - 24 months;
- - issuances or dispositions of Energizer Stock that represent in the
aggregate 50% or more of the issued and outstanding Energizer Stock - 30
months;
- - the liquidation of Energizer or its merger with any other corporation
(including a subsidiary) - 30 months; or
- - the cessation by Energizer of the active conduct of the battery business,
within the meaning of Section 355(b) of the Code - 30 months.
In addition, the Reorganization Agreement provides that, if Energizer
engages in any of these transactions, and if the distribution becomes taxable
under the provisions of the Code because of its actions, Energizer will
indemnify Ralston (and its stockholders receiving shares of Energizer Stock in
the distribution) against all tax liabilities, including interest and penalties,
which are incurred. Ralston has agreed to indemnify Energizer against losses
which it may incur in the event that Ralston or any of its subsidiaries take any
action which adversely impacts the tax-free nature of the distribution.
Additional Covenants. The Reorganization Agreement also provides that:
- - Ralston will pay all expenses associated with the transactions that are
required to effect the distribution;
- - by the Distribution Date, Energizer's Articles of Incorporation and Bylaws
will be in the forms filed as exhibits to the Registration Statement;
- - the parties will take all actions that may be required to elect or
otherwise appoint as directors of Energizer the eight persons identified in this
Information Statement. See "MANAGEMENT -- Directors of Energizer";
- - Ralston and Energizer will each be granted access to certain records and
information in the possession of the other party and will each retain their
records for a period of seven years following the distribution; and
- - Energizer will comply with the terms of the non-compete provisions
applicable to Ralston and its affiliates under an agreement with E.I. Du Pont de
Nemours and Company relating to Ralston's sale of its protein technologies
business, and an agreement with Agribrands International, Inc. relating to
Ralston's spin-off of that business.
Employee Benefit Arrangements. The Reorganization Agreement contains certain
agreements relating to employee benefit and compensation matters in connection
with the distribution. Generally, following the distribution, Ralston will
cease to have any liability or obligation to current and former Energizer
employees and their beneficiaries under any Ralston benefit plans, programs or
practices. Energizer will assume and be solely responsible for liabilities and
obligations to those current and former employees under benefit plans, programs
and practices which it adopts. Energizer employees will be credited with the
term of service they possessed before the distribution for purposes of all
benefit plans, programs and practices which Energizer may adopt.
Severance Pay. Subject to local laws or regulations, Ralston and Energizer
have agreed that individuals who cease to be employees of Ralston or one of its
subsidiaries and become employees of Energizer or one of its subsidiaries (or
vice versa), will not be considered to have severed their employment for
purposes of any severance or salary continuation plan. Following the
distribution, Ralston and Energizer will each be responsible for any severance
payable to their employees.
Retirement Plans. Energizer has agreed that it will establish and
administer a defined benefit pension plan which will provide benefits to current
and former employees of Energizer who, immediately prior to the distribution,
participated in the Ralston Retirement Plan. Ralston has agreed to transfer
certain assets and liabilities, based on formulas set forth in the
Reorganization Agreement, from the Trust for the Ralston Retirement Plan to the
trust for the Energizer defined benefit pension plan. Each employee of
Energizer will, for all purposes under the Energizer defined benefit pension
plan, be credited with the term of service and any accrued benefit credited to
him or her under the terms of the Ralston Retirement Plan as of the
distribution.
With respect to other foreign funded pension plans, Energizer and Ralston
have agreed that assets and liabilities related to current and former employees
of their businesses will be transferred to, or retained in, the Energizer or
Ralston plan which will cover each of those current and former employees. All
of the current and former employees will remain credited with the term of
service and any accrued benefit credited to them under the terms of those Plans
as of the distribution. Participants will receive pension benefits from the
Plans in accordance with the Plan terms.
Savings Plan. Energizer has agreed to establish the Energizer Holdings,
Inc. Savings Investment Plan (the "Energizer SIP"), a defined contribution plan
which is intended to be a qualified plan subject to Sections 401(a) and 401(k)
of the Code. The Energizer SIP will include all current and former Energizer
employees who immediately prior to the Distribution Date were participants in
the Ralston SIP. Each employee who participates in the Energizer SIP will be
credited with the term of service and the account balance credited to him or her
as of the distribution under the terms of the Ralston SIP. Ralston will
transfer an amount equal to those account balances from the Ralston SIP to the
Energizer SIP. Energizer has represented that the Energizer SIP will qualify as
an employee stock ownership plan and will contain an "Energizer ESOP Common
Stock Fund" in which matching contributions must be invested. The Energizer SIP
will provide a 50% matching contribution to the Energizer ESOP Common Stock Fund
for the first 6% of participant pre-tax deferrals into the Energizer SIP. The
matching contribution must remain invested in that Fund. Energizer will also
make a 325% matching contribution to each employee's PensionPlus Match Account
in the Energizer pension plan for the first 1% of after-tax contributions by the
employee to the Energizer SIP.
Welfare Plans. Energizer has agreed that it will adopt appropriate welfare
benefit plans to provide welfare benefits (including retiree medical and life
benefits) to its current and former employees. Employees will be credited with
the terms of service with Ralston under similar Ralston plans for purposes of
eligibility and benefits under the Energizer plans. Energizer will assume and
be responsible for all welfare benefit claims of its current and former
employees which are incurred either before or following the distribution.
Ralston Stock Options and Restricted Stock. As of the distribution:
- - options to acquire Ralston Stock held by Energizer employees will be
adjusted to reflect the distribution and will, by their terms, accelerate and
become exercisable and will continue to be exercisable for a period of time
after the distribution in accordance with the terms of the options,
- - options to acquire Ralston Stock held by Ralston employees will be
adjusted to reflect the distribution,
- - restricted shares of Ralston Stock granted under a Ralston incentive
compensation plan and held by Energizer employees will, by their terms,
immediately vest and thereafter the holders will receive shares of Energizer
Stock in the distribution on the same basis as all other shareholders of Ralston
Stock, and
- - all other employees of Ralston who immediately prior to the distribution
are the holders of any restricted shares of Ralston Stock will receive shares of
Energizer Stock in the distribution on the same basis as all other shareholders
of Ralston Stock, and the shares of Energizer Stock received will be distributed
directly to those employees free of restrictions.
Incentive Stock Plan. Energizer has agreed that it will establish and
administer an Incentive Stock Plan ("Energizer ISP") under which the Nominating
and Executive Compensation Committee of the Energizer Board of Directors (the
"Energizer Committee") will make stock awards and grant stock options to key
employees and directors of Energizer.
Deferred Compensation Plans. Energizer has agreed that it will establish
and administer one or more non-qualified deferred compensation plans which will
provide benefits to Energizer employees. Account balances of Energizer
employees under the Ralston Purina Deferred Compensation Plan for Key Employees
(other than balances under the Fixed Benefit Option), the Ralston Purina
Executive Supplemental Retirement Plan, and the Ralston Purina Company Executive
Savings Investment Plan will be credited to them under the Energizer deferred
compensation plans, and Energizer will thereafter be solely responsible for such
obligations. Energizer will indemnify Ralston against any further liability
with respect to any transferred accounts. Ralston will retain liability for
obligations under the Fixed Benefit Option of the Ralston Purina Deferred
Compensation Plan for Key Employees.
TAX SHARING AGREEMENT
Through the distribution Energizer's business operations will continue to
be included in the consolidated Federal income tax returns of Ralston. As part
of the distribution, Ralston and Energizer will enter into a Tax Sharing
Agreement providing, among other things, for the allocation between the parties
of Federal, state, local and foreign tax liabilities for all periods through
12:01 a.m. on the Distribution Date, and reimbursement by each party for any of
its taxes which may have been or will be paid or advanced by the other. The Tax
Sharing Agreement provides that:
- - Ralston will be liable for certain domestic tax liabilities for periods
ending on or before the Distribution Date, including such liabilities resulting
from audits or other adjustments to previously filed tax returns;
- - Energizer will be liable for certain foreign tax liabilities attributable
to the operation of the Energizer business prior to the Distribution Date; and
- - Energizer will be responsible for all Federal, state, local and foreign
taxes attributable to the Energizer business on and after the Distribution Date.
Though valid as between Ralston and Energizer, the Tax Sharing Agreement is not
binding on the IRS or foreign tax authorities. It will not affect the joint and
several liability of Ralston and Energizer, and their respective subsidiaries,
to the IRS or to foreign tax authorities for taxes of the Ralston consolidated
group relating to periods prior to the distribution.
BRIDGING AGREEMENT
Ralston and Energizer (or one of its subsidiaries) will enter into a
Bridging Agreement under which Ralston and, in certain cases, Energizer, will
continue to provide certain administrative services for a limited period of time
following the distribution. It is also currently contemplated that employees of
Ralston will administer insurance plans and programs for Energizer on an ongoing
basis following the distribution, and that Ralston's offshore insurance
subsidiary will provide certain reinsurance coverage for assets and operations
of Energizer. Charges for such services will be determined on a fair market
basis.
LEASE AGREEMENT
Ralston and Energizer will enter into a lease under which Energizer will
lease office space for its headquarters operations for a period of time
following the distribution at a negotiated rental rate reflecting the market
rate for comparable space in the area.
FOREIGN DISTRIBUTION AGREEMENTS
Ralston and Energizer will enter into agreements providing for the
continued distribution in certain foreign countries by Energizer or its
subsidiaries of pet products manufactured by Ralston. All payments and other
terms and conditions for these distribution arrangements will be determined
through arm's length bargaining on a fair market basis.
AIRCRAFT JOINT OWNERSHIP AGREEMENT
Following the distribution, Ralston, Energizer and Agribrands
International, Inc. will share ownership of two corporate aircraft.
Responsibilities for the operation and maintenance of the aircraft, and
associated expenditures, will be determined through arm's length bargaining on a
fair market value basis.
ENERGIZER HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN MILLIONS)
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
The following discussion is a summary of the key factors management considers
necessary in reviewing the Energizer Holdings Inc.'s (Energizer) results of
operations, operating segment results, liquidity and capital resources. This
discussion should be read in conjunction with the Combined Financial Statements
and related notes and Segment Information found elsewhere in this Information
Statement.
The audited Combined Financial Statements included herein do not include certain
expenses and adjustments that would have been incurred had Energizer been a
separate, independent company, and may not necessarily be indicative of the
results of operations, financial position and cash flows of Energizer had it
operated as a separate, independent company during the periods presented or in
the future. The audited Combined Financial Statements included herein do not
reflect any changes that may occur in the financing and operations of Energizer
as a result of the distribution.
BUSINESS OVERVIEW
Energizer is the world's largest manufacturer of primary batteries and
flashlights and a global leader in the dynamic business of providing portable
power. Energizer manufactures and markets a complete line of primary alkaline
and carbon zinc batteries under the brands Energizer and Eveready, as well as
miniature and rechargeable batteries and flashlights and other lighting
products. Energizer and its subsidiaries operate 23 manufacturing facilities in
16 countries on 4 continents. Its products are marketed and sold in more than
160 countries primarily through a direct sales force, and also through
distributors, to mass merchandisers, wholesalers and other customers.
There has been a shift within primary battery products from carbon zinc
batteries to alkaline batteries. As such, Energizer has recorded provisions
related to restructuring its worldwide battery production capacity and certain
administrative functions in each of the last three years. Alkaline batteries
are now the dominant primary battery in all world areas with the exception of
Asia and Africa. Energizer continues to review its battery production capacity
and its business structure in light of pervasive global trends, including the
evolution of technology.
Energizer's operations are managed via four major geographic areas - North
America (which includes the U.S. and Canada), Asia Pacific, Europe and South and
Central America (including Mexico). Segment profit and sales are concentrated
in the North America and Asia Pacific areas which together account for 97% and
76%, respectively, of 1999 segment profit and sales.
The battery business is highly competitive, both in the United States and on a
global basis, as a number of large battery manufacturers compete for consumer
acceptance and, increasingly, limited retail shelf space. Although the alkaline
battery segment is the fastest growing segment of the primary battery market in
the United States and worldwide, Energizer's share of the United States and
Europe primary battery market on both a dollar and a unit basis declined
significantly in recent years. According to A.C. Nielsen, Energizer's share of
the U.S. primary battery market declined from 37.7% in 1995 to 34.4% in 1998 and
to 31.6% in 1999. Energizer estimates that market share for primary batteries
has also declined in Europe from 27% to 21% from 1995 to 1998.
The Asia Pacific area, which accounts for 23% of segment profit in 1999, has
experienced significant currency devaluations and economic contraction in recent
years. Changes in the value of local currencies or economic contractions in
this area may continue to impact segment profitability.
OPERATING RESULTS
HIGHLIGHTS
Net earnings were $80.0 for the year ended September 30, 1999, compared to
$164.7 in 1998. Included in net earnings are earnings from continuing
operations of $159.8 and $208.2 in 1999 and 1998, respectively; net loss from
discontinued operations of $5.6 in 1999 and $43.5 in 1998; and a net loss on the
disposition of discontinued operations of $74.2 in 1999.
Earnings from continuing operations decreased $48.4 in 1999. Included in both
periods are provisions for restructuring and capital loss tax benefits.
Excluding these items, earnings from continuing operations decreased $21.1.
This decrease is primarily attributable to declines in the Europe and Asia
Pacific areas partially offset by increases in North America.
Net earnings for the year ended September 30, 1997 were $150.1 and included
earnings from continuing operations of $149.6 and earnings from discontinued
operations of $.5. In 1998, earnings from continuing operations increased
$56.6, primarily as a result of lower restructuring charges. Excluding
restructuring charges and capital loss tax benefits in both years, and excluding
foreign tax credit refunds in 1997, earnings from continuing operations
decreased $2.3. Increases in North America segment profitability were more than
offset by declines in the Asia Pacific region. In addition, higher general
corporate expense and research and development expenses were nearly offset by
lower amortization and interest and other financial items expense.
Discontinued operations consists of Energizer's worldwide rechargeable Original
Equipment Manufacturers' (OEM) battery business. In March 1999, the Board of
Directors of Ralston Purina Company (Ralston) announced its intention to exit
this business to allow Energizer to focus on its primary battery business. On
November 1, 1999, this business was sold to Moltech Corporation for
approximately $20.0.
INCOME TAXES
Income taxes, which include federal, state and foreign taxes, were 35.6%, 20.7%
and 21.9% of earnings from continuing operations before income taxes in 1999,
1998 and 1997, respectively. Income taxes include certain unusual items in all
years, the most significant of which are described below:
- - Capital loss tax benefits of $16.6, $48.4 and $35.9 were recognized in
1999, 1998 and 1997, respectively, and were primarily related to prior years'
restructuring actions.
- - In 1997, a tax benefit of $20.5 was recorded related to tax refund claims
for 1993 through 1996 as a result of a change in Ralston's method of computing
foreign tax credits.
- - In 1999 and 1997, the income tax percentage was unfavorably impacted by
pre-tax restructuring provisions that did not result in tax benefits due to tax
loss situations or particular statutes of a country.
Excluding unusual items, the income tax percentage was 41.3% in 1999 and 39.2%
in 1998 and 1997.
SEGMENT RESULTS
Energizer's operations are managed via four major geographic areas - North
America, which includes the US and Canada, Asia Pacific, Europe and South and
Central America (including Mexico). This structure is the basis for Energizer's
reportable operating segment information presented in the Financial Information
section of this Information Statement. Energizer evaluates segment
profitability based on operating profit before general corporate expenses,
research and development expenses, restructuring charges and amortization of
goodwill and intangibles.
NORTH AMERICA
Net sales increased $30.5 or 3.0% in 1999 and $31.4 or 3.2% in 1998. In 1999,
volume contributed $55.2 of sales increase, partially offset by unfavorable
pricing and product mix. Alkaline volumes increased 7.5% in 1999 and 2.7% in
1998. Carbon zinc volume declined 16.0% in 1999 and 6.4% in 1998 reflecting the
aforementioned continuing market shift to alkaline batteries from carbon zinc
batteries. Additionally, 1998 sales were favorably impacted by improved
pricing and product mix.
Segment Profit for North America increased $11.6 or 4.1% in 1999 as a result of
the higher gross margin associated with the increase in sales. Increased
marketing and distribution costs of $5.0, commensurate with the higher sales
level, and increased general and administrative expenses of $4.4 were largely
offset by an $8.4, or 8.2%, decrease in advertising and promotion expenditures.
In 1998, segment profit increased $18.7 or 7.2%. This increase was primarily
attributable to a $34.3 gross margin improvement driven primarily by the
favorable product mix and sales increase. Partially offsetting these increases
were an increase in marketing and distribution costs of $6.0, or 7.6%, and an
increase in advertising expenditures of $6.5, or 6.7%, in support of the
Energizer Advanced Formula product launch.
<PAGE>
ASIA PACIFIC
Net sales decreased $12.1 or 3.0% in 1999. Currency devaluations accounted for
$12.0 of the sales decline. Carbon zinc volume decreases of 5.4% were offset by
a 4.2% increase in alkaline volume.
Segment profit for Asia Pacific decreased $11.1, or 11.1% in 1999. Gross margin
declined $21.3 due to higher production costs and lower sales. Partially
offsetting these declines were a $6.2 decrease in exchange losses and a $4.0
decrease in advertising and promotion.
In 1998, sales decreased $78.2 or 16.5% with currency devaluations accounting
for $68 of the decline. To mitigate the impact of the currency devaluations,
price increases were implemented in a number of Asian markets. Pricing and
product mix increased sales by $10. Decreased volumes also had a negative
impact on sales of $20 as carbon zinc volume declined 10% and alkaline volume
declined 1.1%.
Segment profit decreased $21.2, or 17.4% in 1998. Gross margin declined $32.7
on lower sales, partially offset by lower costs due to currency devaluation.
Similarly, currency devaluation was the primary factor in declines in Marketing
and Distribution and General and Administrative costs of $5.6 and $3.2,
respectively. Advertising and Promotion decreased $8.9 on currency devaluation
and reduced spending.
EUROPE
Net sales to customers for Europe decreased $48.7 or 13.3% in 1999 and $39 or
9.6% in 1998. The 1999 decreased alkaline and carbon zinc volumes, of 4.8% and
18.7%, respectively accounted for $33.3 of the decline. Pricing and product mix
negatively impacted sales by $17 in 1999. The majority of the pricing and
product mix decline, $9.8, was driven by the company's move from a sales force
to a distributor model in several countries during 1999. The remainder of the
decline reflects competitive and retail pressures.
The sales decline in 1998 was primarily due to currency devaluation. Excluding
the impact of foreign exchange rates, sales decreased $9.1 or 2.2% in 1998.
Alkaline volumes increases of 8.1% were virtually offset by a 5.8% carbon zinc
volume decline.
Segment profit for Europe declined by $12.5 to a loss of $1.2 in 1999.
Production inefficiencies related to a plant closing and other costs associated
with restructuring activities accounted for $6.5 of the decline. Excluding
these costs, segment profit declined $6 as sales declines of $48.7 were
partially offset by a $28.3 decrease in cost of products sold associated with
the lower sales and a $15.1 decrease in overhead reflecting results of the
continuing restructuring of the European business operations, including the move
to the distributor sales model in several countries.
In 1998, segment profit declined $3.9, as sales declines of $39 were nearly
offset by a $22.4 decrease in cost of products sold associated with the lower
sales and a $12.1 decrease in overhead reflecting restructuring of the European
business operations coupled with favorable currency impacts.
SOUTH AND CENTRAL AMERICA
Net sales decreased $19.2 or 12.5% in 1999. Of this decline, $19 was due to
currency devaluation in the region. In addition, sales increased $16 on
increased selling prices and a favorable product mix but were offset by volume
declines of 10.0% for alkaline and 16.9% for carbon zinc batteries.
In 1998, sales increased $1.8 or 1.2%. Foreign currency devaluation decreased
sales by $12. Offsetting this decline were overall volume improvements of $4
with alkaline volumes up 6.3% and carbon zinc down 4.2%. In addition, increased
selling prices and a favorable product mix improved sales by $10.
Intersegment sales for 1998 increased $19.6 reflecting the impact of additional
sourcing of carbon zinc batteries from this segment to North America as carbon
zinc production capacity was eliminated in North America during 1998. This
sourcing continued into 1999, to a lesser extent.
Segment profit for South and Central America decreased $2.4 or 14.2% in 1999.
Gross margin declined $13, much of which was attributable to lower usage of
productive capacity in the Mexican plant. Lower other operating costs and a
decrease of $2.1 in exchange losses partially offset the earnings decline.
Operating cost reductions included decreased advertising and promotion expenses
of $4.7 and lower general and administrative expenses of $2.4 resulting from
actions taken to offset lower plant utilization and from planned reorganization
and restructuring in Brazil.
In 1998, segment profit increased $5.4 or 47.0% primarily on the additional
margin of approximately $8.0 on intersegment sales to source carbon zinc product
to North America. This increase was partially offset by increased exchange
losses of $2.0.
DISCONTINUED RECHARGEABLE OEM BATTERY BUSINESS
Net earnings/(loss) from discontinued operations represents the operating
results of this business through March 31, 1999. Results for this business
continued to decline in 1999 on lower sales volume and decreased margins. In
1998, results of discontinued operations include an after-tax restructuring
charge of $42.7, primarily representing an impairment write-down of lithium ion
rechargeable battery assets. Excluding this charge, results declined $1.3 in
1998 on lower sales.
GENERAL CORPORATE EXPENSES
General corporate expenses of $54.0 in 1999 increased 16.9% in 1999 and
increased 32.4% in 1998. The increase in 1999 was primarily attributable to
strategic studies performed and headquarters' reorganization in anticipation of
the spin-off and increases in various other corporate costs. The increase in
1998 was primarily attributable to increased profit in inventory eliminations
and increases in various other corporate costs. These increases were partially
offset by increased pension income. As a percent of sales, general corporate
expenses were 2.9% in 1999, compared to 2.4% in 1998 and 1.7% in 1997.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense of $48.5 in 1999 increased 4.1% in 1999 and
increased 11.2% in 1998. These increases are attributable to Energizer's
ongoing effort to maintain technological leadership in the primary battery
business. As a percent of sales, research and development expense was 2.6% in
1999, compared to 2.4% in 1998 and 2.1% in 1997.
RESTRUCTURING CHARGES
Competition in the primary battery business has intensified over the past
several years, and there continues to be a migration of demand from carbon zinc
to alkaline batteries. In response to these changes, Energizer has recorded
restructuring charges each year since 1994. These charges include a reduction
in carbon zinc plant capacity as demand for this type of battery continues to
decline, plant closures for the movement and consolidation of alkaline
production to new or more efficient locations in an effort to achieve lower
product costs, and staffing reorganizations and reductions in various world
areas to enhance management effectiveness and reduce overhead costs. A detailed
discussion of these and other charges taken since 1994 follows.
During 1999, Energizer recorded net provisions for restructuring of $8.3,
after-tax, or $9.9, pre-tax, $2.1 of which represented inventory write-downs and
is classified as Cost of Products Sold in the combined statement of earnings.
Of the net pre-tax charge, $7.4 relates to current year restructuring plans for
the elimination of certain production capacity in North America and in Asia.
The pre-tax charge of $7.4 for current year plans consisted of termination
benefits of $3.2, other cash costs of $0.2 and fixed asset impairments of $4.0.
The fixed asset impairments primarily relate to assets used for the production
of lithium coin cells in North America. These assets were idled and scrapped in
1999.
The 1999 restructuring plan provided for the termination of approximately 170
production and administrative employees and the closure of one plant in Asia.
This plant closure was precipitated by the financial problems in the Asian
market, which resulted in contractions in battery markets in this area. As of
September 30, 1999, approximately 160 employees had been terminated and the
plant was closed in connection with these charges. Substantially all actions
associated with these charges will be completed by the end of the first quarter
of fiscal 2000.
The remaining $2.5 represents additional net provisions related to prior years'
restructuring plans. Additional termination benefits of $5.5 related to the
1997 restructuring plan primarily represent enhanced severance related to a
European plant closing. Additional provisions for other cash costs of $1.8 were
recorded for fixed asset disposition costs for previously held for use assets
related to the 1997 restructuring plan that were idled and held for disposal.
Other non-cash charges of $2.1 relate to inventory write-offs which were more
than offset by a reclassification of $4.5 from other comprehensive income to net
income of cumulative translation adjustment for a subsidiary sold in connection
with the 1997 plan. Also recorded in 1999 were asset proceeds greater than
anticipated of $5.4 related to 1994, 1995 and 1997 restructuring plans.
The 1999 restructuring plans are expected to generate annual pre-tax cost
savings of $0.3 in 2000 and $1.4 beginning in 2001.
During 1998, Energizer recorded net after-tax provisions for restructuring of
$12.8, or $21.3 on a pre-tax basis, of which $.3 represents inventory
write-downs and is classified as Cost of Products Sold in the combined statement
of earnings. Of the net pre-tax charge, $36.5 related to 1998 restructuring
plans, including a voluntary early retirement option offered to most U.S.
Energizer employees meeting certain age and service requirements and European
business operations restructuring, primarily a reorganization of European sales
forces and related employee reductions.
The total 1998 pre-tax charge of $36.5 consisted of termination benefits of
$29.3, which provided for the termination or early retirement of approximately
420 sales and administrative employees, other cash costs of $4.6, fixed asset
impairments of $1.1 and a non-cash investment write-off of $1.5. The other cash
costs of $4.6 consisted of demolition costs of $1.5 and environmental exit costs
of $0.8, both relating to assets held for disposal, lease termination costs of
$1.6, and other exit costs of $.7. As of September 30, 1999, approximately 340
employees had been terminated in connection with these charges. Except for
disposition of certain assets held for disposal, substantially all actions
associated with the 1998 charges will be completed by the end of fiscal 2000.
In addition, net reversals of $15.2 related to prior years' restructuring plans
were recorded in 1998, comprised of $3.7 of additional charges offset by $18.9
of reversals of prior years' charges. The additional charges primarily related
to asset disposition costs of $2.6 for previously held for use assets that were
idled and held for disposal. The reversals included $9.4 of greater than
anticipated proceeds from asset sales related to the 1994, 1995 and 1996
restructuring plans. In addition, $8.5 of termination benefits recorded in 1997
were reversed in 1998 due primarily to the modification of a European plant
closing plan, driven by the changing business environment in Europe. The
modifications resulted in the termination of approximately 200 fewer employees
than originally anticipated.
Pre-tax cost savings from the 1998 restructuring plans have been or are expected
to be as follows: 1999 - $12; and ultimate annual reduction - $13.
During 1997, Energizer recorded net provisions for restructuring of $72.0,
after-tax, or $83.7, pre-tax, of which $5.2 represented inventory write-downs
and is classified as Cost of Products Sold in the combined statement of
earnings. Of the total pre-tax charge, $81.8 related to 1997 plans for the
restructuring of Energizer's carbon zinc and alkaline production capacity,
primarily in Europe and North America, and for staffing reorganization and
reductions.
The total 1997 pre-tax charge of $81.8 consisted of termination benefits of
$43.8, other cash costs of $2.4, fixed asset impairments of $29.6 and non-cash
charges of $6.0. The other cash costs of $2.4 consisted of legal,
environmental and other exit costs. The non-cash charges of $6.0 consisted of
inventory write-offs of $3.0 and an investment write-off of $3.0.
Fixed asset impairments of $29.6 were computed using discounted cash flows to
determine the fair value of the impaired plants and production assets. The net
book value of these assets prior to the impairment write-down was $40.0. These
assets relate to three production plants located in the United States, Canada
and France, which were idled in March 1998, November 1997 and April 1999,
respectively. Depreciation continued on these assets subsequent to the
impairment write-down until those assets were idled.
The 1997 charges provided for the termination of approximately 1,180 employees
in production, sales and administrative capacities. As previously mentioned,
the plan was modified in 1998 to terminate approximately 200 fewer employees.
As of September 30, 1999, approximately 890 employees had been terminated in
connection with these charges. Except for disposition of certain assets held
for disposal, substantially all actions associated with the 1997 charges will be
completed by the end of the first quarter of fiscal 2000, with payments
extending through the end of fiscal 2000.
The remaining $1.9 of the net 1997 provision represents additional provisions
for prior years' restructuring plans of $2.5 and $2.9 for additional cash and
non-cash charges, respectively, net of reversals of cash and non-cash provisions
taken in prior years of $.7 and $2.8, respectively. The non-cash reversal was
primarily due to fixed asset proceeds greater than originally anticipated.
Pre-tax cost savings from the 1997 restructuring plans have been or are expected
to be as follows: 1998 - $9; 1999 - $19; 2000 - $25; and ultimate annual
reduction - $26.
As of September 30, 1999, except for the disposition of certain assets held for
disposal, substantially all activities associated with 1994, 1995 and 1996
restructuring plans are complete. The remaining accrual related to these plans
was $1.6 at September 30, 1999 and primarily represents costs under a
noncancellable lease and asset disposition costs. The 1994, 1995 and 1996
restructuring plans resulted in pre-tax cost reductions of $47 in 1997 and $51
in 1998, representing the ultimate annual reduction.
The carrying value of assets held for disposal at September 30, 1999 was $6.7.
Energizer expects to fund the remaining costs of these restructuring actions
with funds generated from operations.
See the Notes to Financial Statements for a table which presents, by major cost
component and by year of provision, activity related to the restructuring
charges discussed above during fiscal years 1999, 1998 and 1997, including any
adjustments to the original charges.
FINANCIAL CONDITION
Cash flows from continuing operations totaled $337.2 in 1999, $232.6 in 1998 and
$285.7 in 1997. The 45.0% increase in cash flows from continuing operations in
1999 resulted primarily from higher cash earnings and also from favorable
changes in working capital items. In 1998, the 18.6% decrease in cash flows
from continuing operations was attributable to changes in working capital items,
partially offset by higher cash earnings. The impact of increased accounts
receivable and decreased other current liabilities was partially offset by
increased accounts payable.
Working capital was $478.1 and $478.5 at September 30, 1999 and 1998,
respectively.
Capital expenditures totaled $69.2, $102.8 and $98.8 in 1999, 1998 and 1997,
respectively. These expenditures were primarily funded by cash flow from
operations. Capital expenditures of approximately $90.0 are anticipated in 2000
and are expected to be financed with funds generated from operations.
Net transactions with Ralston resulted in cash usage of $293.7, $154.7 and $98.6
in 1999, 1998 and 1997.
It is currently expected that Energizer will have approximately $615 in debt
immediately after the spin off. Energizer anticipates that its operating cash
flow, together with funds available under its credit facilities, will be
sufficient to meet its anticipated future operating expenses, to fund capital
expenditures and to service its debt as it becomes due.
INFLATION
Management recognizes that inflationary pressures may have an adverse effect on
Energizer through higher asset replacement costs and related depreciation and
higher material costs. Energizer tries to minimize these effects through cost
reductions and productivity improvements as well as price increases to maintain
reasonable profit margins. It is management's view, however, that inflation has
not had a significant impact on operations in the three years ended September
30, 1999.
SEASONAL FACTORS
Energizer's results are significantly impacted in the first quarter of the
fiscal year by the additional sales volume associated with the Christmas holiday
season, particularly in North America. First quarter sales accounted for 31.1%,
33.2% and 32.1% of total net sales in 1999, 1998 and 1997, respectively.
ENVIRONMENTAL MATTERS
The operations of Energizer, like those of other companies engaged in the
battery business, are subject to various federal, state, foreign and local laws
and regulations intended to protect the public health and the environment.
These regulations primarily relate to worker safety, air and water quality,
underground fuel storage tanks and waste handling and disposal.
Energizer has received notices from the U.S. Environmental Protection Agency,
state agencies, and/or private parties seeking contribution, that it has been
identified as a "potentially responsible party" (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act, and may be required to
share in the cost of cleanup with respect to 9 federal "Superfund" sites. It
may also be required to share in the cost of cleanup with respect to a
state-designated site. Liability under the applicable federal and state
statutes which mandate cleanup is joint and several, meaning that a liable party
may be responsible for all of the costs incurred in investigating and cleaning
up contamination at a site. However, liability in such matters is typically
shared by all of the financially viable responsible parties.
Energizer's ultimate liability in connection with those sites may depend on many
factors, including the volume of material contributed to the site, the number of
other PRP's and their financial viability, and the remediation methods and
technology to be used.
In addition, Energizer has undertaken certain programs to reduce or eliminate
the environmental contamination at the rechargeable battery facility in
Gainesville, Florida, which has recently been divested. In the event that the
buyer would become unable to continue such programs, Energizer could be required
to bear financial responsibility for such programs as well as for other known
and unknown environmental conditions at the site.
Many European countries, as well as the European Union, have been very active in
adopting and enforcing environmental regulations. In many developing countries
in which the Energizer business operates, there has not been significant
governmental regulation relating to the environment, occupational safety,
employment practices or other business matters routinely regulated in the United
States. As such economies develop, it is possible that new regulations may
increase the risk and expense of doing business in such countries.
It is difficult to quantify with certainty the potential financial impact of
actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available,
Energizer believes that its ultimate liability arising from such environmental
matters, taking into account established accruals of $5.8 million for estimated
liabilities, should not be material to its financial position. Such liability
could, however, be material to results of operations or cash flows for a
particular quarter or annual period.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The market risk inherent in Energizer's financial instruments and positions
represents the potential loss arising from adverse changes in interest rates and
foreign currency exchange rates. The following risk management discussion and
the estimated amounts generated from the sensitivity analyses are
forward-looking statements of market risk assuming certain adverse market
conditions occur.
INTEREST RATES
Energizer has interest rate risk with respect to interest expense on variable
rate debt. At September 30, 1999 and 1998, Energizer had $120.7 and $128.9
variable rate debt outstanding. A hypothetical 10% adverse change in all
interest rates would have had an annual unfavorable impact of $0.9 and $1.3 in
1999 and 1998, respectively, on Energizer's earnings and cash flows based upon
these year-end debt levels. The primary interest rate exposures on variable
rate debt are with respect to short-term local currency rates in certain Asian
and South American countries.
FOREIGN CURRENCY EXCHANGE RATES
Energizer employs a foreign currency hedging strategy which focuses on
mitigating potential losses in earnings or cash flows on foreign currency
transactions, primarily anticipated intercompany purchase transactions and
intercompany borrowings. External purchase transactions and intercompany
dividends and service fees with foreign currency risk are also hedged from time
to time. The primary currencies to which Energizer's foreign affiliates are
exposed include the U.S. dollar, the euro and the British pound, while domestic
affiliates are primarily exposed to the Swiss franc.
Energizer's hedging strategy involves the use of natural hedging techniques,
where possible, such as the offsetting or netting of like foreign currency cash
flows. Where natural hedging techniques are not possible, foreign currency
derivatives with durations of generally one year or less may be used, including
forward exchange contracts, purchased put and call options, and zero-cost option
collars. Energizer policy allows foreign currency derivatives to be used only
for identifiable foreign currency exposures and, therefore, Energizer does not
enter into foreign currency contracts for trading purposes where the sole
objective is to generate profits.
Market risk of foreign currency derivatives is the potential loss in fair value
of net currency positions for outstanding foreign currency contracts at fiscal
year end, resulting from a hypothetical 10% adverse change in all foreign
currency exchange rates. Market risk does not include foreign currency
derivatives that hedge existing balance sheet exposures, as any losses on these
contracts would be fully offset by exchange gains on the underlying exposures
for which the contracts are designated as hedges. Accordingly, the market risk
of Energizer's foreign currency derivatives at September 30, 1999 and 1998
amounts to $1.5 and $3.7, respectively.
Energizer generally views as long-term its investments in foreign subsidiaries
with a functional currency other than the U.S. dollar. As a result, Energizer
does not generally hedge these net investments. Capital structuring techniques
are used to manage the net investment in foreign currencies as considered
necessary. Additionally, Energizer attempts to limit its U.S. dollar net
monetary liabilities in currencies of hyperinflationary countries, primarily in
Latin America. In terms of foreign currency translation risk, Energizer is
exposed to the Swiss franc and other European currencies; the Mexican peso and
other Latin American currencies; and the Singapore dollar, Chinese yuan,
Australian and Hong Kong dollars, and other Asian currencies. Energizer's net
foreign currency investment in foreign subsidiaries and affiliates translated
into U.S. dollars using year-end exchange rates was $545.1 and $600.3 at
September 30, 1999 and 1998, respectively. The potential loss in value of
Energizer's net foreign currency investment in foreign subsidiaries resulting
from a hypothetical 10% adverse change in quoted foreign currency exchange rates
at September 30, 1999 and 1998 amounts to $54.5 and $60.0.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities" in June 1998. This statement provides standards on
accounting and disclosure for derivative instruments, and requires that all
derivatives be measured at fair value and reported as either assets or
liabilities in the balance sheet. Subsequent to the issuance of SFAS No. 133,
the FASB issued SFAS No. 137 which defers the effective date of SFAS No. 133 by
one year. Accordingly, Energizer will be required to adopt the provisions of
SFAS No. 133 no later than the beginning of fiscal year 2001. Energizer has not
completed its evaluation to determine the impact of this statement on its
financial statements.
YEAR 2000 READINESS
Energizer uses both purchased and internally developed computer software. Like
many other organizations, certain programs within Energizer's purchased and
internally developed software process dates based on two digits for the year of
a transaction rather than a full four digits. If left uncorrected, these
programs would be unable to properly process dates in the year 2000. As such,
incomplete or untimely resolution of the Year 2000 issue by Energizer or its
critical suppliers and customers or government agencies could have an adverse
impact on Energizer's business, operations and financial condition.
Energizer has had active projects in place since 1996 targeted to achieve Year
2000 readiness in its key application systems software, computer hardware and
operating systems software, and various other systems containing embedded chip
technology (such as manufacturing equipment controllers and facility controllers
which include elevators, alarm systems and heating and cooling systems) before
the year 2000. Energizer completed its plans and active projects to achieve
Year 2000 readiness prior to calendar year end.
The estimated total cost for Energizer to achieve Year 2000 readiness is
approximately $16.4, of which $16.1 had been expended through September 30,
1999.
Energizer has developed a base contingency plan to address Year 2000 risks;
however, contingency planning efforts are ongoing and will continue to evolve as
new information becomes available. Contingency plans to address specifically
identified Year 2000 risks include increasing raw material, packaging material
and inventory levels in key manufacturing locations, securing alternate sources
of supply, distribution and warehousing, developing manual workarounds and other
appropriate measures. Energizer's critical suppliers and major customers have
been contacted regarding Year 2000 issues. Because of the uncertainties
associated with assessing the ability of major suppliers and customers to
complete the remediation of their systems in time to prevent operational
difficulties, Energizer will continue to contact and/or visit these business
partners to gain assurances that no significant adverse consequences will result
due to failure to complete remediation of their systems. As of early January,
no significant issues have arisen. Because of the uncertainties involved,
Energizer will continue to monitor the situation.
<PAGE>
ENERGIZER HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
BUSINESS OVERVIEW
Primary battery category sales increased significantly in the three months ended
December 31, 1999, particularly in the U.S., as consumers purchased batteries in
preparation for potential Y2K disruptions. A.C. Nielsen measured the U.S.
primary battery market dollar sales for the 13 weeks ended December 25, 1999 at
18% higher than the same period a year ago. Other world areas experienced less
dramatic sales increases in the primary battery category.
As there were no widespread power outages or other disruptions as a result of
the Y2K date change, it is possible that future sales for the primary battery
category will be negatively impacted due to consumer stockpiling prior to the
year's end. It is not possible at this point to quantify the magnitude or
duration of any declines in category sales. For the four weeks ended February
5, 2000, the primary battery category in the U.S. increased 5% compared to the
same four-week period last year, according to A.C. Nielsen.
OPERATING RESULTS
HIGHLIGHTS
Net earnings and earnings from continuing operations were $104.7 for the three
months ended December 31, 1999, compared to $52.0 and $54.8, respectively, for
the same period a year ago.
Earnings from continuing operations increased $49.9, or 91%, for the quarter.
Included in the prior year are after-tax provisions for restructuring of $6.2.
Excluding this item, earnings from continuing operations increased $43.7 or 72%.
The increase is primarily attributable to increased segment profit.
SEGMENT RESULTS
Operations are managed via four major geographic areas - North America (which
includes the U.S. and Canada), Asia Pacific, Europe, and South and Central
America (including Mexico). This structure is the basis for the Company's
reportable operating segment information, as included in the tables in Note 4 to
the Combined Financial Statements for the period ended December 31, 1999.
NORTH AMERICA
Net sales to customers for North America increased $90.5, or 27%, in the current
quarter compared to the same period last year. Significant volume increases
accounted for $100.8 of sales increase, partially offset by unfavorable pricing
and product mix. The overall primary battery market in the U.S. increased 18%
on a dollar basis compared to the same period last year while Energizer's share
increased 1.2 share points, as measured by A.C. Nielsen. Alkaline volumes
increased 38% in the quarter, partially offset by a 21% decrease in carbon zinc.
Segment profit increased $45.0 or 45%. Gross margin increased $57.0, benefiting
from the higher sales and leveraging of fixed costs. Advertising and promotion
and marketing and distribution costs each increased 22%, in line with the sales
increase, while other costs were relatively flat.
ASIA PACIFIC
Net sales to customers for Asia Pacific increased $13.5, or 13%, in the current
quarter compared to the same period last year on higher alkaline volume.
Segment profit increased $12.1, or 47%, primarily on higher sales. In addition,
the prior year quarter was unfavorably impacted by production start-up costs
associated with Energizer's new plant in China.
EUROPE
Net sales to customers for Europe decreased $14.3, or 13%, for the current
quarter compared to the same period last year. Currency devaluation accounted
for $7.4 of the decline. The remainder of the decrease resulted from lower
alkaline and carbon zinc volumes of 4% and 18%, respectively.
Segment profit improved $5.8 or 276%. Gross margins increased $2.1 in spite of
sales declines reflecting improvements related to a plant closing during 1999.
Lower overhead costs also contributed to the profit improvement.
SOUTH AND CENTRAL AMERICA
Net sales to customers for South and Central America increased $1.5, or 4%, for
the current quarter compared to the same period last year on higher volumes.
Improved pricing and product mix offset the impacts of currency devaluation.
Alkaline volume increased 10% while carbon zinc was nearly flat.
Segment profit was flat as higher sales contribution was offset by unfavorable
currency impact and higher management costs.
CORPORATE EXPENSES
Corporate expenses decreased $7.4 on higher pension income, favorable
mark-to-market adjustments on liabilities denominated in share equivalents, and
lower information systems spending.
INCOME TAXES
Income taxes, which include federal, state and foreign taxes, were 39.7% and
43.7% of earnings from continuing operations before income taxes for the three
months ended December 31, 1999 and 1998, respectively. The prior year provision
was unfavorably impacted by restructuring charges with no corresponding tax
benefit in certain countries. Excluding the impact of restructuring provisions,
the prior year tax rate was 41.1%. The decrease in the tax rate results
primarily from a lower overall foreign tax rate.
DISCONTINUED RECHARGEABLE OEM BATTERY BUSINESS
Discontinued operations consist of Energizer's worldwide rechargeable Original
Equipment Manufacturers' (OEM) battery business. In March 1999, the Board of
Directors of Ralston Purina Company announced its intention to exit this
business to allow Energizer to focus on its primary battery business. On
November 1, 1999, this business was sold to Moltech Corporation for
approximately $20.0. Actual pretax operating losses during the divestment
period through the sale date totaled $15.9.
RESTRUCTURING CHARGES
During the three-month period ended December 31, 1998, Energizer recorded net
after-tax and pre-tax provisions for restructuring of $6.2 and $6.1,
respectively. The charges were primarily termination benefits associated with a
1997 alkaline and carbon zinc production restructuring plan for Europe.
During the current quarter, approximately 120 employees were terminated in
connection with restructuring accruals established in prior years. Activities
impacting the restructuring reserve during the quarter are presented in Note 2
in the footnotes to the Combined Financial Statements.
FINANCIAL CONDITION
Cash flow from continuing operations was $60.6 for the three months ended
December 31, 1999 compared to $33.0 for the same period in fiscal 1999. The
increase in cash flows is attributable to higher cash earnings partially offset
by unfavorable changes in working capital items. Working capital changes
included increases in accounts receivable and decreases in other current
liabilities, which were partially offset by decreases in other current assets
and increases in accounts payable. Working capital was $513.7 at December 31,
1999 compared to $478.1 at September 30, 1999.
Capital expenditures totaled $11.0 and $13.4 for the first quarter of fiscal
2000 and fiscal 1999, respectively.
Energizer had a net increase in borrowings of $11.9 for the three months ended
December 31, 1999 and a net increase in borrowings of $6.7 for the same period
in fiscal 1999. Net transactions with Ralston resulted in cash usage of $143.6
and $28.2 in the first quarter of fiscal 2000 and fiscal 1999, respectively.
<PAGE>
It is currently expected that Energizer will have approximately $615 in debt
immediately after the spin-off. The debt is expected to include $335 of
long-term and $280 of short-term notes payable. Energizer anticipates that its
operating cash flow, together with funds available under its credit facilities,
will be sufficient to meet its anticipated future operating expenses, to fund
capital expenditures and to service its debt as it becomes due.
YEAR 2000 READINESS
No significant system issues have arisen related to Y2K.
BUSINESS AND PROPERTIES
BACKGROUND
Energizer Holdings, Inc. is the world's largest manufacturer of primary
batteries and flashlights and a global leader in the dynamic business of
providing portable power. It is the successor to over 100 years of expertise in
the battery and lighting products industry. Its brand names "Eveready" and
"Energizer" have worldwide recognition for quality and dependability, and are
marketed and sold in more than 160 countries. Energizer's subsidiaries
manufacture and market a complete line of primary alkaline and carbon zinc
batteries, miniature batteries and flashlights and other lighting products.
Although Energizer, in November of 1999, sold its rechargeable battery
manufacturing and assembly business, which produced rechargeable batteries for
sale to manufacturers of rechargeable equipment, Energizer continues to market a
line of rechargeable batteries for retail sale to consumers. Energizer believes
it has one of the industry's most extensive product lines.
"Energizer" brand alkaline batteries are the most popular and widely used in the
array of Energizer products. The batteries are offered in 1.5 volt, 4.5 volt, 6
volt and 9 volt configurations, and are available in the standard selection of
sizes, including AA, AAA, AAAA, C, D and 9 volt sizes. In 1997, Energizer
introduced newly designed alkaline AA and AAA batteries offering significantly
improved performance in most demanding high-drain devices. Energizer has
recently announced plans to introduce a super-premium alkaline battery under the
brand name "Energizer e2" in the summer of 2000. Energizer also produces or
distributes:
- - "Energizer Industrial" batteries in three models targeted for non-consumer
industrial applications;
- - lithium batteries, available in AA, miniature and cylindrical sizes, for
use in high-performance applications such as cameras, camcorders, memory backup,
CD players and portable computers;
- - a line of miniature batteries, available in several chemistries, including
silver oxide, zinc-air and manganese dioxide systems, for use in electronic
watches, calculators, hearing aids, cameras, miniature radios, remote controls
and electronic thermometers;
- - the "Eveready" brand "Super Heavy Duty" and "Classic" lines of carbon zinc
batteries for economy applications; and
- - a line of rechargeable batteries and battery packs under the "Energizer"
brand name.
Energizer is also the world's largest manufacturer of portable lighting devices,
offering more than 60 different lighting products for consumer and industrial
use.
Energizer's subsidiaries operate 23 manufacturing facilities in 16 countries on
4 continents, and its worldwide workforce of over 11,000 employees produce
approximately 6 billion battery cells annually.
Both in the United States and worldwide, the proliferation of portable
electronic devices, including radios, cellphones, cameras, compact disc players,
pagers, remote controls and electronic games and battery-powered toys, continues
at an accelerated pace. The sheer numbers of these devices, as well as their
high power drain characteristics, have created a strong and growing demand for
primary batteries, particularly alkaline cells which have substantially greater
service life than the less expensive carbon zinc cells. Smaller alkaline sizes
utilized in small and miniature portable devices are particularly in demand.
Driven by growth in devices as well as increased power requirements, global
demand for primary batteries has grown an average of 7% annually over the last
five years, and global demand for alkaline primary batteries has grown an
average of 10-11%. Industry studies project that demand for alkaline batteries
will continue to grow by 10-11% through 2002 on a global basis. Demand in the
United States and western Europe, where alkaline batteries account for 50% or
more of primary batteries sold, is expected to continue growing at 7-8%. In
other regions where the majority of primary batteries sold are still carbon
zinc, alkaline battery demand is expected to grow at double digit rates as
consumer preference continues to shift from carbon zinc to alkaline.
In response to the power demands of portable electronic devices, the
battery industry has focused on increasing the service life of batteries as well
as the quality of their performance under high-drain conditions. The battery
industry has been notable for the pace of innovations in product life, product
design and applied technology. Energizer and its competitors have made, and
continue to make, significant investments in research and development with the
goal of further commercially successful innovations. This competition, as well
as technological advances, have led to constantly higher standards of product
performance for alkaline primary batteries. However, the research and
development efforts associated with constant innovation in the industry have
been expensive, and may have contributed to the blurring of consumer perceptions
about relative brand performance.
The battery business is relatively capital intensive, and capital needs can
fluctuate widely from year to year as technologies change. Contributing factors
to these capital needs are:
- - the constantly higher standards for product performance required to
maintain competitiveness in the alkaline battery segment;
- - the requirement of absolute precision in the physical and chemical
characteristics of batteries produced which mandates frequent capital
expenditures to guarantee such precision; and
- - manufacturing volume in the billions of units, which volume continues to
grow in most segments at a rate of 5 to 10% per year.
As noted, despite the fact that carbon zinc primary batteries are substantially
less expensive on a per unit basis than alkaline primary batteries, there has
been a worldwide shift in consumer preference from carbon zinc to alkaline.
Alkaline batteries are now the dominant primary battery in North America,
Australia, and Europe, and the shift from carbon zinc to alkaline is
accelerating in Asia and Latin America. Reflecting the shift in preference,
Energizer has closed or consolidated a number of its carbon zinc manufacturing
facilities, and has reserved funds related to restructuring its world-wide
battery production capacity and certain administrative functions in each of the
last four years. Energizer continues to review its worldwide manufacturing
capacity for both carbon zinc and alkaline batteries. See "BUSINESS AND
PROPERTIES -- Properties" for more information on Energizer's manufacturing
capacity.
The battery business, particularly in North America, tends to be seasonal, with
large purchases of batteries by consumers during the Christmas holiday season,
and increases in retailer inventories during late summer and autumn.
PATENTS, TECHNOLOGY AND TRADEMARKS
Energizer's operating subsidiaries own a number of trademarks which Energizer
considers of substantial importance and which are used individually or in
conjunction with other Energizer trademarks. These include "Eveready",
"Energizer", "Energizer Advanced Formula", "Energizer e2", the Energizer Bunny
and the Energizer Man character.
Energizer's ability to compete effectively in the battery industry depends
in part on its ability to maintain the proprietary nature of its technology and
manufacturing processes through a combination of patent and trade secret
protection, non-disclosure agreements, licensing, and cross-licensing
agreements. Energizer's subsidiaries own or license from third parties a
considerable number of patents, patent applications and other technology which
Energizer believes are extremely significant to its business. These primarily
relate to battery product and lighting device improvements, additional battery
product features, and manufacturing processes.
As of November 30, 1999, Eveready Battery Company, Inc., a subsidiary of
Energizer, held 190 United States patents which have a range of expiration dates
from September, 2000 to November, 2016, and had 132 patent applications pending.
It routinely prepares additional patent applications for filing in the United
States. Eveready also actively pursues foreign patent protection in a number of
foreign countries. As of November 30, 1999, Eveready had been granted
approximately 540 foreign patents and had approximately 480 patent applications
pending in foreign countries.
Patent applications in the United States are maintained in secrecy until
patents issue, and since publications of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by several months, Eveready
cannot be certain that it was the first creator of inventions covered by pending
patent applications or the first to file patent applications on such inventions.
ENERGIZER'S OBJECTIVES AND STRATEGY
Energizer's objective is to enhance its revenue growth and profitability
by:
- - forging new cooperative relationships with its major retail customers;
- - designing more effective workforce incentives;
- - delivering premium-quality battery and lighting products and increasing
consumer perceptions of their advantages;
- - maintaining its strong market positions in North America, Europe and Asia
and expanding into new battery markets with significant opportunities for
growth; and
- - managing manufacturing, sales and marketing efforts in the most
cost-efficient manner possible.
Energizer plans to achieve its objective through the following key strategies:
- - Provide World-Class Retailer Support. Energizer intends to forge mutually
profitable relationships with its major retail customers based on cooperative
strategic planning and creative solutions to retailer concerns. It believes
that enhancing retailer margins and reinforcing customer loyalty to retail
stores will fuel continued Energizer growth. Energizer intends to offer a
higher degree of customer support, including business-building consultations,
joint promotional and advertising efforts, in-store merchandising, inventory
management, improved category management and strategically positioned and
integrated private-label, and "Energizer" and "Eveready" branded products.
Energizer will focus on more effective marketing initiatives, the positioning of
its products and effective responses to customer needs.
- - Design More Effective Compensation Programs Directly Linked to the Value
of the Energizer Stock. Energizer is redesigning its compensation programs to
motivate its workforce to achieve Energizer's strategic goals. In connection
with its request for the tax rulings, Ralston has represented to the IRS that
Energizer will establish an employee stock ownership plan, with a significant
company match, which will provide Energizer Stock ownership accounts for
approximately 3,200 union and non-union employees. It is anticipated that
within one year of the distribution, employees will own, under the plan, over 4%
of the outstanding Energizer Stock, and over 5% within five years. In addition,
the Energizer Incentive Stock Plan authorizes the grant of stock options and
other Energizer Stock-based awards to directors, officers and other key
management personnel. By providing its workforce with compensation programs
that contain a significant equity component, Energizer intends to align
employees' personal interests with those of Energizer's stockholders, motivating
them to enhance the long-term value of the Energizer Stock.
- - Build Brand Franchise Through Research and Development Efforts and
Effective Consumer Communication. Because of its innovative and intensive
research and development efforts, and its insistence on the reliability, quality
and long-life of its products, Energizer believes that its batteries and
lighting products are among the best available to consumers worldwide. However,
as the battery products industry is so highly competitive, there have been
ever-escalating advances in alkaline battery technology. As a result, consumer
perceptions about relative brand performance are often blurred and confused.
Energizer plans to maintain its strong research and development orientation,
but, as the ability to leverage innovative advancements with consumers has
become more and more limited, it will focus its efforts on advances which will
be readily appreciated by consumers. It will also explore joint research and
investment ventures which are likely to result in more effective or efficient
research efforts. Finally, it will improve its advertising and promotional
efforts so that consumers are more attuned to the advantages of Energizer
products. Energizer participates in all retail segments (primary, watch,
hearing aid, photo, rechargeable and lighting products) and will continue to
leverage its sales and category expertise across all product lines to increase
their value to consumers and to Energizer's retailer customers.
- - Maintain Strong Market Share and Continue to Expand Geographically.
Energizer intends to increase sales through further penetration of existing
markets in North America, Europe and Southeast Asia and expansion into broader
markets with significant opportunities for growth. Energizer may expand its
portfolio of products to target all major price segments in its various markets.
As consumers in Asia, Africa and Latin America increasingly choose alkaline
batteries over carbon zinc, Energizer will aggressively price and promote its
"Energizer" brand alkaline products in those regions. Substantially all
advertising and promotional funds in those regions will be devoted to building a
strong position in the alkaline sector. Energizer believes these efforts should
be strengthened by its continuing ability to offer a broad portfolio of products
(including carbon zinc batteries) to its retailer customers in those markets.
Energizer also will continue to pursue acquisitions and joint venture
opportunities to expand or complement its current market areas, technology and
product lines.
- - Maintain Effective Cost-Control Programs, and Develop More Efficient
Manufacturing and Distribution Operations. Energizer intends to embark on a
number of cost-saving and productivity programs as part of its strategy to
maximize operating efficiencies. Since 1995, the Energizer business has
restructured its worldwide battery production capacity as a result of the
consumer shift from carbon zinc to alkaline batteries, and closed a number of
manufacturing facilities. Energizer will continue to review its battery
production capacity and its business structure to determine if additional
savings can be realized. Energizer intends to improve the quality and
effectiveness of its promotional spending, and is investigating ways to create
more effective sales and distribution methods through partnerships with other
non-battery manufacturers. It has created a Global Account Management Team
consisting of sales, marketing, manufacturing and finance experts dedicated to
servicing the needs of multi-national accounts, and has reorganized its United
States sales team into a new Customer Management Team to focus on key accounts
in leading retail categories. Energizer also intends to take other steps which
will reduce its selling and distribution expenses, including reducing
administrative and operating costs.
The Management Strategy and Finance Committee, consisting of Mr. Daniel
Corbin, Mr. Patrick Mulcahy and Mr. William Stiritz, as chairman, will be
responsible for determining the strategic direction of Energizer's businesses,
subject to oversight and approval of the board of directors, and for monitoring
Energizer's financial performance, industry activity, and worldwide economic
developments which are likely to affect ongoing strategic plans. The Committee
will also be responsible for Energizer's investment and financing policies and
will make recommendations to the board regarding acquisitions, reduction or
increase of debt levels and other uses for Energizer cash not needed for ongoing
operations. For more information regarding the individuals comprising the
Committee, see "MANAGEMENT - Executive Officers of Energizer".
SALES AND DISTRIBUTION
Energizer's battery and lighting products are marketed primarily through a
direct sales force to mass merchandisers, wholesalers and other customers, but
also through exclusive and non-exclusive distributors and rack jobbers of
consumer packaged goods products. Third party food brokers may be used to make
headquarters contacts in the retail food industry and to merchandise Energizer's
products at retail locations. In the United States, the direct sales team has
been reorganized into a new Customer Management Team focused on key business
accounts in several categories, including food, mass merchandise and specialty.
Energizer distributes its products to consumers through numerous retail
locations worldwide, including mass merchandisers and warehouse clubs, food,
drug and convenience stores, electronics specialty stores and department stores,
hardware and automotive centers and military stores.
Although a large percentage of Energizer's sales are attributable to a
relatively small number of retail customers, only Wal-Mart Stores, Inc. and its
subsidiaries, Sam's West, Inc., Sam's East, Inc., and McLane Company, Inc., all
of which are under common control, as a group account for more than ten percent
of Energizer's sales and revenue. For the fiscal year ended September 30, 1999,
those customers accounted for, in the aggregate, approximately 13.5% of
Energizer's sales.
COMPETITION
The battery business is highly competitive, both in the United States and
on a global basis, as a number of large battery manufacturers compete for
consumer acceptance and, increasingly, limited retail shelf space. Competition
is based upon brand perceptions, product performance, customer service and
price.
Energizer competes in a high-growth domestic and global market. The
alkaline battery segment, both in the United States and worldwide, is the
fastest growing segment of the primary battery market. Despite category growth,
however, in 1998, Energizer's share of the U.S. primary battery market on both a
dollar and a unit sales basis declined substantially from 1995 levels. For the
first three quarters of 1999, the decline continued, although in the October to
December, 1999 period, Energizer's share, as measured by A.C. Nielsen, increased
1.2 points compared to the same period of 1998. Market share has also declined
in certain key global markets, and could decline even more as the demand for
primary batteries in developing countries shifts from carbon zinc batteries to
alkaline. Energizer's primary competitor, Duracell International, Inc., a
subsidiary of The Gillette Company, has substantially greater financial,
marketing and other resources, and greater market share, than Energizer does.
Because of its ownership by Gillette, it also has significant advantages in
distribution, sales and negotiating leverage with retailers. Duracell has
attempted to segment primary battery sales by positioning its "Duracell Ultra"
brand as a high-drain oriented, super premium product, and has priced that brand
at a significant premium to the competition as well as to its other brands.
In the past year, Energizer has also lost market share in the United States
to Rayovac Corporation, a low-price competitor which has exerted downward
pricing pressure by being very aggressive in offering retail discounts and other
promotional incentives. It has positioned itself as offering substantially
similar battery life as the market leading brands, but at a discounted price.
Private-label sales by large retailers have also been growing in significance.
Private-label offerings by major retailers and aggressive cost-cutting by
battery competitors may be accelerating U.S. consumer perceptions that primary
batteries are a commodity and that battery brands are indistinguishable. On the
other hand, Duracell's segmentation of the market may create a perception of
premium quality for its brands. Energizer has attempted to differentiate its
products through product innovation and improvement and through extensive
advertising, while at the same time offering attractive pricing to its retail
customers. In order to more effectively address competitive issues in the U.S.,
Energizer has announced that it will compete in the super-premium category with
the introduction of its "Energizer e2" brand of super-premium alkaline batteries
in the summer of 2000.
Japanese battery manufacturers have yet to make significant inroads into
the United States battery market, but they provide significant competition
throughout Asia. Local and regional battery manufacturers in Asia and Europe
also compete for battery sales. There are, however, significant technological
and capital constraints on entry into the battery products business, and
Energizer and its primary competitors enjoy significant advantages in having
established brand recognition and distribution channels. Full implementation of
the Euro currency in 2001 will heighten awareness of price discrepancies between
the various European markets for Energizer's products, and may increase
retailer, government and consumer group pressure for uniform pricing across
borders.
During the past decade, retail sales of consumer products, including
battery and lighting products, have been increasingly consolidated in a small
number of regional and national mass merchandisers and warehouse clubs. This
trend towards consolidation is occurring on a worldwide basis as well as in the
United States. The consolidation of retailers has led to tremendous competition
for shelf space and promotional support by all consumer packaged goods
manufacturers across all categories - including primary batteries. As a result,
retailers have been able to exercise great leverage in demanding price and
promotional concessions, and have avoided long-term purchase agreements.
Energizer and its major competitors have focused sales efforts more and more
exclusively on these key accounts, and have increased advertising and
promotional spending in an effort to maintain their positions with these large
retailers. Ultimately, Energizer's success will hinge upon consumers' demand
for its products, but collaboration with these key accounts is a critical factor
in generating positive results.
In comparison to competitors that do not compete on a global basis,
Energizer generally bears higher costs associated with its global manufacturing
facilities, its extensive product line, its research and development facility,
and tax and financing obligations imposed by its international and
multi-currency structure. These higher costs may restrict its ability to
compete in particular markets on the basis of price. However, Energizer
believes that brand perceptions, product performance and customer service are
also significant competitive factors.
Energizer believes it has significant competitive advantages.
- - It has very strong global brands - "Eveready" and "Energizer" - which
consumers worldwide recognize and equate with long-life and reliability. The
Energizer Bunny has become a cultural icon representing long-lasting quality.
Energizer's full portfolio of products and brands allow its retail customers to
supply the battery needs of all significant consumer segments.
- - Energizer's global production complex and broad-based geographic
distribution provide it with more than enough manufacturing capacity for its
reasonably foreseeable needs, and enable it to offer its battery and lighting
products to consumers in more than 160 countries throughout the world.
- - Energizer has a significant market position in most geographic markets in
which it competes. According to A.C. Nielsen, Energizer's primary battery
market share in the United States for the 52 weeks ended December 25, 1999 was
31.6%, and Energizer estimates that it has a primary battery share position of
20% or more in 22 of the 30 countries with the largest primary battery sales.
- - Energizer's well-trained workforce, experienced management and innovative
research and product development teams enable it to create opportunities for
business growth.
- - Finally, Energizer's intensive research and development efforts and its
focus on continuous innovation enable it to provide the highest quality products
in response to constantly changing market demands. Its research efforts have
given Energizer technology advancements which should keep pace with industry
innovations well into the future.
The battery business is expected to remain highly competitive in the
foreseeable future. Future growth opportunities for Energizer are expected to
depend on its ability to
- - implement its strategies for competing effectively in its markets,
- - maintain effective cost control programs,
- - continue its research and development efforts, and
- - develop and implement methods for more efficient manufacturing and
distribution operations,
while at the same time maintaining aggressive pricing and promotion of its
products.
EMPLOYEES
After the distribution, Energizer will employ approximately 11,000 production,
sales, marketing and administrative employees throughout the world. Energizer
believes it has good relations with its union and non-union employees.
RAW MATERIALS
The principal raw materials used in the Energizer business - electrolytic
manganese dioxide, zinc, acetylene black, graphite, steel cans, nylon, brass
wire, separator paper, and potassium hydroxide -- are sourced on a regional or
global basis. Energizer believes that adequate supplies of the raw materials
required for its operations are available at the present time, but cannot
predict the future availability or prices of such materials. These raw
materials are generally available from a number of different sources, and the
prices of those raw materials are susceptible to currency fluctuations and price
fluctuations due to transportation, government regulations, price controls,
economic climate, or other unforeseen circumstances. In the past, Energizer has
not experienced any significant interruption in availability of raw materials.
With respect to raw materials, Energizer has used the futures markets, options
and other risk management tools designed to protect its margins on firm purchase
price sales contracts with customers. Energizer's management has extensive
experience in purchasing raw materials in the commodity markets. From time to
time, management has taken positions in various ingredients to assure supply and
to protect margins on anticipated sales volume. Although Energizer intends to
continue to use these risk management tools to hedge or protect against such
risks, it does not intend to speculate in the commodity markets, and intends to
maintain a relatively low dollar level of risk related to open market positions.
GOVERNMENTAL REGULATION; ENVIRONMENTAL MATTERS
The operations of Energizer, like those of other companies engaged in the
battery business, are subject to various federal, state, foreign and local laws
and regulations intended to protect the public health and the environment.
These regulations primarily relate to worker safety, air and water quality,
underground fuel storage tanks and waste handling and disposal.
Energizer has received notices from the U.S. Environmental Protection
Agency, state agencies, and/or private parties seeking contribution, that it has
been identified as a "potentially responsible party" (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act, and may be
required to share in the cost of cleanup with respect to 9 federal "Superfund"
sites. It may also be required to share in the cost of cleanup with respect to
a state-designated site. Of these 10 sites, Energizer has reached negotiated
agreement as to its liability with respect to 4 of the sites. Negotiations with
the U.S. Environmental Protection Agency, the state agency that is involved on
the state-designated site, and other PRP's are at various stages with respect to
the remaining sites. Negotiations involve determinations of
- - the actual responsibility of Energizer and the other PRP's at the site,
- - appropriate investigatory and/or remedial actions, and
- - allocation of the costs of such activities among the PRP's and other site
users.
Energizer's ultimate liability in connection with those sites may depend on many
factors, including
- - the volume of material contributed to the site,
- - the number of other PRP's and their financial viability, and
- - the remediation methods and technology to be used.
In addition, Energizer has undertaken certain programs to reduce or eliminate
the environmental contamination at the rechargeable battery facility in
Gainesville, Florida, which has recently been divested. In the event that the
buyer would become unable to continue such programs, Energizer could be required
to bear financial responsibility for such programs as well as for other known
and unknown environmental conditions at the site.
Many European countries, as well as the European Union, have been very active in
adopting and enforcing environmental regulations. In many developing countries
in which the Energizer business operates, there has not been significant
governmental regulation relating to the environment, occupational safety,
employment practices or other business matters routinely regulated in the United
States. As such economies develop, it is possible that new regulations may
increase the risk and expense of doing business in such countries.
It is difficult to quantify with certainty the potential financial impact
of actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available,
Energizer believes that its ultimate liability arising from such environmental
matters, taking into account established accruals of $5.8 million for estimated
liabilities, should not be material to its financial position. Such liability
could, however, be material to results of operations or cash flows for a
particular quarter or annual period.
LEGAL PROCEEDINGS
- - On April 8, 1998, Zinc Products Company, a division of Alltrista Corp., a
supplier of zinc cans used in the manufacture of batteries, filed suit in
federal district court for the Eastern District of Tennessee against Energizer,
claiming breach of contract when Energizer closed its Fremont, Ohio plant. The
plaintiff claims lost profits and other damages of approximately $2.8 million.
The case has been set for trial in February, 2000, but it is anticipated that
the trial will be continued to a later date.
- - The U.S. Patent Office has awarded priority to Strategic Electronics
(Energizer's exclusive licensor) over Duracell in the patent interference
relating to the on-label battery tester. Duracell is expected to appeal. An
earlier decision, which denied Energizer's separate patent claims and those of
Eastman Kodak Company (which are licensed to Duracell) has been appealed to the
federal district court for Washington, D.C. on February 2, 1998. Kodak filed a
similar appeal, naming Energizer as a defendant on January 29, 1998. In a
related matter, Strategic Electronics filed a declaratory judgment suit on
September 9, 1999 in the federal district court for the Central District of
California seeking additional payments of approximately $1 million under the
license. Energizer has filed a motion to dismiss and expects a ruling in the
near future.
Energizer or Ralston's other subsidiaries engaged in the Energizer business
are parties to a number of other legal proceedings in various jurisdictions
arising out of the operations of the Energizer business. Liability for all
matters related to the Energizer business will be assumed by Energizer except to
the extent liability is retained by Ralston in the Reorganization Agreement.
Many of the foregoing legal matters are in preliminary stages, involve complex
issues of law and fact and may proceed for protracted periods of time. The
amount of alleged liability, if any, from these proceedings cannot be determined
with certainty. However, based upon present information, Energizer believes
that its ultimate liability, if any, arising from
- - pending legal proceedings,
- - asserted legal claims and
- - known potential legal claims which are likely to be asserted,
should not be material to Energizer's financial position, taking into account
established accruals for estimated liabilities. These liabilities, however,
could be material to results of operations or cash flows for a particular
quarter or annual period.
PROPERTIES
Energizer's principal properties are its battery and lighting products
manufacturing locations. Shown below are the locations of the principal
properties of Energizer. All of these facilities are owned by Energizer's wholly
owned subsidiaries, except as indicated. Energizer will lease the office space
in St. Louis, Missouri where its principal executive offices are located.
Energizer believes these facilities are adequately maintained and are suitable
and adequate for the purposes for which they are used. During the fiscal year
ended September 30, 1999, Energizer's alkaline manufacturing facilities were
utilized, on average, at approximately 77% of capacity, and its carbon zinc
facilities were utilized, on average, at approximately 56% of capacity.
Energizer believes that the existing capacity should be sufficient for its
current business plans.
<TABLE>
<CAPTION>
<S> <C>
NORTH AMERICA. . . . . . . . . . . . . EUROPE
Asheboro, NC (2) . . . . . . . . . . . Caudebec Les Elbeuf, France (1)(6)
Bennington, VT . . . . . . . . . . . . La Chaux-de-Fonds, Switzerland
Garretsville, OH . . . . . . . . . . . Slany, Czech Republic (1)
Tanfield Lea, U.K. (3)
Marietta, OH
Maryville, MO. . . . . . . . . . . . . AFRICA
St. Albans, VT . . . . . . . . . . . . Alexandria, Egypt
Tecamec, Mexico. . . . . . . . . . . . Nakuru, Kenya (5)
Walkerton, Ontario, Canada (6)
Westlake, OH (4) . . . . . . . . . . . ADMINISTRATIVE AND
EXECUTIVE OFFICES
ASIA . . . . . . . . . . . . . . . . . St. Louis, Missouri (1)
Bogang, People's Republic of China (1) Chesterfield, Missouri (1)
Mandaue Cebu, Philippines
Ekala, Sri Lanka
Cimanggis, Indonesia
Johor, Malaysia
Jurong, Singapore (2)(7)
Tianjin, People's Republic of China
</TABLE>
In addition to the properties identified above, Energizer and its subsidiaries
own and/or operate sales offices, regional offices, storage facilities,
distribution centers and terminals and related properties.
(1) Leased (2) Two plants (3) To Be Divested (4)Research facility
(5) Less than 20% owned interest (6) Bulk packaging, labeling or distribution
(7) One plant will be closed and the site returned to the Singapore govt. in
early 2000.
MANAGEMENT
DIRECTORS OF ENERGIZER
Under the terms of the Energizer Articles of Incorporation and Bylaws, the
board of directors of Energizer (the "Energizer Board") will consist of not less
than 6 and no more than 10 individuals. The board will be divided into three
approximately equal classes, with each class serving a three year term. The
exact number of directors will be set from time to time by resolution of the
board. Initially following the distribution, the Energizer Board will consist of
eight individuals, only 2 of whom will be employees of Energizer and 3 of whom
will be directors of Ralston. The following table sets forth information as to
the persons who will serve as directors of Energizer following the distribution,
their class membership, and their original terms (the directors' ages are as of
December 31, 1999). Mr. Stiritz will serve as Chairman of the Energizer Board of
directors.
<TABLE>
<CAPTION>
INITIAL
TERM
NAME AGE EXPIRES INFORMATION
- ---- --- ------- -----------
<S> <C> <C> <C>
Robert Pruzan 36 2001 President of Wasserstein Perella &
Co., Inc. (investment banking).
F.S. Garrison 65 2001 Chairman of the Board, American
Freightways, Inc.(trucking).
R. David Hoover 54 2001 President, Vice Chairman and Chief
Financial Officer, Ball Corporation
(packaging products, aerospace
products). Also a director of Datum,
Inc., Maxon Corporation and ANB
Corporation.
Richard A. Liddy 64 2002 Chairman, President and CEO,
GenAmerica Corporation (insurance),
Chairman of the Board of the
Reinsurance Group of America,
Incorporated (insurance), and of
General American Capital Company,
a registered investment company
(investments). Also a director of
Brown Shoe Company, Inc., Ameren
Corporation and Ralston Purina
Company.
Joe R. Micheletto 63 2002 Chief Executive Officer and
President, Ralcorp Holdings, Inc.
(grocery products). Also a director of
Agribrands International, Inc. and Vail
Resorts, Inc.
William H. Danforth 73 2002 Trustee and former Chancellor,
Washington University. Also a
director of Ralston Purina Company.
J. Patrick Mulcahy 55 2003 Chief Executive Officer, Energizer
Holdings, Inc. Also a director of
Solutia, Inc.
William P. Stiritz 65 2003 Chairman of the Board and Chairman
of the Energizer Holdings, Inc.
Management Strategy and Finance
Committee. Also Chief Executive
Officer and President of Agribrands
International, Inc. (international
animal feeds) and a director of
Ralston Purina Company, Agribrands
International, Inc., Angelica
Corporation, Ball Corporation, The
May Department Stores Company,
Ralcorp Holdings, Inc., Reinsurance
Group of America, Inc. and Vail
Resorts, Inc.
</TABLE>
DIRECTORS' MEETINGS AND COMMITTEES
The Energizer Board expects to have five regularly scheduled meetings per
year, but may also hold special meetings, to review significant matters
affecting Energizer and to act upon matters requiring board approval. Prior to
the distribution, the Energizer Board is expected to establish and delegate
specific functions and areas of oversight to a Nominating and Executive
Compensation Committee, a Finance Committee, an Audit Committee and an Executive
Committee. Directors who are also employees or officers of Energizer will not
be permitted to serve on either the Nominating and Executive Compensation or the
Audit Committees. A description of these standing committees and the identity
of their expected members follows:
<TABLE>
<CAPTION>
Nominating
And
Executive
Compen-
Audit Finance sation Executive
Board Member Board Committee Committee Committee Committee
<S> <C> <C> <C> <C> <C>
William H. Danforth X X X X* X
- --------------------------------------------------------------------
F.S. Garrison . . . X X X X
- --------------------------------------------------------------------
R. David Hoover . . X X* X
- --------------------------------------------------------------------
Richard A. Liddy. . X X* X X
- --------------------------------------------------------------------
Joe R. Micheletto . X X X X
- --------------------------------------------------------------------
Robert Pruzan . . . X X
- --------------------------------------------------------------------
J. Patrick Mulcahy. X X X
- --------------------------------------------------------------------
William P. Stiritz. X* X X*
- --------------------------------------------------------------------
</TABLE>
*Chairperson
AUDIT: Reviews auditing, accounting, financial reporting and internal control
functions. Recommends Energizer's independent accountants and reviews their
services. All members are non-employee directors.
FINANCE: Reviews Energizer's financial condition, objectives and strategies and
makes recommendations to the board concerning financing requirements, dividend
policy, foreign currency management and pension fund performance.
NOMINATING AND EXECUTIVE COMPENSATION: Sets compensation of executive officers,
administers and approves deferrals under the Energizer Deferred Compensation
Plan, administers the Energizer Incentive Stock Plan and grants stock options
and other awards under that plan. Monitors management compensation and benefit
programs, and reviews principal employee relations policies. Recommends
nominees for election as directors or executive officers to the board. Also
recommends committee memberships and compensation and benefits for directors.
All members are non-employee directors.
EXECUTIVE: May exercise the authority of the board in the intervals between
board meetings.
DIRECTOR COMPENSATION
All directors, other than J. Patrick Mulcahy, will receive the following fees
for their service on the Board (Mr. Mulcahy will receive no compensation other
than his normal salary from Energizer for his service on the Board or its
Committees.):
Annual Retainer $30,000
Fee for Each Board Meeting $1,000
Fee for Each Committee Meeting $1,000
The chairpersons of the Committees will also receive an additional annual
retainer of $2,000 for each Committee that they chair. Directors may elect to
have these amounts paid quarterly in cash, or defer payment until their
retirement under the terms of the Energizer Deferred Compensation Plan.
Under the Deferred Compensation Plan, directors may elect to invest their
deferrals, at the time of their annual deferral elections, in investment options
which mirror the investment funds offered by the Energizer SIP. Each director's
account will be increased or decreased to reflect the gain or loss on the
investment funds elected. The Deferred Compensation Plan is an unfunded
executive benefit plan; if Energizer elects to set aside assets to satisfy its
obligations under that Plan, those assets will remain subject to the general
creditors of Energizer.
Non-employee directors may also be granted non-qualified stock options to
acquire shares of Energizer Stock and other Energizer Stock awards under the
Energizer Incentive Stock Plan. At the present time, no awards have been made
or are planned to be made to non-employee directors under the Incentive Stock
Plan. For more information about the Energizer Deferred Compensation Plan and
the Incentive Stock Plan, see "ENERGIZER COMPENSATION AND BENEFIT PLANS."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Stiritz, Chairman of the Management Strategy and Finance Committee and
Chairman of the Board of Energizer, is Chairman of the Nominating and
Compensation Committee of the Board of Directors of Ralcorp Holdings, Inc. and
also serves on the Human Resources Committee of the Board of Directors of Ball
Corporation. Mr. Micheletto, a director of Energizer, is the Chief Executive
Officer and President of Ralcorp Holdings, Inc. Mr. Hoover, also a director of
Energizer, is the President, Vice Chairman and Chief Financial Officer of Ball
Corporation.
EXECUTIVE OFFICERS OF ENERGIZER
Energizer's senior management team will consist primarily of individuals
currently responsible for the management of Ralston's battery business, as well
as several individuals that are new to the battery business but have critical
strategic experience. All of these individuals are referred to as "Executive
Officers" in this document. Ages shown are as of December 31, 1999.
J. Patrick Mulcahy will be Chief Executive Officer of Energizer. Mr.
Mulcahy joined Ralston in 1968 and has served as Chairman of the Board and Chief
Executive Officer of Eveready Battery Company, Inc. since 1987. Mr. Mulcahy
served as co-Chief Executive Officer and co-President of Ralston from October,
1997 to June, 1999. He served as Ralston's Vice President and Director,
Corporate Strategic Planning and Administration 1984-86; Division Vice
President, Strategic Planning 1981-84; and Division Vice President, Director of
Marketing, Grocery Products Group, 1980-81. Age: 55.
William P. Stiritz will be Chairman of the Board of Directors of Energizer
and Chairman of the Management Strategy and Finance Committee. Mr. Stiritz
joined Ralston in 1963 and served as Chief Executive Officer and President of
Ralston from 1982 until his retirement in 1997. He has served since 1982 as
Chairman of the Board of Directors of Ralston. Since 1998, he has also served
as Chief Executive Officer, President and Chairman of the Board of Agribrands
International, Inc., and will continue to do so following the distribution.
Age: 65.
Patrick C. Mannix will be President of Energizer. Mr. Mannix joined the
Eveready Battery Division of Union Carbide Corporation in 1963, and has served
as President of Eveready Battery Company, Inc. since 1998. Mr. Mannix served as
President of Eveready Battery Company, Inc., Specialty Business from 1995-98.
He served as Executive Vice President, Eveready Battery Company, International
from 1991-95, and Area Chairman, Asia Pacific operations, Eveready Battery
Company from 1985-91. He has served as a Corporate Vice President of Ralston
since 1992. Age: 54.
Daniel E. Corbin, Jr. will be Executive Vice President, Finance and Control
of Energizer. Mr. Corbin joined Ralston Purina Company in 1984 and has served
as Executive Vice President and Chief Financial Officer of Eveready Battery
Company, Inc. since 1986. Age: 54.
Harry L. Strachan will be Vice President and General Counsel of Energizer.
Mr. Strachan joined Eveready Battery Company, Inc. in 1987, and has served as
Vice President, General Counsel and Secretary of that subsidiary since 1987.
Age: 58.
Randy Rose will be Executive Vice President, Worldwide Sales and Marketing
of Energizer. Mr. Rose joined Ralston in 1986 and served as Executive Vice
President, Golden Products Division of Ralston from 1997 until April 1998, then
served as Vice President, Worldwide Sales and Asia Pacific Operating Officer of
the Pet Products International Division of Ralston until May, 1999 when he
joined Eveready Battery Company, Inc., serving as Executive Vice President,
Sales and Marketing for that subsidiary.
Mr. Rose served as Vice President and Director of the Customer Development Group
of Ralston's Pet Products Group from 1993-97. Age: 45.
Peter Conrad will be Vice President, Human Resources of Energizer. Mr.
Conrad joined Eveready Battery Company, Inc. in 1997 and has served as Vice
President, Human Resources of that subsidiary since 1997. Mr. Conrad served as
Vice President, Human Resources for Protein Technologies International, Inc., a
former subsidiary of Ralston Purina Company, from 1995-97. Age: 39.
Joseph McClanathan will be Vice President, North America of Energizer. Mr.
McClanathan joined the Eveready Battery division of Union Carbide Corporation in
1974 and has served as Vice President and Chairman, North America of Eveready
Battery Company, Inc. since June, 1999. He served as Vice President, Chief
Technology Officer for Eveready Battery Company, Inc. from 1996 to 1999, and as
Vice President, General Manager, Energizer Power Systems division from 1993 to
1996. Age: 47.
Ward Klein will be Vice President, Asia Pacific of Energizer. Mr. Klein
joined Ralston Purina Company in 1979 and has served as Vice President and Area
Chairman, Asia Pacific, Africa and Middle East since 1998. Mr. Klein served as
Area Chairman, Latin America from 1996-98, Vice President, General Manager
Global Lighting Products, 1994-96 and Vice President of Marketing, 1992-94.
Age: 44.
Kapila Gunawardana will be Vice President, Pan Am of Energizer. Mr.
Gunawardana joined the Eveready Battery division of Union Carbide Corporation in
1968 and has served as Vice President and Area Chairman, Pan Am since 1998. Mr.
Gunawardana served as Managing Director, Eveready de Mexico from 1996-98, and as
Area Finance Director, Pan Am Division of Eveready Battery Company from 1993-96.
Age: 58.
Luis Plana will be Vice President, Europe of Energizer. Mr. Plana joined
Eveready Battery Company, Inc. in 1985 and has served as Vice President and Area
Chairman, Europe since 1997. Mr. Plana served as Vice Chairman, Europe for
Eveready Battery Company from 1996-97, and as Managing Director from 1993-96.
Age: 55.
Steven Sanborn will be Vice President, Technology, Research and
Development. Mr. Sanborn joined Eveready Battery Company, Inc. in 1993 and has
served as Vice President and Chief Technology Officer for Eveready since 1999.
Mr. Sanborn served as Vice President of Technology and Engineering for
Eveready's Energizer Power Systems division from 1993 to 1997 and as Vice
President, Technology for Eveready itself from 1997 to 1999. Age: 54.
Joseph J. Tisone will be Vice President, Global Manufacturing. Mr. Tisone
joined the Eveready Battery division of Union Carbide Corporation in 1976, and
has served as Vice President, Global Manufacturing of Eveready Battery Company,
Inc. since 1998. He served as Vice President/General Manager of Eveready's
Energizer Power Systems division from 1997 to 1998, and as Vice President,
Production of that division from 1993 to 1997. Age: 46.
Mark Schafale will be Vice President and Controller of Energizer. Mr.
Schafale joined Ralston Purina Company in 1992 and has served as Vice President
and Director, Internal Audit for Ralston since 1996. Mr. Schafale served as
Director, Financial Accounting from 1994-96. Age: 39.
William Fox will be Vice President and Treasurer of Energizer. Mr. Fox
joined Ralston Purina Company in 1989 and has served as Director, Global Finance
since 1995. Since joining Ralston, Mr. Fox has had positions of increasing
responsibility in the areas of cash management, risk management and
international finance. Age: 37.
Timothy L. Grosch will be Secretary of Energizer. Mr. Grosch joined
Ralston Purina Company in 1985 and has served as Deputy General Counsel since
1996. Mr. Grosch served as Senior Counsel - Securities from 1994 - 96. Age:
45.
EXECUTIVE COMPENSATION
The compensation of the executive officers will be approved by the
Nominating and Executive Compensation Committee of the Energizer Board (the
"Energizer Committee"). The Energizer Committee consists entirely of
non-employee directors. It is expected that compensation for the executive
officers and for other executives will consist principally of base salary,
annual cash bonus and long-term stock-based incentive awards.
Salaries will be based, among other factors, on the Energizer Committee's
assessment of the executive's responsibilities, experience and performance;
compensation data of other companies; and the competitive environment for
attracting and retaining executives.
It is anticipated that cash bonuses will be set each year at or following
the end of Energizer's fiscal year. Factors, among others, which may be
considered in determining the amount of cash bonuses will be:
- - the officer's individual performance (including the quality of strategic
plans, organizational and management development, special project leadership and
similar indicators of individual performance);
- - the financial performance of the officer's business unit relative to the
business plan (including such areas as sales volume, revenues, costs, cash flow
and operating profit); and
- - Energizer financial performance (including the measures of business unit
performance listed above and, in addition, earnings per share, return on equity
and total return to the shareholders in the form of stock price appreciation and
dividends, if paid).
Energizer Stock-based awards will consist principally of stock options and
restricted stock awards which will be granted from time to time under the
Energizer Incentive Stock Plan. The Energizer Committee will base its decisions
on the granting of stock-based awards on various factors, among which are:
- - the number of shares of Energizer Stock outstanding,
- - the number of shares of Energizer Stock authorized under the Energizer
Incentive Stock Plan,
- - the number of options and shares of restricted stock held by the executive
for whom an award is being considered, and
- - the other elements of the executive's compensation.
Certain of the individuals who will be serving as executive officers of
Energizer, although employed in the battery business during the last fiscal
year, or employed by Ralston, were not dedicated exclusively to the Energizer
business and, in fact, devoted substantial time and effort to other Ralston
businesses. Other individuals did not serve as employees of either Ralston or
Energizer during the last fiscal year. Accordingly, no historical information
on the compensation of Energizer's executive officers is reported. Energizer's
proxy statement for its 2001 Annual Meeting of Shareholders will contain
information on compensation paid to the executive officers in fiscal year 2000.
ENERGIZER COMPENSATION AND BENEFIT PLANS
The following is a description of the compensation and benefit plans which
will be adopted by Energizer, which are substantially similar to plans in effect
at Ralston. The compensation and benefit plans of Energizer are intended to
attract and retain employees and to reward those employees through emphasis on
performance and incentive criteria. It is anticipated that the executive
officers and other key employees of Energizer will participate in those plans.
After the distribution, none of the officers of Energizer will participate in
any of the employee benefit plans of Ralston. However, they may be entitled to
accrued benefits under Ralston plans.
ENERGIZER INCENTIVE STOCK PLAN
Prior to the distribution, Ralston, as sole shareholder of the outstanding
capital stock of Energizer, will approve the Energizer Incentive Stock Plan.
The following is a summary of the Plan.
Purpose. The purpose of the Plan is to promote the interests of Energizer and
its stockholders by:
- - attracting and retaining key employees,
- - tying the compensation of key employees to the performance of Energizer,
and
- - providing an opportunity for participants to increase their holdings of
Energizer Stock.
The Plan would also permit the Energizer Board to grant stock options and other
stock awards to individual directors, if the board decides to do so.
Administration. The Plan is administered by the Energizer Committee, which has
the authority to select employees to receive awards, to determine the types of
awards and the number of shares of Energizer Stock covered by awards, and to set
the terms and conditions of awards. The Energizer Committee may delegate its
authority to select employees other than corporate officers to receive awards.
However, the full board of directors will determine the amount, terms and
conditions of stock options or other stock awards granted to directors. The
Energizer Committee has the authority to establish rules for the administration
of the Plan, and its determinations and interpretations are binding.
Eligible Participants
- - Any employee or officer (including corporate officers) of Energizer or any
of its subsidiaries will be eligible for any award under the Plan if selected by
the Energizer Committee. There are about 11,000 employees of Energizer and its
subsidiaries that would be eligible for awards under the Plan.
- - Any of the non-employee directors of Energizer will also be eligible to
receive stock options or other stock awards under the Plan if authorized by the
full board of directors.
Neither the Energizer Committee nor the board has made any decisions with
respect to the individuals who may receive awards under the Plan or the amount
or nature of future awards.
Shares Authorized. The number of shares of the Energizer Stock which may be
issued as awards under the Plan is 15,000,000. (The number of shares authorized
is subject to certain adjustments to reflect, for example, stock splits or other
corporate restructurings.)
In addition, if any award is forfeited or expires, all shares which were not
issued under the award will become available for additional awards under the
Plan. If a restoration option is granted when shares of Energizer Stock are
tendered for the exercise of any options granted under the Plan, the number of
shares available for awards under the Plan will be increased by the number of
shares tendered.
Any awards that may be payable in cash will not be counted against the reserve
unless the actual payment is made in shares of Energizer Stock instead of cash.
Maximum Number of Shares. The maximum number of shares of the Energizer Stock
that may be the subject of performance-based awards (including stock options and
stock appreciation rights, but not restoration options) granted under the Plan
to an employee or director during any one fiscal year is 1,900,000. The maximum
number of shares that may be the subject of restoration options granted to an
employee or director in any one fiscal year is 950,000. Any stock-related
deferred compensation will not be applied against this limit.
Types of Awards. The Plan permits the grant of a variety of different types of
awards:
- - Stock options and restoration options;
- - Stock appreciation rights ("SARs") (also called phantom stock options);
- - Restricted stock awards;
- - Stock equivalents; and
- - Other awards valued by reference to the Energizer Stock.
Awards may be granted for any amount of cash consideration or for no cash
consideration as long as legal requirements are met.
Stock Options: The Energizer Committee may grant stock options that qualify as
"Incentive Stock Options" under Section 422 of the Internal Revenue Code
("ISOs") or options that do not so qualify ("Non-Qualifieds"). The Energizer
Committee or board may also grant restoration options which are designed to
replace shares of Energizer Stock used to exercise an option. The restoration
options will be granted at fair market value, the shares subject to the
restoration option will equal no more than the number of shares tendered, and
the option will be exercisable for the remaining period of the original option
grant.
All options granted will be subject to the following:
- - Options are not exercisable (unless accelerated) for at least one year
after they are granted, and they cannot be exercised more than ten years after
grant.
- - The exercise price must be paid at the time the option is exercised in
either cash or in other shares of Energizer Stock.
- - The exercise price cannot be less than the fair market value of the
Energizer Stock on the grant date.
- - The Energizer Committee or board will determine the vesting schedules of
options granted under the Plan and may also impose additional conditions on
exercise, including performance goals.
Stock Appreciation Rights: The holder of an SAR or phantom stock option is
entitled to receive the excess of the fair market value of a specific number of
shares on the date of exercise over the value of those shares on the date the
award was granted. Payment of the excess will be in cash unless the Energizer
Committee or board elects to make payment in shares of Energizer Stock. The
Energizer Committee or board will determine the vesting schedule of SARs granted
under the Plan and may also impose additional conditions on exercise.
Restricted Stock Awards: Shares of restricted stock may be awarded subject to
such restrictions and other terms and conditions as the Energizer Committee or
board may impose. Restricted stock may not be transferred by the holder until
the restrictions lapse.
Stock Related Deferred Compensation: The Energizer Committee may permit the
deferral of payment of an employee's cash bonus or other cash compensation in
the form of Energizer Stock equivalents, subject to such terms and conditions as
the Energizer Committee may impose. Stock equivalents track the value of the
Energizer Stock, and are credited with dividend equivalents as dividends are
paid on the Energizer Stock. Distribution of deferred amounts is made at the
employee's retirement or other termination of employment, or at such other time
elected by the employee, under conditions established by the Energizer
Committee.
Federal Income Tax Consequences. If you are a recipient of awards under the
Plan, the following is a summary of the principal U.S. federal income tax
consequences that are generally applicable:
Options and SARs.
- ------------------
If you are a recipient of options or SARs under the Plan:
- - The grant of an option or SAR is not expected to result in any taxable
income for you.
- - If you hold an ISO, you generally will have no taxable income upon
exercising the ISO if certain requirements are met (except that a liability may
arise for alternative minimum tax), and Energizer will not be entitled to a tax
deduction when an ISO is exercised.
- - If you exercise a Non-Qualified Option, you will recognize ordinary income
equal to the difference between the fair market value of the shares of Energizer
Stock acquired and the exercise price. Energizer will be entitled to a tax
deduction for the same amount.
- - If you exercise an SAR, or if the SAR vests without exercise, the amount
of any cash received will be taxable to you as ordinary income and will be
deductible by Energizer.
- - The tax consequences upon a sale of your shares acquired in an exercise of
an option will depend on how long you held the shares prior to sale, and upon
whether the shares were acquired in the exercise of an ISO or in the exercise of
a Non-Qualified Option or SAR.
- - If you hold shares acquired upon exercise of an ISO for at least one year
after exercise and two years from the date that the ISO was granted, you will
recognize long-term capital gain or loss in an amount equal to the difference
between the option exercise price and the sale price of the shares. If you do
not hold the shares held for that period, gain on the sale of the shares will be
treated as ordinary income.
- - Any gain which you realize upon the sale of shares acquired in the
exercise of a Non-Qualified Option or SAR for an amount greater than their fair
market value on the date of exercise, will be capital gain and any loss will be
capital loss. Generally there will be no tax consequences to Energizer in
connection with your disposition of shares acquired in the exercise of an option
or SAR, except that Energizer may be entitled to a tax deduction in the case of
a sale of ISO shares before the holding periods described above have been
satisfied.
Restricted Stock and Other Awards. Generally, restricted stock awards will not
- ----------------------------------
be taxed to you until restrictions lapse on all, or any portion, of the award.
- - When any portion of an award is released from restrictions, the fair
market value of those shares on the date the restrictions lapse will be included
in your income for that year and will be taxed at ordinary income tax rates.
Your basis in the stock received will be equal to the fair market value at the
time that restrictions lapse, and the holding period will begin on that date.
- - You may elect to have the restricted stock award treated as taxable income
in the year granted. You will be taxed at ordinary income tax rates on the fair
market value of the award on the date of grant. Any future appreciation in
value of those shares at the time they are sold will be taxed as capital gain,
and any decline will be treated as a capital loss.
- - If you elect to be taxed in the year the award is granted, and the award
is later forfeited before restrictions lapse, the income taxes paid will not be
recoverable.
- - Energizer will have deductible expense equal to the fair market value of
the restricted shares in whatever year you recognize ordinary income as a result
of the award.
Amounts deferred in the form of stock equivalents, as well as dividend
equivalents earned on such amounts, will be taxed as ordinary income for the
year in which the amounts are actually distributed to you. If the distribution
is made in shares of Energizer Stock, the taxable income will be equal to the
fair market value of the shares on the date distributed, which will also be your
basis in those shares. Energizer will have deductible expense equal to the
amount distributed.
Adjustments. Certain corporate transactions or events such as stock splits,
recapitalizations, spin-offs, mergers, etc. may directly affect the number of
outstanding shares and/or the value of the outstanding Energizer Stock. If such
transactions occur, the Energizer Committee may adjust the number of shares
which may be granted under the Plan, as well as the limits on individual awards.
The Energizer Committee or the board may adjust the number of shares and the
exercise price under outstanding options, and the performance goals of any
options or awards, and may make other adjustments which are thought appropriate
to protect the value of the award to the recipient.
Transferability. Awards granted under the Plan may not be transferred except:
- - by beneficiary designation;
- - by will or the laws of descent and distribution; or
- - if permitted by the Energizer Committee, to an immediate family member,
family trust or family partnership.
Amendments. The board of directors may amend, suspend or terminate the Plan at
any time. Except for permitted adjustments, no amendment, however, may
- - increase the number of shares reserved for awards;
- - withdraw the authority of the Energizer Committee to administer the Plan;
- - increase the limit on the number of shares which are the subject of awards
granted to any individual; or
- - change the terms of any awards granted before the amendment in an adverse
manner without the consent of the recipient.
Term. The Plan will continue until December 31, 2009, unless replaced or
terminated at an earlier time.
<PAGE>
SAVINGS INVESTMENT PLAN
Energizer also intends to adopt the Energizer SIP, a defined contribution
plan which is intended to be a 401(k) Plan and an employee stock ownership plan.
Purpose. The purpose of the Plan is to:
- - permit deferrals of compensation by eligible employees of Energizer and
its designated subsidiaries,
- - enable employees to share in the performance of Energizer through
participation in the Energizer Stock fund, and
- - provide employees with an attractive, convenient way to accumulate savings
for their future economic security.
Eligible Participants.
- - Any regular non-union employee of Energizer's designated subsidiaries who
receives regular compensation from a payroll in the United States subject to
F.I.C.A.; and
- - Any union employee, to the extent permitted by his or her collective
bargaining agreement.
Contributions Under the Plan.
If you are an eligible employee:
- - you may elect to have Energizer contribute to the Energizer SIP, on your
behalf, contributions of up to 12% of your compensation, in 1% increments,
rather than receive such amounts in cash. These contributions may not exceed
$10,500. These before-tax contributions will not be subject to federal income
tax in the year contributed;
- - Energizer will contribute a matching contribution equal to 50% of your
first 6% of before-tax contributions;
- - You may also make after-tax contributions of 1% to 21% of your
compensation, subject to certain limitations; and
- - Energizer will make an additional matching contribution to a PensionPlus
Match Account established in your name under the Energizer pension plan. The
matching contribution will be equal to 325% of the first 1% of your after-tax
contributions to the Energizer SIP. These matching contributions will also not
be subject to federal income tax until distributed.
The total contributions made on your behalf will be subject to limitation as
required by Sections 401(k) and 415 of the Internal Revenue Code.
Investment of Contributions
Amounts contributed to the Energizer SIP will be invested by the trustee in one
or more funds as directed by the employee. It is contemplated that initially
there will be approximately 12 such funds offering a variety of investment
options. Energizer's matching contributions will be required to be invested in
the Energizer ESOP Common Stock Fund. Dividends paid on shares of Energizer
Stock held by the Energizer ESOP Common Stock Fund will be passed through to
participants or they may, at the discretion of Energizer, be used by the Fund to
acquire additional shares of Energizer Stock, which will be allocated to
participant accounts to reflect dividends paid. Account balances of Energizer
employees participating in the Ralston Savings Investment Plan, including shares
of Ralston Stock allocated to accounts in the Ralston ESOP Common Stock Fund,
will be transferred to the Energizer SIP. Energizer employees may then transfer
all, or any portion, of their account balances to other funds offered by the
Energizer Plan. However, participants in the Energizer SIP will not be
permitted to invest additional monies in Ralston Stock following the
distribution, and after a period of time all shares of Ralston Stock still
retained by the Energizer SIP will be sold and the proceeds invested, according
to participants' elections, in other funds offered by the Plan.
Vesting.
An employee's before-tax and after-tax contributions will be vested from
the time made. Energizer's matching contributions will vest at the rate of 25%
per year, commencing in their second year of service. Employees will receive
credit for periods of employment with Ralston. Matching contributions are also
fully vested upon attainment of age 65 or death, or in the event the Energizer
SIP is terminated. Vested account balances in the Plan will be paid out to the
participant, or his or her beneficiary, upon termination of employment,
retirement, disability or death.
Excess Contributions.
The Internal Revenue Code imposes limits on deferrals permitted in
tax-qualified plans such as the Energizer SIP . Energizer will establish a
nonqualified supplemental SIP under which compensation of executive officers and
certain other key management employees will be deferred to the extent that their
deferrals exceed the qualified plan limits in the Energizer SIP or are otherwise
ineligible to be deferred into the Energizer SIP. The nonqualified supplemental
SIP will offer investment options which mirror the funds offered by the
Energizer SIP. To the extent that Energizer would otherwise make matching
contributions to an employee's Energizer SIP account or PensionPlus Match
Account but for limitations imposed by the Internal Revenue Code, Energizer will
instead credit the employee's account under the supplemental SIP with an amount
equal to those matching contributions. At the time of the distribution, the
liabilities of Ralston to Energizer employees under the Ralston Purina Company
Executive Savings Investment Plan will be transferred to, and assumed by,
Energizer, and those employees will have their account balances in the Ralston
plan credited to them under the Energizer supplemental SIP, into investment
options elected by them.
DEFERRED COMPENSATION PLAN
<PAGE>
Energizer also intends to adopt the Energizer Deferred Compensation Plan.
The purpose of the Energizer Deferred Compensation Plan is to afford certain key
employees (including the executive officers), and non-employee directors, the
opportunity to save a portion of their earnings in a tax-deferred investment and
to create post-retirement benefits. Under the Energizer Deferred Compensation
Plan, all or any part of an eligible employee's salary and bonus may be deferred
by the participant until retirement or other termination of employment.
Shorter-term deferrals may also be elected. Non-employee directors may defer
all or a portion of their retainers and meeting fees until their service on the
board ends.
The Energizer Deferred Compensation Plan initially will provide that all or any
part of the participant's compensation may be deferred in various investment
options which will mirror the performance of the investment funds offered by the
Energizer SIP. The Deferred Compensation Plan will be a non-qualified, unfunded
plan. All payments from the Plan, at termination of employment or otherwise,
will be in the form of cash.
At the time of the distribution, Energizer employees who are participants in the
Ralston Purina Company Deferred Compensation Plan for Key Employees, will have
their account balances in that plan (other than balances under the Fixed Benefit
Option of that plan) credited to them under the Energizer Deferred Compensation
Plan, into investment options elected by them.
<PAGE>
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
Energizer intends to enter into change of control employment agreements with
certain key officers. The agreements provide that the executives will receive
severance compensation in the event of their involuntary termination (including
constructive termination), other than for cause, within 2 years after a change
in control of Energizer. A change of control is generally defined as the
acquisition of 20% or more of the outstanding shares of Energizer Stock. A
change of control will also occur if the initial directors of Energizer, or
their recommended or appointed successors, fail to constitute a majority of the
board, or if the stockholders of Energizer approve a merger, consolidation or
sale of all or substantially all of the assets of Energizer. The severance
compensation consists of:
- - a lump sum payment in an amount equal to 2 times the executive's annual
base salary and target bonus.
- - the difference between the executive's actual benefits under Energizer's
various retirement plans at the time of termination and what the executive would
have received if he or she had remained employed for an additional period of two
years, and
- - the continuation of other executive health, dental and other welfare
benefits for a period of two years following the executive's termination.
No payments would be made in the event that the termination is voluntary, is due
to death, disability or normal retirement, or is for cause.
In the event that it is determined that a "golden parachute" excise tax is due
under the Internal Revenue Code, the aggregate present value of amounts payable
or distributable to the executive would be reduced to the amount at which the
payments would be deductible by Energizer and not subject to any excise tax.
<PAGE>
OTHER EXECUTIVE BENEFIT PLANS
Energizer also intends to adopt certain non-qualified executive benefit
plans which will be available for participation by the executive officers and
certain other key employees. These plans are substantially similar to plans
offered by Ralston. A Financial Planning Plan will offer reimbursement for 80%
of certain financial planning expenses, including tax and estate planning and
preparation of wills and trusts. An Executive Health Plan will provide, at no
cost to participants, reimbursement for up to $50,000 per year of medical,
dental and vision expenses not covered by Energizer's other health and welfare
plans. An Executive Group Personal Excess Liability Insurance Plan will
provide, at no cost to participants, excess liability coverage in the amount of
$5 million per occurrence provided that required primary insurance coverages are
maintained by the participant at his or her expense. An Executive Retiree Life
Plan will provide, at no cost to participants, an unfunded supplemental life
insurance benefit. The Plan provides a death benefit, after retirement of the
participant, to his or her named beneficiary in an amount equal, on an after-tax
basis, to 50% of the participant's last full year's salary and bonus prior to
retirement. An Executive Long Term Disability Plan will provide, in the event
of the participant's disability, and at no additional cost, a monthly disability
payment equal to the amount which would otherwise be paid to the participant
under Energizer's long-term disability plan but for certain limitations of that
plan. Finally, a Supplemental Executive Retirement Plan will provide a
retirement benefit equal to the amount that would have been paid under
Energizer's Retirement Plan but for limitations on that plan imposed by the
I.R.S. Code.
<PAGE>
CERTAIN TRANSACTIONS
Energizer's subsidiaries have in the past engaged in numerous transactions
with other Ralston divisions and subsidiaries. (See "NOTES TO FINANCIAL
STATEMENTS - Related Party Activity".) Such transactions have included, among
other things,
- - intercompany loans,
- - other types of financial support by or to Ralston, and
- - sharing of administrative services and related costs.
In addition, affiliates of Ralston or of Energizer have distributed products
manufactured by the other in certain countries.
Following the distribution, Energizer and Ralston may enter into local
agreements concerning the continued distribution by Energizer subsidiaries of
pet products produced by Ralston and its affiliates. Employees of Ralston will
administer insurance plans and programs for Energizer on an ongoing basis
following the distribution, and Ralston's offshore insurance subsidiary will
provide certain reinsurance coverage for assets and operations of Energizer.
Terms and conditions of these agreements will be similar to those negotiated by
unrelated parties at arm's length.
Except as provided in these agreements and the Bridging Agreement,
administrative services provided by Ralston to Energizer and its subsidiaries
will be discontinued. All other administrative services currently provided by
Ralston will be either assumed by Energizer or obtained by it from third
parties.
W. P. Stiritz, the Chairman of the Board of Energizer, is also Chairman of the
Board of Ralston; William H. Danforth and Richard A. Liddy, directors of
Energizer, are also directors of Ralston. (J. Patrick Mulcahy is resigning as a
director of Ralston prior to the distribution.)
For more information about ongoing relationships between Ralston and Energizer,
see "AGREEMENTS BETWEEN RALSTON AND ENERGIZER".
Robert Pruzan, a member of the board of directors of Energizer, is the president
of the investment banking firm of Wasserstein Perella and Co., Inc., which in
the past has performed various investment banking services for Ralston,
including providing advice to the Ralston board of directors regarding the
spin-off of Energizer. See "THE DISTRIBUTION - Advice Provided by Financial
Advisor".
STOCK OWNERSHIP INFORMATION
All of the outstanding Energizer Stock is currently held by Ralston. The
following table sets forth projected Energizer Stock ownership information for
the persons expected to own more than 5% of the Energizer Stock following the
distribution. It also sets forth projected ownership information for each of
the Energizer directors and all of the directors and executive officers as a
group. These projections are based on a distribution of one share of Energizer
Stock for every three shares of Ralston Stock beneficially owned by the listed
persons on January 1, 2000 (including shares of Ralston Stock held in the
Ralston SIP for the accounts of the executive officers and shares of Ralston
Stock which could be acquired upon exercise of options prior to April 1, 2000).
DESCRIPTION OF ENERGIZER CAPITAL STOCK
The following information summarizes terms and provisions of Energizer's
Articles of Incorporation and the Rights Agreement. Those documents have been
filed as exhibits to Energizer's Registration Statement on Form 10 which has
been filed with the Securities and Exchange Commission, and are available for
public review. Because this description is a summary, it may not contain all of
the information that may be important to you, and you should read the filed
documents.
AUTHORIZED CAPITAL STOCK
Under the terms of Energizer's Articles of Incorporation, the board of
directors of Energizer will have authority to issue 310 million shares of all
classes of stock, of which 10 million will be shares of $.01 par value preferred
stock, and 300 million will be shares of $.01 par value Energizer Stock. No
shares of preferred stock are outstanding and none will be issued in connection
with the distribution. Based on the number of shares of Ralston Stock
outstanding at March 1, 2000, approximately 100 million shares of Energizer
Stock will be issued to Ralston stockholders in the distribution.
ENERGIZER COMMON STOCK
Voting Rights.
The holders of Energizer Stock will be entitled to one vote per share on all
matters to be voted on by stockholders. The holders will not be entitled to
cumulate their votes in the election of directors. Generally, all matters on
which stockholders will vote must be approved by a majority of the votes
entitled to be cast by all shares of Energizer Stock present in person or
represented by proxy, subject to any voting rights granted to holders of any
preferred stock. However, Energizer's Articles of Incorporation include some
supermajority requirements, including:
- - a requirement that the holders of at least 2/3 of the outstanding
Energizer Stock (and any other voting shares that may be outstanding), and a
majority of the shares not owned by the stockholder benefiting from the
transaction, must approve a merger or consolidation with persons or entities
that beneficially own at least 20% of the Energizer Stock, a sale of all or
substantially all of Energizer's assets to those persons or entities, or certain
other transactions, unless the proposed transaction is approved by a majority of
the directors who were in office immediately before the time when such ownership
was acquired, or by their approved successors;
- - a requirement that the vote of 2/3 of the outstanding Energizer Stock (and
any other voting shares that may be outstanding) is required to remove a
director for cause; and
- - a requirement that any amendment or repeal of specified provisions of
Energizer's Articles (including these supermajority requirements) must be
approved by at least 2/3 of the outstanding Energizer Stock (and any other
voting shares that may be outstanding).
Dividends
The payment and level of cash dividends, if any, by Energizer after the
distribution will be at the discretion of the Energizer board of directors. It
is expected that this decision will be based primarily upon the earnings, cash
flow and financial requirements of the Energizer business. Restrictions on the
flow of international capital may restrict the amount of funds available in the
United States for the payment of dividends. In addition, although its credit
facilities do not prohibit the payment of dividends by Energizer, restrictions
in those facilities may significantly limit the amount of funds available for
the payment of dividends. The Energizer board of directors may determine that
initially no cash dividends will be paid on Energizer Stock in order to make
funds available for working capital, repayment of debt, possible future
acquisitions, capital expenditures, and possible repurchases of Energizer Stock.
The Energizer board of directors may change its policy on dividends at any time.
Other Rights
If Energizer is liquidated or dissolved, any amounts required to be distributed
to any holders of Energizer preferred stock must be paid before any payments are
made to holders of the Energizer Stock. All holders of shares of Energizer Stock
are entitled to share ratably in any assets available for distribution, after
all other creditors have been satisfied.
No shares of Energizer Stock carry redemption rights. Holders of shares of
Energizer Stock do not have any preemptive rights to purchase additional shares
of Energizer Stock.
Immediately after the distribution, all of the outstanding shares of Energizer
Stock will be validly issued, fully paid and nonassessable.
PREFERRED STOCK
Energizer may issue preferred stock from time to time in one or more series and
with the terms of each series stated in the resolutions providing for the
designation and issue of the series that the board of directors adopts. The
Articles of Incorporation authorize the board to determine the dividend, voting,
conversion, redemption and liquidation preferences, rights, privileges and
limitations pertaining to each series of preferred stock that may be issued.
Without seeking any stockholder approval, the board may issue preferred stock
with voting and other rights that could adversely affect the voting power of the
holders of the Energizer Stock and could have anti-takeover effects.
COMMON STOCK PURCHASE RIGHTS
The Energizer board has declared a dividend distribution of one common
stock purchase right for each outstanding share of Energizer Stock to be
distributed to Ralston stockholders. Each right entitles the registered holder
to purchase, under certain circumstances, one share of Energizer Stock from
Energizer at an initial exercise price of $150 per share, subject to adjustment
in some circumstances.
The rights are attached to all shares of Energizer Stock which will be
distributed, and to all shares issued after the distribution, but before the
date on which the rights separate from the Energizer Stock with which they are
associated, as described below. No separate certificates or book-entries
evidencing the rights have been distributed or made. The terms of the rights
are set forth in a Rights Agreement (the "Rights Agreement") between Energizer
and Continental Stock Transfer & Trust Company, as Rights Agent.
Until the rights separate from the shares of Energizer Stock,
- - the rights will be evidenced by the stockholder's physical stock
certificates, and
- - the transfer of shares of Energizer Stock will also be a transfer of the
associated rights.
As soon as practicable after the rights separate from the shares of Energizer
Stock, separate certificates ("Rights Certificates") evidencing the rights will
be mailed and, thereafter, the separate Rights Certificate alone will evidence
the rights.
The rights will separate from the shares of Energizer Stock upon the
earlier to occur of
- - 10 days following a public announcement that a person or group of persons
has acquired ownership of 20% or more of the outstanding Energizer Stock, or
- - 10 business days following the launch of a tender or exchange offer that
would result in a person or group owning more than 20% of the outstanding
Energizer Stock. (The board may extend this period if the actual acquisition of
20% or more of the Energizer Stock has not yet occurred.)
However, the rights will not separate in the event of acquisitions of Energizer
Stock by any of the following:
- - Energizer or any of its subsidiaries, or
- - any employee benefit plan of Energizer or any of its subsidiaries.
The rights are not exercisable until after they have separated from the shares
of Energizer Stock with which they are associated. They will expire at the
close of business on April 1, 2010, unless they are redeemed at an earlier time
by the board.
If a third party triggers a separation of the rights from the shares of
Energizer Stock by acquiring beneficial ownership of 20% or more of the
outstanding stock, each holder of a right (other than the party triggering the
separation) will then be able to exercise the right to acquire a share of
Energizer Stock at one-third of its then-current market price. Alternatively,
the board may elect, if the third party has not acquired over 50% of the
outstanding Energizer Stock, to exchange each outstanding right (other than
those held by the third party) for a share of Energizer Stock without any other
payment of the exercise price.
If, at any time after the separation of the rights is triggered,
- - Energizer is acquired in a merger, statutory share exchange or other
business combination in which Energizer is not the surviving corporation, or
- - 50% or more of Energizer's assets or earning power is sold or transferred,
each holder of a right will have the right to receive, upon exercise and payment
of the exercise price, common stock of the acquiring company having a value
equal to twice the exercise price.
The exercise price payable, and the number of shares of Energizer Stock or
other securities which will be issued, upon the exercise of the rights are
subject to adjustment from time to time to prevent dilution
- - in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Energizer Stock,
- - upon the grant to holders of the Energizer Stock of certain rights or
warrants to subscribe for or purchase Energizer Stock at a price, or securities
convertible into Energizer Stock with a conversion price, less than the then
current market price of the Energizer Stock, or
- - upon the distribution to holders of the Energizer Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Energizer Stock) or of
subscription rights or warrants (other than those referred to above).
No adjustments in the exercise price will be required unless, cumulatively, they
would result in an adjustment of at least 1% to the exercise price.
The Energizer Board may redeem the rights in whole, but not in part, at a
price of $.01 per right, at any time prior to the time that the rights
separate from the shares of Energizer Stock. Upon redemption, the right to
exercise the rights will terminate.
Until a right is exercised, the holder will have no rights as a stockholder of
Energizer, including the right to vote or to receive dividends.
All of the terms of the Rights Agreement may be amended by the Energizer board
of directors prior to the time that the rights separate from the shares of
Energizer Stock, for any reason the board deems appropriate. Prior to that
time, the Energizer Board is also authorized, if it deems appropriate, to lower
the threshold for causing the rights to separate, as long as the threshold is
not lowered to less than:
- - 10% of the outstanding Energizer Stock, or
- - any percentage of the outstanding Energizer Stock then held by any
stockholder.
After the rights separate, the terms of the Rights Agreement may be amended by
the board in order to:
- - cure any ambiguity, defect or inconsistency,
- - make changes which do not adversely affect the interests of holders of the
rights (other than the interests of any person triggering the separation), or,
- - subject to certain limitations, shorten or lengthen any time period under
the Rights Agreement.
The rights may have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire Energizer on
terms not approved by the Energizer board of directors. The rights should not
interfere with any merger or other business combination approved by the board
since the rights may be redeemed by Energizer prior to the time that the rights
become exercisable.
TRANSFER AGENT
The transfer agent and registrar for the Energizer Stock is Continental
Stock Transfer & Trust Company. Information about Continental may be obtained
at (888) 509-5580.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Articles of Incorporation and bylaws of Energizer, as well as the
Rights Agreement and Missouri General and Business Corporations Law contain
certain terms and provisions which could delay, defer or prevent a tender offer
or takeover attempt that a stockholder might consider in his or her best
interest, including attempts that might result in a premium over the market
price of the Energizer Stock. These provisions are designed to enable the
Energizer board of directors to develop Energizer's business in a manner that
will foster its long-term growth. They are meant to avoid the potential
disruption that might be entailed by the threat of a takeover which the board
believes is not in the best interests of Energizer and its shareholders. You
should also review "AGREEMENTS BETWEEN RALSTON AND ENERGIZER--Agreement and Plan
of Reorganization---Certain Post-Distribution Covenants" for a discussion of
certain agreements between Energizer and Ralston that could also deter a
takeover proposal.
The following information summarizes terms and provisions of Energizer's
Articles of Incorporation, bylaws and the Rights Agreement. Those documents
have been filed as exhibits to Energizer's Registration Statement on Form 10
which has been filed with the Securities and Exchange Commission, and are
available for public review. Because this description is a summary, it may not
contain all of the information that may be important to you, and you should read
the filed documents.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL
The Energizer bylaws provide that the number of directors will be fixed
from time to time exclusively by the Energizer Board, but shall consist of not
less than 6 and no more than 10 directors. Initially the Energizer Board will
be comprised of eight directors. The Energizer Articles of Incorporation provide
for the board to be divided into three classes of directors, as nearly equal in
size as possible, serving staggered terms. The terms of three of the initial
directors of Energizer will expire at the 2001 annual meeting of Energizer's
stockholders, the terms of three of the initial directors will expire at the
2002 annual meeting, and the terms of the final two initial directors will
expire at the 2003 annual meeting. Starting with the 2001 annual meeting of
Energizer's stockholders, one class of directors will be elected each year for a
three year term. See "MANAGEMENT--Directors of Energizer". Moreover, the
Articles provide that directors may be removed only for cause, upon the vote of
2/3 of the outstanding Energizer Stock. The Energizer Articles also provide
that, subject to any rights of holders of Energizer preferred stock, vacancies
may be filled only by a majority of the remaining directors. As a result, at
least two annual meetings of shareholders may be required for stockholders to
change a majority of the directors, whether or not a majority of Energizer's
stockholders believes that such a change would be desirable.
SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Energizer's bylaws and Missouri law require that any action taken by
written consent instead of at an annual or special meeting requires the written
consent of all stockholders. The bylaws provide that special meetings of the
stockholders may only be called by the board or the chairman of the board or the
President. These terms may make it more difficult for stockholders to take an
action that the board opposes.
ADVANCE NOTICE PROVISIONS
Energizer's bylaws establish an advance written notice procedure for
stockholders seeking:
- - to nominate candidates for election as directors at any annual meeting of
stockholders, or
- - to bring other business before an annual meeting of stockholders.
The bylaws provide that only persons who are nominated by the board, or by a
stockholder who has given timely written notice to Energizer's Secretary at
least 90 and no more than 120 days prior to the meeting to elect directors, will
be eligible for election as Energizer's directors. The bylaws also provide that
business to be conducted at any meeting of stockholders must be brought either
by the board or by a stockholder who has given timely written notice to
Energizer's Secretary at least 90 and no more than 120 days prior to the
meeting. The stockholder's written notice, for both nominations and matters to
be considered at an annual meeting, must contain additional information
specified in the bylaws. See "SHAREHOLDER PROPOSALS". The advance notice
provisions may preclude or deter some stockholders from bringing matters before
an annual meeting or from making nominations for directors.
PREFERRED AND COMMON STOCK
Energizer's Articles of Incorporation authorize the board of directors:
- - to create one or more series of preferred stock,
- - to issue shares of preferred stock in a series up to the maximum number of
shares of preferred stock authorized, and
- - to determine the preferences, rights, privileges, qualifications,
limitations and restriction of any series, including the dividend rights, voting
rights, conversion privileges, rights and terms of redemption, liquidation
preferences, the number of shares constituting any series and the designation of
any series.
In addition, the Articles authorize the board to issue up to approximately 200
million additional shares of Energizer Stock after the distribution (which
includes shares reserved for grants of stock under the Energizer benefit plans)
and up to 10 million shares of preferred stock. The number of authorized but
unissued shares will provide Energizer with the ability to meet future capital
needs and to provide shares for possible acquisitions and stock dividends or
stock splits.
Energizer believes that the preferred stock will provide Energizer with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. Energizer
will be able to issue shares of preferred stock without the expense and delay of
a special stockholders' meeting. The authorized and unissued shares of preferred
stock, as well as the authorized and unissued shares of Energizer Stock, will be
available for issuance without further action by stockholders, unless such
action is otherwise required by Missouri law.
However, although the board of directors has no intention at the present time of
doing so, it could issue a series of preferred stock having terms which could
discourage an acquisition attempt or other transaction that some, or a majority,
of the stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their Energizer Stock over its market
price. The board will make any decision to issue such shares based on its
judgment as to the best interests of Energizer and its stockholders at the time
of the issuance.
BUSINESS COMBINATIONS
In order to ensure Energizer stockholders receive a fair price for their
shares of Energizer Stock if there are significant changes in the ownership of
Energizer, Article Four of Energizer's Articles contains a restriction on
certain business combinations. Business combinations covered by Article Four
include:
- - a merger or consolidation, sale or other disposition of a substantial
amount of Energizer assets,
- - a plan of liquidation or dissolution of Energizer, or
- - other transactions involving the transfer, issuance, reclassification or
recapitalization of Energizer securities,
which would benefit an individual or entity owning more than 20% of the
outstanding Energizer Stock. Article Four prohibits these business
combinations unless they are approved by the affirmative vote of not less than
2/3 of the outstanding Energizer Stock, and a majority of the shares not owned
by the stockholder benefiting from the combination.
In certain circumstances, the board of directors may approve any of the
above business combinations without the requirement of the described
super-majority shareholder approval provision.
AMENDMENT OF CERTAIN PROVISIONS OF THE ENERGIZER ARTICLES AND BYLAWS
Energizer's Articles of Incorporation provide that the bylaws may only be
amended or repealed by a majority of the board of directors. Except as otherwise
provided, any amendment of the Articles requires a vote of a majority of the
outstanding Energizer Stock. Amendments of the terms of the Articles relating
to:
- - the business combinations provisions,
- - the directors of the corporation,
- - the by-laws of the corporation,
- - the indemnification of directors, officers and employees, and
- - amendment of the Articles of Incorporation,
require the vote of 2/3 of the outstanding shares of the Energizer Stock.
RIGHTS
As described above, the common stock purchase rights will permit Energizer
stockholders to acquire shares of Energizer Stock or common stock of an
acquiring company at a substantial discount in the event of certain described
acquisitions of Energizer Stock and other changes in control. See "DESCRIPTION
OF ENERGIZER CAPITAL STOCK--Common Stock Purchase Rights".
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS; OTHER SEVERANCE ARRANGEMENTS
Energizer will enter into change of control employment agreements with
certain executive officers providing severance compensation and continuation of
benefits in the event of termination following a change of control of Energizer.
See "ENERGIZER COMPENSATION AND BENEFIT PLANS--Change of Control Employment
Agreements".
MISSOURI GENERAL AND BUSINESS CORPORATIONS LAW
Energizer is incorporated under the laws of the State of Missouri. Section
351.459 of the Missouri General and Business Corporations Law, which applies to
Energizer, restricts "business combinations" between a corporation and its
"interested shareholders". A business combination includes a merger,
consolidation, asset sale or other transaction resulting in a financial benefit
to an interested shareholder. An interested shareholder is a person or entity
which owns, directly or indirectly, 20% or more of a corporation's outstanding
voting stock. Section 351.459 provides that a corporation cannot engage in a
business combination with an interested shareholder for a five-year period after
the date that the shareholder acquires its 20% interest, unless the board of
directors approves in advance either the business combination or the
shareholder's acquisition of its 20% interest.
After five years, the corporation still cannot engage in a business
combination with the interested shareholder unless:
- - the business combination is approved by the holders of a majority of the
corporation's outstanding stock, other than shares owned by the interested
shareholder; or
- - the business combination meets a number of conditions regarding the
consideration to be paid to the other shareholders for their shares of the
corporation's stock.
A Missouri corporation may elect to opt out of Section 351.459 by so providing
in its ` of incorporation or bylaws. Energizer has not elected to opt out of
Section 351.459.
Missouri has also adopted Section 351.407 which provides that a person acquiring
more than one-fifth of the outstanding shares of stock of a Missouri corporation
will not be able to vote those shares unless a majority of the shares held by
all other stockholders approves granting voting rights. A Missouri corporation
may elect to opt out of Section 351.407 by so providing in its articles of
incorporation or bylaws. Energizer has not elected to opt out of Section
351.407.
Finally, Missouri has adopted Section 351.347 which provides that a board of
directors of a Missouri corporation, in considering any acquisition proposals
for the corporation, may consider a number of factors besides the consideration
offered, including,
- - the future value of the corporation as an independent entity;
- - political, economic and other factors bearing on the current market price
of the corporation's securities;
- - the effects of the acquisition on employees, suppliers, customers and the
communities in which the corporation conducts its business;
- - the financial condition, prospects and ability to service its debts of the
person making the proposal; and
- - the competence, experience and integrity of the person making the
proposal.
These provisions of the Missouri General and Business Corporations Law may
make it more difficult for there to be a change in control of Energizer, or for
Energizer to enter into business combinations with persons acquiring large
percentages of the Energizer Stock.
<PAGE>
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES OF ENERGIZER
Under the terms of its Articles, Energizer must indemnify its directors,
officers and employees against any and all
- - expenses (including attorneys' fees),
- - judgments,
- - fines, and
- - amounts paid in settlement,
which are incurred in any legal proceeding because of their service to
Energizer. Energizer must also indemnify persons serving at its request as
directors, officers and employees of its subsidiaries or other corporations.
However, Energizer is not required to indemnify anyone if their conduct is
determined by a court to have been knowingly fraudulent, deliberately dishonest
or willful misconduct.
Energizer will also enter into indemnification agreements with its
directors and its President. Under those agreements, Energizer will be required
to indemnify them to the same extent authorized by the Articles and,
furthermore, to the fullest extent authorized or permitted by Missouri law. At
this time, the indemnification permitted by Missouri law is not more extensive
than that required by Energizer's Articles. No indemnification will be paid
under the indemnification agreements, however,
- - if it is finally determined by a court that the indemnification would be
unlawful,
- - on account of any lawsuit to recover short-swing profits made by any
officer or director in violation of Section 16(b) of the Securities Exchange
Act, or
- - if the conduct of the or director or the President is determined by a
court to have been knowingly fraudulent, deliberately dishonest or willful
misconduct.
The agreements also provide that Energizer will advance the director or the
President his expenses in defending against any lawsuit, and that the director
or the President must reimburse Energizer for those expenses if a court
ultimately decides that he was not entitled to indemnification.
Energizer will also have directors' and officers' insurance which will
protect each officer and director from liability for actions taken in their
capacity as officers and directors. This insurance may provide broader coverage
than the protections afforded to the officers and directors by Energizer's
Articles and indemnification agreements. An officer or director will not be
entitled to indemnification from Energizer unless this insurance coverage does
not cover all of his expenses and liabilities.
Energizer's Articles of Incorporation and the form of indemnification
agreement which will be entered into with the directors and the President have
been filed as exhibits to Energizer's Registration Statement on Form 10 which
has been filed with the Securities and Exchange Commission, and those documents
are available for public review. The above description was only a summary; for
the full text of the Articles and that agreement, you should review the exhibits
which have been filed with the Securities and Exchange Commission.
SHAREHOLDER PROPOSALS
Energizer's Bylaws provide that stockholders desiring to nominate
candidates for directors or to present a proposal or bring other business before
an Energizer stockholders meeting must give advanced written notice not less
than 90 nor more than 120 days prior to the meeting. In each case the notice
must be given to the Secretary of Energizer, whose address is 800 Chouteau, St.
Louis, Missouri 63102. The 2001 Annual Meeting of Energizer stockholders is
expected to be held on January 22, 2001. To be considered, notice of any such
nomination or proposal must be received no earlier than September 22, 2000, and
no later than October 24, 2000. To be included in Energizer's proxy statement
and form of proxy for that meeting, any proposal must also comply in all
respects with the rules and regulations of the Securities and Exchange
Commission.
<PAGE>
INDEPENDENT ACCOUNTANTS
The Energizer Board has appointed PricewaterhouseCoopers LLP as Energizer's
independent accountants to audit Energizer's financial statements for the fiscal
year ending September 30, 2000. PricewaterhouseCoopers LLP has audited the
financial statements of Ralston since 1955.
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
Energizer has filed with the Securities and Exchange Commission a Form 10
Registration Statement with respect to the shares of Energizer Stock which
stockholders of Ralston will receive in the distribution. This Information
Statement does not contain all of the information contained in the Form 10 and
the exhibits and schedules to the Form 10. For additional information relating
to Energizer and the distribution, reference is made to the Form 10 and the
exhibits to the Form 10, which are on file at the offices of the Securities and
Exchange Commission. Statements contained in this Information Statement as to
the contents of any agreement or other document referred to are not necessarily
complete and in each instance, if the agreement or document is filed as an
exhibit, reference is made to the copy of the agreement or other document filed
as an exhibit to the Form 10. Each statement is qualified in all respects by
that reference.
You may inspect and copy the Form 10 and the exhibits to the Form 10 that
Energizer has filed with the Securities and Exchange Commission at the Public
Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C., 20549, as well as at the public reference
facilities maintained at the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
information may be obtained at prescribed rates from the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information about the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The Commission also maintains an
Internet site on the World Wide Web at http://www.sec.gov that contains reports,
proxy statements and other information regarding public companies. Shares of
Ralston Stock are listed, and shares of Energizer Stock have been approved for
listing, on the NYSE and reports, proxy statements and other information
concerning Ralston and Energizer can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
Energizer intends to furnish holders of Energizer Stock with annual reports
following its first fiscal year which ends September 30, 2000. These reports
will contain consolidated financial statements audited by an independent public
accounting firm.
The principal office of Energizer is located at 800 Chouteau Avenue, St.
Louis, Missouri 63102 (telephone: 314/982-1888).
Questions concerning the distribution should be directed to Ralston's
Investor Relations Department, Ralston Purina Company, Checkerboard Square, 7T,
St. Louis, Missouri 63164 (telephone: 314/982-2161). After the distribution, if
you have questions related to your investment in Energizer Stock, you should
contact Continental Stock Transfer & Trust Company, 2 Broadway, New York, New
York 10004 (Telephone: (888) 509-5580).
INDEX TO FINANCIAL INFORMATION
OF ENERGIZER HOLDINGS, INC.
Page
----
Report of Independent Accountants F-2
Combined Statement of Earnings and F-3
Comprehensive Income
Combined Balance Sheet F-4
Combined Statement of Cash Flows F-5
Notes to Combined Financial Statements F-6
Condensed Combined Statement of Earnings F-24
Condensed Combined Balance Sheet F-25
Condensed Combined Statement of Cash Flows F-26
Notes to Condensed Financial Statements F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Ralston Purina Company
In our opinion, the accompanying combined balance sheet and the related combined
statements of earnings and comprehensive income and of cash flows present
fairly, in all material respects, the financial position of Energizer Holdings,
Inc., comprised of businesses of Ralston Purina Company as described in the
Basis of Presentation note to the combined financial statements, at September
30, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended September 30,1999, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Energizer's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 17, 2000
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
YEAR ENDED SEPTEMBER 30,
(DOLLARS IN MILLIONS)
STATEMENT OF EARNINGS:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . . . $1,872.3 $1,921.8 $2,005.8
--------- --------- ---------
Costs and Expenses
Cost of products sold . . . . . . . . . . . . . . . . 997.9 1,004.4 1,085.7
Selling, general and administrative . . . . . . . . . 398.0 392.6 396.9
Advertising and promotion . . . . . . . . . . . . . . 164.3 183.6 185.1
Research and development. . . . . . . . . . . . . . . 48.5 46.6 41.9
Provisions for restructuring. . . . . . . . . . . . . 7.8 21.0 78.5
Interest expense. . . . . . . . . . . . . . . . . . . 7.6 11.1 13.8
--------- --------- ---------
1,624.1 1,659.3 1,801.9
--------- --------- ---------
Earnings from Continuing Operations before Income Taxes 248.2 262.5 203.9
Income Taxes. . . . . . . . . . . . . . . . . . . . . . (88.4) (54.3) (44.6)
--------- --------- ---------
Earnings from Continuing Operations . . . . . . . . . . 159.8 208.2 159.3
Net Earnings/(Loss) from Discontinued Operations. . . . (5.6) (43.5) 0.5
Net Loss on Disposition of Discontinued Operations. . . (74.2) - -
--------- --------- ---------
NET EARNINGS. . . . . . . . . . . . . . . . . . . . . . $ 80.0 $ 164.7 $ 159.8
========= ========= =========
STATEMENT OF COMPREHENSIVE INCOME:
1999 1998 1997
--------- --------- ---------
Net Earnings. . . . . . . . . . . . . . . . . . . . . . $ 80.0 $ 164.7 $ 159.8
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustments. . . . . . 7.8 (30.4) (17.5)
Reclassification Adjustments. . . . . . . . . . . . (4.5) - -
--------- --------- ---------
Comprehensive Income. . . . . . . . . . . . . . . . . . $ 83.3 $ 134.3 $ 142.3
========= ========= =========
<FN>
See accompanying Notes to Combined Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED BALANCE SHEET
SEPTEMBER 30,
(DOLLARS IN MILLIONS)
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents . . . . . . . . $ 27.8 $ 49.1
Trade receivables, net. . . . . . . . . . 441.9 440.4
Inventories . . . . . . . . . . . . . . . 383.0 404.4
Other current assets. . . . . . . . . . . 121.3 103.3
-------- --------
Total Current Assets. . . . . . . . . . 974.0 997.2
-------- --------
Investments and Other Assets. . . . . . . . 319.7 446.9
Net Investment in Discontinued Operations . 67.2 156.6
Property at Cost
Land. . . . . . . . . . . . . . . . . . . 16.9 17.2
Buildings . . . . . . . . . . . . . . . . 143.0 125.9
Machinery and equipment . . . . . . . . . 816.7 797.5
Construction in progress. . . . . . . . . 33.5 71.6
-------- --------
1,010.1 1,012.2
Accumulated depreciation. . . . . . . . . 537.3 535.3
-------- --------
472.8 476.9
-------- --------
Total . . . . . . . . . . . . . . . . $1,833.7 $2,077.6
======== ========
LIABILITIES AND NET INVESTMENT IN ENERGIZER
Current Liabilities
Current maturities of long-term debt. . . $ 0.3 $ 13.2
Notes payable . . . . . . . . . . . . . . 118.5 114.4
Accounts payable. . . . . . . . . . . . . 128.6 149.0
Other current liabilities . . . . . . . . 248.5 242.1
-------- --------
Total Current Liabilities . . . . . . . 495.9 518.7
Long-Term Debt. . . . . . . . . . . . . . . 1.9 1.3
Other Liabilities . . . . . . . . . . . . . 23.0 26.3
Net Investment in Energizer . . . . . . . . 1,312.9 1,531.3
-------- --------
Total . . . . . . . . . . . . . . . . $1,833.7 $2,077.6
======== ========
<FN>
See accompanying Notes to Combined Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
(DOLLARS IN MILLIONS)
1999 1998 1997
---- ---- ----
CASH FLOW FROM OPERATIONS
<S> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 80.0 $ 164.7 $ 159.8
Adjustments to reconcile net earnings to net cash
flow from operations:
Depreciation and amortization. . . . . . . . . . . . . . . . . 94.9 101.2 112.3
Translation and exchange loss. . . . . . . . . . . . . . . . . 9.0 10.4 5.2
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 70.4 (36.6) (43.0)
Non-cash restructuring charges (reversals) . . . . . . . . . . (2.2) (6.5) 35.7
Net (earnings) loss from discontinued operations . . . . . . . 79.8 43.5 (0.5)
Changes in assets and liabilities used in operations:
(Increase) decrease in accounts receivable, net. . . . . . . (6.4) (34.2) (8.5)
(Increase) decrease in inventories . . . . . . . . . . . . . 22.1 (2.8) 6.2
(Increase) decrease in other current assets. . . . . . . . . (13.9) 3.6 (8.2)
Increase (decrease) in accounts payable. . . . . . . . . . . (21.3) 0.2 (22.5)
Increase (decrease) in other current liabilities . . . . . . 16.2 1.5 64.9
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 (12.4) (15.7)
-------- -------- --------
Cash flow from continuing operations . . . . . . . . . . . . 337.2 232.6 285.7
Cash flow from discontinued operations . . . . . . . . . . . 15.1 8.7 (3.5)
-------- -------- --------
Net cash flow from operations. . . . . . . . . . . . . . . 352.3 241.3 282.2
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Property additions . . . . . . . . . . . . . . . . . . . . . . (69.2) (102.8) (98.8)
Proceeds from sale of property . . . . . . . . . . . . . . . . 1.4 14.1 9.8
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (0.5) 4.6 0.7
-------- -------- --------
Cash used by investing activities - continuing operations. . (68.3) (84.1) (88.3)
Cash used by investing activities - discontinued operations. (3.7) (13.2) (43.9)
-------- -------- --------
Net cash used by investing activities. . . . . . . . . . . (72.0) (97.3) (132.2)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Net cash proceeds from issuance of long-term debt. . . . . . 1.0 13.8 10.2
Principal payments on long-term debt (including current
maturities). . . . . . . . . . . . . . . . . . . . . . . . (13.3) (35.1) (28.5)
Cash proceeds from issuance of notes payables with
maturities greater than 90 days. . . . . . . . . . . . . . 14.7 10.2 1.8
Cash payments on notes payables with
maturities greater than 90 days. . . . . . . . . . . . . . (0.1) - -
Net increase (decrease) in notes payable with
maturities of 90 days or less. . . . . . . . . . . . . . . (12.0) 32.8 (12.7)
Net transactions with Ralston. . . . . . . . . . . . . . . . (293.7) (154.7) (98.6)
-------- -------- --------
Net cash used by financing activities. . . . . . . . . . . (303.4) (133.0) (127.8)
-------- -------- --------
Effect of Exchange Rate Changes on Cash. . . . . . . . . . . . . 1.8 (4.6) (1.8)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . (21.3) 6.4 20.4
Cash and Cash Equivalents, Beginning of Period . . . . . . . . . 49.1 42.7 22.3
-------- -------- --------
Cash and Cash Equivalents, End of Period . . . . . . . . . . . . $ 27.8 $ 49.1 $ 42.7
======== ======== ========
<FN>
See accompanying Notes to Combined Financial Statements.
</TABLE>
ENERGIZER HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
BASIS OF PRESENTATION
On June 10, 1999, the Board of Directors of Ralston Purina Company
(Ralston) approved in principle a plan to spin off its battery business to the
Ralston stockholders. In September 1999, Energizer Holdings, Inc. (Energizer)
was incorporated in Missouri as an indirect subsidiary of Ralston. At the time
of the spin-off, Energizer will directly or indirectly control all of the
worldwide battery operations currently conducted by Ralston. To effect the
spin-off, Ralston will distribute all of the outstanding shares of Energizer
$.01 par value common stock to the Ralston stockholders (the distribution).
Ralston has requested a ruling from the Internal Revenue Service as to whether
the distribution will qualify as a tax-free spin-off.
Energizer is the world's largest manufacturer of primary batteries and
flashlights and a global leader in the dynamic business of providing portable
power. Energizer manufactures and markets a complete line of primary alkaline
and carbon zinc batteries under the brands Eveready and Energizer, as well as
miniature and rechargeable batteries and flashlights and other lighting
products. Energizer and its subsidiaries operate 23 manufacturing facilities
in 16 countries on 4 continents. Its products are marketed and sold in more
than 160 countries primarily through a direct sales force, and also through
distributors, to mass merchandisers, wholesalers and other customers.
The financial statements of Energizer include the financial position,
results of operations and cash flows of Energizer. Ralston's historical cost
basis of assets and liabilities has been reflected in these financial
statements. The financial information in these financial statements does not
include certain expenses and adjustments that would have been incurred had
Energizer been a separate, independent company, and may not necessarily be
indicative of results that would have occurred had Energizer been a separate,
independent company during the periods presented or of future results of
Energizer.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SUMMARY OF ACCOUNTING POLICIES
Energizer's significant accounting policies, which conform to generally
accepted accounting principles and are applied on a consistent basis among all
years presented, except as indicated, are described below.
PRINCIPLES OF COMBINATION - These financial statements of Energizer include
certain wholly owned subsidiaries of Ralston and its subsidiaries. All
significant intercompany transactions are eliminated. A one-month lag is
utilized in reporting all international subsidiaries in Energizer's combined
financial statements.
FOREIGN CURRENCY TRANSLATION - Financial statements of foreign operations
where the local currency is the functional currency are translated using
end-of-period exchange rates for assets and liabilities and average exchange
rates during the period for results of operations. Related translation
adjustments are reported as a separate component of Net Investment in Energizer
(see Net Investment in Energizer note).
For foreign operations where the U.S. dollar is the functional currency and
for countries which are considered highly inflationary, translation practices
differ in that inventories, properties, accumulated depreciation and
depreciation expense are translated at historical rates of exchange, and related
translation adjustments are included in earnings.
ENVIRONMENTAL REMEDIATION LIABILITIES - Accruals for environmental
remediation are recorded when it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated, based on current
law and existing technologies. These accruals are adjusted periodically as
assessments take place and remediation efforts progress, or as additional
technical or legal information becomes available.
Accruals for environmental remediation are included in Other current
liabilities or Other liabilities, depending on their nature, in the Combined
Balance Sheet and are recorded at undiscounted amounts.
FINANCIAL INSTRUMENTS - Energizer uses financial derivatives in the
management of foreign currency and interest rate risks that are inherent to its
business operations. Such instruments are not held or issued for trading
purposes.
Foreign exchange (F/X) instruments, including currency forwards, purchased
options and zero-cost option collars, are used primarily to reduce transaction
exposures associated with anticipated intercompany purchases and intercompany
borrowings and, to a lesser extent, to manage other transaction and translation
exposures. F/X instruments used are selected based on their risk reduction
attributes and the related market conditions. The terms of such instruments are
generally twelve months or less.
Realized and unrealized gains and losses from F/X instruments that hedge firm
commitments are deferred as part of the cost basis of the asset or liability
being hedged and are recognized in the Combined Statement of Earnings in the
same period as the underlying transaction. Realized and unrealized gains or
losses from F/X instruments used as hedges of existing balance sheet exposures
or anticipated transactions that are not firmly committed are recognized
currently in Selling, general and administrative expenses in the Combined
Statement of Earnings. However, gains or losses from F/X instruments that
hedge existing balance sheet exposures are offset in the Combined Statement of
Earnings by gains or losses recorded on these hedged exposures. Premiums or
discounts on foreign exchange forward contracts are recognized, and premiums
paid for purchased options are amortized, over the life of the related F/X
instrument in Selling, general and administrative expenses in the Combined
Statement of Earnings. Unrealized gains and losses, if any, on zero-cost option
collars are deferred as part of the cost basis of the asset or liability being
hedged. F/X instruments are generally not disposed of prior to settlement date;
however, if an F/X instrument and the underlying hedged transaction were
disposed of prior to the settlement date, any deferred gain or loss would be
recognized immediately in the Combined Statement of Earnings.
CASH EQUIVALENTS - For purposes of the Combined Statement of Cash Flows,
cash equivalents are considered to be all highly liquid investments with a
maturity of three months or less when purchased.
INVENTORIES - Generally inventories are valued at the lower of cost or
market, with cost being determined using average cost or the first-in, first-out
(FIFO) method.
CAPITALIZED SOFTWARE COSTS - In March 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP) No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement requires that certain internal and external costs
associated with the purchase and/or development of internal use software be
capitalized rather than expensed. Energizer adopted this statement as of the
beginning of fiscal year 1998.
Capitalized software costs are included in Investments and Other Assets.
These costs are amortized using the straight-line method over periods of related
benefit ranging from 3 to 7 years.
PROPERTY AT COST - Expenditures for new facilities and expenditures that
substantially increase the useful life of property, including interest during
construction, are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. When property is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and
gains or losses on the disposition are reflected in earnings.
REVENUE RECOGNITION - Revenue is recognized upon shipment of product to
customers. Sales discounts, returns and allowances are included in Net sales,
and the provision for doubtful accounts is included in Selling, general and
administrative expenses in the Combined Statement of Earnings.
DEPRECIATION - Depreciation is generally provided on the straight-line
basis by charges to costs or expenses at rates based on the estimated useful
lives of the properties. Estimated useful lives range from 3 to 25 years for
machinery and equipment and 10 to 50 years for buildings. Depreciation expense
was $68.4, $74.1, and $79.5 in 1999, 1998 and 1997, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS - Amortization of goodwill,
representing the excess of cost over the net tangible assets of acquired
businesses, is recorded on a straight-line basis primarily over a period of 25
years, with some amounts being amortized over 40 years. The cost to purchase
or develop other intangible assets, which consist primarily of patents,
tradenames and trademarks, is amortized on a straight-line basis over estimated
periods of related benefit ranging from seven to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS - Energizer reviews long-lived assets,
including goodwill and other intangible assets, for impairment whenever events
or changes in business circumstances indicate that the remaining useful life may
warrant revision or that the carrying amount of the long-lived asset may not be
fully recoverable. Energizer performs undiscounted cash flow analyses to
determine if an impairment exists. If an impairment is determined to exist, any
related impairment loss is calculated based on fair value. Impairment losses on
assets to be disposed of, if any, are based on the estimated proceeds to be
received, less costs of disposal.
ADVERTISING AND PROMOTION COSTS - Energizer advertises and promotes its
products through national and regional media. Products are also advertised and
promoted through cooperative programs with retailers. Energizer expenses
advertising and promotion costs as incurred. Due to the seasonality of the
business, with typically higher sales and volume during the holidays in the
first quarter, advertising and promotion costs incurred during interim periods
are generally expensed ratably in relation to revenues.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
expensed as incurred.
INCOME TAXES - Energizer is included in the consolidated federal income tax
return filed by Ralston. U.S. income tax payments, refunds, credits, provision
and deferred tax components have been allocated to Energizer in accordance with
Ralston's tax allocation policy. Such policy allocates tax components included
in the consolidated income tax return of Ralston to Energizer to the extent such
components were generated by or related to Energizer.
Energizer follows the liability method of accounting for income taxes.
Deferred income taxes are recognized for the effect of temporary differences
between financial and tax reporting. No additional U.S. taxes have been
provided on earnings of foreign subsidiaries expected to be reinvested
indefinitely. Additional income taxes are provided, however, on planned
repatriation of foreign earnings after taking into account tax-exempt earnings
and applicable foreign tax credits.
EARNINGS PER SHARE - The combined financial statements of Energizer include
wholly owned subsidiaries of Ralston and its subsidiaries. As such, earnings
per share data does not provide meaningful information about the results of
operations of Energizer.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - The Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133 "Accounting for Derivative Instruments and Hedging Activities" in June
1998. This statement provides standards on accounting and disclosure for
derivative instruments, and requires that all derivatives be measured at fair
value and reported as either assets or liabilities in the balance sheet.
Subsequent to the issuance of SFAS No. 133, the FASB issued SFAS No. 137 which
defers the effective date of SFAS No. 133 by one year. Accordingly, Energizer
will be required to adopt the provisions of SFAS No. 133 no later than the
beginning of fiscal year 2001. Energizer has not completed its evaluation to
determine the impact of this statement on its financial statements.
RELATED PARTY ACTIVITY
CASH MANAGEMENT - In the U.S., Ralston uses a centralized cash management
system. Cash deposits from Energizer are transferred to Ralston on a daily
basis, and Ralston funds Energizer's disbursement bank accounts as required.
Unpaid balances of checks are included in accounts payable. No interest has
been charged or credited on transactions with Ralston.
SHARED SERVICES - Ralston provides certain general and administrative
services to Energizer including finance, legal, systems, benefits, advertising
and facilities. The costs of these shared services are included in Energizer's
Combined Statement of Earnings generally based on utilization, which management
believes to be reasonable. Costs of these shared services charged to Energizer
were $20.0, $20.9, and $18.0 for 1999, 1998 and 1997, respectively.
DISCONTINUED OPERATIONS
In March, 1999, the Board of Directors of Ralston Purina Company announced
its intention to exit Energizer's worldwide rechargeable Original Equipment
Manufacturers' (OEM) battery business to allow Energizer to focus on its primary
battery business. On November 1, 1999, the OEM business was sold to Moltech
Corporation for approximately $20.0. This segment is accounted for as a
discontinued operation in Energizer's combined financial statements.
Included in the Net Loss on Disposition of Discontinued Operations are
estimated operating losses during the divestment period of $15.0, pre-tax, or
$9.6, after-tax, and a loss on disposition of $95.6, pre-tax or $64.6,
after-tax. Actual pre-tax operating losses during the divestment period
through September 30, 1999, totaled $12.5.
The net loss for 1998 includes an after-tax provision of $42.7, primarily
representing an impairment write-down of lithium ion rechargeable battery assets
of the OEM business. Fair value of those assets was primarily determined based
upon estimates of recovery value for unique manufacturing equipment. Due to
rapid changes in the business environment since the beginning of the lithium ion
project in 1996, it became more economical to source lithium ion cells from
other manufacturers.
The Investment in Discontinued Operations at September 30, 1999 and 1998 is
primarily comprised of fixed assets, inventory and accounts receivable and
payable. Results for discontinued
operations are presented in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------- -------- ------
Net sales. . . . . . . . . . . . . . . . . . . . $ 64.2 $ 149.4 $172.1
======= ======== ======
Earnings/(loss) before income taxes. . . . . . . ($9.0) ($70.6) $ .3
Income taxes benefit/(provision) . . . . . . . . 3.4 27.1 .2
------- -------- ------
Net earnings/(loss) from discontinued operations ($5.6) ($43.5) $ 0.5
======= ======== ======
</TABLE>
RESTRUCTURING ACTIVITIES
Competition in the primary battery business has intensified over the past
several years, and there continues to be a migration of demand from carbon zinc
to alkaline batteries. In response to these changes, Energizer has recorded
restructuring charges each year since 1994. These charges include a reduction
in carbon zinc plant capacity as demand for this type of battery continues to
decline, plant closures for the movement and consolidation of alkaline
production to new or more efficient locations in an effort to achieve lower
product costs, and staffing reorganizations and reductions in various world
areas to enhance management effectiveness and reduce overhead costs. A detailed
discussion of these and other charges taken since 1994 follows.
During 1999, Energizer recorded net provisions for restructuring of $8.3,
after-tax, or $9.9, pre-tax, $2.1 of which represented inventory write-downs and
is classified as Cost of Products Sold in the combined statement of earnings.
Of the net pre-tax charge, $7.4 relates to current year restructuring plans for
the elimination of certain production capacity in North America and in Asia.
The pre-tax charge of $7.4 for current year plans consisted of termination
benefits of $3.2, other cash costs of $0.2 and fixed asset impairments of $4.0.
The fixed asset impairments primarily relate to assets used for the production
of lithium coin cells in North America. These assets were idled and scrapped in
1999.
The 1999 restructuring plan provided for the termination of approximately 170
production and administrative employees and the closure of one plant in Asia.
This plant closure was precipitated by the financial problems in the Asian
market, which resulted in contractions in battery markets in this area. As of
September 30, 1999, approximately 160 employees had been terminated and the
plant was closed in connection with these charges. Substantially all actions
associated with these charges will be completed by the end of the first quarter
of fiscal 2000.
The remaining $2.5 represents additional net provisions related to prior
years' restructuring plans. Additional termination benefits of $5.5 related to
the 1997 restructuring plan primarily represent enhanced severance related to a
European plant closing. Additional provisions for other cash costs of $1.8 were
recorded for fixed asset disposition costs for previously held for use assets
related to the 1997 restructuring plan that were idled and held for disposal.
Other non-cash charges of $2.1 relate to inventory write-offs which were more
than offset by a reclassification of $4.5 from other comprehensive income to net
income of cumulative translation adjustment for a subsidiary sold in connection
with the 1997 plan. Also recorded in 1999 were asset proceeds greater than
anticipated of $5.4 related to 1994, 1995 and 1997 restructuring plans.
During 1998, Energizer recorded net after-tax provisions for restructuring
of $12.8, or $21.3 on a pre-tax basis, of which $.3 represents inventory
write-downs and is classified as Cost of Products Sold in the combined statement
of earnings. Of the net pre-tax charge, $36.5 related to 1998 restructuring
plans, including a voluntary early retirement option offered to most U.S.
Energizer employees meeting certain age and service requirements and European
business operations restructuring, primarily a reorganization of European sales
forces and related employee reductions.
The total 1998 pre-tax charge of $36.5 consisted of termination benefits of
$29.3, which provided for the termination or early retirement of approximately
420 sales and administrative employees, other cash costs of $4.6, fixed asset
impairments of $1.1 and a non-cash investment write-off of $1.5. The other cash
costs of $4.6 consisted of demolition costs of $1.5 and environmental exit costs
of $0.8, both relating to assets held for disposal, lease termination costs of
$1.6, and other exit costs of $.7. As of September 30, 1999, approximately 340
employees had been terminated in connection with these charges. Except for
disposition of certain assets held for disposal, substantially all actions
associated with the 1998 charges will be completed by the end of fiscal 2000.
In addition, net reversals of $15.2 related to prior years' restructuring
plans were recorded in 1998, comprised of $3.7 of additional charges offset by
$18.9 of reversals of prior years' charges. The additional charges primarily
related to asset disposition costs of $2.6 for previously held for use assets
that were idled and held for disposal. The reversals included $9.4 of greater
than anticipated proceeds from asset sales related to the 1994, 1995 and 1996
restructuring plans. In addition, $8.5 of termination benefits recorded in 1997
were reversed in 1998 due primarily to the modification of a European plant
closing plan, driven by the changing business environment in Europe. The
modifications resulted in the termination of approximately 200 fewer employees
than originally anticipated.
During 1997, Energizer recorded net provisions for restructuring of $72.0,
after-tax, or $83.7, pre-tax, of which $5.2 represented inventory write-downs
and is classified as Cost of Products Sold in the combined statement of
earnings. Of the total pre-tax charge, $81.8 related to 1997 plans for the
restructuring of Energizer's carbon zinc and alkaline production capacity,
primarily in Europe and North America, and for staffing reorganization and
reductions.
The total 1997 pre-tax charge of $81.8 consisted of termination benefits of
$43.8, other cash costs of $2.4, fixed asset impairments of $29.6 and non-cash
charges of $6.0. The other cash costs of $2.4 consisted of legal,
environmental and other exit costs. The non-cash charges of $6.0 consisted of
inventory write-offs of $3.0 and an investment write-off of $3.0.
Fixed asset impairments of $29.6 were computed using discounted cash flows
to determine the fair value of the impaired plants and production assets. The
net book value of these assets prior to the impairment write-down was $40.0.
These assets relate to three production plants located in the United States,
Canada and France, which were idled in March 1998, November 1997 and April 1999,
respectively. Depreciation continued on these assets subsequent to the
impairment write-down until those assets were idled.
The 1997 charges provided for the termination of approximately 1,180
employees in production, sales and administrative capacities. As previously
mentioned, the plan was modified in 1998 to terminate approximately 200 fewer
employees. As of September 30, 1999, approximately 890 employees had been
terminated in connection with these charges. Except for disposition of certain
assets held for disposal, substantially all actions associated with the 1997
charges will be completed by the end of the first quarter of fiscal 2000, with
payments extending through the end of fiscal 2000.
The remaining $1.9 of the net 1997 provision represents additional
provisions for prior years' restructuring plans of $2.5 and $2.9 for additional
cash and non-cash charges, respectively, net of reversals of cash and non-cash
provisions taken in prior years of $.7 and $2.8, respectively. The non-cash
reversal was primarily due to fixed asset proceeds greater than originally
anticipated.
As of September 30, 1999, except for the disposition of certain assets held
for disposal, substantially all activities associated with 1994, 1995 and 1996
restructuring plans are complete. The remaining accrual related to these plans
was $1.6 at September 30, 1999 and primarily represents costs under a
noncancellable lease and asset disposition costs.
The carrying value of assets held for disposal at September 30, 1999 was
$6.7.
The following table presents, by major cost component and by year of
provision, activity related to the restructuring charges discussed above during
fiscal years 1999, 1998 and 1997, including any adjustments to the original
charges.
<TABLE>
<CAPTION>
1997 ROLLFORWARD 1998 ROLLFORWARD 1999 ROLLFORWARD
---------------- ---------------- ----------------
PRO- PRO- PRO-
BEGIN- VISION/ BEGIN VISION/ BEGIN VISION/
NING REVERS- ACTI- NING REVERS- ACTI- NING REVERS- ACTI-
BALANCE ALS VITY BALANCE BALANCE ALS VITY BALANCE BALANCE ALS VITY BALANCE
1994 PLAN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Termination benefits. . 2.2 1.2 (3.2) 0.2 0.2 - (0.2) 0.0 0.0 - - 0.0
Other cash costs. . . . 2.5 - (1.3) 1.2 1.2 - (1.2) - - - - -
Fixed asset impairments - (1.2) 1.2 - - (5.8) 5.8 - - (2.0) 2.0 -
Other noncash charges . - - - - - - - - - - - -
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
Total . . . . . . . . . 4.7 - (3.3) 1.4 1.4 (5.8) 4.4 0.0 0.0 (2.0) 2.0 0.0
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
1995 PLAN
Termination benefits. . 8.6 (0.7) (5.8) 2.1 2.1 0.3 (1.5) 0.9 0.9 0.1 (1.0) -
Other cash costs. . . . 2.3 1.1 (1.5) 1.9 1.9 0.5 (1.2) 1.2 1.2 - (0.4) 0.8
Fixed asset impairments - (1.6) 1.6 - - (2.2) 2.2 - - (1.5) 1.5 -
Other noncash charges . - 2.2 (2.2) - - (0.4) 0.4 - - - - -
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
Total . . . . . . . . . 10.9 1.0 (7.9) 4.0 4.0 (1.8) (0.1) 2.1 2.1 (1.4) 0.1 0.8
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
1996 PLAN
Termination benefits. . 3.9 - (2.8) 1.1 1.1 (0.6) (0.5) - - - - -
Other cash costs. . . . 1.8 0.2 (0.3) 1.7 1.7 - (0.7) 1.0 1.0 - (0.2) 0.8
Fixed asset impairments - 0.7 (0.7) - - (1.4) 1.4 - - - - -
Other noncash charges . - - - - - - - - - - - -
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
Total . . . . . . . . . 5.7 0.9 (3.8) 2.8 2.8 (2.0) 0.2 1.0 1.0 - (0.2) 0.8
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
1997 PLAN
Termination benefits. . - 43.8 (1.2) 42.6 42.6 (8.5) (15.4) 18.7 18.7 5.5 (20.1) 4.1
Other cash costs. . . . - 2.4 (0.2) 2.2 2.2 2.3 (2.3) 2.2 2.2 1.8 (2.7) 1.3
Fixed asset impairments - 29.6 (29.6) - - - - - - (1.9) 1.9 -
Other noncash charges . - 6.0 (6.0) - - 0.6 (0.6) - - (2.4) 2.4 -
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
Total . . . . . . . . . - 81.8 (37.0) 44.8 44.8 (5.6) (18.3) 20.9 20.9 3.0 (18.5) 5.4
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
1998 PLAN
Termination benefits. . - - - - - 29.3 (15.0) 14.3 14.3 0.8 (13.5) 1.6
Other cash costs. . . . - - - - - 4.6 (1.9) 2.7 2.7 0.5 (1.2) 2.0
Fixed asset impairments - - - - - 1.1 (1.1) - - - - -
Other noncash charges . - - - - - 1.5 (1.5) - - 1.6 (1.6) -
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
Total . . . . . . . . . - - - - - 36.5 (19.5) 17.0 17.0 2.9 (16.3) 3.6
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
1999 PLAN
Termination benefits. . - - - - - - - - - 3.2 (2.5) 0.7
Other cash costs. . . . - - - - - - - - - 0.2 (0.2) -
Fixed asset impairments - - - - - - - - - 4.0 (4.0) -
Other noncash charges . - - - - - - - - - - - -
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
Total . . . . . . . . . - - - - - - - - - 7.4 (6.7) 0.7
----- ------ ------- ----- ----- ------ ------- ----- ----- ------ ------- -----
GRAND TOTAL . $21.3 $83.7 $(52.0) $53.0 $53.0 $21.3 $(33.3) $41.0 $41.0 $ 9.9 $(39.6) $11.3
===== ====== ======= ===== ===== ====== ======= ===== ===== ====== ======= =====
</TABLE>
INCOME TAXES
U.S. income tax payments, refunds, credits, provision and deferred tax
components have been allocated to Energizer in accordance with Ralston's tax
allocation policy. Such policy allocates tax components included in the
consolidated income tax return of Ralston to Energizer to the extent such
components were generated by or related to Energizer.
Had the Energizer tax provision been calculated as if Energizer was a
separate, independent U.S. taxpayer, the income tax provision would have been
higher by approximately $11.2 in 1999. The higher provision is due primarily to
the $16.6 of capital loss benefits that would not be realized on a stand-alone
basis.
The provisions for income taxes consisted of the following for the years
ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------
CONTINUING CONTINUING CONTINUING
OPERATIONS COMBINED OPERATIONS COMBINED OPERATIONS COMBINED
---------- -------- ---------- -------- --------- --------
Currently payable:
<S> <C> <C> <C> <C> <C> <C>
United States . . . . . . . $(17.5) $(27.0) $ 47.5 $ 41.2 $ 48.6 $ 44.8
State .. . . . . . . . . 7.9 8.6 6.5 6.2 6.5 5.9
Foreign . . . . . . . . . . 27.6 27.8 36.9 37.0 32.5 32.6
------ ------- ------- ------- ------- ------
Total Current. . . . . 18.0 9.4 90.9 84.4 87.6 83.3
------ ------- ------- ------- ------- ------
Deferred:
United States . . . . . . . 68.6 39.1 (39.0) (57.1) (50.4) (46.8)
State .. . . . . . . . . (0.5) (2.2) (0.3) (2.8) (2.0) (1.5)
Foreign . . . . . . . . . . 2.3 2.3 2.7 2.7 9.4 9.4
------- ------ ------- ------- ------- -------
Total Deferred . . . . 70.4 39.2 (36.6) (57.2) (43.0) (38.9)
------- ------ ------- ------- ------- -------
Provision for Income $ 88.4 $ 48.6 $ 54.3 $ 27.2 $ 44.6 $ 44.4
Taxes . . . . . . . . . . . ======= ======= ======= ======= ======= =======
</TABLE>
The source of pretax earnings was:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------
CONTINUING CONTINUING CONTINUING
OPERATIONS COMBINED OPERATIONS COMBINED OPERATIONS COMBINED
---------- -------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States. $197.2 $ 75.4 $172.1 $102.4 $153.9 $153.1
Foreign 51.0 53.3 90.4 89.5 50.0 51.1
------ ------ ------ ------ ------ ------
Pre-tax earnings $248.2 $128.7 $262.5 $191.9 $203.9 $204.2
====== ====== ====== ====== ====== ======
</TABLE>
A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate . . . . $ 86.9 35.0% $ 91.9 35.0% $ 71.4 35.0%
State income taxes, net of federal tax benefit 4.8 1.9 4.0 1.5 2.9 1.4
Foreign tax in excess of domestic rate.. . . . 8.4 3.4 4.8 1.8 20.2(a) 9.9
Taxes on repatriation of foreign earnings. . . 7.8 3.1 7.5 2.9 10.4 5.1
U.S. foreign tax credit refunds. . . . . . . . - - - - (20.5) (10.0)
Recognition of U.S. capital losses . . . . . . (16.6) (6.6) (48.4) (18.4) (35.9) (17.6)
Other, net. . . . . . . . . . . . . . . . . . (2.9) (1.2) (5.5) (2.1) (3.9) (1.9)
------- ----- ------- ------ --------- ------
$ 88.4 35.6% $ 54.3 20.7% $ 44.6 21.9%
======= ===== ======= ====== ========= ======
</TABLE>
(a) The increased level of foreign tax in excess of the domestic rate is due
to restructuring reserves for which no tax benefits were provided.
Energizer recognized capital loss tax benefits of $16.6, $48.4 and $35.9 in
1999, 1998 and 1997, respectively, primarily related to past restructuring
actions. In 1997, Ralston changed its method of computing foreign tax credits.
Tax benefits of $20.5 have been allocated to Energizer related to foreign tax
credit refund claims for 1993 through 1996.
The effective tax rate for discontinued operations is higher than the
federal statutory rate in 1999 and 1998 due to a higher state income tax rate.
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of September 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Deferred Tax Liabilities:
<S> <C> <C>
Depreciation and property differences $(64.7) $(72.6)
------- -------
Gross deferred tax liabilities . (64.7) (72.6)
======= =======
Deferred Tax Assets:
Accrued liabilities . . . . . . . . . 64.3 64.0
Tax loss carryforwards. . . . . . . . 46.4 40.7
Capital losses. . . . . . . . . . . . - 71.8
Intangible assets . . . . . . . . . . 37.6 37.4
Inventory differences . . 3.5 5.7
Other tax assets, non-current . . . . 12.1 21.6
------- -------
Gross deferred tax assets. . . . 163.9 241.2
------- -------
Valuation allowance . . . . . . . . . (66.8) (65.7)
------- -------
Net deferred tax assets. . . . . . . . . . $ 32.4 $102.9
======= =======
</TABLE>
Total deferred tax assets/liabilities shown above include current and
non-current amounts.
Tax loss carryforwards of $2.0 expired in 1999. Future expiration of tax
loss carryforwards and tax credits, if not utilized, are as follows: 2000,
$3.0; 2001, $3.0; 2002, $4.4; 2003, $3.0; 2004, $2.9; thereafter or no
expiration, $30.1. The valuation allowance is primarily attributed to deferred
tax assets related to certain accrued liabilities, tax loss carryforwards and
tax credits outside the United States.
At September 30, 1999, approximately $72.1 of foreign subsidiary net
earnings were considered permanently invested in those businesses. Accordingly,
U.S. income taxes have not been provided for such earnings. It is not
practicable to determine the amount of unrecognized deferred tax liabilities
associated with such earnings.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Energizer participates in Ralston's noncontributory defined benefit pension
plans (Plans) covering substantially all regular employees in the United States
and certain employees in other countries. The Plans provide retirement benefits
based on years of service and earnings. In fiscal 1999, Ralston amended the
qualified U.S. Pension Plan to allow employees to make an irrevocable election
effective January 1, 1999 between two pension benefit formulas. Prior to this
time, one benefit formula was used. Also effective January 1, 1999, assets of
the Plan provide employee benefits in addition to normal retirement benefits.
The additional benefit is equal to a 300 percent match on participants'
after-tax contributions of 1 or 1.75 percent to the Savings Investment Plan.
The cost of the Plans is allocated to Energizer based on Energizer's percentage
of the total liability of the Plans, as shown in the table below.
Certain other foreign pension arrangements, which include various
retirement and termination benefit plans, some of which are required by local
law or coordinated with government-sponsored plans, are not material in the
aggregate.
Substantially all regular Energizer employees in the United States were
eligible to participate in the Ralston-sponsored defined contribution plans. In
fiscal 1999, Ralston amended the contribution structure of the plans. Prior to
January 1, 1999 Ralston generally matched 100% of participants' before-tax
contributions up to 6 percent of compensation for employees hired prior to July
1, 1993. For employees hired on or after July 1, 1993, Ralston matched
before-tax participant contributions in increasing 20 percent increments for
each year of service. On January 1, 1999 and thereafter, Ralston matches 25
percent of participants' before-tax contributions up to 4 percent of
compensation. In addition, participants can make after-tax contributions of 1
percent or 1.75 percent of compensation into the savings plan. This participant
after-tax contribution is matched within the pension plan at 300 percent.
Amounts charged to expense are shown in the table below.
Ralston currently provides health care and life insurance benefits for
certain groups of retired Energizer employees who meet specified age and years
of service requirements. The cost of these benefits is allocated to Energizer
based on Energizer's percentage of the total liability related to these
benefits. Ralston also sponsors plans whereby certain management employees may
defer compensation for cash benefits after retirement. The cost of these
postretirement benefits is shown in the table below.
The costs of defined benefit and contribution plans and other
postretirement benefits allocated to Energizer are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
----- ----- -----
Defined benefit plans . . . . . . $ 5.2 $ .3 $ 6.7
Defined contribution plan . . . . 3.0 8.2 7.5
Postretirement benefits . 5.8 4.3 5.0
</TABLE>
NOTES PAYABLE
Notes payable at September 30, 1999 and 1998 consisted of notes payable to
financial institutions of $118.5 and $114.4, respectively, and had a weighted
average interest rate of 7.3% and 10.5%, respectively.
At September 30, 1999, total unused lines of credit were zero.
LONG-TERM DEBT
The detail of long-term debt at September 30 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ -------
Singapore subsidiary, interest rate of 5.9% at 8-31-98,
due 1999 . . . . . . . . . . . . . . . . . . . . . . . $ - $ 12.9
Other, interest rates ranging from 7.6% to 18.9% at
9-30-99 and from 11.5% to 18.3% at 9-30-98, due 1999
to 2002. . . . . . . . . . . . . . . . . . . . . . . . 2.2 1.6
------ -------
2.2 14.5
Less current portion. . . . . . . . . . . . . . . . . . (.3) (13.2)
------ -------
$ 1.9 $ 1.3
====== =======
</TABLE>
Aggregate maturities of long-term debt outstanding at September 30, 1999
are $1.6 and $0.3 for the years ending September 30, 2001 and 2002,
respectively.
NET INVESTMENT IN ENERGIZER
The following analyzes Ralston's Net Investment in Energizer for the years
ended September 30:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Balance at beginning of year . . . $1,531.3 $1,548.2 $1,534.5
Net earnings .. . . . . . . . 80.0 164.7 159.8
Change in cumulative translation adjustment 3.3 (30.4) (17.5)
Net transactions with Ralston . . . . . . . (301.7) (151.2) (128.6)
--------- --------- ---------
Balance at end of year. . . . . . . . . . . $1,312.9 $1,531.3 $1,548.2
========= ========= =========
</TABLE>
Included in Net Investment in Energizer are cumulative translation adjustments
for non-hyperinflationary countries of $83.3, $86.6, and $56.2 at September 30,
1999, 1998 and 1997, respectively, representing net devaluation of currencies
relative to the U.S. dollar over the period of investment.
Also included in Net Investment in Energizer are accounts payable and
receivable between Energizer and Ralston.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FOREIGN CURRENCY CONTRACTS - Energizer enters into foreign exchange forward
contracts and, to a lesser extent, purchases options and enters into zero-cost
option collars, to mitigate potential losses in earnings or cash flows on
foreign currency transactions. Foreign currency exposures are primarily related
to anticipated intercompany purchase transactions and intercompany borrowings.
Other foreign currency transactions to which Energizer is exposed include
external purchase transactions and intercompany receivables, dividends and
service fees.
The table below summarizes, by instrument and by major currency, the
contractual amounts of Energizer's forward exchange contracts and purchased
currency options in U.S. dollar equivalents at year end. These contractual
amounts represent transaction volume outstanding, and do not represent the
amount of Energizer's exposure to credit or market loss. Foreign currency
contracts are generally for one year or less.
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
INSTRUMENT
Forwards. . . . . . . . $133.4 $245.7
Options .. . 17.7 6.6
CURRENCY
Swiss franc . . . . . . 124.2 143.9
French franc . - 73.8
Canadian dollar . . . . 17.7 19.5
British pound . . . . . - 6.6
Other currencies. . . . 9.2 8.5
</TABLE>
CONCENTRATION OF CREDIT RISK - The counterparties to foreign currency
contracts consist of a number of major international financial institutions and
are generally institutions with which Energizer or Ralston maintains lines of
credit. Energizer does not enter into foreign exchange contracts through
brokers nor does it trade foreign exchange contracts on any other exchange or
over the counter markets. Risk of currency positions and mark-to-market
valuation of positions are strictly monitored at all times.
Ralston and Energizer continually monitor positions with and credit ratings
of counterparties both internally and by using outside rating agencies.
Energizer has implemented policies which limit the amount of agreements it
enters into with any one party. While nonperformance by these counterparties
exposes Energizer to potential credit losses, such losses are not anticipated
due to the control features mentioned.
Energizer sells to a large number of customers primarily in the retail trade,
including those in the mass merchandiser, drug store, supermarket and other
channels of distribution throughout the world. Energizer performs ongoing
evaluations of its customers' financial condition and creditworthiness, but does
not generally require collateral. While the competitiveness of the retail
industry presents an inherent uncertainty, Energizer does not believe a
significant risk of loss from a concentration of credit risk exists with respect
to accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Energizer's financial instruments
include cash and cash equivalents, short-term and long-term debt, foreign
currency contracts and interest rate swap agreements. Due to the nature
of cash and cash equivalents and short-term borrowings, including notes
payable, carrying amounts on the balance sheet approximate fair value.
Energizer's long-term debt represents borrowings in foreign countries under
various credit facilities that provide for periodic interest rate resets, at
least annually. Therefore, the fair market value of Energizer's long-term debt
is deemed to approximate its book value at September 30, 1999 and 1998.
The fair value of foreign currency contracts is the amount that Energizer
would receive or pay to terminate the contracts, considering first, quoted
market prices of comparable agreements, or in the absence of quoted market
prices, such factors as interest rates, currency exchange rates and remaining
maturities. Based on these considerations, Energizer would be required to make
a total net payment of $2.7 and $13.3 to counterparties for outstanding foreign
currency contracts at September 30, 1999 and 1998, respectively. However, these
payments are unlikely due to the fact that Energizer enters into foreign
currency contracts to hedge identifiable foreign currency exposures, and as such
would generally not terminate such contracts.
ENVIRONMENTAL AND LEGAL MATTERS
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS - The operations of
Energizer, like those of other companies engaged in the battery business, are
subject to various federal, state, foreign and local laws and regulations
intended to protect the public health and the environment. These regulations
primarily relate to worker safety, air and water quality, underground fuel
storage tanks and waste handling and disposal.
Energizer has received notices from the U.S. Environmental Protection
Agency, state agencies, and/or private parties seeking contribution, that it has
been identified as a "potentially responsible party" (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act, and may be
required to share in the cost of cleanup with respect to 9 federal "Superfund"
sites. It may also be required to share in the cost of cleanup with respect to
a state-designated site. Liability under the applicable federal and state
statutes which mandate cleanup is joint and several, meaning that a liable party
may be responsible for all of the costs incurred in investigating and cleaning
up contamination at a site. However, liability in such matters is typically
shared by all of the financially viable responsible parties.
Energizer's ultimate liability in connection with those sites may depend on
many factors, including the volume of material contributed to the site, the
number of other PRP's and their financial viability, and the remediation methods
and technology to be used.
In addition, Energizer has undertaken certain programs to reduce or
eliminate the environmental contamination at the rechargeable battery facility
in Gainesville, Florida, which has recently been divested. In the event that
the buyer would become unable to continue such programs, Energizer could be
required to bear financial responsibility for such programs as well as for other
known and unknown environmental conditions at the site.
Many European countries, as well as the European Union, have been very
active in adopting and enforcing environmental regulations. In many developing
countries in which the Energizer business operates, there has not been
significant governmental regulation relating to the environment, occupational
safety, employment practices or other business matters routinely regulated in
the United States. As such economies develop, it is possible that new
regulations may increase the risk and expense of doing business in such
countries.
It is difficult to quantify with certainty the potential financial impact
of actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available,
Energizer believes that its ultimate liability arising from such environmental
matters, taking into account established accruals of $5.8 for estimated
liabilities, should not be material to its financial position. Such liability
could, however, be material to results of operations or cash flows for a
particular quarter or annual period.
LEGAL PROCEEDINGS - On April 8, 1998, Zinc Products Company, a division of
Alltrista Corp., a supplier of zinc cans used in the manufacture of batteries,
filed suit in federal district court for the Eastern District of Tennessee
against Energizer, claiming breach of contract when Energizer closed its
Fremont, Ohio plant. The plaintiff claims lost profits and other damages of
approximately $2.8 million. The case is in discovery and no trial date has been
set.
The U.S. Patent Office continues to review the interference claims between
Strategic Electronics (Energizer's licensor) and Duracell relating to use of the
on-battery tester. A decision is not expected for several years. An earlier
decision, which denied Energizer's separate patent claims and those of Eastman
Kodak Company (which are licensed to Duracell) has been appealed to the federal
district court for Washington, D.C. on February 2, 1998. Kodak filed a similar
appeal, naming Energizer as a defendant on January 29, 1998. In a related
matter, Strategic Electronics filed a declaratory judgment suit on September 9,
1999 in the federal district court for the Central District of California
seeking additional payments of approximately $1 million under the license.
Energizer has filed a motion to dismiss and expects a ruling in the near future.
Energizer or Ralston's other subsidiaries engaged in the Energizer business
are parties to a number of other legal proceedings in various jurisdictions
arising out of the operations of the Energizer business.
Many of the foregoing legal matters are in preliminary stages, and involve
complex issues of law and fact and may proceed for protracted periods of time.
The amount of alleged liability, if any, from these proceedings cannot be
determined with certainty. However, based upon present information, Energizer
believes that its ultimate liability, if any, arising from pending legal
proceedings, asserted legal claims, and known potential legal claims which are
likely to be asserted, should not be material to Energizer's financial position,
taking into account established accruals for estimated liabilities. These
liabilities, however, could be material to results of operations or cash flows
for a particular quarter or annual period.
OTHER COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - Future minimum rental commitments under noncancellable
operating leases in effect as of September 30, 1999, were: 2000 - $3.7, 2001 -
$3.5, 2002 - $2.8, 2003 - $2.3, 2004 - $1.9 and thereafter - $9.0.
Total rental expense for all operating leases was $21.5, $19.7, and $21.2
in 1999, 1998 and 1997, respectively.
SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1999 1998
---- ----
INVENTORIES -
<S> <C> <C>
Raw materials and supplies . . . . . . . . $ 74.0 $ 66.2
Work in process. . . . . . . . . . . . . . . . . 80.5 79.8
Finished products. . . . . . . . . . . . . . . . . 228.5 258.4
------- ------
$ 383.0 $404.4
====== ======
OTHER CURRENT ASSETS -
Miscellaneous receivables. . . . . . . . . . . . $ 52.7 $ 39.7
Deferred income tax benefits . . . . . . . . . . . 34.6 31.3
Prepaid expenses . . . . . . . . . . . . . . . . . 32.4 29.7
Other . . . . . . . . . . . . . . . . . . . 1.6 2.6
------- ------
$ 121.3 $103.3
====== ======
INVESTMENTS AND OTHER ASSETS -
Goodwill (net of accumulated amortization:
1999 - $120.2, 1998 - $106.1) $ 205.0 $ 235.2
Other intangible assets (net of accumulated
amortization: 1999 - $343.3, 1998 - $331.0). . . 94.4 105.5
Deferred income tax benefits . . . . . . . . . . . -- 72.5
Deferred charges and other assets. . . . . . . . . 20.3 33.7
------- ------
$ 319.7 $ 446.9
====== ======
OTHER CURRENT LIABILITIES -
Accrued advertising, promotion and allowances. . $ 110.0 $ 91.4
Restructuring reserves . . . . . . . . . . . . . 11.3 41.0
Salaries, vacations and incentive compensation .. 48.9 47.6
Other. . . . . . . . . . . . . . . . . 78.3 62.1
------- ------
$ 248.5 $ 242.1
====== ======
</TABLE>
SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------ ------ ------
Interest paid . $11.7 $14.9 $15.7
Income taxes paid. . . . . . . . . 44.0 81.2 78.7
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1999 1998 1997
------ ------ ------
Balance at beginning of year . . . $19.6 $19.6 $22.2
Provision charged to expense . . . 6.7 3.4 1.7
Write-offs, less recoveries. . . . (7.0) (3.4) (4.3)
------ ------ ------
Balance at end of year . . . . . . $19.3 $19.6 $19.6
====== ====== ======
</TABLE>
SEGMENT INFORMATION
Energizer manufactures and markets dry cell batteries including alkaline, carbon
zinc, miniature and specialty batteries, and flashlights and other lighting
products throughout the world. Operations are managed via four major geographic
areas - North America, which includes the U.S. and Canada, Asia Pacific, Europe,
and South and Central America. This structure is the basis for the Company's
reportable operating segment information disclosed below. Segment performance
is evaluated based on operating profit, exclusive of general corporate expenses,
restructuring charges and amortization of goodwill and intangibles. Financial
items, such as interest income and expense, are managed on a global basis at the
corporate level.
Intersegment sales are generally valued at market-based prices and represent the
difference between total sales and external sales as presented in the table
below. Segment profitability includes profit on these intersegment sales. One
single mass merchandiser accounted for 13.5% of total net sales in fiscal year
1999, primarily in North America.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TOTAL EXTERNAL TOTAL EXTERNAL TOTAL EXTERNAL
NET SALES. . . . . . . . . . . SALES SALES SALES SALES SALES SALES
-------- --------- -------- --------- -------- ---------
North America . . . . . . $1,135.9 $ 1,035.9 $1,104.3 $ 1,005.4 $1,060.5 $ 974.0
Asia Pacific. . . . . . . 430.0 384.8 448.6 396.9 525.2 475.1
Europe. . . . . . . . . . 320.3 317.0 369.5 365.7 409.5 404.7
South and Central America 151.2 134.6 179.9 153.8 158.5 152.0
--------- --------- ---------
Total Net Sales $1,872.3 $ 1,921.8 $2,005.8
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
OPERATING PROFIT BEFORE RESTRUCTURING CHARGES
AND AMORTIZATION
<S> <C> <C> <C>
North America. . . . . . . . . . . . . . . . . . . . . $ 291.4 $ 279.8 $ 261.1
Asia Pacific . . . . . . . . . . . . . . . . . . . . . 89.2 100.3 121.5
Europe . . . . . . . . . . . . . . . . . . . . . . . . (1.2) 11.3 15.2
South and Central America. . . . . . . . . . . . . . . 14.5 16.9 11.5
--------- --------- ---------
TOTAL SEGMENT PROFITABILITY . . . . . . . . . . . 393.9 408.3 409.3
General Corporate Expenses . . . . . . . . . . . . . . (54.0) (46.2) (34.9)
Research and Development Expense . . . . . . . . . . . (48.5) (46.6) (41.9)
--------- --------- ---------
Operating Profit before Restructuring Charges and
Amortization. . . . . . . . . . . . . . . . . 291.4 315.5 332.5
Restructuring Charges. . . . . . . . . . . . . . . . . (9.9) (21.3) (83.7)
Amortization . . . . . . . . . . . . . . . . . . . . . (25.0) (25.9) (32.8)
Interest and Other Financial Items . . . . . . . . . . (8.3) (5.8) (12.1)
--------- --------- ---------
Total Earnings from Continuing Operations Before
Income Taxes . . . . . . . . . . . . . . . . $ 248.2 $ 262.5 $ 203.9
========= ========= =========
<PAGE>
1999 1998 1997
--------- --------- ---------
DEPRECIATION
North America. . . . . . . . . . . . . . . . . . . . . $ 45.0 $ 50.1 $ 51.2
Asia Pacific . . . . . . . . . . . . . . . . . . . . . 11.1 10.0 13.2
Europe . . . . . . . . . . . . . . . . . . . . . . . . 10.3 12.4 13.0
South and Central America. . . . . . . . . . . . . . . 2.0 1.6 2.1
--------- --------- ---------
Total Depreciation Expense. . . . . . . . . . . . $ 68.4 $ 74.1 $ 79.5
========= ========= =========
1999 1998 1997
--------- --------- ---------
ASSETS AT YEAR END
North America. . . . . . . . . . . . . . . . . . . . . $ 815.5 $ 888.0 $ 830.4
Asia Pacific . . . . . . . . . . . . . . . . . . . . . 271.4 265.0 317.4
Europe . . . . . . . . . . . . . . . . . . . . . . . . 282.2 334.6 312.3
South and Central America. . . . . . . . . . . . . . . 98.0 92.7 92.7
--------- --------- ---------
Subtotal. . . . . . . . . . . . . . . . . . . . . 1,467.1 1,580.3 1,552.8
Goodwill and Other Intangible Assets . . . . . . . . . 299.4 340.7 367.6
Investment in Discontinued Operations. . . . . . . . . 67.2 156.6 193.2
--------- --------- ---------
Total Assets. . . . . . . . . . . . . . . . . . . $1,833.7 $2,077.6 $2,113.6
========= ========= =========
1999 1998 1997
--------- --------- ---------
CAPITAL EXPENDITURES
North America. . . . . . . . . . . . . . . . . . . . . $ 39.6 $ 53.7 $ 44.7
Asia Pacific . . . . . . . . . . . . . . . . . . . . . 18.4 32.6 30.4
Europe . . . . . . . . . . . . . . . . . . . . . . . . 8.9 8.1 11.1
South and Central America. . . . . . . . . . . . . . . 2.3 8.4 12.6
--------- --------- ---------
Total Capital Expenditures. . . . . . . . . . . . $ 69.2 $ 102.8 $ 98.8
========= ========= =========
</TABLE>
Supplemental product information is presented below for revenues from external
customers.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
NET SALES
<S> <C> <C> <C>
Alkaline Batteries . . . . . $1,211.0 $1,189.4 $1,185.4
Carbon Zinc Batteries. . . . 358.8 419.7 500.4
Lighting Products. . . . . . 128.6 131.0 127.6
Miniature Batteries. . . . . 65.2 65.7 69.9
Other. . . . . . . . . . . . 108.7 116.0 122.5
-------- -------- --------
Total Net Sales . . . . $1,872.3 $1,921.8 $2,005.8
======== ======== ========
GEOGRAPHIC SEGMENT INFORMATION
- ---------------------------------
1999 1998 1997
-------- -------- --------
NET SALES
United States. . . . . . . . $ 977.6 $ 950.0 $ 920.8
International. . . . . . . . 894.7 971.8 1,085.0
-------- -------- --------
Total Net Sales . . . . $1,872.3 $1,921.8 $2,005.8
======== ======== ========
1999 1998 1997
-------- -------- --------
LONG LIVED ASSETS
United States. . . . . . . . $ 404.6 $ 426.3 $ 431.5
International. . . . . . . . 387.9 410.7 437.4
-------- -------- --------
Total Long Lived Assets $ 792.5 $ 837.0 $ 868.9
======== ======== ========
</TABLE>
QUARTERLY FINANCIAL INFORMATION - UNAUDITED
The results of any single quarter are not necessarily indicative of
Energizer's results for the full year. Net earnings of Energizer are
significantly impacted in the first quarter by the additional sales volume
associated with the Christmas holiday season.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- -------- ------- --------
FISCAL 1999
- -----------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . $582.4 $ 405.7 $399.2 $ 485.0
Gross profit . . . . . . . . . . 277.3 184.0 183.1 230.0
Earnings from continuing operations (a) 54.8 22.0 21.7 61.3
Earnings/(loss) from discontinued
operations. . . . . . . . . . . . . (2.8) (2.8) - -
Loss on disposition of discontinued
operations .. . . . . . . . . - (74.2) - -
Net earnings. . . . . . . . . . . . . . 52.0 (55.0) 21.7 61.3
FISCAL 1998
- -----------
Net sales . . . . . . . . . . . . . . . $638.2 $ 410.6 $410.8 $ 462.2
Gross profit .. . . . . . . . . 307.5 195.7 200.4 213.8
Earnings from continuing operations (a) 80.9 75.4 13.1 38.8
Earnings/(loss) from discontinued
operations (b). . . . . . . . . . . 3.4 (40.8) (2.2) (3.9)
Net earnings. . . . . . . . . . . . . . 84.3 34.6 10.9 34.9
</TABLE>
(a) Earnings from continuing operations were reduced due to provisions for
restructuring and increased due to income tax benefits by the following amounts:
<TABLE>
<CAPTION>
1999 1998
------ -------
First quarter
<S> <C> <C>
Restructuring . . . . . . $(6.2) $ .1
Second quarter
Restructuring . . . . . . .1 2.0
Capital loss tax benefits 48.4
Third quarter
Restructuring . . . . . . (8.5) (15.7)
Capital loss tax benefits 3.3
Fourth quarter
Restructuring . . . . . . 6.3 .8
Capital loss tax benefits 13.3
</TABLE>
(b) Earnings/(loss) from discontinued operations were reduced due to
provisions for restructuring in the second quarter of fiscal 1998 by $42.7.
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED STATEMENT OF EARNINGS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(CONDENSED)
(DOLLARS IN MILLIONS--UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
<S> <C> <C>
1999 1998
------- -------
Net Sales . . . . . . . . . . . . . . . . . . . . . . . $673.6 $582.4
------- -------
Costs and Expenses
Cost of products sold . . . . . . . . . . . . . . . . 322.2 305.1
Selling, general and administrative . . . . . . . . . 95.6 101.0
Advertising and promotion . . . . . . . . . . . . . . 67.6 59.0
Research and development. . . . . . . . . . . . . . . 11.9 11.0
Provisions for restructuring. . . . . . . . . . . . . - 6.1
Interest expense. . . . . . . . . . . . . . . . . . . 2.6 2.8
------- -------
499.9 485.0
------- -------
Earnings from Continuing Operations before Income Taxes 173.7 97.4
Income Taxes. . . . . . . . . . . . . . . . . . . . . . (69.0) (42.6)
------- -------
Earnings from Continuing Operations . . . . . . . . . . 104.7 54.8
Net Loss from Discontinued Operations . . . . . . . . . - (2.8)
------- -------
Net Earnings. . . . . . . . . . . . . . . . . . . . . . $104.7 $ 52.0
======= =======
<FN>
See accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS - UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1999 1999
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents. . . . . . . . . . . $ 19.9 $ 27.8
Trade receivables, less allowance for doubtful
accounts of $20.4 and $19.3, respectively. . 605.5 441.9
Inventories
Raw materials and supplies . . . . . . . . . 57.5 74.0
Work in process. . . . . . . . . . . . . . . 76.6 80.5
Finished products. . . . . . . . . . . . . . 211.5 228.5
-------- --------
Total Inventory. . . . . . . . . . . . . . 345.6 383.0
Other current assets . . . . . . . . . . . . . 104.2 121.3
-------- --------
Total Current Assets . . . . . . . . . . . . 1,075.2 974.0
-------- --------
Investments and Other Assets . . . . . . . . . . 310.0 319.7
Net Investment in Discontinued Operations. . . . - 67.2
Property at Cost . . . . . . . . . . . . . . . . 1,004.0 1,010.1
Accumulated depreciation . . . . . . . . . . . 538.4 537.3
-------- --------
465.6 472.8
-------- --------
Total. . . . . . . . . . . . . . . . . . . $1,850.8 $1,833.7
======== ========
LIABILITIES AND NET INVESTMENT IN ENERGIZER
Current Liabilities
Current maturities of long-term debt . . . . . $ 0.3 $ 0.3
Notes payable. . . . . . . . . . . . . . . . . 130.9 118.5
Accounts payable . . . . . . . . . . . . . . . 121.3 128.6
Other current liabilities. . . . . . . . . . . 309.0 248.5
-------- --------
Total Current Liabilities. . . . . . . . . . 561.5 495.9
Long-Term Debt . . . . . . . . . . . . . . . . . 1.4 1.9
Other Liabilities. . . . . . . . . . . . . . . . 22.7 23.0
Net Investment in Energizer. . . . . . . . . . . 1,265.2 1,312.9
-------- --------
Total. . . . . . . . . . . . . . . . . . . $1,850.8 $1,833.7
======== ========
<FN>
See accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(CONDENSED)
(DOLLARS IN MILLIONS - UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
<S> <C> <C>
1999 1998
-------- -------
CASH FLOW FROM OPERATIONS
Net earnings. . . . . . . . . . . . . . . . . . . . . $ 104.7 $ 52.0
Net loss from discontinued operations . . . . . . . . - 2.8
Non-cash items included in income . . . . . . . . . . 23.3 25.0
Changes in assets and liabilities used in operations. (65.8) (49.1)
Other, net. . . . . . . . . . . . . . . . . . . . . . (1.6) 2.3
-------- -------
Cash flow from continuing operations. . . . . . . . 60.6 33.0
Cash flow from discontinued operations. . . . . . . 53.5 (3.3)
-------- -------
Net cash flow from operations . . . . . . . . . . 114.1 29.7
-------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Property additions. . . . . . . . . . . . . . . . . . (11.0) (13.4)
Proceeds from sale of OEM business. . . . . . . . . . 20.0 -
Proceeds from sale of property. . . . . . . . . . . . 1.1 0.8
Other, net. . . . . . . . . . . . . . . . . . . . . . 0.5 1.4
-------- -------
Cash used by investing activities
- continuing operations . . . . . . . . . . . 10.6 (11.2)
-------- -------
Cash used by investing activities
- discontinued operations . . . . . . . . . (0.7) (1.4)
-------- -------
Net cash used by investing activities . . . . . . 9.9 (12.6)
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Net cash proceeds from issuance of long-term debt . - 1.0
Principal payments on long-term debt
(including current maturities). . . . . . . . . . (0.5) (12.9)
Net increase in notes payable . . . . . . . . . . . 12.4 18.6
Net transactions with Ralston . . . . . . . . . . . (143.6) (28.2)
-------- -------
Net cash used by financing activities . . . . . . (131.7) (21.5)
-------- -------
Effect of Exchange Rate Changes on Cash . . . . . . . . (0.2) 4.2
-------- -------
Net Decrease in Cash and Cash Equivalents . . . . . . . (7.9) (0.2)
Cash and Cash Equivalents, Beginning of Period. . . . . 27.8 49.1
-------- -------
Cash and Cash Equivalents, End of Period. . . . . . . . $ 19.9 $ 48.9
======== =======
<FN>
See accompanying Notes to Condensed Financial Statements.
</TABLE>
ENERGIZER HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(DOLLARS IN MILLIONS - UNAUDITED)
NOTE 1 - The accompanying unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
These statements should be read in conjunction with the financial statements and
notes thereto for Energizer Holdings, Inc. (Energizer) for the year ended
September 30, 1999, included elsewhere in this registration statement.
NOTE 2 - During the three-month period ended December 31, 1998, Energizer
recorded net after-tax and pre-tax provisions for restructuring of $6.2 and
$6.1, respectively. The charges were primarily termination benefits associated
with a 1997 alkaline and carbon zinc production restructuring plan for Europe.
During the current quarter, approximately 120 employees were terminated in
connection with restructuring accruals established in prior years. Activities
impacting the restructuring reserve during the current quarter are presented in
the following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Provision/ Ending
Beginning Balance Reversals Activity Balance
------------------ ---------- ---------- --------
1995 PLAN
Other Cash Costs . . $ .8 $ - $ - $ .8
------------------ ---------- ---------- --------
Total. . . . . . . . .8 - - .8
------------------ ---------- ---------- --------
1996 PLAN
Other Cash Costs . . .8 - - .8
------------------ ---------- ---------- --------
Total. . . . . . . . .8 - - .8
------------------ ---------- ---------- --------
1997 PLAN
Termination Benefits 4.1 - (1.6) 2.5
Other Cash Costs . . 1.3 - - 1.3
------------------ ---------- ---------- --------
Total. . . . . . . . 5.4 - (1.6) 3.8
------------------ ---------- ---------- --------
1998 PLAN
Termination Benefits 1.6 - (0.7) 0.9
Other Cash Costs . . 2.0 - (0.2) 1.8
------------------ ---------- ---------- --------
Total. . . . . . . . 3.6 - (0.9) 2.7
------------------ ---------- ---------- --------
1999 PLAN
Termination Benefits .7 - (0.2) .5
------------------ ---------- ---------- --------
Total. . . . . . . . .7 - (0.2) .5
------------------ ---------- ---------- --------
Grand Total . . $ 11.3 $ - $ (2.7) $ 8.6
================== ========== ========== ========
</TABLE>
NOTE 3 - On November 1, 1999 Energizer's worldwide rechargeable Original
Equipment Manufacturers' (OEM) business was sold to Moltech Corporation for
approximately $20.0. The OEM business is accounted for as a discontinued
operation in Energizer's combined financial statements. Actual pretax operating
losses during the divestment period through the sale date totaled $15.9.
Note 4 - Energizer's operations are managed via four major geographic areas -
North America (which includes the U.S. and Canada), Asia Pacific, Europe, and
South and Central America (including Mexico). This structure is the basis for
the Company's reportable operating segment information disclosed below. Segment
performance is evaluated based on operating profit, exclusive of general
corporate expenses, research and development expenses, restructuring charges and
amortization of goodwill and intangibles. Financial items, such as interest
income and expense, are managed on a global basis at the corporate level.
Intersegment sales are generally valued at market-based prices and represent the
difference between total sales and external sales as presented in the table
below. Segment profitability includes profit on these intersegment sales.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
<S> <C> <C> <C> <C>
1999 1998
------ ------
TOTAL. . . . . . . . . . . . TOTAL
NET SALES. . . . . . . . . . . SALES EXTERNAL SALES SALES EXTERNAL SALES
------ ------------- ----- --------------
North America $ 448.9 $ 420.4 $358.2 $329.9
Asia Pacific 138.4 119.1 118.5 105.6
Europe 92.5 92.0 106.9 106.3
South and Central America 46.7 42.1 47.9 40.6
------ ------ ----- ------
Total Net Sales $ 673.6 $582.4
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
1999 1998
-------- -------
<S> <C> <C>
OPERATING PROFIT BEFORE RESTRUCTURING
CHARGES AND AMORTIZATION
North America $145.5 $100.5
Asia Pacific 38.0 25.9
Europe 7.9 2.1
South and Central America 6.7 6.8
-------- -------
TOTAL SEGMENT PROFITABILITY 198.1 135.3
General Corporate Expenses (5.4) (12.8)
Research and Development Expense (11.9) (11.0)
-------- -------
Operating Profit before Restructuring Charges
and Amortization 180.8 111.5
Restructuring Charges - (6.1)
Amortization (6.1) (6.3)
Interest and Other Financial Items (1.0) (1.7)
-------- -------
Total Earnings from Continuing Operations Before
Income Taxes $173.7 $97.4
======== =======
</TABLE>
NOTE 5 - In 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". Accumulated other
comprehensive income is included in Net Investment in Energizer in the combined
balance sheet. The components of total comprehensive income for the three
months ended December 31, 1999 and 1998 are shown in the following table:
<TABLE>
<CAPTION>
Three Months Ended December 31,
<S> <C> <C>
1999 1998
------- -----
Net earnings . . . . . . . . . . . . . . $104.7 $52.0
Foreign currency translation adjustments (3.0) 15.5
------- -----
Total comprehensive income . . . . . . . $101.7 $67.5
======= =====
</TABLE>
ENERGIZER HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(DOLLARS IN MILLIONS - UNAUDITED)
NOTE 6 - Investments and Other Assets consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
<S> <C> <C>
1999 1999
------ ------
Goodwill. . . . . . . . . . . . . $198.4 $205.0
Other intangible assets . . . . . 91.9 94.4
Deferred charges and other assets 19.7 20.3
------ ------
$310.0 $319.7
====== ======
</TABLE>
9
AIRCRAFT JOINT OWNERSHIP AGREEMENT
This Agreement is made and entered into this ___ day of ________, 2000, by
and among Ralston Purina Company, a Missouri corporation ("Ralston"); Energizer
Holdings, Inc., a _________ corporation ("Energizer"); and Agribrands
International, Inc., a Missouri corporation ("Agribrands"). Ralston, Energizer
and Agribrands are sometimes herein referred to as "Owners" or individually as
"Owner."
WHEREAS, Ralston and Agribrands are parties to an Aircraft Joint Ownership
Agreement dated as of April 1, 1998 (the "1998 Agreement"), under which
Agribrands is acknowledged as an owner of a 12.5% interest in two aircraft (the
balance being owned by Ralston); and
WHEREAS, one of the aircraft referenced in the 1998 Agreement is registered
with the United States Federal Aviation Authority (the "FAA") as N607RP (the
"Old Aircraft"), and the other is to be sold and replaced with a Canadair
Challenger aircraft model CL-600-2B16 variant 604 (the "New Aircraft"), which is
currently being constructed pursuant to terms of a contract between Ralston and
Bombardier Aerospace Corporation("Bombardier"); and
WHEREAS, Agribrands desires to acquire a 12.5% interest in the New
Aircraft, together with its existing 12.5% interest in the Old Aircraft, and
Ralston and Agribrands desire that both aircraft be owned and managed under the
terms of this Agreement, in place of the 1998 Agreement; and
WHEREAS, Energizer and Ralston have entered into an Agreement and Plan of
Reorganization dated as of April 1, 2000 (the "Energizer Agreement and Plan of
Reorganization"), under which Ralston has contributed to Energizer an ownership
interest of 43.75% in both the Old Aircraft and in the New Aircraft; and
WHEREAS, Ralston, Energizer and Agribrands desire to enter into an
agreement to operate the Old Aircraft and the New Aircraft with a flight crew on
a Joint Ownership basis as defined in Section 91.501(c) (3) of the Federal
Aviation Regulations (the "FAR"); and
WHEREAS, Ralston, Energizer and Agribrands desire to have Ralston undertake
the duties and responsibilities of operating the Old Aircraft and the New
Aircraft, and to divide the expenses of ownership and operation, all as provided
in the terms of this Agreement.
NOW THEREFORE, Ralston, Energizer and Agribrands hereby mutually agree as
follows
1. The 1998 Agreement is hereby cancelled and rescinded in all respects, and
this Agreement shall be the only agreement governing the ownership and operation
of the Old Aircraft and the New Aircraft.
2. The Owners acknowledge that the New Aircraft is being constructed under a
contract dated as of December 10, 1999, by and between Ralston, as Buyer, and
Bombardier, as Seller (the "New Aircraft Purchase Agreement"), a copy of which
(including an Addendum and Schedules thereto) is attached to this Agreement as
Exhibit A. Notwithstanding the identity of the parties to the New Aircraft
Purchase Agreement, the Owners hereby agree that each Owner shall be entitled to
exercise rights and shall bear responsibilities under the New Aircraft Purchase
Agreement in proportion to its ownership interest in the New Aircraft as
provided in this Agreement and in the Energizer Agreement and Plan of
Reorganization.
3. The Owners further acknowledge that it may be necessary or practical for
certain performance under the New Aircraft Purchase Agreement to be undertaken
in the name of Ralston alone; however, to the extent practicable, any such
performance shall be undertaken in the name of all Owners and shall reflect
their respective ownership interests. In connection with any performance of the
New Aircraft Purchase Agreement (i) each of the Owners shall provide all
reasonable cooperation to the other Owners as may be requested; and (ii) each of
the Owners shall indemnify the other Owners as to any cost, liability or expense
reasonably incurred, all in order to assure that the obligations of Buyer under
the New Aircraft Purchase Agreement are borne in proportion to each of the
Owners' interests in the New Aircraft.
4. The Owners further acknowledge that Ralston has paid, under the terms of
the New Aircraft Purchase Agreement, a total of two million five hundred
thousand dollars ($2,500,000) of the Purchase Price (as defined in the New
Aircraft Purchase Agreement). Promptly upon the execution of this Agreement,
Energizer and Agribrands shall pay to Ralston their pro rata proportion of such
--- ----
payment to reflect their respective ownership interests in the New Aircraft,
together with interest thereon at the rate of six percent (6%) per annum.
Energizer and Agribrands further agree that future installments of the Purchase
Price (as are due under the terms of the New Aircraft Purchase Agreement) shall
be allocated among the Owners so that, as soon as is possible, the apportionment
of the Purchase Price, as paid in installments, is equivalent to each of the
Owners' interest in the New Aircraft.
5. Ralston agrees to employ and provide a fully qualified flight crew for
all operations of both the Old Aircraft and the New Aircraft. Said flight crews
shall be provided at Ralston's sole expense and shall be under the direction of
Ralston.
6. (a) As reimbursement for Ralston's yearly fixed costs (on a fiscal
year basis) for operation and maintenance of both the Old Aircraft and the New
Aircraft (including, but not limited to, annual fixed costs for pilot and
mechanic salaries, benefits and training costs, Flight Operation's
Administration account, taxes, insurance, Jeppesen subscription and hangar rent
with respect to both Aircraft, and any other fixed costs incurred by Ralston in
connection with its operation of both Aircraft) each other Owner shall pay
Ralston, on a monthly basis, an amount equal to its ownership percentage times
Ralston's estimate of such yearly fixed costs for that year. Ralston shall
notify each Owner in writing prior to the beginning of each Ralston fiscal years
of its estimate of such yearly fixed costs for the new fiscal year; and each
Owner's monthly payments, commencing with the first month of the new fiscal
year, shall be adjusted to reflect the estimate for that year. Except as
provided in subparagraphs (b) and (c) below, the other Owners will not be
required to reimburse Ralston for any additional amounts if actual yearly fixed
costs exceed the estimate for such year.
(b) Each other Owner shall reimburse Ralston for an amount equal to its
ownership percentage times any unbudgeted expenses associated with the repair of
either Aircraft or otherwise required to maintain either Aircraft in operable
condition. Each other Owner shall also reimburse Ralston for its ownership
percentage times all expenses associated with the hiring and training of pilots.
Such reimbursement shall be made as soon as practicable following Ralston's
written notification of such expenses, along with reasonable documentation
verifying such expenditures.
(c) Subject to the limitation on each Owner's Flight Hours set forth in
Paragraph 10 of this Agreement, in the event that any Owner's use of either
Aircraft during any Ralston fiscal year exceeds such Owner's percentage
ownership times Total Flight Hours for either Aircraft for that year, such Owner
shall reimburse the other Owners, on a monthly basis during the next succeeding
fiscal year, for an additional percentage of actual, not estimated, imputed
interest expense at a compounded daily interest rate of 7%, on imputed debt with
respect to each Aircraft. This imputed debt with respect to each Aircraft will
be equal to the total original purchase price of such Aircraft plus any other
capitalized costs less the tax (36%) shield of the depreciation stream related
to the total capitalized amount. The additional percentage to be reimbursed
shall be equal to the difference between the flight hours actually used by such
Owner, and such Owner's ownership percentage times the estimated total hours of
annual usage, divided by the actual total flight hours for that year (the
"Additional Reimbursement Percentage"). In addition, such Owner shall reimburse
the other Owners for an additional percentage of the expenses described in
subparagraph (b) above which were incurred during such fiscal year, which
percentage shall also be equal to the Additional Reimbursement Percentage. In
the event that either or both of the Aircraft are sold pursuant to Paragraphs 17
or 18 of this Agreement during such next succeeding fiscal year, all amounts to
be reimbursed by any Owner pursuant to this subparagraph (c), whether or not
otherwise payable at such time, shall be retained by the other Owners from the
proceeds otherwise payable to that Owner.
7. Energizer and Agribrands shall also pay Ralston, on a monthly basis, an
hourly fee per their Flight Hours during the preceding month. Such fee shall
represent fuel, flight crew travel, landing fees, and maintenance, repair and
inspection. As of the date of this Agreement, the fee per hour is $ _________
for travel in the United States, and $ ________ for all other international
flights, both of which are subject to adjustment by Ralston to reflect increases
in such expenses. Notice of any such adjustment shall be made by Ralston to
Energizer and Agribrands in writing at least 30 days in advance of the effective
date of such increase. In addition, Energizer and Agribrands shall each pay, on
a per trip basis, any extraordinary international handling fees associated with
flights on their behalf or at their direction, including but not limited to,
international landing fees which are significantly in excess of the average
international landing fees historically incurred by Ralston, and satellite
communication fees, if utilized.
8. (a) The expenses of the first engine hot section inspections, engine
overhauls, external painting and internal refurbishment for both the old
Aircraft and the New Aircraft ("Major Maintenance Expenditures") completed after
the date of this Agreement shall be shared by all Owners based upon their
respective percentages of ownership. Such expenses for subsequent Major
Maintenance Expenditures for each Aircraft shall be shared by all Owners based
upon their relative flight usage of each Aircraft from the time of the
previously completed Major Maintenance Expenditures. Ralston shall bill the
other Owners for their shares of such expenses and will provide upon request,
documentation as to the expenses incurred and the flight hour usage of the
Owners.
(b) In the event that Ralston, in its sole discretion, determines to make
other capital expenditures with respect to either Aircraft, such expenditures
shall be shared by all Owners based upon their respective percentages of
ownership of each such Aircraft. Ralston shall notify the other Owners in
writing at least 30 days in advance of its election to make such capital
expenditures and of the estimated amount of such expenditures.
9. Ralston shall include the other Owners as additional insurers on
Ralston's aircraft liability insurance policy, but only in proportion to each
other Owner's interest in both Aircraft. Ralston will also include the other
Owners as loss payees on the aircraft hull coverage on both Aircraft. Upon the
request of each of the other Owners, Ralston will furnish a Certificate of
Insurance evidencing coverage as outlined above.
10. Energizer's Flight Hours for each Aircraft shall not exceed
forty-three and 75/100 percent (43.75%), and Agribrands Flight Hours for each
Aircraft shall not exceed twelve and a half percent (12.5%), of the greater of
(i) Total Flight Hours for that Aircraft during any six-month period, or (ii)
the pro rata Budgeted Flight Hours for such six-month period. Energizer and
Agribrands will provide Ralston with requests for flight time and proposed
flight schedules for each Aircraft as far in advance of any given flight as
possible, and in any case, at least 24 hours in advance of Energizer's or
Agribrands' planned departure, or such shorter time period in an individual
situation as may be acceptable to Ralston's Director of Flight Operations in his
sole discretion. Requests for fight time shall be in a form, whether oral or
written, mutually convenient to, and agreed upon by the Owners. In addition to
proposed schedules and flight times for each Aircraft, Energizer and Agribrands
will provide the following information to Ralston's flight dispatcher at least
24 hours prior to the scheduled departure (or such shorter time period as may
be found acceptable as noted above) as well as such other information reasonably
required by Ralston:
(a) proposed departure point;
(b) destination;
(c) number of anticipated passengers;
(d) any unusual luggage or cargo to be carried; and
(e) the date and time of return flight.
Ralston shall have final authority over the scheduling of each Aircraft. In
addition, in the event of scheduling conflicts among the Owners, such conflicts
shall be resolved in accordance with the following guidelines:
(i) Subject to the restriction on Energizer's and Agribrands' Flight
Hours in any six month period, each Aircraft shall be scheduled for the party
first notifying Ralston's flight dispatcher of its intended use (a "Travel
Request") unless a Travel Request from another Owner involving a higher priority
traveler than any traveler from the first party shall be made at least 72 hours
prior to the proposed time of departure;
(ii) The priority assigned to travelers, in descending order, shall be
(A) the Chief Executive Officer of Ralston, (B) the Chief Executive Officer of
Energizer, (C) the Chief Executive Officer of Agribrands, (D) all other
corporate officers of the Owners, and (E) all other potential passengers; and
(iii) Notwithstanding the above guidelines, any particular conflict in
use of the Aircraft may be resolved as agreed among the Chief Executive Officers
of the Owners.
11. Ralston shall be solely responsible for securing maintenance and
required or otherwise necessary inspections with respect to both Aircraft, and
shall make all such needs known to the other Owners for their use in scheduling
usage of the Aircraft. No maintenance or inspection shall be delayed or
postponed for the purpose of scheduling either Aircraft, unless said maintenance
or inspection can be safely conducted at a later time in compliance with all
applicable laws and regulations, and within the sound discretion of the pilot in
command. The pilot in command shall have final and complete authority to cancel
any flight for any reason or condition which in his or her judgment would
compromise the safety of the flight.
12. In accordance with applicable FAR, the qualified flight crew provided by
Ralston will exercise all of its duties and responsibilities in regard to the
safety of each flight conducted hereunder. Each Owner specifically agrees that
the flight crew, in its sole discretion, may terminate any flight, refuse to
commence any flight or take any other action which in the judgment of the pilot
in command is necessitated by consideration of safety. No such action of the
pilot in command shall create or support any liability for loss, injury, damage
or delay to any Owner or any other person. The Owners further agree that none
shall be liable to the other Owners for delay or failure to furnish or return
either Aircraft pursuant to this Agreement when such failure is caused by
government regulation or authority, mechanical difficulty, war, civil commotion,
strikes or labor disputes, weather conditions or acts of God.
13. Each Owner represents and warrants that:
(a) it will use both Aircraft for and on account of its own business only,
and will not use either Aircraft for the purposes of providing transportation of
passengers or cargo in air commerce for compensation or hire;
(b) it shall not incur any mechanics' or other liens in connection with the
inspection, preventative maintenance, maintenance or storage of both Aircraft,
whether permissible or impermissible under this Agreement;
(c) it shall not convey, mortgage, assign, lease or otherwise alienate
either Aircraft or create any lien or security interest involving either
Aircraft or do anything or take any action that might mature into such a lien;
and
(d) during the term of this Agreement, it will abide by and conform to all
such laws, governmental and airport orders, rules and regulations, as shall from
time to time be in effect relating in any way to the operation and use of both
Aircraft under this Agreement.
14. For purposes of this Agreement, the permanent base of operations of both
Aircraft shall be at Spirit of St. Louis Airport in Chesterfield, Missouri.
15. Ralston shall bill the other Owners on a monthly basis for the amounts
due pursuant to this Agreement. All such bills shall contain reasonable detail
and shall be due 30 days after receipt. The failure of either other Owner to
pay any bill within 30 days of receipt shall result in such Owner owing Ralston
an additional handling charge equal to 1% per month of the amount due from the
date due to the payment date.
16. Subject to paragraphs 17 and 18 below, neither Ralston, Energizer nor
Agribrands may transfer its interest in either Aircraft to any other party,
other than a wholly owned subsidiary.
17. (a) If either Energizer or Agribrands wishes to transfer its
interest in either Aircraft to any third party (other than a wholly owned
subsidiary), it must first give written notice to Ralston, and within thirty
days following receipt of such notice, Ralston shall have the option of
acquiring Energizer's or Agribrands' entire interest in that Aircraft, at a
price equal to Energizer's or Agribrands' percentage ownership interest
multiplied by the market value of the aircraft, as determined by an independent
appraiser reasonably acceptable to all Owners. The fees of such appraiser shall
be paid by Ralston, and such acquisition shall occur as soon as practicable
thereafter. In the event that Ralston does not wish to acquire the interest
offered, then the notifying Owner shall be free to proceed to sell all, but no
less than, its entire interest in the Aircraft. Notwithstanding the above,
however, neither Energizer nor Agribrands may transfer its interest in the
Aircraft to any other party (other than a wholly owned subsidiary) (i) unless
all fees and charges owing by it pursuant to this Agreement have been paid, (ii)
unless such other party enters into a joint ownership agreement with respect to
the Aircraft with Ralston and the non-notifying Owner on terms reasonably
acceptable to Ralston, and (iii) without the written consent of Ralston and the
non-notifying Owner, which consent shall not be unreasonably withheld.
(b) If Ralston wishes to sell either Aircraft, but Energizer or Agribrands
object to such sale, Ralston may proceed to sell the Aircraft, provided that the
sale price is not less than the market value of the Aircraft, as determined by
an independent appraiser selected by Ralston and reasonably acceptable to
Energizer and Agribrands. The fees of such appraiser shall, in such instance,
be paid by Ralston. Ralston, Energizer and Agribrands will, in a timely manner,
execute and deliver such agreements and other instruments as Ralston may require
to transfer ownership of the Aircraft to the purchaser thereof. The net
proceeds of sale shall be divided among the Owners in the same proportion as
their respective ownership interests. Any amounts owing to Ralston from
Energizer and Agribrands pursuant to this Agreement shall be retained by Ralston
from the proceeds of sale otherwise payable to Energizer or Agribrands.
18. If Ralston, Energizer and Agribrands agree to sell either Aircraft,
such sale shall be at a price acceptable to all. The net proceeds of sale shall
be divided among the Owners in the same proportion as their respective ownership
interests. Any amounts owing to Ralston from either Energizer or Agribrands
pursuant to this Agreement shall be retained by Ralston from the proceeds of
sale otherwise payable to Energizer or Agribrands.
19. This Agreement shall be in effect for as long as Ralston, Energizer
and Agribrands have joint ownership of either Aircraft, and the Agreement shall
terminate upon the completion of the sale or other transfer of both Aircraft and
the payment of their respective portions of net proceeds of sale or transfer to
each of the Owners.
20. The failure of any Owner at any time or times to enforce or require
performance of any provision hereof shall in no way operate as a waiver or
affect the right of any other Owner at a later time to enforce the same. No
waiver by any Owner of any condition or the breach of any provision contained in
this Agreement shall serve to waive any other condition or any other breach of
any provision contained herein.
21. If any provision of this Agreement shall hereafter be held to be
invalid or unenforceable for any reason, that provision shall be reformed to the
maximum extent permitted to preserve the original intent of this Agreement,
failing which it shall be severed from this Agreement with the balance of the
Agreement continuing in full force and effect. Such occurrence shall not have
the effect of rendering the provision in question invalid in any other
jurisdiction or in any other case or circumstances or of rendering invalid any
other provisions contained herein to the extent that such provisions are not
themselves actually in conflict with any applicable law.
22. Notwithstanding anything to the contrary in this Agreement, this
Agreement shall not be assignable by either party hereto, to any other person,
firm or entity, other than a wholly owned subsidiary, without the prior written
consent of the other party.
23. No waiver, amendment or modification of this Agreement shall be
valid unless in writing and duly executed by the Owner to be charged therewith.
24. This Agreement shall be governed by the laws of the State of
Missouri.
IN WITNESS WHEREOF, the Owners hereto have signed this Agreement as of the
_______ day of January, 2000.
RALSTON PURINA COMPANY ENERGIZER HOLDINGS, INC.
By: __________________________ By: __________________________
AGRIBRANDS INTERNATIONAL, INC.
By: __________________________
14
ARTICLES OF INCORPORATION
OF
ENERGIZER HOLDINGS, INC.
ARTICLE ONE - NAME
The name of the corporation (the "Corporation") is "Energizer Holdings,
Inc.".
ARTICLE TWO - REGISTERED OFFICE
The address of the Corporation's registered office in the State of Missouri
is 221 Bolivar Street, Jefferson City, Missouri 65101 and the name of the
registered agent at such address isCSC The United States Corporation.
ARTICLE THREE - AUTHORIZED SHARES
A. CLASSES AND NUMBER OF SHARES
The aggregate number, class and par value of shares of capital stock which
the Corporation shall have authority to issue is Three Hundred and Ten Million
(310,000,000) shares of stock, consisting of:
1. Three hundred million (300,000,000) shares of common stock, par
value $.01 per share ("Common Stock"); and
2. Ten million (10,000,000) shares of preferred stock, par value $.01
per share ("Preferred Stock").
All preemptive rights of shareholders are hereby denied, so that no stock
or other security of the Corporation shall carry with it and no holder or owner
of any share or shares of stock or other security or securities of the
Corporation shall have any preferential or preemptive right to acquire
additional shares of stock or of any other security of the Corporation. All
cumulative voting rights are hereby denied, so that no stock or other security
of the Corporation shall carry with it and no holder or owner of any share or
shares of such stock or security shall have any right to cumulative voting in
the election of directors or for any other purpose. The foregoing provisions
within this paragraph are not intended to modify or prohibit any provisions of
any voting trust or agreement between or among holders or owners of shares of
stock or other securities of the Corporation.
In addition to those general qualifications, limitations and
restrictions applicable to each and every class and series of capital stock of
the Corporation as a matter of law or as stated in the immediately preceding
paragraph, the preferences, qualifications, limitations, restrictions, and the
special or relative rights, including convertible rights, if any, in respect of
the shares of each class are as follows:
B. TERMS OF PREFERRED STOCK
1. Subject to the requirements of the General and Business Corporation
Law of Missouri, as amended from time to time (the "GBCL"), and to the
provisions of these Articles of Incorporation, Preferred Stock may be issued
from time to time by the Board of Directors as shares of one or more series.
The description of shares of each series of Preferred Stock, including any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption shall be as set forth in these Articles of Incorporation or any
amendment hereto, or in a resolution or resolutions duly adopted by the Board of
Directors and, to the extent set forth in any such resolution or resolutions,
such information shall be certified to the Secretary of State of Missouri and
filed as required by law from time to time, prior to the issuance of any shares
of such series.
2. The Board of Directors is expressly authorized, prior to issuance,
by adopting resolutions providing for the issuance of, or providing for a change
in the number of, shares of any particular series of Preferred Stock and, if and
to the extent from time to time required by law, by filing certification thereto
with the Secretary of State of Missouri, to set or change the number of shares
to be included in each series of Preferred Stock and to set or change (in any
one or more respects) the designations, preferences, conversion, relative,
participating, optional or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and conditions of
redemption relating to the shares of each such series. The authority of the
Board of Directors with respect to each series of Preferred Stock shall include,
but not be limited to, setting or changing the following:
(a) the distinctive serial designation of such series and the number of
shares constituting such series (provided that the aggregate number of shares
constituting all series of Preferred Stock shall not exceed the aggregate number
of authorized shares set out in Section A(ii) of this Article Three);
(b) the dividend rate, if any, on shares of such series, whether and
the extent to which dividends shall be cumulative or non-cumulative, the
relative rights of priority, if any, of payment of any dividends, and the time
at which, and the terms and conditions on which, any dividends shall be paid;
(c) whether the shares of such series shall be redeemable or
purchasable and, if so, the terms and conditions of such redemption or purchase,
including the date or dates upon and after which such shares shall be redeemable
or purchasable, and the amount per share payable in case of redemption or
purchase, which amount may vary under different conditions and at different
redemption or purchase dates;
(d) the obligation, if any, of the Corporation to retire shares of such
series pursuant to a sinking fund and the terms and conditions of any such
sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other series, class or classes, now or
hereafter authorized, and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(g) the rights of the holders of shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of such holders with
respect thereto; and
(h) any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to such series.
C. TERMS OF COMMON STOCK
1. Voting Rights. Subject to the provisions of Article Four hereof or
--------------
as otherwise provided by the GBCL, each holder of the Common Stock shall be
entitled to one vote per share of Common Stock held by such holder on all
matters to be voted on by the shareholders.
2. Dividend Rights. Subject to the express terms of any outstanding
----------------
series of Preferred Stock, dividends may be declared and paid upon the Common
Stock out of funds of the Corporation legally available therefor, in such
amounts and at such times as the Board of Directors may determine. Funds
otherwise legally available for the payment of dividends on the Common Stock
shall not be restricted or reduced by reason of there being any excess of the
aggregate preferential amount of any series of Preferred Stock outstanding over
the aggregate par value thereof.
ARTICLE FOUR- RESTRICTIONS ON VOTING STOCK,
CERTAIN BUSINESS COMBINATIONS
A. CERTAIN DEFINITIONS
For purposes of this Article Four, the following words have the meanings
indicated:
1. "Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such Person. The term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
2. "Associate" means, with respect to any Person, (i) any other Person
(other than the Corporation or a Subsidiary of which a majority of each class of
equity securities is owned by the Corporation) of which such Person is an
officer, director, trustee or partner or is directly or indirectly the
beneficial owner of ten percent (10%) or more of any class of equity securities;
(ii) any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as a trustee or in a similar
fiduciary capacity; (iii) any relative or spouse of such Person, or any relative
of such spouse, who has the same home as such Person or who is a director or
officer of the Corporation or any of its Affiliates or Subsidiaries; or (iv) any
investment company registered under the Investment Company Act of 1940, as
amended, for which such Person or any Affiliate of such Person serves as
investment adviser.
3. "Business Combination" means:
(a) any merger or consolidation of the Corporation or any
Subsidiary with (i) any Substantial Shareholder or (ii) any other Person which,
after such merger or consolidation, would be a Substantial Shareholder,
regardless of which entity survives;
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or in a series of transactions) to or with any
Substantial Shareholder, of any assets of the Corporation or any Subsidiary, or
both, that have an aggregate Fair Market Value of more than twenty percent of
the book value of the total assets of the Corporation as shown on its
consolidated balance sheet as of the end of the calendar quarter immediately
preceding any such transaction;
(c) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of a Substantial
Shareholder;
(d) the acquisition by the Corporation or any Subsidiary of any
securities of any Substantial Shareholder;
(e) any transaction involving the Corporation or any Subsidiary,
including the issuance or transfer of any securities of, any reclassification of
securities of, or any recapitalization of, the Corporation or any Subsidiary, or
any merger or consolidation of the Corporation with any Subsidiary (whether or
not involving a Substantial Shareholder), if the transaction would have the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary of which shares a Substantial Shareholder is the
beneficial owner; or
(f) any agreement, contract or other arrangement entered into by
the Corporation providing for any of the transactions described in this
definition of Business Combination.
4. "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is not an Affiliate or an Associate of a
Substantial Shareholder and who was a member of the Board of Directors prior to
the time that any Substantial Shareholder became a Substantial Shareholder, and
any successor of a Continuing Director if such successor is not an Affiliate or
an Associate of any Substantial Shareholder and is designated as a Continuing
Director by a majority of the then Continuing Directors.
5. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute thereto.
6. "Fair Market Value" shall mean:
(a) in the case of stock, the highest closing sale price per share
of a share of such stock during the 30-day period immediately preceding the
approval of the Business Combination by the Board of Directors as reported by
any United States securities exchange registered under the Exchange Act on which
such shares are listed, or, if such shares are not listed on any exchange, then
the highest closing bid quotation for any of such shares, as reported on the
National Association of Securities Dealers, Inc. Automated Quotations System or
any such system then in use, or if no such closing sales price or bid quotation
is reported, the fair market value as determined on the date in question by a
majority of Continuing Directors; or
(b) in the case of property or securities other than cash or
stock, the fair market value of such property or securities on the date in
question as determined by a majority of the Continuing Directors.
7. "Group", with respect to any Person, shall include:
(a) such Person;
(b) any Affiliates and Associates of such Person; and
(c) those additional Persons that, together with such Person,
jointly file, or would be required to jointly file (notwithstanding whether such
Persons have ever actually filed), or would be mentioned as a holder of shares
with either sole or shared voting power and/or sole or shared dispositive power
in an individual filing of, a statement of beneficial ownership with respect to
securities of the Corporation pursuant to Section 13(d) of the Exchange Act or
any rules and regulations promulgated thereunder, as in effect from time to
time, or any similar successor provisions, irrespective of any disclaimers
of beneficial ownership.
8. A Person shall be deemed to "own" any shares of Voting Stock:
(a) that such Person beneficially owns directly or indirectly,
whether or not of record; or
(b) that such Person has the right to acquire pursuant to any
agreement, arrangement or understanding or upon exercise of conversion rights,
exchange rights, warrants or options or otherwise, whether or not conditional;
or
(c) that are beneficially owned, directly or indirectly
(including shares deemed to be owned through application of clause (b) above),
whether or not of record, by an Affiliate or Associate of such Person; or
(d) that are beneficially owned, directly or indirectly, whether
or not of record, by any other Person (including any shares which such other
Person has the right to acquire pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, warrants or options or
otherwise, whether or not conditional) with whom such Person has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of Voting Stock; provided, however, that (i) directors, officers and
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employees of the Corporation shall not be deemed to have any such agreement,
arrangement or understanding solely on the basis of their status, or actions
taken in their capacities, as directors, officers or employees of the
Corporation or any Affiliates of the Corporation, and (ii) a Person shall not be
deemed the owner of or to own any shares of Voting Stock solely because (A) such
shares of Voting Stock have been tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or Associates until such
tendered shares of Voting Stock are accepted for payment or exchange or (B) such
Person or any of such Person's Affiliates or Associates has or shares the power
to vote or direct the voting of such shares of Voting Stock pursuant to a
revocable proxy given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, applicable rules and regulations under the
Exchange Act, except if such power (or arrangements relating thereto) is then
reportable under Item 6 of Schedule 13D under the Exchange Act (or any similar
provision of a comparable or successor report).
The outstanding shares of capital stock of the Corporation shall
include those shares deemed owned through the application of clauses (b) and (c)
above, but shall not include any other shares that may be issuable pursuant to
any agreement, arrangement or understanding or upon exercise of conversion
rights, warrants, options or otherwise, whether or not conditional.
For all purposes hereof "beneficial" ownership, with respect to
any securities, shall include, without limitation, (i) the power to vote, or
direct the voting of, such securities or (ii) the power to exercise investment
discretion over such securities, including the power to dispose, or to direct
the disposition, of such securities. Furthermore, a Person shall be deemed to
own "beneficially" any securities that such Person owns beneficially for
purposes of Sections 13(d) of the Exchange Act or any rules and regulations
promulgated thereunder, as in effect from time to time (or any similar successor
provisions of law).
9. "Person" means any individual, corporation, association,
partnership, joint venture, trust, organization, business, government or any
government agency or political subdivision thereof or any other entity.
10. "Subsidiary" means any Person of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation; provided,
--------
however, that for the purposes of Section D of this Article Four, the term
"Subsidiary" shall mean only a Person of which a majority of each class of
equity security is owned, directly or indirectly, by the Corporation.
11. "Substantial Shareholder" shall mean and include any Person which,
together with its Affiliates and Associates, is the Beneficial Owner of shares
of Voting Stock constituting in the aggregate twenty percent (20%) or more of
the outstanding Voting Stock.
12. "Voting Stock" means all outstanding shares of capital stock of the
Corporation entitled to vote in the election of Directors; and each reference to
a portion of shares of Voting Stock shall refer to such proportion of the votes
entitled to be cast by such shares.
B. RIGHT OF INQUIRY OF THE CORPORATION
The Corporation shall have the right but not the obligation to inquire of
any Person whom the Corporation believes may be a Substantial Shareholder or any
other Person who purports to exercise similar voting rights with respect to any
Voting Stock, and each such Person shall have the obligation to provide such
information to the Corporation as the Corporation may reasonably request, with
respect to any matters pertinent to the operation or implementation of this
Article Four, including, without limitation, (a) the number of shares owned by
such Person, (b) whether shares owned of record by such Person are owned by
other Persons and the identity of such other Persons and the nature of their
ownership interest, (c) whether any Affiliates or Associates of such Person own
any Voting Stock, (d) whether such Person is a member of a Group of Persons
owning Voting Stock, or (e) whether such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding with
any other Person with respect to any Voting Stock. Any determinations made by
the Board of Directors pursuant to this Article Four in good faith, and on the
basis of such information as was actually known by the Board of Directors and
such advice as was then actually provided to the Board of Directors for such
purpose, shall be conclusive and binding upon the Corporation and its
shareholders.
C. ADDITIONAL SHAREHOLDER VOTE REQUIRED FOR CERTAIN BUSINESS
COMBINATIONS
The approval of any Business Combination shall, in addition to any
affirmative vote required by the GBCL or otherwise, require the affirmative vote
of the holders of not less than two-thirds of the aggregate voting power of the
outstanding shares of the Voting Stock entitled to vote, at a meeting of
shareholders called for such purpose, and of a majority of the voting power of
all such shares of which a Substantial Shareholder is not a Beneficial Owner;
provided, however, that any such Business Combination may be approved upon any
affirmative vote required by the GBCL if:
1. there are one or more Continuing Directors, and the Business
Combination shall have been approved by a majority of them; or
2. the cash, or Fair Market Value of the property, securities or other
consideration, to be received per share by the shareholders of each class of
stock of the Corporation in the Business Combination is not less than the higher
of:
(a) the highest per share price paid by the Substantial
Shareholder for the acquisition of any shares of such class, with appropriate
adjustments for stock splits, stock dividends and like distributions; or
(b) the Fair Market Value of such shares, on the date the Business
Combination is approved by the Board of Directors.
D. PERSONS TO WHOM THIS ARTICLE DOES NOT APPLY
The provisions of Section C of this Article Four shall not apply to (1) any
savings, profit-sharing, stock bonus or employee stock ownership plan or plans
established by the Corporation or a Subsidiary and qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended, or any successor
provision, which holds shares of Voting Stock on behalf of participating
employees and their beneficiaries with the right to instruct the trustee how to
vote such shares of Voting Stock with respect to all matters submitted to
shareholders for voting or (2) participating employees and beneficiaries under
the plans referred to in the immediately preceding clause (1) because of their
participation in such savings, profit-sharing, stock bonus or employee ownership
plans.
E. AMENDMENT
In addition to such other vote or consent as shall then be required by the
GBCL, and by Article Eleven hereof, this Article shall be amended or repealed
only upon the affirmative vote of not less than two-thirds (2/3) of the voting
power of all shares of Voting Stock not owned by a Substantial Shareholder;
provided however, that this Article may be amended or repealed upon any
affirmative vote otherwise required by the GBCL, and by Article Eleven hererof,
(i) if there is not a Substantial Shareholder, such amendment has been approved
by a majority of the Board of Directors, or (ii) if there is a Substantial
Shareholder, such amendment has been approved by a majority of the Continuing
Directors.
ARTICLE FIVE - INCORPORATOR
The name and place of residence of each incorporator is as follows:
Timothy L. Grosch
Checkerboard Square
St. Louis, Missouri 63164
ARTICLE SIX - DIRECTORS
A. NUMBER AND CLASSIFICATION
The number of Directors to constitute the Board of Directors of the
Corporation is three. Thereafter, the number of Directors shall be fixed by or
in the manner provided in the Bylaws of the Corporation. Any changes in the
number of Directors shall be reported to the Missouri Secretary of State to the
extent and within the time periods required by the GBCL. The Directors shall be
divided into three classes, as nearly equal in number as reasonably possible,
with the mode of such classification to be provided for in the Bylaws of the
Corporation. Directors other than Directors constituting the initial Board of
Directors shall be elected to hold office for a term of three (3) years, with
the term of office of one class expiring each year. Notwithstanding the
foregoing, whenever the holders of any one or more classes or series of stock of
the Corporation, other than shares of Common Stock, shall have the right, voting
separately by class or series, to elect Directors, then the election, term of
office, filling of vacancies and other features of such directorship shall be
governed by the terms of the Articles of Incorporation of the Corporation or any
certificate of designation thereunder applicable thereto; and such directors so
elected shall not be divided into classes pursuant to this Article Six unless
expressly provided by such terms. As used in these Articles of Incorporation,
the term "entire Board of Directors" or the "entire Board" means the total
number fixed by, or in accordance with, these Articles of Incorporation and the
Bylaws of the Corporation.
B. REMOVAL OF DIRECTORS
Subject to, and in addition to, the rights, if any, of the holders of any
class of capital stock of the Corporation (other than the Common Stock) then
outstanding or any limitation imposed by law, any Director, or the entire Board
of Directors, may be removed from office at any time prior to the expiration of
his, her or their term of office only for cause and only by the affirmative vote
of the holders of record of outstanding shares representing not less than
two-thirds of all of the then outstanding shares of capital stock of the
Corporation then entitled to vote generally in the election of Directors, voting
together as a single class, at a special meeting of shareholders called
expressly for that purpose (such vote being in addition to any required class or
other vote).
C. VACANCIES
Subject to the rights, if any, of the holders of any class of capital stock
of the Corporation (other than the Common Stock) then outstanding, any vacancies
in the Board of Directors which occur for any reason prior to the expiration of
the respective term of office of the class in which the vacancy occurs,
including vacancies which occur by reason of an increase in the number of
Directors or the removal of a Director, shall be filled only by the Board of
Directors, acting by the affirmative vote of a majority of the remaining
Directors then in office (although less than a quorum). Any replacement
Director so elected shall hold office only for so long as the respective term of
office of the class in which the vacancy occurs has not expired, unless removed
prior to the expiration of such term, pursuant to Section B hereof.
ARTICLE SEVEN - DURATION
The duration of the Corporation is perpetual.
ARTICLE EIGHT - PURPOSES
The Corporation is formed to engage in the manufacture, distribution,
marketing and sale of batteries and power supply systems and products, the
services and products related thereto, and to engage in any lawful act or
activity for which a corporation now or hereafter may be organized under the
laws of the State of Missouri.
ARTICLE NINE - BYLAWS
Only a majority of the entire Board of Directors may make, amend, alter,
change or repeal any provision or provisions of the Bylaws of the Corporation;
provided, however, that in no event shall the Bylaws be inconsistent with law
or, in substance to a material degree, with any of the terms, conditions or
provisions of these Articles of Incorporation.
ARTICLE TEN - INDEMNIFICATION
A. ACTIONS INVOLVING DIRECTORS, OFFICERS AND EMPLOYEES
The Corporation shall indemnify each person (other than a party plaintiff
suing on his or her own behalf or in the right of the Corporation) who at any
time is serving or has served as a Director, officer or employee of the
Corporation against any claim, liability or expense incurred as a result of such
service, or as a result of any other service on behalf of the Corporation, or
service at the request of the Corporation (which request need not be in writing)
as a director, officer, employee, member, or agent of another corporation,
partnership, joint venture, trust, trade or industry association, or other
enterprise (whether incorporated or unincorporated, for-profit or
not-for-profit), to the maximum extent permitted by law. Without limiting the
generality of the foregoing, the Corporation shall indemnify any such person
(other than a party plaintiff suing on his or her behalf or in the right of the
Corporation), who was or is a party or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, but not limited to, an
action by or in the right of the Corporation) by reason of such service against
expenses (including, without limitation, costs of investigation and attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding.
B. ACTIONS INVOLVING AGENTS
1. Permissive Indemnification. The Corporation may, if it deems
---------------------------
appropriate and as may be permitted by this Article Ten, indemnify any person
(other than a party plaintiff suing on his or her own behalf or in the right of
the Corporation) who at any time is serving or has served as an agent of the
Corporation against any claim, liability or expense incurred as a result of such
service, or as a result of any other service on behalf of the Corporation, or
service at the request of the Corporation as a director, officer, employee,
member or agent of another corporation, partnership, joint venture, trust, trade
or industry association, or other enterprise (whether incorporated or
unincorporated, for-profit or not-for-profit), to the maximum extent permitted
by law or to such lesser extent as the Corporation, in its discretion, may deem
appropriate. Without limiting the generality of the foregoing, the Corporation
may indemnify any such person (other than a party plaintiff suing on his or her
own behalf or in the right of the Corporation), who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, but not limited to, an action by or in the right of the Corporation)
by reason of such service, against expenses (including, without limitation,
costs of investigation and attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding.
2. Mandatory Indemnification. To the extent that an agent of the
--------------------------
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section B.1 of this Article Ten, or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection with the action, suit or proceeding.
C. DETERMINATION OF RIGHT TO INDEMNIFICATION IN CERTAIN
CIRCUMSTANCES
Any indemnification required under Section A of this Article Ten or
authorized by the Corporation in a specific case pursuant to Section B of this
Article Ten (unless ordered by a court) shall be made by the Corporation unless
a determination is made reasonably and promptly that indemnification of the
Director, officer, employee or agent is not proper under the circumstances
because he or she has not met the applicable standard of conduct set forth in or
established pursuant to this Article Ten. Such determination shall be made (1)
by the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (3) by majority
vote of the shareholders; provided, however, that no such determination shall
-------- -------
preclude an action brought in an appropriate court to challenge such
determination, and provided further that there shall be no presumption that the
----------------
Corporation is released from any obligation under Sections A or B of this
Article Ten unless a written instrument, subscribed by an appropriate officer of
the Corporation, expressly so provides by making reference to this Subsection C
of this Article Ten.
D. ARTICLE TEN PROVISIONS NOT EXCLUSIVE RIGHT
The indemnification provided by this Article Ten shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled, whether under the Bylaws of the Corporation or any statute, agreement,
vote of shareholders or disinterested Directors or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office
E. INDEMNIFICATION AGREEMENTS AUTHORIZED
Without limiting the other provisions of this Article Ten, the Corporation
is authorized from time to time, without further action by the shareholders of
the Corporation, to enter into agreements with any Director, officer, employee
or agent of the Corporation providing such rights of indemnification as the
Corporation may deem appropriate, up to the maximum extent permitted by law.
Any agreement entered into by the Corporation with a Director may be authorized
by the other Directors, and such authorization shall not be invalid on the basis
that different or similar agreements may have been or may thereafter be entered
into with other Directors.
F. STANDARD OF CONDUCT
Except as may otherwise be permitted by law, no person shall be indemnified
pursuant to this Article Ten (including without limitation pursuant to any
agreement entered into pursuant to Section F of this Article Ten) from or on
account of such person's conduct which is finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct. The
Corporation may (but need not) adopt a more restrictive standard of conduct with
respect to the indemnification of any agent of the Corporation.
G. INSURANCE
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a Director, officer, employee or agent of the Corporation, or who
is or was otherwise serving on behalf or at the request of the Corporation in
any capacity against any claim, liability or expense asserted against him or her
and incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability under the provisions of this Article Ten.
H. CERTAIN DEFINITIONS
For the purposes of this Article Ten:
1. Service in Representative Capacity. Any Director, officer or
-------------------------------------
employee of the Corporation who shall serve as a director, officer or employee
of any other corporation, partnership, joint venture, trust or other enterprise
of which the Corporation, directly or indirectly, is or was the owner of 20% or
more of either the outstanding equity interests or the outstanding voting stock
(or comparable interests), shall be deemed to be so serving at the request of
the Corporation, unless the Board of Directors of the Corporation shall
determine otherwise. In all other instances where any person shall serve as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise of which the Corporation is or was a
stockholder or creditor, or in which it is or was otherwise interested, if it is
not otherwise established that such person is or was serving as a director,
officer, employee or agent at the request of the Corporation, the Board of
Directors of the Corporation may determine whether such service is or was at the
request of the Corporation, and it shall not be necessary to show any actual or
prior request for such service.
2. Predecessor Corporations. References to a corporation include all
-------------------------
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Article
Ten with respect to the resulting or surviving corporation as he or she would if
he or she had served the resulting or surviving corporation in the same
capacity.
3. Service for Employee Benefit Plan. The term "other enterprise"
-------------------------------------
shall include, without limitation, employee benefit plans and voting or taking
action with respect to stock or other assets therein; the term "serving at the
request of the Corporation" shall include, without limitation, any service as a
director, officer, employee or agent of a corporation which imposes duties on,
or involves services by, a director, officer, employee or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he or she reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have satisfied any standard of care required by or pursuant
to this Article Ten in connection with such plan; the term "fines" shall
include, without limitation, any excise taxes assessed on a person with respect
to an employee benefit plan and shall also include any damages (including treble
damages) and any other civil penalties.
I. SURVIVAL
Each person who was or is a Director, officer or employee of the
Corporation is a third party beneficiary to this Article Ten and shall be
entitled to enforce against the Corporation all indemnification rights provided
or contemplated by this Article Ten. Such indemnification rights shall continue
as to a person who has ceased to be a Director, officer or employee, and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
This Article Ten may be hereafter amended or repealed as provided in
Article Eleven hereof; provided however, no such amendment or repeal shall
reduce, terminate or otherwise adversely affect the right of any person who was
or is a Director, officer or employee to obtain indemnification or an advance of
expenses with respect to a proceeding that pertains to or arises out of actions
or omissions that occurred prior to the Deadline Indemnification Date. For
purposes of this Section J of this Article Ten, the term "Deadline
Indemnification Date" shall mean the later of: (1) the effective date of any
amendment or repeal of this Article Ten which reduces, terminates or otherwise
adversely affects the rights hereunder of any person who was or is a Director,
officer or employee; (2) the expiration of such person's then current term of
office with, or service for, the Corporation (provided such person has a stated
term of office or service and completes such term); or (3) the effective date
such person resigns his office or terminates his service (provided such person
has a stated term of officer or service but resigns prior to the expiration of
such term).
K. LIABILITY OF THE DIRECTORS, OFFICERS AND EMPLOYEES
It is the intention of the Corporation to limit the personal liability of
the Directors, officers and employees of the Corporation, in their capacity as
such, whether to the Corporation, its shareholders or otherwise, to the fullest
extent permitted by law. Consequently, should the GBCL or any other applicable
law be amended or adopted hereafter so as to permit the elimination or
limitation of such liability, the liability of the Directors and/or officers
and/or employees of the Corporation shall be so eliminated or limited without
the need for amendment of these Articles or for further action on the part of
the shareholders of the Corporation.
ARTICLE ELEVEN - AMENDMENT OF THE
ARTICLES OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on the
shareholders, Directors, officers, employees or agents of the Corporation are
subject to this reserved power; provided, that (in addition to any required
class or other vote, including, without limitation, the vote required by Article
Four, Section E hereof) the affirmative vote of the holders of record of
outstanding shares representing not less than two-thirds of all of the
outstanding shares of capital stock of the Corporation then entitled to vote
generally in the election of Directors, voting together as a single class, shall
be required to amend, alter, change or repeal, or adopt any provision or
provisions inconsistent with, Articles Four, Six, Nine, or this Article Eleven
of these Articles of Incorporation, notwithstanding the fact that a lesser
percentage may be specified by the laws of Missouri.
Date
Name
Title
Company
Address
Address
Dear ___:
The Energizer Corporation ("Company"), on behalf of itself, its subsidiaries and
its stockholders, and any successor or surviving entity, wishes to encourage
your continued service and dedication in the performance of your duties,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Subsection I(i)) of the Company (as defined in Subsection I(k)). The
Board of Directors of the Company (the "Board") believes that the prospect of a
pending or threatened Change of Control inevitably creates distractions and
personal risks and uncertainties for its executives, and that it is in the best
interests of Company and its stockholders to minimize such distractions to
certain executives. The Board further believes that it is in the best interests
of the Company to encourage its executives' full attention and dedication to
their duties, both currently and in the event of any threatened or pending
Change of Control.
Accordingly, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued retention of certain members of the
Company's management, including yourself, and the attention and dedication of
management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change of
Control.
In order to induce you _______________ ("Executive") to remain in the employ of
the Company and in consideration of your continued service to the Company, the
Company agrees that you shall receive the benefits set forth in this letter
agreement (the "Agreement") in the event that your employment with the Company
is terminated subsequent to a Change of Control in the circumstances described
herein. For purposes of this Agreement, references to employment with the
Company shall include employment with a Subsidiary of the Company (as defined in
Subsection I(w).
I. Definitions.
-----------
The meaning of each defined term that is used in this Agreement is set
forth below.
(a) AAA. The American Arbitration Association.
---
(b) Additional Pay. The meaning of this term is set forth in
---------------
Subsection IV(b).
(c) Agreement. The meaning of this term is set forth in the third
---------
paragraph of this Agreement.
(d) Agreement Payments. The meaning of this term is set forth in
-------------------
Subsection IV(e).
(e) Beneficiaries. The meaning of this term is set forth in Subsection
-------------
VI(b).
(f) Board. The meaning of this term is set forth in the first paragraph of
-----
this Agreement.
(g) Business Combination. The meaning of this term is set forth in
---------------------
Subsection I(i)(iii).
(h) Cause. For purposes of this Agreement, "Cause" shall mean
-----
Executive's willful breach or failure to perform his/her employment duties. For
purposes of this Subsection I(h), no act, or failure to act, on the part of
Executive shall be deemed "willful" unless done, or omitted to be done, by
Executive not in good faith and without reasonable belief that such action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, Executive's employment shall not be deemed to have been terminated
for Cause unless and until the Company delivers to Executive a certificate of a
resolution duly adopted by the affirmative vote of not less than seventy-five
percent (75%) of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice to Executive and an
opportunity for Executive, together with Executive's counsel, to be heard before
the Board), finding that in the good faith opinion of the Board, Executive has
engaged in such willful conduct and specifying the details of such willful
conduct.
(i) Change of Control. For purposes of this Agreement, a "Change of
-------------------
Control" shall be deemed to have occurred if there is a change of control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without limitation, such a
Change of Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) as currently in effect, of the Exchange Act) is or becomes a
"beneficial owner" (as determined for purposes of Regulation 13D-G, as currently
in effect, of the Exchange Act), directly or indirectly, of securities
representing twenty percent (20%) or more of the total voting power of all of
the Company's then outstanding voting securities. For purposes of this
Agreement, the term "person" shall not include: (A) the Company or any of its
Subsidiaries, (B) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Subsidiaries, or (C) an
underwriter temporarily holding securities pursuant to an offering of said
securities;
(ii) during any period of two (2) consecutive calendar years,
individuals who at the beginning of such period constitute the Board and any new
director(s) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board;
(iii) the stockholders of the Company approve a merger,
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless following
such Business Combination: (i) all or substantially all of the individuals and
entities who were the "beneficial owners" (as determined for purposes of
Regulation 13D-G, as currently in effect, of the Exchange Act) of the
outstanding voting securities of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, securities representing
more than fifty percent (50%) of the total voting power of the then outstanding
voting securities of the corporation resulting from such Business Combination or
the parent of such corporation (the "Resulting Corporation"); (ii) no "person"
(as such term is used in Section 13(d) and 14(d)(2), as currently in effect, of
the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or the Resulting Corporation, is
the "beneficial owner" (as determined for purposes of Regulation 13D-G, as
currently in effect, of the Exchange Act), directly or indirectly, of voting
securities representing twenty percent (20%) or more of the total voting power
of then outstanding voting securities of the Resulting Corporation; and (iii) at
least a majority of the members of the board of directors of the Resulting
Corporation were members of the Board at the time of the execution of the
initial agreement, or at the time of the action of the Board, providing for such
Business Combination;
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company; or
(v) any other event that a simple majority of the Board, in its
sole discretion, shall determine constitutes a Change of Control.
(j) Code. For purposes of this Agreement, "Code" shall mean the
----
Internal Revenue Code of 1986, as amended.
(k) Company. The meaning of this term is set forth in Subsection
-------
VI(a).
(l) Controlled Group. For purposes of this Agreement, "Controlled
-----------------
Group" shall mean the Company and all of the Company's Subsidiaries.
(m) Disability. For purposes of this Agreement, "Disability" shall
----------
mean an illness, injury or similar incapacity which 52 weeks after its
commencement, continues to render Executive unable to perform the material and
substantial duties of Executive's position or any substantially similar
occupation or substantially similar employment for which Executive is qualified
or may reasonably become qualified by training, education or experience. Any
question as to the existence of a Disability upon which Executive and the
Company cannot agree shall be determined by a qualified independent physician
selected by Executive (or, if Executive is unable to make such selection, by any
adult member of Executive's immediate family or Executive's legal
representative), and approved by the Company, such approval not to be
unreasonably withheld. The determination of such physician made in writing to
both the Company and Executive shall be final and conclusive for all purposes of
this Agreement.
(n) Employer. For purposes of this Agreement, "Employer" shall mean
--------
the Company or the Subsidiary, as the case may be, with which Executive has an
employment relationship.
(o) Exchange Act. This term shall have the meaning set forth in
-------------
Subsection I(i)(i).
(p) Executive. This term shall have the meaning set forth in the third
---------
paragraph of this Agreement.
(q) Good Reason. For purposes of this Agreement, "Good Reason" shall
------------
mean the occurrence, without Executive's prior express written consent, of any
of the following circumstances:
(i) The assignment to Executive of any duties inconsistent with
Executive's status or responsibilities as in effect immediately prior to a
Change of Control, including imposition of travel obligations which differ
materially from required business travel immediately prior to the Change of
Control;
(ii) Any diminution in the status or responsibilities of
Executive's position from that which existed immediately prior to the Change of
Control, whether by reason of the Company ceasing to be a public company under
the Exchange Act, becoming a subsidiary of a successor public company, or
otherwise;
(iii) (A) A reduction in Executive's annual base salary as in
effect immediately before the Change of Control; or (B) the failure to pay a
bonus award to which Executive is entitled under any short-term incentive
plan(s) or program(s), any long-term incentive plan(s) or program(s), or any
other incentive compensation plan(s) or program(s) of Company in which Executive
participated immediately prior to the time of the Change of Control;
(iv) A change in the principal place of Executive's employment, as
in effect immediately prior to the Change of Control to a location more than
fifty (50) miles distant from the location of such principal place at such time;
(v) The failure by the Company to offer Executive participation in
incentive compensation or stock or stock option plans on at least a
substantially equivalent basis, both in terms of the nature and amount of
benefits provided and the level of Executive's participation, as is then being
provided by the Company to similarly situated peer executives of the Company;
(vi) (A) Except as required by law, the failure by the Company to
offer Executive benefits on at least a substantially equivalent basis, in the
aggregate, to those then being provided by the Company to similarly situated
peer executives of the Company under the qualified and non-qualified employee
benefit and welfare plans of the Company, including, without limitation, any
pension, deferred compensation, life insurance, medical, dental, health and
accident, disability, retirement or savings plan(s) or program(s) offered by the
Company; (B) the taking of any action by the Company that would, directly or
indirectly, materially reduce or deprive Executive of any other perquisite or
benefit then being offered by the Company to similarly situated peer executives
of the Company (including, without limitation, Company-paid and/or reimbursed
club memberships, financial counseling fees and the like); or (C) the failure by
the Company to treat Executive under the Company's vacation policy, past
practice or special agreement in the same manner and to the same extent as then
being provided by the Company to similarly situated peer executives of the
Company;
(vii) The failure of the Company to obtain a satisfactory written
agreement from any successor prior to consummation of the Change of Control to
assume and agree to perform this Agreement, as contemplated in Subsection VI(a);
or
(viii) Any purported termination by the Company of Executive's
employment that is not effected pursuant to a Notice of Termination satisfying
the requirements of Subsection III(d) or, if applicable, Subsection I(h). For
purposes of this Agreement, no such purported termination shall be effective
except as constituting Good Reason.
Executive's continued employment with the Company or any Subsidiary shall not
constitute a consent to, or a waiver of rights with respect to, any
circumstances constituting Good Reason hereunder. Any good faith determination
of "Good Reason" made by the Executive shall be conclusive for purposes of this
Agreement.
(r) Notice of Termination. The meaning of this term is set forth in
-----------------------
Subsection III(d).
(s) Payments. The meaning of this term is set forth in Subsection IV(e).
--------
(t) Reduced Amount. The meaning of this term is set forth in Subsection
---------------
IV(e).
(u) Resulting Corporation. The meaning of this term is set forth in
----------------------
Subsection I(i)(iii).
(v) Retirement. For purposes of this Agreement, "Retirement" shall
----------
mean Executive's voluntary termination of employment with the Company, other
than for Good Reason, and in accordance with the Company's retirement policy
generally applicable to its employees or in accordance with any prior or
contemporaneous retirement agreement or arrangement between Executive and the
Company.
(w) Subsidiary. For purposes of this Agreement, "Subsidiary" shall
----------
mean any corporation of which fifty percent (50%) or more of the voting stock is
owned, directly or indirectly, by the Company.
(x) Terminate(d) or Termination. The meaning of this term is set forth
---------------------------
in Subsection III(c).
(y) Termination Date. For purposes of this Agreement, "Termination
-----------------
Date" shall mean:
(i) If Executive's employment is terminated for Disability, thirty
(30) calendar days after Notice of Termination is given (provided that Executive
shall not have returned to the full-time performance of his/her duties during
such thirty-day period); and
(ii) If Executive's employment is terminated for Cause or Good
Reason or for any reason other than death or Disability, the date specified in
the Notice of Termination (which in the case of a termination for Cause shall
not be less than thirty (30) calendar days and in the case of a termination for
Good Reason shall not be less than thirty (30) calendar days nor more than sixty
(60) calendar days, respectively, from the date such Notice of Termination is
given).
II. Term of Agreement.
-------------------
(a) General. Upon execution by Executive, this Agreement shall
-------
commence as of _______, 2000. This Agreement shall continue in effect through
________, 2002; provided, however, that commencing on ________, 2002, and every
third January 1 thereafter, the term of this Agreement shall automatically be
extended for two (2) additional years unless, not later than ninety (90)
calendar days prior to the January 1 on which this Agreement otherwise
automatically would be extended, the Company shall have given notice to
Executive that it does not wish to extend this Agreement; provided further,
however, that if a Change of Control shall have occurred during the original or
any extended term of this Agreement, this Agreement shall continue in effect for
a period of twenty-four (24) months beyond the month in which the Change of
Control occurred. The term of this Agreement automatically shall be extended
for two (2) additional years from the date of any public announcement of an
event that would constitute a Change of Control as defined in this Agreement;
provided, however, that if any such announced event is not consummated within
that two (2) year period, the original renewal term thereafter shall apply.
(b) Disposition of Employer. In the event Executive is employed by a
-------------------------
Subsidiary, the terms of this Agreement shall expire if such Subsidiary is sold
or otherwise disposed of prior to the date on which a Change of Control occurs,
unless Executive continues in employment with the Controlled Group after such
sale or other disposition. If Executive's Employer is sold or disposed of on or
after the date on which a Change of Control occurs, this Agreement shall
continue through its original term or any extended term then in effect.
(c) Deemed Change of Control. If Executive's employment with Employer
-------------------------
is terminated prior to the date on which a Change of Control occurs, and such
termination was at the request of a third party who has taken steps to effect a
Change of Control, or otherwise was in connection with the Change of Control,
then for all purposes of this Agreement, a Change of Control shall be deemed to
have occurred prior to such termination.
(d) Expiration of Agreement. No termination or expiration of this
-------------------------
Agreement shall affect any rights, obligations or liabilities of either party
that shall have accrued on or prior to the date of such termination or
expiration.
III. Benefits Following Change of Control.
----------------------------------------
(a) Accelerated Vesting in All Equity. If a Change of Control shall
-------------------------------------
have occurred, Executive shall be entitled to, immediately upon the date of the
Change of Control, accelerated vesting of all unvested stock options and
restricted stock that have been granted or sold to the executive by the Company
under any restricted terms, such that following said acceleration, all
restrictions as to the sale and ownership of this equity, as imposed by the
company, shall have lapsed.
(b) Prorated Payout of Short Term Bonus. If a Change of Control shall
------------------------------------
have occurred, Executive shall be entitled to, immediately upon the date of the
Change of Control, payment in full of Executive's prorated bonus for the fiscal
year in which the Change of Control occurs. The prorated bonus amount shall be
calculated as Executive's Target Bonus for the fiscal year in which the change
in control occurs divided by 365 and multiplied by the number of calendar days
in said year immediately up to the day on which the Change of Control occurs.
(c) Entitlement to Benefits Upon Termination. If a Change of Control
------------------------------------------
shall have occurred, Executive shall be entitled to, in addition to the benefits
described in Subsections III(a) and (b), the benefits provided in Section IV
hereof upon the subsequent termination of his/her employment with the Company
within two (2) years after the date of the Change of Control unless such
termination is (i) a result of Executive's death or Retirement, (ii) for Cause,
(iii) a result of Executive's Disability, or (iv) by Executive other than for
Good Reason. For purposes of this Agreement, "Termination" shall mean a
termination of Executive's employment that is not as a result of Executive's
death, Retirement or Disability and (x) if by the Company, is not for Cause, or
(y) if by Executive, is for Good Reason.
(d) Notice of Termination. Any purported termination of Executive's
-----------------------
employment by either the Company or Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section VIII.
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice that indicates the specific provision(s) of this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision(s)
so indicated. If Executive's employment shall be terminated by the Company for
Cause or by Executive for other than Good Reason, the Company shall pay
Executive his/her full base salary through the Termination Date at the salary
level in effect at the time Notice of Termination is given and shall pay any
amounts to be paid to Executive pursuant to any other compensation or stock or
stock option plan(s), program(s) or employment agreement(s) then in effect, and
the Company shall have no further obligations to Executive under this Agreement.
If within thirty (30) calendar days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the grounds for termination, then, notwithstanding the
meaning of "Termination Date" set forth in Subsection I(y), the Termination Date
shall be the date on which the dispute is finally resolved, whether by mutual
written agreement of the parties or by a decision rendered pursuant to Section
XI; provided that the Termination Date shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay Executive his/her full compensation including, without limitation, base
salary, bonus, incentive pay and equity grants, in effect when the notice of the
dispute was given, and continue Executive's participation in all benefits plans
or other perquisites in which Executive was participating, or which Executive
was enjoying, when the Notice of Termination giving rise to the dispute was
given, until the dispute is finally resolved. Amounts paid under this
Subsection III(c) are in addition to and not in lieu of all other amounts due to
Executive under this Agreement and shall not be offset against or reduce any
other amounts due to Executive under this Agreement.
IV. Compensation Upon a Termination.
----------------------------------
Following a Change of Control, upon Executive's Termination, Executive shall be
entitled to the following benefits, provided that such Termination occurs during
the two (2) year period immediately following the date of the Change of Control:
(a) Standard Benefits. The Company shall pay Executive his/her full
------------------
base salary through the Termination Date at the rate in effect at the time the
Notice of Termination is given, no later than the second business day following
the Termination Date, plus all other amounts to which Executive is entitled
under any compensation plan(s) or program(s) of the Company applicable to
Executive at the time such payments are due. Without limitation, amounts
payable pursuant to this Subsection IV(a) shall include, pursuant to the express
terms of any short-term incentive plan(s) in which Executive participates or
otherwise, Executive's annual bonus under such short-term incentive plan,
pro-rated to the Termination Date. If the Termination Date shall fall within
the same short-term incentive period, as set forth by the express terms any of
the short-term incentive plan(s) in which Executive participates or otherwise,
as the Change of Control Date, and Executive has previously received the
pro-rated bonus amount as described in Subsection III(b), then Executive shall
be paid the difference between the pro-rated bonus amount as described here in
Subsection IV(a) and the pro-rated bonus amount described in Subsection III(b).
(b) Additional Benefits. The Company shall pay to Executive as
--------------------
additional pay ("Additional Pay"), the product of two (2) multiplied by the sum
of (x) the greater of (i) Executive's annual base salary in effect immediately
prior to the Termination Date, or (ii) Executive's annual base salary in effect
as of the Change of Control Date, and (y) Executive's annual bonus amount under
any short-term incentive plan(s) or program(s) in which Executive is a
participant as of the Termination Date. The Company shall pay the Additional
Pay to Executive in a lump sum, in cash, not later than the fifteenth calendar
day following the Termination Date. The Company shall maintain for Executive,
all such perquisites and fringe benefits enjoyed by Executive immediately prior
to the Termination Date as are approved in writing by the Company's Chief
Executive Officer for such period as is specified in such writing.
(c) Retirement Plan Benefits. If not already vested, Executive shall
--------------------------
be deemed fully vested as of the Termination Date in any Company retirement
plan(s) or other written agreement(s) between Executive and the Company relating
to pay or other benefits upon retirement in which Executive was a participant,
party or beneficiary immediately prior to the Change of Control, and any
additional plan(s) or agreement(s) in which such Executive became a participant,
party or beneficiary thereafter. In addition to the foregoing, for purposes of
determining the amounts to be paid to Executive under such plan(s) or
agreement(s), the years of service with the Company and the age of Executive
under all such plans and agreements shall be deemed increased by twenty-four
months (24). For purposes of this Subsection IV(c), the term "plan(s)"
includes, without limitation, the Company's qualified pension plan,
non-qualified pension plans, and any companion, successor or amended plan(s),
and the term "agreement(s)" encompasses, without limitation, the terms of any
offer letter(s) leading to Executive's employment with the Company where
Executive was a signatory thereto, any written amendment(s) to the foregoing and
any subsequent agreements on such matters. In the event the terms of the plans
referenced in this Subsection IV(c) do not for any reason coincide with the
provisions of this Subsection IV(c) (e.g., if plan amendments would cause
disqualification of qualified plans), Executive shall be entitled to receive
from the Company under the terms of this Agreement an amount equal to all
amounts Executive would have received, at the time Executive would have received
such amounts, had all such plans continued in existence as in effect on the date
of this Agreement after being amended to coincide with the terms of this
Subsection IV(c).
(d) Health and Other Benefits. Following the Termination Date, the
----------------------------
Company shall continue to provide, for a period of twenty-four months (24),
substantially the same level of health, vision and dental benefits to Executive
and Executive's eligible dependents that the Company would provide to Executive
and Executive's eligible dependents if Executive were first eligible for retiree
health, vision and dental benefits immediately prior to the Change of Control.
The eligibility of Executive's dependents shall be determined by the terms of
any retiree health, vision and dental benefit plan(s) or program(s) in effect
immediately prior to the Change of Control.
(e) Excess Parachute Payment. Anything in this Agreement to the
--------------------------
contrary notwithstanding, in the event that an independent accountant shall
determine that any payment or distribution by the Company to or for the benefit
of Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise) (a "Payment") would be
nondeductible by the Company for Federal income tax purposes because of Code
Section 280G or would constitute an "excess parachute payment" (as defined in
Code Section 280G), then the aggregate present value of amounts payable or
distributable to or for the benefit of Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall
be an amount expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be nondeductible by
the Company because of Code Section 280G or without causing any portion of the
Payment to be subject to the excise tax imposed by Code Section 4999.
If the independent accountant determines that any Payment would be nondeductible
by the Company because of Code Section 280G or that any portion of the Payment
will be subject to the excise tax imposed by Code Section 4999, the Company
shall promptly give Executive notice to that effect and a copy of the detailed
calculation thereof and of the Reduced Amount. Executive may then elect, in
Executive's sole discretion, which and how much of the Agreement Payments shall
be eliminated or reduced (as long as after such election the aggregate present
value of the Agreement Payments equals the Reduced Amount), and shall advise the
Company in writing of such election within ten (10) days of Executive's receipt
of such notice. If no such election is made by Executive within such ten-day
period, the Company may elect which and how much of the Agreement Payments shall
be eliminated or reduced (as long as after such election the aggregate present
value of the Agreement Payments equals the Reduced Amount) and shall notify
Executive promptly of such election. For purposes of this paragraph, present
value shall be determined in accordance with Code Section 280G(d)(4). All
determinations made by the independent accountant under this Section shall be
binding upon the Company and Executive and shall be made within sixty (60) days
of a termination of employment of Executive. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
to or distribute to or for the benefit of Executive such amounts as are then due
to Executive under this Agreement and shall promptly pay to or distribute for
the benefit of Executive in the future such amounts as become due to Executive
under this Agreement.
As a result of the uncertainty in the application of Code Sections 280G and 4999
at the time of the initial determination by the independent accountant
hereunder, it is possible that Agreement Payments will be made by the Company
which should not have been made ("Overpayment") or that additional Agreement
Payments which have not been made by the Company should have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the independent accountant, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
Executive, which the independent accountant believes has a high probability of
success, determines that an Overpayment has been made, any such Overpayment
shall be treated for all purposes as a loan to Executive which Executive shall
repay to the Company together with interest at the applicable Federal rate
provided for in Code Section 7872(f)(2)(A); provided, however, that no amount
shall be payable by Executive to the Company if and to the extent such payment
would not reduce the amount which is subject to taxation under Code Section 4999
or if the period of limitations for assessment of tax under Code Section 4999
against Executive shall have expired. In the event that the independent
accountant, based upon controlling precedent, determines that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of Executive together with interest at the applicable Federal
rate provided for in Code Section 7872(f)(2)(A).
(f) Legal Fees and Expenses. The Company shall pay to Executive all
--------------------------
legal fees and expenses as and when incurred by Executive in connection with
this Agreement, including all such fees and expenses, if any, incurred in
contesting or disputing any Termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement, regardless of the outcome, unless,
in the case of a legal action brought by or in the name of Executive, a decision
is rendered pursuant to Section XI, or in any other proper legal proceeding,
that such action was not brought by Executive in good faith.
(g) No Mitigation. Executive shall not be required to mitigate the
--------------
amount of any payment provided for in this Section IV by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Section IV be reduced by any compensation earned by Executive as the
result of employment by another employer or by retirement or other benefits
received from whatever source after the Termination Date or otherwise, except as
specifically provided in this Section IV. The Company's obligation to make
payments to Executive provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action that the Company or Employer
may have against Executive or other parties.
V. Death and Disability Benefits.
--------------------------------
In the event of the death or Disability of Executive after a Change of Control,
Executive, or in the case of death, Executive's Beneficiaries (as defined below
in Subsection VI(b)), shall receive the benefits to which Executive or his/her
Beneficiaries are entitled under this Agreement and any and all retirement
plans, pension plans, disability policies and other applicable plans, programs,
policies, agreements or arrangements of the Company.
VI. Successors; Binding Agreement.
-------------------------------
(a) Obligations of Successors. The Company will require any successor
--------------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company is required to perform it. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Company in the same amount and on the same
terms as Executive would be entitled hereunder if Executive had terminated
employment for Good Reason following a Change of Control, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Termination Date. As used in this
Agreement, the term "Company" shall mean Company, including any surviving entity
or successor to all or substantially all of its business and/or assets and the
parent of any such surviving entity or successor.
(b) Enforceable by Beneficiaries. This Agreement shall inure to the
------------------------------
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees (the "Beneficiaries"). In the event of the death of Executive while
any amount would still be payable hereunder if such death had not occurred, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's Beneficiaries.
(c) Employment. Except in the event of a Change of Control and,
----------
thereafter, only as specifically set forth in this Agreement, nothing in this
Agreement shall be construed to (i) limit in any way the right of the Company or
a Subsidiary to terminate Executive's employment at any time for any reason or
for no reason; or (ii) be evidence of any agreement or understanding, expressed
or implied, that the Company or a Subsidiary will employ Executive in any
particular position, on any particular terms or at any particular rate of
remuneration.
VII. Confidential Information.
-------------------------
Executive shall hold in fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to the Company,
the Subsidiaries and their respective businesses, which shall have been obtained
during Executive's employment with the Employer and which shall not be public
knowledge (other than by acts by Executive or his/her representatives in
violation of this Agreement). After termination of Executive's employment with
the Company or any Employer within the Controlled Group, Executive shall not,
without prior written consent of the Company or the Employer, communicate or
divulge any such information, knowledge or data to anyone other than the
Company, the Employer or those designated by them. In no event shall an
asserted violation of this Section VII constitute a basis for deferring or
withholding any amounts otherwise payable to Executive under this Agreement.
VIII. Notice.
------
All notices and communications including, without limitation, any Notice of
Termination hereunder, shall be in writing and shall be given by hand delivery
to the other party, by registered or certified mail, return receipt requested,
postage prepaid, or by overnight delivery service, addressed as follows:
If to Executive:
Name
Title
Company
Address
Address
If to the Company:
Company
Address
Address
Attn: _____________
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be deemed given
and effective when actually received by the addressee.
IX. Miscellaneous.
-------------
No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by
Executive and the Company's Chief Executive Officer or other authorized officer
designated by the Board or an appropriate committee of the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any conditions or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Missouri. All references to sections of the Code or the Exchange Act shall be
deemed also to refer to any successor provisions of such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Company under
Sections IV and V shall survive the expiration of the term of this Agreement.
X. Validity.
--------
The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
XI. Arbitration.
-----------
Executive may agree in writing with the Company (in which case this Article XI
shall have effect but not otherwise) that any dispute that may arise directly or
indirectly in connection with this Agreement, Executive's employment or the
termination of Executive's employment, whether arising in contract, statute,
tort, fraud, misrepresentation, discrimination or other legal theory, shall be
resolved by arbitration in City, State under the applicable rules and procedures
of the AAA. The only legal claims between Executive and the Company or any
Subsidiary that would not be included in this agreement to arbitration are
claims by Executive for workers' compensation or unemployment compensation
benefits, claims for benefits under a Company or Subsidiary benefit plan if the
plan does not provide for arbitration of such disputes, and claims by Executive
that seek judicial relief in the form of specific performance of the right to be
paid until the Termination Date during the pendency of any applicable dispute or
controversy. If this Article XI is in effect, any claim with respect to this
Agreement, Executive's employment or the termination of Executive's employment
must be established by a preponderance of the evidence submitted to an impartial
arbitrator. A single arbitrator engaged in the practice of law shall conduct
any arbitration under the applicable rules and procedures of the AAA. The
arbitrator shall have the authority to order a pre-hearing exchange of
information by the parties including, without limitation, production of
requested documents, and examination by deposition of parties and their
authorized agents. If this Article XI is in effect, the decision of the
arbitrator: (i) shall be final and binding, (ii) shall be rendered within
ninety (90) days after the impanelment of the arbitrator, and (iii) shall be
kept confidential by the parties to such arbitration. The arbitration award may
be enforced in any court of competent jurisdiction. The Federal Arbitration
Act, 9 U.S.C. 1 et seq., not state law, shall govern the arbitrability of all
claims.
If this letter sets forth our agreement on the subject matter hereof, kindly
sign both originals of this letter and return to the Vice President - Law, one
of the fully executed originals of this letter which will then constitute our
Agreement on this subject.
Sincerely,
Company
By:___________________________________
Name
Chairman/President/Chief Executive Officer
______________________________________
Employee
