<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-4199
BESTFOODS
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2385545
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
700 SYLVAN AVENUE
INTERNATIONAL PLAZA
ENGLEWOOD CLIFFS, NEW JERSEY 07632-9976
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) 201-894-4000
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
Title of each class Name of each exchange where registered
Common Stock par value New York, London
$.25 per share
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to its Form 10-K [X]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Aggregate market value
Outstanding at held by non-affiliates at
Class January 31, 1999 January 31, 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $.25 281,332,396 $14,154,536,174
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's Annual Report to Stockholders for the year ended
December 31, 1998 are incorporated into Part I and Part II hereof.
2. Portions of the registrant's Proxy Statement dated March 11, 1999 are
incorporated into Part III hereof.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
Bestfoods and its consolidated subsidiaries (the "Company") is a
worldwide business, principally engaged in one industry segment, consumer foods.
The development of the Company's business since the beginning of 1998 and
financial information on geographical areas are described in the 1998 Annual
Report to Stockholders (the "Annual Report"), the following portions of which
are incorporated herein by reference:
- Text on pages 6 through 17 under the heading "Bestfoods' 1998
Worldwide Business Results and Market Positions," excluding
the Market Positions table on pages 6 and 7.
- Text on pages 18 and 19 under the heading "Bestfoods' Values
and Policies."
- Management's Discussion and Analysis of Financial Condition
and Results of Operations on pages 20 through 24.
- Financial Statements and Notes to Consolidated Financial
Statements on pages 25 through 40.
The Company employs approximately 42,000 people of whom approximately
26,500 are located outside the United States. Total employee costs amounted to
$1.7 billion in 1998 compared with $1.8 billion and $1.9 billion in 1997 and
1996, respectively.
The Company's products are manufactured from various agricultural raw
materials including soybean and other vegetable oils, peanuts, and wheat, all of
which are expected to continue to be in adequate supply. As prices of these raw
materials depend on a number of unpredictable factors, such as farm plantings
and weather, which cannot always be fully protected through hedging,
fluctuations in raw material prices may have an effect on the Company's
earnings.
The Company's products are manufactured and sold primarily by the sales
organizations of its various operating units and subsidiaries. Exports represent
a small portion of total net sales. Mayonnaise sales accounted for 12.6 percent,
13 percent and 13 percent of consolidated net sales in 1998, 1997 and 1996,
respectively.
The Company has approximately 2,473 trademarks, some of which are of
significant importance to the Company. The Company also has over 685 patents of
various durations, some of which are licensed to affiliates and joint ventures
in which the Company or an affiliate participates. No individual patent has a
material effect on the earnings of the Company.
The Company's products, both within the United States and abroad,
generally face strong competition, and as a result, the Company engages in
extensive marketing, advertising and promotional activities. The Company also
conducts market research to assist in determining consumer preferences. The
amount spent on these activities was $976 million in 1998, $978 million in 1997
and $932 million in 1996.
In addition, the Company conducts product and process research and
development activities. Research related to food and food technology is
conducted at facilities in Somerset, New Jersey; Bay Shore, New York; Heilbronn,
Germany; and Thayngen, Switzerland.
1
<PAGE> 3
Research has resulted in the development of new and improved products
based on studies in nutrition, food technology, vegetable oils, enzymes,
carbohydrates, and carbohydrate-derived products, as well as developments and
improvements in process technology. The amount spent for research and
development in 1998, 1997, and 1996 was $67 million, $66 million and $71
million, respectively. Approximately 780 full-time professional employees were
engaged in such activities during 1998.
ITEM 2. PROPERTIES.
The Company's headquarters buildings in Englewood Cliffs, New Jersey
are held under a lease which, including all renewal terms, expires in May 2019.
The Company owns or leases other property appropriate to its business, including
distribution centers and warehouses. None of the leases involved is considered
to be a material lease.
The Company has a total of 127 operating plants, of which 30 are in the
United States, 2 in Canada, 37 in Europe, 20 in Africa and the Middle East, 20
in Latin America, and 18 in Asia. In general, it is the Company's belief that
its plants are suitable and adequate for its needs, and, subject to fluctuations
in market demand, are in the aggregate fully utilized.
Included below is a complete listing of all plants owned and operated
by the Company and its subsidiaries as of December 31, 1998. Based on past loss
experience, the Company believes it is adequately insured in respect of those
assets, and for liabilities which are likely to arise from its operations.
UNITED STATES: ARKANSAS-Little Rock; CALIFORNIA-Montebello, Placentia, San
Francisco; COLORADO-Denver; CONNECTICUT-Greenwich; FLORIDA-Miami, Riviera Beach;
ILLINOIS-Argo, Chicago, Franklin Park, Northlake; INDIANA-Indianapolis;
MARYLAND-Frederick; NORTH CAROLINA-Asheboro, Gastonia; NEW JERSEY-Bayonne; NEW
YORK- Albany, Bay Shore, Hudson, Plattsburg; OREGON-Beaverton;
PENNSYLVANIA-Hazleton; TEXAS-Dallas, Irving; VERMONT-Burlington;
WISCONSIN-Germantown, Milwaukee, Oconomowoc; PUERTO RICO-Arecibo
CANADA: QUEBEC-Baie d'Urfe, Pointe Claire
EUROPE:AUSTRIA-Wels; CZECH REPUBLIC-Zabreh; DENMARK- Levring, Vadum;
FRANCE-Duppigheim (2), Faverolles, Grande Synthe, Ludres (Nancy), Verneuil;
GERMANY-Auerbach, Bremen, Cloppenburg, Heilbronn, Krefeld, Reinbek, Stavenhagen,
Wittingen; GREECE-Schimatari; HUNGARY-Roszke; IRELAND-Dublin; ITALY-Sanguinetto;
NETHERLANDS-Baarn, Loosdrecht; POLAND-Poznan (2); PORTUGAL-Carregado;
ROMANIA-Otopeni; SPAIN-Montmelo; SWEDEN-Simrishamn; SWITZERLAND-Steinhausen,
Thayngen; UNITED KINGDOM-Burton-on-Trent, Crumlin, Erith, Lifton, Paisley
LATIN AMERICA: ARGENTINA-Barracas, Florida, Mendoza, Pilar, Tucuman;
BRAZIL-Campina Grande, Garanhuns, Mogi-Guacu, Pouso Alegre; CHILE-Llay-Llay;
COLOMBIA-Barranquilla (2), Cali; COSTA RICA-Alajuela; DOMINICAN REPUBLIC-Santo
Domingo; MEXICO-Aguascalientes, Aguida, Lerma; PERU-Callao; VENEZUELA-Maracay
AFRICA & MIDDLE EAST: ISRAEL-Arad, Arara, Barkan, Hadera, Haifa, Zefat;
JORDAN-Wadi Dleil; KENYA-Nairobi; MOROCCO-Had Soualem; SAUDI ARABIA-Yanbu; SOUTH
AFRICA-Durban (4), Johannesburg (2), Kimberley, Tzaneen; TUNISIA-Grombalia;
TURKEY-Cayirova
2
<PAGE> 4
ASIA: CHINA-Beijing, Conghua, Feng Xian, Weifang; HONG KONG-Tai Po; INDIA-Thane;
INDONESIA-Purwakarta; MALAYSIA-Kuala Lumpur; PAKISTAN-Faisalabad, Pernawan;
PHILIPPINES-Cavite, Las Pinas, Paranaque; SRI LANKA-Katana; TAIWAN-Hsin Chu
Hsien; THAILAND-Bangpoo, Gateway City; VIETNAM-Bien Hoa
ITEM 3. LEGAL PROCEEDINGS.
In previous reports concerning the site of a former subsidiary, Ott
Chemical Company, located in Muskegon, Michigan, the Company reported that it
had been held liable under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), in a 1991 decision by the U.S.
District Court for the Western District of Michigan; that on July 14, 1995, the
U.S. Court of Appeals for the Sixth Circuit reversed the District Court's
finding of liability against the Company; that following such reversal, the
Court of Appeals directed an en banc rehearing of this decision, which
reaffirmed the Sixth Circuit's reversal; and that the U.S. government and the
State of Michigan successfully petitioned the U.S. Supreme Court for
certiorari. In a unanimous decision rendered on June 8, 1998 the Supreme Court
held that a parent corporation is not liable under CERCLA for its subsidiary's
liabilities except in circumstances in which the common law would allow
piercing of the corporate veil. The Supreme Court also held that a parent
corporation may be directly, as opposed to derivatively, liable in situations
where an employee of the parent corporation - who held no position in the
subsidiary - directly managed a subsidiary's operations which created the
pollution problem. The Court remanded the case to the District Court to decide
whether the Company can be held directly liable as an "operator" of the Ott
facility. It is not yet known when the District Court will address this issue.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
3
<PAGE> 5
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of all elected officers of the
Registrant, as of December 31, 1998, indicating their positions and offices with
the Registrant and the period of time during which each has served as such:
<TABLE>
<CAPTION>
Name Age All positions and offices with the Registrant
---- --- ---------------------------------------------
<S> <C> <C>
Charles R. Shoemate 59 Chairman of the Board since September 1990; Chief Executive
Officer since August 1990; President since October 1988; Vice
President, 1984 - October 1988 and Director since October 1988.
Robert J. Gillespie 56 Executive Vice President since July 1995; Senior Vice President
November 1991 - July 1995; Vice President 1980 - November 1991
and Director since October 1988.
Alain Labergere 64 Executive Vice President since July 1995; Senior Vice President
October 1991 - July 1995; Vice President January 1991 - November
1991 and Director since December 1992.
Richard P. Bergeman 60 Senior Vice President since March 1997; Vice President since
1982.
Bernard H. Kastory 53 Senior Vice President since March 1997; Vice President since
1992.
Axel C.A. Krauss 54 Senior Vice President since March 1997; Vice President since
1992.
Michael J. Bevilacqua 59 Vice President since 1992.
Robert S. Gluck 48 Vice President and Treasurer since May 1997; Vice President,
Finance Corn Products Division 1995 - April 1997; Vice
President, Business Development, Best Foods Division 1992 - 1995.
Gale L. Griffin 55 Vice President since December 1995; Director, Corporate
Communications December 1991 - November 1995.
Heribert H. Grunert 54 Vice President since April 1995; President Bestfoods Asia since
1992.
Hanes A. Heller 58 Vice President since December 1995; General Counsel since April
1997; Secretary since November 1997; Deputy General Counsel 1987
- November 1995.
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C> <C>
Nina Henderson 48 Vice President since September 1997; President Best Foods
Grocery Division since September 1997; Vice President, Best
Foods Division 1986 - August 1997.
John J. Langdon 58 Vice President since March 1997; President and Chief Executive
Officer Bestfoods Baking Company since March 1997; President
Best Foods Baking Group 1992 - February 1997.
Rainer H. Mimberg 56 Vice President since March 1997; Comptroller June 1997 - June
1998; Senior Vice President, Finance and Human Resources
Bestfoods Europe 1995 - February 1997; Vice President, Finance
Bestfoods Latin America 1990 - 1995.
Ian M. Ramsay 59 Vice President since September 1998; President European
Operations since September 1998; Senior Vice President, Finance
and Human Resources Bestfoods Europe from 1997 to September
1998; General Manager United Kingdom 1992 - 1997.
Diani Santucci 47 Vice President since March 1998; Director Quality Assurance 1995
- March 1998; Manager Operations Development Bestfoods North
America 1990 - 1995.
Luis Schuchinski 61 Vice President since December 1995; Director, Taxes and
Insurance 1987 - November 1995.
Anthony J. Simon 53 Vice President since February 1997; Senior Vice President,
Business Development and Planning and Operations, Bestfoods
Europe from 1992 - 1997.
Philip V. Terenzio 51 Vice President and Controller since June 1998. (Partner KPMG LLP
since 1980.)
Mohammed Wahby 63 Vice President since December 1995; President Bestfoods
Africa/Middle East Division since March 1995; Vice President,
Bestfoods Europe 1993 - February 1995.
</TABLE>
All officers serve at the pleasure of the Board of Directors.
5
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information regarding the Company's common stock and market prices for
each quarterly period during the past two years is set forth on pages 42 and 43
of the Annual Report and is incorporated herein by reference.
The approximate number of registered equity stockholders as of
December 31, 1998 was 25,241.
The history of the Company's dividends declared for the last two years
on pages 42 and 43 of the Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data for the ten years ended December 31, 1998 for
the Company, as set forth on pages 42 and 43 of the Annual Report is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results
of operations of the Company for the three years ended December 31, 1998, is set
forth on pages 20 through 24 of the Annual Report and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative disclosure about market risk is set forth on pages 34 and
35 of the Annual Report under the caption "Financial Instruments" and is
incorporated herein by reference.
Qualitative disclosure about market risk is set forth on page 31 of the
Annual Report under the caption " Financial Instruments" and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements comprising the consolidated balance sheets at
December 31, 1998 and 1997, and the consolidated statements of income,
stockholders' equity and cash flows, and notes to financial statements for each
of the years in the three year period ended December 31, 1998 are set forth on
pages 25 through 40 of the Annual Report and are incorporated herein by
reference.
Selected quarterly financial data for the years ended December 31, 1998
and 1997, set forth on pages 42 and 43 of the Annual Report is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
6
<PAGE> 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's Proxy Statement dated March 11, 1999 (the "1999 Proxy
Statement") has been filed pursuant to Regulation 14A and is incorporated herein
by reference. Information regarding directors of the Registrant is set forth on
pages 2 through 7 of the 1999 Proxy Statement under the caption "Election of
Directors". Information regarding executive officers of the Registrant is set
forth on pages 4 and 5 of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is set forth on pages 19
through 22 of the 1999 Proxy Statement under the caption "Executive
Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners
and management is set forth on pages 13 and 14 of the 1999 Proxy Statement under
the caption "Stock Ownership Table" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) Financial Statements - See index on page 8.
b) Reports on Form 8-K - There was one (1) report filed on Form
8-K, under Item 5. Other Events, during the fourth quarter of
1998 as follows:
1. Announcing the redemption of the outstanding stock
purchase rights under the 1991 Shareholder Rights
Plan and the establishment of a new Shareholder
Rights Plan.
a) Exhibits - Exhibits to this report are filed as part of this
report as set forth in the Index to Exhibits on pages 11 and
12 hereof.
7
<PAGE> 9
INDEX TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The consolidated financial statements and reports of the
independent auditors are included in Part II of this report through
incorporation by reference from the Annual Report which is filed as
Exhibit 13. The documents referred to above can be found on the
following pages of the Annual Report.
<TABLE>
<CAPTION>
Annual Report Page
--------------------
<S> <C>
a) Consolidated statements of income for the years ended December
31, 1998, 1997 and 1996 25
b) Consolidated balance sheets for the years ended December 31,
1998 and 1997 26 - 27
c) Consolidated statements of cash flows for the years ended
December 31, 1998, 1997 and 1996 28
d) Consolidated statements of stockholders' equity for the years
ended December 31, 1998, 1997 and 1996 29
e) Notes to consolidated financial statements 30 - 40
f) Independent auditors' report. 41
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted either
because the information is not required or is otherwise included in the
financial statements and notes thereto.
8
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd
day of March, 1999.
BESTFOODS
---------------------------------------------
By /S/ Charles R. Shoemate
---------------------------------------------
Charles R. Shoemate,
Chairman, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on the behalf of the
Registrant and in the capacities indicated, on the 23rd day of March, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/S/ Charles R. Shoemate Chairman, President, Chief Executive Officer and Director
- -------------------------------------------
(Charles R. Shoemate)
/S/ Robert J. Gillespie Executive Vice President, Strategic Business Development
- ------------------------------------------- and Finance, and Director
(Robert J. Gillespie)
/S/ Philip V. Terenzio Vice President and Controller
- -------------------------------------------
(Philip V. Terenzio)
/S/ Theodore H. Black * Director
- -------------------------------------------
(Theodore H. Black)
/S/ Clateo Castellini * Director
- -------------------------------------------
(Clateo Castellini)
/S/ Alfred C. DeCrane, Jr. * Director
- -------------------------------------------
(Alfred C. DeCrane, Jr.)
/S/ William C. Ferguson * Director
- -------------------------------------------
(William C. Ferguson)
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C>
/S/ Ellen R. Gordon * Director
- -----------------------------------------------
(Ellen R. Gordon)
/S/ George V. Grune * Director
- -----------------------------------------------
(George V. Grune)
/S/ Leo I. Higdon, Jr. * Director
- -----------------------------------------------
(Leo I. Higdon, Jr.)
/S/ Richard G. Holder * Director
- -----------------------------------------------
(Richard G. Holder)
/S/ Eileen S. Kraus * Director
- -----------------------------------------------
(Eileen S. Kraus)
/S/ Alain Labergere * Director
- -----------------------------------------------
(Alain Labergere)
/S/ William S. Norman * Director
- -----------------------------------------------
(William S. Norman)
/S/ Henrique de Campos Meirelles * Director
- -----------------------------------------------
(Henrique de Campos Meirelles)
*/S/ Hanes A. Heller
- -----------------------------------------------
(Hanes A. Heller)
Attorney-in-fact
</TABLE>
10
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------------------
<S> <C>
3 (a) The Certificate of Incorporation as restated January
4, 1999 is filed herewith.
3 (b) The By-Laws as amended on January 20, 1998 is
incorporated by reference to Exhibit 3 (b) of Form
10-K for the year ended December 31, 1997.
4 (a) No instruments defining rights of holders of debt
securities are included as exhibits because each
authorized issue of debt securities is less than 10%
of total assets. The Company agrees to furnish a copy
of any such instrument upon request.
4 (b) Rights Agreement dated as of January 4, 1999 between
the Company and First Chicago Trust Company of New
York is filed herewith.
10 (a) Amendment No. 5 to the 1984 Stock and Performance
Plan is filed herewith. The 1984 Stock and
Performance Plan is incorporated by reference from
Exhibit A to the Prospectus contained in
Post-Effective Amendment No. 1 to the Registration
Statement on Form S-8, File No. 2-92248.
10 (b) Amendment No. 5 to the 1993 Stock and Performance
Plan is filed herewith. The 1993 Stock and
Performance Plan is incorporated by reference to
Post-Effective Amendment No. 1 to the Registration
Statement filed on Form S-8, File No. 33-49847.
10 (c) Deferred Compensation Plan for Outside Directors is
incorporated by reference to Exhibit 10 (c) of Form
10-K for the year ended December 31, 1996.
10 (d) Standard form of severance agreement for executive
officers of the Company is incorporated by reference
to Exhibit 10 of Form 10-Q for the quarter ended June
30, 1996.
10 (e) Indemnification agreements for all directors and the
five most highly compensated executive officers are
incorporated by reference to Exhibit 10 (e) of Form
10-K for the year ended December 31, 1996.
10 (f) Deferred Compensation Plan for senior executives,
dated November 10, 1988 is incorporated by reference
to Exhibit 10 (e) of Form 10-K for the year ended
December 31, 1988.
10 (g) Special Severance Program for Salaried Employees,
dated January 17, 1989 is incorporated by reference
to Exhibit 10 (f) of Form 10-K for the year ended
December 31, 1988. An amendment dated March 19, 1991
to the Special Severance Program for Salaried
Employees is incorporated by reference to Exhibit 10
(f) of Form 10-K for the year ended December 31,
1991.
10 (h) Deferred Stock Unit Plan for senior executives, dated
December 20, 1994, is incorporated by reference to
Exhibit 10 (h) of Form 10-K for the year ended
December 31, 1994.
10 (i) Executive Life Insurance Plan and Amendment No. 1
related thereto are incorporated by reference to
Exhibit 10 (i) of Form 10-K for the year ended
December 31, 1994.
</TABLE>
11
<PAGE> 13
<TABLE>
<S> <C>
11 Schedule of computation of earnings per share is
filed herewith.
12 Statement regarding the computation of ratios of
earnings to fixed charges is filed herewith.
13 1998 Annual Report to Stockholders is filed herewith.
Except for such parts thereof as are expressly
incorporated by reference in this Form 10-K, this
exhibit is furnished for the information of the
Securities and Exchange Commission and is not deemed
filed as a part hereof. Graphic material contained in
the Annual Report is not included in the electronic
filing of this report.
21 Subsidiaries of the Registrant is filed herewith.
23 Consent of Independent Auditors is filed herewith.
24 Powers of Attorney are filed under separate cover
with the Commission.
27 Financial Data Schedule is filed herewith.
</TABLE>
12
<PAGE> 1
EXHIBIT 3 (a)
RESTATED CERTIFICATE OF INCORPORATION
OF
BESTFOODS
Bestfoods (hereinafter called the "Corporation") was originally
incorporated in the State of Delaware under the name "Corn Products Company,"
and its original Certificate of Incorporation was filed with the Secretary of
State of the State of Delaware on February 17, 1959. This Restated Certificate
of Incorporation was duly adopted by the Board of Directors effective as of
January 4, 1999 in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware without a vote of the stockholders. It
only restates and integrates and does not further amend the provisions of the
Certificate of Incorporation as heretofore amended or supplemented, and there is
no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation.
FIRST: The name of the Corporation is Bestfoods.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
name of the Corporation's registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 925,000,000 shares, consisting of
(a) 25,000,000 shares of Preferred Stock, par value $1.00 per share, and
(b) 900,000,000 shares of Common Stock, par value $.25 per share.
Except as otherwise provided by law, the shares of stock of the
Corporation, regardless of class, may be issued by the Corporation from time to
time in such amounts, for such consideration and for such corporate purposes as
the Board of Directors may from time to time determine.
Shares of Preferred Stock may be issued from time to time in one or more
series of any number of shares as may be determined from time to time by the
Board of Directors, provided that the aggregate number of shares issued and not
cancelled of any and all such series shall not exceed the total number of shares
of Preferred Stock authorized by this Certificate of Incorporation. Each series
of Preferred Stock shall be distinctly designated. Except in respect of the
particulars fixed for series by the Board of Directors as permitted hereby, all
shares of Preferred Stock shall be of equal rank and shall be identical. All
shares of any one series of Preferred Stock shall be alike in every particular,
except that shares of any one series issued at different times may differ as to
the dates from which dividends thereon shall be cumulative. The voting powers,
if any, of each such series and the preferences and relative, participating,
optional and other special rights of each such series and the qualifications,
limitations and restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding; and the Board of Directors is hereby
expressly granted authority to fix, in the resolution or resolutions providing
for the issue of stock of a particular series of Preferred Stock, the voting
powers, if any, of each such series and the designations, preferences and
relative, participating, optional and other special rights of each such series
and the qualifications, limitations and restrictions thereof to the full extent
now or hereafter permitted by this Certificate of Incorporation and the laws of
the State of Delaware.
<PAGE> 2
Subject to the provisions of any applicable law or of the By-laws with
respect to the closing of the transfer books or the fixing of a record date for
the determination of stockholders entitled to vote, and except as otherwise
provided by law or by the resolution or resolutions providing for the issue of
any series of Preferred Stock, the holders of outstanding shares of Common Stock
shall exclusively possess the voting power for the election of directors and for
all other purposes, each holder of record of shares of Common Stock being
entitled to one vote for each share of Common Stock standing in his name on the
books of the Corporation.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
SECTION 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall initially be 2,000,000, par value $1.00
per share, such number of shares to be subject to increase or decrease by action
of the Board of Directors as evidenced by a certificate of designation.
SECTION 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the 25th day of January, April, July and October of each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a)
$10.00 or (b) subject to the provision for adjustment hereinafter set forth, 200
times the aggregate per share amount of all cash dividends, and 200 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.25 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. In the event the Corporation shall at any
time after January 4, 1999 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on
the Series A Junior Participating Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A Junior
Participating Preferred Stock, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date, for the determination of holders of shares of Series
A Junior Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends
2
<PAGE> 3
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Junior Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
SECTION 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 200 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series A Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series A Junior Participating
Preferred Stock) with dividends in arrears in an amount equal to six (6)
quarterly dividends thereon, voting as a class, irrespective of series, shall
have the right to elect two (2) directors.
(ii) During any default period, such voting right of the holders of Series
A Junior Participating Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any
annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right nor the right of the
holders of any other series of Preferred Stock, if any, to increase, in certain
cases, the authorized number of directors shall be exercised unless the holders
of ten percent in number of shares of Preferred Stock outstanding shall be
present in person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Preferred Stock of such
voting right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period, they
shall have the right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to two (2)
directors or, if such right is exercised at an annual meeting, to elect two (2)
directors. If the number which may be so elected at any special meeting does not
amount to the required number, the holders of the Preferred Stock shall have the
right to make such increase in the number of directors as shall be necessary to
permit the election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect directors in any
default period and during the continuance of such period, the number of
directors shall not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A Junior
Participating Preferred Stock.
3
<PAGE> 4
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may request, the calling of
a special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this subparagraph (iii) of
Section 3 (C) shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him at his last address as the same appears on
the books of the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this subparagraph (iii) of Section 3 (C), no such special meeting
shall be called during the period within 60 days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other classes
of stock of the Corporation if applicable, shall continue to be entitled to
elect the whole number of directors until the holders of Preferred Stock shall
have exercised their right to elect two (2) directors voting as a class, after
the exercise of which right (x) the directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in subparagraph
(ii) of this Section 3 (C)) be filled by vote of a majority of the remaining
directors theretofore elected by the holders of the class of stock which elected
the director whose office shall have became vacant. References in this Section 3
(C) to directors elected by the holders of a particular class of stock shall
include directors elected by such directors to fill vacancies as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Preferred Stock as a class to elect directors shall cease, (y)
the term of any directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of directors shall be such number as may be
provided for in the Certificate of Incorporation or By-laws irrespective of any
increase made pursuant to the provisions of subparagraph (ii) of this Section 3
(C) (such number being subject, however, to change thereafter in any manner
provided by law or in the Certificate of Incorporation or By-laws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
directors.
(D) Except as set forth herein, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
SECTION 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or redeem
or purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Preferred
Stock, except dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
4
<PAGE> 5
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Preferred
Stock, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Series A
Junior Participating Preferred Stock, or any shares of stock ranking on a parity
with the Series A Junior Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
SECTION 5. Reacquired Shares.
Any shares of Series A Junior Participating Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
SECTION 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received $225 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 200 (as appropriately adjusted as set forth in subparagraph
(C) below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the Series
A Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Series A Junior Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
5
<PAGE> 6
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
SECTION 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 200 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
SECTION 9. Ranking. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets; unless the terms of any
such series shall provide otherwise.
SECTION 10. Amendment. The Restated Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds (2/3) or more of the outstanding
shares of Series A Junior Participating Preferred Stock, voting separately as a
class.
SECTION 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
SERIES B ESOP CONVERTIBLE PREFERRED STOCK
SECTION 1. Designation and Amount; Special Purpose Restricted-Transfer
Issue.
(A) The shares of such series shall be designated as "Series B ESOP
Convertible Preferred Stock" ("Series B Preferred Stock") and the number of
shares constituting such series initially shall be 3,000,000, such number of
shares to be subject to increase or decrease by the Board of Directors as
evidenced by a certificate of designations; provided, however, that no decrease
shall reduce the number of shares of Series B Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants issued
by, or upon the conversion of any outstanding securities convertible into Series
B Preferred Stock issued by, the Corporation.
(B) Shares of Series B Preferred Stock shall be issued only to Fidelity
Management Trust Company or its successors as trustee, or their respective
nominees (the "Trustee"), of the employee stock ownership plan (together with
any successor plan, the "Plan") portion of the Bestfoods Savings/Retirement Plan
for Salaried Employees. All references to the holder of shares of Series B
Preferred Stock shall mean the Trustee. In the event of any transfer of shares
of Series B Preferred
6
<PAGE> 7
Stock to any person or entity other than the Corporation or a Trustee, the
shares of Series B Preferred Stock so transferred, upon such transfer and
without any further action by the Corporation, the holder thereof or the
transferee thereof, shall be automatically converted into shares of Common Stock
pursuant to paragraph 5(H) hereof and no such transferee shall have any of the
voting powers, preferences and relative, optional or special rights ascribed to
shares of Series B Preferred Stock hereunder but, rather, only the powers and
rights pertaining to the Common Stock into which such shares of Series B
Preferred Stock shall be so converted. In the event of such a conversion, the
transferee of the shares of Series B Preferred Stock shall be treated for all
purposes as the record holder of the shares of Common Stock into which such
shares of Series B Preferred Stock have been automatically converted as of the
date of such transfer. Notwithstanding the foregoing, the pledge of Series B
Preferred Stock as collateral by or pursuant to any credit agreement, indenture
or other document or instrument shall not constitute a transfer for purposes of
this paragraph 1(B), but the foreclosure or other realization upon such pledged
shares shall constitute a transfer. Certificates representing shares of Series B
Preferred Stock shall bear a legend to reflect the foregoing provisions.
Notwithstanding the foregoing provisions of this paragraph 1(B), shares of
Series B Preferred Stock (i) may be converted into shares of Common Stock as
provided by Section 5 hereof and the shares of Common Stock issued upon such
conversion may be transferred by the holder thereof as permitted by law and (ii)
shall be redeemable by the Corporation upon the terms and conditions provided by
ections 6, 7 and 8 hereof.
SECTION 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series B Preferred Stock, in preference to any shares of
any stock ranking as to dividends, or as to distributions in the event of a
liquidation in whole, dissolution or winding-up of the Corporation, junior to
the Series B Preferred Stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available therefor, cash
dividends ("Preferred Dividends") in an amount per share equal to $7.14 per
share per annum, and no more, payable semi-annually in arrears, one-half on the
15th day of June and one-half on the 15th day of December of each year (each a
"Dividend Payment Date") commencing on June 15, 1998, to the holders of record
at the start of business on such Dividend Payment Date. In the event that any
Dividend Payment Date shall fall on any day other than a Business Day (as
defined in paragraph 9(F) hereof), the dividend payment due on such Dividend
Payment Date shall be payable on the Business Day immediately preceding such
Dividend Payment Date. Preferred Dividends shall begin to accrue on outstanding
shares of Series B Preferred Stock from and including December 15, 1997 or, if
later, the date of issuance thereof. Preferred Dividends shall accrue on a daily
basis whether or not the Corporation shall have earnings or surplus at the time,
but Preferred Dividends accrued after issuance on the shares of Series B
Preferred Stock for any period less than a full semi-annual period between
Dividend Payment Dates shall be computed on the basis of a 360-day year of
30-day months. Accrued but unpaid Preferred Dividends shall cumulate as of the
Dividend Payment Date on which they first become payable, but no interest shall
accrue on accumulated but unpaid Preferred Dividends.
(B) So long as any shares of Series B Preferred Stock shall be outstanding,
no dividend shall be, directly or indirectly, declared or paid or set apart for
payment on any other series of stock ranking on a parity with the Series B
Preferred Stock as to dividends, unless there shall also be or have been
declared and paid or set apart for payment on the Series B Preferred Stock,
dividends for all dividend payment periods of the Series B Preferred Stock
ending on or before the dividend payment date of such parity stock, ratably in
proportion to the respective amounts of dividends accumulated and unpaid or
payable through such dividend payment period on the Series B Preferred Stock and
accumulated and unpaid or payable on such parity stock through the dividend
payment period on such parity stock next preceding such dividend payment date,
and the Corporation shall have redeemed (i) all of the shares of Series B
Preferred Stock that it is required to redeem pursuant to Section 7 hereof if
the mandatory obligation to redeem shares of Series B Preferred Stock set forth
therein is applicable and (ii) all of the shares of Series B Preferred Stock for
which a notice of redemption has been sent pursuant to paragraph 6(B) hereof, if
any. In the event that full cumulative dividends on the Series B Preferred Stock
have not been declared and paid or set apart for payment when due or the
Corporation shall fail to discharge its obligation to redeem shares of Series B
Preferred Stock pursuant to Section 6 hereof once notice of
7
<PAGE> 8
redemption has been sent or pursuant to Section 7 hereof once the mandatory
obligation to redeem shares of Series B Preferred Stock set forth therein is
applicable, the Corporation shall not, directly or indirectly, declare or pay or
set apart for payment any dividends or make any other distributions on, or make
any payment on account of the purchase, redemption or other retirement of any
other class of stock or series thereof of the Corporation ranking, as to
dividends or as to distributions in the event of a liquidation in whole,
dissolution or winding-up of the Corporation, junior to the Series B Preferred
Stock until full cumulative dividends on the Series B Preferred Stock shall have
been paid in full or declared and set apart for payment in full and any such
obligation shall have been discharged; provided, however, that the foregoing
shall not apply to (i) any dividend payable solely in any shares of any stock
ranking, as to dividends and as to distributions in the event of a liquidation
in whole, dissolution or winding-up of the Corporation, junior to the Series B
Preferred Stock, (ii) the acquisition of shares of any stock ranking, as to
dividends or as to distributions in the event of a liquidation in whole,
dissolution or winding-up of the Corporation, junior to the Series B Preferred
Stock either (A) pursuant to any employee or director incentive or benefit plan
or arrangement (including any employment, severance or consulting agreement) of
the Corporation or any subsidiary of the Corporation heretofore or hereafter
adopted or (B) in exchange solely for shares of any other stock ranking, as to
dividends and as to distributions in the event of a liquidation in whole,
dissolution or winding-up of the Corporation, junior to the Series B Preferred
Stock or (iii) any payment made in respect of the purchase or redemption of the
Rights, as defined in paragraph 5(G) hereof, or any rights similar thereto.
SECTION 3. Voting Rights.
(A) The holders of Series B Preferred Stock shall be entitled to vote on
all matters submitted to a vote of the holders of Common Stock of the
Corporation, voting together with the holders of Common Stock (and the holders
of any other class or series of stock which may similarly be entitled to vote
with shares of Common Stock) as one class. The holder of each share of Series B
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which such share of Series B Preferred Stock could
be converted on the record date for determining the stockholders entitled to
vote, rounded to the nearest one-tenth of a vote; it being understood that
whenever the "Conversion Price" (as defined in Section 5 hereof) is adjusted as
provided in Section 9 hereof, the voting rights of the Series B Preferred Stock
shall also be similarly adjusted.
(B) Except as otherwise required by law or set forth herein, the holders of
Series B Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with the
holders of Common Stock and the holders of any other class or series of stock
which may similarly be entitled to vote with the shares of Common Stock as set
forth herein) for the taking of any corporate action.
(C) The Restated Certificate of Incorporation of the Corporation (including
this Certificate of Designations) shall not be amended, altered or repealed in
any manner (including any amendment, alteration or repeal effected by any merger
or consolidation) which would adversely alter or change the powers, preferences
or special rights of the Series B Preferred Stock without the affirmative vote
or consent of the holders of a majority of the outstanding shares of Series B
Preferred Stock, voting separately as a series; provided, that any increase in
the authorized Preferred Stock or the creation and issuance (whether or not
authorized on or prior to the issuance of any Series B Preferred Stock) of any
other class or series of Preferred Stock ranking senior to or on a parity with
or junior to the Series B Preferred Stock as to payment of dividends and upon
liquidation in whole, dissolution or winding-up of the Corporation or any
increase or decrease in the number of shares which constitute the Series B
Preferred Stock (but not below the number of shares thereof then outstanding)
shall not be deemed to alter or change the powers, preferences or special rights
of the Series B Preferred Stock so as to affect the holders thereof adversely
within the meaning of the Delaware General Corporation Law (the "DGCL").
SECTION 4. Liquidation, Dissolution or Winding-Up.
(A) Upon any voluntary or involuntary liquidation in whole, dissolution or
winding-up of the Corporation, the holders of Series B Preferred Stock shall be
entitled to receive out of assets of the Corporation which remain after
satisfaction in full of all valid claims of creditors of the Corporation and
which are available for payment to stockholders, and subject to the rights of
the holders of any stock of
8
<PAGE> 9
the Corporation ranking senior to or on a parity with the Series B Preferred
Stock in respect of distributions upon liquidation in whole, dissolution or
winding-up of the Corporation, before any amount shall be paid or distributed
among the holders of Common Stock or any other shares ranking junior to the
Series B Preferred Stock in respect of distributions upon liquidation in whole,
dissolution or winding-up of the Corporation, liquidating distributions in the
amount of $89.21 per share (the "Liquidation Preference"), plus an amount equal
to all accumulated and unpaid dividends (including dividends declared and set
aside) and accrued dividends thereon to the date fixed for distribution, and no
more. If upon any liquidation in whole, dissolution or winding-up of the
Corporation, the amounts payable with respect to the Series B Preferred Stock
and any other stock ranking as to any such distribution on a parity with the
Series B Preferred Stock are not paid in full, the holders of the Series B
Preferred Stock and such other stock shall share ratably in any distribution of
assets in proportion to the full respective preferential amounts to which they
are entitled. After payment of the full amount to which they are entitled as
provided by the foregoing provisions of this paragraph 4(A), the holders of
shares of Series B Preferred Stock shall not be entitled as such to any further
right or claim to any of the remaining assets of the Corporation.
(B) Neither the merger or consolidation of the Corporation with or into any
other corporation, nor the merger or consolidation of any other corporation with
or into the Corporation, nor the sale, lease, exchange or other transfer of all
or any portion of the assets of the Corporation, nor any partial liquidation of
the Corporation, shall be deemed to be a liquidation in whole, dissolution or
winding-up of the affairs of the Corporation for purposes of this Section 4, but
the holders of Series B Preferred Stock shall nevertheless be entitled in the
event of any such merger or consolidation to the rights provided by Section 8
hereof.
(C) Written notice of any voluntary or involuntary liquidation in whole,
dissolution or winding-up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to the holders of
Series B Preferred Stock in such circumstances shall be payable, shall be given
by first-class mail, postage prepaid, mailed not less than thirty (30) calendar
days prior to any payment date stated therein, or such shorter period prior to
such payment date as may be necessary under the circumstances, to the holders of
Series B Preferred Stock at the addresses shown on the books of the Corporation
or any transfer agent for the Series B Preferred Stock.
SECTION 5. Conversion into Common Stock.
(A) A holder of shares of Series B Preferred Stock shall be entitled, at
any time prior to the close of business on the date fixed for redemption of such
shares pursuant to Section 6, 7 or 8 hereof, to cause any or all of such shares
to be converted into shares of Common Stock at a conversion rate equal to the
ratio of (i) the Liquidation Preference per share to (ii) an amount which
initially shall be $44.605 and which shall be adjusted as hereinafter provided
(and which amount, as it may be so adjusted from time to time, is hereinafter
sometimes referred to as the "Conversion Price") (that is, a conversion rate
initially equivalent to two shares of Common Stock for each share of Series B
Preferred Stock so converted, which is subject to adjustment as the Conversion
Price may be adjusted as hereinafter provided).
(B) Any holder of shares of Series B Preferred Stock desiring to convert
such shares into shares of Common Stock shall surrender the certificate or
certificates representing the shares of Series B Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Series B Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series B Preferred Stock by the Corporation or the
transfer agent for the Series B Preferred Stock, accompanied by written notice
of conversion, on any Business Day. Such notice of conversion shall specify (i)
the number of shares of Series B Preferred Stock to be converted and the name or
names in which such holder wishes the certificate or certificates for Common
Stock and for any shares of Series B Preferred Stock not to be so converted to
be issued (subject to compliance with applicable legal requirements if any of
said certificates are to be issued in a name other than the name of the holder),
and (ii) the address to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion.
9
<PAGE> 10
(C) Upon surrender of a certificate representing a share or shares of
Series B Preferred Stock for conversion, the Corporation shall, as promptly as
practicable after such surrender, issue and send by hand delivery (with receipt
to be acknowledged) or by first-class mail, postage prepaid, to the holder
thereof or to such holder's designee, at the address designated by such holder,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates representing shares of
Series B Preferred Stock, only part of which are to be converted, the
Corporation shall issue and deliver to such holder a new certificate or
certificates representing the number of shares of Series B Preferred Stock which
shall not have been converted.
(D) The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of Series B Preferred Stock into shares of Common Stock
(otherwise than pursuant to paragraph 1(B), 5(H) or 5(I) hereof) shall be
effective as of the close of business on the day of the surrender to the
Corporation of the certificate or certificates for the shares of Series B
Preferred Stock to be converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto) and
accompanied by a written notice of conversion, as provided by this Resolution.
After the effective day of conversion, the shares of Series B Preferred Stock so
converted shall no longer be deemed to be outstanding for any purpose, and the
person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock, but no allowance or adjustment shall be made in
respect of dividends payable to the holders of Common Stock of record on any
date prior to such effective date. Except as otherwise expressly provided for
herein, the Corporation shall not be obligated to pay any accumulated and unpaid
dividends and accrued dividends on any shares of Series B Preferred Stock being
converted pursuant to the provisions hereof or any dividends which shall have
been declared and shall be payable to holders of shares of Series B Preferred
Stock on a Dividend Payment Date if such Dividend Payment Date for such dividend
shall be on or subsequent to the effective date of the conversion of such
shares.
(E) The Corporation shall not be obligated to deliver to the holders of
Series B Preferred Stock any fractional share or shares of Common Stock issuable
upon any conversion of such shares of Series B Preferred Stock, but in lieu
thereof may make a cash payment in an amount equal to such fraction multiplied
by the Current Market Price (as defined in paragraph 9(F) hereof) per share of
the Common Stock at the close of business on the effective date of conversion of
such shares. The Corporation shall pay all issue taxes, if any, incurred in
respect of the Common Stock on conversion of shares of Series B Preferred Stock
as set forth in paragraph 11(C) hereof.
(F) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance upon the
conversion of shares of Series B Preferred Stock as herein provided, free from
any preemptive rights, such number of shares of Common Stock as shall from time
to time be issuable upon the conversion of all the shares of Series B Preferred
Stock then outstanding and convertible pursuant to paragraph 5(A) hereof.
Nothing contained herein shall preclude the Corporation from delivering shares
of Common Stock held in its treasury upon the conversion of shares of Series B
Preferred Stock into Common Stock pursuant to the terms hereof; provided, that
such shares of Common Stock held in the Corporation's treasury shall, at the
effective time of such conversion, be free and clear of all liens and similar
encumbrances. The Corporation shall prepare and shall use its best efforts to
obtain and keep in force such governmental or regulatory or listing (to the
extent the Common Stock is then listed) permits or other authorizations as may
be required by law or the securities exchange or exchanges on which the Common
Stock is then listed, if any, and shall comply with all requirements as to
registration or qualification of the Common Stock, in order to enable the
Corporation lawfully to issue and deliver to each holder of record of Series B
Preferred Stock such number of shares of its Common Stock as shall from time to
time be sufficient to effect the conversion of all shares of Series B Preferred
Stock then outstanding and convertible into shares of Common Stock. The
Corporation shall also take any corporate or other action which is reasonably
necessary and permissible in order that the Corporation deliver such number of
legally and validly issued and fully paid and nonassessable shares of Common
Stock as may be required to effect said conversion.
10
<PAGE> 11
(G) Prior to the Distribution Date (as defined in Section 3(a) of the
Rights Agreement (defined below)), if the Corporation issues shares of Common
Stock upon conversion of shares of Series B Preferred Stock as contemplated by
this Section 5, the Corporation shall issue together with each such share of
Common Stock one right (a "Right," and collectively the "Rights") to purchase
Series A Junior Participating Preferred Stock of the Corporation (or other
securities in lieu thereof) pursuant to the Rights Agreement dated as of March
19, 1991 between the Corporation and First Chicago Trust Company of New York, as
Rights Agent, as such agreement may from time to time be amended (the "Rights
Agreement"), or any similar rights issued to the holders of Common Stock of the
Corporation in addition thereto or in replacement therefor. After the
Distribution Date and prior to the redemption or expiration of the Rights, if
the Corporation issues shares of Common Stock upon conversion of shares of
Series B Preferred Stock as contemplated by this Section 5, the Corporation
shall issue together with such shares of Common Stock the appropriate number of
Rights, or any similar rights, in connection therewith, in accordance with
Section 22, clause (a), of the Rights Agreement, or any similar successor
provision, subject to the provisos therein.
(H) In the event that the Trustee ceases to be the holder of any share of
Series B Preferred Stock (except in the case of the redemption or repurchase of
shares by the Corporation), such share of Series B Preferred Stock will
automatically, without any act or deed on the part of the Corporation, the
Trustee or any other person, be converted into the number of shares of Common
Stock into which such share of Series B Preferred Stock would then be
convertible if it were voluntarily presented for conversion in accordance with
the other provisions of this Section 5 plus the right to receive an amount in
cash equal to all accumulated and unpaid dividends (including dividends declared
and set aside) and accrued dividends thereon through the date of such automatic
conversion. To the extent applicable, the other provisions of this Section 5
shall govern any automatic conversion pursuant to this paragraph 5(H), subject
to the following:
(a) any share surrendered for transfer by the Trustee shall be deemed to
have been surrendered for conversion by the transferee prior to the close of
business on the day such share would otherwise be transferred into the
transferee's name on the books of the Corporation;
(b) no notice of conversion need be submitted by either the Trustee or its
transferee in order to effect the automatic conversion provided for hereby; and
(c) notwithstanding any provisions of paragraph 5(A) hereof, each share of
Series B Preferred Stock is subject to automatic conversion pursuant to this
paragraph 5(H) at any time prior to such share having been redeemed or otherwise
purchased by the Corporation.
(I) In the event that the Trustee shall certify that conversion of a share
of Series B Preferred Stock is necessary either (a) to provide for distributions
required to be made to participants under, or to satisfy an investment election
provided to participants in accordance with, the Plan or (b) to make any
payments of principal, interest or premium due and payable (whether as
scheduled, upon redemption, upon acceleration or otherwise) under any
indebtedness incurred by the holder for the benefit of the Plan, then such share
of Series B Preferred Stock will automatically, upon notice to the Corporation
given not less than five (5) Business Days prior to the date fixed for
conversion by the holder of such shares of Series B Preferred Stock in such
notice but without any further act or deed on the part of the Corporation, the
Trustee or any other person, be converted into the greater of (i) the number of
shares of Common Stock into which such share of Series B Preferred Stock would
then be convertible if it were voluntarily presented for conversion in
accordance with the other provisions of this Section 5 or (ii) the number of
shares of Common Stock that, when multiplied by the Fair Market Value (as
defined in paragraph 9(F) hereof) per share of Common Stock on the date of such
automatic conversion, equals the Liquidation Preference per share plus, in each
case, the right to receive an amount of cash equal to all accumulated and unpaid
dividends (including dividends declared and set aside) and accrued dividends
thereon through the date of such automatic conversion; provided that the
automatic conversion provided for in this paragraph 5(I) shall take effect only
when and to the extent necessary for the satisfaction of either of the
conditions set forth in clauses (a) and (b) of this paragraph 5(I); and
provided, further, that, upon conversion of a share of Series B Preferred Stock
in satisfaction of the condition described in clause (b) of this paragraph 5(I),
the Corporation may, in lieu of such conversion, make payment to the Trustee in
cash in an amount equal to the Fair Market Value (as defined in
11
<PAGE> 12
paragraph 9(F) hereof) of the shares of Common Stock into which such share of
Series B Preferred Stock would be convertible pursuant to this paragraph 5(I).
SECTION 6. Redemption At the Option of the Corporation.
(A) The Series B Preferred Stock shall be redeemable, in whole or in part,
at the option of the Corporation at any time after the date of issuance, if
permitted by paragraph 6(C) or 6(E) hereof, at the following redemption prices
per share (or, if pursuant to paragraph 6(C) or 6(E) hereof, at the redemption
price per share set forth therein):
- --------------------------------------------------------------- ----------------
REDEMPTION
PRICE PER
DURING THE TWELVE-MONTH PERIOD BEGINNING DECEMBER 15, SHARE
- --------------------------------------------------------------- ----------------
1997 90.64
- --------------------------------------------------------------- ----------------
1998 89.92
- --------------------------------------------------------------- ----------------
and thereafter at the Liquidation Preference per share, plus, in each case, an
amount equal to all accumulated and unpaid dividends (including dividends
declared and set aside) and accrued dividends thereon to the date fixed for
redemption. Payment of the redemption price shall be made by the Corporation in
cash or shares of Common Stock, or a combination thereof, as permitted by
paragraph 6(F) hereof. From and after the close of business on the date fixed
for redemption, unless the Corporation shall have defaulted in the payment or
setting aside in trust of moneys and/or shares of Common Stock at the time and
place specified for the payment of the full redemption price (as set forth in
this Section 6) pursuant to the redemption notice described in paragraph 6(B)
hereof, all dividends on shares of Series B Preferred Stock called for
redemption will cease to accrue, such shares will no longer be deemed to be
outstanding and will no longer be convertible and all rights in respect of such
shares of the Corporation shall cease, except the rights to receive such full
redemption price. If less than all of the outstanding shares of Series B
Preferred Stock are to be redeemed, the Corporation shall either redeem a
portion of the shares of each holder determined pro rata based on the number of
shares held by each holder or shall select the shares to be redeemed by lot, as
may be determined by the Board of Directors of the Corporation.
(B) Unless otherwise required by law, notice of any redemption effected
pursuant to this Section 6 shall be sent to the holders of Series B Preferred
Stock at the address shown on the books of the Corporation or any transfer agent
for the Series B Preferred Stock by first-class mail, postage prepaid, mailed
not less than thirty (30) calendar days nor more than sixty (60) calendar days
prior to the redemption date. Each such notice shall state: (i) the paragraph or
clause within a paragraph of this Resolution pursuant to which the redemption is
being effected, (ii) the redemption date; (iii) the total number of shares of
the Series B Preferred Stock to be redeemed and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iv) the redemption price; (v) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price; (vi) that dividends on the shares to be redeemed will cease to accrue
from and after the close of business on such redemption date; and (vii) the
conversion rights of the shares to be redeemed, the period within which
conversion rights may be exercised, and the Conversion Price and number of
shares of Common Stock issuable upon conversion of a share of Series B Preferred
Stock at the time. Upon surrender of the certificate for any shares so called
for redemption and not previously converted (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so require and the
notice shall so state), such shares shall be redeemed by the Corporation at the
date fixed for redemption and at the redemption price set forth in this Section
6.
(C) In the event (i) of a change (whether or not then effective) in the
federal tax law of the United States of America which has or would have the
effect of precluding the Corporation from claiming any of the tax deductions for
dividends paid or payable on the Series B Preferred Stock when such dividends
are used as provided under Section 404(k)(2)(C) of the Internal Revenue Code of
1986, as amended and in effect on the date shares of Series B Preferred Stock
are initially issued, (ii) that shares of Series B Preferred Stock are held by
an employee benefit plan intended to qualify as an employee stock ownership plan
within the meaning of Section 4975 of the Internal Revenue Code of 1986, as
amended, and such plan does not so qualify, or (iii) that the voting and tender
rights associated with the
12
<PAGE> 13
Series B Preferred Stock and provided herein are not or cannot be directly or
indirectly exercised by all or substantially all of the participants in the Plan
(whether or not the shares thereof have been allocated under the Plan) other
than as a result of an unintended failure of administrative services (such as
postal services), then the Corporation may, in its sole discretion and
notwithstanding anything to the contrary in paragraph 6(A) hereof, call for
redemption any or all then outstanding shares of Series B Preferred Stock for an
amount per share equal to the redemption price per share which would be
applicable were the Corporation to redeem such shares of Series B Preferred
Stock pursuant to paragraph 6(A) hereof (without regard to whether such shares
of Series B Preferred Stock are redeemable thereunder), plus an amount equal to
all accumulated and unpaid dividends (including dividends declared and set
aside) and accrued dividends thereon to the date fixed for such redemption.
(D) [Intentionally omitted.]
(E) In the event that the Plan is terminated in accordance with its terms,
and notwithstanding anything to the contrary in paragraph 6(A) hereof, the
Corporation shall, as soon thereafter as practicable and permissible under
applicable state law and to the extent the Corporation shall have legally
available funds for such payment, call for redemption all then outstanding
shares of Series B Preferred Stock for an amount per share equal to the
redemption price per share which would be applicable were the Corporation to
redeem such shares of Series B Preferred Stock pursuant to paragraph 6(A) hereof
(without regard to whether such shares of Series B Preferred Stock are then
redeemable thereunder), plus an amount in cash equal to all accumulated and
unpaid dividends (including dividends declared and set aside) and accrued
dividends thereon to the date fixed for such redemption.
(F) Notwithstanding any provision hereof to the contrary, the Corporation,
at its option, may make payment of the redemption price or Liquidation
Preference, as the case may be, plus, in each case, any amount equal to all
accumulated and unpaid dividends (including dividends declared and set aside)
and accrued dividends thereon to the date of such redemption, required upon
redemption of shares of Series B Preferred Stock pursuant to Sections 6 and 7
hereof in cash or in shares of Common Stock (or fractional shares thereof), or
in a combination of such shares and cash, any such shares of Common Stock to be
valued for such purposes at their Fair Market Value (as defined in paragraph
9(F) hereof). All shares of Common Stock to be delivered as full or partial
payment of the redemption price to be paid pursuant to this Section 6 or Section
7 hereof shall be validly and legally issued, fully paid and nonassessable, and
any shares of Common Stock delivered to make any such payment shall, at the
effective time of such redemption, be free and clear of all liens and similar
encumbrances.
SECTION 7. Other Redemption Rights.
On December 15, 2014 (the "Mandatory Redemption Date"), to the extent the
Corporation shall have legally available funds for such payment, the Corporation
shall redeem, or shall set aside in trust for the holders of the Series B
Preferred Stock a sum in cash sufficient to redeem, all shares of the Series B
Preferred Stock outstanding on such Mandatory Redemption Date, at a redemption
price per share equal to the Liquidation Preference per share, plus an amount in
cash equal to all accumulated and unpaid dividends (including dividends declared
and set aside) and accrued dividends thereon to the Mandatory Redemption Date.
From and after the close of business on the Mandatory Redemption Date, unless
the Corporation shall have defaulted in the payment or setting aside in trust of
moneys and/or shares of Common Stock, all dividends on shares of Series B
Preferred Stock called for redemption will cease to accrue, such shares will no
longer be deemed to be outstanding and will no longer be convertible and all
rights in respect of such shares of the Corporation shall cease, except the
rights to receive in full such redemption price per share, plus an amount in
cash equal to all accumulated and unpaid dividends (including dividends declared
and set aside) and accrued dividends thereon to the Mandatory Redemption Date.
If, for any reason, the Corporation shall fail to discharge its mandatory
redemption obligation pursuant to this Section 7, such mandatory redemption
obligation shall be discharged as soon as the Corporation is able to discharge
such obligation, but the redemption price shall be determined as of the date
such redemption should have occurred. Until such time after the Mandatory
Redemption Date as the Corporation shall redeem, or shall set aside in trust for
the holders of the Series B Preferred Stock a sum in cash sufficient to redeem,
all shares of the Series B Preferred Stock outstanding on such Mandatory
Redemption Date in accordance with the provisions of
13
<PAGE> 14
this Section 7, the Corporation shall not declare or pay any cash dividend or
make any distributions in cash on, or, directly or indirectly, purchase, redeem
or otherwise acquire, any of its capital stock (including any warrants, rights
or options exercisable for or convertible into any capital stock of the
Corporation, but not including the Rights or any rights similar thereto) or
permit any of its subsidiaries or affiliates, to, directly or indirectly,
purchase or acquire any such capital stock. Until such time after the Mandatory
Redemption Date as the Corporation shall redeem, or shall set aside in trust for
the holders of the Series B Preferred Stock a sum in cash sufficient to redeem,
all shares of the Series B Preferred Stock outstanding on such Mandatory
Redemption Date in accordance with the provisions of this Section 7, Preferred
Dividends shall continue to accrue on any shares of Series B Preferred Stock
required to be redeemed by this Section 7 and not so redeemed.
SECTION 8. Consolidation, Merger, etc.
(A) In the event that (i) the Corporation shall consummate any
consolidation or merger pursuant to which the outstanding shares of Common Stock
are exchanged solely for or changed, reclassified or converted solely into stock
of any successor or resulting corporation (including the Corporation) that
constitutes "qualifying employer securities" with respect to a holder of Series
B Preferred Stock within the meaning of Section 4975(e)(8) of the Internal
Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee
Retirement Income Security Act of 1974, as amended, or any successor provisions
of law, and, if applicable, for a cash payment in lieu of fractional shares, if
any, or (ii) the Corporation shall consummate any sale of all or substantially
all of the Corporation's assets pursuant to which consideration consisting
solely of stock of any corporation that constitutes such qualifying employer
securities with respect to a holder of Series B Preferred Stock is distributed
to holders of Common Stock, together with, if applicable, a cash payment in lieu
of fractional shares, if any, then the shares of Series B Preferred Stock of
such holder shall, in connection with such consolidation, merger or such sale of
all or substantially all of the Corporation's assets, be assumed by and shall
become preferred stock of such successor, resulting or other corporation, having
in respect of such corporation, insofar as possible, the same powers,
preferences and relative, optional or other special rights (including the
redemption and other rights provided by Sections 6, 7 and 8 hereof), and the
qualifications, limitations or restrictions thereon, that the Series B Preferred
Stock had immediately prior to such transaction, except that after such
transaction each share of the Series B Preferred Stock shall be convertible,
otherwise on the terms and conditions provided by Section 5 hereof, into the
number and kind of qualifying employer securities so receivable by a holder of
the number of shares of Common Stock into which such shares of Series B
Preferred Stock could have been converted immediately prior to such transaction;
provided, however, that if by virtue of the structure of such transaction, a
holder of Common Stock is required to make an election between two or more kinds
of qualifying employer securities, which election cannot practicably be made by
the holders of the Series B Preferred Stock, then the shares of Series B
Preferred Stock so assumed by, and becoming (as described above) preferred stock
of, such successor, resulting or other corporation shall be convertible,
otherwise on the terms and conditions provided by Section 5 hereof, into the
aggregate amount of the kind of qualifying employer securities receivable by a
holder of the number of shares of Common Stock into which such shares of Series
B Preferred Stock could have been converted immediately prior to such
transaction if such H older of Common Stock failed to exercise any rights of
election as to the kind of qualifying employer securities receivable upon such
transaction (provided that, if the kind or amount of qualifying employer
securities receivable upon such transaction is not the same for each
non-electing share, then the kind and amount so receivable upon such transaction
for each non-electing share shall be the kind and amount so receivable per share
by the plurality of the non-electing shares). The rights of the Series B
Preferred Stock as preferred stock of such successor, resulting or other
corporation shall successively be subject to adjustments pursuant to Section 9
hereof after any such transaction as nearly equivalent as practicable to the
adjustment provided for by such section prior to such transaction. The
Corporation shall not consummate any such consolidation, merger or sale of all
or substantially all of the Corporation's assets unless all then outstanding
shares of Series B Preferred Stock shall be assumed and authorized by the
successor, resulting or other corporation as aforesaid.
(B) In the event that (i) the Corporation shall consummate any
consolidation or merger pursuant to which the outstanding shares of Common Stock
are exchanged for or changed, reclassified or converted into stock or securities
or cash or any other property, or any combination thereof, which
14
<PAGE> 15
consideration is not constituted solely of qualifying employer securities (as
referred to in paragraph 8(A) hereof) and cash payments, if applicable, in lieu
of fractional shares, or (ii) the Corporation shall consummate any sale of all
or substantially all of the Corporation's assets pursuant to which consideration
not consisting solely of stock constituting such qualifying employer securities
and cash payments, if applicable, in lieu of fractional shares, is distributed,
then outstanding shares of Series B Preferred Stock shall, without any action on
the part of the Corporation or any holder thereof (but subject to paragraph 8(C)
hereof), be automatically converted by virtue of such consolidation, merger or
such sale of all or substantially all of the Corporation's assets immediately
prior to such consummation into the number of shares of Common Stock into which
such shares of Series B Preferred Stock could have been converted at such time
so that each share of Series B Preferred Stock shall, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, be
exchanged for or changed, reclassified or converted into, or shall entitle the
holder thereof to otherwise receive, the aggregate amount of stock, securities,
cash or other property (payable in like kind) receivable by a holder of the
number of shares of Common Stock into which such shares of Series B Preferred
Stock could have been converted immediately prior to such transaction; provided,
however, that if by virtue of the structure of such transaction, a holder of
Common Stock is required to make an election with respect to the nature and kind
of consideration to be received in such transaction, which election cannot
practicably be made by the holders of the Series B Preferred Stock, then the
shares of Series B Preferred Stock shall, by virtue of such transaction and on
the same terms as apply to the holders of Common Stock, be exchanged for or
changed, reclassified or converted into, or shall entitle the holder thereof to
otherwise receive, the aggregate amount of stock, securities, cash or other
property (payable in kind) receivable by a holder of the number of shares of
Common Stock into which such shares of Series B Preferred Stock could have been
converted immediately prior to such transaction if such holder of Common Stock
failed to exercise any rights of election as to the kind or amount of stock,
securities, cash or other property receivable upon such transaction (provided
that, if the kind or amount of stock, securities, cash or other property
receivable upon such transaction is not the same for each non-electing share,
then the kind and amount of stock, securities, cash or other property receivable
upon such transaction for each non-electing share shall be the kind and amount
so receivable per share by a plurality of the non-electing shares).
(C) In the event the Corporation shall enter into any agreement providing
for any consolidation, merger or any sale of all or substantially all of the
Corporation's assets, in each case, described in paragraph 8(B) hereof, then the
Corporation shall as soon as practicable thereafter (and in any event at least
ten (10) Business Days before consummation of such transaction) give notice of
such agreement and the material terms thereof, and the earliest date of
consummation thereof, to each holder of Series B Preferred Stock, and if the
Trustee would be unable to hold the consideration receivable under paragraph
8(B) hereof as a result of such transaction under the Employee Retirement Income
Security Act of 1974, as amended, or any successor statute, then each such
holder shall have the right to elect, by written notice to the Corporation, to
receive, upon consummation of such transaction (if and when such transaction is
consummated), from the Corporation or the successor of the Corporation, in
redemption and retirement of such Series B Preferred Stock, a cash payment equal
to the greater of (i) an amount per share equal to the redemption price per
share which would be applicable were the Corporation to redeem such shares of
Series B Preferred Stock pursuant to paragraph 6(A) hereof (without regard to
whether such shares of Series B Preferred Stock are then redeemable thereunder),
plus an amount equal to all accumulated and unpaid dividends (including
dividends declared and set aside) and accrued dividends thereon to the date of
the consummation of such transaction or (ii) the Fair Market Value (as defined
in paragraph 9(F) hereof) of the Common Stock into which such Series B Preferred
Stock could be converted pursuant to paragraph 5(A) hereof on the date of
consummation of such transaction. No such notice of redemption shall be
effective unless given to the Corporation prior to the close of business on the
third Business Day prior to consummation of such transaction, unless the
Corporation or the successor of the Corporation shall waive such prior notice,
but any notice of redemption so given prior to such time may be withdrawn by
notice of withdrawal given to the Corporation prior to the close of business on
the third Business Day prior to consummation of such transaction.
15
<PAGE> 16
SECTION 9. Anti-dilution Adjustments.
(A) In the event the Corporation shall, at any time or from time to time
while any of the shares of the Series B Preferred Stock are outstanding, (i) pay
a dividend or make a distribution in respect of the Common Stock in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
in each case whether by reclassification of shares, recapitalization of the
Corporation (including a recapitalization effected by a merger or consolidation
to which Section 8 hereof does not apply) or otherwise, then, subject to the
provisions of paragraphs 9(D) and 9(E) hereof, the Conversion Price shall be
adjusted by multiplying such Conversion Price by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately before
such event, and the denominator of which is the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to this
paragraph 9(A) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall become effective immediately
as of the effective date thereof.
(B) In the event that the Corporation shall, at any time or from time to
time while any of the shares of Series B Preferred Stock are outstanding, issue
to the holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (including
without limitation any securities convertible into such Common Stock or any
right or warrant to purchase such convertible securities, but not including as
such a right or warrant any Rights (as defined in Section 5) or any similar
rights) at a purchase price per share less than the Fair Market Value (as
defined in paragraph 9(F) hereof) of a share of Common Stock on the date of
issuance of such right or warrant, then, subject to the provisions of paragraphs
9(D) and 9(E) hereof, the Conversion Price shall be adjusted by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the number of shares of Common Stock which could be purchased at
the Fair Market Value of a share of Common Stock on the date of such issuance
for the maximum aggregate consideration payable upon exercise in full of all
such rights or warrants, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the maximum number of shares of Common Stock that could be
acquired upon exercise in full of all such rights and warrants. An adjustment
made pursuant to this paragraph 9(B) shall be given effect, upon issuance of
such rights or warrants, as of the record date for the determination of
stockholders entitled to receive such rights or warrants (on a retroactive
basis); provided, that, to the extent shares of Common Stock otherwise issuable
upon exercise of such rights or warrants are not delivered after the expiration
of such rights or warrants, the Conversion Price will be readjusted (but only
with respect to shares of Series B Preferred Stock converted after such
expiration) to the Conversion Price which would then be in effect had the
adjustments made upon such issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common Stock actually
issued.
(C) In the event the Corporation shall, at any time or from time to time
while any of the shares of Series B Preferred Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization effected by a
merger or consolidation to which Section 8 hereof does not apply) or effect a
Pro Rata Repurchase (as hereinafter defined), the Conversion Price in effect
immediately prior to such Extraordinary Distribution or Pro Rata Repurchase
shall, subject to paragraphs 9(D) and 9(E) hereof, be adjusted by multiplying
such Conversion Price by a fraction the numerator of which is (i) the product of
(x) the number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Current
Market Price of a share of Common Stock on the day before the ex-dividend date
with respect to an Extraordinary Distribution, or on the applicable expiration
date (including all extensions thereof) of any tender offer which is a Pro Rata
Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be, minus (ii) the Fair Market
Value of the Extraordinary Distribution or the aggregate purchase price of the
Pro Rata Repurchase, as the case may be, on such date, and the denominator of
which is the
16
<PAGE> 17
product of (a) the number of shares of Common Stock outstanding immediately
before such Extraordinary Distribution or Pro Rata Repurchase minus, in the case
of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by
the Corporation, multiplied by (b) the Current Market Price of a share of Common
Stock on the day before the ex-dividend date with respect to an Extraordinary
Distribution, or on the applicable expiration date (including all extensions
thereof) of any tender offer which is a Pro Rata Repurchase or on the date of
purchase with respect to any Pro Rata Repurchase which is not a tender offer, as
the case may be. The Corporation shall send each holder of Series B Preferred
Stock (i) notice of its intent to make any dividend or distribution and (ii)
notice of any offer by the Corporation to make a Pro Rata Repurchase, in each
case at the same time as, or as soon as practicable after, such offer is first
communicated (including by announcement of a record date in accordance with the
rules of any stock exchange on which the Common Stock is listed or admitted to
trading) to the holders of Common Stock. Such notice shall indicate the intended
record date, ex-dividend date, the applicable expiration date, if any, the
amount and nature of such dividend or distribution, or the number of shares
subject to such offer for a Pro Rata Repurchase and the purchase price payable
by the Corporation pursuant to such offer, as well as the Conversion Price and
the number of shares of Common Stock into which a share of Series B Preferred
Stock may be converted at such time.
(D) Notwithstanding any other provisions of this Section 9, the Corporation
shall not be required to make any adjustment to the Conversion Price unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Conversion Price. Any lesser adjustment shall be carried forward and shall
be made no later than the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least one percent (1%) in
the Conversion Price.
(E) The Corporation shall be entitled to make such additional adjustments
in the Conversion Price, in addition to those required by the foregoing
provisions of this Section 9, as shall be necessary in order that any dividend
or distribution in shares of capital stock of the Corporation, subdivision,
reclassification or combination of shares of stock of the Corporation or any
recapitalization of the Corporation shall not be taxable to the holders of the
Common Stock.
(F) For purposes of this Resolution, the following definitions shall apply:
"Business Day" shall mean each day that is not a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New York
are not required to be open.
"Extraordinary Distribution" shall mean any dividend or other distribution
to the holders of Common Stock (effected while any of the shares of Series B
Preferred Stock are outstanding) of (i) cash, where the aggregate amount of such
cash dividend or distribution together with the amount of all cash dividends and
distributions made during the preceding period of 12 months, when combined with
the aggregate amount of all Pro Rata Repurchases (for this purpose, including
only that portion of the aggregate purchase price of such Pro Rata Repurchase
which is in excess of the Fair Market Value of the Common Stock repurchased as
determined on the applicable expiration date (including all extensions thereof)
of any tender offer which is a Pro Rata Repurchase or the date of purchase with
respect to any other Pro Rata Repurchase which is not a tender offer made during
such period), exceeds twelve and one-half percent (12 1/2 %) of the aggregate
Fair Market Value of all shares of Common Stock outstanding on the day before
the ex-dividend date with respect to such Extraordinary Distribution and (ii)
any shares of capital stock of the Corporation (other than shares of Common
Stock), other securities of the Corporation (other than securities of the type
referred to in this paragraph 9(B) and excluding the Rights and any similar
rights), evidences of indebtedness of the Corporation or any other person or any
other property (including shares of any subsidiary of the Corporation) or any
combination thereof. The Fair Market Value of an Extraordinary Distribution for
purposes of paragraph (C) of this Section 9 shall be equal to the sum of the
Fair Market Value of such Extraordinary Distribution plus the amount of any cash
dividends or distributions which are not Extraordinary Distributions made during
such 12-month period and not previously included in the calculation of an
adjustment pursuant to said paragraph (C).
"Fair Market Value" shall mean (a) as to cash, the amount of cash, and (b)
as to shares of Common Stock or any other class of capital stock or securities
of the Corporation or any other issuer which are
17
<PAGE> 18
publicly traded, the average of the Current Market Prices of such shares or
securities for each day of the Adjustment Period. "Current Market Price" of
publicly traded shares of Common Stock or any other class of capital stock or
other security of the Corporation or any other issuer for any day shall mean the
last reported sales price, regular way, or, in the event that no sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in either case as reported on the New York Stock Exchange Composite
Tape or, if such security is not listed or admitted to trading on the New York
Stock Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, on the Nasdaq National Market or,
if such security is not quoted on such National Market, the average of the
closing bid and asked prices on such day in the over-the-counter market as
reported by the Nasdaq Stock Market or, if bid and asked prices for such
security on such day shall not have been reported through the Nasdaq Stock
Market, the average of the bid and asked prices for such day as furnished by any
New York Stock Exchange member firm regularly making a market in such security
on each trading day during the Adjustment Period, which firm shall be selected
for such purpose by the Board of Directors of the Corporation or a committee
thereof. "Adjustment Period" shall mean the period of five (5) consecutive
trading days preceding the date as of which the Fair Market Value of a security
is to be determined. The "Fair Market Value" of any security which is not
publicly traded or of any other property shall mean the fair value thereof as
determined by an independent investment banking or appraisal firm experienced in
the valuation of such securities or property selected in good faith by the Board
of Directors of the Corporation or a committee thereof, or, if no such
investment banking or appraisal firm is in the good faith judgment of the Board
of Directors or such committee available to make such determination, as
determined in good faith by the Board of Directors of the Corporation or such
committee.
"Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by
the Corporation or any subsidiary thereof whether for cash, shares of other
capital stock of the Corporation, other securities of the Corporation, evidences
of indebtedness of the Corporation or any other person or any other property
(including shares of a subsidiary of the Corporation) or any combination
thereof, effected while any of the shares of Series B Preferred Stock are
outstanding, pursuant to any tender offer subject to Section 13(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision of law, or pursuant to any other offer designed to be
available to all or substantially all of the holders of Common Stock; provided,
however, that no purchase of shares by the Corporation or any subsidiary thereof
made in open market or privately-negotiated transactions shall be deemed a Pro
Rata Repurchase, so long as in any such case offers to effect such purchases
shall not be made to all or substantially all of the holders of Common Stock.
For purposes of this paragraph 9(F), shares shall be deemed to have been
purchased by the Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance with the
requirements of Rule 10b-18 as in effect under the Exchange Act (or successor
provision) on the date shares of Series B Preferred Stock are initially issued
by the Corporation or on such other terms and conditions as the Board of
Directors of the Corporation or a committee thereof shall have determined are
reasonably designed to prevent such purchases from having a material effect on
the trading market for the Common Stock.
(G) Whenever an adjustment to the Conversion Price and the related voting
rights of the Series B Preferred Stock is required pursuant to this Resolution,
the Corporation shall forthwith place on file with the transfer agent for the
Common Stock and the Series B Preferred Stock, and with the Secretary of the
Corporation, a statement signed by two officers of the Corporation stating the
adjusted Conversion Price determined as provided herein and the resulting
conversion ratio, and the voting rights (as appropriately adjusted), of the
Series B Preferred Stock. Such statement shall set forth in reasonable detail
such facts as shall be necessary to show the reason and the manner of computing
such adjustment, including the determination of Fair Market Value involved in
such computation. Promptly after each adjustment to the Conversion Price and the
related voting rights of the Series B Preferred Stock, the Corporation shall
mail a notice thereof and of the then prevailing conversion ratio to each holder
of shares of the Series B Preferred Stock.
18
<PAGE> 19
SECTION 10. Ranking; Attributable Capital and Adequacy of Surplus;
Retirement of Shares.
(A) The Series B Preferred Stock shall rank senior to the Series A Junior
Participating Preferred Stock and the Common Stock as to the payment of
dividends and the distribution of assets on liquidation in whole, dissolution
and winding-up of the Corporation, and, unless otherwise provided in the
Restated Certificate of Incorporation of the Corporation or a Certificate of
Designations relating to a subsequent series of Preferred Stock, par value $1.00
per share, of the Corporation, the Series B Preferred Stock shall rank junior to
all series of the Corporation's Preferred Stock, par value $1.00 per share, as
to the payment of dividends and the distribution of assets on liquidation in
whole, dissolution or winding-up.
(B) In addition to any vote of stockholders required by law, the vote of
the holders of a majority of the outstanding shares of Series B Preferred Stock
shall be required to increase the par value of the Common Stock or otherwise
increase the capital of the Corporation allocable to the Common Stock for the
purpose of the DGCL if, as a result thereof, the surplus of the Corporation for
purposes of the DGCL would be less than the amount of Preferred Dividends that
would accrue on the then outstanding shares of Series B Preferred Stock during
the following three years.
(C) Any shares of Series B Preferred Stock acquired by the Corporation by
reason of the conversion or redemption of such shares as provided by this
Resolution, or otherwise so acquired, shall be retired as shares of Series B
Preferred Stock and restored to the status of authorized but unissued shares of
Preferred Stock, par value $1.00 per share, of the Corporation, undesignated as
to series, and may thereafter be reissued as part of a new series of such
Preferred Stock as permitted by law.
SECTION 11. Miscellaneous.
(A) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of receipt thereof
or three (3) business days after the mailing thereof if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Resolution) with postage prepaid, addressed: (i) if to the
Corporation, to its office at 700 Sylvan Avenue, International Plaza, Englewood
Cliffs, New Jersey 07632 (Attention: Secretary) or to the transfer agent for the
Series B Preferred Stock, or other agent of the Corporation designated as
permitted by this Resolution or (ii) if to any holder of the Series B Preferred
Stock or Common Stock, as the case may be, to such holder at the address of such
holder as listed in the stock record books of the Corporation (which may include
the records of any transfer agent for the Series B Preferred Stock or Common
Stock, as the case may be) or (iii) to such other address as the Corporation or
any such holder, as the case may be, shall have designated by notice similarly
given.
(B) The term "Common Stock" as used in this Resolution means the
Corporation's Common Stock, par value $.25 per share, as the same exists at the
date of filing of a Certificate of Designations relating to Series B Preferred
Stock or any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that, at any time as a result of an adjustment made pursuant to
Section 9 of this Resolution, the holder of any share of the Series B Preferred
Stock surrendering such shares for conversion, shall become entitled to receive
any shares or other securities of the Corporation other than shares of Common
Stock, the Conversion Price in respect of such other shares or securities so
receivable upon conversion of shares of Series B Preferred Stock shall
thereafter be adjusted, and shall be subject to further adjustment from time to
time, in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in Section 9 hereof, and the
provisions of Sections 1 through 8, 10 and 11 of this Resolution with respect to
the Common Stock shall apply on like or similar terms to any such other shares
or securities.
(C) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series B Preferred Stock or shares of Common Stock or other securities issued
on account of Series B Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Corporation shall not, however, be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Series B Preferred Stock or
Common Stock or other securities in a name other than that in
19
<PAGE> 20
which the shares of Series B Preferred Stock with respect to which such shares
or other securities are issued or delivered were registered, or in respect of
any payment to any person with respect to any such shares or securities other
than a payment to the registered holder thereof, and shall not be required to
make any such issuance, delivery or payment unless and until the person
otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
(D) In the event that a holder of shares of Series B Preferred Stock shall
not by written notice designate the name in which shares of Common Stock to be
issued upon conversion of such shares should be registered or to whom payment
upon redemption of shares of Series B Preferred Stock should be made or the
address to which the certificate or certificates representing such shares, or
such payment, should be sent, the Corporation shall be entitled to register such
shares, and make such payment, in the name of the holder of such Series B
Preferred Stock as shown on the records of the Corporation and to send the
certificate or certificates representing such shares, or such payment, to the
address of such holder shown on the records of the Corporation.
(E) Unless otherwise provided in the Restated Certificate of Incorporation
of the Corporation, all payments in the form of dividends, distributions on
voluntary or involuntary liquidation in whole, dissolution or winding-up or
otherwise made upon the shares of Series B Preferred Stock and any other stock
ranking on a parity with the Series B Preferred Stock with respect to such
dividend or distribution shall be pro rata, so that amounts paid per share on
the Series B Preferred Stock and such other stock shall in all cases bear to
each other the same ratio that the required dividends, distributions or
payments, as the case may be, then payable per share on the shares of the Series
B Preferred Stock and such other stock bear to each other.
(F) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series B Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
B Preferred Stock.
FIFTH: The Board of Directors is expressly authorized and empowered to
adopt, amend and repeal By-laws, subject to the power of the stockholders to
amend or repeal any By-law made by the Board of Directors.
SIXTH: Unless and except to the extent that the By-laws shall so require,
the election of directors need not be by written ballot.
SEVENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed or permitted by said
laws; and all rights at any time conferred upon the stockholders of the
Corporation by this Certificate of Incorporation are granted subject to the
provisions of this Article SEVENTH.
EIGHTH: The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than nine nor
more than twenty-one directors (exclusive of directors referred to in the
following paragraph), the exact number to be determined from time to time by
resolution adopted by affirmative vote of a majority of such directors then in
office. The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the total number of directors determined by the Board of
Directors pursuant to this paragraph. At the 1986 annual meeting of
stockholders, Class I directors shall be elected for a one-year term, Class II
directors for a two-year term and Class III directors for a three-year term. At
each succeeding annual meeting of stockholders beginning in 1987, successors to
the directors in the class whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for the remaining term of that class,
but in no case will a decrease in the number of directors shorten the term of
any incumbent director. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to
20
<PAGE> 21
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy in the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the directors then in office,
provided that a quorum is present, and any other vacancy may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall hold office for the remaining
term of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the number of such directors and the election,
term of office, filling of vacancies and other features of such directorships
shall be governed by the provisions of Article FOURTH of this Certificate of
Incorporation and any resolution or resolutions adopted by the Board of
Directors pursuant thereto, and such directors shall not be divided into classes
unless expressly so provided therein.
NINTH: No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken without a
meeting, unless a consent in writing, setting forth the action so taken, shall
be signed by all the stockholders of the Corporation entitled to vote thereon.
TENTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for payment of an improper dividend, or for an improper
repurchase or redemption of the stock of the Corporation, in violation of
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 4th day of
January, 1999.
BESTFOODS
By CHARLES R. SHOEMATE
Charles R. Shoemate
Chairman of the Board
ATTEST:
HANES A. HELLER
Hanes A. Heller
Secretary
21
<PAGE> 1
EXHIBIT 4(b)
- --------------------------------------------------------------------------------
BESTFOODS
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Rights Agent
------------------
Rights Agreement
Dated as of January 4, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
Section 1. Certain Definitions....................................1
Section 2. Appointment of Rights Agent............................5
Section 3. Issue of Rights Certificates...........................5
Section 4. Form of Rights Certificates............................7
Section 5. Countersignature and Registration......................8
Section 6. Transfer, Split Up, Combination and
Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen
Rights Certificates..................................9
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights...........................10
Section 8. Cancellation and Destruction of Rights
Certificates........................................13
Section 9. Reservation and Availability of Capital Stock.........14
Section 10. Preferred Stock Record Date...........................16
Section 11. Adjustment of Purchase Price, Number and
Kind of Shares or Number of Rights..................16
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares....................................27
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power..........................28
Section 14. Fractional Rights and Fractional Shares...............31
Section 15. Rights of Action......................................32
Section 16. Agreement of Rights Holders...........................33
Section 17. Rights Certificate Holder Not Deemed a
Stockholder.........................................34
Section 18. Concerning the Rights Agent...........................34
-i-
<PAGE> 3
PAGE
Section 19. Merger or Consolidation or Change of Name
of Rights Agent.....................................35
Section 20. Duties of Rights Agent................................36
Section 21. Change of Rights Agent................................38
Section 22. Issuance of New Rights Certificates...................39
Section 23. Redemption and Termination............................40
Section 24. Exchange..............................................41
Section 25. Notice of Certain Events..............................43
Section 26. Notices...............................................44
Section 27. Supplements and Amendments............................45
Section 28. Successors............................................46
Section 29. Determinations and Actions by the Board of
Directors, etc......................................46
Section 30. Benefits of This Agreement............................47
Section 31. Severability..........................................47
Section 32. Governing Law.........................................47
Section 33. Counterparts..........................................48
Section 34. Descriptive Headings..................................48
Exhibit A -- Certificate of Designation, Preferences and Rights
Exhibit B -- Form of Rights Certificate
Exhibit C -- Summary of Rights to Purchase Preferred Stock
-ii-
<PAGE> 4
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of January 4, 1999 (the
"Agreement"), between Bestfoods, a Delaware corporation (the "Company"), and
First Chicago Trust Company of New York, a New York corporation (the "Rights
Agent").
W I T N E S S E T H
WHEREAS, on November 17, 1998, the Board of Directors of the
Company authorized and declared a dividend distribution to be effective as of
January 4, 1999 (the "Rights Dividend Declaration Date") of one Right for each
share of common stock, par value $.25 per share, of the Company (the "Common
Stock") outstanding at the close of business on January 4, 1999 (the "Record
Date"), and has authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for
each share of Common Stock of the Company issued (whether originally issued or
delivered from the Company's treasury) between the Record Date and the earlier
of the Distribution Date or the Expiration Date (as such terms are hereinafter
defined), each Right initially representing the right to purchase, under certain
circumstances, one two-hundredths of a share of Series A Junior Participating
Preferred Stock of the Company having the rights, powers and preferences set
forth in the Certificate of Designation, Preferences and Rights attached hereto
as Exhibit A, upon the terms and subject to the conditions hereinafter set forth
(the "Rights");
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding, but shall not include the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary
of the Company, or any Person organized, appointed or established by
the Company or any Subsidiary of the Company for or pursuant to the
terms of any such plan, or any Per-
<PAGE> 5
- 2 -
son who becomes an Acquiring Person solely as a result of a reduction
in the number of shares of Common Stock outstanding due to the
repurchase of shares of Common Stock by the Company, unless and until
such Person shall purchase or otherwise become the Beneficial Owner of
additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and
in effect on the date of this Agreement (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise, provided,
however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," (A) securities tendered
pursuant to a tender or exchange offer made by such Person or
any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or
(B) securities issuable upon exercise of Rights at any time
prior to the occurrence of a Triggering Event, or (C)
securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event, which Rights were acquired
by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to
Section 3(a) hereof (the "Original Rights") or pursuant to
Section 11(i) or Section 22 hereof in connection with an
adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of
(as determined pursuant to Rule l3d-3 of the General Rules and
Regulations under the Ex-
<PAGE> 6
- 3 -
change Act), or has a "pecuniary interest" or an "indirect
pecuniary interest" in (as determined pursuant to Rule
16a-1(a)(2) of the General Rules and Regulations under the Ex-
change Act), in any event including pursuant to any agreement,
arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely
from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with,
the applicable provisions of the General Rules and Regulations
under the Exchange Act, and (B) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to subparagraph (ii) of this
paragraph (c)) or disposing of any voting securities of the
Company; provided, however, that nothing in this paragraph (c)
shall cause a Person ordinarily engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment
underwriting pursuant to an underwriting agreement with the
Company until the expiration of forty days after the date of
such acquisition.
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.
(e) "close of business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such
date is not a Business Day it shall
<PAGE> 7
- 4 -
mean 5:00 P.M., New York City time, on the next succeeding Business
Day.
(f) "Common Stock" shall mean the common stock, par value $.25
per share, of the Company, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital
stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct
the management of such Person.
(g) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(h) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the
Company and to the extent that there are not a sufficient number of
shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of Preferred
Stock, par value $1.00 per share, of the Company designated for such
purpose containing terms substantially similar to the terms of the
Series A Junior Participating Preferred Stock.
i) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii)(A) or (B) hereof.
(j) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(k) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d)
under the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such.
(l) "Subsidiary" shall mean, with reference to any Person, any
corporation (or other entity) of which an amount of voting securities
(or comparable ownership interests) sufficient to elect at least a
majority of the directors (or comparable individuals) of such
corporation (or other entity) is beneficially owned or otherwise
controlled, directly or indirectly, by such Person.
<PAGE> 8
- 5 -
(m) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Rights Certificates.
(a) Until the earlier of (i) the close of business on the
tenth Business Day after the Stock Acquisition Date (or, if the tenth Business
Day after the Stock Acquisition Date occurs before the Record Date, the close of
business on the Record Date) or (ii) the close of business on the tenth Business
Day (or such later date as the Board shall determine) after the date that a
tender or exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person organized, appointed or established by the Company or
any Subsidiary of the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if, upon consummation
thereof, such Person would be the Beneficial Owner of 15% or more of the shares
of Common Stock then outstanding (the earlier of (i) and (ii) being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates, and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will send by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, one or more rights
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in the
number of Rights per share
<PAGE> 9
- 6 -
of Common Stock has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage prepaid mail, to each record holder of the Common Stock as
of the close of business on the Record Date, at the address of such holder shown
on the records of the Company. With respect to certificates for the Common Stock
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates for the Common Stock and the registered
holders of the Common Stock shall also be the registered holders of the
associated Rights. Until the earlier of the Distribution Date or the Expiration
Date (as such term is defined in Section 7 hereof), the transfer of any
certificates representing shares of Common Stock in respect of which Rights have
been issued shall also constitute the transfer of the Rights associated with
such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common
Stock which are issued (whether originally issued or from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date. Certificates representing such shares of Common
Stock shall also be deemed to be certificates for Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between
Bestfoods (the "Company") and First Chicago Trust Company of New York
(the "Rights Agent") dated as of January 4, 1999, as may be amended
(the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal
offices of the Company. Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the
<PAGE> 10
- 7 -
Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or any
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement), whether currently held by or on behalf of such Person or by
any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates. The failure
to print the foregoing legend on any such Common Stock certificate or any other
defect therein shall not affect in any manner whatsoever the application or
interpretation of the provisions of Section 7(e) hereof.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of one two-hundredths of a share of Preferred Stock as
shall be set forth therein at the price set forth therein (such exercise price
per one two-hundredths of a share, the "Purchase Price"), but the amount and
type of securities purchasable upon the exercise of each Right and the Purchase
Price thereof shall be subject to adjustment as provided herein.
<PAGE> 11
- 8 -
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
or nominee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee or nominee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect avoidance of Section 7(e) hereof, and
any Rights Certificate issued pursuant to Section 6 or Section 11 hereof, upon
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Rights Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by
<PAGE> 12
- 9 -
the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
In case any authorized signatory of the Rights Agent who shall
have countersigned any of the Rights Certificates shall cease to be so
authorized before delivery by the Company, such Rights Certificates,
nevertheless, may be issued and delivered by the Company with the same force and
effect as though the person who countersigned such Rights Certificates had not
ceased to be so authorized; and any Rights Certificate may be countersigned on
behalf of the Rights Agent by any person who, at the actual date of the
countersignature of such Rights Certificate, shall be properly authorized to
countersign such Rights Certificate, although at the date of the execution of
this Agreement any such person was not so authorized.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date, and at
or prior to the close of business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one two-hundredths of a share of Preferred
Stock (or, following a Triggering Event, Common Stock, other securities, cash or
other assets, as the case may be) as the Rights Certificate or Rights
Certificates surrendered then entitled such holder (or former holder in the case
of a transfer) to purchase. Any registered holder desiring to transfer, split
up, combine or exchange any Rights Certificate or Rights
<PAGE> 13
- 10 -
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e), Section 14 and Section 20(k) hereof, countersign and deliver
to the Person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one two-
<PAGE> 14
- 11 -
hundredths of a share of Preferred Stock (or shares of Common Stock, other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable at or prior to the earliest of (i) the
close of business on January 4, 2009 (the "Final Expiration Date"), (ii) the
time at which the Rights are exchanged as provided in Section 24 hereof, or
(iii) the time at which the Rights are redeemed as provided in Section 23 hereof
(the earliest date being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one two-hundredths of a share
of Preferred Stock pursuant to the exercise of a Right shall initially be $200,
and shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one two-hundredths of a share of Preferred Stock (or
shares of Common Stock, other securities, cash or other assets, as the case may
be) to be purchased as set forth below and an amount equal to any applicable
transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the shares of Preferred
Stock (or make available, if the Rights Agent is the transfer agent for such
shares) certificates for the total number of one two-hundredths of a share of
Preferred Stock to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) if the Company shall
have elected to deposit the total number of shares of Preferred Stock issuable
upon exercise of the Rights hereunder with a depositary agent, requisition from
the depositary agent depositary receipts representing such number of one
two-hundredths of a share of Preferred Stock as are to be purchased (in which
case certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such holder, and (iv) after
receipt thereof, deliver such cash, if any, to or
<PAGE> 15
- 12 -
upon the order of the registered holder of such Rights Certificate. The payment
of the Purchase Price (as such amount may be reduced pursuant to Section
11(a)(iii) hereof) shall be made (x) in cash or by certified bank check or bank
draft payable to the order of the Company, or (y) subject to applicable law, by
delivery of a certificate or certificates (with appropriate stock powers
executed in blank attached thereto) evidencing a number of shares of Common
Stock equal to the then Purchase Price divided by the closing price (as
determined pursuant to Section 11(d) hereof) per share of Common Stock on the
Trading Date immediately preceding the date of such exercise. In the event that
the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to require
prior to the occurrence of a Triggering Event that, upon any exercise of Rights,
a number of Rights be exercised so that only whole shares of Preferred Stock
would be issued.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
with whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or
<PAGE> 16
- 13 -
effect the avoidance of this Section 7(e), shall become null and void without
any further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or other Person as
a result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Rights Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Rights Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock. (a)
The Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Preferred Stock (and,
following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities) or out of
<PAGE> 17
- 14 -
its authorized and issued shares of Preferred Stock (and, following the
occurrence of a Triggering Event, out of its authorized and issued Common Stock
and/or other securities) held in its treasury, the number of shares of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or
other securities) that, as provided in this Agreement including Section
11(a)(iii) hereof, will be sufficient to permit the exercise in full of all
outstanding Rights (it being understood that any of the foregoing shares or
securities may also be reserved for other purposes) or will take such other
steps as are appropriate to assure that the number of such shares or securities
(or their equivalents) sufficient to permit the exercise in full of all
outstanding Rights will be available upon such exercise.
(b) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock and/or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on any
national securities exchange, the Company shall use its best efforts to cause,
from and after such time as the Rights become exercisable, all shares reserved
for such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as is required by law following the
Distribution Date, an the case may be, a registration statement under the
Securities Act of 1933 (the "Act"), with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities, and
(B) the Expiration Date. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension the
<PAGE> 18
- 15 -
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. Notwithstanding any provision of
this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification in such jurisdiction shall not have
been obtained, the exercise thereof shall not be permitted under applicable law
or a registration statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all one two-hundredths of a share
of Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for shares of Preferred Stock (or Common
Stock and/or other securities, as the case may be) upon the exercise of Rights.
The Company shall not, however, be required (a) to pay any transfer tax which
may be payable in respect of any transfer or delivery of Rights Certificates to
a Person other than, or the issuance or delivery of certificates for shares of
Preferred Stock (or Common Stock and/or other securities, as the case may be) in
respect of a name other than that of the registered bolder of the Rights
Certificates evidencing Rights surrendered for exercise or (b) to issue or
deliver any certificates for shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for a number of shares of Preferred Stock (or Common Stock
and/or other securities, as the case may be) is issued upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of
such whole and/or fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) rep-
<PAGE> 19
- 16 -
resented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of the Purchase Price (and all applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares, or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Preferred Stock or capital stock, as the case may
be, issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Stock (or Common Stock and/or other
<PAGE> 20
- 17 -
securities) transfer books of the Company were open, he would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(ii) In the event:
(A) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Agreement,
directly or indirectly, shall merge into the Company or otherwise
combine with the Company and the Company shall be the continuing or
surviving corporation of such merger or combination and the Common
Stock of the Company shall remain outstanding and unchanged, or
(B) any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary
of the Company, or any Person organized, appointed or established by
the Company or any Subsidiary of the Company for or pursuant to the
terms of any such plan) shall, at any time after the Rights Dividend
Declaration Date, become an Acquiring Person and a Stock Acquisition
Date with respect to such Person shall have occurred, unless the event
causing such Person to become an Acquiring Person is a transaction set
forth in Section 13(a) hereof, or is an acquisition of shares of Common
Stock pursuant to a tender offer or an exchange offer for all
outstanding shares of Common Stock at a price and on terms determined
by at least a majority of the members of the Board of Directors who are
not officers of the Company and who are not representatives, nominees,
Affiliates or Associates of an Acquiring Person, after receiving advice
from one or more investment banking firms, to be (a) at a price which
is fair to stockholders (taking into account all factors which such
members of the Board deem relevant including, without limitation,
prices which could reasonably be achieved if the Company or its assets
were sold on an orderly basis designed to realize maximum value) and
(b) otherwise in the best interests of the Company and its
stockholders, then, subject to Section 24 hereof, promptly following
five (5) days after the occurrence of an event described in Section
11(a)(ii)(B) hereof and promptly following the occurrence of an event
described in Section 11(a)(ii)(A) hereof, proper provision
<PAGE> 21
- 18 -
shall be made so that each holder of a Right (except as provided below
and in Section 7(e) hereof) shall thereafter have the right to receive,
upon exercise thereof at the then current Purchase Price in accordance
with the terms of this Agreement, in lieu of a number of one
two-hundredths of a share of Preferred Stock, such number of shares of
Common Stock of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of one
two-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, and (y) dividing that product (which, following such
first occurrence, shall thereafter be referred to as the "Purchase
Price" for each Right and for all purposes of this Agreement) by 50% of
the current market price (determined pursuant to Section 11(d) hereof)
per share of Common Stock on the date of such first occurrence (such
number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common Stock
which are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section 11(a), the
Company shall: (A) determine the excess of (1) the value of the Adjustment
Shares issuable upon the exercise of a Right (the "Current Value"), over (2) the
Purchase Price (such excess, the "Spread"), and (B) with respect to each Right,
make adequate provision to substitute for the Adjustment Shares, upon exercise
of the Rights and payment of the applicable Purchase Price, (1) cash, (2) a
reduction in the Purchase Price, (3) Common Stock or other equity securities of
the Company (including, without limitation, shares, or units of shares, of
preferred stock which the Board of Directors of the Company has deemed to have
the same value as shares of Common Stock (such shares of preferred stock,
"Common Stock Equivalents")), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having an aggregate value equal
to the Current Value, where such aggregate value has been determined by the
Board of Directors of the Company based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors of the
Company; provided, however, that if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Section 11(a)(ii) Event and
(y) the date on which the Company's right of redemption pursuant to Section
23(a) ex-
<PAGE> 22
- 19 -
pires (the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of the
Purchase Price, shares of Common Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to the
Spread. If the Board of Directors of the Company shall determine in good faith
that it is likely that sufficient additional shares of Common Stock could be
authorized for issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that
the Company may seek shareholder approval for the authorization of such
additional shares (such period, as it may be extended, the "Substitution
Period"). To the extent that the Company determines that some action need be
taken pursuant to the first and/or second sentences of this Section 11(a)(iii),
the Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the Common Stock shall be the current market price (as determined
pursuant to Section 11(d) hereof) per share of the Common Stock on the Section
11(a)(ii) Trigger Date and the value of any Common Stock Equivalent shall be
deemed to have the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("Equivalent Preferred Stock")) or securities convertible into Preferred
Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or
per share of Equivalent Preferred Stock (or having a conversion price per share,
if a security convertible into Preferred Stock or Equivalent Preferred Stock)
less than the current market price (as determined
<PAGE> 23
- 20 -
pursuant to Section 11(d) hereof) per share of Preferred Stock on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Preferred Stock outstanding on such record date, plus the number of shares of
Preferred Stock which the aggregate offering price of the total number of shares
of Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding an such
record date, plus the number of additional shares of Preferred Stock and/or
Equivalent Preferred Stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current market
price (as determined pursuant to Section 11(d) hereof) per share of Preferred
Stock on such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company, whose determination shall be
<PAGE> 24
- 21 -
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a share of Preferred Stock and the
denominator of which shall be such current market price (as determined pursuant
to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be
made successively whenever such a record date is fixed, and in the event that
such distribution is not so made the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d)(i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for purposes of computations made pursuant
to Section 11(a)(iii) hereof, the "current market price" per share of Common
Stock on any date shall be deemed to be the average of the daily closing prices
per share of such Common Stock for the ten (10) consecutive Trading Days
immediately following such date; provided, however, that in the event that the
"current market price" per share of the Common Stock is determined during a
period following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such Common
Stock or securities convertible into shares of such Common Stock (other than the
Rights), or (B) any subdivision, combination or reclassification of such Common
Stock, and prior to the expiration of the requisite thirty (30) Trading Day or
ten (10) Trading Day period, as set forth above, after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "current
market price" shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the shares
of Common Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares of Common Stock are listed or admitted to trading, or,
<PAGE> 25
- 22 -
if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by The Nasdaq Stock Market ("Nasdaq") or such other system then in use,
or, if on any such date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Company. If on any such date no market maker is making
a market in the Common Stock, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company shall be used.
The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading is open for the transaction of business or, if the shares of Common
Stock are not listed or admitted to trading on any national securities exchange,
a Business Day. If the Common Stock is not publicly held or not so listed or
traded, "current market price" per share shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
"current market price" per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the current market
price per share of Preferred Stock cannot be determined in the manner provided
above or if the Preferred Stock is not publicly held or listed or traded in a
manner described in clause (i) of this Section 11(d), the "current market price"
per share of Preferred Stock shall be conclusively deemed to be an amount equal
to 200 (as such number may be appropriately adjusted for such events as stock
splits or stock dividends and recapitalizations with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the current market
price per share of the Common Stock. If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, "current market price"
per share of the Preferred Stock shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes. For all purposes of this Agreement, the
"current market price" of one two-hundredths of a share of Preferred Stock shall
be equal to the
<PAGE> 26
- 23 -
"current market price" of one share of Preferred Stock divided by 200.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share of
Common Stock or other share or one-millionth of a share of Preferred Stock, as
the case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three (3) years from the date of the transaction which mandates such
adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a) through (q), inclusive, and the provisions of Sections 7, 9, 10,
13 and 14 hereof with respect to the Preferred Stock shall apply on like terms
to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one two-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one two-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x)
<PAGE> 27
- 24 -
the number of one two-hundredths of a share covered by a Right immediately prior
to this adjustment, by (y) the Purchase Price in effect immediately prior to
such adjustment of the Purchase Price, and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one two-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights shall be exercisable for the number of
one two-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
<PAGE> 28
- 25 -
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of shares of Preferred Stock issuable upon the exercise of
the Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price per one two-hundredths of a share and the
number of one two-hundredths of a share which were expressed in the initial
Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of the number
of one two-hundredths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable such number of one two-hundredths of
a share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one two-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one two-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in its good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for
cash of any shares of Preferred Stock at less than the current market price,
(iii) issuance wholly for cash of shares of Preferred Stock or securities which
by their terms are convertible into or exchangeable for shares of Preferred
Stock, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11,
<PAGE> 29
- 26 -
hereafter made by the Company to holders of its Preferred Stock shall not be
taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23, Section 24 or
Section 27 hereof, take (or permit any Subsidiary to take) any action if at the
time such action is taken it is reasonably foreseeable that such action will
diminish substantially or otherwise eliminate the benefits intended to be
afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine
the outstanding shares of Common Stock into a smaller number of shares, the
number of Rights associated with each share of Common Stock then outstanding, or
issued or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any
<PAGE> 30
- 27 -
such event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(q) Notwithstanding anything in this Agreement to the
contrary, prior to the Distribution Date, the Company may, in lieu of making any
adjustment to the Purchase Price, the number of shares of Preferred Stock
eligible for purchase on exercise of each Right or the number of Rights
outstanding, which adjustment would otherwise be required by Section 11(a)(i),
11(b), 11(c), 11(h) or 11(i), make such other equitable adjustment or
adjustments thereto as the Board of Directors (whose determination shall be
conclusive) deems appropriate in the circumstances and not inconsistent with the
objectives of the Board of Directors in adopting this Agreement and such
Sections.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 and Section
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each transfer
agent for the Preferred Stock and the Common Stock, a copy of such certificate,
and (c) mail a brief summary thereof to each holder of a Rights Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock) in accordance with Section 26 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. (a) In the event that, following the Stock Acquisition
Date, directly or indirectly, (x) the Company shall consolidate with, or merge
with and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or
<PAGE> 31
- 28 -
surviving corporation of such consolidation or merger and, in connection with
such consolidation or merger, all or part of the outstanding shares of Common
Stock shall be changed into or exchanged for stock or other securities of any
other Person or cash or any other property, or (z) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person or Persons (other
than the Company or any Subsidiary of the Company in one or more transactions
each of which complies with Section 11(o) hereof), then, and in each such case,
proper provision shall be made so that: (i) each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price in accordance with
the terms of this Agreement, such number of validly authorized and issued, fully
paid, non-assessable and freely tradeable shares of Common Stock of the
Principal Party (as such term is hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall be equal
to the result obtained by (1) multiplying the then current Purchase Price by the
number of one two-hundredths of a share of Preferred Stock for which a Right is
exercisable immediately prior to the first occurrence of a Section 13 Event (or,
if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such one two-hundredths of a share
for which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase Price"
for each Right and for all purposes of this Agreement) by (2) 50% of the current
market price (determined pursuant to Section 11(d)(i) hereof) per share of the
Common Stock of such Principal Party on the date of consummation of such Section
13 Event; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such Section 13 Event, all the obligations and duties of
the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as
<PAGE> 32
- 29 -
may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its shares of Common
Stock thereafter deliverable upon the exercise of the Rights; and (v) the
provisions of Section 11(a)(ii) hereof shall be of no effect following the first
occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized shares
of its Common Stock which have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing for the
terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of any consolidation,
merger or sale of assets mentioned in paragraph (a) of this Section 13, the
Principal Party will:
<PAGE> 33
- 30 -
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon exercise
of the Rights on an appropriate form, and will use its best efforts to
cause such registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
which comply in all respects with the requirements for registration on
Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive Section 13
Events. In the event that a Section 13 Event shall occur at any time after the
occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore
been exercised shall thereafter become exercisable in the manner described in
Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary, the
foregoing provisions of this Section 13 shall not be applicable to a transaction
described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction
is consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock which complies with the provisions of Section 11(a)(ii)(B) hereof
(or a wholly owned subsidiary of any such Person or Persons), (ii) the price per
share of Common Stock offered in such transaction is not less than the price per
share of Common Stock paid to all holders of shares of Common Stock whose shares
were purchased pursuant to such tender offer or exchange offer and (iii) the
form of consideration being offered to the remaining holders of shares of Common
Stock pursuant to such transaction is the same as the form of consideration paid
pursuant to such tender offer or exchange offer. Upon consummation of any such
transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(p) hereof, or to distribute Rights
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the
<PAGE> 34
- 31 -
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading, or if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one two-hundredths of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one two-hundredths of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one two-hundredths of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one two-hundredths of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one two-hundredths of a share of Preferred Stock shall be one two-hundredths of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii)
<PAGE> 35
- 32 -
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one (1) share of Common Stock. For purposes of this
Section 14(c), the current market value of one share of Common Stock shall be
the closing price of one share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
<PAGE> 36
- 33 -
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper
instrument of transfer and with the appropriate forms and certificates
fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the Person in whose
name a Rights Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute
owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Rights Certificates or the
associated Common Stock certificate made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to
the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by
any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use
its best efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the number of
one two-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in
<PAGE> 37
- 34 -
any Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company
agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time, on demand of the Rights Agent,
its reasonable expenses and counsel fees and disbursements and other
disbursements incurred in the administration and execution of this Agreement and
the exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. (a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the
<PAGE> 38
- 35 -
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, however, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of "current market price") be
proved or established by the Company prior to taking or suffering any
<PAGE> 39
- 36 -
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of
this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement
or in the Rights Certificates or be required to verify the same (except
as to its countersignature on such Rights Certificates), but all such
statements and recitals are and shall be deemed to have been made by
the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except
its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Rights Certificate; nor shall it be responsible for
any adjustment required under the provisions of Section 11 or Section
13 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of
Rights evidenced by Rights Certificates after actual notice of any such
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of
any shares of Common Stock or Preferred Stock to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any shares of
Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed,
<PAGE> 40
- 37 -
executed, acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not
be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights
or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract
with or lend money to the Company or otherwise act as fully and freely
as though it were not Rights Agent under this Agreement. Nothing herein
shall preclude the Rights Agent from acting in any other capacity for
the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, default, neglect or
misconduct; provided, however, reasonable care was exercised in the
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for
believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the
<PAGE> 41
- 38 -
certificate attached to the form of assignment or form of election to
purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause 1 and/or 2 thereof, the
Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the
Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be: (a) a corporation organized and doing
business under the laws of the United States or of the State of New York (or of
any other State of the United States so long as such corporation is authorized
to do business as a banking institution in the State of New York), in good
standing, having a principal office in the State of New York, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which corporation or the parent corporation thereof has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an affiliate of a corporation described in clause (a) above.
After appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to
<PAGE> 42
- 39 -
the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption and Termination. (a) The Board of
Directors of the Company may, at its option, at any time prior to the earlier of
(i) the close of business on the tenth Business Day following the Stock
Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to
the Record Date, the close of business on the tenth Business Day fol-
<PAGE> 43
- 40 -
lowing the Record Date), or (ii) the Final Expiration Date, redeem all but not
less than all the then outstanding Rights at a redemption price of $.0001 per
Right, as such amount may be appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption Price").
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the "current market price," as defined in Section 11(d)(i)
hereof, of the Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors of the Company.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held.
(c) Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and notify the holders of the then outstanding
Rights of such redemption by either (i) mailing a notice to all such holders,
which notice will state the method by which the payment of the Redemption Price
will be made, or (ii) issuing a press release announcing the manner of
redemption of the Rights in accordance with this Agreement and mailing payment
of the Redemption Price to all such holders. In either case, such mailing shall
be made to each holder's last address as it appears upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Upon payment of the Redemption Price, all outstanding Rights and
Rights Certificates shall be null and void without any further action by the
Company.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time and from time to time on or after a
Section 11(a)(ii) Event, exchange all or part of the then outstanding and
exercisable Rights (which
<PAGE> 44
- 41 -
shall not include Rights that have become void pursuant to the provisions of
Section 7(e) hereof) for shares of Common Stock at an exchange ratio of one
share of Common Stock per Right, appropriately adjusted pursuant to the
provisions of Section 11(p) hereof to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio").
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to Section 24(a) and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. Promptly after
the action of the Board of Directors ordering an exchange of the Rights, the
Company shall give notice of any such exchange to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice to all such
holders at each holder's last address as it appears upon the registry books of
the Rights Agent; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the shares of Common Stock for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute shares of Preferred Stock (or Equivalent Preferred
Stock, as such term is defined in Section 11(b) hereof) for shares of Common
Stock exchangeable for the Rights, at the initial rate of one two-hundredths of
a share of Preferred Stock (or Equivalent Preferred Stock) for each share of
Common Stock, as appropriately adjusted to reflect adjustments in the dividend
rights of the Preferred Stock pursuant to the terms thereof.
(d) In the event that there shall not be sufficient shares of
Common Stock or Preferred Stock issued, but not outstanding, or authorized but
unissued, to permit any exchange of Rights in accordance with this Section 24 or
that any regula-
<PAGE> 45
- 42 -
tory actions or approvals are required in connection therewith, the Company
shall take all such action as may be necessary to authorize additional Common
Stock or Preferred Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractional
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock pursuant to this Section 24. In lieu of such fractional
shares of Common Stock, the Company shall pay to the registered holders of the
Rights Certificates with regard to which such fractional shares of Common Stock
would otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole share of Common Stock. For the purposes of this
Section 24(e), the current market value of a whole share of Common Stock shall
be the closing price of a share of Common Stock (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
(f) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute for any share of Common Stock exchangeable for a
Right (i) Common Stock Equivalents, (ii) cash, (iii) debt securities of the
Company, (iv) other assets, or (v) any combination of the foregoing, having an
aggregate value which the Board of Directors of the Company shall have
determined in good faith to be equal to the current market price of one share of
Common Stock (determined pursuant to Section 11(d) hereof) on the Trading Day
immediately preceding the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company
shall propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend out of earnings or retained earnings of the Company), or
(ii) to offer to the holders of Preferred Stock rights or warrants to subscribe
for or to purchase any additional shares of Preferred Stock or shares of stock
of any class or any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision of outstanding shares of Preferred Stock), or (iv) to
effect any consolidation or merger into or with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or to effect any sale or other transfer (or to permit one or more of
its Subsidiaries to effect any
<PAGE> 46
- 43 -
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case a Section 11(a)(ii) Event shall occur, then, in
any such case, (i) the Company shall as soon as practicable thereafter give to
each holder of a Rights Certificate, to the extent feasible and in accordance
with Section 26 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Bestfoods
700 Sylvan Avenue
International Plaza
Englewood Cliffs, New Jersey 07632
Attention: Corporate Secretary
<PAGE> 47
- 44 -
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
First Chicago Trust Company of New York
525 Washington Boulevard
Suite 4660
Jersey City, New Jersey 07310
Attention: Tenders and Exchanges
Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the earlier
of the Distribution Date or the Shares Acquisition Date and subject to the
penultimate sentence of this Section 27, the Company and the Rights Agent shall,
if the Company so directs, supplement or amend any provision of this Agreement
without the approval of any holders of certificates representing shares of
Common Stock. From and after the earlier of the Distribution Date or the Shares
Acquisition Date and subject to the penultimate sentence of this Section 27, the
Company and the Rights Agent shall, if the Company so directs, supplement or
amend this Agreement without the approval of any holders of Rights Certificates
in order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder, or
(iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person); provided, this Agreement
may not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to,
<PAGE> 48
- 45 -
the holders of Rights. Upon the delivery of a certificate from an appropriate
officer of the Company which states that the proposed supplement or amendment is
in compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price, the Final Expiration Date, the Purchase Price or
the number of one two-hundredths of a share of Preferred Stock for which a Right
is exercisable; provided, however, that at any time prior to (i) the existence
of an Acquiring Person or (ii) the date that a tender or exchange offer by any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any Person
organized, appointed or established by the Company or a Subsidiary of the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if upon consummation thereof, such Person
would be the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding, the Board of Directors of the Company may amend this Agreement to
increase the Purchase Price. Prior to the earlier of the Distribution Date or
the Shares Acquisition Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this
<PAGE> 49
- 46 -
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board of Directors of
the Company in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties, and
(y) not subject the Board to any liability to the holders of the Rights.
Section 30. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement, but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors of
the Company. Without limiting the foregoing, if any provision requiring that a
determination be made by less than the entire Board of Directors of the Company
(or at a time or with the concurrence of a group of Directors consisting of less
than the entire Board) is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, such determination shall then be
made by the Board of Directors of the Company in accordance with applicable law
and the Company's Certificate of Incorporation and By-Laws.
<PAGE> 50
- 47 -
Section 32. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 51
- 48 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
Attest: BESTFOODS
By: /s/ Hanes A. Heller By: /s/ Charles R. Shoemate
--------------------------- --------------------------------
Name: Hanes A. Heller Name: Charles R. Shoemate
Title: Vice President, Title: Chairman, President
General Counsel and Chief Executive
and Secretary Officer
[SEAL]
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: /s/ John Piskadlo By: /s/ Charles D. Keryc
--------------------------- --------------------------------
Name: John Piskadlo Name: Charles D. Keryc
Title: Assistant Vice Title: Vice President
President
[SEAL]
<PAGE> 52
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A
JUNIOR PARTICIPATING PREFERRED STOCK
of
BESTFOODS
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Charles R. Shoemate, President, and Hanes A. Heller,
Secretary, of Bestfoods, a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the said Corporation,
the said Board of Directors on November 17, 1998, adopted the following
resolution to be effective as of January 4, 1999 creating a series of 2,000,000
shares of Preferred Stock designated as Series A Junior Participating Preferred
Stock.
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this corporation in accordance with the provisions of its
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall initially be 2,000,000, par
value $1.00 per share, such number of shares to be subject to increase or
decrease by action of the Board of Directors as evidenced by a certificate of
designation.
Section 2. Dividends and Distributions. (A) Subject to the
prior and superior rights of the holders of any
<PAGE> 53
A - 2
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the 25th day of January, April, July and October of each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a)
$10.00 or (b) subject to the provision for adjustment hereinafter set forth, 200
times the aggregate per share amount of all cash dividends, and 200 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.25 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. In the event the Corporation shall at any
time after January 4, 1999 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on
<PAGE> 54
A - 3
the Series A Junior Participating Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date, for the determination of
holders of shares of Series A Junior Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to 200 votes on all matters submitted
to a vote of the stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which
<PAGE> 55
A - 4
is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class an
all matters submitted to a vote of stockholders of the Corporation.
(C)(i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default period")
which shall extend until such time when all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series A Junior
Participating Preferred Stock then outstanding shall have been declared
and or set apart for payment. During each default period, all holders
of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two (2)
Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the holders of
any other series of Preferred Stock, if any, to increase, in certain
cases, the authorized number of Directors shall be exercised unless the
holders of ten percent in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by
the holders of Preferred Stock of such voting right. At any meeting at
which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if any,
in the Board of Directors as may then exist up to two (2) Directors or,
if such right is exercised at an annual
<PAGE> 56
A - 5
meeting, to elect two (2) Directors. If the number which may be so
elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit
the election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in
any default period and during the continuance of such period, the
number of Directors shall not be increased or decreased except by vote
of the holders of Preferred Stock as herein provided or pursuant to
the rights of any equity securities ranking senior to or pari passu
with the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding, irrespective
of series, may request, the calling of a special meeting of the holders
of Preferred Stock, which meeting shall thereupon be called by the
President, a Vice President or the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Preferred
Stock are entitled to vote pursuant to this subparagraph (iii) of
Section 3(C) shall be given to each holder of record of Preferred Stock
by mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called
for a time not earlier than 20 days and not later than 60 days after
such order or request or in default of the calling of such meeting
within 60 days after such order or request, such meeting may be called
on similar notice by any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares
of Preferred Stock outstanding. Notwithstanding the provisions of this
subparagraph (iii) of Section 3(C), no such special meeting shall be
called during the period within 60 days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall continue
to be entitled to elect the whole number of Directors until the holders
of Preferred Stock shall have exercised their right to elect two (2)
Directors voting as a class, after the exercise of which
<PAGE> 57
A - 6
right (x) the Directors so elected by the holders of Preferred Stock
shall continue in office until their successors shall have been elected
by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in
subparagraph (ii) of this Section 3(C)) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have
became vacant. References in this Section 3(C) to Directors elected by
the holders of a particular class of stock shall include Directors
elected such Directors to fill vacancies as provided in clause (y) of
the foregoing sentence.
(v) immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class shall terminate, and (a) the
number of Directors shall be such number as may be provided for in the
certificate of incorporation or by-laws irrespective of any increase
made pursuant to the provisions of subparagraph (ii) of this Section
3(C) (such number being subject, however, to change thereafter in any
manner provided by law or in the certificate of incorporation or
by-laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly
dividends or other dividends or distributions payable on the Series A Junior
Participating Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Junior Participating Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior
<PAGE> 58
A - 7
(either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends and or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares
of stock ranking on a party with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such term as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be
<PAGE> 59
A - 8
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received $225 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 200 (as appropriately adjusted as set forth in subparagraph C
below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the Series
A Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank an a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of
<PAGE> 60
A - 9
the Common Adjustment, then such remaining assets shall be distributed ratably
to the holders of Common Stock.
(C) in the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stocks or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event,
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 200 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating
Preferred Stock shall rank junior to all other series of the Corporation's
Preferred Stock as to the payment of dividends and the distribution of assets;
unless the terms of any such series shall provide otherwise.
<PAGE> 61
A - 10
Section 10. Amendment. The Restated Certificate of
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preferences or special rights
of the Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of two-thirds (2/3) or
more of the outstanding shares of Series A Junior Participating Preferred Stock,
voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred Stock.
<PAGE> 62
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 4th day of January, 1999.
___________________________________
Charles R. Shoemate
President
Attest:
___________________________________
Hanes A. Heller
Secretary
<PAGE> 63
EXHIBIT B
Form of Rights Certificate
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER JANUARY 4, 2009 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.0001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND
ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE
RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE
OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]*
Rights Certificate
BESTFOODS
This certifies that , or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of January 4, 1999 (the "Rights
Agreement"), between Bestfoods, a Delaware corporation (the "Company"), and
First Chicago Trust Company of New York, a New York corporation (the "Rights
Agent"), to purchase from the Company at any time prior to 5:00 P.M. (New York
City time) on January 4, 2009 at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
two-hundredths of a fully paid, non-assessable share of Series A Junior
Participating Preferred Stock (the "Preferred
___________________________________
* The portion of the legend in brackets shall be inserted only if applicable to
an Acquiring Person.
<PAGE> 64
B - 2
Stock") of the Company, at a purchase price of $200 per one two-hundredths of a
share (the "Purchase Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related Certificate duly
executed. The Purchase Price shall be paid, at the election of the holder, in
cash or, subject to applicable law, in shares of Common Stock of the Company
having an equivalent value. The number of Rights evidenced by this Rights
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of January 4, 1999, based on the Preferred
Stock as constituted at such date. The Company reserves the right to require
prior to the occurrence of a Triggering Event (as such term is defined in the
Rights Agreement) that a number of Rights be exercised so that only whole shares
of Preferred Stock will be issued.
Upon the occurrence of a Triggering Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and
the number and kind of shares of Preferred Stock or other securities, which may
be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agree-
<PAGE> 65
B - 3
ment. Copies of the Rights Agreement are on file at the above-mentioned office
of the Rights Agent and are also available upon written request to the Rights
Agent.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of one two-hundredths
of a share of Preferred Stock as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be (i) redeemed by the Company at its option
at a redemption price of $.0001 per Right at any time prior to the earlier of
the close of business on (a) the tenth business day following the Stock
Acquisition Date (as such time period may be extended pursuant to the Rights
Agreement), and (b) the Final Expiration Date and (ii) exchanged by the Company
in whole or in part for shares of common stock of Preferred Stock.
No fractional shares of Preferred Stock will be issued upon
the exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one two-hundredths of a share of Preferred Stock,
which may, at the election of the Company, be evidenced by depositary receipts),
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock or of any other securities of the Company which may at any time
be issuable, on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right
<PAGE> 66
B - 4
or Rights evidenced by this Rights Certificate shall have been exercised as
provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
<PAGE> 67
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of January 4, 1999
ATTEST: BESTFOODS
____________________________________ By: ___________________________________
Secretary Title:
Countersigned:
FIRST CHICAGO TRUST
COMPANY OF NEW YORK
By: ________________________________
Authorized Signature
<PAGE> 68
(Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights certificate.)
FOR VALUE RECEIVED ____________________________________________________________
hereby sells, assigns and transfers unto ______________________________________
_____________________________________________________________
(Please print name and address of transferee)
_____________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoints ___________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: __________________________
__________________________
Signature
Signature Guaranteed:
(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)
<PAGE> 69
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: _________________________ _________________________
Signature
Signature Guaranteed:
(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 70
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Rights Certificate.)
To: BESTFOODS
The undersigned hereby irrevocably elects to exercise ________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other taxpayer identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other taxpayer identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ________________________
________________________
Signature
Signature Guaranteed:
(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)
<PAGE> 71
- 2 -
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are
[ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as
such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: _________________________ ________________________
Signature
Signature Guaranteed:
(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)
NOTICE
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE> 72
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
The Board of Directors of Bestfoods has declared a dividend of
one right (a "Right") for each outstanding share of Bestfoods' Common Stock. The
dividend will be payable to shareholders of record on January 4, 1999.
Generally, each Right consists of the right to purchase, for $200 (the "Exercise
Price"), 1/200 of a share of Bestfoods' Series A Junior Participating Preferred
Stock (the "Preferred Stock"). The Rights are more fully described in a Rights
Agreement between Bestfoods and First Chicago Trust Company of New York, as
Rights Agent.
Distribution Date
The Rights may be exercised only if the Distribution Date
occurs. The Distribution Date is the date 10 business days after (i) the date a
person or group ("Person") announces that it has acquired 15% or more of
Bestfoods' outstanding Common Stock or (ii) the date a Person begins, or
announces an intention to begin, a tender offer for 15% or more of Bestfoods'
outstanding Common Stock, whichever occurs later.
If the Distribution Date occurs, Bestfoods will mail to
shareholders of record on such date certificates evidencing the Rights and such
shareholders will be able to transfer the Rights certificates separately from
the Common Stock certificates. Until such time, the Rights will be evidenced
only by the Common Stock certificates (which, if issued after January 4, 1999,
will be imprinted with a legend describing the Rights) and shareholders will
only be able to transfer the Rights together with the Common Stock.
"Flip-in" and "Flip-over" Features
If a Person acquires 15% or more of Bestfoods' outstanding
Common Stock without the prior approval of the Board, then the other
shareholders of Bestfoods (but not the acquirer) will be entitled to purchase,
at the Exercise Price, Common Stock of Bestfoods (or, in certain circumstances,
cash, property or other securities of Bestfoods) with a market value equal to
two times the Exercise Price. This is commonly referred to as the "flip-in"
feature of the Rights.
<PAGE> 73
C - 2
If a Person acquires 15% or more of Bestfoods' outstanding
Common Stock without the prior approval of the Board and then either acquires
Bestfoods in a merger or other business combination transaction or causes the
sale or transfer of 50% or more of Bestfoods' assets or earning power, then the
other shareholders of Bestfoods (but not the acquirer) will be entitled to
purchase, at the Exercise Price, common stock of such acquirer with a market
value equal to two times the Exercise Price. This is commonly referred to as the
"flip-over" feature of the Rights.
To illustrate, if the exercise price were $200 and the current
market price of the common stock (either of Bestfoods or the acquirer, as
applicable) were $50 at the time of exercise, a holder who exercises would be
entitled to receive $400 worth of common stock (or 8 shares) for $200 (rather
than just 4 shares).
Redemption or Exchange of Rights
The Rights will expire automatically in 10 years, on January
4, 2009, but Bestfoods has the option of redeeming or exchanging the Rights
prior to that time.
Bestfoods may redeem all of the Rights at any time before a
Person announces that it has acquired 15% or more of Bestfoods' outstanding
Common Stock or, if such acquisition already has taken place, during the 10
business day period following such acquisition. Bestfoods may extend such 10
business day period. Each Right may be redeemed at the price of $.0001 per
Right. The Rights cannot be exercised until after the redemption period has
passed. If Bestfoods were to redeem the Rights, the Rights will no longer be
exercisable and will terminate.
Furthermore, Bestfoods may exchange all or a portion of the
Rights at any time after a Person acquires 15% or more of Bestfoods' outstanding
Common Stock at an exchange ratio of one share of Common Stock of Bestfoods (or,
in certain circumstances, cash, property or other securities of Bestfoods) per
Right. If the Board of Directors were to order the exchange of the Rights, the
Rights will no longer be exercisable and will terminate. Until a Right is
exercised or exchanged, the holder of such Right will not have any rights as a
shareholder of Bestfoods (including the right to vote or receive dividends)
simply as a result of being a holder of such Right.
<PAGE> 74
C - 3
Amendment
Bestfoods may amend any of the provisions of the Rights
Agreement before the earlier to occur of (i) the date a Person announces that it
has acquired 15% or more of Bestfoods' outstanding Common Stock or (ii) the
Distribution Date. Thereafter, Bestfoods may only amend the Rights Agreement to
eliminate any ambiguity or defect or to make changes that are not adverse to the
interests of holders of the Rights (other than the acquirer). However, after the
earlier of the two dates referred to above, Bestfoods may not amend the
provisions of the Rights Agreement that relate to the principal economic terms
of the Rights.
Adjustments to Exercise Price
In order to prevent dilution, Bestfoods may adjust the
Exercise Price or the number of 1/200 of a share of Preferred Stock (or, in
certain circumstances, Common Stock or other securities of Bestfoods) that may
be issued upon exercise. Such adjustment may be necessary if Bestfoods were to
subdivide, combine or reclassify the Preferred Stock or grant holders of the
Preferred Stock rights or warrants to subscribe for shares of the Preferred
Stock or convertible securities at less than the current market price of the
Preferred Stock. However, Bestfoods need not adjust the Exercise Price until the
earlier of three years or the time when cumulative adjustments require an
adjustment of at least 1% in such Exercise Price.
Terms of the Preferred Stock
Each 1/200 of a share of Preferred Stock that may be issued
upon exercise of a Right is intended to be comparable to one share of Common
Stock of Bestfoods with respect to dividend, voting, liquidation and other
rights. The Preferred Stock will rank junior to all other series of Bestfoods'
preferred stock with respect to dividend payments and distributions of assets in
liquidation. The Preferred Stock will not be redeemable.
The Rights Agreement has been filed with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form 8-A dated
November 20, 1998. A copy of the Rights Agreement is also available free of
charge to shareholders upon request to Bestfoods.
<PAGE> 1
EXHIBIT 10 (a)
CPC INTERNATIONAL INC.
1984 STOCK AND PERFORMANCE PLAN
AMENDMENT NO. 5
THIS INSTRUMENT made this 17th day of February, 1998 by Bestfoods, formerly
known as CPC International Inc. (the "Company").
WITNESSETH
WHEREAS, the Company maintains that CPC International Inc. 1984 Stock and
Performance Plan, effective as of April 26, 1984, and as subsequently amended
(the "Plan"); and
WHEREAS, the Company desires to amend the Plan to reflect changes in applicable
law and for certain other matters;
NOW, THEREFORE, subject to the required approval of stockholders of the Company
pursuant to Section 1.9(a) of the Plan, the Plan is amended as follows:
FIRST: The name of the Plan is revised to be the Bestfoods 1984 Stock and
Performance Plan.
SECOND: The reference in Section 1.1 of the Plan to "CPC International Inc.
(the "Company") is revised to "Bestfoods (the "Company").
THIRD: Section 1.9(a) is revised to read as follows:
"(a) The Board of Directors shall have the authority to amend, suspend
or terminate the Plan or any portion thereof at any time, provided that
no amendment shall be made without stockholder approval which shall (i)
increase (except as provided in Section 1.5(b) hereof) the total number
of shares reserved for issuance pursuant to the Plan, (ii) materially
change the classes of Employees eligible to be Participants, (iii)
decrease the minimum option pries stated in Section 2.2 hereof (other
than to change the manner of determining Fair Market Value to conform
to any then-applicable provision of the Code or regulations
thereunder), (iv) extend the expiration date of the Plan, (v) withdraw
the administration of the Plan from a committee consisting of two or
more members, each of whom is a Non-Employee Director, or (vi)
constitute amendment for which shareholder approval is required under
applicable law. Subject to the proviso in the first sentence of this
subsection (a), the Committee shall have the authority to amend the
Plan if such amendment (i) is required by legislation or regulations or
is requested by a government agency, or (ii) is administrative in
nature. No amendment, suspension or termination shall alter or impair
any right theretofore granted to any Participant, without the consent
of such Participant."
FOURTH: This Amendment is effective as of January 20, 1998, contingent upon
approval by stockholders of the Company.
IN WITNESS WHEREOF, Bestfoods has caused this Amendment to be executed by its
duly authorized officer and its corporate seal to be affixed hereto on the date
set forth above.
Bestfoods
By
ATTEST:
(Corporate Seal)
<PAGE> 1
EXHIBIT 10 (b)
CPC INTERNATIONAL INC.
1993 STOCK AND PERFORMANCE PLAN
AMENDMENT NO. 5
THIS INSTRUMENT made this 17th day of February, 1998 by Bestfoods, formerly
known as CPC International Inc. (the "Company").
WITNESSETH
WHEREAS, the Company maintains that CPC International Inc. 1993 Stock and
Performance Plan, effective as of April 22, 1993, and as subsequently amended
(the "Plan"); and
WHEREAS, the Company desires to amend the Plan to reflect changes in applicable
law, to increase the number of shares reserved for issuance pursuant to the
Plan, and for certain other matters;
NOW, THEREFORE, subject to the required approval of stockholders of the Company
pursuant to Section 1.9(a) of the Plan, the Plan is amended as follows:
FIRST: The name of the Plan is revised to be the Bestfoods 1993 Stock and
Performance Plan.
SECOND: The reference in Section 1.1 of the Plan to "CPC International Inc.
(the "Company") is revised to "Bestfoods (the "Company").
THIRD: The first sentence of Section 1.5(a) is revised to read as follows:
"There shall be reserved for issuance pursuant to the Plan a total of
fourteen million hundred thousand (14,500,000) shares of Common Stock,
of which no more than five million (5,000,000) may be issued in the
form of Restricted Stock and Common Stock-denominated Performance
Units."
FOURTH: Section 1.9(a) is revised to read as follows:
"(a) The Board of Directors shall have the authority to amend, suspend
or terminate the Plan or any portion thereof at any time, provided that
no amendment shall be made without stockholder approval which shall (i)
increase (except as provided in Section 1.5(b) hereof) the total number
of shares reserved for issuance pursuant to the Plan, (ii) materially
change the classes of Employees eligible to be Participants, (iii)
decrease the minimum option pries stated in Section 2.2 hereof (other
than to change the manner of determining Fair Market Value to conform
to any then-applicable provision of the Code or regulations
thereunder), (iv) extend the expiration date of the Plan, (v) withdraw
the administration of the Plan from a committee consisting of two or
more members, each of whom is a Non-Employee Director, or (vi)
constitute amendment for which shareholder approval is required under
applicable law. Subject to the proviso in the first sentence of this
subsection (a), the Committee shall have the authority to amend the
Plan if such amendment (i) is required by legislation or regulations or
is requested by a government agency, or (ii) is administrative in
nature. No amendment, suspension or termination shall alter or impair
any right theretofore granted to any Participant, without the consent
of such Participant."
FIFTH: Section 2.1(b) is revised to read as follows: "Notwithstanding any
other provision of the Plan, in no event shall any Participant be
awarded Options covering more than 250,000 shares in any one calendar
year."
<PAGE> 2
SIXTH: This Amendment is effective as of January 20, 1998, contingent upon
approval by stockholders of the Company.
IN WITNESS WHEREOF, Bestfoods has caused this Amendment to be executed by its
duly authorized officer and its corporate seal to be affixed hereto on the date
set forth above.
Bestfoods
By
ATTEST:
(Corporate Seal)
<PAGE> 1
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BASIC
Income from continuing operations $ 640.1 $ 428.8 $ 557.5
Preferred stock dividends, net of taxes (10.1) (11.3) (11.3)
-------- -------- --------
Income from continuing operations available to
common stockholders 630.0 417.5 546.2
Net income from discontinued operations -- 11.1 22.5
Loss on disposal of discontinued operations .7 (82.6) --
Cumulative effect of changes in accounting principles (17.3) (13.2) --
-------- -------- --------
Net income available to common stockholders $ 613.4 $ 332.8 $ 568.7
======== ======== ========
Weighted average shares outstanding 286.5 287.3 289.4
-------- -------- --------
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 2.20 $ 1.45 $ 1.89
Income from discontinued operations -- 0.04 0.08
Loss on disposal of discontinued operations -- (0.28) --
Cumulative effect of changes in accounting principles (0.06) (0.05) --
-------- -------- --------
Net income $ 2.14 $ 1.16 $ 1.97
======== ======== ========
DILUTED
Income from continuing operations $ 640.1 $ 428.8 $ 557.5
Adjustments to net income:
Assumed additional cost if ESOP shares are fully converted
net of certain tax benefits (2.0) (2.4) (2.7)
-------- -------- --------
Diluted income from continuing operations 638.1 426.4 554.8
Net income from discontinued operations -- 11.1 22.5
Loss on disposal of discontinued operations .7 (82.6) --
Cumulative effect of changes in accounting principles (17.3) (13.2) --
-------- -------- --------
Diluted net income $ 621.5 $ 341.7 $ 577.3
======== ======== ========
Weighted average shares outstanding 286.5 287.3 289.4
Add incremental shares representing:
Shares issuable upon exercise of stock options 2.4 2.8 1.6
Performance incentive shares issuable .3 .3 .2
Shares issuable upon conversion of ESOP shares 8.0 8.1 8.4
-------- -------- --------
Weighted average number of shares as adjusted 297.2 298.5 299.6
======== ======== ========
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 2.15 $ 1.43 $ 1.85
Income from discontinued operations -- 0.04 0.08
Loss on disposal of discontinued operations -- (0.28) --
Cumulative effect of changes in accounting principles (0.06) (0.04) --
-------- -------- --------
Net income $ 2.09 $ 1.15 $ 1.93
======== ======== ========
</TABLE>
13
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES: $1,021.1 $ 704.2 $ 880.2 $ 654.9 $ 446.6
-------- -------- -------- -------- --------
Add (subtract):
Portion of rents representative of
interest 33.3 32.2 33.4 25.6 24.6
Interest on bonds, mortgages &
similar debt 125.5 100.9 68.4 52.6 50.1
Other Interest 60.7 72.8 100.0 55.7 33.9
Interest expense included in cost of
plant construction (3.5) (3.4) (4.8) (3.7) (4.2)
Income of unconsolidated venture -- -- -- -- 3.9
-------- -------- -------- -------- --------
Income as adjusted $1,237.1 $ 906.7 $1,077.2 $ 785.1 $ 554.9
======== ======== ======== ======== ========
FIXED CHARGES:
Portion of rents representative of
interest $ 33.3 $ 32.2 $ 33.4 $ 25.6 $ 24.6
Interest on bonds, mortgages &
similar debt 125.5 100.9 68.4 52.6 50.1
Other Interest 60.7 72.8 100.0 55.7 33.9
-------- -------- -------- -------- --------
$ 219.5 $ 205.9 $ 201.8 $ 133.9 $ 108.6
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 5.6 4.4 5.3 5.9 5.1
======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 1
[BESTFOODS LOGO]
[GRAPHIC OF PEOPLE AND PRODUCTS]
1998 Annual Report
A Year of Firsts
<PAGE> 2
[GRAPHIC OF BESTFOODS AND PRODUCTS]
<PAGE> 3
TO OUR SHAREHOLDERS AND EMPLOYEES,
[1st GRAPHIC] In this first year as a 100% consumer foods company, Bestfoods
has fulfilled the high expectations we described to you in our 1997 annual
report. As projected, we have accelerated your company's growth beyond the
already strong record of CPC International, Bestfoods' predecessor.
In 1998, excluding special items, diluted earnings per share grew 13.8%,
substantially exceeding CPC International's 6.2% average growth for the 10-year
period from 1987 to 1997. Return on Equity was 56%, ranking us in the top
quartile of our peer group by this measure.
Our share price grew solidly, although not in parallel with earnings gains.
Economic turmoil in Asia and uncertainty concerning Latin America combined to
dampen investors' interest in highly international companies, ours among them.
Total return to shareholders for 1998, including a dividend increase of 8.9%,
was 8.5%.
As we review the performance of our businesses around the world, we see
evidence everywhere of our determination to become, as our vision states, "the
best international food company in the world." Heightened innovation and brand
building, stepped-up cross-border learning, and sharpened focus on consumer
trends and desires are fueling our drive for faster growth.
BESTFOODS EUROPE
Bestfoods Europe had an excellent year, reflecting in its 15% earnings gain
aggressive cost improvements as well as volume growth and vigorous new product
activity. Excluding the negative currency impact of $30 million, the division's
earnings increased 22%, a record high.
We continue to see great progress, particularly in Bestfoods' new Central
European affiliates, which together posted a 56% earnings gain. Our Russian
business is still very small and, of course, suffered along with the Russian
economy. However, we did complete our new plant at Tula and will be in good
position to grow when the current economic crisis passes.
BESTFOODS LATIN AMERICA
Bestfoods Latin America managed its businesses very effectively in a demanding
environment of weakened
- --------------------------------------------------------------------------------
Front cover, from left: Matthew McCarthy, Bay Shore,NY; Javiera Chinchon, Chile;
Michael Smith, Franklin Park, IL; Sonya Whited, Somerset, NJ; and Manny
Nisperos, Taiwan.
Rear cover, from left: Iiham Hiyari, Morocco; Robert Fontaine, U.S. HQ; John
Langdon, Bay Shore, NY; Enrique Martinez Aldrete, Mexico; Olivier Desforges,
France; and Ela Lechniak, Poland.
1
<PAGE> 4
currencies, declining economic growth, and low consumer confidence. Despite all
this, the division's 15% earnings gain is only slightly below its average annual
gain of 17% for the past five years. Once again, powerful brands, affordable
products, and experienced local management gave us an advantage, as they
continue to do in the so-far uncertain economic environment of 1999.
BESTFOODS ASIA
After a decade of rapid growth and high expectations, the Asian economies
faltered in 1998. Sharp devaluations averaged 35% across the region. However,
the skills of our local management, honed over 40 years, enabled us to restrain
declines in sales and earnings. In local currencies, earnings from our Asian
businesses grew 23%, which further bolsters our confidence in Bestfoods'
longer-term prospects in this region.
[1st GRAPHIC] BESTFOODS SPONSORED THE FIRST-EVER BULL RUN ON WALL STREET IN
JANUARY 1998. WIDESPREAD AND ENTHUSIASTIC PRESS COVERAGE HELPED ESTABLISH THE
NEW BESTFOODS NAME, ADOPTED AFTER THE SPIN-OFF OF OUR PREDECESSOR COMPANY'S
(CPC INTERNATIONAL) CORN REFINING BUSINESS.
[BULL RUNNING PHOTO]
BESTFOODS AND THE NYSE CO-SPONSORED "BULL MONDAY" ON JANUARY 4, 1999.
BESTFOODS NORTH AMERICA
After two very strong years, our North American consumer foods division had a
disappointing year in 1998. Soft categories, high corn oil costs, and volume
shortfalls during the transition of Mueller's pasta production to an outside
supplier all combined to depress earnings slightly. Volume growth is the
critical issue, and we are addressing it aggressively. In addition, there are
still benefits to come from a number of cost improvement programs underway.
BESTFOODS BAKING
This U.S. business, which we more than tripled via acquisition in 1995,
continues to fulfill our expectations. Earnings from baking grew 14% in 1998, as
we continued to build volumes and wring out costs.
WHAT HASN'T CHANGED
We titled this document A YEAR OF FIRSTS, to highlight the many FIRST-TIME
achievements and activities of 1998.
Before discussing what is new, however, let me comment on what has not
changed - the traditional strengths of this great international company.
Two brand names tell much of the story: Knorr, the chief brand of our $3
billion savory portfolio, and Hellmann's, the lead brand of our $1.9 billion
global dressings business.
Soups, bouillons, and mealmakers under Knorr and related brands hold first or
second place market positions in 75% of their dozens of markets around the
world. In sauces, Knorr and related
2
<PAGE> 5
[1st GRAPHIC]THE ESTABLISHMENT OF STRATEGIC BUSINESS TEAMS FOR BESTFOODS'
THREE CORE BUSINESSES WAS A 1998 FIRST. THESE INTERNATIONAL TEAMS FORMULATE
STRATEGY AND SUPPORT EXECUTION IN OUR SAVORY PRODUCTS, DRESSINGS, AND
FOODSERVICE BUSINESSES ACROSS OUR 62 COUNTRIES OF OPERATION.
brands are first or second in more than 50% of their markets. Our dressings
products, chiefly under the Hellmann's brand, hold first or second position in
close to 70% of their 42 markets.
And better yet, the current performance of these brands is easily matched by
their potential for further vigorous growth in our established markets, and even
more importantly, in emerging economies.
Among the many lessons we've learned in our long history of international
expansion is this one: in developing markets you need to get in early and offer
affordable products in tune with local culinary habits. We certainly have those
products in our Knorr and Hellmann's portfolios, as proven repeatedly over 90
years of building businesses in new markets. And if you have in addition great
brand names, with the associations they bring of great taste, reliability, and
safety, you are way ahead of the game ... and of your competitors.
Also unchanged in this first year as a new company is Bestfoods'
international competitive advantage. In terms of sales and profits achieved
outside the U.S., we are the most international and internationally-experienced
of our peer group of U.S. food companies.
Our well-established brands, long-time experience in roller-coaster economic
environments, and local managers with deep knowledge of local cultures and
cuisines give us a critical advantage in the highly competitive global
marketplace.
AFRICAN JOINT VENTURE
As just one example of how our international acumen has paid off in 1998 - and
here I move from what is unchanged to what is new - I would point to the 1998
formation of a joint venture in Africa between Bestfoods and Robertsons, a major
South African food company. This venture, combining our own and Robertsons' food
businesses in Africa and also Bestfoods' large and successful business in
Israel, could not have been achieved without our long history in South Africa
(in our own operations from 1920 to 1987 and in a joint venture from 1992 to
1998), our timely purchase of a powerful business in Israel, and an acquisition
team with decades of experience in Africa and the Middle East. Among the most
10-YEAR PERFORMANCE
COMPOUND ANNUAL GROWTH
OPERATING INCOME: 10.6%*
$ Millions
98 1220
97 1108
96 1027
95 851
94 732
93 701
92 679
91 637
90 564
89 492
88 446
*excluding special items.
3
<PAGE> 6
<TABLE>
- --------------------------------------------------------------------------------
RESULTS IN BRIEF
<S> <C> <C>
$ Millions except per share amounts 1998 1997
Net sales $8,374 $8,400
Operating income 1,187(a) 866(a)
Income from continuing operations 640(b) 429(b)
Income from continuing operations
per diluted common share 2.15(b) 1.43(b)
Stockholders' equity per common share 3.48 3.62
Dividends declared per common share .94 .86
Depreciation and amortization 255 264
Capital expenditures 304 321
- --------------------------------------------------------------------------------
(a) Includes restructuring charge of $33 million in 1998 and $242 million in
1997.
(b) Includes restructuring charge of $22 million after taxes or $.08 per diluted
common share in 1998 and $156 million after taxes or $.54 per diluted common
share in 1997.
</TABLE>
significant aspects of this deal is that we will again be marketing the Knorr
and Hellmann's brands, which Robertsons had managed since we divested our South
African business in 1987.
Let me now turn fully to 1998's FIRST-TIME achievements and activities.
ADOPTION OF THE ECONOMIC VALUE ADDED MANAGEMENT APPROACH
Perhaps the greatest change in 1998 was our adoption of the Economic Value Added
management approach. While our rate of earnings growth has been consistently
strong over the past decade, we are convinced that EVA will help to improve our
utilization of assets significantly, reinforce our record of top-quartile sales
and earnings growth and cash flow, and step up the speed and rate of Bestfoods'
growth in return to shareholders.
[1st GRAPHIC]1998 WAS BESTFOODS' fIRST YEAR USING EVA FORMALLY AS A
MANAGEMENT TOOL. SINCE MID-YEAR, A BROAD PROGRAM OF TRAINING AND IMPLEMENTATION
HAS BEEN UNDERWAY. HEIGHTENED ASSET EFFICIENCY, FASTER SALES AND EARNINGS GROWTH
AND STRENGTHENED CASH FLOW, AND MORE AGGRESSIVE GAINS IN SHAREHOLDER VALUE ARE
OUR OBJECTIVES.
ACQUISITIONS AND GEOGRAPHIC EXPANSION
Acquisitions and expansion into new geographic markets continue to be critical
elements of Bestfoods' growth formula, and 1998, as well as the first months of
1999, included some important additions to our portfolio of businesses.
- - In Switzerland, we expanded our business by 15% with the acquisition of
Oswald, a leading maker of soups and bouillons that are highly complementary to
our Knorr business there. Oswald products are sold directly to consumers - a
FIRST for Bestfoods.
- - In the U.K., we acquired the Thomas Morel foodservice business. This business
is small, but it brings with it a product line of microwaveable meals that we
can leverage to other markets - a FIRST for our foodservice business.
- - In China, we acquired a peanut butter business in Weifang, upgraded the plant,
and by year-end were delivering Skippy peanut butter to the Chinese market - a
FIRST for Skippy.
- - In early 1999, we completed the acquisition of two more businesses in Asia: a
packaged seasoning business in India (our First acquired addition to our small
business there) and an energy drink business in
4
<PAGE> 7
Pakistan. These businesses strengthen further our positions in these huge and
promising markets.
COST IMPROVEMENTS
As projected, Bestfoods delivered $60 million, pre-tax, to 1998 earnings from
restructuring, as well as additional savings from harmonization of ingredients
and packaging materials and plant cost improvements. Overall, Bestfoods' gross
profit margin improved by 1.4%.
There is more we can do and are doing to capture new efficiencies across our
worldwide business. A number of regional and international programs, FIRST
established in 1998, are streamlining our selling, marketing, and administrative
cost structures. A massive supply chain project in North America, on line in
January 1999, is expected to produce substantial savings as well as improve
customer service and business planning.
GLOBAL WOMEN'S FORUM
Every year in our annual report, we reaffirm our commitment to Bestfoods' people
and to providing the training and opportunities they need to help make us the
best. In July 1998, we launched a truly unique expression of that commitment.
The Bestfoods Global Women's Forum was a FIRST for our company and, perhaps, our
industry (see details, page 19).
[SHOEMATE AND GRASSO PHOTO]
C. R. Shoemate (right) and NYSE Chairman Richard Grasso rang the bell to open
trading on January 4, 1999. With them is a giant ENTENMANN'S cookie character.
BULL MONDAY
And here's one more FIRST, launched in 1998 and repeated with great success in
January 1999. I refer to "Bull Monday." In 1998, we ran the bulls on Wall Street
to announce our new name and to say that we are bullish on our business. On the
first trading Monday of 1999, we did it again, in partnership with the New York
Stock Exchange. And we again delivered a bullish message. It's worth repeating.
"Our confidence has never been higher ... that our brands and business will
continue to thrive and grow in a world where companies that truly know how to
strategize globally and execute locally excel ... a world where companies that
get into new markets early reap the rich rewards of market leadership ... a
world where Hellmann's and Knorr and our other market-leading brands are
household names. We're bullish on our business. And we want the world to know
it."
Said another way, we look forward to another strong year in 1999, even given
economic difficulties in Latin America.
We believe that our global brands, international experience, focused
strategy, strong cash flow, EVA management approach, and great Bestfoods people
will power our drive for fast, profitable growth around the world and make us
"the best."
/s/C. R. Shoemate
C. R. Shoemate
Chairman and
Chief Executive Officer
February 16, 1999
5
<PAGE> 8
BESTFOODS' 1998 WORLDWIDE BUSINESS RESULTS AND MARKET POSITIONS
SALES $8.4 BILLION, -0.3%
VOLUMES +2.5%
OPERATING INCOME $1.2 BILLION*, +10.1%
*excludes restructuring charge.
SALES BY
OPERATING DIVISION
[PIE CHART]
BUSINESS RESULTS
- - EUROPE $3.5 billion, -1.3%
Operations in 31 countries of Europe, Africa, and the Middle East. 58
manufacturing plants.
- - NORTH AMERICA $1.8 billion, -0.9%
Operations in the United States, Canada, and the Caribbean. 14 manufacturing
plants.
- - BAKING $1.7 billion, +3.2%
18 Bakeries.
- - LATIN AMERICA $1.1 billion, +4.0%
Operations in 16 countries. 14 manufacturing plants.
- - ASIA $322 million, -15.6%
Operations in 12 countries, including joint ventures in seven countries.
Licensing agreement in Japan. 17 manufacturing plants.
MARKET POSITIONS
1 Leader in Market Share
2 Second in Market Share
- - Present in the Market
<TABLE>
<CAPTION>
POTATO POURABLE CORN
SOUPS* SAUCES* BOUILLONS MEALMAKERS* PRODUCTS PASTA MAYONNAISE DRESSINGS OIL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NORTH AMERICA, CARIBBEAN
Canada 2 2 1 1 1
United States - - 2 - - - 1 - 1
Dominican Republic 2 2 - -
EUROPE, AFRICA/MIDDLE EAST
Austria 1 1 1 1 1 1
Belgium 1 1 1 1
Bulgaria - - - -
Czech Republic 2 2 2 2 - 1 1
Denmark 1 1 1 1 2 2 1
Finland 1 1 1 2 1
France 1 2 2 2 2
Germany 2 2 2 2 1 - 1
Greece 1 1 1 2 1 1 1
Hungary 1 1 2 2 1 2
Ireland 1 1 1 1 1 - 1 2 -
Italy 1 - 2 1 - -
Netherlands 2 1 2 2 - -
Norway - 2 - -
Poland 1 1 1 1 1 2
Portugal 1 - 1 2 1 2
Romania 1 1
Russia 2 - 2 1 - -
Slovak Republic - - - - - 1
Spain 2 - 2 - - - -
Sweden 1 2 1 1 - 1
Switzerland 1 1 1 1 1 - -
United Kingdom 2 - 2 - - 1 2 1
Israel 1 2 2 1 - - 1 1
Jordan 2 2 -
Kenya 1 1 -
Morocco 1 - 1
Saudi Arabia 2 2
South Africa 1 2 1 1 - 1
Tunisia 1 - 1 -
Turkey 1 2 -
</TABLE>
<TABLE>
<CAPTION>
PEANUT DESSERTS PREMIUM
FOODSERVICE** BUTTER STARCHES (AMBIENT) BAKING
<S> <C> <C> <C> <C> <C>
NORTH AMERICA, CARIBBEAN
Canada - 2 1
United States - 2 1 - 1
Dominican Republic - 1
EUROPE, AFRICA/MIDDLE EAST
Austria - 1
Belgium - 1
Bulgaria -
Czech Republic -
Denmark - 1 -
Finland - 2
France - 1 1
Germany - 1 -
Greece - 2 2
Hungary - -
Ireland - 2 1
Italy - 1
Netherlands - 2
Norway - 1
Poland - -
Portugal - 1 2
Romania - -
Russia - -
Slovak Republic -
Spain - 1 2
Sweden - 1 1
Switzerland - 1 -
United Kingdom - 1 1
Israel - 1 2
Jordan
Kenya - 2 1
Morocco - 1 1
Saudi Arabia - - -
South Africa - - 1 -
Tunisia - 2 -
Turkey - 1 -
</TABLE>
<PAGE> 9
SALES BY
PRODUCT GROUP
($ Millions)
[PIE CHART]
BUSINESS RESULTS
- - KNORR soups, sauces, bouillons, and related products
<TABLE>
<CAPTION>
Sales Change Volumes
----- ------ -------
<S> <C> <C> <C>
Total $2,957 - 2.2% + 4.6%
Europe $2,007 - 1.6% + 4.8%
North America $416 - 3.7% + 3.4%
Latin America $376 + 1.6% + 4.3%
Asia $158 -13 % + 6.0%
</TABLE>
- - DRESSINGS
<TABLE>
<CAPTION>
Sales Change Volumes
----- ------ -------
<S> <C> <C> <C>
Total $1,937 + 0.3% + 3.3%
Europe $452 + 5.0% + 11.4%
North America $931 - 0.4% - 2.3%
Latin America $470 + 2.4% + 6.7%
Asia $ 84 - 21% + 1.6%
</TABLE>
- - BAKING
Sales $1.7 billion, +3.2%; Volumes +2.9%
- - STARCHES (Basic Nutritious Foods)
Sales $550 million, -4.6%; Volumes -11.6%
- - BREAD SPREADS
Sales $393 million, +1.9%; Volumes +4.0%
- - DESSERTS
Sales $277 million, -3.8%; Volumes -2.7%
- - ALL OTHER SALES $601 million
FOODSERVICE (Caterplan)
Business sales in 1998 were approximately $1.3 billion, slightly higher than in
1997, and are included in the appropriate product groups.
1 Leader in Market Share
2 Second in Market Share
- - Present in the Market
<TABLE>
<CAPTION>
POTATO POURABLE
SOUPS* SAUCES* BOUILLONS MEALMAKERS* PRODUCTS PASTA MAYONNAISE DRESSINGS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LATIN AMERICA
Argentina 1 1 - 1 1 1
Bolivia - - 2
Brazil 2 - 1 2 1 1
Chile 2 - 2 1 1
Colombia - 2 2 2 - 1 -
Costa Rica 2 1 2 1 1
Ecuador 2 - - 2 -
El Salvador - - -
Guatemala - - - - 1
Honduras - -
Mexico 1 - 1 1 1 2 -
Panama - - - - -
Paraguay 2 2 2 - 1
Peru 2 - 2 2 1 -
Uruguay 1 1 1 - 1 1
Venezuela 2 - 2 1 - -
ASIA
China - - 2 -
Hong Kong - 1 - 2
India 1 -
Indonesia 1 - 2 2
Japan # 1 - 1 - 2 2
Malaysia 1 2 1 1
Pakistan 1 - 1 - 2
Philippines 1 - 1 1 1
Singapore 1 1 1 -
Sri Lanka 2 1 2
Taiwan 1 1 2 1
Thailand 1 1 1 2 1 1
Vietnam 2 1 -
</TABLE>
<TABLE>
<CAPTION>
CORN PEANUT DESSERTS PREMIUM
OIL FOODSERVICE** BUTTER STARCHES (AMBIENT) BAKING
<S> <C> <C> <C> <C> <C> <C>
LATIN AMERICA
Argentina 2 - 1 -
Bolivia 1
Brazil 1 - 1 -
Chile 1 - 1 -
Colombia - - 1 1
Costa Rica 1 - - 1 -
Ecuador 1 -
El Salvador 1 - 1
Guatemala 1 - - 1
Honduras 1 2
Mexico 2 - 1 -
Panama - - 1
Paraguay 2 - 1 -
Peru 1 1 -
Uruguay 2 - 1 -
Venezuela - 1 -
ASIA
China - - - -
Hong Kong - - 1 1 1
India - 1 1
Indonesia 1 - 2
Japan # 1 - -
Malaysia 1 - 1 2
Pakistan 1 - 1 1
Philippines - 1 1
Singapore - - 1 1 1
Sri Lanka - -
Taiwan - - 1
Thailand 1 - 1 - -
Vietnam -
</TABLE>
*Dehydrated products only.
**Bestfoods foodservice (catering) products hold leading share positions in many
of the categories in which they compete.
#Licensing Agreement
7
<PAGE> 10
WORLDWIDE CORE BUSINESSES
KNORR
Worldwide volumes of savory products, marketed by Bestfoods in 61 countries
around the world, increased 4.6% in 1998. But sales from this extensive product
line - which includes soups, sauces, bouillons, mealmakers, and hot savory
snacks - were 2.2% lower due to the decline of foreign currency values against
the dollar.
Europe, where the Knorr brand was introduced some 160 years ago, is home to
Bestfoods' largest savory products business. Volumes of Knorr products in the
region were 4.8% higher. Sales rose 4% in local currencies, but declined 1.6% to
$2 billion when translated into dollars.
Higher volumes were driven by successful new products. Knorr Tastebreaks
pasta cup snacks were introduced in the U.K. and Ireland, following the
successful Tastebreaks cup soup launch in 1997. Other recent cup initiatives
include Knorr Noodles in Germany and Austria. In addition to pasta in cups,
Bestfoods launched Knorr pasta and sauce mixes in 10 countries
[GRAPHIC OF PEOPLE AND PRODUCTS]
8
<PAGE> 11
[SPOON ON PLATE GRAPHIC]
under the Spaghetteria sub-brand. The Knorr brand also grew strongly in
Bestfoods' newer markets in Central Europe, while our savory products portfolio
in South Africa received a big boost from the return of the Knorr brand, which
had been licensed to Robertsons, our partners in a new joint venture.
In Latin America, where the Knorr brand is the long-time bouillon leader,
Bestfoods continued its recent string of soup successes. The latest is in
Argentina, where traditional Sopas Caseras were introduced, following the
success of similar hearty soups in Mexico and Brazil. Other new products include
Knorr Flash cup products in Brazil, modeled after the successful Pot Noodle cup
snacks in the U.K., and "quick fix" pasta, rice, and bean dishes in Argentina,
Mexico, and Brazil.
In North America, Knorr Skillet Potatoes quick-cook side dishes extended the
brand's push toward mainstream fare, while Savory Collection flavored pasta was
added to the Mueller's line. Twenty-one products formulated for Latin American
tastes strongly bolstered the Knorr name in the U.S. Hispanic market. In
Canada, Bestfoods introduced a new line of Knorr Hearty soups.
[1st GRAPHIC]
WITH THE ACQUISITION OF THE OSWALD SOUP AND BOUILLON BUSINESS IN SWITZERLAND,
BESTFOODS GAINS ITS FIRST EXPERIENCE SELLING DIRECTLY TO CONSUMERS, AS WELL AS
IMPORTANT INSIGHTS THAT COULD BENEFIT THE KNORR BRAND BUSINESS.
In Asia, our bouillon volumes grew by 6%, fueled by sales in China and new
lower-cost bouillon seasoning powders launched in several countries. Other new
products include a "good for you" cube in Thailand containing Shitake mushroom
and Chinese herbs and sauces in liquid and paste form in China, Malaysia, and
Indonesia. In India, Knorr soup achieved market leadership in its second year on
the market.
Page 8, from left: Anthony Simon, U.S. HQ; Iiham Hiyari, Morocco; John Lucas,
Latin America HQ; Alain Labergere, Europe HQ; Bala Deshpande, India; and John
Moorhead, U.S. HQ.
9
<PAGE> 12
WORLDWIDE CORE BUSINESSES
DRESSINGS
Sales of mayonnaise, other dressings, and oils were even with 1997 at $1.9
billion. Volumes rose 3.3%.
Bestfoods markets dressings in 56 countries, chiefly under the Hellmann's
brand. Our biggest business is in North America, where the company markets
Hellmann's mayonnaise east of the Rocky Mountains and the Best Foods brand in
the West. In 1998, Bestfoods' mayonnaise sales and market share in the U.S. were
higher, led by gains by our Real and Light mayonnaises. Volume was even with
1997, while the category declined due to lower sales of fat free and reduced fat
products.
Hellmann's is positioned in its markets around the world as the very best
mayonnaise. From this strong foundation we grow the business by offering
"health" versions, launching new products that fit well under the Hellmann's
brand umbrella, and offering new, more convenient packaging.
Pourable salad dressings, introduced nationally in the U.S. in 1997, were
strengthened with four new varieties in 1998. Four more flavors are being
introduced in 1999. In Europe, creamy salad
[GRAPHIC OF PEOPLE AND PRODUCTS]
10
<PAGE> 13
[GRAPHIC DISH OF SALAD]
dressings were launched in the Czech Republic, Ireland, Slovakia, and the U.K.
under the Hellmann's brand. Bestfoods already has strong Hellmann's mayonnaise
businesses in each of these markets, with market share reaching a high of 74% in
the Czech Republic. Other new products include Hellmann's Light mayonnaise in
Poland and Lesieur Cremeuse et Relevee, a creamy mustard mayonnaise, in France.
Packaging innovations include reclosable stand-up pouches for mayonnaise
launched by our businesses in Latin America and a flexible pouch for mayonnaise
in China to reach lower-income consumers. In Mexico, we introduced Hellmann's
ketchup in a squeezable PET container and now market ketchup in all major
markets in Latin America. Plastic bottles are also in use for Hellmann's salad
dressings, introduced region-wide in 1997. New packaging offerings in Europe
include mayonnaise in squeezable plastic containers under the Hellmann's brand
in Portugal, and in Israel, under the market-leading Telma name.
Worldwide sales and volumes of corn oil and other oils were lower.
Bestfoods' largest oil business is in North America, where Mazola is the No.
1 corn oil. In the U. S., oil category volumes and volume for Mazola oil were
both lower. New among Mazola brand offerings in the U. S. was Mazola ProChef
premium cooking spray, which is formulated to perform well at higher cooking
temperatures.
[1ST GRAPHIC]ADDRESSING CONSUMERS' CONCERNS ABOUT CHOLESTEROL, BESTFOODS
LAUNCHED AN EGGLESS, MAYONNAISE-LIKE PRODUCT IN ARGENTINA. THE ADES SOY-BASED
SPREAD IS THE FIRST PRODUCT OF ITS KIND IN THE WORLD.
Page 10, from left: Olivier Desforges, France; Manny Nisperos, Taiwan; Carlos
Trostli, Brazil; Axel Krauss, U.S. HQ; Carol Gasparovic, U.S. HQ; and Javiera
Chinchon, Chile.
11
<PAGE> 14
WORLDWIDE CORE BUSINESSES
FOODSERVICE
Bestfoods' foodservice business (known as Caterplan in most markets outside the
U.S.) leverages our major brands, products, and distinctive know-how in the
growing global market for food prepared away from home. Our customers, in 57
countries, are the operators of full-service restaurants and restaurant chains,
cafeterias, schools, health care facilities, and other places where food is
served. For some, we provide specially-formulated products.
Sales from our foodservice business are included in the appropriate product
categories in this report. In 1998, foodservice sales were approximately $1.3
billion, slightly higher than in 1997. The sales gain was restrained by
unfavorable European currency values. Volumes increased 4.9%.
In Europe, a successful salad bar initiative that combines salad dressings,
croutons, and other Bestfoods products has been launched by several affiliates.
Other Caterplan units added deep-frozen prepared foods to their product
offerings, following the success
[GRAPHIC OF PEOPLE AND PRODUCTS]
12
<PAGE> 15
of our Caterfrost brand in Austria.
Other new products included Knorr Gemuse Kronung (vegetable topping) in
Germany and Knorr ready-to-heat liquid sauces in the United Kingdom.
In North America, Bestfoods continued to expand a successful new business
development program and to focus more sharply on providing support to customers
through new product varieties, packaging options, and menu support. One
initiative, "Down Home Cooking," bundles Knorr, LeGout, Hellmann's, and Best
Foods products in classic recipes and menu suggestions to help customers create
real "comfort foods."
Among the new products launched in 1998 were authentic Knorr Asian cooking
sauces imported from our Caterplan business in Asia.
Our Caterplan business in Latin America had a very strong year, with sales
increasing 13%. New packaging is one reason for the success. For example, in
Argentina, Brazil, and Chile, Bestfoods is marketing branded, individual portion
packs and squeeze bottles to restaurant chains. This program has the added
benefit of brand visibility, supporting retail sales and overall brand
awareness.
In Asia, Caterplan volumes grew well on the strength of sales to quick-serve
restaurants and chain accounts. We continued to expand our dressings sales to
international restaurant chains such as McDonald's and KFC, while sales of Knorr
chicken powder to restaurants in China grew strongly.
[1ST GRAPHIC]OUR BUSINESS IN BEIJING WON FOR THE FIRST TIME THE COVETED STAR
SUPPLIER AWARD FROM KFC IN CHINA. ONLY THREE COMPANIES OUT OF 262 ACHIEVED THIS
STATUS. BESTFOODS MAKES THE CUSTOM SAUCE USED ON KFC'S TOP-SELLING ITEM IN CHINA
- - A SPICY, DEEP-FRIED CHICKEN SANDWICH CALLED THE ZINGER. WE'RE THE EXCLUSIVE
SUPPLIER TO ALL 271 OUTLETS.
[KNIFE, FORK AND FOOD GRAPHIC]
Page 12, from left: Sai Lee Foo, Hong Kong; Michael Smith, Franklin Park, IL;
Bob Gillespie, U.S. HQ; Ela Lechniak, Poland; Enrique Martinez Aldrete, Mexico;
and Jacobus Smit, Brazil.
<PAGE> 16
REGIONAL BUSINESSES
BAKING
Bestfoods Baking, the leading fresh premium baker in the U.S., delivered strong
results in 1998. Sales increased 3.2% to $1.7 billion on volumes that grew 2.9%.
Our bread businesses fueled the volume gains, led by Oroweat in the Western
U.S. Oroweat, the No. 1 bread brand west of the Mississippi River, is known for
its wheat bread varieties. In 1998, the brand successfully captured a slice of
the premium white bread market with three wholesome varieties: Buttermilk,
Country Potato, and Country White. These products are now among the brand's top
sellers.
Our other regional bread brands - Arnold and Freihofer's in the East and
Brownberry in the Midwest - all delivered good results. Leveraging the best from
the Oroweat line, we added additional wide pan bread varieties under the Arnold
and Brownberry brands and introduced Master's Best super premium breads -
developed first by our Oroweat bread bakers - under the Arnold name.
[GRAPHIC OF PEOPLE AND PRODUCTS]
From left: Ruby Dumesh, R&D; John Langdon, Division President; Tricia Tan,
Finance; and Matthew McCarthy, Marketing.
14
<PAGE> 17
[PASTRIES GRAPHIC]
The Entenmann's brand celebrated its 100th anniversary in 1998. Sales of
Entenmann's sweet baked goods grew on the strength of new products. New handheld
items - particularly new donut varieties like Frosted Devil's Food and Milk
Chocolate - hit a sweet spot with consumers. Entenmann's Fruit-Tarts toaster
pastries, launched in the Southeast, provide a new way for the brand to deliver
handheld convenience for breakfast or snacking. Other recent introductions, such
as Soft Baked cookies, Donut Dippers, and Ultimate crumb cake, continued to
perform well, helping ensure the brand's continuing leadership in the premium
sweet baked goods category.
Volume for the brand was even with last year due to continued declines in
sales of fat free and reduced fat products. However these products were
reformulated and reintroduced during 1997 under the Entenmann's Light banner,
which slowed the decline.
Sales of Thomas' brand products and other Bestfoods specialty baked goods
were higher in 1998 on improved volumes. Volumes and market share rose for
Thomas' English muffins and Thomas' bagels, both of which have No. 1 market
positions in their categories. New products - a Maple French Toast English
muffin and an Everything bagel variety - contributed to the gains. New Boboli
soft breadsticks were added to the brand's line of pizza crusts, while Sahara
pita bread offered a new softer texture, leveraging ingredient improvements
created for the reformulation of some Entenmann's products.
[1ST GRAPHIC]NEW PRODUCTS, IMPROVED RECIPES, AND BETTER MERCHANDISING PUSHED
UP ARNOLD RETAIL BREAD VOLUMES 5.6% IN 1998 (10.7% IN THE FOURTH QUARTER) - THE
FIRST VOLUME INCREASE FOR THE BRAND IN 20 YEARS.
15
<PAGE> 18
REGIONAL BUSINESSES
STARCHES, BREAD SPREADS,
AND DESSERTS
STARCHES
Sales of starches (basic nutritious foods) and syrups were $550 million, 4.6%
lower, on volumes that decreased 11.6%. The declines were due to the divestiture
of our starch business in South Africa.
[MAIZENA GRAPHIC]
The foundation of our starch business is in Latin America, where Maizena corn
starch is No. 1. Over the years, Maizena corn starch has been enhanced with
nutritional supplements and flavors, and the starch business has been extended
into additional branded cereals and mixes for preparing porridges and other
dishes. The newest part of this business, AdeS soy-based beverages, is growing
fast. AdeS beverages, acquired in Argentina in 1992, are now marketed in 10
Latin markets, with new production capabilities in Brazil and Mexico.
BREAD SPREADS
Sales of peanut butter and bread spreads were $393 million, up 1.9% on a volume
increase of 4%.
Our largest bread spread business is in the U.S., where Skippy peanut butter
is No. 2 in the market. A new slogan for the brand, "Spread the Fun(TM),"
debuted on jars and in advertising. Following a strong performance in 1997,
sales and volumes for the category and the brand declined. Market share was
unchanged.
[SKIPPY GRAPHIC]
Skippy and other Bestfoods peanut butter brands also have strong positions in
several markets in Asia. Bestfoods began producing peanut butter in China for
the FIRST time in 1998.
In Europe, our spreads business includes Marmite savory spread. This British
icon got a boost in 1998 from offbeat advertising that acknowledged the brand's
polarizing identity: "Marmite: You either love it or you hate it." We also sell
market-leading Nocilla chocolate hazel-nut spread in Spain and Santa Rosa jams
in Italy.
DESSERTS
Desserts and baking aids sales were $277 million, down 3.8%. Volumes declined
2.7%.
Bestfoods' largest desserts businesses are in France and the U. K. The Alsa
brand in France is growing through innovative products, such as a unique new
batter for preparing cakes that quickly gained market leadership. Alsa Cookies
Moelleux, the first mix for baking soft cookies, continued to grow well.
In the U. K., our Ambrosia brand received a new logo design and new packaging
and advertising. Advertising and promotions for individual portion packs of
custard, the fastest-growing part of the business, are now aimed squarely at
children.
[ALSA GRAPHIC]
Bestfoods markets dessert mixes in Latin America through International
Dessert Partners, a joint venture with General Mills. Results are treated on an
equity basis and are not included in dessert category results.
16
<PAGE> 19
FIRST-MOVER ADVANTAGE
Since the 1920s, when we pioneered new businesses in Latin America, we have
continuously extended our geographic reach. Our objective is to be first or
among the first international food companies to establish operations in new
markets, where our businesses can develop with, and even ahead of, emerging
economies. Bestfoods continues to satisfy a global appetite.
CHINA
The first jars of Skippy peanut butter were produced in Weifang, China, in 1998.
The new operation, a venture with China's largest peanut processing and trading
company, is our first for peanut products in China and will also export to other
Asian markets. Since 1993 we've established four joint venture businesses in
China.
RUSSIA
Bestfoods was among the first Western food companies to enter this market,
establishing operations in 1993 and selling products imported from Bestfoods
affiliates through our local sales force and distributors. Despite economic
turmoil, we've established our key brands in this market. In 1998, we built our
first plant in Russia to produce Knorr and Hellmann's products.
POLAND
We rapidly established a presence in Poland in 1992 by acquiring a majority
share of a local soup company. Early entry gave us the edge in attracting the
best local talent, establishing relationships with the retail trade, and winning
leading market positions. Today we own 100% of this business, one of our bright
lights in Central Europe. A recent success: Knorr Instant Mug soups, which
tallied sales of 250 million units in 1998.
AFRICA
We were in early in South Africa (1920), then divested the business (1987),
returned (1992), and formed a new joint venture (1998). Our new business with
Robertsons brings our Knorr, Hellmann's and other brands, already well
established in the market, back into the Bestfoods fold and positions our
company for accelerated growth in the region.
INDIA
Our line of Knorr products captured a No. 1 share of the soup market in 1998 in
only its second year. With brand leadership and an increasing portfolio of
products, the business is on the move in this rapidly developing market. The
acquisition of a packaged seasonings business in early 1999 more than doubles
the size of our Indian business.
17
<PAGE> 20
BESTFOODS'
VALUES AND POLICIES
High ethical standards and best business practices work hand in hand at
Bestfoods. As an international company with operations in 62 countries,
Bestfoods operates with a formal set of values and policies calling for the
highest standards of moral and ethical behavior in all business dealings,
regardless of situation or geographic location.
Our values and policies express commitment to the Bestfoods WorldTeam - our
people - and their career and personal development; to providing high-quality
products that deliver value to our consumers and customers; to ensuring safe
workplaces and a clean environment; to being good citizens in our communities;
and to encouraging and rewarding qualities in our people that help achieve our
business objectives.
Bestfoods constantly reinforces these longstanding values and policies. In
1998 we republished our values and policies, including specific corporate
policies governing the full range of business relationships and activities, in
24 languages.
A Values and Policies Office provides an additional means of encouraging the
understanding of, and adherence to, Bestfoods' values and policies. It also
provides another
[GRAPHIC OF PEOPLE AND PRODUCTS]
From left: Sonya Whited, R&D, U.S.; Jorge Debanne, Quality Assurance, Argentina;
Laura Brody, HR, U.S.; Damien Leclercq, Safety, Europe; Bob Dunnaway,
Manufacturing, U.S.; and Marlon Magtoto, Auditing, Asia.
18
<PAGE> 21
avenue for employees to voice their concerns and ideas to top management.
Our values and policies are good for our employees, our neighbors, our
consumers, our customers, and our bottom line. For example:
QUALITY ASSURANCE
To address consumer concerns about allergens in food, Bestfoods is working with
industry associations, academic experts, and the Food Allergy Network to promote
allergy education in schools and at home. Also, Bestfoods is supporting the
development of a vaccine that will reduce allergen sensitivity in people with
peanut allergies.
In January 1999, the Anaphylaxis Foundation of Canada recognized Bestfoods
Canada as an outstanding leader in the management of allergens within the
Canadian food manufacturing industry.
OCCUPATIONAL SAFETY AND HEALTH
In 1998, our bakery in Gastonia, NC, was given the prestigious "Star" status for
its exemplary safety and health program by the U.S. Occupational Safety and
Health Administration (OSHA). The Gastonia bakery is the FIRST, and thus far
only, bakery in the U.S. to achieve this status.
ENVIRONMENT
In Europe, Bestfoods' total volume of packaging material has been reduced by 20%
over the last five years. In the U.S., recent innovations in shipping containers
for Hellmann's and Best Foods pourable dressings have reduced secondary
packaging by more than 40%. Additionally, we continually evaluate non-polluting
materials to find innovative ways to reduce our costs, as well as the demand on
landfills.
OUR COMMUNITY
In 1998, Bestfoods made contributions of nearly $17 million in cash and food
products. One major beneficiary was Second Harvest, a nationwide network of
nearly 200 food banks. In addition to the large volume of food products given to
Second Harvest during the year, Bestfoods donated $50,000 as part of its "Bull
Monday" celebration at the New York Stock Exchange on January 4, 1999.
A significant part of Bestfoods' contributions is donated through the
company's Matching Gifts Program in the U.S., which matches $2 for every $1
employees contribute to an organization.
EMPLOYEE DEVELOPMENT
In 1998, Bestfoods conducted its FIRST Global Women's Forum. The learnings
generated by this forum on workforce inclusion and work/life balance issues will
help us leverage our strong global talent bank to enhance Bestfoods' overall
global competitiveness.
[1ST GRAPHIC]THE FIRST BESTFOODS GLOBAL WOMEN'S FORUM WAS A WEEK-LONG
PROGRAM ATTENDED BY 55 SENIOR WOMEN FROM 25 COUNTRIES. ISSUES OF CONCERN
REGARDING THE DEVELOPMENT AND RETENTION OF WOMEN LEADERS WERE IDENTIFIED. TODAY
NEW PROGRAMS ARE IN PLACE AND NEW IDEAS AND SUGGESTIONS ARE FLOWING IN FROM
BESTFOODS WOMEN AND MEN AROUND THE WORLD.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bestfoods and Subsidiaries
OVERVIEW OF 1998
1998 was Bestfoods' inaugural year as a 100% consumer foods company, and both
earnings per share and operating income, excluding special items, grew at
double-digit rates. This was accomplished despite the impact of unfavorable
foreign currency values. Solid volume growth, as well as the benefits from prior
years' restructuring activities, better cost management, and plant efficiencies
all contributed to the 10.1% gain in operating income. A reduction in our
effective tax rate further helped the growth in diluted earnings per share,
which increased 13.8%.
Our international results improved significantly, led by Europe and Latin
America, where volume and margins improved. These gains more than offset lower
results in Asia due to the economic turmoil in that region. In North America,
the baking business managed strong results with improved operating efficiencies
and higher volumes, but our North American consumer foods business's operating
results were below last year due to volume shortfalls.
The Company's strategy is to pursue volume, sales, and profit growth in its
three worldwide core businesses: savory products (chiefly under the Knorr
brand); dressings (chiefly under the Hellmann's brand); and foodservice (known
as Caterplan in most markets outside the U.S.). In addition, Bestfoods will
develop new growth opportunities for its regional businesses, including baking.
In line with this strategy the Company introduced many new products
throughout the world, expanded plant capacity, made several small acquisitions
in Europe and Asia, sold off a non-core business in Spain, and formed a joint
venture in South Africa. The Company also improved operating efficiencies as a
result of prior years' restructuring activities.
OUR EARNINGS EXPECTATIONS IN 1999
Our earnings expectations in 1999 are based on the assumption that conditions
relating to consumption, costs, currency values, competition, and political and
social environments in the economies in which Bestfoods operates will not change
significantly overall. Our expectations are also based on the assumption that
economies in most areas of the world will continue to progress at current,
generally modest, rates of growth, including more specifically:
- In North America, it is expected that economic growth will remain at a
level similar to 1998. The competitive environment will continue to restrict
pricing gains, but more aggressive new product development, continued efficiency
gains, and more aggressive marketing programs by Bestfoods should positively
impact 1999 results.
- In Europe, the economies are expected to grow modestly. Currency values on
average should strengthen, resulting in favorable comparisons to 1998. The
business climate within Europe will remain highly competitive with the
introduction of the Euro and the continuing effort of the trade to seek
efficiencies. Bestfoods will continue to benefit from efficiency gains that will
help fuel additional investments for growth.
- In Latin America, the recent economic turmoil in Brazil could potentially
hinder the region's financial performance. Bestfoods, however, with its strong
brands and experience in managing through difficult Latin American economies is
well positioned to grow, even in this challenging operating environment.
- In Asia, the Company is looking for modest growth over 1998's levels,
despite the lingering effects of the recent economic troubles suffered in the
region. Bestfoods continues to see Asia as an important area for future growth
and continues to invest in the area.
The last three years' financial results are discussed below. A general
description of the business appears on pages one through 19 of this report.
RESULTS OF OPERATIONS
NET SALES in 1998 were virtually unchanged from 1997 at $8.4 billion, as the
benefits of improved volumes, which were helped by acquisitions, and better
prices were offset by the impact of weaker currency values around the world,
when translated into U.S. dollars. Volumes overall were up 2.5%, including
nearly 1% from the benefit of acquisitions less disposed businesses.
In 1997, net sales decreased nearly 1% to $8.4 billion, as improved volumes
and better prices were more than offset by unfavorable currency values,
particularly in Europe. Volumes
20
<PAGE> 23
overall were up 2.4%. The increase in volume from the acquired Starlux business
was matched by a reduction in sales from the disposal of the Korean business at
the end of 1996.
An analysis of net sales by division is as follows:
<TABLE>
<CAPTION>
% Change
$ Millions 1998 1997 1996 98/97 97/96
- ---------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
North America $1,770 $1,786 $1,744 (0.9) 2.4
Europe 3,474 3,519 3,692 (1.3) (4.7)
Latin America 1,149 1,105 1,076 4.0 2.7
Asia 322 382 398 (15.6) (4.0)
Baking 1,659 1,608 1,568 3.2 2.6
------ ------ ------ ---- ----
Total $8,374 $8,400 $8,478 (0.3) (0.9)
====== ====== ====== ==== ====
</TABLE>
In 1998, North American sales decreased nearly 1% as improved prices were
offset by lower volumes and the negative impact of Canadian exchange rates.
Sales in Europe declined 1.3% due to a 5.6% decline in currency values. Better
volumes in Europe, up 3.1% (partially from acquisitions), and improved prices
offset some of this decline. In Latin America, sales increased 4%, despite an
8.6% currency decline, as volumes improved 6.9% and prices increased. Asian
sales were 16% below last year due entirely to weaker currency values, which
reduced reported results by 26%. Sales for the Baking division advanced 3.2%,
largely attributable to better volumes.
In 1997, North American sales increased 2.4% on volume improvements. In
Europe, a 4.7% decrease in net sales was the result of an 8.8% decline in
currency values. This was partially offset by a 2.6% volume gain, due in part to
acquisitions, and better prices. In Latin America, strong volume gains drove a
sales increase of 2.7%, despite weaker prices. Sales in Asia declined 4%.
However, excluding the effects of the divestiture of the Korean business at the
end of 1996, sales increased 8.6%, as improvement in volumes and prices was
partially offset by weaker currency values. Baking sales increased 2.6% to $1.6
billion. Baking volumes increased slightly and prices improved.
COST OF SALES AND OPERATING EXPENSES. Cost of sales as a percentage of net sales
was 54% in 1998, resulting in a gross profit margin of 46%, which was better
than the 44.6% in 1997 and 43.1% in 1996. Gains from improved pricing and new
efficiencies achieved as a result of the restructuring programs contributed to
these increases. Marketing expenses were even with last year at $976 million.
This followed an increase of 4.9% in 1997. Selling, general, and administrative
expenses also remained constant with last year at 19.8% of sales versus 20% in
1996.
RESTRUCTURING CHARGES. In the fourth quarter of 1998, the Company recorded a
pre-tax charge of $33 million ($22 million after taxes or $.07 per diluted
share) in order to finalize the restructuring program begun last year in
connection with the spin-off of the Company's corn refining operations. This
charge was for the finalization of amounts estimated for termination benefits
and costs associated with 1997 plant closings and continued rationalization of
operations.
In the second quarter of 1997, the Company recorded a pre-tax charge of $242
million ($156 million after taxes or $.52 per diluted share) for the
restructuring of its worldwide businesses following the announcement of the
spin-off of its corn refining operations. The majority of the activities
pertained to the European and North American operations and encompassed the sale
of non-core businesses, plant closings, and the reorganization of administrative
functions. The Baking division's restructuring included continued consolidation
and reconfiguration of the manufacturing and distribution systems and processes
to improve overall business efficiency and effectiveness.
OPERATING INCOME in 1998 increased 10.1%, excluding the restructuring charges in
1998 and 1997 mentioned above. This increase was derived mostly from improved
volumes in all divisions except North America, and improved margins resulting
from better prices and efficiency gains generated in part from restructuring
programs. Lower currency values partially offset some of these improvements.
Operating income in 1997 increased 7.9%, excluding the 1997 restructuring
charge, benefiting from volume gains in all divisions, particularly Latin
America and Asia, and improved margins everywhere except Latin America. These
gains more than compensated for lower currency values.
FINANCING COSTS of $166 million increased by 2.4% from 1997 due to slightly
higher borrowings related mostly to acquisitions and the share buyback program.
This increase in costs was partially offset by the recovery of interest expenses
in association with the favorable settlement of an environmental insurance case.
In 1997, financing costs of $162 million were up 10.3%, mainly due to higher
borrow-
21
<PAGE> 24
ings for acquisitions, lower interest income, and lower allocations of interest
expense to the discontinued corn refining operation.
PROVISION FOR INCOME TAXES. The effective tax rate in 1998 was 34.5% compared to
35.5% in 1997. The lower rate in 1998 resulted from a decrease in the effective
tax rate in various foreign jurisdictions. The 1996 effective tax rate was
33.6%, which included the benefit of the resolution of several tax issues in
various jurisdictions.
INCOME AND DILUTED EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS.
Excluding the effect of the 1998 and 1997 restructuring charges, net income rose
13% to $662 million and diluted earnings per common share increased 13.8% to
$2.22. These increases resulted from higher operating income and a lower
effective tax rate, which more than offset slightly higher financing costs and
minority interests. Fewer shares outstanding in 1998 compared to 1997 also
benefited earnings per common share. Excluding the effect of the 1997
restructuring charge, income from continuing operations increased 4.9% in 1997
to $585 million compared to $557 million in 1996. Diluted earnings per common
share increased 5.4% to $1.95.
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS. In 1998, the Company
reported a gain of $.7 million ($1.1 million before taxes), resulting from the
favorable settlement of an environmental insurance case mostly offset by an
additional accrual for the costs related to the corn refining disposal. In 1997,
the Company reported a loss on disposal of $83 million, after taxes, resulting
from the decision to spin off and restructure the corn refining business.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES. The Company took a charge
in the fourth quarter of 1998 of $17.2 million after taxes ($.06 per diluted
share) to comply with an accounting pronouncement issued by the AICPA in 1998
(SOP 98-5 Reporting on the Costs of Start-up Activities) that required the
immediate write-off of any deferred start up costs. In the fourth quarter of
1997, the Company took a charge of $13 million, after taxes, or $.04 per diluted
share, to expense previously capitalized process re-engineering costs as
required by a pronouncement put forth by the Emerging Issues Task Force (EITF).
KEY BALANCE SHEET ITEMS
Total assets in 1998 increased $335 million to $6.4 billion from year-end 1997
largely due to the increase in cash and cash equivalents from a low cash
position last year following the spin-off of the corn refining business and also
due to higher intangible assets from acquisitions.
Total assets in 1997 declined $1.2 billion from 1996 due mostly to the
spin-off of the corn refining business.
NET CASH FLOWS
Strong cash flows from continuing operations continued to fund the Company's
working capital, capital expenditures, and dividends (which were increased 8.9%
to $0.245 per share per quarter).
In 1998, cash flows from continuing operations were $819 million, 5.3% above
1997. The increase in cash flows was attributable to higher net income from
continuing operations. For 1997, cash flows from continuing operations were
12.8% lower than 1996.
Investing activities from continuing operations in 1998 were below those of
1997, mainly due to a decrease in acquisitions and an increase in proceeds from
disposal of plants and properties and businesses sold. Capital expenditures in
1998 were below 1997 at $304 million. Capital expenditures in 1997 of $321
million decreased by $25 million from those of 1996.
The Company has access to various sources of funds at attractive rates based
on its strong financial condition. Bestfoods' long-term debt rating remained at
A+ with Standard & Poor's and Duff & Phelps, and A2 with Moody's.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued FAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to recognize all derivatives as assets or liabilities in the statement
of financial position and measure those instruments at fair value. Changes in
the fair value of derivatives are recorded in earnings or other comprehensive
income depending upon the intended use of the derivative and the resulting
designation. This standard is effective for fiscal years beginning after June
15, 1999. The Company is in the process of assessing the impact of adoption of
this statement on its financial position and results of operations, which is not
expected to be significant.
22
<PAGE> 25
In 1998, the Company adopted the provisions of FAS 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits," and has added the
required disclosures.
In July 1998, the EITF reached a consensus on Issue No. 97-14, "Accounting
for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested," which concluded that all Company stock placed in a Rabbi
Trust to meet deferred compensation obligations to executives should be
classified as treasury stock. The Company has several Rabbi Trusts that invest
in the Company's stock for the purpose of meeting deferred compensation
liabilities. Accordingly, the Company has reclassified those assets to treasury
stock in the accompanying Consolidated Balance Sheets at December 31, 1998. In
accordance with the guidance in EITF 97-14, the Rabbi Trust shares are excluded
from the weighted average shares outstanding in the calculation of basic and
diluted earnings per share.
RISKS AND UNCERTAINTIES
The Company operates businesses in more than 60 countries, and each business is
subject to varying degrees of risk and uncertainty. It insures its business and
assets in each country against insurable risks in a manner it deems appropriate.
Because of its diversity, the Company believes that the risk of loss from
non-insurable events in any one business or country would not have a material
adverse affect on the Company's operations as a whole. Additionally, the Company
believes there is no concentration of risk with any single customer or supplier,
or small group of suppliers or customers, whose failure or non-performance would
materially affect the Company's results.
Also, because of the Company's broad operational reach, it is subject to
risks from changes in foreign currency values that could affect earnings. As a
practical matter, it is not feasible to hedge these fluctuations. Additionally,
the Company believes that most currencies of major countries in which it
operates will equalize against the U.S. dollar over time. However, the Company
does maintain a policy of hedging its exposure to foreign currency cash flows to
cover planned dividends, fees and royalties, intercompany loans, and other
similar transactions. The Company also hedges certain net investments with
borrowings denominated in the particular currency. As a matter of policy, the
Company does not speculate in foreign currencies.
For certain of its North American raw material purchases, the Company hedges
its exposure to commodity price fluctuations with commodity futures contracts.
The Company's products are manufactured from a number of raw materials,
including soybean and other edible oils, peanuts, and wheat, all of which are,
and are expected to continue to be, in adequate supply. Such raw materials may
or may not be hedged at any given time based on management's decisions as to the
need to fix the cost of raw materials to protect the Company's profitability.
The value of raw materials subject to commodity hedging represents a small
percentage of the total worldwide cost of sales. The historical price volatility
of raw materials, combined with the relatively low percentage of raw materials
to cost of sales, has never yielded a material adverse effect on gross margins
and is not expected to in the future. The Company also believes that any
significant change in commodity prices can be offset by higher selling prices,
thereby minimizing the impact on margins.
READINESS FOR THE YEAR 2000
Early computer programmers used two digits instead of four to identify the year,
thus creating the Year 2000 ("Y2K") problem. If computer systems are not
corrected as we move to the year 2000, there could be systems failures or
miscalculations leading to delays and disruptions in the Company's operations.
These delays and disruptions could include problems with receipt of materials
necessary for manufacturing, supply of products to customers, receipt of
customer orders and payments, and adequacy of proper accounting records and
other information. Reasonable worst-case scenarios for the Company could be: (i)
the widespread failure of critical suppliers and/or customers to correct their
systems; or (ii) a production stoppage due to failure of manufacturing
equipment. Either scenario could have a material adverse effect on the
operations of the Company.
To address this potential problem, the Company has a program in place for all
operating divisions and for corporate management to identify and correct the Y2K
issues. The program consists of five phases:
23
<PAGE> 26
- Phase 1 - Inventory - Requires all units to identify any systems that can
be impacted by the Y2K problem. This includes central and distributed
systems, embedded chips, interfaces with other internal systems, and
systems for which there is interaction with third parties (suppliers,
service providers, and customers).
- Phase 2 - Impact Assessment - Requires managers to prioritize the
Company's Y2K efforts by identifying the impact of each system on the
business as: Critical 1 (having a significant impact); Critical 2 (having
a moderate impact); or Critical 3 (having a low impact).
- Phase 3 - Remediation - Requires all operating divisions to report their
progress in achieving compliance by classifying the percentage of systems
that will be converted to meet Y2K requirements, replaced by new systems,
or upgraded with compliant systems.
- Phase 4 - Testing - Requires testing of both individual systems on a
stand-alone basis and systems that are integrated with other internal and
external systems.
- Phase 5 - Implementation - Requires implementation of remediated or
replaced systems.
The Inventory and Impact Assessment phases of the program have been
completed. The Remediation, Testing, and Implementation phases of the program
have already been completed for a substantial number of systems and should be
substantially completed for all systems by July 31, 1999.
Based upon the Company's progress with its Y2K program, the cost of
remediation replacement and acceleration of replacement systems is not expected
to exceed $20 million.
Contingency plans for all critical business processes are being established
in 1999 to ensure business continuation in the event of internal or external
Y2K-related failures.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member states of the European Union
("Participating Countries") established fixed conversion rates from their
existing currencies ("Legacy Currencies") to the Euro and agreed to adopt the
Euro as their common legal currency. During a transition period, from January 1,
1999, until January 1, 2002, the Legacy Currencies will remain legal tender and
parties will have the option to pay in Euros or Legacy Currencies of
Participating Countries. On January 1, 2002, Participating Countries are
expected to issue Euro currency and withdraw all bills and coinage of Legacy
Currencies by July 1, 2002.
Conversion to the Euro has necessitated some modification to the Company's
information systems to produce dual currency invoices and accounts during the
transition period. Also modifications have been required to enable use of the
Euro as a base currency for the year 2002 and thereafter.
Although the conversion to the Euro will, in general, make the prices of
products more transparent across participating countries' boundaries, the
Company doesn't expect any significant impact due to its great variety of
products.
The Company has also realized some cost savings because it ceased hedging
activity among the participating currencies as of May 1998. The conversion to
the Euro is also not expected to impact material contracts of the Company. The
Company's Euro task force continues to monitor the impact of Euro conversion.
The Company's overall costs of conversion to the Euro are not expected to exceed
$5 million.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Annual Report, including the Chairman's
Letter, contain forward-looking statements that are based on current
expectations, estimates, and projections about the businesses in which Bestfoods
operates. These statements are not guarantees of future performance and involve
certain risks, uncertainties, and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements, depending on
currency values, competitive pricing, economic conditions in other countries of
operations, and other factors. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events, or otherwise.
24
<PAGE> 27
CONSOLIDATED STATEMENTS OF INCOME
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31
$ Millions except per share amounts 1998 1997 1996
- ----------------------------------- ---- ---- ----
<S> <C> <C> <C>
NET SALES $ 8,374 $ 8,400 $ 8,478
------- ------- -------
Cost of sales 4,523 4,655 4,826
------- ------- -------
GROSS PROFIT 3,851 3,745 3,652
------- ------- -------
Marketing 976 978 932
Selling, general, and administrative 1,655 1,659 1,693
Restructuring charges 33 242 --
------- ------- -------
Expenses and other income -- net 2,664 2,879 2,625
------- ------- -------
OPERATING INCOME 1,187 866 1,027
------- ------- -------
FINANCING COSTS 166 162 147
------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,021 704 880
Provision for income taxes 352 250 296
Minority stockholders' interest 29 25 27
------- ------- -------
Income from continuing operations 640 429 557
------- ------- -------
Income from discontinued operations, net of income
taxes of $7 - 1997; $12 - 1996 -- 11 23
Gain (loss) on disposal of discontinued operations, net of
income tax benefit of $26 - 1997 1 (83) --
Cumulative effect of changes in accounting principles,
net of income tax benefit of $9 - 1998; $7 - 1997 (17) (13) --
------- ------- -------
NET INCOME $ 624 $ 344 $ 580
======= ======= =======
Earnings (loss) per common share
Basic:
Continuing operations $ 2.20 $ 1.45 $ 1.89
Discontinued operations -- .04 .08
Loss on disposal of discontinued operations -- (.28) --
Cumulative effect of changes in accounting principles (.06) (.05) --
------- ------- -------
NET INCOME $ 2.14 $ 1.16 $ 1.97
======= ======= =======
Diluted:
Continuing operations $ 2.15 $ 1.43 $ 1.85
Discontinued operations -- .04 .08
Loss on disposal of discontinued operations -- (.28) --
Cumulative effect of changes in accounting principles (.06) (.04) --
------- ------- -------
NET INCOME $ 2.09 $ 1.15 $ 1.93
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31
$ Millions 1998 1997
- ---------- ---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 142 $ 39
Notes and accounts receivable -- net 1,281 1,176
Inventories 827 818
Prepaid expenses 75 95
Deferred tax asset 80 60
------ ------
Total current assets 2,405 2,188
------ ------
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 12 22
------ ------
PLANTS AND PROPERTIES
Land 110 117
Buildings 768 789
Machinery and equipment 2,584 2,534
------ ------
3,462 3,440
Less accumulated depreciation 1,497 1,499
------ ------
Total plants and properties 1,965 1,941
------ ------
INTANGIBLES
Excess cost over net assets of businesses acquired 1,813 1,608
Other intangibles 370 405
------ ------
2,183 2,013
Less accumulated amortization 329 271
------ ------
Total intangibles 1,854 1,742
------ ------
OTHER ASSETS 199 207
------ ------
TOTAL ASSETS $6,435 $6,100
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 29
<TABLE>
<CAPTION>
$ Millions 1998 1997
- ---------- ---- ----
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Notes payable $ 541 $ 587
Current portion of long-term debt 63 81
Accounts payable 675 609
Accrued liabilities 871 933
Income taxes payable 162 137
------- -------
Total current liabilities 2,312 2,347
------- -------
NONCURRENT LIABILITIES 928 780
------- -------
LONG-TERM DEBT 2,053 1,818
------- -------
DEFERRED TAXES ON INCOME 5 --
------- -------
MINORITY STOCKHOLDERS' INTEREST 156 113
------- -------
EQUITY
STOCKHOLDERS' EQUITY
Preferred stock - authorized 25 million shares
$1 par value -- --
Designations:
Series B ESOP Convertible
3 million shares designated 157 180
Series A Junior Participating
2 million shares designated -- --
Common stock - authorized 900 million shares
$.25 par value - issued 391 million shares 98 49
Capital in excess of par value stock 171 207
Unearned ESOP compensation (80) (96)
Cumulative translation adjustment (413) (386)
Treasury stock, at cost (1,900) (1,517)
Retained earnings 2,948 2,605
------- -------
Total stockholders' equity 981 1,042
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,435 $ 6,100
======= =======
</TABLE>
27
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31
$ Millions 1998 1997 1996
- ---------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 623 $ 416 $ 557
Non-cash charges (credits) to net income
Depreciation and amortization 255 264 288
Deferred taxes 50 (49) 82
Cumulative effect of changes in accounting principles 17 13 --
Restructuring charges 33 242 --
Other-- net (23) 25 21
Changes in trade working capital
Notes and accounts receivable and prepaid expenses (86) (20) (44)
Inventories (7) 40 (20)
Accounts payable and accrued liabilities (43) (153) 8
Net cash flows from discontinued operations -- 137 (139)
----- ----- -----
Net cash flows from operating activities 819 915 753
----- ----- -----
CASH FLOWS USED FOR INVESTING ACTIVITIES
Capital expenditures (304) (321) (346)
Proceeds from disposal of plants and properties 69 17 4
Proceeds from businesses sold 92 -- --
Businesses acquired (121) (298) (12)
Net investing activities of discontinued operations -- (130) (251)
----- ----- -----
Net cash flows used for investing activities (264) (732) (605)
----- ----- -----
Net cash flows after investments 555 183 148
----- ----- -----
CASH FLOWS USED FOR FINANCING ACTIVITIES
Purchase of treasury stock (294) (45) (209)
New long-term debt 349 339 961
Repayment of long-term debt (94) (99) (76)
Net change in short-term debt (101) (387) (681)
Dividends paid on common stock (264) (241) (225)
Dividends paid on preferred stock (13) (15) (15)
Common stock issued 32 27 27
Net financing activities of discontinued operations -- 110 --
Other (deposits) liabilities (55) 44 32
----- ----- -----
Net cash flows used for financing activities (440) (267) (186)
----- ----- -----
Effects of exchange rate changes on cash (12) (8) (3)
----- ----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103 (92) (41)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 39 131 172
----- ----- -----
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 142 $ 39 $ 131
===== ===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
$ Millions 1998 1997 1996
- ---------- ------- ------- -------
<S> <C> <C> <C>
COMPREHENSIVE INCOME:
Net income $ 624 $ 344 $ 580
Foreign currency translation adjustment
(pre-tax $41 - 1998; $251 - 1997; $145 - 1996) (27) (162) (96)
Spin-off of Corn Products International (pre-tax $54 - 1997) -- 35 --
------- ------- -------
Balance end of year 597 217 484
======= ======= =======
PREFERRED STOCK:
Balance beginning of year 180 187 190
ESOP shares redeemed (23) (7) (3)
------- ------- -------
Balance end of year 157 180 187
------- ------- -------
COMMON STOCK:
Balance beginning of year 49 49 49
Two-for-one stock split 49 -- --
------- ------- -------
Balance end of year 98 49 49
------- ------- -------
CAPITAL IN EXCESS OF PAR VALUE:
Balance beginning of year 207 187 167
Two-for-one stock split (49) -- --
Shares issued for stock options 12 15 9
Shares issued for deferred compensation 5 10 12
ESOP shares redeemed (4) (5) (1)
------- ------- -------
Balance end of year 171 207 187
------- ------- -------
UNEARNED ESOP COMPENSATION:
Balance beginning of year (96) (111) (128)
ESOP compensation earned 16 15 17
------- ------- -------
Balance end of year (80) (96) (111)
------- ------- -------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance beginning of year (386) (259) (163)
Foreign currency translation adjustment (27) (162) (96)
Spin-off of Corn Products International -- 35 --
------- ------- -------
Balance end of year (413) (386) (259)
------- ------- -------
TREASURY STOCK:
Balance beginning of year (1,517) (1,499) (1,317)
Shares issued for stock options 13 18 17
Shares issued for deferred compensation 6 8 10
Treasury stock acquired (294) (45) (209)
ESOP shares redeemed 13 1 --
Shares held in rabbi trust (121) -- --
------- ------- -------
Balance end of year (1,900) (1,517) (1,499)
------- ------- -------
RETAINED EARNINGS:
Balance beginning of year 2,605 3,530 3,189
Net income 624 344 580
Spin-off of Corn Products International -- (1,021) --
Net income from change in Corn Products International
reporting period -- 10 --
Cash dividends declared ($.94 - 1998; $.86 - 1997; $.79 - 1996) (271) (247) (228)
Series B ESOP preferred stock dividend, net of taxes (10) (11) (11)
------- ------- -------
Balance end of year $ 2,948 $ 2,605 $ 3,530
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bestfoods and Subsidiaries
SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- Consolidated financial statements include the
accounts of the Company and its subsidiaries. The accounts of subsidiaries
outside of the U.S., except for those in Canada, are based on fiscal years
ending September 30.
FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of foreign subsidiaries
other than those in highly inflationary economies are translated at current
exchange rates with the related translation adjustments reported as a separate
component of stockholders' equity. Income statement accounts are translated at
the average exchange rate during the period. In highly inflationary economies
where the U.S. dollar is considered the functional currency, monetary assets and
liabilities are translated at current exchange rates with the related adjustment
included in net income. Non-monetary assets and liabilities are translated at
historical exchange rates.
CASH AND CASH EQUIVALENTS -- Cash equivalents consist of all investments
purchased with an original maturity of three months or less, and which have
virtually no risk of loss in value. At December 31, 1998, and 1997, the Company
had cash equivalents of $23 million and $5 million, respectively.
INVENTORIES -- are stated at the lower of cost or market. U.S. inventories are
valued at cost on the first-in, first-out method. Outside the U.S., inventories
generally are valued at average cost.
PLANTS AND PROPERTIES -- are stated at cost. Depreciation is generally computed
on the straight-line method over the estimated useful lives of depreciable
assets ranging from 2% to 10% for buildings and 5% to 20% for all other assets.
Where permitted by law, accelerated depreciation methods are used for tax
purposes. Long-lived assets are reviewed for impairment whenever the facts and
circumstances indicate that the carrying amount may not be recoverable.
INTANGIBLES -- The Company amortizes, on a straight-line basis, the excess cost
of net assets over periods not exceeding 40 years. Other intangible assets,
including trademarks, licenses, and patents, are amortized over their estimated
useful lives ranging from 3 to 40 years. Intangible assets are reviewed at least
annually for impairment by comparing the Company's best estimate of future cash
flows with the carrying amount of goodwill.
INCOME TAXES -- Deferred income taxes reflect the differences between the assets
and liabilities recognized for financial reporting purposes and amounts
recognized for tax purposes. Deferred taxes are based on tax laws as currently
enacted. The Company makes provisions for estimated U.S. and foreign income
taxes, less available tax credits and deductions, that may be incurred on the
remittance by the Company's subsidiaries of undistributed earnings, except those
deemed to be indefinitely reinvested.
EARNINGS PER COMMON SHARE -- Statement of Financial Accounting Standards (FAS)
No. 128, "Earnings per Share," requires a dual presentation of earnings per
share - basic and diluted - for companies with complex capital structures. A
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation is as follows:
<TABLE>
<CAPTION>
Millions (except per share amounts) 1998 1997 1996
- ----------------------------------- ---- ---- ----
<S> <C> <C> <C>
BASIC EPS NUMERATOR:
Income from continuing operations $ 640.1 $ 428.8 $ 557.5
Less:Preferred stock dividends (10.1) (11.3) (11.3)
--------- --------- ---------
Income available to common
shareholders $ 630.0 $ 417.5 $ 546.2
--------- --------- ---------
BASIC EPS DENOMINATOR:
Weighted average common
shares outstanding 286.5 287.3 289.4
--------- --------- ---------
BASIC EARNINGS PER SHARE $ 2.20 $ 1.45 $ 1.89
--------- --------- ---------
DILUTED EPS NUMERATOR:
Income available to common
shareholders $ 630.0 $ 417.5 $ 546.2
Convertible preferred stock 10.1 11.3 11.3
Additional ESOP cash contribution (2.0) (2.4) (2.7)
--------- --------- ---------
Income available to common share-
holders plus assumed conversions $ 638.1 $ 426.4 $ 554.8
--------- --------- ---------
DILUTED EPS DENOMINATOR:
Weighted average common
shares outstanding 286.5 287.3 289.4
Convertible preferred stock 8.0 8.1 8.4
Stock options 2.4 2.8 1.6
Performance incentive shares .3 .3 .2
--------- --------- ---------
Weighted average shares outstanding 297.2 298.5 299.6
--------- --------- ---------
DILUTED EARNINGS PER SHARE $ 2.15 $ 1.43 $ 1.85
========= ========= =========
</TABLE>
30
<PAGE> 33
FINANCIAL INSTRUMENTS -- The Company hedges its exposure in foreign currency
cash flows resulting from planned dividends, fees and royalties, intercompany
loans, and other similar transactions. The Company also hedges certain
transactions such as cross-border sourcing of raw materials, packaging supplies,
and machinery and equipment with foreign exchange contracts. In addition, the
Company hedges certain net investments with borrowings denominated in the
particular foreign currency. As a matter of policy, the Company does not
speculate on foreign currencies. Gains and losses, both realized and unrealized,
on financial instruments that hedge operating activities and related cash flows,
flow through income in the same period as the items being hedged. Gains and
losses, both realized and unrealized, on financial instruments that hedge the
Company's investments in foreign operations are recognized as part of the
cumulative translation adjustment in stockholders' equity.
The Company also hedges its exposure to commodity fluctuations with commodity
futures contracts for certain of its North American raw material purchases. The
Company's products are manufactured from a number of raw materials, including
soybean and other edible oils, peanuts, and wheat. These raw materials are
currently, and are expected to continue to be, in adequate supply. Such raw
materials may or may not be hedged at any given time based on management's
decisions as to the need to fix the cost of such raw materials to protect the
Company's profitability. Realized gains and losses arising from such hedging
transactions are considered an integral part of the cost of these commodities
and are included in the cost when purchased. At December 31, 1998, and 1997, the
outstanding commodity contracts were not material to the Company's financial
position or results of operations.
The Company utilizes interest rate swap agreements from time to time as
deemed appropriate by management to balance its fixed and floating rate debt
positions. These agreements involve exchanging fixed and floating interest rate
payments without the exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.
RISKS AND UNCERTAINTIES -- The Company operates in more than 60 countries and,
in each country, the business is subject to varying degrees of risk and
uncertainty. It insures its business and assets in each country against
insurable risks in a manner that it deems appropriate. Because of its diversity
the Company believes that the risk of loss from non-insurable events in any one
business or country would not have material adverse affect on the Company's
operations as a whole. Additionally, the Company believes there is no
concentration of risk with any single customer or supplier, or small group of
customers or suppliers, whose failure or non-performance would materially affect
the Company's results.
Also because of the Company's broad operational reach, it is subject to risks
due to changes in foreign currencies that could affect earnings. As a practical
matter, it is not feasible to cover these fluctuations with currency hedges.
Additionally, the Company believes that over time most currencies of major
countries in which it operates will equalize against the U.S. dollar.
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 amounts reported in the Consolidated Financial
Statements and the related Notes to Consolidated Financial Statements. Actual
amounts could differ from these estimates.
SEGMENT INFORMATION -- The Company is in one business segment, the consumer
foods business, and follows the requirements of FAS 131, "Disclosures About
Segments of an Enterprise and Related Information."
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the 1998 presentation.
CHANGES IN ACCOUNTING PRINCIPLES
In April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP requires that costs related to opening a new facility,
conducting business in a new territory, introducing a new product, or initiating
a new process in an existing facility be expensed as incurred and is effective
for fiscal years beginning after December 15, 1998. The Company has elected to
adopt the provisions of this SOP in fiscal year 1998 and, accordingly, has
recorded a cumulative effect of change in accounting principle of $26 million
before taxes, $17 million after taxes or $.06 per basic and diluted common
share, in the accompanying Consolidated Statements of Income.
31
<PAGE> 34
In November 1997, Emerging Issues Task Force (EITF) issued Issue No. 97-13,
"Accounting for Business Process Reengineering Costs," which requires that
certain costs related to reengineering business processes either done separately
or in conjunction with an information technology project be expensed rather than
capitalized. This requirement was effective in the fourth quarter of 1997 and
required that any unamortized balance of previously capitalized costs be
expensed and treated as a change in accounting principle. Accordingly, the
Company recorded a cumulative effect of a change in accounting principle in 1997
of $20 million before taxes, $13 million after taxes, or $.04 per diluted common
share. Approximately $3 million after tax pertained to the Company's
discontinued corn refining operations with the remaining $10 million after tax
relating to the consumer foods business.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued FAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to recognize all derivatives as assets or liabilities in the statement
of financial position and measure those instruments at fair value. Changes in
the fair value of derivatives are recorded in earnings or other comprehensive
income depending upon the intended use of the derivative and the resulting
designation. This standard is effective for fiscal years beginning after June
15, 1999. The Company is in the process of assessing the impact of adoption of
this statement on its financial position and results of operations, but it is
not expected to be significant.
In July 1998, the EITF reached a consensus on Issue No. 97-14, "Accounting
for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested." This EITF concluded that all Company stock placed in a
rabbi trust to meet deferred compensation obligations to executives should be
classified as treasury stock. The Company has several rabbi trusts, which invest
in the Company's own stock for the purpose of meeting deferred compensation
liabilities. Accordingly, the Company has reclassified those assets to treasury
stock in the accompanying Consolidated Balance Sheets at December 31, 1998. In
accordance with the guidance in EITF 97-14, the rabbi trust shares are excluded
from the weighted average shares outstanding in the calculation of basic and
diluted earnings per share.
DISCONTINUED OPERATIONS
In 1998, the Company recorded a gain of $.7 million after taxes ($1.1 million
before taxes) resulting from the favorable settlement of an environmental
insurance case mostly offset by an additional accrual for the costs related to
the corn refining disposal.
In 1997, the Company recorded a pre-tax charge of $109 million ($83 million
after taxes or $.28 per basic and diluted common share) related to the
spin-off/restructuring of its corn refining operations. The spin-off portion of
the charge included direct costs of spinning off this business, such as fees in
the legal, tax, and investment banking areas. The restructuring portion
contained other costs for the separation of facilities that were used to produce
both consumer foods and corn-derived products, including staffing reductions.
This reserve was substantially utilized at December 31, 1998.
ACQUISITIONS AND DISPOSALS
During the first quarter of 1998, the Company purchased additional ownership
interests in two affiliates that it did not own 100%, for approximately $41
million, and included the results of such businesses from the first quarter. In
Israel, the Company increased its ownership of this affiliate to 100% by
purchasing the remaining 15% interest. In South Africa, the Company also
increased its ownership to 100% when it purchased its partner's share of CPC
Tongaat, a consumer foods company established in 1994. In addition, during the
first quarter the Company sold a small non-core tea business in Spain.
During 1998, the Company restructured its South African business by selling
its mushroom and dry milling businesses in the third quarter and entering into a
joint venture with Consolidated Grocery Products (CGP) in the fourth quarter.
CGP is a South African consumer goods company that had the rights to manage
several of the Company's brands. The Company has a controlling interest in this
joint venture and has consolidated the results since the date of formation. In
exchange for its ownership interest in the joint venture, the Company
contributed its businesses in Israel and South Africa along with other business-
32
<PAGE> 35
es in Africa, while CGP contributed Robertsons, its consumer foods business. The
joint venture will have assets of $266 million, including $82 million of
goodwill.
In the fourth quarter of 1998, the Company purchased the Oswald business in
Switzerland for approximately $67 million and included the operating results
from the date of acquisition. The Oswald business had approximately $40 million
in annual sales and includes dehydrated soups, sauces, bouillons, seasonings,
and dessert products under the Oswald brand.
In 1997, the Company purchased the Starlux business in Spain as well as
additional ownership interests in affiliates not wholly owned, for a total cost
of $282 million. The Starlux business has annual sales of approximately $160
million and includes Starlux bouillons and meal dishes and Nocilla chocolate
hazelnut spread. Starlux products are marketed in both the retail and
foodservice sectors.
All of the acquisitions in 1998 and 1997 were accounted for under the
purchase method.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplementary information for the consolidated statements of cash flows is set
forth below:
<TABLE>
<CAPTION>
$ Millions 1998 1997 1996
- ---------- ---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $162 $173 $160
Income taxes 274 242 168
---- ---- ----
Details of businesses acquired as follows:
Fair value of assets acquired $167 $371 $ 12
Liabilities assumed 46 73 --
---- ---- ----
Cash paid for acquisitions $121 $298 $ 12
==== ==== ====
</TABLE>
FINANCING ARRANGEMENTS
SHORT-TERM -- The Company uses the commercial paper market in the U.S. to
supplement long-term borrowings. Average quarterly commercial paper borrowings
in 1998 and 1997 were $.1 billion and $.6 billion, respectively, with maximum
borrowings in 1998 and 1997 of $.3 billion and $1.1 billion, respectively, and a
weighted average interest rate in 1998 and 1997 of 5.5% and 5.6%, respectively.
For the international operations, the maximum quarter-end balance of bank
borrowings during 1998 and 1997 was $381 million and $383 million, respectively.
Average quarterly bank borrowings were $312 million for 1998 and $321 million
for 1997. The weighted average interest rate for bank borrowings in 1998 and
1997 was 14% and 12%, respectively.
The Company had unused lines of credit totaling $1.3 billion and $1.7 billion
at December 31, 1998, and 1997, respectively.
LONG-TERM -- A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
$ Millions 1998 1997
- ---------- ---- ----
<S> <C> <C>
PAYABLE IN U.S. DOLLARS
7.71% ESOP guaranteed notes due December 2004 $ 113 $ 131
Medium-term notes due 2000-2005 at various rates 175 200
5.6% notes due 2097 (effective rate 7.3%) 100 100
7.0% notes due 2017 150 150
6.15% notes due 2006 300 300
7.25% notes due 2026 300 300
6.625% notes due 2028 250 --
5.625%-6.75% pollution control revenue bonds
due 2007-2016 15 15
Other notes and loans at various rates and due dates 34 48
------ ------
Total 1,437 1,244
------ ------
PAYABLE IN OTHER CURRENCIES
5% Swiss franc debentures, due March 2045,
10-year variable interest rates 144 138
6.75% German mark bearer bonds due January 2001 120 114
2.3% Japanese yen term loan 21 24
Bank and other loans at prevailing interest rates with
various due dates 394 379
------ ------
Total 679 655
------ ------
2,116 1,899
------ ------
Less current maturities 63 81
------ ------
Total long-term debt $2,053 $1,818
====== ======
</TABLE>
The Company is required to apply toward retirement of the principal of the
indebtedness not less than the following amounts in the period 1999 through
2003: 1999 (included in current liabilities), $63 million; 2000, $92 million;
2001, $215 million; 2002, $90 million; and 2003, $238 million. At December 31,
1998, buildings, equipment, and certain other assets located outside the U.S.
totaling approximately $50 million, have been pledged as collateral for the
secured loans.
In June 1998, one of the Company's revolving credit agreements, for $400
million, matured and was not replaced. The remaining $800 million revolving
credit agreement, established
33
<PAGE> 36
in 1997, continues in effect and matures in 2002. This revolving credit
agreement is with a group of U.S. and international banks and provides back-up
liquidity to the Company's commercial paper program. Covenants in this agreement
were amended in 1998, and now require the Company to maintain a ratio of total
debt to total capitalization of no more than 75% for the life of the agreement
and a ratio of earnings before interest, taxes, depreciation and amortization
("EBITDA") to interest expense of not less than 6.0. The debt to capitalization
ratio was 69.9% and 68.3% at December 31, 1998, and 1997, respectively. The
ratio of EBITDA to interest expense was 8.5 and 6.8 at December 31, 1998, and
1997, respectively.
In September 1998, the Company filed a shelf registration with the Securities
and Exchange Commission for borrowings up to $500 million. No amounts have been
borrowed under this shelf registration.
In August 1997, the Company filed a shelf registration incorporating a $500
million medium-term note program with the Securities and Exchange Commission.
Under this shelf filing, the Company issued $150 million of 7.0% notes in
October 1997, maturing in 2017; $100 million ($130 million face value) of 5.6%
notes also in October 1997, maturing in 2097; and $250 million of 6.625% notes
in March 1998, maturing in 2028. The notes issued in 1997 and 1998 completed the
authorization under this shelf registration.
FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of cash equivalents,
accounts receivable, accounts payable, and short-term debt approximate fair
values. The fair value of long-term debt at December 31, 1998, and 1997, was
based on quotes obtained from brokers and is set forth below:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR Carrying Fair
$ Millions AMOUNT VALUE Amount Value
- ---------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt
Fixed-rate debt $1,922 $2,022 $1,706 $1,734
Weighted average
interest rate 6.7% 6.7%
------ ------ ------ ------
Floating rate debt $ 194 $ 194 $ 193 $ 193
Weighted average
interest rate 11.3% 11.0%
====== ====== ====== ======
</TABLE>
Included in the above are $144 million Swiss franc and $120 million German
mark borrowings, which are designated as hedges of the Company's investments in
those foreign countries. Accordingly, the gains and losses from translating
those amounts are included in the cumulative translation adjustment accounts
along with the corresponding, offsetting movement in the investments.
FOREIGN EXCHANGE CONTRACTS -- At December 31, 1998, the Company had forward
exchange contracts to deliver $150 million in foreign currencies, comprising $58
million in French francs, $28 million in German marks, $20 million in Italian
lira, $12 million in Irish punts, and $32 million in various other currencies.
The Company also had contracts to purchase $134 million in foreign currencies,
consisting of $49 million in French francs, $29 million in Dutch guilders, $24
million in Italian lira, $13 million in Spanish pesetas, and $19 million in
various other currencies.
At December 31, 1997, the Company had forward exchange contracts to deliver
$237 million in foreign currencies, comprising $51 million in Spanish pesetas,
$45 million in French francs, $30 million in Dutch guilders, $39 million in
Italian lira, and $72 million in various other currencies. The Company also had
contracts to purchase $120 million in foreign currencies, consisting of $20
million in Italian lira, $21 million in Dutch guilders, and the remainder in
various other currencies.
As discussed in the Summary of accounting policies note on page 31, the
Company does not, as a matter of policy, speculate in foreign currencies.
Accordingly, any unrealized gains or losses on foreign exchange contracts are
matched by a corresponding offsetting amount on the underlying item being
hedged, thereby eliminating any cash flow risk caused by currency movement.
INTEREST RATE SWAPS -- The Company enters into interest rate swaps to balance
its fixed- and floating-rate debt positions. The Company's risk related to swap
agreements is limited to replacing such agreements at current market prices. The
Company continually monitors its position and the credit ratings of its
counterparties and management believes that the risk of incurring a material
loss due to nonperformance by the counterparties is remote.
34
<PAGE> 37
At December 31, 1998, the Company had interest rate swap agreements
outstanding with notional amounts of $200 million. A portion of the Company's
fixed-rate debt position was hedged with these agreements with a floating
weighted-average pay rate of 5.2% and a fixed weighted-average receive rate of
5.3%. These swap agreements terminate on various dates through 2003. At December
31, 1997, the Company did not have any interest rate swap agreements
outstanding.
RESTRUCTURING CHARGES
In the fourth quarter of 1998, the Company recorded an additional $33 million
pre-tax charge related to the 1997 restructuring program. This charge was for
the finalization of amounts estimated for termination benefits and costs
associated with 1997 plant closings and continued rationalization of operations.
In the second quarter of 1997, the Company recorded a restructuring charge of
$242 million. The majority of this charge pertained to the North American and
European divisions and included the sale of non-core businesses, plant closings,
and the reorganization of administrative functions. The Baking division's
restructuring charge included continued consolidation and reconfiguration of the
manufacturing and distribution systems to improve overall business efficiency
and effectiveness. As part of this restructuring, more than two thousand
employees were terminated, mostly union workers. In addition, more than three
hundred administrative employees were terminated worldwide, including more than
one hundred at company headquarters as part of an early retirement program. At
December 31, 1998, this restructuring reserve was substantially utilized.
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors several qualified and non-qualified pension plans and other
postretirement benefit plans for its employees. A reconciliation of changes in
the plan's benefit obligations, fair value of assets, and statement of funded
status for the years ended December 31, 1998, and 1997, are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
$ Millions 1998 1997 1998 1997
- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Reconciliation of
benefit obligation:
Obligation at January 1, $1,156 $1,326 $ 266 $ 286
Service cost 30 36 5 7
Interest cost 79 82 19 20
Plan amendments 2 3 -- --
Actuarial (gain) loss 10 (149) (7) (17)
Acquisitions (divestitures) (7) (95) -- (16)
Benefit payments (44) (64) (17) (16)
Curtailments -- 3 -- --
Special termination benefits -- 13 -- 2
Foreign currency
exchange rates 1 1 -- --
------ ------ ----- -----
Obligation at December 31, 1,227 1,156 266 266
------ ------ ----- -----
Reconciliation of fair
value of plan assets:
Fair value of plan assets
at January 1, 1,302 1,177 -- --
Actual return on plan assets (23) 273 -- --
Acquisitions (divestitures) -- (112) -- --
Employer contributions 56 2 17 16
Benefit payments (39) (38) (17) (16)
Rabbi trust (115) -- -- --
------ ------ ----- -----
Fair value of plan assets
at December 31, 1,181 1,302 -- --
------ ------ ----- -----
Funded status:
Funded status at January 1, (46) 146 (266) (266)
Unrecognized transition
(asset)obligation 5 8 -- --
Unrecognized prior
service cost (139) 33 (1) (2)
Unrecognized (gain)loss (60) (301) (59) (55)
------ ------ ----- -----
Net amount recognized $ (240) $ (114) $(326) $(323)
====== ====== ===== =====
</TABLE>
The amounts recognized in the accompanying Consolidated Balance Sheets at
December 31, 1998, and 1997, are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
$ Millions 1998 1997 1998 1997
- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Accrued benefit liability $(270) $(156) $(326) $(323)
Prepaid benefit cost 30 42 -- --
----- ----- ----- -----
Net amount recognized $(240) $(114) $(326) $(323)
===== ===== ===== =====
</TABLE>
35
<PAGE> 38
The aggregate benefit obligation for those plans where the accumulated
benefit obligation exceeded the fair value of plan assets was $212 million and
$201 million at December 31, 1998, and 1997, respectively. There are no plan
assets in nonqualified plans. All of the Company's plans for postretirement
benefits other than pensions also have no plan assets. The aggregate benefit
obligation for these plans is $326 million and $323 million at December 31,
1998, and 1997, respectively.
Components of the net periodic benefit cost for the plan are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
$ Millions 1998 1997 1996 1998 1997 1996
- ---------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 30 $ 39 $ 42 $ 5 $ 7 $ 8
Interest cost 79 82 88 19 20 19
Expected return on
plan assets (95) (270) (138) -- -- --
Amortization of net
(gain) loss 4 190 65 (3) (3) (2)
----- ----- ----- ----- ----- -----
Net periodic benefit cost 18 41 57 21 24 25
Curtailment (gain) loss -- (2) (4) -- (5) (4)
Special termination benefits -- -- -- -- 1 --
----- ----- ----- ----- ----- -----
Net periodic benefit cost after cur-
tailments and settlements $ 18 $ 39 $ 53 $ 21 $ 20 $ 21
===== ===== ===== ===== ===== =====
</TABLE>
The prior service costs are amortized on the straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and the market-related
value of assets are amortized over the average remaining service period of
active participants.
The Company has multiple non-pension postretirement benefit plans. The health
care and life insurance plans are contributory, with participants' contributions
adjusted annually. The accounting for the health care plans anticipates future
cost-sharing changes to the written plan that are consistent with the Company's
expressed intent that retirees share a fixed percentage of the overall cost of
benefits each year.
The weighted average assumptions used in accounting for the Company's plans
at December 31 are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.1% 7.5% 7.4% 7.0% 7.5% 7.0%
Expected return
on plan assets 8.7% 9.4% 8.0% -- -- --
Rate of compensation
increase 3.7% 4.2% 5.3% -- -- --
=== === === === === ===
</TABLE>
For measurement purposes, a 6.75% pre-65 and a 4.75% post-65 annual rate of
increase in per-capita costs of covered health care benefits were assumed for
1999. These rates are assumed to decrease 1% per year to an ultimate level of
4.25% by 2005 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects:
<TABLE>
<CAPTION>
1% 1%
$ Millions Increase Decrease
- ---------- -------- --------
<S> <C> <C>
Effect on total of service and interest cost
components of net periodic postretire-
ment health care benefit cost $ 3.4 $ (3.2)
------- -------
Effect on health care cost component
of the accumulated postretirement
benefit obligation $ 30.9 $ (28.9)
======= =======
</TABLE>
36
<PAGE> 39
STOCKHOLDERS' EQUITY
COMMON STOCK -- On March 17, 1998, the Company's Board of Directors declared a
two-for-one stock split of the outstanding common stock on March 31, 1998, which
was effected in the form of a 100% stock dividend payable on April 24, 1998.
This stock split resulted in the issuance of 195.3 million shares. The number of
common shares outstanding and earnings per common share in the accompanying
consolidated financial statements have been restated to reflect this stock
split.
PREFERRED STOCK -- The Company has authorized 25 million shares of $1 par value
preferred stock, of which 3 million shares were designated for the Company's
ESOP and 2 million shares of Series A Junior Participating shares were
designated for the shareholder rights plan. At December 31, 1998, 1997, and
1996, there were 1.8 million, 2.0 million, and 2.1 million Series B ESOP shares
outstanding, respectively. No Series A Junior Participating shares were issued.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) -- The Company has an Employee Stock
Ownership Plan (ESOP) as part of its Savings/Retirement Plan covering
substantially all U.S. salaried employees. The ESOP is designed to provide
employees with increased ownership of the Company's stock and to satisfy the
Company's obligation to match employees' contributions to the Savings/Retirement
Plan on a $1 for $1 basis.
In 1989, the ESOP borrowed $200 million in a public offering and used the
proceeds to purchase approximately 2.2 million shares of the Company's Series B
ESOP convertible preferred stock. Since the notes were guaranteed by the
Company, they are reflected in the Consolidated Balance Sheets as short-term and
long-term debt with an offsetting amount included in stockholders' equity as
unearned ESOP compensation. The preferred stock is convertible into
approximately 7.7 million shares of the Company's common stock. The preferred
stock pays a dividend of $7.14 per share, which is used by the ESOP, together
with Company contributions, to make debt service payments on the ESOP notes. The
notes have a 15-year maturity and an original fixed interest rate of 7.78%,
which was reduced to 7.71%, in 1993, in accordance with the agreement. Also
beginning in 1993, a portion of the notes was refinanced on each payment date.
The weighted average interest rate was 6.9% and 7% in 1998 and 1997,
respectively.
The number of shares allocated to participants is based on the semi-annual
payments of principal and interest due on the ESOP notes. In 1998 and 1997,
173,782 shares and 172,060 shares of preferred stock valued at $15.5 million and
$15.4 million, respectively, were allocated to participants. The ESOP had
861,006 shares allocated to participants and 905,319 suspense shares at December
31, 1998.
Compensation cost included in the Consolidated Statements of Income was $11.5
million, $11.0 million, and $11.7 million in 1998, 1997, and 1996, respectively.
SHAREHOLDER RIGHTS PLAN -- In the fourth quarter of 1998, the Company's Board of
Directors approved the redemption of the outstanding stock purchase rights under
the 1991 Shareholder Rights Plan and established a new plan. Under the new
shareholder rights plan, each share of the Company's common stock carries with
it the right to purchase one two-hundredths of a share of the Company's Series A
Junior Participating Preferred Stock at a price of $200. The rights will become
exercisable if a person or group acquires 15% or more of the Company's
outstanding common stock without prior approval of the Board of Directors. In
this case each holder would be entitled to purchase common stock of the Company
with a market value equal to two times the exercise price of the right. If the
Company is acquired in a merger or other business combination with a 15% or more
stockholder, each full right will entitle a holder to buy a number of the
acquiring company's shares having a value of twice the exercise price of the
right. The Company may redeem the rights for one one-hundredth of a cent each at
any time before an acquisition of 15% or more of its outstanding common stock
and for at least 10 business days thereafter. In addition, the Company may
exchange all or a portion of the rights at any time after a person acquires 15%
or more of the Company's outstanding common stock at an exchange ratio of one
share of common stock per right. Unless redeemed earlier, the rights will expire
on January 4, 2009.
TREASURY STOCK -- The Company had common stock in treasury at the end of 1998,
1997, and 1996 totaling 108.6 million, 102.6 million, and 103.2 million shares,
respectively.
37
<PAGE> 40
On May 19, 1998, the Company's Board of Directors approved a repurchase
program of up to 15 million shares. This program began immediately upon
announcement and the shares are being repurchased over a three-year period at
times determined by management. At December 31, 1998, 3.6 million shares were
repurchased under this program at a total cost of $189.6 million. This program
replaced the previous 10-million share repurchase program, which began in
January 1995 and concluded in May 1998.
STOCK AND PERFORMANCE PLAN
The Company has a stock and performance plan, (the 1993 Plan) that provides for
grants of stock options, restricted stock awards, and performance units. A
committee of non-employee members of the Board of Directors administers the 1993
Plan. In 1998, the 1993 Plan was amended to increase the number of shares
reserved for issuance to 29 million. Under the 1993 Plan, stock options are
granted at 100% of market value at the date of grant, fully vest after one year
and expire not more than 10 years from the date of grant. The following table
summarizes the activity of Company's stock and performance plan.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NUMBER OF OPTIONS
Outstanding beginning of year 7,689,354 5,927,536 4,639,688
Granted 2,827,039 2,880,600 2,674,698
Exercised (815,877) (700,856) (1,131,424)
Canceled (308,207) (417,926) (255,426)
----------- ----------- -----------
Outstanding end of year 9,392,309 7,689,354 5,927,536
----------- ----------- -----------
Exercisable at year-end 5,905,059 3,757,024 2,365,556
----------- ----------- -----------
Available for future
grants of options 16,238,402 4,757,234 7,951,058
Weighted average fair
value of options granted $ 8.68 $ 6.75 $ 6.17
WEIGHTED AVERAGE EXERCISE PRICE:
Outstanding beginning of year $ 35.73 $ 29.73 $ 24.16
Granted 55.21 45.47 35.20
Exercised 30.40 27.20 20.75
Canceled 34.70 31.77 25.76
Outstanding end of year $ 40.32 $ 35.73 $ 29.73
=========== =========== ===========
</TABLE>
The following table summarizes information about stock and performance awards
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE
--------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$12.35-$28.00 1,890,854 4.6 $23.70 1,771,558 $23.55
$31.79-$33.75 1,773,164 6.0 33.26 1,470,596 33.16
$33.84-$39.59 1,753,912 7.3 38.04 1,219,466 37.36
$47.49-$49.72 1,454,849 8.5 47.50 1,443,439 47.50
$50.31-$54.28 1,261,230 9.1 50.97 -- --
$59.43-$59.43 1,258,300 9.5 59.44 -- --
--------- --- ------ --------- ------
$12.35-$59.43 9,392,309 7.2 $40.32 5,905,059 $34.65
========= === ====== ========= ======
</TABLE>
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by APB 25. If the fair value method of
accounting for stock-based compensation under the provisions of FAS 123 had been
used, the pro forma net income and earnings per share would be as follows:
<TABLE>
<CAPTION>
$ Millions except per share amounts 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Pro forma income from continuing operations $ 629 $ 419 $ 549
Pro forma income from discontinued operations -- 10 21
------- ------- -------
Pro forma income net income 629 429 570
------- ------- -------
PRO FORMA BASIC EARNINGS PER SHARE:
Income from continuing operations 2.16 1.42 1.85
Income from discontinued operations -- .04 .08
------- ------- -------
Net income 2.16 1.46 1.93
------- ------- -------
PRO FORMA DILUTED EARNINGS PER SHARE:
Income from continuing operations 2.11 1.40 1.82
Income from discontinued operations -- .03 .08
------- ------- -------
Net income $ 2.11 $ 1.43 $ 1.90
======= ======= =======
</TABLE>
For purposes of the above pro forma disclosure, the estimated fair value of
the awards is amortized over the awards' vesting period.
The fair value of the awards was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate 5.5% 6.3% 6.2%
Dividend yield 1.9% 2.1% 2.3%
Volatility factors 17.7% 16.6% 16.4%
Weighted average expected life 5 years 5 years 5 years
======= ======= =======
</TABLE>
38
<PAGE> 41
The Black-Scholes model requires the input of highly subjective assumptions
and does not necessarily provide a reliable measure of fair value. In addition
to stock options, 180,850 shares were awarded to employees under the restricted
stock award provisions of the 1993 Plan. The cost of these awards is being
amortized over the restriction period.
SUPPLEMENTARY BALANCE SHEET AND INCOME STATEMENT INFORMATION
Supplementary balance sheet and income statement information is set forth below:
<TABLE>
<CAPTION>
$ Millions 1998 1997
- ---------- ---- ----
<S> <C> <C>
NOTES AND ACCOUNTS RECEIVABLE-- NET
Notes and accounts receivable-- trade $ 1,234 $ 1,097
Notes and accounts receivable-- other 105 126
Allowance for doubtful accounts (58) (47)
------- -------
Total notes and accounts receivable-- net 1,281 1,176
------- -------
INVENTORIES
Finished and in process 533 510
Raw materials 186 202
Manufacturing supplies 108 106
------- -------
Total inventories 827 818
------- -------
ACCRUED LIABILITIES
Marketing expenses 83 70
Compensation expenses 184 170
Restructuring provision / integration 36 132
Taxes payable other than taxes on income 34 48
Dividends payable 70 65
Other 464 448
------- -------
Total accrued liabilities 871 933
------- -------
NONCURRENT LIABILITIES
Employees' pension, indemnity,
retirement, and related provisions 663 491
Environmental liabilities 96 100
Other noncurrent liabilities 169 189
------- -------
Total noncurrent liabilities $ 928 $ 780
======= =======
</TABLE>
<TABLE>
<CAPTION>
$ Millions 1998 1997 1996
- ---------- ---- ---- ----
<S> <C> <C> <C>
DEPRECIATION EXPENSE $ 201 $ 209 $ 237
AMORTIZATION EXPENSE 54 55 51
RESEARCH AND DEVELOPMENT COST 67 66 71
----- ----- -----
INTEREST EXPENSE -- NET
Interest expense 190 175 169
Interest expense capitalized (3) (3) (5)
Interest income (21) (11) (20)
----- ----- -----
Interest expense-- net $ 166 $ 161 $ 144
===== ===== =====
</TABLE>
OPERATIONS BY GEOGRAPHIC AREA
Information concerning operations by geographic area are as follows:
<TABLE>
<CAPTION>
$ Millions 1998 1997 1996
- ---------- ---- ---- ----
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
North America $3,413 $3,374 $3,284
Europe (1) 3,490 3,539 3,720
Latin America 1,149 1,105 1,076
Asia 322 382 398
------ ------ ------
8,374 8,400 8,478
====== ====== ======
LONG-LIVED
ASSETS AT DECEMBER 31
North America 1,507 1,547 1,636
Europe (2) 1,809 1,637 1,549
Latin America 284 291 277
Asia 99 107 128
Corporate 120 101 93
------ ------ ------
$3,819 $3,683 $3,683
====== ====== ======
</TABLE>
(1) Includes sales of $830, $906, and $1,055 for Germany in 1998, 1997, and
1996, respectively.
(2) Includes long-lived assets of $557, $484, and $555 for Germany in 1998,
1997, and 1996, respectively.
39
<PAGE> 42
INCOME TAXES
Income before income taxes and the components of the provision for income taxes
are shown below:
<TABLE>
<CAPTION>
$ Millions 1998 1997 1996
- ---------- ---- ---- ----
<S> <C> <C> <C>
Income before income taxes:
United States $ 298 $ 169 $ 294
Outside the United States 723 535 586
------ ------ ------
Total $1,021 $ 704 $ 880
------ ------ ------
Provision for income taxes:
Current tax expense
U.S. Federal $ 75 $ 99 $ 1
State and local 10 12 14
Foreign 217 188 199
------ ------ ------
Total current 302 299 214
------ ------ ------
Deferred tax expense (benefit)
U.S. Federal 33 (33) 80
State and local 8 (8) 7
Foreign 9 (8) (5)
------ ------ ------
Total deferred 50 (49) 82
------ ------ ------
Total provision $ 352 $ 250 $ 296
====== ====== ======
</TABLE>
The tax effects of significant temporary differences, which comprise the
deferred tax liabilities and assets at December 31, 1998, and 1997, are as
follows:
<TABLE>
<CAPTION>
$ Millions 1998 1997
- ---------- ---- ----
<S> <C> <C>
Plants and properties $174 $169
Inventory 14 14
Pensions 45 38
---- ----
Gross deferred tax liabilities 233 221
---- ----
Restructuring reserves 32 67
Environmental reserves 40 42
Employee benefit reserves 146 135
Unrealized exchange losses 38 34
Other 51 55
---- ----
Gross deferred tax assets 307 333
---- ----
Valuation allowance 1 1
---- ----
Net deferred tax assets* $ 75 $113
==== ====
</TABLE>
* $53 million of the long-term deferred tax assets are included in other assets
in the Consolidated Balance Sheets in 1997.
Total net deferred tax liabilities and assets shown above include current and
noncurrent elements.
A reconciliation of the federal statutory tax rate to the Company's effective
tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Provision for tax at
U.S. statutory rate 35.0% 35.0% 35.0%
Foreign tax rate differential (2.7) 0.6 (1.3)
State and local taxes-- net 1.1 0.4 1.6
Other items-- net 1.1 (0.5) (1.7)
---- ---- ----
Provision at effective tax rate 34.5% 35.5% 33.6%
==== ==== ====
</TABLE>
Taxes that would result from dividend distributions by foreign subsidiaries
to the U.S. are provided to the extent dividends are anticipated. Retained
earnings of the Company included, as of December 31, 1998, approximately $420
million of retained earnings of foreign subsidiaries, which are indefinitely
retained by the subsidiaries for capital and operating requirements.
40
<PAGE> 43
REPORT OF MANAGEMENT
The management of Bestfoods is responsible for the financial and operating
information contained in the Annual Report including the financial statements
covered by the independent auditors' report. These statements were prepared in
conformity with United States generally accepted accounting principles and
include, where necessary, informed estimates and judgments.
The Company maintains systems of accounting and internal control designed to
provide reasonable assurance that assets are safeguarded against loss, and that
transactions are executed and recorded properly so as to ensure that the
financial records are reliable for preparing financial statements.
Elements of these control systems are the establishment and communication of
accounting and administrative policies and procedures, the selection and
training of qualified personnel, and continuous programs of internal audits.
The Company's financial statements are reviewed by its Audit Committee, which
is composed entirely of outside Directors. This Committee meets periodically
with the independent auditors, management, and the corporate general auditor to
review the scope and results of the annual audit, interim reviews, internal
controls, internal auditing, and financial reporting matters. The independent
auditors and the corporate general auditor have direct access to the Audit
Committee.
/s/ Bernard H. Kastory
BERNARD H. KASTORY
Senior Vice President, Finance and Administration
February 10, 1999
INDEPENDENT AUDITORS' REPORT
[KPMG LOGO]
The Board of Directors and Stockholders
Bestfoods:
We have audited the accompanying consolidated balance sheets of Bestfoods and
Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bestfoods
and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, in 1998
the Company changed its method of accounting for start-up activities and in 1997
its method of accounting for business process reengineering costs.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 10, 1999
41
<PAGE> 44
TEN-YEAR FINANCIAL HIGHLIGHTS
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
$ Millions except per share amounts 1998 1997 1996 1995
- ----------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 8,374 $ 8,400 $ 8,478 $ 7,199
Income from continuing operations 640(1) 429(2) 557 377(3)
Basic earnings per common share 2.20(1) 1.45(2) 1.89 1.26(3)
Diluted earnings per common share 2.15(1) 1.43(2) 1.85 1.24(3)
Average number of basic common shares outstanding 286 288 290 292
Average number of diluted common shares outstanding 297 298 300 302
Dividends declared per common share .94 .86 .79 .74
------- ------- ------- -------
BALANCE SHEET DATA
Working capital $ 93 $ (159) $ (188) $ (520)
Plants and properties-- net 1,965 1,941 2,023 1,978
Total assets 6,435 6,100 7,251 6,848
Long-term debt 2,053 1,818 1,681 1,071
Short-term debt 604 668 869 1,298
Total debt 2,657 2,486 2,550 2,369
Cumulative translation adjustment (413) (386) (259) (163)
Stockholders' equity 981 1,042 2,084 1,987
Stockholders' equity per share 3.48 3.62 7.25 6.83
Shares outstanding, year-end 282 288 288 292
------- ------- ------- -------
STATISTICAL DATA
Capital expenditures $ 304 $ 321 $ 346 $ 287
Maintenance and repairs 204 232 227 182
Advertising expense 719 689 699 563
Rental expense for operating leases 99 96 100 77
Total employee costs 1,739 1,809 1,858 1,452
======= ======= ======= =======
</TABLE>
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(Unaudited)
$ Millions except per share amounts 1st Q 2nd Q 3rd Q 4th Q
- ----------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1998
Market price range of common stock
High $ 58 23/32 $ 60 $ 59 11/16 $ 58 11/16
Low 48 3/4 52 3/4 44 7/16 48 3/16
Close 58 7/16 58 1/16 48 7/16 53 1/4
------ ------- ------ ------
Dividends declared per common share $ .225 $ .225 $ .245 $ .245
------ ------- ------ ------
Quarterly results
Net sales $2,121 $2,115 $1,983 $2,155
Gross profit 961 959 918 1,013
Income from continuing operations 133 173 167 167
Basic earnings per common share $ .45 $ .59 $.58 $ .58
Diluted earnings per common share $ .44 $ .58 $.56 $ .57
====== ====== ==== ======
</TABLE>
See notes to consolidated financial statements.
(1) Includes restructuring charge of $22 million after taxes or $.08 per basic
and $.07 per diluted common share recorded in the fourth quarter.
(2) Includes restructuring charge of $156 million after taxes or $.54 per basic
and $.52 per diluted common share recorded in the second quarter.
(3) Includes a fourth quarter integration charge of $34 million after taxes or
$.12 per basic and $.11 per diluted common share; and other charges - net of
$24 million after taxes or $.09 per basic and $.08 per diluted common share
recorded in the third quarter.
42
<PAGE> 45
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ 6,203 $ 5,636 $ 5,502 $ 5,118 $ 4,695 $ 4,049
245(4) 355 130(5)(6) 289(7) 277 247
.79(4) 1.15 0.40(5)(6) .92(7) .89 .80
.79(4) 1.14 0.40(5)(6) .91(7) .88 .79
296 300 302 302 302 310
306 314 312 314 312 312
.69 .64 .60 .55 .50 .44
$ 2 $ 355 $ 314 $ 369 $ 169 $ 213
1,470 1,329 1,366 1,115 1,107 936
5,023 4,450 4,582 3,971 3,911 3,164
609 674 934 993 961 835
640 328 440 332 482 274
1,249 1,002 1,374 1,325 1,443 1,109
(181) (173) (56) (80) (42) (69)
1,749 1,769 1,662 1,631 1,453 1,218
5.96 5.91 5.52 5.39 4.82 4.03
294 300 302 302 302 302
$ 248 $ 248 $ 240 $ 211 $ 182 $ 143
154 139 136 117 102 90
500 463 483 453 418 366
73 60 61 57 44 39
1,240 1,103 1,059 967 877 756
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
$ Millions except per share amounts 1st Q 2nd Q 3rd Q 4th Q
- ----------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1997
Market price range of common stock
High $ 43 1/16 $ 46 11/32 $ 51 5/8 $ 54 1/32
Low 37 7/8 39 9/16 44 1/8 46 9/16
Close 41 46 5/32 46 5/16 54
------------- ------------- ------------- ------------
Dividends declared per common share $ .205 $ .205 $ .225 $ .225
------------- ------------- ------------- ------------
Quarterly results
Net sales $ 2,149 $ 2,105 $ 2,024 $ 2,122
Gross profit 939 933 901 972
Income from continuing operations 118 (5) 147 169
Basic earnings per common share $ .39 $ (.02) $ .50 $ .58
Diluted earnings per common share (8) $ .39 $ (.02) $ .49 $ .56
============= ============= ============= ============
</TABLE>
(4) Includes restructuring charge of $126 million after taxes or $.43 per basic
and $.41 per diluted common share recorded in the second quarter.
(5) Includes the cumulative effect to January 1, 1992, of changes in accounting
principles of $160 million after taxes or $.53 per basic and $.51 per
diluted common share, and the effects of these changes in 1992 of $10
million, $6 million after taxes or $.03 per basic and $.02 per diluted
common share.
(6) Includes an environmental charge related to discontinued operations of $47
million after taxes or $.16 per basic and $.15 per diluted common share.
(7) Includes an environmental charge related to discontinued operations of $32
million after taxes or $.11 per basic and $.10 per diluted common share.
(8) Does not total due to individual quarterly calculations.
43
<PAGE> 46
BOARD OF DIRECTORS
THEODORE H. BLACK (1),(3),(4)
Former Chairman and
Chief Executive Officer,
Ingersoll-Rand Company
CLATEO CASTELLINI (1),(3),(4)
Chairman, President and
Chief Executive Officer,
Becton Dickinson and Company
ALFRED C. DECRANE, JR. (2),(4),(5)*
Former Chairman and
Chief Executive Officer,
Texaco Inc.
WILLIAM C. FERGUSON (1),(4),(5)
Former Chairman and
Chief Executive Officer,
NYNEX Corporation
ROBERT J. GILLESPIE (3)
Executive Vice President,
Bestfoods
ELLEN R. GORDON (2),(3),(4)
President and Chief
Operating Officer,
Tootsie Roll Industries, Inc.
GEORGE V. GRUNE (2),(3),(4)*
Former Chairman and Chief
Executive Officer,
The Reader's Digest Association, Inc.
LEO I. HIGDON, JR. (1)*,(4),(5)
President, Babson College
RICHARD G. HOLDER (1),(4),(5)
Former Chairman and
Chief Executive Officer,
Reynolds Metals Company
[BOARD OF DIRECTORS PHOTO]
EILEEN S. KRAUS (2),(3)*,(4)
Chairman, Fleet National Bank
(Connecticut)
ALAIN LABERGERE (5)
Executive Vice President,
Bestfoods; President,
Bestfoods Europe
WILLIAM S. NORMAN (2)*,(3),(4)
President and
Chief Executive Officer,
Travel Industry Association
of America
HENRIQUE DE CAMPOS (1),(4),(5)
MEIRELLES
President and
Chief Operating Officer,
BankBoston Corporation
C. R. SHOEMATE
Chairman, President, and
Chief Executive Officer,
Bestfoods
(1). Audit Committee
(2). Compensation and Nominating Committee
(3). Corporate Affairs Committee
(4). Corporate Governance Committee
(5). Finance Committee
*denotes chairman
JAMES W. MCKEE, JR.
Honorary Chairman
of the Board
CORPORATE OFFICERS
C. R. SHOEMATE
Chairman, President, and
Chief Executive Officer
ROBERT J. GILLESPIE
Executive Vice President,
Strategic Planning and
Business Development
ALAIN LABERGERE
Executive Vice President
and President,
Bestfoods Europe
RICHARD P. BERGEMAN
Senior Vice President,
Human Resources
BERNARD H. KASTORY
Senior Vice President,
Finance and Administration
AXEL C. A. KRAUSS
Senior Vice President and
President, Bestfoods
North America
VICE PRESIDENTS
MICHAEL J. BEVILACQUA
President, Bestfoods
Foodservice
ROBERT S. GLUCK
Treasurer
GALE L. GRIFFIN
Corporate Communications
HERIBERT H. GRUNERT
President, Bestfoods Asia
HANES A. HELLER
General Counsel and Secretary
NINA HENDERSON
President, Bestfoods Grocery
JOHN J. LANGDON
President, Bestfoods Baking
RAINER H. MIMBERG
Finance
IAN M. RAMSAY
President, European Operations
DIANI SANTUCCI
Health, Safety, and
Quality Assurance
LUIS SCHUCHINSKI
Taxes
ANTHONY J. SIMON
Core Businesses
PHILIP V. TERENZIO
Controller
MOHAMMED WAHBY
President, Bestfoods
Africa/Middle East
44
<PAGE> 47
[BEST FOODS PRODUCTS GRAPHIC]
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
Bestfoods
700 Sylvan Avenue
International Plaza
Englewood Cliffs, NJ 07632-9976
ANNUAL MEETING
Thursday, April 22, 1999
9:30 A.M. local time
Radisson Hotel Englewood
401 South Van Brunt Street
Englewood, NJ 07631
ANNUAL REPORT, FORM 10-K, AND PROXY STATEMENT
Copies are available via the Company's Internet site @www.bestfoods.com; by
writing Corporate Communications, Bestfoods; or by calling (201) 894-2825
INVESTOR INQUIRIES
Security analysts and investors seeking information about Bestfoods may contact
Mr. Rainer H. Mimberg, Vice President, Finance, at the Bestfoods address shown
or call (201) 894-2837
STOCKHOLDER RECORDS, DIVIDEND REINVESTMENT
Inquiries relating to stockholder records, stock transfer, change of address,
and Bestfoods Dividend Reinvestment Plan should be directed to registrar,
transfer, and dividend disbursing agent:
EquiServe
First Chicago Trust Division
P.O. Box 2500
Jersey City, NJ 07303-2500
(201) 324-0498
(800) 519-3111
or via the Internet
@www.equiserve.com
INDEPENDENT AUDITORS
KPMG LLP
345 Park Avenue
New York, NY 10154
(212) 758-9700
STOCK EXCHANGE LISTINGS
New York, London
TICKER SYMBOL
The New York Stock Exchange ticker symbol for the Company is BFO.
[BFO Listed NYSE]
BESTFOODS INTERNET SITE
www.bestfoods.com
Bestfoods' businesses are operated and administered with a high degree of
autonomy under the Company's decentralized organization. References in this
Annual Report to Bestfoods or "the Company" refer to the U.S. parent and its
consolidated subsidiaries, except where the context indicates otherwise.
The brand names shown in distinctive type in this report are trademarks of
Bestfoods and its affiliates.
Design: Leonard Wolfe and Scott Robichaud
Leonard Wolfe Design/Wilton, CT
Photography:Robert Reichert
<PAGE> 48
[BESTFOODS LOGO]
700 Sylvan Avenue
International Plaza
Englewood Cliffs, NJ 07632-9976
www.bestfoods.com
[GRAPHIC OF PEOPLE AND PRODUCTS]
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Following is a list of the Registrant's subsidiaries and their subsidiaries
showing the percentage of voting securities owned, or other bases of control, by
the immediate parent of each.
<TABLE>
<CAPTION>
Percentage of voting
securities owned by
its immediate parent
--------------------
<S> <C> <C>
Bestfoods
(a) Subsidiaries included in the Company's
consolidated financial statements
United States
Arnold Foods Company, Inc. -Delaware 100.00
Best Foods - Caribbean, Inc. -Delaware 100.00
Bestfoods Europe (Group) Ltd. -Delaware 100.00
Entenmann's Inc. (Owned by Bestfoods
Baking Co. Inc., a holding company of
Bestfoods) -Delaware 100.00
Henri's Food Products Co. Inc. -Wisconsin 100.00
Canada
Bestfoods Holdings Inc. 100.00
Europe (1)
C.H. Knorr Nahrungsmittelfabrik Ges.mbH -Austria 100.00
Bestfoods Belgium N.V./S.A. -Belgium 99.90
CPC Foods A.S. -Czech Republic 98.50
CPC Foods A/S -Denmark 100.00
CPC Foods OY -Finland 100.00
CPC France S.A. -France 99.93
CPC Maizena GmbH -Germany 100.00
Knorr Bestfoods Hellas A.B.E.E. -Greece 100.00
CPC Benelux B.V. -Holland 100.00
CPC Hungary RT -Hungary 100.00
Knorr Bestfoods Ltd. -Ireland 100.00
CPC Italia S.P.A. -Italy 100.00
CPC Foods A/S -Norway 100.00
CPC Amino Sp. zo.o -Poland 99.98
Knorr Portuguesa-Produtos Alimentares S.A. -Portugal 100.00
Bestfoods Espana, S.A. -Spain 100.00
CPC Foods AB -Sweden 100.00
CPC Knorr Holdings AG -Switzerland 100.00
Bestfoods (United Kingdom) Ltd. -United Kingdom 100.00
Africa and Middle East (1)(2)
Israel Edible Products Ltd. "TAMI" -Israel 50.00
CPC Kenya Ltd. -Kenya 50.00
CPC Maghreb, S.A. -Morocco 50.00
Robertsons Foodservice (Pty) Ltd. -South Africa 50.00
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Latin America
Refinerias de Maiz S.A.I.C. -Argentina 100.00
Refinacoes de Milho, Brasil Ltda. -Brazil 100.00
Industrias de Maiz y Alimentos S.A. -Chile 100.00
DISA S.A. -Colombia 100.00
Productos Agroindustriales del Caribe S.A. -Costa Rica 100.00
Productos de Maiz y Alimentos S.A. -Guatemala 100.00
Productos de Maiz, S.A. de C.V. -Mexico 100.00
Alimentos y Productos de Maiz, S.A. -Peru 99.90
Industrializadora de Maiz, S.A. -Uruguay 100.00
Aliven S.A. -Venezuela 100.00
Asia
CPC (Guangzhou) Foods Ltd. (Owned by
Bestfoods Asia Investments Ltd. a
holding company of Bestfoods) -China 80.00
CPC/AJI (Hong Kong) Ltd. -Hong Kong 50.00 (2)
P.T. Knorr Indonesia -Indonesia 100.00
CPC/AJI (Malaysia) Sdn. Berhad -Malaysia 50.00 (2)
CPC Rafhan Limited -Pakistan 51.00 (1)
California Manufacturing Co., Inc. -Philippines 50.00 (2)
CPC/AJI (Singapore) Pte. Ltd. -Singapore 50.00 (2)
CPC/AJI (Taiwan) Ltd. -Taiwan 50.00 (2)
CPC/AJI (Thailand) Ltd. -Thailand 50.00 (2)
</TABLE>
The names of thirty-seven (37) domestic subsidiaries and one hundred
thirty-three (133) international subsidiaries have been omitted since these
unnamed subsidiaries considered in the aggregate as a single entity do not
constitute a significant subsidiary.
(b) Domestic subsidiary not consolidated:
One (1) wholly owned subsidiary which has minor real estate holdings.
(c) International subsidiaries not consolidated:
Six (6) international subsidiaries of which all or a majority of the share
capital is owned by the Registrant.
(d) Domestic 50% owned companies:
Two (2) joint ventures in which the Registrant owns 50% interest with 50%
being owned by single other interests.
(e) International 50% owned companies:
One (1) joint venture in which the Registrant owns 50% interest with 50%
being owned by single other interests.
- --------------------
(1) Owned by Bestfoods Europe (Group) Ltd., or its wholly owned subsidiaries.
(2) Owned fractionally more than 50% and fully consolidated for accounting
purposes.
If the companies included in (b), (c), (d) and (e) were considered in the
aggregate as a single entity, they would not constitute a significant subsidiary
since: (1) the assets of the subsidiaries, or the investments in and advances to
the subsidiaries by its parent and the parent's other subsidiaries, if any, did
not exceed 10 percent of the assets of the parent and its subsidiaries on a
consolidated basis, and (2) the sales and operating revenues of the parent and
its subsidiaries on a consolidated basis, and the Company's equity in their
income before income taxes and extraordinary items did not exceed 10% of the
income of the parent and its subsidiaries on a consolidated basis.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Bestfoods:
We consent to incorporation by reference in the Registration Statements on Forms
S-8 (No. 2-92248 and 33-49847) and on Form S-3 (No.333-64301) of Bestfoods of
our report dated February 10, 1999, relating to the consolidated balance sheets
of Bestfoods and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three year period ended December 31, 1998 which report
appears in the December 31, 1998 annual report on Form 10-K of Bestfoods.
/S/ KPMG LLP
(KPMG LLP)
New York, New York
March 23, 1999
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 1,339
<ALLOWANCES> 58
<INVENTORY> 827
<CURRENT-ASSETS> 2,405
<PP&E> 3,462
<DEPRECIATION> 1,497
<TOTAL-ASSETS> 6,435
<CURRENT-LIABILITIES> 2,312
<BONDS> 2,053
0
157
<COMMON> 98
<OTHER-SE> 726
<TOTAL-LIABILITY-AND-EQUITY> 6,435
<SALES> 8,374
<TOTAL-REVENUES> 0
<CGS> 4,523
<TOTAL-COSTS> 7,187
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166
<INCOME-PRETAX> 1,021
<INCOME-TAX> 352
<INCOME-CONTINUING> 640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (17)
<NET-INCOME> 624
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.09
</TABLE>
