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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
Worthington Foods, Inc.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: common
shares; options to purchase common shares
(2) Aggregate number of securities to which transaction applies:
12,386,498 common shares; options to purchase 853,974 common shares
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $24 for
each outstanding common share; option holders will receive cash equal
to product of number of options held and the excess of $24 over
exercise price per share (an estimated aggregate amount of $10,967,369)
(4) Proposed maximum aggregate value of transaction: $308,243,321
(5) Total fee paid: $61,649
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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WORTHINGTON FOODS, INC.
900 Proprietors Road
Worthington, Ohio 43085
(614) 885-9511
__________, 1999
To Our Shareholders:
We invite you to attend a special meeting of the shareholders of
Worthington Foods, Inc. ("Worthington") to be held at 10:00 a.m., local time, on
November __, 1999, at ____________________, ____________________, Columbus,
Ohio.
The purpose of the special meeting is to vote upon the merger of a
wholly-owned subsidiary of Kellogg Company ("Kellogg") into Worthington pursuant
to a merger agreement which the parties entered into on September 30, 1999. If
the merger is approved by our shareholders, Worthington will become a
wholly-owned subsidiary of Kellogg and the shareholders of Worthington will
receive $24 in cash for each common share owned by them.
Your board of directors has carefully reviewed and considered the terms
and conditions of the proposed merger. It has also received a written opinion,
dated September 30, 1999 and confirmed as of the date of this letter, from U.S.
Bancorp Piper Jaffray Inc., our financial advisor, that the $24 merger price was
fair to our shareholders from a financial point of view as of the date of the
opinion. A copy of the U.S. Bancorp Piper Jaffray Inc. opinion is included as
Appendix B to the accompanying proxy statement.
Based on its review of the merger, the board of directors has
determined that the merger is fair and in the best interests of Worthington and
our shareholders. The board of directors unanimously recommends that you vote
"FOR" adoption of the merger agreement and approval of the merger.
You are urged to read the details of the proposed merger and other
material information contained in the accompanying proxy statement.
The holders of at least a majority of our outstanding common shares
must vote in favor of the merger agreement for its approval. As a result, your
failure to vote will have the same effect as a vote against the adoption of the
merger agreement. Your vote is therefore very important. We urge you to
complete, sign and date the enclosed proxy or voting instruction card and return
it in the enclosed return envelope, whether or not you plan to attend the
special meeting. If you do attend the special meeting and wish to vote in
person, you may withdraw your proxy and vote in person.
Please do not send any share certificates at this time. You will
receive instructions regarding the surrender of your share certificate(s) and
receive payment for your common shares after the effective time of the merger.
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If you have any questions prior to the special meeting or need further
assistance, please call Ms. Joan M. Lieb, Assistant Secretary, at (614)
885-9511.
Sincerely,
Dale E. Twomley
Chairman, President and Chief Executive Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
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WORTHINGTON FOODS, INC.
900 Proprietors Road
Worthington, Ohio 43085
(614) 885-9511
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on November __, 1999
To the Shareholders of Worthington Foods, Inc.:
A special meeting of shareholders of Worthington Foods, Inc., an Ohio
corporation ("Worthington"), will be held on November __, 1999, at [10:00] a.m.,
local time, at _______ _________________________________, Columbus, Ohio, for
the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement
and Plan of Merger, dated as of September 30, 1999, by and
among Worthington, Kellogg Company, a Delaware corporation
("Kellogg"), and WF Acquisition Inc., a wholly-owned
subsidiary of Kellogg. Subject to the terms and conditions of
the merger agreement, at the effective time of the merger, (i)
WF Acquisition Inc. will be merged with and into Worthington,
which will be the surviving corporation in the merger and will
become a wholly-owned subsidiary of Kellogg and (ii) each
common share, without par value, of Worthington outstanding
immediately prior to the effective time will be automatically
converted into the right to receive $24 in cash, as more fully
described in the accompanying proxy statement; and
2. To transact such other business as may properly come before
the special meeting or any adjournment.
The attached proxy statement contains information about the matters to
be acted upon at the special meeting and summarizes the merger agreement, a copy
of which appears as Appendix A to the accompanying proxy statement.
Your board of directors has fixed the close of business on __________,
1999, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the special meeting or any adjournment. Only holders
of record of common shares at the close of business on ______________, 1999 are
entitled to notice of, and to vote at, the special meeting.
The proxy holders will vote the common shares represented by properly
executed proxies as directed on the proxy card. If no directions are given,
proxies will be voted "FOR" adoption of the merger agreement.
Your vote is important, regardless of the number of common shares you
may hold. Please vote as soon as possible to make sure that your common shares
are represented at the special meeting, whether or not you expect to attend the
special meeting. To grant your proxy to vote your common shares, please
complete, date and sign the enclosed proxy card or voting
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instruction and mail it promptly in the enclosed return envelope. You may, of
course, attend the special meeting, revoke your proxy and vote in person even if
you already returned your proxy card or voting instruction. If you do not vote,
it will have the same effect as a vote against adoption of the merger agreement.
By Order of the Board of Directors,
Ronald L. McDermott, Secretary
Worthington, Ohio
____________, 1999
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WORTHINGTON FOODS, INC.
900 Proprietors Road
Worthington, Ohio 43085
(614) 885-9511
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER __, 1999
This proxy statement relates to the proposed merger of Worthington
Foods, Inc., an Ohio corporation ("Worthington"), with WF Acquisition Inc., an
Ohio corporation and a wholly-owned subsidiary of Kellogg Company, a Delaware
corporation ("Kellogg"), pursuant to the Agreement and Plan of Merger, dated as
of September 30, 1999, by and among Worthington, Kellogg and WF Acquisition Inc.
Subject to the terms and conditions of that merger agreement, at the effective
time of the merger:
- Each common share, without par value, of Worthington
outstanding immediately prior to the effective time of the
merger will be automatically converted into the right to
receive $24 in cash.
- WF Acquisition Inc. will be merged with and into Worthington.
- Worthington will continue as the surviving corporation after
the merger and will become a wholly-owned subsidiary of
Kellogg.
- Worthington will cease to be a publicly-held company, and its
common shares will no longer trade on The Nasdaq National
Market.
Worthington is furnishing this proxy statement to holders of its common
shares in connection with the solicitation of proxies by its board of directors
for use at a special meeting of shareholders of Worthington to be held on
November __, 1999. Worthington is mailing this proxy statement and the
accompanying form of proxy to shareholders beginning __________, 1999.
At the special meeting, Worthington's shareholders will be asked to
adopt the merger agreement. Worthington's board of directors has determined that
the merger is fair and in the best interest of Worthington and our shareholders
and has unanimously approved the merger agreement and unanimously recommends
that you vote "FOR" the adoption of the merger agreement.
No one has been authorized to give any information or to make any
representations other than those contained in this proxy statement in connection
with the solicitation of proxies made hereby, and, if given or made, the
information or representation must not be relied upon as having been authorized
by Worthington or any other person.
Dated as of __________, 1999.
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TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................7
SUMMARY..........................................................................................................10
The Parties.............................................................................................10
Worthington....................................................................................10
Kellogg........................................................................................10
WF Acquisition Inc.............................................................................10
The Special Meeting.....................................................................................11
Date, Time and Place...........................................................................11
Purpose of the Special Meeting.................................................................11
Record Date; Common Shares Entitled to Vote....................................................11
Quorum.........................................................................................11
Vote Required..................................................................................11
Security Ownership of Management...............................................................11
The Merger..............................................................................................11
Effect of the Merger...........................................................................11
Background of the Merger.......................................................................11
Recommendation of the Board....................................................................11
Opinion of Financial Advisor to Worthington....................................................12
Terms of the Merger Agreement...........................................................................12
Effective Time of the Merger...................................................................12
Certain Conditions to the Merger...............................................................12
Manner and Basis of Converting Common Shares...................................................13
Stock-Based Employee Benefit Plans.............................................................13
No Solicitation................................................................................14
Termination of the Merger Agreement............................................................14
Termination Fees and Expenses..................................................................15
Interests of Certain Persons in the Merger..............................................................16
Agreements with Executive Officers and Other Key Employees.....................................16
Stock Option Plans.............................................................................16
Indemnification and Continuation of Liability Insurance........................................16
Regulatory Matters......................................................................................16
Federal Income Tax Consequences.........................................................................16
Dissenters' Rights......................................................................................17
Market Price Data.......................................................................................18
Selected Financial Data of Worthington..................................................................18
THE SPECIAL MEETING..............................................................................................19
Date, Time and Place....................................................................................19
Purpose of the Special Meeting..........................................................................19
Record Date; Quorum.....................................................................................19
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Voting and Revocation of Proxies........................................................................19
Vote Required; Board Recommendation.....................................................................20
Cost of Solicitation of Proxies; Mailing Date...........................................................20
Other Matters...........................................................................................20
THE MERGER.......................................................................................................20
The Parties.............................................................................................20
Worthington....................................................................................20
Kellogg........................................................................................21
WF Acquisition Inc.............................................................................21
Background..............................................................................................21
Worthington's Reasons for the Merger; Recommendation of the Board.......................................25
Opinion of Financial Advisor to Worthington.............................................................27
Proposed Consideration.........................................................................28
The Market for Worthington's Common Shares.....................................................29
Comparable Company Analysis....................................................................29
Comparable Transaction Analysis................................................................30
Premiums Paid Analysis.........................................................................31
Discounted Cash Flow Analysis..................................................................32
Interests of Certain Persons in the Merger..............................................................34
Agreements with Executive Officers and Other Key Employees.....................................34
Cash-Out of Outstanding Stock Options..........................................................38
Bonus Arrangements for 1999....................................................................39
Indemnification and D & O Insurance............................................................40
Federal Income Tax Consequences.........................................................................40
Accounting Treatment....................................................................................42
Existing Relationships with Kellogg.....................................................................42
Rights of Dissenting Shareholders.......................................................................42
TERMS OF THE MERGER AGREEMENT....................................................................................44
Effective Time of the Merger............................................................................44
Manner and Basis of Converting Common Shares............................................................44
Stock Options...........................................................................................46
Other Employee Benefit Plans and Related Matters........................................................46
Conditions to the Merger................................................................................47
Worthington and Kellogg........................................................................47
Kellogg and WF Acquisition Inc.................................................................47
Worthington....................................................................................48
Representations and Warranties..........................................................................48
Worthington....................................................................................48
Kellogg and WF Acquisition Inc.................................................................50
Selected Covenants Relating to Conduct of Business Prior to the Merger..................................50
No Solicitation.........................................................................................52
Rights Agreement........................................................................................53
Selected Post-Merger Matters............................................................................54
Additional Agreements in the Merger Agreement...........................................................54
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Termination of the Merger Agreement.....................................................................56
Termination Fees and Expenses...........................................................................57
REGULATORY MATTERS...............................................................................................58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF WORTHINGTON....................................58
INDEPENDENT PUBLIC ACCOUNTANTS...................................................................................62
SHAREHOLDER PROPOSALS............................................................................................62
WHERE YOU CAN FIND MORE INFORMATION..............................................................................62
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS........................................................65
</TABLE>
Appendix A -- Agreement and Plan of Merger, dated as of September 30,
1999, among Worthington Foods, Inc., WF Acquisition Inc.
and Kellogg Company
Appendix B -- Opinion, and Confirmation of Opinion, of U.S. Bancorp
Piper Jaffray Inc.
Appendix C -- Provisions of Section 1701.85 of the Ohio Revised Code
Relating to Rights of Dissenting Shareholders
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will be the effect of the merger?
A: Worthington will be merged with WF Acquisition Inc., which is a
wholly-owned subsidiary of Kellogg. Worthington will continue as the
surviving corporation and become a wholly-owned subsidiary of Kellogg.
Worthington will no longer be publicly held, and its common shares will
no longer be traded on The Nasdaq National Market.
Q: Why did the Board approve the merger agreement and merger?
A: The Board considered a number of factors in approving the merger
agreement and merger, including
- the premium that shareholders will receive for each common share
over the per share closing prices on September 30, 1999, the last
trading day prior to the date of public announcement of the merger
agreement, and on August 30, 1999, a date one month before the
execution of the merger agreement;
- Worthington's business and earnings prospects, its anticipated
capital expenditures and other funding requirements, near-term and
long-term product and business risks, management succession issues,
the competitive business environment in which Worthington operates
and business trends in the prepared food industry;
- U.S. Bancorp Piper Jaffray Inc.'s opinion to the Board as to the
fairness of the merger consideration from a financial point of view
to the holders of Worthington's common shares, and the related
analyses presented by U.S. Bancorp Piper Jaffray Inc.;
- historical market prices of Worthington's common shares;
- the terms and conditions of the merger agreement, including the
right of the board of directors to terminate the merger agreement
prior to its approval by the shareholders in the exercise of its
fiduciary duties in connection with a proposal superior to the
merger with Kellogg; and
- various other factors, as described in "The Merger--Worthington's
Reasons for the Merger; Recommendation of the Board."
Q: What will I receive for my common shares after the merger is completed?
A: Each shareholder (except for shareholders who have properly exercised
dissenters' rights under Ohio law) will be entitled to receive $24 in
cash for each common share held by them at the effective time of the
merger.
Q: What do I need to do now?
A: Just mail your signed and completed proxy card in the enclosed return
envelope as soon as possible, so that your common shares can be voted
at the special meeting.
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Q: If my common shares are held in "street name" by my broker, will my
broker vote my common shares for me?
A: Your broker will vote your common shares only if you provide
instructions on how to vote. You should contact your broker and ask
what directions your broker will need from you. Your broker will not be
able to vote your common shares without instructions from you.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You can do this in one of three ways. First, you
can attend the special meeting and vote in person. Your attendance
alone will not, however, revoke your proxy. If you have instructed a
broker to vote your common shares, you must follow directions received
from your broker to change those instructions. Second, you can complete
and submit a new proxy card. Third, you can send a written notice
stating that you would like to revoke your proxy.
Q: Should I send in my share certificates now?
A: No. After the merger is completed, you will receive written
instructions for delivering your certificates for your common shares
for the cash payment.
Q: What happens to my future dividends?
A: We plan to continue paying dividends on our common shares until the
closing of the merger. We expect to pay these future dividends at
approximately the same time and rate per share as we have paid during
the last year.
Q: Do I have dissenters' rights for my common shares if the merger is
completed?
A: Yes. If you wish to exercise your dissenters' rights, you must not vote
in favor of the adoption of the merger agreement and you must follow
the procedures described in this proxy statement. If you comply with
these procedures, you will have the right to receive the "fair cash
value" of your common shares, as determined under the Ohio law
governing dissenters' rights, instead of the $24 per share as provided
in the merger. The amount you will receive if you exercise your
dissenters' rights may be equal to, more than or less than $24 per
share.
Q: What will happen if Worthington's shareholders do not adopt the merger
agreement?
A: If Worthington's shareholders do not adopt the merger agreement,
management and the Board will continue to operate Worthington as
before, and may consider other strategic alternatives. However, if
Worthington receives an alternative proposal prior to termination of
the merger agreement and then enters into an agreement to sell
Worthington with another party within one year after the termination of
the merger agreement, Worthington may be required to pay Kellogg a
termination fee of $12.5
8
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million and an amount up to $500,000 constituting reimbursement of the
expenses of Kellogg incurred in connection with the proposed merger.
Q: What happens if I do not send in my proxy card, if I do not instruct my
broker, or if I abstain from voting?
A: If you do not send in your proxy card, if you do not instruct your
broker to vote your common shares, or if you abstain from voting, it
will have the same effect as a vote against the adoption of the merger
agreement.
Q: What are the tax consequences of the merger to shareholders?
A: In general, a shareholder will recognize gain or loss for federal
income tax purposes to the extent of the difference between the cash
received and the holder's tax basis in the common shares exchanged for
cash.
Q: What regulatory approvals are needed?
A: Before the merger can be completed, we must, among other things, await
the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Q: What other conditions are there to the completion of the merger?
A: The merger may not be completed if certain conditions are not met or
otherwise waived, including, but not limited to:
- Worthington's shareholders do not adopt the merger agreement.
- There is a material breach of any covenant, representation or
warranty of Worthington or Kellogg in the merger agreement and
such breach is not curable or is not cured within a 30-day
period.
- The merger is not completed by March 31, 2000.
- Other specified conditions are not satisfied, as described in
"Terms of the Merger Agreement--Conditions to the Merger."
Q: When do you expect the merger to be completed?
A: We hope to complete the merger by the end of 1999. We are working
toward completing the merger as quickly as possible, and to the extent
that the regulatory approvals are received and other conditions are
satisfied prior to that time, we intend to complete the merger earlier.
However, the timing and likelihood of obtaining the regulatory
approvals described above are uncertain.
Q: Who can help answer my questions?
9
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A: If you have more questions about the merger, you should contact:
Ms. Joan M. Lieb, Assistant Secretary
Worthington Foods, Inc.
900 Proprietors Road
Worthington, Ohio 43085
Telephone: (614) 885-9511
SUMMARY
The following is a summary of information contained elsewhere in this
proxy statement and its appendices. You should refer to the more detailed
information contained in or incorporated by reference into this proxy statement.
This summary is qualified in its entirety by such information. Worthington urges
shareholders to read this proxy statement and its appendices carefully and in
their entirety. Unless the context requires otherwise, the term "Worthington"
means Worthington and its subsidiary, Specialty Foods Investment Company, a
Delaware corporation. The summary of the merger agreement contained in this
summary is not complete, and reference is made to the merger agreement, which is
attached to this proxy statement as Appendix A.
THE PARTIES
Worthington. Worthington develops, produces and markets high-quality,
zero cholesterol, vegetarian and other healthful food products for consumers
seeking healthful food choices. Offering more than 150 products, Worthington is
one of the leading independent producers of healthier alternatives to meat, egg
and dairy products. For 60 years, Worthington has been dedicated to producing
meat alternative products which simulate the taste and texture of meat and which
are made primarily from soy and wheat proteins. Worthington was incorporated in
Ohio in 1967 and became the successor to the original Worthington Foods business
which was started in 1939. Worthington's principal business offices are located
at 900 Proprietors Road, Worthington, Ohio 43085; the telephone number is (614)
885-9511.
Kellogg. Kellogg and its subsidiaries are engaged in the manufacture
and marketing of ready-to-eat cereal and other grain-based convenience food
products on a worldwide basis. The principal products of Kellogg are
ready-to-eat cereals and other convenience food products which are manufactured
in 20 countries and distributed in nearly 160 countries. Kellogg was
incorporated in Delaware in 1922 as the successor to Kellogg Toasted Corn Flake
Company which had been incorporated in Michigan in 1906. Kellogg's principal
business offices are located at One Kellogg Square, Battle Creek, Michigan
49016; the telephone number is (616) 961-2000.
WF Acquisition Inc. WF Acquisition Inc. was incorporated under the laws
of the State of Ohio on September 28, 1999 as a wholly-owned subsidiary of
Kellogg solely for the purpose of entering into the merger agreement. WF
Acquisition Inc. has not engaged in any business activity other than in
connection with the merger agreement and has no material liabilities. WF
Acquisition Inc.'s principal address is One Kellogg Square, Battle Creek,
Michigan, and its telephone number is (616) 961-2000.
10
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THE SPECIAL MEETING
Date, Time and Place. The special meeting will be held on November __,
1999, at ____________________, __________, Ohio, commencing at [10:00] a.m.,
local time.
Purpose of the Special Meeting. At the special meeting, Worthington's
shareholders will consider and vote upon a proposal to adopt the merger
agreement. Worthington's shareholders will also consider and vote upon any other
matters which properly come before the special meeting.
Record Date; Common Shares Entitled to Vote. Only holders of record of
common shares at the close of business on __________, 1999, are entitled to
notice of, and to vote at, the special meeting. On ____________, 1999, there
were ______common shares outstanding, each of which is entitled to one vote on
each matter to be acted upon at the special meeting.
Quorum. Holders of a majority of the common shares outstanding and
entitled to vote must be present at the special meeting, either in person or by
proxy, in order to constitute a quorum and conduct any business.
Vote Required. The affirmative vote of the holders of at least a
majority of the common shares outstanding on the record date is required under
Ohio law and the articles of incorporation of Worthington to adopt the merger
agreement. Abstentions and broker non-votes will have the same effect as a vote
against adoption of the merger agreement.
Security Ownership of Management. As of the record date, the directors
and the seven executive officers of Worthington and their affiliates and
associates owned 590,839 common shares, or approximately 4.8% of the common
shares entitled to vote at the special meeting.
THE MERGER
Effect of the Merger. At the effective time of the merger, WF
Acquisition Inc. will merge with and into Worthington. Worthington will continue
as the surviving corporation in the merger and become a wholly-owned subsidiary
of Kellogg. Subject to the terms and conditions of the merger agreement, each
common share outstanding at the effective time of the merger (other than common
shares held by shareholders of Worthington who have properly exercised
dissenters' rights under Ohio law) will be automatically converted into the
right to receive $24 in cash, and all current holders of common shares will
cease to have any equity interest in, or possess any rights as shareholders of,
Worthington.
Background of the Merger. For a description of the events leading to
the approval of the merger agreement by Worthington's board of directors, see
"The Merger--Background."
Recommendation of the Board. Worthington's board of directors has
unanimously determined that the merger is fair and in the best interest of
Worthington and Worthington's shareholders and recommends that shareholders
adopt the merger agreement. See "The Merger--Background" and "--Worthington's
Reasons for the Merger; Recommendation of the Board."
11
<PAGE> 15
Opinion of Financial Advisor to Worthington. At a meeting of the board
of directors of Worthington held on September 29, 1999, U.S. Bancorp Piper
Jaffray Inc., Worthington's financial advisor, rendered to the board of
directors its oral opinion that, as of that date and based upon and subject to
the assumptions, factors and limitations presented in the opinion, the $24 per
share in cash to be paid to the holders of Worthington's common shares in the
merger was fair, from a financial point of view, to those shareholders. U.S.
Bancorp Piper Jaffray Inc. set forth its oral opinion in a written opinion dated
September 30, 1999 (and has confirmed that opinion as of the date of this proxy
statement). The full text of U.S. Bancorp Piper Jaffray Inc.'s written opinion,
which describes, among other things, assumptions made, matters considered and
limitations on the review undertaken, is attached to this proxy statement as
Appendix B. YOU ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY. The
opinion of U.S. Bancorp Piper Jaffray Inc. is directed only to the matters
described in the opinion and does not constitute a recommendation to you as to
how you should vote at the special meeting.
TERMS OF THE MERGER AGREEMENT
Effective Time of the Merger. The parties expect that the effective
time of the merger will occur on the eleventh calendar day following the
satisfaction or waiver of the conditions to the merger contained in the merger
agreement. The merger will become effective at the time of the filing of a
certificate of merger with the Secretary of State of the State of Ohio.
Certain Conditions to the Merger. Before the merger is consummated, a
number of conditions must be satisfied. These include:
- adoption of the merger agreement by the shareholders of
Worthington;
- the absence of any court order or law having the effect of
making illegal or otherwise prohibiting the consummation of
the merger;
- obtaining all required third party consents and approvals by
any governmental or regulatory authority;
- the rights to purchase Series A Junior Participating Preferred
Shares issued under the Rights Agreement dated as of June 13,
1995, as amended, between Worthington and National City Bank,
as Rights Agent, have not become exercisable or transferable
apart from the associated common shares and the rights have
been redeemed under the terms of the Rights Agreement;
- the number of common shares held by persons who have exercised
dissenters' rights under Ohio law does not exceed 10% of the
total number of outstanding common shares;
- the representations and warranties made by each of the parties
in the merger agreement are true and correct in all material
respects; and
- other customary closing conditions.
12
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Where the law permits, Worthington or Kellogg could decide to complete
the merger even though one or more conditions was not satisfied. By law, neither
Worthington nor Kellogg can waive (a) the condition of approval of the merger
agreement by Worthington's shareholders or (b) any court order or law having the
effect of making illegal or otherwise prohibiting the consummation of the
merger. Whether any of the other conditions would be waived would depend upon
the facts and circumstances as determined by the reasonable business judgment of
the board of directors of Worthington or Kellogg.
Manner and Basis of Converting Common Shares. At the effective time of
the merger, each issued and outstanding common share (other than common shares
that are canceled as described in this paragraph and common shares held by
shareholders who have properly exercised dissenters' rights under Ohio law) will
automatically be converted into the right to receive $24 in cash. This
conversion will occur by virtue of the merger and without any action on the part
of any holder of any capital stock of Worthington, Kellogg or WF Acquisition
Inc. Any common shares that Kellogg, WF Acquisition Inc. or any other
wholly-owned subsidiary of Kellogg holds, or that Worthington holds as treasury
shares, will be canceled and cease to exist, and no consideration will be
delivered or deliverable in exchange for those common shares. As of the date of
this proxy statement, neither Kellogg nor WF Acquisition Inc. or any other
subsidiary of Kellogg owned any common shares of Worthington, and Worthington
held no treasury shares.
In order to receive the cash amount of $24 per share, shareholders of
Worthington must surrender for exchange their certificates representing their
common shares. Prior to the closing date of the merger, Kellogg will appoint a
bank or trust company to act as payment agent for the merger. At the closing of
the merger, Kellogg will deposit with the payment agent, in a fund established
for the benefit of the holders of common shares, for payment through the payment
agent, an amount of cash sufficient to pay to the shareholders of Worthington
the aggregate merger price.
As soon as reasonably practicable after the effective time of the
merger, the surviving corporation will instruct the payment agent to mail to
each holder of record of a common share certificate immediately prior to the
effective time of the merger (i) a form of letter of transmittal and (ii)
instructions for surrendering the common share certificates in exchange for
payment of the merger price.
Stock-Based Employee Benefit Plans. The merger agreement provides that,
immediately prior to consummation of the merger, all outstanding options to
purchase common shares granted under Worthington's 1985 Stock Option Plan, 1993
Stock Option Plan for Non-Employee Directors and Amended and Restated 1995 Stock
Option Plan, whether or not then exercisable, will be cancelled by Worthington
and, in consideration of such cancellation, each holder of an option will be
entitled to receive from Worthington at the effective time of the merger an
amount in respect thereof in cash equal to the product of the excess, if any, of
$24 over the per share exercise price of the option and the number of common
shares subject to the option. This payment is to be made net of applicable
withholding taxes. Prior to the effective time of the merger, Worthington will
deposit in a bank account not within Worthington's control an amount of cash
necessary to make such option cancellation payments, together with instructions
that
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<PAGE> 17
such cash be promptly distributed following the effective time of the merger to
the holders of such options.
As of the effective time of the merger, Worthington will amend its Tax
Savings and Profit Sharing Plan to eliminate any investment fund comprised of
common shares, prohibit any additional contributions in the form of common
shares and make all participant accounts fully vested and nonforfeitable. In
addition, Worthington will amend its Employee Stock Ownership Plan as of the
effective time of the merger to provide that benefits will be distributed solely
in cash. Within 30 days of the effective time of the merger, Kellogg will cause
the surviving corporation in the merger to terminate the Employee Stock
Ownership Plan and, as soon as administratively practicable after such date, to
liquidate the plan by distributing its assets in accordance with the terms of
the plan.
No Solicitation. The merger agreement restricts Worthington, its
subsidiary and Worthington's representatives generally from initiating,
soliciting or encouraging any other transaction that would result in a merger or
the purchase of 5% or more of the outstanding common shares or the capital
shares of Worthington's subsidiary or the sale of any significant portion of the
assets of Worthington and its subsidiary taken as a whole. See "Terms of the
Merger Agreement--No Solicitation."
Termination of the Merger Agreement. The merger agreement may be
terminated at any time prior to the effective time of the merger:
- by mutual written agreement of Kellogg and Worthington;
- by either party if the merger has not been consummated by
March 31, 2000 (provided that the right to terminate will not
be available to any party whose breach of any obligation under
the merger agreement has been the cause of the failure to
consummate the merger on or before that date);
- by either party if the merger agreement is not adopted by
Worthington's shareholders;
- by either party if there has been a material breach of the
other party that is not curable or, if curable, has not been
cured within 30 days following notice;
- by either party if any court or other governmental or
regulatory authority issues a final order making the merger
illegal or otherwise restricting, preventing or prohibiting
the merger;
- by Worthington, if Worthington's board of directors determines
in good faith, based on advice of outside counsel, that
termination of the merger agreement is required for the board
to comply with its fiduciary duties to shareholders imposed by
law by reason of an unsolicited Alternative Proposal (as
defined in "Terms of the Merger Agreement--No Solicitation")
and Worthington pays to Kellogg a termination fee of $12.5
million and reimburses the merger expenses of Kellogg up to
$500,000; or
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<PAGE> 18
- by Kellogg, if Worthington's board of directors withdraws its
approval or recommendation of the merger agreement or merger,
modifies its approval or recommendation in a manner adverse to
Kellogg, recommends an Alternative Proposal to the
shareholders of Worthington or fails to reconfirm its
recommendation of the merger agreement and merger following
the written request of Kellogg.
Termination Fees and Expenses. Worthington will be required to pay
Kellogg a termination fee of $12.5 million plus expenses of up to $500,000 if
any person or group has made an Alternative Proposal and the merger agreement is
thereafter terminated:
- by Worthington because Worthington's board of directors
- has determined in good faith, based on advice of
outside counsel, that termination of the merger
agreement is required for the board to comply with
its fiduciary duties to shareholders imposed by law
by reason of an Alternative Proposal, and
- has concluded, after consulting with its financial
advisors, that the Alternative Proposal is more
favorable to Worthington's shareholders than the
Kellogg merger, and the Alternative Proposal is not
conditioned on the receipt of financing and the board
of directors has received a "fairness opinion" from
an investment banking firm regarding the Alternative
Proposal;
- by Kellogg because Worthington's board of directors has
withdrawn its approval or recommendation of the merger or the
merger agreement, modified its approval or recommendation in a
manner adverse to Kellogg, recommends an Alternative Proposal
to the shareholders of Worthington or fails to reconfirm its
recommendation of the merger agreement and merger following
the written request of Kellogg;
- by Kellogg because there has been a material breach by
Worthington of any representation, warranty, covenant or
agreement of Worthington in the merger agreement, and an
agreement with respect to the Alternative Proposal is executed
within one year of the termination of the merger agreement;
- by either party because the merger has not been adopted by
Worthington's shareholders, and an agreement with respect to
the Alternative Proposal is executed within one year of the
termination of the merger agreement; or
- by either party because the merger has not been consummated by
March 31, 2000, and an agreement with respect to the
Alternative Proposal is executed within one year of the
termination of the merger agreement.
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<PAGE> 19
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the board of directors' recommendation that the
shareholders vote in favor of the adoption of the merger agreement, shareholders
should be aware that Worthington's executive officers and directors will receive
payments and other benefits as a result of the merger which result in their
having interests in the merger that are different from, or in addition to, the
interests of other shareholders. See "The Merger--Interests of Certain Persons
in the Merger." The board was aware of these interests and considered them,
among other things, in approving the merger agreement.
Agreements with Executive Officers and Other Key Employees. Worthington
has in place change in control severance agreements with each of its seven
executive officers and two of its other key employees. The severance agreements
provide for severance and change in control benefits if qualifying terminations
of employment occur after a change in control of Worthington. The merger will
constitute a change in control under these severance agreements. On September
30, 1999, Kellogg entered into written agreements with these nine Worthington
employees who are parties to severance agreements with Worthington which will
become effective only upon the completion of the merger and which provide, among
other things, for the termination of all of the existing severance agreements
and the payment to these nine individuals following the merger of amounts that
approximate the payments that they would have received under their severance
agreements if they had a qualifying termination of employment following the
merger and the employment of six of these individuals by Kellogg for differing
periods of time following the completion of the merger. See "The
Merger--Interests of Certain Persons in the Merger."
Stock Option Plans. Worthington has previously issued stock options to
its executive officers and directors under its various stock option plans. The
merger agreement provides that, immediately prior to the completion of the
merger, each option holder will be paid an amount in consideration of the
cancellation of his outstanding options (whether or not then exercisable) equal
to the product of the excess, if any, of $24 over the exercise price per share
of the options and the number of common shares subject to the options. Each
payment will be made net of applicable withholding taxes. Worthington has agreed
to use its reasonable best efforts and otherwise take all actions reasonably
necessary to implement the cash-out of the stock options in accordance with the
merger agreement.
Indemnification and Continuation of Liability Insurance. The merger
agreement contains provisions with respect to indemnification of Worthington's
directors and officers after the merger and the continuation of director and
officer liability insurance for these individuals.
REGULATORY MATTERS
Kellogg and Worthington have made pre-merger filings with U.S.
antitrust authorities under the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for common shares pursuant to the merger or to the
exercise of dissenters' rights will be a taxable transaction for federal income
tax purposes and may also be a
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<PAGE> 20
taxable transaction under state, local and other tax laws. In general, a
shareholder will recognize gain or loss for federal income tax purposes to the
extent of the difference between the cash received and the holder's tax basis in
the common shares exchanged for cash. For a discussion of these and other
federal income tax considerations in connection with the merger, see "The
Merger--Federal Income Tax Consequences." Holders of common shares are urged to
consult their own tax advisors as to the tax consequences of the merger
particular to them, including the applicability and effect of state, local and
other tax laws.
DISSENTERS' RIGHTS
If you object to the merger, Ohio law permits you to seek relief as a
dissenting shareholder and have the "fair cash value" of your common shares
determined by a court and paid to you in cash. To do this, you must satisfy each
of the following conditions:
- you must be a shareholder of Worthington on the record date
for the vote on the merger agreement;
- you must not vote dissenting shares in favor of adoption of
the merger agreement;
- you must deliver to Worthington a written demand for the fair
cash value of your common shares for which you exercise
dissenters' rights within ten days after the vote on the
merger agreement stating your name, address, the number of
common shares and the amount you claim is the fair cash value
of those common shares;
- if Worthington requests, you must deliver to Worthington the
certificates evidencing the common shares for which you
exercise dissenters' rights for endorsement of the legend that
demand for their fair cash value has been made; and
- within three months after your delivery to Worthington of your
written demand for payment of the fair cash value of the
common shares for which you exercise dissenters' rights, you
must file or join in a petition in the Court of Common Pleas
of Franklin County, Ohio for a determination of their fair
cash value unless you and Worthington have agreed on their
fair cash value.
You will not receive payment of the $24 merger price if you dissent and follow
all the required procedures. Instead, you will only receive the fair cash value
of your common shares for which you exercise dissenters' rights.
For more information about the steps to be taken by Worthington
shareholders who wish to exercise their dissenters' rights, see "The
Merger--Rights of Dissenting Shareholders". The relevant section of Ohio law
governing this process is attached to this proxy statement as Appendix C.
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<PAGE> 21
MARKET PRICE DATA
Worthington's common shares are traded on The Nasdaq National Market
under the symbol "WFDS." On Thursday, September 30, 1999, the last trading day
prior to the announcement by Kellogg and Worthington that they had executed the
merger agreement, the high, low and closing per share sales price of the common
shares, as reported by The Nasdaq National Market, were $14.75, $13.44 and
$14.38, respectively. On __________, 1999, the closing per share sales price of
the common shares, as reported by The Nasdaq National Market, was $_____.
Shareholders are urged to obtain current market quotations for common shares.
SELECTED FINANCIAL DATA OF WORTHINGTON
The following table presents selected consolidated financial data for
Worthington and its consolidated subsidiary. The six months data was derived
from Worthington's unaudited quarterly financial statements, which can be found
in Worthington's Quarterly Reports on Form 10-Q for the six months ended July 2,
1999 and July 3, 1998. The data for the six months ended July 2, 1999 and July
3, 1998 do not necessarily provide information concerning the results of
operations for the entire year. Worthington derived the annual data from its
audited financial statements, which can be found in Worthington's Annual Reports
on Form 10-K for each of the five fiscal years ended December 31, 1998. This
data should be read together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes, as contained in Worthington's Forms 10-K and Forms
10-Q.
<TABLE>
<CAPTION>
At and For At and For
Six Months Ended Fiscal Years Ended December 31,
------------------------- -----------------------------------------------------------
July 2, July 3, 1998 1997 1996 1995 1994
1999 1998
------------ ------------ ----------- ----------- ----------- ------------ ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $82,759 $67,348 $139,492 $117,944 $109,075 $91,075 $88,220
Cost goods sold 46,789 37,777 79,165 69,223 65,954 54,893 55,575
---------- ---------- ---------- ---------- ---------- ---------- -----
Gross profit 35,970 29,571 60,327 48,721 43,121 36,182 32,645
Selling and distribution expenses 25,013 17,523 39,863 29,936 25,752 21,736 20,945
General and administrative expenses 2,431 1,825 3,489 3,359 3,242 3,289 2,889
Research and development expenses 846 812 1,665 1,413 1,280 1,227 1,370
---------- ---------- ---------- ---------- ---------- ---------- -----
Total expenses 28,290 20,160 45,017 34,708 30,274 26,252 25,204
Gain from sale of refrigerated egg
assets - - - - - - 1,578
---------- ---------- ---------- ---------- ---------- ---------- -----
28,290 20,160 45,017 34,708 30,274 26,252 23,626
------ ------ ------ ------ ------ ------ ------
Income from operations 7,680 9,411 15,310 14,013 12,847 9,930 9,019
Interest expense 1,010 891 1,714 1,471 1,164 1,138 1,811
----- --- ----- ----- ----- ----- -----
Income before income taxes 6,670 8,520 13,596 12,542 11,683 8,792 7,208
Provision for income taxes 2,425 3,493 5,574 4,535 4,290 3,561 2,876
----- ----- ----- ----- ----- ----- -----
Net income $4,245 $5,027 $8,022 $8,007 $7,393 $5,231 $4,332
------ ------ ------ ------ ------ ------ ------
Earnings per share
Basic $0.34 $0.43 $0.68 $0.70 $0.65 $0.47 $0.39
----- ----- ----- ----- ----- ----- -----
Diluted $0.34 $0.42 $0.66 $0.67 $0.63 $0.45 $0.39
----- ----- ----- ----- ----- ----- -----
Dividends per share $0.04 $0.04 $0.09 $0.08 $0.07 $0.06 $0.05
----- ----- ----- ----- ----- ----- -----
Weighted average common and common
equivalent shares used in
computing earnings per share
Basic 12,376 11,684 11,847 11,516 11,332 11,246 11,202
Diluted 12,505 12,025 12,214 12,016 11,802 11,552 11,238
Balance Sheet Data (at period end):
Working capital $44,087 $30,045 $35,554 $25,112 $20,130 $16,987 $15,182
Total assets 136,195 102,854 120,949 95,486 80,738 69,933 61,578
Total long-term debt 35,833 22,083 26,583 22,333 17,960 12,790 13,646
Total shareholders' equity 76,623 61,469 72,789 56,416 48,730 41,968 37,098
Book value per share 6.19 5.23 5.89 4.87 4.28 3.71 3.31
</TABLE>
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<PAGE> 22
THE SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting will be held on November __, 1999, at the
______________ ______________, Columbus, Ohio, commencing at [10:00] a.m., local
time.
PURPOSE OF THE SPECIAL MEETING
The purpose of the special meeting is to consider and vote upon the
proposal to adopt the merger agreement. Worthington shareholders will also
consider and vote upon any other matters which properly come before the special
meeting.
RECORD DATE; QUORUM
Only holders of record of common shares at the close of business on
____________, 1999 are entitled to notice of, and to vote at, the special
meeting. On ____________, 1999, there were approximately ______ holders of
record of the common shares issued and outstanding.
Each common share entitles the holder to one vote on each matter
submitted for shareholder approval. See "Security Ownership of Certain
Beneficial Owners and Management of Worthington" for information regarding
persons known to Worthington to be the beneficial owners of more than 5% of the
outstanding common shares. The presence at the special meeting, in person or by
proxy, of the holders of a majority of the outstanding common shares entitled to
vote at the special meeting will constitute a quorum for the transaction of
business.
VOTING AND REVOCATION OF PROXIES
A form of proxy card for use by shareholders at the special meeting
accompanies this proxy statement. All properly executed proxy cards that are
received prior to or at the special meeting and not revoked will be voted at the
special meeting in accordance with the instructions contained in the proxy
cards. If a holder of common shares executes and returns a proxy card and does
not specify otherwise, the common shares represented by the proxy card will be
voted "FOR" adoption of the merger agreement in accordance with the
recommendation of Worthington's board of directors. In such event, the holder of
those common shares will not have the right to dissent from the merger and
demand payment of the "fair cash value" of the holder's common shares.
A properly executed proxy card marked "abstain" will count for
determining whether there is a quorum and for determining the aggregate voting
power and number of common shares represented and entitled to vote at the
special meeting. However, it will not be voted. Accordingly, since the
affirmative vote of the holders of at least a majority of the outstanding common
shares is required to adopt the merger agreement, a proxy card marked "abstain"
will have the effect of a vote "against" the adoption of the merger agreement.
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<PAGE> 23
Under the rules of The Nasdaq National Market, brokers and nominees who
hold shares in their names but are not the beneficial owners of the shares may
not exercise voting discretion with respect to these shares. Thus, brokers and
nominees may not vote common shares held by them absent specific instructions
from the beneficial owners of the common shares. Since the affirmative vote of
at least a majority of the outstanding common shares is required to adopt the
merger agreement, a broker non-vote proxy card will have the effect of a vote
"against" the adoption of the merger agreement.
A shareholder of Worthington who has executed and returned a proxy card
may revoke it at any time before it is voted at the special meeting by executing
and returning a proxy card bearing a later date, filing written notice of
revocation with the Secretary of Worthington stating that the proxy card is
revoked or attending the special meeting and voting in person.
VOTE REQUIRED; BOARD RECOMMENDATION
Adoption of the merger agreement requires the affirmative vote of the
holders of at least a majority of the outstanding common shares. YOUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AGREEMENT.
COST OF SOLICITATION OF PROXIES; MAILING DATE
In addition to solicitation by mail, the directors, officers, employees
and agents of Worthington may solicit proxies from the shareholders of
Worthington by personal interview, telephone, telegram or otherwise. Worthington
will bear the costs of the solicitation of proxies from its shareholders.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries who are record holders of common shares for the
forwarding of solicitation materials to the beneficial owners of the common
shares. Worthington will reimburse these brokers, custodians, nominees and
fiduciaries for the reasonable out-of-pocket expenses incurred by them in
connection therewith.
This proxy statement and the accompanying form of proxy are first being
mailed to shareholders of Worthington on or about ____________, 1999.
OTHER MATTERS
At the date of this proxy statement, Worthington's board of directors
does not know of any business to be presented at the special meeting other than
as set forth in the notice attached to this proxy statement. If any other
matters should properly come before the special meeting, it is intended that
persons voting the common shares represented by proxy cards will vote on those
matters in accordance with their judgment.
THE MERGER
THE PARTIES
Worthington. Worthington develops, produces and markets high-quality,
zero cholesterol, vegetarian and other healthful food products for consumers
seeking healthful food choices. Offering more than 150 products, Worthington is
one of the leading independent
20
<PAGE> 24
producers of healthier alternatives to meat, egg and dairy products. For 60
years, Worthington has been dedicated to producing meat alternative products
which simulate the taste and texture of meat and which are made primarily from
soy and wheat proteins. Worthington was incorporated in Ohio in 1967 and became
the successor to the Worthington Foods business which was started in 1939.
Worthington's principal business offices are located at 900 Proprietors Road,
Worthington, Ohio 43085; the telephone number is (614) 885-9511.
Kellogg. Kellogg and its subsidiaries are engaged in the manufacture
and marketing of ready-to-eat cereal and other grain-based convenience food
products on a worldwide basis. The principal products of Kellogg are
ready-to-eat cereals and other convenience food products which are manufactured
in 20 countries and distributed in nearly 160 countries. Kellogg was
incorporated in Delaware in 1922 as the successor to Kellogg Toasted Corn Flake
Company which had been incorporated in Michigan in 1906. Kellogg's principal
business offices are located at One Kellogg Square, Battle Creek, Michigan
49016; the telephone number is (616) 961-2000.
WF Acquisition Inc. WF Acquisition Inc. was incorporated under the laws
of the State of Ohio on September 28, 1999, as a wholly-owned subsidiary of
Kellogg solely for the purpose of entering into the merger agreement. WF
Acquisition Inc. has not engaged in any business activity other than in
connection with the merger agreement and has no material liabilities. WF
Acquisition Inc.'s principal address is One Kellogg Square, Battle Creek,
Michigan 49016, and its telephone number is (616) 961-2000.
BACKGROUND
The prepared food industry in general and the health-oriented segment
of that industry in particular have been undergoing significant changes in
recent years as a result of the increasing cost of developing and introducing
new products, growing technology costs, the need to market products on an
international basis, consolidation in the supermarket industry and other trends.
These changes have caused smaller prepared food companies such as Worthington to
reevaluate their future strategy and options. Over the past three years, the
board of directors and senior management of Worthington have considered the
company's business prospects as a stand-alone company, including the anticipated
short-term and long-term value to its shareholders of remaining an independent
company as well as the business risks associated with remaining independent.
During the past three years, Worthington has been approached by several large
food companies with an interest in pursuing a possible business combination. In
the course of evaluating these expressions of interest, Worthington's board of
directors and management have spent a considerable amount of time evaluating the
advantages and disadvantages of remaining an independent company versus
operating as part of a much larger food company.
On July 8, 1999, Stephen Benoit, Vice President of Kellogg, telephoned
Dale Twomley, the Chairman, President and Chief Executive Officer of
Worthington, and indicated that Kellogg would like to discuss a possible
business relationship between the two companies. He said that Kellogg would be
willing to consider a wide range of possible relationships or transactions,
including a joint venture, a co-branding relationship or a purchase of the
Worthington business. He indicated that Kellogg intended to enter the meat
substitute category, and viewed Worthington as the leader in that
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<PAGE> 25
product category. He asked Mr. Twomley whether he would be willing to meet with
representatives of Kellogg's Natural and Functional Foods Division to discuss a
possible business relationship. Mr. Twomley responded that the board of
directors of Worthington was not looking for a buyer and that, based on the
board's expectation for strong future growth in revenues and earnings, any sale
of Worthington would require a substantial purchase price. He also told Mr.
Benoit that Worthington had little, if any, interest in pursuing a joint venture
or co-branding arrangement. Mr. Benoit reiterated Kellogg's interest in
discussing a possible transaction or arrangement between the companies and said
that he still would like the opportunity to meet to discuss the possibilities.
Mr. Twomley agreed to meet with Mr. Benoit and several other representatives of
Kellogg at Worthington's offices on July 16, 1999.
On Friday, July 16, 1999, Mr. Benoit and several other representatives
of Kellogg met with Mr. Twomley, William Kirkwood, Worthington's Executive Vice
President and Chief Financial Officer, and Ronald McDermott, Worthington's Vice
President of Research and Technology. Prior to that meeting, Kellogg and
Worthington had entered into a confidentiality agreement. At the meeting, the
Worthington representatives reviewed with Kellogg information which they had
previously provided to securities analysts and shareholders. By the end of the
meeting, the parties agreed to continue discussion of a possible acquisition of
Worthington by Kellogg. Mr. Twomley agreed that he would discuss Kellogg's
interest in an acquisition with the Worthington board of directors.
At a regularly-scheduled meeting of the board of directors of
Worthington on July 20, 1999, Mr. Twomley informed the directors of his
discussions and meeting with Kellogg. The directors were supportive of continued
discussions with Kellogg.
Following the July 16, 1999 meeting, Mr. Benoit contacted Mr. Twomley
and requested additional financial and other information regarding Worthington
in order to prepare a proposal for a business combination between Kellogg and
Worthington. Worthington provided this additional information to Kellogg between
July 21, 1999 and July 28, 1999. Mr. Benoit called Mr. Twomley on July 30, 1999
and said that he would like to meet again with representatives of Worthington
before proposing a purchase price for Worthington. Mr. Benoit also requested
additional financial information from Worthington.
On August 6, 1999, Dale Twomley, William Kirkwood and Ronald McDermott
of Worthington met with Stephen Benoit, Robert Cell, John Cook and other
representatives of Kellogg at the Kellogg offices in Battle Creek to discuss the
Worthington business and the meat alternative category in general. Following
that meeting, the Worthington representatives met with Carlos M. Gutierrez, the
President and CEO of Kellogg, and discussed the strategic implications of a
business combination, the respective business and management philosophies and
goals of the two companies and the opportunities that a business combination
would afford the two companies.
On Tuesday, August 10, 1999, Mr. Cell called Mr. Twomley to report that
the senior management of Kellogg was prepared to recommend the acquisition of
Worthington in a stock-for-stock transaction. Mr. Twomley responded that he
could not recommend the transaction to
22
<PAGE> 26
the Worthington board at the proposed exchange ratio. Later that day, Mr. Cell
called Mr. Twomley and proposed a stock-for-stock acquisition at an increased
exchange ratio for each share of Worthington. Mr. Cell noted that the Kellogg
proposal was subject to review by the finance committee of Kellogg's board of
directors, which would meet by telephone conference on August 20, 1999, and to
further due diligence by Kellogg. Mr. Cell also requested that Worthington give
consideration to an all cash transaction.
A telephonic special meeting of the Worthington board of directors was
held on August 11, 1999. Mr. Twomley provided a detailed review of the ongoing
discussions with Kellogg and outlined the preliminary structure of the proposed
business combination. Mr. Twomley and Worthington's financial and legal advisors
responded to questions and comments from the directors about the negotiation
process. Mr. Twomley advised the directors that if the board decided to move
forward with the negotiation of a definitive merger agreement with Kellogg, it
would be prudent to retain the services of an investment banking firm. After
discussion of the advisability of hiring an investment banking firm and the fee
arrangement, the board authorized the engagement of U.S. Bancorp Piper Jaffray
Inc. to serve as Worthington's financial advisor in connection with the proposed
merger with Kellogg.
At the August 11, 1999 meeting, the Worthington directors discussed the
proposed purchase price and the advantages and disadvantages of receiving stock
versus cash in an acquisition. The directors reviewed with the financial
advisors and legal counsel the structural, tax, accounting and liquidity issues
relating to the proposed merger. Mr. Twomley discussed his position that the
Kellogg merger proposal, if completed, would benefit the shareholders, employees
and customers of the company. He noted the challenges and risks facing
Worthington as a small independent company, and the business and financial
opportunities that would be afforded to Worthington by a merger with a much
larger food company. Following a lengthy discussion, the board authorized
management to continue its discussions with Kellogg and to begin the negotiation
of a definitive merger agreement. The board also asked that Worthington's
management keep the Worthington board informed of material developments.
On Friday, August 20, 1999, the finance committee of the board of
directors of Kellogg authorized Kellogg's management to continue its due
diligence review of Worthington and to begin negotiation of a definitive merger
agreement. Following that meeting, Mr. Benoit called Mr. Twomley and reported
that Kellogg wanted to begin an extensive financial, business, operational and
legal review of Worthington.
On Tuesday, August 24, 1999, representatives of Kellogg and Worthington
met in Columbus to discuss Kellogg's due diligence plan and to agree on a
preliminary timetable for negotiating a definitive merger agreement. Kellogg
conducted its due diligence over a period of approximately four weeks beginning
on August 24, 1999, including management interviews, document review and legal
due diligence. During this period, there was a series of discussions between
Messrs. Benoit, Cell and Twomley concerning the potential business challenges of
a business combination, including integration of the Worthington management team
into the Kellogg organization and other business integration issues.
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<PAGE> 27
The Worthington board of directors held a telephonic meeting on
Thursday, August 26, 1999. Mr. Twomley reviewed for the board the status of his
discussions with Kellogg. He advised the board that Kellogg was recommending an
all cash transaction. Following a lengthy discussion, the directors authorized
management to pursue an all cash transaction. Mr. Twomley reported the
Worthington board's action to Mr. Benoit on Friday, August 27, 1999.
On Monday, August 30, 1999, Kellogg delivered to Worthington and its
investment bankers and attorneys an initial draft of the merger agreement.
Beginning on September 3, 1999 and continuing through the execution of the
merger agreement on September 30, 1999, Kellogg and Worthington, and their
respective legal advisors, negotiated the terms of the merger agreement.
A regularly-scheduled meeting of the board of directors of Worthington
was held on Wednesday, September 8, 1999. At that meeting, Mr. Twomley updated
the directors on the status of discussions with Kellogg and reported on
Kellogg's due diligence review. Mr. Kirkwood reviewed with the directors the
financial information and financial forecasts that had been provided to Kellogg.
Legal counsel reviewed with the directors the terms and conditions of the
initial draft of the merger agreement and answered questions from the directors.
On Monday, September 20, 1999, Mr. Benoit telephoned Mr. Twomley and
reported that, after reviewing the results of Kellogg's due diligence, Kellogg
had prepared a list of business issues for discussion with Worthington's
management. On Tuesday, September 21, 1999 and Wednesday, September 22, 1999,
numerous telephone conversations occurred between representatives of Worthington
and Kellogg concerning the issues raised by Kellogg.
Mr. Twomley and Mr. Kirkwood met with Mr. Benoit and another Kellogg
representative on Thursday, September 23, 1999. During the meeting, Mr. Benoit
reported that Kellogg was prepared to proceed with the proposed merger at a
price of $22 per Worthington share in cash. Mr. Benoit noted that a $22 offer
price represented an 82.4% premium to the then current market price of $12.0625
per share and a 61.4% premium to the average stock price over the past six
months of $13.631 per share. He also pointed out that the $22 proposal valued
Worthington at a higher level than the average price paid for branded food
product companies over the past 10 years. Mr. Twomley responded that he did not
believe that the Worthington board of directors would authorize a transaction at
$22 per share. After further discussions, Mr. Twomley suggested a price of $24
per Worthington share. After reviewing the proposal with other Kellogg
representatives, Mr. Benoit said that Kellogg management would support a $24 per
share merger price, but that the price was subject to approval by the Kellogg
board of directors. Mr. Twomley responded that he would take the $24 proposal to
the Worthington board of directors at a previously-scheduled meeting the
following day.
On Friday, September 24, 1999, the board of directors of Worthington
met to review the progress of the discussions with Kellogg. At that meeting, the
directors authorized management to complete its negotiation of a definitive
merger agreement. On the same day, the Kellogg's board of directors authorized
the Kellogg management to proceed with the completion of the negotiation of a
definitive merger agreement.
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<PAGE> 28
Copies of the draft merger agreement were sent to the Worthington
directors on Monday, September 27, 1999. In addition, on the same day, Mr.
Twomley and the Vice Presidents of Worthington met with Mr. Benoit and other
representatives of Kellogg to discuss employment and severance arrangements for
the Worthington executives following the merger.
On Wednesday, September 29, 1999, the board of directors of Worthington
met to consider the definitive merger agreement. Worthington senior management,
financial advisors and legal counsel made various presentations concerning the
proposed transaction. In addition, U.S. Bancorp Piper Jaffray Inc. rendered its
oral opinion to the board of directors that, as of September 29, 1999, and based
upon and subject to certain assumptions, factors and limitations, the $24 per
share merger price was fair from a financial point of view to Worthington's
shareholders. The board of directors unanimously determined that it was in the
best interest of Worthington and its shareholders for Worthington to enter into
the merger agreement, determined that the terms of the merger were fair to, and
in the best interests of, the shareholders of Worthington, and authorized,
approved and adopted the proposed merger agreement and the execution and
delivery of the merger agreement. On September 30, 1999, U.S. Bancorp Piper
Jaffray Inc. delivered its written opinion as to the fairness, from a financial
point of view, to the Worthington shareholders of the $24 per share merger
price.
The parties executed and delivered the merger agreement at the end of
the day on Thursday, September 30, 1999. On the morning of Friday, October 1,
1999, the parties issued a joint press release announcing that they had signed
the merger agreement.
WORTHINGTON'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
Worthington's board of directors has unanimously approved the merger
agreement and the merger and recommends adoption of the merger agreement and the
merger by the shareholders of Worthington. In reaching its determination, the
Worthington board of directors consulted with Worthington management, U.S.
Bancorp Piper Jaffray Inc., its financial advisor, and Vorys, Sater, Seymour and
Pease LLP, its legal counsel, and considered the following important factors
that supported the board's recommendation:
(1) The per share cash consideration of $24 to be paid in the merger,
which represents a premium for the Worthington common shares of approximately
67% over the per share closing price on Thursday, September 30, 1999, the last
trading day prior to the date of public announcement of the merger agreement,
and approximately 84% over the closing price on August 30, 1999, a date one
month before the execution of the merger agreement;
(2) The board's review and analysis of Worthington's business and
earnings prospects, anticipated future capital expenditure requirements, its
need for funds to achieve future plans, near-term and long-term product and
business risks, management succession issues, the competitive business
environment in which the company operates and business trends in the prepared
food industry;
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<PAGE> 29
(3) The oral opinion of U.S. Bancorp Piper Jaffray Inc. that as of
September 29, 1999 (which opinion was set forth in writing and dated September
30, 1999) and based upon and subject to certain assumptions, factors and
limitations, the merger price of $24 per Worthington share was fair from a
financial point of view to the holders of Worthington common shares and the
related analyses prepared by U.S. Bancorp Piper Jaffray Inc.;
(4) Historical market prices of Worthington's common shares;
(5) A review of the prospects of continuing to operate as a stand-alone
company, including the anticipated short-term and long-term value to
shareholders of remaining an independent company and the timing and likelihood
of actually achieving greater value from this alternative and the risks
associated with remaining an independent company;
(6) The merger should allow Worthington to benefit, over the long term,
from increased financial strength, the opportunity to benefit from costs savings
and other benefits of size and operating efficiencies and increased sales
through an expanded distribution channel and support system;
(7) The terms of the merger agreement, including the right of the
Worthington board of directors to terminate the merger agreement prior to its
approval by shareholders in the exercise of its fiduciary duties in connection
with receipt by Worthington of a buy out proposal superior to that given by
Kellogg;
(8) The ability of Worthington and Kellogg to complete the merger,
including the fact that the merger is not subject to a financing contingency on
the part of Kellogg;
(9) The fact that the affirmative vote of a majority of the outstanding
common shares of Worthington is required to approve and adopt the merger
agreement; and
(10) The social and economic effects of the merger on the employees,
customers, suppliers and others who deal with Worthington and on the communities
where they operate, including the intention of Kellogg to maintain operations in
Worthington and Zanesville, Ohio following the merger.
The discussion above describes the material factors considered
by the board of directors in its consideration of the merger. Because of the
variety of factors considered, the board did not find it practicable to, and did
not make specific assessments of, quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. The
determination was made after consideration of all of the factors together. In
addition, individual members of the Worthington board of directors may have
given different weights to different factors.
THE BOARD OF DIRECTORS OF WORTHINGTON UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS OF WORTHINGTON VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT
AND THE APPROVAL OF THE MERGER.
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<PAGE> 30
OPINION OF FINANCIAL ADVISOR TO WORTHINGTON
Pursuant to an engagement letter dated August 20, 1999, Worthington
retained U.S. Bancorp Piper Jaffray Inc. to act as its exclusive financial
advisor and, if requested, to render to the board of directors of Worthington an
opinion as to the fairness, from a financial point of view, of the consideration
to be received by Worthington shareholders in the merger.
At the meeting of the board of directors of Worthington held on
September 29, 1999, U.S. Bancorp Piper Jaffray Inc. rendered to the board of
directors its oral opinion that, as of that date and based on and subject to the
assumptions, factors and limitations presented in the opinion and described
below, the $24 per share in cash to be paid to the Worthington shareholders in
the merger was fair, from a financial point of view, to those shareholders. The
opinion of U.S. Bancorp Piper Jaffray Inc. was set forth in writing and dated
September 30, 1999. U.S. Bancorp Piper Jaffray Inc. has confirmed that opinion
as of the date of this proxy statement. A copy of U.S. Bancorp Piper Jaffray
Inc.'s written opinion, and confirmation of opinion, are attached to this proxy
statement as Appendix B and is incorporated into this proxy statement by
reference. YOU ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY.
While U.S. Bancorp Piper Jaffray Inc. rendered its opinion and provided
certain financial analyses to the board of directors of Worthington, the opinion
of U.S. Bancorp Piper Jaffray Inc. to the board of directors of Worthington, as
described above, was among many factors taken into consideration by the board of
directors of Worthington in making its determination to approve the merger
agreement. You also should consider the following when reading the discussion of
the opinion of Worthington's financial advisor in this proxy statement:
- U.S. Bancorp Piper Jaffray Inc.'s written opinion, which was
delivered for use and considered by the board of directors, is
directed only to the fairness, from a financial point of view,
of the proposed consideration to be received by Worthington
shareholders in the merger;
- U.S. Bancorp Piper Jaffray Inc.'s written opinion does not
address the value of a Worthington common share;
- U.S. Bancorp Piper Jaffray Inc.'s written opinion does not
address Worthington's underlying business decision to
participate in the merger; and
- U.S. Bancorp Piper Jaffray Inc.'s written opinion does not
constitute a recommendation to any Worthington shareholder as
to how a shareholder should vote with respect to the merger or
any related matter.
In arriving at its opinion, U.S. Bancorp Piper Jaffray Inc. reviewed:
- the most recent draft of the merger agreement;
- certain financial, operating and business information related
to Worthington;
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<PAGE> 31
- certain internal financial information of Worthington on a
stand-alone basis prepared for financial planning purposes
and furnished by Worthington's management;
- to the extent publicly available, financial terms of
certain acquisition transactions involving companies
operating in industries deemed similar to that in which
Worthington operates;
- certain valuation and other financial information on
selected public companies deemed comparable to Worthington;
and
- certain publicly available financial and securities data
for Worthington, Kellogg and their respective common
stocks.
In addition, U.S. Bancorp Piper Jaffray Inc. engaged in
discussions with:
- members of Worthington's management concerning the
financial condition, current operating results and business
outlook of Worthington on a stand-alone basis and in
combination with Kellogg;
- members of Kellogg's management regarding their ability to
finance the aggregate merger price; and
- both management teams regarding their reasons for entering
into discussions regarding the merger.
In delivering its opinion to the board of directors of
Worthington, U.S. Bancorp Piper Jaffray Inc. prepared and delivered to the board
of directors written materials containing various analyses and other information
material to the opinion. The following is a summary of those analyses. The
summary includes information presented in tabular format. In order to understand
fully the financial analyses used by U.S. Bancorp Piper Jaffray Inc., these
tables must be read together with the text of each analysis summary. The tables
alone do not constitute a complete summary of the analyses. The order in which
the analyses are presented below should not be taken as any indication of the
relative weight given to the analyses by U.S. Bancorp Piper Jaffray Inc. in the
rendering of its opinion.
Proposed Consideration. Based on the proposed $24 per share merger
price to be paid for each of Worthington common share, U.S. Bancorp Piper
Jaffray Inc. calculated the implied aggregate equity value of Worthington to be
approximately $308.6 million, consisting of approximately $297.3 million in
common share consideration and approximately $11.3 million in consideration
payable to holders of options to purchase Worthington's common shares. Based on
this implied aggregate equity value and the approximately $37.4 million of debt
and the approximately $2.6 million of cash on Worthington's balance sheet as of
August 27, 1999, U.S. Bancorp Piper Jaffray Inc. then calculated the implied
aggregate "enterprise value" or "company value" (equity value, plus debt, less
cash) to be approximately $343.4 million. Based on these implied aggregate
equity and enterprise values for Worthington, on Worthington's revenue, EBITDA
(earnings before interest, taxes, depreciation and amortization), operating
income and
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<PAGE> 32
net income for the latest twelve months ("LTM") as of August 27, 1999 and on
management's estimates for Worthington's net income for fiscal years 1999 and
2000, U.S. Bancorp Piper Jaffray Inc. also calculated the following valuation
multiples for the proposed transaction:
Implied
Worthington
Multiples
-----------------
Company Value/LTM Revenue 2.2x
Company Value/LTM EBITDA 17.9x
Company Value/LTM Operating Income 26.7x
Equity Value/LTM Net Income 45.4x
P/E Ratios:
Calendar 1999 Estimated (1) 31.4x
Calendar 2000 Estimated (1) 25.0x
Premium Paid (based on share price as of 95.0%
September 28, 1999 of $12.31)
---------------
(1) Based on fully diluted shares outstanding assuming a $24 share
price.
The Market for Worthington's Common Shares. U.S. Bancorp Piper
Jaffray Inc. reviewed the stock trading history of Worthington's common shares.
U.S. Bancorp Piper Jaffray Inc. presented the following data for Worthington's
common shares:
<TABLE>
<S> <C>
Closing stock price as of September 28, 1999............................... $12.31
30 trading day average as of September 28, 1999............................ $12.65
60 trading day average as of September 28, 1999............................ $13.99
90 trading day average as of September 28, 1999............................ $14.24
180 trading day average as of September 28, 1999........................... $13.42
Market capitalization (based on September 28, 1999
closing price and primary shares outstanding)......................... $152.5 million
52 week high trade (as of September 28, 1999 )............................. $21.94
52 week low trade (as of September 28, 1999)............................... $10.00
</TABLE>
Comparable Company Analysis. U.S. Bancorp Piper Jaffray Inc.
compared financial information and valuation ratios relating to Worthington to
corresponding data and ratios from the following four publicly-traded companies
deemed comparable to Worthington: Celestial Seasonings, Inc.; Gardenburger,
Inc.; Hain Food Group Inc.; and Horizon Organic Holding Corporation. This group
was selected from food manufacturers and distributors with a focus on natural,
organic, vegetarian or other healthy food products with a market capitalization
greater than $50 million.
Based on the comparable companies' share prices and shares
outstanding as of September 28, 1999 and research analysts' consensus earnings
per share estimates for these companies, U.S. Bancorp Piper Jaffray Inc.
calculated valuation multiples for the comparable companies equal to the
quotient of their respective valuation data, such as company value and equity
value, and their associated operating data, such as revenue and operating
income. U.S. Bancorp Piper Jaffray Inc. then compared the means and medians of
these multiples to the Worthington valuation multiples derived as described
above, and also calculated implied per share values for Worthington's common
shares derived from these comparable companies' valuation multiples, the
corresponding operating data for Worthington and fully diluted shares
outstanding assuming a $24 share price.
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<PAGE> 33
This analysis produced the following valuation data:
<TABLE>
<CAPTION>
Comparable
Company Implied Worthington
Implied Multiples Value Per Share
Worthington ---------------------- ----------------------
Multiples Mean Median Mean Median
--------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
P/E Ratios:
Calendar 1999 Estimated.... 31.4x 28.9x 31.0x $22.06 $23.62
Calendar 2000 Estimated.... 25.0x 19.4x 19.3x $18.65 $18.55
Company Value/LTM Revenue....... 2.2x 1.7x 1.6x $18.13 $16.88
Company Value/LTM Operating
Income..................... 26.7x 22.8x 20.8x $20.12 $18.09
Company Value/LTM EBITDA........ 17.9x 15.5x 17.5x $20.35 $23.35
</TABLE>
Comparable Transaction Analysis. U.S. Bancorp Piper Jaffray Inc.
reviewed the terms of certain recent merger and acquisition transactions
reported in SEC filings, public company disclosures, press releases, industry
and popular press reports, data bases and other sources that satisfied the
following criteria:
- transactions in which the target company operates in the food
and kindred products industry;
- transactions with a value of greater than $10 million;
- transactions not in the nature of repurchases or spinoffs; and
- transactions in which the acquiring company purchased at least
50% of the target company.
This search yielded 45 "food industry" comparable acquisitions
deemed to have sufficient data available for analysis. In addition, a group of
six "natural foods" comparable acquisitions was chosen, involving food producers
and distributors that focus on natural, organic, vegetarian or other healthy
food products.
U.S. Bancorp Piper Jaffray Inc. calculated valuation multiples for
the acquired companies in the comparable transactions equal to the quotient of
their respective valuation data, such as company value and equity value, and
their associated operating data, such as revenue, operating income and EBITDA.
U.S. Bancorp Piper Jaffray Inc. then compared the means and medians of these
multiples to the Worthington valuation multiples derived as described above, and
also calculated implied per share values for Worthington's common shares derived
from these comparable transaction valuation multiples, the corresponding
operating data for Worthington and fully diluted shares outstanding assuming a
$24 share price.
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<PAGE> 34
U.S. Bancorp Piper Jaffray Inc. presented the following implied
value and valuation multiple data based on the food industry merger and
acquisition transactions:
<TABLE>
<CAPTION>
Food Industry Merger
and Acquisition Implied Worthington
Implied Transaction Multiples Value Per Share
Worthington ---------------------- ----------------------
Multiples Mean Median Mean Median
--------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Company Value/LTM Revenue........... 2.2x 1.2x 1.0x $11.42 $9.10
Company Value/LTM EBITDA............ 17.9x 10.6x 9.4x $13.12 $11.30
Equity Value/LTM Operating Income .. 26.7x 15.9x 13.4x $13.21 $10.72
Equity Value/LTM Net Income......... 45.4x 27.8x 25.1x $14.69 $13.24
</TABLE>
U.S. Bancorp Piper Jaffray Inc. also presented the following
implied value and valuation multiple data for the natural foods merger and
acquisition transactions:
<TABLE>
<CAPTION>
Natural Foods Merger
and Acquisition Implied Worthington
Implied Transaction Multiples Value Per Share
Worthington ---------------------- ---------------------
Multiples Mean Median Mean Median
--------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Company Value/LTM Revenue........... 2.2x 1.1x 1.0x $10.68 $9.97
Company Value/LTM EBITDA............ 17.9x 10.3x 8.7x $12.61 $10.25
Equity Value/LTM Operating Income... 26.7x 15.3x 13.5x $12.64 $10.79
Equity Value/LTM Net Income......... 45.4x 35.9x 34.5x $18.97 $18.24
</TABLE>
Premiums Paid Analysis. U.S. Bancorp Piper Jaffray Inc. analyzed
the implied premium paid or proposed to be paid in selected transactions
relative to public market pre-announcement trading prices for the following two
groups:
- food industry acquisitions since January 1, 1993 involving
more than $10 million in equity value; and
- non-industry specific transactions since January 1, 1997
involving between $100 million and $500 million in equity
value.
U.S. Bancorp Piper Jaffray Inc. calculated an implied value per
share for Worthington's common shares based on the mean and median premium data
associated with the applicable transaction groups and upon the Worthington
common share closing price on September 28, 1999, of $12.31, as detailed below:
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<PAGE> 35
<TABLE>
<CAPTION>
Implied Implied
Food Industry Worthington Worthington
Acquisition Group Value Based Value Based
Premium Data on Mean on Median
----------------------- Premium Premium
Mean Median Percentage Percentage
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
1 month prior to announcement 50.1% 42.4% $18.48 $17.53
1 week prior to announcement 41.2% 31.6% $17.39 $16.20
1 day prior to announcement 32.7% 26.8% $16.34 $15.61
</TABLE>
<TABLE>
<CAPTION>
Implied Implied
Non-Industry Specific Worthington Worthington
Acquisition Group Value Based Value Based
Premium Data on Mean on Median
----------------------- Premium Premium
Mean Median Percentage Percentage
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
1 month prior to announcement 49.1% 43.5% $18.35 $17.67
1 week prior to announcement 41.2% 33.9% $17.38 $16.48
1 day prior to announcement 33.8% 26.9% $16.48 $15.62
</TABLE>
Discounted Cash Flow Analysis. U.S. Bancorp Piper Jaffray Inc. performed
a discounted cash flow analysis on Worthington in which it calculated the sum of
the present values of:
- the projected cash flows of Worthington using assumptions
prepared by Worthington management; and
- the estimated terminal (or perpetual) value of Worthington
for the period of time from the end of the projections
provided by Worthington's management forward.
In making these calculations, U.S. Bancorp Piper Jaffray Inc. applied a
range of terminal value EBITDA multiples of 8.0x to 12.0x and a range of
discount rates of 13.0% to 17.0%. This analysis yielded the following implied
per share equity values for Worthington's common shares:
<TABLE>
<CAPTION>
Discount Rate
EBITDA --------------------------------------------------
Multiple 13.0% 15.0% 17.0%
----------- ----------- ---------- -----------
<S> <C> <C> <C>
8.0x $16.15 $15.14 $14.20
10.0x $20.38 $19.13 $17.97
12.0x $24.62 $23.13 $21.74
</TABLE>
In reaching its conclusion as to the fairness, from a financial point
of view, of the consideration to be received by Worthington's shareholders in
the merger, U.S. Bancorp Piper Jaffray Inc. did not rely on any single analysis
or factor described above, assign relative weights
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<PAGE> 36
to the analyses or factors considered by it, or make any conclusion as to how
the results of any given analysis, taken alone, supported its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. U.S. Bancorp Piper
Jaffray Inc. believes that its analyses must be considered as a whole and that
the selection of portions of its analyses and of the factors considered by it,
without considering all of the factors and analyses, would create a misleading
view of the processes underlying the opinion.
The analyses of U.S. Bancorp Piper Jaffray Inc. are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by the analyses. Analyses relating to the value
of companies do not purport to be appraisals or valuations or necessarily
reflect the prices at which businesses or securities may actually be sold. No
company or transaction used in any analysis for purposes of comparison is
identical to Worthington or the merger. In addition, in performing its analyses,
U.S. Bancorp Piper Jaffray Inc. made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
parties to the merger and U.S. Bancorp Piper Jaffray Inc. Accordingly, an
analysis of the results of the comparisons is not mathematical; rather, it
involves complex considerations and judgments about differences in the companies
to which Worthington was compared and other factors that could affect the public
trading value of Worthington's common shares. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors and events
beyond the control of the parties to the merger and U.S. Bancorp Piper Jaffray
Inc., neither the parties nor U.S. Bancorp Piper Jaffray Inc. assume
responsibility if future results are materially different from those forecast.
For purposes of its opinion, U.S. Bancorp Piper Jaffray Inc. relied
upon and assumed the accuracy, completeness and fairness of the financial
statements and other information provided to it by Worthington or otherwise made
available to U.S. Bancorp Piper Jaffray Inc. and did not assume responsibility
for the independent verification of that information. With respect to the
financial statement data and other internal financial information (including the
projected financial planning data) provided to U.S. Bancorp Piper Jaffray Inc.
in connection with its review of the financial aspects of the merger, U.S.
Bancorp Piper Jaffray Inc. relied upon the assurances of the management of
Worthington that the information was prepared on a reasonable basis, and, with
respect to the financial planning data, reflected the best currently available
estimates, and that management was not aware of any information or facts that
would make the information provided to U.S. Bancorp Piper Jaffray Inc.
incomplete or misleading.
In arriving at its opinion, U.S. Bancorp Piper Jaffray Inc. was not
requested to perform, did not perform, and was not furnished with any appraisals
or valuations of any specific assets or liabilities of Worthington. U.S. Bancorp
Piper Jaffray Inc. was not requested to opine as to, and its opinion did not
address, the basic business decision to proceed with or effect the merger or to
compare the merger to, or to consider, alternative transactions that may have
been available to Worthington. U.S. Bancorp Piper Jaffray Inc. analyzed
Worthington as a going concern and accordingly expressed no opinion as to its
liquidation value. The opinion is based on information available to U.S. Bancorp
Piper Jaffray Inc. and the facts and circumstances as they existed and were
subject to evaluation on the opinion date. Events occurring after that date
could materially affect the assumptions used in preparing the opinion. U.S.
Bancorp Piper Jaffray Inc.
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<PAGE> 37
has not undertaken and is not obligated to affirm or revise its opinion or
otherwise comment on any events occurring after the date it was given, unless
any "bring-down" fairness opinions are requested by Worthington.
U.S. Bancorp Piper Jaffray Inc., as a customary part of its investment
banking business, evaluates businesses and their securities in connection with
mergers and acquisitions, underwritings and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. The board of directors of Worthington selected U.S. Bancorp Piper
Jaffray Inc. because of its expertise, reputation and familiarity with
Worthington and the food manufacturing and distributing industry in general.
U.S. Bancorp Piper Jaffray Inc. maintains a market in the common shares of
Worthington. In the ordinary course of business, U.S. Bancorp Piper Jaffray Inc.
and its affiliates may actively trade securities of Worthington and Kellogg for
their own accounts or the accounts of their customers and, accordingly, may at
any time hold a long or short position in those securities.
Under the terms of the engagement letter dated August 20, 1999,
Worthington has agreed to pay U.S. Bancorp Piper Jaffray Inc. the following:
- $300,000 upon the delivery of U.S. Bancorp Piper Jaffray Inc.'s
initial fairness opinion (which has already been paid by
Worthington);
- $25,000 upon the delivery of any bring-down fairness opinions; and
- a fee equal to $1,000,000 upon the closing of the merger, less any
amounts paid upon delivery of initial or bring-down fairness
opinions as described above.
The engagement letter also provides that Worthington will reimburse
U.S. Bancorp Piper Jaffray Inc. for its reasonable out-of-pocket expenses,
including fees and disbursements of counsel, and will indemnify U.S. Bancorp
Piper Jaffray Inc. and related parties from and against certain liabilities,
including liabilities under the federal securities laws, arising out of or in
connection with the engagement of U.S. Bancorp Piper Jaffray Inc..
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Worthington's board of directors
that the shareholders vote in favor of the adoption of the merger agreement,
shareholders should be aware that Worthington's executive officers and directors
will receive payments and other benefits as a result of the merger which result
in their having interests in the merger that are different from, or in addition
to, the interests of other shareholders. The board was aware of these interests
and considered them, among other things, in approving the merger agreement.
Agreements with Executive Officers and Other Key Employees. Worthington
has in place change in control severance agreements with each of its seven
executive officers and two of its other key employees. These severance
agreements were entered into on August 25, 1995 (except for the severance
agreements with individuals who began their employment or were promoted to key
positions after such date and who received severance agreements when they began
their employment with Worthington or were promoted). The severance agreements
provide for
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<PAGE> 38
severance and change in control benefits if qualifying terminations of
employment occur after a change in control of Worthington. The merger will
constitute a change in control under these severance agreements. On September
30, 1999, Kellogg entered into written agreements (the "Kellogg Agreements")
with Worthington's seven executives officers and the two other key employees who
are parties to severance agreements with Worthington which will become effective
only upon the completion of the merger and which provide, among other things,
for termination of the existing severance agreements and the payment to these
individuals following the merger of amounts that approximate the payments they
would have received under their severance agreements if they had a qualifying
termination of employment following the merger. The following is a summary of
the terms and conditions of the Kellogg Agreements with Worthington's seven
executive officers:
Agreement with Dale E. Twomley. Dale E. Twomley, Chairman, President
and Chief Executive Officer, will receive the following payments and benefits
under the Kellogg Agreement to which he is a party:
- Payment of $1,043,073 (less applicable taxes and withholdings) to
terminate Mr. Twomley's severance agreement with Worthington. This amount
will be paid on a date of Mr. Twomley's choice in 2000.
- Kellogg will employ Mr. Twomley from the date on which the merger is
effective through December 31, 2000 at an annual salary of $260,040 per
year plus health care, pension and other benefits comparable to those
provided to Mr. Twomley by Worthington prior to the merger.
- If Mr. Twomley remains actively employed by Kellogg through December 31,
2000 and the Natural and Functional Food Division of Kellogg meets or
exceeds its targeted objectives for 2000, which are based upon prescribed
net sales and operating profit figures, Mr. Twomley will receive a bonus
equal to two year's base pay, less applicable taxes and withholdings. If
Mr. Twomley is terminated by Kellogg (other than for willful misconduct)
prior to December 31, 2000, he will still be entitled to receive this
bonus amount if the targeted objectives for 2000 are met or exceeded.
- Subject to his compliance therewith, Mr. Twomley will receive $200,000
(less applicable taxes and withholdings) under a two-year noncompetition
agreement with Kellogg. This amount is payable over two years.
- Upon termination of employment, Mr. Twomley will be entitled to
outplacement services.
Agreement with William T. Kirkwood. William T. Kirkwood, Executive Vice
President and Chief Financial Officer, will receive the following payments and
benefits under the Kellogg Agreement to which he is a party:
- Payment of $592,994 (less applicable taxes and withholdings) to terminate
Mr. Kirkwood's severance agreement with Worthington. This amount will be
paid on a date of Mr. Kirkwood's choice in 2000.
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<PAGE> 39
- Kellogg will employ Mr. Kirkwood from the date on which the merger is
effective through December 31, 2000 at an annual salary of $169,320 plus
health care, pension and other benefits comparable to those provided to
Mr. Kirkwood by Worthington prior to the merger.
- If Mr. Kirkwood remains actively employed by Kellogg through December 31,
2000 and the Natural and Functional Food Division of Kellogg meets or
exceeds its targeted objectives for 2000, which are based upon prescribed
net sales and operating profit figures, Mr. Kirkwood will receive a bonus
equal to one year's base pay, less applicable taxes and withholdings. If
Mr. Kirkwood is terminated by Kellogg (other than for willful misconduct)
prior to December 31, 2000, he will still be entitled to receive this
bonus if the targeted objectives for 2000 are met or exceeded.
- Subject to his compliance therewith, Mr. Kirkwood will receive $100,000
(less applicable taxes and withholdings) under a two-year noncompetition
agreement. This amount is payable over two years.
- Upon termination of employment, Mr. Kirkwood will be entitled to
outplacement services.
Agreement with David W. Ferguson. David W. Ferguson, Vice
President of International Operations, will terminate his employment upon
completion of the merger and will receive the following payments and benefits
under the Kellogg Agreement to which he is a party:
- Payment of $324,627 (less applicable taxes and withholdings) to terminate
Mr. Ferguson's severance agreement with Worthington. This amount will be
paid on a date of Mr. Ferguson's choice in 2000.
- Upon termination of employment, Mr. Ferguson will be entitled to
outplacement services.
Agreement with B. Eugene Fluck. B. Eugene Fluck, Vice
President of Operations, will receive the following payments and benefits under
the Kellogg Agreement to which he is a party:
- Payment of $200,953 (less applicable taxes and withholdings) to terminate
Mr. Fluck's severance agreement with Worthington. This amount will be paid
on a date of Mr. Fluck's choice in 2000.
- Kellogg will employ Mr. Fluck "at will" for an indefinite period at a
starting annual salary of $126,600. If he is actively employed and
performing satisfactorily until 18 months after the date on which the
merger is effective, Mr. Fluck will receive a one-time bonus of 40% of his
base salary. If Mr. Fluck is terminated by Kellogg (other than for willful
misconduct) before the end of the 18-month period, he will still be
entitled to receive this bonus. Mr. Fluck will also be entitled as a
Kellogg employee to customary employee benefits commensurate with his
position.
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<PAGE> 40
Agreement with Ronald L. McDermott. Ronald L. McDermott, Vice
President of Research and Technology, will receive the following payments and
benefits under the Kellogg Agreement to which he is a party:
- Payment of $313,530 (less applicable taxes and withholdings) to
terminate Mr. McDermott's severance agreement with Worthington. This
amount will be paid on a date of Mr. McDermott's choice in 2000.
- Kellogg will employ Mr. McDermott "at will" for an indefinite period at
a starting annual salary of $126,600. If he is actively employed and
performing satisfactorily until 18 months after the date on which the
merger is effective, Mr. McDermott will receive a one-time bonus of 40%
of his base salary. If Mr. McDermott is terminated by Kellogg (other
than for willful misconduct) before the end of the 18-month period, he
will still be entitled to receive this bonus. Mr. McDermott will also
be entitled to receive as a Kellogg employee benefits commensurate with
his position.
Agreement with Jay L. Robertson. Jay L. Robertson, Senior Vice
President of Retail Sales, will receive the following payments and benefits
under the Kellogg Agreement to which he is a party:
- Payment of $373,981 (less applicable taxes and withholdings) to
terminate Mr. Robertson's severance agreement with Worthington. This
amount will be paid on a date of Mr. Robertson's choice in 2000.
- Kellogg will employ Mr. Robertson from the date on which the merger is
effective through June 30, 2000 at an annual salary of $148,200 plus
health care, pension and other benefits comparable to those provided to
Mr. Robertson by Worthington prior to the merger.
- If Mr. Robertson remains actively employed by Kellogg and established
performance criteria are met through June 30, 2000, he will be paid an
additional amount equal to six month's base pay, less applicable taxes
and withholdings. If his employment is terminated by Kellogg (other
than for willful misconduct) prior to June 30, 2000, he will still be
entitled to receive this additional amount.
- Upon termination of his employment, Mr. Robertson will be entitled to
outplacement services.
Agreement with David L. Schwantes. David L. Schwantes, Vice
President of Marketing, will terminate his employment upon completion of the
merger and will receive the following payments and benefits under the Kellogg
Agreement to which he is a party:
- Payment of $186,833 (less applicable taxes and withholdings) to
terminate Mr. Schwantes' severance agreement with Worthington. This
amount will be paid on a date of Mr. Schwantes' choice in 2000.
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<PAGE> 41
- Upon termination of employment, Mr. Schwantes will be entitled to
outplacement services.
Cash-Out of Outstanding Stock Options. Worthington has previously
granted stock options to its employees, including its executive officers, and
its non-employee directors under its stock option plans. Under the merger
agreement, immediately prior to the completion of the merger, each option holder
will be paid an amount in consideration of the cancellation of his outstanding
stock options (whether or not then exercisable) equal to the product of the
excess, if any, of $24 over the exercise price per share of the options, and the
number of common shares subject to the options. Each payment will be made net of
applicable withholding taxes. Prior to the effective time of the merger,
Worthington has agreed to use its reasonable best efforts and otherwise take all
actions reasonably necessary to implement the cash-out of the stock options in
accordance with the merger agreement. It is estimated that a total of
$10,967,000 will be paid to employees (including executive officers) and
directors of Worthington in connection with the cash-out of their outstanding
stock options (prior to reduction for any amounts required to be withheld for
taxes).
The following table shows, for each of the executive officers and
directors of Worthington, the aggregate amount that will be paid to that
individual immediately prior to the effective time of the merger in cancellation
of stock options (whether or not exercisable) held by him on the date of this
proxy statement. It is anticipated that no additional stock options will be
granted to any director, executive officer or other employee of Worthington
prior to the effective time of the merger.
<TABLE>
<CAPTION>
NAME OF EXECUTIVE CASH PAYMENT
OFFICER OR DIRECTOR TITLE/POSITION FOR STOCK OPTIONS
------------------- -------------- -----------------
<S> <C> <C>
Dale E. Twomley Chairman, President, CEO $2,529,000
and Director
David W. Ferguson Vice President of 150,000
International Operations
B. Eugene Fluck Vice President of Operations 350,000
William T. Kirkwood Executive Vice President and 1,278,000
Chief Financial Officer
Ronald L. McDermott Vice President of Research 736,000
and Technology
Jay L. Robertson Senior Vice President 786,000
of Retail Sales
David L. Schwantes Vice President of Marketing 303,000
</TABLE>
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<PAGE> 42
<TABLE>
<S> <C> <C>
Roger D. Blackwell Director 76,000
Emil J. Brolick Director 95,000
Donald G. Orrick Director 76,000
William D. Parker Director 461,000
Francisco J. Perez Director 95,000
David R. Rowe Director 121,000
Donald B. Shackelford Director 95,000
</TABLE>
Bonus Arrangements for 1999. The merger agreement provides that prior
to the merger Worthington will make bonus payments to the Vice Presidents, the
Executive Vice President and the President of Worthington in amounts to be
determined as follows. These bonus payments are the same bonus payments to which
the Vice Presidents, the Executive Vice President and the President would be
entitled if the merger were not occurring. If the merger is completed in 1999,
and as of the merger date Worthington has achieved its sales projections through
the last day of the month immediately preceding that in which the merger date
occurs, then Worthington will pay to each of the Vice Presidents a payment equal
to 20% of his Base Salary Amount, to the Executive Vice President a payment
equal to 30% of his Base Salary Amount and to the President a payment equal to
40% of his Base Salary Amount. If these sales projections are not met, then
Worthington will pay to each of the Vice Presidents, the Executive Vice
President and the President an amount equal to 10% of his Base Salary Amount.
(The "Base Salary Amount" for an individual is the amount of base salary paid to
such individual from January 1, 1999 through the earlier of the effective time
of the merger or December 31, 1999.) If the merger is completed in 2000,
Worthington will make bonus payments to the Vice Presidents, the Executive Vice
President and the President based on whether or not Worthington's sales
projections for the year ended December 31, 1999 were achieved. Worthington's
sales projections on which the bonus payments will be based have been delivered
to Kellogg. This sales-based bonus plan will replace Worthington's regular
incentive program for its officers for 1999. If Worthington achieves its 1999
sales projections, the maximum bonuses payable to the Vice Presidents, the
Executive Vice President and the President of Worthington will be as follows:
<TABLE>
<CAPTION>
NAME OF MAXIMUM
EXECUTIVE OFFICER TITLE BONUS PAYMENT
----------------- ----- -------------
<S> <C> <C>
Dale E. Twomley Chairman, President and CEO $104,000
William T. Kirkwood Executive Vice President and 51,000
Chief Financial Officer
David W. Ferguson Vice President of International 24,000
Operations
</TABLE>
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<PAGE> 43
<TABLE>
<S> <C> <C>
B. Eugene Fluck Vice President of Operations 25,000
Ronald L. McDermott Vice President of Research 25,000
and Technology
Jay L. Robertson Senior Vice President of 30,000
Retail Sales
David L. Schwantes Vice President of Marketing 23,000
</TABLE>
Indemnification and D & O Insurance. After the merger is completed,
Kellogg will cause Worthington to indemnify, advance expenses to and hold
harmless the present and former officers and directors of Worthington and its
subsidiary in respect of acts or omissions occurring prior to the effective time
of the merger to the extent provided under Worthington's or its subsidiary's
charter documents in effect on September 30, 1999.
For a period of six years after the effective time of the merger and
for so long after that period as any claim for insurance coverage previously
asserted has not been fully resolved, Kellogg or Worthington will maintain in
effect the existing policy of directors' and officers' liability insurance
maintained by Worthington on September 30, 1999 (or a policy providing at least
the same coverage and containing terms that are no less advantageous to the
insureds as provided by Worthington's existing policy) with respect to acts or
omissions of existing or former officers and directors of Worthington and its
subsidiary occurring prior to the effective time of the merger provided that
neither Kellogg nor Worthington will be required to pay an annual premium for
this insurance coverage in excess of $150,000 and provided further that, if such
insurance cannot be so maintained or obtained at such cost, Kellogg or
Worthington will maintain or obtain as much of such insurance as can be so
maintained or obtained at a cost of $150,000.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the federal income tax
consequences of the merger to holders of common shares. This discussion is based
on the Internal Revenue Code of 1986, as amended, existing and proposed
regulations thereunder, Internal Revenue Service rulings and pronouncements,
reports of congressional committees, judicial decisions and current
administrative rulings and practice, all as in effect on the date of this proxy
statement. Any change to the foregoing sources could be retroactive and,
accordingly, could modify the tax consequences discussed in this section.
Worthington has not requested a ruling from the IRS with respect to the matters
discussed in this section and there is no assurance that the IRS will agree with
the conclusions set forth in this discussion. In addition, Worthington has not
requested or received a tax opinion with respect to the federal income tax
consequences of the merger.
This discussion does not address all of the federal income tax
consequences that may be relevant to particular shareholders in light of their
personal circumstances or to certain types of shareholders (such as dealers in
securities, corporations, insurance companies, foreign
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<PAGE> 44
individuals and entities, financial institutions and tax-exempt entities) who
may be subject to special treatment under the federal income tax laws. It also
does not address the federal income tax consequences to shareholders who
acquired their common shares through the exercise of employee stock options or
otherwise as compensation. Furthermore, this discussion does not address any tax
consequences under state, local or foreign laws. This summary assumes that
common shares are held as "capital assets" within the meaning of Section 1221 of
the Internal Revenue Code. Under Section 1221, capital assets are those assets
that are generally held for investment.
For federal income tax purposes, an individual who exchanges his or her
common shares for cash pursuant to the merger or who receives cash in exchange
for common shares pursuant to the exercise of dissenters' rights will be treated
as having sold his or her common shares for cash in a taxable transaction. The
shareholder will recognize gain or loss on the exchange in an amount equal to
the difference between the cash received and the holder's adjusted tax basis in
the common shares. The gain or loss will be a capital gain or loss if the holder
of the common shares held them as a capital asset at the effective time of the
merger, and may qualify as long-term capital gain or loss if the holder held the
common shares for more than 12 months at the effective time of the merger. For
certain non-corporate holders of common shares (including individuals), any
long-term capital gain will be taxed at a maximum federal income tax rate of
20%. Short-term capital gain of these individuals will be taxed as ordinary
income. Ordinary income of individuals is currently taxed at a maximum federal
income tax rate of 39.6%. For corporate holders of common shares, long-term
capital gain will continue to be subject to ordinary income tax rates applicable
to corporations.
Holders of common shares or other payees generally will be required to
provide the merger payment agent with their correct taxpayer identification
numbers (certified under penalties of perjury) on the Substitute Forms W-9
included as part of the letters of transmittal sent to shareholders pursuant to
the merger. An individual's taxpayer identification number is his or her social
security number. A holder of common shares or other payee who does not provide
the merger payment agent with a correct taxpayer identification number may be
subject to a $50 fine imposed by the IRS. Furthermore, payments made to a holder
of common shares or other payee may be subject to backup withholding if: (i) a
holder of common shares or other payee fails to furnish a correct taxpayer
identification number, (ii) a holder of common shares or other payee furnishes
an incorrect taxpayer identification number, (iii) Worthington, Kellogg or the
merger payment agent is notified by the IRS that the holder of common shares or
other payee failed to report interest or (iv) under certain circumstances, a
holder of common shares fails to provide a certified statement, signed under
penalty of perjury, that the taxpayer identification number provided is the
correct number and that the holder of the common shares is not subject to backup
withholding.
If backup withholding applies, the merger payment agent will withhold
31% of any payment made to a holder of common shares or other payee. Backup
withholding is not an additional tax but is credited against the federal income
tax liability of the taxpayer subject to the withholding. If backup withholding
results in an overpayment of a taxpayer's federal income taxes, that taxpayer
may obtain a refund from the IRS.
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<PAGE> 45
Generally, a holder of common shares or other payee may avoid backup
withholding by completing the Substitute Form W-9 included as part of the letter
of transmittal and certifying that the taxpayer identification number included
therein is correct and that the holder of common shares or other payee is not
subject to backup withholding. Certain types of taxpayers (including
corporations and certain foreign individuals) are not subject to these reporting
or withholding requirements.
Holders of common shares are urged to consult their tax advisors as to
the particular tax consequences to them of participating in the merger,
including the applicability of any state, local or foreign tax laws, changes in
applicable tax laws and any pending or proposed legislation.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase for financial accounting
purposes under generally accepted accounting principles.
EXISTING RELATIONSHIPS WITH KELLOGG
Except in connection with the merger agreement and the transactions
contemplated thereby, Worthington has never conducted business with nor has it
had any business relationship with Kellogg prior to the transactions described
in the merger agreement. As of the date of this proxy statement, neither Kellogg
nor any of its affiliates owns any common shares.
RIGHTS OF DISSENTING SHAREHOLDERS
The following is a description of the steps you must take to perfect
dissenters' rights with respect to the merger. The description is not intended
to be complete and is qualified in its entirety by reference to Section 1701.85
of the Ohio Revised Code, a copy of which is included as Appendix C to this
proxy statement. We recommend that you consult with your own counsel if you have
questions with respect to your rights under the statute.
"Dissenters' rights" is your right to dissent from the merger and to
have the "fair cash value" of your common shares determined by a court and paid
in cash. The "fair cash value" of a common share is the amount that a willing
seller who is under no compulsion to sell would be willing to accept and that a
willing buyer who is under no compulsion to purchase would be willing to pay.
Fair cash value is determined as of the day prior to the day on which the vote
of the shareholders adopting the merger agreement is taken. When determining
fair cash value, any appreciation or depreciation in market value resulting from
the proposed merger is excluded. In no event can the fair cash value of a common
share exceed the amount specified in the demand of the particular shareholder
discussed in numbered paragraph 3 below.
To perfect dissenters' rights, you must satisfy each of the following
conditions:
1. You Must be a Shareholder of Worthington on the Record Date.
To be entitled to dissenters' rights, you must be the record
holder of the dissenting shares on ____________, 1999. If you
have a beneficial interest in common shares held of record in
the name of any other person for which you desire to perfect
dissenters'
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<PAGE> 46
rights, you must cause the shareholder of record timely and
properly to act to perfect such rights.
2. You Must Not Vote in Favor of Adoption of the Merger
Agreement. Only a shareholder whose common shares are not
voted in favor of adoption of the merger agreement is
entitled, if the merger is completed, to be paid the fair cash
value of the common shares held of record by the shareholder
on ____________, 1999. A vote for adoption of the merger
agreement constitutes a waiver of dissenters' rights.
3. You Must Serve a Written Demand. On or before the tenth day
following the shareholders' vote adopting the merger
agreement, a shareholder who wishes to dissent must serve a
written demand on Worthington for the fair cash value of the
dissenting shares. The written demand must specify the
shareholder's name and address, the number of common shares as
to which relief is sought and the amount claimed by the
shareholder as the fair cash value of the common shares for
which the shareholder is exercising dissenters' rights.
4. You Must Deliver your Certificates for Legending, if Requested
by Worthington. If requested by Worthington, you must submit
your certificates for dissenting shares to Worthington within
fifteen days after Worthington sends its request. Worthington
will then endorse the certificates with a legend that demand
for fair cash value has been made.
5. You Must File a Petition in Court, if You and Worthington
Cannot Agree on the Fair Cash Value of your Dissenting Shares.
If Worthington and any dissenting shareholder cannot agree on
the fair cash value of the dissenting shares, either
Worthington or the shareholder must, within three months after
service of the written demand by the shareholder, file or join
in a petition in the Court of Common Pleas of Franklin County,
Ohio, for a determination of the fair cash value of the
dissenting shares.
If you dissent from the merger, your right to be paid the fair cash
value of your common shares will terminate:
- if, for any reason, the merger is not completed;
- if you fail to serve a timely and appropriate written demand
upon Worthington;
- if you do not, upon request of Worthington, make timely and
appropriate surrender of the certificates evidencing your
dissenting shares for endorsement of a legend that demand for
the fair cash value of such common shares has been made;
- if your demand is withdrawn with the consent of the directors
of Worthington;
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<PAGE> 47
- if Worthington and you have not agreed upon the fair cash
value of your dissenting shares and you have not timely filed
or joined in an appropriate petition in the Court of Common
Pleas of Franklin County, Ohio; or
- if you otherwise fail to comply with the requirements of
Section 1701.85 of the Ohio Revised Code.
TERMS OF THE MERGER AGREEMENT
The following description of the merger agreement does not purport to
be complete and is qualified in its entirety by reference to the merger
agreement, a copy of which is attached as Appendix A to this proxy statement and
is incorporated in this proxy statement by reference.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of the appropriate
certificate of merger with the Secretary of State of the State of Ohio. Assuming
all conditions to the merger contained in the merger agreement are satisfied or,
to the extent susceptible to waiver, waived prior thereto, it is anticipated
that the effective time of the merger will occur on the eleventh calendar day
following the satisfaction or waiver of these conditions. See "--Conditions to
the Merger."
MANNER AND BASIS OF CONVERTING COMMON SHARES
At the effective time of the merger, by virtue of the merger and
without any action on the part of any holder of any capital stock of
Worthington, Kellogg or WF Acquisition Inc., each issued and outstanding common
share of Worthington (other than treasury shares, common shares held by Kellogg,
WF Acquisition Inc. or any other wholly-owned subsidiary of Kellogg, and common
shares held by shareholders of Worthington who have properly exercised
dissenters' rights under Ohio law) will be automatically converted into the
right to receive $24 in cash. All common shares of Worthington will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist. Each holder of a common share certificate will cease to have any rights
with respect thereto, except the right to receive the $24 per share merger
price, upon the surrender of the common share certificate, without interest,
subject to any applicable withholding tax. All common shares that Worthington
owns as treasury shares and any common shares owned by Kellogg, WF Acquisition
Inc. or any other wholly-owned subsidiary of Kellogg will be canceled and
retired. Each issued and outstanding common share of WF Acquisition Inc. will be
automatically converted into and become one fully paid and nonassessable common
share of the surviving corporation in the merger. Each certificate representing
outstanding WF Acquisition Inc. common shares will at the effective time of the
merger represent an equal number of common shares of Worthington as the
surviving corporation. Holders of common shares of Worthington have the right
under Section 1701.85 of the Ohio Revised Code to dissent from the merger. See
"The Merger--Rights of Dissenting Shareholders."
Prior to the effective date of the merger, Kellogg will designate a
bank or trust company to serve as the payment agent for the merger. At the
closing of the merger, Kellogg will deposit with the payment agent, in a
separate fund established for the benefit of the holders of common
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<PAGE> 48
shares, for payment through the payment agent, a sufficient amount of cash to
pay to the holders of common shares the aggregate merger price.
As soon as reasonably practicable after the effective time of the
merger, Worthington, as the surviving corporation in the merger, will instruct
the payment agent to mail to each holder of record of a common share certificate
immediately prior to the effective time of the merger (other than dissenting
shareholders) (i) a form of letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to the common share
certificates will pass, only upon proper delivery of the common share
certificates to the payment agent) and (ii) instructions for use in effecting
the surrender of the common share certificates in exchange for payment of the
merger price. Upon surrender of a common share certificate for cancellation to
the payment agent, together with a duly executed letter of transmittal and the
other documents the payment agent requires, the holder of such share certificate
will be entitled to receive the merger price of $24 per share, and the
surrendered share certificate will be canceled. No interest will be paid or
accrued on the merger price payable upon the surrender of any share certificate.
In order for someone other than the registered holder of the surrendered common
share certificate to receive the payment, the surrendered share certificate must
be properly endorsed or otherwise be in proper form for transfer. In addition,
the person requesting payment must either pay any transfer or other taxes
required by reason of the payment being made to someone other than the
registered holder of the surrendered common share certificate or establish to
the satisfaction of the surviving corporation that such tax has been paid or is
not applicable. From the effective time of the merger until surrendered as
described in this paragraph, each common share certificate (other than
certificates held by dissenting shareholders) will represent only the right to
receive upon surrender the $24 per share merger price.
Following the effective time of the merger, unless otherwise required
by law, no transfer of any common shares will be made. If, after the effective
time of the merger, any common share certificates (other than certificates held
by dissenting shareholders) are presented to the payment agent for transfer,
they will be canceled and exchanged for the $24 per share merger price.
Kellogg is entitled to withhold from the merger price amounts required
to be withheld under the Internal Revenue Code or any provision of state, local
or foreign tax law. To the extent withheld, the withheld amounts will be treated
for all purposes as having been paid to the holder of common shares in respect
of which the deduction and withholding was made by Kellogg.
All funds that the payment agent holds for payment that remain
undistributed to the holders of common shares one year after the effective time
of the merger will be returned to Worthington as the surviving corporation in
the merger. Any holders of unsurrendered common share certificates may then look
only to Worthington, as the surviving corporation, for payment of the merger
price to which they are entitled, subject to applicable law. Kellogg, WF
Acquisition Inc. and Worthington will not be liable to any person for cash
representing the merger price delivered to a public official under any
applicable abandoned property, escheat or similar law.
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STOCK OPTIONS
Immediately prior to the completion of the merger, each outstanding
option to purchase common shares granted under Worthington's 1985 Stock Option
Plan, Amended and Restated 1995 Stock Option Plan and 1993 Stock Option Plan for
Non-Employee Directors, whether or not then exercisable, will be canceled and,
in consideration of such cancellation, Worthington will pay to the option holder
an amount in respect of his or her outstanding options (whether or not then
exercisable) equal to the product of the excess, if any, of $24 per share over
the exercise price of the option and the number of common shares subject to the
option. This payment will be made net of applicable withholding taxes.
Worthington has agreed in the merger agreement to use its reasonable best
efforts and otherwise take all actions reasonably necessary to implement the
cash-out of the stock options as provided in the merger agreement. See "The
Merger--Interests of Certain Persons in the Merger."
OTHER EMPLOYEE BENEFIT PLANS AND RELATED MATTERS
As of the effective time of the merger, Worthington will amend its Tax
Savings and Profit Sharing Plan to eliminate any investment fund comprised of
common shares, prohibit any additional contributions in the form of common
shares and make all participant accounts fully vested and nonforfeitable. In
addition, as of the effective time of the merger, Worthington will amend its
Employee Stock Ownership Plan (the "ESOP") to provide that benefits will be
distributed solely in cash. The merger agreement requires that Kellogg cause the
surviving corporation of the merger to terminate the ESOP within 30 days after
the effective time of the merger and, as soon as administratively practicable
after that date, to take all action needed to liquidate the ESOP by distributing
its assets as provided by the terms of the ESOP.
Kellogg has agreed that, except for employees covered by any collective
bargaining agreement, Kellogg will cause Worthington, as the surviving
corporation in the merger, to cause all employee benefit plans (other than
share-based plans) to remain in effect until the second anniversary of the
effective time of the merger or cause Worthington to maintain until such date
benefit plans which are substantially comparable, in total, to the benefit plans
maintained on the date of the merger agreement.
The merger agreement permits Worthington prior to the effective time of
the merger to make a contribution to its Tax Savings and Profit Sharing Plan in
an amount equal to 3% of each participant's base salary paid from January 1,
1999 through the merger date. Kellogg has agreed in the merger agreement to
provide, or to cause Worthington after the merger to provide, to each salaried
employee who is terminated by Worthington (other than for cause) within six
months of the merger outplacement services.
The merger agreement also provides that Worthington will make bonus
payments to the Vice Presidents, the Executive Vice President and the President
of Worthington based upon whether or not Worthington achieves its sales
projections for 1999. See "Interests of Certain Persons in the Merger--Bonus
Arrangements for 1999."
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CONDITIONS TO THE MERGER
Worthington and Kellogg. The obligation of each party to effect the
merger is subject to the satisfaction of certain conditions, including the
following:
- the merger agreement has been adopted by the requisite vote of
the shareholders of Worthington under the Ohio Revised Code
and Worthington's articles of incorporation;
- the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 has expired or been
terminated;
- no court or other governmental or regulatory authority has
enacted, issued, promulgated, enforced or entered any law or
order which has the effect of making the merger illegal or
otherwise restricting, preventing or prohibiting consummation
of the merger or the other transactions contemplated by the
merger agreement; and
- other than the filing of the appropriate certificate of merger
with the Secretary of State of the State of Ohio, all
consents, approvals and actions of, filings with and notices
to any governmental or regulatory authority or any other
public or private third parties required of Kellogg,
Worthington or any of their respective subsidiaries to
complete the merger and the other matters contemplated by the
merger agreement have been obtained, unless the failure to
obtain such approval or take such action could be reasonably
expected to not have a material adverse effect on Kellogg and
its subsidiaries or the surviving corporation and its
subsidiaries, in each case taken as a whole, or on the ability
of Kellogg and Worthington to consummate the transactions
contemplated by the merger agreement.
Kellogg and WF Acquisition Inc. The obligation of Kellogg and WF
Acquisition Inc. to consummate the merger is subject to the satisfaction or
waiver, where permissible, of the following conditions:
- each representation and warranty made by Worthington in the
merger agreement that is qualified by materiality is true and
correct, and each representation and warranty that is not
qualified by materiality is true and correct in all material
respects, in each case, as of the closing date of the merger
as though made on and as of the closing date or, in the case
of representations and warranties made as of a specified date
earlier than the closing date of the merger, on and as of such
earlier date, and Worthington has delivered to Kellogg a
certificate to such effect;
- Worthington has performed and complied with, in all material
respects, each agreement, covenant and obligation required by
the merger agreement to be performed or complied with by it at
or prior to the closing of the merger, and Worthington has
delivered to Kellogg a certificate to such effect;
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- on or prior to the closing date of the merger, the rights
issued under Worthington's Rights Agreement have not become
exercisable or transferable apart from the associated common
shares, no "Shares Acquisition Date" or "Distribution Date"
(each as defined in the Rights Agreement) has occurred and the
rights have been redeemed in accordance with the terms of the
Rights Agreement;
- the number of Worthington common shares held by persons who
have exercised dissenters' rights under Ohio law does not
exceed 10% of the total number of outstanding common shares;
and
- all proceedings to be taken on the part of Worthington in
connection with the closing of the merger transactions and all
documents incident thereto are reasonably satisfactory to
Kellogg, and Kellogg has received copies of all such documents
as Kellogg may reasonably request.
Worthington. The obligation of Worthington to consummate the merger is
subject to the following conditions:
- each representation and warranty made by Kellogg and WF
Acquisition Inc. in the merger agreement that is qualified by
materiality is true and correct, and each representation and
warranty that is not qualified by materiality is true and
correct in all material respects, in each case, as of the
closing date of the merger as though made on and as of the
closing date or, in the case of representations and warranties
made as of a specified date earlier than the closing date of
the merger, on and as of such earlier date, and Kellogg and WF
Acquisition Inc. have delivered to Worthington a certificate
to such effect;
- Kellogg and WF Acquisition Inc. have performed and complied
with, in all material respects, each agreement, covenant and
obligation required by the merger agreement to be performed or
complied with by them at or prior to the closing of the
merger, and Kellogg and WF Acquisition Inc. have delivered to
Worthington certificates to such effect; and
- all proceedings to be taken on the part of Kellogg and WF
Acquisition Inc. in connection with the closing of the merger
transactions and all documents incident thereto are reasonably
satisfactory to Worthington, and Worthington has received
copies of all such documents as Worthington may reasonably
request.
REPRESENTATIONS AND WARRANTIES
Worthington. The merger agreement contains various representations and
warranties of Worthington concerning the following matters:
- Worthington's due incorporation and qualification, the due
incorporation and qualification of its subsidiary and similar
corporate matters;
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- Worthington's capital structure;
- the authorization, execution, delivery, performance and
enforceability of the merger agreement and related matters;
- the non-contravention of the merger agreement with
Worthington's corporate documents, applicable laws and
contracts;
- regulatory and statutory approvals;
- the reports and financial statements that have been filed with
governmental authorities have complied in all material
respects with all applicable requirements, and did not contain
a material misrepresentation or omission, as of their
respective dates;
- the absence of material adverse changes;
- the absence of undisclosed liabilities;
- legal proceedings of Worthington;
- the information supplied by Worthington for use in this proxy
statement does not contain a material misrepresentation or
omission;
- the permits of Worthington and its compliance with laws and
governmental orders;
- the absence of defaults under Worthington's organizational
documents and material contracts, and information concerning
certain recent material contracts of Worthington;
- the taxes of Worthington and its subsidiary;
- the employee benefit plans of Worthington and its subsidiary
and compliance with certain provisions of the Employee
Retirement Income Security Act of 1974;
- employee and labor matters;
- environmental matters;
- intellectual property rights of Worthington;
- the vote required by the holders of common shares to adopt the
merger agreement;
- the receipt by Worthington of the opinion of U.S. Bancorp
Piper Jaffray Inc. as to the fairness from a financial point
of view of the consideration to be received by Worthington
shareholders in the merger;
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- the non-applicability of Worthington's Rights Agreement to the
merger and the transactions contemplated by the merger
agreement; and
- the Year 2000 compliance of Worthington and its subsidiary.
Kellogg and WF Acquisition Inc. The merger agreement contains various
representations and warranties of Kellogg and WF Acquisition Inc. concerning the
following matters:
- Kellogg's and WF Acquisition Inc.'s due incorporation and
qualification and similar corporate matters;
- the authorization, execution, delivery, performance and
enforceability of the merger agreement and related matters;
- the non-contravention of the merger agreement with Kellogg's
and WF Acquisition Inc.'s corporate documents, applicable laws
and contracts;
- the information supplied by Kellogg or WF Acquisition Inc. for
inclusion in this proxy statement or any other document to be
filed by Kellogg, WF Acquisition Inc. or Worthington does not
include a material misstatement or omission;
- the ownership of Worthington common shares by Kellogg or its
affiliates;
- legal proceedings that could have a material adverse effect on
the ability of Kellogg or WF Acquisition Inc. to consummate
the merger;
- the financing of the merger; and
- the capitalization of WF Acquisition Inc.
SELECTED COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO THE MERGER
Worthington has agreed that, prior to the effective time of the merger,
Worthington will, and will cause its subsidiary to, conduct their respective
businesses only in, and neither Worthington nor its subsidiary will take any
action except in, the ordinary course consistent with past practice. In
addition, Worthington has agreed that Worthington will, and will cause its
subsidiary to, use all commercially reasonable efforts to comply with the
provisions of the merger agreement.
Worthington has also agreed that it and its subsidiary will use all
commercially reasonable efforts to preserve intact in all material respects
their present business organizations and reputation, to keep available the
services of their key officers and employees, to maintain their assets and
properties in good working order and condition, ordinary wear and tear excepted,
to maintain insurance on their tangible assets and businesses in such amounts
and against such risks and losses as are currently in effect, to preserve their
relationships with customers and suppliers and others having significant
business dealings with them, where the preservation of the relationship is in
the best interests of Worthington, and to comply in all material respects with
all laws and orders applicable to them.
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Worthington has also agreed that, without the consent of Kellogg, it
will not, and will not permit its subsidiary to:
- amend any of its corporate charter documents;
- declare or pay any dividends, except that Worthington may
continue the payment of regular quarterly dividends, or
repurchase or redeem any of its shares;
- issue or sell any capital shares or options with respect
thereto, other than as provided in the merger agreement;
- acquire any business or assets, other than as provided in the
merger agreement;
- dispose of any material assets, other than as provided in the
merger agreement;
- permit any material change in any of its pricing, marketing,
purchasing, investment, accounting, financial reporting,
inventory, credit, allowance, tax or other policies, other
than as provided in the merger agreement;
- incur or prepay any material indebtedness, other than as
provided in the merger agreement;
- adopt, amend or terminate any employee benefit plan, other
than as provided in the merger agreement;
- enter into or amend any contract or engage in any new
transaction with any affiliate, except as required by law or
in the ordinary course of business consistent with past
practice or on an arm's length basis;
- make any capital expenditures or commitments for additions to
plant, property or equipment constituting capital assets in
excess of budgeted amounts, other than as provided in the
merger agreement;
- make any change in its lines of business; or
- enter into any contract, commitment or arrangement to do or
engage in any of the foregoing, other than as provided in the
merger agreement.
Kellogg has agreed that Worthington may transfer as a charitable
contribution to the Worthington Foods Foundation on the date of closing of the
merger the amount of $150,000 and a house located adjacent to Worthington's
executive offices in Worthington, Ohio. The house is estimated to have a fair
market value of $260,000. These transfers will satisfy charitable commitments
made by Worthington to the Worthington Foods Foundation prior to the
commencement of merger discussions between Kellogg and Worthington. The
Worthington Foods Foundation is a private foundation which was organized in 1989
to provide funding to charitable causes including programs intended to promote
good health. The trustees of the Worthington Foods Foundation include Dale E.
Twomley, the Chairman, President and Chief
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Executive Officer of Worthington, Allan R. Buller, a former director and officer
of Worthington, and George T. Harding, IV, M.D., a former director and officer
of Worthington.
NO SOLICITATION
Worthington has agreed that neither it, its subsidiary nor any of its
representatives will initiate, solicit or encourage, directly or indirectly, any
inquiries, or make or implement any proposal or offer (including any proposal or
offer to its shareholders) with respect to a merger, consolidation or other
business combination including Worthington or its subsidiary or any acquisition
or similar transaction (including a tender or exchange offer but excluding the
transactions contemplated by the merger agreement) involving the purchase of (i)
all or any significant portion of the assets of Worthington and its subsidiary
taken as a whole, (ii) 5% or more of the outstanding common shares or (iii) 5%
of the outstanding shares of the capital stock of the subsidiary of Worthington
(each referred to in the merger agreement as an Alternative Proposal). In
addition, they will not engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person or
group relating to an Alternative Proposal (excluding the transactions
contemplated by the merger agreement), or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal.
In addition, Worthington has agreed that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties with respect to any of the foregoing, and it will take the necessary
steps to inform such parties of these obligations. Worthington has also agreed
to notify Kellogg immediately if Worthington receives any such inquiries,
proposals or offers, requests for any such confidential information, or requests
to initiate or continue any such negotiations or discussions.
The merger agreement provides, however, that prior to Worthington
shareholders' adoption of the merger agreement, Worthington's board of directors
may furnish information to (but only pursuant to a confidentiality agreement in
customary form) or enter into discussions or negotiations with any person or
group that makes an unsolicited bona fide Alternative Proposal, if, and only to
the extent that:
- the board, based on advice from outside counsel, determines in
good faith that such action is required for it to comply with
its fiduciary duties to shareholders imposed by law;
- the board has reasonably concluded in good faith, after
consultation with its financial advisor, that
- if the Alternative Proposal contains cash
consideration, the person or group making the
Alternative Proposal will have adequate sources of
financing to consummate the Alternative Proposal,
- the Alternative Proposal is more favorable to
Worthington's shareholders than the merger with
Kellogg, and
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- the board of directors receives a written opinion
from a nationally-recognized investment banking firm
to the effect that the proposed consideration in the
Alternative Proposal is fair, from a financial point
of view, to the shareholders of Worthington.
- prior to furnishing such information to, or entering into
discussions or negotiations with, such person or group,
Worthington provides written notice to Kellogg to the effect
that Worthington is furnishing information to, or entering
into discussions or negotiations with, another person or
group, which notice will identify the other person or group in
reasonable detail; and
- Worthington keeps Kellogg reasonably informed of the status
and substance of any such discussions or negotiations.
In addition, the board of directors may, to the extent required, comply with
Rule 14e-2 under the Securities Exchange Act of 1934 with regard to an
Alternative Proposal.
The foregoing, however, does not (i) permit Worthington to terminate
the merger agreement (except as otherwise specifically provided in the merger
agreement), (ii) permit Worthington to enter into any agreement with respect to
an Alternative Proposal for so long as the merger agreement remains in effect,
or (iii) affect any other obligation of Worthington under the merger agreement.
Worthington has also agreed that neither Worthington nor its subsidiary
will terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party. Worthington will also enforce, to
the fullest extent possible under applicable law, the provisions of any such
agreement.
RIGHTS AGREEMENT
Prior to the effective time of the merger, without the prior written
consent of Kellogg, Worthington may not amend its Rights Agreement. In addition,
except to the extent required by applicable law or to the extent that
Worthington's board of directors, based on advice from outside counsel,
determines in good faith that such action is required for the board to comply
with its fiduciary duties to shareholders imposed by law, prior to the effective
time of the merger, without the prior written consent of Kellogg, Worthington is
prohibited from taking any action with respect to, or make any determination
under, or amend Worthington's Rights Agreement. The merger agreement requires
that Worthington redeem its rights immediately prior to the effective time of
the merger. The merger agreement also provides that in the event that, following
the making of an Alternative Proposal, Worthington takes any action with respect
to the Rights Agreement which has the effect of facilitating the completion of
the Alternative Proposal or permits the Rights outstanding under the Rights
Agreement to separate from the common shares in connection with the Alternative
Proposal, then Worthington will be obligated to pay to Kellogg, by wire transfer
of funds within two business days following the date of completion of the
Alternative Proposal, the sum of $12.5 million plus expense reimbursement in an
amount not to exceed $500,000.
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On September 30, 1999, Worthington amended the Rights Agreement,
pursuant to a First Amendment to Rights Agreement between Worthington and
National City Bank, as Rights Agent, to make the provisions of the Rights
Agreement inapplicable to the merger and the merger agreement.
Prior to the effective time of the merger, the board of directors of
Worthington intends to redeem all outstanding Rights issued pursuant to the
Rights Agreement for a redemption price of $.0045 per Right. Presently, each
outstanding common share is accompanied by one Right.
SELECTED POST-MERGER MATTERS
Once the merger is consummated:
- WF Acquisition Inc. will cease to exist as a corporation, and
Worthington, as the surviving corporation of the merger, will
succeed to all of the assets, rights and obligations of WF
Acquisition Inc.;
- the articles of incorporation of WF Acquisition Inc. in effect
immediately prior to the effective time of the merger as
amended to change the corporate name to "Worthington Foods,
Inc.," will be the articles of incorporation of Worthington,
as the surviving corporation of the merger, until duly
amended;
- the code of regulations of WF Acquisition Inc. in effect
immediately prior to the effective time of the merger will be
the code of regulations of Worthington, as the surviving
corporation of the merger, until duly amended;
- the individuals who are directors of WF Acquisition Inc.
immediately prior to the effective time of the merger will
comprise the full board of directors of Worthington, as the
surviving corporation, until the earlier of their death,
resignation or removal or until their respective successors
are duly elected and qualified; and
- the individuals who are officers of WF Acquisition Inc.
immediately prior to the effective time of the merger will be
the initial officers of Worthington, as the surviving
corporation, until the earlier of their death, resignation or
removal or until their respective successors are duly elected
and qualified.
ADDITIONAL AGREEMENTS IN THE MERGER AGREEMENT
The merger agreement provides for the following additional agreements:
- Worthington and its subsidiary will provide Kellogg access to
certain information concerning Worthington and its subsidiary
through the effective time of the merger;
- Worthington is required to prepare and file this proxy
statement and use its best efforts to have it cleared by the
SEC;
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- Worthington is required to hold the special meeting, recommend
the adoption of the merger agreement and use its best efforts
to obtain the adoption of the merger agreement;
- Worthington, Kellogg and WF Acquisition Inc. are required to
obtain all consents and make all necessary filings with
governmental and regulatory authorities required to consummate
the merger, including under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and to provide all necessary
information to such governmental and regulatory authorities;
- Kellogg is required to maintain Worthington's employee benefit
plans for its salaried employees (other than Worthington's
stock option plans) in effect as of the date of the merger
agreement for two years or, to the extent that a Worthington
employee benefit plan is not so continued, maintain until such
date benefit plans which are no less favorable, in the
aggregate, to the employees covered by Worthington's employee
benefit plans on the date of the merger agreement;
- The surviving corporation is required to indemnify the
directors and officers of Worthington and its subsidiary after
the effective time of the merger and to continue certain
director and officer liability insurance policies for six
years after the effective time of the merger (see "The
Merger--Interests of Certain Persons in the Merger");
- Except with respect to the termination of the merger
agreement, all costs and expenses incurred in connection with
the merger agreement are to be paid by the party incurring
such cost or expense. Kellogg will pay the filing fee in
connection with the filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (see
"--Termination of the Merger Agreement");
- Each party represented that no third person is entitled to any
broker's or finder's fee or other commission, except U.S.
Bancorp Piper Jaffray Inc.;
- To the extent that any anti-takeover statute becomes
applicable to the merger, Worthington and Worthington's board
of directors will take any necessary actions so that the
merger may be consummated as promptly as practicable and to
minimize the effect of such anti-takeover statute;
- Worthington and Kellogg will cooperate in the preparation,
execution and filing of tax returns and other tax documents
with respect to taxes which become payable as a result of the
merger that are required to be filed prior to or at the
effective time of the merger;
- Prior to the effective time of the merger, WF Acquisition Inc.
will not conduct any business or make any investments other
than as specifically contemplated by the merger agreement and
will not have any assets (other than a de minimus amount of
cash paid to WF Acquisition Inc. for the issuance of its
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stock to Kellogg) or any material liabilities. Kellogg will
take all actions necessary to cause WF Acquisition Inc. to
perform its obligations under the merger agreement and to
consummate the merger on the terms and conditions set forth in
the merger agreement;
- Kellogg has agreed that if it should decide following the
completion of the merger to discontinue or cause the
discontinuance of the manufacture and sale to Seventh-day
Organizations of a line of at least ten different vegetarian
products under the Loma Linda trademark, containing no meat or
animal-derivatives and free from black pepper or other strong
spices, it will give written notice of such decision to the
General Conference Corporation of Seventh-day Adventists and
offer to sell ownership of the Loma Linda trademark to the
General Conference Corporation of Seventh-day Adventists for a
purchase price of $1.00. Additionally, if for any reason,
Kellogg and its affiliates decide to discontinue the use of
the Loma Linda trademark, Kellogg will offer to sell such
trademark to the General Conference Corporation of Seventh-day
Adventists for $1.00. Seventh-day Adventist Organizations
refers to schools, hospitals, churches, retail food stores and
other organizations, entities and institutions sponsored by or
affiliated with the Seventh-day Adventist Church; and
- Each party will provide notice of and use its best efforts to
cure any event that causes or will cause any breach of any
covenant, representation or warranty in the merger agreement,
and each party will promptly advise the other parties of any
event that could have a material adverse effect on the ability
of any party to consummate the merger.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the
effective time of the merger:
- by mutual written agreement of Kellogg and Worthington;
- by either Kellogg or Worthington if the merger has not been
consummated by March 31, 2000 (provided that the right to
terminate will not be available to any party whose breach of
any obligation under the merger agreement has been the cause
of the failure of the merger to be consummated by March 31,
2000);
- by either party if the merger agreement is not adopted by
Worthington's shareholders;
- by either party if there has been a material breach of the
other party that is not curable or, if curable, has not been
cured within 30 days following notice;
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- by either party if any court or other governmental or
regulatory authority issues a final order making the merger
illegal or otherwise restricting, preventing or prohibiting
the merger;
- by Worthington if Worthington's board of directors determines
in good faith, based on advice from outside counsel, that
termination of the merger agreement is required for the board
to comply with its fiduciary duties to shareholders imposed by
law by reason of an unsolicited Alternative Proposal so long
as the Alternative Proposal is not conditioned on the receipt
of financing and other requirements are satisfied; or
- by Kellogg if Worthington's board of directors withdraws its
approval or recommendation of the merger agreement or merger,
modifies its approval or recommendation in a manner adverse to
Kellogg, recommends an Alternative Proposal to Worthington's
shareholders or fails to reconfirm its recommendation of the
merger agreement and merger following the written request of
Kellogg.
If the merger agreement is terminated by either Worthington or Kellogg,
the merger agreement will become void and there will be no liability or
obligation on the part of Worthington or Kellogg or their respective
representatives or affiliates, except (i) that certain provisions (such as
confidentiality, payment of the brokers' fees and applicable termination fees
and expenses, and the enforcement of remedies) will continue to apply following
such termination, and (ii) that no such termination will relieve any party from
liability for any willful breach thereof.
Subject to applicable law, the merger agreement may be amended,
modified or supplemented only by action taken by or on behalf of the respective
boards of directors of Worthington, Kellogg and WF Acquisition Inc. at any time
prior to the effective time of the merger, whether prior to or after the
requisite approval of Worthington's shareholders has been obtained.
TERMINATION FEES AND EXPENSES
Worthington will be required to pay Kellogg a termination fee of $12.5
million, plus merger expenses of up to $500,000, if any person or group has made
an Alternative Proposal and the merger agreement is terminated:
- by Worthington because Worthington's board of directors has
determined in good faith, based on advice of outside counsel,
that termination of the merger agreement is required for the
board to comply with its fiduciary duties to shareholders
imposed by law by reason of an unsolicited Alternative
Proposal and all other conditions to Worthington's right to
terminate have been satisfied;
- by Kellogg because Worthington's board of directors has
withdrawn its approval or recommendation of the merger
agreement or the merger, modified
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its approval or recommendation in a manner adverse to Kellogg,
recommends an Alternative Proposal to Worthington's
shareholders or fails to reconfirm its recommendation of the
merger agreement and merger following the written request of
Kellogg;
- by either party because an Alternative Proposal has been made
and thereafter the merger agreement is not adopted by
Worthington's shareholders, and an agreement with respect to
the Alternative Proposal is executed within one year of the
termination of the merger agreement;
- by either party because an Alternative Proposal has been made
and thereafter the merger is not consummated by March 31,
2000, and an agreement with respect to the Alternative
Proposal is executed within one year of the termination of the
merger agreement; or
- by Kellogg because an Alternative Proposal is made and
thereafter the merger agreement is terminated for any other
reason (other than by reason of a breach by Kellogg or WF
Acquisition Inc.) and an agreement with respect to the
Alternative Proposal is executed within one year of the
termination of the merger agreement.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the
merger may not be consummated until (a) notifications have been given, and
required information has been furnished, to the Federal Trade Commission and the
Antitrust Division of the Department of Justice and (b) specified waiting period
requirements have been satisfied. In October, 1999, Worthington and Kellogg
filed the requisite pre-merger filings with these government authorities. [On
November ___, 1999, the Federal Trade Commission and The Antitrust Division of
the U.S. Department of Justice granted early termination of the waiting period
before the merger can be completed under the Hart-Scott-Rodino Antitrust
Improvements Act.
[Add the following if appropriate -- Even though early termination of
the waiting period has been granted, the Federal Trade Commission, the Antitrust
Division or others could take action under the antitrust laws to challenge the
merger, including to enjoin the merger. The obligations of Worthington and
Kellogg to complete the merger are subject to the condition that there is no
final court order or action by a governmental or regulatory authority to
restrict, prevent or prohibit consummation of the merger.]
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF WORTHINGTON
The following table sets forth information regarding the beneficial
ownership of common shares as of _______________, 1999 for each person known by
Worthington to beneficially own more than 5% of the outstanding common shares of
Worthington.
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
---------------- -------------------- ---------
<S> <C> <C>
Archer-Daniels-Midland Company 716,950(2) 5.8%
4666 Faries Parkway
Decatur, Illinois 62525
Fifth Third Bank 741,820(3) 6.0
P.O. Box 182026
Columbus, Ohio 43215
</TABLE>
(1) The percent of class is based upon 12,385,576 common shares
outstanding on ____________, 1999.
(2) Based on information contained in a Schedule 13D filed by
Archer-Daniels- Midland Company ("ADM") with the SEC on April
7, 1999. ADM reported that it has sole voting and dispositive
power with respect to all of the common shares of Worthington
owned by it.
(3) Includes 741,820 common shares held by the Worthington Foods,
Inc. Employee Stock Ownership Plan (the "ESOP"). Fifth Third
Bank, as trustee, has sole dispositive power and the
compensation committee of the board of directors of
Worthington has sole investment power with respect to the
common shares held by the ESOP and each participant in the
ESOP has sole voting power with respect to the common shares
held by the ESOP which are allocated to such participant's
account in the ESOP. Included are an aggregate of 88,395
common shares held in the ESOP for the accounts of executive
officers of Worthington as to which such executive officers
have sole voting power but no investment/dispositive power.
The following table sets forth information regarding the beneficial
ownership of common shares as of __________, 1999 for (i) each executive officer
of Worthington, (ii) each director of Worthington, (iii) all executive officers
of Worthington as a group and (iv) all executive officers and directors of
Worthington as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS (2)
- ------------------------ ----------------------- ----------
<S> <C> <C>
Dale E. Twomley (3)(4)............................ 309,932 (5)(6) 2.5%
David W. Ferguson (4)............................. 5,000 (5) (8)
B. Eugene Fluck (4)............................... 57,700 (5) (8)
William T. Kirkwood (4)........................... 126,186 (5)(7) 1.0%
Ronald L. McDermott (4)........................... 70,747 (5) (8)
Jay L. Robertson (4).............................. 108,129 (5)(9) (8)
David L. Schwantes (4)............................ 29,600 (5)(10) (8)
Roger D. Blackwell (3)............................ 34,442 (5)(10) (8)
</TABLE>
59
<PAGE> 63
<TABLE>
<S> <C> <C>
Emil J. Brolick (3)............................... 7,332 (5) (8)
Donald G. Orrick (3).............................. 214,441 (5)(11) 1.7%
William D. Parker (3)............................. 23,998 (5) (8)
Francisco J. Perez (3)............................ 9,366 (5) (8)
David R. Rowe (3)................................. -0- (5) (8)
Donald B. Shackelford (3)......................... 55,332 (5) (8)
All executive officers
as a group (7 individuals).................... 707,294 (5) 5.6%
All executive officers
and directors as a group
(12 individuals) (12)......................... 1,052,205 (5) 8.3%
</TABLE>
- ------------------------
(1) Unless otherwise noted, the beneficial owner has sole voting,
investment and dispositive power with respect to all of the common
shares shown to be owned by such person in the table.
(2) The percent of class is based upon 12,385,576 common shares outstanding
on ____________, 1999, plus the number of common shares, if any, as to
which the named person has the right to acquire beneficial ownership
upon the exercise of stock options which are presently exercisable or
which will become exercisable within 60 days of ____________, 1999.
(3) Director of the Company.
(4) Executive officer of the Company.
(5) The common share ownership information for Messrs. Twomley, Ferguson,
Fluck, Kirkwood, McDermott, Robertson and Schwantes and for all
executive officers as a group includes 24,186; -0-; 19,060; 20,407;
5,366; 10,923; 8,453 and 88,395 common shares, respectively, held for
the accounts of such persons in the ESOP as to which common shares such
persons have sole voting power but no investment power. The common
share ownership for Messrs. Twomley, Ferguson, Fluck, Kirkwood,
McDermott, Robertson and Schwantes and all executive officers as a
group includes 135,556; 5,000; 12,888; 69,720; 41,777; 44,277; 7,554
and 316,772 common shares, respectively, that are subject to stock
options which are presently exercisable or which will become
exercisable within 60 days following ____________, 1999. The common
share ownership for each of Messrs. Blackwell, Brolick, Orrick, Parker,
Perez, Rowe and Shackelford includes 3,333; 6,666; 3,333; 22,221;
6,666; -0- and 6,666 common shares, respectively, that are subject to
stock options that are exercisable or which will become exercisable
within 60 days following _______________, 1999.
(6) Includes 47,829 common shares held by Mr. Twomley's spouse as to which
she has sole voting and investment/dispositive power and as to which
Mr. Twomley disclaims beneficial ownership. Also includes 2,444 common
shares held in an IRA trust for the benefit of Mr. Twomley as to which
Mr. Twomley has sole voting and
60
<PAGE> 64
investment/dispositive power. Also includes 4,442 common shares held by
Mr. Twomley's children.
(7) Includes 1,000 common shares held by Mr. Kirkwood's spouse as to which
she has sole voting and investment/dispositive power and as to which
Mr. Kirkwood disclaims beneficial ownership. Also includes 218 common
shares held by Mr. Kirkwood's step-children as to which Mr. Kirkwood
disclaims beneficial ownership.
(8) Reflects ownership of less than 1% of the outstanding common shares of
the Company.
(9) Includes 30,394 common shares held jointly by Mr. Robertson and his
spouse as to which Mr. Robertson shares voting and
investment/dispositive power.
(10) Includes 20,888 common shares held in an IRA trust for the benefit of
Mr. Blackwell as to which Mr. Blackwell has sole voting and
investment/dispositive power.
(11) Includes 2,621 common shares held by Dr. Orrick's spouse as to which
she has sole voting and investment/dispositive power and as to which
Dr. Orrick disclaims beneficial ownership. Also includes 186,266 common
shares held in an IRA trust for the benefit of Dr. Orrick as to which
Dr. Orrick has sole voting and investment/dispositive power.
(12) The share ownership information in the preceding table includes common
shares which the named persons have the right to acquire upon the
exercise of stock options which are presently exercisable or which will
become exercisable within 60 days of ____________, 1999. Pursuant to
the merger, individuals who hold stock options issued by Worthington,
whether or not then exercisable, will receive a cash payment
immediately prior to the effective time of the merger in an amount
equal to the product of (i) the excess, if any, of the $24 merger price
over the per share exercise price of the stock option and (ii) the
number of common shares subject to the stock option. The total amount
of the payments to be received by the executive officers and directors
in cancellation of their stock options as a result of the merger is set
forth on page ___ of this proxy statement. The following table shows
the stock options held by the executive officers and directors of
Worthington which are not presently exercisable and which will not
become exercisable by their terms within 60 days of ____________, 1999,
and which are not reflected in the preceding table, but which will be
cancelled for a cash payment pursuant to the merger as described above.
<TABLE>
<CAPTION>
COMMON SHARES UNDERLYING
NAME OF OPTIONHOLDER STOCK OPTIONS WHICH HAVE NOT VESTED
-------------------- -----------------------------------
<S> <C>
Dale E. Twomley 20,000
David W. Ferguson 15,000
B. Eugene Fluck 18,000
William T. Kirkwood 13,334
Ronald L. McDermott 8,000
Jay L. Robertson 8,000
</TABLE>
61
<PAGE> 65
<TABLE>
<S> <C>
David L. Schwantes 19,667
Roger D. Blackwell 6,667
Emil J. Brolick 3,334
Donald G. Orrick 6,667
William D. Parker 10,000
Francisco J. Perez 3,334
David R. Rowe 10,000
Donald B. Shackelford 3,334
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
Since 1989, Ernst & Young LLP has served as Worthington's independent
public accountants. Worthington's board of directors expects that one or more
representatives of Ernst & Young LLP will attend the special meeting, will have
the opportunity to make statements at the special meeting if they so desire to
do so and are expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
In order for proposals of shareholders intended to be presented at the
annual meeting of shareholders to be held in 2000 (if the merger is not
consummated prior to such time) to be considered for inclusion in Worthington's
proxy statement and form of proxy relating to that meeting, such proposals must
be received at Worthington's executive offices on or before November 16, 1999.
The SEC has promulgated rules related to the exercise of discretionary
voting authority pursuant to proxies solicited by Worthington's board of
directors. If a shareholder intends to submit a proposal at the 2000 annual
meeting of shareholders and does not notify Worthington of the proposal by
January 30, 2000, the proxies solicited by Worthington's board of directors for
use at the 2000 annual meeting may be voted on the proposal without discussion
of the proposal in Worthington's proxy statement for that annual meeting.
In each case, written notice must be given to the Secretary of
Worthington, whose name and address are Ronald L. McDermott, Secretary,
Worthington Foods, Inc., 900 Proprietors Road, Worthington, Ohio 43085.
WHERE YOU CAN FIND MORE INFORMATION
Worthington files annual, quarterly and special reports, proxy
statements and other information with the SEC under the Securities Exchange Act
of 1934. You may read and copy any reports, statements or other information
Worthington files at the SEC's public reference rooms at 450 Fifth Street, N.W.,
Room 1024, Washington, DC 20549; 7 World Trade Center, Suite 1300, New York, New
York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60061.
62
<PAGE> 66
You may obtain information on the operation of the SEC's public
reference rooms by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website that contains reports, proxy
statements and other information regarding issuers, like Worthington, that file
electronically with the SEC. The address of that site is http://www.sec.gov.
The SEC allows Worthington to "incorporate by reference" information
into this proxy statement. This means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this proxy
statement, except for any information that is superseded by information that is
included directly in this proxy statement.
This proxy statement incorporates by reference the documents listed
below that Worthington has previously filed with the SEC. They contain important
information about Worthington and its financial condition.
<TABLE>
<CAPTION>
WORTHINGTON SEC FILINGS (FILE NO. 0-19887) PERIOD
- ------------------------------------------ ------
<S> <C>
Annual Report on Form 10-K............................. Year ended December 31, 1998, as filed
March 31, 1999
Quarterly Report on Form 10-Q.......................... Quarter ended April 2, 1999, as filed May 14,
1999
Quarterly Report on Form 10-Q.......................... Quarter ended July 2, 1999, as filed August 13,
1999
Current Report on Form 8-K............................. Filed October 5, 1999
</TABLE>
Worthington also incorporates by reference additional documents that it
may file with the SEC between the date of this proxy statement and the date of
the special meeting. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
proxy statement through Worthington or from the SEC through the SEC's website at
the address described above. Documents incorporated by reference are available
from Worthington without charge, excluding any exhibits to those documents,
unless the exhibit is specifically incorporated by reference into the
information which this proxy statement incorporates. You can obtain documents
incorporated by reference in this proxy statement by requesting them in writing
or by telephone from Worthington at the following address:
63
<PAGE> 67
Ms. Joan M. Lieb
Assistant Secretary
Worthington Foods, Inc.
900 Proprietors Road
Worthington, Ohio 43085
Telephone (614) 885-9511
If you would like to request documents, please do so by ______________,
1999 to receive them before the special meeting. If you request any incorporated
documents from Worthington, Worthington will mail them to you by first class
mail, or another equally prompt means, within one business day after Worthington
receives your request.
We have not authorized anyone to give any information or to make any
representation about the merger or Worthington that is different from, or in
addition to, that contained in this proxy statement or in any of the materials
that Worthington has incorporated into this proxy statement. Therefore, if
anyone gives you information of this sort, you should not rely upon it. The
information contained in this proxy statement speaks only as of the date of this
proxy statement unless the information specifically indicates that another date
applies.
By Order of the Board of Directors
Ronald L. McDermott, Secretary
64
<PAGE> 68
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995:
- Certain statements, including possible or assumed future
results of operations of Worthington, contained in "The
Merger--Background," "The Merger--Worthington's Reasons for
the Merger; Recommendation of the Board" and "The
Merger--Opinion of Financial Advisor to Worthington,"
including any forecasts, projections and descriptions of
anticipated cost savings referred to therein, and certain
statements incorporated by reference from documents filed with
the SEC by Worthington and any statements contained in this
proxy statement or these other documents regarding future cash
flows, future business prospects, revenues, working capital,
liquidity, capital needs, interest costs, income or the
effects of the merger;
- any statements preceded by, followed by or that include the
words "believes," "expects," "anticipates," "intends,"
"estimates," "projects" or similar expressions; and
- other statements contained or incorporated by reference in
this proxy statement regarding matters that are not historical
facts.
Because these forward-looking statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by the statements. Shareholders are cautioned not to place undue
reliance on these statements, which speak only as of the date of this proxy
statement.
Among the factors that could cause actual results to defer materially
are changes in general economic conditions; fluctuation in interest rates;
increases in raw material costs; level of competition; market acceptance of new
and existing products; capital expenditure amounts; uninsured product liability;
the effective detection and remediation of Year 2000 issues by Worthington and
its key third-party vendors, suppliers and customers; and other risks detailed
from time to time in the reports filed by Worthington with the SEC.
The cautionary statements contained or referred to in this proxy
statement should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by Worthington or persons acting
on its behalf. Except for its ongoing obligations to disclose material
information as required by the federal securities laws, Worthington undertakes
no obligation to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date of this proxy
statement or to reflect the occurrence of unanticipated events.
65
<PAGE> 69
APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated as of September 30, 1999
by and among
KELLOGG COMPANY,
WF ACQUISITION INC.
and
WORTHINGTON FOODS, INC.
<PAGE> 70
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to
which it is attached but is inserted for convenience only.
<TABLE>
<CAPTION>
Page
No.
---
<S> <C> <C>
ARTICLE I THE MERGER............................................................................1
1.01 The Merger......................................................................1
1.02 Closing.........................................................................1
1.03 Effective Time..................................................................1
1.04 Articles of Incorporation and Code of Regulations of the Surviving Corporation..2
1.05 Directors and Officers of the Surviving Corporation.............................2
1.06 Effects of the Merger...........................................................2
1.07 Further Assurances..............................................................2
ARTICLE II CONVERSION OF SHARES.................................................................2
2.01 Conversion of Capital Shares....................................................2
2.02 Exchange of Certificates........................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................6
3.01 Organization and Qualification..................................................6
3.02 Capitalization..................................................................6
3.03 Authority Relative to this Agreement............................................7
3.04 Non-Contravention; Approvals and Consents.......................................8
3.05 SEC Reports and Financial Statements............................................9
3.06 Absence of Certain Changes or Events............................................9
3.07 Absence of Undisclosed Liabilities.............................................10
3.08 Legal Proceedings..............................................................10
3.09 Information Supplied...........................................................10
3.10 Permits; Compliance with Laws and Orders.......................................11
3.11 Compliance with Agreements; Certain Agreements.................................11
3.12 Taxes..........................................................................12
3.13 Employee Benefit Plans; ERISA..................................................13
3.14 Labor Matters..................................................................16
3.15 Environmental Matters..........................................................16
3.16 Intellectual Property Rights...................................................18
3.17 Year 2000......................................................................18
3.18 Vote Required..................................................................18
3.19 Opinion of Financial Advisor...................................................18
</TABLE>
-i-
<PAGE> 71
<TABLE>
<CAPTION>
Page
No.
---
<S> <C> <C>
3.20 Company Rights Agreement.......................................................19
3.21 Anti-takeover Statutes Not Applicable..........................................19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB....................................19
4.01 Organization and Qualification.................................................19
4.02 Authority Relative to this Agreement...........................................19
4.03 Non-Contravention; Approvals and Consents......................................20
4.04 Information Supplied...........................................................20
4.05 Ownership of Company Common Shares.............................................21
4.06 Legal Proceedings..............................................................21
4.07 Capitalization of Sub..........................................................21
4.08 Financing......................................................................21
ARTICLE V COVENANTS OF THE COMPANY..............................................................21
5.01 Covenants of the Company.......................................................21
5.02 No Solicitations...............................................................24
5.03 Company Rights Agreement.......................................................25
5.04 Third Party Standstill Agreements..............................................26
ARTICLE VI ADDITIONAL AGREEMENTS................................................................26
6.01 Access to Information; Confidentiality.........................................26
6.02 Preparation of Proxy Statement.................................................26
6.03 Approval of Shareholders.......................................................27
6.04 Regulatory and Other Approvals.................................................27
6.05 Employee Matters...............................................................28
6.06 Indemnification; Directors' and Officers' Insurance............................29
6.07 Expenses.......................................................................30
6.08 Sub............................................................................30
6.09 Brokers or Finders.............................................................30
6.10 Takeover Statutes..............................................................30
6.11 Conveyance Taxes...............................................................31
6.12 Covenant to Continue Manufacture of Food Products..............................31
6.13 Notice and Cure................................................................31
6.14 Fulfillment of Conditions......................................................31
ARTICLE VII CONDITIONS..........................................................................32
7.01 Conditions to Each Party's Obligation to Effect the Merger.....................32
7.02 Conditions to Obligation of Parent and Sub to Effect the Merger................32
7.03 Conditions to Obligation of the Company to Effect the Merger...................33
</TABLE>
-ii-
<PAGE> 72
<TABLE>
<CAPTION>
Page
No.
---
<S> <C> <C>
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................34
8.01 Termination....................................................................34
8.02 Effect of Termination..........................................................35
8.03 Amendment......................................................................36
8.04 Waiver.........................................................................36
ARTICLE IX GENERAL PROVISIONS..................................................................36
9.01 Survival of Representations, Warranties, Covenants and Agreements..............36
9.02 Notices........................................................................37
9.03 Entire Agreement; Incorporation of Exhibits....................................38
9.04 Public Announcements...........................................................38
9.05 No Third Party Beneficiary.....................................................38
9.06 No Assignment; Binding Effect..................................................38
9.07 Headings.......................................................................38
9.08 Invalid Provisions.............................................................38
9.09 Governing Law..................................................................39
9.10 Enforcement of Agreement.......................................................39
9.11 Certain Definitions............................................................39
9.12 Counterparts...................................................................40
</TABLE>
-iii-
<PAGE> 73
GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the meanings
ascribed to them in the corresponding Sections of this Agreement listed below:
"affiliate" -- Section 9.11(a)
"Agreement" -- Preamble
"Alternative Proposal" -- Section 5.02
"Antitrust Division" -- Section 6.04
"beneficially" -- Section 9.11(b)
"business day" -- Section 9.11(c)
"CERCLA" -- Section 3.15(b)
"Certificate of Merger" -- Section 1.03
"Certificates" -- Section 2.02(b)
"Closing" -- Section 1.02
"Closing Date" -- Section 1.02
"Code" -- Section 2.02(e)
"Company" -- Preamble
"Company Common Shares" -- Section 2.01(b)
"Company Disclosure Letter" -- Section 3.01
"Company Employee Benefit Plans" -- Section 3.13(b)(i)
"Company Financial Statements" -- Section 3.05
"Company Options" -- Section 2.01(e)
"Company Option Plans" -- Section 3.02(a)
"Company Plan" -- Section 5.01(b)(D)
"Company Permits" -- Section 3.10
"Company Preferred Shares" -- Section 3.02(a)
"Company Rights" -- Section 3.02(a)
"Company Rights Agreement" -- Section 3.02(a)
"Company SEC Reports" -- Section 3.05
"Company Series A Preferred Shares" -- Section 3.02(a)
"Company Shareholders' Approval" -- Section 6.03
"Company Shareholders' Meeting" -- Section 6.03
"Confidentiality Agreement" -- Section 6.01
"Constituent Corporations" -- Section 1.01
"Contracts" -- Section 3.04(a)
"control," "controlling," "controlled
by" and "under common control with" -- Section 9.11(a)
"Dissenting Share" -- Section 2.01(d)(i)
"Effective Time" -- Section 1.03
"Environmental Law" -- Section 3.15(e)(i)
"Environmental Permits" -- Section 3.15(a)
"ERISA" -- Section 3.13(b)(i)
"Exchange Act" -- Section 3.04(b)
"FTC" -- Section 6.04
-iv-
<PAGE> 74
"Governmental or Regulatory Authority" -- Section 3.04(a)
"group" -- Section 9.11(f)
"Hazardous Material" -- Section 3.15(e)(ii)
"HSR Act" -- Section 3.04(b)
"Intellectual Property" -- Section 3.16
"knowledge" -- Section 9.11(e)
"laws" -- Section 3.04(a)
"Lien" -- Section 3.02(b)
"material", "material adverse
effect" and "materially adverse" -- Section 9.11(d)
"Merger" -- Preamble
"Merger Price" -- Section 2.01(c)
"OGCL" -- Section 1.01
"Options" -- Section 3.02
"Option Amount" -- Section 2.01(e)
"orders" -- Section 3.04(a)
"Parent" -- Preamble
Payment Agent -- Section 2.02(a)
Payment Fund -- Section 2.02(a)
"person" -- Section 9.11(f)
"Plan" -- Section 3.13(b)(ii)
"Proxy Statement" -- Section 3.09
"Representatives" -- Section 9.11(g)
"SEC" -- Section 3.04(b)
"Secretary of State" -- Section 1.03
"Securities Act" -- Section 3.05
"Sub" -- Preamble
"Sub Common Shares" -- Section 2.01(a)
"Subsidiary" -- Section 9.11(h)
"Surviving Corporation" -- Section 1.01
"Surviving Corporation Common Shares" -- Section 2.01(a)
"Taxes" -- Section 3.12
-v-
<PAGE> 75
This AGREEMENT AND PLAN OF MERGER dated as of September 30, 1999
(this "Agreement") is made and entered into by and among Kellogg Company, a
Delaware corporation ("Parent"), WF Acquisition Inc., an Ohio corporation wholly
owned by Parent ("Sub"), and Worthington Foods, Inc., an Ohio corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent, Sub and the Company
have each determined that it is advisable and in the best interests of their
respective shareholders to consummate, and have approved, the business
combination transaction provided for herein in which Sub would merge with and
into the Company and the Company would become a wholly-owned subsidiary of
Parent (the "Merger");
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.03), Sub shall be
merged with and into the Company in accordance with the General Corporation Law
of the State of Ohio (the "OGCL"). At the Effective Time, the separate existence
of Sub shall cease and the Company shall continue as the surviving corporation
in the Merger (the "Surviving Corporation"). Sub and the Company are sometimes
referred to herein as the "Constituent Corporations". As a result of the Merger,
the outstanding shares of capital stock and the treasury shares of the
Constituent Corporations shall be converted or cancelled in the manner provided
in Article II.
1.02 Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 8.01, and subject to the satisfaction or waiver (where applicable) of
the conditions set forth in Article VII, the closing of the Merger (the
"Closing") will take place at the offices of Milbank, Tweed, Hadley & McCloy
LLP, 1 Chase Manhattan Plaza, New York, New York 10005 at 10:00 a.m., local
time, on the eleventh calendar day following satisfaction of the conditions set
forth in Article VII (or, if such day is not a business day, on the next
succeeding business day), unless another date, time or place is agreed to in
writing by the parties hereto (the "Closing Date"). At the Closing there shall
be delivered to Parent, Sub and the Company the certificates and other documents
and instruments required to be delivered under Article VII.
1.03 Effective Time. At the Closing, a certificate of merger (the
"Certificate of Merger") shall be duly prepared and executed by the Constituent
Corporations and thereafter delivered to the Secretary of State of the State of
Ohio (the "Secretary of State") for filing, as
<PAGE> 76
provided in Section 1701.81 of the OGCL, as soon as practicable on the Closing
Date. The Merger shall become effective at the time of the filing of the
Certificate of Merger with the Secretary of State (the date and time of such
filing being referred to herein as the "Effective Time").
1.04 Articles of Incorporation and Code of Regulations of the
Surviving Corporation. At the Effective Time, (i) the Articles of Incorporation
of Sub as in effect immediately prior to the Effective Time shall be amended so
that the name of Sub shall be changed to Worthington Foods, Inc., and, as so
amended, such Articles of Incorporation shall be the Articles of Incorporation
of the Surviving Corporation until thereafter amended as provided by law and
such Articles of Incorporation, and (ii) the Code of Regulations of Sub (the
"Regulations") as in effect immediately prior to the Effective Time shall be the
Regulations of the Surviving Corporation until thereafter amended as provided by
law, the Articles of Incorporation of the Surviving Corporation and such
Regulations.
1.05 Directors and Officers of the Surviving Corporation. The
directors and officers of Sub immediately prior to the Effective Time shall,
from and after the Effective Time, be the directors and officers, respectively,
of the Surviving Corporation until their successors shall have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Articles of Incorporation and
Regulations.
1.06 Effects of the Merger. Subject to the foregoing, the effects
of the Merger shall be as provided in the applicable provisions of the OGCL.
1.07 Further Assurances. Each party hereto will, either prior to
or after the Effective Time, execute such further documents, instruments, deeds,
bills of sale, assignments and assurances and take such further actions as may
reasonably be requested by one or more of the others to consummate the Merger,
to vest the Surviving Corporation with full title to all assets, properties,
privileges, rights, approvals, immunities and franchises of either of the
Constituent Corporations or to effect the other purposes of this Agreement.
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof:
(a) Conversion of Sub Shares. Each issued and outstanding common
share, without par value, of Sub ("Sub Common Shares") shall be converted into
and become one fully paid and nonassessable common share, without par value, of
the Surviving Corporation ("Surviving Corporation Common Shares"). Each
certificate representing outstanding Sub Common Shares shall at the Effective
Time represent an equal number of Surviving Corporation Common Shares.
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(b) Cancellation of Treasury Shares and Shares Owned by Parent
and Subsidiaries. All common shares, without par value, of the Company ("Company
Common Shares") that are owned by the Company as treasury shares and any Company
Common Shares owned by Parent, Sub or any other wholly-owned Subsidiary (as
defined in Section 9.11) of Parent shall be canceled and retired and shall cease
to exist and no stock of Parent or other consideration shall be delivered in
exchange therefor.
(c) Exchange Ratio for Company Common Shares. (i) Each issued and
outstanding Company Common Share (other than shares to be canceled in accordance
with Section 2.01(b) and other than Dissenting Shares (as defined in Section
2.01(d))) shall be converted into the right to receive $24.00 in cash (the
"Merger Price").
(ii) All Company Common Shares converted in accordance
with paragraph (i) of this Section 2.01(c) shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger Price per
share, upon the surrender of such certificate in accordance with Section 2.02,
without interest, subject to any applicable withholding tax.
(d) Dissenting Shares. (i) Notwithstanding anything in this
Agreement to the contrary, each outstanding Company Common Share that is held of
record by a holder who has properly exercised dissenters' rights with respect
thereto under Section 1701.85 of the OGCL (a "Dissenting Share"), shall not be
converted into or represent the right to receive the Merger Price pursuant to
Section 2.01(c), but the holder thereof shall be entitled to receive such
payment of the fair cash value of such Company Common Share from the Surviving
Corporation as shall be determined pursuant to Section 1701.85 of the OGCL;
provided, however, that if any such holder shall have failed to perfect or shall
withdraw or lose such holder's rights under Section 1701.85 of the OGCL, each
such holder's Company Common Shares shall thereupon be deemed to have been
converted as of the Effective Time into the right to receive the Merger Price,
without any interest thereon, pursuant to Section 2.01(c ).
(ii) The Company shall give Parent (x) prompt notice of
any written demands for payment of the fair cash value of shares, withdrawals of
such demands and any other instruments delivered pursuant to Section 1701.85 of
the OGCL and (y) the opportunity to jointly participate with the Company in all
negotiations and proceedings with respect to demands for payment under Section
1701.85 the OGCL. The Company will not voluntarily make any payment with respect
to any demands delivered to the Company pursuant to Section 1701.85 and will
not, except with the prior written consent of Parent, settle or offer to settle
any such demands.
(e) Stock Option Plans. (i) Subject to paragraph (ii) below,
immediately prior to the Effective Time, each outstanding option to acquire
Company Common Shares (the "Company Options") granted under any of the Company
Option Plans (as defined in Section 3.02(a)), whether or not then exercisable,
shall be cancelled by the Company, and in consideration of such cancellation,
the holder thereof shall be entitled to receive from the Company at the
Effective Time an amount in respect thereof equal to the product of (A) the
excess, if any, of the Merger Price per share over the per share exercise price
thereof and (B) the
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number of Company Common Shares subject thereto (the "Option Amount") (such
payment to be net of applicable withholding taxes). Prior to the Effective Time,
the Company shall deposit in a bank account not within the Company's control an
amount of cash equal to the Option Amount for each Company Option then
outstanding (subject to any applicable withholding tax), together with
instructions that such cash be promptly distributed following the Effective Time
to the holders of such Company Options in accordance with this Section 2.01(e).
(ii) After the date of this Agreement and prior to the Closing
Date, the Company shall use its reasonable best efforts and otherwise take all
actions reasonably necessary to implement the cash-out of the Company Options as
provided for in Section 2.01(e).
2.02 Exchange of Certificates.
(a) Payment Agent. At the Closing, Parent shall deposit with a
bank or trust company designated before the Closing Date by Parent and
reasonably acceptable to the Company (the "Payment Agent"), a cash amount equal
to the aggregate Merger Price to which holders of Company Common Shares shall be
entitled upon consummation of the Merger, to be held for the benefit of and
distributed to such holders in accordance with this Section. The Payment Agent
shall agree to hold such funds (such funds, together with earnings thereon,
being referred to herein as the "Payment Fund") for delivery as contemplated by
this Section and upon such additional terms as may be agreed upon by the Payment
Agent, the Company and Parent. If for any reason (including losses) the Payment
Fund is inadequate to pay the cash amounts to which holders of Company Common
Shares shall be entitled, Parent and the Surviving Corporation shall in any
event remain liable, and shall make available to the Payment Agent additional
funds, for the payment thereof. The Payment Fund shall not be used for any
purpose except as expressly provided in this Agreement.
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Payment Agent to
mail to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Company Common Shares (the
"Certificates") whose shares are converted pursuant to Section 2.01(c) into the
right to receive the Merger Price (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Payment
Agent and shall be in such form and have such other provisions as the Surviving
Corporation may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Price. Upon
surrender of a Certificate for cancellation to the Payment Agent, together with
such letter of transmittal duly executed and completed in accordance with its
terms, the holder of such Certificate shall be entitled to receive in exchange
therefor a check representing the Merger Price per Company Common Share
represented thereby, subject to any applicable withholding tax, which such
holder has the right to receive pursuant to the provisions of this Article II,
and the Certificate so surrendered shall forthwith be canceled. In no event
shall the holder of any Certificate be entitled to receive interest on any funds
to be received in the Merger, including any interest accrued in respect of the
Payment Fund. In the event of a transfer of ownership of Company Common Shares
which is not registered in the transfer records of the Company, the Merger Price
may be issued to a transferee if the Certificate representing such
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Company Common Shares is presented to the Payment Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Price per Company Common Share represented thereby as
contemplated by this Article II, together with the dividends, if any, which may
have been declared by the Company on the Company Common Shares in accordance
with the terms of this Agreement and which remain unpaid at the Effective Time.
Parent and the Surviving Corporation shall pay all fees and expenses of the
Payment Agent in connection with the distribution of the Merger Price.
(c) No Further Ownership Rights in Company Common Shares. All
cash paid upon the surrender for exchange of Certificates in accordance with the
terms hereof shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Company Common Shares represented thereby, subject,
however, to the Surviving Corporation's obligation to pay any dividends which
may have been declared by the Company on such shares of Company Common Shares in
accordance with the terms of this Agreement and which remained unpaid at the
Effective Time. Unless otherwise required by Section 1701.85 of the OGCL, from
and after the Effective Time, the share transfer books of the Company shall be
closed and there shall be no further registration of transfers on the share
transfer books of the Surviving Corporation of the Company Common Shares which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates (other than Certificates representing Dissenting
Shares) are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section.
(d) Termination of Payment Fund. Any portion of the Payment Fund
which remains undistributed to the shareholders of the Company for twelve (12)
months after the Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any shareholders of the Company who have not theretofore
complied with this Article II shall thereafter look only to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) as
general creditors for payment of their claim for the Merger Price per share.
Neither Parent nor the Surviving Corporation shall be liable to any holder of
Company Common Shares for cash representing the Merger Price delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) Withholding Rights. Parent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of Company Common Shares such amounts as Parent is required to deduct
and withhold with respect to the making of such payment under the Internal
Revenue Code of 1986, as amended (the "Code"), or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by Parent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the Company Common Shares in respect of which such
deduction and withholding was made by Parent.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
3.01 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, except for such
failures to be so incorporated, existing and in good standing or to have such
power and authority which, individually or in the aggregate, are not having and
could not be reasonably expected to have a material adverse effect (as defined
in Section 9.11) on the Company and its Subsidiaries taken as a whole. Each of
the Company and its Subsidiaries is duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use or leasing of its assets and properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except for
such failures to be so qualified, licensed or admitted and in good standing
which, individually or in the aggregate, are not having and could not be
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. Section 3.01 of the letter dated the date hereof
and delivered to Parent and Sub by the Company concurrently with the execution
and delivery of this Agreement (the "Company Disclosure Letter") sets forth (i)
the name and jurisdiction of incorporation of each Subsidiary of the Company,
(ii) its authorized capital shares, (iii) the number of issued and outstanding
capital shares and (iv) the record owners of such shares. Except for interests
in the Subsidiaries of the Company and as disclosed in Section 3.01 of the
Company Disclosure Letter, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, limited liability company, joint venture or other business
association or entity. The Company has previously delivered or made available to
Parent correct and complete copies of the certificate or articles of
incorporation and bylaws or code of regulations (or other comparable charter
documents) of the Company and its Subsidiaries.
3.02 Capitalization. (a) The authorized capital shares of the
Company consists solely of 30,000,000 Company Common Shares and 2,000,000
preferred shares, without par value ("Company Preferred Shares"). As of August
31, 1999, 12,385,576 Company Common Shares were issued and outstanding, 0 shares
were held in the treasury of the Company and the only Company Common Shares
reserved for issuance as of such date consisted of (a) 158,663 shares which were
reserved or held for issuance pursuant to stock options outstanding under the
Company's 1985 Stock Option Plan, as amended, (b) 603,090 shares which were
reserved or held for issuance pursuant to stock options outstanding under the
Company's Amended and Restated 1995 Stock Option Plan and (c) 92,221 shares
which were reserved or held for issuance pursuant to stock options outstanding
under the Company's 1993 Stock Option Plan for Non-Employee Directors (such
Plans, the "Company Option Plans"). Since such date, except as set forth in
Section 3.02 of the Company Disclosure Letter, there has been no change in the
number of issued and outstanding Company Common Shares or Company Common Shares
held in treasury or reserved for issuance. As of the date hereof, no Company
Preferred Shares are issued
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and outstanding and 300,000 shares are designated Series A Junior Participating
Preferred Shares ("Company Series A Preferred Shares") and are reserved for
issuance in accordance with the Rights Agreement dated as of June 13, 1995, as
amended, by and between the Company and National City Bank, as Rights Agent (the
"Company Rights Agreement"), pursuant to which the Company has issued rights
(the "Company Rights") to purchase Company Series A Preferred Shares. All of the
issued and outstanding Company Common Shares are, and all shares reserved for
issuance will be, upon issuance in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable, duly authorized,
validly issued, fully paid and nonassessable. Except pursuant to this Agreement
and the Company Rights Agreement, and except as set forth in Section 3.02 of the
Company Disclosure Letter, there are no outstanding subscriptions, options,
warrants, rights (including "phantom" stock rights), preemptive rights or other
contracts, commitments, understandings or arrangements, including any right of
conversion or exchange under any outstanding security, instrument or agreement
(together, "Options"), obligating the Company or any of its Subsidiaries to
issue or sell any capital shares of the Company or to grant, extend or enter
into any Option with respect thereto.
(b) Except as disclosed in Section 3.02 of the Company Disclosure
Letter, all of the outstanding capital shares of each Subsidiary of the Company
are duly authorized, validly issued, fully paid and nonassessable and are owned,
beneficially and of record, by the Company or a Subsidiary wholly owned,
directly or indirectly, by the Company, free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each a "Lien"). Except as disclosed in Section 3.02 of the Company
Disclosure Letter, there are no (i) outstanding Options obligating the Company
or any of its Subsidiaries to issue or sell any capital shares of any Subsidiary
of the Company or to grant, extend or enter into any such Option or (ii) voting
trusts, proxies or other commitments, understandings, restrictions or
arrangements in favor of any person other than the Company or a Subsidiary
wholly owned, directly or indirectly, by the Company with respect to the voting
of or the right to participate in dividends or other earnings on any capital
shares of any Subsidiary of the Company.
(c) Except as disclosed in Section 3.02 of the Company Disclosure
Letter, and except as may be needed to facilitate the distribution of benefits
from the Company's Employee Stock Ownership Plan, there are no outstanding
contractual obligations of the Company or any Subsidiary of the Company to
repurchase, redeem or otherwise acquire any Company Common Shares or any capital
shares of any Subsidiary of the Company or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Subsidiary of the Company or any other person.
3.03 Authority Relative to this Agreement. The Company has the
requisite corporate power and authority to enter into this Agreement and,
subject to obtaining the Company Shareholders' Approval (as defined in Section
6.03), to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company, the Board of Directors of the Company has recommended
adoption of this Agreement by the shareholders of the Company and directed that
this Agreement be submitted to the shareholders of the Company for their
consideration, and no other corporate
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proceedings on the part of the Company or its shareholders are necessary to
authorize the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby, other than obtaining the Company Shareholders' Approval. This Agreement
has been duly and validly executed and delivered by the Company and, subject to
the obtaining of the Company Shareholders' Approval, constitutes a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
3.04 Non-Contravention; Approvals and Consents. (a) Except as
disclosed in Section 3.04 of the Company Disclosure Letter, the execution and
delivery of this Agreement by the Company do not, and the performance by the
Company of its obligations hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of the
Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of (i) the certificates or articles of incorporation or regulations
or bylaws (or other comparable charter documents) of the Company or any of its
Subsidiaries, or (ii) subject to the obtaining of the Company Shareholders'
Approval and the taking of the actions described in paragraph (b) of this
Section, (x) any statute, law, rule, regulation or ordinance (together, "laws"),
or any judgment, decree, order, writ, permit or license (together, "orders"), of
any court, tribunal, arbitrator, authority, agency, commission, official or
other instrumentality of the United States, any foreign country or any domestic
or foreign state, county, city or other political subdivision (a "Governmental
or Regulatory Authority") applicable to the Company or any of its Subsidiaries
or any of their respective assets or properties, or (y) any note, bond,
mortgage, security agreement, indenture, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind
(together, "Contracts") to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound, excluding from the foregoing clauses
(x) and (y) conflicts, violations, breaches, defaults, terminations,
cancellations, modifications, accelerations and creations and impositions of
Liens which, individually or in the aggregate, could not be reasonably expected
to have a material adverse effect on the Company and its Subsidiaries taken as a
whole or on the ability of the Company to consummate the transactions
contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report
by the Company under, and any other actions required under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), (ii) for the filing of the Proxy
Statement (as defined in Section 3.09) with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act"), (iii)
for the filing of the Certificate of Merger and other appropriate merger
documents required by the OGCL with the Secretary of State and appropriate
documents with the relevant authorities of other states in which the
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Constituent Corporations are qualified to do business, and (iv) as disclosed in
Section 3.04 of the Company Disclosure Letter, no consent, approval or action
of, filing with or notice to any Governmental or Regulatory Authority or other
public or private third party is necessary or required under any of the terms,
conditions or provisions of any law or order of any Governmental or Regulatory
Authority or any Contract to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound for the execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder or the consummation of the transactions contemplated hereby, other
than such consents, approvals, actions, filings and notices which the failure to
make or obtain, as the case may be, individually or in the aggregate, could not
be reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole or on the ability of the Company to consummate the
transactions contemplated by this Agreement.
3.05 SEC Reports and Financial Statements. The Company delivered
or made available to Parent prior to the execution of this Agreement a true and
complete copy of each form, report, schedule, registration statement, definitive
proxy statement and other document (together with all amendments thereof and
supplements thereto) filed by the Company or any of its Subsidiaries with the
SEC since January 1, 1997 (as such documents have since the time of their filing
been amended or supplemented, the "Company SEC Reports"), which are all the
documents (other than preliminary material) that the Company and its
Subsidiaries were required to file with the SEC since such date. As of their
respective dates, the Company SEC Reports (i) complied as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "Securities Act"), or the
Exchange Act, as the case may be, and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim consolidated financial
statements (including, in each case, the notes, if any, thereto) included in the
Company SEC Reports (the "Company Financial Statements") complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited interim financial statements, to normal,
recurring year-end audit adjustments (which are not expected to be, individually
or in the aggregate, materially adverse to the Company and its Subsidiaries
taken as a whole)) the consolidated financial position of the Company and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. Except as set forth in Section 3.05 of the Company
Disclosure Letter, each Subsidiary of the Company is treated as a consolidated
Subsidiary of the Company in the Company Financial Statements for all periods
covered thereby.
3.06 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Reports filed prior to the date of this Agreement, (a) since
June 30, 1999 there has not been any change, event or development having, or
that could be reasonably expected to
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have, individually or in the aggregate, a material adverse effect on the Company
and its Subsidiaries taken as a whole, and (b) except as disclosed in Section
3.06 of the Company Disclosure Letter, between such date and the date hereof (i)
the Company and its Subsidiaries have conducted their respective businesses only
in the ordinary course consistent with past practice and (ii) neither the
Company nor any of its Subsidiaries has taken any action which, if taken after
the date hereof, would constitute a breach of any provision of clause (ii) of
Section 5.01(b).
3.07 Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the balance sheet for the period ended June 30,
1999 included in the Company Financial Statements or as disclosed in Section
3.07 of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries had at such date, or has incurred since that date, any liabilities
or obligations (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due) of any nature that would be required by generally
accepted accounting principles to be reflected on a consolidated balance sheet
of the Company and its consolidated subsidiaries (including the notes thereto),
except liabilities or obligations (i) which were incurred in the ordinary course
of business consistent with past practice or (ii) which have not been, and could
not be reasonably expected to be, individually or in the aggregate, materially
adverse to the Company and its Subsidiaries taken as a whole.
3.08 Legal Proceedings. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement or in Section 3.08 of the
Company Disclosure Letter, (i) there are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of the Company, threatened against,
relating to or affecting, nor to the knowledge of the Company are there any
Governmental or Regulatory Authority investigations or audits pending or
threatened against, relating to or affecting, the Company or any of its
Subsidiaries or any of their respective assets and properties which,
individually or in the aggregate, could be reasonably expected to have a
material adverse effect on the Company and its Subsidiaries taken as a whole or
on the ability of the Company to consummate the transactions contemplated by
this Agreement, and (ii) neither the Company nor any of its Subsidiaries is
subject to any order of any Governmental or Regulatory Authority which,
individually or in the aggregate, is having or could be reasonably expected to
have a material adverse effect on the Company and its Subsidiaries taken as a
whole or on the ability of the Company to consummate the transactions
contemplated by this Agreement.
3.09 Information Supplied. The proxy statement relating to the
Company Shareholders' Meeting (as defined in Section 6.03), as amended or
supplemented from time to time (as so amended and supplemented, the "Proxy
Statement"), and any other documents to be filed by the Company with the SEC or
any other Governmental or Regulatory Authority in connection with the Merger and
the other transactions contemplated hereby will not, on the date of its filing
or, in the case of the Proxy Statement, at the date it is mailed to shareholders
of the Company and at the time of the Company Shareholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to information
supplied in writing by or on behalf of Parent or Sub expressly for inclusion
therein
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and information incorporated by reference therein from documents filed by Parent
or any of its Subsidiaries with the SEC. The Proxy Statement filed by the
Company with the SEC under the Exchange Act relating to the Company
Shareholders' Meeting will comply as to form in all material respects of the
Exchange Act.
3.10 Permits; Compliance with Laws and Orders. The Company and
its Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental and Regulatory Authorities necessary for the
lawful conduct of their respective businesses (the "Company Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which, individually or in the aggregate, are not having and could not
be reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. The Company and its Subsidiaries are in
compliance with the terms of the Company Permits, except failures so to comply
which, individually or in the aggregate, are not having and could not be
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, the Company and its Subsidiaries are
not in violation of or default under any law or order of any Governmental or
Regulatory Authority, except for such violations or defaults which, individually
or in the aggregate, are not having and could not be reasonably expected to have
a material adverse effect on the Company and its Subsidiaries taken as a whole.
3.11 Compliance with Agreements; Certain Agreements. (a) Except
as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, neither the Company nor any of its Subsidiaries nor, to the knowledge
of the Company, any other party thereto is in breach or violation of, or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with notice or lapse of time or both, could be
reasonably expected to result in a default under, (i) the certificates or
articles of incorporation or bylaws or regulations (or other comparable charter
documents) of the Company or any of its Subsidiaries or (ii) any Contract to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or any of their respective assets or properties is
bound, except in the case of clause (ii) for breaches, violations and defaults
which, individually or in the aggregate, are not having and could not be
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(b) Except as disclosed in Section 3.11 of the Company Disclosure
Letter or in the Company SEC Reports filed prior to the date of this Agreement
or as provided for in this Agreement, as of the date hereof, neither the Company
nor any of its Subsidiaries is a party to any oral or written (i) consulting
agreement not terminable on thirty (30) days' or less notice, (ii) union or
collective bargaining agreement, (iii) agreement with any executive officer or
other key employee of the Company or any of its Subsidiaries the benefits of
which are contingent or vest, or the terms of which are materially altered, upon
the occurrence of a transaction involving the Company or any of its Subsidiaries
of the nature contemplated by this Agreement, (iv) agreement with respect to any
executive officer or other key employee of the Company or any of its
Subsidiaries providing any term of employment or compensation guarantee or (v)
agreement or plan, including any stock option, stock appreciation right,
restricted stock or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of
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which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
3.12 Taxes. For purposes of this Agreement, "Taxes" (including,
with correlative meaning, the word "Tax") shall include any and all federal,
state, county, local, foreign or other taxes, charges, imposts, rates, fees,
levies or other assessments imposed by any Governmental or Regulatory Authority,
including, without limitation, all net income, alternative minimum, gross
income, sales and use, ad valorem, transfer, gains, profits, excise, franchise,
real and personal property, gross receipt, capital stock, production, business
and occupation, disability, employment, payroll, license, estimated, stamp,
custom duties, severance, withholding or other taxes, fees, assessments or other
similar charges of any kind whatsoever, together with any interest and penalties
(civil or criminal) on or additions to any such taxes. Except as specifically
identified in Section 3.12 of the Company Disclosure Letter:
(a) Each of the Company and its Subsidiaries has filed all
material Tax returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed or granted and
have not expired, and all such Tax returns and reports are complete and accurate
in all respects, except to the extent that such failures to file, have
extensions granted that remain in effect or be complete and accurate in all
respects, as applicable, individually or in the aggregate, would not have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
(b) The Company and each of its Subsidiaries has paid (or the
Company has paid on its behalf) all Taxes shown as due on such Tax returns and
reports.
(c) The accrual for Taxes on the most recent financial statements
contained in the Company SEC Reports reflects an adequate reserve for all Taxes
payable by the Company and its Subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements, and no
deficiencies for any Taxes have been proposed, asserted or assessed against the
Company or any of its Subsidiaries that are not adequately reserved for, except
for inadequately reserved Taxes and inadequately reserved deficiencies that
would not, individually or in the aggregate, have a material adverse effect on
the Company and its Subsidiaries taken as a whole.
(d) No requests for waivers of the time to assess any Taxes
against the Company or any of its Subsidiaries have been granted or are pending,
except for requests with respect to such Taxes that have been adequately
reserved for in the most recent financial statements contained in the Company
SEC Reports, or, to the extent not adequately reserved, the assessment of which
would not, individually or in the aggregate, have a material adverse effect on
the Company and its Subsidiaries taken as a whole.
(e) Prior to the date of this Agreement, the Company has provided
Parent with written schedules of (i) the Tax years of the Company and each of
its Subsidiaries for which any statute of limitations with respect to any
material Tax has not expired and (ii) with respect to any federal income Tax,
any material franchise Tax and any other material Tax based on net income, gross
receipts or gross income, for all Tax years of the Company and each of its
Subsidiaries for
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which the statutes of limitations have not yet expired, those years for which
examinations by a Governmental or Regulatory Authority have been completed,
those years for which examinations by a Governmental or Regulatory Authority are
presently being conducted, and those years for which examinations by a
Governmental or Regulatory Authority have not yet been initiated.
(f) No audits or other proceedings by any Governmental or
Regulatory Authority are presently pending, or, to the knowledge of the Company
or any of its Subsidiaries, threatened, with regard to any Taxes or Tax returns
or reports of the Company or any of its Subsidiaries, except to the extent that
such audits or proceedings, individually or in the aggregate, would not have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
(g) Each power of attorney currently in force that has been
granted by the Company or any of its Subsidiaries concerning any Tax matter is
disclosed in Section 3.12(g) of the Company Disclosure Letter.
(h) The Company has made available to Parent complete and
accurate copies of (i) all material Tax returns or reports for open years, and
any amendments thereto, filed by or on behalf of the Company or any of its
Subsidiaries, (ii) all audit reports or written proposed adjustments (whether
formal or informal) received from any Governmental or Regulatory Authority
relating to any Tax return or report filed by or on behalf of the Company or any
of its Subsidiaries and (iii) any Tax ruling or request for a Tax ruling
applicable to the Company or any of its Subsidiaries and closing agreements
entered into by the Company or any of its Subsidiaries.
(i) Neither the Company nor any of its Subsidiaries (i) is a
party to, is bound by, or has any obligation under, any agreement relating to
the allocation or sharing of Taxes or has any material liability for the Taxes
of any person other than the Company or its Subsidiaries, as a transferee, or
successor or otherwise (including, without limitation, any liability under
Treasury Regulations Section 1.1502-6 or any similar provision of state, local
or foreign law), (ii) has made any, or is obligated to make any, material
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any material payments that under Code Section 280G will not
be deductible, or (iii) has ever been a member of an affiliated group of
corporations (within the meaning of Code Section 1504(a)) filing consolidated
Tax returns, other than the affiliated group of which the Company is the common
parent.
(j) To the knowledge of the Company, each of the Company and its
Subsidiaries has disclosed on its federal income Tax returns each position taken
therein that could give rise to a substantial understatement of United States
federal income Tax within the meaning of Code Section 6662.
3.13 Employee Benefit Plans; ERISA. (a) Except as disclosed in
Section 3.13 of the Company Disclosure Letter or as would not have a material
adverse effect on the Company and its Subsidiaries taken as a whole, (i) all
Company Employee Benefit Plans (as defined below) are and have been maintained
in compliance with all applicable requirements of law, including without
limitation ERISA (as defined below) and the Code, and (ii) neither the
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Company nor any of its Subsidiaries has any liabilities or obligations with
respect to any such Company Employee Benefit Plans, whether accrued, contingent
or otherwise, nor to the knowledge of the Company are any such liabilities or
obligations expected to be incurred other than contribution obligations and
payment of benefits arising in the normal course under any Company Employee
Benefit Plan. Section 3.13(a)(1) of the Company Disclosure Letter lists all
Company Employee Benefit Plans. Except as specifically disclosed in Section
3.13(a)(2) of the Company Disclosure Letter, the execution of, and performance
of the transactions contemplated in, this Agreement will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Benefit Plan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee. The only severance agreements or
severance policies applicable to the Company or any of its Subsidiaries are the
agreements and policies specifically referred to in Section 3.13(a)(3) of the
Company Disclosure Letter. Each Company Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code is so qualified, has received a
favorable determination letter from the IRS, and nothing has occurred that could
adversely affect such determination.
(b) As used herein:
(i) "Company Employee Benefit Plan" means any Plan entered into,
established, maintained, sponsored, contributed to or required to be
contributed to by the Company or any of its Subsidiaries for the benefit
of the current or former employees or directors of the Company or any of
its Subsidiaries and existing on the date of this Agreement or at any
time subsequent thereto and on or prior to the Effective Time and, in
the case of a Plan which is subject to Part 3 of Title I of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations thereunder ("ERISA"), Section 412 of the Code or Title IV of
ERISA, at any time during the five-year period immediately preceding the
date of this Agreement; and
(ii) "Plan" means any employment, bonus, incentive compensation,
deferred compensation, long term incentive, pension, profit sharing,
retirement, stock purchase, stock option, stock ownership, stock
appreciation rights, phantom stock, leave of absence, layoff, vacation,
day or dependent care, legal services, cafeteria, life, health, medical,
accident, disability, workmen's compensation or other insurance,
severance, separation, termination, change of control or other benefit
plan, agreement, practice, policy, program, scheme or arrangement,
whether written or oral, including, but not limited to any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
(iii) "ERISA Affiliate" means any person, who on or before the
Effective Time, is under common control with the Company within the
meaning of Section 414 of the Code.
(c) Complete and correct copies of the following documents have
been made available to Parent, as of the date of this Agreement: (i) all
material Company Employee Benefit Plans and any related trust agreements or
insurance contracts, (ii) the most current summary plan descriptions of each
Company Employee Benefit Plan subject to the requirement to give a
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summary plan description under ERISA, (iii) the most recent Form 5500 and
Schedules thereto for each Company Employee Benefit Plan subject to such
reporting, (iv) the most recent determination of the Internal Revenue Service
with respect to the qualified status of each Company Employee Benefit Plan that
is intended to qualify under Section 401(a) of the Code, (v) the most recent
accountings with respect to each Company Employee Benefit Plan funded through a
trust and (vi) the most recent actuarial report of the qualified actuary of each
Company Employee Benefit Plan with respect to which actuarial valuations are
conducted.
(d) Except as disclosed in Section 3.13(d) of the Company
Disclosure Letter, neither the Company nor any Subsidiary maintains or is
obligated to provide benefits under any life, medical or health Plan (other than
as an incidental benefit under a Plan qualified under Section 401(a) of the
Code) which provides benefits to retirees or other terminated employees other
than benefit continuations rights under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(e) Except as set forth in Section 3.13(e) of the Company
Disclosure Letter, each Company Employee Benefit Plan covers only employees who
are employed by the Company or a Subsidiary (or former employees or
beneficiaries with respect to service with the Company or a Subsidiary) or
directors of the Company, so that the transactions contemplated by this
Agreement will require no spin-off of assets and liabilities or other division
or transfer of rights with respect to any such plan.
(f) Neither the Company, any Subsidiary, any ERISA Affiliate nor
any other corporation or organization controlled by or under common control with
any of the foregoing within the meaning of Section 4001 of ERISA has at any time
contributed to any "multiemployer plan", as that term is defined in Section 4001
of ERISA.
(g) No event has occurred, and there exists no condition or set
of circumstances in connection with any Company Employee Benefit Plan or any
Plan sponsored by an ERISA Affiliate, under which the Company or any Subsidiary,
directly or indirectly (through any indemnification agreement or otherwise),
could reasonably be expected to be subject to any risk of material liability
under Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or
Section 4975 of the Code.
(h) No transaction contemplated by this Agreement will result in
liability to the Pension Benefit Guaranty Corporation ("PBGC") under Section
302(c)(11), 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with respect to the
Company, any Subsidiary, Parent or any corporation or organization controlled by
or under common control with any of the foregoing within the meaning of Section
4001 of ERISA, and, to the knowledge of the Company, no event or condition
exists or has existed which would, or would reasonably be expected to result in
any material liability to the PBGC with respect to Parent, the Company, any
Subsidiary or any such corporation or organization. Except as set forth in
Section 3.13(h) of the Company Disclosure Schedule, no "reportable event" within
the meaning of Section 4043 of ERISA has occurred with respect to any Company
Employee Benefit Plan that is a defined benefit plan under Section 3(35) of
ERISA.
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(i) Except as set forth in Section 3.13(i) of the Company
Disclosure Letter, no employer securities, employer real property or other
employer property is included in the assets of any Company Employee Benefit
Plan.
3.14 Labor Matters. Except as disclosed in Section 3.14 of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement with any labor union, confederation
or association and there are no discussions, negotiations, demands or proposals
that are pending or have been conducted or made with or by any labor union,
confederation or association regarding organizational activities since January
1, 1996. Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or in Section 3.14 of the Company Disclosure Letter, there are
no material controversies pending or, to the knowledge of the Company,
threatened between the Company or any of its Subsidiaries and any
representatives of its employees and, to the knowledge of the Company, there are
no material organizational efforts presently being made involving any of the now
unorganized employees of the Company or any of its Subsidiaries. Since June 30,
1999, there has been no work stoppage, strike or other concerted action by
employees of the Company or any of its Subsidiaries. During that period, the
Company and its Subsidiaries have complied in all material respects with all
applicable laws relating to the employment of labor, including, without
limitation those relating to wages, hours and collective bargaining.
3.15 Environmental Matters. (a) Each of the Company and its
Subsidiaries has obtained all licenses, permits, authorizations, approvals and
consents from Governmental or Regulatory Authorities which are required under
any applicable Environmental Law (as defined below) in respect of its business
or operations ("Environmental Permits"), except for such failures to have
Environmental Permits which, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. Each of such Environmental Permits is in full
force and effect and, except as set forth in Section 3.15(a) of the Company
Disclosure Letter, each of the Company and its Subsidiaries is in compliance
with the terms and conditions of all such Environmental Permits and with any
applicable Environmental Law, except for such failures to be in compliance
which, individually or in the aggregate, could not reasonably be expected to
have a material adverse effect on the Company and its Subsidiaries taken as a
whole.
(b) To the knowledge of the Company, no site or facility now or
previously owned, operated or leased by the Company or any of its Subsidiaries
is listed or proposed for listing on the National Priorities List promulgated
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, and the rules and regulations thereunder ("CERCLA"), or
on any similar state or local list of sites requiring investigation or clean-up.
Except as disclosed in Section 3.15 of the Company Disclosure Letter, to the
knowledge of the Company, no Hazardous Material has been released at any site or
facility now or previously owned, operated or leased by the Company or any
Subsidiary, except for such releases which, individually or in the aggregate,
could not reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
(c) Except as specifically discussed in Section 3.15(c) of the
Company Disclosure Letter, no Liens have arisen under or pursuant to any
Environmental Law on any site
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or facility owned, operated or leased by the Company or any of its Subsidiaries,
other than any such Liens (i) which individually or in the aggregate could not
be reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole or (ii) which have been discharged or otherwise
released, and no action of any Governmental or Regulatory Authority has been
taken or, to the knowledge of the Company, is in process which could subject any
of such properties to such Liens, and neither the Company nor any of its
Subsidiaries would be required to place any notice or restriction relating to
the presence of Hazardous Materials at any such site or facility owned by it in
any deed to the real property on which such site or facility is located.
(d) Except as specifically disclosed in Section 3.15(d) of the
Company Disclosure Letter, there have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted since January 1,
1996 by, or which are in the possession of, the Company or any of its
Subsidiaries in relation to any site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries which have not been
delivered or made available to Parent prior to the execution of this Agreement.
(e) As used herein:
(i) "Environmental Law" means any law or order of any
Governmental or Regulatory Authority applicable to the Company or any of
its Subsidiaries or any of their respective properties relating to the
regulation or protection of human health, safety or the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes into the environment (including, without limitation, ambient air,
soil, surface water, ground water, wetlands, land or subsurface strata),
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes; and
(ii) "Hazardous Material" means (A) any petroleum or
petroleum products, flammable explosives, radioactive materials,
asbestos in any form that is or could become friable, urea formaldehyde
foam insulation and transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls (PCBs);
(B) any chemicals or other materials or substances which are defined as
or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants" or
words of similar import under any Environmental Law; and (C) any other
chemical or other material or substance, exposure to which is
prohibited, limited or regulated by any Governmental or Regulatory
Authority under any Environmental Law.
(f) To the knowledge of the Company, neither the Company nor any
Subsidiary has transported or arranged for the transportation of any Hazardous
Material to any location that is (i) listed on the NPL under CERCLA, (ii) listed
for possible inclusion on the NPL by the Environmental Protection Agency in
CERCLIS or on any similar state or local list or
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(iii) the subject of enforcement actions by any Governmental or Regulatory
Authority that may lead to claims against the Company or any Subsidiary.
3.16 Intellectual Property Rights. The Company and its
Subsidiaries have all right, title and interest in, or a valid and binding
license to use, all Intellectual Property (as defined below) individually or in
the aggregate material to the conduct of the businesses of the Company and its
Subsidiaries taken as a whole. Except as set forth in Section 3.16 of the
Company Disclosure Letter, neither the Company nor any Subsidiary of the Company
is in default (or with the giving of notice or lapse of time or both, would be
in default) under any license to use such Intellectual Property, to the
Company's knowledge, such Intellectual Property is not being infringed by any
third party, and neither the Company nor any Subsidiary of the Company is
infringing any Intellectual Property of any third party, except for such
defaults and infringements which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material adverse effect on
the Company and its Subsidiaries taken as a whole. For purposes of this
Agreement, "Intellectual Property" means patents and patent rights, trademarks
and trademark rights, trade names and trade name rights, service marks and
service mark rights, service names and service name rights, copyrights and
copyright rights and other proprietary intellectual property rights and all
pending applications for and registrations of any of the foregoing.
3.17 Year 2000. Except as set forth in Section 3.17 of the
Company Disclosure Letter, the Company and its Subsidiaries have put into effect
practices and programs which the Company believes will enable all material
software, hardware and equipment (including microprocessors) that are owned or
utilized by the Company or any of its Subsidiaries in the operations of its or
their respective business to be capable, by December 31, 1999, of accounting for
all calculations using a century and date sensitive algorithm for the year 2000
and the fact that the year 2000 is a leap year and to otherwise continue to
function without any interruption caused by the occurrence of the year 2000,
except for those failures which, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
3.18 Vote Required. (i) The Merger has been approved by the
requisite number of Continuing Directors (as defined in the Articles of
Incorporation) so that the supermajority vote contemplated by Article Ninth of
the Articles of Incorporation has been rendered inapplicable to the Merger.
(ii) Assuming the continuing accuracy of the representation and
warranty contained in Section 4.05, the affirmative vote of the holders
of record of at least a majority of the outstanding Company Common
Shares with respect to the adoption of this Agreement is the only vote
of the holders of any class or series of the capital shares of the
Company required to adopt this Agreement and approve the Merger and the
other transactions contemplated hereby.
3.19 Opinion of Financial Advisor. The Company has received the
opinion of U.S. Bancorp Piper Jaffray dated the date hereof, to the effect that,
as of the date hereof, the consideration to be received in the Merger by the
shareholders of the Company is fair from a
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financial point of view to the shareholders of the Company and a true and
complete copy of such opinion has been delivered (or promptly after execution,
will be delivered) to Parent.
3.20 Company Rights Agreement. As of the date hereof and after
giving effect to the execution and delivery of this Agreement, each Company
Right is represented by the certificate representing the associated Company
Common Shares and is not exercisable or transferable apart from the associated
Company Common Shares, and the Company has (i) taken all necessary actions so
that the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in a "Distribution Date" or a
"Shares Acquisition Date" (as defined in the Company Rights Agreement) and (ii)
amended the Company Rights Agreement to render it inapplicable to this
Agreement, the Merger and the other transactions contemplated hereby.
3.21 Anti-takeover Statutes Not Applicable. Assuming the
continuing accuracy of the representation and warranty contained in Section
4.05, no "fair price", "moratorium", "control share acquisition" or other
similar anti-takeover statute or regulation will apply to this Agreement, the
Merger or other transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
4.01 Organization and Qualification. Each of Parent and Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its assets and properties, except for such failures to be so
incorporated, existing and in good standing or to have such power and authority
which, individually or in the aggregate, are not having and could not be
reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole. Sub was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement, has engaged in no other
business activities, has conducted its operations only as contemplated hereby
and has no material liabilities. Parent has previously delivered to the Company
correct and complete copies of the certificate or articles of incorporation and
bylaws or regulations (or other comparable charter documents) of Parent and Sub.
4.02 Authority Relative to this Agreement. Each of Parent and Sub
has the requisite corporate power and authority to enter into this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by each of Parent and Sub and the consummation by each of Parent and Sub of the
transactions contemplated hereby have been duly and validly approved by their
respective Boards of Directors and by Parent in its capacity as the sole
shareholder of Sub, and no other corporate proceedings on the part of either of
Parent or Sub or their respective stockholders are necessary to authorize the
execution, delivery and performance of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each
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of Parent and Sub and constitutes a legal, valid and binding obligation of each
of Parent and Sub enforceable against each of Parent and Sub in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
4.03 Non-Contravention; Approvals and Consents. (a) The execution
and delivery of this Agreement by each of Parent and Sub do not, and the
performance by each of Parent and Sub of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any of
the assets or properties of Parent or any of its Subsidiaries under, any of the
terms, conditions or provisions of (i) the certificates or articles of
incorporation or bylaws (or other comparable charter documents) of Parent or any
of its Subsidiaries, or (ii) subject to the taking of the actions described in
paragraph (b) of this Section, (x) any laws or orders of any Governmental or
Regulatory Authority applicable to Parent or any of its Subsidiaries or any of
their respective assets or properties, or (y) any Contracts to which Parent or
any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries
or any of their respective assets or properties is bound, excluding from the
foregoing clauses (x) and (y) conflicts, violations, breaches, defaults,
terminations, cancellations, modifications, accelerations and creations and
impositions of Liens which, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on the ability of Parent
and Sub to consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report
by Parent under, and any other actions required under, the HSR Act and (ii) for
the filing of the Certificate of Merger and other appropriate merger documents
required by the OGCL with the Secretary of State and appropriate documents with
the relevant authorities of other states in which the Constituent Corporations
are qualified to do business, no consent, approval or action of, filing with or
notice to any Governmental or Regulatory Authority or other public or private
third party is necessary or required under any of the terms, conditions or
provisions of any law or order of any Governmental or Regulatory Authority or
any Contract to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries or any of their respective assets or
properties is bound for the execution and delivery of this Agreement by each of
Parent and Sub, the performance by each of Parent and Sub of its obligations
hereunder or the consummation of the transactions contemplated hereby, other
than such consents, approvals, actions, filings and notices which the failure to
make or obtain, as the case may be, individually or in the aggregate, could not
be reasonably expected to have a material adverse effect on the ability of
Parent and Sub to consummate the transactions contemplated by this Agreement.
4.04 Information Supplied. Neither the information supplied or to
be supplied in writing by or on behalf of Parent or Sub for inclusion, nor the
information incorporated by reference from documents filed by Parent or any of
its Subsidiaries with the SEC, in the Proxy Statement or any other documents to
be filed by Parent, Sub or the Company with the SEC or any other Governmental or
Regulatory Authority in connection with the Merger and the other
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transactions contemplated hereby will, on the date of its filing or, in the case
of the Proxy Statement, at the date it is mailed to shareholders of the Company
and at the time of the Company Shareholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
4.05 Ownership of Company Common Shares. Neither Parent nor any
of its Subsidiaries or other affiliates beneficially owns any Company Common
Shares.
4.06 Legal Proceedings. There are no actions, suits, arbitrations
or proceedings pending or, to the knowledge of Parent or Sub, threatened
against, relating to or affecting, nor to the knowledge of Parent or Sub are
there any Governmental or Regulatory Authority investigations or audits pending
or threatened against, relating to or affecting, Parent or any of its
Subsidiaries or any of their respective assets and properties which,
individually or in the aggregate, could be reasonably expected to have a
material adverse effect on the ability of Parent and Sub to consummate the
transactions contemplated by this Agreement, and neither Parent nor any of its
Subsidiaries is subject to any order of any Governmental or Regulatory Authority
which, individually or in the aggregate, could be reasonably expected to have a
material adverse effect on the ability of Parent and Sub to consummate the
transactions contemplated by this Agreement.
4.07 Capitalization of Sub. The authorized capital stock of Sub
consists of 850 shares of common stock, no par value per share, all of which
shares, as of the date of this Agreement, are validly issued and outstanding,
fully paid and nonassessable and are owned by Parent free and clear of all
Liens.
4.08 Financing. Parent has or immediately prior to the Closing
will have sufficient funds to perform its obligations under this Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
5.01 Covenants of the Company. At all times from and after the
date hereof until the Effective Time, the Company covenants and agrees as to
itself and its Subsidiaries that (except as expressly contemplated or permitted
by this Agreement, or to the extent that Parent shall otherwise previously
consent in writing):
(a) Ordinary Course. The Company and each of its Subsidiaries
shall conduct their respective businesses only in, and neither the Company nor
any such Subsidiary shall take any action except in, the ordinary course
consistent with past practice.
(b) Without limiting the generality of paragraph (a) of this
Section, (i) the Company and its Subsidiaries shall use all commercially
reasonable efforts to preserve intact in all material respects their present
business organizations and reputation, to keep available the services of their
key officers and employees, to maintain their assets and properties in good
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working order and condition, ordinary wear and tear excepted, to maintain
insurance on their tangible assets and businesses in such amounts and against
such risks and losses as are currently in effect, to preserve their
relationships with customers and suppliers and others having significant
business dealings with them and to comply in all material respects with all laws
and orders of all Governmental or Regulatory Authorities applicable to them, and
(ii) the Company shall not, nor shall it permit any of its Subsidiaries to,
except as otherwise expressly provided for in this Agreement:
(A) amend or propose to amend its certificate or articles of
incorporation or bylaws or regulations (or other comparable corporate
charter documents);
(B) (w) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital shares, except that the
Company may continue the declaration and payment of regular quarterly
cash dividends on Company Common Shares, with usual record and payment
dates for such dividends in accordance with past dividend practice and
except for the declaration and payment of dividends by a wholly-owned
Subsidiary solely to its parent corporation, (x) split, combine,
reclassify or take similar action with respect to any of its capital
shares or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for its capital
shares, (y) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (z) other than repurchases and other
acquisitions in connection with the administration of employee benefit
and dividend reinvestment plans in the ordinary course of the operation
of such plans, directly or indirectly redeem, repurchase or otherwise
acquire any capital shares or any Option with respect thereto, except
that prior to the Effective Time the Company may redeem all then
outstanding Company Rights pursuant to the terms of the Company Rights
Agreement for a redemption price not to exceed $0.01 per Company Right;
(C) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any of its capital shares or any Option with
respect thereto, other than (i) the issuance of Company Common Shares or
share appreciation or similar rights, as the case may be, pursuant to
Options outstanding on the date of this Agreement and in accordance with
their present terms, (ii) the issuance of Options pursuant to Company
Option Plans, in each case in accordance with their present terms and
only in connection with the hiring of new employees, and the issuance of
Company Common Shares upon exercise of such options, (iii) the issuance
by a wholly-owned Subsidiary of its capital shares to its parent
corporation, (iv) the issuance of Company Rights and reservation of
Company Series A Preferred Shares pursuant to the Company Rights
Agreement in accordance with the terms thereof, (v) the issuance of
Company Common Shares pursuant to and in accordance with the terms of
the Company's Tax Savings and Profit Sharing Plan or (vi) the issuance
of Company Common Shares pursuant to and in accordance with the terms of
the Company's Incentive Stock Purchase Plan for Eligible Employees, or
modify or amend any right of any holder of outstanding capital shares
with respect thereto except as contemplated by this Agreement;
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(D) except for transactions provided for in or contemplated by
the most recent business operating plan of the Company furnished to
Parent (the "Company Business Plan"), acquire (by merging or
consolidating with, or by purchasing a substantial equity interest in or
a substantial portion of the assets of, or by any other manner) any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to
acquire any assets other than inventory and other assets to be sold or
used in the ordinary course of business consistent with past practice;
(E) sell, lease, grant any security interest in or otherwise
dispose of or encumber any of its assets or properties, other than (i)
sales of inventory in the ordinary course of business consistent with
past practice, (ii) to the extent provided for in the Company Business
Plan, (iii) to the extent such transactions are not material to the
Company or its Subsidiaries, and (iv) the transfer by the Company on the
Closing Date to the Worthington Foods Foundation as charitable
contributions of a house and land located at 430 East Dublin-Granville
Road, Worthington, Ohio and funds in the amount of $150,000, to satisfy
prior charitable commitments made by the Company;
(F) except to the extent required by applicable law or order or
changes in generally accepted accounting principles or as otherwise
provided for in or contemplated by the Company Business Plan , (x)
permit any material change in (A) any pricing, marketing, purchasing,
investment, accounting, financial reporting, inventory, credit,
allowance or tax practice or policy or (B) any method of calculating any
bad debt, contingency or other reserve for accounting, financial
reporting or tax purposes or (y) make any material tax election or
settle or compromise any material income tax liability with any
Governmental or Regulatory Authority;
(G) except (i) as set forth in Section 5.01(b)(G) of the Company
Disclosure Letter or (ii) to the extent provided for in or contemplated
by the Company Business Plan, incur any indebtedness for borrowed money
or guarantee any such indebtedness in an aggregate principal amount
exceeding $1,000,000 (net of any amounts of any such indebtedness
discharged during such period), or (y) voluntarily purchase, cancel,
prepay or otherwise provide for a complete or partial discharge in
advance of a scheduled repayment date with respect to, or waive any
right under, any indebtedness for borrowed money in an aggregate
principal amount exceeding $1,000,000;
(H) except for the vesting of all unvested Options as
contemplated by Section 2.01(e), enter into, adopt, amend in any
material respect (except as may be required by applicable law) or
terminate any Company Employee Benefit Plan or other agreement,
arrangement, plan or policy between the Company or one of its
Subsidiaries and one or more of its directors, officers or employees,
or, except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company and
its Subsidiaries taken as a whole, increase in any manner the
compensation or fringe benefits of any director, officer or employee or
pay any benefit not required by any plan or arrangement in effect as of
the date hereof;
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(I) enter into any Contract or amend or modify any existing
Contract, or engage in any new transaction outside the ordinary course
of business consistent with past practice or not on an arm's length
basis, with any affiliate of the Company or any of its Subsidiaries;
(J) make any capital expenditures or commitments for additions to
plant, property or equipment constituting capital assets, except as set
forth in Section 5.01(b)(J) of the Company Disclosure Letter or to the
extent provided for in the Company Business Plan;
(K) make any change in the lines of business in which it
participates or is engaged; or
(L) enter into any Contract, commitment or arrangement to do or
engage in any of the foregoing.
(c) Advice of Changes. The Company shall confer on a regular and
frequent basis with Parent with respect to its business and operations and other
matters relevant to the Merger, and shall promptly advise Parent, orally and in
writing, of any change or event, including, without limitation, any complaint,
investigation or hearing by any Governmental or Regulatory Authority (or
communication indicating the same may be contemplated) or the institution or
threat of litigation, known to the Company, having, or which, insofar as can be
reasonably foreseen, could have, a material adverse effect on the Company and
its Subsidiaries taken as a whole or on the ability of the Company to consummate
the transactions contemplated hereby.
5.02 No Solicitations. Prior to the Effective Time, the Company
agrees (a) that neither it nor any of its Subsidiaries or other affiliates
shall, and it shall use its best efforts to cause their respective
Representatives (as defined in Section 9.11) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its shareholders) with respect to a merger, consolidation or other business
combination including the Company or any of its Subsidiaries or any acquisition
or similar transaction (including, without limitation, a tender or exchange
offer) involving the purchase of (i) all or any significant portion of the
assets of the Company and its Subsidiaries taken as a whole, (ii) 5% or more of
the outstanding Company Common Shares or (iii) 5% of the outstanding capital
shares of any Subsidiary of the Company (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person or group relating to an Alternative
Proposal (excluding the transactions contemplated by this Agreement), or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties with respect
to any of the foregoing, and it will take the necessary steps to inform such
parties of its obligations under this Section; and (c) that it will notify
Parent immediately if any such inquiries, proposals or offers are received by,
any such confidential information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it or any of such
persons; provided, however, that nothing contained in this Section 5.02 shall
prohibit the Board of
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Directors of the Company from (i) furnishing information to (but only pursuant
to a confidentiality agreement in customary form and having terms and conditions
no less favorable to the Company than the Confidentiality Agreement (as defined
in Section 6.01)) or entering into discussions or negotiations with any person
or group that makes an unsolicited bona fide Alternative Proposal, if, and only
to the extent that, prior to receipt of the Company Shareholders' Approval, (A)
the Board of Directors of the Company, based on advice of outside counsel
determines in good faith that such action is required for the Board of Directors
to comply with its fiduciary duties to shareholders imposed by law, (B) the
Board of Directors has reasonably concluded in good faith, after consultation
with its financial advisor, that (1) if such Alternative Proposal contains cash
consideration, the person or group making such Alternative Proposal will have
adequate sources of financing to consummate such Alternative Proposal and (2)
such Alternative Proposal is more favorable to the Company's shareholders than
the Merger, and the Board of Directors has received a written opinion from a
nationally-recognized investment banking firm (a copy of which shall be provided
promptly to Parent) to the effect that the consideration to be received by the
Company's shareholders in connection with such Alternative Proposal is fair,
from a financial point of view, to the shareholders of the Company, (C) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or group, the Company provides written notice to Parent to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or group, which notice shall identify such person
or group in reasonable detail, and (D) the Company keeps Parent informed of the
status and substance of any such discussions or negotiations; and (ii) to the
extent required, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Alternative Proposal. Nothing in this Section 5.02 shall (x)
permit the Company to terminate this Agreement (except as specifically provided
in Article VIII), (y) permit the Company to enter into any agreement with
respect to an Alternative Proposal for so long as this Agreement remains in
effect (it being agreed that for so long as this Agreement remains in effect,
the Company shall not enter into any agreement with any person or group that
provides for, or in any way facilitates, an Alternative Proposal (other than a
confidentiality agreement under the circumstances described above)), or (z)
affect any other obligation of the Company under this Agreement.
5.03 Company Rights Agreement. (a) Prior to the Effective Time,
without the prior written consent of Parent, the Company shall not amend the
Company Rights Agreement. Except to the extent required by applicable law or to
the extent that the Board of Directors of the Company, based on advice of
outside counsel, determines in good faith that such action is required in order
for the Board of Directors to comply with its fiduciary duties to shareholders
imposed by law, prior to the Effective Time, without the prior written consent
of Parent, the Company will not take any action with respect to, or make any
determination under, the Company Rights Agreement, except that immediately prior
to the Effective Time the Company shall redeem the Company Rights.
(b) In the event that, following the making of an Alternative
Proposal (including an unsolicited tender offer), the Company:
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(i) takes any action with respect to or makes any determination
under, the Company Rights Agreement which has the effect of
facilitating the consummation of such Alternative Proposal; or
(ii) permits a Distribution Date (as defined in the Company Rights
Agreement) to occur in connection with such Alternative Proposal,
and such Alternative Proposal is consummated at any time
thereafter;
then the Company shall pay to Parent, by wire transfer of same day funds
within two (2) business days following the date of such consummation, the
amounts referred to in Section 8.02(b).
5.04 Third Party Standstill Agreements. During the period from
the date of this Agreement through the Effective Time, neither the Company nor
any of its Subsidiaries shall terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which it is a party. During such
period, the Company shall enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreement, including, but not limited
to, by obtaining injunctions to prevent any breaches of such agreements and to
enforce specifically the terms and provisions thereof in any court having
jurisdiction.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality. The Company shall,
and shall cause each of its Subsidiaries to, throughout the period from the date
hereof to the Effective Time, (i) provide Parent and its Representatives with
full access, upon reasonable prior notice and during normal business hours, to
all officers, employees, agents and accountants of the Company and its
Subsidiaries and their respective assets, properties, books and records, but
only to the extent that such access does not unreasonably interfere with the
business and operations of the Company and its Subsidiaries, and (ii) furnish
promptly to Parent (x) a copy of each report, statement, schedule and other
document filed or received by the Company or any of its Subsidiaries pursuant to
the requirements of federal or state securities laws and each material report,
statement, schedule and other document filed with any other Governmental or
Regulatory Authority, and (y) all other information and data (including, without
limitation, copies of Contracts, Company Employee Benefit Plans and other books
and records) concerning the business and operations of the Company and its
Subsidiaries as Parent or any of such other persons reasonably may request. No
investigation pursuant to this paragraph or otherwise shall affect any
representation or warranty contained in this Agreement or any condition to the
obligations of the parties hereto. Any such information or material obtained
pursuant to this Section 6.01 that constitutes "Evaluation Material" (as such
term is defined in the letter agreement dated as of July 8, 1999 between the
Company and Parent (the "Confidentiality Agreement")) shall be governed by the
terms of the Confidentiality Agreement.
6.02 Preparation of Proxy Statement. The Company shall prepare
and file with the SEC the Proxy Statement as soon as reasonably practicable
after the date hereof, and shall
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use its best efforts to have the Proxy Statement cleared by the SEC. If at any
time prior to the Effective Time any event shall occur that should be set forth
in an amendment of or a supplement to the Proxy Statement, the Company shall
prepare and file with the SEC such amendment or supplement as soon thereafter as
is reasonably practicable. Parent, Sub and the Company shall cooperate with each
other in the preparation of the Proxy Statement, and the Company shall notify
Parent of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement thereto
or for additional information, and shall provide to Parent promptly copies of
all correspondence between the Company or any Representative of the Company and
the SEC with respect to the Proxy Statement. The Company shall give Parent and
its counsel the opportunity to review the Proxy Statement and all responses to
requests for additional information by and replies to comments of the SEC before
their being filed with, or sent to, the SEC. Each of the Company, Parent and Sub
agrees to use its best efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC and
to cause the Proxy Statement to be mailed to the holders of Company Common
Shares entitled to vote at the Company Stockholders' Meeting at the earliest
practicable time.
6.03 Approval of Shareholders. (a) The Company shall, through its
Board of Directors, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Company Shareholders' Meeting") for the purpose of voting on
the adoption of this Agreement (the "Company Shareholders' Approval") as soon as
reasonably practicable after the date hereof. Subject to the exercise of
fiduciary obligations as advised by outside counsel, the Company shall, through
its Board of Directors, include in the Proxy Statement the recommendation of the
Board of Directors of the Company that the shareholders of the Company adopt
this Agreement, and shall use its best efforts to obtain such adoption. In the
event that the Company Shareholders' Approval is not obtained on the date on
which the Company Shareholders' Meeting is initially convened, the Company shall
adjourn such Company Shareholders' Meeting at least once for the purpose of
obtaining the Company Shareholders' Approval and use its best efforts during any
such adjournments to obtain the Company Shareholders' Approval.
(b) Unless this Agreement has been earlier terminated in
accordance with its terms, the Company shall not be relieved of its obligation
under the first sentence of paragraph (a) of this Section 6.03 in the event that
its Board of Directors withdraws its recommendation of this Agreement and the
Merger.
6.04 Regulatory and Other Approvals. Subject to the terms and
conditions of this Agreement and without limiting the provisions of Sections
6.02 and 6.03, each of the Company and Parent will proceed diligently and in
good faith to, as promptly as practicable, (a) obtain all consents, approvals or
actions of, make all filings with and give all notices to Governmental or
Regulatory Authorities or any other public or private third parties required of
Parent, the Company or any of their Subsidiaries to consummate the Merger and
the other matters contemplated hereby, and (b) provide such other information
and communications to such Governmental or Regulatory Authorities or other
public or private third parties as the other party or such Governmental or
Regulatory Authorities or other public or private third parties may reasonably
request in connection therewith. In addition to and not in limitation of the
foregoing, each of the parties will (x) take promptly all actions necessary to
make the filings required of
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Parent and the Company or their affiliates under the HSR Act, (y) comply at the
earliest practicable date with any request for additional information received
by such party or its affiliates from the Federal Trade Commission (the "FTC") or
the Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act, and (z) cooperate with the other party in connection
with such party's filings under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the Merger or the other matters
contemplated by this Agreement commenced by either the FTC or the Antitrust
Division or state attorneys general.
6.05 Employee Matters.
(a) As of the Effective Time, the Company will amend its "Tax
Savings and Profit Sharing Plan" ("Code Section 401(k) Plan") to (i) eliminate
any investment fund comprised of Company Common Shares, (ii) prohibit any
additional contributions in the form of Company Common Shares and (iii) make all
participant accounts fully vested and nonforfeitable.
(b) As of the Effective Time, the Company will amend its Employee
Stock Ownership Plan ("ESOP") to provide that benefits will be distributed
solely in cash. Within thirty (30) days after the Effective Time, Parent will
cause the Surviving Corporation to terminate the ESOP and, as soon as
administratively practicable after that date, to take all action needed to
liquidate the ESOP by distributing its assets as provided by the terms of the
ESOP.
(c) Except for employees covered by any collective bargaining
contract, and except as otherwise expressly provided in this Agreement, Parent
will (i) cause the Company Employee Benefit Plans (other than the Company Option
Plans and other Plans providing equity or equity-based awards) in effect at the
date of this Agreement to remain in effect until the second anniversary of the
Effective Time or (ii) to the extent that such Company Employee Benefit Plans
are not so continued, cause the Company to maintain until such date benefit
plans which are substantially comparable, in the aggregate, to the employees
covered by such Company Employee Benefit Plans on the date of this Agreement.
(d) The Plans in which the Company's employees participate
following the Effective Time will (i) credit, for vesting and eligibility
purposes only, all service performed for the Company prior to the Effective
Time, (ii) waive any pre-existing condition exclusions and actively-at-work
requirements (other than pre-existing conditions that, as of the Effective Time,
have not been satisfied under any Company Employee Benefit Plan) and (iii)
provide that any covered expenses incurred on or before the Effective Time
during the plan year of the applicable Company Employee Benefit Plan will be
taken into account for purposes of satisfying applicable deductible, coinsurance
and maximum out-of-pocket provisions after the Effective Time to the same extent
that such expenses are taken into account for similarly situated employees of
the Parent.
(e) On or before the Closing Date, the Company will take the
following actions:
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(i) The Company will make a contribution to the Code Section
401(k) Plan for the benefit of the participants in such plan in an amount equal
to 3% of each participant's base salary paid from January 1, 1999 through the
Closing Date;
(ii) The Company will make bonus payments to the Vice Presidents,
Executive Vice President and President of the Company in amounts to be
determined as follows. If the Closing Date occurs in 1999, and as of such
Closing Date the Company has achieved its sales projections through the last day
of the month immediately preceding the month in which the Closing occurs, then
the Company will pay to each of the Vice Presidents of the Company a payment
equal to 20% of such individual's Base Salary Amount (as defined below), to the
Executive Vice President of the Company a payment equal to 30% of his Base
Salary Amount and to the President of the Company a payment equal to 40% of his
Base Salary Amount. If such sales projections are not met as provided in the
immediately preceding sentence, then the Company will pay to each of the Vice
Presidents, the Executive Vice President and the President of the Company an
amount equal to 10% of such individual's Base Salary Amount. If the Closing Date
occurs in 2000, the Company will make bonus payments to the Vice Presidents, the
Executive Vice President and the President of the Company in the manner set
forth in the immediately preceding two sentences based on whether or not the
Company's sales projections for the fiscal year ended December 31, 1999 were
achieved. For purposes of this Subsection 6.05(e)(ii), the Company's sales
projections as of the end of each month and for the fiscal year shall be based
on the latest fiscal 1999 sales projections delivered by the Company to Parent
on or before the date of this Agreement. For purposes hereof, the "Base Salary
Amount' for each relevant individual shall be the base salary paid to such
individual from January 1, 1999 through the earlier of (x) the Closing Date or
(y) December 31, 1999.
(f) Parent will provide, or will cause the Company to provide,
Typical Outplacement Services (as defined below) to each salaried employee of
the Company who is terminated by the Company (other than for cause) within 6
months of the Closing Date. Parent or the Company will select the firm or firms
to provide such Typical Outplacement Services. For purposes hereof, "Typical
Outplacement Services" as to each eligible terminated employee shall be those
outplacement services typically provided by Parent to similarly situated
employees (based on such factors as the terminated employee's compensation and
position prior to the Closing) for whom Parent provides outplacement services.
6.06 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to indemnify, advance expenses to, and hold harmless the
present and former officers and directors of the Company and its Subsidiaries in
respect of the acts or omissions occurring prior to the Effective Time to the
extent provided under the Company's or Subsidiaries Articles (or Certificate) of
Incorporation or Regulations (or By-laws) on the date of this Agreement.
(b) Parent and the Surviving Corporation shall, until the sixth
anniversary of the Effective Time and for so long thereafter as any claim for
insurance coverage asserted on or prior to such date has not been fully
adjudicated, cause to be maintained in effect, at no cost to
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the beneficiaries thereof, to the extent available, the policies of directors'
and officers' liability insurance maintained by the Company and its Subsidiaries
as of the date hereof (or policies of at least the same coverage and amounts
containing terms that are no less advantageous to the insured parties) with
respect to acts or omissions occurring prior to the Effective Time; provided
that in no event shall Parent or the Surviving Corporation be obligated to
expend in order to maintain or procure insurance coverage pursuant to this
paragraph any amount per annum in excess of 200% of the amount set forth in
Section 6.06 of the Company Disclosure Letter and provided, further, that if
such insurance cannot be so maintained or obtained at such cost, Parent or the
Surviving Corporation shall maintain or obtain as much of such insurance as can
be so maintained or obtained at a cost equal to 200% of the amount set forth in
said Section 6.06 of the Disclosure Letter.
6.07 Expenses. Except as set forth in Section 8.02, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such cost or expense. Parent shall pay the filing fee in
connection with the filings required under the HSR Act.
6.08 Sub. Prior to the Effective Time, Sub shall not conduct any
business or make any investments other than as specifically contemplated by this
Agreement and will not have any assets (other than a de minimis amount of cash
paid to Sub for the issuance of its stock to Parent) or any material
liabilities. Parent will take all action necessary to cause Sub to perform its
obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement.
6.09 Brokers or Finders. Each of Parent and the Company
represents, as to itself and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except U.S. Bancorp
Piper Jaffray, whose fees and expenses will be paid by the Company in accordance
with the Company's agreement with such firm (a true and complete copy of which
has been delivered by the Company to Parent prior to the execution of this
Agreement), and each of Parent and the Company shall indemnify and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other such fee or commission or expenses related thereto
asserted by any person on the basis of any act or statement alleged to have been
made by such party or its affiliate.
6.10 Takeover Statutes. If any "fair price", "moratorium",
"control share acquisition" or other form of anti-takeover statute or regulation
shall become applicable to the transactions contemplated hereby, the Company and
the members of the Board of Directors of the Company shall, to the extent
permitted by law, grant such approvals and take such actions as are reasonably
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and thereby and
otherwise act, to the extent permitted by law, to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby
and thereby.
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6.11 Conveyance Taxes. The Company and Parent shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated by this Agreement that
are required or permitted to be filed on or before the Effective Time.
6.12 Covenant to Continue Manufacture of Food Products. If Parent
should decide to discontinue or cause the discontinuance of the manufacture and
sale to Seventh-day Organizations of a line of at least 10 different vegetarian
products under the Loma Linda trademark, containing no meat or
animal-derivatives and free from black pepper or other strong spices or flavor
enhancers, it shall give written notice of such decision to the General
Conference Corporation of Seventh-day Adventists (the "General Conference") at
12501 Old Columbia Pike, Silver Spring, Maryland 20904 and offer to sell
ownership to the Loma Linda trademark to the General Conference for a purchase
price of $1.00. Additionally, if for any reason, Parent and its affiliates shall
decide to discontinue the use of the Loma Linda trademark, Parent shall also
offer to sell ownership of such trademark to the General Conference for $1.00.
"Seventh-day Organizations" shall mean the schools, hospitals, churches, retail
food stores and other organizations, entities and institutions sponsored by or
affiliated with the Seventh-day Adventist Church.
6.13 Notice and Cure. Each of Parent and the Company will notify
the other of, and will use all commercially reasonable efforts to cure before
the Closing, any event, transaction or circumstance, as soon as practical after
it becomes known to such party, that causes or will cause any covenant or
agreement of Parent or the Company under this Agreement to be breached or that
renders or will render untrue any representation or warranty of Parent or the
Company contained in this Agreement. Each of Parent and the Company also will
notify the other in writing of, and will use all commercially reasonable efforts
to cure, before the Closing, any violation or breach, as soon as practical after
it becomes known to such party, of any representation, warranty, covenant or
agreement made by Parent or the Company. No notice given pursuant to this
Section shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein.
6.14 Fulfillment of Conditions. Subject to the terms and
conditions of this Agreement, each of Parent and the Company will take or cause
to be taken all commercially reasonable steps necessary or desirable and proceed
diligently and in good faith to satisfy each condition to the other's
obligations contained in this Agreement and to consummate and make effective the
transactions contemplated by this Agreement, and neither Parent nor the Company
will, nor will it permit any of its Subsidiaries to, take or fail to take any
action that could be reasonably expected to result in the nonfulfillment of any
such condition.
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ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) Shareholder Approval. This Agreement shall have been adopted
by the requisite vote of the shareholders of the Company under the OGCL and the
Company's Articles of Incorporation.
(b) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(c) No Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall have
enacted, issued, promulgated, enforced or entered any law or order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal or otherwise restricting, preventing or prohibiting
consummation of the Merger or the other transactions contemplated by this
Agreement.
(d) Governmental and Regulatory and Other Consents and Approvals.
Other than the filing provided for by Section 1.03, all consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
or any other public or private third parties required of Parent, the Company or
any of their Subsidiaries to consummate the Merger and the other matters
contemplated hereby, the failure of which to be obtained or taken could be
reasonably expected to have a material adverse effect on Parent and its
Subsidiaries or the Surviving Corporation and its Subsidiaries, in each case
taken as a whole, or on the ability of Parent and the Company to consummate the
transactions contemplated hereby shall have been obtained, all in form and
substance reasonably satisfactory to Parent and the Company.
7.02 Conditions to Obligation of Parent and Sub to Effect the
Merger. The obligation of Parent and Sub to effect the Merger is further subject
to the fulfillment, at or prior to the Closing, of each of the following
additional conditions (all or any of which may be waived in whole or in part by
Parent and Sub in their sole discretion):
(a) Representations and Warranties. The representations and
warranties made by the Company in this Agreement that are qualified by
materiality shall be true and correct and such representations and warranties
that are not so qualified shall be true and correct in all material respects, in
each case, as of the Closing Date as though made on and as of the Closing Date
or, in the case of representations and warranties made as of a specified date
earlier than the Closing Date, on and as of such earlier date, except as
affected by the transactions contemplated by this Agreement, and the Company
shall have delivered to Parent a certificate, dated the Closing Date and
executed in the name and on behalf of the Company by its Chairman of the Board,
President or any Vice President, to such effect.
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(b) Performance of Obligations. The Company shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by the
Company at or prior to the Closing, and the Company shall have delivered to
Parent a certificate, dated the Closing Date and executed in the name and on
behalf of the Company by its Chairman of the Board, President or any Vice
President, to such effect.
(c) Company Rights Agreement. On or prior to the Closing Date,
the Company Rights shall not have become exercisable or transferable apart from
the associated Company Common Shares, no "Shares Acquisition Date" or
"Distribution Date" (each as defined in the Company Rights Agreement) shall have
occurred and the Company Rights shall have been redeemed in accordance with the
terms of the Company Rights Agreement.
(d) Employment Agreements. B. Eugene Fluck, David F. Hamann,
William T. Kirkwood, Ronald L. McDermott, Jay L. Robertson and Dale E. Twomley
shall each have entered into an agreement with Parent, substantially in the form
of Exhibits A, B, C, D, E and F attached hereto, respectively.
(e) Dissenting Shares. The aggregate number of Dissenting Shares
shall not exceed 10% of the total number of Company Common Shares outstanding on
the Closing Date.
(f) Proceedings. All proceedings to be taken on the part of the
Company in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Parent, and Parent shall have received copies of all such documents
and other evidences as Parent may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
7.03 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger is further subject to
the fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the Company
in its sole discretion):
(a) Representations and Warranties. The representations and
warranties made by Parent and Sub in this Agreement that are qualified by
materiality shall be true and correct, and such representations and warranties
that are not so qualified shall be true and correct in all material respects, in
each case, as of the Closing Date as though made on and as of the Closing Date
or, in the case of representations and warranties made as of a specified date
earlier than the Closing Date, on and as of such earlier date, except as
affected by the transactions contemplated by this Agreement, and Parent and Sub
shall each have delivered to the Company a certificate, dated the Closing Date
and executed in the name and on behalf of Parent by its Chairman of the Board,
President or any Vice President and in the name and on behalf of Sub by its
Chairman of the Board, President or any Vice President, to such effect.
(b) Performance of Obligations. Parent and Sub shall have
performed and complied with, in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
Parent or Sub at or prior to the Closing, and
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Parent and Sub shall each have delivered to the Company a certificate, dated the
Closing Date and executed in the name and on behalf of Parent by its Chairman of
the Board, President or any Vice President and in the name and on behalf of Sub
by its Chairman of the Board, President or any Vice President, to such effect.
(c) Proceedings. All proceedings to be taken on the part of
Parent and Sub in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Company, and the Company shall have received copies of
all such documents and other evidences as the Company may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether prior to or after the Company Shareholders' Approval:
(a) By mutual written agreement of the parties hereto duly
authorized by action taken by or on behalf of their respective Boards of
Directors;
(b) By either the Company or Parent upon written notification to
the non-terminating party by the terminating party:
(i) at any time after March 31, 2000 if the Merger shall
not have been consummated on or prior to such date and such failure to
consummate the Merger is not caused by a breach of this Agreement by the
terminating party;
(ii) if the Company Shareholders' Approval shall not be
obtained by reason of the failure to obtain the requisite vote upon a
vote held at a meeting of such shareholders, or any adjournment thereof,
called therefor;
(iii) if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the
non-terminating party set forth in this Agreement, which breach is not
curable or, if curable, has not been cured within thirty (30) days
following receipt by the non-terminating party of notice of such breach
from the terminating party; or
(iv) if any court of competent jurisdiction or other
competent Governmental or Regulatory Authority shall have issued an
order making illegal or otherwise restricting, preventing or prohibiting
the Merger and such order shall have become final and nonappealable;
(c) By the Company if the Board of Directors of the Company
determines in good faith, based upon advice from outside counsel, that
termination of the Agreement is
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required for the Board of Directors to comply with its fiduciary duties to
shareholders imposed by law by reason of an unsolicited bona fide Alternative
Proposal having been made which (i) meets the requirements of clauses (A) and
(B) of Section 5.02 and (ii) is not conditioned on the receipt of financing;
provided that the Company shall have complied with the provisions of clauses (C)
and (D) of Section 5.02 and shall notify Parent within three (3) business days
of its intention to terminate this Agreement or enter into a definitive
agreement with respect to such Alternative Proposal, but in no event shall such
notice be given less than forty-eight (48) hours prior to the public
announcement of the Company's termination of this Agreement; and provided
further that the Company's ability to terminate this Agreement pursuant to this
paragraph (c) is conditioned upon the prior payment by the Company to Parent of
any amounts owed by it pursuant to Section 8.02(b); or
(d) By Parent if the Board of Directors of the Company (or any
committee thereof) shall have withdrawn or modified in a manner adverse to
Parent its approval or recommendation of this Agreement or the Merger or shall
have recommended an Alternative Proposal to the shareholders of the Company or
failed to reconfirm its recommendation of this Agreement and the Merger within
five (5) business days following a reasonable written request for such
reconfirmation by Parent.
8.02 Effect of Termination. (a) If this Agreement is validly
terminated by either the Company or Parent pursuant to Section 8.01, this
Agreement will forthwith become null and void and there will be no liability or
obligation on the part of either the Company or Parent (or any of their
respective Representatives or affiliates), except (i) that the provisions of
6.07 and 6.09 and this Section 8.02 will continue to apply following any such
termination, (ii) that nothing contained herein shall relieve any party hereto
from liability for willful breach of its representations, warranties, covenants
or agreements contained in this Agreement and (iii) as provided in paragraph (b)
below.
(b) In the event that any person or group shall have made an
Alternative Proposal and thereafter (i) this Agreement is terminated (x) by the
Company pursuant to Section 8.01(c), or (y) by Parent pursuant to Section
8.01(d) or (ii) this Agreement is terminated for any other reason (other than by
reason of the breach of this Agreement by Parent or a termination by either
party pursuant to 8.01(b)(iv)) and, in the case of this clause (ii) only, a
definitive agreement with respect to such Alternative Proposal is executed
within one year after such termination, then the Company shall pay to Parent, by
wire transfer of same day funds, either on the date contemplated in Section
8.01(c) if applicable, or otherwise, within two (2) business days after such
amount becomes due, (x) a termination fee of $12,500,000 and (y) an amount up to
$500,000 to reimburse Parent and Sub for all documented out-of-pocket expenses
and fees incurred by them in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, fees and expenses payable to
all banks, investment banking firms and other financial institutions and persons
and their respective agents and counsel for acting as Parent's financial advisor
with respect to, or arranging or committing to provide or providing any
financing for, the Merger).
(c) The Company acknowledges that the agreements contained in the
preceding paragraph are an integral part of the transactions contemplated by
this Agreement and that, without these agreements, Parent and Sub would not
enter into this Agreement; accordingly,
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if the Company fails promptly to pay the amount due pursuant to such paragraph,
and in order to obtain such payment, Parent or Sub commences a suit which
results in a judgment against the Company for the fee set forth in such
paragraph, the Company shall pay to Parent or Sub, as the case may be, its cost
and expenses (including reasonable attorneys' fees and expenses) in connection
with such suit, together with interest on the amount of the fee at the prime
rate of Citibank N.A. in effect on the date such payment was required to be
made.
(d) In the event of a termination of this Agreement pursuant to
which a payment is made in full compliance with Section 8.02(b), the receipt of
such payment shall serve as liquidated damages with respect to any breach of
this Agreement by the party who has made such payment giving rise to such
termination, and the receipt of any such payment shall be the sole and exclusive
remedy (at law or in equity) with respect to any such breach. In the event any
action, suit, proceeding or claim is commenced or asserted by a party against
another party and/or any director or officer of such other party relating,
directly or indirectly, to this Agreement, it is expressly agreed that no party
shall be entitled to obtain any punitive, exemplary, treble, or consequential
damages of any type under any circumstances in connection with such action,
suit, proceeding or claim, regardless of whether such damages may be available
under law, the parties hereby waiving their rights, if any, to recover any such
damages in connection with any such action, suit, proceeding or claim
8.03 Amendment. This Agreement may be amended, supplemented or
modified by action taken by or on behalf of the respective Boards of Directors
of the parties hereto at any time prior to the Effective Time, whether prior to
or after the Company Shareholders' Approval shall have been obtained, but after
such adoption and approval only to the extent permitted by applicable law. No
such amendment, supplement or modification shall be effective unless set forth
in a written instrument duly executed by or on behalf of each party hereto.
8.04 Waiver. At any time prior to the Effective Time any party
hereto, by action taken by or on behalf of its Board of Directors, may to the
extent permitted by applicable law (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the covenants, agreements or conditions of the other
parties hereto contained herein. No such extension or waiver shall be effective
unless set forth in a written instrument duly executed by or on behalf of the
party extending the time of performance or waiving any such inaccuracy or
non-compliance. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion.
ARTICLE IX
GENERAL PROVISIONS
9.01 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements contained
in this Agreement shall not survive the Merger but shall terminate at the
Effective Time; provided, however, that this
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Section 9.01 shall not limit any covenant or agreement of the parties hereto,
which by its terms contemplates performance after the Effective Time or the
termination of this Agreement.
9.02 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Parent or Sub, to:
Kellogg Company
One Kellogg Square
P.O. Box 3599
Battle Creek, Michigan 49106-3599
Facsimile No.: (616) 961-3276
Attn: General Counsel
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005
Facsimile No.: (212) 530-5219
Attn: Howard S. Kelberg, Esq.
If to the Company, to:
Worthington Foods, Inc.
900 Proprietors Road
Worthington, Ohio 43085
Facsimile No.: (614) 885-3415
Attn: Dale E. Twomley, President
with a copy to:
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, Ohio 43216
Facsimile No.: (614) 464-6350
Attn: Roger E. Lautzenhiser
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request
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or other communication is received by any other person to whom a copy of such
notice, request or other communication is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
9.03 Entire Agreement; Incorporation of Exhibits. (a) This
Agreement supersedes all prior discussions and agreements among the parties
hereto with respect to the subject matter hereof, and contains, together with
the Confidentiality Agreement, the sole and entire agreement among the parties
hereto with respect to the subject matter hereof.
(b) The Company Disclosure Letter and any Exhibit attached to
this Agreement and referred to herein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
9.04 Public Announcements Except as otherwise required by law or
the rules of any applicable securities exchange or national market system, so
long as this Agreement is in effect, Parent and the Company will not, and will
not permit any of their respective Representatives to, issue or cause the
publication of any press release or make any other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld. Parent and
the Company will cooperate with each other in the development and distribution
of all press releases and other public announcements with respect to this
Agreement and the transactions contemplated hereby, and will furnish the other
with drafts of any such releases and announcements as far in advance as
practicable.
9.05 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and except as provided in Sections
6.06 and 6.12 (which are intended to be for the benefit of the persons entitled
to therein, and may be enforced by any of such persons), it is not the intention
of the parties to confer third-party beneficiary rights upon any other person.
9.06 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other parties hereto and any attempt to
do so will be void, except that Sub may assign any or all of its rights,
interests and obligations hereunder to another direct or indirect wholly-owned
Subsidiary of Parent, provided that any such Subsidiary agrees in writing to be
bound by all of the terms, conditions and provisions contained herein. Subject
to the preceding sentence, this Agreement is binding upon, inures to the benefit
of and is enforceable by the parties hereto and their respective successors and
assigns.
9.07 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define, modify or limit
the provisions hereof.
9.08 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law or
order, and if the rights or obligations of any party hereto under this Agreement
will not be materially and adversely
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affected thereby, (i) such provision will be fully severable, (ii) this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, and (iii) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom.
9.09 Governing Law. Except to the extent that the OGCL is
mandatorily applicable to the Merger and the rights of the shareholders of the
Constituent Corporations, this Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
9.10 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specified terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11 Certain Definitions. As used in this Agreement:
(a) the term "affiliate," as applied to any person, shall mean
any other person directly or indirectly controlling, controlled by, or under
common control with, that person; for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise;
(b) a person will be deemed to "beneficially" own securities if
such person would be the beneficial owner of such securities under Rule 13d-3
under the Exchange Act, including securities which such person has the right to
acquire (whether such right is exercisable immediately or only after the passage
of time);
(c) the term "business day" means a day other than Saturday,
Sunday or any day on which banks located in the States of Ohio or Michigan are
authorized or obligated to close;
(d) any reference to any event, change or effect being "material"
or "materially adverse" or having a "material adverse effect" on or with respect
to an entity (or group of entities taken as a whole) means such event, change or
effect is material or materially adverse, as the case may be, to the business,
properties, assets, liabilities, prospects, condition financial or otherwise) or
results of operations of such entity (or of such group of entities taken as a
whole);
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(e) the term "knowledge" or any similar formulation of
"knowledge" shall mean, with respect to the Company, the knowledge of (i) any of
the Company's executive officers or directors and (ii) the employees of the
Company listed on Section 9.11 of the Company Disclosure Letter.
(f) the term "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act);
(g) the "Representatives" of any entity means such entity's
directors, officers, employees, legal, investment banking and financial
advisors, accountants and any other agents and representatives; and
(h) the term "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which more than fifty percent (50%) of either the equity interests in, or the
voting control of, such corporation or other organization is, directly or
indirectly through Subsidiaries or otherwise, beneficially owned by such party.
9.12 Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, each party hereto has caused this Agreement
to be signed by its officer thereunto duly authorized as of the date first above
written.
KELLOGG COMPANY
By: /s/ John D. Cook
-------------------------------
Name: John D. Cook
Title: Executive Vice President
WF ACQUISITION INC.
By: /s/ Stephen S. Benoit
-------------------------------
Name: Stephen S. Benoit
Title: Vice President
WORTHINGTON FOODS, INC.
By: /s/ Dale E. Twomley
-------------------------------
Name: Dale E. Twomley
Title: President and CEO
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APPENDIX B
September 30, 1999
The Board of Directors
Worthington Foods, Inc.
900 Proprietors Road
Worthington, Ohio 43085-3194
Members of the Board:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, to the stockholders of Worthington Foods, Inc.
("Worthington" or the "Company") of the consideration to be received in
connection with a proposed merger (the "Merger") in which a wholly owned
acquisition subsidiary ("Merger Sub") of Kellogg Company ("Kellogg") will be
merged with and into the Company. As a result of the Merger, Worthington would
become a wholly owned subsidiary of Kellogg. It is our understanding that
Worthington, Kellogg and Merger Sub will enter into an Agreement and Plan of
Merger (the "Merger Agreement") to be dated on or about September 30, 1999,
pursuant to which each share of Worthington common stock will be converted into
the right to receive $24.00 in cash (the "Merger Consideration") upon
consummation of the Merger.
U.S. Bancorp Piper Jaffray Inc., as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. We will receive a fee for rendering this Opinion
which is not contingent upon the consummation of the Merger. U.S. Bancorp Piper
Jaffray will also receive a fee for advising Worthington in connection with the
Merger which is contingent upon the consummation of the Merger. The Company has
also agreed to indemnify us against certain liabilities in connection with our
services. U.S. Bancorp Piper Jaffray makes a market in Worthington's common
stock and provides research coverage for Worthington. In the ordinary course of
our business, we and our affiliates may actively trade securities of Worthington
for our own account or the account of our customers and, accordingly, may at any
time hold a long or short position in such securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) a draft of the Merger Agreement dated
September 30, 1999, (ii) certain financial,
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Worthington Foods, Inc.
September 30, 1999
Page 2
operating and business information related to the Company, (iii) certain
internal financial information of the Company on a stand-alone basis prepared
for financial planning purposes and furnished by Worthington's management, (iv)
to the extent publicly available, financial terms of certain acquisition
transactions involving companies operating in industries deemed similar to that
in which the Company operates, (v) certain valuation and other financial
information on selected public companies deemed comparable to the Company, and
(vi) certain publicly available financial and securities data for Worthington,
Kellogg and their respective common stocks. In addition, we had discussions with
(a) members of Worthington's management concerning the financial condition,
current operating results and business outlook for the Company on a stand-alone
basis and in combination with Kellogg, (b) members of Kellogg's management
regarding their ability to finance the aggregate Merger Consideration and (c)
both management teams regarding their reasons for entering into discussions
regarding a Merger.
We have, with your consent, relied upon and assumed the accuracy, completeness
and fairness of the financial statements and other information provided to us by
Worthington or otherwise made available to us, and have not assumed
responsibility for the independent verification of such information. With
respect to the financial statement data and other internal financial information
(including the projected financial planning data) provided to U.S. Bancorp Piper
Jaffray in connection its review of the financial aspects of the proposed
Merger, we have relied upon the assurances of the management of the Company that
such information has been prepared on a reasonable basis, and, with respect to
projected financial planning data, reflects the best currently available
estimates, and that they are not aware of any information or facts that would
make the information provided to us incomplete or misleading.
In arriving at our Opinion, we have assumed that the Merger will be consummated
on the terms described in the draft of the Merger Agreement dated September 30,
1999. We have not been requested to perform, and have not performed, any
appraisals or valuations of any specific assets or liabilities of the Company,
and have not been furnished with any such appraisals or valuations. In addition,
we express no opinion regarding the liquidation value of any entity.
This Opinion is necessarily based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this Opinion.
This Opinion is directed to the Board of Directors of the Company and is not
intended to be and does not constitute a recommendation to any stockholder with
respect to the Merger. We were not requested to opine as to, and this Opinion
does not address, the basic business decision to proceed with or effect the
Merger or to compare the Merger to, or consider, alternative transactions that
may have been available to the Company. This Opinion shall not be published or
otherwise used, nor shall any public references to us be made, without our
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Worthington Foods, Inc.
September 30, 1999
Page 3
prior written approval, except as expressly contemplated in the engagement
letter dated August 20, 1999 between Worthington and U.S. Bancorp Piper Jaffray.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the Merger
Consideration to be received by the stockholders of Worthington Foods, Inc. is
fair to such stockholders from a financial point of view.
Sincerely,
/s/ U.S. Bancorp Piper Jaffray Inc.
U.S. BANCORP PIPER JAFFRAY INC.
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APPENDIX C
OHIO REVISED CODE SECTION 1701.85
SECTION 1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES.
(A)(1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been
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demanded are to be transferred, any new certificate issued for the shares shall
bear the legend required for certificated securities as provided in this
paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
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(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of
the Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined
or prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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WORTHINGTON FOODS, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER __, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of common shares of Worthington Foods, Inc.
(the "Company") hereby constitutes and appoints Dale E. Twomley and William T.
Kirkwood, or either of them, the Proxy or Proxies of the undersigned, with full
power of substitution, to attend the Special Meeting of Shareholders of the
Company to be held on November __, 1999, at __________, at 10:00 A.M., local
time, and any adjournment(s) thereof, and to vote all of the common shares which
the undersigned is entitled to vote at such Special Meeting or at any
adjournment(s) thereof:
1. TO ADOPT THE AGREEMENT AND PLAN OF MERGER IN THE FORM ATTACHED
AS APPENDIX A TO THE PROXY MATERIALS DATED ________________,
1999, AND TO APPROVE THE MERGER CONTEMPLATED THEREBY.
[_] FOR [_] AGAINST [_] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL
MEETING OR ANY ADJOURNMENT(S) THEREOF.
(Continued, and to be executed and dated on the reverse side.)
<PAGE> 123
(Continued from other side.)
WHERE A CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO
CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
FOR PROPOSAL NO. 1. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE SPECIAL
MEETING OR ANY ADJOURNMENT(S) THEREOF, THE COMMON SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH MATTERS.
All proxies previously given or executed by the undersigned are hereby
revoked. The undersigned acknowledges receipt of the accompanying Notice of
Special Meeting of Shareholders and Proxy Statement for the November __, 1999
meeting.
Dated: ____________, 1999
---------------------------
Signature of Shareholder(s)
---------------------------
Signature of Shareholder(s)
Please sign exactly as your
name appears hereon. When
common shares are
registered in two names,
both shareholders should
sign. When signing as
attorney, executor,
administrator, guardian or
trustee, please give full
title as such. If
shareholder is a
corporation, please sign in
full corporate name by
President or other
authorized officer. If
shareholder is a
partnership, please sign in
partnership name by
authorized person. (Please
note any change of address
on this proxy.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
WORTHINGTON FOODS, INC. PLEASE FILL IN, SIGN, DATE AND RETURN
IT PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 1
[Worthington Foods, Inc. Letterhead]
October 11, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
In accordance with Securities Exchange Act Release No. 8881,
Ernst & Young LLP has read that portion of the textual disclosure in the
accompanying preliminary proxy soliciting material that has a bearing on, makes
reference to, or is related to the audited financial statements incorporated by
reference in such preliminary proxy soliciting material, and has informed us
that it is prepared to permit the use in the definitive proxy soliciting
material of its report with regard to the audited financial statements appearing
incorporated by reference in such preliminary proxy soliciting material.
Worthington Foods, Inc.
By: /s/ Dale E. Twomley
--------------------------------
Dale E. Twomley
Its: Chairman, President and CEO
-------------------------------
