24
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998
Commission File No. 1-4582
RALSTON PURINA COMPANY
----------------------
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(Exact name of registrant as specified in its charter)
MISSOURI 43-0470580
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(State of Incorporation) (I.R.S. Employer Identification No.)
CHECKERBOARD SQUARE, ST. LOUIS MISSOURI 63164
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(Address of principal executive offices) (Zip Code)
(314) 982-1000
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(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
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Number of shares of Ralston Purina common stock, $.10 par value, outstanding as
of the close of business on May 6, 1998.
105,600,035
----------------
<PAGE>
PART I - FINANCIAL INFORMATION
RALSTON PURINA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL INFORMATION
(in millions except share and per share data)
----------------------------------------------------------------
OPERATING RESULTS
Net earnings for the six months ended March 31, 1998 were $940.4, or $9.11 and
$8.55 per share on a basic and diluted basis, respectively. Included in net
earnings for the current six months are several unusual items and an after-tax
gain on the sale of Soy Protein Products of $705.1 (pre-tax gain of $1.1
billion) and income from discontinued operations of $9.1. The Soy Protein
Products business was sold to E.I. Du Pont de Nemours and Company (DuPont) on
December 3, 1997. Discontinued operations consist of Soy Protein Products
through the sale date, Agricultural Products, which was spun off on April 1,
1998, and transaction costs associated with the spin-off.
The following unusual items included in the six month results were recorded in
the second quarter. First, the Company recorded an after-tax gain of $9.5, or
$.09 per basic and diluted share, on the sale of 800,000 shares of Interstate
Bakeries Corporation (IBC) stock. Additionally, the Company recorded a capital
loss tax benefit of $41.5, or $.40 and $.38 per basic and diluted share,
respectively, associated with past restructuring actions. The third unusual
item is a restructuring charge of $43.7, after-tax, or $.42 and $.40 per share
on a basic and diluted basis, respectively, which was primarily related to the
Company's rechargeable business but which also includes charges for a voluntary
early retirement option offered to most U.S. Battery Product employees meeting
certain age and service requirements, reduced by the reversal of prior period
restructuring charges.
The fiscal 1997 six month net earnings of $214.1, or $2.04 and $1.92 per share
on a basic and diluted basis, respectively, include earnings from discontinued
operations of $40.8.
Earnings from continuing operations before the unusual items described above
increased $45.6 in the current six months, or 26%, to $218.9 compared to $173.3
for the same period in the prior year. Earnings per share from continuing
operations, before unusual items, for the six months ended March 31, 1998 were
$2.07 and $1.98 on a basic and diluted basis, respectively, compared to $1.64
and $1.55 in the prior year.
For the quarter ended March 31, 1998, net earnings were $79.9, or $.75 and $.72
per basic and diluted share, respectively, compared to $76.7, or $.72 and $.69
per basic and diluted share, for the same quarter in 1997. Net earnings include
a loss from discontinued operations of $6.6 in the second quarter of 1998 and
earnings of $17.7 in the 1997 second quarter. Earnings from continuing
operations, before the unusual items recorded in the second quarter of 1998 as
described above, increased $20.2 to $79.2 compared to $59.0 in the prior year
second quarter. Basic and diluted earnings from continuing operations per share,
before unusual items, were $.74 and $.71, respectively, in the current quarter
compared to $.55 and $.53 a year ago.
The earnings increase in the six months and in the quarter resulted primarily
from higher operating earnings, income on the Company's investments in DuPont
and IBC and a lower tax rate, offset by higher interest expense.
RESULTS OF CONTINUING OPERATIONS
Net sales increased 5.2% in the six months ended March 31, 1998 and 6.0% in the
quarter on increased Pet Product sales, partially offset by decreases in Battery
Product sales. See the following section for comments on sales changes by
Business Segment.
Gross profit as a percentage of sales was 50.7% in the current year six months
compared to 49.1% in the prior year six months. The increased percentage in
the current period reflects improvements in both Battery Products and Pet
Products and increased sales in the higher margin Pet Products segment. Pet
Products' margins were unfavorably impacted in the prior year period by higher
grain prices as price increases were insufficient to maintain historical margin
levels. The increased percentage in Battery Products reflects a favorable
product mix and price increases in the Asia Pacific region in response to
currency devaluations. Gross profit percentages were 50.6% and 49.4% for the
quarter ended March 31, 1998 and 1997, respectively.
Selling, general and administrative expense decreased to 21.6% and 19.3% of
sales in the current quarter and six month period, respectively, from 22.1% and
19.8% in the prior year quarter and six month period, respectively. Selling,
general and administrative expenses increased 2.5% in the current six months and
3.6% in the quarter due to increases in Pet Products.
Advertising and promotion expense increased 7.9% in the current six months and
9.4% in the current quarter due to additional brand advertising and trade
promotional spending in Pet Products. As a percentage of sales, advertising and
promotion expense was 14.9% and 15.5% in the current six months and second
quarter, respectively, compared to 14.5% and 15.0% in the same periods a year
ago.
Other income/expense, net, was $5.4 favorable for the six months and $8.7
favorable in the quarter primarily due to dividend income earned in the quarter
ended March 31, 1998 related to the Company's investment in DuPont. In
addition, the Company experienced higher returns on other investments in the
quarter ended March 31, 1998 which nearly offset higher translation and exchange
losses in the Asia Pacific and South and Central American regions in the current
six month period.
Income taxes, which include federal, state and foreign taxes, include the
recognition of a capital loss tax benefit of $41.5 related to past
restructuring actions in the quarter ended March 31, 1998. In addition, the
income tax percentage was favorably impacted in the current quarter by the
reversal of prior period restructuring charges for which no tax benefit had been
recorded. Excluding these items, income taxes were 34.2% and 35.5% of pre-tax
earnings before equity earnings for the current quarter and six months,
respectively, compared to 37.6% and 37.4% in the prior year periods. The
decrease in the tax rate was due to the 70% exclusion on dividend income
received from DuPont and the realization of certain previously unrecognized net
operating loss carryforwards.
BUSINESS SEGMENTS
Sales for the Pet Products segment increased 12.2% in the six months and 14.8%
in the quarter on higher volumes and on the inclusion of sales from the
Company's December 1997 acquisition of Edward Baker Petfoods. Operating profit
increased significantly in the quarter and six months reflecting the sales
increase. Additionally, the six month period was favorably impacted by lower
ingredient costs. These increases were partially offset in the quarter and six
months by higher advertising expenditures and promotion support and an
unfavorable mix in package size.
Sales for the Battery Products segment decreased slightly in the six months and
also decreased in the quarter over the same periods in the prior year.
Increased alkaline volumes and improved product mix in the United States and
higher nickel metal hydride volumes in the rechargeable business resulted in
sales increases. However, these increases were more than offset in both periods
by sales declines in Asia and Europe. Sales declined in Asia Pacific due to
Asian currency devaluations, despite significantly higher alkaline volumes and
pricing adjustments in the region. In Europe, unfavorable pricing and product
mix resulted in sales declines.
Operating profit before unusual items for Battery Products was flat in the
quarter and increased in the six months on continued strong performance in North
America and improved results in the rechargeable business. The rechargeable
business results reflect cost reductions in addition to higher nickel metal
hydride volumes. Asia Pacific results were off in the quarter and six months as
significantly higher alkaline volumes, pricing adjustments and cost reductions
were more than offset by the effects of various Asian currency devaluations.
Results from discontinued operations decreased in the quarter and six months due
to the December 1997 sale of the Soy Protein Products business, lower operating
earnings from Agricultural Products, higher currency devaluations and costs
associated with the spin-off of the Agricultural Products business to
shareholders.
MARKET RISKS
The recent economic crises in the Asia Pacific region, accompanied by various
currency devaluations, represent a material change in the market risks faced by
the Company in this region. The Company's Asia Pacific operations consist
primarily of the Battery Products segment. The Company has manufacturing
facilities in this region whose products are both sold locally and exported
outside the region. In addition, the Company sources its raw materials from
within and outside the region. Market risks include the risk of loss of value
in the Company's net investment in the Asia Pacific region as well as lower
dollar profits for the operations in that region and increased foreign exchange
losses.
The depth and duration of the crises in the Asia Pacific region and its economic
effects on the Company are still uncertain. Management will continue to pursue
appropriate actions, as market conditions allow, to mitigate the impact of the
various Asian currency devaluations throughout fiscal 1998.
RESTRUCTURING ACTIVITIES
During the six months ended March 31, 1998, the Company recorded provisions for
restructuring totaling $43.7, after tax. On a pre-tax basis, charges for
restructuring were $74.8 and consisted of cash costs of $13.2 and non-cash
charges of $61.6. The total charge and the non-cash component are net of an
$8.0 reversal of prior period restructuring charges.
Included in the total pre-tax charge of $74.8 are impairment write-downs
totaling $66.4, primarily representing an impairment write-down of the Company's
investment in lithium-ion rechargeable battery manufacturing assets. Fair value
of those assets was primarily determined based upon estimates of recovery value
for unique manufacturing equipment. Due to rapid changes in the business
environment since the beginning of the lithium-ion project in 1996, it has
become more economical to source lithium-ion cells from other manufacturers.
The Company will continue to assemble and package lithium-ion rechargeable
batteries.
The current period restructuring provision also includes charges of $9.9,
pre-tax, for a voluntary early retirement option offered to most U.S. Energizer
employees meeting certain age and service requirements. The Company expects
additional early retirement charges in the third quarter of this fiscal year
after all employees have responded to the offer. The amount of those charges
will depend on the level of acceptance of the offer, but it is expected that the
third quarter pre-tax charge will be approximately $10 to $15.
During the current six months, approximately 350 employees were terminated and
cash exit costs of $12.7 were incurred in connection with restructuring accruals
established in prior years. These provisions were primarily related to the
continued rationalization of Battery Products' production capacity and business
structure. Activities impacting the restructuring reserve during the six months
ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Reserve balance at September 30, 1997 $ 66.3
Provision recorded, net of reversals of prior period reserves of $8.0 74.8
Portion of current period provision classified as property and other asset
Impairments, net of reversals (61.6)
Cash exit costs incurred (12.7)
Decrease due to translation (.2)
-------
Reserve balance at March 31, 1998 $ 66.6
=======
</TABLE>
<PAGE>
FINANCIAL CONDITION
The Company's primary source of liquidity is cash flow generated from
operations. The Company's investments in DuPont and IBC provide additional
sources of liquidity. For the six months ended March 31, 1998, cash flow from
continuing operations was $245.4 compared to $257.2 in the six months ended
March 31, 1997. The decrease in cash flow in the current six months results
from increased cash earnings, more than offset by changes in working capital
items, primarily increased accounts receivable.
Working capital was $246.2 at March 31, 1998 and $289.7 at September 30, 1997.
The decrease in working capital at March 31, 1998 is primarily due to an
increased level of notes payable, partially offset by increases in various
current asset accounts and decreased accounts payable and other current
liabilities.
Cash used by investing activities - continuing operations increased from $122.1
in the six months ended March 31, 1997 to $324.1 in the current six months. The
primary reason for this increase was the December 1997 acquisition of Edward
Baker Petfoods for $182.5.
In December 1997, the Company sold its Soy Protein Products operations to DuPont
for $1,554.2, comprised of 22.5 million shares of DuPont common stock (which
stock was valued at $1,399.2 at purchase date) and the assumption of certain
liabilities. This non-cash transaction resulted in an after-tax gain of $705.1.
The Company repurchased approximately 709,000 shares of RAL Stock during the six
months ended March 31, 1998. A new share repurchase authorization was approved
by the Board of Directors on April 6, 1998 authorizing the purchase of up to two
million shares of RAL Stock. No shares have yet been repurchased under this
authorization.
<PAGE>
SUBSEQUENT EVENT
On April 1, 1998, the Company completed the separation of its Agricultural
Products business in a tax-free spin-off to shareholders.
FORWARD-LOOKING STATEMENTS
Statements in this document that are not historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made.
The Company advises readers that various risks and uncertainties could affect
its financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or projected. These
risks and uncertainties include, but are not limited to: the effect of general
economic conditions; fluctuations in supply and demand for the Company's
products; competition and competitive pricing pressures in the battery products
and pet products industries, both domestically and internationally; significant
increases in operating expenses, including the cost of raw materials;
fluctuations in the value of the Company's investments in DuPont and IBC common
stock; continued Asian market and currency turmoil and the possibility that
attempts to mitigate the impact of currency devaluations will not be successful;
changes in trade or monetary policies, rates of taxation or tariffs and
regulatory requirements of the United States and other nations, as well as
political, economic or social instability in certain regions of the world in
which the Company does business; and other risks detailed from time to time in
the Company's publicly-filed documents, including its Annual Report on Form 10-K
for the period ended September 30, 1997.
<PAGE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
QUARTER ENDED SIX MONTHS
------------- ----------
MARCH 31, ENDED MARCH 31,
------------- ---------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $1,110.8 $1,048.4 $2,427.9 $2,308.9
--------- --------- --------- ---------
Costs and Expenses
Cost of products sold 548.9 530.4 1,197.1 1,175.8
Selling, general and administrative 240.3 231.9 469.4 458.0
Advertising and promotion 171.9 157.1 362.3 335.7
Interest expense 49.3 42.8 95.6 87.0
Provisions for restructuring 74.8 - 74.8 -
Gain on sale of IBC stock (14.7) - (14.7) -
Other (income)/expense, net (6.2) 2.5 (6.4) (1.0)
-------- --------- --------- ---------
1,064.3 964.7 2,178.1 2,055.5
--------- --------- --------- ---------
Earnings from Continuing Operations before
Income Taxes and Equity Earnings 46.5 83.7 249.8 253.4
Income Tax (Provision)/Benefit 31.6 (31.5) (42.0) (94.7)
Equity Earnings, Net of Taxes 8.4 6.8 18.4 14.6
--------- --------- --------- ---------
Earnings from Continuing Operations 86.5 59.0 226.2 173.3
Net Earnings/(Loss) from Discontinued Operations (6.6) 17.7 9.1 40.8
Gain on Sale of Discontinued Operations - - 705.1 -
--------- --------- --------- ---------
Net Earnings 79.9 76.7 940.4 214.1
Preferred Stock Dividend, Net of Taxes (2.9) (3.3) (6.0) (6.7)
--------- --------- --------- ---------
Earnings Available to Common Shareholders $ 77.0 $ 73.4 $ 934.4 $ 207.4
========= ========= ========= =========
Cash Dividends Declared per Common Share $ 0.60 $ 0.60 $ 0.60 $ 0.60
========= ========= ========= =========
Earnings Per Share
Basic
Earnings from continuing operations $ 0.81 $ 0.55 $ 2.14 $ 1.64
Net earnings/(loss) from discontinued operations (0.06) 0.17 0.09 0.40
Gain on sale of discontinued operations - - 6.88 -
--------- --------- --------- ---------
Net Earnings $ 0.75 $ 0.72 $ 9.11 $ 2.04
========= ========= ========= =========
<PAGE>
Diluted
Earnings from continuing operations $ 0.78 $ 0.53 $ 2.05 $ 1.55
Net earnings/(loss) from discontinued operations (0.06) 0.16 0.08 0.37
Gain on sale of discontinued operations - - 6.42 -
--------- --------- --------- ---------
Net Earnings $ 0.72 $ 0.69 $ 8.55 $ 1.92
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS)
MARCH 31, SEPTEMBER 30,
--------- -------------
1998 1997
---- ----
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 146.3 $ 109.1
Receivables, less allowance for doubtful accounts
of $26.7 and $24.8, respectively 695.1 675.2
Inventories
Raw materials and supplies 133.0 119.7
Work in process 95.8 115.8
Finished products 360.4 369.3
Other current assets 142.8 116.4
--------- ---------
Total Current Assets 1,573.4 1,505.5
Investments and Other Assets 3,158.5 1,530.3
Investment in Discontinued Operations 270.9 592.3
Property at Cost 2,210.7 2,160.6
Accumulated depreciation 1,101.2 1,046.9
--------- ---------
1,109.5 1,113.7
--------- ---------
Total $6,112.3 $4,741.8
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $ 72.6 $ 106.2
Notes payable 519.7 340.3
Accounts payable 242.2 264.0
Other current liabilities 492.7 505.3
--------- ---------
Total Current Liabilities 1,327.2 1,215.8
Long-Term Debt 1,820.6 1,860.4
Deferred Income Taxes 402.7 -
Other Liabilities 542.5 507.4
Redeemable Preferred Stock 270.3 304.9
Unearned ESOP Compensation (39.0) (63.8)
Shareholders Equity
Preferred stock - -
Common stock 11.5 11.5
Capital in excess of par value 401.0 320.0
Retained earnings 2,428.4 1,566.7
Cumulative translation adjustment (179.9) (129.8)
Common stock in treasury, at cost (496.7) (466.7)
Unearned portion of restricted stock (2.6) (3.4)
Value of common stock held in Grantor Trust (459.4) (381.2)
Unrealized holding gain on available-for-sale securities 85.7 -
--------- ---------
Total Shareholders Equity 1,788.0 917.1
--------- ---------
Total $6,112.3 $4,741.8
========= =========
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
<PAGE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED)
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---- ----
Cash Flow from Operations
<S> <C> <C>
Net earnings $ 940.4 $ 214.1
Gain on sale of discontinued operations (705.1) -
Gain on sale of IBC stock (14.7) -
Net earnings from discontinued operations (9.1) (40.8)
Non-cash items included in income 117.4 104.8
Changes in assets and liabilities used in operations (67.4) (11.9)
Other, net (16.1) (9.0)
-------- --------
Cash flow from continuing operations 245.4 257.2
Cash flow from discontinued operations (18.9) 69.6
-------- --------
Net cash flow from operations 226.5 326.8
-------- --------
Cash Flow from Investing Activities
Acquisition of businesses (182.5) -
Property additions, net (116.1) (119.3)
Proceeds from sale of IBC stock 27.1 -
Other, net (52.6) (2.8)
-------- --------
Cash used by investing activities - continuing operations (324.1) (122.1)
Cash used by investing activities - discontinued operations (60.0) (53.6)
-------- --------
Net cash used by investing activities (384.1) (175.7)
-------- --------
Cash Flow from Financing Activities
Net cash proceeds from (payment of) debt 354.7 (35.2)
Dividends paid (71.8) (72.0)
Treasury stock purchases (70.0) (24.7)
Other, net (6.7) 8.0
-------- --------
Net cash provided (used) by financing activities 206.2 (123.9)
-------- --------
Effect of Exchange Rate Changes on Cash (11.4) (2.9)
-------- --------
Net Increase in Cash and Cash Equivalents 37.2 24.3
Cash and Cash Equivalents, Beginning of Period 109.1 62.3
-------- --------
Cash and Cash Equivalents, End of Period $ 146.3 $ 86.6
======== ========
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
<PAGE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN MILLIONS)
Note 1 - The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for any quarter are not necessarily indicative of the results
for any other quarter or for the full year. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Ralston Purina Company (the Company) Annual Report to Shareholders for the year
ended September 30, 1997.
Note 2 - During the six months ended March 31, 1998, the company recorded
provisions for restructuring totaling $43.7, after tax. On a pre-tax basis,
charges for restructuring were $74.8 and consisted of cash costs of $13.2 and
non-cash charges of $61.6. The total charge and the non-cash component are net
of an $8.0 reversal of prior period restructuring charges.
Included in the total pre-tax charge of $74.8 are impairment write-downs
totaling $66.4, primarily representing an impairment write-down of the Company's
investment in lithium-ion rechargeable battery manufacturing assets. Fair value
of those assets was primarily determined based upon estimates of recovery value
for unique manufacturing equipment. Due to rapid changes in the business
environment since the beginning of the lithium-ion project in 1996, it has
become more economical to source lithium-ion cells from other manufacturers.
The Company will continue to assemble and package lithium-ion rechargeable
batteries.
The current period restructuring provision also includes charges of $9.9,
pre-tax, for a voluntary early retirement option offered to most U.S. Energizer
employees meeting certain age and service requirements. The Company expects
additional early retirement charges in the third quarter of this fiscal year
after all employees have responded to the offer. The amount of those charges
will depend on the level of acceptance of the offer, but it is expected that the
third quarter charge will be approximately $10 to $15.
Note 3 - During the current quarter, the Company recognized a capital loss tax
benefit of $41.5, or $0.40 and $0.38 per share on a basic and diluted basis,
respectively, related to past restructuring actions.
Note 4 - During the current quarter, the Company sold 800,000 shares of its
investment in Interstate Bakeries Corporation (IBC) common stock for $ 27.1 and
recognized an after-tax gain of $9.5, or $0.09 per share on a basic and diluted
basis. On a pre-tax basis, the gain on the sale of IBC stock was $14.7.
Note 5 - On December 3, 1997, the Company completed the sale of the Soy Protein
Products business to E.I. Du Pont de Nemours and Company (DuPont) for $1,554.2,
comprised of 22.5 million shares of DuPont common stock (which stock was valued
at $1,399.2 at the date of purchase) and the assumption of certain liabilities.
During the six months ended March 31, 1998, the Company recorded a pre-tax gain
on the sale of the Soy Protein Products business of $1.1 billion and an
after-tax gain of $705.1, or $6.88 and $6.42 per basic and diluted share,
respectively.
Note 6 - Discontinued operations consist of the Company's Soy Protein Products
business through the sale date (see Note 5) and the Company's Agricultural
Products business, which was spun off subsequent to the end of the current
quarter on April 1, 1998. Discontinued operations for the current year also
include transaction costs associated with the spin-off. Amounts in the
financial statements and notes for all periods shown have been restated to
reflect discontinued operations accounting.
Note 7 - In December 1997, the Company acquired Edward Baker Petfoods, a United
Kingdom manufacturer of extruded complete pet foods and a supplier of branded
and private label products to the European market, for $182.5. The acquisition
has been accounted for using the purchase method of accounting. The acquisition
of Edward Baker is not expected to have a significant effect on the net sales,
net earnings or earnings per share of the Company for the year ended September
30, 1998.
Note 8 - In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This statement
requires that certain internal and external costs associated with the purchase
and/or development of internal use software be capitalized rather than expensed.
The Company implemented this statement as of the beginning of the current fiscal
year. The implementation of this statement did not have a material effect on
the results of operations for the second quarter or six months ended March 31,
1998.
Capitalized software costs, are included in deferred charges and other assets
within Investments and Other Assets (see Note 12) and are amortized using the
straight-line method over periods of related benefit ranging primarily from 3 to
7 years.
Note 9 - In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share.
Statement 128 replaces the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic earnings
per share is based on the average number of shares outstanding during the
period. This calculation is the same as the primary earnings per share
calculation previously reported by the Company.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share and is based on the average number of shares used for
the basic earnings per share calculation, adjusted for the dilutive effect of
convertible preferred stock, stock options, convertible debentures and
compensation awards.
The following table sets forth the computation of basic and diluted earnings per
share in accordance with the provisions of Statement 128. Previously reported
diluted earnings per share amounts have been restated, as necessary, to conform
to Statement 128 requirements.
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Six Months
------------- ----------
March 31, Ended March 31,
------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
Numerator:
<S> <C> <C> <C> <C>
Earnings from continuing operations $ 86.5 $ 59.0 $226.2 $173.3
Preferred stock dividends (2.9) (3.3) (6.0) (6.7)
------- ------- ------- -------
Numerator for basic earnings per share -
Earnings from continuing operations
available to common shareholders
$ 83.6 $ 55.7 $220.2 $166.6
Effect of dilutive securities:
ESOP stock 2.6 2.6 5.3 5.2
Numerator for diluted earnings per share -
Earnings from continuing operations
available to common shareholders
$ 86.2 $ 58.3 $225.5 $171.8
------- ------- ------- -------
Net earnings/(loss) from discontinued operations $ (6.6) $ 17.7 $ 9.1 $ 40.8
------- ------- ------- -------
Gain on sale of discontinued opertaions $ - $ - $705.1 $ -
------- ------- ------- -------
Denominator:
Denominator for basic earnings per share -
weighted-average shares * 102.7 102.0 102.6 101.9
Effect of dilutive securities:
ESOP stock 5.7 6.5 5.9 6.7
Stock options ** 1.5 1.9 1.4 1.8
Deferred Compensation - 0.4 - 0.4
------- ------- ------- -------
Dilutive potential common shares 7.2 8.8 7.3 8.9
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 109.9 110.8 109.9 110.8
======= ======= ======= =======
Basic earnings per share:
Earnings from continuing operations $ 0.81 $ 0.55 $ 2.14 $ 1.64
Net earnings/(loss) from discontinued operations (0.06) 0.17 0.09 0.40
Gain on sale of discontinued operations - - 6.88 -
------- ------- ------- -------
Net earnings $ 0.75 $ 0.72 $ 9.11 $ 2.04
======= ======= ======= =======
Diluted earnings per share:
Earnings from continuing operations $ 0.78 $ 0.53 $ 2.05 $ 1.55
Net earnings/(loss) from discontinued operations (0.06) 0.16 0.08 0.37
Gain on sale of discontinued operations - - 6.42 -
------- ------- ------- -------
Net earnings $ 0.72 $ 0.69 $ 8.55 $ 1.92
======= ======= ======= =======
</TABLE>
<PAGE>
[FN]
* Weighted average shares used for the computation of basic earnings per
share excludes 4,334,000 and 4,275,000 shares of common stock held by the
Company's Grantor Trust at March 31, 1998 and 1997, respectively.
** Options to purchase 32,462 shares of common stock at prices ranging from
$106.04 to $132.63 per share, and 1,733,882 shares of common stock at prices
ranging from $58.00 to $132.63 per share outstanding during the quarter and six
months ended March 31, 1998 and 1997, respectively, were not included in
weighted average shares used for the computation of diluted earnings per share
because they were antidilutive at period end.
Note 10 - At March 31, 1998, there were 102,344,000 shares of common stock
outstanding, exclusive of 8,019,000 shares held in treasury and 4,334,000
Grantor Trust shares. At September 30, 1997, there were 102,271,000 shares of
common stock outstanding, exclusive of 8,116,000 shares held in treasury and
4,307,000 Grantor Trust shares.
Note 11 - Other (income)/expense, net, for the six months ended March 31, 1998
and 1997, consists of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
------- ------
<S> <C> <C>
Net translation and exchange loss $ 8.8 $ 4.6
Dividends on DuPont common stock (7.1) -
Other investment income (2.6) (1.8)
Return on other investments (5.7) (2.1)
Miscellaneous (income)/expense 0.2 (1.7)
------- ------
$( 6.4) $(1.0)
======= ======
</TABLE>
Note 12 - Investments and Other Assets consist of the following:
<TABLE>
<CAPTION>
March 31, Sept. 30,
1998 1997
-------- --------
<S> <C> <C>
Goodwill $ 563.2 $ 446.5
Other intangible assets 237.0 236.4
Investments in affiliated companies 310.3 299.9
Available-for-sale securities 1,541.1 -
Deferred charges and other assets 506.9 547.5
-------- --------
$3,158.5 $1,530.3
======== ========
</TABLE>
Note 13 - Available-for-sale securities consist primarily of shares of DuPont
common stock obtained in connection with the sale of the Company's Soy Protein
Products business (see Note 5). Available-for-sale securities are carried at
fair value, based on quoted market prices. The fair value and cost basis of
these securities at March 31, 1998, are $1,541.1 and $1,408.1, respectively,
resulting in a gross unrealized holding gain of $133. This gain, net of tax of
$47.3, is shown as a separate component of shareholders equity. The changes in
net unrealized holding gain for the three and six months ended March 31, 1998
are $116.3 and $85.7, respectively.
Note 14 - During the first quarter of the current year, the Company adopted SOP
96-1, Environmental Remediation Liabilities, which was issued in October 1996
and provides guidance for the accrual of environmental remediation costs. The
adoption of SOP 96-1 did not have a material effect on the financial statements
of the Company for the six months ended March 31, 1998. As a matter of policy,
costs of future expenditures for environmental remediation obligations are not
discounted to their present value.
<PAGE>
PART II - OTHER INFORMATION
------------------
There is no information required to be reported under any items except those
indicated below.
Item 5. Other Information. As a result of the Registrant's distribution on
-----------------
April 1, 1998 of all outstanding shares of capital stock of its subsidiary
Agribrands International, Inc. to holders of its $.10 par value Common Stock,
and pursuant to Section 11(c) of the Rights Agreement dated March 28, 1996
between the Registrant and Norwest Bank, N.A., as Rights Agent and successor to
Boatmen's Trust Company, the Purchase Price, as defined in the Rights Agreement,
has been adjusted from $200 for each Common Share pursuant to the exercise of a
Right to $192.80. In addition, as a result of the Agribrands distribution, and
pursuant to the terms of Section 9(d) of the Certificate of Designation of the
Registrant's Series A ESOP Convertible Preferred Stock (the "ESOP Stock"), the
Conversion Denominator with respect to the ESOP Stock was adjusted from 48.40 to
46.72 and, consequently, each share of ESOP Stock is now convertible, in
accordance with the terms of the Certificate of Designation, into 2.37 shares of
the Registrant's $.10 par value Common Stock.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits filed with this Report:
(10) Agreement and Plan of Reorganization between Ralston Purina
Company and Agribrands International, Inc. dated April 1, 1998
(27) Financial Data Schedule
(27) Restated Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RALSTON PURINA COMPANY
- -----------------------------------------
Registrant
By:/s/ James R. Elsesser
--------------------------------------
James R. Elsesser
Vice President and Chief Financial Officer
Date: May 13, 1998
<PAGE>
EXHIBIT INDEX
- ----------------------
EX-10 Agreement and Plan of Reorganization between Ralston Purina
Company and Agribrands International, Inc. dated April 1, 1998
EX-27 Financial Data Schedule for Second Quarter 1998
(provided electronically)
EX-27 Restated Financial Data Schedule for First Quarter 1998
(provided electronically)
Exhibit 27
(Document prepared on Edgar)
i:\sec\10q\2qtr-98.doc
46
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
April 1, 1998, by and among Ralston Purina Company, a Missouri corporation
("Ralston") and Agribrands International, Inc. ("Agribrands"), a Missouri
corporation and wholly owned subsidiary of Ralston.
WITNESSETH:
WHEREAS, Ralston's businesses consist of the manufacture, distribution
and sale of battery products and pet products domestically and
internationally, and the manufacture, distribution and sale of agricultural
formula animal feeds and other agricultural animal nutrition products
primarily outside the United States; and
WHEREAS, the Board of Directors of Ralston (the "Ralston Board") has
determined that it is in the best interests of the Ralston shareholders to
separate Ralston's international agribusiness from its core pet products and
battery businesses, and to consolidate such agribusiness, which is currently
conducted by various subsidiaries and affiliates, into Agribrands, and to
distribute the $.01 par value Agribrands Stock ("Agribrands Stock") to
shareholders of its $.10 par value Ralston Purina Common Stock ("Ralston
Stock"); and
WHEREAS, in order to effect such separation, the Ralston Board has
determined that it is necessary and advisable to consolidate the international
agribusiness through various restructurings and to transfer to Agribrands the
direct stock ownership of those subsidiaries and other assets of Ralston that
are engaged in the operation of the agribusiness, as well as certain
trademarks and technology used in the international agribusiness, as more
fully set forth below; and
WHEREAS, in connection with such consolidation, Ralston formed Agribrands
by causing Tradico, Inc., a Delaware corporation and wholly owned subsidiary
of Ralston, to be merged into Tradico Missouri, Inc., a Missouri corporation
and wholly owned subsidiary of Ralston, and the surviving Missouri corporation
to be renamed Agribrands International, Inc., effective November 18, 1997; and
WHEREAS, in order to effect such distribution of the ownership of
Agribrands to the holders of Ralston Stock, the Ralston Board has determined
that it is necessary and desirable to distribute all outstanding shares of
Agribrands Stock on a pro rata basis to the holders of Ralston Stock, such
distribution being hereinafter referred to as the "Distribution"; and
WHEREAS, the mergers and liquidations of certain affected subsidiaries
are intended to qualify under Sections 368(a)(1)(A) and 332 of the Internal
Revenue Code of 1986, as amended (the "Code"), the transfer of assets are
intended to qualify under Code Section 368(a)(1)(D), and the distribution of
Agribrands Stock is intended to qualify under Code Section 355; and
WHEREAS, the parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters prior to and following the Distribution;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound thereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.01 General. As used in this Agreement, the following terms shall
-------
have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
AAFCO: the Association of American Feed Control Officials.
-----
Action: any action, claim, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any arbitration or other tribunal.
Affiliate: with respect to any specified Person, an "affiliate" as
---------
defined in Rule 405 promulgated pursuant to the Securities Act; provided,
however, that for purposes of this Agreement (i) Affiliates of Agribrands
shall not be deemed to include Ralston or any corporation which will be a
subsidiary or affiliate of Ralston following the Distribution; and (ii)
Affiliates of Ralston shall not be deemed to include Affiliates of Agribrands.
Agribrands Asset Purchase Price: Cash contributed to Agribrands or one
---------------------------------
of its Affiliates by Ralston or its Affiliates in connection with the purchase
by an Affiliate of Agribrands, as set forth in Section 2.01, of the
Agribusiness in Brazil from Ralston Purina do Brasil, LTDA. The Agribrands
Asset Purchase Price shall be the U.S. dollar equivalent of the actual
purchase price paid to Ralston Purina do Brasil, based on the foreign exchange
rate, published in the Wall Street Journal, with respect to the closing date
of such sale.
Agribrands Board: the Board of Directors of Agribrands International,
-----------------
Inc. and their duly elected or appointed successors.
Agribrands Cash Holdings: the Cash to be held by Agribrands and its
--------------------------
Affiliates as of the Distribution, as determined in accordance with Section
2.04(a) and as adjusted pursuant to Section 2.04(g).
Agribrands Deferred Compensation Plan: as defined in Section 7.09 of
----------------------------------------
this Agreement.
Agribrands Notes: the promissory notes issued by Agribrands or Agri
-----------------
International Holding Company, Inc. to Ralston in connection with the
contribution by Ralston to Agribrands or Agri International Holding Company
Inc. of the stock of certain foreign subsidiaries.
Agribrands Stock: Agribrands common stock, par value $.01 per share.
-----------------
Agribusiness: Ralston's direct or indirect ownership of (i) the
------------
international business of the manufacture, distribution and sale of feeds for
horses, commercial livestock, commercial poultry, laboratory animals, zoo
animals, wild birds and game, rabbits, animals raised for fur, and fish,
reptiles and shellfish raised in commercial aquaculture facilities, and the
operation of hatcheries; (ii) pet food manufacturing operations in Korea and
the sale and distribution of such products; (iii) pet food manufacturing
operations in Canada at Strathroy, Ontario, and the sale and distribution of
such products; and (iv) all joint ventures involving or associated with the
businesses described in (i) through (iii) above.
Agribusiness Assets: except to the extent provided in, and subject to
--------------------
the provisions of, any of the Ancillary Agreements, (i) all of the Assets used
or held by or on behalf of any member of the Agribusiness Group or the Ralston
Group immediately prior to the Distribution which are used or held for use
exclusively in the Agribusiness rather than the Ralston Business, including,
but not limited to, the Assets set forth on Schedule 1.01(a); and (ii) any
office equipment and furniture used immediately prior to the Distribution
exclusively by Agribusiness Employees.
Agribusiness Employee: any individual who (i) is on the Distribution
----------------------
Date, or immediately following the Distribution will be, an officer or
employee of any member of the Agribusiness Group, (ii) is employed by a member
of the Ralston Group but, pending transfer of employment to a member of the
Agribusiness Group, performs duties primarily for the Agribusiness; or (iii)
is on leave (including but not limited to leave for disability) or layoff from
active employment on the Distribution Date but who, immediately prior to
commencement of such leave or layoff, was primarily employed in the
Agribusiness. Notwithstanding the foregoing, an Agribusiness Employee shall
not include any individual who, as of the Distribution Date, (A) has been
determined to be disabled under the Purina Benefit Association Long Term
Disability Plan ("LTD Plan"), the Ralston Purina Company Group Life Insurance
Plan or the Retirement Plan; (B) is on leave during a waiting period prior to,
and who has made application for, a determination of disability under the LTD
Plan; or (C) is employed by a member of the Agribusiness Group but performs
duties primarily for a Ralston Business, pending subsequent transfer of
employment to a member of the Ralston Group or termination of employment.
Agribusiness Group: Agribrands and its Affiliates at the Distribution.
-------------------
Agribusiness Individual: any individual who is an Agribusiness Employee,
-----------------------
a Former Agribusiness Employee, or a beneficiary of an Agribusiness Employee
or of a Former Agribusiness Employee.
Agribusiness Obligations: as defined in Article X of this Agreement.
-------------------------
Agricultural Channel: as defined in Section 5.01(a) of this Agreement.
---------------------
Ancillary Agreements: the Tax Sharing Agreement, the Bridging Services
---------------------
Agreement, the Trademark Agreement, and the Technology Transfer and License
Agreement.
Asset: any and all assets and properties, tangible or intangible,
-----
including, but not limited to, the following: (i) cash, notes and trade
receivable accounts (whether current or non-current and including all rights
with respect thereto); (ii) certificates of deposit, bankers' acceptances,
stock, debentures, evidences of indebtedness, certificates of interest or
participation in profit-sharing agreements, collateral-trust certificates,
preorganization certificates, investment contracts, voting-trust certificates;
(iii) trade secrets, confidential information, registered and unregistered
trademarks, service marks, service names, trade styles and trade names and
associated goodwill; statutory, common law and registered copyrights;
applications for any of the foregoing, rights to use any of the foregoing and
other rights in, to and under any of the foregoing; (iv) rights under leases,
contracts, licenses, permits, and sales and purchase agreements; (v) real
estate and buildings and other improvements thereon and timber and mineral
rights of every kind; (vi) leasehold improvements, fixtures, trade fixtures,
machinery, equipment (including transportation and office equipment), tools,
dies and furniture; (vii) office supplies, production supplies, spare parts,
other miscellaneous supplies and other tangible property of any kind; (viii)
raw materials, work-in-process, finished goods, consigned goods and other
inventories; (ix) prepayments or prepaid expenses; (x) claims, causes of
action, choses in action, rights of recovery and rights of set-off of any
kind; (xi) the right to receive mail and other communications; (xii) lists of
advertisers, records pertaining to advertisers and accounts, lists and records
pertaining to suppliers and agents, and books, ledgers, files and business
records of every kind; (xiii) advertising materials and other recorded,
printed or written materials; (xiv) goodwill as a going concern and other
intangible properties; (xv) personnel records and employee contracts,
including any rights thereunder to restrict an employee from competing in
certain respects; and (xvi) licenses and authorizations issued by any
governmental authority.
Bridging Services Agreement: as defined in Section 5.04 of this
-----------------------------
Agreement.
Business: the Agribusiness or the Ralston Business.
--------
Business Day: any day other than a Saturday, a Sunday or a day on which
-------------
banking institutions located in the State of Missouri are obligated by law or
executive order to close.
Cash: cash, marketable securities, compensating balances used to secure
----
debt financing, amounts held in margin accounts, and such other items as have
been or would be classified as cash consistent with accounting practices
historically employed by Ralston.
CME: calculated metabolizable energy.
---
Code: the Internal Revenue Code of 1986, as amended, or any successor
----
legislation.
Committee: the Nominating and Compensation Committee of the Board of
---------
Directors of Agribrands.
Current Plan Year: the plan year or fiscal year, to the extent
-------------------
applicable with respect to any Plan, during which the Distribution Date
occurs.
Distribution: as defined in the recitals to this Agreement.
------------
Distribution Date: April 1, 1998.
------------------
DuPont Agreement: the agreement as defined in Section 5.01(a) of this
-----------------
Agreement.
Enterprise Purchase Agreement: as defined in Section 5.04 of this
-------------------------------
Agreement.
ERISA: the Employee Retirement Income Security Act of 1974, as amended,
-----
or any successor legislation.
ESOP Stock: Ralston Purina Company Series A ESOP Convertible Preferred
-----------
Stock, $1.00 par value.
Exchange Act: the Securities Exchange Act of 1934, as amended, together
--------------
with the rules and regulations promulgated thereunder.
Executive Life Plan: the Ralston Purina Executive Life Plan.
---------------------
Executive SIP: the Ralston Purina Executive Savings Investment Plan.
--------------
Form 10: as defined in Section 2.06 of this Agreement.
--------
Former Agribusinesses: all of the following international businesses and
---------------------
operations heretofore, but not currently, owned and conducted directly or
indirectly by Ralston: (i) former international businesses of producing and
distributing feeds for horses, commercial livestock and poultry and rations
for laboratory animals, zoo animals, wild birds and game, rabbits, animals
raised for fur, and fish, reptiles and shellfish raised in commercial
aquaculture facilities, and operation of hatcheries; (ii) former pet food
manufacturing operations in Korea, and the sale and distribution in Korea of
such pet foods; (iii) poultry processing; (iv) finished poultry products; (v)
manufacture and sale of silos; (vi) manufacture and distribution of livestock
and poultry health products; (vii) commercial egg production (fertile and
infertile); (viii) raising of laboratory rats; (ix) fishmeal processing; (x)
oilseed processing; (xi) sale and lease of breeding hogs; (xii) other
businesses managed or directed by employees of the Agribusiness, other than
cereal, baked goods, tuna processing and soy protein businesses; and (xiii)
all joint ventures involving or associated with the businesses described in
(i) through (xii) above or the Agribusiness.
Former Agribusiness Employee: an individual who was employed by a member
----------------------------
of the Agribusiness Group or a Former Agribusiness at the time of his or her
termination or retirement on or prior to the Distribution Date.
Former Businesses: The Former Ralston Businesses and the Former
------------------
Agribusinesses.
Former Ralston Businesses: all of the businesses and operations
---------------------------
heretofore, but not currently, directly or indirectly owned and conducted by
Ralston, other than a Former Agribusiness.
Former Ralston Employee: an individual who was employed by a member of
-------------------------
the Ralston Group or a Former Ralston Business at the time of his or her
termination or retirement.
Group: the Ralston Group or the Agribusiness Group.
-----
Indebtedness of Agribrands: external obligations in the form of money
----------------------------
that is borrowed from third party banks and/or financial institutions, to the
extent that such indebtedness (i) is incurred in connection with, or arising
out of the operations of, the Agribusiness and (ii) is or should be reflected
and booked on the balance sheet statements of the Agribusiness in accordance
with accounting practices historically employed by Ralston; and in no event
shall intercompany or intracompany accounts between the Agribusiness and the
Ralston Business be deemed to be Indebtedness of Agribrands.
Indemnifiable Loss: with respect to any claim by an Indemnitee for
-------------------
indemnification hereunder, any and all losses, liabilities, claims, damages,
obligations, payments, costs and expenses (including, without limitation, the
costs and expenses of any and all Actions, demands, claims and assessments,
and any and all judgments, settlements and compromises related thereto and
reasonable attorney's fees and expenses in connection therewith) incurred or
suffered by such Indemnitee with respect to such claim except as may arise in
connection with the performance of any of the Ancillary Agreements, which
shall, in each such case, be governed by the terms of such Ancillary
Agreement.
Indemnitee: as defined in Section 4.02 of this Agreement.
----------
Indemnitor: as defined in Section 4.02 of this Agreement.
----------
Information: as defined in Section 6.02 of this Agreement.
-----------
Information Statement: the information statement sent to holders of
----------------------
Ralston Stock in connection with the Distribution, which sets forth
appropriate disclosures concerning the Agribusiness, Agribrands, the
Distribution and other related matters.
IRS: the Internal Revenue Service.
---
ISP: the Ralston Purina 1988 and 1996 Incentive Stock Plans.
---
Liabilities: all claims, debts, liabilities, royalties, license fees,
-----------
losses, costs, expenses, deficiencies, litigation proceedings, taxes, levies,
imposts, duties, deficiencies, assessments, attorneys' fees, charges,
allegations, demands, damages, judgments, guaranties, indemnities, or
obligations, whether absolute or contingent, matured or unmatured, liquidated
or unliquidated, accrued or unaccrued, known or unknown and whether or not the
same would properly be reflected on a balance sheet, including all costs and
expenses relating thereto.
LIBOR: London Interbank Offer Rate.
-----
Notice of Claim: as defined in Section 4.02 of this Agreement.
-----------------
NYSE: the New York Stock Exchange.
----
Operating Agreement: An agreement as described in Sections 2.04(f) and
--------------------
5.04 in effect during a period of beneficial ownership of the Agribusiness
Assets or the Ralston Assets.
Person: an individual, a partnership, a joint venture, a corporation, a
------
trust or other entity, an unincorporated organization or a government or any
department or agency thereof.
Plan: any plan, policy, arrangement, contract or agreement providing
----
benefits (including salary, bonuses, deferred compensation, incentive
compensation, savings, stock purchases, pensions, profit sharing, welfare
benefits or retirement or other retiree benefits, including retiree medical
benefits) for any group of employees or former employees or individual
employee or former employee, or the beneficiary or beneficiaries of any such
employee or former employee, whether formal or informal or written or
unwritten and whether or not legally binding, and including any means, whether
or not legally required, pursuant to which any benefit is provided by an
employer to any employee or former employee or the beneficiary or
beneficiaries of any such employee or former employee.
Protected Agribrands Business: the business described in Section 5.01(a)
-----------------------------
of this Agreement.
Protected Ralston Business: the business described in Section 5.01(a) of
--------------------------
this Agreement.
Qualified Plan: a Plan which is an employee pension benefit plan (within
--------------
the meaning of Section 3(2) of ERISA) and which constitutes or is intended in
good faith to constitute a qualified plan under Section 401(a) of the Code.
Ralston: as defined in the recitals to this Agreement.
-------
Ralston Assets: subject to the provisions of any of the other agreements
--------------
referred to in this Agreement, all of the Assets, other than the Agribusiness
Assets, used or held immediately prior to the Distribution Date by or on
behalf of any member of either Group, including, but not limited to, the
Assets set forth on Schedule 1.01(b).
Ralston Board: the Board of Directors of Ralston Purina Company and
--------------
their duly elected or appointed successors.
Ralston Business: all of the businesses owned, directly or indirectly,
-----------------
by Ralston and conducted immediately prior to the Distribution Date, other
than the Agribusiness.
Ralston Deferred Compensation Plan: the Ralston Purina Deferred
-------------------------------------
Compensation Plan for Key Employees.
Ralston Employee: any individual who at any time is or was an officer or
----------------
employee of any member of either Group, other than an Agribusiness Employee,
including, but not limited to, individuals set forth on Schedule 1.01(c).
Ralston Group: Ralston and its Subsidiaries and Affiliates, other than
--------------
members of the Agribusiness Group.
Ralston Individual: any individual who (i) is a Ralston Employee, (ii)
-------------------
at any time prior to the Distribution Date is or was an officer or employee of
any Former Ralston Business or (iii) is a beneficiary of any individual
specified in clause (i) or (ii).
Ralston Option: the option defined in Section 7.08(b) of this Agreement.
--------------
Ralston Stock: Ralston Purina Company common stock, $.10 par value.
--------------
Ralston Stock and Asset Purchase Prices: Cash paid after the
---------------------------------------------
Distribution to Agribrands or its Affiliates by Ralston or its Affiliates, to
the extent necessary, to close the purchase by Ralston or its Affiliates, as
set forth in Section 2.01, of the stock of Purina Pet Foods France or, as
applicable, certain assets and liabilities of Purina de Guatemala, S.A.,
Purina Colombiana, S.A., Purina de Venezuela, C.A., and Purina Peru, S.A.
Record Date: the date to be determined by the Board of Directors of
------------
Ralston, or the Executive Committee thereof, as the record date for
determining shareholders of Ralston Stock entitled to receive the
Distribution.
Retirement Plan: the Ralston Purina Retirement Plan.
----------------
Rights: the rights to be issued by Agribrands pursuant to the Agribrands
------
Rights Agreement.
RPIHCI: Ralston Purina International Holding Company, Inc.
------
SEC: the Securities and Exchange Commission.
---
Securities Act: the Securities Act of 1933, as amended, together with
---------------
the rules and regulations promulgated thereunder.
Shared Liability: a Liability arising out of, or associated with, the
-----------------
ownership of both the Agribusiness Assets and the Ralston Assets; or the
operation of the Agribusiness or a Former Agribusiness, on the one hand, and
the Ralston Business or a Former Ralston Business, on the other hand, prior to
the Distribution.
SIP: a Savings Investment Plan.
---
Subsidiary: with respect to any specified Person, any corporation or
----------
other legal entity of which such Person or any of its Subsidiaries controls or
owns, directly or indirectly, 50% or more of the stock or other equity
interest entitled to vote on the election of members to the board of directors
or similar governing body of such corporation or other legal entity.
Tax Sharing Agreement: as defined in Section 5.04 of this Agreement.
-----------------------
Technology Transfer and License Agreement: as defined in Section 5.04 of
-----------------------------------------
this Agreement.
Third-Party Claim: any Action or claim by a third party against or
------------------
otherwise involving an Indemnitee for which indemnification may be sought
pursuant to Article IV hereof.
Toll-Milling Agreements: as defined in Section 5.04 of this Agreement.
------------------------
Trademark Agreement: as defined in Section 5.04 of this Agreement.
--------------------
Welfare Plan: any Plan which is not a Qualified Plan and which provides
-------------
medical, health, disability, accident, life insurance, death, dental or other
welfare benefits, including any post-employment benefits or retiree medical
benefits.
1.02 References to Time. All references to times of the day in this
------------------
Agreement shall refer to St. Louis, Missouri time unless otherwise
specifically indicated.
ARTICLE II
CERTAIN RESTRUCTURING TRANSACTIONS
2.01 Restructuring Transactions. Prior to, or as soon as practicable
--------------------------
following, the Distribution Date, the following shall have been or shall be
effected:
(a) Italian Demerger. Pursuant to Italian law, Purina Italia S.p.A.,
----------------
an Italian corporation, shall be divided into two corporations by transferring
all assets and liabilities of Purina Italia associated with the Ralston
Business to Ralston Purina Italia S.p.A. and thereafter by issuing the stock
of Ralston Purina Italia to RPIHCI (99.98% owner) and Ralston (.02% owner), in
proportion to their ownership of shares of Purina Italia. A pro rata portion
of the shares of Purina Italia, representing the net book value of the assets
of the Ralston Business in proportion to the entire net book value of assets
of Purina Italia, shall be canceled and new share certificates in Purina
Italia shall be issued to reflect the reduction in the number of shares
outstanding as a result of the demerger.
(b) Canadian Restructuring. Agribrands shall form a new wholly owned
----------------------
subsidiary, Agribrands Canada Inc. ("Agri Canada"). Agribrands shall cause
Agri Canada to purchase, pursuant to an Enterprise Purchase Agreement, all of
the assets exclusively used in connection with, and liabilities associated
with, the portion of the Agribusiness owned and conducted by Ralston Purina
Canada Inc. The purchase price shall be equal to the appraised fair market
value of such Agribusiness in Canada, including working capital deficiencies
as of March 31, 1998.
(c) Brazilian Restructuring. Agribrands shall form a new wholly
-----------------------
owned subsidiary, Agribrands Purina do Brasil, Ltda, ("Agri do Brasil") a
Brazilian corporation. Agribrands shall cause Agri do Brasil to purchase,
pursuant to an Enterprise Purchase Agreement, the assets and liabilities
associated with the centers of business of the Agribusiness owned and
conducted by Ralston Purina do Brasil, Ltda, a Brazilian corporationThe
purchase price shall be equal to the fair market value of such Brazilian
Agribusiness, which is the statutory net book value of such Business as of
March 31, 1998, determined in a manner consistent with the preparation of the
balance sheet dated February 28, 1998 set forth on Schedule 2.01(c).
(d) French Restructuring. Ralston Purina France, a French
---------------------
corporation, shall form a new wholly owned subsidiary, Purina Pet Foods France
("PPF France"), and shall contribute all of the assets and liabilities
associated with its ownership and operation of the Ralston Business in France
to PPF France. Ralston shall then cause Checkerboard Holding Company, Inc.
("Checkerboard Holding"), a Delaware corporation, to purchase from Ralston
Purina France, pursuant to an Enterprise Purchase Agreement, all of the stock
of PPF France for 27 million French francs, which amount is equal to its
appraised fair market value.
(e) Mexican Restructuring/Merger. PPA Investments Inc., a Delaware
----------------------------
corporation, shall purchase from Ralston Purina Holdings Mexico S.A. de C.V.,
a Mexican corporation, all of the capital stock of Industrias Purina, S.A. de
C.V., a Mexican corporation, owned by Ralston Purina Holdings Mexico, for 209
million Mexican pesos, which is equal to its appraised fair market value. PPA
Investments Inc. shall then adopt a plan of complete liquidation and merge
into RPIHCI, as a result of which Industrias Purina shall become a direct
subsidiary of RPIHCI.
(f) Guatemalan Restructuring. Ralston shall cause Checkerboard
-------------------------
Holding to form a new company, Ralston Purina Guatemala, a Guatemalan
corporation, and to cause such company to purchase from Purina de Guatemala,
S.A., a Guatemalan corporation, pursuant to an Enterprise Purchase Agreement,
the assets and liabilities associated with the Ralston Business in Guatemala
for cash in an amount equal to the fair market value of such Ralston Business,
which shall be the statutory net book value of such Business as of March 31,
1998, determined in a manner consistent with the preparation of the balance
sheet dated February 28, 1998 set forth on Schedule 2.01(f), except that
intangible assets shall be valued at 645,000 Guatemalan pesos.
(g) Colombian Restructuring. Ralston shall cause Checkerboard
------------------------
Holding to form a new wholly owned subsidiary, Ralston Purina Colombiana, and
shall cause Ralston Purina Colombiana to purchase from Purina Colombiana S.A,
a Colombian corporation, pursuant to an Enterprise Purchase Agreement, the
assets and liabilities associated with the Ralston Business in Colombia for
cash in an amount equal to the fair market value of such Business, which shall
be the statutory net book value of such business as of March 31, 1998,
determined in a manner consistent with the preparation of the balance sheet
dated February 28, 1998 set forth on Schedule 2.01(g), except that intangible
assets shall be valued at 697,000,000 Colombian pesos and real property shall
be valued at 471,800,000 Colombian pesos.
(h) Venezuelan Restructuring. Ralston shall cause Checkerboard
-------------------------
Holding to form a new wholly owned subsidiary, Ralston Purina Venezuela ("RP
Venezuela") a Venezuelan corporation, and shall cause RP Venezuela to purchase
from Purina de Venezuela, C.A., a Venezuelan corporation, pursuant to an
Enterprise Purchase Agreement, the assets and liabilities associated with the
Ralston Business in Venezuela for cash in an amount equal to the fair market
value of such Business, which shall be the statutory net book value of such
Business as of March 31, 1998, determined in a manner consistent with the
preparation of the balance sheet dated February 28, 1998 set forth on Schedule
2.01(h).
(i) Peruvian Restructuring. Ralston shall cause Ralston Purina
-----------------------
Colombiana to purchase from Purina Peru, S.A., a Peruvian corporation,
pursuant to an Enterprise Purchase Agreement, the assets and liabilities
associated with the Ralston Business in Peru for cash in an amount equal to
the fair market value of such Business, which shall be the statutory net book
value of such business as of March 31, 1998, determined in a manner consistent
with the preparation of the balance sheet dated February 28, 1998 set forth on
Schedule 2.01(i).
(j) Korean Restructuring. Prior to the merger of RPIHCI into
---------------------
Ralston, Ralston and Agribrands shall each purchase from RPIHCI 1,000 shares
of Purina Korea, Inc., a Korean corporation, for 19,717 Korean won per share.
After the merger of RPIHCI into Ralston as described in subsection (l) below,
Ralston shall contribute all of its stock ownership in Purina Korea, Inc. to
Agri International Holding Company, Inc., a Delaware corporation, in exchange
for which Agri International Holding Company shall issue 135 million new
shares of its capital stock and transfer such stock to Ralston, and shall
execute and deliver the Agribrands Note described below.
(k) Philippines Restructuring. After the merger of RPIHCI into
--------------------------
Ralston, Ralston shall contribute all of its ownership in Purina Philippines,
Inc., a Philippines corporation, to Agribrands as described in subsection (m)
below, in exchange for which Agribrands shall issue to Ralston 1,413,150 new
shares of its capital stock and shall execute and deliver the Agribrands Note
described below.
(l) Merger of RPIHCI into Ralston. Ralston and RPIHCI shall enter
-----------------------------
into an Agreement and Plan of Merger and Complete Liquidation pursuant to
which RPIHCI shall be merged with and into Ralston pursuant to the General and
Business Corporation Law of Missouri and Delaware General Corporation Law, and
in accordance with the terms and conditions of such merger agreement.
Following such merger, RPIHCI will cease to exist, and Ralston shall become
the direct owner of Agribrands and all other stock interests owned by RPIHCI
at the time of the merger. Intercompany debt owed by RPIHCI to Ralston at the
time of the merger will be paid through the liquidating distribution of
RPIHCI's assets to Ralston at such time.
(m) Contribution to Agribrands; Issuance of Notes Prior to the
----------------------------------------------
Distribution, Ralston shall contribute to Agribrands, as contributions to
capital, all of its stock ownership in the following:
(i) Latin American Agribusiness Development Corporation, a Panamanian
corporation;
(ii) Purina Italia S.p.A., an Italian corporation;
(iii Purina de Guatemala, S.A., a Guatemalan corporation;
(iv) Purina Colombiana S.A., a Colombian corporation;
(v) Purina de Venezuela, C.A., a Venezuelan corporation;
(vi) Purina Peru S.A., a Peruvian corporation;
(vii) Agri International Holding Company Inc., a Delaware corporation;
(viii) Industrias Purina, S.A. de C.V, a Mexican corporation;
(ix) Purina Espana, S.A., a Spanish corporation;
(x) Ralston Purina France, a French corporation;
(xi) Purina Besin Maddeleri Sanayi VE Ticaret A.S., a Turkish corporation;
(xii) AGX Services, Inc., a Delaware corporation;
(xiii) Purina Nanjing Feedmill Company Limited, a Chinese corporation;
(xiv) Purina Yantai Feedmill Company Ltd, a Chinese corporation;
(xv) Purina Fushun Feedmill Company, Ltd., a Chinese corporation;
(xvi) Agribrands Purina (Langfang) Feedmill Company, Ltd., a Chinese
corporation;
(xvii) Purina Philippines, Inc., a Philippines corporation;
(xviii) Purina Hungaria Animal Feed and Trading Company Limited, a Hungarian
corporation;
(xix) Purina Portugal Alimentacao e Sanidade Animal Lda., a Portuguese
corporation.
In partial consideration for the contribution by Ralston to Agribrands or Agri
International Holding Company, Inc. of the stock of each majority-owned
foreign subsidiary as set forth in Sections 2.01 (j) and (m), Agribrands or,
as applicable, Agri International Holding Company, Inc. shall issue to Ralston
a separate Agribrands Note with respect to such subsidiary. Each Agribrands
Note shall be in the principal amount of US$100, bear interest at the rate of
6% per annum and be payable in a lump sum on September 30, 1998. Ralston shall
thereafter transfer the Agribrands Notes to one or more members of the Ralston
Group as payment against outstanding indebtedness which is owed to such member
or members by Ralston and is reflected in interest-bearing intercompany
accounts.
2.02 Issuance of Stock. Prior to the Distribution Date, the parties
-----------------
hereto shall take all steps necessary so that immediately prior to the
Distribution Date, the number of shares of Agribrands Stock outstanding and
held by Ralston shall equal the number of shares necessary to effect the
Distribution. The Distribution shall be effected by distributing, on a pro
rata basis to every holder of Ralston Stock, one share of Agribrands Stock for
every ten (10) shares of Ralston Stock held as of the Record Date.
2.03 Share Purchase Rights Agreement; Articles of Incorporation;
-----------------------------------------------------------
Bylaws. Prior to the Distribution Date, Agribrands shall adopt an Agribrands
Rights Agreement in substantially the form filed with the SEC as an exhibit to
the Form 10, and the Board of Directors of Agribrands shall authorize a
distribution of one Right to every share of outstanding Agribrands Stock, such
distribution to occur prior to the Distribution. Ralston and Agribrands shall
take all action necessary so that, at the Distribution Date, the Articles of
Incorporation and Bylaws of Agribrands shall be substantially in the forms
filed with the SEC as exhibits to the Form 10.
2.04 Transfer of Assets; Assumption of Liabilities.
--------------------------------------------------
(a) Prior to the Distribution Date, the parties hereto shall also take
all action necessary to convey, assign and transfer to Agribrands, effective
as of the Distribution Date, all of the right, title and interest of Ralston
or its Affiliates in the Agribusiness Assets and to convey, assign and
transfer to Ralston or its Affiliates all of the right, title and interest of
any member of the Agribusiness Group to the Ralston Assets. Effective as of
the Distribution, Ralston shall contribute to Agribrands the capital stock of
the Subsidiaries of Agribrands listed in Section 2.01(m), and Agribrands shall
become the beneficial owner of all of the Agribusiness Assets. Ralston and
Agribrands shall cooperate in estimating the appropriate amount of Cash to be
transferred to Agribrands on or before March 31, 1998 to cause Agribrands and
its Affiliates to hold, as of the Distribution Date, Cash in an amount equal
to the Agribrands Cash Holdings, which shall be defined as: the sum of (i)
Cash in an amount equal to the outstanding Indebtedness of Agribrands as of
the Distribution, (ii) US$25 million, and (iii) the Agribrands Asset Purchase
Price; less (iv) the Ralston Stock and Asset Purchase Prices, (v) US$125,000,
representing the first year administration costs for the Agribrands credit
facility paid by Ralston prior to the Distribution, and (vi) any amounts
(valued in US dollars at the time Ralston satisfies any such obligation)
Ralston becomes obligated, on or prior to May 31, 1998, to pay to third
parties in connection with its guarantee of certain third-party indebtedness,
letters of credit and other credit supports of Purina Korea, Inc. Ralston
shall transfer such estimate of Cash to Agribrands no later than March 31,
1998. To the extent it is determined that Agribrands has, as of the
Distribution Date, inventory valued in excess of (or less than) US$20 million,
the Agribrands Cash Holdings target shall be reduced by an amount equal to
such excess (or be increased by an amount equal to the shortfall).
Effective as of the Distribution Date, Ralston and its Affiliates shall become
the beneficial owners of all of the Ralston Assets. The parties acknowledge
that formal actions to effect fully such transfers of Assets may not be
completed by the Distribution Date, but that the entire beneficial title and
interest in and to each Asset shall pass to Agribrands or to Ralston, as the
case may be, as of the Distribution Date. The parties shall take such action
as is necessary in their reasonable discretion, whether before or after the
Distribution Date, to complete the transfer of the Agribusiness Assets to
Agribrands and the Ralston Assets to Ralston, as the case may be, and each
party shall cooperate fully with the other in such regard.
(b) As of the Distribution Date, Agribrands and Ralston and, as
appropriate, other members of their respective Groups, shall assume or retain
all of the Liabilities, with respect to Agribrands, of the Agribusiness and
Former Agribusinesses and, with respect to Ralston, of the Ralston Business
and Former Ralston Businesses, of whatsoever type or nature, arising
exclusively out of or associated exclusively with the ownership of the Assets
of such Businesses or Former Businesses or the operation of such Businesses or
Former Businesses prior to the Distribution, whether such Liabilities become
known prior to or after, or are asserted prior to or after, the Distribution.
Agribrands and its Affiliates and Ralston and its Affiliates shall assume a
share of any Shared Liability in proportion, as applicable, to their
respective ownership of the applicable assets, control of affected operations
or employment of affected individuals. Notwithstanding the foregoing,
effective as of the Distribution Date, Agribrands or another member of the
Agribusiness Group shall assume Liabilities specifically described in any
other provision of this Agreement or any Ancillary Agreement, and Liabilities
described on Schedule 2.04(b)(1) to this Agreement. Ralston and members of
the Ralston Group shall, except as qualified hereinabove, retain or assume (i)
the Liabilities specifically described in this Agreement or any Ancillary
Agreement, and (ii) the Liabilities specifically described on Schedule
2.04(b)(2) to this Agreement.
(c) The parties agree and acknowledge that the assumption by Agribrands
or other members of the Agribusiness Group or Ralston or other members of the
Ralston Group, as the case may be, of all such Liabilities described herein is
part of a single plan to transfer the Agribusiness and the Agribusiness Assets
to Agribrands as of the Distribution Date. With regard to that plan, the
parties further agree that (i) the entire beneficial title and interest in and
to each and all of the Agribusiness Assets shall, regardless of when legal
title to any such asset is in fact transferred to Agribrands or its
Subsidiaries, remain in Ralston until the Distribution Date at which time all
beneficial title and interest in all of the Agribusiness Assets will pass to
Agribrands, and all title and interest in and to each and all of the Ralston
Assets which is owned by a member of the Agribusiness Group prior to the
Distribution Date shall, regardless of when legal title to any such asset is
in fact transferred to Ralston or its Subsidiaries after the Distribution
Date, be beneficially owned by Ralston; (ii) the economic burden of the
assumption by the members of the Agribusiness Group or the Ralston Group, as
the case may be, of each and all of the Liabilities described herein shall
pass to the Agribusiness Group or the Ralston Group, as the case may be, as of
the Distribution Date, regardless of when Agribrands or any other member of
the Agribusiness Group or Ralston or any other member of the Ralston Group, as
the case may be, in fact assumes or becomes legally obligated to the obligee
of any one or more of such Liabilities; and (iii) all operations of the
Agribusiness shall be for the account of Ralston through 12:01 a.m. on the
Distribution Date and shall be for the account of Agribrands thereafter.
(d) Ralston and Agribrands shall, and shall cause their Affiliates to,
execute prior to, or as soon as practicable following, the Distribution Date,
such additional agreements and arrangements as may be necessary or appropriate
(i) to effect the restructuring transactions set forth in Section 2.01; (ii)
to transfer to the appropriate member of the Agribusiness Group or Ralston
Group such local product registrations, franchises, licenses, and any other
governmental authorizations or other rights owned or held by Ralston,
Agribrands or their respective Groups that are necessary to the conduct of
their Businesses in such jurisdiction; (iii) to make all such further
assignments and do all such other acts as are necessary or desirable to carry
out the intent of the parties that each of the Businesses, as a going concern,
be fully vested in the appropriate party as of the Distribution Date and
operated for its benefit and burden as of 12:01 a.m.; and (iv) to provide for,
and negotiate in good faith, such other agreements and arrangements relating
to the foregoing as the parties deem appropriate, including but not limited to
any such agreements or arrangements relating to the treatment of employees,
benefit plans and taxes.
(e) If any Agribusiness Asset or Ralston Asset is not owned,
respectively, by a member of the Agribusiness Group or Ralston Group or leased
from a third party or governmental entity by a member of the appropriate
Group, as of the Distribution Date, Ralston and Agribrands shall use their
reasonable best efforts to transfer, assign and deliver such assets or leases
to the appropriate member of the other Group as soon as practicable
thereafter. Prior to such transfer or assignment, Ralston or Agribrands, as
the case may be, shall use its reasonable best efforts to give the benefits of
ownership of such Assets to the appropriate member of the other Group. The
entire economic beneficial interest in and to, and the risk of loss with
respect to, such Assets shall, regardless of when legal title thereto shall be
transferred to the appropriate member of the Agribusiness or Ralston Group,
pass to those entities as of the Distribution. Ralston and Agribrands shall,
or shall cause their Affiliates to, hold such Assets for the benefit and risk
of the other and shall cooperate with the other in any lawful and reasonable
arrangements designed to provide the benefits of ownership of the Assets to
it, including but not limited to properly recording evidence of such
beneficial ownership and risk of loss with appropriate governmental entities
as required by applicable law. In the event that the legal interest in such
Assets or any claim, right or benefit arising thereunder or resulting
therefrom, is not capable of being sold, assigned, transferred or conveyed
hereunder as a result of the failure to receive any consents or approvals
required for such transfer, then the legal interest in such Assets shall not
be sold, assigned, transferred or conveyed unless and until approval, consent
or waiver thereof is obtained. Ralston and Agribrands shall, or shall cause
their Affiliates, at their expense, to use reasonable best efforts to
cooperate in obtaining such consents or approvals as may be necessary to
complete such transfers and to obtain satisfaction of conditions to transfer
as soon as practicable. Nothing in this Agreement shall be construed as an
attempt to assign to a member of the Agribusiness Group or the Ralston Group
any legal interest in such Assets which, as a matter of law or by the terms of
any legally binding contract, engagement or commitment to which the legal
owner is subject, is not assignable without the consent of any other Person,
unless such consent shall have been given.
(f) After the Distribution Date, Ralston and Agribrands shall cause
such Assets (including the capital stock of any Affiliates) which are
beneficially owned by the other party to be managed at the direction of the
beneficial owner pursuant to one or more Operating Agreements until such
Assets are actually legally transferred and conveyed. Without limiting the
foregoing, all revenues, earnings and cash flows associated with the Assets
following the Distribution Date shall be for the account of the beneficial
owner but shall be retained by the respective legal owner until the transfers
are legally effected. Following the Distribution Date, neither Ralston nor
Agribrands shall be required to lend, advance, contribute or use any of its
own funds in connection with the operations of such Assets except to the
extent contemplated by the Operating Agreements.
(g) Ralston and Agribrands shall cooperate after the Distribution
Date in determining the actual Indebtedness of Agribrands and Cash held by
Agribrands and its Affiliates as of the Distribution in order to calculate the
Agribrands Cash Holdings and to determine any further transfers of Cash
required between the parties. For purposes of this determination, foreign
currency shall be valued in US dollars based on foreign exchange rates for
March 31, 1998 as published in the Wall Street Journal. Ralston shall have
the opportunity to review, to its satisfaction, the books and records of
Agribrands and its Affiliates, bank records, loan documentation and other
relevant materials in order to enable Ralston to verify any amounts to be
transferred, and Agribrands shall cooperate in Ralston's review. A
preliminary determination of the actual Cash and Indebtedness of Agribrands as
of the Distribution shall be made no later than 60 days after the Distribution
Date in order to make a preliminary adjustment of Cash from Ralston to
Agribrands or vice versa, as the findings warrant. Payment of such
preliminary adjustment shall be made within two (2) Business Days of such
determination. To the extent that it is determined for such preliminary
adjustment that, at the Distribution Date, Agribrands and its Affiliates held
Cash in excess of the Agribrands Cash Holdings amount, Agribrands shall remit
such excess to Ralston in US dollars; or, if Agribrands and its Affiliates
held Cash less than the Agribrands Cash Holdings amount, Ralston shall pay
such difference to Agribrands in US dollars. Such amounts shall be increased
by an amount equal to interest accrued on such unpaid excess (or shortfall, as
applicable) at LIBOR plus 25 basis points for the period from the Distribution
Date until the date such preliminary adjustment is paid to the party to which
it is owed; provided that, amounts that may be owed by Ralston to Agribrands
shall not be increased by such interest factor to the extent they relate to
Indebtedness of Agribrands arising out of third-party borrowings by Purina
Korea, Inc. that have been guaranteed by Ralston for a period up to 60 days
after the Distribution Date.
No later than July 31, 1998, upon final review and audit of the books and
records of Agribrands and its Affiliates, Ralston and Agribrands shall make,
if necessary, a second and final adjustment to the Cash held by Agribrands.
The final adjustment payment shall be increased by an amount equal to interest
accrued on such adjustment at the transferring party's average cost of debt
plus 200 basis points for the period from the date of the initial adjustment
payment until the date such final payment is made.
(h) Ralston shall pay to Agribrands in US dollars, at the time of
payment of each of the Ralston Stock and Asset Purchase Prices to Agribrands,
an additional lump sum equal to interest on such purchase price, denominated
in US dollars at the time of payment to Agribrands, accrued at the rate of
6-1/2% per annum, for the period beginning on the Distribution Date to the
date such purchase price is paid to Agribrands.
2.05 Conduct of Business Pending the Distribution Date. Prior to the
-------------------------------------------------
Distribution Date, the Agribusiness shall be operated for the sole benefit of
Ralston.
2.06 Registration and Listing. Prior to the Distribution Date:
-------------------------
(a) Ralston and Agribrands shall prepare, and Agribrands shall file with
the SEC, a Registration Statement on Form 10 pursuant to Section 12(b) of the
Exchange Act with respect to the Agribrands Stock and associated Rights.
Ralston and Agribrands shall use reasonable efforts to cause the Form 10 to
become effective under the Exchange Act, and, following such effectiveness,
Ralston shall mail the Information Statement to the holders of record of
Ralston Stock as of the close of business on the Record Date.
(b) The parties hereto shall take all such actions as may be necessary or
appropriate under state securities and Blue Sky laws in connection with the
Distribution.
(c) Ralston and Agribrands shall prepare, and Agribrands shall file and
seek to make effective, an application for the listing of the Agribrands Stock
and associated Rights on the NYSE.
ARTICLE III
THE DISTRIBUTION
3.01 Record Date and Distribution Date. Subject to the satisfaction
---------------------------------
of the conditions set forth in Section 12.01, the Ralston Board shall
establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. The determination of record
holders of Ralston Stock on the Record Date shall be as of 12:01 a.m. on the
Distribution Date, and the Distribution shall also be effective as of 12:01
a.m. on the Distribution Date.
3.02 Distribution. Ralston shall distribute all of the outstanding
------------
shares of Agribrands Stock to holders of record of Ralston Stock on the Record
Date on the basis of one share of Agribrands Stock for each ten (10) shares of
Ralston Stock outstanding as of 12:01 a.m. on the Record Date, subject to the
treatment of fractional shares set forth in Section 3.03. All shares of
Agribrands Stock issued in the Distribution shall be duly authorized, validly
issued, fully paid and nonassessable.
3.03 Payment in Lieu of Fractional Shares. No fractional shares of
------------------------------------
Agribrands Stock shall be issued in the Distribution. In lieu thereof, a
distribution agent will aggregate fractional shares into whole shares and sell
them in the open market at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests, and such
distribution agent shall remit to each holder of Ralston Stock who would
otherwise be entitled to receive such fractional shares a cash payment equal
to such holder's pro rata share of the total gross sale proceeds (after making
appropriate deductions of the amount required for Federal tax withholding
purposes). Ralston shall bear the cost of commissions incurred in connection
with such sales.
ARTICLE IV
INDEMNIFICATION
4.01 Indemnification.
---------------
(a) From and after the Distribution Date, Ralston agrees to indemnify
and hold harmless Agribrands against and in respect of any and all Liabilities
assumed or retained by Ralston pursuant to Section 2.04(b) of this Agreement
or related to, arising from, or associated with:
(i) any breach or violation of any covenant made in this
Agreement or any Ancillary Agreement by Ralston or any of its Subsidiaries;
(ii) any Third-Party Claim relating to the actions of the
Ralston Board in authorizing the Distribution;
(iii) the ownership, use or possession of the Ralston Assets or
the operation of the Ralston Business or Former Ralston Businesses, whether
relating to or arising out of occurrences prior to or after the Distribution,
except to the extent liability therefor is assumed or retained by Agribrands
or another member of the Agribusiness Group pursuant to Section 2.04(b) of
this Agreement; and all operations conducted by Ralston, its successors and
their Affiliates following the Distribution.
(iv) with respect to employee benefit plans sponsored by
Ralston, Ralston's failure to comply with the provisions of ERISA or the Code;
(v) any violations of the Code, or of federal or state
securities laws, in connection with the Distribution, the Information
Statement and Form 10 or any filings made with governmental agencies with
respect thereto, except to the extent that such violations, or allegations of
violations, result from or are related to the disclosure to Ralston's
corporate staff of information, or failure to disclose information, by
officers, directors, employees, agents, consultants or representatives of the
Agribusiness.
Any indemnification provided for under this Section shall, to the extent
legally permissible, also be deemed to extend to other members of the
Agribusiness Group, Affiliates, Agribusiness Employees, directors, Plan
fiduciaries, shareholders, agents, consultants, representatives, successors,
transferees and assigns of Agribrands or members of the Agribusiness Group.
(b) From and after the Distribution Date, Agribrands agrees to indemnify
and hold harmless Ralston against and in respect of all Liabilities assumed or
retained by Agribrands or another member of the Agribusiness Group pursuant to
Section 2.04(b) of this Agreement or related to, arising from, or associated
with:
(i) any breach or violation of any covenant made in this
Agreement or any Ancillary Agreement by Agribrands or any of its Subsidiaries
or Affiliates;
(ii) the ownership, use or possession of the Agribusiness Assets
or the operation of the Agribusiness or Former Agribusinesses, whether
relating to or arising out of occurrences prior to or after the Distribution,
except to the extent liability therefor is assumed or retained by Ralston or
another member of the Ralston Group pursuant to Section 2.04(b) of this
Agreement; and all operations conducted by Agribrands, its successors and
their Affiliates following the Distribution.
(iii) with respect to employee benefit plans sponsored by
Agribrands, Agribrands' failure to comply with the provisions of the plan,
ERISA or the Code;
(iv) any violation or allegations of violations of federal or
state securities laws in connection with the Distribution, the Information
Statement and Form 10 or any filings made with governmental agencies with
respect thereto, to the extent that such violations, or allegations of
violations, result from or are related to, the disclosure to Ralston's
corporate staff of information, or failure to disclose information, by
officers, directors, employees, agents, consultants or representatives of the
Agribusiness; and
(v) any continuing guarantee by Ralston of any obligation of
Agribrands or its Affiliates.
Any indemnification provided for under this Section shall, to the extent
legally permissible, also be deemed to extend to other members of the Ralston
Group, Affiliates, Ralston Employees, directors, Plan fiduciaries,
shareholders, agents, consultants, representatives, successors, transferees
and assigns of Ralston or members of the Ralston Group.
Notwithstanding the foregoing, neither party shall have any obligation to
indemnify the other for a single Liability of less than US$10,000.
4.02 Actions and Claims Other Than Third-Party Claims; Notice and
------------------------------------------------------------
Payment. Upon obtaining knowledge of any Action, Liability or claim, other
than Third-Party Claims, which any Person entitled to indemnification (the
"Indemnitee") believes may give rise to any Indemnifiable Loss, the Indemnitee
shall promptly notify the party liable for such indemnification (the
"Indemnitor") in writing of such Action or claim (such written notice being
hereinafter referred to as a "Notice of Claim"); provided, however, that
failure of an Indemnitee timely to give a Notice of Claim to the Indemnitor
shall not release the Indemnitor from its indemnity obligations set forth in
this Article IV except to the extent that such failure increases the amount of
indemnification which the Indemnitor is obligated to pay hereunder, in which
event the amount of indemnification which the Indemnitee shall be entitled to
receive shall be reduced to an amount which the Indemnitee would have been
entitled to receive had such Notice of Claim been timely given. A Notice of
Claim shall specify in reasonable detail the nature and estimated amount of
any such Action, Liability or claim giving rise to a right of indemnification.
The Indemnitor shall have ninety (90) Business Days after receipt of a Notice
of Claim to notify the Indemnitee whether or not it disputes its liability to
the Indemnitee with respect to such Action, Liability or claim or the amount
thereof, and setting forth the basis for such objection. If the Indemnitor
fails to respond to the Indemnitee within such ninety (90) Business Day
period, the Indemnitor shall be deemed to have acknowledged its responsibility
for such Indemnifiable Loss. If such Indemnifiable Loss is not contested, the
Indemnitor shall pay and discharge any such Indemnifiable Loss within one
hundred twenty (120) Business Days after its receipt of a Notice of Claim.
4.03 Insurance and Third-Party Obligations. Any indemnification
-------------------------------------
otherwise payable pursuant to Section 4.01 shall be reduced by the amount of
any insurance or other amounts (net of deductibles and allocated paid loss
retro-premiums) that would be payable by any third party to the Indemnitee or
on the Indemnitee's behalf in the absence of this Agreement. It is expressly
agreed that no insurer or any other third party shall be (i) entitled to a
benefit it would not be entitled to receive in the absence of the foregoing
indemnification provisions, (ii) relieved of the responsibility to pay any
claims for which it is obligated, or (iii) entitled to any subrogation rights
with respect to any obligation hereunder.
4.04 Third-Party Claims; Notice, Defense and Payment. Promptly
------------------------------------------------
following the earlier of (i) receipt of notice of the commencement of a
Third-Party Claim or (ii) receipt of information from a third party alleging
the existence of a Third-Party Claim, any Indemnitee who believes that it is
or may be entitled to indemnification by any Indemnitor under Section 4.01
with respect to such Third-Party Claim shall deliver a Notice of Claim to the
Indemnitor. Failure of an Indemnitee timely to give a Notice of Claim to the
Indemnitor shall not release the Indemnitor from its indemnity obligations set
forth in this Section 4.04 except to the extent that such failure adversely
affects the ability of the Indemnitor to defend such Action, Liabilities or
claim or increases the amount of indemnification which the Indemnitor is
obligated to pay hereunder, in which event the amount of indemnification which
the Indemnitee shall be entitled to receive shall be reduced to an amount
which the Indemnitee would have been entitled to receive had such Notice of
Claim been timely given. Indemnitee shall not settle or compromise any
Third-Party Claim in an amount in excess of US$10,000 prior to giving a Notice
of Claim to Indemnitor at least twenty (20) Business Days in advance of such
settlement. In addition, if an Indemnitee settles or compromises any
Third-Party Claims prior to giving such Notice of Claim to an Indemnitor, the
Indemnitor shall be released from its indemnity obligations to the extent that
the Indemnitor can sustain the burden of proving that such settlement or
compromise was not made in good faith and was not commercially reasonable.
Within ninety (90) days after receipt of such Notice of Claim (or sooner if
the nature of such Third-Party Claim so requires), the Indemnitor may (A) by
giving written notice thereof to the Indemnitee, acknowledge liability for,
and at its option elect to assume, the defense of such Third-Party Claim at
its sole cost and expense or (B) object to the claim of indemnification set
forth in the Notice of Claim delivered by the Indemnitee; provided that if the
Indemnitor does not within the same ninety (90) day period give the Indemnitee
written notice either objecting to such claim and setting forth the grounds
therefor or electing to assume the defense, the Indemnitor shall be deemed to
have acknowledged its responsibility to accept the defense and its ultimate
liability, if any, for such Third-Party Claim. Any contest of a Third-Party
Claim as to which the Indemnitor has elected to assume the defense shall be
conducted by attorneys employed by the Indemnitor and reasonably satisfactory
to the Indemnitee; provided that the Indemnitee shall have the right to
participate in such proceedings and to be represented by attorneys of its own
choosing at the Indemnitee's sole cost and expense. If the Indemnitor assumes
the defense of a Third-Party Claim, the Indemnitor may settle or compromise
the Third-Party Claim without the prior written consent of Indemnitee;
provided that the Indemnitor may not agree to any such settlement pursuant to
which any such remedy or relief, other than monetary damages for which the
Indemnitor shall be responsible hereunder, shall be applied to or against the
Indemnitee, without the prior written consent of the Indemnitee, which consent
shall not be unreasonably withheld. If the Indemnitor does not assume the
defense of a Third-Party Claim for which it has acknowledged liability for
indemnification under Section 4.01, the Indemnitee may require the Indemnitor
to reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and reasonable out-of-pocket
expenses incurred in defending against such Third-Party Claim and the
Indemnitor shall be bound by the result obtained with respect thereto by the
Indemnitee, provided that the Indemnitor shall not be liable for any
settlement effected without its consent, which consent shall not be
unreasonably withheld. The Indemnitor shall pay to the Indemnitee in cash the
amount for which the Indemnitee is entitled to be indemnified (if any) within
thirty (30) days after the final resolution of such Third-Party Claim (whether
by settlement, a final nonappealable judgment of a court of competent
jurisdiction or otherwise) or, in the case of any Third-Party Claim as to
which the Indemnitor has not acknowledged liability, within thirty (30) days
after such Indemnitor's objection has been resolved by settlement, compromise
or arbitration pursuant to the provisions of Article XI of this Agreement.
4.05 Remedies Cumulative; Survival of Indemnities. The remedies
--------------------------------------------
provided in this Article IV shall be cumulative and shall not preclude
assertion by any Indemnitee of any other rights or the seeking of any and all
other remedies against any Indemnitor. The obligations of each of the Ralston
Group and the Agribusiness Group under this Article IV shall survive the sale
or other transfer by it of any assets or businesses or the assignment by it of
any Liabilities, with respect to any claim of the other for any Indemnifiable
Losses related to such assets, businesses or Liabilities.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.01 Non-Competition. (a) In light of the extensive affiliation
---------------
among Ralston, Agribrands and their respective Affiliates, and in order to
secure the benefit of the good will previously associated with Ralston's
business, which is being transferred to Agribrands, and to maintain the good
will associated with those businesses being retained by Ralston, and to secure
the good will previously associated with that portion of Agribrands' business
which is being assumed by Ralston, all as provided in the terms of this
Agreement; and in light of the continuing relationship among the parties, as
provided in the Ancillary Agreements; the parties mutually agree that, except
as otherwise provided in this Section 5.01, for the period ending on the fifth
anniversary of the Distribution Date (except with respect to obligations under
the Agreement and Plan of Merger and Exchange dated as of December 2, 1997, by
and among E. I. du Pont de Nemours and Company, Ralston and certain of their
affiliates (the "DuPont Agreement"), which obligations shall continue for the
period specified in the DuPont Agreement):
(i) Neither Ralston, nor any of its Affiliates, nor any of their
successors or successive successors, shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in the business of the manufacture, distribution or sale of feeds for
horses, commercial livestock, commercial poultry, laboratory animals, zoo
animals, wild birds and game, rabbits, animals raised for fur, or fish,
reptiles and shellfish raised in commercial aquaculture facilities; or in the
business of providing services or facilities to the foregoing classes of
animals and fish (collectively, the foregoing are hereafter termed the
"Protected Agribrands Business").
(ii) Neither Agribrands, nor any of its Affiliates, nor any of
their successors or successive successors shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in the manufacture, distribution or sale of foods or feeds for pets,
pet products, pet supplies, pet accessories, litter or personal care products
for cats, dogs or other pets; provided that:
A. Agribrands and its Affiliates in Canada may manufacture and
sell, solely under trademarks authorized by the Trademark Agreement and solely
in Canada, those pet food products which they were manufacturing and selling
at the date of this Agreement (the commercial and nutritional characteristics
of which and their present composition being set forth on Schedule
5.01(a)(ii)(A) to this Agreement) and without the prior written consent of
Ralston, the commercial and nutritional characteristics of such products shall
not be changed, and the composition of such products shall not be changed
materially.
B. Agribrands and its Affiliates may distribute any pet food
purchased from Ralston, it being expressly agreed that Ralston may, in its
sole discretion, refuse to supply or limit the supply of such pet foods to
Agribrands or any of its Affiliates at any time and in any country; provided
that, should Ralston refuse to supply any of the following products to
Agribrands and its Affiliates in any country, then Agribrands and its
Affiliates may manufacture (and distribute only a product of its own
manufacture) in any such country--
1) not more than one (1) brand (which brand shall be owned solely
by Agribrands or its Affiliates) of dry dog food, which shall be formulated to
provide sufficient nutritional properties as are then deemed adequate to
maintain an adult dog under standards promulgated by AAFCO, which in no case
shall contain more than 18% protein and 8% fat (both as reflected in the
guaranteed analysis or average analysis), which shall be formulated so that
the top three (3) ingredients of the ration are not animal-, poultry-, or
fish-based protein ingredients, and which shall possess a CME of no more than
3500 kilocalories per kilogram ("KCal/Kg");
2) not more than one (1) brand (which brand shall be owned solely
by Agribrands or its Affiliates) of dry puppy food, which shall be formulated
to provide sufficient nutritional properties as are then deemed adequate for
the growth of puppies under standards promulgated by AAFCO, which shall in no
case contain more than 22% protein and 9% fat (as reflected on the same
basis), which shall be formulated so that the top three (3) ingredients of the
ration are not animal-, poultry-, or fish-based protein ingredients, and which
shall possess a CME of no more than 3700 KCal/Kg; and
3) not more than one (1) brand (which brand shall be owned solely by
Agribrands or its Affiliates) of dry cat food, which shall be formulated to
provide sufficient nutritional properties as are then deemed adequate to
maintain an adult cat under standards promulgated by AAFCO, which shall in no
case contain more than 28% protein and 10% fat (as reflected on the same
basis), which shall be formulated so that the top three ingredients of the
ration are not animal-, poultry- or fish-based protein ingredients, and which
shall possess a CME of no more than 3600 KCal/Kg.
C. With respect to all products described in sub-Section
5.01(ii)(B), Ralston shall be deemed to have "refused" to supply any such
products only if Ralston and Agribrands have failed, following good faith
negotiations which shall be conducted within sixty (60) days following written
notice from Agribrands to Ralston, to agree on mutually acceptable terms for
the supply of any such products to Agribrands or its Affiliates by Ralston.
D. Neither Agribrands, nor any of its Affiliates, nor any of
their successors nor successive successors, shall directly or indirectly
solicit, offer for sale, sell, distribute, encourage the sale, or be otherwise
involved in any distribution of any dog or cat food products to any Person
outside the "Agricultural Channel," which Channel shall consist exclusively
of:
1) Persons outside the United States principally (i.e., more than
one-half of the monthly gross sales of which are generated by) engaged in the
resale of formulated livestock and poultry feeds (exclusive of dog and cat
foods);
2) Persons outside the United States principally engaged in the
resale of farm supplies, farm equipment, and/or animal feeds other than dog or
cat foods, provided that no less than seventy-five per cent (75%) of the
monthly gross animal feed sales of any such Person consists of feeds for
animals other than dogs and/or cats; and
3) Persons outside the United States who are, at the date of this
Agreement, customers of Agribrands or any of its Affiliates (except that if
such customers purchase, prior to the Distribution Date, only products other
than dog or cat food from Agribrands or its Affiliates, then after the
Distribution Date, such customers shall not be considered customers of
Agribrands or its Affiliates under this subsection 3), provided that, should
any such Persons change either the location or the nature of their present
business activities, or experience a direct or indirect change of control by
any means, then in either case such Person shall be deemed removed from the
Agricultural Channel promptly upon written notice from Ralston to Agribrands.
E. Agribrands, its Affiliates, and their successors and
successive successors:
1) shall not solicit sales of any dog or cat food products in or
into the United States, or to any purchaser outside the Agricultural Channel;
2) shall not develop, encourage, assist or participate in any sales
of such products in or into the United States, or outside the Agricultural
Channel; and
3) shall use their best efforts, including but not limited to
ceasing to sell dog and cat foods to any Person, to deter any sales of such
products in or into the United States, or outside the Agricultural Channel, by
any such Person.
(iii) Neither Agribrands, nor any of its Affiliates, nor any or
their successors or successive successors, shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in:
A. the business of the manufacture, sale or distribution of
primary or rechargeable batteries, lighting products or devices; or
B. any activities which are proscribed as to Ralston or its
Affiliates under the terms of Section 6.10 of the DuPont Agreement, the terms
of which are hereby acknowledged as binding upon Agribrands and its
Affiliates, and their successors and successive successors.
The businesses defined in sub-paragraphs (ii) and (iii) of this Section 5.01
of this Reorganization Agreement, are hereafter termed the "Protected Ralston
Business."
(b) The proscriptions contained in sub-sections (i) and (ii) of
Section 5.01(a) of this Reorganization Agreement shall not be interpreted to
prevent:
(i) either Agribrands or Ralston, or any of their Affiliates, or
any of their successors or successive successors, respectively, from the
acquisition and ownership of no more than fifteen per cent (15%) of either a
voting or equity interest in a Person engaged in either the Protected Ralston
Business or the Protected Agribrands Business; or
(ii) either Agribrands or Ralston, or any of their Affiliates, or
any of their successors or successive successors, respectively, from the
acquisition or ownership of any interest in a Person engaged in either a
Protected Ralston Business or Protected Agribrands Business if no more than
ten per cent (10%) of such Person's gross sales (as reflected in its most
recent regularly prepared financial statements) are derived from either the
Protected Ralston Business or the Protected Agribrands Business, as the case
may be.
(c) If any Person who is not at the date of this Agreement an Affiliate
of Ralston or Agribrands, respectively, should acquire (by any means,
including but not limited to operation of law) a voting or equity interest of
twenty per cent (20%) or more in either Ralston or Agribrands, then the other
shall be relieved of its responsibilities under this Section 5.01, except that
Agribrands, its Affiliates, and their successors and successive successors
shall continue to observe and be bound by the terms of Section 6.10 of the
DuPont Agreement.
(d) Without limiting the remedies otherwise available to either party,
the parties expressly agree that (i) damages at law for breach of this
Agreement would be an inadequate remedy, and that either party would be
subjected to irreparable harm upon breach by the other, and is entitled to
injunctive or other equitable relief upon breach or threatened breach by the
other; and (ii) since equitable relief may not be available in the
jurisdiction in which such breach or threatened breach has occurred, the party
against whom such breach or threatened breach has occurred may cancel all or
any of the Ancillary Agreements upon such breach or threat thereof; provided,
however, that neither party shall be entitled to invoke any of the remedies
provided in this Section 5.01(d) unless it has given written notice of such
alleged breach or threat thereof to the other party, and the other party has
failed to cure such breach or threat thereof to the reasonable satisfaction of
the notifying party within sixty (60) days of its receipt of such notice.
(e) If any of the provisions of this Section 5.01 are held by a court or
governmental authority of competent jurisdiction to be unenforceable as
written, then any such provision shall be deemed automatically amended so that
it is enforceable to the maximum extent permissible under the laws and public
policy of the applicable jurisdiction or authority. The provisions of this
Section 5.01 are severable and this Section 5.01 shall be interpreted and
enforced as if all completely invalid or unenforceable provisions were not
contained in this Section 5.01, and partially valid or enforceable provisions
shall be enforceable to the extent they are valid or enforceable.
5.02 Further Assurances. Each party hereto shall cooperate with the
------------------
other parties, and execute and deliver, or use its best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture
or other instrument, and take all such other actions as such party may
reasonably be requested to take by any other party hereto from time to time,
consistent with the terms of this Agreement, in order to effectuate the
provisions and purposes of this Agreement and the transfers of Assets and
Liabilities and the other transactions contemplated hereby or in any of the
Ancillary Agreements. If any such transfer of Assets or Liabilities is not
consummated prior to or on the Distribution Date, then the party hereto
retaining such Asset or Liability shall thereafter hold such Asset in trust
for the use and benefit of the party entitled thereto (at the expense of the
party entitled thereto), or shall retain such Liability for the account of the
party by whom such Liability is to be assumed pursuant hereto, as the case may
be, and shall take such other action as may be reasonably requested by the
party to whom such Asset is to be transferred, or by whom such Liability is to
be assumed, as the case may be, in order to place such party, insofar as
reasonably possible, in the same position as if such Asset or Liability had
been transferred as contemplated hereby. If and when any such Asset or
Liability becomes transferable, such transfer shall be effected forthwith.
The parties hereto agree that, as of the Distribution Date, each party hereto
shall be deemed to have acquired complete and sole beneficial ownership of all
of the Agribusiness Assets, or Ralston Assets, as the case may be, together
with all rights, powers and privileges incident thereto, and shall be deemed
to have assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incident
thereto, that such party is entitled to acquire or required to assume pursuant
to the terms of this Agreement.
5.03 Agribrands Board. Prior to the Distribution Date, Agribrands
----------------
shall take such actions as are necessary so that its Board of Directors is
comprised of those individuals named as directors in the Form 10.
5.04 Contractual Arrangements.
-------------------------
(a) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a tax sharing agreement, substantially in the form attached
to this Agreement as Exhibit A ("Tax Sharing Agreement").
(b) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a bridging services agreement, substantially in the form
attached to this Agreement as Exhibit B ("Bridging Services Agreement").
(c) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a trademark agreement, substantially in the form attached to
this Agreement as Exhibit C ("Trademark Agreement").
(d) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a technology license agreement, substantially in the form
attached to this Agreement as Exhibit D ("Technology Transfer and License
Agreement").
(e) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into certain toll-milling agreements, substantially in the forms
attached to this Agreement as Exhibit E-1 and E-2 ("Toll-Milling Agreement").
(f) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into certain agreements for the purchase and sale of the assets
and liabilities or stock of an agribusiness or pet products enterprise,
substantially in the forms attached to this Agreement as Exhibits F-1 and F-2
("Enterprise Purchase Agreements").
(g) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into certain operating agreements, substantially in the form
attached to this Agreement as Exhibit G ("Operating Agreement").
5.05 Cash Management and Intercompany Accounts.
----------------------------------------------
(a) Through and including 12:01 a.m. local time on the Distribution
Date, Ralston and Agribrands shall continue to employ cash management and
other business practices with respect to the Agribusiness that are consistent
with those practices historically employed.
(b) All bank accounts used exclusively in the Agribusiness, and the
balances therein existing as of 12:01 a.m. local time on the Distribution
Date, shall be transferred on the Distribution Date to Agribrands or its
Subsidiaries or Affiliates. All bank accounts used jointly by a member of the
Agribusiness Group and any member of the Ralston Group, and balances therein
existing as of the Distribution Date, shall remain with the Ralston Group.
Following the Distribution Date, each party shall promptly pay to the other
any amounts collected by it through any of its accounts to the extent any of
such amounts collected relate exclusively to the Business of the other party.
(c) All intercompany services provided by the Ralston Group to the
Agribusiness Group, and vice versa, shall terminate as of the Distribution
Date unless otherwise provided in the Bridging Agreement or any other
Ancillary Agreement. Effective as of the close of business on the
Distribution Date, all intercompany receivables or payables and loans then
existing between any member of one Group and any member of the other Group
shall be settled or forgiven as set forth on Schedule 5.05(c), except that,
unless otherwise provided on Schedule 5.05(c), trade receivables or payables
arising out of intercompany sales of inventories or other tangible goods shall
be settled in the normal course of business.
ARTICLE VI
ACCESS TO INFORMATION
6.01 Provision of Corporate Records. Subject to the terms of the
------------------------------
Ancillary Agreements, prior to, or as promptly as practicable after, the
Distribution Date, Ralston shall deliver to Agribrands all corporate books and
records of Agribrands and its Subsidiaries. Ralston shall also make available
for copying or, to the extent not detrimental, in Ralston's reasonable
opinion, to the interests of Ralston, originals of all books, records and data
reasonably related to the Agribusiness Assets, the Agribusiness, and the
Liabilities assumed or retained by Agribrands, including, but not limited to,
all books, records and data relating to the purchase of materials, supplies
and services, financial results, sale of products, records of the Agribusiness
Employees, commercial data, catalogues, brochures, training and other manuals,
sales literature, advertising and other sales and promotional materials,
maintenance records and drawings, all active agreements, active litigation
files and government filings. To the extent that originals of such books,
records and data are provided to Agribrands, Agribrands shall provide Ralston
copies thereof as reasonably requested in writing by Ralston. Notwithstanding
the above, Ralston shall provide copies of customer information, invoices and
credit information only to the extent reasonably requested in writing by
Agribrands, and Ralston shall provide such copies of all books, records and
data only to the extent that such action is not prohibited by the terms of any
agreements pertaining to such information or is not prohibited by law. From
and after the Distribution Date, all books, records and copies so delivered
shall be the property of Agribrands. Notwithstanding the above, Ralston shall
not be required to make copies, other than pursuant to Section 6.02 of this
Agreement, of any books, records and data which are more than seven years old
or which relate to events occurring more than seven (7) years prior to the
Distribution Date, or of any portion of any books, records or data to the
extent such portion relates exclusively to the Ralston Assets, the Ralston
Business or to Liabilities assumed or retained by Ralston.
6.02 Access to Information. From and after the Distribution Date,
---------------------
each of Ralston and Agribrands shall afford to the other and to the other's
agents, employees, accountants, counsel and other designated representatives,
reasonable access and duplicating rights during normal business hours to all
records, books, contracts, instruments, computer data and other data and
information ("Information") within such party's possession relating to such
other party's businesses, assets or liabilities, insofar as such access is
reasonably required by such other party. Without limiting the foregoing, such
Information may be requested under this Section 6.02 for audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.
6.03 Retention of Records. Except as otherwise required by law or
--------------------
agreed in writing, or as otherwise provided in the Tax Sharing Agreement, each
of Ralston and Agribrands shall retain, for a period of at least seven years
following the Distribution Date, all significant Information in such party's
possession or under its control relating to the business, assets or
liabilities of the other party and, after the expiration of such seven-year
period, prior to destroying or disposing of any of such Information, (i) the
party proposing to dispose of or destroy any such Information shall provide no
less than 30 days' prior written notice to the other party, specifying the
Information proposed to be destroyed or disposed of, and (ii) if, prior to the
scheduled date for such destruction or disposal, the other party requests in
writing that any of the Information proposed to be destroyed or disposed of be
delivered to such other party, the party proposing to dispose of or destroy
such Information promptly shall arrange for the delivery of the requested
Information to a location specified by, and at the expense of, the requesting
party.
6.04 Confidentiality. From and after the Distribution Date, each
---------------
Group shall hold, in strict confidence, all Information obtained from the
other Group prior to the Distribution Date or furnished to it pursuant to this
Agreement or any other agreement referred to herein which relates to or
concerns the business conducted by such other Group, and such Information
shall not be used by it to the detriment of the other Group, or disclosed by
it or its agents, officers, employees or directors without the prior written
consent of such other Group unless and to the extent that (i) disclosure is
compelled by judicial or administrative process or, in the opinion of such
Group's counsel, by other requirements of law, or (ii) such Group can show
that such Information was (A) available to such Group on a nonconfidential
basis prior to its disclosure by the other Group, (B) in the public domain
through no fault of such Group, (C) lawfully acquired by such Group from other
sources after the time that it was furnished to such Group pursuant to this
Agreement or any other agreement referred to herein, or (D) independently
developed by such Group. Notwithstanding the foregoing, each Group shall be
deemed to have satisfied its obligations of confidentiality under this Section
6.04 with respect to any Information concerning or supplied by the other Group
if it exercises substantially the same care with regard to such Information as
it takes to preserve confidentiality for its own similar Information.
6.05 Reimbursement. Each member of any Group providing Information
-------------
pursuant to Sections 6.02 or 6.03 to any member of the other Group shall be
entitled to receive from the recipient, upon presentation of an invoice
therefor, payment in U. S. dollars of all out-of-pocket costs and expenses as
may reasonably be incurred in providing such Information.
ARTICLE VII
EMPLOYEE MATTERS
7.01 Employee Liabilities; Continuation of Employment.
-----------------------------------------------------
After the Distribution Date, except as otherwise specifically provided
for in this Agreement and Plan of Reorganization, the Agribusiness Group shall
be responsible for all employment and benefit liabilities related to the
Agribusiness Individuals and the Ralston Group shall be responsible for all
employment and benefit liabilities related to the Ralston Individuals, whether
arising before, coincident with or after the Distribution. Ralston and
Agribrands shall cause each member of their respective Groups to cooperate
with the members of the other's Group to effect, as soon as practicable in a
cost-effective manner, the transfer of employment, where applicable, of
Agribusiness Employees and Ralston Employees to the appropriate Affiliate of
either Group.
7.02 Ralston Purina Retirement Plan.
---------------------------------
Effective as of the Distribution Date, all Agribusiness Employees who are
participants in the Retirement Plan shall cease to accrue benefits under such
Plan. Ralston shall retain all assets and liabilities under the Plan
associated with such Employees and Former Agribusiness Employees.
Ralston shall cause the Retirement Plan to be amended, effective as of
the Distribution Date, to provide that Agribusiness Employees who are
participants in the Plan as of such date who are between 50 and 54 years of
age, or who have a combination of age and years of service for vesting
purposes greater than or equal to 65, will have the number of years necessary
to attain age 55 added for purposes of calculating their age (but not credited
service) in determining their accrued benefit under such Plan. Commencement
of payment of retirement benefits under the Plan shall be subject to the terms
of the Plan, without taking into account the deemed addition of years for
purposes of calculation of age.
7.03 International Retirement Plans.
--------------------------------
(a) Canadian Pensions. Effective as of the Distribution Date, the
Agribusiness Employees participating in the defined benefit pension plan
sponsored by Ralston Purina Canada Inc. (the "Ralston Canadian Pension Plan")
shall cease to accrue benefits under such Plan, and all liabilities for
benefits accrued by such individuals as of such Distribution Date shall be
transferred to a new pension plan (the "Agribrands Canadian Pension Plan")
established by Newco Canada, an Affiliate of Agribrands, the terms of which
are substantially the same as those of the Ralston Canadian Pension Plan. The
Agribrands Canadian Pension Plan shall give the Agribusiness Employees credit,
for purposes of eligibility, vesting and benefit accrual, for service with the
Ralston Group on or prior to the Distribution Date, to the extent such service
was recognized under the Ralston Canadian Pension Plan. For purposes of this
Section 7.03(a), an individual (i) who has been determined to be disabled but
who is not as of the Distribution Date receiving benefits from the Ralston
Canadian Pension Plan, or (ii) who is in the waiting period prior to a
determination of disability shall be deemed to be an Agribusiness Employee and
liabilities for benefits accrued by such employees shall be included in the
transfer of liabilities with respect to other Agribusiness Employees.
Benefits accrued by Former Agribusiness Employees under the Ralston Canadian
Pension Plan shall remain liabilities of the Ralston Canadian Pension Plan.
Ralston shall, as soon as practicable after the Distribution Date, cause
Ralston Purina Canada Inc. to transfer from the Ralston Canadian Pension Plan
to the Agribrands Canadian Pension Plan an amount (the "Transfer Amount")
equal to (i) the present value of benefits accrued by the Agribusiness
Employees as of the Distribution Date (determined on the greater of an ongoing
concern or solvency basis in accordance with plan documents, plan
interpretations specified therein and actuarial assumptions as used in the
last filed actuarial report adjusted as necessary to comply with legislation
and regulatory authorities), plus (ii) a proportionate share of the defined
benefit assets held in the Ralston Canadian Pension Plan in excess of the
present value of defined benefit liabilities for all participants in the plan
as of that date, plus (iii) interest based on the Ralston Canadian Pension
Plan rate of return on the Transfer Amount as at the Distribution Date
calculated from the Distribution Date to the actual transfer date, less (iv)
any expenses, less (v) an adjustment for the value of benefits for
Agribusiness Employees who terminate, die or retire after the Distribution
Date and prior to the actual transfer date. Such transfer shall be
conditioned upon receipt of, and subject to, all requisite governmental and
other approvals and consents and if a different Transfer Amount is required by
applicable regulatory authorities, an adjustment to the Transfer Amount will
be made. Upon completion of the transfer of such assets and liabilities, the
Ralston Canadian Pension Plan and the Ralston Group shall have no further
liability for pension benefits for the Agribusiness Employees.
(b) Other Foreign Funded Retirement Plans. With respect to other
foreign funded retirement plans in which Agribusiness Employees, Former
Agribusiness Employees, Ralston Employees and Former Ralston Employees
participate, Agribrands and Ralston shall cooperate in taking such actions as
are necessary or desirable to ensure that the assets and liabilities related
to the current and former employees, respectively, of the Agribusiness Group
and the Ralston Group are transferred to (or retained in, as the case may be)
the retirement plan applicable to each such Group's employees or former
employees. The amount to be transferred from one defined contribution plan to
another shall be equal to the account balances accrued as of the date of
transfer. The amount to be transferred from one defined benefit plan to
another shall be equal to the present value of benefits accrued by the
transferred employees as of the Distribution Date (determined in accordance
with plan documents, plan interpretations, actuarial assumptions specified
therein, and applicable law), plus a proportionate share of the funds held in
the plan in excess of the amount required to satisfy the accumulated benefit
obligation for all participants in the plan as of that date. If such defined
benefit plan lacks sufficient funds to satisfy the accumulated benefit
obligations of all participants in the plan prior to the transfer, then such
transfer shall be equal to a share of total assets proportionate to the share
of total liabilities being transferred. The transfers of assets and
liabilities shall be conditioned upon receipt of, and subject to, all
requisite governmental and other approvals and consents. Upon completion of
the transfer of such assets and liabilities, the transferring plan and the
Group which sponsors the transferring plan shall have no further
responsibility for pension benefits for the employees for whom such assets and
liabilities were transferred.
7.04 Savings Investment Plan.
-------------------------
(a) Agribrands shall take, or cause to be taken, all necessary and
appropriate actions to establish, effective as of the Distribution Date, and
administer a defined contribution Plan which will be a Qualified Plan and
which will also be subject to Section 401(k) of the Code ("Agribrands SIP"),
and to provide benefits thereunder for all Agribusiness Employees who,
immediately prior to the Distribution Date, were participants in the Ralston
Purina Company SIP ("Ralston SIP"). Agribrands agrees that each such
Agribusiness Employee shall be, to the extent applicable, entitled, for all
purposes under the Agribrands SIP, to be credited with the term of service and
any account balance credited to such Agribusiness Employee as of the
Distribution Date under the terms of the Ralston SIP as if such service had
been rendered to the Agribusiness Group and as if such account balance had
originally been credited to such Agribusiness Employee under the Agribrands
SIP. Ralston agrees to provide Agribrands, as soon as practicable after the
Distribution Date (with the cooperation of Agribrands to the extent that
relevant information is in the possession of the Agribusiness Group), with a
list of the Agribusiness Employees who were, to the best knowledge of Ralston,
participants in the Ralston SIP immediately prior to the Distribution Date,
together with a listing, if requested by Agribrands, of each such Agribusiness
Employee's term of service for eligibility and vesting purposes under such
Plan and a listing of each such Agribusiness Employee's account balance
thereunder. Ralston shall, as soon as practicable after the Distribution
Date, provide Agribrands with such additional information (in the possession
of the Ralston Group and not already in the possession of the Agribusiness
Group) as may be reasonably requested by Agribrands and necessary in order for
Agribrands to establish and administer effectively the Agribrands SIP. The
Agribrands SIP receiving transfers of accounts from the Ralston SIP shall
contain an "Agribrands Stock Fund", and Agribusiness Employees for whom a
portion of the account balances are to be transferred to the Agribrands SIP
from the Ralston SIP in the form of Agribrands Stock, as described below,
shall be permitted to elect to retain their investment of that portion of
their account in the Agribrands Stock Fund.
(b) Ralston shall amend the Ralston SIP to cause the Agribrands
Employees to be fully vested, as of the Distribution, in amounts credited to
their accounts in the Ralston SIP as of such date. Ralston further agrees, as
soon as practicable following the Distribution Date, to direct the trustees of
the Ralston Purina Company Savings Investment Trust to transfer to the trustee
of the Agribrands SIP in cash, securities or other property or a combination
thereof, as reasonably determined by Ralston, an amount equal to the account
balances credited as of the date of transfer to the participants and
beneficiaries in the Ralston SIP who are Agribusiness Employees. Such
transfer shall be adjusted, if and to the extent necessary, to comply with
Section 414(l) of the Code and the regulations promulgated thereunder. At the
time determined by the appropriate fiduciaries of the Ralston SIP, such
fiduciaries shall cause shares of ESOP Stock allocated to accounts of
Agribusiness Employees under the Ralston SIP to be converted into or redeemed
for shares of Ralston Stock, as provided by the terms of the ESOP Stock.
Shares of Ralston Stock received by the Ralston SIP upon such redemption or
conversion, as well as shares of such Stock otherwise held in the Plan with
respect to Agribusiness Employee participant accounts in the Ralston Stock
Fund, will be transferred directly to the trustee of the Agribrands SIP for
attribution to respective participant accounts in that Plan. Shares of
Agribrands Stock distributed with respect to shares of Ralston Stock held in
the Ralston SIP as of the Distribution, to the extent allocated to accounts of
Agribusiness Employees, shall be transferred to respective participant
accounts in the Agribrands Stock Fund of the Agribrands SIP.
(c) In connection with the transfers described in Section 7.04(b),
Ralston and Agribrands shall cooperate in making any and all appropriate
filings required under the Code or ERISA, and the regulations thereunder, and
any applicable securities laws and take all such action as may be necessary
and appropriate to cause such transfers to take place as soon as practicable
after the Distribution Date; provided, however, that each such transfer shall
not take place until as soon as practicable after the earlier of (A) the
receipt of a favorable IRS determination letter with respect to the
qualification of the Agribrands SIP under Section 401(a) of the Code or (B)
the receipt by Ralston of an opinion of counsel retained by Agribrands and
reasonably satisfactory in form and substance to Ralston to the effect that
such counsel believes the Agribrands SIP will be found by the IRS to be
qualified under Section 401(a) of the Code and that each trust established
thereunder is exempt from federal income tax under Section 501(a) of the Code.
Ralston and Agribrands agree to provide to such counsel such information in
the possession of the Ralston Group and the Agribusiness Group, respectively,
as may be reasonably requested by such counsel in connection with the issuance
of such opinion. Ralston agrees, during the period beginning on the
Distribution Date and ending with the date of final transfer of assets and
liabilities to the Agribrands SIP, to administer the Ralston SIP in accordance
with plan provisions, and, insofar as it is practical, in the ordinary course
as it was operated prior to the Distribution, except as otherwise set forth in
this Agreement.
(d) Except as specifically set forth in this Section 7.04, from and
after the Distribution Date, Ralston shall cease to have any liability or
obligation whatsoever with respect to Agribusiness Employees under the Ralston
SIP (other than the obligation to complete the transfer of assets and
liabilities to the Agribrands SIP described in (c) above) and Agribrands shall
assume and shall be solely responsible for all liabilities and obligations
whatsoever of either Ralston or Agribrands with respect to Agribusiness
Employees under the Ralston SIP and shall be solely responsible for all
liabilities and obligations whatsoever under the Agribrands SIP; provided,
however, that Ralston shall, in respect of Agribusiness Employees
participating in the Ralston SIP prior to the Distribution, either be
responsible for or make all required contributions, no later than the date
such contributions are legally required to be made, for all prior Plan years
and for the portion of the Current Plan Year ending on the Distribution Date,
to the extent not previously made.
7.05 U.S. Welfare Plans
--------------------
(a) Agribrands shall take, or cause to be taken, all actions
necessary and appropriate on behalf of itself and the Agribusiness Group to
adopt such Welfare Plans as necessary to provide welfare benefits, effective
as of the Distribution Date, to the Agribusiness Individuals. In connection
with the foregoing, Ralston agrees to provide Agribrands or its designated
representative with such information (in the possession of the Ralston Group
and not already in the possession of the Agribusiness Group) as may be
reasonably requested by Agribrands and necessary for the Agribusiness Group to
establish any such Welfare Plan.
(b) Except as otherwise noted in this Section 7.05, Agribrands shall
assume, or cause one or more members of the Agribusiness Group to assume, and
shall be solely responsible for, or cause its insurance carriers or agents to
be responsible for, all welfare benefit claims incurred by Agribusiness
Individuals under the Agribusiness Welfare Plans described above in which such
Agribusiness Individuals are eligible to, and elect to, participate on or
after 12:01 a.m. on the Distribution Date. Ralston shall retain liability for
welfare benefit claims incurred by Agribusiness Individuals under the Purina
Comprehensive Health and Well-Med Plan or other Ralston Welfare Plans before
12:01 a.m. on the Distribution Date. For purposes of this Section 7.05,
medical and dental services are incurred when the Agribusiness Individual is
provided with medical or dental care; death benefit claims are incurred at the
time of death of the insured notwithstanding any other provision of any
welfare benefit plan to the contrary. As of 12:01 a.m. on the Distribution
Date, Agribusiness Employees will cease participating in Welfare Plans
maintained by any member of the Ralston Group, except to the extent they elect
continued coverage under Ralston's health benefit plans pursuant to the
Consolidated Omnibus Budget Reconciliation Act.
(c) Ralston and the Ralston Group shall be responsible for any
retiree medical and life insurance benefits payable under any Welfare Plans of
Ralston and the Ralston Group on or after the Distribution Date with respect
to any employees working in the Agribusiness who have retired from the
Agribusiness Group or the Ralston Group prior to the Distribution Date and who
have met the eligibility requirements for such benefits at that time.
Agribusiness Employees who retire from the Agribusiness Group on or after the
Distribution Date shall not be entitled to retiree medical and life insurance
benefits from such Welfare Plans of Ralston and the Ralston Group, except as
set forth in Sections 7.05(d) and (e) below. For purposes of this subsection,
the distribution of ownership of the Agribusiness Group to shareholders of
Ralston Stock shall not be deemed a termination of employment of Agribusiness
Employees.
(d) Effective as of the Distribution Date, Ralston shall cause the
Purina Comprehensive Plan to be amended to provide a delayed enrollment
opportunity for retiree medical benefits under the Comprehensive Health Plan
for Agribrands Employees who (i) were participants in the Purina Comprehensive
Health Plan but not the Executive Health Plan immediately prior to the
Distribution, (ii) had met the age and service requirements for retiree
medical coverage under the Purina Comprehensive Health Plan prior to the
Distribution Date, and who (iii) did not retire from the Agribusiness Group or
Ralston Group prior to the Distribution. Such delayed enrollment opportunity
shall be subject to satisfaction of certain eligibility conditions set forth
in the Plan (including, but not limited to, maintaining continuous coverage
under one or more group health plans sponsored by Agribrands or its successors
after the Distribution and applying for delayed enrollment in the Plan within
30 days after termination of coverage under such other group health plans),
and payment of applicable premiums for such retiree coverage.
Effective as of the Distribution Date, Ralston shall cause the Ralston Purina
Executive Health Plan to be amended to provide a similar delayed enrollment
opportunity for retiree medical benefits under the Executive Health Plan for
Agribrands Employees who (i) had met the age and service requirements for
retiree medical coverage under the Purina Comprehensive Health Plan prior to
the Distribution Date, (ii) were participants in the Executive Health Plan and
the Purina Comprehensive Health Plan immediately prior to the Distribution,
and who (iii) did not retire from the Agribusiness Group or Ralston Group
prior to the Distribution. Such delayed enrollment opportunity shall be
subject to satisfaction of certain eligibility conditions set forth in the
Executive Plan (including, but not limited to, maintaining continuous coverage
under one or more group health plans after the Distribution and applying for
delayed enrollment in the Executive Plan within 30 days after termination of
coverage under such other group health plans). The retiree medical coverage
offered to such Agribrands Employees under the Executive Health Plan shall be
equivalent to that offered to retirees under the Purina Comprehensive Health
Plan and the Executive Health Plan, and shall be contingent upon payment of
premiums equal to those charged for retiree coverage under the Purina
Comprehensive Health Plan.
(e) Ralston shall retain liabilities for retiree life benefits under
the Executive Life Plan for Former Agribusiness Employees who are eligible for
retiree life coverage under the Plan. Ralston shall amend the terms of the
Executive Life Plan to provide that Agribusiness Employees who are
participants in the Plan and who have satisfied the age and service
requirements for retiree life coverage as of the Distribution Date shall
retain retiree life coverage under the Plan after the Distribution in the
amount in effect as of the Distribution Date, and that such amount shall not
be increased thereafter.
7.06 International Welfare Plans
-----------------------------
Ralston and Agribrands shall each retain all liabilities related to
international welfare plans in which only Ralston Individuals or Agribusiness
Individuals, respectively, are enrolled. With respect to welfare plans in
which both Ralston Individuals and Agribusiness Individuals are participants,
Ralston and Agribrands shall cause each member of their respective Groups to
cooperate with members of the other Group to establish additional welfare
plans as soon as practicable after the Distribution Date in order to enroll
the Employees and Former Employees of the Agribusiness and Ralston in separate
plans. Ralston and Agribrands, or their respective welfare plans as
applicable, shall share proportionately in any refunds of contributions or
stabilization reserves payable on account of experience prior to the
Distribution; provided that, with respect to refunds from international
insurance pools, Ralston shall be obligated to share such refunds
proportionately with Agribrands only if Agribrands' share exceeds US$10,000.
7.07 Internationalist Retirement Plan.
----------------------------------
As of the Distribution Date, Agribusiness Employees who participate in
the Internationalist Retirement Plan shall cease to accrue benefits under such
Plan. Effective as of the Distribution Date, Agribrands shall assume or
retain all liabilities in connection with benefits accrued under such Plan
with respect to Agribusiness Individuals, and Ralston shall have no further
liability therefor. Agribrands agrees to cause such benefits to be paid to
the Agribusiness Individuals in a manner and amount consistent with the terms
of such plan.
7.08 Stock Options and Restricted Stock; Stock Purchase Plan.
----------------------------------------------------------
(a) The stock options held by Agribusiness Employees as of the
Distribution Date shall be administered in accordance with the terms of such
agreements. For purposes of restricted stock awards and stock options under
the ISPs, the Distribution shall be deemed to constitute an involuntary
termination of employment of Agribusiness Employees.
(b) Effective immediately after the Distribution Date, the number of
shares of Ralston Stock subject to, and the exercise price of, each
non-qualified option to acquire Ralston Stock granted pursuant to the terms of
an ISP ("Ralston Option") which immediately prior to the Record Date is
outstanding and not exercised shall be adjusted by the Human Resources
Committee of the Ralston Board in order to reflect the difference in the fair
market value of the Ralston Stock attributable to the Distribution, in
accordance with the requirements of Section 424 of the Code and the
regulations promulgated thereunder, based upon (i) the average of the closing
prices on the NYSE Composite Index for the Ralston Stock, trading regular way
with due bills for the Agribrands Stock, for the 10 trading day period prior
to the Distribution Date and (ii) the average of the closing prices on the
NYSE Composite Index for the Ralston Stock, trading regular way, for the 10
trading day period following the Distribution Date.
(c) Ralston and Agribrands agree that Ralston, as sole shareholder of
the outstanding capital stock of Agribrands, will approve the adoption by the
Board of Agribrands of an ISP prior to the Distribution, such plan to be
administered by the Nominating and Compensation Committee of the Agribrands
Board (the "Committee"). The Committee shall have authority under such plan
to grant stock options, restricted stock awards and other awards payable in
Agribrands Stock, to directors of Agribrands and eligible Agribusiness
Employees, including executive officers.
(d) Effective as of the Distribution Date, Agribusiness Employees
shall cease to be eligible to participate in Ralston's Purina Stock Purchase
Plan. All benefit obligations arising under the Plan prior to such date shall
be paid in accordance with the terms of the Plan.
7.09 Unfunded Deferred Compensation Plans.
---------------------------------------
(a) Ralston shall retain liability for all unpaid benefits,
obligations and liabilities with respect to account balances of Agribusiness
Employees and Former Agribusiness Employees in the Fixed Benefit Option of the
Ralston Purina Company Deferred Compensation Plan for Key Employees ("Ralston
Deferred Compensation Plan").
(b) Prior to the Distribution Date, Agribrands will establish a
Deferred Compensation Plan, which shall be a non-qualified unfunded deferred
compensation plan ("Agribrands Deferred Compensation Plan"). Effective as of
the Distribution, Ralston shall (i) amend the Ralston Deferred Compensation
Plan to permit the transfer to the Agribrands Deferred Compensation Plan of
that portion of the Ralston Deferred Compensation Plan relating to the
benefits accrued as of the Distribution Date by the Agribusiness Employees in
the Equity Option and Variable Interest Option of such Plan; and in connection
therewith, Ralston shall assign to Agribrands all its right, title and
obligations under the deferred compensation agreements associated with such
accrued benefits; and (ii) amend the Executive SIP to permit the transfer to
the Agribrands Deferred Compensation Plan of that portion of the Executive SIP
relating to the benefits accrued as of the Distribution Date by the
Agribusiness Employees.
(c) After the Distribution Date, Agribrands shall be solely
responsible for the payment of all liabilities and obligations for benefits
with respect to Agribusiness Employees under the Agribrands Deferred
Compensation Plan, which shall include all liabilities and obligations
transferred pursuant to 7.09(b) above, and Ralston shall have no liability
with respect thereto.
7.10 Partnership Life Insurance Plan.
----------------------------------
Agribusiness Individuals who, immediately prior to the Distribution Date,
were participants in or otherwise entitled to benefits under the Ralston
Partnership Life Insurance Plan, will, as of the Distribution Date, be treated
as terminated employees for purposes of such Ralston Partnership Life
Insurance Plan, and will be afforded all rights and benefits to which all
terminated employees are entitled under the terms of such Plan. Ralston will
retain ownership of any individual life insurance contracts then insuring the
life of any Agribusiness Employee in accordance with the terms of the
Partnership Life Insurance Plan.
7.11 Vacation Pay/Paid Time Off. Agribrands and the Agribusiness
--------------------------
Group will assume (or, as applicable, retain) all liability for unpaid
vacation pay and other paid time off accrued by Agribusiness Employees prior
to the Distribution Date. After the Distribution Date, Ralston and the
Ralston Group will have no liability for vacation pay or other paid time off
for Agribusiness Employees. Ralston and the Ralston Group will retain (or, as
applicable, assume) all liability for unpaid vacation pay and other paid time
off accrued by Ralston Employees prior to the Distribution Date. After the
Distribution Date, Agribrands and the Agribusiness Group will have no
liability for vacation pay or other paid time off for Ralston Employees.
7.12 U. S. Severance Pay.
----------------------
(a) Ralston and Agribrands agree that, with respect to individuals
who, in connection with the Distribution, cease to be employees of the Ralston
Group and become employees of the Agribusiness Group, such cessation shall not
be deemed a severance of employment from either Group for purposes of any Plan
that provides for the payment of severance, salary continuation or similar
benefits and shall, in connection with the Distribution, if and to the extent
appropriate obtain waivers from individuals against any such assertion.
(b) The Ralston Group shall assume and be solely responsible for all
liabilities and obligations whatsoever in connection with claims made by or on
behalf of Ralston Individuals and the Agribusiness Group shall assume and be
solely responsible for all liabilities and obligations whatsoever in
connection with claims made by or on behalf of Agribusiness Individuals in
respect of severance pay, salary continuation and similar obligations relating
to the termination or alleged termination of any such person's employment
either before, to the extent unpaid, or on or after the Distribution Date.
7.13 International Severance Pay.
-----------------------------
(a) Ralston and Agribrands agree that, with respect to individuals
who, in connection with the Distribution, cease to be employees of the Ralston
Group and become employees of the Agribusiness Group or vice versa, such
cessation shall not be deemed a severance of employment from either Group
except to the extent so required by the terms of any benefit plan, labor
agreement, applicable law or governmental regulation that provides for the
payment of severance pay, salary continuation, termination indemnity or
similar benefits. The parties agree, if and to the extent appropriate, to
obtain waivers from individuals against any such assertion.
(b) To the extent severance pay, salary continuation or termination
indemnity is payable with respect to an Agribusiness Individual or Ralston
Individual, the respective Group shall assume and be solely responsible for
all liabilities and obligations whatsoever in connection with claims for such
benefits made by or on behalf of such Individuals relating to the termination
or alleged termination of any such person's employment either before, to the
extent unpaid, or on or after the Distribution Date.
Notwithstanding the foregoing, after the Distribution Date, employees of
Purina Colombiana, S.A. whose principal duties after the Distribution Date are
in connection with the manufacture of pet food pursuant to a Toll-Milling
Agreement shall be considered Ralston Employees for purposes of this Section
7.13, and the Ralston Group shall be solely responsible for payment of any
claims for severance benefits by such employees; and employees of Purina de
Venezuela, C.A. whose principal duties after the Distribution Date are in
connection with the manufacture of agricultural formula animal feeds pursuant
to a Toll-Milling Agreement shall be considered Agribusiness Employees for
purposes of this Section 7.13, and the Agribusiness Group shall be solely
responsible for payment of any claims for severance benefits by such
employees.
In the event that the individual to whom the benefits are due was an employee
of both the Agribusiness and the Ralston Business, then the termination
expenses shall be shared pro rata on the basis of service with each Group.
7.14 Bonus Plans. Agribrands and its Affiliates shall be responsible
-----------
for all liabilities with respect to Agribusiness Employees arising under bonus
plans, programs or policies applicable to such Employees, including
liabilities related to service prior to the Distribution Date.
Notwithstanding the foregoing, Ralston shall retain liability for amounts
payable to Agribusiness Employees who are participants in the 1996 Leveraged
Incentive Plan.
7.15 Other Balance Sheet Adjustments. To the extent not otherwise
-------------------------------
provided in this Agreement, Ralston and Agribrands shall take such action as
is necessary to effect an adjustment to the books of the members of the
Ralston Group and the Agribusiness Group so that, as of the Distribution Date,
the prepaid expense balances and accrued employee liabilities with respect to
any employee liability or obligation assumed or retained as of the
Distribution Date by the Ralston Group or the Agribusiness Group are
appropriately reflected on the consolidated balance sheets as of the
Distribution Date of Ralston and Agribrands, respectively.
7.16 Preservation of Rights to Amend or Terminate Plans. Subject to
--------------------------------------------------
the provisions of this Article VII, no provision of this Agreement, including
the agreement of Ralston or Agribrands that it, or any member of the Ralston
Group or the Agribusiness Group, will make a contribution or payment to or
under any Plan herein referred to for any period, shall be construed as a
limitation on the right of Ralston or Agribrands or any member of the Ralston
Group or the Agribusiness Group to amend such Plan or terminate its
participation therein which Ralston or Agribrands or any member of the Ralston
Group or the Agribusiness Group would otherwise have under the terms of such
Plan or otherwise, and no provision of this Agreement shall be construed to
create a right in any Ralston Individual or Agribusiness Individual under a
Plan which such Individual would not otherwise have under the terms of the
Plan itself.
7.17 Reimbursement; Indemnification. Each of the parties hereto
------------------------------
acknowledges that the Ralston Group, on the one hand, and the Agribusiness
Group, on the other hand, may incur costs and expenses (including
contributions to Plans and the payment of insurance premiums) arising from or
related to any of the Plans which are, as set forth in this Agreement, the
responsibility of the other party hereto. Ralston and Agribrands agree that
they, or the appropriate members of their respective Groups, shall reimburse
the appropriate members of the other's Group, as soon as practicable but in
any event within 30 days of receipt from the other party of appropriate
verification, for all such costs and expenses.
7.18 Further Transfers. For a period of six months following the
-----------------
Distribution Date, no member of either Group shall, directly or indirectly,
without the prior written consent of a corporate officer of the other Group,
solicit or attempt to solicit any employee or officer of such other Group for
the purpose of obtaining his or her services for hire, or otherwise causing
such employee to leave employment with such other Group, and no member of
either Group, without the prior written consent of a corporate officer of the
other Group, will, for such period of six months, hire such employee or
officer; provided, however, if the employment of any officer or employee of
one Group is terminated by that Group at any time following the Distribution,
a member of the other Group may employ such person without the consent of the
other Group
7.19 Other Liabilities. As of the Distribution Date, Agribrands and
-----------------
Ralston shall each assume and be solely responsible for all Liabilities
whatsoever of the other's Group with respect to claims made by, in the case of
Agribrands, Agribusiness Individuals and, in the case of Ralston, Ralston
Individuals, relating to any Liability not otherwise expressly provided for in
this Agreement, including, but not limited to, earned salaries, wages,
severance payments, bonus accruals or other compensation, regardless of
whether such Liability was incurred before or after the Distribution Date.
7.20 Compliance. Notwithstanding anything to the contrary in this
----------
Article VII, to the extent any actions of the parties contemplated in this
Article are determined prior to the Distribution to violate law or result in
unintended tax liability for Ralston Individuals or Agribusiness Individuals,
such action may be modified to avoid such violation of law or unintended tax
liability.
7.21 Agreement of Parties. Notwithstanding anything herein to the
--------------------
contrary, the agreements contained in this Article VII shall be binding only
as between the parties to this Agreement, no Ralston Individual or
Agribusiness Individual or other Person shall have any right with respect to
any such agreement, and no Person other than the parties to this Agreement
shall have any rights to enforce any provision hereof.
ARTICLE VIII
POST-DISTRIBUTION OBLIGATIONS
8.01 Agribrands' Post-Distribution Obligations. Agribrands shall, and
-----------------------------------------
shall cause each member of the Agribusiness Group to, comply with each
representation and statement made, or to be made, to the Internal Revenue
Service (the "IRS") in connection with any ruling obtained, or to be obtained,
by Ralston, from the IRS with respect to any transaction contemplated by this
Agreement. Neither Agribrands nor any member of the Agribusiness Group shall
for a period of three years following the Distribution Date engage in any of
the following transactions, unless, in the sole discretion of Ralston, either
(a) an opinion in form and substance satisfactory to Ralston is obtained from
counsel to Agribrands, the selection of which counsel is agreed to by Ralston
or (b) a supplemental ruling is obtained from the IRS, in either case to the
effect that such transactions would not adversely affect the tax consequences
of the contributions, transfers, assumptions, Merger and Distribution
described in Articles II and III of this Agreement to (1) Ralston or any
member of the Ralston Group, (2) Agribrands or any member of the Agribusiness
Group, or (3) the Ralston shareholders. The transactions subject to this
provision are: (i) making a material disposition (including transfers from one
member of the Agribusiness Group to another member of the Agribusiness Group),
by means of a sale or exchange of assets or capital stock, a distribution to
shareholders, or otherwise, of any of its assets (other than the transactions
contemplated by this Agreement) except in the ordinary course of business;
(ii) repurchasing any Agribrands capital stock, unless such repurchase
satisfies the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 or
any successor Revenue Procedure; (iii) issuing any Agribrands capital stock
that in the aggregate exceeds twenty percent (20%) of the issued and
outstanding stock of Agribrands immediately following the Distribution; (iv)
liquidating or merging with any other corporation (including a member of the
Agribusiness Group); or (v) ceasing to engage in the active conduct of a trade
or business within the meaning of Section 355(b)(2) of the Code. Agribrands
hereby represents that neither Agribrands nor any member of the Agribusiness
Group has any present intention to undertake any of the transactions set forth
in (i), (ii), (iii), (iv) or (v) above.
8.02 Ralston's Post-Distribution Obligations. For a period of three
---------------------------------------
years after the date of the Distribution, Ralston shall, and shall cause each
member of the Ralston Group, to refrain from taking any action which would
adversely impact any ruling obtained, or to be obtained, by Ralston from the
IRS with respect to any transaction contemplated by this Agreement.
8.03 Indemnification of Shareholders. In the event that Ralston or
-------------------------------
Agribrands breaches or violates any covenant made in this Article VIII, the
breaching party shall indemnify and hold harmless (i) all shareholders of
Ralston, and (ii) if the breaching party is Agribrands, Ralston as of the
Record Date against and in respect of any and all costs, expenses,
deficiencies, litigation, proceedings, taxes, levies, assessments, attorneys'
fees, damages or judgments of any kind or nature whatsoever, related to,
arising from, or associated with such breach or violation.
ARTICLE IX
NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS
Agribrands understands and agrees that, except as set forth in Article
VIII, no member of the Ralston Group is, in this Agreement or in any Ancillary
Agreement or other agreement or document, implicitly or explicitly
representing or warranting to Agribrands in any way as to the Agribusiness
Assets, the Agribusiness or the Liabilities of the Agribusiness Group or as to
any consents or approvals required in connection with the consummation of the
transactions contemplated by this Agreement, it being agreed and understood
that the Agribusiness Group shall take all of the Agribusiness Assets "as is,
where is" and that, except as provided in Section 2.04, the Agribusiness Group
shall bear the economic and legal risk that conveyances of the Agribusiness
Assets shall prove to be insufficient or that the title of any member of the
Agribusiness Group to any Agribusiness Assets shall be other than good and
marketable and free from encumbrances.
ARTICLE X
GUARANTEES AND SURETY BONDS OF RALSTON
Agribrands agrees that as soon as practicable following the Distribution
Date, it will substitute surety bonds obtained by it for each of the surety
bonds of any member of the Ralston Group, if any, relating to any Agribusiness
Asset, the Agribusiness or any Liability assumed by Agribrands or its
Subsidiaries of Affiliates hereunder. Agribrands agrees that it shall enter
indemnification agreements in its name with each provider of a surety bond
obtained with respect to the Agribusiness Assets, the Agribusiness or any
Liability assumed by Agribrands. Except as set forth on Schedule 10,
Agribrands shall use its best efforts to obtain the complete release and
discharge of any member of the Ralston Group from all obligations (including
any obligations upon any renewal or extension) related to the Agribusiness
Assets, the Agribusiness or any Liability assumed by Agribrands on which any
member of the Ralston Group is directly or contingently obligated as a
guarantor or assignor or otherwise contingently liable (including, without
limitation, any letter of credit) (the " Agribusiness Obligations"). In the
event that Agribrands is unable to obtain any such release, Agribrands agrees
that (i) it shall not extend the term or otherwise modify any such
Agribusiness Obligation in a manner which would expand Ralston's financial
exposure under such Agribusiness Obligation, (ii) it shall use its best
efforts to substitute itself or another member of the Agribusiness Group as
primary guarantor of such Agribusiness Obligations, and (iii) Agribrands or
any member of the Agribusiness Group shall not assign any such Agribusiness
Obligation or directly or indirectly transfer, sell or assign any assets
securing such Agribusiness Obligation or comprising all or any substantial
portion of a project, the financing of which gave rise to such Agribusiness
Obligation, including, but not limited to, the transfer, sale or assignment of
the capital stock of any Affiliate holding title to such assets, unless
Ralston or the appropriate member of the Ralston Group, as the case may be, is
released and discharged of all liabilities with respect to such Agribusiness
Obligation. Without limiting any other obligation of indemnification under
this Agreement or any agreement described herein, Agribrands shall defend,
indemnify and hold harmless each member of the Ralston Group and their
respective Affiliates, Subsidiaries, directors, officers and employees against
any and all Liabilities whatsoever incurred or suffered by any of them as a
result of any Agribusiness Obligation.
ARTICLE XI
NEGOTIATION
If any question shall arise in regard to (i) the interpretation of any
provision of this Agreement or, except to the extent provided otherwise
therein, any Ancillary Agreement, or (ii) the rights or obligations of either
Group hereunder or thereunder, each Group shall designate a senior executive
within its organization who shall, within thirty days after such question
arises, meet with the designated executive of the other Group to negotiate and
attempt to resolve such question in good faith. Such senior executives may,
if they so desire, consult outside advisors for assistance in arriving at such
a resolution. In the event that a resolution is not achieved within sixty
days following such initial meeting, then the parties may seek other legal
means of resolving such question, including but not limited to mediation or
binding or non-binding arbitration.
ARTICLE XII
MISCELLANEOUS
12.01 Conditions to the Distribution.
---------------------------------
(a) The obligation of Ralston to make the Distribution is subject to
the satisfaction of each of the following conditions:
(i) The transactions contemplated by Article II shall have been
consummated in all material respects;
(ii) Ralston shall have received rulings from the IRS, in form and
substance satisfactory to Ralston's tax counsel and independent auditors, that
the contributions, transfers, assumptions, mergers and Distribution described
in Articles II and III of this Agreement will not be subject to federal income
taxation at the corporate or shareholder level;
(iii) The Agribrands Stock and associated Rights shall have been
approved for listing on the NYSE, subject to official notice of issuance;
(iv) The Form 10 shall have been filed with the SEC and shall have
become effective, and no stop order with respect thereto shall be in effect;
(v) All authorizations, consents, approvals and clearances of all
federal, state, local and foreign governmental agencies required to permit the
valid consummation by the parties hereto of the transactions contemplated by
this Agreement shall have been obtained; and no such authorization, consent,
approval or clearance shall contain any conditions which would have a material
adverse effect on (A) the Ralston Business or the Agribusiness, (B) the
Assets, results of operations or financial condition of the Ralston Group or
the Agribusiness Group, in each case taken as a whole, or (C) the ability of
Ralston or Agribrands to perform its obligations under this Agreement; and all
statutory requirements for such valid consummation shall have been fulfilled;
(vi) Ralston shall have provided the NYSE with the prior written
notice of the Record Date required by Rule 10b-17 of the Exchange Act and the
rules and regulations of the NYSE;
(vii) No preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect preventing the payment of the Distribution;
(viii) The Distribution shall be payable in accordance with
applicable law;
(ix) All necessary consents, waivers or amendments to each bank
credit agreement, debt security or other financing facility to which any
member of the Ralston Group or the Agribusiness Group is a party or by which
any such member is bound shall have been obtained, or each such agreement,
security or facility shall have been refinanced, in each case on terms
satisfactory to Ralston and Agribrands and to the extent necessary to permit
the Distribution to be consummated without any material breach of the terms of
such agreement, security or facility; and
(x) One or more members of the Agribusiness Group shall have been
substituted, as of the Distribution Date in respect of all Ralston Group debt
obligations assumed by Agribrands or another member of the Agribusiness Group
pursuant to this Agreement.
(b) Any determination made by the Ralston Board in good faith
concerning the satisfaction or waiver of any or all of the conditions set
forth in Section 12.01(a) shall be conclusive.
12.02 Survival of Agreements. All covenants and agreements of the
----------------------
parties hereto contained in this Agreement shall survive the Distribution
Date.
12.03 Entire Agreement. This Agreement, the Exhibits and Schedules
----------------
hereto and the Ancillary Agreements shall constitute the entire agreement
between the parties hereto with respect to the subject matter hereof
superseding all previous negotiations, commitments and writings with respect
to such subject matter. To the extent that the provisions of this Agreement
are inconsistent with the provisions of any Ancillary Agreement, the
provisions of such Ancillary Agreement shall prevail.
12.04 Expenses of the Distribution. Except as otherwise provided in
----------------------------
this Agreement and the other agreements referred to herein, Ralston shall pay
all of the costs and expenses (including attorneys' and accountants' fees,
legal costs and expenses) that were necessary to effect the Distribution and
to consummate the transactions contemplated by this Agreement. For purposes
of this Section 12.04, costs and expenses (including attorneys' and
accountants' fees, legal costs and expenses) incurred in connection with the
establishment of any credit facility or other financing arrangements by or on
behalf of Agribrands and its Affiliates shall not be deemed to be expenses
necessary to effect the Distribution. Notwithstanding the foregoing, Ralston
shall bear the cost of underwriting fees and expenses of ABN incurred in
connection with the closing of the syndicated financing agreement with
Agribrands, including legal expenses of Sidley & Austin as counsel to ABN
Amro, and legal fees of Bryan Cave in connection with such financing.
12.05 GOVERNING LAW; JURISDICTION AND VENUE. THIS AGREEMENT IS MADE
-------------------------------------
AND ENTERED INTO IN, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF MISSOURI, UNITED STATES OF AMERICA,
WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES, AS TO ALL MATTERS,
INCLUDING MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES
UNDER THIS AGREEMENT. ALL MATTERS RELATING TO THIS AGREEMENT SHALL, SUBJECT
TO THE PROVISIONS OF ARTICLE XI OF THIS AGREEMENT, BE ADJUDICATED EXCLUSIVELY
IN THE COURTS OF THE STATE OF MISSOURI LOCATED IN ST. LOUIS, MISSOURI, OR
WITHIN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI;
AND EACH PARTY HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF SUCH
COURTS FOR ALL SUCH MATTERS.
12.06 Notices. All notices, requests, claims, demands and other
-------
communications hereunder (collectively, "Notices") shall be in writing and
shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person, by cable, telegram, telex, facsimile or other standard
form of telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to a member of the Ralston Group:
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Attention: General Counsel
If to a member of the Agribusiness Group:
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
Attention: General Counsel
or to such other address as either Group may have furnished to the other Group
by a notice in writing in accordance with this Section 12.06.
12.07 Amendment and Modification; Non-Waiver. This Agreement may be
--------------------------------------
amended, modified or supplemented, or rights, powers or options hereunder
waived or impaired, only by a written agreement signed by a corporate officer
of Ralston and Agribrands and attested by their respective corporate
secretaries. Neither party shall be deemed to have waived or impaired any
right, power or option created or reserved by this Agreement (including
without limitation, each party's right to demand compliance with every term
herein, or to declare any breach a default and exercise its rights in
accordance with the terms hereof) by virtue of: (i) any custom or practice of
the parties at variance with the terms hereof; (ii) any failure, refusal or
neglect to exercise any right hereunder, or to insist upon compliance with any
term; (iii) any waiver, forbearance, delay, failure or omission to exercise
any right or option, whether of the same, similar or different natures, under
this Agreement or in any other circumstances; or (iv) the acceptance by either
party of any payment or other consideration from the other following any
breach of this Agreement. The rights and remedies set forth in this Agreement
are in addition to any other rights or remedies which may be granted by law.
12.08 Successors and Assigns; No Third-Party Beneficiaries. This
- ----- --------------------------------------------------------
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of each Group and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests and
obligations hereunder shall be assigned by either Group without the prior
written consent of the other Group (which consent shall not be unreasonably
withheld). Except for the provisions of Sections 4.02 and 4.03 relating to
Indemnities, which are also for the benefit of the Indemnitees, this Agreement
is solely for the benefit of each Group and is not intended to confer
upon any other Person any rights or remedies hereunder.
12.09 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Interpretation.
--------------
(a) The Article and Section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties hereto and shall not in any way affect the meaning or interpretation
of this Agreement.
(b) The parties hereto intend that, for federal income tax purposes,
the contributions, transfers, assumptions, Distribution and Merger
contemplated hereby shall qualify for non-recognition treatment under Sections
332, 336, 337, 355, 357(a), 361, 368(a)(1)(D) and 1032 of the Code.
12.11 Legal Enforceability. Any provision of this Agreement or any
--------------------
of the Ancillary Agreements which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. Each party acknowledges that money damages would be
an inadequate remedy for any breach of the provisions of this Agreement or any
of the Ancillary Agreements and agrees that the obligations of the parties
hereunder and thereunder shall be specifically enforceable.
12.12 References; Construction. References to any "Article",
-------------------------
"Exhibit", "Schedule" or "Section", without more, are to Articles, Exhibits,
Schedules and Sections to or of this Agreement. Unless otherwise expressly
stated, clauses beginning with the term "including" set forth examples only
and in no way limit the generality of the matters thus exemplified.
12.13 Termination. Notwithstanding any provision hereof, this
-----------
Agreement may be terminated and the Distribution abandoned at any time prior
to the Distribution Date by and in the sole discretion of the Ralston Board
without the approval of any other party hereto or of Ralston's shareholders.
In the event of such termination, no party hereto shall have any Liability to
any Person by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AGRIBRANDS INTERNATIONAL, INC. RALSTON PURINA COMPANY
By: /s/ David R. Wenzel By: /s/ James R. Elsesser
--------------------------------- -----------------------------
David R. Wenzel James R. Elsesser
Chief Financial Officer Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 3/31/98
RALSTON PURINA COMPANY BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 146,300
<SECURITIES> 0
<RECEIVABLES> 721,800
<ALLOWANCES> 26,700
<INVENTORY> 589,200
<CURRENT-ASSETS> 1,573,400
<PP&E> 2,210,700
<DEPRECIATION> 1,101,200
<TOTAL-ASSETS> 6,112,300
<CURRENT-LIABILITIES> 1,327,200
<BONDS> 1,820,600
270,300
0
<COMMON> 11,500
<OTHER-SE> 1,776,500
<TOTAL-LIABILITY-AND-EQUITY> 6,112,300
<SALES> 2,427,900
<TOTAL-REVENUES> 2,427,900
<CGS> 1,197,100
<TOTAL-COSTS> 1,197,100
<OTHER-EXPENSES> 885,400
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 95,600
<INCOME-PRETAX> 249,800
<INCOME-TAX> 42,000
<INCOME-CONTINUING> 226,200
<DISCONTINUED> 9,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 940,400
<EPS-PRIMARY> 9.11
<EPS-DILUTED> 8.55
<FN>
<F1>LOSS-PROVISION INCLUDED IN OTHER-EXPENSES ABOVE
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED
RALSTON PURINA COMPANY BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE PERIOD
ENDED 12/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 113,700
<SECURITIES> 0
<RECEIVABLES> 922,700
<ALLOWANCES> 25,000
<INVENTORY> 558,500
<CURRENT-ASSETS> 1,690,800
<PP&E> 2,224,800
<DEPRECIATION> 1,064,100
<TOTAL-ASSETS> 6,075,500<F2>
<CURRENT-LIABILITIES> 1,374,000<F2>
<BONDS> 1,825,700
277,200
0
<COMMON> 11,500
<OTHER-SE> 1,745,900<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,075,500<F2>
<SALES> 1,317,100
<TOTAL-REVENUES> 1,317,100
<CGS> 648,200
<TOTAL-COSTS> 648,200
<OTHER-EXPENSES> 419,300<F2>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 46,300
<INCOME-PRETAX> 203,300<F2>
<INCOME-TAX> 73,600<F2>
<INCOME-CONTINUING> 139,700<F2>
<DISCONTINUED> 15,700
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 860,500<F2>
<EPS-PRIMARY> 8.37<F2>
<EPS-DILUTED> 7.83<F2>
<FN>
<F1>LOSS-PROVISION INCLUDED IN OTHER-EXPENSES ABOVE
<F2>AMOUNTS HAVE BEEN RESTATED DUE TO THE IMPLEMENTATION OF SOP 98-1
</FN>
</TABLE>
