As filed with the Securities and Exchange Commission on May 19, 1995
Registration No. 33-58963
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
______________________
THE ANDERSONS MANAGEMENT CORP.
(Exact name of registrant as specified in its charter)
Ohio 7392 34-1562374
(State or other (Primary Standard (I.R.S. employer
jurisdiction Industrial identification number)
of incorporation or Classification Code
organization) Number)
480 West Dussel Drive
Maumee, Ohio 43537
(419) 893-5050
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
______________________
Beverly J. McBride
The Andersons Management Corp.
480 West Dussel Drive
Maumee, Ohio 43537
(419) 893-5050
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
______________________
Copy to:
Willard G. Fraumann, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
(312) 861-2000
Approximate date of commencement of proposed sale of the securities to
the public: September 27, 1995
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box:
______________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Form S-4 Item Number and Caption Location in Joint Proxy
Statement/Prospectus
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration
Statement and Outside Front Cover
Page of Prospectus Facing Page of Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page of Joint
Proxy Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front and Outside Back Cover
Pages of Joint Proxy
Statement/Prospectus; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information Summary; Introduction; Risk
Factors; The Merger; Description
of the Common Shares; Summary
Comparison of Existing Securities
and Common Shares; Rights of
Dissenting Shareholders and Limited
Partners; Federal Income Tax
Considerations; Certain State and
Local Income Tax Considerations;
The Company; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations of the General Partner;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations of the
Partnership; Principal Shareholders
and Limited Partners
4. Terms of the Transaction Summary; Introduction; Risk
Factors; The Merger; Description
of the Common Shares; Summary
Comparison of Existing Securities
and Common Shares; Rights of
Dissenting Shareholders and Limited
Partners; Federal Income Tax
Considerations; Certain State and
Local Income Tax Considerations
5. Pro Forma Financial Information Summary; Pro Forma Condensed
Financial Information
6. Material Contacts with the
Company Being Acquired Summary; Risk Factors; The Merger;
The Company; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations of the General Partner;
Management's Discussion and
Analysis of Financial Conditions
and Results of Operations of the
Partnership; Management
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be Underwriters Not Applicable
8. Interests of Named Experts and
Counsel Legal Opinions; Experts
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants Not Applicable
11. Incorporation of Certain
Information by Reference Not Applicable
12. Information with Respect to S-2
or S-3 Registrants Not Applicable
13. Incorporation of Certain
Information by Reference Not Applicable
14. Information with Respect to
Registrants Other than S-2 or S-3
Registrants Summary; Risk Factors; The Merger;
Description of the Common Shares;
Summary Comparison of Existing
Securities and Common Shares;
Rights of Dissenting Shareholders
and Limited Partners; Federal
Income Tax Considerations; Certain
State and Local Income Tax
Considerations; The Company;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations of the
General Partner; Management;
Principal Shareholders
and Limited Partners; Financial
Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies Not Applicable
16. Information with Respect to S-2
or S-3 Companies Not Applicable
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies Summary; Risk Factors; The Merger;
Summary Comparison of Existing
Securities and Common Shares;
Rights of Dissenting Shareholders
and Limited Partners; Federal
Income Tax Considerations; Certain
State and Local Income Tax
Considerations; The Company;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations of the
Partnership; Management;
Principal Shareholders
and Limited Partners; Financial
Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations are to be
Solicited Summary; Introduction; Description
of the Common Shares; Summary
Comparison of Existing Securities
and Common Shares; Rights of
Dissenting Shareholders and Limited
Partners; Management; Principal
Shareholders and Limited Partners
19. Information if Proxies,
Consents or Authorizations are not
to be Solicited or in an Exchange
Offer Not Applicable
[THE ANDERSONS LETTERHEAD]
TO ALL LIMITED PARTNERS OF THE ANDERSONS AND
ALL SHAREHOLDERS OF THE ANDERSONS MANAGEMENT CORP.
You are cordially invited to attend a special meeting of the
shareholders of The Andersons Management Corp. (the "General Partner") and a
special meeting of the partners of The Andersons (the "Partnership"), both of
which will be held on June 29, 1995 at 7:00 p.m., local time, at The
Andersons Conference Center, located at 535 Illinois Avenue, in Maumee, Ohio
43537.
As part of these special meetings you will be asked to consider and vote
upon a number of interrelated proposals that would permit us to convert our
company to corporate form through the merger of the Partnership into the
General Partner and allow the public offering of new common shares of the
General Partner. We have been informed by our financial advisors that this
conversion to corporate form is necessary to maximize the value of the company
in a public offering.
These proposals represent the culmination of a great deal of thought and
effort over a period of many months by the board of directors, company
management and the company's legal, financial and accounting advisors. The
board of directors has unanimously approved each of these proposals and has
concluded that they provide a number of significant advantages that should
serve to enhance the value of our company over the coming years.
The Joint Proxy Statement/Prospectus that is being provided to each of
you explains each element of the proposals in detail and attempts to answer
many of the questions you may have regarding the proposals. I urge each of
you to read this materially carefully. Regardless of whether you can attend
the special meetings, you should feel free to call Dick George, Beverly
McBride, Gary Smith or me with any questions you have about the proposals.
We encourage each of you to complete and return the enclosed proxies
regardless of whether you plan to attend the special meetings. Please return
the proxies no later than June ____, 1995 in the enclosed envelope.
Sincerely,
THE ANDERSONS MANAGEMENT CORP.
AND THE ANDERSONS
Thomas H. Anderson
Chairman, Board of Directors
June , 1995
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND LIMITED PARTNERS
To: The holders of Class A Shares and Class B Shares of The Andersons
Management Corp. and the limited partners of The Andersons
Notice is hereby given that Special Meetings of the shareholders of The
Andersons Management Corp. (the "General Partner") and the limited partners
of The Andersons (the "Partnership") will be held on June 29, 1995, at 7:00
p.m., local time, at The Andersons Conference Center, located at 535 Illinois
Avenue, in Maumee, Ohio 43537 for the following purposes:
1. To consider and vote upon a proposal to merge the Partnership into
the General Partner as a result of which a series of interrelated
changes to the current organizational form of the Partnership and the
General Partner would be implemented, including (a) merging the
Partnership with and into the General Partner, as a result of which the
General Partner would be the sole surviving entity (the "Surviving
Corporation"), (b) terminating the Partnership's legal existence by
operation of law, (c) changing the name of the Surviving Corporation to
The Andersons, Inc., (d) creating a single class of common shares, no par
value per share (the "Common Shares"), of the Surviving Corporation, (e)
converting the General Partner's existing Class A Common Shares and
Class B Common Shares into Common Shares, (f) converting each Limited
Partners' interest in the Partnership into Common Shares and (g)
adopting certain amendments to the Surviving Corporation's Articles of
Incorporation and Code of Regulations which may have the effect of
discouraging unsolicited proposals to acquire control of the Surviving
Corporation.
2. To consider and vote upon the adoption of a Long-Term Performance
Compensation Plan.
3. To consider and vote upon the adoption of an Employee Share
Purchase Plan.
4. To consider and vote upon a proposal to eliminate the right of
shareholders to cumulate votes in the election of directors.
5. To transact such other business as may properly be brought before
the meetings.
AN EFFECT OF THE ELIMINATION OF CUMULATIVE VOTING WOULD BE BOTH (A) TO
PERMIT A MAJORITY OF A QUORUM OF THE VOTING POWER IN THE ELECTION OR REMOVAL
OF DIRECTORS TO ELECT OR REMOVE EVERY DIRECTOR AND (B) TO PRECLUDE A MINORITY
OF A QUORUM OF THE VOTING POWER IN THE ELECTION OR REMOVAL OF DIRECTORS FROM
ELECTING OR PREVENTING THE REMOVAL OF ANY DIRECTOR.
The holders of Class A Shares and Class B Shares of the General Partner and
limited partners of the Partnership of record at the close of business on
March 31, 1995 are entitled to notice of and to vote at the Special Meetings.
BY ORDER OF THE BOARD OF DIRECTORS AND THE
GENERAL PARTNER
Beverly J. McBride, Secretary
IMPORTANT
WHETHER YOU EXPECT TO ATTEND THE SPECIAL MEETINGS OR NOT, PLEASE MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARDS IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE ON OR BEFORE _____, 1995. IF YOU ARE PRESENT AT THE MEETINGS, YOU
MAY REVOKE YOUR PROXIES IN WRITING AND VOTE YOUR SHARES OR LIMITED PARTNER
INTEREST IN PERSON IF YOU WISH.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 19, 1995
THE ANDERSONS MANAGEMENT CORP.
and
THE ANDERSONS
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS TO BE HELD ON JUNE 29, 1995
_________________________
THE ANDERSONS MANAGEMENT CORP.
PROSPECTUS
COMMON SHARES, NO PAR VALUE PER SHARE
_________________________
This Joint Proxy Statement/Prospectus is the proxy statement of The
Andersons, an Ohio limited partnership (the "Partnership"), and the proxy
statement of The Andersons Management Corp., an Ohio corporation and the sole
general partner of the Partnership (the "General Partner"). It is being
furnished to the limited partners of the Partnership (the "Limited Partners")
and the shareholders of the General Partner (the "Shareholders"), in each
case of record as of March 31, 1995 (the "Record Date"), in connection with
the solicitation on behalf of the Board of Directors of the General Partner
of proxies to be used at special meetings to be held on June 29, 1995, and at
any and all adjournments and postponements thereof, to consider a proposed
merger of the Partnership with and into the General Partner (the "Merger")
pursuant to an Agreement and Plan of Merger dated as of April 28, 1995
between the Partnership and the General Partner, to consider a proposal to
eliminate the right of shareholders to cumulate votes in the election of
directors so that directors would have to receive a plurality of votes to be
elected and to consider the adoption of a Long-Term Performance Compensation
Plan and an Employee Share Purchase Plan (collectively, the "Plans").
A vote in favor of the Merger would have the effect of a vote in favor
of a series of interrelated changes to the current organizational form of the
Partnership and the General Partner, including (a) merging the Partnership
with and into the General Partner, as a result of which the General Partner
would be the sole surviving entity (the "Surviving Corporation"), (b)
terminating the Partnership's legal existence by operation of law, (c)
changing the name of the Surviving Corporation to The Andersons, Inc., (d)
creating a single class of common shares, no par value per share (the "Common
Shares"), of the Surviving Corporation, (e) converting the General Partner's
existing Class A Common Shares and Class B Common Shares into Common Shares,
(f) converting each Limited Partners' interest in the Partnership into Common
Shares and (g) adopting certain amendments to the Surviving Corporation's
Articles of Incorporation and Code of Regulations which may have the effect
of discouraging unsolicited proposals to acquire control of the Surviving
Corporation.
The primary purpose of the Merger is to permit the Surviving Corporation
to consummate a firm commitment underwritten public offering of Common
Shares (the "Public Offering"). The Surviving Corporation will execute the
Merger immediately prior to the execution of an underwriting agreement with
respect to the Public Offering (the "Pricing"). The General Partner expects
that prior to the consummation of the Public Offering, the Common Shares will
have been approved for quotation on the Nasdaq National Market subject to
notice of issuance. No prediction can be made, however, as to the price at
which the Common Shares will trade. See "RISK FACTORS - Uncertainty Regarding
Market Price for Common Shares." The primary purpose of the proposal to
eliminate cumulative voting is to prevent a minority shareholder from gaining
board representation unless the director nominee of such shareholder receives
a plurality of the votes cast by holders of Common Shares in an election of
directors. The primary purpose of the adoption of the Plans is to provide for
equity participation for all employees and equity based performance
compensation for employees and directors of the Surviving Corporation. The
Merger, the Public Offering and the Plans are interrelated. The Company does
not intend to implement the Merger until immediately prior to the Pricing of
the Public Offering. See "The PUBLIC OFFERING." The Plans will not be
implemented unless the Merger is consummated. The proposal to eliminate
cumulative voting will not be implemented unless the Merger is consummated,
but the Merger, the Public Offering and the Plans are not contingent upon
approval of the proposal to eliminate cumulative voting.
This Joint Proxy Statement/Prospectus is also the prospectus of the
General Partner for use in connection with the offer and issuance of Common
Shares in the Merger. Upon the effective date of the Merger, each $8 in a
Limited Partner's capital account, calculated as of a specified measurement
date, will be converted into one Common Share, each $8 of book value of Class
A Common Shares of the General Partner, calculated as of such measurement
date, will be converted into one Common Share and each $8 of book value of
Class B Common Shares of the General Partner, calculated as of such
measurement date, will be converted into one Common Share.
The General Partner recommends that the Limited Partners and
Shareholders vote to approve the Merger, the proposal to eliminate
cumulative voting and each of the Plans. Limited Partners and Shareholders
are strongly urged to read and consider carefully this Joint Proxy
Statement/Prospectus in its entirety, particularly the matters referred to
under the caption "RISK FACTORS."
This Joint Proxy Statement/Prospectus is first being mailed to
Shareholders of the General Partner and Limited Partners of the Partnership
on or about June, 1995.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
The date of this Joint Proxy Statement/Prospectus is June , 1995.
AVAILABLE INFORMATION
The Partnership and the General Partner have been and are currently
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In accordance therewith, the
Partnership and the General Partner file reports and other information with
the Securities and Exchange Commission (the "SEC") and the Surviving
Corporation will file reports, proxy statements and other information with
the SEC. Such reports, proxy statements, and other information can be
inspected and copied at the offices of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the SEC at 75 Park
Place, New York, New York 10007 and Northwestern Atrium Center, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of such
material can be obtained from the Public Reference Section at the principal
office of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The General Partner has filed with the SEC a Registration Statement
on Form S-4 under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Shares offered hereby. This Joint Proxy
Statement/Prospectus, which constitutes a part of that Registration
Statement, does not contain all the information set forth in that
Registration Statement and the exhibits relating thereto. Statements
contained herein concerning the provisions of such documents are necessarily
summaries of those documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
SEC.
TABLE OF CONTENTS
Page
SUMMARY 1
Introduction 1
The Parties 2
The Merger 3
The Public Offering 4
Elimination of Cumulative Voting 5
Employee Benefit Plans 6
Partners Meeting 7
Shareholders Meeting 7
Advantages of the Merger and the Public Offering 8
Disadvantages of the Merger and the Public Offering 9
Alternative to the Merger 11
Recommendations 11
Dissenting Shareholders and Limited Partners 11
Summary Financial Information of the Partnership and the
General Partner and Summary Unaudited Pro Forma Financial
Information of the Surviving Corporation 13
INTRODUCTION 15
The Partners Meeting 15
The Shareholders Meeting 16
RISK FACTORS 19
Taxation 19
Significant Reduction in Distributions 19
Uncertainty Regarding Market Price of Common Shares 20
Possible Dilution 20
Potential Voting Influence of the Anderson Family on the Company 21
Addition of Provisions that May Discourage Changes of Control 21
THE MERGER 21
General 21
Effects of the Merger 22
The Merger Agreement 22
Amendments to Organizational Documents 23
Conditions to the Merger 23
Completing the Merger 23
Accounting Treatment of the Merger 23
Costs of the Merger 23
The Public Offering 24
Reasons for the Merger 25
Recommendations 27
APPROVAL OF THE PROPOSAL TO ELIMINATE CUMULATIVE VOTING 27
General 27
Explanation of Cumulative Voting 27
Reasons for the Elimination of Cumulative Voting 28
Anti-Takeover Effects 28
Recommendation 29
APPROVAL OF THE LONG-TERM PERFORMANCE COMPENSATION PLAN 29
The Long-Term Performance Compensation Plan 29
Federal Income Tax Consequences 31
Recommendation 33
APPROVAL OF THE EMPLOYEE SHARE PURCHASE PLAN 33
Employee Share Purchase Plan 33
Federal Income Tax Consequences 35
Recommendation 37
TERMINATION OF EMPLOYEE BOND PURCHASE PLAN. 37
DESCRIPTION OF THE COMMON SHARES 38
General 38
Common Shares 38
Preferred Shares 38
Anti-Takeover Provisions of the Surviving Corporation's
Organizational Documents 39
RESALE OF THE COMMON SHARES 43
SUMMARY COMPARISON OF EXISTING SECURITIES AND COMMON SHARES 44
Distributions and Dividends 45
Voting Rights 45
Right to Call Meetings and Submit Proposals 46
Liquidation Rights 46
Dilution 47
Liquidity 47
Appraisal Rights 48
Tax Matters 49
RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED PARTNERS 49
General 49
Dissenting Shareholders 50
Dissenting Limited Partners 50
FEDERAL INCOME TAX CONSIDERATIONS 51
Introduction 51
Differences between LP Interests and Common Shares in General 52
Limited Partners and Shareholders 53
The Surviving Corporation and the Partnership 55
CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS 55
THE COMPANY 57
General 57
Agriculture Group 57
Retail Group 59
Other Businesses 60
Research and Development 60
Employees 60
Government Regulation 61
Environmental Proceeding 61
Properties 62
Selected Financial Data of the Partnership 64
Selected Financial Data of the General Partner 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE PARTNERSHIP 65
Liquidity and Capital Resources 65
Results of Operations 67
Impact of Inflation 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE GENERAL PARTNER 71
Liquidity and Capital Resources 71
Results of Operations 71
Impact of Inflation 72
MANAGEMENT 73
Directors and Executive Officers of the Company 73
Executive Compensation 75
Summary Compensation Table 76
Pension Plan 76
Directors' Fees 77
Compensation Committee Interlocks and Insider Participation 77
Certain Relationships and Related Transactions 77
PRINCIPAL SHAREHOLDERS AND LIMITED PARTNERS 79
PRO FORMA CONDENSED FINANCIAL INFORMATION 80
Pro Forma Balance Sheet (Unaudited) 81
Pro Forma Income Statements (Unaudited) 83
LEGAL OPINIONS 86
EXPERTS 86
INDEX TO FINANCIAL STATEMENTS F-1
APPENDIX A - Agreement and Plan of Merger A-1
Annex A - Amended and Restated Articles of Incorporation AA-1
Annex B - Amended and Restated Code of Regulations AB-1
APPENDIX B - Long-Term Performance Compensation Plan B-1
APPENDIX C - Employee Share Purchase Plan C-1
SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Joint Proxy
Statement/Prospectus, including the Appendices. The summary does not contain
a complete description of the terms of the transactions described herein, and
is qualified in its entirety by reference to the full text of this Joint
Proxy Statement/Prospectus and the Appendices hereto. Limited partners of
The Andersons and shareholders of The Andersons Management Corp. are urged to
read this Joint Proxy Statement/Prospectus in its entirety.
Introduction
This Joint Proxy Statement/Prospectus is the proxy statement of The
Andersons, an Ohio limited partnership (the "Partnership"), and the proxy
statement of The Andersons Management Corp., an Ohio corporation and the sole
general partner of the Partnership (the "General Partner"). It is being
furnished to the limited partners of the Partnership (the "Limited Partners")
and the shareholders of the General Partner (the "Shareholders"), in each
case of record as of March 31, 1995 (the "Record Date"), in connection with
the solicitation on behalf of the Board of Directors of the General Partner
(the "Board of Directors" or the "Board") of proxies to be used at special
meetings to be held on June 29, 1995, and at any and all adjournments and
postponements thereof, to consider a proposed merger of the Partnership with
and into the General Partner (the "Merger") pursuant to an Agreement and Plan
of Merger dated as of April 28, 1995 between the Partnership and the General
Partner (the "Merger Agreement"), to consider a proposal to eliminate the
right of shareholders to cumulate votes in the election of directors so that
directors would have to receive a plurality of votes to be elected and to
consider the adoption of a Long-Term Performance Compensation Plan and an
Employee Share Purchase Plan (collectively, the "Plans").
A vote in favor of the Merger would have the effect of a vote in favor
of a series of interrelated changes to the current organizational form of the
Partnership and the General Partner, including (a) merging the Partnership
with and into the General Partner, as a result of which the General Partner
would be the sole surviving entity (the "Surviving Corporation"), (b)
terminating the Partnership's legal existence by operation of law, (c)
changing the name of the Surviving Corporation to The Andersons, Inc., (d)
creating a single class of common shares, no par value per share (the "Common
Shares"), of the Surviving Corporation, (e) converting the General Partner's
existing Class A Common Shares ("Class A Common Shares") and Class B Common
Shares ("Class B Common Shares") into Common Shares, (f) converting each
Limited Partners' interest in the Partnership (the "LP Interests") into
Common Shares and (g) adopting certain amendments to the Surviving
Corporation's Articles of Incorporation and Code of Regulations which may
have the effect of discouraging unsolicited proposals to acquire control of
the Surviving Corporation.
The primary purpose of the Merger is to permit the Surviving Corporation
to consummate a firm commitment underwritten public offering of Common
Shares (the "Public Offering"). The Company has been informed by its
financial advisors that the conversion to corporate form that would occur
through the Merger is necessary to maximize the value of the Company in a
public offering.
The Merger would not take place until immediately prior to the execution
of an underwriting agreement with respect to the Public Offering (the
"Pricing"). The General Partner expects that prior to the consummation of the
Public Offering, the Common Shares will have been approved for quotation on
the Nasdaq National Market subject to notice of issuance. No prediction can
be made, however, as to the price at which the Common Shares will trade. See
"RISK FACTORS -- Uncertainty Regarding Market Price for Common Shares." The
primary purpose of the adoption of the Plans is to provide for equity
participation for all employees and equity based performance compensation for
employees and directors of the Surviving Corporation. The Merger, the Public
Offering and the Plans are interrelated. The Company does not intend to
implement the Merger until immediately prior to the Pricing of the Public
Offering. See "THE PUBLIC OFFERING." The Plans will not be implemented
unless the Merger is consummated. The proposal to eliminate cumulative voting
will not be implemented unless the Merger is consummated, but the Merger, the
Public Offering and the Plans are not contingent upon approval of the proposal
to eliminate cumulative voting.
The Parties
The Partnership. The Partnership is the successor to a series of
partnerships originating with a general partnership formed in 1947 by Harold
and Margaret Anderson, among others, to operate a grain merchandising
business. The Partnership is engaged in grain merchandising and operates
grain elevator facilities located in Ohio, Michigan, Indiana and Illinois, as
well as in the distribution of agricultural products such as fertilizers,
seeds and farm supplies. The Partnership also operates retail general
stores, produces, distributes and markets lawn care products and corncob
products, and repairs and leases rail cars.
The Partnership is governed by an amended and restated partnership
agreement dated as of April 1, 1995 (the "Partnership Agreement") by and
among the General Partner and the 218 Limited Partners as of the Record Date,
most of whom are either lineal descendants of Harold and Margaret Anderson or
employees of the General Partner. The Partnership is the operating entity
for each of the business units described herein. The address of the
Partnership is 480 West Dussel Drive, Maumee, Ohio 43537 and its telephone
number is (419) 893-5050.
The General Partner. The General Partner was formed in 1987 to
act as the sole general partner of the Partnership. The Class A Common Shares
are owned by 186 persons, each of whom is also a Limited Partner. The Class B
Common Shares are owned by 183 persons, each of whom is also a Limited
Partner and a holder of Class A Common Shares. The General Partner provides
all management and labor services required by the Partnership in its
operations. The address and telephone number of the General Partner are the
same as those of the Partnership.
The Surviving Corporation. In the Merger, the General Partner will be
the Surviving Corporation and the Partnership will cease to exist. The
Surviving Corporation will possess all of the assets, properties, rights and
privileges of both the Partnership and the General Partner existing at the
time of the Merger and will be subject to all their liabilities and
obligations existing at such time.
The term "Company" means the General Partner and the Partnership,
collectively, when used herein with respect to periods prior to the Merger
and means the Surviving Corporation when used herein with respect to periods
after the Merger.
The Merger
The Merger will not take place until immediately prior to the Pricing of
the Public Offering. Upon the effective date of the Merger (the "Effective
Date"), the Partnership will merge with and into the General Partner and
pursuant to the Merger Agreement and the amendment and restatement of the
articles of incorporation of the General Partner that will be implemented in
connection therewith (i) each $8 in a Limited Partner's capital account,
calculated as of the Measurement Date (as defined below), will be converted
into one Common Share, with cash being paid for any fractional shares based on
the book value of Common Shares on the Measurement Date, (ii) each $8 of book
value represented by Class A Common Shares, calculated as of the Measurement
Date, will be converted into one Common Share, with cash being paid for any
fractional shares based on the book value of Common Shares on the Measurement
Date and (iii) each $8 of book value represented by Class B Common Shares,
calculated as of the Measurement Date, will be converted into one Common
Share, with cash being paid for any fractional shares based on the book value
of Common Shares on the Measurement Date.
The "Measurement Date" will be a date set by the Board of Directors,
which date will be after the vote approving the Merger but prior to the
Effective Date. The Board currently anticipates that the Measurement Date
will be a date approximately 60 days prior to the date on which the Public
Offering is expected to close. At this time, the Board expects the
Measurement Date to be July 31, 1995. During the period from the Measurement
Date through the Effective Date, the Board intends to require that all
distributions made by the Partnership that have not otherwise been accounted
for be on a pro rata basis based on the amounts in Limited Partners' capital
accounts. This will be necessary to ensure that relative capital accounts do
not change after the Measurement Date. The Board will have the authority to
cancel a Measurement Date and institute a new Measurement Date in its
discretion. The Board would be able to exercise this authority in the event
that the Public Offering is postponed for any reason.
Immediately after the Merger, but prior to the Public Offering, Limited
Partners and Shareholders will hold 100% of the outstanding Common Shares.
The Merger is being structured so that neither the Limited Partners and
Shareholders nor the Company will recognize any taxable gain or loss in
connection with the Merger. See "FEDERAL INCOME TAX CONSIDERATIONS" and
"CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS."
Certain provisions of the amended and restated Articles of Incorporation
and the amended and restated Code of Regulations implemented as a result of
the Merger may have the effect of discouraging unsolicited takeover
proposals. These provisions include: provisions which would require the
approval of two-thirds of the Company's shareholders for certain actions,
including mergers, sales of all or substantially all of the Surviving
Corporation's assets or the adoption of amendments to the Surviving
Corporation's articles of incorporation or code of regulations; a fair price
provision which would require a potential acquiror to pay all shareholders
the highest price paid during a specified time prior to the commencement of
the tender offer; a control share acquisition provision which would require
shareholder approval prior to certain acquisitions of controlling blocks of
Common Shares; a provision requiring certain shareholder or board approvals
in the event of transactions between the Company and certain interested
shareholders; and certain other provisions relating to the taking of action
by shareholders. See "DESCRIPTION OF THE COMMON SHARES -- Anti-Takeover
Provisions of the Surviving Corporation's Organizational Documents."
The Public Offering
Shortly after the Merger occurs, the Company intends to offer a number of
Common Shares to the public in a firm commitment underwritten public offering
registered under the Securities Act. The Public Offering involves the Pricing
and the closing of the Public Offering (the "Closing"). The Merger would not
take place until immediately prior to the Pricing. At the Pricing, the
Company and the underwriters will enter into an underwriting agreement
pursuant to which the underwriters will become obligated, subject to certain
conditions, to purchase a number of Common Shares equal to approximately 25%
of the Common Shares that would be outstanding after the Public Offering. The
underwriters would purchase such shares at a price to be determined at the
Pricing. The conditions under which the underwriters will not be obligated to
close the Public Offering, have not yet been determined. However, the Company
anticipates that such conditions would be limited to matters that are
primarily within the Company's control or are otherwise likely to be fulfilled
or waived at the time of the Closing. Such conditions would generally involve
the absence of material adverse developments with respect to the Company, the
Public Offering or the financial markets generally. Subject to such
conditions, the Closing would take place approximately one week after the
Pricing. In the event any conditions to closing the Public Offering are not
fulfilled or waived and the Closing does not occur, the Merger would still
have taken place, causing the Company to lose the benefits of operating in
partnership form, while failing to realize many of the advantages discussed
herein with respect to having a liquid public market for the Common Shares at
such time. The Company believes, however, that the risk of the Closing not
occurring once the Merger and the Pricing have occurred is remote. In the
unlikely event that the Closing were not to occur after the Merger and the
Pricing occurred, the Company anticipates that it would seek to close an
underwritten public offering as soon threreafter as possible.
The Company has the option, until immediately prior to the Pricing, of
choosing not to proceed with the Merger. The Merger and the Public
Offering are interrelated. The Company does not intend to implement the
merger until immediately prior to the Pricing of the Public Offering. The
willingness of the Company to proceed with the Public Offering will depend on
a number of factors, including the Company's performance and general stock
market conditions. Therefore, there can be no assurances that the Public
Offering will occur even if the Merger is approved, or that it will occur in
the time period set forth above. In addition, no prediction can be made as to
the price at which the Common Shares will trade if the Public Offering does
occur. See "RISK FACTORS -- Uncertainty Regarding Market Price for Common
Shares."
The Public Offering is expected to occur in the fall of 1995. Upon
consummation of the Public Offering, the shareholders of the Surviving
Corporation will be (i) persons who are currently Limited Partners of the
Partnership, (ii) persons who are currently Shareholders of the General
Partner and (iii) persons purchasing Common Shares in the Public Offering.
The Company expects that the underwriters in the Public Offering will
request that all persons who receive Common Shares as a result of the Merger
agree not to sell their Common Shares for a period of 180 days after the
Public Offering. All holders of Common Shares who are "affiliates" of the
Company will also be subject to certain additional resale restrictions
pursuant to Rule 145 under the Securities Act. See "RESALE OF COMMON
SHARES."
Limited Partners may be offered the opportunity to sell a limited number
of Common Shares in a simultaneous secondary offering as part of the Public
Offering. The total number of Common Shares to be included in any such
secondary offering will be determined in the sole discretion of the Company
in consultation with the managing underwriters. The Company intends to offer
all persons who receive Common Shares in the Merger an opportunity to sell a
limited number of shares in any such secondary offering. Each holder of
Common Shares is expected to be offered this opportunity on a pro rata basis,
based on the number of Common Shares held by such holder of Common Shares and
the total number of Common Shares to be outstanding immediately after the
Merger. A holder of Common Shares participating in any such secondary
offering will be obligated to bear all underwriting discounts and commissions
payable with respect to the Common Shares sold by such holder and a pro rata
portion of certain expenses related to the registration and sale of such
Common Shares. These discounts, commissions and expenses are expected to be
significantly higher than the costs that would be incurred by a holder
selling Common Shares in the stock market after the Public Offering. If
given an opportunity to sell in a secondary offering as part of the Public
Offering, a holder of Common Shares would have to weigh these additional
costs against the applicable restrictions on selling shares into the market
discussed above and under "RESALE OF COMMON SHARES." Although the Company
intends to include a secondary offering of Common Shares as part of the
Public Offering, there can be no assurances made at this time as to whether
and to what extent the Public Offering will include a secondary offering.
Elimination of Cumulative Voting
Ohio law and the General Partner's current articles of incorporation
permit shareholders to cumulate votes in the election of directors. Under
cumulative voting, holders of the General Partner's Class B Common Shares are
entitled to a number of votes per share equal to the number of directors to
be elected and all directors are voted upon simultaneously. Holders of
shares may cast all of their votes for a single director candidate or
distribute them among two or more director candidates. As a consequence of
cumulative voting, shareholders representing a relatively small number of the
voting shares may have the power to nominate and elect one or more directors.
The Board of Directors recommends that cumulative voting not be employed
in the election of directors after the Merger and the Public Offering.
Without cumulative voting, the Board would be elected based on which
candidates receive a plurality of the votes cast. This method of voting,
which is much more common among publicly held companies than cumulative
voting, requires that a director candidate receive relatively wide support to
be elected. By providing for plurality voting in the election of directors,
approval of the proposal to eliminate cumulative voting should help ensure
that each director acts in the best interests of more than just a minority
shareholder or group of shareholders. See "APPROVAL OF THE PROPOSAL TO
ELIMINATE CUMULATIVE VOTING."
Employee Benefit Plans
The Board of Directors has approved a Long-Term Performance Compensation
Plan and an Employee Share Purchase Plan (collectively, the "Plans"), subject
to Shareholder approval and the consummation of the Merger. The Long-Term
Performance Compensation Plan will provide certain of the Company's employees
with share options and/or performance awards based on the performance of the
Company as a whole and of each recipient individually. In addition, directors
will be granted options to purchase Common Shares based on a predetermined
formula. In each case, the exercise price of such options will be the market
price of the Common Shares on the date of the grant. The Employee Share
Purchase Plan will provide the Company's employees with the opportunity to
purchase Common Shares through a payroll deduction plan. The Plans have been
adopted to provide the benefits of equity based performance compensation in a
manner that will only be available to the Company once the Common Shares are
publicly traded. Thus, even if approved, the Plans will not be implemented
unless the Merger is consummated. See "APPROVAL OF THE LONG-TERM PERFORMANCE
COMPENSATION PLAN" and "APPROVAL OF THE EMPLOYEE SHARE PURCHASE PLAN."
The Company currently sponsors an Employee Bond Purchase Plan that was
designed to provide employees with a way to invest in unsecured, subordinated
debt obligations of the Partnership (the "Employee Bonds"). The Employee
Bonds could under certain circumstances be converted into equity in the
Partnership. The Employee Bonds bear interest equal to 75% of the annual
rate of return on the Partnership's equity, with a minimum interest rate of
4% per annum and a maximum interest rate of 18% per annum. Interest is paid
in cash only to the extent requested by the holder of an Employee Bond and
subject to certain other restrictions. All interest not paid in cash is
added to the principal amount of the Employee Bond. The Employee Bonds are
callable on demand.
As part of the Merger, all obligations of the Partnership under the
Employee Bonds will be assumed by the Surviving Corporation. Since the Plans
are expected to provide a more effective means of expanding the equity
ownership of employees, the Surviving Corporation intends to terminate the
Employee Bond Purchase Plan promptly after the Merger. At such time, the
Surviving Corporation also plans to offer to exchange Common Shares for all
then outstanding Employee Bonds. This exchange is expected to be offered on
a basis similar to that governing the exchange of Limited Partners' capital
accounts in the Merger. Each Employee Bond holder is expected to be offered an
opportunity to exchange such Employee Bond based on an exchange ratio of one
Common Share for each $8 of Employee Bond principal outstanding at the time of
the exchange. The Surviving Corporation currently intends to call all
Employee Bonds that are not exchanged for Common Shares. The Partnership as
of April 7, 1995 had approximately $250,000 in principal amount of Employee
Bonds outstanding held by approximately 100 employees of the Company. The
Partnership does not expect that additional Employee Bonds will be offered
unless the Merger is not approved or is otherwise no longer being pursued.
See "TERMINATION OF EMPLOYEE BOND PURCHASE PLAN."
Partners Meeting
Date, Time and Place. The special meeting of the Limited Partners (the
"Partners Meeting") will be held on June 29, 1995 at 7:00 p.m., local time,
at The Andersons Conference Center, located at 535 Illinois Avenue, in
Maumee, Ohio 43537.
Purpose of the Meeting. At the Partners Meeting, Limited Partners of
record as of the Partners Record Date (as defined below) will be asked to
approve and adopt the Merger Agreement, a copy of the form of which is
attached hereto as Appendix A, by which the Merger will occur (the "Merger
Proposal").
Partners Record Date; Limited Partners Entitled to Vote. Only Limited
Partners as of the close of business on March 31, 1995 (the "Partners Record
Date") are entitled to notice of and to vote at the Partners Meeting and any
adjournment or postponement thereof. As of the Partners Record Date, there
were 218 Limited Partners.
Vote Required. Approval of the Merger Proposal will require the
affirmative vote of 80% of the Limited Partners voting on a one-vote-per-
partner basis. As of the Partners Record Date, all directors and executive
officers of the General Partner and their affiliates, as a group, represented
24 of the 218 Limited Partners entitled to vote at the Partners Meeting, or
11% of the Limited Partners.
Shareholders Meeting
Date, Time and Place. The special meeting of Shareholders (the
"Shareholders Meeting") will be held on June 29, 1995, at 7:00 p.m., local
time, at The Andersons Conference Center, located at 535 Illinois Avenue, in
Maumee, Ohio 43537.
Purpose of the Meeting. At the Shareholders Meeting, Shareholders of
record as of the Shareholders Record Date (as defined below) will be asked to
consider and vote (i) to approve the Merger Proposal, (ii) approve the
proposal to eliminate cumulative voting and (iii) to approve the adoption of
the Plans.
Shareholders Record Date; Shareholders Entitled to Vote. Only
Shareholders as of the close of business on March 31, 1995 (the "Shareholders
Record Date") are entitled to notice of and to vote at the Shareholders
Meeting and any adjournment or postponement thereof. As of the Shareholders
Record Date, there were 4,608.4 Class A Common Shares outstanding and
entitled to vote and 5,720 Class B Common Shares outstanding and entitled to
vote.
Vote Required. Approval of the Merger Proposal will require the
affirmative vote of two-thirds of the outstanding Class A Common Shares and
Class B Common Shares entitled to vote, each voting as a separate class.
Approval of the proposal to eliminate cumulative voting will require the
affirmative vote of at least two-thirds of the outstanding Class B Common
Shares and of as much as 83% of the outstanding Class B Common Shares,
depending on the number of votes cast against such proposal. Approval of
the adoption of the Plans will require the affirmative vote of a majority of
the outstanding Class B Common Shares entitled to vote. As of the
Shareholder Record Date, all executive officers and directors of the General
Partner and their respective affiliates as a group owned 866 Class A Common
Shares, or approximately 19%, of the Class A Common Shares entitled to vote
and 1,146 Class B Common Shares, or approximately 20%, of the Class B Common
Shares entitled to vote.
Advantages of the Merger and the Public Offering
Liquidity and Market Valuation. LP Interests, Class A Common Shares
and Class B Common Shares (collectively, the "Existing Securities") are not
publicly traded and have limited liquidity. The primary means of liquidity
for holders of Existing Securities has been requesting the Company to redeem
such securities. Although the Company is not obligated to honor any such
request, it has done so historically from time to time, using its available
cash to redeem such securities at book value. After the Public Offering,
however, the Common Shares are expected to be traded on the Nasdaq National
Market and thus, there is expected to be a liquid market for selling the
Common Shares and a readily determinable market value for the Common Shares.
With a liquid market for Common Shares, equity holders would no longer be
required to rely solely on the Company as a source of liquidity, and the
Company would no longer be required to use its cash to provide such
liquidity. Instead, it is expected that holders of Common Shares will be
able to sell their Common Shares in the public market from time to time,
subject to certain restrictions, for their fair market value.
Access to Equity Markets. In the Public Offering, the Company will
raise capital for various purposes, including the pursuit of corporate growth
opportunities and/or the repayment of debt. Although the Company currently
has no plans for additional equity offerings, the existence of publicly
traded equity securities is expected to provide it with future access to the
public equity markets.
Greater Flexibility Regarding Capital Resources. The Company will have
greater flexibility with respect to the use of capital resources because it
will not have to use available cash to repurchase Common Shares. As discussed
above, the Partnership has from time to time used its cash to repurchase
Existing Securities when requested to do so by Limited Partners. There are
also potential tax advantages (and corresponding financial advantages) to
conducting a business through a corporation that should allow the Company
greater flexibility with respect to the management of its capital resources.
Shareholders will defer the payment of taxes on income earned by the Company
until the Company distributes such income in the form of dividends. Limited
Partners, by contrast, are taxed as soon as the Partnership earns income.
Limited Partners are taxed on such income at their individual federal tax
rate, which may exceed the maximum corporate federal tax rate. Because of
this immediate tax, the Partnership has been forced to distribute a
substantial portion of its income to allow its partners to pay their taxes.
This has limited the ability of the Partnership to accumulate cash and
property in order to expand its business. Thus, the Surviving Corporation as
a corporation can accumulate income for business expansion without financially
harming its shareholders' ability to pay taxes.
Acquisition Currency. After the Public Offering, the Company may be
able to use Common Shares as consideration in its acquisition of other
businesses. The use of readily tradeable equity securities such as Common
Shares as an acquisition currency is advantageous because it may be more tax
efficient to the seller of a business than a cash transaction and it allows
the Company to consummate acquisitions without depleting cash resources. It
also allows a seller to continue to hold an equity interest in the business
acquired by the Company through equity ownership in the Company after such
acquisition. The use of Common Shares in acquisitions can also enable the
Company to use advantageous pooling accounting methods if certain conditions
are met.
Performance Compensation. The availability of Common Shares will
permit the Company to provide its key employees with equity based performance
compensation. Although a number of employees currently own Existing
Securities, the Company believes providing equity based performance
compensation through the use of Common Shares will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of the Common Shares having a readily
ascertainable value, and provide the Company with more flexibility in
designing equity based performance compensation. The Plans are intended to
provide such benefits.
Greater Employee Ownership. Given the complex tax reporting
requirements associated with being a limited partner and the administrative
burden placed on the Partnership as a result of having a significant number
of additional limited partners, it has not been feasible for the Partnership
to offer ownership opportunities to a broad range of employees. By having the
Common Shares available, however, the Company will be able to offer ownership
opportunities to all employees. The Board believes that widespread employee
ownership is in the best interest of the Company and its shareholders. The
Employee Share Purchase Plan is intended to provide for this type of employee
ownership participation.
Simplified Tax Reporting. Limited Partners will no longer be burdened
with the cumbersome and complex tax reporting requirements imposed on them
under federal and multiple state partnership tax laws.
Disadvantages of the Merger and the Public Offering
Taxation. The Partnership itself does not pay any federal income
taxes. After the Merger, the Surviving Corporation will be subject to
federal income tax. Shareholders of the Surviving Corporation will also be
required to pay federal income taxes on any dividends that they receive from
the Surviving Corporation and on any gain from the sale or exchange of Common
Shares. Thus, while in partnership form only one level of federal income tax
is imposed (i.e., on the Limited Partners themselves), in corporate form two
levels of federal income tax are imposed (i.e., one on the Surviving
Corporation and one on its shareholders to the extent they receive dividends
or recognize gain on the sale or exchange of shares). See "FEDERAL INCOME
TAX CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS."
Significant Reduction in Distributions. The Partnership currently
makes significant quarterly cash distributions to Limited Partners. A
portion of these distributions (generally referred to by the Partnership as
"tax distributions") are distributed to Limited Partners to provide them with
cash to pay federal, state and local taxes on the Partnership's income
imposed directly on the Limited Partners. Amounts above the tax distributions
are also made available for distribution to Limited Partners (generally
referred to by the Partnership as "cash distributions"). Limited Partners are
not required, however, to accept all or any portion of the distributions
authorized by the Board of Directors of the General Partner.
In 1994, the total amount distributed to Limited Partners was
approximately $4.4 million, of which approximately $3.3 million was in the
form of tax distributions and $1.1 million was in the form of cash
distributions. The Partnership made available in 1994 additional tax
distributions of approximately $2.2 million and additional cash distributions
of approximately $1 million. These additional distribution amounts were
retained in the capital accounts of the Limited Partners that decided to
decline to accept the distributions. Therefore, the total amount of cash
available for distribution to Limited Partners in 1994 was approximately $7.6
million.
Unlike the Partnership, the Surviving Corporation will itself be subject
to federal tax on its income. Holders of Common Shares will not be subject
to federal tax on such income except to the extent dividends are paid. See
"FEDERAL INCOME TAX CONSIDERATIONS." Therefore, the Surviving Corporation is
expected to make significantly lower distributions than the Partnership has
made.
The Board of Directors currently anticipates that the Surviving
Corporation will pay cash dividends in an amount which would result in cash
flow to shareholders of approximately one-half of that which Limited Partners
would receive under the Partnership's current distribution policy. In other
words, the anticipated dividends are expected to be approximately one-half of
the amount of what the Partnership made available for cash distributions.
When taking into account the fact that the owners of the Surviving
Corporation, as shareholders instead of Limited Partners, will pay taxes on
the amounts distributed, cash dividends in the amount currently anticipated
would result in an after-tax cash flow to shareholders of approximately one-
third of the cash distributions that Limited Partners would receive under the
Partnership's current distribution policy (assuming current tax rates).
To illustrate the foregoing, consider a Limited Partner who in a given
year receives total distributions from the Partnership of $14,000 of which
$10,000 is a tax distribution and $4,000 is a cash distribution. Such
Limited Partner would have a net cash flow of $4,000, because the $10,000 tax
distribution would be used to pay the taxes payable by such Limited Partner
on the Partnership's income. The Surviving Corporation, however, assuming
the currently anticipated dividend level, would distribute to such Limited
Partner (who would then be a shareholder) only $2,000, which is one-half of
the $4,000 cash flow made available to such Limited Partner as a partner in
the Partnership. On an after-tax basis, assuming a 40% tax rate, the cash
flow for such Limited Partner as a shareholder of the Surviving Corporation
would be $1,200 (i.e., $2,000 minus $800 in taxes), which is slightly less
than one-third of the $4,000 cash flow made available to such Limited Partner
as a partner in the Partnership.
It is important to realize that the actual amount of dividends, if any,
to be paid will be determined by the Surviving Corporation's Board of
Directors in its sole discretion, generally taking into account a number of
factors, including operating performance, liquidity and capital requirements.
There can be no assurances that the currently anticipated level of cash
dividends will in fact be paid, just as there can be no assurances that
Partnership distributions will continue at historic levels.
Uncertainty Regarding Market Price of Common Shares. Trading prices
for the Common Shares will be influenced by many factors, including the depth
and liquidity of the market for the Common Shares, the Company's dividend
policy, the possibility of future sales of Common Shares by the Company or
its shareholders, investors' perception of the Company and its businesses,
and general economic and stock market conditions. No prediction can be made
as to the price at which the Common Shares will trade. Limited Partners and
Shareholders have not previously had access to an active trading market for
the Existing Securities. Thus, it is possible that they may wish to sell
their Common Shares into the market from time to time after the Merger. The
sale of Common Shares into the market after the Merger might have an adverse
effect on the market price of the Common Shares.
Alternative to the Merger
The General Partner has no plans at this time to accomplish any other
organizational change in lieu of the Merger in the event the Merger is not
approved by Limited Partners and Shareholders. Thus, the alternative to the
Merger is to retain the current Partnership structure for the foreseeable
future and not pursue a public offering.
Recommendations
After considering the advantages and disadvantages of the Merger, the
proposal to eliminate cumulative voting and the Plans, the General Partner
believes that the Merger is fair to, and in the best interests of, the
Limited Partners and Shareholders, that approval of the proposal to eliminate
cumulative voting is in the best interests of the Shareholders and that the
Plans are in the best interests of the Shareholders. The Board of Directors
of the General Partner recommends that each of its Shareholders vote to
approve the Merger, the proposal to eliminate cumulative voting and the
Plans, and in its capacity as general partner of the Partnership, the General
Partner recommends that each Limited Partner vote to approve the Merger. See
"THE MERGER -- Recommendation," "APPROVAL OF THE PROPOSAL TO ELIMINATE
CUMULATIVE VOTING -- Recommendation," "APPROVAL OF THE LONG-TERM PERFORMANCE
COMPENSATION PLAN -- Recommendation" and "APPROVAL OF THE EMPLOYEE SHARE
PURCHASE PLAN -- Recommendation."
Dissenting Shareholders and Limited Partners
If the Merger is consummated, shareholders who vote against or abstain
from voting on the Merger will have a right to be paid the fair value of their
shares in cash upon the satisfaction of certain conditions, as provided in
Section 1701.85 of the Ohio General Corporation Law (the "OGCL"). Section
1782.436 of the Ohio Revised Code provides a similar remedy for Limited
Partners who vote against or abstains from voting on the Merger. A dissenting
Shareholder or Limited Partner will be entitled to the rights provided by
Sections 1701.85 and 1782.436 to the extent that such Shareholder or Limited
Partner (i) votes against or abstains from voting on the Merger Proposal and
(ii) within 10 days after the Special Meetings, makes a written demand on the
Company for payment of the "fair cash value" of the Existing Securities with
respect to which relief is sought, setting forth the amount claimed as the
"fair cash value" thereof. See "RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED
PARTNERS."
Summary Financial Information of the Partnership and the General Partner and
Summary Unaudited Pro Forma Financial Information of the Surviving Corporation
The following tables set forth summary historical and unaudited pro
forma financial and operating information of the Partnership and the General
Partner as of the dates and for the periods indicated. The selected
historical financial information of the Partnership and the General Partner
for the years ended December 31, 1994, 1993, 1992, 1991, and 1990 have been
derived from financial statements which have been audited by Ernst & Young
LLP, independent auditors. The summary unaudited pro forma financial
information gives effect to the Merger as if it occurred (i) January 1, 1995,
1994, 1993 and 1992, with respect to income statement data for the year then
ended and (ii) March 31, 1995 with respect to balance sheet data as of
March 31, 1995. The tables should be read in conjunction with the Pro Forma
Condensed Financial Information and the Financial Statements (in each case,
including the notes thereto) included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
Summary Financial Information of the Partnership
(dollars in thousands, except per $1,000 of weighted average partners'
capital data)
<CAPTION>
For the Three Months For the Year Ended December 31:
Ended March 31
INCOME STATEMENT DATA: 1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues $203,010 $218,699 $952,758 $776,457 $753,167 $643,063 $643,417
Operating profit 6,411 4,530 28,720 21,170 18,300 13,987 16,157
Income from continuing
operations 1,923 2,085 15,137 11,079 10,130 4,516 5,260
Net income 1,923 2,085 15,137 11,079 7,636 2,825 3,859
Allocation of net income
per $1,000 of weighted
average partners' capital 30 38 287 234 177 67 90
Weighted average
partners' capital 64,079 54,901 52,696 47,405 43,101 41,939 43,048
</TABLE>
<TABLE>
<CAPTION>
As of As of December 31:
March 31,
BALANCE SHEET DATA: 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Total assets $362,607 $350,184 $356,502 $255,501 $290,110 $234,319
Long-term debt and other
long-term obligations 72,793 74,277 55,817 47,570 49,884 50,134
Partners' capital 65,733 63,978 55,411 51,120 42,508 45,812
</TABLE>
<TABLE>
Summary Financial Information of the General Partner
(dollars in thousands, except share and per share data)
<CAPTION>
For the Three Months For the Year Ended December 31:
Ended March 31
INCOME STATEMENT DATA: 1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues $ 18,413 $ 15,792 $70,395 $63,107 $57,388 $55,358 $51,582
Net income 45 5 252 146 9 25 46
Net income per Class A
Share 9.80 0.99 54.72 31.66 1.96 5.38 9.91
Weighted average number
of Class A Common Shares
outstanding 4,608 4,612 4,612 4,624 4,633 4,591 4,691
</TABLE>
<TABLE>
<CAPTION>
As of As of December 31:
March 31,
BALANCE SHEET DATA: 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Total assets $ 12,405 $12,984 $11,432 $8,841 $8,580 $7,783
Long-term debt and other long-
term obligations 3,275 3,060 2,413 1,756 1,489 1,580
Shareholders' equity 1,904 1,862 1,607 1,473 1,445 1,448
</TABLE>
<TABLE>
<CAPTION>
Summary Unaudited Pro Forma Financial Information of the Surviving Corporation
(dollars in thousands, except share and per share data)
For the Three For the Year Ended December 31:
Months Ended
UNAUDITED PRO FORMA CONDENSED March 31
STATEMENTS OF INCOME: 1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Sales and revenues and other
income $203,637 $219,385 $ 955,516 $ 780,331 $ 757,111
Cost of sales and revenues 167,293 187,858 806,152 650,144 639,754
Gross profit 36,344 31,527 149,364 130,187 117,357
Operating, administrative and
general expenses 31,221 27,305 126,227 113,235 101,116
Interest expense 3,142 2,101 8,395 6,168 6,326
34,363 29,406 134,622 119,403 107,442
Income before income taxes from
continuing operations 1,981 2,121 14,742 10,784 9,915
Income taxes 804 852 6,099 4,478 4,106
Income from continuing
operations 1,177 1,269 8,643 6,306 5,809
Discontinued operations, net of
applicable income taxes of
$1,023 (1,471)
Pro forma net income $ 1,177 $ 1,269 $ 8,643 $ 6,306 $ 4,338
Pro forma net income per Common
Share $ .15 .17 $ 1.15 $ 0.84 $ 0.58
Pro forma Common Shares
outstanding 7,666,147 7,666,147 7,543,152 7,543,152 7,543,152
</TABLE>
<TABLE>
<CAPTION>
As of
UNAUDITED PRO FORMA CONDENSED March 31,
BALANCE SHEET DATA: 1994
<S> <C>
Total assets $ 369,134
Long-term debt and other long-term obligations 76,687
Shareholders' equity 61,031
</TABLE>
INTRODUCTION
This Joint Proxy Statement/Prospectus is the proxy statement of the
Partnership and the proxy statement of the General Partner, and is being
furnished to Limited Partners and Shareholders, in each case of record as of
the Record Date, in connection with the solicitation on behalf of the Board
of Directors of the General Partner of proxies to be used at special meetings
to be held on June 29, 1995, and at any and all adjournments and
postponements thereof, to consider the Merger Proposal, to consider the
proposal to eliminate cumulative voting and to consider adoption of the
Plans.
A vote in favor of the Merger would have the effect of a vote in favor
of a series of interrelated changes to the current organizational form of the
Partnership and the General Partner, including (a) merging the Partnership
with and into the General Partner, as a result of which the General Partner
would be the Surviving Corporation, (b) terminating the Partnership's legal
existence by operation of law, (c) changing the name of the Surviving
Corporation to The Andersons, Inc., (d) creating a single class of Common
Shares, (e) converting the Class A Common Shares and Class B Common Shares
into Common Shares, (f) converting the LP Interests into Common Shares and
(g) adopting certain amendments to the Surviving Corporation's Articles of
Incorporation and Code of Regulations which may have the effect of
discouraging unsolicited proposals to acquire control of the Surviving
Corporation.
The primary purpose of the Merger is to permit the Surviving Corporation
to consummate the Public Offering. The Company has been informed by its
financial advisors that the conversion to corporate form that would occur
through the Merger is necessary to maximize the value of the Company in a
public offering.
The Surviving Corporation will execute the Merger immediately prior to
the Pricing. The General Partner expects that prior to the consummation of
the Public Offering, the Common Shares will have been approved for quotation
on the Nasdaq National Market subject to notice of issuance. No prediction
can be made, however, as to the price at which the Common Shares will trade.
See "RISK FACTORS -- Uncertainty Regarding Market Price for Common Shares."
The primary purpose of the adoption of the Plans is to provide for equity
participation for all employees and equity based performance compensation for
employees and directors of the Surviving Corporation. The Merger, the Public
Offering and the Plans are interrelated. The Company does not intend to
implement the Merger until immediately prior to the Pricing of the Public
Offering. See "THE PUBLIC OFFERING." The Plans will not be implemented
unless the Merger is consummated. The proposal to eliminate cumulative voting
will not be implemented unless the Merger is approved, but the Merger, the
Public Offering and the Plans are not contingent upon approval of the proposal
to eliminate cumulative voting.
The Partners Meeting
The General Partner has fixed the close of business on March 31, 1995 as
the record date for determining Limited Partners entitled to notice of and to
vote at the Partners Meeting. Only Limited Partners of record at the close
of business on such date will be entitled to vote at the Partners Meeting.
At the close of business on the Partners Record Date, there were 218 Limited
Partners. Each Limited Partner will be entitled to one vote. Limited
Partners entitled to vote at the Partners Meeting and which are represented
by properly executed proxies, will, unless such proxies have been revoked,
have their votes cast in accordance with the instructions indicated on such
proxies.
If no contrary instructions are indicated, such Limited Partners' votes
will be cast FOR the approval and adoption of the Merger Agreement and will
be cast in the discretion of the proxy holders as to any other matter that
may properly come before the Partners Meeting. The General Partner knows of
no other business that will be presented for consideration at the Partners
Meeting.
A Limited Partner who has given a proxy may revoke it at any time prior
to its exercise at the Partners Meeting by delivering an instrument of
revocation or a duly executed proxy bearing a later date to the General
Partner, or by attending the Partners Meeting and voting in person.
Under the Partnership Agreement, the affirmative vote of 80% of the
Limited Partners, voting on a one-vote-per-partner basis, is required for
approval and adoption of the Merger Agreement.
Because the affirmative vote of 80% of the Limited Partners, voting on a
one-vote-per-partner basis, is required for approval of the Merger Proposal,
a failure to vote will have the effect of a vote AGAINST the Merger Proposal.
It is therefore extremely important that you vote either by proxy or in
person at the Partners Meeting.
As of the Partners Record Date, all directors and executive officers of
the General Partner and their affiliates, as a group, represented 24 of the
218 Limited Partners entitled to vote at the Partners Meeting, or 11% of the
Limited Partners.
In addition to the solicitation of proxies by mail, directors, officers
and other employees of the General Partner, without receiving additional
compensation therefor, may solicit proxies in person or by telephone or
similar means of communication. The Partnership will bear the costs of
soliciting proxies from the Limited Partners. See "THE MERGER -- Costs of
the Merger."
The Shareholders Meeting
The Board of Directors of the General Partner has fixed the close of
business on March 31, 1995 as the record date for determining holders of
Class A Common Shares and Class B Common Shares entitled to notice of and to
vote at the Shareholders Meeting. Only holders of record of Class A Common
Shares and holders of record of Class B Common Shares at the close of
business on such date will be entitled to vote at the Shareholders Meeting.
At the close of business on the Shareholders Record Date, 4,608.4 Class A
Common Shares were outstanding, held by 186 shareholders of record, and 5,720
Class B Common Shares were outstanding, held by 183 shareholders of record.
The Class A Common Shares have no voting rights except as otherwise required
by Ohio law. Thus, holders of Class A Common Shares will be entitled to vote
only on the Merger Proposal. Holders of Class B Common Shares will be
entitled to vote on the Merger Proposal, on the proposal to eliminate
cumulative voting and on each of the Plans. Each Class A Common Share and
Class B Common Share will be entitled to one vote on each matter voted on by
such shares. Class A Common Shares and Class B Common Shares entitled to be
voted at the Shareholders Meeting and which are represented by properly
executed proxies will, unless such proxies have been revoked, be voted in
accordance with the instructions given in such proxies.
If no contrary instructions are given on the Proxy, (i) such Class A
Common Shares will be voted FOR approval and adoption of the Merger Proposal,
(ii) such Class B Common Shares will be voted FOR approval and adoption of
the Merger Proposal, FOR approval and adoption of the proposal to eliminate
cumulative voting and FOR approval and adoption of each of the Plans and
(iii) all such shares will be voted in the discretion of the proxy holders as
to any other matter that may properly come before the Shareholders Meeting.
The Board of Directors of the General Partner knows of no other business
that will be presented for consideration at the Shareholders Meeting. A
Shareholder who has given a proxy may revoke it at any time prior to its
exercise at the Shareholders Meeting by delivering a notice of revocation or
a duly executed proxy bearing a later date to the General Partner, or by
attending the Shareholders Meeting and voting in person.
Under Ohio law, the affirmative vote of the holders of two-thirds of the
outstanding Class A Common Shares, voting as a class, and two-thirds of the
Class B Common Shares, voting as a class, is required for approval of the
Merger Proposal.
Because the affirmative vote of two-thirds of each such class is
required for approval of the Merger Proposal, a failure to vote on the Merger
Proposal will have the effect of a vote AGAINST the Merger Proposal. It is
therefore extremely important that you vote either by proxy or in person at
the Shareholders Meeting.
Also under Ohio law, a proposal to eliminate the right of shareholders
to cumulate their votes in the election of directors requires the approval of
the holders of two-thirds of the common shares entitled to vote; provided,
however, that such a proposal may not be adopted if the holders of a number
of shares sufficient to elect at least one director vote against such
proposal. Given the current size of the classes of General Partner's Board
of Directors, a holder or group of holders of 17% of the Class B Common
Shares could cumulate their votes to elect a single director in an election
of five directors (which is the largest class of the current Board). Thus,
approval of the proposal to eliminate cumulative voting will require the
affirmative vote of at least two-thirds of the Class B Common Shares and of
as much as 83% of the Class B Common Shares, depending upon how many holders
cast their votes against the proposal to eliminate cumulative voting. An
abstention or failure to vote does not count as a vote against the proposal
to eliminate cumulative voting.
Approval of the adoption of the Plans will require the affirmative vote
of the holders of a majority of the outstanding Class B Common Shares present
at the Shareholders Meeting, in person or by proxy, and entitled to vote. An
abstention or failure to vote does not count as a vote against the Plans.
As of the Shareholder Record Date, there were 4,608.4 Class A Common
Shares outstanding and 5,720 Class B Common Shares outstanding. As of the
Shareholder Record Date, all directors and executive officers of the General
Partner and their affiliates, as a group, beneficially owned (i) 866 Class A
Common Shares, or approximately 19% of the Class A Common Shares entitled to
vote, and (ii) 1,146 Class B Common Shares, or approximately 20% of the Class
B Common Shares entitled to vote.
In addition to the solicitation of proxies by mail, directors, officers
and other employees of the General Partner, without receiving additional
compensation therefor, may solicit proxies in person or by telephone,
telegram or similar means of communication. The General Partner will bear
the costs of soliciting proxies from the Shareholders. See "THE MERGER --
Costs of the Merger."
RISK FACTORS
Before voting on the Merger Proposal and the other matters to be voted
on at the Special Meetings, each Limited Partner and each Shareholder should
carefully read this entire Joint Proxy Statement/Prospectus, including the
Appendices, and should give particular attention to the following
considerations.
Taxation
The Partnership itself does not pay any federal income taxes. After the
Merger, the Surviving Corporation will be subject to federal income tax.
Shareholders of the Surviving Corporation will also be required to pay
federal income taxes on any dividends that they receive from the Surviving
Corporation and on any gain from the sale or exchange of Common Shares.
Thus, while in partnership form only one level of federal income tax is
imposed (i.e., on the Limited Partners themselves), in corporate form two
levels of federal income tax are imposed (i.e., one on the Surviving
Corporation and one on its shareholders to the extent they receive dividends
or recognize gain on the sale or exchange of shares). See "FEDERAL INCOME
TAX CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS."
Significant Reduction in Distributions
The Partnership currently makes significant quarterly cash distributions
to Limited Partners. A portion of these distributions (generally referred to
by the Partnership as "tax distributions") are distributed to Limited
Partners to provide them with cash to pay federal, state and local taxes on
the Partnership's income imposed directly on the Limited Partners.
Additional amounts are also made available for distribution to Limited
Partners (generally referred to by the Partnership as "cash distributions").
Limited Partners are not required, however, to accept all or any portion of
the distributions authorized by the Board of Directors of the General Partner.
In 1994, the total amount distributed to Limited Partners was
approximately $4.4 million, of which approximately $3.3 million was in the
form of tax distributions and $1.1 million was in the form of cash
distributions. The Partnership made available in 1994 additional tax
distributions of approximately $2.2 million and additional cash distributions
of approximately $1 million. These additional distribution amounts were
retained in the capital accounts of the Limited Partners that declined to
accept the distributions. Therefore, the total amount of cash available for
distribution to Limited Partners in 1994 was approximately $7.6 million.
Unlike the Partnership, the Surviving Corporation will itself be subject
to federal tax on its income. Holders of Common Shares will not be subject
to federal tax on such income except to the extent dividends are paid. See
"FEDERAL INCOME TAX CONSIDERATIONS." Therefore, the Surviving Corporation is
expected to make significantly lower distributions than the Partnership has
made.
The Board of Directors currently anticipates that the Surviving
Corporation will pay cash dividends in an amount which would result in cash
flow to shareholders of approximately one-half of that which Limited Partners
would receive under the Partnership's current distribution policy. In other
words, the anticipated dividends are expected to be approximately one-half of
the amount of what the Partnership made available for cash distributions.
When taking into account the fact that the owners of the Surviving
Corporation, as shareholders instead of Limited Partners, will pay taxes on
the amounts distributed, cash dividends in the amount currently anticipated
would result in an after-tax cash flow to shareholders of approximately one-
third of the cash distributions that Limited Partners would receive under the
Partnership's current distribution policy (assuming current tax rates).
To illustrate the foregoing, consider a Limited Partner who in a given
year receives total distributions from the Partnership of $14,000 of which
$10,000 is a tax distribution and $4,000 is a cash distribution. Such
Limited Partner would have a net cash flow of $4,000, because the $10,000 tax
distribution would be used to pay the taxes payable by such Limited Partner
on the Partnership's income. The Surviving Corporation, however, assuming
the currently anticipated dividend level, would distribute to such Limited
Partner (who would then be a shareholder) only $2,000, which is one-half of
the cash flow made available to such Limited Partner as a partner in the
Partnership. On an after-tax basis, assuming a 40% tax rate, the cash flow
for such Limited Partner as a shareholder of the Surviving Corporation would
be $1,200 (i.e., $2,000 minus $800 in taxes), which is slightly less than one-
third of the $4,000 cash flow made available to such Limited Partner as a
partner in the Partnership.
It is important to realize that the actual amount of dividends, if any,
to be paid will be determined by the Surviving Corporation's Board of
Directors in its sole discretion, generally taking into account a number of
factors, including operating performance, liquidity and capital requirements.
There can be no assurances that the currently anticipated level of cash
dividends will in fact be paid, just as there can be no assurances that
Partnership distributions will continue at historic levels.
Uncertainty Regarding Market Price of Common Shares
Trading prices for the Common Shares will be influenced by many factors,
including the depth and liquidity of the market for the Common Shares, the
Company's dividend policy, the possibility of future sales of Common Shares
by the Company or its shareholders, investors' perception of the Company and
its businesses, and general economic and stock market conditions. No
prediction can be made as to the price at which the Common Shares will trade.
Limited Partners and Shareholders have not previously had access to an active
trading market for the Existing Securities. Thus, it is possible that they
may wish to sell their Common Shares into the market from time to time. The
sale of Common Shares into the Market might have an adverse effect on the
market price of the Common Shares.
Possible Dilution
The percentage interest of holders of Common Shares issued in connection
with the Merger in the assets, liabilities, cash flow and results of
operations of the Company, as well as the percentage voting power of such
holders, will be diluted as a result of the issuance of Common Shares in the
Public Offering. In addition, the Surviving Corporation may issue additional
equity securities in the future which would further dilute the percentage
ownership of the then current shareholders. Under Nasdaq National Market
rules, the Surviving Corporation may not issue Common Shares equal to 20% or
more of the then outstanding Common Shares in connection with the acquisition
of the shares or assets of another entity without shareholder approval.
Issuances of additional Common Shares or preferred shares could adversely
affect existing shareholders' equity interest in the Surviving Corporation
and the market price of the Common Shares. In addition, although
shareholders of the General Partner currently have preemptive rights to
purchase a pro rata share of any offering of equity securities, these
preemptive rights will be eliminated as a result of the Merger and will not
apply with respect to the Common Shares issued in the Merger or the Public
Offering.
Potential Voting Influence of the Anderson Family on the Company
Lineal descendants of Harold and Margaret Anderson (collectively,
together with each of their spouses and family trusts, the "Anderson Family")
now own approximately 71% of the LP Interests in the Partnership,
approximately 80% of the outstanding Class A Common Shares and approximately
78% of the outstanding Class B Common Shares. Immediately following the
Merger, members of the Anderson Family collectively will beneficially own
approximately 73% of the Common Shares. Immediately after the Public
Offering (assuming no sale of shares in the Public Offering by members of the
Anderson Family), members of the Anderson Family will beneficially own
approximately 55% of the Common Shares. This would allow the Anderson Family
to have significant influence over matters requiring shareholder approval if
members of the Anderson Family were to vote their shares together as a group.
The perception that members of the Anderson Family may vote in this manner
may adversely affect the liquidity of the Common Shares and its trading
value. However, there are over 70 Limited Partners who are members of the
Anderson Family and no single Limited Partner, including any member of the
Anderson Family (treating spouses as one member), owns more than 4% of the LP
Interests of the Partnership. Moreover, no Limited Partner or Shareholder
will own more than 4% of the Common Shares immediately after the Merger and
this percentage will be even lower after the Public Offering. To the
Company's knowledge, the members of the Anderson Family have not agreed to
and do not otherwise coordinate their activities with respect to the voting
or disposition of the Company's securities.
Addition of Provisions that May Discourage Changes of Control
The Surviving Corporation's organizational documents and Ohio law
contain provisions that may delay, defer or prevent a takeover attempt that a
shareholder might consider to be in the shareholder's best interest,
including offers that might result in a premium over the market price for
Common Shares.
THE MERGER
General
The Board of Directors of the General Partner, on behalf of the General
Partner and on behalf of the Partnership, is soliciting the proxies of
Limited Partners and Shareholders to approve the Merger Proposal.
Upon the Effective Date, the Partnership will merge with and into the
General Partner and pursuant to the Merger Agreement and the amendment and
restatement of the articles of incorporation of the General Partner that will
be implemented in connection therewith, all of the LP Interests, Class A
Common Shares and Class B Common Shares existing at the Effective Date will
be converted into Common Shares in accordance with the following exchange
ratios: (i) each $8 in a Limited Partner's capital account, calculated as
of the Measurement Date, will be converted into one Common Share, with cash
being paid for any fractional shares based on the book value of Common Shares
on the Measurement Date, (ii) each $8 of book value represented by Class A
Shares, calculated as of the Measurement Date, will be converted into one
Common Share, with cash being paid for any fractional shares based on the
book value of Common Shares on the Measurement Date and (iii) each $8 of book
value represented by Class B Shares, calculated as of the Measurement Date,
will be converted into one Common Share, with cash being paid for any
fractional shares based on the book value of Common Shares on the Measurement
Date.
The Measurement Date will be a date set by the Board of Directors, which
date will be after the vote on the Merger but prior to the Effective Date.
The Board currently anticipates that the Measurement Date will be a date
approximately 60 days prior to the date on which the Public Offering is
expected to close. At this time, the Board expects the Measurement Date to
be July 31, 1995. During the period from the Measurement Date through the
Effective Date, the Board intends to require that all distributions made by
the Partnership that have not otherwise been accounted for be on a pro rata
basis based on the amounts in Limited Partners' capital accounts. This will
be necessary to ensure that relative capital accounts do not change after the
Measurement Date. The Board will have the authority to cancel a Measurement
Date and declare a new Measurement Date in its discretion. The Board might
cancel a Measurement Date and declare a new Measurement Date if the Public
Offering were postponed for any reason.
Effects of the Merger
As a result of the Merger, all of the assets now held directly by the
Partnership will be held by the Surviving Corporation and the Partnership
will cease to exist by operation of law. The Surviving Corporation will
possess all of the assets, properties, rights and privileges, and will be
subject to all the liabilities and obligations of both the Partnership and
the General Partner existing at the time of the Merger. The directors and
executive officers of the General Partner on the Effective Date will be the
directors and executive officers of the Surviving Corporation.
The Merger Agreement
The Merger will be consummated pursuant to the Merger Agreement if the
Merger Proposal receives the requisite approval of the Limited Partners and
Shareholders and the other applicable conditions to the Merger are satisfied
or waived. The Merger Agreement is set forth in Appendix A hereto and is
incorporated by reference into this Joint Proxy Statement/Prospectus.
The Merger Agreement can be amended or terminated by the Board of
Directors on behalf of either the Partnership or the General Partner;
provided, however, that at any time after the Merger Agreement has been
adopted by the Shareholders or the Limited Partners, the Board of Directors
may not amend, modify or supplement the Merger Agreement to change the amount
or kind of interests to be received by the Limited Partners or the
Shareholders or to make any change if such change would, alone or in the
aggregate, materially adversely affect the Limited Partners or the
Shareholders.
Amendments to Organizational Documents
The Merger Agreement provides that the General Partners's Articles of
Incorporation and Code of Regulations will be amended and restated to contain
provisions that would, among other things, change the name of the Company to
"The Andersons, Inc.," revise the Company's capital structure as described
under "DESCRIPTION OF THE COMMON SHARES," convert the General Partner's
existing Class A Common Shares and Class B Common Shares into Common Shares
at the exchange ratios described above, and tend to discourage the
acquisition of control of the Company through an unsolicited takeover
proposal as described under "DESCRIPTION OF THE COMMON SHARES -- Anti-
Takeover Provisions of the Surviving Corporation's Organizational Documents."
Conditions to the Merger
The Merger will not be completed unless it receives the requisite
approval of the Limited Partners and Shareholders. Completion of the Merger
is also subject to the receipt of the opinion described in "FEDERAL INCOME
TAX CONSIDERATIONS." Receipt of this opinion may be waived in whole or in
part by the Partnership and the General Partner in their sole discretion.
Prior to the consummation of the Merger, the obligations of the parties
to the Merger Agreement may be terminated at any time (including after
approval of the Merger by the Limited Partners and Shareholders) if, among
other things, (a) the Board of Directors adopts a resolution terminating the
Merger Agreement or (b) a final injunction, order, or other action of a court
or other governmental body prevents the consummation of the Merger.
Completing the Merger
If the Merger is approved and the other conditions of the Merger
Agreement are waived or satisfied, the closing date will be selected by the
Board of Directors. The Company currently anticipates that the Merger will
be consummated immediately prior to the Pricing of the Public Offering and
that the Public Offering will be consummated in the fall of 1995. Upon
completion of the Merger, the Limited Partners and Shareholders will be
entitled to receive certificates for Common Shares issued in exchange for
their Existing Securities.
Accounting Treatment of the Merger
The acquisition by the Surviving Corporation of the assets and
liabilities of the Partnership in connection with the Merger will be
accounted for as a reorganization of entities under common control similar to
a pooling of interests.
Costs of the Merger
The Company estimates that the total costs and expenses of the Merger
will be approximately $450,000 if completed and $400,000 if not completed.
Such costs and expenses include legal and accounting fees, registration,
recording and filing expenses, printing fees and expenses and costs of
communicating with Limited Partners and Shareholders but do not include the
costs and expenses to be incurred in connection with the Public Offering. If
the Merger is completed, all of the costs and expenses of the Merger will be
paid by the Surviving Corporation. If the Merger is not completed, all costs
and expenses will be paid by the Partnership. Therefore, the Limited
Partners of the Partnership will ultimately bear the cost of the Merger
Proposal, whether or not the Merger is approved or completed.
The Public Offering
Shortly after the Merger occurs, the Company intends to offer a number of
Common Shares to the public in a firm commitment underwritten public offering
registered under the Securities Act. The Public Offering involves the Pricing
and the Closing. The Merger would not take place until immediately prior to
the Pricing. At the Pricing, the Company and the underwriters will enter into
an underwriting agreement pursuant to which the underwriters will become
obligated, subject to certain conditions, to purchase a number of Common
Shares equal to approximately 25% of the Common Shares that would be
outstanding after the Public Offering. The underwriters would purchase such
shares at a price to be determined at the Pricing. The conditions under which
the underwriters will not be obligated to close the Public Offering have not
yet been determined. However, the Company anticipates that such conditions
would be limited to matters that are primarily within the Company's control or
are otherwise likely to be fulfilled or waived at the time of the Closing.
Such conditions would generally involve the absence of material adverse
developments with respect to the Company, the Public Offering or the financial
markets generally. Subject to such conditions, the Closing would take place
approximately one week after the Pricing. In the event any conditions to
closing the Public Offering are not fulfilled or waived and the Closing does
not occur, the Merger would still have taken place, causing the Company to
lose the benefits of operating in partnership form, while failing to realize
many of the advantages discussed herein with respect to having a liquid public
market for the Common Shares at such time. The Company believes, however,
that the risk of the Closing not occurring once the Merger and the Pricing
have occurred is remote. In the unlikely event that the Closing were not to
occur after the Merger and the Pricing occurred, the Company anticipates that
it would seek to close an underwritten public offering as soon thereafter as
possible.
The Company has the option, until immediately prior to the Pricing, of
choosing not to proceed with the Merger. The Merger and the Public Offering
are interrelated. The Company does not intend to implement the Merger until
immediately prior to the Pricing of the Public Offering. The willingness of
the Company to proceed with the Public Offering will depend on a number of
factors, including the Company's performance and general stock market
conditions. Therefore, there can be no assurances that the Public Offering
will occur even if the Merger is approved, or that it will occur in the time
period set forth above. In addition, no prediction can be made as to the
price at which the Common Shares will trade if the Public Offering does occur.
See "RISK FACTORS -- Uncertainty Regarding Market Price for Common Shares."
The Public Offering is expected to occur in the fall of 1995. Upon
consummation of the Public Offering, the shareholders of the Surviving
Corporation will be (i) persons who are currently Limited Partners of the
Partnership, (ii) persons who are currently Shareholders of the General
Partner and (iii) persons purchasing Common Shares in the Public Offering.
The Company expects that the underwriters in the Public Offering will
request that all persons who receive Common Shares as a result of the Merger
agree not to sell their Common Shares for a period of 180 days after the
Public Offering. All holders of Common Shares who are "affiliates" of the
Company will also be subject to certain additional resale restrictions
pursuant to Rule 145 under the Securities Act. See "RESALE OF COMMON
SHARES."
Limited Partners may be offered the opportunity to sell a limited number
of Common Shares in a simultaneous secondary offering as part of the Public
Offering. The total number of Common Shares to be included in any such
secondary offering will be determined in the sole discretion of the Company
in consultation with the managing underwriters. The Company intends to offer
all persons who receive Common Shares in the Merger an opportunity to sell a
limited number of shares in any such secondary offering. Each shareholder
will be offered such opportunity on a pro rata basis, based on the number of
shares held by such shareholder and the total number of shares to be
outstanding immediately after the Merger. A holder of Common Shares
participating in any such secondary offering will be obligated to bear all
underwriting discounts and commissions payable with respect to the Common
Shares sold by such holder and a pro rata portion of certain expenses related
to the registration and sale of such Common Shares. These discounts,
commissions and expenses are expected to be significantly higher than the
costs that would be incurred by a holder selling Common Shares in the stock
market after the Public Offering. If given an opportunity to sell in a
secondary offering as part of the Public Offering, a holder of Common Shares
would have to weigh these additional costs against the applicable
restrictions on selling shares into the market discussed above and under
"RESALE OF COMMON SHARES." Although the Company intends to include a
secondary offering of Common Shares as part of the Public Offering, there can
be no assurances made at this time as to whether and to what extent the
Public Offering will include a secondary offering.
Reasons for the Merger
Liquidity and Market Valuation. The Existing Securities are not
publicly traded and have limited liquidity. The primary means of liquidity
for holders of Existing Securities is to request the Company to redeem such
securities. Although the Company is not obligated to honor any such request,
historically it has done so from time to time, using its available cash to
redeem such securities at book value. After the Public Offering, however,
the Common Shares are expected to be traded on the Nasdaq National Market and
there is expected to be a liquid market for selling the Common Shares and a
readily determinable market value for the Common Shares. With a liquid
market for Common Shares, equity holders would no longer be required to rely
solely on the Company as a source of liquidity, and the Company would no
longer be required to use its cash to provide such liquidity. Instead, it is
expected that such holders will be able to sell Common Shares in the public
market from time to time, subject to certain restrictions, for their fair
market value.
The General Partner believes that the Merger of the Partnership with and
into the General Partner is necessary to realize the full benefit of a public
trading market. The General Partner believes that corporate equity
securities are more favorably valued than comparable limited partnership
interests because a partnership with publicly traded limited partnership
interests is generally taxed as if it were a corporation and because many
institutional investors will not invest in a business organized as
partnership even if it is not taxed as a corporation.
Access to Equity Markets. In the Public Offering, the Company will
raise capital for various purposes, including the pursuit of corporate growth
opportunities and/or the repayment of debt. Although the Company currently
has no plans for additional equity offerings, the existence of publicly
traded equity securities is expected to provide it with future access to the
public equity markets.
Greater Flexibility Regarding Capital Resources. The Company will have
greater flexibility with respect to the use of capital resources because it
will not have to use available cash to repurchase Common Shares. As discussed
above, the Partnership has from time to time used its cash to repurchase
Existing Securities when requested to do so by Limited Partners. There are
also potential tax advantages (and corresponding financial advantages) to
conducting a business through a corporation that should allow the Company
greater flexibility with respect to the management of its capital resources.
Shareholders will defer the payment of taxes on income earned by the Company
until the Company distributes such income in the form of dividends. Limited
Partners, by contrast, are taxed as soon as the Partnership earns income.
Limited Partners are taxed on such income at their individual federal tax rate
which may exceed the maximum corporate federal tax rate. Because of this
immediate tax, the Partnership has been forced to distribute a substantial
portion of its income to allow its partners to pay their taxes. This has
limited the ability of the Partnership to accumulate cash and property in
order to expand its business. Thus, the Surviving Corporation as a
corporation can accumulate income for business expansion without financially
harming its shareholders' ability to pay taxes.
Acquisition Currency. After the Public Offering, the Company may be
able to use Common Shares as consideration in its acquisition of other
businesses. The use of readily tradeable equity securities such as Common
Shares as an acquisition currency is advantageous because it may be more tax
efficient to the seller of a business than a cash transaction and it allows
the Company to consummate acquisitions without depleting cash resources. It
also allows a seller to continue to hold an equity interest in the business
acquired by the Company through equity ownership in the Company after such
acquisition. The use of Common Shares in acquisitions can also enable the
Company to use advantageous pooling accounting methods if certain conditions
are met.
Performance Compensation. The availability of Common Shares will permit
the Company to provide its key employees with equity based performance
compensation. Although a number of employees currently own Existing
Securities, the Company believes providing equity based performance
compensation through the use of Common Shares will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of the Common Shares having a readily
ascertainable value, and provide the Company with more flexibility in
designing equity based performance compensation. The Plans are intended to
provide such benefits.
Greater Employee Ownership. Given the complex tax reporting
requirements associated with being a Limited Partner and the administrative
burden placed on the Partnership as a result of having a significant number
of additional Limited Partners, it has not been feasible for the Partnership
to offer ownership opportunities to a broad range of employees. By having the
Common Shares available, however, the Company will be able to offer ownership
opportunities to all employees. The Board believes that wide spread employee
ownership is in the best interest of the Company and its shareholders. The
Employee Share Purchase Plan is intended to provide for this type of employee
ownership participation.
Reduction of Tax Reporting Requirements and Costs. Unlike the
Partnership, the Surviving Corporation will not be required to compute and
report tax information on an individual shareholder basis, and individual
shareholders will not be required to include information regarding the
Surviving Corporation's operations on their personal tax returns. Therefore,
the Merger will eliminate the complex partnership tax reporting requirements
for Limited Partners imposed on them under federal and multiple state
partnership tax laws and may eliminate certain costs and delays that
individual Limited Partners currently may be forced to incur in connection
with the preparation of their individual tax returns. However, as a
corporation, the Surviving Corporation will be subject to income tax and
shareholders will also be required to pay income tax on any dividends they
receive, and on any gain recognized upon the sale or exchange of shares. See
"FEDERAL INCOME TAX CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX
CONSIDERATIONS."
There can be no assurance that the Merger will achieve any of the
benefits and objectives described above. In addition, certain possible
disadvantages and other risks and special considerations associated with the
Merger exist as described in "RISK FACTORS." Limited Partners and
Shareholders should analyze the Merger in light of all the matters discussed
in this Joint Proxy Statement/Prospectus.
Recommendations
After considering the advantages and disadvantages of the Merger
described above, the General Partner believes that the Merger is fair to, and
in the best interests of, the Limited Partners and Shareholders. The Board of
Directors of the General Partner recommends that each of its Shareholders
vote to approve the Merger, and in its capacity as sole general partner of
the Partnership, the General Partner recommends that each Limited Partner
vote to approve the Merger.
APPROVAL OF THE PROPOSAL TO ELIMINATE CUMULATIVE VOTING
General
Section 1701.55 of the OGCL provides that, unless otherwise eliminated
in a corporation's articles of incorporation, shareholders have the right to
cumulate their votes in the election of directors. The current articles of
incorporation of the General Partner do not eliminate the right of
shareholders to cumulate their votes in this manner.
The Board of Directors believes that cumulative voting will no longer be
a desired method of electing directors after the consummation of the Public
Offering. See "Reasons for the Elimination of Cumulative Voting."
Accordingly, the Board is submitting for Shareholder approval an amendment to
the Surviving Corporation's Articles of Incorporation to eliminate cumulative
voting. This proposal is in addition to each of the other amendments to the
Articles of Incorporation to be adopted in connection with the Merger which
may make the acquisition of control of the Company by means of a tender
offer, open market purchase, proxy fight or otherwise more difficult. The
Merger Proposal is not contingent upon approval of the proposal to eliminate
cumulative voting, however, the proposal to eliminate cumulative voting is
contingent upon approval of the Merger and the Plans.
Explanation of Cumulative Voting
Cumulative voting in the election of directors may currently be invoked
by any shareholder of the General Partner by complying with certain statutory
requirements. Under cumulative voting, in an election of directors holders
of the General Partner's Class B Common Shares are entitled to a number of
votes per share equal to the number of directors to be elected and all
directors are voted upon simultaneously. Holders of shares may cast all of
their votes for a single director candidate or distribute them among two or
more director candidates.
As a consequence of cumulative voting, shareholders representing a
relatively small number of the voting shares have the power to nominate and
elect one or more directors. For example, if five directors were to be
elected at an annual meeting, shareholders holding approximately 17% of the
voting shares could nominate and elect one director by cumulating and casting
their five votes per share for a single candidate. The election of this
candidate would be achieved even if shareholders holding 83% of the voting
shares were opposed to the election of that candidate and cast their votes to
elect five other candidates.
Without cumulative voting, directors are elected by a plurality of votes
and shareholders are entitled to only one vote per share in the election of
each director. Consequently, the only director candidates who can be elected
are those who receive support from shareholders holding the greatest number of
voting shares.
Reasons for the Elimination of Cumulative Voting
The Board of Directors believes that approval of the proposal to
eliminate cumulative voting is in the best interests of the Company and its
shareholders.
The Board believes that every director of a publicly-held corporation
should represent the interests of all of its shareholders. It believes that
directors elected by a minority shareholder or group of shareholders through
cumulative voting are likely to be partisans of the particular interest group
which elected them, rather than representatives of all shareholders. Such
partisanship could disrupt the management of the Company and prevent it from
operating in the most effective manner. Further, the election of directors
who view themselves as representing only a particular minority constituency
could introduce an element of discord on the Board of Directors, impair the
ability of the directors to work effectively and discourage qualified
independent individuals from serving as directors. Implementation of the
proposal to eliminate cumulative voting will increase the ability of holders
of a large number of Common Shares to elect all of the directors of the
Company.
Anti-Takeover Effects
Approval of the proposal to eliminate cumulative voting may make more
difficult any attempt by a holder or group of holders of a significant
minority of Common Shares to monitor, change or influence the management or
policies of the Company. In addition, under certain circumstances, the
proposal to eliminate cumulative voting, along with other measures that may
be viewed as having anti-takeover effects, may discourage a takeover or
business combination involving the Company that a shareholder might consider
to be in such shareholder's best interests, including a takeover or business
combination that might result in a premium over the market price of the
Common Shares. For example, the proposal to eliminate cumulative voting may
discourage the accumulation of large minority shareholdings (as a prelude to
a takeover or business combination proposal or otherwise) by persons who
would not make that acquisition without being assured of representation on
the Board of Directors.
AN EFFECT OF THE ELIMINATION OF CUMULATIVE VOTING WOULD BE BOTH (A) TO
PERMIT A MAJORITY OF A QUORUM OF THE VOTING POWER IN THE ELECTION OR REMOVAL
OF DIRECTORS TO ELECT OR REMOVE EVERY DIRECTOR AND (B) TO PRECLUDE A MINORITY
OF A QUORUM OF THE VOTING POWER IN THE ELECTION OR REMOVAL OF DIRECTORS FROM
ELECTING OR PREVENTING THE REMOVAL OF ANY DIRECTOR.
The amendments to the Articles of Incorporation and Code of Regulations
to be adopted by the Surviving Corporation pursuant to the Merger Agreement
contain several other measures which may have the effect of discouraging an
unsolicited takeover proposal. See "DESCRIPTION OF THE COMMON SHARES -- Anti-
Takeover Provisions of the Surviving Corporation's Organizational Documents."
Recommendation
After considering the advantages and disadvantages of the proposal to
eliminate cumulative voting described above, the General Partner believes
that the proposal to eliminate cumulative voting is in the best interests of
the Company and its Shareholders. The Board of Directors of the General
Partner recommends that each of its Shareholders vote to approve the proposal
to eliminate cumulative voting.
APPROVAL OF THE LONG-TERM PERFORMANCE COMPENSATION PLAN
The Long-Term Performance Compensation Plan
The Board of Directors of the General Partner adopted the Long-Term
Performance Compensation Plan (the "Performance Plan") on April 28, 1995, to
be effective only upon consummation of the Merger, subject to approval by the
holders of Class B Common Shares. The Performance Plan enables the Company
to tailor performance compensation to corporate and business objectives, and
to anticipate and respond to a changing business environment and competitive
compensation practices. The following is a summary of the principal features
of the Performance Plan. This summary is qualified in its entirety by the
terms and conditions of the Performance Plan itself, a copy of which is
attached hereto as Appendix B.
Under the Performance Plan, officers and other key employees of the
Company ("Participants") are eligible to receive the following types of
performance awards: nonqualified stock options ("NQOs"), incentive stock
options ("ISOs") and performance awards, which may be either in the form of
Common Shares or cash, at the option of the Compensation Committee of the
Board of Directors (the "Compensation Committee"). Nonemployee directors of
the Company will also receive NQOs under a formula described below.
Except in the case of formula awards applicable to non-employee
directors described below, the Compensation Committee has exclusive
discretion to select the Participants and to determine the type, size and
terms of each award, to determine when awards will be granted and paid, and
to make all other determinations which it deems necessary or desirable in the
interpretation and administration of the Performance Plan. A Participant may
generally exercise options granted pursuant to the Performance Plan during
employment and within one year after the Participant's death, disability and
retirement or within three months after termination of employment for any
other reasons; provided however, that if terminated for cause, a Participant
immediately forfeits all unexercised options. With limited exceptions,
including termination of employment as a result of death, disability or
retirement, or except as otherwise determined by the Compensation Committee,
performance awards received under the Performance Plan are forfeited if a
Participant's employment terminates prior to the valuation date for a
performance award. Generally, a Participant's rights and interests under the
Performance Plan will not be transferable except by will or by the laws of
descent and distribution by gift to certain persons under certain conditions.
Options, which include NQOs and ISOs, are rights to purchase a specified
number of Common Shares at a price fixed by the Compensation Committee. The
option price may not be less than the fair market value of the Common Shares
subject to such option at the time of grant, or, if granted to an employee
who owns shares representing more than ten percent of the voting power of the
Company, the option price may not be less than 110% of such fair market
value. No participant in the Plan may receive options to purchase more than
150,000 Common shares in one year. Options will become exercisable at such
times and in such installments as the Compensation Committee will determine.
Payment of the option price must be made in full at the time of exercise in
such form (including, but not limited to, cash and Common Shares) as the
Compensation Committee may determine. Any options granted to a recipient
subject to liability under Section 16(b) of the Exchange Act (a "16(b)
Person") (generally an officer or director of the Company) are contingent on
the receipt of approval of the Performance Plan by the holders of the Class B
Common Shares.
Performance awards are awards whose final value, if any, is determined
by the degree to which specified performance objectives have been achieved
during an award period set by the Compensation Committee. Performance
objectives are based on such specific measures of performance by the Company
as the Compensation Committee may determine. The Compensation Committee may
make such adjustments in the computation of any performance measure as it may
deem appropriate. The value of an award will be established by the
Compensation Committee based on threshold and target objectives. Payment of
the value of a performance award will be made within 60 days following the
last day of the calendar year in which the valuation date for such
performance award occurs.
The Performance Plan provides for options to be awarded to non-employee
directors on a formula basis with each director receiving an option to
purchase 2,000 Common Shares immediately following his or her first election
by the shareholders or appointment by the Board to fill a vacancy. In each
year thereafter, such director will be granted an option to purchase a number
of Common Shares ranging from 0 to 2,000, based on the Company's pretax return
on equity as compared to certain return on equity targets, ranging from 0% to
25%, as set forth in the Performance Plan. Both the initial option grant and
the annual option grants will be made subject to vesting provisions which
would cause a director to lose the benefit of his or her option grant for any
particular year in the event such director were to resign from office in the
middle of a term for such year or be removed from office by the shareholders
at a special meeting held for the purpose thereof.
The maximum aggregate number of Common Shares with respect to which
options and performance awards may be granted under the Performance Plan is
900,000. The Compensation Committee may make adjustments to the maximum
number of options and performance awards permitted under the Performance Plan
to prevent dilution or enlargement.
The Performance Plan will remain in effect until such time as it is
amended or terminated by the Board of Directors of the Surviving Corporation,
except that no ISO may be granted under the Performance Plan on or after ten
years from the effective date of the Performance Plan.
Federal Income Tax Consequences
The following discussion is intended only as a general summary of the
federal income tax consequences arising from the receipt of options and
performance awards as based upon the Code as currently in effect. Because
federal income tax consequences will vary as a result of individual
circumstances, each employee participating in the Performance Plan should
consult his or her tax advisor with respect thereto. Moreover, the following
summary relates only to Participants' federal income tax treatment. The
state, local and foreign tax consequences may be substantially different.
An optionee to whom an NQO is granted will recognize no income at the
time of the grant unless the NQO has a "readily ascertainable fair market
value" at the time of the grant within the meaning of Section 83 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code" or the
"Code"). When an optionee exercises an NQO, he or she will generally
recognize ordinary compensation income equal to the difference, if any,
between the fair market value of the Common Shares he or she receives at such
time and the exercise price. The tax basis of such shares to the optionee
will be equal to the exercise price paid plus the amount includable in his or
her gross income as compensation, and his or her holding period for such
shares will normally commence on the day following the date on which he or
she recognizes taxable income in respect of such shares.
An optionee to whom an ISO qualifying under Section 422 of the Code, is
granted will generally recognize no income at the time of grant or at the
time of exercise. However, upon the exercise of an ISO, the excess of the
fair market value of the Common Shares over the exercise price thereof may
result in the optionee being subject to an alternative minimum tax ("AMT")
under applicable provisions of the Code. In order to obtain ISO treatment
for federal income tax purposes, an optionee (i) must be an employee of the
Company or a subsidiary continuously from the date of grant until any
termination of employment and (ii) in the event of such a termination, must
exercise an ISO within three months after such termination, except if
disabled, in which case exercise may occur within one year from the date of
termination of employment.
When an optionee sells the Common Shares received upon exercise of an
ISO more than one year after exercise and more than two years after the date
of grant of such ISO, he or she will normally recognize a long-term capital
gain or loss equal to the difference, if any, between the sale price of such
shares at such time and the exercise price. If the employee does not hold
such shares for either period, when he or she sells such shares (a
"disqualifying disposition") he or she will recognize ordinary compensation
income equal to the lesser of (i) the difference, if any, between the fair
market value of such shares on the date of exercise and the exercise price,
or (ii) the difference, if any, between the sale price and the exercise
price. Any other gain or loss on such sale (in addition to the ordinary
income mentioned above) will normally be capital gain or loss. The tax basis
of such shares to the employee, for purposes of computing such other gain or
loss, should be equal to the exercise price paid (plus the amount includable
in his or her gross income as compensation, if any).
In general, an officer, employee or other individual to whom a
performance award is made should recognize no taxable income at the time such
award is made. Such person should recognize taxable income, however, at the
time cash is paid to him or her pursuant to such award, and the amount of
such income should be the amount of such cash.
An officer, employee or other individual who receives Common Shares
subject to vesting pursuant to a performance award should not recognize any
taxable income upon the receipt of such award unless he or she files an
election under Section 83(b) of the Code, as described below. Instead, the
recipient should recognize taxable compensation income at the time his or her
interest in such shares is no longer subject to the repurchase option imposed
by the Performance Plan, in an amount equal to the fair market value of such
shares at such time minus the amount, if any, paid for such shares. The tax
basis of such shares to the recipient should be equal to the amount
includable in his or her gross income as compensation plus the amount, if
any, paid for such shares, and his or her holding period for such shares
should normally commence on the day following the date on which such shares
are no longer subject to the repurchase option imposed by the Performance
Plan. Dividends paid on Common Shares subject to vesting should be included
as compensation for federal income tax purposes when received. In lieu of
being taxed under the foregoing rules, the recipient may elect to be taxed on
compensation income equal to the fair market value of the shares on the award
date minus the amount, if any, paid for such shares by filing an election
under Section 83(b) of the Code with the Internal Revenue Service no later
than 30 days after the award date. If a recipient makes such an election,
his or her tax basis in his or her shares should be equal to the amount
includable in his or her gross income as compensation plus the amount, if
any, paid for such shares, and his or her holding period in the shares should
begin on the day following the award date.
If the recipient of an award is a 16(b) Person, the tax consequences may
be different than those described above. Generally, a 16(b) Person will not
recognize income on receipt of property such as Common Shares until he or she
is no longer subject to liability with respect to disposition of such Common
Shares. However, by filing an election under Section 83(b) of the Code with
the Internal Revenue Service no later than 30 days after the date of transfer
of property, a 16(b) Person may elect to be taxed at the time of such
transfer.
A company for which an individual is performing services will generally
be allowed to deduct amounts that are includable in the income of such person
as ordinary compensation expense at the time such amounts are so includable,
provided that such amounts qualify as reasonable compensation for personal
services actually rendered. However, if an employee's total compensation
from the Company (including compensation related to the purchase of Common
Shares under the Share Purchase Plan described below) exceeds $1 million,
compensation in excess of $1 million that would otherwise be deductible by
the Company may not be tax deductible under Code Section 162(m) if such
employee is a "covered employee" at the time the compensation is included in
the employee's taxable income. An employee is a covered employee if he or
she is the chief executive officer or one of the four most highly compensated
employees (other than the chief executive officers) employed by the Company
at the end of the taxable year, whose compensation is required to be
disclosed under the Exchange Act at the end of the Company's taxable year.
Compensation that is "performance-based" within the meaning of Code Section
162(m) and meets certain other requirements is excluded from the calculation
of taxable income subject to the $1 million deduction limit. The Code
Section 162(m) deduction limit does not apply to compensation paid by
privately held companies. The limitation is also inapplicable to
compensation paid by a publicly held company pursuant to a plan or agreement
that existed while the corporation was privately held, as long as the plan
or agreement was disclosed in the corporation's initial public offering
prospectus in accordance with all applicable securities laws. This latter
exception ceases to apply if the plan or agreement is materially modified
after the initial public offering.
The discussion set forth above is intended only as a summary and does
not purport to be a complete enumeration or analysis of all potential tax
effects relevant to recipients of awards under the Performance Plan. It is
accordingly recommended that all award recipients consult their own tax
advisors concerning federal, state, local and foreign income and other tax
considerations relating to such awards and rights thereunder. In particular,
it is recommended that each award recipient consult his or her own tax
advisor as to the AMT consequences of an award, the special tax
considerations for a 16(b) Person and the making of a Section 83(b) election.
Recommendation
After considering the advantages and disadvantages of the Performance
Plan, the General Partner believes that the Performance Plan is in the best
interest of the Company and its Shareholders. The Board of Directors of the
General Partner recommends that each of its Shareholders vote to approve the
Performance Plan.
APPROVAL OF THE EMPLOYEE SHARE PURCHASE PLAN
Employee Share Purchase Plan
The Board of Directors adopted the Employee Share Purchase Plan (the
"Share Purchase Plan") on April 28, 1995, to become effective only upon
consummation of the Merger, subject to approval by the holders of Class B
Common Shares. The Share Purchase Plan permits employees of the Company who
elect to participate in the Share Purchase Plan ("Participants") to purchase
Common Shares under the Share Purchase Plan through payroll deductions. The
purpose of the Share Purchase Plan is to enable and encourage employees to
acquire an ownership interest in the Company through the purchase of Common
Shares, thereby permitting employees to share in the growth of the Company.
The following is a summary of the principal features of the Share Purchase
Plan. This summary is qualified in its entirety by the terms and conditions
of the Share Purchase Plan itself, a copy of which is attached hereto as
Appendix C.
The Share Purchase Plan will be administered by the Compensation
Committee, which will have the authority, subject to certain limitations, to
determine eligibility for participation in the plan and to prescribe the
terms and conditions under which Common Shares may be purchased under the
Share Purchase Plan.
All employees of the Company will be eligible to participate in the
Share Purchase Plan. As of March 31, 1995, the Company had
1,151 regular full-time and 1,982 part-time or seasonal employees.
Participants may direct the deduction of a specified percentage from
their eligible compensation, to be used to purchase Common Shares under the
Share Purchase Plan. A Participant may cease contributions, reenroll in the
Share Purchase Plan, or increase or decrease the rate of contributions during
any plan period in accordance with the rules and procedures prescribed by the
Compensation Committee from time to time. A Participant will automatically
participate in each successive plan period until the time of such
Participant's withdrawal from the Share Purchase Plan. All deductions made
from the eligible compensation of a Participant will be credited on the
records of the Company and used by the Company to effect the purchases of
Common Shares under the Share Purchase Plan.
Each plan period lasts twelve months, beginning on January 1 of each
year and ending on the following December 31. At the beginning of each plan
period, each Participant will be deemed to have been granted an option to
purchase, on the last day of the plan period, Common Shares at an exercise
price to be determined by the Compensation Committee, which price shall be the
lesser of (i) the fair market value of the Common Shares as of the first day
of such plan period or (ii) the fair market value of the Common Shares as of
the last day of such plan period, in each case less a discount to market as
specified by the Committee from time to time, such discount not to exceed 15%.
The Company does not currently intend to offer a discount to market as part of
the Share Purchase Plan. The total amount of consideration eligible for the
exercise of such deemed option will not exceed the total amount credited to
such Participant's account pursuant to the Share Purchase Plan for such plan
period.
The Company will effect purchases of Common Shares under the Share
Purchase Plan by allocating the appropriate number of Common Shares to each
Participant's share account, until the maximum number of Common Shares
available under the Share Purchase Plan have been issued and purchased
pursuant to the Share Purchase Plan's terms. Participants will have all of
the rights and privileges of any shareholder with respect to such shares.
Any cash dividends paid with respect to a Participant's Common Shares will
be credited to such Participant's account to be used to purchase Common
Shares pursuant to the Share Purchase Plan. All Common Share distributions
or Common Share splits will be credited to a Participant's share account,
which will be administered by the Compensation Committee. All Common Share
rights and warrants will be distributed to a Participant as if such
Participant were the record holder of the Common Shares in his or her share
account. Upon termination of the Participant's employment with the Company
or participation in the Share Purchase Plan, all Common Shares credited to
such account, and all uninvested cash credited to the Participant's account
will be distributed to the Participant. The Company will pay the costs
of administering the Share Purchase Plan, including the fees and expenses of
accountants and counsel in connection with the Share Purchase Plan.
The Company will not grant to any Participant any right to purchase
Common Shares if the exercise of such right would cause such Participant to
own five percent or more of the combined voting power or value of all classes
of the Company's capital shares. In addition, the number of shares which may
be purchased by any Participant in any plan period cannot exceed the number
of shares the fair market value of which, together with the fair market value
of shares previously purchased by such Participant during such calendar year,
in the aggregate exceeds $25,000. For the preceding limitation, fair market
value is measured on the first day of the plan period.
Subject to the provisions of Section 423 of the Code, the Company has
the power to amend the Share Purchase Plan, in its sole discretion, at any
time in any respect, except that the Company may not make any such amendment
if it would retroactively impair or otherwise adversely affect the rights of
any person to benefits that have already accrued under the Share Purchase
Plan.
The aggregate number of Common Shares subject to issuance under the
Share Purchase Plan is 300,000, subject to adjustment in the event of a share
dividend, share split or similar change. These Common Shares may be newly
issued Common Shares or may be Common Shares purchased for the Share Purchase
Plan on the open market at the discretion of the Company.
The Share Purchase Plan will terminate at such time as all of the Common
Shares reserved for purchase under the plan have been purchased, or at any
other time in the discretion of the Board of Directors.
Federal Income Tax Consequences
The following discussion is intended only as a general summary of the
federal income tax consequences arising from the purchase of Common Shares
pursuant to the Share Purchase Plan (" Shares") and the subsequent
disposition of such Plan Shares, as based upon the Code as currently in
effect. Because federal income tax consequences will vary as a result of
individual circumstances, each employee participating in the Share Purchase
Plan should consult his or her tax advisor with respect to the tax
consequences of the purchase or disposition of Plan Shares. Moreover, the
following summary relates only to Participants' federal income tax treatment.
The state, local and foreign tax consequences may be substantially different.
The Company intends the Share Purchase Plan to be an "employee stock
purchase plan" as defined in Section 423 of the Code, and plans to report the
tax consequences of rights to purchase shares and the exercise of such rights
pursuant to the Share Purchase Plan accordingly. If the Share Purchase Plan
is not so qualified for any reason, including failure to receive the
requisite shareholder approval, then the grant of a right to purchase Plan
Shares will generally not be taxable, but Participants will recognize
ordinary compensation income on the Purchase Date equal to the difference
between the price paid and the fair market value of the Plan Shares on that
date, and the Company will be entitled to a deduction for the same amount.
Thereafter, a Participant will be taxed as any other investor in Common
Shares, as if the Participant had purchased the Plan Shares at fair market
value. Except where noted otherwise, the following discussion assumes that
the Share Purchase Plan is so qualified.
Under applicable provisions of the Code, Participants remain taxable on
all compensation income, including the amount of payroll deductions used to
purchase Plan Shares. However, assuming the Share Purchase Plan is qualified
pursuant to Code Section 423, Participants will not recognize taxable income,
and the Company will not be entitled to a deduction, on the date of grant
(the "Grant Date") or the date of exercise (the "Purchase Date") of a right
to purchase Plan Shares.
The tax treatment of a Participant who sells Plan Shares (or makes a
taxable exchange of Plan Shares for other property) depends on how long the
Participant holds those Plan Shares, measured from the Grant Date and the
Purchase Date. If a Participant sells Plan Shares more than two years after
the Grant Date and more than one year after the Purchase Date, the gain or
loss on such sale is computed as the difference between the price paid and
the sale price. If the Plan Shares are sold at a gain, a portion of the gain
will be treated as ordinary compensation income equal to the lesser of (a)
the difference between the fair market value of the Plan Shares on the Grant
Date and the amount paid for such Plan Shares and (b) the difference, if any,
between the fair market value of the Plan Shares on the date of disposition
and the amount the Participant paid for such Plan Shares. If there is
additional gain (in excess of the ordinary income amount), the remaining gain
will be long-term capital gain. If the Plan Shares are sold at a loss, the
loss will be a capital loss, and no portion of the loss will be treated as an
ordinary loss or deduction. The Company will not be entitled to any
deduction as a result of any such sale.
If a Participant sells Plan Shares within two years after the Grant Date
or within one year after the Purchase Date (a "disqualifying disposition"), a
two-step analysis is required. First, the Participant will recognize
taxable, ordinary compensation income in the year of sale equal to the
difference between the fair market value of the Plan Shares on the Purchase
Date and the amount paid for such Plan Shares. This amount of ordinary
compensation income is then treated as an additional amount paid for the Plan
Shares, so that the Participant is deemed to have purchased the Plan Shares
at their fair market value on the Purchase Date. Second, capital gain or
loss will be computed as the difference between the actual sale price and the
deemed purchase price (i.e., the difference between the actual sale price and
the fair market value on the Purchase Date). The capital gain or loss will
be long-term or short-term gain or loss depending on whether the Participant
held the Plan Shares for more than one year after the Purchase Date. In the
case of such a disqualifying disposition, the Company will be entitled to a
deduction in the year of sale equal to the amount the Participant reports as
ordinary income.
If a Participant makes a gift or otherwise disposes of Plan Shares other
than in a taxable exchange or sale, the Participant may recognize taxable,
ordinary compensation income in the year of such disposition. In the case of
a disposition more than two years after the Grant Date and more than one year
after the Purchase Date, if the fair market value of the Plan Shares on the
date of disposition is greater than the amount the Participant paid for such
Plan Shares, the amount of ordinary compensation income will be the lesser of
(a) the difference between the fair market value of the Plan Shares on the
Grant Date and the amount paid for such Plan Shares and (b) the difference
between the fair market value of the Plan Shares on the date of disposition
and the amount the Participant paid for such Plan Shares. If the fair market
value of the Plan Shares on the date of disposition is not greater than the
amount the Participant paid for such Plan Shares, the Participant does not
recognize any ordinary compensation income. In the case of such a
disposition within two years after the Grant Date or within one year after
the Purchase Date (a "disqualifying disposition"), the amount of ordinary
compensation income will be the difference between the fair market value of
the Plan Shares on the Purchase Date and the amount paid for such Plan
Shares.
If a Participant dies while still holding Plan Shares and the fair
market value of the Plan Shares on the date of death is greater than the
amount the Participant paid for such Plan Shares, the tax return for the year
of death must include ordinary compensation income equal to the lesser of (a)
the difference between the fair market value of the Plan Shares on the Grant
Date and the amount paid for such Plan Shares and (b) the difference between
the fair market value of the Plan Shares on the date of death and the amount
the Participant paid for such Plan Shares. If the fair market value of the
Plan Shares on the date of death is not greater than the amount the
Participant paid for such Plan Shares, the tax return for the year of death
will not include any ordinary income relating to the Plan Shares.
Any dividends paid on Plan Shares must be reported as ordinary income in
the year paid, regardless of the fact that such dividends are reinvested in
additional Plan Shares. The sale of Plan Shares purchased through dividend
reinvestment is subject to the income tax rules that normally apply to the
sale of securities.
As discussed above, the compensation to an employee related to the
purchase and disposition of Plan Shares is only deductible to the Company if
the employee makes a disqualifying disposition of the Plan Shares.
The discussion set forth above is intended only as a summary and does
not purport to be a complete enumeration or analysis of all potential tax
effects relevant to Participants under the Share Purchase Plan. It is
accordingly recommended that all Participants consult their own tax advisors
concerning federal, state, local and foreign income and other tax
considerations relating to the Share Purchase Plan.
Recommendation
After considering the advantages and disadvantages of the Share Purchase
Plan, the General Partner believes that the Share Purchase Plan is in the
best interests of the Company and its Shareholders. The Board of Directors of
the General Partner recommends that each of its Shareholders vote to approve
the Share Purchase Plan.
TERMINATION OF EMPLOYEE BOND PURCHASE PLAN.
The Company currently sponsors an Employee Bond Purchase Plan that was
designed to provide employees with a way to invest in unsecured, subordinated
debt obligations of the Partnership (the "Employee Bonds"). The Employee
Bonds could under certain circumstances be converted into equity in the
Partnership. The Employee Bonds bear interest equal to 75% of the annual
rate of return on the Partnership's equity, with a minimum interest rate of
4% per annum and a maximum interest rate of 18% per annum. Interest is paid
in cash only to the extent requested by the holder of an Employee Bond and
subject to certain other restrictions. All interest not paid in cash is
added to the principal amount of the Employee Bond. The Employee Bonds are
callable on demand.
As part of the Merger, all obligations of the Partnership under the
Employee Bonds will be assumed by the Surviving Corporation. Given that the
Plans are expected to provide a more effective means of expanding the equity
ownership of employees, the Surviving Corporation intends to terminate the
Employee Bond Purchase Plan promptly after the Merger. At such time, the
Surviving Corporation also plans to offer to exchange Common Shares for all
then outstanding Employee Bonds. This exchange is expected to be offered on
a basis similar to that governing the exchange of Limited Partners' capital
accounts in the Merger. Each Employee Bond holder is expected to be offered
an opportunity to exchange such Employee Bond based on an exchange ratio of
one Common Share for each $8 of Employee Bond principal outstanding at the
time of the exchange. The Surviving Corporation currently intends to call all
Employee Bonds that are not exchanged for Common Shares. The Partnership as
of April 7, 1995 had approximately $250,000 in principal amount of Employee
Bonds outstanding held by approximately 100 employees of the Company. The
Partnership does not expect that additional Employee Bonds will be offered
unless the Merger is not approved or is otherwise no longer being pursued.
DESCRIPTION OF THE COMMON SHARES
General
The authorized capital shares of the Surviving Corporation will consist
of 50,000,000 Common Shares, no par value per share, and 1,000,000 preferred
shares, no par value per share. The Surviving Corporation's amended and
restated Articles of Incorporation (the "Articles of Incorporation"), which
contain the authorization for the capital shares, is attached to this Joint
Proxy Statement/Prospectus as Annex A to the Merger Agreement (which is
attached Appendix A) and the Surviving Corporation's amended and restated
Code of Regulations (the "Code of Regulations") is attached as Annex B to the
Merger Agreement. Upon completion of the Merger, but prior to the Public
Offering, there will be approximately 7,500,000 Common Shares outstanding,
each of which will be owned by the Limited Partners and the Shareholders.
Upon completion of the Merger there will not be any preferred shares
outstanding.
The summary of the relevant provisions of the Articles of Incorporation
and the Code of Regulations set forth below does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of
the provisions of the Articles of Incorporation and the Code of Regulations.
Common Shares
After the Merger, the issued and outstanding Common Shares will be
validly issued, fully paid and nonassessable. Subject to the prior rights,
if any, of holders of any of the Company's preferred shares, holders of
Common Shares will be entitled to receive dividends out of assets legally
available thereof at such times and in such amount as the Board of Directors
may from time to time determine. See "RISK FACTORS -- Significant Reduction
in Distributions." The Company has no plans at the current time to issue any
preferred shares. The Common Shares will be neither redeemable nor
convertible and the holders thereof will have no preemptive or subscription
rights to purchase any securities of the Company. Upon the liquidation,
dissolution or winding up of the Company, holders of Common Shares will be
entitled to receive pro rata the assets of the Company which are legally
available for distribution, after payment of all debts and other liabilities.
Each outstanding Common Share will be entitled to one vote on all matters
submitted to a vote of shareholders. Subject to approval of the proposal to
eliminate cumulative voting, there will be no cumulative voting.
Preferred Shares
The Surviving Corporation's Board of Directors may, without further
action by the Company's shareholders direct the issuance from time to time of
one or more series or classes of preferred shares having the number of
shares, designations, voting rights, dividend rates, liquidation and
other rights, preferences and limitations that the Board of Directors may
fix, in its sole discretion, at the time of issuance. Satisfaction of any
dividend preference of outstanding preferred shares would reduce the amount
of funds available for the payment of dividends on the Common Shares.
Holders of preferred shares may be entitled to receive a preference payment
in the event of any liquidation, dissolution or winding up of the Company
before any payment is made to the holders of Common Shares. Under certain
circumstances, the issuance of preferred shares may make more difficult or
tend to discourage a merger, tender offer or proxy contest, the assumption of
control by a holder of a large block of the Company's securities or the
removal of incumbent management. This is in addition to other anti-takeover
provisions contained in the Company's organizational documents. See "Anti-
Takeover Provisions of the Surviving Corporation's Organizational Documents."
The Company's Board of Directors may, without shareholder approval, issue
preferred shares with voting and conversion rights which could adversely
affect the holders of Common Shares. There are no preferred shares
outstanding and the Company has no present intention to issue any preferred
shares.
Anti-Takeover Provisions of the Surviving Corporation's Organizational
Documents
The Company's Articles of Incorporation contain several provisions that
may make the acquisition of control of the Company by means of a tender
offer, open market purchase, proxy fight or otherwise more difficult. The
Company's Code of Regulations also contains provisions that could have the
same effect. The primary purpose of these mechanisms is not to prevent a
takeover of the Company. Rather, they are intended to deter coercive and
unfair takeover tactics, to provide time for the Board to negotiate on behalf
of the shareholders and to enhance the likelihood of continuity and stability
in the composition of the Board and in the strategies set by the Board for
maximizing long-term shareholder value.
The Company believes that, as a general rule, the interests of the
Company's shareholders would be best served if any change in control results
from negotiations with the Board based upon careful consideration of the
proposed terms, such as the price to be paid to shareholders, the form of
consideration to be paid, the anticipated tax effects of the transaction, and
of certain long-term or strategic considerations, including the risk that
Company's shares might be undervalued in the market at any given time and the
risk that an offer, although representing a premium to current market prices,
may not take into account the long-term values that are expected to be
realized through the Company's investment in research and development
activities or through the Company's commitment to pursuing its business with
an emphasis on long-term relationships with customers, suppliers and
employees. The Company believes that certain unsolicited acquisitions would
be inconsistent with the Company's fundamental values and would have an
adverse impact on the Company's long-term shareholder value which the Company
believes is based, in large part, on its long-term, enduring relationships
with its customers, suppliers, employees, owners and the communities in which
it does business.
To the extent that these provisions discourage takeover attempts,
however, they could deprive shareholders of opportunities to realize takeover
premiums for their shares. These provisions could also discourage
accumulations of large blocks of Common Shares, thus depriving shareholders
of any advantages which large accumulations of shares might provide.
Finally, while these mechanisms are commonplace among public companies, there
is a risk that the existence of these mechanisms will have an adverse impact
on the market price of the Common Shares, as certain potential investors may
have acquired the Common Shares, in part, to take advantage of such potential
takeover premiums, or might otherwise be discouraged from investing in the
Company by the existence of such anti-takeover provisions.
Fair Price Provision. Article Seventh of the Articles of Incorporation
provides certain protections for the Company's shareholders in the event that
a person becomes a "Controlling Person" and seeks to implement a "Business
Combination" of the Company with such person. Article Seventh requires a
special vote, in addition to whatever other vote may be required, of two-
thirds of the outstanding Common Shares not held by the Controlling Person in
order to approve any such transaction. This special vote will not be
required, however, if a "Minimum Price Per Share" is to be paid to those
holders of Common Shares who do not vote in favor of the Business Combination
and whose proprietary interest will be terminated in connection with such
Business Combination and a proxy statement is distributed for purposes of
soliciting shareholder approval of the Business Combination. This special
vote will also not be required if the then current Board of Directors, by a
vote of at least two-thirds of the directors then in office, approves the
proposed Business Combination as being in the best interests of the Company.
A Controlling Person is defined as any person who "Beneficially Owns"
more than 10% of the Company's Common Shares. "Beneficially Owns" is defined
broadly to include all forms of ownership and all types of arrangements that
give a person, either directly or indirectly, actual or potential voting
rights or investment decision authority with respect to the Company's common
shares.
"Business Combination" includes virtually every transaction between a
Controlling Person (and certain affiliates and associates) and the Company
(or a subsidiary of the Company) which would involve a combination of the
business operations or assets of such persons. The phrase also encompasses
reclassifications and recapitalizations involving the Company's Common Shares
while a person is a Controlling Person.
"Minimum Price Per Share" is defined as the higher of (i) the highest
gross per share price paid or agreed to be paid within three years of the
record date for the Business Combination to acquire any Common Share of the
Company Beneficially Owned by a Controlling Person, or (ii) the highest per
share market price of the Common Shares during such three-year period.
By its terms, Article Seventh cannot be amended, altered, changed or
repealed in any respect without the affirmative vote of the holders of at
least two-thirds of the outstanding Common Shares that are not owned by a
Controlling Person.
Article Seventh is intended to prevent unfair pricing or other tactics
that might occur if a person in control of the Company negotiates a Business
Combination with the Company. Under such circumstances, a Controlling Person
could in effect control both sides of the negotiation. Article Seventh is
meant to require the Controlling Person to either negotiate directly with the
Company's Board of Directors and obtain the Board's approval or to offer a
fair price to all shareholders.
Business Combinations. Article Tenth of the Articles of Incorporation
provides that if a proposal is made that the Company enter into a merger or
consolidation with any other corporation (other than a direct or indirect
wholly-owned subsidiary of the Company), or sell or otherwise dispose of all
or substantially all of its assets or business in one transaction or a series
of transactions, or liquidate or dissolve, the affirmative vote of the
holders of not less than two-thirds of the outstanding voting shares of the
Company will be required for the approval of such proposal. The foregoing
does not apply to any such merger, consolidation, sale, disposition,
liquidation or dissolution which is approved by resolution of two-thirds of
the directors of the Company then in office, if the majority of the members
of the Board of Directors adopting such resolution were members of the Board
of Directors prior to the public announcement of the proposed merger,
consolidation, sale, disposition, dissolution or liquidation and prior to the
public announcement of any transaction relating to such merger,
consolidation, sale, disposition, dissolution or liquidation. If such
approval is granted, then such transaction will only require such additional
approval, if any, as is otherwise required under the other articles of the
Articles of Incorporation and under law.
Control Share Acquisitions. Article Eleventh of the Articles of
Incorporation provides that any "Control Share Acquisition" of shares of the
Company can only be made with the prior approval of the Company's
shareholders. A "Control Share Acquisition" is defined as any acquisition of
shares of the Company that, when added to all other shares of the Company
owned by the acquiror, would entitle the acquiror to exercise levels of
voting power in the following ranges: one fifth or more but less than one
third, one third or more but less than a majority, and a majority or more.
The acquiror may make the proposed Control Share Acquisition only if
both of the following occur: (i) the shareholders of the Company authorize
the acquisition by an affirmative vote of (a) a majority of the voting power
of the Company represented at the meeting in person or by proxy and (b) a
majority of the portion of such voting power, excluding the voting power of
shares that may be voted by the acquiror, by any officer of the corporation
elected or appointed by the directors, by any employee of the Company who is
also a director; and (ii) the proposed Control Share Acquisition is
consummated no later than 360 days following the shareholders' authorization
of the control share acquisition.
Article Eleventh does not apply to an acquisition of shares by any
shareholder or group of shareholders who were holders of Common Shares
immediately after the Merger or to any acquisition of shares by certain
affiliates of any such shareholder or group of shareholders. Article
Eleventh will begin to apply to such shareholders and affiliates, however,
from and after the point at which they collectively own less than 25% of the
Company's outstanding voting shares.
Transactions with Interested Shareholders. Article Twelfth of the
Articles of Incorporation prevents an "Interested Shareholder" (defined
generally as a person owning 10% or more of the Company's outstanding voting
shares) from engaging in an "Interested Shareholder Transaction" (generally,
a merger, consolidation, sale, lease or other disposition of substantial
assets either by the Company to the Interested Shareholder or vice versa,
certain reclassifications of the Company's shares, or a loan or other
financial benefit to the interested shareholder not shared pro rata with
other shareholders) with the Company for three years following the date that
person became an Interested Shareholder unless (i) before that person became
an Interested Shareholder, the Board of Directors of the Company approved the
transaction in which the Interested Shareholder became an interested
shareholder or (ii) the Board approves the Interested Shareholder
Transaction.
Article Twelfth does not apply to an acquisition of shares by any
shareholder or group of shareholders who were holders of Common Shares
immediately after the Merger or to any acquisition of shares by certain
affiliates of any such shareholder or group of shareholders. Article Twelfth
will begin to apply to such shareholders and affiliates, however, from and
after the point at which they collectively own less than 25% of the Company's
outstanding voting shares.
By its terms, Article Twelfth cannot be amended, altered, changed or
repealed in any respect without the affirmative vote of the holders of at
least two-thirds of the outstanding Common Shares that are not owned by the
Interested Shareholder.
Shareholder Action; Special Meetings. The Code of Regulations provides
that shareholder action can be taken only at an annual or special meeting of
shareholders and cannot be taken by written consent in lieu of a meeting.
The Code of Regulations provides that, except as otherwise required by law,
special meetings of the shareholders can only be called pursuant to a
resolution adopted by the Chairman of the Board, the President or a majority
of the Board of Directors. To the extent permitted by Ohio law, shareholders
are not permitted to call a special meeting or to require the Company's Board
to call a special meeting.
Number of Directors; Removal; Vacancies. The Code of Regulations
provide that the number of directors will be set by resolution of the Board
adopted by the affirmative vote of two-thirds of the directors then in
office.
The Code of Regulations further provide that generally vacancies or
newly created directorships in the Board may only be filled by a resolution
approved by two-thirds of the directors then in office.
The provisions regarding the number of directors, removal and filling of
newly-created directorships and vacancies, each of which may not be amended,
altered, changed or repealed in any respect without the affirmative vote of
two-thirds of the outstanding voting shares of the Company, prevent
shareholders from creating additional directorships and filling the resulting
vacancies with their own nominees.
Shareholder Proposals and Nominations. The Code of Regulations
establishes an advance notice procedure for shareholder proposals to be
brought before an annual or special meeting of shareholders of the Company,
including proposed nominations of persons for election to the Board.
Shareholders at an annual or special meeting may only consider proposals or
nominations brought before the meeting by the Company, by or at the direction
of the Board or by a shareholder who was a shareholder of record on the
record date for the meeting, who is entitled to vote at the meeting and who
has given to the Company's Secretary timely written notice, in proper form,
of the shareholder's intention to bring that business before the meeting.
To be timely, notice by shareholders of nominations or proposals to be
brought before the 1995 annual meeting of shareholders or before any special
meeting of shareholders must be delivered to the Secretary of the Company not
earlier than the 120th day prior to such meeting and not later than the 90th
day prior to such meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Notice by
shareholders of nominations or proposals to be brought before any subsequent
annual meeting must be received by the Secretary not less than 90 days nor
more than 120 days prior to the first anniversary of the preceding year's
annual meeting of shareholders or, if the date of the annual meeting is
advanced more than 30 days or delayed by more than 60 days from the preceding
anniversary date, notice by the shareholder will be timely if received not
earlier than the 120th day prior to such annual meeting and not later than
the close of business on the later of (1) the 90th day prior to such annual
meeting or (2) the 10th day following public announcement of such meeting.
Each notice by shareholders must set forth (1) the name and address of
the shareholder who intends to make the nomination or proposal and of any
beneficial owner on whose behalf the nomination or proposal is made and
(2) the class and number of shares of the Company that are owned beneficially
and of record by such shareholder and beneficial owner, if any. In the case
of a shareholder proposal, the notice must also set forth a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest of such
shareholder or beneficial owner, if any, in that proposed business. In the
case of nomination of any person for election as a director, the notice must
also set forth (1) any information regarding the nominee proposed by the
shareholder that would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission and (2) the consent, if so
required, of the nominee to be named in a proxy statement as a candidate for
election and to serve as a director of the Company if elected.
Although the Code of Regulations does not give the Board the power to
approve or disapprove shareholder nominations of candidates or proposals
regarding other business to be conducted at a special or annual meeting, the
Code of Regulations may have the effect of precluding the conduct of certain
business at a meeting if the proper procedures are not followed or may
discourage or deter a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.
Amendment of Code of Regulations. The Code of Regulations may be
amended or repealed by the affirmative vote of the holders of two-thirds of
the Company's outstanding shares entitled to vote thereon. This provision
makes it more difficult to change the Code of Regulations for the purpose of
gaining control over the Company.
Indemnification of Officers and Directors. The Articles of
Incorporation and Code of Regulations permit the Company to indemnify its
officers and directors to the greatest extent permitted by applicable law.
The OGCL, like most state corporation statutes, permits broad indemnification
of officer and director decisions, including those made in the context of an
unsolicited takeover proposal. The OGCL, however, goes further than most
statutes, expressly allowing officers and directors to consider, among other
things, the interests of the Company's employees, suppliers, creditors and
customers, the economy of the state and the nation, community and societal
considerations, and the long-term as well as the short term interests of the
Company and its shareholders, including the possibility that such interests
may best be served by the continued independence of the Company.
RESALE OF THE COMMON SHARES
The Common Shares issued to the holders of LP Interests, Class A Common
Shares and Class B Common Shares in connection with the Merger will be
registered under the Securities Act pursuant to the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part. The registration of
Common Shares in this manner will allow a holder of such shares to trade them
in the market without any restriction under the Securities Act so long as
such holder is not an "affiliate" of the Company.
If such holder is an affiliate, Rule 145 under the Securities Act, as
currently in effect, provides that such holder (together with all other
persons who may under such rule be aggregated with such holder) is entitled
to sell, within any three-month period, that number of Common Shares that
does not exceed the greater of (i) 1% of the then outstanding Common Shares
or (ii) the average weekly trading volume of the Common Shares during the
four calendar weeks preceding the date on which notice of such sale is filed
with the SEC. Any such sales are also subject to certain provisions relating
to the manner in which such sale must be made, to notices that must be filed
in connection with any such sale and to the availability of current public
information about the Company.
The term "affiliate" is defined under the Securities Act to mean a
"person" that directly, or indirectly through one or more intermediaries,
controls the Company, is controlled by the Company or is under common control
with the Company. The term "person" is defined to include with respect to
any holder of Common Shares (i) any relative or spouse of such holder, or any
relative of such spouse, any one of whom has the same home as such holder,
(ii) any trust or estate in which such holder or any person specified in (i)
above collectively own ten percent or more of the total beneficial interest
or of which such holder or any of such persons serves as trustee, executor or
in any similar capacity, and (iii) any corporation or other organization
(other than the Company) in which such holder or any of the persons specified
in (i) above are the beneficial owners collectively of ten percent or more of
any class of equity securities or ten percent or more of the equity interest.
The provisions of Rule 145 and related regulations under the Securities
Act are complex and the foregoing summary is not intended to be a complete
description thereof. Therefore, any holder of Common Shares that might be
considered to be an affiliate of the Company should consult with legal
counsel prior to selling any Common Shares.
In addition to the foregoing restrictions on the ability of affiliates
to resell Common Shares, the Company expects that the underwriters in the
Public Offering will request that all persons who receive Common Shares in
connection with the Merger agree not to sell such Common Shares for a period
of 180 days after the Public Offering.
SUMMARY COMPARISON OF EXISTING SECURITIES AND COMMON SHARES
There are a number of significant differences between the attributes of
the Existing Securities and the Common Shares and between the Partnership's
and the Surviving Corporation's organizational documents. The following
summary compares a number of the principal differences.
The Class A Common Shares and Class B Common Shares represent the equity
of the General Partner. Class B Common Shares are the sole securities of the
General Partner which allow investors to vote on the election of directors of
the General Partner and on certain other matters. The Class A Common Shares
are the sole securities of the General Partner which have economic rights
such as the right to dividends and distributions upon liquidation. The
General Partner holds a 1.6% economic interest in the Partnership. The
General Partner's primary sources of revenue are through this economic
interest and a management contract with the Partnership, pursuant to which
the General Partner provides management services to the Partnership at cost
plus a small fee. An investor in the Andersons holds the primary economic
value of his or her investment in the Company through his or her holding of
LP Interests. All of the Class A Common Shares are owned by 186 persons,
each of whom is also a Limited Partner. All of the Class B Common Shares are
owned by 183 persons, each of whom is also a Limited Partner and a holder of
Class A Common Shares.
Existing Securities Common Shares
Distributions and Dividends
The Partnership currently makes The payment of dividends with
significant cash distributions to respect to the Common Shares
Limited Partners. During 1994, will be determined by the
total cash distributions to Limited Company's Board of Directors in
partners totaled approximately $4.4 its sole discretion, generally
million. The Board of Directors of taking into account a number of
the General Partner approves all such factors, including the Company's
distributions. Limited Partners may operating performance, liquidity
elect whether to take such and capital requirements. The
distributions in cash or to leave Board of Directors currently
such amounts in their capital anticipates that the Company
account. See "RISK FACTORS -- will pay cash dividends in an
Significant Reduction in amount which would result in an
Distributions." after-tax cash flow to holders
of Common Shares of
The General Partner has not approximately one-third of that
historically paid dividends. To which Limited Partners would
the extent such dividends were receive under the Partnership's
paid, Class A Common Shares would current cash distribution
receive such dividends and Class B policy. See "RISK FACTORS --
Common Shares would not. Significant Reduction in
Distributions."
Voting Rights
The General Partner has no Each Common Share received upon
authority to take certain the Merger will entitle its
extraordinary actions without the holder to cast one vote on
consent of 100% of the Limited matters as to which voting is
Partners, including acting in permitted or required by the
contravention of the Partnership OGCL, including the election of
Agreement, committing any act which directors, amendments to the
would make it impossible to carry Articles of Incorporation,
on the ordinary business of the mergers and other extraordinary
Partnership, confessing a judgment transactions. General corporate
against the Partnership, possessing matters will require a simple
Partnership property other than for majority vote; however, the
a Partnership purpose and admitting Articles of Incorporation and
another general partner. In Code of Regulations contain
addition, the General Partner has certain provisions which are
no authority to take certain other designed to encourage persons
extraordinary actions without the seeking to acquire control of
consent of 80% of the Limited the Company to negotiate the
Partners, on a one vote per Limited terms of any such acquisition
Partner basis, including selling or with the Company's Board.
otherwise disposing of all or Certain of these provisions
substantially all of the require that holders of two-
Partnership's assets or merging thirds of the then outstanding
with or into another legal entity. Common Shares approve certain
Limited Partners have no rights to actions, including disposing of
vote with respect to the Company's all or substantially all of the
management. Company's assets, merging with
or into another legal entity or
Holders of Class B Common Shares entering into "business
vote on the election of directors combinations" with potential
of the General Partner and on acquirors or other interested
certain other matters. Holders of parties under certain
Class A Common Shares do not circumstances. See "DESCRIPTION
generally vote, other than on OF THE COMMON SHARES -- Anti-
fundamental corporate changes (such Takeover Provisions of the
as the Merger) in accordance with Surviving Corporation's
the OGCL. Holders of Class B Organizational Documents."
Common Shares are entitled to Subject to approval of the
cumulate their votes with respect proposal to eliminate cumulative
to the election of directors. voting, shareholders will not be
entitled to cumulate their votes
with respect to the election of
directors.
Right to Call Meetings and Submit Proposals
Limited Partners have no right to The Code of Regulations does not
call a meeting or submit proposals. permit shareholders to request a
meeting of the Surviving
Under the OGCL, holders of 25% of Corporation. The Code of
the Class A Common Shares and Class Regulations establishes an
B Common Shares combined have the advance notice procedure for
right to call a meeting. shareholder proposals to be
Shareholders do not have the right brought before an annual or
to submit proposals other than in special meeting of shareholders
connection with a meeting which the of the Company, including
requisite percentage of proposed nominations of persons
shareholders have called. Notice for election to the Board.
of such a shareholder proposal must Shareholders at an annual or
be given in the same fashion as special meeting may only
notices are given by proposals set consider proposals or
forth by the Company or the Board nominations brought before the
of Directors, i.e., not less than meeting by the Company, by or at
seven and not more than 60 days the direction of the Board or by
prior to the meeting at which the a shareholder who was a
proposal is to be voted upon. shareholder of record on the
record date for the meeting, who
is entitled to vote at the
meeting and who has given to the
Company's Secretary timely
written notice, in proper form,
of the shareholder's intention
to bring that business before
the meeting. See "DESCRIPTION OF
THE COMMON SHARES -- Anti-
Takeover Provisions of the
Surviving Corporation's
Organizational Documents.
Liquidation Rights
In the event of a liquidation of In the event of liquidation of
the Partnership, Limited Partners the Surviving Corporation, the
are entitled to share ratably in holders of Common Shares are
the proceeds of such liquidation entitled to share ratably in any
remaining after creditors have been assets of the Surviving
paid or provided for. Corporation remaining after
creditors have been paid or
In the event of a liquidation of provided for and after provision
the General Partner, holders of for any liquidation preferences
Class B Common Shares are entitled on any outstanding class or
to share in the assets to the series of preferred shares. The
extent of the stated value of such Articles of Incorporation permit
shares (generally, $1.00 per the issuance of preferred
share); holders of Class A Common shares. Issuances of classes or
Shares are entitled to share series of preferred shares that
ratably in the remaining proceeds have the right to a prior
of such liquidation remaining after liquidation preference would
creditors have been paid or diminish the liquidation
provided for. proceeds received by holders of
Common Shares.
Dilution
The Partnership is permitted to The interests of holders of
issue additional LP Interests at Common Shares issued in
the sole discretion of the General connection with the Merger in
Partner, subject to (i) the the assets, liabilities, cash
limitation on the ownership of LP flow and results of operations
Interests by persons who are not of the Company, and in their
members of the Anderson Family (or voting rights, may be diluted as
trusts for the benefit thereof) or a result of the issuance of
employees or former employees of Common Shares in the Public
the Partnership or the General Offering. The surviving
Partner to a total of 20% of the Corporation may also issue
outstanding capital accounts of all additional equity securities in
Limited Partners taken as a group the future which would further
and (ii) the limitation on the dilute the then current
ownership of LP Interests in excess shareholders. Under Nasdaq
of 5% of the outstanding capital National Market rules, the
accounts of all Limited Partners Surviving Corporation may not
taken as a group by any one person. issue Common Shares equal to 20%
Such limitations may only be or more of the then outstanding
exceeded with the written consent Common Shares in connection with
of the holders of two-thirds of the the acquisition of the shares or
outstanding LP Interests, voting on assets of another entity without
the basis of their capital account shareholder approval. Issuances
holdings. of additional Common Shares or
preferred shares could adversely
Holders of Class A Common Shares affect existing shareholders'
and Class B Common Shares have equity interest in the Surviving
limited preemptive rights in Corporation and the market price
connection with certain issuances of the Common Shares. Moreover,
of additional Class A Common Shares although shareholders of the
or Class B Common Shares. General Partner currently have
preemptive rights to purchase a
pro rata share of any offering
of equity securities, these
preemptive rights will be
eliminated as a result of the
Merger and will not apply with
respect to the Common Shares
issued in the Merger or the
Public Offering. See "RISK
FACTORS - Possible Dilution."
The Board of Directors by
resolution may establish one or
more classes or series of
preferred shares having the number
of shares, designations, relative
voting rights, dividend rates,
liquidation and other rights,
preferences, and limitations that
the Board of Directors fixes, such
issuances could dilute the holders
of Common Shares
Liquidity
The Existing Securities have As a result of the Public
limited liquidity. There is no Offering, the Common Shares are
public trading market for the expected to be traded on the
Existing Securities. In addition, Nasdaq National Market. Thus,
the Partnership Agreement provides there is expected to be a liquid
that the transfer of interest by market for selling the Common
any Limited Partner will cause a Shares and a readily
dissolution of the Partnership. determinable market value. With
The only means of liquidity a liquid market for Common
heretofore available to holders of Shares, equity holders would no
Existing Securities has been (i) longer be required to rely
to withdraw from the Company solely on the Company as a
altogether (which, in the case of source of liquidity. However,
LP Interests, would result in the the Common Shares issued in
payment by the Partnership to the connection with the Merger will
Limited Partner of the book value be subject to certain resale
of such Limited Partner's capital restrictions. See "RESTRICTIONS
account, which payment may be made ON RESALE." Moreover, no
five years after such withdrawal, prediction can be made as to the
at the General Partner's option) or price at which the Common Shares
(ii) to request the Company to will trade. Trading prices for
redeem such securities (while the the Common Shares will be
Company is not obligated to honor influenced by many factors,
any such request, historically, it including the depth and
has done so from time to time, liquidity of the market for the
using its available cash to redeem Common Shares, the Company's
such securities). See "THE MERGER- dividend policy, the
Reasons For The Merger." possibility of future sales of
Common Shares by the Company or
its shareholders, investors'
perception of the Company and
its businesses, and general
economic and stock market
conditions. See "RISK FACTORS -
Uncertainty Regarding Market Price
of Common Shares."
Appraisal Rights
Limited Partners dissenting from Shareholders dissenting from
certain fundamental changes in the certain fundamental changes in
Partnership's ownership structure, the Surviving Corporation's
including the Merger, have a right ownership structure shall have a
to be paid the fair value of their right to be paid the fair value
shares in cash upon the of their shares in cash upon the
satisfaction of certain conditions, satisfaction of certain
as provided in Section 1782.436 of conditions, as provided in
the Ohio Revised Code. Section Section 1701.85 of the OGCL. In
1701.85 provides a similar remedy the event that a shareholder is
for dissenting Shareholders. In unable to agree with the Company
the event that a Limited Partner or with respect to the amount and
Shareholder is unable to agree with terms of such payment, he or she
the Company with respect to the will be entitled to the rights
amount and terms of such payment, provided by Section 1701.85
he or she will be entitled to the provided that he or she (i) does
rights provided by Section 1782.436 not vote favorably upon such
provided that he or she (i) does transaction, (ii) will, within
not vote favorably upon such 10 days after the date on which
transaction and (ii) will, within the vote is taken, make a
10 days after the date on which the written demand on the Company
vote is taken, make a written for payment of the fair cash
demand on the Company for payment value of the Common Shares with
of the fair cash value of the respect to which relief is
Existing Securities with respect sought, setting forth in the
to which relief is sought, setting demand certain additional
forth in the demand certain information required by Section
information, including his or her 1701.85 and (iii) will, within
estimated "fair value" of such 15 days after request by the
Existing Securities. The Company, submit the certificates
Partnership Agreement specifically for the Common Shares to the
defines fair cash value, of the LP Company for notation thereon
Interests in the case of a that such demand has been made.
transaction such as the Merger,
followed within 90 days by a public
offering of the successor entity's
equity securities as being based
upon the price to the public in
such public offering. See "RIGHTS
OF DISSENTING SHAREHOLDERS AND
LIMITED PARTNERS.":
Tax Matters
The Partnership is not subject to The Surviving Corporation is
federal or state income taxes. subject to federal and state
Each Limited Partner is taxed on income taxes on income. The
his or her pro rata share of the maximum federal corporate tax
Partnership's taxable income. The rate is 35%. In addition,
maximum effective federal tax rate Shareholders are subject to
for individuals is 39.6%. See federal and state income taxes
"FEDERAL INCOME TAX CONSIDERATIONS" on distributions of corporate
and "CERTAIN STATE AND LOCAL INCOME earnings. The maximum effective
TAX CONSIDERATIONS." federal tax rate for individuals
is 39.6% See "FEDERAL INCOME
TAX CONSIDERATIONS" and "CERTAIN
STATE AND LOCAL INCOME TAX
CONSIDERATIONS."
RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED PARTNERS
The following, although believed by the Company to be an accurate
summary of certain provisions of the OGCL, the Ohio Revised Code and federal
income tax law, is qualified in its entirety by reference to the appropriate
provisions of such laws.
General
Section 1701.85 of the OGCL sets forth the rights of Shareholders who
dissent from the Merger to receive the "fair cash value" of their Class A
Common Shares and Class B Common Shares in the event the Merger is
consummated, determined as of the day prior to the date of the Shareholders
Meeting, excluding any appreciation or depreciation resulting from the
proposed Merger. Section 1782.436 of the Ohio Revised Code provides a similar
remedy for Limited Partners dissenting from the Merger if the Merger is
consummated.
Shareholders and Limited Partners who do not dissent from the Merger may
gain liquidity after the Merger by reselling their Common Shares in the open
market, subject to the restrictions set forth under the caption "RESALE OF
THE COMMON SHARES."
If the Company and a dissenting Shareholder or Limited Partner do not
agree on the "fair cash value" of the securities, Sections 1701.85 and
1782.436 contain procedures for making a judicial determination of "fair cash
value." In order to avail themselves of such provisions, dissenting
Shareholders or Limited Partners must, within three months time after the
written demand, file a petition in the Court of Common Pleas of Lucas
County, Ohio for relief. Failure to file such a petition within the three-
month period will cause such Shareholder or Limited Partner to lose the right
to relief under Sections 1701.85 and 1782.436. As described below, the
Partnership Agreement provides a definition of "fair cash value" that must be
used in certain circumstances.
Any cash payment to dissenting Shareholders or Limited Partners will
result in the recognition of gain or loss to them for federal income tax
purposes at the time the "fair cash value" is paid in the same manner as if
they had received cash in the Merger. See "FEDERAL INCOME TAX
CONSIDERATIONS."
Dissenting Shareholders
Under the provisions of Section 1701.85, a dissenting Shareholder of
record on the Shareholders Record Date will be entitled to the rights
provided therein so long as the Merger is consummated and such dissenting
Shareholder (i) votes against or abstains from voting on the Merger Proposal
and (ii) within 10 days after the Shareholders Meeting, makes a written demand
on the General Partner for payment of the "fair cash value" of the Class A
Common Shares and Class B Common Shares with respect to which relief is sought
, setting forth, among other things, the amount claimed as of the "fair cash
value" thereof. The casting of a vote by proxy or in person against approval
and adoption of the Merger Agreement will not be considered to be the making
of a written demand for payment of "fair cash value" of the Class A Common
Shares or Class B Common Shares. The failure to vote or submit a proxy will
not constitute a waiver of the dissenters' rights of any Shareholder who
otherwise complies with the requirements described above. If a beneficial
owner of Class A Common Shares or Class B Common Shares desires to dissent but
is not the record holder of such shares, the beneficial owner must cause the
record holder of such shares to comply with the statutory procedures described
above.
Upon receipt of a demand notice from a dissenting Shareholder, the
Company is free to negotiate with such Shareholder as to the "fair cash
value" of the Class A Common Shares or Class B Common Shares with respect to
which such Shareholder is seeking relief. "Fair cash value" is to be
determined as of the day before the Shareholders Meeting, and is defined as
that amount that a willing seller, under no compulsion to sell, would be
willing to accept, and that a willing buyer, under no compulsion to purchase,
would be willing to pay. Such amount is to be determined without regard for
any appreciation or depreciation in the market value of such securities
resulting from the proposed Merger. In no event will the "fair cash value"
paid to a certain dissenting Shareholder exceed the amount specified in the
demand of such Shareholder.
Dissenting Limited Partners
Under the provisions of Section 1782.482, a dissenting Limited Partner
of record on the Limited Partners Record Date will be entitled to the rights
provided therein so long as the Merger is consummated and such dissenting
Limited Partner (i) votes against or abstains from voting on the Merger
Proposal and (ii) within 10 days after the Limited Partners Meeting, makes a
written demand on the Partnership for payment of the "fair cash value" of the
LP Interests with respect to which relief is being sought, setting forth,
among other things, the amount claimed as of the "fair cash value" thereof.
The casting of a vote by proxy or in person against the Merger Proposal will
not be considered to be the making of a written demand for payment of "fair
cash value" of the LP Interests. The failure to vote or submit a proxy will
not constitute a waiver of the dissenters' rights of any Limited Partner who
otherwise complies with the requirements described above. If a beneficial
owner of LP Interests desires to dissent but is not the record holder of such
LP Interests, the beneficial owner must cause the record holder of such LP
Interests to comply with the statutory procedures described above.
The Partnership Agreement specifically provides that the "fair cash
value" in the case of a transaction such as the Merger, followed within 90
days by a public offering of the successor entity's equity securities will be
based solely on the valuation of the Partnership reflected in the price to
the public in such public offering. Thus, if the Public Offering is closed
shortly after the Merger as planned, a Limited Partner that duly exercised its
right to dissent from the Merger in accordance with Section 1782.436 will
receive "fair cash value" based upon the price to the public in the Public
Offering.
DISSENTING SHAREHOLDERS AND LIMITED PARTNERS MUST GIVE THE COMPANY
NOTICE WITHIN 10 DAYS AFTER THE SPECIAL MEETINGS TO THE EXTENT THEY
WISH TO EXERCISE THE RIGHTS SET FORTH ABOVE. NO SUBSEQUENT NOTICE
WILL BE SENT TO SHAREHOLDERS OR LIMITED PARTNERS AS TO THE DATE OF
THE SPECIAL MEETINGS. ACCORDINGLY, ANY SHAREHOLDER OR LIMITED
PARTNER WHO INTENDS TO DISSENT IS ENCOURAGED TO NOTIFY THE COMPANY
PROMPTLY.
FEDERAL INCOME TAX CONSIDERATIONS
Introduction
The following provides Limited Partners and Shareholders with a summary
of all material federal income tax consequences of general application to the
Surviving Corporation and Limited Partners associated with the Merger. This
summary does not comment on all tax matters that may affect the Partnership,
the Surviving Corporation, the Limited Partners and the Shareholders,
including any state, local, foreign or other matters, and does not consider
various facts or limitations applicable to any particular Limited Partner, or
special tax rules that may apply to certain Limited Partners and Shareholders
and may modify or alter the results described herein.
Except as otherwise indicated, statements of legal conclusion regarding
tax treatments, tax effects or tax consequences reflect the opinions of
Kirkland & Ellis, tax counsel for the Surviving Corporation and the
Partnership, based on the Internal Revenue Code and applicable regulations
thereunder, each as amended and in effect on the date hereof, and on reported
judicial decisions and published positions of the Internal Revenue Service
("IRS"). No rulings have been requested from the IRS concerning any of the
matters described in this Joint Proxy Statement/Prospectus and the IRS will
generally not issue rulings on transactions such as the Merger. In some
cases, particularly those as to which tax counsel's opinion is qualified,
there is a risk that the IRS will disagree with the conclusions of tax
counsel. The laws, regulations, administrative rulings and judicial
decisions that form the basis for conclusions with respect to the tax
consequences of the Merger are very complex and are subject to change at any
time.
The tax opinion of Kirkland & Ellis is filed as an exhibit to the
Registration Statement on Form S-4 filed with the SEC, of which this Joint
Proxy Statement/Prospectus constitutes a part. Upon receipt of a written
request of a Limited Partner (or such Limited Partner's representative who
has been so designated in writing) addressed to the Company, at 480 West
Dussel Drive, Maumee, Ohio 43537, attention: Corporate Secretary, a copy of
the tax opinion will be transmitted promptly, without charge, by the General
Partner.
The Limited Partners and Shareholders should be aware that there is no
direct authority of general applicability governing the federal income tax
treatment of transactions such as the Merger that are structured as
partnership mergers, because this structure is an approach made available by
recent developments in partnership laws. Therefore, in rendering its
opinions, tax counsel has relied on authorities addressing the consequences
of analogous transactions that used similar structures. Accordingly,
although there appears to be no controlling authority contrary to tax
counsel's conclusions, it is possible that the IRS would take a different
position if it addressed the tax consequences of the Merger.
Differences between LP Interests and Common Shares in General
A partnership is a pass-through entity for federal income tax purposes.
This means that a partnership is not liable for federal income tax on its
taxable income. Rather, a partnership passes its income (or loss) through to
its owners (i.e., general and limited partners) in proportion to their
relative ownership interests. This is known as allocating a partnership's
income and loss. Many items of income, gain, loss, and deduction are
allocated separately to each partner in proportion to such partner's
interest. The character of each item passed through to a partner remains the
same in the partner's hands as it was in the partnership's hands. When
income (or loss) is allocated to a partner, such partner is taxed on that
income (or may deduct that loss). This tax is imposed on the partner
regardless of whether the partnership actually distributes any cash or
property to the partner. Thus, generally it is the allocation, not the
distribution, of income to a partner that results in tax (or a deduction) for
that partner. A partner has a basis in the partnership interest he or she
holds which is generally equal to either the cost of the partnership interest
if purchased, or if not purchased, the amount of any cash or basis of any
other property that partner transferred to the partnership, increased (or
decreased) by that partner's share of the partnership's income (or loss) and
decreased by the amount of any cash (or the basis of any property)
distributed to that partner. Upon sale of his or her partnership interest, a
partner realizes gain equal to the amount received for the partnership
interest less the partner's basis in the partnership interest. The partner's
gain (or loss) upon sale is generally capital, but may be characterized as
ordinary to the extent of the partner's share of certain assets held by the
partnership.
Because a partnership does not pay tax on income it earns (but rather
the General Partner and Limited Partners pay tax on such income), partners of
a partnership are subject to only one level of federal income tax on income
earned in the business conducted by the Partnership. As owners of the
Partnership through their LP Interests, Limited Partners receive the federal
income tax treatment just described. The amount of LP Interests owned by a
Limited Partner will determine the amount of income or loss allocated to the
partner by the Partnership.
A corporation is a taxable entity and pays federal income tax at a
maximum rate of 35% on its taxable income. A shareholder of a corporation is
generally not taxed on any income earned by a corporation until the
corporation distributes either cash or property to the shareholder or the
shareholder sells or exchanges his or her stock at a gain. A corporation
often makes distributions to shareholders in proportion to their interests in
the corporation, but it need not do so. When cash or property is
distributed, each portion of the distribution will be characterized in one of
the following three ways: (i) as a dividend, (ii) as a capital gain, or
(iii) as a return of capital. The portion of a distribution treated as a
dividend is taxed at ordinary federal income tax rates, which, for
individuals, range up to 39.6%. The portion treated as capital gain will
generally be taxed at a maximum 28% rate. The portion treated as return of
capital will not be taxed. The amount of any distribution treated in any of
the three alternative ways may differ for each shareholder, and will depend
upon the value of the cash and property received, the percentage interest in
the corporation owned by the shareholders receiving the distribution, and
each shareholder's basis in his or her shares. Because corporations are
taxable on their own taxable income, and because shareholders may be taxed
again on that same income if it is distributed to them in the form of cash or
property or it is realized through the sale or exchange of shares of stock at
a gain, there are two levels of potential tax upon income earned by a
corporation. A shareholder's basis in his or her stock is generally equal to
the cost of the stock (if purchased), or (if not purchased) the amount of any
cash and basis of other property contributed to the corporation, decreased by
the amount of any distributions treated as a return of capital under the
rules discussed above. Upon a sale of stock, a shareholder's gain (or loss)
will be equal to the amount received for the stock less his or her basis in
that stock. The character of such gain (or loss) will generally be capital
in nature. As holders of interests in a corporation, the owners of any
Common Shares will be subject to the tax treatment just described.
As a holder of a LP Interest, therefore, a Limited Partner holds an
interest in an entity that earns income subject to only one level of federal
income tax, whereas the holder of a Common Share would hold an interest in an
entity that earns income subject to two potential levels of federal income
tax.
There are, however, potential tax advantages (and corresponding
financial advantages) to conducting a business through a corporation. These
include the ability of shareholders to defer tax on income earned by the
corporation until the corporation distributes such income. Partners in a
partnership, by contrast, are taxed as soon as the partnership earns income.
Partners pay such tax at their individual federal tax rate, which may exceed
the maximum federal corporate tax rate. Because of this immediate tax, the
Partnership has been forced to distribute a substantial portion of its income
in order to allow its partners to pay their taxes. This has limited the
ability of the Partnership to accumulate cash and property in order to expand
its business. On the other hand, because corporate shareholders pay no tax
until they receive distributions, the Surviving Corporation as a corporation
may accumulate income for business expansion without financially harming its
shareholders' ability to pay their taxes.
Limited Partners and Shareholders
No gain or loss will be recognized in the exchange by a Limited Partner
of LP Interests for Common Shares if such Limited Partner receives only
Common Shares as a result of the Merger. A Limited Partner who receives cash
(with respect to LP Interests) in lieu of fractional Common Shares or due to
such Limited Partner's exercise of appraisal or similar rights under Ohio law
(with respect to LP Interests) will recognize income in an amount less than or
equal to the amount of cash received. The aggregate basis of any Common
Shares received in the Merger by a Limited Partner in exchange for LP
Interests will equal the aggregate basis in such LP Interests immediately
before the Merger (but will not include any basis attributable to fractional
Common Shares treated as sold for tax purposes). Such basis will be prorated
among all Common Shares received for such LP Interest.
No gain or loss will be recognized by a Shareholder in converting Class
A and Class B Common Shares in the Merger if such Shareholder receives only
Common Shares as a result of the Merger. Any cash received by a Shareholder
for Class A or Class B Common Shares (in lieu of the issuance of fractional
Common Shares or due to such Shareholder's proper exercise of appraisal
rights pursuant to Ohio law) will result in such Shareholder's recognition of
income in an amount less than or equal to the amount of cash received. Common
Shares received by a Shareholder in conversion of Class A and Class B Common
Shares of the General Partner will have a basis equal to the basis of the
Class A and Class B Common Shares that are converted (but will not include any
basis attributable to fractional Common Shares treated as sold for tax
purposes).
Limited Partners and Shareholders will have a split holding period in
each Common Share received. A Common Share received in exchange for LP
Interests will have a holding period that begins on the day following the
Merger to the extent that the value of such share on such date is
attributable to certain of the Partnership's assets (essentially its ordinary
income assets), and to the extent of the balance, will have a holding period
that includes the period the LP Interests were held by the Limited Partners.
A Common Share received in exchange for shares of the General Partner will
have a holding period that includes the holding period of the Shareholder's
shares of the General Partner.
These conclusions are based on the assumption that the Limited Partners
will own at least 80% of the Common Shares outstanding immediately after the
Merger, excluding from the numerator any shares received in the Merger that
are sold after the Merger pursuant to a binding commitment, obligation or
agreement made before the Merger (the "Control Assumption"). The Control
Assumption will be correct unless, contrary to the best knowledge of the
Partnership, a significant percentage of Limited Partners and Shareholders
agree prior to the Merger to sell the shares they receive in the Merger. If
the Control Assumption is not correct, each Limited Partner will recognize
gain or loss on the Merger as if the Partnership had (a) sold all of its
assets to the General Partner for an amount equal to the value of the shares
received in the Merger, plus the liabilities of the Partnership assumed in
the Merger, and (b) distributed the shares received in the Merger to the
Limited Partners.
A holder of Existing Securities who subsequently sells the Common Shares
received in the Merger will recognize gain or loss measured by the difference
between the amount realized on such sale and his or her tax basis in the
shares sold. Each Limited Partner who receives shares in the Merger will be
required to file with his or her federal income tax return for the year in
which the Merger is completed a statement that provides details relating to
his or her LP Interest (which will be considered to be property transferred),
the Common Shares, and his or her share of any liabilities assumed by the
Surviving Corporation in the Merger. The Surviving Corporation will provide
shareholders with information to assist them in preparing such statement.
After the Merger, the income and deductions attributable to the assets
and liabilities of the Surviving Corporation will not be allocated to the
Surviving Corporation's shareholders. A shareholder will be taxed only on
dividends and other distributions received from the Surviving Corporation, if
any. Such distributions generally will be taxable as dividends to the extent
of any current or accumulated earnings and profits of the Surviving
Corporation. Any other distributions will be treated as a nontaxable return
of capital to the extent of the shareholder's basis in his or her Common
Shares and as capital gain to the extent of the balance.
The Surviving Corporation and the Partnership
Neither the Surviving Corporation nor the Partnership will recognize any
gain or loss as a result of the Merger. The Partnership will be deemed to
have transferred all its assets and liabilities to the General Partner and to
have received shares of the Surviving Corporation in exchange, and then to
have distributed those shares to the Limited Partners in complete
liquidation. As a consequence, the assets of the Partnership will retain the
same tax basis as they had prior to the Merger unless the Partnership is
required to recognize gain in the Merger.
If the Control Assumption is not correct, the Surviving Corporation
would still not recognize gain or loss on the Merger, but the Surviving
Corporation's tax basis in the assets acquired from the Partnership would
equal the value of the Common Shares issued in the Merger plus the amount of
the Partnership's liabilities assumed in the Merger, and the Surviving
Corporation's holding period in the assets would begin the day after the
Merger takes effect. The Partnership, on the other hand, would recognize
gain or loss on the Merger in an amount equal to the amount by which the
value of the Common Shares received plus the amount of the Partnership's
liabilities assumed exceeds (or is less than) its basis in the assets
transferred and the partners would be required to include in their taxable
income their distributive shares of the Partnership's gain or loss.
After the Merger, the Partnership will cease to exist for both state law
and federal income tax purposes. The Surviving Corporation will be taxed as
a corporation on its taxable income. The income and deductions attributable
to the assets and liabilities received in the Merger will be included in the
Surviving Corporation's taxable income. The adjusted tax basis of certain of
the assets will be depreciable or amortizable for federal tax purposes,
thereby reducing the amount of the Surviving Corporation's income subject to
tax.
THE FOREGOING DISCUSSION ADDRESSES ONLY THE FEDERAL INCOME TAX CONSE-
QUENCES OF THE MERGER APPLICABLE TO LIMITED PARTNERS AND SHAREHOLDERS
GENERALLY. EACH LIMITED PARTNER AND SHAREHOLDER SHOULD CONSULT HIS OR HER
OWN TAX ADVISOR CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX
CONSEQUENCES OF THE MERGER.
CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS
The following provides Limited Partners and Shareholders with a summary
of certain material state and local income tax consequences of general
application to the Limited Partners and the Surviving Corporation associated
with the Merger. This section does not comment on all tax matters that may
affect the Partnership, the Surviving Corporation, the Limited Partners and
the Shareholders, and does not consider various facts and limitations
applicable to any particular Limited Partner, or special tax rules that may
apply to certain Limited Partners and Shareholders and may modify the results
described herein.
The following statements are not the subject of the Kirkland & Ellis
opinion and have not otherwise been passed upon by Kirkland & Ellis. No
rulings have been requested from any state or local tax jurisdiction
concerning any of the matters described in this Joint Proxy
Statement/Prospectus.
A partnership is generally a pass-through entity for state and local
income tax purposes. This means that a partnership is not liable for state
or local income tax on its taxable income. In general, partners liable for
federal income tax are also liable for the state and local income taxes of
the states and taxing municipalities in which a partnership does business.
These taxes are generally based on a partner's allocated share of federal
taxable income from the partnership as allocated or apportioned among the
various state and local jurisdictions on the basis of the character of the
income earned or on the basis of sales made, payroll paid, and property owned
in each jurisdiction. A partner is also generally subject to tax on all
income earned from that partner's investment in the partnership in the
partner's state and, if applicable, city or village of residence. This tax
may be offset by credits for taxes paid to other states and municipalities.
In general, interest income and capital gains earned by a partnership are not
subject to municipal income tax. As with federal income tax, partners of a
partnership are subject to only one level of state and local income tax on
income earned in the business conducted by the Partnership. See "FEDERAL
INCOME TAX CONSIDERATIONS."
The Partnership has filed composite state income tax returns for a
number of years on behalf of eligible and electing Limited Partners for the
purpose of limiting each partner's compliance burden to that partner's state
of residence. The taxes paid by the Partnership with these returns have been
charged to the participating partners' partnership capital accounts.
A corporation is a taxable entity and pays state and local income taxes
at rates which vary depending upon the identity of the states and cities in
which the corporation conducts its business. A majority of the business of
the Surviving Corporation is expected to be conducted in Ohio, which imposes
a rate of approximately 9% on income apportioned to Ohio. A shareholder of a
corporation is generally not taxed on any income earned by a corporation
until the corporation distributes either cash or property to the shareholder
or the shareholder sells or exchanges shares of stock at a gain. See
"FEDERAL INCOME TAX CONSIDERATIONS." Dividends and capital gains are
generally subject to tax only in the shareholder's state of residence.
Income from capital gains is generally taxed at the same rates as other
taxable income. Neither dividends nor capital gains are generally taxable by
taxing municipalities.
THE FOREGOING DISCUSSION ADDRESSES ONLY CERTAIN OF THE STATE AND LOCAL
INCOME TAX CONSEQUENCES OF THE MERGER APPLICABLE TO LIMITED PARTNERS AND
SHAREHOLDERS GENERALLY. EACH LIMITED PARTNER AND SHAREHOLDER SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX
CONSEQUENCES OF THE MERGER.
THE COMPANY
General
The Company is engaged in grain merchandising and operates grain
elevator facilities located in Ohio, Michigan, Indiana and Illinois. The
Company is also engaged in the distribution of agricultural products such as
fertilizers, seeds and farm supplies. The Company operates retail general
stores; produces, distributes and markets lawn care products and corncob
products; and repairs and leases rail cars.
Agriculture Group
The agriculture group consists of grain operations, wholesale fertilizer
operations, retail farm centers and farmer services.
The Company's grain operations involve merchandising grain and operating
terminal grain elevator facilities, which includes purchasing, handling,
processing and conditioning grain, storing grain purchased by the Company as
well as grain owned by others, and selling grain. The principal grains sold
by the Company are yellow corn, yellow soybeans and soft red and white wheat.
The Company's total grain storage capacity aggregates approximately 67
million bushels.
Virtually all grain merchandised by the Company is grown in the
midwestern part of the United States and is acquired from country elevators,
dealers and producers. The Company effects grain purchases at prices
referenced to Chicago Board of Trade quotations. The Company competes for
the purchase of grain with grain processors and feeders, as well as with
other grain merchandisers.
The Company's grain business may be adversely affected by unfavorable
weather conditions, disease, insect damage, the total acreage planted by
farmers, government regulations and policies, and commodity price levels as
they affect grower incentive or a supplier's decision when to deliver grain
for sale. See "Government Regulation." The grain business is seasonal
coinciding with the harvest of the principal grains purchased and sold by the
Company.
During 1994, approximately 63% of the grain sold by the Company was
purchased domestically by grain processors and feeders and approximately 37%
was exported. Most of the exported grain was purchased by exporters for
shipment to foreign markets. Some grain is shipped directly to foreign
countries, mainly Canada. Almost all grain shipments are by rail or boat.
Rail shipments are made primarily to grain processors and feeders, with some
rail shipments made to exporters on the Gulf or east coast. All boat
shipments are from the Toledo, Ohio port elevator.
The Company competes in the sale of grain with other grain merchants,
other private elevator operators and farmer cooperatives which operate
elevator facilities. Competition is based primarily on price, service and
reliability. Some of the Company's competitors are also its customers and
many of its competitors have substantially greater financial resources than
the Company.
Grain sales are effected on a negotiated basis by the Company's
merchandising staff. As with agricultural commodities generally, the volume
and pricing of the Company's sales are sensitive to changes in supply and
demand relationships, which in turn are affected by factors such as weather,
crop disease and government programs, including subsidies and acreage
allotments. The Company's business also is affected by factors such as
conditions in the shipping industry, currency exchange fluctuations,
government export programs and the relationships of other countries with the
United States and similar considerations. Since the Company does not usually
know the ultimate destination of the grain it sells for export, it is unable
to determine the relative importance, in terms of sales, of the various
countries to which grain is shipped by its customers.
Fixed price purchases and sales of cash grain expose the Company to
adverse changes in price. Hedging of these purchase and sales positions
provides protection from the potential adverse changes in price, avoiding
unacceptable risk and the potential for significant loss.
The Company hedges fixed price purchase and sales transactions through
the use of futures contracts with the Chicago Board of Trade ("CBOT"). The
CBOT is a regulated commodity futures exchange that maintains futures markets
for the grains merchandised by the Company. Futures prices are determined by
supply and demand.
The hedging program is designed to reduce the risk of changing commodity
prices. In that regard, hedging transactions also limit potential gains from
further changes in market prices. The agriculture group's profitability is
derived from margins on grain sold and revenues generated from other
merchandising activities with its customers, not from its hedging
transactions.
Purchases of grain can be made the day the grain is delivered to a
terminal or via a forward contract made prior to actual delivery. Sales of
grain are generally made by contract for delivery in some future period.
When the Company purchases or contracts for future delivery for grain at a
fixed price, the purchase is immediately hedged with the sale of a futures
contract on the CBOT. Similarly, when the Company sells grain at a fixed
price, the sale is immediately hedged with the purchase of a futures contract
on the CBOT. At the close of business each day, the open fixed price cash
positions as well as open futures positions, are marked-to-market. Gains
/losses in value on the Company's cash positions from price changes are off-
set by losses/gains in value on the Company's futures positions.
When a futures contract is entered into, an initial margin deposit must
be sent to the CBOT. The amount of the margin deposit is set by the CBOT and
varies by commodity. If the market price of a short futures contract
increases, then an additional margin deposit, called a maintenance margin,
would be required to be sent to the CBOT. Similarly, if the price of a long
futures contract decreases, a maintenance margin deposit would be required to
be sent to the CBOT. Subsequent price changes could require additional
maintenance margins or could result in the return of maintenance margins by
the CBOT. Significant changes in market prices, such as occurs when weather
conditions are unfavorable for extended periods, can have an effect on
liquidity and requires the Company to maintain appropriate short-term lines
of credit.
At any one time the agriculture group's purchase contract portfolio may
approximate 75 million bushels for delivery to the Company over the next
three years. Because of this volume, the Company relies heavily on its
hedging program as the method for minimizing price risk in its grain
inventories and contracts. The agriculture group has adopted a policy which
specifies the key controls over the hedging program. This policy includes a
description of the hedging programs, mandatory review of positions by key
management outside of the trading function on a biweekly basis, daily
position limits, modeling of positions for changes in market conditions, and
other internal controls.
The Company's wholesale agricultural fertilizer operations involve
purchasing, storing, formulating, and selling dry and liquid fertilizers;
manufacturing liquid fertilizers; providing fertilizer warehousing and
services to manufacturers and customers; and wholesale distribution of seeds
and various farm supplies. The major fertilizer ingredients sold by the
Company are nitrogen, phosphate and potassium, all of which are readily
available from various sources.
The Company's wholesale agricultural fertilizer market area primarily
includes Ohio, Michigan, Indiana and Illinois and customers for the Company's
agricultural fertilizer products are principally retail dealers. Sales of
agricultural fertilizer products are heaviest in the spring and fall.
The Company's aggregate storage capacity for dry fertilizer is 14
million cubic feet. The Company reserves 5 million cubic feet of this space
for various fertilizer manufacturers and customers. The Company's aggregate
storage capacity for liquid fertilizer is 32 million gallons and 6 million
gallons of this space is reserved for manufacturers and customers. The
agreements for reserved space provide the Company storage and handling fees
and, generally, are for one year and are renewed at the end of each term.
The Company operates ten retail farm centers located throughout
Michigan, Indiana and Ohio. These centers, often strategically located at or
near the Company's grain or wholesale fertilizer facilities, offer
agricultural fertilizer, chemicals, seeds and supplies, as well as custom
application of fertilizer and chemicals to the farmer. In addition, farmer
services representatives provide a link between the grain and fertilizer
operations and offer assistance with grain marketing and farm financial
management.
In its agricultural products business, the Company competes with
regional cooperatives; fertilizer manufacturers; multi-state retail/wholesale
chain store organizations; and other independent wholesalers of agricultural
products. Many of these competitors have considerably larger resources than
the Company. Competition in the agricultural products business of the
Company is based principally on price, location and service. The Company
believes that it is a strong competitor in these areas.
Retail Group
The Company's retail store operations consist of six facilities operated
as The Andersons retail general stores, which are located in the Columbus,
Lima and Toledo, Ohio areas, which serve urban, rural and suburban customers.
Major product categories in the general stores include: hardware, home
remodeling and building supplies; automotive accessories and parts; small
appliances, electronics and houseware products; work clothes and footwear;
wine, specialty meats and cheeses, baked goods and produce; pet care
products; lawn and garden supplies, nursery stock and Christmas decorations
and trim; toys, sporting goods, bicycles and marine accessories. The general
store concept features self-selection of a wide range and variety of brand
name, quality merchandise. Each general store carries more than 70,000
different items, has over 100,000 square feet of in-store display space plus
40,000 square feet of outdoor garden center space, and has a center aisle
that features do-it-yourself clinics, special promotions and varying
merchandise displays.
The retail merchandising business is highly competitive. The Company
competes with a variety of retail merchandisers, including numerous mass
retailers, department and hardware stores, and farm equipment and supply
companies. The principal competitive factors are quality of product, price,
service and breadth of selection. In each of these areas the Company is an
effective competitor. Its wide selection of brand names and other quality
merchandise is attractively displayed in the Company's general stores. Each
store is located on landscaped property with ample well-lit parking
facilities. The Company's retail business is affected by seasonal factors
with significant sales occurring during the Christmas season and in the
spring.
Other Businesses
The Company produces more than 1,000 granular consumer and professional
lawn and garden care products for national distribution. The consumer
granular products are sold to mass merchandisers, home centers and regional
retailers as well as other lawn fertilizer manufacturers. The professional
granular products are sold both direct and through distributors to lawn
service applicators and to golf courses. The principal raw materials for the
lawn care products are nitrogen, potash and phosphate, which are available
from the Company's agriculture group. The lawn and garden industry is highly
seasonal, with the majority of the sales occurring from early spring to early
summer. Competition is based principally on merchandising ability, service
and quality.
The Company is one of the largest producers of processed corncob
products in the United States. These products serve the chemical carrier,
animal bedding, industrial and sorbent markets and are distributed throughout
the United States and Canada and into Europe and Asia. The unique absorption
characteristics of the corncob has led to the development of "sorbent"
products. Sorbents include products made from corncobs as well as synthetic
and other materials and are used to absorb spilled industrial liquids and
other waste products. The principal sources for the corncobs are the
Company's grain operations and seed corn producers.
The Company is also involved in repairing, buying, selling and leasing
rail cars, the operation of seven auto service centers, the production of
dog and cat foods, a steel fabrication shop and an outdoor power equipment
sales and service shop.
Research and Development
The Company's research and development program is mainly concerned with
the development of improved products and processes, primarily lawn care
products and corncob products. Approximately $490,000, $450,000, $380,000,
$220,000 and $298,000 was expended on research and development during 1994,
1993, 1992, 1991 and 1990, respectively, including materials, salaries and
outside consultants.
Employees
All management and labor services are provided to the Partnership by the
employees of the General Partner. The Partnership pays a management fee to
the General Partner for these services. At March 31, 1995, there were 1,160
full-time and 1,945 part-time or seasonal employees of the General Partner
providing services to the Partnership, which does not have any of its own
employees.
Government Regulation
Grain sold by the Company must conform to official grade standards
imposed under a federal system of grain grading and inspection administered
by the United States Department of Agriculture ("USDA").
The production levels, markets and prices of the grains which the
Company merchandises are materially affected by United States government
programs, including acreage control and price support programs of the USDA.
Also, under federal law, the President may prohibit the export of any
product, the scarcity of which is deemed detrimental to the domestic economy,
or under circumstances relating to national security. Because a portion of
the Company's grain sales are to exporters, the imposition of such
restrictions could have an adverse effect upon the Company's operations.
The Company, like other companies engaged in similar businesses, is
subject to a multitude of federal, state and local environmental protection
laws and regulations including, but not limited to, laws and regulations
relating to air quality, water quality, pesticides and hazardous materials.
The provisions of these various regulations could require modifications of
certain of the Company's existing plant and processing facilities and could
restrict future facilities expansion or significantly increase their cost of
operation. The Company made capital expenditures of approximately $600,000 in
1994 in order to comply with these regulations.
Environmental Proceeding
In 1992, the Company was notified by the Ohio Environmental Protection
Agency (the "Agency") that a water contamination discharge issue had been
referred to the Ohio Attorney General. The issue involved the Company's
Toledo, Ohio river elevator facility, built during the 1960's and 1970's on
low lying land that had, in part, been filled by an unrelated corporation
with material from its manufacturing operations. This material was allegedly
the source of the alleged contamination at issue. In November, 1994, a
Consent Order was filed in the Lucas County Court of Common Pleas which
resolved the water contamination discharge issue. In addition, the Agency
has reserved the right to investigate whether further action will be
necessary at the river elevator facility. Such investigation, if conducted,
would likely involve a determination as to what, if any, potential risks are
posed by materials which were deposited at the site by a previous owner
during its ownership of the property. The Company does not yet know (i)
whether further action will be required, (ii) what the costs of any such
further action would be, or (iii) how such costs would be allocated among the
responsible parties. As the owner of the facility on such site, the Company
could be a potentially responsible party under one or more state and federal
environmental statutes and could, therefore, be jointly and severally liable
for all of the costs imposed in connection with any such further action. At
this time, the Company cannot ascertain whether such costs would be material
to the Company.
Properties
The Company's principal agriculture, retail and other properties are
described below. Except as otherwise indicated, all properties are owned by
the Company.
Agriculture Facilities
Location Grain Wholesale Fertilizer
Storage Dry Storage Liquid Storage
(bushels) (cu. ft.) (gal.)
Maumee, OH 18,800,000 6,333,000 2,600,000
Toledo, OH 6,300,000 2,000,000 3,000,000
Metamora, OH (2) 6,480,000 --- ---
Lyons, OH (2)(4) 380,000 47,000 160,000
Champaign, IL 13,000,000 833,000 ---
Delphi, IN 6,580,000 1,667,000 ---
Clymers, IN (1) 4,400,000 --- 7,600,000
Clymers, IN (4) --- 37,000 480,000
Dunkirk, IN 5,900,000 900,000
Poneto, IN 530,000 --- 4,200,000
North Manchester,IN (4) --- 23,000 90,000
Logansport, IN --- 33,000 3,000,000
Walton, IN (4) --- 433,000 6,500,000
Albion, MI (4) 2,470,000 23,000 40,000
Potterville, MI (4) 790,000 23,000 ---
White Pigeon, MI 1,730,000 --- ---
Webberville, MI --- 2,017,000 3,200,000
Litchfield, MI (3)(4) --- 40,000 252,000
North Adams, MI (3)(4) --- 20,000 230,000
Union City, MI (4) --- 20,000 40,000
Munson, MI (2)(4) --- 33,000 150,000
67,360,000 14,482,000 31,542,000
(1) Facility leased - lease expires in 1998, provides an option to purchase.
(2) Facilities leased, option to purchase exercised in 1995.
(3) Facility leased.
(4) Facility is or includes a retail farm center.
The grain facilities are mostly concrete and steel tanks, with some flat
storage. The Company also owns grain inspection buildings and driers, a corn
sheller plant, maintenance buildings and truck scales and dumps. Capacity in
the Company's grain facilities increased from 44.9 million bushels in 1990 to
the current 67.3 million bushels through a combination of acquisition,
leasing and construction.
Agricultural products properties consist mainly of fertilizer warehouse
and distribution facilities for dry and liquid fertilizers. The Maumee, Ohio
and Walton, Indiana locations have fertilizer mixing, bagging and bag storage
facilities. The Company owns a seed processing facility in Delta, Ohio. The
Company also operates ten retail farm centers (four under lease agreements)
in Michigan, Indiana and Ohio. Aggregate storage capacity in the ten retail
farm centers for liquid fertilizer and dry fertilizer is 7.9 million gallons
and 676,000 cubic feet, respectively. Since 1990, total storage capacity has
remained at the same level for dry fertilizer. Liquid fertilizer capacity
has increased by 77% or 14 million gallons.
Retail Store Properties
Name Location Square Feet
Maumee General Store Maumee, OH 128,000
Toledo General Store Toledo, OH 134,000
Woodville General Store (1) Northwood, OH 105,000
Lima General Store (1) Lima, OH 103,000
Brice General Store Columbus, OH 140,000
Sawmill General Store Columbus, OH 134,000
Warehouse (1) Maumee, OH 245,000
(1) Leased.
The leases for the two general stores and the warehouse facility are
long-term leases with several renewal options and provide for minimum
aggregate annual lease payments approximating $1,016,000. The general store
leases provide for contingent lease payments based on achieved sales volume.
With respect to the Brice General Store, see "MANAGEMENT--Certain
Relationships and Related Transactions." The Lima General Store was added in
1993.
Other Properties
The Company owns lawn fertilizer production facilities and automated pet
food production and storage facilities in Maumee, Ohio. It also owns corncob
processing and storage facilities in Maumee, Ohio and Delphi, Indiana. The
Company leases a lawn fertilizer production facility, a warehouse facility
and four lawn products sales outlets. In its rail car leasing business, the
Company owns or leases approximately 1600 rail cars (primarily covered hopper
cars) with lease terms ranging from one to ten years and annual lease
payments aggregating approximately $4,200,000. The majority of these cars
are leased to other companies, although some cars are maintained by the
Company's agriculture group. The Company also owns a rail car repair
facility, a steel fabrication facility, a service and sales facility for
outdoor power equipment and the Company owns or leases seven auto service
centers.
The Company's administrative office building is leased at an annual
rental of $696,000 under a net lease expiring in 2000. See "MANAGEMENT--
Certain Relationships and Related Transactions." The Company owns
approximately 618 acres of land on which various of the above properties and
facilities are located; approximately 363 acres of farmland and land held for
future use; approximately 102 acres of improved land in an office/industrial
park held for sale; and certain other meeting and recreational facilities,
dwellings and parcels. The Company also owns or leases a number of switch
engines, cranes and other equipment.
Real properties, machinery and equipment of the Company were subject to
aggregate encumbrances of approximately $41,125,000 at December 31, 1994.
Additions to property for the years ended December 31, 1994, 1993, 1992, 1991
and 1990 amounted to $26,300,359 (includes $11,852,333 for the repurchase of
two retail general store facilities), $10,808,521, $6,590,045, $6,670,883 and
$5,063,336, respectively. See Note 8 to the Company's Consolidated Financial
Statements for information as to the Company's leases. In 1992, the Company
disposed of its pet products distribution business. See Note 3 to the
Partnership's Financial Statement.
The Company believes that its properties, including its machinery,
equipment and vehicles, are adequate for its business, well maintained and
utilized, suitable for their intended uses and adequately insured.
<TABLE>
Selected Financial Data of the Partnership
(dollars in thousands, except per $1000 of weighted average partners' capital data)
<CAPTION>
Three Months Ended
March 31 Year Ended December 31
1995 1994 1994 1993 1992 1991 1990
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Grain sales and revenues $104,774 $132,670 $551,836 $439,484 $440,553 $356,898 $359,550
Fertilizer, retail and
other sales 98,236 86,029 400,922 336,973 312,613 286,165 283,867
Total sales and
merchandising revenues 203,010 218,699 952,758 776,457 753,166 643,063 643,417
Operating profit (a) 6,411 4,530 28,720 21,170 18,300 13,987 16,157
Income from continuing
operations (b) 1,923 2,085 15,137 11,079 10,130 4,516 5,260
Net income 1,923 2,085 15,137 11,079 7,636 2,825 3,859
Weighted average partners'
capital (c) 64,079 54,901 52,696 47,405 43,101 41,939 43,048
Allocations and
distributions per $1,000
of weighted average
partners' capital:
Allocation of income
from continuing
operations 30 38 287 234 235 107 122
Allocation of net income 30 38 287 234 177 67 90
Cash distributions 3 6 21 32 34 34 32
Tax distributions (d) 7 12 63 88 10 88 6
</TABLE>
<TABLE>
<CAPTION>
As of As of December 31
March 31,
1995 1994 1993 1992 1991 1990
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Total assets $362,607 $350,184 $356,501 $255,500 $290,110 $234,319
Long-term debt and other long-term
obligations 72,793 74,277 55,817 47,570 49,884 50,133
Partners'capital:
General partner 998 969 762 623 531 546
Limited partners 64,735 63,008 54,649 50,497 41,977 45,265
Total Partner's capital $ 65,733 $ 63,977 $ 55,410 $ 51,120 $ 42,508 $ 45,811
<FN>
Notes to Selected Financial Data of the Partnership
(a) See Note 12 to the Partnership's Consolidated Financial Statements for the definition of operating profit.
(b) See Note 3 to the Partnership's Consolidated Financial Statements.
(c) Weighted average partners' capital represents the average daily outstanding partners' capital balance,
which includes the effects of distributions and investments made during the year.
(d) Tax distributions can fluctuate widely due to the timing of the distributions and the amount of
Partnership taxable income. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE PARTNERSHIP -Liquidity and Capital Resources."
</TABLE>
<TABLE>
Selected Financial Data of the General Partner
(dollars in thousands, except share and per share data)
<CAPTION>
Three Months Ended Year Ended December 31
March 31
1995 1994 1994 1993 1992 1991 1990
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees $18,413 $15,792 $70,395 $63,107 $57,388 $55,358 $51,582
Net income 45 5 252 146 9 24 46
Net income per Class A
Common Share 9.80 0.99 54.72 31.66 1.96 5.38 9.91
Weighted average number
of Class A Common
Shares outstanding 4,608 4,612 4,612 4,624 4,633 4,591 4,691
</TABLE>
<TABLE>
As of As of December 31
March 31,
<CAPTION>
1995 1994 1993 1992 1991 1990
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Total assets $12,405 $12,984 $11,432 $8,841 $8,580 $7,783
Long-term debt and other long-term
obligations 3,275 3,060 2,413 1,756 1,489 1,580
Shareholders'equity 1,904 1,862 1,607 1,473 1,445 1,448
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP
Liquidity and Capital Resources
Working capital at March 31, 1995 and December 31, 1994 was $57 million,
up $10 million from December 31, 1993. Cash provided by operating activities
was $52 million in calendar 1994 compared to a use of cash in calendar 1993 of
$51 million. The increase in cash provided by operating activities led to a
decrease in short-term borrowings from $87.9 million at December 31, 1993 to
$50 million at December 31, 1994. Cash used in operations for the quarter
ended March 31, 1995 was $75 million and was provided primarily from
additional short-term borrowings.
Partners' capital was $65.7 million at March 31, 1995 and was $64 million
at December 31, 1994 which was up from $55.4 million at December 31, 1993.
Net income in 1994 of $15.1 million was added to partners' capital, while
Limited Partners added $733,675 to their capital accounts at the beginning of
1994 and withdrew $604,000. During 1994 quarterly cash distributions to
partners totaled $1.1 million. This amount decreased from prior years due to
Limited Partners' elections to receive reduced distributions. In addition, at
the end of the year, distributions to certain Limited Partners and charitable
remainder trusts totaled $1.2 million and charitable contributions charged to
Limited Partners' capital accounts totaled $782,000. Tax distributions to
Limited Partners during 1994 totaled $3.3 million. An additional tax
distribution of $474,000 was paid in January 1995 and the final 1994 tax
distribution of $1.8 million was paid on April 7, 1995.
In the first quarter of 1995, the increase in partners' capital was due
to the addition of net income of $1.9 million and equity reinvested of $1.1
million. Quarterly cash and tax distributions of $220,000 and $474,000,
respectively, were paid in the first quarter. It is anticipated that future
quarterly tax distributions, beginning in June 1995, will be less than the
first quarter distribution. Future quarterly cash distributions, also
beginning in June of 1995, are expected to approximate $225,000.
Tax distributions have been made to Limited Partners for purposes of
making federal, state and local tax payments since the taxable income of the
Partnership is taxable to the Limited Partners and not to the Partnership.
Tax distributions can fluctuate widely from year to year (see "Selected
Financial Data Of The Partnership") due to changes in the amount and in the
components of Partnership taxable income, due to the timing of required tax
payments by Limited Partners and due to the elections made by Limited
Partners to take all, none or a percentage of the tax distribution available
to them. Tax distributions and taxable income for the last five years have
been as follows:
Year Distributions Taxable Income
1990 $ 278,000 $ 5,313,000
1991 3,700,000 3,880,000
1992 418,000 8,255,000
1993 4,200,000 11,856,000
1994 3,335,000 17,833,000
The 1990 tax distribution was based on 1989 taxable income of
$1,559,500. The tax distributions in 1991 were considerably higher due to
the increase in taxable income from 1989 to 1990 and due to the
implementation of quarterly tax distributions paid to Limited Partners in
April, June and September. Quarterly tax distributions were made to coincide
with the timing of estimated tax payments due by Limited Partners. Tax
distributions paid in 1992 decreased due to the decrease in taxable income
from 1990 to 1991 and due to the quarterly tax payments made in 1991. In
1993, the tax distributions were very high due to the increase in taxable
income in 1992, which also impacted the quarterly tax distributions needed by
Limited Partners to meet their 1993 estimated tax payments. In 1994 tax
distributions were lower than 1993 due to elections by Limited Partners to
take smaller tax distributions.
During 1994 the Partnership issued $639,000 Five-Year and $1.5 million
Ten-Year debentures. Additional debentures totaling $277,000 were issued
during the first quarter of 1995. Proceeds from the issuance of the
debentures were used to fund current maturities of long-term debt and for
capital expenditures. Although the Partnership does not anticipate additional
bond sales in the second quarter, it may offer bonds in the future.
The Partnership finances part of its inventories through short-term
borrowings under lines of credit which are also used from time to time for
other Partnership purposes. Generally, the highest borrowings occur in the
spring and are related to payments of grain payables, credit sales of
agricultural products related to spring planting and a seasonal peak in
credit sales of lawn care products. The amount of borrowings outstanding
during the year, and from one year to another, may fluctuate widely depending
upon accounts receivable and inventory levels, and maintenance margin
requirements. The Partnership has available lines of credit for unsecured
short-term debt with banks aggregating $167,000,000 at March 31, 1995. The
credit arrangements, the amounts of which are adjusted from time to time to
meet the Partnership's needs, are demand notes without termination dates but
are reviewed at least annually for renewal. Because the Partnership actively
manages the payment of fees on its available lines of credit, it reduced those
few lines on which fees are charged during the first quarter. See Note 6 to
the Partnership's Consolidated Financial Statements for additional information
relating to the lines of credit. The Partnership also has a $20 million long-
term revolving line of credit. See Note 7 to the Partnership's Consolidated
Financial Statements.
Certain of the Partnership's long-term indebtedness is secured by first
mortgages on various facilities of the Partnership. Some of the
Partnership's long-term borrowings include provisions that impose minimum
levels of working capital and partnership equity (as defined); the addition
of new long-term debt; restrict the Partnership from certain sale, lease,
merger and consolidation transactions; require the Partnership to be
substantially hedged in its grain transactions; and certain other
requirements. At March 31, 1995, the Partnership was, and it believes it
continues to be, in compliance with all terms and conditions of the secured
borrowings and short and long term lines of credit. See Note 7 to the
Partnership's Consolidated Financial Statements for further information with
respect to long-term financing.
The Partnership periodically utilizes interest rate contracts to manage
interest rate risk by locking in rates consistent with projected borrowing
needs. There were no open interest rate contracts at March 31, 1995.
The Partnership's liquidity is enhanced by the fact that grain
inventories are readily marketable. In management's opinion, the
Partnership's liquidity is adequate to meet short and long-term needs.
Capital expenditures were approximately $26 million in 1994 and are
expected to be approximately $24 million in 1995. Anticipated capital
expenditures in 1995 include $3.5 million for grain elevator and retail farm
center acquisitions, $2.6 million for additional storage capacity, $1.9
million for store renovations, $5.9 million for plant upgrades and
improvements and $1.4 million for information systems improvements. Funding
for capital expenditures in 1995 is expected to come from cash generated from
operations and additional long-term debt or new equity.
Results of Operations
Three months ended March 31, 1995 and March 31, 1994
Net income in the first quarter of 1995 was $1.9 million, slightly less
than the 1994 first quarter income of $2.1 million. Revenues were $204
million, down from $219 million a year ago. Interest expense was up due to an
increase in short-term and long-term debt and higher interest rates.
Operating, administrative and general expenses were up 14.4% with most of the
increase coming from expanded operations including two new grain facilities
and two new ag fertilizer facilities opened after the first quarter of 1994.
The Agriculture Group experienced a 12% decrease in sales and
merchandising revenues from 1994 but a 32% increase in gross profit. Sales of
grains were $99 million in the first quarter of 1995, down $28 million from a
year ago. The average selling price was $3.17 per bushel, down from $4.04 per
bushel in the first quarter of last year. This decrease in price reflects a
reduction in the percent of soybean bushels to total bushels sold as soybean
prices are approximately twice that of corn and wheat. The number of bushels
sold increased by 90% and margins were also up. The income earned from
holding owned grain increased by $300,000 from the level of income experienced
in 1994. Drying and mixing income decreased slightly. Storage income was
down 5% in the first quarter and this trend should continue into the second
quarter as bushels held in storage at the end of the quarter were two-thirds
that of a year ago. Overall, merchandising revenues were up 2% from last
year. Gross profit from the grain area was up $3.4 million or 46% in the
first quarter of 1995 due to the large increase in volume of bushels sold and
a smaller increase in margins.
In agricultural fertilizer and supply, sales were $36 million, up $8
million from a year ago. Wholesale sales of fertilizer products accounted
for almost all of the sales increase. Volume was up 14% and selling
prices were up 13%. Margins were down 4% in the first quarter of 1995 due to
increased material costs. Retail sales were up $1.2 million due primarily to
the opening of three new retail farm centers. Sales of agricultural supplies
were down approximately $400,000. Gross profit on sales of agricultural
products was up 9% for the quarter due primarily to the wholesale volume
increase.
Sales in the retail area were $31 million in first quarter of 1995
compared to $31.6 million last year. Sales in the Columbus market were
unchanged and sales in the Toledo market were up 1%. Sales in the Lima store
were down 1.6%. As a result of a 3% increase in margins, gross profit in the
retail area was up 1%.
Sales of lawn care products were $19 million, up $3 million from the
first quarter of last year. Tons sold increased by about 11% while average
selling prices increased by about 8%. Increased material costs, however,
limited the gross profit increase to 3%. In the industrial products area,
sales were up 20% from the first quarter of 1994 and volume was up about 4%.
Gross profit was up 18% due to the volume and sales increase and a shift in
product mix. Average sales price increased 10%. In other businesses, sales
were unchanged from the prior year. Gross profit in the other businesses was
up about 16% due primarily to the rail division.
Years ended December 31, 1994 and 1993
Net income in 1994 increased to $15 million from $11 million in 1993.
Gross profit increased by $19 million or 15%. Operating, administrative and
general expenses were up $13 million or about 11%, including an increase of
$7.3 million (11%) in the management fee paid to the General Partner. Most
of the management fee increase was for salaries, wages and benefits.
Additional facilities in the Agriculture Group added approximately $5 million
to salaries, wages and benefits and a full year of operation at the Lima
General Store added more than $1 million to salaries, wages and benefits in
the Retail Group. Operating profit increased by $7.5 million.
Grain sales and merchandising revenues were $551.8 million compared to
$439.5 million in 1993, a 26% increase. Sales of grain commodities were up
$110 million. Bushels sold increased almost 20% and the average selling
price per bushel increased from $3.25 to $3.44. Cents per bushel sold
(margin) increased 19%. Merchandising revenues increased from $23.2 million
in 1993 to $25.5 million in 1994. Storage income was up $3.6 million, while
basis income was down $1.4 million due to a larger than expected wheat and
corn crop. Drying and mixing income was down $2 million during 1994, due in
part to a better quality 1993 corn crop and 1994 wheat crop than those of the
preceding crop years. Gross profit on grain sales and merchandising revenues
was up $4.3 million or 13%.
Sales of wholesale fertilizer were up $22.8 million or 26% and retail
fertilizer sales and sales of other agricultural products were up $7.6
million or 45%. Wholesale fertilizer tonnage increased by 11% and the
average selling price increased 6%. Gross profit on wholesale fertilizer
increased $5.3 million or 64% while retail and other agricultural products
gross profit increased $2.1 million or 26%. Approximately one-half of the
wholesale fertilizer gross profit increase was the result of the liquidation
in 1994 of phosphate inventories purchased in 1993 when the market price of
phosphate was depressed. In 1994, the market price appreciated significantly
and the Partnership liquidated its inventory.
Sales in the Agriculture Group were $661.4 million compared to $520.9
million in 1993, while gross profit and operating profit increased $11.7
million and $4.3 million, respectively.
Sales in the Retail Group were $172 million in 1994 compared to $155
million in 1993. Sales in the Columbus stores were up $4.4 million and sales
in the Toledo stores were up $3 million. Sales in the Lima store which
opened in September 1993 were up $10 million. Margins increased by about 3%.
Operating profit in the Retail Group was up $2.7 million.
Sales in the other businesses of the Partnership also increased. Sales
of lawn care products totalled $47.6 million, up $9.5 million from 1993.
Volume increased 27%, while average selling prices decreased 5%. Margins
were down just a little. Sales of corn cob products were $14.6 million
compared to $14.2 million in 1993. Volume was down in corn cob products and
up in sorbent products. Railcar leasing activity doubled from 1993 and sales
and repairs of railcars also increased. Sales from the Partnership's auto
service centers were up, as were steel fabrication sales. Sales from the
Partnership's outdoor power equipment and service shop also improved.
Operating profit in the other businesses was up $570,000.
Years ended December 31, 1993 and 1992
Income from continuing operations was $11 million in 1993 compared to
$10 million in 1992. Operating, administrative and general expenses were up
$12 million or approximately 12%. Included is an increase of $5.7 million
(10%) in the management fee paid to the General Partner. The more
significant items comprising the increase are additional salaries, wages and
benefits for the new general store, as well as an expanded work force in
several other operating areas and additional cash profit sharing and
management performance payments as a result of improved net income. The
management fee also increased as a result of the General Partner's adoption
of Statement of Financial Accounting Standard No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." The General Partner has
elected to recognize the $8.4 million of accrued benefits as of January 1,
1993 (transition obligation) prospectively as a component of annual
postretirement benefit cost over approximately 20 years. The additional
annual cost incurred by the General Partner and passed on to the Partnership
as part of the management fee was approximately $850,000 for 1993. By major
business segment the results were as follows:
Grain sales and merchandising revenues were $439.5 million compared to
$440.6 million in 1992. Sales of grain commodities were down $7.5 million or
2%. Bushels sold increased 2% and the average selling price per bushel
decreased 4% from $3.39 to $3.25. Cents per bushel sold (margin) decreased
11%. Most of these changes were a result of an increase in yields in 1993 as
well as an improvement in the quality of the crops in the eastern corn belt.
Merchandising revenues were up $6.4 million. Income earned in 1993 from
holding owned grain was up from the depressed levels in 1992, due in part to
the effects of the floods in 1993 and to a shortage of wheat in the first
half of 1993. Income from drying and blending grain was also up in 1993,
with most of the increase coming in the first six months of the year. This
is a result of the high moisture content in the 1992 corn crop carried into
1993 and due to the depressed level of drying and blending income in the
first six months of 1992. Gross profit on grain sales and merchandising
revenues was up $5.7 million or 20%.
Sales of wholesale fertilizer were up $11.6 million or 11% and retail
fertilizer sales and sales of other agricultural products were down $800,000
or 5%. Wholesale fertilizer tonnage increased by 19% and the average selling
price decreased 3%. Gross profit on wholesale fertilizer increased $1.4
million or 16% while retail and other agricultural products gross profit
increased $400,000 or 7%.
Sales in the Agriculture Group were $520.9 million compared to $517.6
million in 1992, while gross profit and operating profit increased $7.5
million and $2.9 million, respectively.
Sales in the retail group were $155 million in 1993, up 4% from 1992.
Sales in the Columbus market were up 5%, sales in the Toledo market were down
2% and sales from a new store opened in Lima, Ohio, in the fourth quarter of
1993 accounted for the remainder of the sales increase. Gross profit was up
approximately $1.2 million, or 3%, as a result of the sales increase along
with a small decrease in margins due to the competitive pressures in the
retail market. As a result of a $3.7 million (10%) increase in operating
expenses, due to increased advertising and the costs associated with opening
the new general store, operating profit decreased from $4 million in 1992 to
$1.6 million in 1993.
Sales in the other businesses of the Partnership also increased. Sales
of lawn products totalled $38 million, up 7% from 1992. Volume increased 2%
and average selling prices increased 5%. Margins were up approximately 11%.
In the industrial products area sales were $14.2 million, up 1%. Sales of
sorbent products were up, due to volume increases, and sales of corncob
products were down, due to a decrease in volume. Sales from the
Partnership's auto service centers were up, as were steel fabrication sales.
Railcar leasing activity improved, while railcar repairs for external
customers were down due to utilizing the shop capacity for repairs to cars
owned by the Partnership. Sales from the Partnership's outdoor power
equipment and service shop were $4 million. In total, the operating profits
of lawn and corn cob products and other businesses of the Partnership
improved by $440,000.
Impact of Inflation
Although inflation has slowed in recent years, it is still a factor in
the economy and the Partnership continues to seek ways to cope with its
impact. To the extent permitted by competition, the Partnership passes
increased costs on through increased selling prices. Grain inventories are
valued at the current replacement market price and substantially all
purchases and sales of grain are hedged as a result of buying or selling
commodity futures contracts. Consequently, grain inventories and cost of
goods sold are not directly affected by inflation but rather by market supply
and demand. If adjusted for inflation, net income would be lower than
reported due primarily to increased depreciation costs resulting from the
replacement costs associated with property, plant and equipment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE GENERAL PARTNER
Liquidity and Capital Resources
The General Partner had cash and cash equivalents and short-term investments
of approximately $1.1, $1.2 and $1.3 million at March 31, 1995, December 31,
1994 and December 31, 1993, respectively. The largest component of the
General Partner's working capital was a receivable from the Partnership. This
receivable represents the costs incurred by the General Partner in providing
management and labor services to the Partnership but not yet paid by the
General Partner and therefore not yet collected from the Partnership. The
General Partner has no short-term debt. During 1994, the General Partner
offered Class A and Class B Common Shares and received $21,369 under that
offering. Class A and Class B Common Shares redeemed during 1994 totalled
$18,405. During the first quarter of 1995, Class A Common Shares were
redeemed for $3,525, Class A Shares totaling $13,500 were gifted to other
shareholders and new Class B Shares totaling $706 were issued. Management
believes, given the relationship between the General Partner and the
Partnership whereby the General Partner is reimbursed by the Partnership for
its cost in providing management and labor services to the Partnership, and
given the General Partner's cash and cash equivalents and short-term
investment of $1.1 million, that the General Partner's liquidity is adequate
to meet both short-term and long-term needs.
Results of Operations
Three months ended March 31, 1995 and 1994
Net income in the first quarter of 1995 was $45,174 or $9.80 per Class A
Common Share, compared to net income of $4,586 or $0.99 per share in 1994 due
to an increase in expenses reimbursed by the Partnership. Equity in net
income of the Partnership and the portion of the management fee based on the
Partnership's return on equity remained constant. The increase in management
fee revenue and salaries, wages and benefits expense reflects an increase of
131 salary and full-time positions. Net rental income increased by $1,535 due
to increased occupancy. Income tax expense increased due to the increase in
income.
Years ended December 31, 1994 and 1993
Net income in 1994 was $252,351 or $54.72 per Class A Common Share,
compared to $146,399 or $31.66 per share in 1993. Income earned by the
General Partner on its investment in the Partnership was up $73,318 in 1994
and the management fee earned by the General Partner based on the
Partnership's return on equity and rent and other reimbursable expenses was
up $213,563. These increases were due to improved 1994 operating results of
the Partnership and an increase in space utilized by the Partnership in the
General Partner's office building. Interest earned and other income
decreased by $27,096, primarily due to less space leased by outside tenants
in the General Partner's office building. Federal income tax expense
increased due to the increase in income.
Years ended December 31, 1993 and 1992
Net income in 1993 was $146,399, or $31.66 per Class A Common Share,
compared to $9,083, or $1.96 per share in 1992. Income earned by the General
Partner on its investment in the Partnership was up $51,398 in 1993 and the
management fee earned by the General Partner based on the Partnership's
return on equity and rent and other reimbursable expenses was up $175,185.
These increases are a result of the improved 1993 operating results of the
Partnership and an increase in reimbursable expenses. Federal income tax
expense was up due to the increase in income.
During 1993 the General Partner adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." The General Partner elected to recognize the accrued benefits
earned by employees as of January 1, 1993 (transition obligation)
prospectively, which means this cost will be recognized as a component of the
net periodic postretirement benefit cost over a period of approximately 20
years. The effect of adopting the new rules increased the 1993 net periodic
postretirement benefit cost by approximately $850,000. This cost was
included in the management fee charged to the Partnership in 1993 and,
therefore, had no impact on the operating results of the General Partner.
Also during 1993, as a result of lower prevailing interest rates, the General
Partner decreased the discount rate used to determine its projected benefit
obligation for its pension plan and for its postretirement health care
benefits from 8.0% to 7.5%. Because the General Partner charges all employee
benefit costs to the Partnership as part of the management fee, the change in
the discount rate will not impact the future operating results of the General
Partner.
Impact of Inflation
Although inflation has slowed in recent years, it is still a factor in
the economy and the General Partner continues to seek ways to cope with its
impact. The General Partner's only expenses are payments of salaries to and
benefits for its employees. The General Partner passes these expenses along
to the Partnership directly and, therefore, is not directly harmed by
increases in such expenses, whether due to inflation or otherwise.
Nonetheless, the General Partner attempts to control such increases by
careful consideration of all increases in its employees' compensation and by
careful monitoring of and generally maintaining a competitive sourcing
posture with respect to its acquisition of employee benefits programs on
behalf of its employees.
MANAGEMENT
Directors and Executive Officers of the Company
The Partnership is managed by the General Partner acting in its capacity
as sole General Partner. The Board of Directors of the General Partner has
overall responsibility for the management of the General Partner's affairs,
including its responsibilities as General Partner of the Partnership. Day-to-
day operating decisions, relative to the Partnership, have been delegated by
the Board to the General Partner's Chief Executive Officer. The directors
and executive officers of the General Partner are:
Name Age Position
Thomas H. Anderson 71 Chairman of the Board (1) *(2) *(3)*
Richard P. Anderson 66 Director; President and Chief Executive
Officer (1)* (2)* (3)*
Christopher J. 40 Vice President Business Development Group (3)
Anderson
Daniel T. Anderson 39 Director; General Merchandise Manager Retail
Group (3)
Donald E. Anderson 68 Director; Science Advisor (1)
Michael J. Anderson 43 Director; Vice President and General Manager
Retail Group (2)
Richard M. Anderson 38 Director; Vice President and General Manager
Industrial Products Group (2)
John F. Barrett 46 Director
Joseph L. Braker 44 Vice President and General Manager Agriculture
Group (2)
Dale W. Fallat 50 Director; Vice President Corporate Services
(2)
Richard R. George 45 Corporate Controller and Principal Accounting
Officer (3)
Paul M. Kraus 62 Director (1)
Peter A. Machin 47 Vice President and General Manager Lawn
Products Group (1)
Beverly J. McBride 54 General Counsel and Corporate Secretary (2)
Rene C. McPherson 70 Director (2)
Donald M. Mennel 76 Director (1) (3)
Larry D. Rigel 53 Vice President Marketing (1)
Janet M. Schoen 35 Director (2)
Gary L. Smith 49 Corporate Treasurer (1)
(1) Member of Nominating and Advisory Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
* Denotes ex officio member.
Thomas H. Anderson was named Chairman of the Board when the General Partner
was formed in 1987. He formerly held the position of Manager-Company
Services of The Andersons for several years, was named Senior Partner in 1987
and served as a general partner of The Andersons and a member of its Managing
Committee from 1947 through 1987.
Richard P. Anderson has been a Director of the General Partner since its
inception in 1987. He is also a director of Centerior Energy Corporation,
First Mississippi Corp. and N-viro, International Corp. He served as Managing
Partner of The Andersons from 1984 to 1987 and he was named Chief Executive
Officer in 1987, after serving as a general partner of The Andersons and a
member of its Managing Committee from 1947 through 1987.
Christopher J. Anderson began full-time employment with the Partnership in
1983. He held several positions in the Grain Group, including Planning
Manager and Administrative Services Manager, until 1988. Mr. Anderson
returned to the Company in 1990 in his present position, after having formed
and operated a private consulting business from 1988 to 1990.
Daniel T. Anderson was elected a Director in 1990. He began full-time
employment with The Andersons in 1979. Mr. Anderson served in various
positions in the Retail Group since 1984, including Store Manager and Retail
Operations Manager assuming the position of General Merchandise Manager for
the Retail Group in 1990. He was elected a Director in 1990.
Donald E. Anderson has been in charge of scientific research for the
Partnership since 1980. He also served as a general partner of The Andersons
from 1947 through 1987. Mr. Anderson semi-retired in 1992.
Michael J. Anderson began his employment with The Andersons in 1978, serving
in several capacities in the Grain Group and holding the position of Vice
President and General Manager Grain Group from 1990 to February 1994. He was
named Vice President and General Manager of the Retail Group in February 1994
and has served as a Director of the General Partner since 1988.
Richard M. Anderson has served as a Director since 1988. He began his
employment with The Andersons in 1986 as Planning Analyst and was named the
Manager of Technical Development in 1987. Mr. Anderson assumed his present
position in 1990.
John F. Barrett was elected a Director of the General Partner in 1992. He
has served in various capacities at The Western and Southern Life Insurance
Company, including Executive Vice President and Chief Financial Officer and
President and Chief Operating Officer, and currently serves as Chief
Executive Officer. Mr. Barrett is also a director of Cincinnati Bell, Inc.
and Fifth Third Bancorp.
Joseph L. Braker began his employment with the Partnership in 1968. He held
several positions within the Grain area and in 1988, he was named Group Vice
President, Grain. In 1990, he was named Vice President and General Manager Ag
Products Group and in February 1994 he was named Vice President and General
Manager Agriculture Group. He served as a general partner of The Andersons
from 1985 to 1987.
Dale W. Fallat has served as a Director of the General Partner since its
inception in 1987. He began his employment with The Andersons in 1967 and in
1988 was named Senior Vice President Law and Corporate Affairs. He assumed
his present position in 1990. Mr. Fallat served as a general partner of The
Andersons from 1983 through 1987 and a member of its Managing Committee in
1986 and 1987.
Richard R. George began his employment with the Partnership in 1976 and has
served as Controller since 1979.
Paul M. Kraus has been a Limited Partner of the Partnership since 1965 and
has served as a Director of the General Partner since 1988. He has been a
member of the Toledo, Ohio law firm of Marshall & Melhorn since 1962.
Peter A. Machin began his employment with The Andersons in the Lawn Products
Group in 1987 as Sales Manager of Professional Products. He was promoted to
Sales and Marketing Manager in 1988 and assumed his present position in 1990.
Beverly J. McBride began employment with The Andersons in 1976. She has
served as Assistant General Counsel, Senior Counsel and since 1987 as General
Counsel and Corporate Secretary.
Rene C. McPherson has been a Director of the General Partner since 1988. He
is also a Director of Mercantile Stores Company, Inc. and Milliken and
Company. He retired in 1980 as Chairman of the Board and Chief Executive
Officer of Dana Corporation. From 1980 to 1983, Mr. McPherson was Dean of
the Graduate School of Business at Stanford University. He retired from the
Boards of Banc One Corporation, effective April 18, 1995; Dow Jones and
Company, Inc., effective April 19, 1995; and Westinghouse Electric
Corporation, effective April 26, 1995.
Donald M. Mennel was elected as a Director in 1990. He is retired Chairman
of the Board and Chief Executive Officer of The Mennel Milling Company, and
began a private law practice in 1986.
Larry D. Rigel began employment with the Partnership in 1966. He was in
charge of the Partnership's retail operations from 1987 to 1994. He currently
serves as Vice President Marketing for the Company.
Janet M. Schoen is a former school teacher, and a full-time homemaker. She
was elected a Director of the General Partner in 1990.
Gary L. Smith began employment with the Partnership in 1980. He has served
as Treasurer since 1985.
Donald E., Richard P. and Thomas H. Anderson are brothers; Paul M. Kraus is a
brother-in-law. Christopher J. and Daniel T. Anderson are sons of Richard P.
Anderson and Janet M. Schoen is a daughter of Thomas H. Anderson. Michael J.
and Richard M. Anderson are nephews of the three brothers.
Executive Compensation
The General Partner provides all management services to the Partnership
pursuant to a Management Agreement entered into between the Partnership and
the General Partner. See "Certain Relationships and Related Transactions."
The fee paid to the General Partner includes an amount equal to the salaries
and cost of all employee benefits, and other normal employee costs, paid or
accrued on behalf of the General Partner's employees who are engaged in
furnishing services to the Partnership. The following table sets forth the
compensation paid by the General Partner to the Chief Executive Officer and
the four highest paid executive officers.
Summary Compensation Table
Annual Compensation All Other
Name and Position Year Salary Bonus Compensation (a)
Richard P. Anderson 1994 $335,000 $202,500 $4,620
President and Chief 1993 308,333 150,000 4,497
Executive Officer 1992 286,666 60,000 4,300
Thomas H. Anderson 1994 226,667 125,000 4,620
Chairman of the Board 1993 206,669 90,000 4,497
1992 190,004 35,000 4,364
Joseph L. Braker 1994 224,071 150,000 4,620
Vice President and 1993 194,634 70,000 4,497
General Manager 1992 181,408 30,000 4,364
Agriculture Group
Larry Rigel 1994 171,981 25,000 4,620
Vice President Marketing 1993 162,558 15,000 4,497
1992 151,924 30,000 4,364
Michael J. Anderson 1994 200,765 100,000 4,620
Vice President and 1993 161,962 100,000 4,497
General Manager 1992 146,978 30,000 4,364
Retail Group
(a) General Partner's matching contributions to its 401(k) retirement plan.
Pension Plan
The General Partner has a Defined Benefit Pension Plan (the "Pension
Plan") which covers substantially all permanent and regular part-time
employees. The amounts listed in the table below are payable annually upon
retirement at age 65 or older. A discount of six percent per year is applied
for retirement before age 65. The pension benefits are based on a single-
life annuity and have been reduced for Social Security covered compensation.
The compensation covered by the Pension Plan is equal to the employees' base
pay, which in the Summary Compensation Table is the executive's salary, but
beginning in 1989, was limited by the Internal Revenue Code to $200,000,
adjusted for inflation, and beginning in 1994 is limited to $150,000, which
will also be adjusted for inflation in future years. Each of the named
executives has seven years of credited service.
Average
Five-Year Approximate Annual Retirement Benefit
Compensation Based Upon the Indicated Years of Service
5 Years 10 Year 15 Years 25 Years
$ 50,000 $ 3,142 $ 6,284 $ 9,427 $15,711
100,000 6,892 13,784 20,677 34,461
150,000 10,642 21,284 31,927 53,211
200,000 14,392 28,784 43,177 71,961
250,000 18,142 36,284 54,427 90,711
Directors' Fees
Directors who are not employees of the General Partner receive an annual
retainer of $15,000. Directors who are not employees of the General Partner
receive a fee of $1,000 for each Board Meeting attended. There are three
committees of the Board of Directors: the Audit Committee; the Nominating
and Advisory Committee; and the Compensation Committee. The chairman of
these committees receives a retainer of $3,000 provided they are not an
employee of the General Partner and members of the committees who are not
employees of the General Partner receive $750 for each meeting attended.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee includes the following executive officers and
directors: Michael J. Anderson, Richard M. Anderson, Richard P. Anderson (ex
officio), Thomas H. Anderson (ex officio), Dale W. Fallat, Joseph L. Braker,
Beverly J. McBride, Rene C. McPherson (chairman), and Janet M. Schoen. In
addition, Charles E. Gallagher, Director of Personnel, is an ex officio
member of the committee.
Certain Relationships and Related Transactions
Management Agreement. The General Partner provides all personnel and
management services to the Partnership pursuant to a Management Agreement.
The fee paid to the General Partner for its services is an amount equal to
(a) the salaries and cost of all employee benefits, and other normal employee
costs, paid or accrued on behalf of the General Partner's employees who
furnish services to the Partnership, (b) reimbursable expenses incurred by
the General Partner in connection with its services to the Partnership, or on
the Partnership's behalf, and (c) an amount equal to $5,000 for each 1% of
return on partners' capital up to a 15% annual return on partners' capital,
plus $7,500 for each 1% of return on partners' capital between 15% and 25%,
plus $10,000 for each 1% of return on partners' capital greater than a 25%
annual return to cover that part of the General Partner's general overhead
which is attributable to Partnership services and to provide an element of
profit to the General Partner. The management fee incurred by the
Partnership in 1994 totaled $70,394,855. See Note 2 to the Partnership's
Consolidated Financial Statements. Management believes that the amount of
the management fee paid to the General Partner is as favorable to the
Partnership as it would be if paid to an unaffiliated third party providing
similar management services. In this connection, approximately 85% of the
Limited Partners in the Partnership are also Shareholders in the General
Partner and no one may own shares in the General Partner unless they are a
Limited Partner in the Partnership. In addition to the fee payable to the
General Partner, the Management Agreement also provides for certain other
customary terms and conditions, including termination rights, and requires
the General Partner to make its books and records available to the
Partnership for inspection at reasonable times.
Sublease Arrangement. The office building utilized by the Partnership
is leased by the General Partner from an unaffiliated lessor under a net
lease expiring in 2000. The Partnership subleases approximately 90% of the
building from the General Partner and pays the General Partner rent for the
space it occupies. Under the terms of the sublease, the Partnership also is
responsible for insurance, utilities, taxes, general maintenance, snow
removal, lawn care and similar upkeep expenses for the entire building. The
General Partner reimburses the Partnership for management and maintenance of
the building, including the space it does not occupy. The amount paid by the
Partnership to the General Partner for the portion of the building occupied
by the Partnership is designed to reimburse the General Partner for its
equivalent cost under the General Partner's lease. In 1994, the rental
payments made by the Partnership to the General Partner, net of the
reimbursement for management and maintenance of the building was $635,714,
which is included in the total management fee referred to under "Management
Agreement" above. See Note 2 to the Partnership's Consolidated Financial
Statements.
Alshire-Columbus. The Partnership and certain of the directors and
executive officers of the General Partner were limited partners in Alshire-
Columbus Limited Partnership ("Alshire-Columbus"), an Ohio limited
partnership, which owned the Partnership's Brice General Store in Columbus,
Ohio. The store was leased to the Partnership by Alshire-Columbus at an
annual base rental of $732,000.
The Partnership contributed the land, at its cost ($1,367,000), for its
original limited partnership interest. The other limited partners of Alshire-
Columbus contributed $1,450,000, representing 35 limited partnership units.
None of the directors and executive officers of the General Partner or their
family members owned more than one limited partnership unit, except for
Richard P. Anderson, who owned two units.
In the aggregate, 8 3/4 units were owned by directors and executive
officers of the General Partner, and their family members owned an additional
four units. The general partner of Alshire-Columbus experienced difficulties
in refinancing the real property after the original seven year term of their
note. During 1994, the Partnership obtained an independent appraisal of the
property valued at $8.5 million and made an offer to purchase the property
for that price. The initial lease term was scheduled to expire in 2000. The
limited partners of Alshire-Columbus accepted the purchase offer from the
Partnership. According to the partnership agreement, upon the sale of the
real estate the Partnership received a preferential distribution from the
proceeds of the sale equal to the original cost of the land contributed by
the Partnership. The remaining proceeds from the sale, after payment of the
debt and return of capital to limited partners, was distributed according to
the partnership agreement which was 75% to the limited partners; 24% to the
Partnership, as original limited partner; and 1% to the general partner.
Each limited partner received approximately $33,400 per unit held from the
proceeds of the sale.
PRINCIPAL SHAREHOLDERS AND LIMITED PARTNERS
The following information is furnished as of April 7, 1995 with respect
to the outstanding Existing Securities beneficially owned by each director of
the General Partner, the chief executive officer and the four other most
highly compensated executive officers of the General Partner, and the
directors and executive officers of the General Partner as a group and all
beneficial owners of more than five percent of the Existing Securities.
<TABLE>
Class A Class B Common Shares to be
LP Interests Common Shares Common Shares issued in the Merger
<CAPTION>
Capital Percent Number of Percent Number of Percent Number of Percent
Name Account(1) of Class(2) Shares(1) of Class(2) Shares(1) of Class(2) Shares(1) of Class(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas H. Anderson $1,707,238 2.70 107.26 2.33 169 2.96 218,949 2.69
Richard P.
Anderson 2,245,595 3.56 153.25 3.33 222 3.88 288,619 3.55
Christopher J.
Anderson 767,401 1.21 64.50 1.40 79 1.38 99,256 1.22
Daniel T. Anderson 928,259 1.47 85.00 1.84 96 1.68 120,421 1.48
Donald E. Anderson 1,142,103 1.81 100.00 2.17 118 2.06 147,927 1.82
Michael J.
Anderson 812,905 1.29 55.86 1.21 82 1.43 104,500 1.29
Richard M.
Anderson 725,108 1.15 65.00 1.41 75 1.31 93,995 1.16
John F. Barrett 25,302 * 1.73 * 2 * 3,252 *
Joseph L. Braker 135,925 * 8.30 * 13 * 17,419 *
Dale W. Fallat 186,067 * 16.31 * 18 * 24,100 *
Richard R. George 77,332 * 6.00 * 7 * 9,976 *
Paul M. Kraus 805,308 1.27 75.50 1.64 84 1.47 104,562 1.29
Peter A. Machin 59,420 * 4.16 * 5 * 7,642 *
Beverly J. McBride 268,569 * 17.09 * 26 * 34,454 *
Rene C. McPherson 82,593 * 5.00 * 8 * 10,582 *
Donald M. Mennel 82,719 * 4.84 * 8 * 10,590 *
Larry D. Rigel 403,893 * 22.97 * 40 * 51,674 *
Janet M. Schoen 847,148 1.34 68.20 1.48 86 1.50 109,416 1.35
Gary L. Smith 82,753 * 5.43 * 8 * 10,624 *
All directors and
executive
officers as a
group (19
persons) $11,385,638 18.04% 866.39 18.80% 1,146 20.04% 1,467,958 18.06%
<FN>
(1) "Beneficial owner" generally means any person who, directly or indirectly, has or shares voting power or investment
power with respect to a security. The General Partner believes that, except as otherwise indicated, each
shareholder has sole voting and investment power with respect to shares listed as beneficially owned by such
shareholder.
(2) Percentages less than one percent are denoted by an asterisk.
(3) Estimated based on the book value as of April 7, 1995 of the LP Interests, Class A Common Shares and Class B Common
Shares as if the Measurement Date were April 7, 1995. The actual Measurement Date will be set by the Board and
expected to be approximately 60 days prior to the date of the Public Offering.
</TABLE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Pro Forma Condensed Financial Information and explanatory
notes are presented to show the impact of the Merger on the General Partner's
historical financial position and results of operations. The number of Common
Shares to be issued in exchange for the LP Interests, the Class A Common
Shares and the Class B Common Shares will be as follows: (i) each $8 in a
Limited Partner's capital account will be converted into one Common Share,
(ii) each $8 of book value represented by Class A Common Shares will be
converted into one Common Share and (iii) each $8 of book value represented by
Class B Common Shares will be converted into one Common Share. In the Merger,
book value for purposes of determining the number of Common Shares to be
issued will be calculated as of a specific measurement date to be selected by
the Board of Directors. Solely for purposes of preparing the following Pro
Forma Condensed Financial Information, book value was determined as described
in Note (d) to the Pro Forma Income Statement.
The Pro Forma Condensed Balance Sheet of the General Partner has been
prepared as if the Merger had been consummated on March 31, 1995. The Pro
Forma Condensed Statement of Income of the General Partner is based on the
same assumptions as if the Merger and related changes had been consummated on
January 1, 1995 and at January 1, 1994 (at the beginning of the quarter and
year, respectively). Such Pro Forma Condensed Financial Information is not
necessarily indicative of the financial position or results of operations of
the General Partner as they may be in the future or as they might have been
had the Merger been effected on the assumed dates.
The General Partner and the Partnership follow generally accepted
accounting principles. The accompanying unaudited Pro Forma Condensed
Financial Information includes all adjustments which are, in the opinion of
management, necessary to present fairly the financial position and results of
operations for the periods presented.
The Pro Forma Condensed Financial Information should be read in
conjunction with the separate historical financial statements and notes
thereto of the General Partner included elsewhere herein.
<TABLE>
Pro Forma Balance Sheet (Unaudited)
As of March 31, 1995
<CAPTION>
Partnership General Pro Forma Surviving
Partner Adjustments Corporation
<S> <C> <C> <C> <C> <C>
Cash and investments $ 790,624 $ 1,060,585 $ 1,851,209
Receivable from the
Partnership 5,199,966 $(5,199,966) (a) --
Trade accounts receivable 57,926,366 57,926,366
Margin deposits 8,012,297 8,012,297
Inventories 212,136,255 212,136,255
Deferred income taxes 29,800 3,595,300 (c) 3,625,100
Prepaid expenses 1,392,933 1,527,926 2,920,859
Total current assets 280,258,475 7,818,277 (1,604,666) 286,472,086
Receivable from the
Partnership 3,274,554 (3,274,554) (a) --
Investment in the
Partnership 998,462 (998,462) (a) --
Notes receivable & other
assets 4,437,120 313,867 4,750,987
Property, plant &
equipment (net) 77,911,320 77,911,320
Total Assets $362,606,915 $12,405,160 $(5,877,682) $369,134,393
Notes payable $121,400,000 $121,400,000
Accounts payable 83,610,010 $ 3,244,857 86,854,867
Due to General Partner 5,199,966 $(5,199,966) (a) --
Accrued income taxes 43,235 9,600 5,309,900 (d) 5,362,735
Accrued expenses 7,464,448 3,971,755 11,436,203
Current maturities of
long-term debt 5,384,000 5,384,000
Total current
liabilities 223,101,659 7,226,212 109,934 230,437,805
Deferred income taxes 3,893,700 (c) 3,893,700
Due to General Partner 3,274,554 (3,274,554) (a) --
Postretirement benefits 3,274,554 3,274,554
Long-term debt and other
long-term obligations 69,518,337 69,518,337
Total Liabilities 295,894,550 10,500,766 729,080 307,124,396
Minority interest 979,221 979,221
Partners' capital 65,733,144 (998,462) (a)
(64,734,682) (b) --
Shareholders' equity 1,904,394 64,734,682 (b)
(298,400) (c)
(5,309,900) (d) 61,030,776
Total Liabilities
& Shareholders'
Equity $362,606,915 $12,405,160 $(5,877,682) $369,134,393
See Notes to Pro Forma Balance Sheet
</TABLE>
Notes to Pro Forma Balance Sheet (Unaudited)
(a) Adjustment to eliminate the current and long-term receivable of the
General Partner and the current and long-term payable of the
Partnership. The adjustment also eliminates the General Partner's
investment in the Partnership and the corresponding general partner's
capital. As sole general partner of the Partnership, the General Partner
provides all management and labor services required by the Partnership in
its operations. The Partnership generally pays the General Partner for
salaries and employee benefits as those costs are paid by the General
Partner. The Partnership's liability and the General Partner's
receivable relating to postretirement benefits that will not be paid
within one year have been classified as noncurrent.
(b) Adjustment to record exchange of LP Interests for Common Shares.
(c) Adjustment to record net deferred tax assets and liabilities that result
from temporary differences between the carrying amount of the assets and
liabilities of the Partnership for financial reporting purposes and the
amounts used for income tax purposes. The Partnership does not record
deferred tax assets and liabilities since net income of the Partnership
is includable in the federal income tax returns of its partners. Upon
completion of the merger of the Partnership with the General Partner an
adjustment to recognize these net deferred tax assets and liabilities
will be made and the cumulative effect of these adjustments will be
charged to operations. Deferred tax assets and liabilities were
calculated using the statutory federal corporate tax rate of 35%.
(d) Adjustment to recognize a liability and a reduction to shareholders'
equity in an amount representing tax distributions payable to partners
based on the net income of the Partnership for the year ended December
31, 1994 and the three months ended March 31, 1995. The amount is
reduced by tax distributions made during 1994 and during the three months
ended March 31, 1995 for estimated payments and tax distributions paid
directly to taxing entities on the Limited Partners' behalf.
<TABLE>
Pro Forma Income Statement (Unaudited)
For the Three Months Ended March 31, 1995
<CAPTION>
Partnership General Pro Forma Surviving
Partner Adjustments Corporation
<S> <C> <C> <C> <C> <C>
Grain sales and revenues $104,774,101 $104,774,101
Fertilizer, retail and
other sales 98,235,499 $18,413,139 $(18,413,139) (a) 98,235,499
Other income 583,921 72,338 (29,086) (a) 627,173
203,593,521 18,485,477 (18,442,225) 203,636,773
Cost of grain sales and
revenues 93,773,281 93,773,281
Cost of fertilizer, retail
and other sales 73,520,178 73,520,178
167,293,459 167,293,459
Gross profit 36,300,062 18,485,477 (18,442,225) 36,343,314
Operating, administrative &
general expenses 31,192,462 18,430,703 (18,413,139) 31,220,934
10,908 (b)
Interest expense 3,141,696 3,141,696
34,334,158 18,430,703 (18,402,231) 34,362,630
Income before income taxes 1,965,904 54,774 (39,994) 1,980,684
Income taxes:
Current 43,235 9,600 1,339,165 (c) 1,392,000
Deferred (588,000) (c) (588,000)
43,235 9,600 751,165 804,000
Pro forma net income $ 1,922,669 $ 45,174 $ (791,159) $ 1,176,684
Pro Forma net income per
share (d) $ 0.15
Pro Forma Common
Shares outstanding 7,666,147
See Notes to Pro Forma Income Statements
</TABLE>
<TABLE>
Pro Forma Income Statement (Unaudited)
For the Year Ended December 31, 1994
<CAPTION>
Partnership General Pro Forma Surviving
Partner Adjustments Corporation
<S> <C> <C> <C> <C> <C>
Grain sales and revenues $551,836,287 $551,836,287
Fertilizer, retail and
other sales 400,922,131 $70,394,855 $(70,394,855) (a) 400,922,131
Other income 2,608,671 367,673 (218,844) (a) 2,757,500
955,367,089 70,762,528 (70,613,699) 955,515,918
Cost of grain sales and
revenues 513,893,485 513,893,485
Cost of fertilizer, retail
and other sales 292,258,780 292,258,780
806,152,265 806,152,265
Gross profit 149,214,824 70,762,528 (70,613,699) 149,363,653
Operating, administrative &
general expenses 125,484,288 70,355,977 (70,394,855) (126,227,410)
782,000 (b)
Interest expense 8,394,606 8,394,606
133,878,894 70,355,977 (69,612,855) 134,622,016
Income before income taxes 15,335,930 406,551 (1,000,844) 14,741,637
Income taxes:
Current 198,500 167,100 6,564,400 (c) 6,930,000
Deferred (12,900) (818,600) (c) (831,500)
198,500 154,200 5,745,800 6,098,500
Pro forma net income $ 15,137,430 $ 252,351 $ (6,746,644) $ 8,643,137
Pro Forma net income per
share (d) $ 1.15
Pro Forma Common
Shares outstanding 7,543,152
</TABLE>
See Notes to Pro Forma Income Statements
Notes to Pro Forma Income Statements for the Three Months Ended March 31, 1995
and the Year Ended December 31, 1994
(a) Adjustment to eliminate management fees, rent and other reimbursable
expenses paid to the General Partner by the Partnership and to eliminate
the General Partner's share of the Partnership's net income. As sole
general partner of the Partnership, the General Partner provides all
management and labor services required by the Partnership in its
operations. The Partnership leases office space from the General Partner
under a lease expiring May 1, 2000. The net lease payments amounted to
$635,714 in 1994 and $167,372 for the three months ended March 31, 1995
(b) Adjustment to recognize charitable contributions previously charged
directly to partners' capital as an expense. Provision is made in the
Partnership Agreement for contributions to various charitable,
educational and other not-for-profit institutions. It is the policy of
the Partnership to account for charitable contributions as charges to
partners' capital, and they are not deducted in determining Partnership
net income.
(c) Adjustment to record a provision for income taxes on the net income of
the Partnership. The Partnership does not record a provision for federal
income taxes on its net income since such amounts are includable in the
federal income tax returns of its partners. The provision for income
taxes reflects the effect of recording charitable contributions as an
expense, certain nondeductible expenses of the Partnership and the
effects of temporary differences between the carrying amounts of assets
and liabilities of the Partnership for financial reporting and the
amounts used for income tax purposes.
(d) Shares outstanding for purposes of calculating pro forma earnings per
share have been determined assuming that (i) each $8 in a Limited
Partner's capital account will be converted into one Common Share, (ii)
each $8 of book value represented by Class A Common Shares will be
converted into one Common Share and (iii) each $8 of book value
represented by Class B Common Shares will be converted into one Common
Share. Book value was determined by using balances of Limited Partners'
capital of the Partnership and total shareholders' equity of the General
Partner. In the Merger, book value for purposes of determining the
number of Common Shares to be issued will be calculated as of a specific
measurement date to be selected by the Board of Directors. For purposes
of calculating pro forma net income per share, Limited Partners' Capital
was reduced for tax distributions payable to Limited Partners from their
Limited Partners' capital accounts based on 1994 Partnership income and
Partnership income for the three months ended March 31, 1995.
The combined book value of the Limited Partners' Capital and the Class A
Common Shares and Class B Common Shares as of March 31, 1995 and December
31, 1994 used to calculate the number of shares outstanding was calculated
as follows:
March 31, December 31,
1995 1994
Limited Partners' Capital - Partnership $64,734,682 $63,008,174
Shareholders' Equity - General Partner 1,904,394 1,862,039
Less tax distributions 5,309,900 4,525,500
$61,329,176 $60,345,213
Shares Outstanding 7,666,147 7,543,152
LEGAL OPINIONS
In connection with Common Shares to be issued in the Merger, certain
legal matters under the Securities Act have been passed upon for the Company
by Kirkland & Ellis, Chicago, Illinois and certain other legal matters have
been passed upon for the Company by Beverly J. McBride, Esq., General Counsel
and Corporate Secretary of the Company. The opinion referred to in "FEDERAL
INCOME TAX CONSIDERATIONS" has been rendered by Kirkland & Ellis. Beverly J.
McBride is a Limited Partner whose capital account on April 7, 1995 was
$268,569 and a holder of 17.09 Class A Common Shares and 26 Class B Common
Shares.
EXPERTS
The consolidated financial statements of the Partnership and the
financial statements of the General Partner at December 31, 1994 and 1993,
and for each of the three years in the period ended December 31, 1994,
appearing in this Joint Proxy Statement/Prospectus have been audited by Ernst
& Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
Index to Financial Statements
The Andersons Management Corp. (The "General Partner")
Audited Financial Statements:
Report of Independent Auditors
Statements of Income
Balance Sheets
Statements of Cash Flows
Statements of Changes in Shareholders' Equity
Notes to Financial Statements
Unaudited Condensed Interim Financial Statements:
Condensed Statements of Income
Condensed Balance Sheet
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
The Andersons (The "Partnership")
Audited Consolidated Financial Statements:
Report of Independent Auditors
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Partners' Capital
Notes to Consolidated Financial Statements
Unaudited Condensed Consolidated Interim Financial Statements:
Condensed Consolidated Statements of Income
Condensed Consolidated Balance Sheet
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Report of Independent Auditors
Shareholders
The Andersons Management Corp.
We have audited the accompanying balance sheets of The Andersons Management
Corp. as of December 31, 1994 and 1993, and the related statements of income,
cash flows, and changes in shareholders' equity for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Andersons Management
Corp. at December 31, 1994 and 1993, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, in 1993 the Corporation
changed its method of accounting for postretirement benefits.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Toledo, Ohio
February 6, 1995
The Andersons Management Corp.
Statements of Income
Year ended December 31
1994 1993 1992
Management fees (Note 2) $70,394,855 $63,107,331 $57,388,268
Equity in income of The Andersons 218,844 145,526 94,128
Interest earned and other income 148,829 175,925 175,947
70,762,528 63,428,782 57,658,343
Costs and expenses:
Salaries, wages and benefits 69,400,144 62,326,184 56,782,306
Rent expense 754,867 731,209 726,028
General expenses 227,966 153,590 139,926
70,382,977 63,210,983 57,648,260
Income before income taxes 379,551 217,799 10,083
Federal income taxes:
Current 140,100 68,500 3,800
Deferred (credit) (12,900) 2,900 (2,800)
127,200 71,400 1,000
Net income $ 252,351 $ 146,399 $ 9,083
Net income per weighted average
Class A Common Share $54.72 $31.66 $1.96
Weighted average number of
Class A shares outstanding 4,612 4,624 4,633
See accompanying notes.
The Andersons Management Corp.
Balance Sheets
December 31
1994 1993
Assets
Current assets:
Cash and cash equivalents $ 736,599 $ 795,379
U.S. Treasury security, held-to-maturity (fair
value of $486,875 and $504,375, respectively) 490,532 505,313
Receivable from The Andersons (Note 2) 4,700,699 4,173,287
Note and accounts receivable 307 3,026
Prepaid expenses (Note 3) 2,702,866 2,723,668
Total current assets 8,631,003 8,200,673
Receivable from The Andersons (Note 2) 3,059,742 2,413,041
Investment in The Andersons (Note 2) 969,376 761,839
Investment in mutual fund at fair value
which approximates cost 250,000 -
Other 73,843 56,650
$12,983,964 $11,432,203
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 869,704 $ 1,149,232
Accrued compensation and benefits 7,192,479 6,263,206
Total current liabilities 8,062,183 7,412,438
Postretirement benefits (Note 3) 3,059,742 2,413,041
Shareholders' equity:
Common Shares, without par value:
Class A non-voting:
Authorized--25,000 shares
Issued-- 4,855 shares at stated value 1,456,405 1,456,405
Class B voting:
Authorized--25,000 shares
Issued--5,014 and 4,681 shares at stated
value in 1994 and 1993, respectively 5,014 4,681
Retained earnings 471,441 219,090
1,932,860 1,680,176
Less common shares in treasury, at cost--
(236 and 242 Class A shares and -0-
and 147 Class B shares in 1994 and 1993,
respectively) (70,821) (73,452)
1,862,039 1,606,724
$12,983,964 $11,432,203
See accompanying notes.
The Andersons Management Corp.
Statements of Cash Flows
Year ended December 31
1994 1993 1992
Operating activities
Net income $ 252,351 $ 146,399 $ 9,083
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in earnings of The Andersons
in excess of cash received (Note 2) (207,537) (139,180) (91,337)
Provision for deferred income tax
(credits) (12,900) 2,900 (2,800)
Amortization 4,110 41,411 11,145
Changes in operating assets and
liabilities:
Note and accounts receivable 2,719 45,941 52,527
Receivable from The Andersons
(Note 2) (1,174,113) (2,160,348) 732,588
Prepaid and other assets 3,609 (304,625) (841,184)
Accounts payable and accrued
expenses 1,309,346 2,457,183 233,324
Net cash provided by operating activities 177,585 89,681 103,346
Investing activities
Purchases of investments (739,329) (505,313) (14,116)
Sales and maturities of investments 500,000 1,000,000 -
Net cash provided by (used in)
investing activities (239,329) 494,687 (14,116)
Financing activities
Sale of common shares from treasury 21,036 11,141 46,671
Purchase of common shares for treasury (18,405) (23,697) (27,846)
Proceeds from sale of common shares 333 - -
Net cash provided by (used in)
financing activities 2,964 (12,556) 18,825
Increase (decrease) in cash and
cash equivalents (58,780) 571,812 108,055
Cash and cash equivalents at
beginning of year 795,379 223,567 115,512
Cash and cash equivalents at end
of year $ 736,599 $ 795,379 $ 223,567
See accompanying notes.
The Andersons Management Corp.
Statements of Changes in Shareholders' Equity
Common Shares Retained Treasury
Class A Class B Earnings Shares
Balances at December 31, 1991 $1,456,405 $4,681 $ 63,608 $(79,721)
Sale of 150 Class A and 171
Class B shares from treasury 46,671
Purchase of 90 Class A and 54
Class B shares for treasury (27,846)
Net income for the year 9,083
Balances at December 31, 1992 1,456,405 4,681 72,691 (60,896)
Sale of 35 Class A and 251
Class B shares from treasury 11,141
Purchase of 75 Class A and 73
Class B shares for treasury (23,697)
Net income for the year 146,399
Balances at December 31, 1993 1,456,405 4,681 219,090 (73,452)
Sale of 59 Class A and 200
Class B shares from treasury 21,036
Purchase of 53 Class A and 53
Class B shares for treasury (18,405)
Issuance of 333 shares 333
Net income for the year 252,351
Balances at December 31, 1994 $1,456,405 $5,014 $471,441 $(70,821)
See accompanying notes.
The Andersons Management Corp.
Notes to Financial Statements
December 31, 1994
1. Significant Accounting Policies
Cash Equivalents
The Corporation considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Securities
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" in 1994.
There was no cumulative effect as a result of the adoption.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Corporation
has the positive intent and ability to hold the securities to maturity. Held-
to-maturity securities are stated at amortized cost. Marketable equity
securities and debt securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity.
Income Taxes
Effective January 1, 1993, the Corporation changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The impact of this change was not significant.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Temporary differences relating to costs and expenses
incurred on behalf of the Partnership are passed on to the Partnership through
offsetting differences in the recognition of management fees by the
Corporation. Deferred tax assets of the Corporation relate primarily to
temporary differences associated with the Corporation's share of Partnership
net income and amounted to $29,900 and $17,000 at December 31, 1994 and 1993,
respectively.
Taxes paid during 1994 and 1993 amounted to $135,500 and $5,000, respectively,
and tax refunds amounted to $5,900 in 1992.
Description of Common Shares
Common shares of the Corporation are held by limited partners of The
Andersons. The holders of Class A shares are entitled to dividends, if
declared, and to any surplus, earned or otherwise, of the Corporation upon
liquidation or dissolution. The holders of Class B shares have sole voting
power, but are not entitled to share in any dividends or surplus of the
Corporation. Net income per share of Common Stock is computed based on the
weighted average number of Class A Common Shares outstanding during the year.
Reclassifications
Certain amounts in the 1993 and 1992 financial statements have been
reclassified to conform with the 1994 presentation. These reclassifications
had no effect on net income.
2. Investment in The Andersons
The Corporation is the sole general partner of The Andersons (the
Partnership). As sole general partner, the Corporation provides all
management and labor services required by the Partnership in its operations.
In exchange for providing management services the Corporation charges the
Partnership a management fee equal to: a) the salaries and cost of all
employee benefits and other normal employee costs, paid or accrued for
services performed by the Corporation's employees on behalf of the
Partnership, b) reimbursable expenses incurred by the Corporation in
connection with its services to the Partnership, or on the Partnership's
behalf, and c) an amount based on an achieved level of return on partners'
invested capital of the Partnership to cover the Corporation's general
overhead and to provide an element of profit to the Corporation.
The Corporation leases an office building under a lease that commenced on May
1, 1990. The Corporation is required to pay annual lease payments of $771,397
through 2000. The Corporation charges the Partnership rent for the space
utilized in its operations, which amounted to $635,714, $529,982 and $516,344
in 1994, 1993 and 1992, respectively.
The Partnership generally pays the Corporation for salaries and employee
benefits as those costs are paid by the Corporation. Amounts due from the
Partnership relating to postretirement benefits that will not be received
within one year have been classified as a noncurrent asset.
The components of the management fee and rent charged by the Corporation to
the Partnership consisted of the following:
Year ended December 31
1994 1993 1992
Costs and expenses:
Salaries and wages $53,726,460 $47,706,731 $43,356,247
Employee benefits 15,673,685 14,619,453 13,426,059
Rent for office space and
other reimbursable expenses 803,830 641,491 516,344
Achieved level of return
of the Partnership 190,880 139,656 89,618
Total management fees $70,394,855 $63,107,331 $57,388,268
3. Employee Benefit Plans
The Corporation sponsors several employee benefit programs which include the
following: Defined Benefit Pension Plan, Retirement Savings Investment Plan,
Cash Profit Sharing Plan, Management Performance Program and health insurance
benefits.
Substantially all permanent employees are covered by the Corporation's Defined
Benefit Pension Plan. The benefits are based on the employee's highest five
consecutive years of compensation during their last ten years of service. The
Corporation's policy is to pay into trusteed funds each year an amount equal
to the annual pension expense calculated under the Entry Age Normal method.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's balance sheets as of December 31, 1994 and 1993.
1994 1993
Accumulated benefit obligation,
including vested benefits of $5,743,223
in 1994 and $4,815,512 in 1993 $6,107,230 $5,159,779
Projected benefit obligation for
service rendered to date $9,524,599 $8,222,470
Plan assets at fair value 7,297,051 6,568,985
Projected benefit obligation in
excess of plan assets 2,227,548 1,653,485
Unrecognized net asset at adoption of
FAS 87, net of amortization 193,338 243,817
Unrecognized net gain (loss) (435,467) 530,128
Prior service cost (29,044) (147,663)
Net pension liability recognized in
balance sheet (includes current portion
of $415,365 in 1994 and $645,966 in 1993) $1,956,375 $2,279,767
Net periodic pension cost includes the following components:
Year ended December 31
1994 1993 1992
Service cost - benefits earned
during the period $1,082,143 $1,135,948 $1,088,099
Interest cost on projected
benefit obligation 563,333 571,278 461,896
Return on plan assets 70,796 (493,623) (331,498)
Net amortization and deferral (655,230) 10,420 (32,317)
Net periodic pension cost $1,061,042 $1,224,023 $1,186,180
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 7.5% and 4%, for 1994 and 1993. The weighted average
long-term rate of return on plan assets used in determining the expected
return on plan assets included in net periodic pension cost was 8% for 1994,
1993 and 1992. Substantially all of the plan assets are invested in a family
of mutual funds.
Under the Retirement Savings Investment Plan (RSIP) eligible participating
employees may elect to contribute specified amounts up to the lesser of $9,240
or 15% of their gross pay on a tax-deferred basis to a trust for investment in
a family of mutual funds. The Corporation contributes an amount equal to 50%
of the participant's contributions, but not in excess of 3% of the
participant's annual gross pay. Participants are fully vested in their
contributions to the RSIP. Participants hired before January 1, 1993 vest
immediately in the Corporation's matching contributions and participants hired
after December 31, 1992 vest ratably over five years. The matching
contributions to the RSIP amounted to $857,804, $761,536 and $682,099 in
1994, 1993 and 1992, respectively.
Substantially all permanent employees are included in the Cash Profit Sharing
Plan. The Plan provides for participants to receive certain percentages of
their pay as various threshold levels of return on capital of the Partnership
are achieved. The Corporation also has a Management Performance Program for
certain levels of management. Participants in the Management Performance
Program are not eligible to participate in the Cash Profit Sharing Plan. The
expense for profit sharing/management performance programs was $3,040,207,
$2,050,273 and $1,331,260 for 1994, 1993 and 1992, respectively.
The Corporation currently provides certain health insurance benefits to its
employees, including retired employees. The Corporation has reserved the
right in most circumstances to modify the benefits provided and in recent
years has in fact made changes. Further changes were implemented in 1993 that
will effect the benefits provided to future retirees. These changes include
the minimum retirement age, years of service and a sharing in the cost of
providing these benefits. In addition, the Medicare Part B reimbursement
currently paid by the Corporation for retirees is being phased out over a
five-year period.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the cost of
providing postretirement health care benefits be accrued during the employees'
working career rather than recognizing the cost of these benefits as claims
are paid. The Corporation has elected to recognize the accrued benefits earned
by employees as of January 1, 1993 (transition obligation) prospectively,
which means this cost will be recognized as a component of the net periodic
postretirement benefit cost over a period of approximately 20 years. The
effect of adopting the new rules increased net periodic postretirement benefit
cost by approximately $840,000 and $850,000 in 1994 and 1993, respectively.
Postretirement benefit costs for 1992 of approximately $404,000, which were
recorded on a cash basis, have not been restated. As all employee benefit
costs are charged to the Partnership as described in Note 2, the change in
accounting for postretirement benefit costs had no effect on the Corporation's
net income.
The Corporation's postretirement benefits are not funded. The status of the
plan as of December 31 is as follows:
1994 1993
Accumulated postretirement benefit obligation:
Retirees $ 6,281,193 $ 5,534,885
Fully eligible active plan participants 1,691,711 752,975
Other active participants 2,764,533 3,065,722
10,737,437 9,353,582
Unrecognized net transition obligation (7,570,994) (7,991,605)
Unrecognized net loss (1,647,711) (582,737)
Accrued postretirement benefit cost $ 1,518,732 $ 779,240
Net periodic postretirement benefit cost includes the following components:
1994 1993
Service cost $ 245,186 $ 181,457
Interest cost 749,651 653,625
Net amortization 451,999 420,611
Net periodic postretirement benefit costs $ 1,446,836 $ 1,255,693
The weighted average discount rate used in determining the postretirement
benefit cost was 7.5% for 1994 and 8% for 1993. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation at
December 31, 1994 and 1993 was 7.5%.
The assumed health care cost trend rate used to measure the expected cost of
benefits covered by the plan was 11% in 1994, declining to 5% through the year
2000 and remaining at that level thereafter. A 1% increase in the assumed
health care cost trend rate would increase the annual postretirement benefit
cost by approximately $185,000 and the accumulated postretirement benefit
obligation as of December 31, 1994 by approximately $1,670,000.
To partially fund self-insured health care and other employee benefits, the
Corporation makes payments to a trust. Assets of the trust amounted to
$2,639,566 and $2,710,395 at December 31, 1994 and 1993, respectively, and
such amounts are included in prepaid expenses.
THE ANDERSONS MANAGEMENT CORP.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months
Ended March 31
1995 1994
REVENUES:
Management fees - Note B $18,413,139 $15,791,518
Equity in net income of The Andersons 29,086 28,938
Interest earned and other income 43,252 40,866
18,485,477 15,861,322
COSTS AND EXPENSES:
Salaries, wages and benefits 18,185,202 15,634,231
Rent expense 191,881 185,168
General expenses 54,820 34,037
18,431,903 15,853,436
INCOME BEFORE INCOME TAXES 53,574 7,886
Federal income taxes 8,400 3,300
NET INCOME $ 45,174 $ 4,586
Net income per Class A Common Share $ 9.80 $ .99
Weighted average number of Class A Shares
outstanding 4,608 4,612
See notes to condensed financial statements.
THE ANDERSONS MANAGEMENT CORP.
CONDENSED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 570,053
Short-term investments, at cost 490,532
Receivable from The Andersons - Note B 5,199,966
Prepaid expenses and other
accounts receivable 1,527,926
TOTAL CURRENT ASSETS 7,788,477
OTHER ASSETS
Receivable from The Andersons - Note B 3,274,554
Investment in The Andersons - Note B 998,462
Deposits and other assets 343,667
4,616,683
$12,405,160
CURRENT LIABILITIES
Accounts payable $ 3,244,857
Accrued expenses 3,981,355
TOTAL CURRENT LIABILITIES 7,226,212
ACCRUED POSTRETIREMENT BENEFITS 3,274,554
SHAREHOLDERS' EQUITY
Common Shares, without par value:
Class A non-voting:
Authorized - 25,000 shares
Issued - 4,855 shares at
stated value 1,456,405
Class B voting:
Authorized - 25,000 shares
Issued - 5,720 shares at stated value 5,720
Retained earnings 516,615
1,978,740
Less common shares in treasury at
cost - (247 Class A shares) (74,346)
1,904,394
$12,405,160
See notes to condensed financial statements.
THE ANDERSONS MANAGEMENT CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months
Ended March 31
1995 1994
OPERATING ACTIVITIES
Net income $ 45,174 $ 4,586
Adjustments to reconcile net
income to net cash
used in operating activities:
Amortization 1,106
Equity in earnings of The
Andersons in excess of cash
received - Note B (29,086) (28,938)
Changes in operating assets and
liabilities:
Receivable from The Andersons (714,079) 571,305
Prepaid expenses and other
assets 1,155,423 840,860
Accounts payable and accrued
expenses (621,159) (1,411,302)
NET CASH USED IN OPERATING ACTIVITIES (163,727) (22,383)
FINANCING ACTIVITIES
Purchase of investments - (250,000)
Purchase of Common Shares for Treasury (17,025) (18,391)
Sale of Common Shares 14,206 19,301
NET CASH USED IN FINANCING ACTIVITIES (2,819) (249,090)
DECREASE IN CASH AND CASH EQUIVALENTS (166,546) (271,473)
Cash and cash equivalents at
beginning of period 736,599 795,379
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 570,053 $ 523,906
See notes to condensed financial statements.
THE ANDERSONS MANAGEMENT CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of
the results of operations for the periods indicated have been made.
Note 2 - The Corporation is the sole general partner of The Andersons, an
Ohio limited partnership (the "Partnership"). The Corporation
provides all management and labor services required by the
Partnership in its operations. In exchange for providing
management services, the Corporation charges the Partnership a
management fee equal to: a) the salaries and cost of all employee
benefits and other normal employee costs, paid or accrued on behalf
of the Corporation's employees who are engaged in furnishing
services to the Partnership, b) reimbursable expenses incurred by
the Corporation in connection with its services to the Partnership,
or on the Partnership's behalf, and c) an amount based on an
achieved level of return on partners' invested capital of the
Partnership to cover the Corporation's general overhead and to
provide an element of profit to the Corporation.
The Corporation leases an office building which is primarily
occupied by the Partnership. Management fees include rental income
of $167,372 and $152,021 from the Partnership for the three-month
periods ended March 31, 1995 and 1994 respectively.
Report of Independent Auditors
Partners
The Andersons
We have audited the accompanying consolidated balance sheets of The Andersons
(a partnership) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, cash flows and changes in partners'
capital for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Andersons and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Toledo, Ohio
February 6, 1995
The Andersons and Subsidiaries
Consolidated Statements of Income
Year ended December 31
1994 1993 1992
Grain sales and revenues $551,836,287 $439,483,762 $440,553,476
Fertilizer, retail and other sales 400,922,131 336,973,308 312,613,276
Other income 2,608,671 3,763,737 3,834,457
955,367,089 780,220,807 757,001,209
Cost of grain sales and revenues 513,893,485 405,889,171 412,623,606
Cost of fertilizer, retail
and other sales 292,258,780 244,254,571 227,130,480
806,152,265 650,143,742 639,754,086
Gross profit 149,214,824 130,077,065 117,247,123
Operating, administrative and
general expenses (Note 2) 125,682,788 112,829,334 100,791,991
Interest expense 8,394,606 6,168,371 6,325,440
134,077,394 118,997,705 107,117,431
Income from continuing operations 15,137,430 11,079,360 10,129,692
Discontinued operations (Note 3):
Loss from discontinued operations (396,177)
Loss on sale of discontinued
operations (2,097,767)
Net income $ 15,137,430 $ 11,079,360 $ 7,635,748
Net income (loss) was allocated to:
General partner:
From continuing operations $ 218,844 $ 145,526 $ 124,871
From discontinued operations - - (30,743)
218,844 145,526 94,128
Limited partners:
From continuing operations 14,918,586 10,933,834 10,004,821
From discontinued operations (2,463,201)
14,918,586 10,933,834 7,541,620
$ 15,137,430 $ 11,079,360 $ 7,635,748
Net income (loss) allocation per
$1,000 of partners' capital:
Weighted average capital for
allocation purposes $ 52,696,376 $ 47,405,022 $ 43,101,473
Allocation per $1,000:
From continuing operations $ 287 $ 234 $ 235
From discontinued operations (58)
$ 287 $ 234 $ 177
See accompanying notes.
The Andersons and Subsidiaries
Consolidated Balance Sheets
December 31
1994 1993
Assets
Current assets:
Cash and cash equivalents (Note 10) $ 6,186,695 $ 3,936,955
Accounts receivable:
Trade accounts, less allowance for
doubtful accounts of $2,292,000 in
1994; $1,178,000 in 1993 55,157,316 60,036,382
Margin deposits (Note 10) 7,034,058 15,320,979
62,191,374 75,357,361
Inventories (Note 4) 198,635,026 211,023,651
Prepaid expenses 899,268 858,941
Total current assets 267,912,363 291,176,908
Other assets:
Notes receivable and other assets,
less allowance for doubtful notes
receivable of $717,000 in 1994 3,083,583 3,965,729
Investments in and advances to
affiliates 1,591,673 942,053
4,675,256 4,907,782
Property, plant and equipment (Notes 5 and 7) 77,596,503 60,417,088
$350,184,122 $356,501,778
Liabilities and partners' capital
Current liabilities:
Notes payable (Note 6) $ 50,000,000 $ 87,900,000
Accounts payable for grain 83,843,840 83,712,076
Other accounts payable 60,990,810 58,896,317
Amounts due General Partner (Note 2) 4,700,699 4,173,287
Accrued expenses 7,708,295 7,496,181
Current maturities of long-term debt 3,615,000 1,992,000
Total current liabilities 210,858,644 244,169,861
Amounts due General Partner (Note 2) 3,059,742 2,413,041
Long-term debt (Note 7) 71,217,308 52,259,120
Deferred gain 1,145,151
Minority interest 1,070,878 1,103,892
Partners' capital:
General partner 969,376 761,839
Limited partners 63,008,174 54,648,874
63,977,550 55,410,713
$350,184,122 $356,501,778
See accompanying notes.
The Andersons and Subsidiaries
Consolidated Statements of Cash Flows
Year ended
1994 1993 1992
Operating activities
Net income $15,137,430 $11,079,360 $ 7,635,748
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,101,058 7,109,223 7,010,579
Provision for losses on accounts
and notes receivable 2,682,904 909,724 763,677
Payments to minority interests (222,052) (166,198) (132,896)
Minority interest in net income
of subsidiaries 189,038 236,224 154,392
Gain on sale of property,
plant and equipment (160,988) (1,107,707) (1,645,421)
Amortization of deferred gain (43,823) (385,956) (373,238)
Loss on sale of discontinued
operations - - 1,582,630
Equity in undistributed loss of
affiliates - - 4,255
Changes in operating assets and
liabilities:
Accounts receivable 10,483,083 (32,109,849) (5,866,574)
Inventories 12,388,625 (61,137,730) 37,905,112
Prepaid expenses and other
assets (1,006,667) (1,255,649) (501,424)
Accounts payable for grain 131,764 18,966,696 (3,086,492)
Other accounts payable and
accrued expenses 4,451,416 6,719,097 5,074,170
Net cash provided by (used in)
operating activities 52,131,788 (51,142,765) 48,524,518
Investing activities
Purchases of property, plant and
equipment (22,663,348) (10,808,521) (6,590,045)
Proceeds from sale of investment 1,679,215 - -
Proceeds from sale of property,
plant and equipment 848,408 1,696,989 2,586,539
(Advances to) payments received
from affiliates (640,000) 149,999 5,145
Proceeds from sale of discontinued
operations - - 1,299,340
Net cash used in investing activities (20,775,725) (8,961,533) (2,699,021)
Financing activities
Net increase (decrease) in short-term
borrowings (37,900,000) 64,150,000 (45,330,000)
Proceeds from issuance of long-term
debt 35,508,820 22,753,656 16,022,652
Payments of long-term debt (20,144,550) (17,439,855) (17,887,109)
Payments to partners and other
deductions from capital accounts (7,304,268) (7,212,084) (3,177,162)
Capital invested by partners 733,675 423,630 4,153,500
Net cash provided by (used in)
financing activities (29,106,323 62,675,347 (46,218,119)
Increase (decrease) in cash and cash
equivalents 2,249,740 2,571,049 (392,622)
Cash and cash equivalents at beginning
of year 3,936,955 1,365,906 1,758,528
Cash and cash equivalents at end of
year $ 6,186,695 $ 3,936,955 $ 1,365,906
Noncash investing and financing
activities:
Assumption of long-term debt in
purchase of property, plant and
equipment $ 5,216,918
See accompanying notes.
The Andersons and Subsidiaries
Consolidated Statements of Changes in Partners' Capital
Year ended December 31
1994 1993 1992
General partner capital
Balance at beginning of year $ 761,839 $ 622,659 $ 531,322
Amounts credited (charged) to capital:
Net income for the year 218,844 145,526 94,128
Charitable contributions (11,307) (6,346) (2,791)
207,537 139,180 91,337
Balance at end of year $ 969,376 $ 761,839 $ 622,659
Limited partners' capital
Balance at beginning of year $54,648,874 $50,497,148 $41,976,399
Amounts credited (charged) to capital:
Net income for the year 14,918,586 10,933,834 7,541,620
Increase in invested capital 733,675 423,630 4,153,500
Charitable contributions (770,809) (476,772) (223,623)
Withdrawals (1,759,072) (827,573) (899,793)
Distributions (4,763,080) (5,901,393) (2,050,955)
8,359,300 4,151,726 8,520,749
Balance at end of year $63,008,174 $54,648,874 $50,497,148
Total partners' capital--at
end of year $63,977,550 $55,410,713 $51,119,807
See accompanying notes.
The Andersons and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994
1. Significant Accounting Policies
Principles of Consolidation and Related Matters
The consolidated financial statements include the accounts of The Andersons
(the Partnership) and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation. Other affiliated entities
are not material.
Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The carrying value of
these assets approximate their fair value.
Securities
The Partnership adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" in 1994.
There was no cumulative effect as a result of the adoption.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when there is
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost.
Marketable equity securities and debt securities not classified as held-to-
maturity are classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of partners' capital.
Inventories
Inventories of grain are hedged to the extent practicable and are valued on
the basis of replacement market prices prevailing at the end of the year. Such
inventories are adjusted for the amount of gain or loss (based on year-end
market price quotations) on open grain contracts at the end of the year.
Contracts in the commodities futures market, maintained for hedging purposes,
are valued at market at the end of the year and income or loss to that date is
recognized. Grain contracts maintained for other merchandising purposes are
valued in a similar manner and net margins from these transactions are
included in sales and merchandising revenues.
All other inventories are stated at the lower of cost or market. Cost is
determined by the average cost method.
Property, Plant and Equipment
Land, buildings and equipment are carried at cost. Depreciation is provided
over the estimated useful lives of the individual assets principally by the
straight-line method.
Accounts Payable for Grain
The liability for grain purchases on which price has not been established
(delayed price), has been computed on the basis of replacement market at the
end of the year, adjusted for the applicable premium or discount.
Revenue Recognition
Sales of grain and other products are recognized at the time of shipment.
Revenues from merchandising activities are recognized as open contracts are
marked to market or as services are provided.
Income Taxes
No provision has been made for federal income taxes on the Partnership's net
income since such amounts are includable in the federal income tax returns of
its partners. At December 31, 1994 and 1993, the Partnership s net assets for
financial reporting purposes were approximately $1,800,000 and $3,800,000,
respectively, greater than their corresponding tax bases, as a result of
temporary differences in when revenues and expenses are recognized for
financial reporting purposes and in determining taxable income.
Preopening Expenses
Preopening expenses are charged to income when incurred.
Deferred Gain
Through January 31, 1994, the deferred portion of a gain from the sale and
leaseback of a retail store was being amortized into income over the ten-year
leaseback period by the straight-line method. On February 1, 1994 the store
was reacquired and the remaining deferred gain was recorded as a component of
the reacquisition cost.
Income Allocations and Cash Distributions to Partners
The Partnership Agreement reflects each partner's capital account as of the
beginning of each year. Partners' capital, used in determining the allocation
of net income or loss to each partner, is weighted to reflect cash and tax
distributions made to partners and additional investments made by partners
during the year. The general partner and each limited partner receive the
same allocation of net income or loss per $1,000 of partners' capital.
Partners may elect to receive quarterly cash distributions as declared by the
general partner. Partners may also elect to receive quarterly tax
distributions or an annual tax distribution. Final 1994 tax distributions of
approximately $5,200,000 may be paid to partners in 1995 from the year end
partners' capital balances upon each Partner's election.
Charitable Contributions
Provision is made in the Partnership Agreement for contributions to various
charitable, educational and other not-for-profit institutions. It is the
policy of the Partnership to account for charitable contributions as charges
to partners' capital, and they are not deducted in determining Partnership net
income.
Reclassifications
Certain amounts in the 1993 and 1992 financial statements have been
reclassified to conform with the 1994 presentation. These reclassifications
had no effect on net income.
2. Transactions with General Partner
The Andersons Management Corp. (the Corporation) is the sole general partner
of the Partnership and provides all management and labor services to the
Partnership. In exchange for providing these services, the Corporation charges
the Partnership a management fee equal to: a) the salaries and cost of all
employee benefits and other normal employee costs, paid or accrued for
services performed by the Corporation's employees on behalf of the
Partnership, b) reimbursable expenses incurred by the Corporation in
connection with its services to the Partnership, or on the Partnership's
behalf, and c) an amount based on an achieved level of return on partners'
capital to cover the Corporation's general overhead and to provide an element
of profit to the Corporation.
Employee benefit costs include the cost of pension and other postretirement
benefits. In 1993, the Corporation changed its method of accounting for
postretirement health insurance benefits. The Corporation now accrues for the
cost of providing these benefits during the employees working career rather
than recognizing the cost of these benefits as claims are paid. The
Corporation has elected to recognize the accrued benefits earned by employees
as of January 1, 1993 (transition obligation) prospectively, which means this
cost will be recognized as a component of annual postretirement benefit costs
over a period of approximately 20 years. The change in the method of
accounting for these benefits increased management fees charged to the
Partnership by approximately $840,000 and $850,000 for 1994 and 1993,
respectively.
The Partnership generally pays the Corporation for salaries and employee
benefits as those costs are paid by the Corporation. Amounts owed to the
Corporation relating to postretirement benefits that will not be paid within
one year have been classified as a long-term liability.
The Partnership leases office space from the Corporation under a lease
expiring May 1, 2000. The net lease payments amounted to $635,714, $529,982
and $516,344 in 1994, 1993 and 1992, respectively.
The components of the management fee and rent incurred by the Partnership
consisted of the following:
Year ended December 31
1994 1993 1992
Salaries and wages $53,726,460 $47,706,731 $43,356,247
Employee benefits 15,673,685 14,619,453 13,426,059
Rent for office space and other
reimbursable expenses 803,830 641,491 516,344
Achieved level of return of the
Partnership 190,880 139,656 89,618
Totals $70,394,855 $63,107,331 $57,388,268
3. Discontinued Operations
In April 1992, the Partnership decided to dispose of its pet products
distribution business, which was represented by a majority investment in B&R
Pet Supplies, Inc. (B&R). During 1992, the Partnership sold the operations of
B&R for approximately $1,300,000, which resulted in a loss of $1,582,630.
Losses from operations from April 1, 1992 to the date of sale amounted to
$515,137. This transaction has been accounted for as a discontinued operation.
Sales from discontinued operations were approximately $9,780,000 for the year
ended December 31, 1992.
4. Inventories
Major classes of inventory are as follows:
December 31
1994 1993
Grain $113,554,519 $135,346,670
Agricultural fertilizer and supplies 21,110,719 16,170,908
Merchandise 32,240,845 32,497,574
Lawn and corn cob products 20,992,385 20,579,022
Other 10,736,558 6,429,477
$198,635,026 $211,023,651
5. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
December 31
1994 1993
Land $ 13,063,330 $ 9,457,460
Land improvements and leasehold improvements 22,569,686 19,378,810
Buildings and storage facilities 71,700,138 62,022,387
Machinery and equipment 87,308,030 80,141,615
Construction in progress 1,387,362 1,707,564
196,028,546 172,707,836
Less allowances for depreciation
and amortization 118,432,043 112,290,748
$ 77,596,503 $ 60,417,088
6. Banking and Credit Arrangements
The Partnership has available lines of credit for unsecured short-term debt
with banks aggregating $207,000,000. The credit arrangements, the amounts of
which are adjusted from time to time to meet the Partnership's needs, do not
have termination dates but are reviewed at least annually for renewal. The
terms of certain of these lines of credit provide for annual commitment fees.
The following information relates to borrowings under short-term lines of
credit during the years indicated.
1994 1993 1992
Maximum borrowed $127,600,000 $100,500,000 $104,000,000
Average daily amount borrowed
(total of daily borrowings
divided by number of days
in period) 72,182,603 60,404,384 50,341,667
Average interest rate (computed
by dividing interest expense
by average daily amount
outstanding) 5.03% 4.15% 5.20%
7. Long-Term Debt
Long-term debt consists of the following:
December 31
1994 1993
Note payable, 7.84%, payable $75,000 quarterly
through October 1997, and $398,000 quarterly
thereafter, due 2004 $14,850,000 $ -
Notes payable relating to revolving credit
facility 10,000,000 7,500,000
Note payable, variable rate (7.625% at
December 31, 1994), payable $800,000
annually, due 1997 6,000,000 6,800,000
Note payable, variable rate (6.9375% at
December 31, 1994), payable $72,470 monthly
including interest, due 1996 4,661,089 -
Other notes payable 795,686 888,409
Industrial development revenue bonds:
6.5%, due 1999 4,400,000 5,000,000
Variable rate (5.695% at December 31, 1994),
due in annual installments of $881,000 in
1995 through 2004 8,114,000 8,114,000
Variable rate (5.85% at December 31, 1994),
due 2025 3,100,000 3,100,000
Debenture bonds:
9.2% to 11.4%, due 1995 and 1996 6,088,000 7,586,000
6.5% to 8%, due 1997 through 1999 5,530,000 4,894,000
10% to 10.5%, due 1997 and 1998 2,117,000 2,849,000
10%, due 2000 and 2001 2,742,000 2,774,000
7.5% to 8.7%, due 2002 through 2004 5,590,000 4,061,000
Employee bonds, variable rate
(18% at December 31, 1994) 233,312 59,581
Other bonds, 4% to 10% 611,221 625,130
74,832,308 54,251,120
Less current maturities 3,615,000 1,992,000
$71,217,308 $52,259,120
The Partnership has a $20,000,000 revolving line of credit with a bank which
bears interest based on the LIBOR rate (4.345% at December 31, 1994).
Borrowings under this agreement totalled $10,000,000 at December 31, 1994. The
revolving line of credit expires on July 1, 1997.
The variable rate notes payable, the note payable due in quarterly
installments and the industrial development revenue bonds are collateralized
by first mortgages on certain facilities and related property with a cost
aggregating approximately $80,640,000.
The various underlying loan agreements, including the Partnership's revolving
line of credit, contain certain provisions which require the Partnership to,
among other things, maintain minimum working capital of $32,000,000 and net
Partnership equity (as defined) of $43,000,000, limit the addition of new
long-term debt, and limit its unhedged grain position to 2,000,000 bushels.
The aggregate annual maturities, including sinking fund requirements, through
1999 of long-term debt are as follows: 1995--$3,615,000; 1996--$22,895,000;
1997--$10,388,000, 1998--$7,125,000 and 1999--$4,230,000.
Interest paid (including short-term lines of credit) amounted to $8,175,747,
$5,425,491 and $6,595,883 in 1994, 1993 and 1992, respectively.
8. Leases
The Partnership and subsidiaries lease certain equipment and real property
under operating leases, including rail cars which the Partnership subleases to
third parties.
Net rent expense under operating leases was as follows:
1994 1993 1992
Total rent expense $8,442,535 $7,095,276 $7,400,356
Less rental income from subleases 2,805,440 1,320,544 1,312,205
Net rental expense $5,637,095 $5,774,732 $6,088,151
Future minimum rentals for all noncancelable operating leases and future
rental income from subleases are as follows:
Future Future
Minimum Sublease
Rentals Income
1995 $ 7,803,420 $ 4,132,351
1996 6,281,504 3,505,671
1997 5,172,363 3,104,040
1998 4,661,835 2,863,620
1999 3,319,158 1,229,235
Future years 3,386,948 157,390
$30,625,228 $14,992,307
9. Commitments and Risk Management
The Partnership has, in the normal course of its business, entered into
contracts to purchase and sell grain inventories and has interest in other
commodity contracts requiring performance in future periods. Contracts for
purchase of grain inventories and other commodities from producers generally
relate to the current or future crop years for delivery periods quoted by
regulated commodity exchanges. Contracts for sale of grain inventories and
other commodities to processors and other consumers generally do not extend
beyond one year. The terms of these contracts are consistent with industry
practice.
The Partnership utilizes futures contracts that are traded on a regulated
futures exchange to hedge its net price exposure from grain inventories held
and firm commitments to purchase or sell grain inventories and other
commodities. The Partnership's policy is to hedge its net price exposure and
at December 31, 1994, nearly 100% of the Partnership's grain inventories held
and firm commitments under forward contracts were hedged with futures
contracts. All grain inventories held, firm commitments under forward
contracts and futures contracts are marked to market on a daily basis.
The Partnership periodically utilizes interest rate contracts to manage
interest rate risk by converting variable interest rates on its short-term
borrowings to short-term fixed interest rates. The notional amounts of these
contracts are based upon the Partnership's projected short-term borrowing
needs. Additional interest expense incurred in holding these instruments was
$52,695, $92,545 and $1,783 in 1994, 1993 and 1992, respectively. There were
no open interest rate contracts at December 31, 1994.
10. Securities
The following is a summary of held-to-maturity securities which mature within
one year as of December 31, 1994 and 1993:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1994
Cash equivalent--commercial
paper $4,700,000 $ - $ - $4,700,000
Margin deposits--U.S. Treasury
securities 3,902,567 929 - 3,903,496
$8,602,567 $ 929 $ - $8,603,496
December 31, 1993
Cash equivalent--U.S. Treasury
securities $3,936,955 $ - $ - $3,936,955
Margin deposits--U.S. Treasury
securities 4,731,172 - 15,015 4,716,187
$8,668,127 $ - $15,015 $8,653,142
11. Fair Values of Financial Instruments
The fair values of the Partnership's financial instruments, consisting of cash
equivalents, margin deposits, investments in and advances to affiliates and
long and short-term debt, approximate their carrying values since the
instruments either provide for short terms to maturity or interest at variable
rates based on market indexes or, in the case of investments in affiliates,
the investments are being carried on the equity method which approximate fair
value. Certain long-term notes payable and the Partnership's debenture bonds
bear fixed rates of interest and terms of five or ten years. Based upon
current interest rates offered by the Partnership on similar bonds and rates
currently available to the Partnership for long-term borrowings with similar
terms and remaining maturities, the Partnership believes its long-term debt
instruments outstanding at December 31, 1994 and 1993, have fair values as
follows:
Carrying Fair
Amount Value
1994
Debenture bonds $22,144,000 $22,189,000
Long-term notes payable 52,688,000 51,316,000
$74,832,000 $73,505,000
1993
Debenture bonds $22,241,000 $23,750,000
Long-term notes payable 32,010,000 31,993,000
$54,251,000 $55,743,000
12. Segments of Business
The Partnership operates three business segments: Agriculture, Retail Stores
and Other. Agriculture includes grain merchandising, operation of terminal
grain elevator facilities, and distribution of agricultural products,
primarily fertilizer. Other includes production and distribution of lawn and
corn cob products and rail car leasing and repair.
Prior to 1994 the Partnership reported its agriculture business as two
segments: Grain Operations and Agricultural Products. The Partnership elected
to combine these operations into a single business segment based upon the
similarities in the customer bases and geographic markets.
Segment information for 1993 and 1992 has been restated to conform with the
1994 presentation.
The segment information includes the allocation of expenses shared by one or
more segments. Although management believes such allocations are reasonable,
the operating information does not necessarily reflect how such data might
appear if the segments were operated as separate businesses.
Year ended December 31
1994 1993 1992
Revenues:
Agriculture:
Sales to unaffiliated customers $661,369,917 $520,890,521 $517,598,783
Intersegment sales 3,105,953 2,978,856 2,709,350
Merchandising revenue and other
income 30,446,394 27,350,033 20,007,958
694,922,264 551,219,410 540,316,091
Retail stores:
Sales to unaffiliated customers 172,337,256 155,424,855 149,090,921
Other income 112,763 118,337 82,344
172,450,019 155,543,192 149,173,265
Other:
Sales to unaffiliated customers 89,636,688 71,668,255 64,976,326
Intersegment sales 877,903 730,135 819,310
Other income 440,107 678,710 553,502
90,954,698 73,077,100 66,349,138
Other income 1,023,964 4,090,096 4,691,375
Eliminations--intersegment sales (3,983,856) (3,708,991) (3,528,660)
Total revenues $955,367,089 $780,220,807 $757,001,209
Operating profit:
Agriculture $ 18,900,530 $ 14,571,601 $ 9,720,038
Retail stores 4,290,252 1,639,953 4,062,370
Other 5,529,419 4,958,651 4,517,401
Total operating profit 28,720,201 21,170,205 18,299,809
Other income 863,147 2,090,567 2,533,177
Interest expense (8,394,606) (6,168,371) (6,325,440)
General expenses (6,051,312) (6,013,041) (4,377,854)
Income from continuing operations $ 15,137,430 $ 11,079,360 $ 10,129,692
Identifiable assets:
Agriculture $217,462,318 $244,064,853 $168,917,991
Retail stores 64,551,540 56,558,711 48,174,786
Other 53,720,115 44,091,096 29,021,506
General assets 14,450,149 11,787,118 9,386,354
Total assets $350,184,122 $356,501,778 $255,500,637
Depreciation and amortization expense:
Agriculture $ 3,390,835 $ 3,252,151 $ 3,364,773
Retail stores 2,602,692 1,957,190 1,882,966
Other 1,699,610 1,512,000 1,211,566
General 407,921 387,882 551,274
Total depreciation and
amortization expense $ 8,101,058 $ 7,109,223 $ 7,010,579
Capital expenditures:
Agriculture $ 6,688,988 $ 3,772,771 $ 2,420,837
Retail stores 12,985,881 4,228,566 728,538
Other 5,537,036 2,209,646 2,917,100
General 1,088,454 597,538 523,570
Total expenditures $ 26,300,359 $ 10,808,521 $ 6,590,045
Intersegment sales are made at prices comparable to normal, unaffiliated
customer sales. Operating profit is sales and merchandising revenues plus
interest and other income attributable to the operating area less operating
expenses, excluding interest and general expenses. Identifiable assets by
segment include accounts receivable, inventories, advances to suppliers,
property, plant and equipment and other assets that are directly identified
with those operations. General assets consist of cash, investments, land held
for investment, land and buildings and equipment associated with
administration and Partnership services, assets of discontinued operations and
other assets not directly identified with segment operations.
An unaffiliated customer accounted for grain operations sales of $85,900,000
in 1992. No unaffiliated customer accounted for more than 10% of sales and
merchandising revenues in 1994 or 1993. Grain sales for export to foreign
markets amounted to approximately $129,700,000 and $88,300,000, and
$101,300,000 in 1994, 1993 and 1992, respectively.
THE ANDERSONS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months
Ended March 31
1995 1994
Grain sales and revenues $104,774,101 $132,669,980
Fertilizer, retail and other sales 98,235,499 86,028,579
Other income 583,921 645,771
203,593,521 219,344,330
Cost of grain sales and revenues 93,773,281 125,116,012
Cost of fertilizer, retail and
other sales 73,520,178 62,741,785
167,293,459 187,857,797
GROSS PROFIT 36,300,062 31,486,533
Operating, administrative and
general expenses 31,235,697 27,300,216
Interest expense 3,141,696 2,100,950
34,377,393 29,401,166
NET INCOME - Note B $ 1,922,669 $ 2,085,367
Allocation of income:
To general partner $ 29,086 $ 28,938
To limited partners 1,893,583 2,056,429
$ 1,922,669 $ 2,085,367
Income allocation per $1,000 of
partners' capital:
Weighted average capital for
allocation purposes - Note C $ 64,079,086 $ 54,901,354
Income allocation per $1,000 $ 30 $ 38
See notes to condensed consolidated financial statements.
THE ANDERSONS
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1995
CURRENT ASSETS
Cash and cash equivalents $ 790,624
Accounts Receivable:
Trade accounts - net 57,926,366
Margin deposits 8,012,297
65,938,663
Inventories:
Grain 111,827,468
Agricultural fertilizer and supplies 30,567,779
Merchandise 38,793,663
Lawn and corn cob products 17,255,273
Other 13,692,072
212,136,255
Prepaid expenses 1,392,933
TOTAL CURRENT ASSETS 280,258,475
OTHER ASSETS
Investments in and advances to affiliates 1,244,322
Notes receivable (net) and other assets 3,192,798
TOTAL OTHER ASSETS 4,437,120
PROPERTY, PLANT AND EQUIPMENT
Land 13,051,374
Land improvements and leasehold
improvements 22,577,115
Buildings and storage facilities 71,814,401
Machinery and equipment 87,919,079
Construction in progress 2,462,145
197,824,114
Less allowances for depreciation and
amortization 119,912,794
NET PROPERTY, PLANT AND EQUIPMENT 77,911,320
$362,606,915
See notes to condensed consolidated financial statements.
THE ANDERSONS
CONDENSED CONSOLIDATED BALANCE SHEETS - (continued)
MARCH 31, 1995
(UNAUDITED)
CURRENT LIABILITIES
Notes payable $121,400,000
Accounts payable for grain 29,887,160
Other accounts payable 53,722,850
Amounts due General Partner 5,199,966
Accrued expenses 7,507,683
Current maturities of long-term debt 5,384,000
TOTAL CURRENT LIABILITIES 223,101,659
LONG-TERM DEBT
Note payable, 7.84%, payable
quarterly, ($75,000 through October 1997
$398,000 thereafter) due 2004 14,775,000
Note payable, variable rate (7.6875%
at March 31, 1995) payable $800,000
annually, due 1997 6,000,000
Notes payable relating to revolving
credit facility, variable rate
(7.1% at March 31, 1995), due 1996 10,000,000
Note payable, variable rate (6.9375%
at March 31, 1995), payable monthly
through July 5, 1996 4,523,579
Other notes payable 793,063
Industrial development revenue bonds:
6.5% due 1999 4,400,000
Variable rate (6.03% at March 31, 1995)
due 1995 to 2004 8,114,000
Variable rate (3.879% at March 31, 1995)
due 2025 3,100,000
Debenture bonds:
9.2% to 10%, due 1995 and 1996 6,087,000
6.5% to 8%, due 1997 to 2000 5,680,000
10% due 1997 and 1998 2,117,000
10% due 2000 and 2001 2,742,000
7.5% to 8.7%, due 2002 to 2005 5,715,000
Other bonds, 4% to 10% 855,695
74,902,337
Less current maturities of long-term debt 5,384,000
TOTAL LONG-TERM DEBT 69,518,337
AMOUNT DUE GENERAL PARTNER 3,274,554
MINORITY INTEREST 979,221
PARTNERS' CAPITAL
General partner 998,462
Limited partners 64,734,682
TOTAL PARTNERS' CAPITAL 65,733,144
$362,606,915
See notes to condensed consolidated financial statements.
THE ANDERSONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months
Ended March 31
OPERATING ACTIVITIES 1995 1994
Net income $ 1,922,669 $ 2,085,367
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 2,179,685 1,878,894
Amortization of deferred gain - (34,283)
Minority interest in net income of
subsidiaries (43,207) (6,078)
Payments to minority interests (48,450) (222,052)
Provision for losses on receivables,
investments and other assets 199,746 90,320
Gain on sale of property, plant and
equipment (37,997) (227,730)
Changes in operating assets
and liabilities:
Accounts receivable (3,947,035) 13,461,532
Inventories (13,501,229) 20,258,206
Prepaid expenses and other assets (571,105) (395,028)
Accounts payable for grain (53,956,680) (64,512,873)
Other accounts payable and
accrued expenses (6,754,493) 2,532,081
NET CASH USED IN OPERATING ACTIVITIES (74,558,096) (25,091,644)
INVESTING ACTIVITIES
Purchases of property, plant, equipment (2,464,617) (2,302,893)
Proceeds from sale of property, plant
and equipment 73,688 404,183
Payments from (advances to) affiliates 250,000
(665,000)
NET CASH USED IN INVESTING ACTIVITIES (2,140,929) (2,563,710)
FINANCING ACTIVITIES
Net increase in short-term borrowings 71,400,000 25,500,000
Proceeds from issuance of long-term debt 10,293,009 5,562,215
Payments of long-term debt (10,222,980) (3,088,201)
Payments to partners and other deductions
from capital accounts (1,243,575) (1,586,784)
Capital invested by partners 1,076,500 733,675
NET CASH PROVIDED BY FINANCING ACTIVITIES 71,302,954 27,120,905
DECREASE IN CASH AND CASH EQUIVALENTS (5,396,071) (534,449)
Cash and cash equivalents at beginning
of period 6,186,695 3,936,955
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 790,624 $ 3,402,506
Noncash Investing and Financing Activities:
Assumption of long-term debt in purchase
of property, plant and equipment $ 5,216,918
See notes to condensed consolidated financial statements.
THE ANDERSONS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair
presentation of the results of operations for the periods
indicated have been made.
Note B - No provision has been made for federal income taxes on the
Partnership's net income since such amounts are includable in
the federal income tax returns of its partners.
Provision for federal income taxes is made on the net income or
loss of the Partnership's corporate subsidiaries, but is
insignificant.
Note C - The Partnership Agreement reflects each partner's invested
capital as of the beginning of each year. Partners' capital
used in determining the allocation of net income per $1,000 of
partners' capital is weighted to reflect cash distributions made
to partners during the year. The indicated allocations for the
three-month periods ended March 31, 1995 and 1994 are the
allocations which would have been made had such periods
constituted an entire fiscal year.
APPENDIX A
AGREEMENT AND PLAN OF MERGER
of
THE ANDERSONS
(an Ohio limited partnership)
with and into
THE ANDERSONS MANAGEMENT CORP.
(an Ohio corporation)
THIS AGREEMENT AND PLAN OF MERGER is dated as of April 28, 1995
(the "Agreement") by and between The Andersons, an Ohio limited partnership
(the "Partnership"), and The Andersons Management Corp., an Ohio corporation
and the sole general partner of the Partnership (the "General Partner").
WITNESSETH
WHEREAS, the Board of Directors of the General Partner, on behalf
of the Partnership and on behalf of the General Partner, deems it advisable
that the Partnership merge with and into the General Partner, upon the terms
and conditions set forth herein and in accordance with the laws of the State
of Ohio (the "Merger"); and
WHEREAS, the Board of Directors of the General Partner, on behalf
of the Partnership and on behalf of the General Partner, has, by resolution
duly adopted, approved this Agreement in accordance with the laws of the
State of Ohio and directed that it be executed by the undersigned officers
and submitted to a vote of the shareholders of the General Partner and the
limited partners of the Partnership.
NOW THEREFORE, in consideration of the mutual covenants, conditions
and agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
SECTION 1
Effect of the Merger;
Conversion of Securities
1.1 Merger. On the Effective Date (as defined in Section 2.2 below),
in accordance with this Agreement and the provisions of the General
Corporation Law of the State of Ohio, as amended (the "OGCL"), and the Ohio
Revised Uniform Limited Partnership Act, as amended ("ORULPA"), the
Partnership shall be merged with and into the General Partner, the separate
limited partnership existence of the Partnership shall cease (except as may
be continued by operation of law), and the General Partner shall continue as
the surviving entity in the form of a corporation under the laws of the State
of Ohio (sometimes referred to hereinafter as the "Surviving Entity").
1.2 Conversion of Limited Partnership Interests. On the Effective
Date, the limited partnership interests of the Partnership held by the
limited partners of the Partnership shall, by virtue of the Merger and
without any action by the holder of such interest, the Partnership, or any
other person, automatically be cancelled and retired and be converted into,
and become a right to receive a certificate for, Common Shares, no par value
per share, of the Surviving Entity (the "Common Shares"), such that one (1)
Common Share shall be issued for each eight dollars ($8.00) in a limited
partner's capital account as of the Measurement Date (as defined below). The
limited partnership interests of the Partnership held by the General Partner
shall automatically be cancelled and retired on the Effective Date without
consideration. No fractional shares shall be issued. Cash will be paid in
lieu of issuing fractional shares, with one dollar ($1.00) to be paid for
each one dollar ($1.00) in a limited partner's capital account as of the
Measurement Date. The "Measurement Date" shall be a date set by the Board of
Directors of the General Partner, which date shall be after the date on which
the limited partners of the Partnership and the shareholders of the General
Partner vote to approve the Merger but prior to the Effective Date. The
Board shall have the right in its discretion to cancel a Measurement Date and
declare a new Measurement Date at any time prior to the Effective Date.
1.3 Effect of the Merger. The Merger shall have the effect set forth
in Section 1701.82 of the OGCL and Section 1782.434 of the ORULPA. Without
limiting the generality of the foregoing, the Surviving Entity expressly
acknowledges that it shall assume all of the liabilities and obligations
under the Partnership's existing debt securities, including, specifically,
liabilities and obligations of securities issued pursuant to the
Partnership's Employee Bond Purchase Plan.
1.4 Articles of Incorporation and Code of Regulations. The Articles
of Incorporation and Code of Regulations of the General Partner, as in effect
immediately prior to the Effective Date, shall be amended and restated in
their entirety as of the Effective Date by the articles of incorporation and
code of regulations attached hereto as Annex A and B, respectively, which
articles of incorporation and code of regulations shall become the Articles
of Incorporation and Code of Regulations of the Surviving Entity immediately
after the Effective Date.
1.5 Directors of the Surviving Entity. On the Effective Date, each
person who is a director of the General Partner immediately prior to the
Effective Date shall continue as a director of the Surviving Entity and shall
serve as a director of the Surviving Entity until the following election of
directors and until his or her successor is duly elected and qualified in the
manner provided in the Articles of Incorporation and Code of Regulations of
the Surviving Entity or as otherwise provided by law or until his or her
earlier death, resignation or removal in the manner provided in the Articles
of Incorporation or Code of Regulations of the Surviving Entity or as
otherwise provided by law.
1.6 Officers of the Surviving Entity. On the Effective Date, each
person who is an officer of the General Partner immediately prior to the
Effective Date shall continue as an officer of the Surviving Entity, with
each such person to hold the same office in the Surviving Entity as such
person held in the General Partner.
SECTION 2
Effective Date
2.1 Certificate of Merger. Provided that this Agreement has not been
terminated and abandoned pursuant to Section 3.3, the General Partner shall
cause a Certificate of Merger to be executed, acknowledged and filed with the
Secretary of the State of Ohio as provided in Section 1701.81 of the OGCL,
and thereafter shall cause a certified copy of the Certificate of Merger to
be recorded in the Office of the Recorder of Deeds for Lucas County in the
State of Ohio.
2.2 Filing and Effectiveness. The Merger shall become effective at
the time when a properly executed and acknowledged Certificate of Merger is
submitted to and duly filed with the Secretary of the State of Ohio in
accordance with the applicable provisions of Section 1701.81 of the OGCL and
Section 1782.433 of the ORULPA (such time being referred to as the "Effective
Date").
SECTION 3
Conditions, Amendment and Abandonment
3.1 Conditions. The respective obligations of the General Partner
and the Partnership to effect the Merger shall be subject to the fulfillment
on or prior to the Effective Date of the following conditions:
(a) This Agreement shall have been approved and adopted by the
shareholders of the General Partner at a special meeting held for such
purpose;
(b) This Agreement shall have been approved and adopted by the
limited partners of the Partnership at a special meeting held for such
purpose or otherwise;
(c) The General Partner and the Partnership shall have received a
tax opinion from Kirkland & Ellis in form satisfactory to each such
recipient;
(d) The Registration Statement on Form S-4 of the General Partner
relating to the Merger shall have been declared effective by the
Securities and Exchange Commission and shall not be subject to any stop
order and no stop order proceeding with respect thereto shall have been
initiated or threatened by the Securities and Exchange Commission; and
(e) No final injunction, order or other action of a court or other
governmental body preventing consummation of the Merger shall be in
effect.
3.2 Amendment. The Board of Directors of the General Partner, on
behalf of the General Partner or on behalf of the Partnership, may amend,
modify or supplement this Agreement at any time in such manner as it may deem
appropriate; provided, however, that at any time after this Agreement has
been adopted by the shareholders of the General Partner or the limited
partners of the Partnership, the Board of Directors may only amend, modify or
supplement this Agreement in accordance with the provisions of Section
1701.78(G) of the OGCL or Section 1782.431(G), as the case may be.
3.3 Abandonment. This Agreement may be terminated and the Merger
abandoned for any reason by a resolution adopted by the Board of Directors of
the General Partner on behalf of either the Partnership or the General
Partner, at any time prior to the Effective Date, notwithstanding approval of
this Agreement by the shareholders of the General Partner or by the limited
partners of the Partnership.
SECTION 4
Miscellaneous
4.1 Taking of Necessary Action; Further Action. If, at any time
after the Effective Date, any further action is necessary or desirable to
carry out the purpose of this Agreement or to vest the Surviving Entity with
full right and title to and possession of all assets, property, rights,
privileges, immunities, powers and franchises of the Partnership, the
officers and directors of the Surviving Entity are fully authorized in the
name of either or both of the constituent entities to take, and shall take,
all such action.
4.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
4.3 Governing Law. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the
applicable provisions of the OGCL and ORULPA.
4.4 Agreement. Executed copies of this Agreement will be on file at
the principal place of business of the Surviving Entity at 480 West Dussel
Drive, Maumee, Ohio 43537, and copies thereof will be furnished to any
shareholder or limited partner, as the case may be, of either constituent
entity, upon request and without cost.
* * * * *
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolution of the Board of Directors of the General Partner on behalf of the
General Partner and on behalf of the Partnership, is hereby executed on
behalf of each of the constituent entities and attested to by their
respective officers thereunto duly authorized.
THE ANDERSONS,
an Ohio limited partnership
By: The Andersons Management Corp.
ATTEST: Its: General Partner
By: /s/ Beverly J. McBride By: /s/ Richard P. Anderson
Its: Secretary Its: President and Chief Executive
Officer
THE ANDERSONS MANAGEMENT CORP.,
an Ohio corporation
ATTEST:
By: /s/ Gary L. Smith By: /s/ Thomas H. Anderson
Its: Corporate Treasurer Its: Chairman
ANNEX A
TO AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE ANDERSONS MANAGEMENT CORP.
FIRST: Name. The name of the Corporation shall be The Andersons,
Inc.
SECOND: Office. The principal office of the Corporation is to be
located at 480 West Dussel Drive, Maumee, in Lucas County, Ohio 43537.
THIRD: Purpose. The Corporation is formed to engage in any lawful
act or activity for which a corporation may be formed under the Ohio General
Corporation Law.
FOURTH: Shares.
(a) Authorized Shares. The total number of shares the
Corporation has authority to issue is 51,000,000 shares, consisting of
1,000,000 preferred shares, no par value per share (the "Preferred Shares"),
and 50,000,000 common shares, no par value per share (the "Common Shares").
The number of authorized Preferred Shares may not be decreased unless such
decrease is approved by the affirmative vote of the holders of not less than
two-thirds (2/3) of the outstanding Common Shares. Any such decrease may be
effected without a vote of the holders of the Preferred Shares, or of any
series thereof, unless a vote of any such holders is required pursuant to the
instrument designating the terms of a series of Preferred Shares. In no
event may the number of authorized Preferred Shares be decreased below the
number of shares thereof then outstanding. Any issuance of shares of the
Corporation must be approved by directors constituting not less than two-
thirds (2/3) of the directors then in office.
(b) Recapitalization. Immediately upon the effectiveness of these
Amended and Restated Articles of Incorporation, each previously outstanding
share of the Corporation's Class A Common Shares shall be, without further
action by the Corporation or the holder thereof, changed and converted into a
number of Common Shares determined by dividing the book value of such share
at the Measurement Date by $8, and each previously outstanding share of the
Corporation's Class B Common Shares shall be, without further action by the
Corporation or the holder thereof, changed and converted into a number of
Common Shares determined by dividing the book value of such share at the
Measurement Date by $8. In lieu of issuing fractional Common Shares to any
holder of Class A Common Shares or Class B Common Shares, the book value of
such fractional Common Share calculated as of the Measurement Date shall be
paid by the Corporation to such holder in cash. The "Measurement Date" shall
be a date set by the board of directors of the Corporation (the "Board of
Directors"), which date shall be after the date on which the limited partners
of The Andersons, an Ohio limited partnership and the shareholders of the
Corporation vote to approve a merger of The Andersons with and into the
Corporation but prior to the effective date of such merger. The Board of
Directors shall have the right in its discretion to cancel a Measurement Date
and declare a new Measurement Date at any time prior to such effective date.
(c) Preferred Shares. Pursuant to Section 1701.06(A)(12) of the
Ohio Revised Code, the Board of Directors of the Corporation may, by the
affirmative vote of at least two-thirds (2/3) of the directors then in office
and subject to the limitations prescribed by law and the provisions of these
Amended and Restated Articles of Incorporation, provide for the issuance of
Preferred Shares or provide for the issuance of Preferred Shares in one or
more series, establish from time to time the number of shares to be included
in each such series and fix the designations, voting powers, preferences,
rights and qualifications, limitations or restrictions of the Preferred
Shares of each such series.
(d) Common Shares. Except as otherwise provided by the General
Corporation Law of the State of Ohio, by these Amended and Restated Articles
of Incorporation (or any amendments hereto) and subject to the rights of
holders of Preferred Shares, all of the voting power of the Shareholders of
the Corporation shall be vested in the holders of the Common Shares, and each
holder of Common Shares shall have one (1) vote for each Common Share held by
such holder on all matters voted upon by the shareholders.
(e) Voting. Pursuant to Section 1701.52 of the Ohio Revised Code,
notwithstanding any provisions in Section 1701.01 to 1701.98, inclusive, of
the Ohio Revised Code requiring for any purpose the vote, consent, waiver, or
release of the holders of any designated portion (but less than all) of the
shares of any particular class or of each class of the Corporation's shares,
and unless otherwise expressly set forth in these Amended and Restated
Articles of Incorporation or the Corporation's Code of Regulations, action
may be taken on any matter at any shareholder's meeting by the affirmative
vote of the holders of a majority of the shares entitled to vote thereon.
Unless otherwise expressly set forth in these Amended and Restated Articles
of Incorporation, the Corporation's Code of Regulations, or an instrument
designating the terms of a series of Preferred Shares, no shareholder or
holder of rights to purchase the Corporation's shares shall be entitled to
vote such shares or rights unless such shares have been issued and are fully
paid and non-assessable.
(f) Preemptive Rights. Unless otherwise expressly set forth in
the instrument designating the terms of a series of Preferred Shares or in
any written agreement entered into by the Corporation, no holder of shares of
any class of the Corporation's capital shares shall have any right,
preemptive or otherwise, to subscribe for or purchase any of the
Corporation's shares hereafter issued or sold.
FIFTH: Code of Regulations. In furtherance and not in limitation of
the powers conferred by statute, the shareholders of the Corporation are
expressly authorized to adopt, amend or repeal the Corporation's Code of
Regulations; provided, however, that, in addition to any vote of the holders
of any class or series of shares of the Corporation required by law or by
these Amended and Restated Articles of Incorporation, the affirmative vote of
the holders of not less than two-thirds (2/3) of the outstanding Common
Shares entitled to vote on each matter on which the holders of record of
Common Shares shall be entitled to vote shall be required in order for the
shareholders to adopt, amend or repeal any provision of the Corporation's
Code of Regulations.
SIXTH: No Cumulative Voting. The Corporation hereby eliminates the
right of its shareholders to cumulate their voting power under Section
1701.55(C)-(D) of the Ohio Revised Code, as permitted by Section 1701.69
(B)(10) of the Ohio Revised Code. [NOTE THAT THIS ARTICLE SIXTH SHALL BE
INCLUDED IN THESE AMENDED AND RESTATED ARTICLES OF INCORPORATION ONLY IF THE
PROPOSAL TO ELIMINATE CUMULATIVE VOTING IS APPROVED BY THE VOTE REQUIRED
UNDER OHIO LAW. IN THE EVENT THAT SUCH APPROVAL IS NOT OBTAINED, THIS
ARTICLE SIXTH SHALL NOT BE INCLUDED IN THESE AMENDED AND RESTATED ARTICLES OF
INCORPORATION AND ALL SUBSEQUENT ARTICLES SHALL BE RENUMBERED ACCORDINGLY.]
SEVENTH: Certain Voting Requirements. In addition to the requirements
of applicable state law, and the other provisions of these Articles:
(a) The approval required for any Business Combination shall be
the affirmative vote of the holders of at least two-thirds (2/3) of the
voting power of the outstanding Common Shares not Beneficially Owned by the
Controlling Persons that cause the transaction contemplated by such
Business Combination to constitute a Business Combination; provided that no
such vote under this Article SEVENTH shall be required if:
(i) (A) the Business Combination will result in an involuntary
sale, redemption, cancellation or other termination of
ownership of all shares of voting Common Shares of the
Corporation owned by shareholders who do not vote in
favor of the Business Combination;
(B) the cash or fair value of other readily marketable
consideration to be received by such shareholders for
such shares shall at least be equal to the Minimum Price
Per Share; and
(C) a proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 shall be mailed to the
shareholders of the Corporation for the purpose of
soliciting shareholder approval of the Business
Combination; or
(ii) the then current Board of Directors of the Corporation shall
by the affirmative vote of at least two-thirds (2/3) of the
directors then in office have approved the Business
Combination as being in the best interests of the Corporation.
(b) Solely for purposes of this Article SEVENTH, the following
definitions shall apply:
(i) "Affiliate" shall mean with respect to a Person, a Person that
directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with such Person.
(ii) "Associate" shall mean with respect to a Person:
(A) any corporation or organization of which such Person is
an officer or partner or of which such Person is,
directly or indirectly, the Beneficial Owner of five
percent (5%) or more of any class of equity securities;
(B) any trust or other estate in which such Person has a five
percent (5%) or larger beneficial interest of any nature
or as to which such Person serves as trustee or in a
similar fiduciary capacity; or
(C) the immediate family of such Person, including without
limitation, a spouse, parents, children (even if of legal
age and living independently), siblings, fathers and
mothers-in-laws, sons and daughters-in-law, and brothers
and sisters-in-law.
(iii) "Beneficially Own" shall include, without limitation, with
respect to any Person:
(A) all shares directly or indirectly owned by such Person,
by an Affiliate of such Person or by an Associate of such
Person or such Affiliate;
(B) all shares which such Person, Affiliate or Associate has
the right to acquire (1) through the exercise of any
option, warrant or right (whether or not currently
exercisable), (2) through the conversion of a security,
(3) pursuant to the power to revoke a trust,
discretionary account or similar arrangement, or (4)
pursuant to the automatic termination of a trust,
discretionary account or similar arrangement; and
(C) all shares as to which such Person, Affiliate or
Associate directly or indirectly, through any contract,
arrangement, understanding or relationship between or
among any two or more shareholders has or shares voting
power (which includes the power to vote or to direct the
voting of such shares) or investment power (which
includes the power to dispose or to direct the
disposition of such shares) or both.
(iv) "Business Combination" shall mean:
(A) any merger of the Corporation with or into a Controlling
Person or Affiliate of a Controlling Person or Associate
of such Controlling Person or Affiliate;
(B) any sale, lease, exchange, transfer or other disposition,
including without limitation a mortgage or any other
security device, of all or any Substantial Part of the
assets of the Corporation (including without limitation
any voting securities of a Subsidiary) or of a
Subsidiary, to or with a Controlling Person or Affiliate
of a Controlling Person or Associate of such Controlling
Person or Affiliate;
(C) any merger into the Corporation, or into a Subsidiary, of
a Controlling Person or an Affiliate of a Controlling
Person or an Associate of such Controlling Person or
Affiliate;
(D) any sale, lease, exchange, transfer or other disposition
to the Corporation or a Subsidiary of all or any part of
the assets of a Controlling Person or Affiliate of a
Controlling Person or Associate of such Controlling
Person or Affiliate but not including any dispositions of
assets which, if included with all other dispositions to
the Corporation or a Subsidiary consummated during the
same fiscal year of the Corporation by the same
Controlling Person, Affiliates thereof and Associates of
such Controlling Person or Affiliates, would not result
in dispositions during such year by all such Persons of
assets having an aggregate fair value (determined at the
time of disposition of the respective assets) in excess
of one percent (1%) of the total consolidated assets of
the Corporation (as shown on its certified balance sheet
as of the end of the fiscal year preceding the proposed
disposition), provided that in no event shall any
disposition of assets be excepted from shareholder
approval by reason of the preceding exclusion if such
disposition, when included with all other dispositions
consummated during the same, and immediately preceding
two fiscal years of the Corporation by the same
Controlling Person, Affiliates thereof and Associates of
such Controlling Person or Affiliates, would result in
dispositions by all such Persons of assets having an
aggregate fair value (determined at the time of
disposition of the respective assets) in excess of two
percent (2%) of the total consolidated assets of the
Corporation (as shown on its certified balance sheet as
of the end of the fiscal year preceding the proposed
disposition);
(E) any reclassification of voting Common Shares of the
Corporation, or any recapitalization involving voting
Common Shares of the Corporation, consummated within
three years after a Controlling Person becomes a
Controlling Person; and
(F) any agreement, contract or other arrangement providing
for any of the transactions described in this definition
of Business Combination.
Notwithstanding anything to the contrary herein, Business Combination shall
not include dissolution of the Corporation, or any Statutory Merger, or any
transaction involving a Controlling Person or Affiliate of a Controlling
Person or Associate of such Controlling Person or Affiliate which is to be
consummated or become effective after such Controlling Person has been a
Controlling Person for at least three years.
(v) "Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
(vi) "Controlling Person" shall mean any Person who Beneficially
Owns a number of voting shares of the Corporation, whether or not such
number includes shares not then issued, which exceeds ten percent (10%)
of the voting power of the shares of the Corporation entitled to vote.
(vii) "Exempt Person" shall mean (A) each Person that is a holder
of Common Shares immediately after giving effect to the merger of The
Andersons, an Ohio limited partnership, with and into the Corporation;
(B) to the extent a Person described in (A) above is an individual,
such Person's spouse, descendants, spouses of descendants, trustee of
trusts established for the benefit of such Person, spouses and/or
descendants (acting in their capacity as trustees of such trusts), and
executors of estates of such Person, spouses and/or descendants (acting
in their capacity as executors of such estates); and (C) any Person (1)
of which Persons described in (A) and/or (B) above own more than eighty
percent (80%) of the voting shares or other voting interests and (2) of
which Persons described in (A) and/or (B) above own shares or other
interests representing more than eighty percent (80%) of the total value
of the shares or other interests of such Person. For purposes of this
definition, "spouses" shall include widows and widowers until first
remarried and "descendants" shall include descendants by adoption.
Notwithstanding the foregoing sentence, none of the Persons described in
clauses (A), (B) and (C) above shall continue to be an Exempt Person by
virtue of such clauses after the earliest date on which such Persons are
owners in the aggregate of less than twenty-five percent (25%) of the
Corporation's outstanding voting shares (determined without taking into
account any securities exercisable or exchangeable for, or convertible
into, the Corporation's voting shares, other than any such securities
owned by such Persons).
(viii) "Minimum Price Per Share" shall mean the higher of
(A) the highest gross per share price paid or agreed to be
paid to acquire any shares of voting Common Shares of the
Corporation Beneficially Owned by a Controlling Person
(other than any price paid or deemed to be paid for any
such shares issued pursuant to the amendment and
restatement of these Amended and Restated Articles of
Incorporation in connection with the merger of The
Andersons, an Ohio limited partnership, into the
Corporation or for any such shares issued in such
merger), provided such payment or agreement to make
payment was made within three years immediately prior to
the record date set to determine the shareholders
entitled to vote on the Business Combination in question,
or, in the case of a Statutory Merger, three years
immediately prior to the effective date of such Statutory
Merger, or
(B) the highest per share asked public market price (in the
event the shares are not listed on a national securities
exchange) or the highest per share closing public market
price (in the event the shares are listed on a national
securities exchange) for such shares during such three
year period. The calculation of the Minimum Price Per
Share shall require appropriate adjustments for capital
changes, including without limitation share splits, share
dividends, reserves share splits, and share
distributions.
(ix) "Person" shall mean an individual, a partnership, a limited
liability company, a corporation, an association, a joint stock company,
a trust, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
(x) "Securities Exchange Act of 1934" shall mean the Securities
Act of 1934, as amended from time to time as well as any successor or
replacement statute.
(xi) "Statutory Merger" shall mean any merger of the Corporation
into another entity pursuant to Sections 1701.80 and 1701.801 of the
Ohio Revised Code, as amended from time to time, or any successor or
replacement statute (collectively the "Merger Statute"), but only if the
Merger Statute does not give voting rights to the shareholders of the
Corporation with respect to the merger. If voting rights are required
by the Merger Statute, or in connection therewith, a merger under such
section shall not be a Statutory Merger for purposes of this
Article SEVENTH.
(xii) "Subsidiary" shall mean with respect to any Person, any
corporation, partnership, association or other business entity of which
(i) if a corporation, twenty percent (20%) or more of the total voting
power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of
that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, twenty percent
(20%) or more of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to
have twenty percent (20%) or more ownership interest in a partnership,
limited liability company, association or other business entity if such
Person or Persons shall be allocated twenty percent (20%) or more of
partnership, association or other business entity gains or losses or
shall be or control the managing director or general partner of such
partnership, association or other business entity.
(xiii) "Substantial Part" shall mean more than ten percent (10%) of
the total assets of the corporation in question, as shown on its
certified balance sheet as of the end of the most recent fiscal year
ended prior to the time the determination is being made.
(c) A Controlling Person shall be subject to all fiduciary and
other standards of conduct and obligations imposed by applicable state law
and shall be considered not to have satisfied such standards of conduct and
obligations unless such Controlling Person shall, in the event of a
Statutory Merger which occurs before the Controlling Person has been a
Controlling Person for three years, pay or cause to be paid for each voting
Common Share of the Corporation, as to which share ownership is being sold,
redeemed, cancelled or otherwise terminated in a Statutory Merger, cash or
other readily marketable consideration having a fair value at least equal
to the Minimum Price Per Share.
(d) This Article SEVENTH may not be amended, altered, changed or
repealed in any respect unless such action is approved by the affirmative
vote of the holders of at least two-thirds (2/3) of the voting power of the
outstanding Common Shares not Beneficially Owned by Controlling Persons;
provided, however, that solely for purposes of this subsection (d), the
term Controlling Persons shall not include any Exempt Persons.
EIGHTH: Corporate Repurchase of Shares. Pursuant to Section 1701.35
of the Ohio Revised Code, when authorized by the affirmative vote of a
majority of the directors then in office, without the action or approval of
its shareholders, the Corporation may redeem, purchase or contract to
purchase, at any time and from time to time, shares of any class of its
capital shares, for such prices and upon and subject to such terms and
conditions as the Board of Directors may determine.
NINTH: Self-Interest. No officer, director or shareholder of the
Corporation shall be disqualified by his or her office, membership or stock
ownership from dealing or contracting with the Corporation as a vendor,
purchaser, employee, agent or in any other similar or dissimilar capacity;
nor shall any transaction, contract or act of the Corporation be void or
voidable or in any way affected or invalidated by reason of the fact that any
such officer, director or shareholder of the Corporation, any firm of which
he or she may be a member, or any other Corporation or affiliate or
subsidiary of which he or she may be an officer, director or shareholder, is
in any way interested in such transaction, contract or act, provided the
interest of such officer, director or shareholder is disclosed to or known by
the Board of Directors of the Corporation, or such members thereof as shall
be present at any meeting at which action is taken upon any such transaction,
contract or act, or for any gains or profits realized by him or her by reason
of the fact that he or she, any firm of which he or she is a member, or any
corporation or affiliate or subsidiary of which he or she is an officer,
director or shareholder is interested in any such transaction, contract or
act. Any such officer, director or shareholder, if he or she is a director,
may be counted in determining the existence of a quorum at any meeting of the
Board of Directors of the Corporation which shall authorize or take action
upon any such transaction, contract or act, and he or she may vote at any
such meeting to authorize, adopt, ratify or approve any such transaction,
contract or act to the same extent as if he or she, any firm of which he or
she is a member, or any other corporation or affiliate or subsidiary of which
he or she is an officer, director or shareholder, were not interested in such
transaction, contract or act.
TENTH: Business Combinations. In the event that it is proposed that
the Corporation enter into a merger or consolidation with any other Person
(other than a direct or indirect wholly-owned subsidiary of the Corporation),
or sell or otherwise dispose of all or substantially all of its assets or
business in one transaction or a series of transactions, or liquidate or
dissolve, the affirmative vote of the holders of not less than two-thirds
(2/3) of the outstanding Common Shares entitled to vote on each matter on
which the holders of record of Common Shares shall be entitled to vote shall
be required for the approval of such proposal; provided, however, that the
foregoing shall not apply to any such merger, consolidation, sale,
disposition, liquidation or dissolution which is approved by the affirmative
vote of two-thirds (2/3) of the directors then in office, if the majority of
the members of the Board of Directors so voting were members of the Board of
Directors of the Corporation prior to the public announcement of the proposed
merger, consolidation, sale, disposition, dissolution or liquidation and
prior to the public announcement of any transaction relating to such merger,
consolidation, sale, disposition, dissolution or liquidation. If such
approval is granted, then such transaction shall only require the approval
otherwise required under the other Articles of these Amended and Restated
Articles of Incorporation and under the Ohio General Corporation Law. For
purposes of this Article TENTH, "Person" shall mean an individual, a
partnership, a limited liability company, a corporation, an association, a
joint stock company, a trust, an unincorporated organization or a
governmental entity or any department, agency or political subdivision
thereof.
ELEVENTH: Control Share Acquisitions. No Person shall make a Control
Share Acquisition without the prior authorization of the shareholders of the
Corporation.
(a) In order to obtain authorization of a Control Share
Acquisition by the shareholders of the Corporation, a Person shall deliver a
notice (the "Acquisition Notice") to the Corporation at its principal place
of business that sets forth all of the following information:
(i) the identity of the Person who is giving the Acquisition
Notice;
(ii) a statement that the Acquisition Notice is given pursuant
to this Article ELEVENTH;
(iii) the number and class of shares of the Corporation owned,
directly or indirectly, by the Person who gives the
Acquisition Notice;
(iv) the range of voting power under which the proposed
Control Share Acquisition would, if consummated, fall;
(v) a description in reasonable detail of the terms of the
proposed Control Share Acquisition; and
(vi) representations, supported by reasonable evidence, that
the proposed Control Share Acquisition, if consummated,
would not be contrary to law and that the Person who is
giving the Acquisition Notice has the financial capacity
to make the proposed Control Share Acquisition.
(b) (i) The Board of Directors of the Corporation shall, within
ten (10) days after receipt by the Corporation of an Acquisition Notice that
complies with paragraph (a), call a special meeting of shareholders to be
held not later than fifty (50) days after receipt of the Acquisition Notice
by the Corporation, unless the Person who delivered the Acquisition Notice
agrees to a later date, to consider the proposed Control Share Acquisition;
provided, that, the Board of Directors shall have no obligation to call such
meeting if they make a determination within ten (10) days after receipt of
the Acquisition Notice (A) that the Acquisition Notice was not given in good
faith, (B) that the proposed Control Share Acquisition would not be in the
best interests of the Corporation and its shareholders, (C) that the Person
who delivered the Acquisition Notice has failed to adequately demonstrate
that such Person has the financial capacity to make the proposed Control
Share Acquisition or (D) that the proposed Control Share Acquisition would be
contrary to law if consummated. The Board of Directors may adjourn such
meeting if, prior to such meeting, (1) the Corporation has received an
Acquisition Notice from any other Person or (2) a merger, consolidation or
sale of assets of the Corporation has been approved by the Board of Directors
and the Board of Directors has determined that the Control Share Acquisition
proposed by such other Person or the merger, consolidation or sale of assets
of the Corporation so approved should be presented to shareholders at an
adjourned meeting or at a special meeting held at a later date.
(ii) For purposes of making a determination that a special
meeting of shareholders should not be called pursuant to this paragraph (b),
no such determination shall be deemed void or voidable with respect to the
Corporation merely because one or more of its directors or officers who
participated in making such determination may be deemed to be other than
disinterested, if in any such case the material facts of the relationship
giving rise to a basis for self-interest are known to the directors and the
directors, in good faith reasonably justified by the facts, make such
determination by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors constitute less than a
quorum. For purposes of this paragraph (b), "disinterested directors" shall
mean directors whose material contacts with the Corporation are limited
principally to activities as a director or shareholder. Persons who have
substantial, recurring business or professional transactions with the
Corporation shall not be deemed to be "disinterested directors" for purposes
of this provision. A director shall not be deemed to be other than an
"disinterested director" merely because he or she would no longer be a
director if the proposed Control Share Acquisition were approved and
consummated.
(c) The Corporation shall give notice of such special meeting to
all shareholders of record as of the record date set for such meeting as
promptly as practicable. Such notice shall include or be accompanied by a
copy of the Acquisition Notice and by a statement of the Corporation,
authorized by the Board of Directors, of its position or recommendation, or
that it is taking no position or making no recommendation, with respect to
the proposed Control Share Acquisition.
(d) The Person who delivered the Acquisition Notice may make the
proposed Control Share Acquisition if both the following occur: (i) the
shareholders of the Corporation authorize such acquisition at the special
meeting called by the Board of Directors and held for that purpose, and at
which a quorum is present, by an affirmative vote of the holders of two-
thirds (2/3) of the Voting Shares represented at such meeting in person or by
proxy and by an affirmative vote of the holders of two-thirds (2/3) of the
portion of such Voting Shares represented at such meeting in person or by
proxy excluding the votes of Interested Shares; and (ii) such acquisition is
consummated, in accordance with the terms so authorized, not later than 360
days following such shareholder authorization of the Control Share
Acquisition.
(e) Shares issued or transferred to any Person in violation of
this Article ELEVENTH shall be valid only with respect to such amount of
shares as does not result in a violation of this Article ELEVENTH, and such
issuance or transfer shall be null and void with respect to the remainder of
such shares (any such remainder of shares being hereinafter called "Excess
Shares") unless within 30 days of the date on which the Board of Directors
determines that such Excess Shares have been issued or transferred, the
issuance or transfer of such Excess Shares is approved by the Board of
Directors, which approval makes specific reference to this paragraph (e) of
this Article ELEVENTH. If the issuance or transfer of such Excess Shares is
approved by the Board of Directors in accordance with the provisions of this
paragraph, then the issuance or transfer of such Excess Shares shall be
deemed, for all purposes, to have been approved prior to the date of such
issuance or transfer in accordance with paragraph (f)(ii)(B)(5) of this
Article ELEVENTH. If the second clause of the first sentence of this
paragraph (e) is determined to be invalid by virtue of any legal decision,
statute, rule or regulation, any Person who holds Excess Shares in violation
of this Article ELEVENTH shall be conclusively deemed to have acted as an
agent on behalf of the Corporation in acquiring such Excess Shares and to
hold such Excess Shares on behalf of the Corporation. While held by any
Person in violation of this Article ELEVENTH, Excess Shares shall not be
entitled to any voting rights, shall not be considered to be outstanding for
quorum or voting purposes, and shall not be entitled to receive dividends or
any other distribution with respect to Excess Shares, shall hold the same as
agent for the Corporation and, following a permitted transfer, for the
transferee thereof. Notwithstanding the foregoing, any holder of Excess
Shares may transfer the same (together with any distributions thereon) to any
Person who, following such transfer, would not own shares in violation of
this Article ELEVENTH. Upon such permitted transfer, the Corporation shall
pay or distribute to the transferee any dividends or other distributions on
the Excess Shares not previously paid or distributed.
(f) As used in this Article ELEVENTH:
(i) "Person" shall mean an individual, a partnership, a limited
liability company, a corporation, an association, a joint stock company, a
trust, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof and two or more of any of
the foregoing Persons having a joint or common interest.
(ii) (A) "Control Share Acquisition" means the acquisition, directly or
indirectly, alone or with others, by any Person of shares of the Corporation
that, when added to all other shares of the Corporation in respect of which
such Person may exercise or direct the exercise of voting power as provided
in this paragraph (F)(2)(i), would entitle such Person, immediately after
such acquisition, directly or indirectly to exercise or direct the exercise
of voting power of the Corporation in the election of directors within any of
the following ranges of such voting power:
(1) One-fifth (1/5) or more but less than one-third (1/3) of
such voting power;
(2) One-third (1/3) or more but less than a majority of such
voting power;
(3) A majority or more of such voting power.
A bank, broker, nominee, trustee, or other Person who acquires shares in the
ordinary course of business for the benefit of others in good faith and not
for the purpose of circumventing this Article ELEVENTH shall, however, be
deemed to have voting power only of shares in respect of which such Person
would be able to exercise or direct the exercise of votes without further
instruction from others at a meeting of shareholders called under this
Article ELEVENTH. For purposes of this Article ELEVENTH, the acquisition of
securities immediately convertible into the shares of the Corporation with
voting power in the election of directors shall be treated as an acquisition
of such shares.
(B) The acquisition of any shares of the Corporation does not
constitute a Control Share Acquisition for the purpose of this Article
ELEVENTH if the acquisition is consummated in any of the following
circumstances.
(1) By underwriters, in good faith and not for the purpose of
circumventing this Article ELEVENTH, in connection with
an offering of the securities of the Corporation to the
public;
(2) By bequest or inheritance, by operation of law upon the
death of any individual, or by any other transfer without
valuable consideration, including a gift, that is made in
good faith and not for the purpose of circumventing this
Article ELEVENTH;
(3) Pursuant to the satisfaction of a pledge or other
security interest created in good faith and not for the
purpose of circumventing this Article ELEVENTH;
(4) Pursuant to a merger or consolidation adopted, or a
combination or majority share acquisition authorized, by
shareholder vote in compliance with the provisions of
1701.78 or 1701.83 of the Ohio Revised
Code if the Corporation is the surviving or new
corporation in the merger or consolidation or is the
acquiring corporation in the combination or majority
share acquisition and if the vote of shareholders of the
surviving, new, or acquiring corporation is required by
the provisions of 1701.78 or 1701.83 of the Ohio
Revised Code;
(5) Pursuant to a transaction which has received the prior
authorization of the Board of Directors of the
Corporation which authorization makes specific references
to this paragraph (f)(ii)(B)(5); or
(6) Solely by one or more Exempt Persons.
The acquisition by any Person of shares of the Corporation in a manner
described under this paragraph (f)(ii)(B) shall be deemed to be a Control
Share Acquisition authorized pursuant to this Article ELEVENTH within the
range of voting power under paragraph (f)(ii)(A)(1), (2) or (3) of this
Article ELEVENTH that such Person is entitled to exercise after such
acquisition, provided that, in the case of an acquisition in a manner
described under paragraph (f)(ii)(B)(2) or (3), the transferor of such shares
to such Person had previously obtained or was deemed to have obtained any
authorization of shareholders required under this Article ELEVENTH in
connection with such transferor's acquisition of shares of the Corporation.
(C) The acquisition of shares of the Corporation in good faith and
not for the purpose of circumventing this Article ELEVENTH, the acquisition
of which (1) had previously been authorized by shareholders in compliance
with this Article ELEVENTH or (2) would have constituted a Control Share
Acquisition but for paragraph (f)(ii)(B), does not constitute a Control Share
Acquisition for the purpose of this Article ELEVENTH unless such acquisition
entitles any Person, directly or indirectly, to exercise or direct the
exercise of voting power of the Corporation in the election of directors in
excess of the range of such voting power authorized pursuant to this Article
ELEVENTH, or deemed to be so authorized under paragraph (f)(ii)(B).
(iii) "Exempt Person" shall mean (A) each Person that is a holder of
Common Shares immediately after giving effect to the merger of The Andersons,
an Ohio limited partnership, with and into the Corporation; (B) to the extent
a Person described in (A) above is an individual, such Person's spouse,
descendants, spouses of descendants, trustee of trusts established for the
benefit of such Person, spouses and/or descendants (acting in their capacity
as trustees of such trusts), and executors of estates of such Person, spouses
and/or descendants (acting in their capacity as executors of such estates);
and (C) any Person (1) of which Persons described in (A) and/or (B) above own
more than eighty percent (80%) of the voting shares or other voting interests
and (2) of which Persons described in (A) and/or (B) above own shares or
other interests representing more than eighty percent (80%) of the total
value of the shares or other interests of such Person. For purposes of this
definition, "spouses" shall include widows and widowers until first remarried
and "descendants" shall include descendants by adoption. Notwithstanding the
foregoing sentence, none of the Persons described in clauses (A), (B) and (C)
above shall continue to be an Exempt Person by virtue of such clauses after
the earliest date on which such Persons are owners in the aggregate of less
than twenty-five percent (25%) of the Corporation's outstanding voting shares
(determined without taking into account any securities exercisable or
exchangeable for, or convertible into, the Corporation's voting shares, other
than any such securities owned by such Persons).
(iv) "Interested Shares" means Voting Shares with respect to which
any of the following Persons may exercise or direct the exercise of the
voting power;
(A) any Person whose Acquisition Notice prompted the calling
of the meeting of shareholders;
(B) any officer of the Corporation elected or appointed by
the directors of the Corporation; and
(C) any employee of the Corporation who is also a director of
the Corporation.
(v) "Voting Shares" means shares of any class or series of shares
of the Corporation entitled to vote generally in the election of directors.
(g) No proxy appointed for or in connection with the shareholder
authorization of a Control Share Acquisition pursuant to this Article
ELEVENTH shall be valid unless it provides that it is revocable. No such
proxy is valid unless it is sought, appointed, and received both:
(i) in accordance with all applicable requirements of law; and
(ii) separate and apart from the sale or purchase, contract or tender
for sale or purchase, or request, or invitation for tender for sale
or purchase, of shares of the Corporation.
(h) Proxies appointed for or in connection with the shareholder
authorization of a Control Share Acquisition pursuant to this Article
ELEVENTH shall be revocable at all times prior to the obtaining of such
shareholder authorization, whether or not coupled with an interest.
(i) The provisions of 1701.831 of the Ohio Revised Code, as
amended from time to time, or any successor provision or provisions to said
section, shall only apply to this Corporation with respect to any particular
Control Share Acquisition attempt, as such is defined in 1701.831 of the
Ohio Revised Code, in the event that there is a determination by a court of
competent jurisdiction with respect to which no appeal is pending that the
provisions of this Article ELEVENTH are invalid or otherwise cease to be
included in these Amended and Restated Articles of Incorporation
TWELFTH: Transactions with Interested Shareholders.
(a) The Corporation shall not engage in any Business Combination
with any Interested Shareholder for a period of 3 years following the date
that such shareholder became an Interested Shareholder, unless (i) prior to
such date the Board of Directors approved either the Business Combination or
the transaction which resulted in the shareholder becoming an Interested
Shareholder, or (ii) upon consummation of the transaction which resulted in
the shareholder becoming an Interested Shareholder, the Interested
Shareholder owned at least 85% of the voting shares of the Corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (A) by
Persons who are officers of the Corporation and (B) by employee share plans
of the Corporation or its subsidiaries in which employee participants do not
have the right to determine confidentially whether shares of the Corporation
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date the Business Combination is approved by
the Board of Directors and authorized at an annual or special meeting of
shareholders (and not by written consent) by the affirmative vote of at least
two-thirds (2/3) of the outstanding voting shares of the Corporation which
are not owned by the Interested Shareholder.
(b) The restrictions contained in this Article TWELFTH shall not
apply if:
(i) a shareholder becomes an Interested Shareholder inadvertently and
(A) as soon as practicable divests sufficient shares so that the shareholder
ceases to be an Interested Shareholder and (B) would not, at any time within
the 3-year period immediately prior to a Business Combination between the
Corporation and such shareholder, have been an interested shareholder but for
the inadvertent acquisition; or
(ii) the Business Combination is proposed prior to the consummation or
abandonment of and subsequent to the earlier of the public announcement or
the notice required hereunder of a proposed transaction which (A) constitutes
one of the transactions described in the second sentence of this subsection
(ii); (B) is with or by a Person who either was not an Interested Shareholder
during the previous 3 years or who became an Interested Shareholder with the
prior approval of the Board of Directors; and (C) is approved or not opposed
by two-thirds (2/3) of the members of the Board of Directors then in office
(but not less than one (1)) who were directors prior to any Person becoming
an Interested Shareholder during the previous 3 years or were recommended for
election or elected to succeed such directors by a majority of such
directors. The proposed transactions referred to in the preceding sentence
are limited to (x) a merger or consolidation of the Corporation (except for a
merger in respect of which, pursuant to the Ohio General Corporation Law, no
vote of the shareholders of the Corporation is required); (y) a sale, lease,
exchange, mortgage, pledge, transfer or other disposition (in one transaction
or a series of transactions), whether as part of a dissolution or otherwise,
of assets of the Corporation or of any direct or indirect majority-owned
subsidiary of the Corporation (other than to any direct or indirect wholly-
owned subsidiary or to the Corporation) having an aggregate market value
equal to 50% or more of either the aggregate market value of all of the
assets of the Corporation determined on a consolidated basis or the aggregate
market value of all the outstanding shares of the Corporation; and (z) a
proposed tender or exchange offer for 50% or more of the outstanding voting
shares of the Corporation. The Corporation shall give not less than 20 days'
notice to all shareholders known to it to be Interested Shareholders prior to
the consummation of any of the transactions described in clause (x) or (y) of
the second sentence of this subsection (ii).
(c) Definitions. As used in this Article TWELFTH:
(i) "affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, another Person; provided that, for purposes of this Article
TWELFTH, the term "affiliate" shall not include any Person that is an Exempt
Person.
(ii) "associate," when used to indicate a relationship with any Person,
means (i) any corporation or organization of which such Person is a director,
officer or partner or is, directly or indirectly, the owner of twenty percent
(20%) or more of any class of voting shares, (ii) any trust or other estate
in which such Person has at least a twenty (20%) beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary capacity, and
(iii) any relative or spouse of such Person, or any relative of such spouse,
who has the same residence as such Person; provided that, for purposes of
this Article TWELFTH, the term "associate" shall not include any Person that
is an Exempt Person.
(iii) "Business Combination," when used in reference to the Corporation
and any Interested Shareholder of the Corporation, means:
(A) any merger or consolidation of the Corporation or any direct
or indirect majority-owned subsidiary of the Corporation with (1) the
Interested Shareholder or (2) any other Person if the merger or
consolidation is caused by the Interested Shareholder and as a result of
such merger or consolidation paragraph (a) of this Article TWELFTH is
not applicable to the surviving Person;
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions), except
proportionately as a shareholder of the Corporation, to or with the
Interested Shareholder, whether as part of a dissolution or otherwise,
of assets of the Corporation or of any direct or indirect majority-owned
subsidiary of the Corporation which assets have an aggregate market
value equal to ten percent (10%) or more of either the aggregate market
value of all the assets of the Corporation determined on a consolidated
basis or the aggregate market value of all the outstanding shares of the
Corporation;
(C) any transaction which results in the issuance or transfer by
the Corporation or by any direct or indirect majority-owned subsidiary
of the Corporation of any shares of the Corporation or of such
subsidiary to the Interested Shareholder, except (1) pursuant to the
exercise, exchange or conversion of securities exercisable for,
exchangeable for or convertible into shares of the Corporation or any
such subsidiary which securities were outstanding prior to the time that
the Interested Shareholder became such, (2) pursuant to a dividend or
distribution paid or made, or the exercise, exchange or conversion of
any security exercisable for, exchangeable for or convertible into
shares of the Corporation or any such subsidiary which security is
distributed, pro rata to all holders of a class or series of shares of
the Corporation subsequent to the time the Interested Shareholder became
such, (3) pursuant to an exchange offer by the Corporation to purchase
shares made on the same terms to all holders of said shares, or (4) any
issuance or transfer of shares by the Corporation, provided however,
that in no case under (2)-(4) above shall there be an increase in the
Interested Shareholder's proportionate share of the shares of any class
or series of the Corporation or of the voting shares of the Corporation;
(D) any transaction involving the Corporation or any direct or
indirect majority-owned subsidiary of the Corporation which has the
effect, directly or indirectly, of increasing the proportionate share of
the shares of any class or series, or of securities exercisable for,
exchangeable for or convertible into the shares of any class or series,
of the Corporation or of any such subsidiary which is owned by the
Interested Shareholder, except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or
redemption of any shares of shares not caused, directly or indirectly,
by the Interested Shareholder; or
(E) any receipt by the Interested Shareholder of the benefit,
directly or indirectly (except proportionately as a shareholder of the
Corporation) of any loans, advances, guarantees, pledges, or other
financial benefits (other than those expressly permitted in subsection
(A)-(D) above) provided by or through the Corporation or any direct or
indirect majority owned subsidiary.
(iv) "control," including the terms "controlling," "controlled by" and
"under common control with," means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting shares, by contract, or
otherwise. A Person who is the owner of twenty percent (20%) or more of a
corporation's outstanding voting shares shall be presumed to have control of
such corporation, in the absence of proof by a preponderance of the evidence
to the contrary. Notwithstanding the foregoing, a presumption of control
shall not apply where such Person holds voting shares, in good faith and not
for the purpose of circumventing this Article TWELFTH, as an agent, bank,
broker, nominee, custodian or trustee for one or more owners who do not
individually or as a group have control of the Corporation.
(v) "Exempt Person" shall mean (A) each Person that is a holder of
Common Shares immediately after giving effect to the merger of The Andersons,
an Ohio limited partnership, with and into the Corporation; (B) to the extent
a Person described in (A) above is an individual, such Person's spouse,
descendants, spouses of descendants, trustee of trusts established for the
benefit of such Person, spouses and/or descendants (acting in their capacity
as trustees of such trusts), and executors of estates of such Person, spouses
and/or descendants (acting in their capacity as executors of such estates);
(C) any Person (1) of which Persons described in (A) and/or (B) above own
more than eighty percent (80%) of the voting shares or other voting interests
and (2) of which Persons described in (A) and/or (B) above own shares or
other interests representing more than eighty percent (80%) of the total
value of the shares or other interests of such Person; and (D) any Person
whose ownership of shares in excess of the ten percent (10%) limitation set
forth in the definition of "Interested Shareholder" is the result of action
taken solely by the Corporation provided that such Person shall cease to be
an Exempt Person if thereafter such Person acquires additional shares of
voting shares of the Corporation except as a result of further action by the
Corporation not caused, directly or indirectly, by such Person. For purposes
of this definition, "spouses" shall include widows and widowers until first
remarried and "descendants" shall include descendants by adoption.
Notwithstanding the foregoing sentence, none of the Persons described in
clauses (A), (B) and (C) above shall continue to be an Exempt Person by
virtue of such clauses after the earliest date on which such Persons are
owners in the aggregate of less than twenty-five percent (25%) of the
Corporation's outstanding voting shares (determined without taking into
account any securities exercisable or exchangeable for, or convertible into,
the Corporation's voting shares, other than any such securities owned by such
Persons).
(vi) "Interested Shareholder" means any Person (other than an Exempt
Person and other than the Corporation and any direct or indirect majority-
owned subsidiary of the Corporation) that (i) is the owner of ten percent
(10%) or more of the outstanding voting shares of the Corporation, or (ii) is
an affiliate or associate of the Corporation and was the owner of ten percent
(10%) or more of the outstanding voting shares of the Corporation at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such Person is an Interested Shareholder; and
the affiliates and associates of such Person. For the purpose of determining
whether a Person is an Interested Shareholder, the voting shares of the
Corporation deemed to be outstanding shall include shares deemed to be owned
by the Person through application of subsection (vii) of this paragraph (c)
but shall not include any other unissued shares of the Corporation which may
be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(vii) "owners" including the terms "own" and "owned," when used with
respect to any shares means a Person that individually or with or through any
of its affiliates or associates:
(A) beneficially owns (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange
Act of 1934 or any successor provision) such shares, directly or
indirectly; or
(B) has (1) the right to acquire such shares (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding, or upon
the exercise of exercise rights, conversion rights, exchange
rights, warrants or options, or otherwise; provided, however, that
a Person shall not be deemed the owner of shares tendered pursuant
to a tender or exchange offer made by such Person or any of such
Person's affiliates or associates until such tendered shares are
accepted for purchase or exchange; or (2) the right to vote such
shares pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the owner of
any shares because of such Person's right to vote such shares if
the agreement, arrangement or understanding to vote such shares
arises solely from a revocable proxy or consent given in response
to a proxy or consent solicitation made to ten (10) or more
Persons; or
(C) has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except voting pursuant to a
revocable proxy or consent as described in item (2) of clause (B)
of this subsection), or disposing of such shares with any other
Person that beneficially owns, or whose affiliates or associates
beneficially own, directly or indirectly, such shares.
Nothing in this subsection (vii) shall cause a Person to be treated as the
"owner" of, or to "own," any securities owned by any other Person that is an
Exempt Person.
(viii) "Person" shall mean an individual, a partnership, a limited
liability company, a corporation, an association, a joint stock company, a
trust, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof and two or more of any of
the foregoing Persons having a joint or common interest.
(ix) "Voting Shares" means shares of any class or series of shares of
the Corporation entitled to vote generally in the election of directors.
(d) The provisions set forth in this Article TWELFTH may not be
amended, altered, changed or repealed in any respect unless such action is
approved by the affirmative vote of at least two-thirds (2/3) of the
outstanding shares of Common Shares which are not owned by an Interested
Shareholder.
(e) The provisions of 1704 of the Ohio Revised Code, as amended
from time to time, or any successor provision or provisions to said section,
shall only apply to this Corporation with respect to any particular Chapter
1704 transaction, as such is defined in 1704 of the Ohio Revised Code, in
the event that there is a determination by a court of competent jurisdiction
with respect to which no appeal is pending that the provisions of this
Article TWELFTH are invalid or otherwise cease to be included in these
Amended and Restated Articles of Incorporation.
THIRTEENTH: Indemnification. The Corporation is authorized to
indemnify all persons whom it may indemnify to the full extent permitted by
law.
FOURTEENTH: Amendments.
(a) Except as otherwise provided herein, these Amended and
Restated Articles of Incorporation may not be amended, altered, changed or
repealed in any respect unless such action is approved by the affirmative
vote of the holders of not less than two-thirds (2/3) of the outstanding
Common Shares.
(b) These Amended and Restated Articles of Incorporation take the
place of and supersede the existing Articles of Incorporation as heretofore
amended.
* * * *
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of
__________, 1995.
________________________________
Richard P. Anderson, President
________________________________
Beverly J. McBride, Secretary
ANNEX B
TO AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
THE ANDERSONS, INC.
Adopted ______ __, 1995
THE ANDERSONS, INC.
INDEX TO AMENDED AND RESTATED
CODE OF REGULATIONS
Page
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting
Section 2. Special Meetings.
Section 3. Notice of Meeting
Section 4. Advance Notice of Shareholder Nominations and Proposals.
Section 5. Quorum
Section 6. Voting
Section 7. Ratification
Section 8. No Action by Consent
ARTICLE II
DIRECTORS
Section 1. Duties and Powers
Section 2. Number and Qualifications
Section 3. Term of Office
Section 4. Election
Section 5. Vacancies
Section 6. Meetings
a. Annual and Regular Meetings
b. Special Meetings
c. Participation By Conference Telephone
Section 7. Quorum
Section 8. Voting
Section 9. Committees
Section 10. Compensation
Section 11. Resignation and Removal
ARTICLE III
OFFICERS
Section 1. Designation
Section 2. Powers and Duties
Section 3. Term of Office
Section 4. Salaries
Section 5. Vacancies
Section 6. Removal
ARTICLE IV
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1. Actions Against Persons
Section 2. Actions Against Persons By or For the Corporation
a. Adjudged Negligent
b. Liability for Unlawful Loans, Dividends or Distributions
Section 3. Indemnification Against Expenses
Section 4. Indemnification Upon Determination
a. By Disinterested Directors
b. By Independent Legal Counsel
c. By Shareholders
d. By Court
Section 5. Advance of Expenses
a. Director's Expenses
b. Expenses of Others
Section 6. Indemnification Not Exclusive
Section 7. Insurance
Section 8. Separate Rights
ARTICLE V
SHARES
Section 1. Authority of Directors
Section 2. Redemption
ARTICLE VI
MISCELLANEOUS
Section 1. Offices
Section 2. Fiscal Year
Section 3. Seal
Section 4. Conduct of Business
Section 5. Notices.
a. Method
b. Waiver
ARTICLE VII
AMENDMENTS
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
THE ANDERSONS, INC.
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting.
The annual shareholders' meeting for the election of directors and
the transaction of such other business as may properly come before the
meeting shall be held after the close of each fiscal year of the corporation,
but in no event later than May 31. The annual meeting shall be held on such
day in such period as shall be designated by the Board of Directors and at
such time and place within or outside of the State of Ohio, but within the
United States, as shall be fixed in the notice of the meeting.
Section 2. Special Meetings.
Special shareholders' meetings may be held on any date only upon
call by the Chairman of the Board, the President, or a majority of the
directors then in office. Such special meeting shall be held on such day in
such period as shall be designated by the Board of Directors and at such time
and place within or outside of the State of Ohio, but within the United
States, as shall be fixed in the notice of the meeting. No business may be
transacted at any special meeting except that referred to in the notice
thereof and such other business as may be necessary to effect the purposes
stated in the notice.
Section 3. Notice of Meeting.
Written notice of the date, place, and time of all annual and
special meetings of the shareholders, and, in the case of special meetings,
the purpose(s) thereof, shall be given, not less than seven nor more than
sixty days before the date on which the meeting is to be held, to each share
holder entitled to vote at such meeting who is of record as of the date next
preceding the day on which notice is given; or, if a record date therefor is
duly fixed, of record as of said date.
Section 4. Advance Notice of Shareholder Nominations and Proposals.
Nominations of persons for election to the Board of Directors and
the proposal of business to be transacted by the shareholders may be made at
an annual or special meeting of the shareholders only (a) pursuant to the
corporation's notice with respect to such meeting, (b) by or at the direction
of the Board of Directors or (c) by any shareholder of the corporation who
was a shareholder of record on the record date set with respect to such
meeting, who is entitled to vote at the meeting and who has complied with the
notice procedures set forth in this Section 4. For nominations or other
business to be properly brought before an annual or special meeting by a
shareholder pursuant to clause (c) above, the shareholder must give timely
notice thereof in writing to the Secretary of the corporation and such
business must be a proper matter for shareholder action under the General
Corporation Law of the State of Ohio and a proper matter for consideration at
such meeting under the Amended and Restated Articles of Incorporation and
this Amended and Restated Code of Regulations. To be timely, (i) in the case
of special meetings of the shareholders, a shareholder's notice must be
delivered to the Secretary at the principal executive offices of the
corporation not earlier than the 120th day prior to such meeting and not
later than the close of business on the later of the 90th day prior to such
meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made and (ii) in the case of all annual
meetings of shareholders, a shareholder's notice must be delivered to the
Secretary at the principal executive offices of the corporation not less than
90 days nor more than 120 days prior to the first anniversary of the
preceding year's annual meeting of shareholders; provided, however, that in
the event that the date of the annual meeting is more than 30 days prior to
or more than 60 days after such anniversary date, notice by the shareholder
to be timely must be so delivered not earlier than the 120th day prior to
such annual meeting and not later than the close of business on the later of
the 90th day prior to such annual meeting or the 10th day following the day
on which public announcement of the date of such meeting is first made. Such
shareholder's notice shall set forth (1) as to each person whom the
shareholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Act of 1934, as
amended (the "Exchange Act") (including, if so required, such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (2) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of such
business, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (3) as to the
shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (A) the name and address of such
shareholder, as they appear on the corporation's books, and of such
beneficial owner and (B) the class and number of shares of the corporation
which are owned beneficially and of record by such shareholder and such
beneficial owner. Persons nominated by shareholders to serve as directors of
the corporation who have not been nominated in accordance with this Section 4
shall not be eligible to serve as directors. Only such business shall be
conducted at an annual or special meeting of shareholders as shall have been
brought before the meeting in accordance with this Section 4. The chairman
of the meeting shall determine whether a nomination or any business proposed
to be transacted by the shareholders has been properly brought before the
meeting and, if any proposed nomination or business has not been properly
brought before the meeting, the chairman shall declare that such proposed
business or nomination shall not be presented for shareholder action at the
meeting. For purposes of this Section 4, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service. Nothing in this
Section 4 shall be deemed to affect any rights of shareholders to request
inclusion of proposals in the corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
Section 5. Quorum.
At any meeting of the shareholders, the holders of a majority of
the outstanding shares entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for all purposes, except when a greater
proportion is required by law.
If a quorum shall fail to attend any meeting, a majority in
interest of the shareholders present, in person or by proxy, may adjourn the
meeting to another place, date, or time without notice other than by
announcement at such meeting. At any such adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally notified.
If a notice of any adjourned meeting of shareholders is sent to all
shareholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by
law, those present at such adjourned meeting shall constitute a quorum, and
all matters shall be determined by a majority of the votes cast at such
meeting.
Section 6. Voting.
A shareholder entitled to vote at a meeting may vote in person, or
by proxy authorized by an instrument in writing, filed in accordance with the
procedure established for the meeting. Except as otherwise provided by law
or the Amended and Restated Articles of Incorporation, every shareholder
shall be entitled to one vote for each share registered in his or her name on
the books of the corporation on the date fixed by the Board of Directors as
the record date for the determination of shareholders entitled to vote at
such meeting; or, if no record date has been fixed, then, as of the date next
preceding the day of the meeting. All matters shall be determined by a
majority of the votes cast except as otherwise required by law or as
otherwise provided in the Amended and Restated Articles of Incorporation or
the Amended and Restated Code of Regulations.
Section 7. Ratification.
Except as otherwise provided by law, any contract, act, or trans
action, prospective or past, of the corporation or of the directors or
officers, may be ratified by the affirmative vote at a meeting of the
shareholders, or by the written consent, with or without a meeting, of the
holders of shares entitling them to exercise a majority of the voting power,
and such ratification shall be as valid and binding as though affirmatively
voted for, or consented to, by every shareholder of the corporation.
Section 8. No Action by Consent.
No action required to be taken or which may be taken at any annual
or special meeting of shareholders of the corporation may be taken without a
meeting.
ARTICLE II
DIRECTORS
Section 1. Duties and Powers.
The Board of Directors shall have control and management of the
affairs and business of the corporation. Except as otherwise required by
law, the Amended and Restated Articles of Incorporation, or this Amended and
Restated Code of Regulations, all of the authority of the corporation shall
be exercised by its Board of Directors. The directors may adopt such by-laws
for the conduct of their meetings in the management of the corporation as
they may deem proper, not inconsistent with this Amended and Restated Code of
Regulations.
Section 2. Number and Qualifications.
Subject to any rights of the holders of the Preferred Shares issued
by the corporation, or any series thereof, to elect additional directors
under specified circumstances, the number of directors shall be such number
as is fixed from time to time by resolution adopted by directors constituting
not less than two-thirds (2/3) of the directors then in office but shall not
be less than seven (7) nor more than twenty-one (21). The number of
directors may be changed by the shareholders by amendment of this Amended and
Restated Code of Regulations. Directors need not be shareholders.
Section 3. Term of Office.
Directors shall hold office for a term of one year.
Notwithstanding the foregoing, each director shall serve until his or her
successor shall have been duly elected and qualified, unless he or she shall
resign, die, become disqualified or be removed. Any director may tender his
or her resignation at any time.
Section 4. Election.
The directors shall be elected by the shareholders entitled to vote
thereon at the annual shareholders' meeting or at a special meeting called
and held for that purpose. At all elections of directors, the candidates
receiving the greatest number of votes shall be elected.
Section 5. Vacancies.
Subject to any rights of the holders of the Preferred Shares issued
by the corporation, or any series thereof, to fill such newly created
directorships or vacancies, any newly created directorships resulting from
any increase in the authorized number of directors and any vacancies in the
Board of Directors resulting from death, resignation, disqualification,
removal or other cause shall, unless otherwise provided by law or by a
resolution approved by directors constituting not less than two-thirds (2/3)
of the directors then in office, be filled only by a resolution approved by
directors constituting not less than two- thirds (2/3) of the directors then
in office, and any director so chosen shall hold office until the next
election, and until his or her successor shall have been duly elected and
qualified, unless he shall resign, die, become disqualified or be removed.
Section 6. Meetings.
a. Annual and Regular Meetings. An annual meeting of the Board
of Directors shall be held immediately following each annual meeting of the
shareholders or as promptly thereafter as practicable, for the purpose of
electing any officers and transacting any other business. Regular meetings
of the directors shall be held at such date(s), place(s), within or without
the State of Ohio, but within the United States, and at such time(s) as shall
have been established by the Board of Directors. Notice of regular meetings
need not be given.
b. Special Meetings. Special meetings of the Board of Directors
shall be held upon call of the Chairman of the Board, the President, or any
two directors, at such time and place within or without the State of Ohio,
but within the United States, as is specified in the notice of meeting, which
shall be given or mailed to each director not less than three (3) days before
the date of such special meeting. Notice of any special meeting may be
waived in writing and shall be deemed to be waived by any director in
attendance. Unless otherwise indicated in the notice thereof, any business
may be transacted at any meeting held by the Board of Directors.
c. Participation By Conference Telephone. Members of the Board
of Directors, or of any committee thereof, may participate in a meeting of
such board or committee by means of conference telephone or similar
communications equipment that enables all persons participating in the
meeting to hear each other. Such participation shall constitute attendance
in person at such meeting.
Section 7. Quorum.
At all meetings of the Board of Directors, the presence of a
majority of the directors shall be necessary to constitute a quorum for the
transaction of business. However, should a quorum not be present, a majority
of those present may adjourn the meeting to a future date, place and time.
Section 8. Voting.
Upon all matters before the Board of Directors, each director shall
have one vote, irrespective of the number of shares that the director may
hold. At each meeting at which a quorum is present, all matters shall be
determined by the vote of a majority of the directors present, except as
otherwise required by law, the Amended and Restated Articles of
Incorporation, or these Regulations.
Section 9. Committees.
a. Audit Committee. There shall be a committee of the Board of
Directors designated as the Audit Committee, to consist of not fewer than
three members of the Board as shall from time to time be appointed by
resolution of the Board. No member of the Board who is an officer or an
employee of the corporation or any subsidiary of the corporation shall be
eligible to serve on the Audit Committee. The Audit Committee shall review
and, as it shall deem appropriate, approve internal accounting and financial
controls for the corporation and accounting principles and auditing practices
and procedures to be employed in the preparation and review of financial
statements of the corporation. The Audit Committee shall make
recommendations to the Board concerning the engagement of independent public
accountants to audit the annual financial statements of the corporation and
its subsidiaries and shall arrange with such accountants the scope of the
audit to be undertaken by such accountants. The Board shall have the power
at any time to change the powers of the Audit Committee, to change its
membership, to fill vacancies in it, or to dissolve it. The Audit Committee
may make rules for the conduct of its business and may appoint such
assistants as it shall from time to time deem necessary. A majority of the
members of the Audit Committee shall constitute a quorum.
b. Compensation Committee. There shall be a committee of the
Board of Directors designated as the Compensation Committee, to consist of
not fewer than three members of the Board as shall from time to time be
appointed by resolution of directors. No member of the Board who is an
officer or an employee of the corporation or any subsidiary of the
corporation shall be eligible to serve on the Compensation Committee. The
Compensation Committee shall make such determinations and perform such other
duties as are expressly delegated to it from time to time pursuant to the
terms of any stock option, equity bonus or other employee benefit plan of the
corporation, and make such recommendations to the Board regarding other
compensation of officers and employees of the corporation as it deems
appropriate. The Board shall have the power at any time to change the size,
membership or powers of the Compensation Committee, to fill vacancies in it,
or to dissolve it. The Compensation Committee may make rules for the conduct
of its business and may appoint such assistants as it shall from time to time
deem necessary. A majority of the members of the Compensation Committee
shall constitute a quorum.
c. Other Committees. The Board of Directors may also, by
resolution or resolutions passed by the affirmative vote therefor of
directors constituting at least two-thirds (2/3) the directors then in
office, designate one or more other committees, which, to the extent provided
in said resolution or resolutions, shall have and may exercise the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation which the Board of Directors may from time to time
delegate to such committees. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors. A majority of the members of any such committee may
determine its action and fix the time and place of its meetings. The Board
of Directors shall have power, through the affirmative vote of directors
constituting at least two-thirds (2/3) of the directors then in office, at
any time to fill vacancies in, to change the size, membership or powers of,
or to dissolve any such committee.
Section 10. Compensation.
Each director shall receive such compensation and reimbursement of
expenses for attendance at each regular or special meeting as shall be fixed
from time to time by the Board of Directors. Nothing herein contained shall
be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
Section 11. Resignation and Removal.
Any director may resign office at any time, such resignation to be
made in writing and to take effect immediately without acceptance. Any
director may be removed by the shareholders, with or without cause, as
provided by law.
ARTICLE III
OFFICERS
Section 1. Designation.
The Board of Directors shall elect a President, a Secretary and a
Treasurer, and may elect a Chairman of the Board, and may elect or appoint
one or more Vice-Presidents and such other officers and assistant officers,
from time to time, as the Board of Directors, in its discretion, sees fit.
The Chairman of the Board and the President shall be directors; none of the
other officers need be members of the Board of Directors. Except for the
offices of President and Secretary, any two or more offices may be held by
the same person, but no officer shall execute, acknowledge, or verify any
instrument in more than one capacity.
Section 2. Powers and Duties.
Subject to such limitations as the Board of Directors may
prescribe, from time to time, the officers of the corporation shall each have
such powers and duties as generally pertain to their respective offices and
such further powers and duties as, from time to time, may be conferred and
prescribed by the directors.
Section 3. Term of Office.
Officers elected or appointed by the Board of Directors shall hold
office at the pleasure of the directors and until their successors are
elected and qualified.
Section 4. Salaries.
The salaries of the officers of the corporation shall be fixed by
the Board of Directors.
Section 5. Vacancies.
Vacancies in any office of the corporation may be filled by the
Board of Directors at any meeting called for that purpose.
Section 6. Removal.
Any officer may be removed with or without cause at any time by the
affirmative vote of a majority of the directors then in office.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1. Actions Against Persons.
The corporation shall indemnify any person who was or is a party or
is threatened to be made a party, to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation, by
reason of the fact that he or she is or was a director, officer, or employee
of the corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture,
trust or other enterprise, against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit, or proceeding if
he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action,
suit, or proceeding by judgment, order, settlement, or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, he or she
had reasonable cause to believe that his or her conduct was unlawful.
Section 2. Actions Against Persons By or For the Corporation.
The corporation shall indemnify any person who was or is a party or
is threatened to be made a party, to any threatened, pending, or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a director, officer,
or employee of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise, against expenses, including attorney's
fees, actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
a. Adjudged Negligent. Any claim, issue, or matter as to which
such person is adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the corporation unless, and only to the
extent that the court of common pleas or the court in which such action or
suit was brought, determines upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses as the court
of common pleas or such other court shall deem proper.
b. Liability for Unlawful Loans, Dividends or Distributions.
Any action or suit in which the only liability asserted against a director is
pursuant to section 1701.95 of the Ohio Revised Code.
Section 3. Indemnification Against Expenses.
To the extent that a director, trustee, officer, employee or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in Sections 1 and 2 of this Article IV, or in defense
of any claim, issue, or matter therein, he or she shall be indemnified
against expenses, including attorney's fees, actually and reasonably incurred
by him or her in connection with the action, suit, or proceeding.
Section 4. Indemnification Upon Determination.
Any indemnification under Sections 1 and 2 of this Article IV,
unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, trustee, officer, employee, or agent is proper in the
circumstances because he or she has met the applicable standard of conduct
set forth in Sections 1 and 2 of this Article IV. Such determination shall
be made as follows:
a. By Disinterested Directors. By a majority vote of a quorum
consisting of directors of the indemnifying corporation who were not and are
not parties to or threatened with any such action, suit, or proceeding.
b. By Independent Legal Counsel. If the quorum described in
Section 4a of this Article IV is not obtainable or if a majority vote of a
quorum of disinterested directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services
for the corporation or any person to be indemnified within the past five
years.
c. By Shareholders. By a majority vote of the shareholders
entitled to vote thereon.
d. By Court. By the court of common pleas or the court in which
such action, suit, or proceeding was brought.
Any determination as to indemnification made by the directors or
independent legal counsel as provided in paragraphs a. and b. of this Section
shall take precedence over any contrary determination made by the
shareholders under paragraph c. of this Section. Notwithstanding the
foregoing, if a majority of the shareholders entitled to vote on
indemnification serves a written notice upon the Board of Directors demanding
a determination as to whether a particular individual is entitled to
indemnification, the Board of Directors shall act upon such demand within
ninety (90) days of the receipt of such notice. If neither the directors nor
independent legal counsel makes a determination regarding indemnification of
the particular individual within said ninety (90) day period, the
shareholders shall have the exclusive authority to make such a determination
pursuant to paragraph c of this Section.
Any determination made by the disinterested directors under Section
4a or by independent legal counsel under Section 4b of this Article IV shall
be promptly communicated to the person who threatened or brought the action
or suit by or in the right of the corporation under Section 2 of this Article
IV, and within ten days after receipt of such notification, such person shall
have the right to petition the court of common pleas or the court in which
such action or suit was brought to review the reasonableness of such
determination.
Section 5. Advance of Expenses.
a. Director's Expenses. Unless at the time of a director's act
or omission that is the subject of an action, suit, or proceeding referred to
in Sections 1 and 2 of this Article IV, the only liability asserted against a
director in an action, suit, or proceeding referred to in Sections 1 and 2 of
this Article IV is pursuant to section 1701.95 of the Ohio Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director in
which the director agrees to do both of the following:
(1) Undertaking to Repay. Repay such amount if it is
proved by clear and convincing evidence in a court of competent
jurisdiction that his or her action or failure to act involved an
act or omission undertaken with deliberate intent to cause injury
to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
(2) Agreement to Cooperate. Reasonably cooperate with the
corporation concerning the action, suit, or proceeding.
b. Expenses of Others. Expenses, including attorney's fees,
incurred by a trustee, officer, employee, or agent in defending any action,
suit, or proceeding referred to in Sections 1 and 2 of this Article IV shall
be paid by the corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding as authorized by the directors
in the specific case upon receipt of an undertaking by or on behalf of the
trustee, officer, employee, or agent to repay such amount, if it ultimately
is determined that he or she is not entitled to be indemnified by the
corporation.
Section 6. Indemnification Not Exclusive.
The indemnification authorized by this Article IV shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the Articles or the Regulations or any
agreement, vote of shareholders or disinterested directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, trustee, officer, employee, or agent and shall inure
to the benefit of the heirs, executors, and administrators of such a person.
Section 7. Insurance.
The corporation may purchase and maintain insurance or furnish
similar protection including, but not limited to, trust funds, letters of
credit, or self-insurance on behalf of or for any person who is or was a
director, officer, or employee of the corporation, or is or was serving at
the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him or her and incurred by him or her in any such capacity,
or arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this Article IV. Insurance may be purchased from or maintained with a person
in which the corporation has a financial interest.
Section 8. Separate Rights.
The authority of the corporation to indemnify persons pursuant to
Sections 1 and 2 of this Article IV does not limit the payment of expenses as
they are incurred, or the indemnification, insurance, or other protection
that may be provided pursuant to Sections 5, 6, and 7 of this Article IV.
Sections 1 and 2 of this Article IV do not create any obligation to repay or
return payments made by the corporation pursuant to Sections 5, 6, or 7.
ARTICLE V
SHARES
Section 1. Authority of Directors.
The Board of Directors shall have authority to make all such rules
and regulations as it may deem expedient concerning the issuance or non
issuance, transfer, and registration of certificates for shares of the
corporation, and the loss, mutilation, theft, or destruction thereof;
provided that such rules and regulations are not inconsistent with the
requirements of law, the Amended and Restated Articles of Incorporation or
the Amended and Restated Code of Regulations.
Section 2. Redemption.
The corporation may purchase or redeem, at the option of its Board
of Directors, any shares issued by it and offered to it by any shareholder,
in whole at one time or in part from time to time.
ARTICLE VI
MISCELLANEOUS
Section 1. Offices.
The principal office of the corporation shall be located in the
City of Maumee, County of Lucas, State of Ohio. The Board of Directors may
change the location of the principal office and may, from time to time,
designate other offices within or outside of the state as the directors deem
appropriate.
Section 2. Fiscal Year.
The fiscal year of the corporation shall be the calendar year, or
such other year as may be fixed, from time to time, by resolution of the
Board of Directors.
Section 3. Seal.
The corporation shall have no corporate seal.
Section 4. Conduct of Business.
Unless otherwise authorized by a majority of a quorum of those
present, in person or by proxy, all meetings shall be conducted pursuant to
Robert's Rules of Order as then revised or amended.
Section 5. Notices.
a. Method. Whenever notice is required to be given pursuant to
the Articles or Regulations, the notice shall be given by personal delivery,
by dispatching a prepaid telegram, or by depositing a postpaid writing in the
U.S. Mail addressed to the person entitled to the notice at his or her
address as it appears on the records of the corporation. The time when such
notice is dispatched by telegram or deposited in the U.S. Mail, as the case
may be, shall be the time of the giving of the notice.
b. Waiver. Notice of the time, place, and purposes of any
meeting of shareholders or directors, as the case may be, whether required by
law, the Articles, or the Regulations, may be waived in writing, either
before or after the holding of such meeting, by any shareholder, or by any
director, which writing shall be filed with or entered upon the records of
the meeting. The attendance of any shareholder or any director at any such
meeting without protesting, prior to or at the commencement of the meeting,
the lack of proper notice shall be deemed to be a waiver by the shareholder
or director of notice of such meeting.
ARTICLE VII
AMENDMENTS
This Amended and Restated Code of Regulations may be amended or
repealed only by the affirmative vote of the holders of not less than two-
thirds (2/3) of the shares entitled to vote thereon.
APPENDIX B
THE ANDERSONS, INC.
LONG-TERM PERFORMANCE COMPENSATION PLAN
SECTION I
Purpose
1.1 Purpose. The purpose of The Andersons, Inc. Long-Term Performance
Compensation Plan (the "Plan") is to provide competitive Long-Term
Compensation to Participants that aligns their interests with
shareholder interests through share ownership and investment in the
Company , and to encourage long-term growth in shareholder value through
the achievement of specified financial objectives.
1.2 Rule 16b-3 Plan. With respect to persons subject to Section 16 of the
Act ("Section 16 Persons"), transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors
promulgated under the Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee. Moreover, in the event the Plan does not include a provision
required by Rule 16b-3 to be stated therein, such provision (other than
one relating to eligibility requirements, or the price and amount of
awards) shall be deemed automatically to be incorporated by reference
into the Plan insofar as Participants who are Section 16 Persons are
concerned.
1.3 Effectiveness of the Plan. The Plan will be effective upon the
consummation of the Merger, subject to prior approval of the Plan by the
Company's shareholders. The Plan will remain in effect until the
earlier of the termination date set forth in Section 11.2 hereof or such
time as it is amended or terminated by the Board of Directors of the
Company in accordance with the terms of Section 11.2 hereof, except that
no Incentive Stock Option may be granted under the Plan on or after ten
years from the effective date of the Plan.
SECTION II
Definitions
Unless the context indicates otherwise, the following terms have the meanings
set forth below.
2.1 "Act" means the Securities and Exchange Act of 1934, as amended.
2.2 "Award" means Options, Performance Awards, or cash granted pursuant to
the Plan.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means, with respect to any certain Participant:
(a) The willful and continued failure by such Participant to
substantially perform his or her duties with respect to the Company
(other than any such failure resulting from his or her incapacity
due to physical or mental illness), or
(b) the willful engaging by such Participant in conduct which is demon
demonstrably and materially injurious to the Company, monetarily or
otherwise. For purposes of this definition, no act, or failure to
act shall be deemed "willful" if done or omitted to be done by the
Participant in good faith and in the reasonable belief that such
act or omission was in the best interest of the Company.
2.5 "Change in Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as those terms are used in Sections 13(d)
and 14(d) of the Act) other than an Exempt Person becomes the
"beneficial owner" (as such term is defined in Rule 13d-3
promulgated under the Act) (a "Beneficial Owner"), directly or
indirectly, of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
voting securities;
(b) the Company's shareholders approve a merger or consolidation of the
Company with any other Person (other than a merger or consolidation
which would result in all or a portion of the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger
or consolidation) or the shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all the
Company's assets;
(c) during any period of two consecutive years, individuals who were
members of the Board at the beginning of such period (together with
any individuals who became members of the Board after the beginning
of such period whose election to the Board or whose nomination for
election by the shareholders of the Company was approved by a vote
of at least a majority of the directors then still in office who
were either members of the Board at the beginning of such period or
whose election as a member of the Board was previously so approved)
for any reason cease to constitute a majority of the Board then in
office; or
(d) any other events determined by the Committee to constitute a Change
in Control.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Committee" means the Compensation Committee of the Board.
2.8 "Common Shares" means the common shares, no par value per share, of the
Company, or any other class of capital shares which the Company may
authorize and issue from time to time, and as may be made subject to
this Plan in the sole discretion of the Board.
2.9 "Company" means collectively The Andersons Management Corp. (whose
corporate name from and after the effective date of the Merger shall be
"The Andersons, Inc."), any successor entity in a merger or
consolidation, and any of its Subsidiaries, which elects to participate
in the Plan with the approval of the Board.
2.10 "Disability" means permanent and total disability as defined under
Section 22(e)(3) of the Code.
2.11 "Exempt Person" shall mean (i) any Person that is a holder of Common
Shares immediately after giving effect to the Merger; (ii) to the extent
a Person described in (i) above is an individual, such Person's spouse,
descendants (including descendants by adoption), spouses of descendants,
trustee of trusts established for the benefit of such Person, spouses
and/or descendants (acting in their capacity as trustees of such
trusts), and executors of estates of such Person, spouses and/or
descendants (acting in their capacity as executors of such estates);
(iii) any Person of which Persons described in (i) and/or (ii) above
(a) own more than eighty percent (80%) of the voting shares or other
voting interests thereof and (b) of which Persons described in (i)
and/or (ii) above own shares or other interests representing more than
eighty percent (80%) of the total value of the shares or other interests
of such Person; (iv) each Participant; (v) each employee benefit plan of
the Company and (vi) any Person organized, appointed or established
pursuant to the terms of any such benefit plan described in (v) above.
For purposes of this definition, "spouses" shall include widows and
widowers until first remarried and "descendants" shall include
descendants by adoption.
2.12 "Fair Market Value" as of a certain date means the closing price of the
Common Shares on the Nasdaq National Market on the trading day
immediately preceding such date, or the most recent day preceding such
date on which such quotations are reported.
2.13 "Grant Date" as used with respect to Options, means the date as of which
such Options are granted by the Committee pursuant to the Plan.
2.14 "Incentive Stock Option" or "ISO" means an Option conforming to the
requirements of Section 422 of the Code.
2.15 "Long-Term Compensation" means an annual compensation amount determined
by the Committee for each Participant and delivered in the form of
Options, Performance Awards and/or cash at the discretion of the
Committee.
2.16 "Merger" means the merger of The Andersons, an Ohio limited partnership,
with and into the Company.
2.17 "Nonqualified Stock Option" or "NQO" means an Option granted pursuant to
the Plan other than an Incentive Stock Option.
2.18 "Non-Employee Director" means any individual who is a member of the
Board and who is not a regular full time or part time employee of the
Company.
2.19 "Option" means an option to purchase Common Shares granted by the
Committee pursuant to the Plan, which may be designated as either an
"Incentive Stock Option" or a "Nonqualified Stock Option."
2.20 "Participant" has the meaning set forth in Section V hereof.
2.21 "Performance Goals" means specific, objective financial performance
measures set by the Committee with respect to an individual Participant
or group of Participants.
2.22 "Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust,
an unincorporated organization and any other entity or group.
2.23 "Plan" means The Andersons, Inc. Long-Term Performance Compensation Plan
as set forth herein and as may be amended from time to time, subject to
Section 11.1 hereof.
2.24 "Retirement" means a Participant's voluntarily leaving the employment of
the Company after his or her Early Retirement Date as defined in the
Company's Retirement Plan, or any predecessor plan, under which the
Participant has a vested right to an accrued benefit or any other
voluntary termination of a Participant's employment with the approval of
the Committee.
2.25 "Subsidiary" means a subsidiary corporation as defined in Section 424(f)
of the Code.
2.26 "Target Performance Award" means a portion of a Participant's Long-Term
Compensation, as determined by the Committee, expressed as a specific
dollar amount or as a number of Common Shares based upon the Fair Market
Value of the Common Shares on the first day of the Performance Period.
SECTION III
Administration of the Plan
3.1 The Committee. The Plan shall be administered by the Committee. The
Committee shall consist of not less than three Non-Employee Directors.
The members of the Committee shall be appointed from time to time by,
and shall serve at the discretion of, the Board of Directors. The
Committee shall be comprised solely of Non-Employee Directors who are
both "disinterested persons" under Rule 16b-3 promulgated under the Act
and "outside directors" within the meaning of Code Section 162(m).
3.2 Authority of the Committee. The Committee shall have all powers and
discretion necessary or appropriate to administer the Plan and to
control its operation, including, but not limited to, the power (a) to
determine which employees shall be granted Awards, (b) to prescribe the
terms, conditions and vesting schedule, if any, of such Awards, (c) to
determine the amount and form of Awards granted to Participants, (d) to
interpret the Plan and the Awards, (e) to adopt rules for the
administration, interpretation and application of the Plan as are
consistent therewith, and (f) to interpret, amend or revoke any such
rules subject to Section 11.1 hereof.
The Committee, in its sole discretion and on such terms and conditions
as it may provide, may delegate its duties in order to provide for the
day-to-day administration of the Plan. The Committee shall control the
general administration of the Plan with all powers necessary to enable
it to carry out its duties in that respect; provided, however, that the
Committee may not delegate its authority and powers (a) with respect to
Section 16 Persons, (b) in any way which would jeopardize the Plan's
qualification under Rule 16b-3, or (c) in any way which is impermissible
under Code Section 162(m) or the rules and regulations promulgated
thereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee shall be final, conclusive, and binding on all Persons, and
shall be given the maximum deference permitted by law.
SECTION IV
Shares Subject to the Plan
4.1 Shares Subject to Plan. The Company shall reserve 900,000 Common Shares
(the "Plan Shares") for issuance under this Plan, subject to adjustment
pursuant to Section 4.2 hereof. Plan Shares may be Common Shares now or
hereafter authorized yet unissued or Common Shares already authorized,
issued and owned or purchased by the Company. If and to the extent that
any rights with respect to Plan Shares shall not be exercised by any
Participant for any reason or if such rights shall terminate as provided
herein, Plan Shares that have not been allocated to such Participant
under the Plan shall again become available for allocation to
Participants as provided herein.
4.2 Change in Capitalization. In the event of a change in the
capitalization of the Company due to a share split, share dividend,
recapitalization, merger, consolidation, combination, or similar event
or as the Committee shall in its sole discretion deem appropriate, the
aggregate number of Plan Shares and the terms of any existing Awards
shall be adjusted by the Committee to reflect such change.
SECTION V
Eligibility
The Committee shall, in its sole discretion, select regular full time or part
time employees of the Company for participation in the Plan. Employees so
selected shall be deemed "Participants" for purposes hereof. No member of
the Committee shall be eligible to participate in the Plan other than as
provided in Section VII.
SECTION VI
Stock Options Granted to Employees
6.1 Grant of Options to Employees. Options may be granted to Participants,
subject to the provisions of the Plan, at any time and from time to
time, as determined by the Committee in its sole discretion. The
Committee, in its sole discretion, shall determine the number of Options
granted to each Participant; provided, however, that in any one calendar
year, the Committee shall not grant to any one Participant, Options to
purchase a number of Common Shares in excess of 150,000. The Committee
may grant ISOs, NQOs, or a combination thereof.
6.2 Option Agreement. Each Option shall be evidenced by a written option
agreement (an "Option Agreement") that shall specify the Option price,
the expiration date of the Option, the number of shares to which the
Option pertains, any conditions to exercise of the Option, and such
other terms and conditions as the Committee, in its discretion, shall
determine. The Option Agreement also shall specify whether the Option
is intended to be an ISO or a NQO.
6.3 Option Price. The price for each Common Share deliverable upon the
exercise of an Option (the "Option Price") shall not be less than 100%
of the Fair Market Value of the Company's Common Shares as of the date
the Option is granted; provided, however, that with respect to ISOs, if
at the time that an ISO is granted, the Participant (together with
Persons whose share ownership is attributable to the Participant
pursuant to Section 424(d) of the Code) owns shares possessing more than
10% of the total combined voting power of all classes of the Company's
or any of its Subsidiaries' capital shares, the Option Price of the ISO
shall be not less than one hundred and ten percent (110%) of the Fair
Market Value of a share on the date that the ISO is granted.
6.4 Exercise of Options. Options granted under the Plan shall be
exercisable at such times, and subject to such restrictions and
conditions, as the Committee shall determine in its sole discretion,
except that any outstanding Options at the time of a Change in Control
will be immediately exercisable without regard to any vesting
restrictions attached to such Options. A Person electing to exercise an
Option shall give written notice of such election to the Company in such
form as the Committee may require.
6.5 Expiration of Options. Each Option shall terminate upon the first to
occur of the events listed in this section.
(a) the date for termination of such Option set forth in the Option
Agreement applicable to such Option;
(b) the expiration of ten years from the date such Option was granted;
(c) the expiration of ninety (90) days from the date of the Optionee's
Termination of Employment for a reason other than the Optionee's
death, Disability or Retirement, or for Cause;
(d) The expiration of one year from the date of the Optionee's death,
Disability or Retirement if such events occur while the Optionee is
in the employ of the Company; or
(e) Termination of employment for Cause.
6.6 Payment. The Option Price upon exercise of any Option shall be payable
to the Company in full in cash. The Committee, in its sole discretion,
also may permit exercise (a) by tendering previously acquired Common
Shares having an aggregate Fair Market Value at the time of exercise
equal to the total Option Price (provided that the Common Shares which
are tendered must have been held by the Participant or his or her
Permitted Transferees for at least six (6) months prior to their tender
to satisfy the Option Price), or (b) by any other means which the
Committee, in its sole discretion determines to both provide legal
consideration for the Common Shares, and to be consistent with the
purposes of the Plan.
As soon as practicable after receipt of a written notification of
exercise and full payment for the Common Shares purchased, the Company
shall deliver to the Participant or his or her Permitted Transferees
certificates (in the Participant's or such Permitted Transferee's name)
representing such Common Shares.
6.7 Nontransferability of Options. Options granted under this Section VI
shall not be transferable other than by will or the laws of descent and
distribution and during the Participant's lifetime shall be exercisable
only by the Participant or by his or her guardian or legal
representative; provided, however, that a Participant may (a) in a
manner specified by the Committee, designate in writing a beneficiary to
exercise his or her Option after the Participant's death, provided that
no such designation shall be effective unless received by the office of
the Company designated for that purpose prior to the Participant's
death, and (b) if the Option Agreement expressly permits, transfer an
Option (other than an Incentive Stock Option) for no consideration to
any (i) member of the Participant's Immediate Family, (ii) trust solely
for the benefit of members of the Participant's Immediate Family or
(iii) partnership whose only partners are members of the Participant's
Immediate Family. Each transferee in a transfer or designation
described in clauses (a) and (b) above is referred to with respect to a
certain Participant as such Participant's "Permitted Transferee." Each
Permitted Transferee shall remain subject to all of the terms and
conditions applicable to such Option prior to such transfer. For
purposes of this Section VI, the term, "Immediate Family" means a
Participant's spouse and lineal ascendants and descendants, and adopted
children.
6.8 Certain Additional Provisions for Incentive Stock Options.
(a) The aggregate Fair Market Value (determined at the time the Option
is granted) of the Common Shares with respect to which ISOs are
exercisable for the first time by any Participant during any
calendar year shall not exceed $100,000.
(b) ISOs may be granted only to persons who are employees of the
Company at the time of grant.
(c) No ISO may be exercised after the expiration of ten years from the
date such ISO was granted; provided, however, that if the ISO is
granted to a Participant who, together with Persons whose stock
ownership is attributed to the Participant pursuant to Section
424(d) of the Code, owns shares possessing more than 10% of the
total combined voting power of all classes of the Company's or any
of its Subsidiaries' capital shares, the ISO may not be exercised
after the expiration of five years from the date that it was
granted.
SECTION VII
Stock Options Granted to Non-Employee Directors
7.1 Initial Grant of Options to Non-Employee Directors; Continuing
Eligibility. On the later of the effective date of the Plan or the
date on which such person first becomes a member of the Board, whether
through election by the shareholders of the Company or appointment by
the Board to fill a vacancy, each Non-Employee Director shall
automatically be granted an NQO to purchase 2,000 Common Shares (the
"Initial Grant"). [In addition to the Initial Grant, each Non-Employee
Director who assumes office during a calendar year with respect to which
Options would otherwise be granted to such Non-Employee Director
pursuant to Section 7.2 below had such Non-Employee Director been a
director for the entire calendar year, such Non-Employee Director shall
be granted an Option to purchase a number of Common Shares equal to that
which is to be granted to Non-Employee Directors who serve for the
entirety of such calendar year pursuant to Section 7.2 below, prorated
to reflect the number of days such Non-Employee Director serves as a
member of the Board during such calendar year.] No Options shall be
granted to any Non-Employee Director who is not still in office at the
time of such grant.
7.2 Option Formula. In addition to the Initial Grant, an Option (an "Annual
Option") will be granted each year to each Non-Employee Director in
respect of each fiscal year of the Company beginning with the fiscal
year ending December 31, 1996 during which such Non-Employee Director
serves as a member of the Board. The number of Common Shares subject to
each Annual Option shall be based on the Company's return on equity
("Return On Equity") for the fiscal year with respect to which the
Annual Option is granted and shall be determined according to the
following schedule:
Return On Equity Common Shares Subject to Annual Option
0% to 9.99% 0
10% to 17.49% 1,000
17.50% to 24.99% 1,500
25% and above 2,000
Return On Equity shall be calculated according to the following formula:
Net Income Before Taxes
Return On Equity = ------------------------------------
Weighted Average Shareholders Equity
where Net Income Before Taxes is equal to income before income taxes as
reported on the Company's audited consolidated income statement for the
fiscal year ended December 31 of the year in respect of which Options
are to be granted; and where Weighted Average Shareholders Equity is
equal to the sum of the Company's shareholders equity
[including/excluding] retained earnings as of December 31 of the year in
respect of which Options are to be granted plus shareholders equity
[including/excluding] retained earnings as of December 31 of the prior
year, the total then divided by two.
Annual Options shall be granted on or about March 15 of the year
following the fiscal year in respect of which such Annual Option is
being granted to all eligible Non-Employee Directors still serving as
members of the Board on such date.
7.3 Option Price. The price for each Common Share deliverable upon the
exercise of an Option granted to a Non-Employee Director (the "Non-
Employee Director Option Price") shall be 100% of the Fair Market Value
of the Common Shares on the date such Option is granted.
7.4 Terms of Options. Options granted to Non-Employee Directors have a term
of ten years. Each Option shall be evidenced by an option agreement (a
"Non-Employee Director Option Agreement") between the Company and the
Non-Employee Director to whom such Option is granted.
7.5 Vesting; Exercise of Options. No Option granted to Non-Employee
Directors shall be exercisable prior to the first anniversary of the
grant of such Option other than as set forth below. Each such Option
shall vest and become exercisable on the first anniversary of the grant
of such Option so long as the Non-Employee Director to whom such Option
has been granted is still a member of the Board. In the event such Non-
Employee Director has resigned as a director of the Company or been
removed at a special meeting of the Company's shareholders prior to the
end of such Non-Employee Director's elected term of office, such
unvested Options shall be cancelled and shall never become exercisable.
In the event such Non-Employee Director ceases to be a member of the
Board for any reason other than such Non-Employee Director's resignation
or removal at a special meeting of the Company's shareholders, including
by reason of such Non-Employee Director's death, Disability or failure
to stand for reelection to the Board, such Option shall vest and become
immediately exercisable upon such Non-Employee Director's ceasing to be
a member of the Board, and shall remain exercisable only for the ninety-
day period set forth in Section 7.6(b) below.
An Option may be exercised by giving written notice of exercise to the
Company, specifying the number of Common Shares to be purchased and
tendering payment to the Company of the Non-Employee Director Option
Price. Payment for shares issued upon exercise of an Option may be made
by tendering cash or previously acquired Common Shares having an
aggregate Fair Market Value at the time of exercise equal to the total
Option Price or a combination thereof. Options may not be exercised
with respect to a fractional number of Common Shares.
7.6 Expiration of Options. Each Option granted to a Non-Employee Director
shall terminate upon the first to occur of the events listed below:
(a) The expiration of ten years from the date the Option was granted;
(b) If a Non-Employee Director ceases to serve as a director of the
Company, the expiration of ninety (90) days after the date he or
she ceases to be a director.
(c) If the Board (excluding the Non-Employee Director accused of such
misconduct) determines that a Non-Employee Director has not acted
in good faith or in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Company; or, with
respect to any criminal action or proceeding, determines a Non-
Employee Director had reasonable cause to believe his or her
conduct was unlawful.
7.7 Nontransferability of Options. Options granted under this Section VII
shall not be transferable other than by will or the laws of descent and
distribution and during the Non-Employee Director's lifetime shall be
exercisable only by the Non-Employee Director or by his or her guardian
or legal representative; provided, however, that a Non-Employee Director
may (a) in a manner specified by the Committee, designate in writing a
beneficiary to exercise his or her Option after his or her death,
provided that no such designation shall be effective unless received by
the office of the Company designated for that purpose prior to the Non-
Employee Director's death, and (b) if the Non-Employee Director Option
Agreement expressly permits, transfer an Option for no consideration to
any (i) member of the Non-Employee Director's Immediate Family, (ii)
trust solely for the benefit of members of the Non-Employee Director's
Immediate Family or (iii) partnership whose only partners are members of
the Non-Employee Director's Immediate Family. Each transferee in a
transfer or designation described in clauses (a) and (b) above is
referred to with respect to a certain Non-Employee Director as such Non-
Employee Director's "Permitted Transferee." Each Permitted Transferee
shall remain subject to all of the terms and conditions applicable to
such Option prior to such permitted transfer. For purposes of this
Section VII, the term, "Immediate Family" means a Non-Employee
Director's spouse and lineal ascendants and descendants, and adopted
children.
7.8 Other Provisions. The Non-Employee Director's Option Agreement may
contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Board.
SECTION VIII
Performance Award
8.1 Establishing Target Performance Awards. The Committee may, at any time
and from time to time, grant awards of Common Shares, cash, or both
("Performance Awards"), to Participants on a contingency basis. The
Committee shall have complete discretion in determining the size and
composition of Performance Awards to be granted to a Participant or
group of Participants and the appropriate period over which performance
is to be measured ("Performance Period"). Prior to each Performance
Period, the Committee shall determine (a) the Target Performance Award
available for each Participant or group of Participants, (b) specific
Performance Goals to be achieved during the Performance Period, and (c)
the percentage of Performance Awards to be paid in relation to various
Performance Goals achieved during the Performance Period.
8.2 Must Achieve Threshold Performance. No individual Performance Awards
will be paid under the Plan with respect to any Performance Period
unless the Company as a whole achieves a threshold level of performance
during such Performance Period, as specified by the Committee.
8.3 Payment of Earned Performance Awards. Performance Awards earned under
the Plan will be delivered to Participants in the form of Common Shares
or cash at the discretion of the Committee. Where the Performance Award
is expressed as a specific dollar amount, Performance Awards will be
converted to Common Shares based upon the Fair Market Value of the
Common Shares on the date the Performance Award is to be delivered to
such Participant. All portions of Performance Awards earned will be
paid to Participants within 60 days following the conclusion of the
Performance Period.
8.4 Vesting of Performance Awards. Except as set forth in Section 8.6,
Participants in the Plan have no vested rights to Performance Awards
earned under the Plan until the end of the Performance Period. In order
to be eligible to receive a Performance Award, a Participant: (i) must
be actively employed by the Company as of the end of the Performance
Period, (ii) must have terminated employment during the Performance
Period due to death, Retirement, or Disability while an active
Participant, or (iii) must have been an active Participant at the time
of a Change in Control. Exceptions to the conditions set forth in
clauses (i) and (ii) above may be made in the sole discretion of the
Committee.
8.5 Effect of Retirement, Death, or Disability. Participants whose active
employment is terminated by reason of death, Retirement, or Disability
during any Performance Period will receive prorated Performance Awards
earned with respect to such Performance Period proportionate to the
number of days they were actively employed by the Company during any
such Performance Period.
8.6 Effect of Change of Control. In the event of a Change of Control, each
Participant who has theretofore been granted a Performance Award shall
receive, within 60 days of such Change in Control, a prorated amount of
such Participant's total Performance Award, proportionate to the number
of days such Participant was actively employed by the Company during the
applicable Performance Period prior to such Change in Control, provided
such Participant has met his or her Performance Goal applicable to such
Performance Period and the Company as a whole has met its threshold
level of performance pursuant to Section 8.2 applicable to such
Performance Period, each as adjusted on a pro forma basis to reflect the
length of the Performance Period as shortened by such Change in Control.
Nothing in this Section 8.6 shall be construed as limiting a
Participant's opportunity to earn the remainder of his or her
Performance Award for such Performance Period if the Company continues
to maintain the Plan after such Change in Control, or to earn additional
Performance Awards in the event the Company institutes a new performance
plan after such Change in Control.
8.7 Effect of Position Changes. Any Participant whose Performance Goals are
adjusted in connection with a reclassification or change in such
Participant's employment status within the Company (i.e., a promotion or
transfer) will be entitled to receive a prorated amount of his or her
total Performance Award to the extent earned, based on the number of
days served in such Participant's position prior to such
reclassification or change.
8.8 Mid-hires or Transfers. An employee of the Company who becomes a
Participant on or before June 30 of any calendar year will be eligible
to participate in the Plan effective with the Performance Period
beginning immediately prior to the date such employee becomes an active
Participant. Such Participant's award will be prorated to reflect the
number of days of active employment during the initial Performance
Period. Employees hired after June 30 of any year will not be eligible
to participate in the Plan until the commencement of the next
Performance Period immediately following the date such employee begins
employment with the Company.
SECTION IX
No Right to Continued Employment
Participation in the Plan shall confer no rights to continued employment with
the Company, nor shall it restrict the rights of the Company to terminate a
Participant's employment relationship at any time for cause or without cause.
SECTION X
Withholding Taxes
As a condition of delivery of cash or Common Shares upon exercise of an
Option or payment of a Performance Award, the Company shall be entitled to
require that the Participant and/or his or her Permitted Transferees (without
regard to whether the Participant has transferred the Award in accordance
with the Plan or otherwise) satisfy federal, state and local tax withholding
requirements as follows:
(a) Cash Remittance. Whenever Common Shares are to be issued upon the
exercise of an Option or payment of Award, the Company shall have
the right to require the Participant and/or his or her Permitted
Transferees to remit to the Company in cash an amount sufficient to
satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise or payment, prior to the
delivery of any certificate or certificates for such shares. In
addition, the Company shall have the right to withhold from any
cash payment required to be made pursuant thereto an amount
sufficient to satisfy the federal, state and local withholding tax
requirements.
(b) Share Withholding or Remittance. In lieu of the remittance
required by Section X(a) hereof or, if greater, the Participant's
estimated federal, state and local tax obligations associated with
an Award hereunder, a Participant who is granted an Award may, to
the extent approved by the Committee, irrevocably elect by written
notice to the Company at the office of the Company designated for
that purpose, to (i) have the Company withhold Common Shares from
any Award hereunder or (ii) deliver other previously owned Common
Shares, the Fair Market Value of which as of the date on which any
such tax is determined shall be equal to the amount to be withheld,
if any, rounded down to the nearest whole share attributable to
such exercise, occurrence or grant; provided, however, that no
election to have Common Shares withheld from any Award shall be
effective with respect to an Award which was transferred by such
Participant to a Permitted Transferee or otherwise.
(c) Participants Subject to Section 16(b). Notwithstanding any other
provision herein, a share withholding election in connection with
the exercise of an Option may be made by a Participant who is
subject to Section 16(b) of the Act subject to the following
additional restrictions: (1) it may not be made within six months
after the grant of such Option (except in the case of the Death or
Disability of the Participant) and (2) it must be made either (a)
six months or more prior to the date as of which the amount of tax
to be withheld is determined (the "Tax Date"), or (b) within a ten
day "window period" preceding the Tax Date beginning on the third
business day following the release of the Company's quarterly or
annual summary statement of sales and earnings.
SECTION XI
Amendment or Termination of the Plan
11.1 Amendment. The Board may, from time to time but not more often than
once every six months (other than to comport with changes in the Code,
the Employee Retirement Income Security Act of 1974 or the rules and
regulations promulgated thereunder), amend, modify or suspend the Plan,
but no such amendment, modification or suspension without the approval
of the shareholders shall:
(a) increase the maximum number (determined as provided in the Plan) of
Plan Shares, other than as provided in Section 4.2 hereof; or
(b) materially increase the benefits accruing to Participants under the
Plan, or materially modify the requirements as to eligibility for
participation in the Plan.
The Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may be
dictated by requirements of federal or state laws applicable to the Company
or that may be authorized or made desirable by such laws.
11.2 Termination. The Plan shall terminate on the tenth anniversary of the
effective date of the Plan; provided, however, that the Plan shall be
subject to termination prior to such anniversary on the date set forth
in a resolution of the Board terminating the Plan. No termination of
the Plan shall materially alter or impair the right of any Participant
to receive Awards previously granted hereunder without such
Participant's consent. In the event of a termination of the Plan, (i)
each Participant who has theretofore been granted a Performance Award
shall be entitled to receive, within 60 days of such termination, a
prorated amount of such Participant's total Performance Award,
proportionate to the number of days such Participant was actively
employed by the Company during the applicable Performance Period prior
to such termination, provided such Participant has met his or her
Performance Goal applicable to such Performance Period and the Company
as a whole has met its threshold level of performance pursuant to
Section 8.2 applicable to such Performance Period, each as adjusted on a
pro forma basis to reflect the length of such Performance Period as
shortened by such termination and (ii) all Options granted hereunder
shall continue to be valid and binding obligations of the Company going
forward on the same terms and conditions as set forth herein and in the
applicable Option Agreements.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of
assets, or any other change in the corporate structure or shares of the
Company, the Committee shall make such adjustment as it deems
appropriate in the number and kind of Plan Shares, and in the exercise
price of outstanding Options. In the event of any merger, consolidation
or other reorganization in which the Company is not the surviving or
continuing corporation or in which a Change in Control is to occur, all
of the Company's obligations regarding Options and Performance Awards
that were granted hereunder and that are outstanding on the date of such
event shall, on such terms as may be approved by the Committee prior to
such event, be assumed by the surviving or continuing corporation or
cancelled in exchange for property (including cash) in amounts
determined by the Committee.
APPENDIX C
THE ANDERSONS, INC.
EMPLOYEE SHARE PURCHASE PLAN
SECTION I
Purpose
1.1 Purpose. The purpose of The Andersons, Inc. Employee Share Purchase Plan
("the Plan") is to enable and encourage Employees to acquire an ownership
interest in the Company through purchase of the Company's Common Shares,
thereby permitting Employees to share in the growth in value of the
Company.
1.2 Section 423 Plan. The Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code.
1.3 Effectiveness of the Plan. The Plan will be effective upon the
consummation of the Merger, subject to prior approval by the Company's
shareholders. The Plan will remain in effect until such time as it is
amended or terminated by the Board of Directors of the Company in
accordance with the terms of Section IX hereof.
SECTION II
Definitions
Unless the context indicates otherwise, the following terms have the meanings
set forth below.
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.3 "Committee" means the Compensation Committee of the Board.
2.4 "Common Shares" means the common shares, no par value per share, of the
Company, or any other class of capital shares which the Company may
authorize and issue from time to time, and as may be made subject to this
Plan in the sole discretion of the Board.
2.5 "Company" means collectively The Andersons Management Corp. (whose
corporate name from and after the effective date of the Merger shall be
"The Andersons, Inc."), any successor entity in a merger or
consolidation, and any subsidiary corporation, as defined in Section 4
24(f) of the Code, which elects to participate in the Plan with the
approval of the Board.
2.6 "Compensation" means a Participant's total cash compensation including
base pay, overtime pay and cash bonuses paid during the Plan Period
through the payroll system.
2.7 "Discount to Market" means a percentage discount to the Fair Market Value
of the Plan Shares for purposes of calculating the Purchase Price
pursuant to Section 5.3 hereof which the Committee may authorize in its
sole discretion from time to time. The Discount To Market may not be
less than 0% or more than 15%.
2.8 "Fair Market Value" as of a certain date means the closing price of the
Common Shares on the trading day immediately preceding such date, or the
most recent day preceding such date on which such quotations are
reported.
2.9 "Merger" means the merger of The Andersons, an Ohio limited partnership,
with and into the Company.
2.10 "Participant" means an employee who elects to participate in the Plan
prior to the first day of any Plan Period in accordance with the
provisions of the Plan. All Participants shall have the same rights and
privileges except as otherwise permitted by Section 423 of the Code and
the Plan.
2.11 "Plan Period" shall have the meaning set forth in Section 5.1.
2.12 "Purchase Date" shall have the meaning set forth in Section 5.4.
2.13 "Purchase Price" shall have the meaning set forth in Section 5.4.
SECTION III
Administration of the Plan
3.1 Authority of the Committee. The Plan shall be administered by the
Committee. The Committee is authorized by the Board to administer and
control the operation of the Plan including, but not limited to, the
power to (a) subject to Section 5.2 hereof, determine eligibility for
participation in the Plan, (b) subject to Section V hereof, prescribe the
terms and conditions under which Plan Shares may be purchased under the
Plan, and (c) interpret the Plan and adopt rules for the administration
and application of the Plan.
The Committee, in its sole discretion and on such terms and conditions as
it may provide, may delegate its duties in order to facilitate the
purchase and transfer of Plan Shares and to provide for the day-to-day
administration of the Plan. The Committee shall control the general
administration of the plan with all powers necessary to enable it to
carry out its duties in that respect.
3.2 Decisions Binding. All determinations and decisions made by the
Committee shall be final, conclusive, and binding on all persons, and
shall be given the maximum deference permitted by law.
SECTION IV
Number of Shares Under the Plan
4.1 Shares Subject to Plan. The Company shall reserve 300,000 Common Shares
(the "Plan Shares") for issuance to and purchase by employees under this
Plan, subject to adjustment pursuant to Section 4.2 hereof. Plan Shares
may be Common Shares now or hereafter authorized yet unissued or Common
Shares already authorized, issued and owned or purchased by the Company.
If and to the extent that any right to purchase Plan Shares shall not be
exercised by any Participant for any reason or if such right to purchase
shall terminate as provided herein, Plan Shares that have not been
allocated to such Participant under the Plan shall again become available
for allocation to Participants as provided herein.
4.2 Change in Capitalization. In the event of a change in the capitalization
of the Company due to a share split, share dividend, recapitalization,
merger, consolidation, combination, or similar event or as in its sole
discretion may deem appropriate, the aggregate number of Plan Shares and
the terms of any existing offering shall be adjusted by the Board to
reflect such change.
SECTION V
Participation and Plan Operation
5.1 Plan Period. The Plan shall operate on a calendar year basis, with each
"Plan Period" beginning on the first day of January of each year and
ending on the 31st day of December of such year; provided, however, that
the first Plan Period shall begin on January 1, 1996 and shall end on
December 31, 1996.
5.2 Eligible Employees. All employees of the Company shall be eligible to
participate in the Plan.
5.3 Enrollment in the Plan.
(a) An employee may elect to participate in a Plan Period by filing with
the office or offices designated by the Committee an enrollment form
prescribed by the Committee authorizing payroll deductions not less
than ten business days prior to the first day of such Plan Period.
(b) Each Participant shall designate on the enrollment form the
percentage of Compensation which he or she elects to have withheld
for the purchase of Plan Shares, which may be any whole percentage
from 1% up to and including a maximum contribution amount designated
by the Committee from time to time.
(c) Payroll deductions shall commence on the first payday following the
first day of the applicable Plan Period and shall continue to the
end of such Plan Period, subject to contribution changes (if any)
permitted under the Plan.
(d) A Participant may cease contributions, reenroll in the Plan, or
increase or decrease the rate of contribution during the Plan Period
in accordance with the rules and procedures prescribed by the
Committee from time to time.
(e) A Participant may increase or decrease the rate of payroll deduction
for any subsequent Plan Period by filing, at the appropriate office,
a new authorization for payroll deductions not less than ten
business days prior to the first day for such subsequent Plan
Period.
(f) A Participant shall automatically participate in each successive
Plan Period until the time of such Participant's withdrawal from the
Plan. A Participant shall not be required to file any additional
enrollment forms for any such successive Plan Period in order to
continue participation in the Plan.
(g) By enrolling in the Plan, a Participant shall be deemed to elect to
purchase the maximum number of Plan Shares (including the right to
fractional shares) that can be purchased with the amount in such
Participant's Cash Account as of the Purchase Date; provided,
however, that in addition to the limitations on Common Share
ownership and other limitations set forth herein, the Committee may
establish limitations on the number of Plan Shares which may be
purchased by a Participant during the Plan Period.
5.4 Purchase Price. Unless otherwise specified by the Committee with respect
to a certain Plan Period, the purchase price for each Plan Share to be
purchased under the Plan in respect of each Plan Period (the "Purchase
Price") shall be the lesser of (i) the Fair Market Value of the Common
Shares less the Discount To Market as of the first day of such Plan
Period or (ii) the Fair Market Value of the Common Shares less the
Discount To Market as of the last day of such Plan Period, or the last
day of each calendar quarter during the Plan Period, as specified by the
Committee from time to time (the "Purchase Date").
5.5 Purchase of Plan Shares and Plan Account Administration.
(a) The Company will maintain a cash account ("Cash Account") and a
share account ("Share Account") in the name of and for the benefit
of each Participant, for bookkeeping purposes only. On each payday
the amount deducted from each Participant's Compensation will be
credited to such Participant's Cash Account.
(b) As of the Purchase Date(s) with respect to each Plan Period, the
number of Plan Shares purchased by a Participant during a Plan
Period will be determined by converting the Participant's Cash
Account balance at each Purchase Date into Plan Shares, based upon
the Purchase Price for the Plan Period, and subject to the annual
limitation (if any), set by the Committee on the number of Plan
Shares which may be purchased by any Participant, the limitations
set forth in Section VII hereof, and the limitation on the aggregate
number of Common Shares subject to the Plan set forth in Section 4.1
hereof. In the event purchases by participants at a particular
Purchase Date would exceed such aggregate amount of Common Shares,
allocations will be made among Participants, pro rata based on the
outstanding amount in such Participant's Cash Account. If the
Employee's Cash Account has a positive balance at the end of the
Plan Period after being reduced by the total purchase price for the
Plan Shares issued, the Employee shall receive the balance in cash.
(c) As soon as practicable after all necessary Plan Shares have been
purchased by the Committee (or its agent) for the benefit of
Participants, or issued by the Company to Participants, the
Committee will allocate such Shares to each Participant's Share
Accounts in the following manner: (i) the Committee will allocate
full Plan Shares and fractional Plan Shares to the Share Accounts of
the individual Participants to the extent of the balances in their
respective Cash Accounts. Each Cash Account will be charged with
its pro rata share of the cost to Participants of all Plan Shares so
allocated.
(d) In the event that a Participant's Cash Account is not applied toward
the purchase of Plan Shares at the end of a calendar quarter during
the Plan Period (as set forth in Section 5.5(b) above), it shall be
applied toward the purchase of a short term interest bearing
investment. Any interest earned on such investment shall be
credited to each Participant's Cash Account on a reasonable basis on
the last day of the Plan Period.
(e) Cash dividends attributable to Plan Shares allocated to a
Participant's Share Account as of the record date for which such
cash dividend is declared will be credited to a Participant's Cash
Account as of the dividend payment date and applied to Plan Share
purchases and allocations on the next Purchase Date. Share
dividends or share splits attributable to Plan Shares allocated to a
Participant's Share Account as of the record date for which such
dividend or split is declared will be credited to Participant's
Share Accounts as of the effective date of such split. All other
distributions attributable to Plan Shares allocated to a
Participant's Share Account will be distributed to such Participant
pro rata in a manner to be determined by the Committee, consistent
with the terms hereof; provided such manner treats all holders of
Plan Shares equally with respect to such distribution. No person
shall have any right to sell, assign, mortgage, pledge, hypothecate
or otherwise encumber any of the Plan Shares allocated to a
Participant's Share Account.
(f) The Plan Shares (including the right to fractional shares) purchased
on behalf of a Participant shall initially be registered in the name
of a Nominee. Share certificates shall be issued to each
Participant for the Plan Shares held on such Participant's behalf in
the name of the Nominee only upon the request of such Participant,
but all rights accruing to an owner of record of such Plan Shares,
including, without limitation, the rights set forth in Section
5.5(e) above, shall belong to the Participant for whose account such
Plan Shares are held. Cash shall be paid to Participants in lieu of
issuing share certificates for fractional shares.
(g) Notwithstanding the foregoing, a Participant may elect, as of the
first day of any calendar quarter, to have some or all of the non-
fractional Plan Shares previously purchased and registered in the
name of the Nominee on his or her behalf registered in the name of
such Participant by giving written notification of such election to
the Company or Nominee, specifying the number of full shares (if
fewer than all) to be registered in the name of such Participant.
In such case, the number of full shares of each class of the
Company's capital shares held by the Nominee on behalf of such
Participant and so specified in the Participant's notice shall be
transferred to and registered in the name of such Participant as
soon as administratively practicable.
(h) Upon termination of employment for any reason, the Plan Shares held
by the Nominee on behalf of such Participant shall be transferred to
and registered in the name of such Participant as soon as
administratively practicable. Any fractional shares remaining shall
be paid in cash.
5.6 Impact of Cessation of Contributions. In the event that a Participant
elects to cease elected contributions during a Plan Period, and while an
Employee of the Company, all remaining contributions credited to the
Participant's Cash Account during the Plan Period and not yet used to
purchase Plan Shares will be applied toward the purchase of shares at the
next Purchase Date unless the Participant elects in writing to receive
payment of the Cash Account balance in cash without interest payment.
Such cash payment will be made as soon as administratively practical
following this election.
5.7 Termination of Employment.
(a) In the event of termination of employment for reasons other than
death, disability or retirement (i) the Plan Shares contained in a
Participant's Share Account will automatically be distributed to the
Participant and (ii) the cash in such Participant's Cash Account
will automatically be distributed to the Participant with no
interest payment.
(b) In the event of termination of employment due to death, disability
or retirement, the Participant (or his or her beneficiary in the
event of death) may elect in writing to receive his or her Cash
Account balance in cash with no interest payment, or to have the
balance contained in his or her Cash Account applied toward the
purchase of Plan Shares on the next applicable Purchase Date.
SECTION VI
Rights Not Transferable
The rights and interests of any Participant in the Plan, including any right
to purchase Plan Shares, shall not be transferable other than by will or the
applicable laws of descent and distribution and any such right to purchase
shall be exercisable only during the lifetime of such Participant, and then
only by such Participant.
SECTION VII
Limitations on Share Ownership
Notwithstanding any provision herein to the contrary, no Participant shall
have a right to purchase Plan Shares if:
(a) such Participant would, immediately after electing to purchase such
shares, own Common Shares possessing 5% or more of the total
combined voting power or value of all classes of capital shares of
the Company or of any of its Subsidiaries, as defined by Section
424(f) of the Code; or
(b) the rights of such Participant to purchase Plan Shares would accrue
at a rate that exceeds $25,000 of Fair Market Value of such Plan
Shares (determined at the time or times such rights are granted) for
each calendar year for which such rights are outstanding at any
time.
For purposes of the foregoing clause (a), ownership of Common Shares shall be
determined by the attribution rules of Section 424(d) of the Code and
Participants shall be considered to own any Common Shares which they have a
right to purchase under the Plan or any other share option agreement with the
Company or its Subsidiary.
SECTION VIII
Miscellaneous Provisions
8.1 Continued Employment. Nothing in the Plan shall be construed to give any
employee the right to be retained in the employ of the Company or a
Subsidiary or to affect the right of the Company or any Subsidiary or a
Participant to terminate such employment at any time with or without
cause.
8.2 Rights as Shareholder. A Participant shall have no rights as a
shareholder with respect to any Plan Shares which he or she may have a
right to purchase under the Plan until the date such shares are
registered in the name of such Participant or in the name of a Nominee on
behalf of such Participant.
8.3 Rights to Purchase Shares. Each right to purchase Plan Shares under the
Plan shall be subject to the requirement that if at any time the
Committee shall determine that the listing, registration or qualification
of such right to purchase or the Plan Shares subject thereto upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable
as a condition of, or in connection with, such right to purchase or the
issue of Plan Shares pursuant thereto, then, anything in the Plan to the
contrary notwithstanding, no such right to purchase may be exercised in
whole or in part, and no Plan Shares shall be issued, unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free from any conditions not reasonably acceptable
to the Committee. The Committee is authorized upon the advice of counsel
to make such amendments to the Plan as may be necessary or desirable to
facilitate obtaining an effective registration statement with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering Plan Shares issued pursuant hereto.
SECTION IX
Amendment or Termination of the Plan
9.1 Amendment. The Board may, at any time and from time to time, amend,
modify or suspend the Plan, but no such amendment, modification or
suspension without the approval of the shareholders shall:
(a) increase the maximum number (determined as provided in the Plan) of
Plan Shares, other than as provided in Section 4.2 hereof;
(b) permit the issuance of any Plan Shares at a Purchase Price less than
that provided in the Plan as approved by the shareholders;
(c) cause the Plan to fail to meet the requirements of an "employee
stock purchase plan" under Section 423 of the Code.
9.2 Termination. This Plan shall terminate upon the adoption of a resolution
of the Board terminating the Plan. No termination of the Plan shall
materially alter or impair the right of any Participant to receive the
amounts in his or her Cash Account and Share Account without his or her
consent. In the event of a termination of the Plan, (i) the Plan Shares
contained in a Participant's Share Account will automatically be
distributed to the Participant and (ii) the cash in such Participant's
Cash Account will automatically be distributed to the Participant with no
interest payment. All other distributions to Participants or actions
necessitated by such termination shall be allocated among all
Participants, pro rata according to the amounts in their Cash Accounts
and Share Accounts, in a manner to be determined by the Committee,
consistent with the terms hereof, provided such manner treats all
Participants equally with respect to such distribution.
No person has been authorized THE ANDERSONS MANAGEMENT CORP.
to give any information or to
make any representations other AND
than those contained in this
Joint Proxy THE ANDERSONS
Statement/Prospectus, and if
given or made, such
information or representations
must not be relied upon as
having been authorized. This
Joint Proxy
Statement/Prospectus does not JOINT PROXY STATEMENT
constitute an offer to sell or
the solicitation of an offer
to buy any securities other
than the Common Shares to
which it relates or an offer
to or solicitation of any
person in any jurisdiction in
which such offer or solicita
tion is unlawful. Neither the
delivery of this Joint Proxy
Statement/Prospectus nor any THE ANDERSONS MANAGEMENT CORP.
sale made hereunder shall
under any circumstances imply
that information contained
herein is correct at any time
subsequent to its date. The
Registrant will comply with PROSPECTUS
its obligations under
applicable securities laws to
file and deliver any necessary
supplement to this Joint Proxy
Statement/Prospectus.
Common Shares
TABLE OF CONTENTS
SUMMARY 1
INTRODUCTION 15
RISK FACTORS 19
THE MERGER 21
APPROVAL OF THE PROPOSAL
TO ELIMINATE CUMULATIVE
VOTING 27
APPROVAL OF THE LONG-TERM
PERFORMANCE COMPENSATION
PLAN 29
APPROVAL OF THE EMPLOYEE SHARE
PURCHASE PLAN 33
TERMINATION OF EMPLOYEE BOND
PURCHASE PLAN. 37
DESCRIPTION OF THE COMMON
SHARES 38
RESALE OF THE COMMON SHARES 43
SUMMARY COMPARISON OF EXISTING
SECURITIES AND COMMON SHARES 44
RIGHTS OF DISSENTING
SHAREHOLDERS AND LIMITED
PARTNERS 49
FEDERAL INCOME TAX
CONSIDERATIONS 51
CERTAIN STATE AND LOCAL INCOME
TAX CONSIDERATIONS 55
THE COMPANY 57
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS OF THE
PARTNERSHIP 65
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS OF THE GENERAL
PARTNER 71
MANAGEMENT 73
PRINCIPAL SHAREHOLDERS AND
LIMITED PARTNERS 79
PRO FORMA CONDENSED FINANCIAL
INFORMATION 80
LEGAL OPINIONS 86
EXPERTS 86
INDEX TO FINANCIAL STATEMENTS F-1
APPENDIX A A-1
APPENDIX B B-1
APPENDIX C C-1
PART II
Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers.
Section 1701.59 of the Ohio General Corporation Law, inter alia,
empowers an Ohio corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attor-
neys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Similar
indemnity is authorized for such person against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the
defense or settlement of any such threatened, pending or completed action or
suit if such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation,
and provided further that (unless a court of competent jurisdiction otherwise
provides) such person shall not have been adjudged liable to the corporation.
Any such indemnification may be made only as authorized in each specific case
upon a determination by the shareholders or disinterested directors or by
independent legal counsel in a written opinion that indemnification is proper
because the indemnitee has met the applicable standard of conduct.
Section 1701.59 further authorizes a corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or enterprise, against any liability asserted against him or her
and incurred in any such capacity, or arising out of his or her status as
such, whether or not the corporation would otherwise have the power to
indemnify him or her under Section 1701.59. The Company does not maintain
policies insuring its and its subsidiaries' officers and directors against
certain liabilities for actions taken in such capacities, including
liabilities under the Securities Act of 1933.
Article IV of the Code of Regulations of the Company provides for
indemnification of the directors and officers of the Company to the full
extent permitted by law, as now in effect or later amended. In addition, the
Code of Regulations provide for indemnification against expenses incurred by
a director or officer to be paid by the Company in advance of the final
disposition of such action, suit or-proceeding; provided, however, that if
required by the Ohio General Corporation Law, an advancement of expenses will
be made only upon receipt of an undertaking by or on behalf of the director
or officer to repay such amount if it shall be ultimately determined that he
or she is not entitled to be indemnified by the Company. The Code of
Regulations further provide for a contractual cause of action on the part of
directors and officers of the Company with respect to indemnification claims
which have not been paid by the Company.
Article Sixth of the Company's Restated Articles of Incorporation limits
to the fullest extent permitted by the Ohio General Corporation Law as the
same exists or may have been amended, the personal liability of the Company
's directors to the Company or its shareholders for monetary damages for a
breach of their fiduciary duty as directors. Section 1701.59 of the Ohio
General Corporation Law currently provides that such provisions do not
eliminate the liability of a director (i) for a breach of the director's duty
of loyalty to the Company or its shareholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 1701.59 of the Ohio General Corporation Law
(relating to the declaration of dividends and purchase or redemption of
shares in violation of the Ohio General Corporation Law); or (iv) for any
transaction from which the director derived an improper personal benefit.
Item 21. Exhibits.
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated as of April 28, 1995, by and
between the General Partner and the Partnership (included as
Appendix A to the prospectus).
3.1 Articles of Incorporation of the General Partner, dated August 19,
1987 (incorporated by reference to Exhibit 3(d) to
Registration Statement No. 33-16936).
3.2 Code of Regulations of the General Partner, dated August 20, 1987
(incorporated by reference to Exhibit 3(e) to Registration
Statement No. 33-16936).
3.3 Proposed Articles of Incorporation of the Surviving Corporation
(included as Annex A to Appendix A to the prospectus).
3.4 Proposed Code of Regulations of the Surviving Corporation (included
as Annex B to Appendix A to the prospectus).
4.1 Specimen Common Share certificate.
5.1* Opinion of Beverly J. McBride as to the validity of the securities
being registered hereby.
8.1 Opinion of Kirkland & Ellis as to certain tax matters.
10.1** Management Performance Program. (incorporated by reference to
Exhibit 10(a) to the Partnership's Form 10-K for the year ended
December 31, 1990, File No. 2-55070).
10.2 Lease agreement effective May 1, 1990, between Carentmon and the
General Partner (incorporated by reference to Exhibit 10(b) to
the Registrant's Form 10-K for the year ended December 31, 1992).
10.3** Management Agreement between the Partnership and the registrant,
effective as of January 1, 1988. (incorporated by reference to
Exhibit 10(h) in Registration Statement No. 33-13538).
10.4* Amended and Restated Partnership Agreement of the Partnership,
dated as of April 1, 1995.
23.1 Consent of Independent Auditors.
23.2* Consent of Beverly J. McBride (included in the opinion filed as
Exhibit 5.1).
23.3 Consent of Kirkland & Ellis (included in the opinion filed as
Exhibit 8.1).
24.1* Powers of Attorney (included on signature page).
* Filed with the Registration Statement dated May 1, 1995
** Management contract or compensatory plan.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Maumee, State of Ohio, on this 18th day of May, 1995.
THE ANDERSONS MANAGEMENT CORP.
By /s/Richard P. Anderson
Richard P. Anderson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date Signature Title Date
<S> <C> <C> <C> <C> <C>
/s/Richard P. Anderson* President and May 18, /s/Richard M. Anderson* Director May 18,
Richard P. Anderson Chief Executive 1995 Richard M. Anderson 1995
Officer, Director
/s/Thomas H. Anderson* Chairman of the May 18, /s/John F. Barrett* Director May 18,
Thomas H. Anderson Board, Director 1995 John F. Barrett 1995
/s/Gary L. Smith* Treasurer May 18, /s/Dale W. Fallat* Director May 18,
Gary L. Smith 1995 Dale W. Fallat 1995
/s/Richard R. George* Corporate May 18, /s/Paul M. Kraus* Director May 18,
Richard R. George Controller and 1995 Paul M. Kraus 1995
Principal
Accounting
Officer
/s/Daniel T. Anderson* Director May 18, /s/Rene C. McPherson* Director May 18,
Daniel T. Anderson 1995 Rene C. McPherson 1995
/s/Donald E. Anderson* Director May 18, /s/Donald M. Mennel* Director May 18,
Donald E. Anderson 1995 Donald M. Mennel 1995
/s/Michael J. Anderson* Director May 18, /s/Janet M. Schoen* Director May 18,
Michael J. Anderson 1995 Janet M. Schoen 1995
*By: /s/Thomas H. Anderson May 18,
Attorney-in-Fact 1995
</TABLE>
The Andersons Management Corp.
480 West Dussel Drive
Maumee, Ohio 43537
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Thomas H. Anderson, Richard P. Anderson
and Michael J. Anderson as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote as designated
below, all the Class A Common Shares and Class B Common Shares of The
Andersons Management Corp. held of record by the undersigned on March 31,
1995 and entitled to vote at the Special Meeting of Shareholders to be held
on June 29, 1995 at 7:00 p.m., local time, at The Andersons Conference
Center, 535 Illinois Avenue, Maumee, Ohio 43537, or any postponement or
adjournment thereof.
CLASS A COMMON SHARES
Proposal to approve the Agreement and Plan of Merger
FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1.
CLASS B COMMON SHARES
1. Proposal to approve the Agreement and Plan of Merger
FOR AGAINST ABSTAIN
2. Proposal to amend the Articles of Incorporation to eliminate
cumulative voting in the election of members to the Board of
Directors
FOR AGAINST ABSTAIN
3. Proposal to approve The Andersons, Inc. 1995 Long-Term Performance
Compensation Plan
FOR AGAINST ABSTAIN
4. Proposal to approve The Andersons, Inc. 1995 Employee Stock
Purchase Plan
FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 AND 4.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder and in the discretion of the above
named Proxies with respect to such other business as may properly come before
the meeting. IF NO DIRECTION IS MADE, THE CLASS A COMMON SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED "FOR" ITEM 1 AND THE CLASS B COMMON SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2, 3 AND 4.
(Continued, and to be signed and dated, on the other side)
Please sign exactly as name appears below. If you are signing as a
trustee or in another representative capacity, please give full title as
such. The number of shares you are eligible to vote is shown below.
THIS SPACE MAY BE USED FOR ANY COMMENTS YOU CARE TO MAKE:
DATED: _________________, 1995 ____________________________________
Signature
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE ON OR
BEFORE JUNE ___, 1995.
The Andersons
480 West Dussel Drive
Maumee, Ohio 43537
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
of the General Partner of the Partnership
The undersigned hereby appoints Thomas H. Anderson, Richard P. Anderson
and Michael J. Anderson as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent the undersigned limited
partner at the Special Meeting of Limited Partners to be held on June 29,
1995 at 7:00 p.m., local time, at The Andersons Conference Center, 535
Illinois Avenue, Maumee, Ohio 43537, or any postponement or adjournment
thereof, and to vote as indicated below.
LIMITED PARTNER VOTE
1. Proposal to approve the Agreement and Plan of Merger
FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned limited partner and in the discretion of the above
named Proxies with respect to such other business as may properly come before
the meeting. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEM 1.
(Continued, and to be signed and dated, on the other side)
Please sign exactly as name appears below. If you are signing as a
trustee or in another representative capacity, please give full title as
such.
THIS SPACE MAY BE USED FOR ANY COMMENTS YOU CARE TO MAKE:
DATED: _________________, 1995 ____________________________________
Signature
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE ON OR
BEFORE JUNE ___, 1995.
[Form of face of Certificate]
Incorporated under the laws of
Ohio
Number Shares
______ ______
The Andersons Management Corp.
This certifies that _________ is the owner of __________ fully
paid and non-assessable Common Shares, without par value, of The Andersons
Management Corp. transferable only on the books of the Corporation by the
holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and its corporate
seal to be hereunto affixed.
Dated:____________
__________________ _______________
President Secretary
[Form of reverse of Certificate]
Certificate
for
________
Common Shares,
without par value
issued to
___________
Dated
_________
For value received ,__________ hereby sells, assigns and
transfers unto ______________, _______ of the Common Shares represented by the
within Certificate, and does hereby irrevocably constitute and appoint _______
attorney to transfer the said Common Shares on the books of the within named
Corporation, with full power of substitution in the premises.
Dated: _________
In the presence of
_________________ ________________
May 18, 1995
The Andersons and
The Andersons Management Corp.
480 West Dussel Drive
Maumee, Ohio 43537
Re: Merger Agreement
Ladies and Gentlemen:
We have acted as counsel to The Andersons, an Ohio limited
partnership (the "Partnership"), and The Andersons Management Corp., an Ohio
corporation and the sole general partner of the Partnership (the "General
Partner"), in connection with the Agreement and Plan of Merger dated as of
April 28, 1995 (the "Agreement"). The Agreement provides, among other
things, for the merger of the Partnership with and into the General Partner
(the "Merger"). Thereafter, the General Partner would be the sole surviving
entity (the "Surviving Corporation") and would change its name to The
Andersons, Inc.
You have requested our opinion as to certain United States
federal income tax consequences of the Merger. In preparing our opinion, we
have reviewed and relied upon the Agreement, the Form S-4 Registration
Statement and accompanying Joint Proxy Statement/Prospectus, both dated May 1,
1995 (collectively, the "Registration Statement"), and such other documents as
we deemed necessary. In preparing this opinion we have also assumed that (1)
the Merger will be effected in accordance with the terms of the Agreement, (2)
the representations provided by the General Partner are true and accurate in
all material respects (which representations are attached hereto as Exhibit
A), (3) there is no binding commitment (a "Commitment") on the part of any
Limited Partner (as defined in the Registration Statement) to engage in a
sale, exchange, or other disposition of Common Shares to be received in the
Merger (provided, however, that for purposes of this sentence, the intention
or plan of a Limited Partner to sell Common Shares permitted by the Surviving
Corporation to be sold in the secondary offering to be made simultaneously
with the Public Offering (as defined in the Registration Statement) shall not
be considered a Commitment), and (4) there will be no change in any of the
facts material to this opinion between the date of this opinion and the date
of the Merger. Capitalized terms used but not defined herein have the
meanings specified in the Agreement.
On the basis of the foregoing, it is our opinion that:
1. The Merger will be treated for United States federal income
tax purposes as:
a. A transfer by the Partnership, under Sec. 351(a) of the
Internal Revenue Code of 1986, as amended (the
"Code"), of all its assets and liabilities to the
General Partner in exchange for Common Shares
representing a controlling interest (within the
meaning of Code Sec. 368(c)) in the Surviving
Corporation;
b. An immediate distribution by the Partnership to its
Limited Partners of Common Shares in complete
liquidation of their interests in the Partnership
under Code Sections 731 and 736; and
c. An exchange of the Class A and Class B Common Shares
of the General Partner for Common Shares of the
Surviving Corporation under Code Sections 1036 and
368(a)(1)(E).
Accordingly, no gain or loss will be recognized by the
Partnership or the General Partner (i.e., the Surviving Corporation). No gain
or loss will be recognized by the Limited Partners and Shareholders (as
defined in the Registration Statement) who receive only Common Shares in the
Merger.
2. Any cash received by a Limited Partner or Shareholder in lieu
of the issuance of fractional Common Shares will be treated as the receipt of
cash in redemption of such fractional Common Shares. Unless such redemption
is essentially equivalent to a dividend (as determined under the rules of Code
Sec. 302), a Limited Partner or Shareholder receiving cash in lieu of fractional
Common Shares will recognize gain or loss measured by the difference between
such Limited Partner's or Shareholder's basis in the fractional share
surrendered and the cash received. Any cash received by a Limited Partner for
his, her, or its interest in the Partnership due to such Limited Partner's
proper exercise of appraisal or similar rights pursuant to Ohio law will be
treated as a distribution prior to the Merger by the Partnership in
liquidation of the interest of such Limited Partner in the Partnership and
will result in recognition of gain by such Limited Partner to the extent the
cash deemed distributed exceeds such Limited Partner's aggregate basis in his,
her, or its interest in the Partnership. Any cash received by a Shareholder
(an "Appraising Shareholder") for Class A or Class B Common Shares due to such
Shareholder's proper exercise of appraisal rights pursuant to Ohio law will be
treated as the receipt of cash in redemption of such Class A or Class B Common
Shares. Unless such redemption is essentially equivalent to a dividend (as
determined under the rules of Code Sec. 302), an Appraising Shareholder will
recognize gain or loss measured by the difference between such Appraising
Shareholder's basis in the Class A or Class B Common Shares surrendered and
the cash received.
3. The Surviving Corporation's basis in the assets received from
the Partnership in the Merger will be the same as the Partnership's basis in
those assets prior to the Merger. Common Shares received by a Shareholder in
exchange for Class A or Class B Common Shares of the General Partner will have
an aggregate basis equal to the basis of the Class A and Class B Common Shares
that are exchanged (but will not include any basis attributable to fractional
Common Shares treated as sold). The aggregate basis of any Common Shares
received in the Merger by a Limited Partner in exchange for limited
partnership interests will equal the aggregate basis in such Limited Partner's
interest in the Partnership immediately before the Merger (but will not
include any basis attributable to fractional Common Shares treated as sold).
4. The Surviving Corporation will have a holding period in the
assets acquired in the Merger that includes the Partnership's holding period
in those assets. A Common Share received in the Merger by a Shareholder of
the General Partner in exchange for any Class A or Class B Common Shares of
the General Partner will have a holding period that includes that
Shareholder's holding period in such Class A or Class B Common Shares,
provided such Class A or Class B Common Shares constitute capital assets in
such Shareholder's hands prior to the Merger. A Common Share received in the
Merger in exchange for a limited partnership interest in the Partnership will
have a holding period that:
a. Begins on the day following the Merger, to the extent
that the value of such Common Share is attributable to
Partnership assets transferred in the Merger that are
not capital assets or assets described in Code
Sec. 1231; and
b. Includes the holding period of the Limited Partner in
his or her limited partnership interest, to the extent
of the balance.
The opinions set forth above are based upon the applicable
provisions of the Code; the Treasury Regulations promulgated or proposed
thereunder; current positions of the Internal Revenue Service (the "IRS")
contained in published revenue rulings, revenue procedures, and announcements;
existing judicial decisions; and other applicable authorities. No rulings
have been sought from the IRS with respect to any of the matters discussed
herein. Opinions of counsel are not binding on the IRS. Hence, no assurance
can be given that the opinions stated in this letter will not be successfully
challenged by the IRS or disagreed with by a court. We express no opinion
concerning any United States federal income tax consequences of the Merger
except as expressly set forth above.
We consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to our firm in the Joint Proxy
Statement/Prospectus.
Very truly yours,
/s/Kirkland & Ellis
KIRKLAND & ELLIS
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 6, 1995, with respect to the financial
statements of The Andersons Management Corp. (the "General Partner") and the
consolidated financial statements of The Andersons (the "Partnership") in
Amendment No. 1 to the Registration Statement (Form S-4 No. 33-58963) and
related Joint Proxy Statement/Prospectus of The Andersons Management Corp. and
The Andersons.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Toledo, Ohio
May 19, 1995
