<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-66606
PURINA MILLS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1359249
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
1401 S. HANLEY ROAD
ST. LOUIS, MISSOURI 63144
(Address of principal executive offices) (Zip Code)
(314) 768-4100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such report(s)), and (2)
has been subject to such filing requirements for the past 90 days.
Yes...X.... No........
Page 1 of 33 pages
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PURINA MILLS, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended September 30, 1999
<CAPTION>
Page
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PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1999
and December 31,1998 3
Consolidated Statements of Operations for
the three months ended September 30, 1999 and
1998, the nine months ended September 30, 1999,
the six month and nineteen day period ended
September 30, 1998 and the seventy-one day period
ended March 12, 1998 4
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1999, the
six month and nineteen day period ended
September 30, 1998 and the seventy-one day period
ended March 12, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosure about
Market Risk 26
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURE 30
</TABLE>
2
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PURINA MILLS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
DECEMBER 31, 1998
(DERIVED FROM
AUDITED FINANCIAL
SEPTEMBER 30, 1999 STATEMENTS
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,900 $ 41,446
Accounts receivable, net 34,293 44,105
Inventories 54,172 61,862
Prepaid expenses and other current assets 1,825 3,785
Deferred income taxes 18,233 16,428
-----------------------------------------
TOTAL CURRENT ASSETS 138,423 167,626
Property, plant and equipment, net 238,852 262,791
Intangible assets, net 320,112 333,633
Other assets 75,673 51,658
-----------------------------------------
TOTAL ASSETS $773,060 $815,708
=========================================
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable--other $ 28,431 $ 50,559
Accounts payable--affiliate 20,691 42,321
Customer advance payments 2,874 16,870
Current portion of long-term debt 630,106 7,550
Other current liabilities 41,315 34,742
-----------------------------------------
TOTAL CURRENT LIABILITIES 723,418 152,042
Retirement obligations 26,611 26,061
Accrued post-retirement benefit costs 527 458
Other liabilities 6,407 12,461
Long-term debt -- 558,547
STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value: 1,000 shares
authorized, issued and outstanding -- --
Additional paid-in capital 109,290 109,290
Retained deficit (93,192) (43,151)
-----------------------------------------
TOTAL STOCKHOLDER'S EQUITY 16,098 66,139
-----------------------------------------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $773,060 $815,708
=========================================
(SEE ACCOMPANYING NOTES)
</TABLE>
3
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PURINA MILLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
POST-MERGER POST-MERGER PRE-MERGER
------------------------------- ------------------------------- ------------
THREE MONTHS THREE MONTHS NINE MONTHS PERIOD PERIOD
ENDED ENDED ENDED MARCH 13 TO JANUARY 1
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, TO MARCH 12,
1999 1998 1999 1998 1998
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES $203,804 $233,677 $641,246 $521,749 $214,272
COSTS AND EXPENSES:
Cost of products sold 161,525 185,435 514,404 413,716 171,233
Marketing, distribution and
advertising 22,276 21,132 68,499 47,703 17,543
General and administrative 20,761 14,053 54,265 32,388 27,573
Amortization of intangibles 3,762 4,568 11,348 10,683 3,838
Research and development 1,454 1,319 4,457 3,247 1,376
Provision for plant closings -- -- 19,665 -- --
Other (income) expense, net 195 1,703 (335) 1,646 109
------------------------------- ------------------------------- ------------
209,973 228,210 672,303 509,383 221,672
OPERATING INCOME (LOSS) (6,169) 5,467 (31,057) 12,366 (7,400)
Interest expense 13,762 10,999 39,931 26,457 6,144
------------------------------- ------------------------------- ------------
Loss before income taxes (19,931) (5,532) (70,988) (14,091) (13,544)
Benefit for income taxes (4,893) (1,472) (20,947) (4,031) (5,050)
------------------------------- ------------------------------- ------------
NET LOSS $(15,038) $ (4,060) $(50,041) $(10,060) $ (8,494)
=============================== =============================== ============
(SEE ACCOMPANYING NOTES)
</TABLE>
4
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PURINA MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
POST-MERGER PRE-MERGER
---------------------------------------- ---------------
NINE MONTHS PERIOD PERIOD
ENDED MARCH 13 TO JANUARY 1 TO
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 MARCH 12, 1998
------------------ ------------------ --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(50,041) $ (10,060) $ (8,494)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 34,526 27,746 9,908
Provision for loss on asset disposition 694 223 169
Provision for plant closings 19,665 -- --
Provision for deferred taxes (20,947) (3,476) (108)
Other (41,884) 43,292 (38,826)
--------------------------------------------------------------
Net cash provided by (used in) operating activities $(57,987) $ 57,725 $ (37,351)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (15,872) (16,185) (4,486)
Other (1,696) (265) 156
--------------------------------------------------------------
Net cash used in investing activities $(17,568) $ (16,450) $ (4,330)
FINANCING ACTIVITIES:
Proceeds from Senior Subordinated Notes -- -- 350,000
Proceeds from Term Loans -- -- 200,000
Proceeds of Revolving Credit Facility, net 67,471 -- --
Repayment of Term Loans, Senior Sub. Notes & IRBs (3,400) (296,826) --
Payment of dividends to PM Holdings Corporation -- -- (237,172)
Payment of financing costs -- (371) (11,894)
Other (62) (112) (2,300)
--------------------------------------------------------------
Net cash provided by (used in) financing activities $ 64,009 $(297,309) $ 298,634
Increase (decrease) in cash and cash equivalents (11,546) (256,034) 256,953
Cash and cash equivalents at beginning of period 41,446 284,573 27,620
--------------------------------------------------------------
Cash and cash equivalents at end of period $ 29,900 $ 28,539 $ 284,573
==============================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 32,179 $ 24,318 $ 11,267
Income taxes 565 351 43
(SEE ACCOMPANYING NOTES)
</TABLE>
5
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PURINA MILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. FINANCIAL RESTRUCTURING DEVELOPMENTS
The economic environment in the agricultural industry during 1998 and
1999 has been a difficult one for many individual producers and
companies that participate in the sector. Livestock commodity prices
have been depressed and reached historic lows in many markets. In
addition to the overall economic environment, there is significant
continuing competition in all areas of agriculture, including the feed
industry.
In connection with the 1998 Merger (defined below), the Company incurred
a significant amount of indebtedness. As of March 31, 1998, the Company
had approximately $557.2 million of consolidated indebtedness, and its
stockholders' equity was approximately $109.4 million. Of the total
$669.6 million required to consummate the 1998 Merger and related
transactions, $559.9 million was supplied by indebtedness and $109.7
million was supplied by equity contributions. Since the 1998 Merger, a
significant portion of the Company's cash flow from operations has been
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations.
The Company's substantial degree of leverage has limited its flexibility
to adjust to the depressed conditions in the agricultural industry and
made it particularly vulnerable to the downturn in the swine market.
As a result of its financial condition during 1999 and its substantial
degree of leverage, the Company's ability to finance its working capital
requirements and implement its business plan (the "Business Plan") have
been adversely affected by its cash requirements for debt service. On
September 15, 1999, the Company failed to make a scheduled interest
payment of $15.75 million due to holders of the 9% Senior Subordinated
Notes due 2010 (the "Notes"). On October 21, 1999, the Indenture
Trustee for the Notes accelerated such Notes as a result of the failure
to make such interest payment. On September 30, 1999, the Company
failed to pay $2.1 million in principal payments due on the Term Loan
(defined below) under the Credit Agreement (defined below). Such
principal payment was subsequently made on October 28, 1999. The
Company is in default under both the Notes Indenture (defined below) and
the Credit Agreement.
Faced with these events and an inability to service future interest
payment on the Notes, the Company and certain of its subsidiaries
commenced reorganization cases under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware
on October 28, 1999 (the "Petition Date"). In connection with the
Company's preparations for the filing of the reorganization cases, the
Company determined that they would need to obtain debtor in possession
financing to ensure sufficient liquidity to meet their ongoing operating
needs. On October 29, 1999, the Company obtained preliminary Bankruptcy
Court approval for borrowings up to $20 million under the Debtor in
Possession Credit Agreement (the "DIP Credit Agreement"). The Company
will seek final Bankruptcy Court approval on November 15, 1999 for
borrowings of up to $50 million under the DIP Credit Agreement. The
agreement will mature November 1, 2000.
6
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The Company filed a Form 8-K on November 10, 1999 with the Securities
and Exchange Commission, which includes preliminary drafts of a plan of
reorganization and a disclosure statement. As described in the
preliminary draft disclosure statement, a potential settlement has been
negotiated between Koch Industries, Inc. ("Koch Industries") and an
unofficial committee representing holders of Notes ("Noteholders"). On
October 9, 1999, Noteholders representing approximately 55% of the
total amount of $350 million of the Company's Notes, have agreed to the
terms of the settlement. The Company is not a party to the settlement,
but is reviewing and analyzing the terms of the settlement. If the
Company determines that the settlement is appropriate, it will revise
and update the plan of reorganization and disclosure statement to
include provisions consistent with the settlement. The potential
settlement with the Noteholders proposes a $60 million cash contribution
by Koch Industries and contemplates Koch Industries receiving no
consideration for its current equity interest in Holdings (defined
below), the parent company of Purina Mills. A reorganization plan has
not yet been submitted to the Bankruptcy Court, accordingly, the
financial statements at September 30, 1999 do not include any
adjustments that might reflect the potential outcome for the bankruptcy.
2. BASIS OF PRESENTATION
Pursuant to the January 9, 1998 Agreement and Plan of Merger (the
"Merger Agreement") among PM Holdings Corporation ("Holdings"), Koch
Agriculture Company ("Koch Agriculture") and Arch Acquisition
Corporation, a wholly owned subsidiary of Koch Agriculture, Arch
Acquisition Corporation was merged with and into Holdings (the
"Merger"), with Holdings being the surviving corporation. As a result
of the Merger, all of the shares of the common stock of Holdings
("Holdings common stock"), par value $.01 per share outstanding
immediately prior to March 12, 1998, were canceled and converted into
the right to receive cash consideration of $540 per share (the "Merger
Consideration"). In addition, pursuant to the Merger Agreement, each
outstanding stock option and stock rights unit became 100% vested.
Option holders and stock rights unit holders received the Merger
Consideration, less the exercise price of the stock options, for each
share of Holdings common stock into which such stock options and stock
rights units were exercisable immediately prior to March 12, 1998. As a
result of the Merger, Koch Agriculture owns 100% of Holdings, which owns
100% of Purina Mills (the "Company").
The sources and use of funds required to consummate the Merger and
related financings are summarized below. See Note 6 for a description
of long-term indebtedness.
Sources of funds (in millions):
New Credit Facilities
Term Loans $200.0
Revolving Credit Facility 9.9
Notes 350.0
Equity Contribution to Holdings 109.7
--------
Total $669.6
========
7
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Use of funds (in millions):
Purchase price for equity of Holdings $258.7
Repayment of existing indebtedness 385.5
Fees and expenses 25.4
--------
Total $669.6
========
The Merger closed on March 12, 1998. The Merger has been accounted for
as a purchase transaction in accordance with Accounting Principles Board
Opinion No. 16 and, accordingly, the consolidated financial statements
for periods subsequent to March 12, 1998 reflect the purchase price,
including transaction costs, allocated to tangible and intangible assets
acquired and liabilities assumed, based on their estimated fair values
as of March 12, 1998. The consolidated financial statements for periods
prior to March 12, 1998 have been prepared on the predecessor cost basis
of the Company. Operating results subsequent to the Merger are
comparable to the operating results prior to the Merger except for
depreciation expense, amortization of intangible assets, interest
expense and post-retirement health care costs.
The allocation of the $109.3 million purchase price for the Company is
summarized as follows (in millions):
Current assets $ 130.8
Property, plant and equipment 268.0
Intangible assets 343.1
Other noncurrent assets 47.6
Liabilities assumed (680.2)
----------
Total $ 109.3
==========
The consolidated balance sheet at September 30, 1999 and the
consolidated statements of operations and cash flows for the periods
ended September 30, 1999 and 1998 are unaudited and reflect all
adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. Operating results for
fiscal 1999 interim periods are not necessarily indicative of results to
be expected for the year ending December 31, 1999. The consolidated
balance sheet at December 31, 1998 was derived from the Company's
December 31, 1998 audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Although the Company believes the disclosures are adequate, certain
information and disclosures normally included in the notes to the
financial statements have been condensed or omitted as permitted by the
rules and regulations of the Securities and Exchange Commission. The
accompanying unaudited financial statements should be read in
conjunction with the financial statements for the year ended December
31, 1998 contained in the Financial Statements in the Company's Annual
Report on Form 10-K.
8
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In connection with the Merger, the Company entered into an exclusive
commodity purchasing agreement with Koch Agriculture, whereby its
Nutrient Services division supplies the Company with all of its
requirements for feed ingredients commencing May 1, 1998. The cost of
the ingredients to the Company for the period May 1, 1998 through
October 28, 1999 was equal to the spot market price less a discount of
$3.50 per ton. On October 27, 1999 the Company, Koch Industries and
Koch Agriculture entered into a Transition Services Agreement. As part
of this agreement, effective October 29, 1999, for a period of 120 days,
Koch Agriculture has agreed to continue purchasing ingredients for the
Company at a cost equal to the spot market price without discount.
Furthermore, the parties to the agreement have agreed to continue in
good faith with the orderly transition of the commodity purchasing
function to the Company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Investments in affiliated companies, 20% through 50% owned, are carried
at equity.
Revenue Recognition
Net sales are generally recognized when products are shipped. Accruals
for customer discounts are recorded when revenues are recognized.
Income Taxes
Deferred income taxes are recognized for the effect of temporary
differences between the financial reporting basis and the tax basis of
the assets and liabilities plus operating loss carryforwards at enacted
tax rates expected to be in effect when such amounts are realized or
settled.
The Company and Holdings are part of tax sharing agreements with Koch
Industries effective as of the date of the Merger. The agreement
provides that the tax liability of the group shall be allocated to the
members of this group on the basis of the percentage of the member's
total tax, if computed on a separate return, would bear to the total
amount of the taxes of all members of the group so computed. If the
Company's tax attributes are utilized by another member of the group,
such member will reimburse the Company when the Company would have been
able to utilize such attributes in computing the Company's separate
taxable income. The Company's tax provision for all periods after March
12, 1998 are computed on this basis. The results of operations of the
Company after March 12, 1998 through September 30, 1999 will be included
in the consolidated U.S. corporation income tax return and certain
consolidated state income tax returns of Koch Industries. The results
of operations of the Company for the period January 1 to March 12, 1998
were included in the consolidated U.S. corporation income tax return of
Holdings.
9
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Internal Use Software
The Company has implemented a process to either replace or modify all of
the Company's current computer systems and software applications so that
they will be year 2000 compliant. In connection with this process, the
Company has purchased and is implementing an enhanced accounting and
information reporting system. The Company adopted Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1") in 1998. Since the Company's
existing policies were materially in accordance with the provisions of
SOP 98-1, adoption of the provisions of SOP 98-1 were immaterial. All
other related costs of implementing the Company's new computer systems
are expensed as incurred. Total capitalized software costs were $16.2
million and $13.4 million as of September 30, 1999 and December 31,
1998, respectively. The Company is amortizing the costs associated with
the project using the straight-line method over five years, the expected
life of the system.
Reclassifications
Certain reclassifications have been made to prior period consolidated
financial statements to conform to the consolidated financial statement
presentation at September 30, 1999 and the periods then ended.
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials $30,760 $34,619
Finished goods 11,080 12,391
Animals 12,332 14,852
------------------------------------------
Total inventories $54,172 $61,862
==========================================
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Land $ 13,406 $ 13,312
Buildings 85,472 77,192
Machinery and equipment 174,630 188,512
Construction in progress 11,059 7,547
-----------------------------------------
284,567 286,563
Accumulated depreciation (45,715) (23,772)
-----------------------------------------
Total $238,852 $262,791
=========================================
</TABLE>
10
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During the quarter ended June 30, 1999, the Company made the decision to
discontinue or curtail manufacturing operations at five of its
facilities. Products for distribution to customers of the closed
facilities are being manufactured at the Company's other facilities. In
connection with these plant closures, the Company recorded a loss of
$13.1 million on manufacturing assets, representing the amount by which
the book value exceeds estimated fair value. Estimated demolition costs
of $1.2 million, severance costs of $0.4 million and a write-off of
$5.0 million for related goodwill were also recorded.
The Company will continue to review the performance of its facilities to
attempt to optimize overall capacity and maximize profits. This review
may result in the decision to discontinue operations at additional
facilities which could result in an additional loss provision being
recorded.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Term Loan $192,625 $196,025
Senior Subordinated Notes due 2010 350,000 350,000
Revolving Credit Facility 87,471 20,000
Other 10 72
-----------------------------------------
Total $630,106 $566,097
=========================================
</TABLE>
As a result of the failure to make the scheduled interest payment of
$15.75 million due to the Noteholders, the Indenture Trustee accelerated
such Notes. Also, the Company failed to timely pay $2.1 million due
September 30, 1999 on the Term Loan (defined below) and accordingly, the
Company is in default under both the Notes Indenture (defined below) and
the Credit Agreement (defined below). Amounts owed are thus reflected
as current liabilities as of September 30, 1999. At December 31, 1998,
the current portion of long-term debt was $7.6 million and $558.5
million was reflected as long-tem debt.
Tender Offer: In connection with the Merger, the Company offered to
purchase for cash the outstanding Purina Mills, Inc. Senior Subordinated
Notes due 2003 (the "Offering") of which $190.0 million in aggregate
principal amount was outstanding as of the date of the Offering. The
Offering commenced on February 9, 1998 and expired on March 12, 1998.
In conjunction with the Offering, the Company solicited consents of
registered holders of the applicable series of existing debt securities
to certain proposed amendments to eliminate substantially all of the
restrictive covenants in the indentures under which the applicable
series of existing debt securities were issued, in order to increase the
financial flexibility of the Company after the consummation of the
Merger. The proposed amendments became operative immediately following
the consummation of the Merger and all of the Senior Subordinated Notes
due 2003 were redeemed during 1998.
11
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Credit Facility: In connection with the Merger, the Company entered
into a New Credit Agreement (the "Credit Agreement"), which provides for
secured borrowings from a syndicate of lenders consisting of (i) a term
loan facility providing for an aggregate amount of $200.0 million (the
"Term Loan") and (ii) a $100.0 million Revolving Credit Facility, with a
$40.0 million sublimit for letters of credit. The Term Loan consists of
a $100.0 million Tranche A Term Loan with a maturity date of March 12,
2005 and a $100.0 million Tranche B Term Loan with a maturity date of
March 12, 2007. The Revolving Credit Facility has a maturity date of
March 12, 2005.
The proceeds of the Term Loan were borrowed in full on the date of the
consummation of the Offering, in addition to $9.9 million under the
Revolving Credit Facility, and were used to finance the Merger and
related fees and expenses. Proceeds of the Revolving Credit Facility
were also used to redeem the Company's outstanding Industrial Revenue
Bonds and are available to finance the Company's ongoing working capital
requirements. At September 30, 1999, a balance of $87.5 million was
outstanding under the Revolving Credit Facility. The Revolving Credit
Facility also may be used in part for the issuance of letters of credit
to be used solely for ordinary course of business purposes of the
Company and its subsidiaries. At September 30, 1999, the Company had
$12.5 million in outstanding letters of credit under the Revolving
Credit Facility. Accordingly, at September 30, 1999, no amount was
available for future borrowing under the Revolving Credit Facility. The
Company is charged an annual fee of 0.5% for amounts available but
unused under the Revolving Credit Facility. In addition, the Company is
charged a fee of 2.0% per annum on the daily average amount available
for drawing under any letter of credit to the bank that has issued such
letter of credit. Loans under the Credit Agreement bear interest at
floating rates which are, at the Company's option, based either upon
bank prime or Eurodollar rates. Rates on outstanding borrowings
averaged 8.3% at September 30, 1999.
On February 26, 1999 the Company entered into a fixed rate swap contract
effective March 31, 1999, on $114.7 million of amortizing debt under the
Credit Agreement. The swap contract provides that the Company will pay
interest on the notional amount based on a fixed rate of 5.6% and will
receive the three month Eurodollar rate. The Company also has an option
contract on $75.0 million of debt under the Credit Agreement. The
option contract provides that the Company will pay interest on the
notional amount if the three month Eurodollar rate falls below 5.2% and
will receive interest if the three month Eurodollar rate is above 7.0%.
Notes: The Company sold $350.0 million aggregate principal amount of
Notes generating gross proceeds of $350.0 million. The Notes are senior
subordinated, unsecured obligations of the Company and bear interest at
9% per annum.
The Notes are not redeemable at the option of the Company prior to March
15, 2003. The Company may be obligated, however, to purchase at the
holders' option all or a portion of the Notes upon a change of control
or asset sale, as defined in the Notes Indenture (defined below). From
and after March 15, 2003, the Notes will be subject to redemption at the
option of the Company, in whole or in part, at various redemption
prices, declining from 104.5% of the principal amount to par on and
after March 15, 2006. Also, at any time prior to March 15, 2001, under
certain conditions, the Company may redeem up to 35% of the initial
principal amount of
12
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the Notes originally issued with the net proceeds of a public offering
of the Common Stock of Holdings or the Company, at a redemption price
equal to 109% of the principal amount.
Covenants: The Credit Agreement and the Indenture related to the Notes
(the "Notes Indenture") contain restrictive covenants that, among other
things and under certain conditions, limit the ability of the Company to
incur additional indebtedness or issue preferred stock, to acquire
(including a limitation on capital expenditures) or dispose of assets or
operations and to pay dividends. The most restrictive of the covenants
related to dividends precludes the Company from paying annual dividends
in excess of 25% of Excess Cash Flow, as defined in the Credit
Agreement, for the prior fiscal year. As of September 30, 1999,
restricted net assets of the Company were approximately $11.2 million.
The Term Loan and Revolving Credit Facility also require the Company to
satisfy certain financial covenants and tests. The Credit Agreement and
Notes Indenture contain cross default provisions. As stated in Note 1,
the Company was in default under both the Notes Indenture and the Credit
Agreement as of September 30, 1999.
Holdings and certain subsidiaries of the Company, certain of which have
also filed reorganization cases under Chapter 11 of the U.S. Bankruptcy
Code, guarantee the Company's obligations under the Credit Agreement.
Borrowings under the Credit Agreement are also secured by a first
priority lien on the capital stock of the Company (pledged by Holdings)
and its subsidiaries and substantially all assets of the Company and its
subsidiaries.
7. LOAN GUARANTEES AND CONCENTRATION OF CREDIT RISK
Loan Guarantees: The Company has agreed to provide a guarantee of up to
$11.5 million related to an entity formed in 1995 to provide funding for
the Company's network of independently-owned dealers and producers. All
dealers or producers who are members of the entity must have
arrangements with the Company for some purchase of its products. At
September 30, 1999, the Company had funded $6.7 million on the
guarantee. At December 31, 1998, the amount funded on the guarantee was
$2.0 million. The Company recorded a loss reserve for the entire
guarantee amount in 1998. Additionally, in August 1999 the Company
issued a letter of credit for $3.3 million to secure the unfunded
portion of the guarantee. The Company is not a member of this non-stock
membership corporation and, thus, does not have an equity interest in
the new entity; however, the Company did make a loan of $2.0 million to
the entity to provide funding for its establishment and initial
operation. The Company recorded a loss reserve for the $2.0 million
loan in 1998.
Loan guarantees are also made to banks to assist the Company's customers
in obtaining bank loans for working capital, lines of credit, and
additions to property, plant and equipment. The guarantee arrangements
essentially have the same credit risk as that involved in extending
loans to customers and are subject to the Company's normal credit
policies. Collateral (e.g., farm animals, property, personal
guarantees) is usually obtained based on management's assessment of the
specific customer's credit risk. The Company had guarantees of
approximately $5.4 million and $8.7 million at September 30, 1999 and
December 31, 1998, respectively, under these types of arrangements. A
loss reserve of $1.2 million, recorded in 1998, has been established for
the
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above guarantees. The maturity dates of these guarantees extend through
January 2009 with the majority of the guarantees maturing prior to 2003.
Concentration of Credit Risk: Financial instruments which potentially
subject the Company to concentration of credit risk consist principally
of trade receivables. Substantially all of the Company's sales are to
companies or individuals in agriculture-related businesses, with
approximately 15% of its 1999 sales volume being feed for hogs. Hog
producers continue to experience severely depressed market prices and
the Company has outstanding trade receivables, loans and loan guarantees
relating to customers in the hog industry.
Swine Purchase Commitments and Swine Operations: To capitalize on the
consolidation of the hog industry, the Company implemented a strategy in
1997 that was expected to result in control over the feeding of
approximately six million market hogs over four years. The program
provides a source of high quality weanlings and feeder pigs ("feeders")
to independent hog producers and gains the related feed business for the
Company. Under this program, at September 30, 1999, the Company has
future net purchase commitments, subject to the counterparties' ability
to perform, to acquire over 4.1 million feeders over the next eight
years. Approximately 14% of these commitments are at fixed prices
whereas the other 86% vary based on current or published futures prices.
The net purchase commitment of 4.1 million feeders represents gross
commitments during the period for the Company to purchase approximately
8.0 million feeders less 3.9 million feeders which are under contract to
be sold to third parties.
Additionally, the Company has direct ownership of several hog operations
which are expected to produce an additional 2.0 million feeders over the
next ten years. As hog producers are experiencing severely depressed
market prices for their end products, the Company has significant
exposure relating to its feeder pig program, direct hog ownership and
joint venture interests in hog operations. At September 30, 1999 and
December 31, 1998, the Company had $9.5 million and $10.3 million,
respectively, in hog inventory.
Based on published market prices at September 30, 1999, the Company's
net commitment to purchase the 4.1 million feeders totals approximately
$160.0 million. This is a decrease of $90.0 million from such amount at
December 31, 1998 due to feeder purchases during the first nine months
of 1999, renegotiation of future purchase agreements, additional
contracts for the sale of feeders and the change in hog market prices.
Upon receipt of the feeders the Company can either sell them at current
market prices, feed the pigs at Company leased facilities, or contract
with independent producers to feed the pigs. Based on 1999 contractual
commitments, estimated feed costs, counterparty risks and current spot
and futures prices, the Company estimates that its 1999 loss associated
with its swine exposure will range between $15.0 million and
$20.0 million. The Company recorded a loss of $4.1 million in the third
quarter of 1999 and has a year to date loss of $13.0 million. Depending
on the future market price for both feeders and market hogs, any or all
of the options available to the Company could have significant adverse
impact on earnings, cash flows and liquidity.
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8. NONRECURRING CHARGES
During the third quarter of 1999, the Company conducted a comprehensive
strategic business review, including the development of a business plan
which addressed both short-term and longer-term issues required to
stabilize and turn-around the business. The Business Plan, developed
over a number of months in consultation with the Company's external
advisors, establishes a corporate mission and strategy. In connection
with the Business Plan and the reorganization cases under Chapter 11 of
the U.S. Bankruptcy Code, the Company incurred advisory fees and
expenses of $2.1 million during the third quarter. Additionally, the
Company has recorded severance costs of $3.0 million in connection with
the Business Plan during 1999. The severance costs and advisory fees
are included in general and administrative expenses.
9. ACQUISITION COSTS
Included in general and administrative expenses in 1998 are
$15.9 million in non-recurring expenses related to the Merger. These
costs relate to compensation paid to management of the Company and
$13.5 million in Merger consideration paid to holders of options and
stock rights units.
10. TRANSACTIONS WITH AFFILIATES
In the ordinary course of business, the Company contracts with Koch
Industries for various administrative and support services. For the
nine months ended September 30, 1999 the total fees paid in connection
with such services amounted to $3.3 million. In the opinion of
management, such fees were reasonable. The Company also entered into an
exclusive commodity purchasing agreement with Koch Agriculture's
Nutrient Services division commencing May 1, 1998. For the nine months
ended September 30, 1999, the Company purchased $320.1 million in
commodities from Koch Agriculture's Nutrient Services division.
At September 30, 1999, accounts payable - affiliate consists of
noninterest-bearing current accounts payable to Koch Industries for
administrative and support services, payroll costs and accounts payable
to Koch Agriculture for commodity purchases. The total amount due for
administrative and support services including payroll and related costs
amounted to $0.3 million. The total amount due for purchases of
commodities amounted to $20.4 million.
On October 27, 1999, the Company entered into a Transition Services
Agreement with Koch Industries and Koch Agriculture. Pursuant to the
agreement, Koch Industries and Koch Agriculture will continue to
provide, on terms substantially similar to the terms existing prior to
the execution of the agreement, payroll processing and administration of
employee benefit programs, access to certain information technology
systems, availability of certain insurance programs and certain
additional administrative support services. As part of this agreement,
effective October 29, 1999, for a period of 120 days, Koch Agriculture
has agreed to continue purchasing ingredients for the Company at a cost
equal to the spot market price without discount. Furthermore, the
parties to the agreement have agreed to continue in good faith with the
orderly transition of the commodity purchasing function to the Company.
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ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company's overall financial performance during the first nine months
of 1999 has been severely impacted by the overall depressed conditions
in the agriculture industry. This is particularly evident in the swine
industry where prices for market hogs remain depressed. These depressed
conditions have resulted in a decrease of 31.7% in volume of swine feed
sales for the nine months ended September 30, 1999.
In connection with the 1998 Merger, the Company incurred a significant
amount of indebtedness. As of March 31, 1998, the Company had
approximately $557.2 million of consolidated indebtedness, and its
stockholders' equity was approximately $109.4 million. Of the total
$669.6 million required to consummate the 1998 Merger and related
transactions, $559.9 million was supplied by indebtedness and $109.7
million was supplied by equity contributions. Since the 1998 Merger, a
significant portion of the Company's cash flow from operations has been
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations.
The Company's substantial degree of leverage has limited its flexibility
to adjust to the depressed conditions in the agricultural industry and
made it particularly vulnerable to the downturn in the swine market.
As a result of its financial condition during 1999 and its substantial
degree of leverage, the Company's ability to finance its working capital
requirements and implement its Business Plan have been adversely
affected by its cash requirements for debt service. On September 15,
1999, the Company failed to make a scheduled interest payment of $15.75
million due to the Noteholders. On October 21, 1999, the Indenture
Trustee for the Notes accelerated such Notes as a result of the failure
to make such interest payment. On September 30, 1999, the Company
failed to pay $2.1 million in principal payments due on the Term Loan
under the Credit Agreement. Such principal payment was subsequently
made on October 28, 1999. The Company is in default under both the
Notes Indenture and the Credit Agreement.
Faced with these events and an inability to service future interest
payment on the Notes, the Company and certain of its subsidiaries
commenced reorganization cases under Chapter 11 of the U.S. Bankruptcy
Code on October 28, 1999. In connection with the Company's preparations
for the filing of the reorganization cases, the Company determined that
they would need to obtain debtor in possession financing to ensure
sufficient liquidity to meet their ongoing operating needs. On October
29, 1999, the Company obtained preliminary Bankruptcy Court approval for
borrowings up to $20 million under the DIP Credit Agreement. The
Company will seek final Bankruptcy Court approval on November 15, 1999
for borrowings of up to $50 million under the DIP Credit Agreement. The
agreement will mature November 1, 2000.
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During the third quarter of 1999, the Company conducted a comprehensive
strategic business review, including the development of a business plan
which addressed both short-term and longer-term issues required to
stabilize and turn-around the business. The Business Plan, developed
over a number of months in consultation with the Company's external
advisors, establishes a corporate mission and strategy. In connection
with the Business Plan and the reorganization cases under Chapter 11 of
the U.S. Bankruptcy Code, the Company incurred advisory fees and
expenses of $2.1 million during the third quarter. Additionally, the
Company has recorded severance costs of $3.0 million in connection with
the Business Plan during 1999. The severance costs and advisory fees
are included in general and administrative expenses.
The Company develops, manufactures and markets a comprehensive line of
animal nutrition products for dairy cattle, beef cattle, hogs, horses
and poultry, as well as specialty feeds for rabbits, zoo animals, birds,
fish and pets. For the year ended December 31, 1998 the product mix by
volume was approximately 24% for dairy, 28% for beef cattle, 20% for
hogs, 10% for horses, 8% for poultry and 10% for all others.
The feed industry generally prices products on the basis of aggregate
ingredient cost plus a dollar amount margin, rather than a gross profit
percentage. As ingredient prices fluctuate, the changes are generally
passed on to customers through weekly changes in the Company's price
lists. Feed tonnage and total margin, which is net sales minus cost of
ingredients and direct manufacturing costs, and gross profit (margin
less indirect manufacturing costs), rather than sales dollars, are the
key indicators of performance because of the distortions in sales
dollars caused by changes in commodity prices and product mix between
complete feed and concentrate products, to which customers add their own
base ingredients, such as corn and other grains. Historically, when the
price of grains has been relatively high, more of the Company's
customers have tended to purchase complete rations and the Company's
sales volume has been higher; alternatively, when the price of grains
has been relatively low, more of the Company's customers have tended to
use their own grains and mix them with the Company's higher-margin
concentrates, resulting in lower sales volume but relatively higher
overall unit margins.
In prior years the Company has also used total income over ingredient
cost ("IOIC"), which is net sales minus cost of ingredients as a key
indicator of performance. However, due to variances in direct
manufacturing costs for its extensive line of products, the Company has
determined that margin rather than IOIC is the key indicator of
performance.
The Company expects the U.S. feed industry to further consolidate in the
years ahead. Although the total volume of processed feed sold into the
commercial market segment may decline, larger producers are tending to
purchase products with lower inclusion rates and higher margins. As
they grow larger, these producers are typically better able to measure
performance differences and make sound economic decisions regarding
nutrition and management programs. Competition in the industry
occasionally limits the Company's ability to pass ingredient price
increases on to its customers; however, management believes that the
Company's knowledge of the nutritional value of ingredients and its
sophisticated least-cost formulation system enable the Company to
provide products that meet its nutritional standards and maintain
product quality while minimizing product cost.
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The economic environment in the agricultural industry during 1998 and
1999 has been a difficult one for many individual producers and
companies that participate in the sector. Livestock commodity prices
have been depressed and reached historic lows in many markets. In
addition to the overall economic environment, there is significant
continuing competition in all areas of agriculture, including the feed
industry.
Competition in the industry has caused the Company and some of its
competitors to develop market and production risk arrangements for their
customers to promote sales. The Company has entered into several
production and marketing joint venture arrangements with its animal
production customers, especially in the swine sector, in order to
facilitate additional feed sales.
Additionally, to capitalize on the consolidation of the hog industry,
the Company implemented a strategy in 1997 that was expected to result
in control over the feeding of approximately six million market hogs
over four years. The program provides a source of high quality
weanlings and feeder pigs ("feeders") to independent hog producers and
gains the related feed business for the Company. Under this program, at
September 30, 1999, the Company has future net purchase commitments,
subject to the counterparties' ability to perform, to acquire over
4.1 million feeders over the next eight years. Approximately 14% of
these commitments are at fixed prices whereas the other 86% vary based
on current or published futures prices. The net purchase commitment of
4.1 million feeders represents gross commitments during such period for
approximately 8.0 million feeders less 3.9 million feeders which have
contractually been sold. These contractual sales are subject to the
credit worthiness of the third parties which may have deteriorated due
to the prolonged decline in the hog market.
Additionally, the Company has direct ownership of several hog operations
which are expected to produce an additional 2.0 million feeders over the
next ten years. As hog producers are experiencing severely depressed
market prices for their end products, the Company has significant
exposure relating to its feeder pig program, direct hog ownership and
joint venture interests in hog operations. At September 30, 1999 and
December 31, 1998, the Company had $9.5 million and $10.3 million,
respectively, in hog inventory.
Based on published market prices at September 30, 1999, the Company's
net commitment to purchase the 4.1 million feeders totals approximately
$160.0 million. This is a decrease of $90.0 million from such amount at
December 31, 1998 due to feeder purchases during the past nine months,
additional contracts for the sale of feeders in the future and the
decrease in hog market prices which decreased the Company's obligation
on non-fixed price contracts. Upon receipt of the feeders the Company
can either sell them at current market prices, feed the pigs at Company-
owned or leased facilities, or contract with independent producers to
feed the pigs. Based on 1999 contractual commitments, estimated feed
costs, counterparty risks and current spot and futures prices, the
Company estimates that its 1999 loss associated with its swine exposure
will range between $15.0 million and $20.0 million. The Company
recorded a loss of $4.1 million in the third quarter of 1999 and has a
year to date loss of $13.0 million. Depending on the future market
price for both feeders and market hogs, any or all of the options
available to the Company could have significant adverse impact on
earnings, cash flows and liquidity.
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The Company has focused on managing and mitigating the impact of the
significant decline in hog prices on the Company's performance. The
Company obtained covenant relief in December 1998 from its bank group
for the next two years so that it can work to resolve its swine
exposure. With the price of hogs having increased moderately from
December 1998, which was the lowest price in nearly forty years, and
through the efforts of management, the Company expects to mitigate some
of its swine exposure in an effort to reduce the negative implications
on future earnings, cashflow and liquidity. The Company has locked in a
margin on market hogs to be marketed during the remainder of 1999. This
was accomplished during April of 1999 by entering into futures contracts
for market hogs and the major feed ingredients to grow the hogs. This
action will result in limiting the risk of any market decline for the
remainder of the year on these hogs, but will also limit the potential
for gain if market prices significantly increase. The Company has
locked in some, but not all, margin for hogs to be marketed in 2000 and,
as such, the Company is subject to risk of further fluctuations in the
price of market hogs. At current prices for hogs, the Company's swine
exposure could have a material adverse impact on results of operations
and liquidity.
During the quarter ended June 30, 1999, the Company made the decision to
discontinue manufacturing operations at five of its facilities.
Products for distribution to customers of the closed facilities are
being manufactured at the Company's other facilities. In connection
with these plant closures, the Company recorded a loss of $13.1 million
on manufacturing assets, representing the amount by which the book value
exceeds the estimated fair value. Estimated demolition costs of
$1.2 million, severance costs of $0.4 million and a write-off of
$5.0 million for related goodwill were also recorded. The Company will
continue to review the performance of its facilities to attempt to
optimize overall capacity and maximize profits. This review may result
in the decision to discontinue operations at additional facilities which
would result in an additional loss provision being recorded.
The consolidated financial statements for the period prior to
March 13, 1998 have been prepared on the predecessor basis of the
Company. Operating results subsequent to the Merger are comparable to
the operating results prior to the Merger except for depreciation
expense, amortization of intangible assets, interest expense and post-
retirement health care costs. The following discussion is based on
comparison of the three months ended September 30, 1999 to the three
months ended September 30, 1998 and the nine months ended September 30,
1999 to the sum of the three month and nineteen day period ended
September 30, 1998 plus the seventy-one day period ended March 12, 1998.
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Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Due to overall lower commodity prices and a decrease in tons sold, net
sales decreased 12.8% from the 1998 period. Gross profit was
$42.3 million for the three months ended September 30, 1999 compared to
$48.2 million for the three months ended September 30, 1998. Overall
volume was 1.0 million tons during the third quarter of 1999, a 8.1%
decrease from the 1998 period. Average margin per ton was $41.47, a
2.2% decrease from the three month period ended September 30, 1998.
Both beef cattle and dairy cattle tons remained fairly consistent with
the 1998 period as the 1.5% increase in dairy cattle tons was offset by
a 1.9% decrease in beef cattle volume. Hog volume decreased 35.8% from
the prior year due to the prevailing depressed market conditions and the
resulting loss of one large customer in early 1999. Horse volume
increased 8.2% over the 1998 period. The Company's horse volume has set
all-time records during each month of the quarter with the continued
success in growing this business attributable to continued aggressive
marketing and promotion of product and the recognition by customers of
the quality of the Company's products. Laying chicken and meatbird
volume decreased 19.7% from 1998 which can be attributed to the loss of
the Company's largest meatbird customer at the beginning of September
1999. Specialty and other volume was fairly consistent with the 1998
period increasing approximately 3.2%.
Cost of products sold decreased $23.9 million, or 12.9% from the
comparable 1998 period, due primarily to the $28.6 million decrease in
ingredient costs. This decrease was partially offset by third quarter
1999 net losses of $3.3 million from the Company's hog program due to
the depressed hog market. Manufacturing expenses increased $1.4 million
over the 1998 period due primarily to increased labor costs associated
with operational quality initiatives and integration costs incurred at
the manufacturing facilities in connection with the Company's
enhancement of its information system. Marketing, distribution and
advertising costs increased $1.1 million due primarily to costs
associated with the continued rollout of the America's Country Stores
("ACS Stores"). As of September 30, 1999, 34 ACS Stores are operational
with another 24 under construction and expected to become operational
during the remainder of 1999. Two ACS Stores are company-owned with the
others being owned and operated by independent dealers.
General and administrative expenses increased $6.7 million from the 1998
period due to increased relocation costs of $0.8 million and
administrative fees of $1.1 million associated with services provided by
Koch Industries and Koch Agriculture. Additionally, the Company
recorded nonrecurring charges of $4.6 million during the third quarter
(see Note 8).
Intangible amortization expense decreased due to the revaluation of
intangible assets in allocating the original purchase price in
March 1998. Research and development costs remained consistent with the
1998 period. Other expense, net for the three months ended September
30, 1999 relates to service fees for swine and dairy management, finance
income, the (income) loss on the Company's equity investments and losses
on marketing arrangements. Other income, net for the three months ended
September 30, 1999 includes a $1.4 million loss on the Company's equity
investments and losses on marketing arrangements offset by service fee
and finance income.
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Interest expense for the three months ended September 30, 1999 increased
$2.8 million over the 1998 period as a result of the increase in the
outstanding debt under the Credit Agreement and the Notes. The
Company's effective income tax rate differed from the statutory rate in
both 1998 and 1999 due to amortization of goodwill not being allowed as
a tax deduction.
Nine months Ended September 30, 1999 Compared to Nine months Ended
September 30, 1998
Due to overall lower commodity prices and a decrease in tons sold, net
sales decreased 12.9% from the 1998 period. Gross profit was
$126.8 million for the nine months ended September 30, 1999 compared to
$151.1 million for the nine months ended September 30, 1998. Overall
volume for the nine months ended September 30, 1999 was 3.1 million tons
compared to 3.3 million tons for the comparable 1998 period, a decrease
of 6.2%. Average margin per ton was $40.03, a 7.7% decrease from the
nine month period ended September 30, 1998.
Both beef cattle and dairy cattle tons remained consistent with the 1998
period. Hog volume decreased 31.7% from the prior year due to the
prevailing depressed market conditions and the resulting loss of one
large customer in early 1999. Horse volume increased 10.1% over the
1998 period. The Company has had continued success in growing this
business by aggressive marketing and promotion of product which has
resulted in record volume sales in 1999. Laying chicken and meatbird
volume decreased 13.2% from 1998 which can be attributed to the loss of
sales of turkey and broiler feed to two large customers during the
second quarter of 1998 and the Company's largest customer at the
beginning of September 1999. Specialty and other volume increased 4.1%
over the 1998 period.
Cost of products sold decreased $70.5 million, or 12.1% from the
comparable 1998 period, due primarily to the $84.0 million decrease in
ingredient costs. This decrease was partially offset by 1999 net losses
of $10.8 million from the Company's hog program due to the depressed hog
market. Manufacturing expenses increased $2.6 million over the 1998
period due primarily to increased labor costs associated with
operational quality initiatives and integration costs incurred at the
manufacturing facilities in connection with the Company's enhancement of
its information system. Marketing, distribution and advertising costs
increased $3.3 million due primarily to costs associated with the
continued rollout of the ACS Stores.
General and administrative expenses decreased $10.8 million from the
1998 period which included the $15.9 million of compensation paid to
management and holders of options and stock rights units as part of the
Merger. The decrease was partially offset by an increase in bad debt
expense of $2.6 million, relocation costs of $1.5 million and other
corporate administrative expenses of $1.0 million. Additionally, the
Company recorded $5.1 million in nonrecurring charges during 1999 (see
Note 8). The bad debt expense relates primarily to outstanding
receivables from customers in the hog business and one large poultry
customer.
Intangible amortization expense decreased due to the revaluation of
intangible assets in allocating the original purchase price in
March 1998. Research and development costs remained consistent with the
1998 period. Other income, net for the nine months ended September 30,
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1999, relates to service fees for swine and dairy management, the
(income) loss on the Company's equity investments and losses on
marketing arrangements. Other income for the nine months ended
September 30, 1999 includes the $2.4 million in service fee and finance
income and $1.0 million on the sale of certain investments and licenses
offset by a $2.8 million loss on the Company's equity investments and
marketing arrangements.
Interest expense for the nine months ended September 30, 1999 increased
$7.3 million over the 1998 period as a result of the increase in the
outstanding debt under the Credit Agreement and the Notes due 2010. The
Company's effective income tax rate differed from the statutory rate in
both 1998 and 1999 due to amortization of goodwill not being allowed as
a tax deduction. Management has reviewed the realization of the
deferred tax assets and believes it is more likely than not that they
will be realized through future taxable earnings.
SEASONALITY
The Company's business is seasonal, with a higher percentage of the feed
volume sold and earnings generated during the first and fourth quarters
of the year. This seasonality is driven largely by weather conditions
affecting the Company's cattle product lines. If the weather is
particularly cold and wet during the winter, sales of feed for cattle
increase as compared with normal seasonal patterns because the cattle
are unable to graze under those conditions and have higher nutritional
requirements. If the weather is relatively warm during the winter,
sales of feed for cattle may decrease as compared to normal seasonal
patterns because the cattle may be better able to graze under such
conditions. Other product lines are affected marginally by seasonal
conditions but these conditions do not materially affect the Company's
quarter-by-quarter results of operations.
YEAR 2000
Many computer systems and software applications, including most of those
used by the Company, identify dates using only the last two digits of
the year. Without corrective action, programs with time-sensitive
software could potentially recognize a date ending in "00" as the year
1900 rather than the year 2000, causing many computer applications to
fail or create erroneous results. Year 2000 problems could affect many
of the Company's processes, including production, distribution, research
and development, financial and administrative operations.
The Company has reviewed its computer systems and hardware to locate
potential operational problems associated with the year 2000. The
Company has implemented a process to either replace or modify all of the
Company's current computer systems and software applications. New
software has been configured and implemented at all of the Company's
feed mills and the Company's corporate headquarters. The Company
currently estimates that its costs to enhance its information systems
beginning in 1997 and through the year 2000 will approximate
$26 million, of which $1 million is yet to be incurred. The Company is
also working with its key suppliers, customers and financial
institutions to obtain assurances that their systems are year 2000
compliant.
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The Company believes that all year 2000 problems in its computer systems
have been or will be resolved in a timely manner and have not caused and
will not cause disruption of its operations or have a material adverse
impact on its financial condition or results of operations. However,
failure to correct a material year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely impact the
Company's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the year 2000 problem resulting
in part from the uncertainty of the year 2000 readiness of third-party
suppliers, customers and financial institutions, the Company is unable
to determine at this time whether the consequences of year 2000 failures
will have a material impact on the Company's results of operations,
liquidity or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, net cash used in operating
activities was $58.0 million compared to net cash provided by operating
activities of $20.4 million during the same period in 1998. The
increase in net cash used results primarily from an increase in net cash
operating loss of $32.3 million and the reduction in payables to
affiliates of $41.2 million. The decrease in operating profit includes
a decrease in gross profit of $13.4 million before losses associated
with the Company's hog program, an increase of $8.5 million in cash hog
losses and $4.7 million in payments to fund guarantees.
Net cash used in investing activities was $17.6 million and
$20.8 million for the nine-month periods ended September 30, 1999 and
1998, respectively. The decrease is due to a decrease in capital
expenditures of $4.8 million as construction of the Lubbock, Texas
plant was completed in the last quarter of 1998. This decrease was
partially offset by an increase in capital loans over the comparable
1998 period.
Net cash provided by financing activities in 1999 includes borrowings on
the Revolving Credit Facility of $67.5 million less the repayment of
Term Loans of $3.4 million. Net cash provided by financing activities
in 1998 includes the proceeds from the Credit Agreement of
$200.0 million and the proceeds from the Notes due 2010 of
$350.0 million less the repayment of the Term Loans, Senior Subordinated
Notes due 2003, and IRB Loans totaling $296.8 million and the dividend
paid to Holdings of $237.2 million. In addition, net cash used in
financing activities in 1998 includes payments of $12.3 million for
financing costs.
At September 30, 1999, the Company had $29.9 million in cash and cash
equivalents on hand with no amount available for borrowing under the
Company's Revolving Credit Facility. The Company operates with a
relatively low working capital level because a majority of its sales are
made on terms whereby customers receive a 3% discount if payment is
received immediately upon shipment of feed products, and raw ingredients
are normally purchased just prior to manufacturing and shipment.
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The Company expects that capital expenditures during fiscal year 1999
will be approximately $20.0 to $25.0 million, which includes
$6.0 million related to the new accounting and information reporting
system. The Company's actual capital expenditures for the nine months
ended September 30, 1999 were $15.9 million. The Company may from time
to time be required to make additional capital expenditures in
connection with the execution of its business strategies.
As previously discussed in Note 1, the Company and certain of its
subsidiaries commenced the reorganization cases under Chapter 11 of the
U.S. Bankruptcy Code on October 28, 1999. In connection with the
Company's preparations for the filing of the reorganization cases, the
Company determined that they would need to obtain debtor in possession
financing to ensure sufficient liquidity to meet their ongoing operating
needs. On October 29, 1999, the Company obtained preliminary Bankruptcy
Court approval for borrowings up to $20 million under the DIP Credit
Agreement. The Company will seek final Bankruptcy Court approval for
borrowings of up to $50 million under the DIP Credit Agreement.
Under the DIP Credit Agreement, the Company may borrow at the bank's
alternative base rate plus 2% or, at the Company's option, LIBOR plus
3%. The DIP Credit Agreement also may be used in part for the issuance
of letters of credit not to exceed $20.0 million. The Company is
charged an annual fee of 0.5% for amounts available but unused under the
DIP Credit Agreement. In addition, the Company is charged a fee of 3.0%
per annum on the daily average amount available for drawing under any
letter of credit to the bank that has issued such letter of credit. The
obligations of the Company under the DIP Credit Agreement are guaranteed
by the Company and certain of its subsidiaries. The agreement matures
November 1, 2000.
The Company and the guarantors are bound by affirmative covenants
similar to those in the prepetition Credit Agreement and, in addition,
is required to provide to the banks monthly reporting packages which
consist of cash flow forecasts, financial statements, company headcount,
trade credit terms on largest accounts payable and information regarding
future purchase commitments entered into for the purpose of hedging
swine market risk. Additionally, the Company and the guarantors are
bound by negative covenants similar to those in the prepetition Credit
Agreement.
In the event of continued depressed agricultural conditions and a
decline in the Company's performance there is a possibility that funds
generated by operations and the funds available under the DIP Credit
Agreement may not be sufficient to meet working capital and short term
liquidity requirements, capital expenditures and debt service. The
inability to fund future capital expenditures could also have a material
adverse effect on the Company's operations. Thus, the Company's ability
to fund its operations and make planned capital expenditures, to make
scheduled debt payments and to remain in compliance with all of the
financial covenants under its debt agreements depends on its future
operating performance and cash flow, which, in turn, are subject to
prevailing economic conditions and to financial, business and other
factors, some of which are beyond its control and could have a material
adverse impact on the Company.
24
<PAGE>
<PAGE>
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for
Derivative Instruments and Hedging Activities. This statement
standardizes the accounting for derivative instruments by requiring that
an entity recognize these items as assets and liabilities in the
statement of financial position and measure them at fair value. SFAS
No. 133 becomes effective for fiscal years beginning after
June 15, 2000. The Company is currently evaluating the impact of SFAS
No. 133 on its financial statements.
FORWARD-LOOKING STATEMENTS
Information included in this Report on Form 10Q may constitute forward-
looking statements that involve a number of risks and uncertainties.
From time to time, information provided by the Company or statements
made by its employees may contain other forward-looking statements.
Factors that could cause actual results to differ materially from the
forward-looking statements include but are not limited to: Bankruptcy
Court actions or proceedings related to the bankruptcy, general economic
conditions including inflation, consumer debt levels, trade restrictions
and interest rate fluctuations; competitive factors including pricing
pressures, technological developments and products offered by
competitors; inventory risks due to changes in market demand or the
Company's business strategies; and changes in effective tax rates.
Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future
events or otherwise.
25
<PAGE>
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Loans under the Company's Credit Agreement bear interest at floating
rates which are, at the Company's option, based either upon bank prime
or Eurodollar rates. The Company primarily pays interest based on
three month Eurodollar. As a result, the Company is subject to interest
rate risk. To mitigate the impact of fluctuations in interest rates,
the Company utilizes interest rate swaps and collars to fix the rate on
its floating rate debt. The following table provides information about
the Company's notes and term loans that are subject to interest rate
risk. For notes and term loans, the table presents principal cash flows
and applicable interest rates by expected maturity dates.
<TABLE>
<CAPTION>
(Dollars in millions)
FAIR MARKET
VALUE AT
SEPTEMBER 30,
1999<F1> 2000 2001 2002 2003 THEREAFTER TOTAL 1999
-------- ---- ---- ---- ---- ---------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes $ -- $ -- $ -- $ -- $ -- $350.0 $350.0 $ 73.5
Interest rate 9.0%
Variable rate
term debt
including current
portion:
Tranche A $ 4.0 $ 10.3 $ 13.3 $ 16.3 $ 19.3 $ 29.8 $ 93.0 $ 93.0
Interest rate<F2>
Tranche B $ 0.2 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 98.2 $ 99.6 $ 99.6
Interest rate<F3>
<FN>
<F1>Represents payments for the remainder of 1999
<F2>Eurodollar plus 2.75% (8.13% at September 30, 1999)
<F3>Eurodollar plus 3.25% (8.63% at September 30, 1999)
</TABLE>
In 1998 the Company entered into an option contract to mitigate interest
rate fluctuations on a notional amount of $75.0 million of debt under
the Credit Agreement. The option contract provides that the Company
will pay interest on the notional amount if the three month Eurodollar
rate in the Credit Agreement falls below 5.2% and will receive interest
if the three month Eurodollar rate is above 7.0%. The Company entered
into a swap contract on $114.7 million of amortizing debt under the
Credit Agreement in February 1999. The swap contract provides that the
Company will pay interest on the notional amount based on a fixed rate
of 5.6% and will receive the three month Eurodollar rate. No material
payments or receipts of interest have been made on the option contract
in 1999. Based on interest rates at September 30, 1999, an increase in
interest rates of 1.0% would result in an increase in interest expense
of $1.8 million over the next year after considering the option contract
and the swap contract.
26
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation of Purina Mills, Inc. Filed as Exhibit 3.1 to the Regis-
tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
3.2<F*> Bylaws of Purina Mills, Inc.
4.1 Indenture, dated as of March 12, 1998, between Filed as Exhibit 4.1 to the Regis-
Purina Mills, Inc., as issuer, and The First tration Statement on Form S-4 of
National Bank of Chicago, as trustee, relating to Purina Mills, Inc., Registration
the Notes (the "Indenture") No. 333-53865 and incorporated
herein by reference
4.2 Form of 9% Senior Subordinated Note due 2010 of Filed as Exhibit 4.2 to the Regis-
Purina Mills, Inc. (the "New Notes") (included as tration Statement on Form S-4 of
Exhibit A of the Indenture filed as Exhibit 4.1) Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
4.3 Credit Agreement, dated as of March 12, 1998, Filed as Exhibit 4.3 to the Regis-
among Purina Mills, Inc., Chase Bank of Texas, tration Statement on Form S-4 of
National Association, as Administrative Agent, and Purina Mills, Inc., Registration
the other financial institutions parties thereto No. 333-53865 and incorporated
herein by reference
4.4 Form of Guarantee and Collateral Agreement, dated Filed as Exhibit 4.4 to the Regis-
March 12, 1998, among Purina Mills, Inc., the tration Statement on Form S-4 of
subsidiary guarantors of Purina Mills, Inc. that Purina Mills, Inc., Registration
are signatories thereto and Chase Bank of Texas, No. 333-53865 and incorporated
National Association herein by reference
4.5 PM Holdings Security Agreement, dated March 12, Filed as Exhibit 4.5 to the Regis-
1998, between PM Holdings Corporation and Chase tration Statement on Form S-4 of
Bank of Texas, National Association Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
27
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.6 PM Holdings Guaranty, dated March 12, 1998, Filed as Exhibit 4.6 to the Regis-
between PM Holdings Corporation and Chase Bank tration Statement on Form S-4 of
of Texas, National Association Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
4.7 Registration Rights Agreement, dated as of Filed as Exhibit 4.7 to the Regis-
March 12, 1998, by and among Purina Mills, Inc. tration Statement on Form S-4 of
and the Initial Purchasers listed therein, Purina Mills, Inc., Registration
relating to the Notes No. 333-53865 and incorporated
herein by reference
4.8 First Amendment dated as of December 31, 1998, Filed as Exhibit 4.8 to the Regis-
to Credit Agreement, dated March 12, 1998, among tration Statement on Form 10-K of
Purina Mills, Inc., Chase Bank of Texas, National Purina Mills, Inc., Registration
Association, as Administrative Agent, and the other No. 333-53865 and incorporated
financial institutions parties thereto herein by reference
10.1 Form of Purina Mills, Inc. Discretionary Capital Filed as Exhibit 10.2 to the Regis-
Accumulation Plan for Key Employees tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.2 Purina Mills, Inc./PM Holdings Corporation Filed as Exhibit 10.3 to the Regis-
Severance Program for Key Employees, as amended tration Statement on Form S-4 of
and restated effective January 9, 1998 Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.3 Purina Mills, Inc. Supplemental Executive Filed as Exhibit 10.4 to the Regis-
Retirement Plan, effective as of January 1, 1998 tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.4 Koch Industries, Inc. Supplemental Executive Filed as Exhibit 10.5 to the Regis-
Retirement Plan, effective as of May 9, 1994 tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.5 Sub-Group Tax Sharing Agreement, dated March 12, Filed as Exhibit 10.6 to the Regis-
1998, between PM Holdings Corporation and each of tration Statement on Form S-4 of
its subsidiaries listed therein Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.6 Parent Tax Sharing Agreement, dated March 12, Filed as Exhibit 10.7 to the Regis-
1998, between Koch Industries, Inc. and PM Holdings tration Statement on Form S-4 of
Corporation Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.7 Jet-Pro License Agreement between Purina Mills, Filed as Exhibit 10.8 to the Regis-
Inc. and Koch Feed Company, dated March 12, 1998 tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
28
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.8 Koch Agriculture Supply Agreement between Purina Filed as Exhibit 10.9 to the Regis-
Mills, Inc. and Nutrition Supply and Trading, a tration Statement on Form S-4 of
division of Koch Agriculture Company, dated March Purina Mills, Inc., Registration
12, 1998 No. 333-53865 and incorporated
herein by reference
10.9 License Agreement dated October 1, 1986 between Filed as Exhibit 10.10 to the
Ralston Purina Company and Purina Mills, Inc. Registration Statement on Form S-4
of Purina Mills, Inc., Registration
No. 333-53865 and incorporated
herein by reference
10.10 First Amendment dated June 30, 1999 to Koch Filed as Exhibit 10.10 to the
Agriculture Supply Agreement between Purina Mills, Quarterly Report for the quarterly
Inc. and Nutrition Supply and Trading, a division period ended June 30, 1999 on
of Koch Agriculture Company, dated March 12, 1998 Form 10-Q of Purina Mills, Inc.
Registration No. 333-53865 and
incorporated herein by reference
10.11 First Amendment dated June 24, 1999 to Jet-Pro Filed as Exhibit 10.11 to the
License Agreement between Purina Mills, Inc. and Quarterly Report for the quarterly
Koch Feed Company, dated March 12, 1998 period ended June 30, 1999 on
Form 10-Q of Purina Mills, Inc.
Registration No. 333-53865 and
incorporated herein by reference
10.12<F*> Employment Agreement, dated as of July 1, 1999,
between Purina Mills, Inc. and Darrell Swank.
10.13<F*> Form of Employment Agreements, dated as of September
10, 1999, between Purina Mills, Inc. and Brad J.
Kerbs, David R. Hoogmoed, Thomas H. Shepherd,
Jeffrey K. Gough, Del G. Meinz, David G. Kabbes,
James R. Emanuelson, Bradley D. Schu, Rick L. Bowen,
Glenn Shields, Mark S. Chenoweth, Kelly D. Wiesbrock
and Max A. Fisher, all individually and all identical
as to terms.
27.1<F*> Financial Data Schedule
<FN>
____________________
<F*> Filed herewith
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September 30,
1999.
29
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PURINA MILLS, INC.
Date: November 15, 1999 /s/Del G. Meinz
---------------
Del G. Meinz
Chief Accounting Officer
30
<PAGE>
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation of Purina Mills, Inc. Filed as Exhibit 3.1 to the Regis-
tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
3.2<F*> Bylaws of Purina Mills, Inc.
4.1 Indenture, dated as of March 12, 1998, between Filed as Exhibit 4.1 to the Regis-
Purina Mills, Inc., as issuer, and The First tration Statement on Form S-4 of
National Bank of Chicago, as trustee, relating to Purina Mills, Inc., Registration
the Notes (the "Indenture") No. 333-53865 and incorporated
herein by reference
4.2 Form of 9% Senior Subordinated Note due 2010 of Filed as Exhibit 4.2 to the Regis-
Purina Mills, Inc. (the "New Notes") (included as tration Statement on Form S-4 of
Exhibit A of the Indenture filed as Exhibit 4.1) Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
4.3 Credit Agreement, dated as of March 12, 1998, among Filed as Exhibit 4.3 to the Regis-
Purina Mills, Inc., Chase Bank of Texas, National tration Statement on Form S-4 of
Association, as Administrative Agent, and the other Purina Mills, Inc., Registration
financial institutions parties thereto No. 333-53865 and incorporated
herein by reference
4.4 Form of Guarantee and Collateral Agreement, dated Filed as Exhibit 4.4 to the Regis-
March 12, 1998, among Purina Mills, Inc., the tration Statement on Form S-4 of
subsidiary guarantors of Purina Mills, Inc. that Purina Mills, Inc., Registration
are signatories thereto and Chase Bank of Texas, No. 333-53865 and incorporated
National Association herein by reference
4.5 PM Holdings Security Agreement, dated March 12, Filed as Exhibit 4.5 to the Regis-
1998, between PM Holdings Corporation and Chase tration Statement on Form S-4 of
Bank of Texas, National Association Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
31
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.6 PM Holdings Guaranty, dated March 12, 1998, between Filed as Exhibit 4.6 to the Regis-
PM Holdings Corporation and Chase Bank of Texas, tration Statement on Form S-4 of
National Association Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
4.7 Registration Rights Agreement, dated as of March 12, Filed as Exhibit 4.7 to the Regis-
1998, by and among Purina Mills, Inc. and the tration Statement on Form S-4 of
Initial Purchasers listed therein, relating to the Purina Mills, Inc., Registration No.
Notes 333-53865 and incorporated herein by
reference
4.8 First Amendment dated as of December 31, 1998, to Filed as Exhibit 4.8 to the Regis-
Credit Agreement, dated March 12, 1998, among Purina tration Statement on Form 10-K of
Mills, Inc., Chase Bank of Texas, National Purina Mills, Inc., Registration No.
Association, as Administrative Agent, and the other 333-53865 and incorporated herein
financial institutions parties thereto by reference
10.1 Form of Purina Mills, Inc. Discretionary Capital Filed as Exhibit 10.2 to the Regis-
Accumulation Plan for Key Employees tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.2 Purina Mills, Inc./PM Holdings Corporation Filed as Exhibit 10.3 to the Regis-
Severance Program for Key Employees, as amended tration Statement on Form S-4 of
and restated effective January 9, 1998 Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.3 Purina Mills, Inc. Supplemental Executive Filed as Exhibit 10.4 to the Regis-
Retirement Plan, effective as of January 1, 1998 tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.4 Koch Industries, Inc. Supplemental Executive Filed as Exhibit 10.5 to the Regis-
Retirement Plan, effective as of May 9, 1994 tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.5 Sub-Group Tax Sharing Agreement, dated March 12, Filed as Exhibit 10.6 to the Regis-
1998, between PM Holdings Corporation and each of tration Statement on Form S-4 of
its subsidiaries listed therein Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.6 Parent Tax Sharing Agreement, dated March 12, 1998, Filed as Exhibit 10.7 to the Regis-
between Koch Industries, Inc. and PM Holdings tration Statement on Form S-4 of
Corporation Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
10.7 Jet-Pro License Agreement between Purina Mills, Inc. Filed as Exhibit 10.8 to the Regis-
and Koch Feed Company, dated March 12, 1998 tration Statement on Form S-4 of
Purina Mills, Inc., Registration No.
333-53865 and incorporated herein by
reference
32
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.8 Koch Agriculture Supply Agreement between Purina Filed as Exhibit 10.9 to the Regis-
Mills, Inc. and Nutrition Supply and Trading, a tration Statement on Form S-4 of
division of Koch Agriculture Company, dated March 12, Purina Mills, Inc., Registration
1998 No. 333-53865 and incorporated
herein by reference
10.9 License Agreement dated October 1, 1986 between Filed as Exhibit 10.10 to the
Ralston Purina Company and Purina Mills, Inc. Registration Statement on
Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and
incorporated herein by reference
10.10 First Amendment dated June 30, 1999 to Koch Filed as Exhibit 10.10 to the
Agriculture Supply Agreement between Purina Mills, Quarterly Report for the quarterly
Inc. and Nutrition Supply and Trading, a division period ended June 30, 1999 on
of Koch Agriculture Company, dated March 12, 1998 Form 10-Q of Purina Mills, Inc.
Registration No. 333-53865 and
incorporated herein by reference
10.11 First Amendment dated June 24, 1999 to Jet-Pro Filed as Exhibit 10.11 to the
License Agreement between Purina Mills, Inc. and Quarterly Report for the quarterly
Koch Feed Company, dated March 12, 1998 period ended June 30, 1999 on
Form 10-Q of Purina Mills, Inc.
Registration No. 333-53865 and
incorporated herein by reference
10.12<F*> Employment Agreement, dated as of July 1, 1999,
between Purina Mills, Inc. and Darrell Swank.
10.13<F*> Form of Employment Agreements, dated as of
September 10, 1999, between Purina Mills, Inc.
and Brad J. Kerbs, David R. Hoogmoed, Thomas H.
Shepherd, Jeffrey K. Gough, Del G. Meinz, David G.
Kabbes, James R. Emanuelson, Bradley D. Schu,
Rick L. Bowen, Glenn Shields, Mark S. Chenoweth,
Kelly D. Wiesbrock and Max A. Fisher, all
individually and all identical as to terms.
27.1<F*> Financial Data Schedule
<FN>
____________________
<F*> Filed herewith
</TABLE>
33
<PAGE>
B Y L A W S
OF
PURINA MILLS, INC.
ARTICLE I
OFFICES
Section 1.1. Registered Office and Agent. The initial
----------- ---------------------------
registered office shall be 32 Loockerman Square, Suite L-100, Dover,
County of Kent, Delaware 19901, and the name of the initial registered
agent of the corporation at such address shall be The Prentice-Hall
Corporation System, Inc.
Section 1.2. Offices. The corporation may also have offices
----------- -------
at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business
of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Annual Meetings. Annual meetings of stockholders
----------- ---------------
shall be held at such date, time and place, either within or without the
State of Delaware, as may be designated from time to time by the Board
of Directors and stated in the notice of the meeting, for the purpose of
electing a Board of Directors, and transacting such other business as
may properly be brought before the meeting.
Section 2.2. Special Meetings. Special meetings of the
----------- ----------------
stockholders, for any purpose or purposes, unless otherwise provided by
statute or by the Certificate of Incorporation, may be called at any
time by the President and shall be called by the President or Secretary
at the request in writing of a majority of the Board of Directors, or at
the request in writing of stockholders owning a majority in amount of
the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of
the proposed meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
<PAGE>
<PAGE>
Section 2.3. Notice of Meetings. Whenever stockholders are
----------- ------------------
required or permitted to take action at a meeting, a written notice of
the meeting shall be given which shall state the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Unless otherwise provided by
law, the written notice of any meeting shall be given not less than ten
nor more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 2.4. Quorum. Except as otherwise provided by law or
----------- ------
by the Certificate of Incorporation or these Bylaws, the presence in
person or by proxy of the holders of a majority of the outstanding
shares of stock of the corporation entitled to vote thereat shall
constitute a quorum at each meeting of the stockholders and all
questions shall be decided by a majority of the shares so represented in
person or by proxy at the meeting and entitled to vote thereat. The
stockholders present at any duly organized meeting may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 2.5. Adjournments. Notwithstanding any other
----------- ------------
provisions of the Certificate of Incorporation or these Bylaws, the
holders of a majority of the shares of stock of the corporation entitled
to vote at any meeting, present in person or represented by proxy,
whether or not a quorum is present, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At any such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the
meeting originally called; provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the
adjourned meeting.
Section 2.6. Voting; Proxies. Unless otherwise provided in
----------- ---------------
the Certificate of Incorporation each stockholder shall at every
meeting of the stockholders be entitled to one vote in person or by
proxy for each share of the capital stock having voting power held by
such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period. Each proxy
shall be revocable unless expressly provided therein to be irrevocable
or unless otherwise made irrevocable by law. The notice of every
meeting of the stockholders may be accompanied by a form of proxy
approved by the Board of Directors in favor of such person or persons
as the Board of Directors may select.
-2-
<PAGE>
<PAGE>
Section 2.7. Action by Consent of Stockholders. Unless
----------- ---------------------------------
otherwise provided in the Certificate of Incorporation, any action
required to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Section 2.8. List of Stockholders Entitled to Vote. The
----------- -------------------------------------
officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.9. Fixing Record Date. In order that the corporation
----------- ------------------
may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any
other action. The Board of Directors shall not close the books of the
corporation against transfer of shares during the whole or any part of
such period. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. Number; Qualifications. The number of directors
----------- ----------------------
shall be as fixed in such a manner as may be determined by the vote of
not less than a majority of the directors then in office, but shall not
be less than one. The directors shall be elected at the annual meeting
of the stockholders, except as provided in Section 2 of this Article
III, and each director elected shall hold office until his successor is
elected and qualified or until
-3-
<PAGE>
<PAGE>
his earlier death, resignation or removal. A director need not be a
stockholder of the corporation. A majority of the directors may elect
from its members a chairman. The chairman, if any, shall hold this
office until his successor shall have been elected and qualified.
Section 3.2. Vacancies. Any vacancy in the Board of
----------- ---------
Directors, including vacancies resulting from any increase in the
authorized number of directors may be filled by a majority of the
remaining directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office
until the next annual meeting of stockholders and their successors are
duly elected and qualified, or until their earlier death, resignation or
removal.
Section 3.3. Powers. The business affairs and property of
----------- ------
the corporation shall be managed by or under the direction of the Board
of Directors which may exercise all such powers of the corporation and
do all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
Section 3.4. Resignations. Any director may resign at any
----------- ------------
time by written notice to the corporation. Any such resignation shall
take effect at the date of receipt of such notice or at any later time
specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 3.5. Regular Meetings. Regular meetings of the Board
----------- ----------------
of Directors shall be held at such place or places within or without the
State of Delaware, at such hour and on such day as may be fixed by
resolution of the Board of Directors, without further notice of such
meetings.
Section 3.6. Special Meetings. Special meetings of the Board
----------- ----------------
of Directors may be held whenever called by (i) the Chairman of the
Board; (ii) the President; (iii) the President or Secretary on the
written request of a majority of the Board of Directors; or (iv)
resolution adopted by the Board of Directors. Special meetings may be
held within or without the State of Delaware as may be stated in the
notice of the meeting.
Section 3.7. Notice of Meetings. Written notice of the time,
----------- ------------------
place and general nature of the business to be transacted at all special
meetings of the Board of Directors must be given to each director at
least one day prior to the day of the meeting; provided, however, that
notice of any meeting need not be given to any director if waived by him
in writing, or if he shall be present at such meeting, except when the
director attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the
grounds that the meeting is not lawfully called or convened.
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Section 3.8. Quorum; Vote Required for Action. At all
----------- --------------------------------
meetings of the Board of Directors, a majority of directors then in
office shall constitute a quorum for the transaction of business and,
except as otherwise provided by law or these Bylaws, the act of a
majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors; but a lesser number
may adjourn the meeting from day to day, without notice other than
announcement at the meeting, until a quorum shall be present. Directors
may participate in any meeting of the directors, and members of any
committee of directors may participate in any meeting of such committee,
by means of conference telephone or similar communications equipment by
means of which all persons participating in such meeting can hear each
other, and such participation shall constitute presence in person at
such meeting.
Section 3.9. Action by Consent of Directors. Any action
----------- ------------------------------
required or permitted to be taken at any meeting of the Board of
Directors or of any committee of the Board of Directors may be taken
without a meeting, if all members of the board or the committee of the
board, as the case may be, consent thereto in writing, which may be in
counterparts, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or the committee thereof. Such
writing(s) shall be manually executed if practicable, but if
circumstances so require, effect shall be given to written consent
transmitted by telegraph, telex, telecopy or similar means of visual
data transmission.
Section 3.10. Telephonic Meetings Permitted. Members of the
------------ -----------------------------
Board of Directors, or any committee designated by the board, may
participate in a meeting of such board or committee by means of
conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Bylaw shall constitute
presence in person at such meeting.
Section 3.11. Compensation. Directors shall be entitled to
------------ ------------
such compensation for their services as may be approved by the Board of
Directors, including, if so approved by resolution of the Board of
Directors, a fixed sum and expenses of attendance at each regular or
special meeting or any committee thereof. No such payment shall
preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
Section 3.12. Removal. Any director or the entire Board of
------------ -------
Directors may be removed, with or without cause, by the holders of a
majority of shares entitled to vote at an election of directors. The
notice calling such meeting shall state the intention to act upon such
matter, and, if the notice so provides, the vacancy or vacancies caused
by such removal may be filled at such meeting by a vote of the majority
of the shares entitled to vote at an election of directors.
Section 3.13. Committees. The Board of Directors may, by
------------ ----------
resolution passed by a majority of the whole Board, designate one or
more committees, each committee to consist of two or more of the
directors of the corporation. The Board may designate one
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or more directors as alternate members of any committee. The alternate
members of any committee may replace any absent or disqualified member
at any meeting of the committee. Any such committee, to the extent
provided in a resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have such power or authority
in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders
the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or
amending the Bylaws of the corporation; and, unless the resolution or
the Certificate of Incorporation expressly so provide, no committee
shall have the power or authority to declare a dividend or to authorize
the issuance of stock. 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. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors
when required. Members of special or standing committees shall be
entitled to receive such compensation for serving on such committees as
the Board of Directors shall determine.
ARTICLE IV
NOTICES
Section 4.1. Notices. Whenever any notice is required to be
----------- -------
given under the provisions of these Bylaws or of the Certificate of
Incorporation to any director or stockholder, such notice must be in
writing and may be given in person, in writing or by mail, telegram,
telecopy or other similar means of visual communication, addressed to
such director or stockholder, at his address as it appears on the
records of the corporation, with postage or other transmittal charges
thereon prepaid. Such notice shall be deemed to be given (i) if by
mail, at the time when the same shall be deposited in the United States
mail and (ii) otherwise, when such notice is transmitted.
Section 4.2. Waiver of Notice. Whenever any notice is
----------- ----------------
required to be given under the provisions of the Bylaws or of the
Certificate of Incorporation to any director or stockholder, a waiver
thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 5.1. Election; Qualifications; Term of Office;
----------- -----------------------------------------
Resignation; Removal; Vacancies. The officers of the corporation shall
- -------------------------------
be elected or appointed by the Board of Directors and may include, at
the discretion of the Board, a Chairman of the Board, a
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President, a Secretary, a Treasurer and such Executive, Senior or other
Vice Presidents and other officers as may be determined by the Board of
Directors. Any number of offices may be held by the same person. The
officers of the corporation shall hold office until their successors are
chosen and qualified, except that any officer may resign at any time by
written notice to the corporation and the Board of Directors may remove
any officer at any time at its discretion with or without cause. Any
vacancies occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired
portion of the term by the Board of Directors at any regular or special
meeting.
Section 5.2. Powers and Duties. The officers of the
----------- -----------------
corporation shall have such powers and duties as generally pertain to
their offices, except as modified herein or by the Board of Directors,
as well as such powers and duties as shall be determined from time to
time by the Board of Directors. The Chairman of the Board, if one is
elected, and otherwise the President, shall preside at all meetings of
the Board. The President shall preside at all meetings of the
Stockholders.
ARTICLE VI
STOCK
Section 6.1. Certificates. Every holder of stock in the
----------- ------------
corporation shall be entitled to have a certificate, signed by, or in
the name of the corporation by, (i) the Chairman or Vice-Chairman of the
Board of Directors, or the President or a Vice President and (ii) the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation, certifying the number of shares owned by
him in the corporation. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualification, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of
the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in
section 202 of the General Corporation Law of the State of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
Section 6.2. Certificates Issued for Partly Paid Shares.
----------- ------------------------------------------
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly
paid shares the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
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Section 6.3. Facsimile Signatures. Any of or all the
----------- --------------------
signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 6.4. Lost, Stolen or Destroyed Stock Certificates;
----------- ---------------------------------------------
Issuance of New Certificates. The Board of Directors may direct a new
- ----------------------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been
lost, stolen or destroyed upon the making of an affidavit of that fact
by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 6.5. Transfer of Stock. Upon surrender to the
----------- -----------------
corporation or the transfer agent of the corporation of a certificate
for shares fully endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, and subject to
applicable federal and state securities laws and contractual
obligations, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate
and record the transaction upon its books.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1. Dividends. Dividends upon the capital stock of
----------- ---------
the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation. Before payment of any
dividend, there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to
time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such
other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
Section 7.2. Fiscal Year. The fiscal year of the corporation
----------- -----------
shall be fixed by resolution of the Board of Directors.
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Section 7.3. Seal. The seal of the corporation shall be in
----------- ----
such form as the Board of Directors shall prescribe.
Section 7.4. Amendments. These Bylaws may be altered,
----------- ----------
amended or repealed or new Bylaws may be adopted by the stockholders or
by the Board of Directors, when such power is conferred upon the board
of directors by the Certificate of Incorporation (i) at any regular
meeting of the stockholders or of the Board of Directors (ii) or at any
special meeting of the stockholders or of the Board of Directors if
notice of such alteration, amendment, repeal or adoption of new Bylaws
shall be contained in the notice of such special meeting. If the power
to adopt, amend or repeal Bylaws is conferred upon the Board of Directors
by the Certificate of Incorporation it shall not divest or limit the power
of the stockholders to adopt, amend or repeal Bylaws.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. Right to Indemnification. Each person who was
----------- ------------------------
or is made a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer
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 of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee
or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the
corporation to the fullest extent permitted or required by the General
Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the corporation to provide
broader indemnification rights than such law permitted the corporation
to provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however,
that, except as provided in Section 8.3 of this Article VIII with
respect to proceedings to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of
the corporation.
Section 8.2. Right to Advancement of Expenses. The right to
----------- ---------------------------------
indemnification conferred in Section 8.1 of this Article VIII shall
include the right to be paid by the corporation the expenses (including,
without limitation, attorneys' fees and expenses) incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the General
Corporation Law
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<PAGE>
of the State of Delaware so requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to
an employee benefit plan) shall be made only upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is
no further right to appeal (hereinafter a "final adjudication") that
such indemnitee is not entitled to be indemnified for such expenses
under this Section 8.2 or otherwise. The rights to indemnification and
to the advancement of expenses conferred in Sections 8.1 and 8.2 of this
Article VIII shall be contract rights and such rights shall continue as
to an indemnitee who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
Section 8.3. Right of Indemnitee to Bring Suit. If a claim
----------- ---------------------------------
under Section 8.1 or 8.2 of this Article VIII is not paid in full by the
corporation within 60 calendar days after a written claim has been
received by the corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
20 calendar days, the indemnitee may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by
the corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid
also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a
right to an advancement of expenses) it shall be a defense that, and
(ii) any suit brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the corporation shall
be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set
forth in the General Corporation Law of the State of Delaware. Neither
the failure of the corporation (including its Board of Directors,
independent legal counsel or stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel
or stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has
not met the applicable standard of conduct or, in the case of such a
suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the corporation to
recover an advancement of expenses pursuant to the terms of an under-
taking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article VIII
or otherwise shall be on the corporation.
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Section 8.4. Non-Exclusivity of Rights. The rights to
----------- -------------------------
indemnification and to the advancement of expenses conferred in this
Article VIII shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.5. Insurance. The corporation may maintain
----------- ---------
insurance, at its expense, to protect itself and any director, officer,
employee or agent of the corporation or another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability
or loss, whether or not the corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
Section 8.6. Indemnification of Employees and Agents of the
----------- -----------------------------------------------
Corporation. The corporation may, to the extent authorized from time
- -----------
to time by the Board of Directors, grant rights to indemnification and
to the advancement of expenses to any employee or agent of the
corporation to the fullest extent of the provisions of this Article VIII
with respect to the indemnification and advancement of expenses of
directors and officers of the corporation.
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<PAGE>
PURINA MILLS, INC.
EMPLOYMENT AGREEMENT
--------------------
This agreement ("Agreement") has been entered into this 1st day of
July, 1999, by and between Purina Mills, Inc. (the "Company"), and
Darrell D. Swank, an individual (the "Executive")
WHEREAS, the Company currently employs the Executive as Chief
Financial Officer of the Company; and
WHEREAS, the Board of Directors of the Company has determined that
it is in the best interests of the Company and its stockholder to
reinforce and encourage the continued attention and dedication of the
Executive to the Company by guarding against the financial dislocation
caused by a termination of the Executive's employment with the Company
in the circumstances set forth in this Agreement;
WHEREAS, the Board believes that it is imperative to diminish the
inevitable distraction to the Executive by virtue of the personal
uncertainties and risks created by the possibility of the Executive's
employment with the Company being terminated, especially in connection
with a potential or pending Triggering Event, and to encourage the
Executive's full attention and dedication to the Company currently and
in the event of any potential or pending Triggering Event; and
NOW THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
SECTION 1: DEFINITIONS. For purposes of this Agreement, the following
words and phrases, whether or not capitalized, shall have the meanings
specified below, unless the context plainly requires a different
meaning.
(a) "ANNUAL BASE SALARY" means the base salary set forth
in Section 3.3 of this Agreement, as it shall be increased
from time to time in the discretion of the Board.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CHANGE IN CONTROL" means:
(i) The acquisition by any individual, entity or
group, or a Person (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") of ownership of
50% or more of either (a) the then outstanding shares
of common stock of the Company (the "Outstanding
Company Common Stock") or (b) the combined voting
power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); or
(ii) Approval by KII and any of its Subsidiaries who
is the record and beneficial owner of the capital
stock of the Company at such time of a reorganization,
merger or consolidation, in each case, unless,
following such reorganization, merger or
consolidation more than 50% of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such reorganization, merger or
consolidation and the combined voting power of the
then outstanding voting securities of such corporation
entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by KII or its Subsidiaries, in the
aggregate; or
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<PAGE>
(iii) Approval by KII and any of its Subsidiaries
which is the record and beneficial owner of the
capital stock of the Company at such time of (a) a
complete liquidation or dissolution of the Company or
(b) the sale or other disposition of assets of the
Company that generate all or substantially all of the
gross revenues or profit of the Company, other than to
a corporation, with respect to which following such
sale or other disposition, more than 50% of,
respectively, the then outstanding shares of common
stock of such corporation and the combined voting
power of the then outstanding voting securities of
such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by KII or its Subsidiaries, in
the aggregate.
(d) "CHANGE IN BOARD" means (i) the removal or resignation
of two or more of the following individuals as members of
the Board at the initiation of KII or any of its
Subsidiaries or (ii) the election of additional persons to
the Board (excluding the Executive) at the initiation of KII
or any of its Subsidiaries such that the following
individuals do not constitute a majority of the entire
Board; each during the first 12 months after the Effective
Date: James Dumler, Timothy Durkin and Richard Knudson.
(e) "DATE OF TERMINATION" means a date that a Notice of
Termination is received by the party to whom such notice is
being given, unless the party giving the Notice of
Termination specifies another date in the Notice of
Termination (which date shall not be more than 30 days after
giving of such Notice of Termination).
(f) "DIMINUTION EVENT" means (i) the assignment to the
Executive of any duties inconsistent in any respect with the
Executive's position (including status, office and titles),
authority, duties and responsibilities as contemplated by
this Agreement or any other action by the Company which
results in a material diminution in such position,
authority, duties or responsibilities, not mutually agreed
to by the Company and the Executive; or (ii) any decrease by
the Company in the Executive's Annual Base Salary.
(g) "EFFECTIVE DATE" means the date of this Agreement.
(h) "EMPLOYMENT PERIOD" means the period beginning on the
Effective Date and ending on the Date of Termination.
(i) "GOOD CAUSE" means, when used in connection with the
termination of the Executive's employment with the Company
by the Company, a termination based upon (i) the Executive's
willful and continued failure to substantially perform his
duties (which substantial performance shall include for
purposes of this Agreement, substantial compliance with the
KII Principles, as published from time to time, during any
period of time prior to a Change in Control) with the
Company (other than as a result of incapacity due to
physical or mental condition), that is not corrected within
30 days after a written demand for substantial performance
is delivered to the Executive by the Company, which
specifically identifies the manner in which the Executive
has not substantially performed
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his duties; (ii) legally sufficient evidence of the
Executive's commission of an act constituting a criminal
offense involving moral turpitude, dishonesty or breach of
trust; or (iii) the Executive's material breach of any
provision of this Agreement excluding any breach that is not
in bad faith and which is remedied by the Executive within
30 days after receipt by the Executive of written notice
thereof given by the Company.
(j) "GOOD REASON" means, when used in connection with the
termination of the Executive's employment with the Company
by the Executive, a termination based upon the following
reasons:
(i) the occurrence of a Diminution Event;
(ii) (A) the failure by the Company to continue in
effect any benefit or compensation plan, stock
ownership plan, life insurance plan, health and
accident plan or disability plan to which the
Executive is entitled as of the Effective Date,
provided that the Company may amend, modify or replace
such plans as long as the Executive is entitled to
benefits under the amended, modified or replaced plan
or plans that, when combined with the Executive's
entire package of compensation and benefits such
amendment, modification or replacement does not result
in a material diminution in Executive's aggregate
compensation and benefits; (B) the taking of any
action by the Company which would adversely affect the
Executive's participation in, or materially reduce the
Executive's benefits under, any plans in which the
Executive is then currently participating; or (C) the
failure of the Company to provide the Executive with
paid vacation to which the Executive is entitled;
(iii) the relocation of the Executive's primary office
location to a site located outside of the greater St.
Louis, Missouri metropolitan area;
(iv) a material breach by the Company of any
provision of this Agreement;
(v) a purported termination by the Company of the
Executive's employment otherwise than specifically
permitted by this Agreement; or
(vi) in connection with a Triggering Event (as set
forth in Section 4.3 of this Agreement), the failure
of a successor of the Company expressly in writing to
assume and perform this Agreement pursuant to the
terms and conditions set forth herein in accordance
with the provisions of Section 6.4 of this Agreement
prior to a Triggering Event; provided, however, that a
-----------------
termination of employment by the Executive shall not
be deemed to be for "Good Reason" under this
subsection (vi) if such termination of employment
occurs: (A) subsequent to an express assumption and
agreement to perform this Agreement by such successor
pursuant to the terms and conditions set forth herein
on or after a Triggering Event Date or (B) subsequent
to a date that is one year after a Triggering Event
Date (except that, in the case of the Triggering Event
being a filing of a proceeding under the United States
Bankruptcy Code (Title 11, United States Code) or any
other laws relating to bankruptcy, insolvency,
reorganization, dissolution, or composition of debts,
such period shall be the later of (x)
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one year after the filing of such proceeding or (y) 90
days after the date upon which a final order is issued
by the bankruptcy court in such proceeding;
excluding for these purposes any action not taken in bad
faith which is remedied by the Company within 30 days after
receipt by the Company of written notice thereof given by
the Executive.
(k) "INSOLVENCY EVENT" means (i) the commencement of any
proceeding by or against the Company under the United States
Bankruptcy Code (Title 11, United States Code) or any other
laws relating to bankruptcy, insolvency, reorganization,
dissolution, or composition of debts; (ii) any general
assignment for the benefit of the Company's creditors;
(iii) the appointment of a receiver, trustee, custodian,
liquidator, or turnaround or workout management team with
respect to the Company and/or all or a substantial portion
of the Company's assets, either by court action or upon the
encouragement or agreement of the creditors of the Company.
(l) "KII" means Koch Industries, Inc., the parent company
of the Company.
(m) "NOTICE OF NON-RENEWAL" means a written notice by
either party to this Agreement of such party's desire not to
allow the Term of this Agreement to automatically renew at
the end of the then-current Term for another Term. The
Notice of Non-Renewal will have the effect of terminating
this Agreement at the end of the then-current Term.
(n) "NOTICE OF TERMINATION" means a written notice by
either party of such party's desire to terminate the
Executive's employment with the Company, which notice (i)
indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and
(iii) if the Date of Termination is other than the date of
receipt of such Notice of Termination, specifies the Date of
Termination (which date shall not be more than 30 days after
the giving of such Notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good
Cause or Good Reason shall not waive any right of the
Executive or the Company hereunder or preclude the Executive
or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(o) "SUBSIDIARY" means any corporation, association,
partnership, limited liability company, joint venture or
other entity in which another corporation owns or controls,
directly or indirectly through another Subsidiary, a
majority of the outstanding securities eligible to vote in
the election of directors or the equivalent governing body
of the particular entity.
(p) "TERM" means, initially a three-year period commencing
on the Effective Date and ending on the date of the third
anniversary of the Effective Date, and, if renewed in
accordance with Section 2.1 of this Agreement, shall mean an
additional one-year period
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commencing on the day after the end of the initial Term or
any renewal Term, as the case may be.
(q) "TRIGGERING EVENT" means (i) a Change in Control of
the Company, or (ii) an Insolvency Event.
(r) "TRIGGERING EVENT DATE" shall mean the date that the
Triggering Event occurs.
SECTION 2: TERM OF AGREEMENT.
2.1 INITIAL TERM OF AGREEMENT; RENEWAL TERMS. The initial Term
of this Agreement shall be for three years commencing on the Effective
Date, subject to automatic renewal for a Term of an additional one year
commencing immediately upon the end of the initial Term or the then-
current renewal Term, as the case may be, unless either party to this
Agreement gives a Notice of Non-Renewal to the other party not less than
90 days prior to the end of the initial Term or the then-current renewal
Term, as the case may be. In the event that such a Notice of Non-
Renewal is given as set forth in this Section 2.1, the Term of this
Agreement will end on the last day of the initial Term or the then-
current renewal Term, as the case may be, but the employment of the
Executive will continue with the Company on an "at will" basis.
2.2 TERMINATION OF THE EMPLOYMENT PERIOD. The Executive agrees
that he will not terminate his Employment Period (and his employment
with the Company) during the first year of the initial Term, except for
Good Reason, Change in Board, death of the Executive or a disability of
the Executive affecting the Executive's ability to perform his normal
duties. Except for the restriction set forth in the immediately
preceding sentences of this Section 2.2 and notwithstanding Section 2.1
of this Agreement, either party to this Agreement may terminate the
Executive's Employment Period (and the Executive's employment with the
Company) at any time during the Term by giving a Notice of Termination
to the other party, without any liability except as specified in Section
4 of this Agreement.
SECTION 3: TERMS AND CONDITIONS OF EMPLOYMENT.
3.1 PERIOD OF EMPLOYMENT. The Executive shall remain in the
employ of the Company throughout the Employment Period in accordance
with the terms and provisions of this Agreement. This Agreement shall
remain in full force and effect notwithstanding subsequent changes in
the Executive's compensation, location of employment, duties or
authority or any changes in the identity of the corporation to which the
Executive's compensation is charged, provided that said corporation is
either the Company, KII or a Subsidiary of the Company or KII and
provided further that certain of such changes may constitute Good Reason
for purposes of this Agreement.
3.2 POSITIONS AND DUTIES. The Company hereby employs the
Executive and the Executive hereby accepts such employment as Chief
Financial Officer of the Company, subject to the reasonable directions
of the chief executive officer of the Company and the Board. The
Executive shall have such authority and shall perform such duties as are
specified in the Bylaws of the Company for the office and position to
which he has been appointed hereunder and shall so serve, subject to the
control exercised by the chief executive officer of the Company and the
Board from time to time. The Executive agrees to devote such of his
time, attention and energy to the business of the Company as may be
required to perform the duties and responsibilities assigned to him to
the best of his ability and with reasonable diligence; provided, that it
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shall not be a violation of this Section 3.2 for the Executive to serve
on corporate, industry, legal, civic or charitable association boards
and committees.
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3.3 COMPENSATION. The Executive's initial base salary under
this Agreement will be $180,000 per annum, payable in accordance with
the Company's current payroll practices. The Executive's base salary
will be increased by at least $10,000 per year, effective January 1, in
each of the first two years after the Effective Date. In addition to
the Annual Base Salary, the Executive shall be awarded the opportunity
to earn an incentive bonus on an annual basis ("Incentive Bonus") under
any incentive compensation plan which is generally available to other
similarly situated executives of the Company. The Incentive Bonus which
the Executive will have an opportunity to earn shall be reviewed at
least annually and may be adjusted at the discretion of the chief
executive officer of the Company and the Board, dependent upon the
Executive's performance and in accordance with the Company's policies.
Also, if the Executive continues in the employment of the Company until
March 31, 2000, the Executive shall be paid by the Company on the next
regularly scheduled pay date thereafter an initial bonus equal to
$60,000. In addition, if the Executive continues in the employment of
the Company until December 31, 2000, the Executive shall be paid by the
Company on the next regularly scheduled pay date thereafter a second
bonus equal to $60,000. Likewise, if the Executive continues his
employment with the Company until June 30, 2001, the Executive shall be
paid by the Company on the next regularly scheduled pay date thereafter
a third bonus equal to $60,000. If the Executive terminates his
employment with the Company for Good Reason or the Company terminates
the Executive's Employment with the Company without Good Cause, prior to
June 30, 2001, the Executive shall be paid by the Company within 10
business days after such termination of employment, an amount equal to
$180,000 less any amounts previously paid to the Executive pursuant to
the three immediately preceding sentences of this Section 3.3.
3.4 PARTICIPATION IN 401(k) PLAN. The Executive is eligible to
participate in the Company's 401(k) Plan, based upon current eligibility
requirements and subject to the terms and conditions of such plan.
3.5 PARTICIPATION IN PROGRAMS ISSUING EQUITY, OPTIONS AND
SIMILAR EQUITY INSTRUMENTS. The Executive is eligible to participate in
any of the Company's programs whereby it will issue equity, options or
similar equity instruments, based upon eligibility requirements and
subject to the terms and conditions of the programs, as such programs
are instituted.
3.6 PARTICIPATION IN PENSION PLAN. The Executive is eligible to
participate in the Company's "defined benefit" pension plan, based on
current eligibility requirements and subject to the terms and conditions
of such plan.
3.7 PARTICIPATION IN MEDICAL AND DENTAL INSURANCE AND WELFARE
BENEFITS. The Executive and his eligible dependents are eligible to
participate in the Company's medical, dental, disability and life
insurance and other employee benefit and welfare plans, based upon
current eligibility requirements and subject to the terms and conditions
of such plan.
SECTION 4: BENEFITS UPON TERMINATION.
4.1 NOT IN CONNECTION WITH A TRIGGERING EVENT OR A CHANGE IN
BOARD. If the Executive's employment with the Company is terminated
prior to the end of the initial Term or prior to the end of any
subsequent renewal Term, as the case may be, by the Company without Good
Cause or by the Executive within 90 days after a Diminution Event (but
not in connection with a Triggering Event or a Change in
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Board), then upon the negotiation and execution of a mutually acceptable
settlement and release agreement by the Company and the Executive (which
shall be promptly negotiated in good faith by the Company and the
Executive), in addition to any accrued salary and other payments owed to
the Executive under the Company's other severance plans and policies,
the Company shall pay the Executive an amount equal to three times the
Executive's then-current Annual Base Salary plus three times the
Executive's average Incentive Bonus for the two most recently completed
years prior to the Date of Termination (which average Incentive Bonus
shall be equal to at least $75,000), in 36 monthly payments commencing
in the month after the Date of Termination. In the case of a
termination of the Executive's employment with the Company not in
connection with a Triggering Event or a Change in Board for any reason
other than as stated in this Section 4.1 above, the Executive shall be
entitled only to accrued salary and other payments owed to the Executive
under the Company's other severance plans and policies.
4.2 IN CONNECTION WITH A CHANGE IN BOARD. If the Executive
terminates his employment with the Company within 30 days after the
earlier of the date upon which the Executive receives written notice or
first becomes aware that a Change in Board first occurs, then upon the
negotiation and execution of a mutually acceptable settlement and
release agreement by the Company and the Executive (which shall be
promptly negotiated in good faith by the Company and the Executive), in
addition to any accrued salary and other payments owed to the Executive
under the Company's other severance plans and policies, the Company
shall pay to the Executive an amount equal to two times the Executive's
then-current Annual Base Salary plus two times the Executive's average
Incentive Bonus for the two most recently completed years prior to the
Date of Termination (which average Incentive Bonus shall be equal to at
least $75,000) in 24 monthly payments commencing in the month after the
Date of Termination.
4.3 IN CONNECTION WITH A TRIGGERING EVENT. If (a) a Triggering
Event occurs during the Employment Period and within one year after the
Triggering Event Date (except that, in the case of a Triggering Event
being a filing of a proceeding under the United States Bankruptcy Code
(Title 11, United States Code) or any other laws relating to bankruptcy,
insolvency, reorganization, dissolution, or composition of debts, such
period shall be the later of (x) one year after the filing of such
proceeding or (x) 90 days after the date upon which a final order is
issued by the bankruptcy court in such proceeding): (i) the Company
shall terminate Executive's employment with the Company without Good
Cause, or (ii) the Executive shall terminate employment with the Company
for Good Reason, or, alternatively, (b) if one of the above-described
--
terminations of employment occurs within the six-month period prior to
the earlier of (i) a Triggering Event Date or (ii) the execution of a
definitive agreement or contract that eventually results in a Triggering
Event, then, in addition to any accrued salary and other payments owed
to the Executive under the Company's other severance plans and policies,
the Company shall pay to the Executive an amount equal to three times
the Executive's then-current Annual Base Salary plus three times the
Executive's average Incentive Bonus (which average Incentive Bonus shall
be equal to at least $75,000) for the two most recently completed years
prior to the Date of Termination, in a lump-sum payment, after either
(y) the Date of Termination, in the case where the sequence of the
requisite events is as set forth in subsection (a) above or (z) the
Triggering Event Date, in the case where the sequence of the requisite
events occurred as set forth in subsection (b) above. In the case of
any termination of the Executive's employment with the Company in
connection with a Triggering Event for any reason other than as stated
in this Section 4.3 above, the Executive shall be entitled only to
accrued salary and other payments owed to the Executive under the
Company's other severance plans and policies.
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4.4 CONTINUATION OF INSURANCE BENEFITS. In the event that
payments are due and owing by the Company to the Executive as set forth
in Sections 4.1, 4.2 or 4.3 of this Agreement, in addition to such
payments, the Company will either continue the Executive's medical,
dental, disability and life insurance benefits at the same levels as
provided on the Date of Termination by the Company or will pay for
equivalent medical, dental, disability and life insurance, in either
case, paying the same proportion of the policy costs as the Company had
been paying for each such policy at the Date of Termination) until the
coverage provided by such policy or policies is replaced by new medical
or dental insurance and welfare programs by the Executive's new employer
or the employer of the Executive's spouse; provided, however, that in no
------------------
case will such continuation of such policy or payments in lieu thereof
extend for a period of more than two years after the Date of Termination
in the case of a termination under either Sections 4.1, 4.2 or 4.3.
4.5 PLACEMENT SERVICES. In the event that payments are due and
owing by the Company to the Executive as set forth in Sections 4.1, 4.2
or 4.3 of this Agreement, the Company will pay for executive placement
services from a professional placement company of the Executive's
choice; provided, however, that in no case shall such services at the
expense of the Company extend beyond 12 months after the Date of
Termination or the expense for such services paid by the Company exceed
$30,000 in the aggregate.
4.6 SALE OF ALL EQUITY, OPTIONS OR SIMILAR EQUITY INSTRUMENTS IN
THE COMPANY. To the extent not otherwise set forth in the agreements
under which equity, options or similar equity instruments in the Company
are issued or sold to the Executive, only upon termination of the
Executive's employment with the Company without Good Cause or for Good
Reason, the equity, options and similar equity instruments that are
then-outstanding but have not vested shall fully vest. If the
Executive's employment with the Company terminates for any reason, the
Executive shall be required to sell all such equity, options or similar
equity instruments to the Company at a price to be set forth in the
particular program pursuant to which the equity, options or similar
equity instruments were initially issued.
4.7 INFORMATION IN CONNECTION WITH A CHANGE IN CONTROL
TRANSACTION. The Company will use its best efforts to obtain from any
potential third party acquirer of the Company in a Change in Control
transaction all available information with respect to the post-
consummation plans of the acquirer for the Executive and/or his position
with the Company and to share with the Executive promptly upon receipt
any such information that the Company may receive from such potential
acquirer.
4.8 ALTERNATIVE EMPLOYMENT. In the event that payments are due
and owing by the Company to the Executive as set forth in Sections 4.1,
4.2 or 4.3 of the Agreement, the Executive shall not be required to seek
alternative employment or other sources of income or benefits, or to
mitigate his damages, or to have any similar duty or obligation. Except
as specifically provided in Section 4.9 of this Agreement or with
respect to the benefits described in Section 4.4 of this Agreement, all
payments and other obligations of the Company under this Agreement shall
not be subject to any rights of set-off, duty to mitigate or other
reduction, and shall be paid and performed in full, notwithstanding any
alternative employment or other sources of income or benefits obtained,
received or receivable by the Executive.
4.9 ADJUSTMENT FOR "EXCESS PARACHUTE PAYMENTS". Notwithstanding
anything in this Agreement to the contrary, in the event that the
Company's independent public accountant shall determine that any payment
or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise) (a "Payment") would be
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nondeductible by the Company for federal income tax purposes because of
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or would constitute an "excess parachute payment" (as defined
in Code Section 280G), then the aggregate present value of amounts
payable or distributable to or for the benefit of the Executive pursuant
to this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments") shall be
reduced (but not below zero) to the "Reduced Amount" (as defined in the
next sentence). For purposes of this Section 4.9, the "Reduced Amount"
shall be an amount expressed in present value which maximizes the
aggregate present value of the Agreement Payments without causing any
Payment to be nondeductible by the Company because of Code Section 280G
or without causing any portion of the Payment to be subject to the
excise tax imposed by Code Section 280G.
If the Company's independent public accountant determines that any
Payment would be nondeductible by the Company because of Code Section
280G or that any portion of the Payment will be subject to the excise
tax imposed by Code Section 280G, the Company shall promptly give the
Executive written notice to that effect and a copy of the detailed
calculation thereof, including the dollar amount of the Reduced Amount.
The Executive may then elect, in his sole discretion, which and how much
of the Agreement Payments shall be eliminated or reduced (as long as
after such election the aggregate present value of the Agreement
Payments equals the Reduced Amount), and shall advise the Company in
writing of his election within 30 days of his receipt of such notice
from the Company. If no such election is made by the Executive within
such 30-day period, the Company may elect which and how much of the
Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals
the Reduced Amount) and shall notify the Executive in writing promptly
after such election. For purposes of this Section 4.9, present value
shall be determined in accordance with Code Section 280G(d)(4). All
determinations made by the Company's independent public accountant under
this Section 4.9 shall be binding upon the Company and the Executive and
shall be made within 60 days of the termination of the Executive's
employment with the Company. Within 10 days following such
determination and the elections under this Section 4.9, the Company
shall pay to or distribute to or for the benefit of the Executive, such
amounts as are then due to the Executive under this Agreement and shall
promptly pay to or distribute for the benefit of the Executive in the
future such amounts as shall become due and payable to the Executive
under this Agreement.
As a result of the uncertainty in the application of Code Sections
280G and 4999 at the time of the initial determination by the Company's
independent public accountant hereunder, it is possible that Agreement
Payments that are made by the Company to or for the benefit of the
Executive should not have been made (an "Overpayment") or that
additional Agreement Payments which have not been made to or for the
benefit of the Executive should have been made (an "Underpayment"), in
each case, consistent with the calculation of the Reduced Amount
hereunder. In the event that the Company's independent public
accountant, based upon the assertion of a deficiency by the Internal
Revenue Service against the Company or the Executive which the
independent public accountant believes has a high probability of
success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Executive
which the Executive shall repay to the Company together with interest at
the applicable federal rate provided for in Code Section 7872(f)(2)(A);
provided, however, that no amount shall be payable by the Executive to
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the Company if and to the extent such payment would not reduce the
amount which is subject to taxation under Code Section 4999 against the
Executive or if the period of limitations for the assessment of tax
under Code Section 4999 against the Executive has expired. In the event
that the Company's independent public accountant determines that an
Underpayment has occurred, any such
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Underpayment shall be promptly paid by the Company to or for the benefit
of the Executive together with interest at the applicable federal rate
provided for in Code Section 7872(f)(2)(A).
SECTION 5: NON-COMPETITION, CONFIDENTIALITY, NON-DIVERSION.
5.1 NON-COMPETE AGREEMENT. It is agreed that during the period
beginning on the Effective Date and ending one year after the Date of
Termination, regardless of whether such termination is by the action of
the Executive or the Company or by mutual agreement, the Executive shall
not, either for himself or on behalf of any person, firm or corporation
(whether for profit or otherwise) engage in any form of competition with
the Company, directly or indirectly, through any commercial venture, as
a partner, officer, director, stockholder, advisor, employee,
consultant, agent, salesman, venturer or otherwise, in the business of
developing, manufacturing and marketing animal nutrition products and
programs for dairy cattle, beef cattle, hogs, horses, rabbits, zoo
animals, laboratory animals, poultry, birds, fish and pets in the United
States, unless such business lines are not then operated by the Company.
This requirement, however, will not limit the Executive's right to
invest in the capital stock or other equity securities of any
corporation, the stock or securities of which are publicly owned or are
regularly traded on any public securities exchange. In addition,
notwithstanding anything set forth in this Section 5.1, if the Executive
is terminated by the Company without Good Cause or by the Executive for
Good Reason (either prior to or after a Triggering Event) or a Change in
Board, then the Executive will not be subject to the restrictions of
this Section 5.1.
5.2 CONFIDENTIAL INFORMATION. The Executive acknowledges that
during his employment with the Company, he may develop or be exposed to
confidential information concerning the Company's inventions, processes,
methods, services, developments, strategies, plans, financial
information, customer lists, technical information, financial data,
process technology, drawings, blueprints, financial forecasts or
projections and confidential affairs, property of a proprietary nature
and trade secrets of the Company or its licensors or customers. The
Executive agrees that the maintenance of the proprietary character of
such information and property to the full extent feasible is important
and that for so long as any such confidential information and trade
secrets may remain confidential, secret or otherwise wholly or partially
protectable, either during or after the Executive's Employment Period,
the Executive shall not use or divulge such confidential information or
property except as permitted or required by the duties of the
Executive's employment with the Company. The Executive shall not remove
any property of a proprietary nature from the Company's premises except
as required by the duties of the Executive's employment. The Executive
shall return to the Company upon termination of his employment with the
Company, all models, drawings, photographs, writings, records, papers or
other properties produced by the Executive or coming into his possession
by or through his employment with the Company.
5.3 NON-DIVERSION. During the Employment Period and for one
year after the Date of Termination, the Executive shall not directly or
indirectly or by aid to others, do anything which could be expected to
divert from the Company any trade or business with any customer of the
Company who the Executive had any direct and primary contact during the
one year immediately preceding the Date of Termination.
5.4 REASONABLENESS OF RESTRICTIONS. The Executive agrees that
the period and areas of restriction following the Date of Termination,
as set forth in this Section 5, are reasonably required for the
protection of the Company and its business, as well as the continued
protection of the Company's employees. If any one or more of the
covenants, agreements or provisions contained herein shall be held to be
contrary to the
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policy of a specific law, though not expressly prohibited, or against
public policy, or shall for any other reason whatsoever be held invalid,
then such particular covenant, agreement or provision shall be null and
void and shall be deemed separable from the remaining covenants,
agreements and provisions, and shall in no way affect the validity of
any of the other covenants, agreements and provisions hereof. The
parties hereto agree that in the event that either the length of time or
the geographic area set forth herein is deemed too restrictive in any
court proceeding, the court may reduce such restrictions to those which
it deems reasonable under the circumstances.
5.5 EQUITABLE RELIEF. Any action by the Executive contrary to
the restrictive covenants contained in this Section 5 may as a matter of
course be restrained by equitable or injunctive process issued out of
any court of competent jurisdiction, in addition to any other remedies
provided in law. In the event of the breach of the Executive's
covenants as set forth in this Section 5 and the Company's obtaining of
injunctive relief, the period of restrictions set forth herein shall
commence from the date of the issuance of the order which enjoins such
activity.
SECTION 6: MISCELLANEOUS.
6.1 NOTICE. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses as set forth below; provided that
all notices to the Company shall be directed to the attention of the
General Counsel of the Company, or to such other address as one party
may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
Notice to the Executive
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Darrell D. Swank
639 Southern Hills Drive
Eureka, Missouri 63025
Notice to the Company
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Purina Mills, Inc.
1401 South Hanley Road
St. Louis, Missouri 63144
6.2 WAIVER. The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have
hereunder shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement and shall not operate
or be construed as a waiver of any subsequent breach of the same
provision.
6.3 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri, without
reference to its conflict of law principles.
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6.4 SUCCESSORS. This Agreement shall be binding upon and inure
to the benefit of any successor of the Company and any such successor
shall be deemed to be substituted for the Company under the terms of
this Agreement. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform the provisions of this Agreement as if no
such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined or any successor
to the Company's business and/or assets which assumes and agrees to
perform this Agreement.
6.5 ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any prior written or oral agreements, understandings,
discussions or negotiations with respect thereto.
6.6 PAYMENT OF LEGAL FEES. In any litigation or other
proceeding relating to this Agreement that is finally decided in favor
of the Executive, the Executive shall be entitled to payment by the
Company of the Executive's costs and reasonable attorneys' fees actually
incurred by the Executive in asserting his rights under the Agreement.
IN WITNESS WHEREOF, the Executive and the Company, pursuant to the
authorization from its Board, have caused this Agreement to be executed
in its name on its behalf, all as of the day and year first above
written.
/s/ Darrell D. Swank
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Darrell D. Swank
PURINA MILLS, INC.
By /s/ James M. Dumler
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Name: James M. Dumler
Title: Chairman of the Board
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FORM OF
PURINA MILLS, INC.
EMPLOYMENT AGREEMENT
--------------------
This agreement ("Agreement") has been entered into this 1st day of
September, 1999, by and between Purina Mills, Inc. (the "Company"), and
_________________, an individual (the "Executive").
WHEREAS, the Company currently employs the Executive as
__________________________ of the Company; and
WHEREAS, the Board of Directors of the Company has determined that
it is in the best interests of the Company and its stockholder to
reinforce and encourage the continued attention and dedication of the
Executive to the Company by guarding against the financial dislocation
caused by a termination of the Executive's employment with the Company
without Good Cause (as defined below) or with Good Reason (as defined
below) after the occurrence of a Triggering Event (as defined below)
with respect to the Company; and
WHEREAS, the Board believes that it is imperative to diminish the
inevitable distraction to the Executive by virtue of the personal
uncertainties and risks created by the possibility of the Executive's
employment with the Company being terminated in connection with a
potential or pending Triggering Event and to encourage the Executive's
full attention and dedication to the Company in the event of any
potential or pending Triggering Event; and
NOW THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
SECTION 1: DEFINITIONS. For purposes of this Agreement, the following
words and phrases, whether or not capitalized, shall have the meanings
specified below, unless the context plainly requires a different
meaning.
(a) "ANNUAL BASE SALARY" means the base salary set forth in
Section 3.3 of this Agreement, as it shall be increased from
time to time in the discretion of the Board.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CHANGE IN CONTROL" means:
(i) The acquisition by any individual, entity or
group, or a Person (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") of ownership of
50% or more of either (a) the then outstanding shares
of common stock of the Company (the "Outstanding
Company Common Stock") or (b) the combined voting
power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); or
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(ii) Approval by KII and any of its Subsidiaries who
is the record and beneficial owner of the capital
stock of the Company at such time of a reorganization,
merger or consolidation, in each case, unless,
following such reorganization, merger or
consolidation more than 50% of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such reorganization, merger or
consolidation and the combined voting power of the
then outstanding voting securities of such corporation
entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by KII or its Subsidiaries, in the
aggregate; or
(iii) Approval by KII and any of its Subsidiaries
which is the record and beneficial owner of the
capital stock of the Company at such time of (a) a
complete liquidation or dissolution of the Company or
(b) the sale or other disposition of all or
substantially all of the assets of the Company, other
than to a corporation, with respect to which following
such sale or other disposition, more than 50% of,
respectively, the then outstanding shares of common
stock of such corporation and the combined voting
power of the then outstanding voting securities of
such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by KII or its Subsidiaries, in
the aggregate.
(d) "DATE OF TERMINATION" means a date that a Notice of
Termination is received by the party to whom such notice is
being given, unless in the case of the Executive giving the
Notice of Termination, the Company specifies another date
within five business days after receipt of the Notice of
Termination or in the case of the Company giving the Notice
of Termination, the Company specifies another date in the
Notice of Termination, which date shall not be more than 90
days after giving of such Notice of Termination.
(e) "EFFECTIVE DATE" means the date of this Agreement.
(f) "EMPLOYMENT PERIOD" means the period beginning on the
Effective Date and ending on the Date of Termination.
(g) "GOOD CAUSE" means, when used in connection with the
termination of the Executive's employment with the Company
by the Company, a termination based upon (i) the Executive's
willful and continued failure to substantially perform his
duties with the Company (other than as a result of
incapacity due to physical or mental condition) that is not
corrected within 30 days after a written demand for
substantial performance is delivered to the Executive by the
Company, which specifically identifies the manner in which
the Executive has not substantially performed his duties;
(ii) legally sufficient evidence of the Executive's
commission of an act constituting a criminal offense
involving moral turpitude, dishonesty or breach of trust; or
(iii) the Executive's material breach of any provision of
this Agreement.
-2-
<PAGE>
<PAGE>
(h) "GOOD REASON" means, when used in connection with the
termination of the Executive's employment with the Company
by the Executive, a termination based upon the following
reasons:
(i) the assignment by the Company to the Executive of
any duties inconsistent in any respect with the
Executive's position (including status, offices,
titles and reporting requirements), authority, duties
and responsibilities as contemplated by this Agreement
or any other action by the Company which results in a
material diminution in such position, authority,
duties or responsibilities, not mutually agreed to by
the Company and the Executive;
(ii) (A) the failure by the Company to continue in
effect any benefit or compensation plan, stock or
similar ownership plan, life insurance plan, health
and accident plan or disability plan to which the
Executive is entitled as of the Triggering Event Date,
provided that the Company may amend, modify or replace
such plans as long as the Executive is entitled to
benefits under the amended, modified or replaced plan
or plans that are substantially similar to those of
the plan or plans so amended, modified or replaced;
(B) the taking of any action by the Company which
would adversely affect the Executive's participation
in, or materially reduce the Executive's benefits
under, any plans in which the Executive is then
currently participating; or (C) the failure of the
Company to provide the Executive with paid vacation to
which the Executive is entitled;
(iii) the relocation of the Executive's primary office
location to a site located outside the greater
__________________ metropolitan area, without the
Executive's prior consent;
(iv) a material breach by the Company of any provision
of this Agreement;
(v) a purported termination by the Company of the
Executive's employment otherwise than specifically
permitted by this Agreement; or
(vi) in connection with a Triggering Event, the
failure of a successor of the Company expressly to
assume and agree to perform this Agreement pursuant to
the provisions of Section 6.4 of this Agreement prior
to a Triggering Event; provided, however, that a
-----------------
termination of employment by the Executive shall not
be deemed to be for "Good Reason" under this
subsection (vi) if such termination of employment
occurs: (A) subsequent to an express assumption and
agreement to perform this Agreement by such successor
on or after a Triggering Event Date or (B) subsequent
to a date that is one year after a Triggering Event
Date;
excluding for this purpose any action not taken in bad faith
which is remedied by the Company within 30 days after
receipt by the Company of written notice thereof given by
the Executive;
(i) "INSOLVENCY EVENT" means (i) the commencement of a
proceeding by or against the Company under the United States
Bankruptcy Code (Title 11, United States Code) or any other
laws relating to bankruptcy, insolvency, reorganization,
dissolution, or composition of debts; (ii) any general
assignment for the benefit of the Company's creditors;
(iii) the appointment of a receiver, trustee, custodian,
liquidator, or turnaround or workout management team with
respect to the Company and/or all or a substantial portion
of the
-3-
<PAGE>
<PAGE>
Company's assets, either by court action or upon the
encouragement or agreement of the creditors of the Company
or of the sole shareholder of the Company.
(j) "NOTICE OF NON-RENEWAL" means a written notice by
either party to this Agreement of such party's desire not to
allow the Term of this Agreement to automatically renew at
the end of the then-current Term for another Term. The
Notice of Non-Renewal will have the effect of terminating
this Agreement at the end of the then-current Term.
(k) "NOTICE OF TERMINATION" means a written notice by
either party of such party's desire to terminate the
Executive's employment with the Company, which notice (i) if
the Company is giving the Notice of Termination and the Date
of Termination is other than the date of receipt of such
Notice, specifies the Date of Termination (which date shall
not be more than 90 days after the giving of such Notice of
Termination) and (ii) if the termination of the Executive's
employment is after a Triggering Event Date, (A) indicates
the specific termination provision in this Agreement relied
upon, and (B) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's
employment under the provision so indicated. The failure by
the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a
showing of Good Cause or Good Reason shall not waive any
right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's
rights hereunder.
(l) "SUBSIDIARY" means any corporation, association,
partnership, limited liability company, joint venture or
other entity in which another corporation owns or controls,
directly or indirectly through another Subsidiary, a
majority of the outstanding securities eligible to vote in
the election of directors or the equivalent governing body
of the particular entity.
(m) "TERM" means, initially, a two-year period commencing on
the Effective Date and ending on the date of the second
anniversary of the Effective Date, and, if renewed in
accordance with Section 2.1 of this Agreement, shall mean an
additional one-year period commencing on the day after the
end of the initial term or any renewal Term, as the case may
be.
(n) "TRIGGERING EVENT" means (i) a Change in Control of the
Company, or (ii) an Insolvency Event.
(o) "TRIGGERING EVENT DATE" shall mean the date that the
Triggering Event occurs.
-4-
<PAGE>
<PAGE>
SECTION 2: TERM OF AGREEMENT.
2.1 INITIAL TERM OF AGREEMENT; RENEWAL TERMS. The initial Term
of this Agreement shall be for two years commencing on the Effective
Date, subject to automatic renewal for a Term of an additional one year
commencing immediately upon the end of the initial Term or the then-
current renewal Term, as the case may be, unless either party to this
Agreement gives Notice of Non-Renewal to the other party not less than
90 days prior to the end of the initial Term or the then-current renewal
Term, as the case may be. In the event that such a Notice of Non-
Renewal is given as set forth in this Section 2.1, the Term of
this Agreement will end on the last day of the initial Term or the then-
current renewal Term, as the case may be, but the employment of the
Executive will continue with the Company on an "at will" basis.
2.2 TERMINATION OF THE EMPLOYMENT PERIOD. Notwithstanding
Section 2.1 of this Agreement, either party to this Agreement may
terminate the Executive's Employment Period (and the Executive's
employment with the Company) at any time during the Term by giving a
Notice of Termination to the other party, without any liability except
as specified in Section 4 of this Agreement.
SECTION 3: TERMS AND CONDITIONS OF EMPLOYMENT.
3.1 PERIOD OF EMPLOYMENT. The Executive shall remain in the
employ of the Company throughout the Employment Period in accordance
with the terms and provisions of this Agreement. This Agreement shall
remain in full force and effect notwithstanding subsequent changes in
the Executive's location of employment, duties or authority or any
changes in the identity of the corporation to which the Executive's
compensation is charged, provided that said corporation is either the
Company, KII or a Subsidiary of the Company or KII and provided further
that certain of such changes in connection with a Triggering Event may
constitute Good Reason for purposes of this Agreement.
3.2 POSITIONS AND DUTIES. During the Employment Period, the
Company hereby employs the Executive and the Executive hereby accepts
such employment as __________________________ of the Company, subject to
the reasonable directions of the Chief Executive Officer of the Company
and the Board. The Executive shall have such authority and shall
perform such duties as are specified in the Bylaws of the Company for
the office and position to which he has been appointed hereunder and
shall so serve, subject to the control exercised by the Chief Executive
Officer of the Company and the Board from time to time. The Executive
agrees to devote such of his time, attention and energy to the business
of the Company as may be required to perform the duties and
responsibilities assigned to him to the best of his ability and with
reasonable diligence; provided, that it shall not be a violation of
---------
this Section 3.2 for the Executive to serve on corporate, industry,
legal, civic or charitable association boards and committees.
3.3 COMPENSATION. The Executive's minimum base salary under
this Agreement (which may be increased but not decreased during the Term
of this Agreement) will be $____________, per annum, payable in
accordance with the Company's current payroll practices. In addition to
the Annual Base Salary, the Executive shall be awarded the opportunity
to earn an incentive bonus on an annual basis ("Incentive Bonus") under
any incentive compensation plan which is generally available to other
similarly situated executives of the Company and such other individual
incentives as may be agreed to by the Board. The Incentive Bonus which
the Executive will have an opportunity to earn shall be reviewed at
least annually and may be adjusted at the discretion of the Chief
Executive Officer of the Company and the Board, dependent upon the
Executive's performance and in accordance with the Company's policies.
-5-
<PAGE>
<PAGE>
3.4 PARTICIPATION IN 401(K) PLAN. The Executive is eligible to
participate in the Company's 401(k) Plan, based upon current eligibility
requirements and subject to the terms and conditions of such plan.
3.5 PARTICIPATION IN PENSION PLAN. The Executive is eligible to
participate in the Company's "defined benefit" pension plan, based on
current eligibility requirements and subject to the terms and conditions
of such plan.
3.6 PARTICIPATION IN MEDICAL AND DENTAL INSURANCE PLANS AND
WELFARE BENEFITS. The Executive and his eligible dependents are
eligible to participate in the Company's medical and dental
insurance plans and welfare benefits, based upon current eligibility
requirements and subject to the terms and conditions of such plan.
SECTION 4: BENEFITS UPON TERMINATION.
4.1 NOT IN CONNECTION WITH A TRIGGERING EVENT. If the
Executive's employment with the Company is terminated by the Company
without Good Cause not in connection with a Triggering Event, then upon
the negotiation and execution of a mutually acceptable settlement and
release agreement by the Company and the Executive (which shall be
promptly negotiated in good faith by the Company and the Executive), in
addition to any accrued salary and other payments owed to the Executive
under the Company's other severance plans and policies, the Company
shall pay the Executive an amount equal to the Executive's then-current
Annual Base Salary. In the case of a termination of the Executive's
employment with the Company not in connection with a Triggering Event
for any reason other than as stated in this Section 4.1, the Executive
shall be entitled only to accrued salary and other payments owed to the
Executive under the Company's other severance plans and policies.
4.2 IN CONNECTION WITH A TRIGGERING EVENT. If (a) a Triggering
Event occurs during the Employment Period and within two year after the
Triggering Event Date (i) the Company shall terminate Executive's
employment with the Company without Good Cause, or (ii) the Executive
shall terminate employment with the Company for Good Reason, or,
--
alternatively, (b) one of the above-described terminations of employment
occurs within the three-month period prior to the earlier of (i) a
Triggering Event Date or (ii) the execution of a definitive agreement or
contract that eventually results in a Triggering Event, then, in
addition to any accrued salary and other payments owed to the Executive
under the Company's other severance plans and policies, the Company
shall pay to the Executive an amount equal to [two times] the
Executive's then-current Annual Base Salary plus [two times] the greater
of the Incentive Bonus: (x) paid to the Executive for the most recently
completed fiscal year of the Company prior to the Triggering Event or
(y) the Incentive Bonus paid or to be paid to the Executive for the
fiscal year in which the Triggering Event occurs, in a lump-sum payment,
after either (y) the Date of Termination, in the case where the sequence
of the requisite events is as set forth in subsection (a) above or (z)
the Triggering Event Date, in the case where the sequence of the
requisite events is as set forth in subsection (b) above. In the case
of any termination of the Executive's employment with the Company in
connection with a Triggering Event for any reason other than as stated
in this Section 4.2 above, the Executive shall be entitled only to
accrued salary and other payments owed to the Executive under the
Company's other severance plans and policies.
4.3 CONTINUATION OF MEDICAL AND DENTAL INSURANCE PLANS OR
WELFARE BENEFITS. In the event that payments are due and owing by the
Company to the Executive as set forth in Section 4.2 of this Agreement,
in addition to such payments, the Company will either continue the
Executive's medical and
-6-
<PAGE>
<PAGE>
dental insurance plans or welfare benefits as provided on the Date of
Termination by the Company or will pay for equivalent medical and dental
coverage until such coverage is replaced by new medical or dental
insurance plans and welfare benefits by the Executive's new employer or
the employer of the Executive's spouse; provided, however, that, in no
------------------
case, will such continuation of coverage or payments in lieu thereof
extend for a period of more than one year after the Date of Termination.
4.4 PLACEMENT SERVICES. In the event that payments are due and
owing by the Company to the Executive as set forth in Section 4.2 of
this Agreement, the Company will pay for executive placement services
from a professional placement company of the Executive's choice;
provided, however, that in no case shall such services at the expense
of the Company extend beyond 12 months after the Date of Termination
or the expense for such services paid by the Company exceed $30,000
in the aggregate.
4.5 SALE OF ALL EQUITY, OPTIONS OR SIMILAR EQUITY INSTRUMENTS IN
THE COMPANY. To the extent not otherwise set forth in the agreements
under which equity, options or similar equity instruments in the Company
are issued or sold to the Executive, only upon termination of the
Executive's employment with the Company without Good Cause or for Good
Reason (each after a Triggering Event), the equity, options or similar
equity instruments then-outstanding that are not vested shall fully
vest. If the Executive's employment with the Company terminates for any
reason, the Executive shall be required to sell all such equity,
options, similar equity instruments to the Company at a price to be set
forth in the particular program pursuant to which the equity, option or
similar equity instrument was initially issued.
4.6 SPECIAL TREATMENT UNDER CAPITAL ACCUMULATION PLANS. If at
any time during the two-year period after the occurrence of a Triggering
Event, the Executive's employment with the Company is terminated either
by the Company without Good Cause or by the Executive with or without
Good Reason then, to the extent that the Executive is participating in
one or more of the Company's Capital Accumulation Plans (as defined
below) on the date of such termination of employment, the Executive
shall be deemed to have been "involuntarily terminated" for all purposes
under such plan or plans. For purposes of this Section 4.6, "Capital
Accumulation Plans" shall mean the Purina Mills, Inc. 1987 Capital
Accumulation Plan for Key Employees; the Purina Mills, Inc. 1988 Capital
Accumulation Plan for Key Employees; the Purina Mills, Inc. 1989 Capital
Accumulation Plan for Key Employees; the Purina Mills, Inc. 1990 Capital
Accumulation Plan for Key Employees; and the Purina Mills, Inc.
Discretionary 1992 Capital Accumulation Plan for Key Employees.
4.7 ADJUSTMENT FOR "EXCESS PARACHUTE PAYMENTS". Notwithstanding
anything in this Agreement to the contrary, in the event that the
Company's independent public accountant shall determine that any payment
or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise) (a "Payment") would be
nondeductible by the Company for federal income tax purposes because of
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or would constitute an "excess parachute payment" (as defined
in Code Section 280G), then the aggregate present value of amounts
payable or distributable to or for the benefit of the Executive pursuant
to this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments") shall be
reduced (but not below zero) to the "Reduced Amount" (as defined in the
next sentence). For purposes of this Section 4.6, the "Reduced Amount"
shall be an amount expressed in present value which maximizes the
aggregate present value of the Agreement Payments without causing any
Payment to be nondeductible by the Company because of Code Section 280G
or without causing any portion of the Payment to be subject to the
excise tax imposed by Code Section 280G.
-7-
<PAGE>
<PAGE>
If the Company's independent public accountant determines that any
Payment would be nondeductible by the Company because of Code Section
280G or that any portion of the Payment will be subject to the excise
tax imposed by Code Section 280G, the Company shall promptly give the
Executive written notice to that effect and a copy of the detailed
calculation thereof, including the dollar amount of the Reduced Amount.
The Executive may then elect, in his sole discretion, which and how much
of the Agreement Payments shall be eliminated or reduced (as long as
after such election the aggregate present value of the Agreement
Payments equals the Reduced Amount), and shall advise the Company in
writing of his election within 10 days of his receipt of such notice
from the Company. If no such election is made by the Executive within
such 10-day period, the Company may elect which and how much of the
Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals
the Reduced Amount) and shall notify the Executive in writing promptly
after such election. For purposes of this Section 4.6, present value
shall be determined in accordance with Code Section 280G(d)(4). All
determinations made by the Company's independent public accountant under
this Section 4.6 shall be binding upon the Company and the Executive and
shall be made within 60 days of the termination of the Executive's
employment with the Company. As promptly as practicable following such
determination and the elections under this Section 4.6, the Company
shall pay to or distribute to or for the benefit of the Executive, such
amounts as are then due to the Executive under this Agreement and shall
promptly pay to or distribute for the benefit of the Executive in the
future such amounts as shall become due and payable to the Executive
under this Agreement.
As a result of the uncertainty in the application of Code Sections
280G and 4999 at the time of the initial determination by the Company's
independent public accountant hereunder, it is possible that Agreement
Payments that are made by the Company to or for the benefit of the
Executive should not have been made (an "Overpayment") or that
additional Agreement Payments which have not been made to or for the
benefit of the Executive should have been made (an "Underpayment"), in
each case, consistent with the calculation of the Reduced Amount
hereunder. In the event that the Company's independent public
accountant, based upon the assertion of a deficiency by the Internal
Revenue Service against the Company or the Executive which the
independent public accountant believes has a high probability of
success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Executive
which the Executive shall repay to the Company together with interest at
the applicable federal rate provided for in Code Section 7872(f)(2)(A);
provided, however, that no amount shall be payable by the Executive to
- ------------------
the Company if and to the extent such payment would not reduce the
amount which is subject to taxation under Code Section 4999 against the
Executive or if the period of limitations for the assessment of tax
under Code Section 4999 against the Executive has expired. In the event
that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive
together with interest at the applicable federal rate provided for in
Code Section 7872(f)(2)(A).
-8-
<PAGE>
<PAGE>
SECTION 5: NON-COMPETITION, CONFIDENTIALITY, NON-DIVERSION.
5.1 NON-COMPETE AGREEMENT. It is agreed that during the period
beginning on the Effective Date and ending either (a) one year after the
Date of Termination where the termination of the Executive's employment
is not in connection with a Triggering Event, or (b) two years after the
Date of Termination where the termination of the Executive's employment
is in connection with a Triggering Event, regardless of whether such
termination is by the action of the Executive or the Company or by
mutual agreement, the Executive shall not, either for himself or on
behalf of any person, firm or corporation (whether for profit or
otherwise) engage in any form of competition with the Company, directly
or indirectly, through any commercial venture, as a partner, officer,
director, stockholder, advisor, employee, consultant, agent, salesman,
venturer or otherwise, in the business of (y) developing, manufacturing
and marketing animal nutrition products and programs for dairy cattle,
beef cattle, hogs, horses, rabbits, zoo animals, laboratory animals,
poultry, birds, fish and pets, or (z) engaging in retailing operations
competitive with America's Country Store, in the United States unless
such business lines are not then operated by the Company. This
requirement, however, will not limit the Executive's right to invest in
the capital stock or other equity securities of any corporation, the
stock or securities of which are publicly owned or are regularly traded
on any public securities exchange. In addition, notwithstanding this
Section 5.1, if the Executive's employment is terminated by the Company
without Good Cause after a Triggering Event or if the Executive
terminates his employment with the Company for Good Reason after a
Triggering Event, then the Executive will not be subject to the
restrictions of this Section 5.1.
5.2 CONFIDENTIAL INFORMATION. The Executive acknowledges that
during his employment with the Company, he may develop or be exposed to
confidential information concerning the Company's inventions, processes,
methods, services, developments, strategies, plans, financial
information, customer lists, technical information, financial data,
process technology, drawings, blueprints, financial forecasts and
projections and confidential affairs, property of a proprietary nature
and trade secrets of the Company or its licensors or customers. The
Executive agrees that the maintenance of the proprietary character of
such information and property to the full extent feasible is important
and that for so long as any such confidential information and trade
secrets may remain confidential, secret or otherwise wholly or partially
protectable, either during or after the Executive's Employment Period,
the Executive shall not use or divulge such confidential information or
property except as permitted or required by the duties of the
Executive's employment with the Company. The Executive shall not remove
any property of a proprietary nature from the Company's premises except
as required by the duties of the Executive's employment. The Executive
shall return to the Company upon termination of his employment with the
Company, all models, drawings, photographs, writings, records, papers or
other properties produced by the Executive or coming into his possession
by or through his employment with the Company.
5.3 NON-DIVERSION. During the Employment Period and for two
years after the Date of Termination, the Executive shall not directly or
indirectly or by aid to others, do anything which could be expected to
divert from the Company any trade or business with any customer of the
Company who the Executive had any contact or association during the one
year immediately preceding the Date of Termination.
5.4 REASONABLENESS OF RESTRICTIONS. The Executive agrees that
the period and areas of restriction following the Date of Termination,
as set forth in this Section 5, are reasonably required for the
protection of the Company and its business, as well as the continued
protection of the Company's employees. If any one or more of the
covenants, agreements or provisions contained herein shall be held to be
contrary to the
-9-
<PAGE>
<PAGE>
policy of a specific law, though not expressly prohibited, or against
public policy, or shall for any other reason whatsoever be held invalid,
then such particular covenant, agreement or provision shall be null and
void and shall be deemed separable from the remaining covenants,
agreements and provisions, and shall in no way affect the validity of
any of the other covenants, agreements and provisions hereof. The
parties hereto agree that in the event that either the length of time or
the geographic area set forth herein is deemed too restrictive in any
court proceeding, the court may reduce such restrictions to those which
it deems reasonable under the circumstances.
5.5 EQUITABLE RELIEF. Any action by the Executive contrary to
the restrictive covenants contained in this Section 5 may as a matter of
course be restrained by equitable or injunctive process issued out of
any court of competent jurisdiction, in addition to any other remedies
provided in law. In the event of the breach of the Executive's
covenants as set forth in this Section 5 and the Company's obtaining of
injunctive relief, the period of restrictions set forth herein shall be
tolled during the pendancy of such proceedings until the issuance of an
order.
SECTION 6: MISCELLANEOUS.
6.1 NOTICE. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses as set forth below; provided that
all notices to the Company shall be directed to the attention of the
General Counsel of the Company, or to such other address as one party
may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
Notice to the Executive
-----------------------
___________________
___________________
___________________
Notice to the Company
---------------------
Purina Mills, Inc.
1401 South Hanley Road
St. Louis, Missouri 63144
6.2 WAIVER. The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have
hereunder shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement and shall not operate
or be construed as a waiver of any subsequent breach of the same
provision.
6.3 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri, without
reference to its conflict of law principles.
6.4 SUCCESSORS. This Agreement shall be binding upon and inure
to the benefit of any successor of the Company and any such successor
shall be deemed to be substituted for the Company under the terms of
-10-
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<PAGE>
this Agreement. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform the provisions of this Agreement as if no
such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined or any successor
to the Company's business and/or assets which assumes and agrees to
perform this Agreement.
6.5 ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any prior written or oral agreements, understandings,
discussions or negotiations with respect thereto.
6.6 PAYMENT OF LEGAL FEES. In any litigation or other proceeding
relating to this Agreement that is finally decided in favor of the
Executive, the Executive shall be entitled to payment by the Company of
the Executive's costs and reasonable attorneys' fees actually incurred
by the Executive in asserting his rights under this Agreement.
IN WITNESS WHEREOF, the Executive and the Company, pursuant to the
authorization from its Board, have caused this Agreement to be executed
in its name on its behalf, all as of the day and year first above
written.
------------------------------------------
(Executive)
PURINA MILLS, INC.
By
----------------------------------------
Name:
Title:
-11-
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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