<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-12766
RALCORP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES)
MISSOURI 43-1664297
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
800 MARKET STREET
SUITE 2900
ST. LOUIS, MISSOURI 63101
(314) 877-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------------------- -------------------------------
<S> <C>
Common Stock, $.01 par value......... New York Stock Exchange, Inc.
Common Stock Purchase Rights......... New York Stock Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment of this Form 10-K.
[X]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant $631,597,832 based upon the closing market price on November 29,
1996. Excluded from this figure is the voting stock held by Registrant's
Directors, who are the only persons known to Registrant who may be considered to
be its "affiliates" as defined under Rule 12b-2.
Number of shares of Common Stock, $.01 par value, outstanding as of close
of business on December 27, 1996: 32,894,084.
DOCUMENTS INCORPORATED BY REFERENCE
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
Ralcorp Holdings, Inc. is a Missouri corporation incorporated on January
19, 1994. Its principal executive offices are located at 800 Market Street,
Suite 2900, St. Louis, Missouri 63101. The term "Company" and "Ralcorp" as used
herein refer to Ralcorp Holdings, Inc. and its consolidated subsidiaries.
The Company is primarily engaged in the manufacturing, distribution and
marketing of private label and branded ready-to-eat cereal products and snacks,
branded and private label crackers and cookies, and branded baby food and
juices, and operates the Keystone, Arapahoe Basin and Breckenridge resorts in
Summit County, Colorado.
Information under the following Items in this Report are incorporated into
this Item 1: Item 6; and Item 7.
RECENT BUSINESS DEVELOPMENTS
The Company is the successor to, and owns and operates substantially all
of, the ready-to-eat cereal and snack business conducted in the Western
Hemisphere (the "Cereal Business"), "BEECH-NUT" baby food business (the "Baby
Food Business"), private label and branded cracker and cookie business (the
"Cracker and Cookie Business") and Keystone, Arapahoe Basin and Breckenridge
resorts (the "Resort Operations"); (collectively, the "Ralcorp Businesses")
formerly operated by Ralston Purina Company ("Ralston"). During the fiscal year,
the Company sold its coupon redemption business (the "Coupon Redemption
Business").
On July 23, 1996, the Company announced that it had reached a definitive
agreement to sell its Resort Operations to Vail Resorts, Inc. ("Vail") for stock
and assumed debt. As of December 26, 1996, the proposed sale is being reviewed
by the United States Department of Justice ("DOJ") under the Hart-Scott-Rodino
Antitrust Improvements Act ("HSR Act"). Unless extended by the parties, the
definitive agreement expires on January 10, 1997. The Company believes the DOJ
will make a decision whether to oppose the transaction or allow the parties to
consummate the transaction prior to that date. The Company values the purchase
price in excess of $310 million. Vail will pay for the ski resorts by assuming
$165 million in Ralcorp debt and issuing Vail common stock to the Company.
On August 14, 1996, the Company announced it reached a definitive agreement
to sell its branded ready-to-eat cereal and snack businesses (the "Branded
Businesses") to General Mills, Inc. for General Mills common stock and the
assumption of Ralcorp debt together valued at $570 million. On August 19, 1996,
General Mills and Ralcorp each filed Premerger Notification and Report Forms
pursuant to the HSR Act with the DOJ and the Federal Trade Commission ("FTC").
On September 18, 1996, Ralcorp and General Mills each received a request for
additional information under the HSR Act from the FTC. On December 9, 1996,
General Mills signed an agreement (the "Consent Agreement") relating to a
proposed consent order with the FTC (the "Proposed FTC Order"). The FTC accepted
the Consent Agreement for public comment on December 24, 1996, at which time the
FTC granted early termination of the required waiting period under the HSR Act
with respect to the Merger.
In order to effectuate the sale of the Branded Business, the Company plans
to spin-off to its shareholders a newly formed company containing all of its
businesses other than the Branded Business. The spin-off will be effectuated
through the distribution of one share of stock in the newly formed company for
each share of Ralcorp common stock owned on the record date for the spin-off.
The Company will distribute an Information Statement describing the newly formed
company. Immediately after the spin-off, the Company will merge with a
subsidiary of General Mills. The merger will be effectuated by exchanging each
share of Ralcorp common stock for a fractional share of General Mills common
stock. The Company will distribute a proxy statement wherein it will request the
Company's shareholders approve the above described spin-off and merger. The
spin-off and merger transactions are conditioned on the receipt of shareholder
approval. The Company anticipates holding a special meeting of shareholders on
January 31, 1997. Documents relating thereto will be mailed to shareholders
beginning on December 30, 1996.
1
<PAGE> 3
On September 27, 1996, the Company announced the resignation of Richard A.
Pearce as Co-Chief Executive Officer and President and Director of the Company.
On the same day, the Company announced that Joe R. Micheletto was appointed sole
Chief Executive Officer and President of the Company in addition to his position
as Director. Previously Mr. Micheletto served as the Company's Co-Chief
Executive Officer and Chief Financial Officer and Director.
On October 14, 1996, the Company announced that Susan P. Widham was
appointed Corporate Vice President and President of Beech-Nut Nutrition
Corporation and Ronald D. Wilkinson was appointed Corporate Vice President and
Director, Product Supply for the Ralston Foods cereal business.
OTHER INFORMATION PERTAINING TO THE BUSINESS OF THE COMPANY
TRADEMARKS
The Company owns a number of trademarks that it considers substantially
important to its business, including "RALSTON", "CHEX", "CHEX MIX", "COOKIE
CRISP", "BEECH-NUT", "STAGES", "KEYSTONE", "BRECKENRIDGE" and "ARAPAHOE BASIN".
SEGMENTS
The Company is presently comprised of the business segments: Consumer Foods
and Resort Operations.
CONSUMER FOODS
For each of the last three fiscal years, Consumer Foods has accounted for
approximately 90% of the sales of the Company. Ralcorp's principal products in
its Consumer Foods segment are ready-to-eat cereals under various brand names
including "CHEX" and "COOKIE-CRISP," various private label cereals produced for
grocery retailers, snacks consisting of the cereal based "CHEX MIX" brand,
specialty cracker products under the "RY-KRISP" brand, various private label
crackers and cookies, and prepared baby foods and baby juices under the
"BEECH-NUT" brand. The majority of the sales volume of the Consumer Foods
segment is to supermarkets and other grocery retailers. Sales of the Consumer
Foods segment tend to be somewhat seasonal, with historically strong fall and
winter periods associated with "CHEX" party mix holiday promotions.
RESORT OPERATIONS
For each of the last three fiscal years, sales generated by the Resort
Operations have accounted for approximately 10% of the sales of the Company. The
Resort Operations consist of the Keystone, Arapahoe Basin and Breckenridge
resorts located in Summit County, Colorado. Sales of the Resort Operations
segment are highly seasonal, with sales primarily occurring during the winter
ski season, with inconsequential off-season sales. In recent years, however,
management has increased its efforts to increase the number of off-season
visitors, through special promotional activities during the off-season and the
construction of a multi-use convention facility for the attraction of
conventions throughout the year. Performance of the Resort Operations segment is
highly subject to weather conditions, but management, through expansion of snow-
making capabilities and night skiing opportunities, has been able to increase
the number of skier days at the Keystone Resort in recent periods. Ralcorp has
formed a joint venture with Intrawest Corporation to develop the undeveloped
real estate in the Keystone Resort.
DISTRIBUTION SYSTEM
Branded cereals, private label cereals and branded snacks are warehoused in
seven independent warehouse facilities and shipped to customers principally via
independent truck lines. These products are marketed primarily through food
brokers to grocery wholesalers, retail chains, mass merchandisers, warehouse
club outlets and other customers.
2
<PAGE> 4
Principally, Beech-Nut products are shipped directly to accounts'
warehouses. One independent warehouse facility is used in California. Beech-Nut
products are marketed to retailers by a direct sales force in the metropolitan
New York and Northern New Jersey areas, while a broker network is used in the
remaining markets.
Private label crackers and private label cookies are manufactured in one
location and shipped directly to accounts' warehouses. Branded crackers are
manufactured at another location and distributed through a direct store
distribution network.
COMPETITION
The Company's businesses face intense competition from large branded
cereal, cracker and cookie manufacturers, highly competitive private label
cereal, cracker and cookie manufacturers, and large branded baby food
manufacturers. Top branded ready-to-eat cereal competitors include Kellogg,
General Mills, Kraft General Foods and Quaker. In the first half of calendar
year 1996, major branded producers significantly reduced wholesale prices of
many branded ready-to-eat cereal products and began advertising and promotion
spending to publicize such decreases. The result has been a dramatic drop in
earnings of the Cereal Business. The Baby Food Business is believed to currently
rank second in sales for baby food products and its top competitor, Gerber
Products Company, produces about 68% of branded baby foods sold in the United
States. Recently, Gerber announced it intends to alter some of its product
formulations to eliminate or reduce added starch and sugar. The Baby Food
Business advertising has emphasized, for a number of years, the absence of added
sugar and starch in many of its Beech-Nut baby food products. The Cracker and
Cookie Business faces intense competition from large branded manufacturers such
as Nabisco and Keebler/Sunshine who possess approximately 36% and 21%,
respectively, of the branded cracker category and similar shares in the cookie
category (on a volume basis). In addition, private label cracker and cookie
manufacturers such as BakeLine, Wortz and Midwest Baking provide significant
competition in the store brand segment.
The industries in which the Company's businesses compete are highly
sensitive to both pricing and promotion. Competition is based upon product
quality, price, effective promotional activities, and the ability to identify
and satisfy emerging consumer preferences. These industries are expected to
remain highly competitive in the foreseeable future. Future growth opportunities
for the Company's businesses are expected to depend on Ralcorp's ability to
implement strategies for competing effectively in all of its businesses,
primarily the Cereal Business, including strategies relating to enhancing the
performance of its employees, maintaining effective cost control programs,
developing and implementing methods for more efficient manufacturing and
distribution operations, and developing successful new products, while at the
same time maintaining aggressive pricing and promotion of its products.
The ski industry is highly competitive. The Resort Operations compete with
mountain resort areas in the United States, Canada and Europe for destination
guests and with numerous ski areas in Colorado for the day skier. The Company
also competes with other worldwide recreation resorts, including warm weather
resorts, for the vacation guest. The Resort Operations' major U.S. competitors
include the Utah ski areas, the Lake Tahoe ski areas in California and Nevada,
the New England ski areas and the other major Colorado ski areas, including
Copper Mountain, Vail, Telluride, Steamboat Springs, Winter Park, Loveland and
the Aspen resorts. Total skier days generated by all United States ski areas
have increased by a total of only 2% since the 1985-86 ski season which also has
increased competition for the vacation guest. The competitive position of the
Resort Operations is dependent upon many diverse factors such as proximity to
population centers, availability and cost of transportation to the areas,
including direct flight availability by major airlines, pricing, snowmaking
facilities, type and quality of skiing offered, duration of the ski season,
prevailing weather conditions, the number, quality and price of related services
and lodging facilities, and the reputation of the areas. In addition to
competition with other mountain and warm weather resorts for the vacation guest,
the Resort Operations also face competition for day skiers from nearby
population centers from varied alternative leisure activities, such as
attendance at movies, sporting events and participation in alternative indoor
and outdoor recreational activities.
3
<PAGE> 5
EMPLOYEES
Ralcorp employs approximately 6,400 people in the United States, including
approximately 2,300 seasonal employees utilized primarily in the Resort
Operations segment. Approximately 16% of the Ralcorp personnel are covered by
ten union contracts which terminate at various times from March 2, 1997 to April
5, 1998.
POTENTIAL ADVERSE EFFECTS OF ECONOMIC SLOWDOWN
Because the Resort Operations derive a significant portion of its revenues
from the worldwide leisure market, an economic recession or other significant
economic slowdown could adversely affect the Company's business. Although,
historically, economic downturns have not had an adverse impact on the Company's
operating results, there can be no assurance that a decrease in the amount of
discretionary spending by the public in the future would not have an adverse
effect on the Company's business.
RAW MATERIALS
The principal raw materials used in the Company's businesses are grain and
grain products, flour, sugar, fruits and vegetables. The Company purchases such
raw materials from local, regional, national and international suppliers. The
cost of raw materials used in the Company's products may fluctuate widely due to
weather conditions, government regulations, economic climate, or other
unforeseen circumstances. During the past fiscal year certain key raw materials
were at historically high prices. Agricultural products represent 30% to 48% of
the Company's cost of goods sold in fiscal 1996. The cost of packaging supplies,
predominately paper based, have increased dramatically over the past two years.
Packaging prices represent 23% to 42% of the Company's cost of goods sold in
fiscal 1996. From time to time the Company will enter into supply contracts for
periods up to twelve months to secure favorable pricing for ingredient and
packaging supplies.
GOVERNMENTAL REGULATION; ENVIRONMENTAL MATTERS
The operations of the Ralcorp Businesses are subject to regulation by
various federal, state and local governmental entities and agencies. As a
producer of goods for human consumption, such operations are subject to
stringent production and labeling standards.
The operations of the Ralcorp Businesses, like those of similar businesses,
are subject to various federal, state and local laws and regulations with
respect to environmental matters, including air and water quality, underground
fuel storage tanks, waste handling and disposal and other regulations intended
to protect public health and the environment. Certain Ralcorp Businesses have
received notices from the United States Environmental Protection Agency that
they have been identified as a "potential responsible party" (PRP), under the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
("CERCLA"), and Ralcorp may be required to share in the cost of cleanup with
respect to one disposal site. Under applicable law, Ralcorp's liability, if any,
for the cleanup of the disposal site may be joint and several with all PRPs at
this site. Management reviews a number of items to determine if the remediation
associated with environmental matters is expected to be material to Ralcorp
including, but not limited to, the stage of each proceeding; whether other
parties have been designated as possibly responsible (including other PRPs) and
the financial strength of such other parties; the nature and volume of hazardous
material alleged to be located at a site; Ralcorp's alleged volumetric
contribution to a site; the contemplated remedy for a site; any defenses or
third party claims Ralcorp may have; indemnification arrangements with third
parties; the number of years over which remediation costs will be distributed;
reports of experts (internal or external); and appropriate governmental opinions
on the remediation of a site. While it is difficult to quantify with certainty
the potential financial impact of actions regarding expenditures for
environmental matters, particularly remediation, shared cleanup costs at CERCLA
sites, and future capital expenditures for environmental control equipment, in
the opinion of management, based upon the information currently available, the
ultimate liability arising from such environmental matters, taking into account
established accruals for estimated liabilities, should not have a material
effect on Ralcorp's capital expenditures, earnings and competitive position.
4
<PAGE> 6
ITEM 2. PROPERTIES.
Ralcorp's principal properties are its manufacturing locations. Shown below
are the locations of the principal properties which will be owned by Ralcorp
following the Distribution. Ralcorp leases its principal executive offices and
research and development facilities in St. Louis, Missouri. The management of
Ralcorp believes its facilities are suitable and adequate for the purposes for
which they are used and are adequately maintained.
<TABLE>
<CAPTION>
CEREAL PLANTS CRACKER AND COOKIE PLANTS BABY FOOD PLANTS SKI RESORTS
- ----------------- ------------------------- ---------------- ---------------------------------
<S> <C> <C> <C>
Battle Creek, MI Minneapolis, MN Canajoharie, NY Keystone, Summit County, CO
Cedar Rapids, IA Princeton, KY Fort Plain, NY Breckenridge, Summit County, CO
Lancaster, OH Arapahoe Basin, Summit County, CO
Sparks, NV
</TABLE>
With respect to the Resort Operations, Ralston Resorts, Inc. has been
granted the right to use approximately 3,156 acres, 5,571 acres and 825 acres of
federal land under the terms of permits with the Forest Service for
Breckenridge, Keystone and Arapahoe Basin, respectively. Both the Breckenridge
permit and the Arapahoe Basin permit expire on December 31, 2029, while the
Keystone permit expires on December 31, 2032. Each of the permits is terminable
by the Forest Service if required for the public interest. While the Company
believes that its relationship with the Forest Service is good, and to the
Company's knowledge no recreational Special Use Permit or Term Special Use
Permit for any major ski resort has ever been terminated by the Forest Service,
a termination of any of the Resort Operations' permits would have a material
adverse effect on the business and operations of the Company.
ITEM 3. LEGAL PROCEEDINGS.
Ralcorp is currently a party to a number of legal proceedings in various
state and federal jurisdictions arising out of the operations of its businesses.
These proceedings are in varying stages and some involve highly complex
questions of law and fact.
On January 4, 1993, Ralston Purina, Ralcorp's former parent, was served
with the first of nine substantively identical actions currently pending in the
United States District Court for the District of New Jersey. The suits have been
consolidated and styled In Re Baby Food Antitrust Litigation, No. 92-5495 (NHP).
The consolidated proceeding is a certified class action by and on behalf of all
direct purchasers of baby foods (other than the defendants and governmental
entities), alleging that the Beech-Nut baby food business (and its predecessor,
Nestle Holdings, Inc.) together with Gerber Products Company and H. J. Heinz
Company, conspired to fix, maintain and stabilize the prices of baby foods
during the period January 1, 1975 to August 31, 1992, and seeking treble
damages. On January 19 and 21, 1993, Ralston Purina was served with two class
actions on behalf of indirect purchasers (consumers) of baby food in California,
which contain substantively identical charges. These actions have been
consolidated in the Superior Court for the County of San Francisco and styled
Bruce, et al. v. Gerber Products Company, et al., No. 94-8857. On January 19,
1993, Ralston Purina was served with a similar action filed in Alabama state
court on behalf of indirect purchasers of baby food in Alabama, styled Johnson,
et al. v. Gerber Products Company et al., No. 93-L-0333-NE. Both state actions
allege violations of state antitrust laws and are substantively identical to
each other. Similar state actions may be filed in states having laws permitting
suits by indirect purchasers. Ralston Purina and Ralcorp have agreed in the
reorganization agreement entered into in connection with the 1994 Spin-off of
Ralcorp from Ralston Purina Company (the "Reorganization Agreement") that all
expenses related to the above antitrust matters will be shared equally, but that
Ralcorp's liability for any settlement or judgment will not exceed $5 million.
Except as noted, many of the foregoing matters are in preliminary stages,
involve complex issues of law and fact and may proceed for protracted periods of
time. Based upon a review of the petitions in the above antitrust matters, it
appears that those actions contain questionable allegations and that there are
numerous meritorious defenses. The amount of alleged liability, if any, from
these proceedings cannot be determined with certainty; however, in the opinion
of Ralcorp management, based upon the information presently known,
5
<PAGE> 7
as well as upon the limitation of its liabilities set forth in the
Reorganization Agreement, the ultimate liability of Ralcorp, if any, arising
from the pending legal proceedings, as well as from asserted legal claims and
known potential legal claims which are probable of assertion, taking into
account established accruals for estimated liabilities, should not be material.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There were no matters submitted to the security holders during the fourth
quarter of fiscal year 1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<S> <C> <C>
Joe R. Micheletto............. 60 Chief Executive Officer and President of Ralcorp since
September, 1996. Previously he was named Co-Chief
Executive Officer and Chief Financial Officer of Ralcorp
in 1994. He served as Vice President and Controller of
Ralston Purina Company from 1985 to 1994, and as Chief
Executive Officer of Ralston Purina's Keystone Resorts
from 1991 to 1994.
Kevin J. Hunt................. 45 Corporate Vice President and President of Bremner since
October 1995. Previously, he was named Executive Vice
President and President of Bremner, Inc. in 1994. Mr.
Hunt joined Ralston Purina in 1985. He was named
Director of Marketing for Continental Baking Company in
1988. In 1992, he was named Director of Planning,
Corporate for Ralston Purina and was named President of
Bremner, Inc. for Ralston Purina in 1993.
Robert W. Lockwood............ 52 Corporate Vice President, General Counsel and Secretary
of Ralcorp since 1994. Mr. Lockwood joined Ralston
Purina in 1976. In 1981, he was named Associate Counsel
and Assistant Secretary of Ralston Purina Company and in
1989, he was named Vice President, Senior Counsel and
Assistant Secretary of Ralston.
James A. Nichols.............. 47 Corporate Vice President and President of Ralston Foods
since December 1995. Previously, he was named Corporate
Vice President of Ralcorp and President, Beech-Nut
Nutrition Corporation in 1994. Mr. Nichols joined
Ralston Purina in 1975. In 1985, he was named Vice
President and Director of Marketing -- Cereal of Ralston
Purina. In 1989, he was named President, Beech-Nut
Nutrition Corporation of Ralston.
David P. Skarie............... 49 Corporate Vice President and Director of Customer
Development of Ralcorp since 1994. Mr. Skarie joined
Ralston Purina in 1986. In 1988, he was named National
Sales Director, General Merchandise of Ralston Purina
Company; in 1990, he was named Vice President, Eastern
Division Sales of Ralston; in 1991, he was named Vice
President, Field Sales of Ralston; and in 1993, he was
named Vice President -- Director, Customer Development,
Human Foods of Ralston.
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C> <C>
Susan P. Widham............... 39 Corporate Vice President and President, Beech-Nut
Nutrition Corporation since 1996. Ms. Widham joined
Ralston Purina in 1985. In 1991, she was named Group
Director, Marketing for Beech-Nut Nutrition Corporation;
and in 1992, was named Director of Marketing for
Beech-Nut. In 1994, she was named Vice President,
Director of Marketing for Beech-Nut; and in 1995, was
named Executive Vice President, Director of Marketing
for Beech- Nut. In December, 1995, she was named
Executive Vice President and Director of Branded Foods
Marketing for Ralston Foods.
Ronald D. Wilkinson........... 46 Corporate Vice President and Director, Product Supply of
Ralston Foods since 1996. Mr. Wilkinson joined Ralcorp
in November, 1995. In 1991, he was named Director,
Engineering U.S. Cereals for The Quaker Oats Company;
and in 1992, was named Vice President, Supply Chain U.S.
Cereals for The Quaker Oats Company. In November, 1995,
Mr. Wilkinson joined Ralcorp as Executive Vice President
and Director, Manufacturing for Ralston Foods; and in
June, 1996, was named Executive Vice President and
Director, Product Supply for Ralston Foods.
</TABLE>
(Ages are as of December 31, 1996)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS.
The Company's common stock (RAH) is traded on the New York Stock Exchange.
There were 20,462 common shareholders of record on December 3, 1996. The Company
does not intend to begin paying cash dividends in fiscal 1997.
The following table sets forth, for the fiscal quarters indicated (ended
December 31, March 31, June 30 and September 30), the range of high and low sale
prices of Ralcorp Common Stock as reported on the NYSE Composite Tape.
<TABLE>
<CAPTION>
RALCORP COMMON STOCK
--------------------------------
FISCAL QUARTER HIGH LOW DIVIDENDS
- ------------------------------------------------------------------ -------- -------- ---------
<S> <C> <C> <C>
1995
1st Quarter..................................................... $23 5/8 $18 5/8 $ --
2nd Quarter..................................................... 25 1/4 21 5/8 --
3rd Quarter..................................................... 25 21 1/2 --
4th Quarter..................................................... 24 3/4 21 7/8 --
1996
1st Quarter..................................................... $27 3/8 $22 5/8 $ --
2nd Quarter..................................................... 28 1/4 23 3/8 --
3rd Quarter..................................................... 25 20 3/8 --
4th Quarter..................................................... 22 1/2 19 3/4 --
</TABLE>
7
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA.
RALCORP HOLDINGS, INC.
FIVE YEAR FINANCIAL SUMMARY
STATEMENT OF EARNINGS DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------ ------ ------
(IN MILLIONS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C>
Net Sales.......................................... $1,027.4 $1,013.4 $987.0 $902.8 $870.6
Depreciation and Amortization...................... 46.4 46.7 44.2 35.3 29.2
(Loss) Earnings before Income Taxes,
Interest Expense and Cumulative Effect of
Accounting Changes............................... (46.3) 83.0 100.2 87.7 63.5
As a Percent of Sales............................ (4.5)% 8.2% 10.2% 9.7% 7.3%
(Loss) Earnings before Income Taxes and Cumulative
Effect of Accounting Changes..................... $ (73.1) $ 54.8 $ 87.9 $ 85.1 $ 61.2
Income Taxes....................................... (26.3) 21.4 34.3 33.2 23.0
(Loss) Earnings before Cumulative Effect of
Accounting Changes............................... (46.8) 33.4 53.6 51.9 38.2
Net (Loss) Earnings(a,b,c,d)....................... (46.8) 33.4 53.6 42.6 38.2
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Working Capital(e)................................. $ 92.4 $ 104.7 $ 81.8 $ 54.8 $ 57.2
Property at Cost, Net.............................. 322.6 417.1 416.2 412.6 352.2
Additions (during the period).................... 60.2 59.3 38.2 50.8 64.3
Depreciation (during the period)................. 43.5 44.1 41.7 34.0 28.5
Total Assets....................................... 627.1 716.2 700.1 626.4 519.9
Long-Term Debt..................................... 376.6 395.4 389.4 30.3 27.9
Shareholders' Equity............................... 107.4 162.4 141.2
Ralston Equity Investment.......................... 474.4 380.0
</TABLE>
- -------------------------
(a) Includes, in 1996, a $109.5 pre-tax impairment charge ($68.8 after taxes)
related to its private label ready-to-eat cereal and consumer hot cereal
operations.
(b) Includes, in 1996, a $16.5 pre-tax restructuring charge ($10.4 after taxes)
to recognize the costs related to the restructuring of its ready-to-eat
cereal subsidiary, Ralston Foods, Inc. The original charge of $20.7 was
taken in the third quarter of 1996. In the fourth quarter of 1996, Ralcorp
reversed $4.2 of that original amount. This reversal was offset by $4.0
($2.5 after taxes) of transaction fees related to the proposed sale of the
Resort Operations.
(c) Includes, in 1995, $21.9 pre-tax nonrecurring charges ($13.6 after taxes)
related to exit of industrial oats and oats milling operations and
impairment of the consumer hot cereal business.
(d) The cumulative effect of accounting changes for postretirement benefits
other than pensions and for income taxes reduced earnings by $9.3, after
taxes, in the year ended September 30, 1993.
(e) Excludes cash and current maturities of long-term debt, where applicable.
8
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RALCORP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and capital
resources of Ralcorp Holdings, Inc. (Company). This discussion should be read in
conjunction with the Business Segment Information, Consolidated Financial
Statements and Notes to Consolidated Financial Statements.
The Company operates in two business segments, the "Consumer Foods"
segment, comprised of the cereals and snacks, baby food and crackers and cookies
businesses, and the "Resort Operations" segment, consisting of the Keystone,
Breckenridge and Arapahoe Basin ski resorts.
OVERVIEW
Fiscal 1996 proved to be a year in which the Company's businesses achieved
varying performance levels. The Beech-Nut baby food business performed well in
the first half of the fiscal year, but increased competitive pressure in the
third and fourth quarters slowed Beech-Nut's operating profit growth. The
Bremner cracker and cookie business recorded significant growth through new
product sales and by adding new accounts throughout the year. A good winter ski
season provided the ski resorts business with favorable year to year profit
comparisons. Dramatic changes throughout the ready-to-eat cereal category and
especially in the category's pricing structure had a significant negative impact
on the operating results of the Ralston Foods cereal business. Cereal volume,
both branded and private label, declined significantly for the year. The branded
decline occurred primarily in the minor branded cereal products, a consistent
negative trend, while the larger mainline Chex franchise performed reasonably
well in a declining category, with only a slight year to year volume decline.
Private label cereal volume was hurt most by the difficult pricing environment
within the cereal category, as the price gap between private label products and
their branded counterparts significantly narrowed. Mitigating some of the
unfavorable results of cereal operations was the continued growth experienced by
the Ralston Foods' Chex Mix snack product.
On August 14, 1996, the Company announced an agreement to sell its branded
cereal and snack business to General Mills for General Mills common stock and
the assumption of debt and accrued interest not to exceed $300 million, together
valued at $570 million. Currently, the Company estimates that the debt assumed
will be between $210 and $240 million. The transaction will be accomplished
through a tax-free merger of the Company's branded cereal and snack business
with a subsidiary of General Mills (the Merger) and the spin-off of the
Company's remaining businesses to the Company's shareholders (the Distribution).
Subsequent to the close of the transaction, shareholders of the Company will
hold shares of General Mills common stock and shares of the spun-off company.
On December 9, 1996, General Mills signed the Consent Agreement relating to
the Proposed United States Federal Trade Commission (FTC) Order. The FTC
accepted the Consent Agreement for public comment on December 24, 1996, at which
time the FTC granted early termination of the required waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) with respect to the
Merger. The Proposed FTC Order will become final if the FTC enters the Proposed
FTC Order after a 60-day public comment period. Pending entry of the Proposed
FTC Order, General Mills has agreed to comply with it (but General Mills will no
longer be bound by the Proposed FTC Order if the FTC withdraws its acceptance of
the Consent Agreement). Under the Proposed FTC Order, General Mills would permit
the newly spun-off company to compete against General Mills by producing and
selling a Chex-type private label cereal as soon as the Merger is completed, and
would permit a successor to acquire this right. General Mills and Ralcorp had
originally agreed that the newly spun-off company would not produce and sell a
Chex-type private label cereal for 18 months after the Merger. The parties
intend to complete the Merger as soon as they satisfy all the conditions to the
Merger, even if the public comment period has not expired and the Proposed FTC
Order is not final.
9
<PAGE> 11
The completion of the transaction is subject to approval by the Company's
shareholders. It is possible that such approval may not be received. The Company
anticipates holding a special meeting of shareholders on January 31, 1997.
Documents relating thereto will be mailed to shareholders beginning on December
30, 1996.
On July 23, 1996, the Company announced an agreement to sell its Resort
Operations to Vail in a transaction valued in excess of $310 million. The sale
would allow the Company to significantly reduce its debt by $165 million and
also retain an approximate 22% ownership interest in a newly combined company
that would feature five of the premier ski resorts in North America. The
completion of the transaction is subject to various government approvals, which
may or may not be received.
The sale of the Resort Operations is being investigated by the United
States Department of Justice (DOJ). The Company and Vail have complied with the
request for additional information issued by the DOJ pursuant to the HSR Act.
The Company and Vail have agreed to extend the time in which the DOJ has to
review the proposed sale. Management believes a decision by the DOJ regarding
whether the DOJ will challenge the proposed sale will be made prior to the end
of December. Unless extended by the parties, the contract for the sale of Resort
Operations to Vail terminates on January 10, 1997. If the Resort Operations are
not sold to Vail, management will review whether to retain the Resort Operations
and operate them as a core business or explore other strategic alternatives with
respect to the Resort Operations.
OPERATING RESULTS
Operating results for fiscal 1996 and fiscal 1995 were impacted by certain
significant one-time charges, which make year to year comparisons difficult. In
fiscal 1996, the Company recorded a $109.5 million pre-tax impairment charge
($68.8 million after taxes or $2.09 per share) related to its private label
cereal and consumer hot cereal operations. This charge was recorded under the
provisions of Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of"
("FAS 121"); see the "Nonrecurring Charges" footnote in the Notes to
Consolidated Financial Statements. Also, in fiscal 1996, the Company recorded a
pre-tax charge of $16.5 million ($10.4 million after taxes or $.31 per share) to
recognize the costs related to the restructuring of its ready-to-eat cereal
operations; see the "Restructuring Charge" footnote in the Notes to Consolidated
Financial Statements. In fiscal 1995, the Company recorded pre-tax nonrecurring
charges totaling $21.9 million ($13.6 million after taxes or $.41 per share)
related to management's decision to exit the industrial oats business, close
oats milling operations and impair certain long-lived assets related to the
remaining consumer hot cereal business; see the "Nonrecurring Charges" footnote
in the Notes to Consolidated Financial Statements. The fiscal 1995 nonrecurring
charges were also determined under the provisions of FAS 121.
Including the above referenced charges, the Company recorded a net loss of
$46.8 million or $1.42 per share for fiscal 1996, compared to net earnings of
$33.4 million or $1.00 per share for fiscal 1995. Exclusive of the charges,
fiscal 1996 resulted in net earnings of $32.4 million or $.98 per share compared
to fiscal 1995 net earnings of $47.0 million or $1.41 per share. Net sales in
fiscal 1996 were $1,027.4 million compared to $1,013.4 million in fiscal 1995,
an improvement of $14.0 million or 1.4%. This slight increase is attributable
primarily to Chex Mix and the Resort Operations, as well as favorable volume
gains in both the cracker and cookie and baby food businesses, which were
substantially offset by the significant cereal volume declines.
FISCAL 1996 COMPARED TO FISCAL 1995
Consumer Foods
Consumer Foods sales were essentially flat from 1995 to 1996, as segment
sales went from $886.0 million in fiscal 1995 to $892.0 million in fiscal 1996.
This slight increase was driven by significantly higher Chex Mix snack volume
(which continued to realize the positive effects of a successful restage),
increased cereal prices taken in advance of the category-wide pricing declines,
higher baby food prices and volume, and improved cracker and cookie volumes.
Substantially offsetting these positive factors were the significantly lower
branded and private label cereal volumes. Dramatic price decreases coupled with
promotional activities during fiscal
10
<PAGE> 12
1996, directly and negatively effected the Company's cereal volumes. Branded
cereal volume declined approximately 10% in the year and private label cereal
volume declined approximately 4%. Although minor branded cereal products volumes
were down significantly, the mainline CHEX franchise continued to perform
reasonably well, down only slightly from a year ago. Sales of branded cereal is
somewhat seasonal because the Company's Chex Party Mix holiday promotion.
Management believes that erosion of a portion of the price gap between branded
and private label cereal products, occurring primarily in the third and fourth
quarters of fiscal 1996, resulted in the Company's first private label cereal
volume decline.
As referred to earlier, Consumer Foods operating results for both fiscal
1996 and 1995 included certain significant one-time charges that make year to
year comparisons difficult. Therefore, in an effort to present an analysis of
the most comparable operating results, the following discussion of Consumer
Foods operating profit excludes those charges.
Operating profit for the segment decreased 29.5% in 1996 to $67.3 million
compared to $95.5 million in the previous year. The significant decline is due
primarily to lower cereal results partially offset by improvements in Chex Mix
and the baby food and cracker and cookie businesses. In the cereal and snack
business, operating profit declined as a result of higher advertising and
promotion expense, the continued negative impact of increased ingredient costs
and higher information systems costs, partially offset by the strong performance
of Chex Mix snacks and cereal pricing increases taken in advance of the
category-wide pricing decline. Spider-Man cereal, introduced in fiscal 1995's
fourth quarter, was an earnings disappointment with volumes significantly below
expectations. Production of Spider-Man cereal has been discontinued. The
Beech-Nut baby food business results improved primarily on strong domestic
volume gains and favorable pricing, partially offset by higher ingredient costs.
In addition, baby food operations were slowed in the second half of fiscal 1996
due to increased competitive pressures. The Bremner cracker and cookie business
increased its operating results in fiscal 1996 by adding new product sales and
new accounts, resulting in additional volume, and by continuing to lower
production costs.
Resort Operations
Resort Operations sales improved 6.3% in fiscal 1996 to $135.4 million
compared to $127.4 million in 1995. The sales increase resulted primarily from a
5% improvement in skier visits, as well as an approximate 3% increase in room
nights. Total skier visits for fiscal 1996 were 2.7 million. These improvements
were the direct result of good ski conditions during the key winter months. As a
result of these factors, Resort Operations recorded a record $23.0 million
operating profit in fiscal 1996 compared to $17.1 million in the prior year, or
an improvement of 34.5%
The skiing industry is mature, with slow overall growth, and is highly
competitive. The Company's ski resorts compete with all types of recreation and
vacation alternatives for the consumers' discretionary spending. In order to
compete successfully, the resorts must aggressively promote in order to attract
more skiers while implementing substantial cost reductions.
Operating results for this segment are highly seasonal. Historically, the
resorts have earned more than the entire fiscal year's operating profit during
the fiscal second quarter, which contains the peak of the ski season.
Consolidated
Consolidated net sales increased 1.4% in fiscal 1996 to $1,027.4 million
due to improved revenues of Chex Mix and the Resort Operations, as well as
favorable volume gains in both the cracker and cookie and baby food businesses.
Cost of products sold as a percentage of sales was 52.3% in both fiscal 1996 and
1995 as increased Resort Operations revenues offset the increase in ingredient
costs that affected the Company's other businesses. Selling, general and
administrative expenses increased to 17.3% of sales in 1996 compared to 16.3% of
sales in 1995 due to higher information systems costs and the inclusion, in
fiscal 1996, of approximately $4.0 million of transaction costs related to the
Company's proposed sale of its Resort Operations. Advertising and promotion
expense as a percentage of sales increased to 22.7% of sales in fiscal 1996 from
21.0% in fiscal 1995. A significant portion of this increase is due to spending
associated with Spider-Man, a new branded cereal in fiscal 1996, which has been
discontinued, and stepped up promotional spending
11
<PAGE> 13
necessary to protect the Company's mainline Chex franchise and its declining
private label cereal business. Advertising and promotion spending in support of
the very successful Chex Mix restage was also higher in fiscal 1996. Income
taxes, which include federal and state taxes, were 36.0% of pre-tax losses in
fiscal 1996 compared to 39.1% of pre-tax earnings in fiscal 1995. This decline
in the effective tax rate is primarily due to the Company recording significant
one-time charges in fiscal 1996. Tax provisions on earnings generally reflect
statutory tax rates.
FISCAL 1995 COMPARED TO FISCAL 1994
Consumer Foods
Consumer Foods sales increased 3.7% in fiscal 1995 to $886.0 million due to
higher sales in all businesses. The increase was driven by significantly higher
Chex Mix snack volume following a successful restage, higher branded cereal
prices and higher private label cereal volumes at Ralston Foods, higher baby
food prices and an improvement in cracker and cookie volumes which were
partially offset by lower branded cereal volumes. In cereals, volumes in
mainline Chex again increased compared to the prior year while sales of Cookie
Crisp dropped after a strong fiscal 1994 increase and minor share brands
continued to decline. Sales of the Consumer Foods segment tend to be somewhat
seasonal due to strong first quarter performance associated with the Chex Party
Mix holiday promotion.
During fiscal 1995, the Company made a decision to close its industrial
oats and oats milling operations in Cedar Rapids, Iowa. As a result of this
decision, the Company recorded nonrecurring pre-tax charges totaling $21.9
million, comprised of a $10.1 million charge to cover the costs of exit,
primarily for the write-down of related fixed assets, and $11.8 million
representing the impairment of the remaining intangible and fixed assets related
to the consumer hot cereal business. The decision to exit the industrial
business and close milling operations was reached due to excess industry
capacity which depressed selling prices despite significantly higher raw
ingredient costs and the location of the milling operations which placed the
Company at a competitive disadvantage due to higher freight costs. Operating
loss in the fiscal year ended September 30, 1995 for the operations affected by
the exit decision was approximately $3.7 million. See the "Nonrecurring Charges"
footnote, in the Notes to Consolidated Financial Statements, for further
discussion of these charges.
Excluding the oats-related charges, operating profit for the segment
increased 15% in fiscal 1995 to $95.5 million compared to $82.9 million in the
previous year. The most significant factor behind the increase was the return to
profitability of the Company's Bremner operation in fiscal 1995 after a
significant fiscal 1994 loss. Compared to fiscal 1994, which was adversely
affected by the forced relocation of Bremner's only facility, fiscal 1995
benefited from significantly lower production costs and higher volumes. Baby
Food results increased on improved pricing partially offset by lower volume and
higher advertising and promotion expenses. Operating profit for Ralston Foods
declined moderately reflecting higher expenses related to the Company's
accelerated cost reduction program and higher administrative expenses, primarily
for information systems, partially offset by higher branded cereal prices and
higher private label cereal volume.
Resort Operations
Resort sales fell 4% in fiscal 1995 to $127.4 million compared to $132.6
million in 1994. The sales decline resulted from a drop in skier visits
associated with unfavorable weather conditions during the most important period
of the ski season which was only partially offset by more favorable pricing.
Poor winter results were partially offset by unexpected late season snowfalls
which allowed the Company's Arapahoe Basin resort to remain open through early
August 1995, and by increased summer conference business. As a result of these
factors, operating profit declined to $17.1 million in fiscal 1995 compared to
$20.5 million in the prior year.
In fiscal 1994, the Company formed a joint venture with Intrawest
Corporation of Canada, a leading mountain resort operator and developer, to
develop the Company's real estate holdings at the Keystone Resort. The Company
contributed land to the joint venture at book value and will realize the market
value of these holdings over time as land is sold or projects are completed and
sold, in addition to sharing in any development profits with Intrawest.
12
<PAGE> 14
Operating results for this segment are highly seasonal. Historically, the
resorts have earned more than the entire fiscal year's operating profit during
the second quarter, which contains the peak of the ski season.
Consolidated
Consolidated net sales increased 2.7% in fiscal 1995 to $1,013.4 million
due to higher Consumer Foods sales partially offset by lower Resort revenues.
The cost of products sold as a percentage of sales declined to 52.3% in fiscal
1995 compared to 53.1% in 1994 due to significantly improved efficiency at
Bremner during 1995 compared to the move-affected prior year and due to improved
margins in Baby Food. Selling, general and administrative expenses increased to
16.3% of sales in 1995 compared to 15.0% of sales in 1994 due primarily to
higher information systems costs in fiscal 1995 and the increased costs
associated with becoming a stand-alone company. Advertising and promotion
expense as a percentage of sales declined slightly to 21.0% in the current year
due to higher sales of private label products requiring lower levels of
promotional support. Income taxes, which include federal and state taxes, were
39.1% in fiscal 1995 compared to 39.0% in 1994. Tax provisions generally reflect
statutory tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
The Company's primary source of liquidity is cash flow from operations,
which increased to $91.8 million in 1996 compared to $80.4 million in 1995 due
primarily to reduced working capital needs. The $9.6 million decline in
operating cash flow in 1995 compared to 1994 was due primarily to heavier
investments in inventories and higher 1995 year end receivables associated with
new product introductions. Working capital, excluding cash and current
maturities of long-term debt, was $92.4 million at September 30, 1996 compared
to $104.7 million and $81.8 million at September 30, 1995 and 1994,
respectively. The Company had no cash balances at September 30, 1996 and 1995.
The Company's businesses have historically focused on generating positive
cash flows through operations. For the three years ended September 30, 1996, the
Company was able to generate $262.2 million of cash from operations. Management
believes that the Company will continue to generate operating cash flow through
its mix of businesses and expects that future liquidity requirements will be met
through a combination of operating cash flow and strategic use of borrowings
available under existing bank credit agreements. Upon completion of either or
both of the proposed sale transactions, management anticipates that the
remaining businesses would continue to generate positive, but significantly
lower, operating cash flows. If the proposed sale of Resort Operations is
consummated prior to the consummation of the Merger, the Company will fund its
borrowing needs through its existing credit arrangements. However, if the sale
of Resort Operations is not completed prior to the Merger, then upon the
consummation of the Merger, the Company expects to enter into a twelve to
thirty-six month $200 million bridge credit facility with several lenders. It is
likely the terms of such a facility will be more restrictive upon the Company's
remaining business operations and will be at significantly higher interest rates
than the Company's existing credit arrangements.
Investing Activities
Capital expenditures were $66.7 million, $66.1 million and $38.2 million in
fiscal years 1996, 1995 and 1994, respectively. Capital expenditures for fiscal
1997 are expected to be approximately $35-$40 million. These fiscal 1997
projected expenditures include the Company's branded cereal and snack business
and Resort Operations for only a portion of fiscal 1997, due to the anticipated
completion of their respective sale transactions. If either or both transactions
are not completed, capital expenditures for fiscal 1997 may be higher. During
fiscal 1994, the Company disposed of two closed production facilities, the
proceeds of which were $19.2 million.
Investing activities in 1994 also include the November 1993 purchase, for
$39.2 million, of the oats processing and packaging and cereal-making operations
of the National Oats Company division of Curtice Burns Foods, Inc., along with
related manufacturing assets.
13
<PAGE> 15
Financing Activities
In connection with the spinoff from Ralston Purina Company (Ralston), the
Company assumed from Ralston $370 million of debt in a long-term bank credit
agreement comprised of $120 million outstanding under a $200 million revolving
credit arrangement and a $250 million term loan facility. During fiscal 1994,
the Company issued $150 million in 8 3/4% notes due 2004, the proceeds of which
were used to reduce borrowings under the credit agreement. During fiscal 1995,
the Company amended the credit agreement, eliminating the term loan and placing
the reduced $300 million total amount available under the credit agreement in
the revolving credit facility. The amendment also resulted in a lower borrowing
rate and reduced restrictions on stock repurchases and dividend payments,
provided the Company maintains certain financial ratios and a minimum level of
shareholders' equity. Through an additional amendment, in March 1996, the amount
available under the revolving credit facility was further reduced to $275
million, comprised of a $100 million 364-day revolving facility and a $175
million five year revolving facility, and the related maturity date was moved to
March 12, 2001. The March 1996 amendment retained many of the provisions
negotiated through the 1995 amendment, again, provided the Company maintains
certain financial ratios and a minimum level of shareholders' equity. In June
1996, Company management, realizing the potential negative impact of increased
competitive pressures, sought and received less stringent debt and interest
coverage ratios from the credit facility lenders for the third and fourth
quarters of fiscal 1996. The Company met the amended ratios for each of these
quarters. In September 1996, in contemplation of the sale of Resort Operations,
the existing $275 million credit facility agreement was split into two separate
agreements comprised, first, of a $140 million credit facility that was borrowed
directly by the Company's Resort Operations, and fully guaranteed by the
Company, and, second, a continuing revolving credit facility with $135 million
in available borrowings. Interest under both agreements is based on LIBOR and
will vary based on the achievement of certain financial ratios.
As mentioned earlier, due to the unfavorable earnings expectations the
Company secured less stringent levels for the interest and debt coverage ratios
associated with its bank credit agreements. The ratios were scheduled to return
to the original levels for the quarter ended December 31, 1996. On or about
December 18, 1996, lenders under the Company's bank credit agreements reduced
the interest and debt coverage ratios until March 31, 1997. Management believes
that prior to any violation of such ratios, the Company will be able to
renegotiate its bank credit agreements, obtain further waiver of the pertinent
ratios, or obtain alternative financing at rates that may be higher than those
existing through the current bank credit agreements.
In November 1995, in order to hedge its exposure to interest rate
fluctuations on $100 million of existing floating-rate borrowings under the
credit agreement, the Company entered into two interest rate swap transactions
under which the Company will pay interest based on a fixed rate while receiving
a LIBOR-based floating rate. Notional amounts under both transactions are $50
million and have terms that expire in November of calendar years 1997 and 1998.
During fiscal 1996, the Company repurchased $8.6 million of its Common
Stock compared to $13.5 million in the prior year. As a result of activity
during fiscal 1996 total debt declined $18.8 million to $376.6 million compared
to $395.4 million at September 30, 1995. Despite the decline in outstanding
long-term debt, total debt as a percentage of total capitalization rose to 77.9%
at September 30, 1996 compared to 70.9% at September 30, 1995. This increase is
attributable to the sharp decline in the retained earnings of the Company, a
result of the substantial net loss, including significant one-time charges,
recorded in fiscal 1996.
Prior to the spinoff from Ralston, Ralston sold certain of its trade
accounts receivable, including amounts attributable to the Company's cereal
business, to third party purchasers, subject to defined limited recourse
provisions. During fiscal 1994, this program was discontinued, which had the
effect of reducing cash flow from financing activities by $16.6 million.
On May 25, 1995, the Company's Board of Directors authorized management to
repurchase up to one million shares of the Company's Common Stock from time to
time as management determines. As of December 3, 1996, the Company had
repurchased approximately 371,000 shares for $9.1 million pursuant to such
authorization. A previous Board-approved authorization to repurchase $15.0
million worth of Company Common Stock was completed during fiscal 1995.
14
<PAGE> 16
OUTLOOK
The difficult pricing environment in the ready-to-eat cereal category will
continue to put pressure on the Company's private label cereal business. The
Company has worked to regain a portion of the private label price gap lost to
branded competitors, but near term private label cereal volume growth, if any,
is expected to be modest, and most likely will come at the expense of any
meaningful profit margin. In the near term, the combination of an unfavorable
outlook for private label cereal profit and the continued declining performance
by several of the Company's minor branded cereal products, while still a part of
the Company's operations, creates an adverse financial outlook for the Company's
cereal business. In baby foods, despite a declining birth rate in the United
States, Beech-Nut has been able to record volume increases by continuing to
focus on the production of high quality baby food products. The production of
quality products, maintaining its presence in key regional areas and continued
emphasis on controlling and cutting costs, create a positive outlook for
Beech-Nut. The baby food business does, however, face significant competitive
pressures, principally from the baby food market leader, Gerber Products
Company. The outlook for the Bremner cracker and cookie business is also
positive, as Bremner has been able to add volume through new products and new
customers. In addition, a major capital project at the Bremner manufacturing
plant was completed during the fourth quarter of fiscal 1996 which should allow
the production and shipping of private label shredded wheat cereals and crackers
to begin in early fiscal 1997.
Cost of products sold in the Consumer Foods segment depends to a
significant extent on commodity prices which may fluctuate widely due to weather
conditions, government regulations, economic climate or other unforeseen
circumstances. The Company attempts to minimize its exposure to unexpected cost
increases related to these factors primarily through advance commitments and,
from time to time, by taking positions in futures markets.
If the sale of Resort Operations is not completed, then the operating
results of the Company will be highly dependent on the results of operations of
the Resort Operations. The Resort Operations have been profitable during the
past three fiscal years. However, the Resort Operations' results are highly
seasonal and dependent on weather conditions and consumers' discretionary
spending trends, both of which are out of the control of management.
ENVIRONMENTAL MATTERS
The operations of the Company, like those of similar businesses, are
subject to various federal, state and local laws and regulations with respect to
environmental matters, including air and water quality, underground fuel storage
tanks, waste handling and disposal and other regulations intended to protect
public health and the environment. The Company has received notices from the
U.S. Environmental Protection Agency, state agencies, and/or private parties
seeking contribution, that it has been identified as a "potential responsible
party" ("PRP") at one cleanup site, under the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), and the Company
may be required to share in the cost of cleanup with respect to the one cleanup
site. Under applicable law, the Company's liability, if any, for the cleanup of
the disposal site may be joint and several with all PRPs at this site.
Management reviews a number of items to determine if the remediation associated
with environmental matters is expected to be material to the Company including,
but not limited to, the stage of each proceeding; whether other parties have
been designated as possibly responsible (including other PRPs) and the financial
strength of such other parties; the nature and volume of hazardous material
alleged to be located at a site; the Company's alleged volumetric contribution
to a site; the contemplated remedy for a site; any defenses or third party
claims the Company may have; indemnification arrangements with third parties;
the number of years over which remediation costs will be distributed; reports of
experts (internal or external); and appropriate governmental opinions on the
remediation of a site. While it is difficult to quantify with certainty the
potential financial impact of actions regarding expenditures for environmental
matters, particularly remediation, shared cleanup costs at CERCLA sites, and
future capital expenditures for environmental control equipment, in the opinion
of management, based upon the information currently available, the ultimate
liability arising from such environmental matters should not have a material
effect on the Company's financial position and results of operations.
15
<PAGE> 17
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
FAS 121 which established accounting standards for recognizing the impairment of
long-lived assets, identifiable intangibles and goodwill, whether to be disposed
of or to be held and used. In general, FAS 121 requires recognition of an
impairment loss when the sum of undiscounted expected future cash flows is less
than the carrying amount of such assets. The Company applied the provisions of
FAS 121 in recognition of the components of the previously discussed $109.5
million and $21.9 million pre-tax nonrecurring charges recorded in fiscal years
1996 and 1995, respectively. The Company will continue to evaluate the
recoverability of the carrying value of all long-lived assets, as events or
circumstances warrant.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS 123"). This
statement established financial accounting and reporting standards for
stock-based employee compensation plans. The accounting and disclosure
requirements of FAS 123 are effective during the Company's fiscal year ended
September 30, 1997. The Company will adopt the disclosure provisions of FAS 123,
but will continue to account for compensation costs based on the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Therefore, there will be no impact on the Company's financial
condition or results of operations as a result of adopting FAS 123.
INFLATION
Management recognizes that inflationary pressures may have an adverse
effect on the Company through higher asset replacement costs, related
depreciation and higher material costs. The Company tries to minimize these
effects through cost reductions and productivity improvements as well as price
increases to maintain reasonable profit margins. It is management's view,
however, that inflation has not had a significant impact on operations in the
three years ended September 30, 1996.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 21E of the
Exchange Act are made throughout this document and include information under the
section titled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," and are preceded by, followed by or include the words
"believes," "expects," "anticipates" or similar expressions elsewhere in this
document. The Company's results of operations and liquidity status may differ
materially from those in the forward-looking statements. Such statements are
based on management's current views and assumptions, and involve risks and
uncertainties that could affect expected results. For example, any of the
following factors cumulatively or individually may impact expected results:
(i) Key ingredients were at historically high prices during fiscal
1996 and while prices have moderated, similar cost increases in future
periods would negatively impact earnings;
(ii) During fiscal 1996 the Company faced significant price discount
promotions and price cutting by the largest branded cereal manufacturers
and the same or similar promotions or continued price cutting in the future
may negatively impact earnings;
(iii) If Ralcorp violates its interest or debt coverage ratios
discussed in the Outlook section above and Ralcorp is unable to secure
waivers of the ratios or amendments to its bank credit agreements, or
obtain alternate sources of debt financing, then Ralcorp could be in
default of its bank credit agreements (and its 8 3/4% $150 million Notes
due September 15, 2004 by virtue of cross-default provisions therein). In
such event, the lenders under the bank agreements (and the holders of the
Notes) could accelerate repayment of the full amount of the debt and
interest outstanding thereunder;
(iv) If the Company renegotiates its bank credit agreements or obtains
alternate sources of financing, (a) the Company could face additional or
more restrictive covenants preventing the Company from engaging in certain
actions such as, but not limited to, payment of dividends, repurchases of
stock,
16
<PAGE> 18
making acquisitions and incurring additional indebtedness; and (b) the
interest rates under such alternative financing may be significantly higher
than under existing bank credit agreements; and
(v) The Company's businesses compete in mature segments and profit
growth depends largely on the ability to successfully introduce new
products and manage costs across all parts of the Company.
[The remainder of this page was intentionally left blank]
17
<PAGE> 19
RALCORP HOLDINGS, INC.
BUSINESS SEGMENT INFORMATION
Summarized financial information by business segment for the three years
ended September 30, 1996 is set forth below. During these years the segments
consisted of the following:
Consumer Foods
Cereals and Snacks
Baby Food
Crackers and Cookies
Resort Operations
The Consumer Foods segment consists of cereals, baby food products and
other specialty grocery products, primarily crackers, cookies, and snacks, and
the coupon redemption business through January 31, 1996, the effective sale date
of this business. The Resort Operations segment consists of the Keystone,
Arapahoe Basin and Breckenridge resorts.
Sales between business segments were immaterial. No single customer
accounted for 10% or more of sales.
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Sales by Product Lines and Segments
Consumer Foods
Cereals and Snacks........................................ $ 661.4 $ 670.1 $646.4
Baby Foods................................................ 152.8 147.2 142.9
Crackers and Cookies...................................... 77.8 68.7 65.1
-------- ------ ------
Subtotal................................................ $ 892.0 $ 886.0 $854.4
Resort Operations............................................ 135.4 127.4 132.6
-------- ------ ------
Total................................................... $1,027.4 $1,013.4 $987.0
======== ====== ======
Operating Profit
Consumer Foods(a)............................................ $ (58.7) $ 73.6 $ 82.9
Resort Operations............................................ 23.0 17.1 20.5
-------- ------ ------
Total................................................... $ (35.7) $ 90.7 $103.4
Unallocated Corporate and Miscellaneous Expense(b)........... (10.6) (7.7) (3.2)
Interest Expense............................................. (26.8) (28.2) (12.3)
-------- ------ ------
(Loss) Earnings before Income Taxes..................... $ (73.1) $ 54.8 $ 87.9
======== ====== ======
Assets at Year End
Consumer Foods(c)............................................ $ 342.5 $ 472.9 $445.5
Resort Operations............................................ 236.2 226.4 230.9
Corporate.................................................... 48.4 16.9 23.7
-------- ------ ------
Total................................................... $ 627.1 $ 716.2 $700.1
======== ====== ======
Depreciation Expense
Consumer Foods............................................... $ 29.8 $ 31.3 $ 29.5
Resort Operations............................................ 13.7 12.8 12.2
Property Additions
Consumer Foods............................................... $ 42.3 $ 49.7 $ 27.8
Resort Operations............................................ 17.9 9.6 10.4
</TABLE>
- -------------------------
(a) Includes the pre-tax impairment charge of $109.5 and the pre-tax
restructuring charge $20.7 less the $4.2 reversal of that charge in 1996.
Includes the pre-tax nonrecurring charges of $21.9 in 1995.
(b) Includes the $4.0 transaction fees related to the proposed sale of the
Company's Resort Operations in 1996. Reflects the corporate expense incurred
for periods subsequent to the spinoff from Ralston Purina.
(c) Includes the asset impairment charge of $109.5 and the asset writedown of
$7.3 relating to the restructuring charge in 1996. Includes the asset
writedown portion of the nonrecurring charges related to National Oats of
$20.5 in 1995. Includes acquisition of National Oats in 1994.
18
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Ralcorp Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Ralcorp Holdings, Inc. and its subsidiaries at September 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
St. Louis, Missouri
October 30, 1996
19
<PAGE> 21
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Net Sales......................................................... $1,027.4 $1,013.4 $987.0
Costs and Expenses
Cost of products sold........................................... 536.8 530.4 524.2
Selling, general and administrative............................. 177.6 164.9 148.3
Advertising and promotion....................................... 233.3 213.2 214.2
Interest........................................................ 26.8 28.2 12.3
Nonrecurring charges............................................ 109.5 21.9
Restructuring charge............................................ 16.5
Other (income)/expense, net..................................... -- -- 0.1
-------- ------ ------
1,100.5 958.6 899.1
-------- ------ ------
(Loss) Earnings before Income Taxes............................... (73.1) 54.8 87.9
Income Taxes...................................................... (26.3) 21.4 34.3
-------- ------ ------
Net (Loss) Earnings............................................... $ (46.8) $ 33.4 $ 53.6
======== ====== ======
(Loss) Earnings per Common Share--
(based on pro forma average shares for all periods prior to
April 1, 1994).................................................. $ (1.42) $ 1.00 $ 1.59
======== ====== ======
</TABLE>
The above financial statement should be read in conjunction
with the Notes to Consolidated Financial Statements.
20
<PAGE> 22
RALCORP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1996 1995
------ ------
(IN MILLIONS
EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Current Assets
Cash......................................................................
Receivables, less allowance for doubtful accounts......................... $ 75.5 $ 86.3
Inventories............................................................... 103.3 110.1
Prepaid expenses.......................................................... 14.2 11.1
------ ------
Total Current Assets................................................... 193.0 207.5
Investments and Other Assets................................................ 88.1 91.6
Deferred Income Taxes....................................................... 23.4
Property at Cost
Land...................................................................... 27.9 22.9
Buildings................................................................. 112.6 134.1
Machinery and equipment................................................... 370.4 469.9
Construction in progress.................................................. 26.1 42.4
------ ------
537.0 669.3
Accumulated depreciation.................................................... 214.4 252.2
------ ------
322.6 417.1
------ ------
Total................................................................ $627.1 $716.2
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt...................................... $ 1.8 $ 1.8
Accounts payable and accrued liabilities.................................. 100.6 102.8
------ ------
Total Current Liabilities.............................................. 102.4 104.6
Long-Term Debt.............................................................. 376.6 395.4
Deferred Income Taxes....................................................... 20.2
Other Liabilities........................................................... 40.7 33.6
Commitments and Contingencies
Shareholders' Equity
Common stock -- $.01 par value, issued shares: 1996 and 1995 --
33,924,848............................................................. .3 .3
Capital in excess of par value............................................ 130.9 131.0
Retained (deficit) earnings............................................... (.2) 46.6
Common stock in treasury, at cost, 1,007,932 shares in 1996 and 658,522
shares in 1995......................................................... (22.7) (13.8)
Unearned portion of restricted stock...................................... (.9) (1.7)
------ ------
Total Shareholders' Equity............................................. 107.4 162.4
------ ------
Total................................................................ $627.1 $716.2
====== ======
</TABLE>
The above financial statement should be read in conjunction
with the Notes to Consolidated Financial Statements.
21
<PAGE> 23
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
--------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flow from Operations
Net (loss) earnings............................................... $(46.8) $ 33.4 $ 53.6
Adjustments to reconcile earnings to net cash flow provided by
operations:
Depreciation and amortization.................................. 46.4 46.7 44.2
Nonrecurring charges........................................... 109.5 21.9
Restructuring charge, $16.5 less cash payments of $5.5......... 11.0
Deferred income taxes.......................................... (45.8) (8.4) (2.0)
Changes in assets and liabilities used in operations:
Decrease (increase) in accounts receivable................... 10.8 (8.6) (15.0)
Decrease (increase) in inventories........................... 6.9 (16.0) (4.1)
(Increase) decrease in other current assets.................. (.9) (1.0) 1.2
Decrease (increase) in long-term receivables................. 5.7 (4.2)
(Decrease) increase in accounts payable and accrued
liabilities................................................. (5.9) (.4) 19.5
(Decrease) increase in other current liabilities............. (.7)
Other, net................................................... 6.6 7.1 (2.5)
------ ------ ------
Net cash flow from operations.................................. 91.8 80.4 90.0
------ ------ ------
Cash Flow from Investing Activities
Acquisition....................................................... (39.2)
Additions to property and intangible assets....................... (66.7) (66.1) (38.2)
Proceeds from the sale of property................................ 6.0 4.3 19.2
Other, net........................................................ (3.7) (2.7) (.4)
------ ------ ------
Net cash used by investing activities.......................... (64.4) (64.5) (58.6)
------ ------ ------
Cash Flow from Financing Activities
Discontinued sale of trade receivables............................ (16.6)
Net repayments under credit agreement............................. (17.0) (2.2) (150.7)
Proceeds from long-term debt...................................... 150.0
Repayments of long-term debt, including current maturities........ (1.8) (.2) (.2)
Repurchase of common stock........................................ (8.6) (13.5) (2.0)
Net transactions with Ralston..................................... (12.7)
Other, net........................................................ .6
------ ------ ------
Net cash (used) provided by financing activities............... (27.4) (15.9) (31.6)
------ ------ ------
Net Decrease in Cash and Cash Equivalents........................... -- -- (.2)
Cash and Cash Equivalents, Beginning of Year........................ .2
------ ------ ------
Cash and Cash Equivalents, End of Year.............................. $ -- $ -- $ --
====== ====== ======
</TABLE>
The above financial statement should be read in conjunction
with the Notes to Consolidated Financial Statements.
22
<PAGE> 24
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------------------
COMMON STOCK
CAPITAL IN TREASURY, UNEARNED
RALSTON COMMON STOCK IN AT COST PORTION OF
EQUITY -------------- EXCESS OF --------------- RETAINED RESTRICTED
INVESTMENT SHARES AMOUNT PAR VALUE SHARES AMOUNT EARNINGS STOCK
---------- ------ ------ --------- ------ ------ -------- -----------
(DOLLARS IN MILLIONS, SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993...... $ 474.4
Net earnings................... 40.4
Net transfer of
assets/liabilities from
Ralston..................... (372.1)
Net transactions with
Ralston..................... (12.7)
Stock distribution to holders
of RPG Stock................ (130.0) 33,878 $ .3 $ 129.8 $ (.1)
------- ------ --- ------ ---- ----- ----- ----
Balance, March 31, 1994.......... -- 33,878 .3 129.8 (.1)
Net earnings................... $ 13.2
Treasury stock purchased....... (126) $ (2.0)
Activity under stock plans..... 44 1.1 126 2.0 (3.1)
------- ------ --- ------ ---- ----- ----- ----
Balance, September 30, 1994...... -- 33,922 .3 130.9 -- -- 13.2 (3.2)
Net earnings................... 33.4
Treasury stock purchased....... (633) (13.5)
Activity under stock plans..... 3 .1 (26) (.3)
Amortization of restricted
stock....................... 1.5
------- ------ --- ------ ---- ----- ----- ----
Balance, September 30, 1995...... -- 33,925 .3 131.0 (659) (13.8) 46.6 (1.7)
------- ------ --- ------ ---- ----- ----- ----
Net earnings................... (46.8)
Treasury stock purchased....... (349) (8.6)
Activity under stock plans..... (.1) (.3)
Amortization of restricted
stock....................... .8
------- ------ --- ------ ---- ----- ----- ----
Balance, September 30, 1996...... $ -- 33,925 $ .3 $ 130.9 (1,008) $(22.7) $ (.2) $ (.9)
======= ====== === ====== ==== ===== ===== ====
</TABLE>
The above financial statement should be read in conjunction
with the Notes to Consolidated Financial Statements.
23
<PAGE> 25
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 1: GENERAL INFORMATION
Effective at the close of business on March 31, 1994 (the 1994 Spin-off
Date) Ralcorp Holdings, Inc. (the Company) became an independent, publicly owned
company as a result of the distribution by Ralston Purina Company (Ralston) of
the Company's $.01 par value Common Stock (Ralcorp Stock) to holders of
Ralston-Ralston Purina Group $.10 par value Common Stock (RPG Stock), at a
distribution ratio of one for three (the 1994 Spin-off). Prior to the 1994
Spin-off, the Company was formed as a wholly owned subsidiary of Ralston for the
purpose of effecting the 1994 Spin-off. Included in this transaction was the
transfer of substantially all of the assets and liabilities related to the
branded and private label cereal business (excluding cereal products
manufactured in Korea and France), baby food business, branded and private label
crackers and cookies business, coupon redemption business and the ski operations
business (collectively, the Ralcorp Businesses), all of which were previously
owned by Ralston. Ralston did not retain any ownership interest in the Company.
For the purpose of governing certain of the relationships between Ralston
and the Company, as well as providing an orderly transition to the status of two
separate companies, Ralston and the Company entered into various agreements,
including the Agreement and Plan of Reorganization (the Reorganization
Agreement), Tax Sharing Agreement, Bridging Agreement, Trademark Agreement and
other agreements.
These agreements deal with many operational issues, including (a) the
separation of the Company from Ralston; (b) transitional services provided by
Ralston to the Company, which included certain administrative, data processing
and technical services and office facilities for use as the Company's
headquarters; (c) certain research and other services provided by the Company to
Ralston; (d) use of certain trademarks by the Company; and (e) the allocation of
certain tax and other liabilities among the Company and Ralston.
Charges for any services rendered between the Company and Ralston were
determined on an arms' length basis. As of September 30, 1995 most of these
arrangements had ended.
NOTE 2: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The financial statements as of, and for the years
ended September 30, 1996 and 1995 are presented on a consolidated basis. The
Statement of Earnings for the year ended September 30, 1994 includes the
combined results of operations of the Ralcorp Businesses under Ralston for the
six months prior to the 1994 Spin-off Date and the consolidated results of
operations of the Company for the six month period ended September 30, 1994. All
significant intercompany transactions have been eliminated. The combined
financial statements include assets, liabilities, revenues and expenses that are
directly related to the Ralcorp Businesses.
These financial statements include the accounts of Ralcorp and its
majority-owned subsidiaries. All significant intercompany transactions are
eliminated. Investments in affiliated companies, 20% through 50%-owned, are
carried at equity.
CASH EQUIVALENTS for purposes of the Statement of Cash Flows are considered
to be all highly liquid investments with an original maturity of three months or
less.
FINANCIAL INSTRUMENTS -- The Company has a policy which allows the use of
various derivative financial instruments to manage the Company's financial risk
that exists as part of conducting business. Under the policy, the Company is not
permitted to engage in speculative or leveraged transactions that have the
potential for a disproportionate ratio between the change in value of the
liability being hedged and the expected change in value of the related
derivative instrument. The Company will not hold or issue financial instruments
for trading purposes. As of September 30, 1996, the Company had two interest
rate swap agreements outstanding, each with a notional principal amount of $50.
The differential to be paid or received, with regard to these swap agreements,
is accrued as interest rates change and is recognized over the life of the
agreements.
24
<PAGE> 26
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INVENTORIES are valued generally at the lower of average cost or market. In
connection with purchasing key raw ingredient materials, the Company follows a
policy of from time to time using commodities futures contracts to minimize the
risk associated with market price fluctuations. Such contracts are accounted for
as hedges, with related gains and losses ultimately included as part of the cost
of products sold. The effect of any realized or deferred gains or losses is
immaterial to the financial condition and results of operations of the Company.
PROPERTY AT COST -- Expenditures for new facilities and those which
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Maintenance, repairs and minor renewals
are expensed as incurred. When properties are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts and
gains or losses on the disposition are reflected in earnings.
DEPRECIATION is generally provided on the straight-line basis by charges to
costs or expenses at rates based on the estimated useful lives of the
properties. Estimated useful lives range from 3 to 25 years for machinery and
equipment and 10 to 50 years for buildings.
INTANGIBLE ASSETS include the excess of cost over the net tangible assets
of acquired businesses and are amortized over estimated periods of related
benefit ranging from 4 to 40 years. The Company also defers systems development
costs when they reach technological feasibility. Amounts deferred are amortized
over estimated periods of related benefit not to exceed 5 years. Intangible
assets are included in Investments and Other Assets.
IMPAIRMENT -- The Company continually evaluates whether events or
circumstances have occurred which might impair the recoverability of the
carrying value of its long-lived assets, identifiable intangibles and goodwill.
PROPERTY HELD FOR DEVELOPMENT is recorded at cost and is included in
Investments and Other Assets.
INCOME TAXES -- In accordance with the Tax Sharing Agreement, the Company
is liable for federal, state and local tax liabilities for taxable periods
beginning after the Distribution Date. Accordingly, the Ralcorp Businesses were
included in the consolidated federal, state and local income tax returns filed
by Ralston for periods ending on or before the 1994 Spin-off Date.
Income taxes have been provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). FAS 109
requires the liability method of income tax accounting, accordingly, a deferred
tax liability or asset is recognized for the effect of temporary differences
between financial and tax reporting.
EARNINGS PER SHARE -- The computation of earnings per common share for the
years ended September 30, 1996 and 1995 are based on the weighted average number
of shares of Ralcorp Stock outstanding for the years then ended. Earnings per
common share for the year ended September 30, 1994 is computed using a
combination of the average number of RPG Stock shares outstanding for the six
months ended March 31, 1994, adjusted for the 1 for 3 distribution ratio, and
the weighted average number of Ralcorp shares outstanding for the six months
ended September 30, 1994.
ADVERTISING COSTS are expensed in the year in which the costs are incurred.
ESTIMATES -- The preparation of financial statements in conformity with
Generally Accepted Accounting Principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
25
<PAGE> 27
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
RECLASSIFICATIONS -- Certain reclassifications of the prior year's amounts
have been made to conform with the current year presentation.
NOTE 3: BUSINESS SEGMENT INFORMATION
The Business Segment Information section is an integral part of these
financial statements. The related discussion of the Business Segments financial
condition and results of operations is incorporated from "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
NOTE 4: NONRECURRING CHARGES
In September 1996, the Company recorded a $109.5 pre-tax impairment charge
related to its private label ready-to-eat cereal and consumer hot cereal
operations. Recent and dramatic changes in the pricing and promotion environment
of the ready-to-eat cereal category and the effect these changes have had and
will continue to have on the Company's private label cereal business, caused the
Company to record this charge. The charge was determined under the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
(FAS 121) which was issued by the Financial Accounting Standards Board in March
1995. FAS 121 established accounting standards for recognizing the impairment of
long-lived assets, identifiable intangibles and goodwill, whether to be disposed
of or to be held and used. In general, FAS 121 requires recognition of an
impairment loss when the sum of undiscounted expected future cash flows is less
than the carrying amount of such assets. Ultimately, it was determined that the
projection of future cash flows generated by the private label cereal operations
would not be sufficient to recover the carrying value of assets associated with
such operations. The amount of the September 1996 impairment loss was recognized
by the Company as a write-down of fixed assets to fair value.
In September 1995, the Company decided to exit the industrial oats business
and close oats milling operations at its Cedar Rapids, Iowa facility. This
decision did not affect the Company's branded and private label consumer hot
cereal business which will continue to operate at the Cedar Rapids location. The
consumer and industrial oats businesses were acquired in November 1993 as part
of the acquisition of the National Oats Company from Curtice Burns Foods, Inc.
The decision to exit the industrial business and close milling operations
was reached due to excess industry capacity which depressed selling prices
despite significantly higher raw ingredient costs. In addition, the location of
the milling operations placed the Company at a competitive disadvantage due to
higher freight costs. As a result, the Company recorded, in fiscal 1995, a
nonrecurring pre-tax charge of $10.1 to cover the costs of exit, consisting
primarily of the write-down of the carrying value of related fixed assets, or
$9.8, to fair value less related disposition costs. The fiscal 1995 operating
loss, for the operations affected by the exit decision, was approximately $3.7.
In addition to the exit-related charge, the Company also recorded a
non-recurring pre-tax charge of $11.8 in fiscal 1995 representing the impairment
of the remaining fixed and intangible assets related to the consumer hot cereal
business. (A portion of the fiscal 1996 impairment charge also pertained to
these assets). The entry of a significant new competitor into the private label
hot cereal category adversely affected the price structure of the category and
precipitated the impairment charge. Like the fiscal 1996 charge, this charge and
the previously mentioned exit charge, were determined under the provisions FAS
121. The amount of the September 1995 impairment loss was recognized by the
Company as a write-down of goodwill and fixed assets to fair value.
26
<PAGE> 28
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
With regard to all the above referenced charges, fair value was determined
as the present value of estimated expected future cash flows using a discount
rate commensurate with the risks involved.
NOTE 5: RESTRUCTURING CHARGE
For the year ended September 30, 1996, the Company recorded a pre-tax
charge of $16.5 ($10.4 after taxes or $.31 per common share) to recognize the
costs related to the restructuring of its ready-to-eat cereal subsidiary,
Ralston Foods. As a result of this restructuring plan, approximately 100
positions have been eliminated from the Ralston Foods subsidiary and corporate
support groups, primarily at the Company's headquarters in St. Louis. In
addition, the restructuring plan includes the partial closing of the Ralston
Foods production facility in Battle Creek, MI, thereby reducing excess
production capacity in the Ralston Foods system and eliminating approximately
190 jobs from the production and administrative staffs at that facility.
The components of the restructuring charge and utilization to date were as
follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
-------------------
AMOUNTS AMOUNT
CHARGED UTILIZED BALANCE
------- -------- -------
<S> <C> <C> <C>
Salaries, severance and benefits.................................... $ 8.0 $ 5.0 $ 3.0
Fixed asset writedowns.............................................. 7.3 7.3 --
Other............................................................... 1.2 .5 .7
----- ----- ----
Total.......................................................... $16.5 $ 12.8 $ 3.7
===== ===== ====
</TABLE>
NOTE 6: TRANSACTIONS WITH RALSTON
The Company and Ralston entered into a Bridging Agreement under which
Ralston will continue to provide certain administrative, data processing and
technical services and office facilities for the Company's headquarters. As of
September 30, 1995 most of these arrangements had ended. Prior to the 1994
Spin-off Date the expenses related to these services were allocated to the
Company based on utilization or other methods deemed reasonable by management.
These allocations were $18.1 and $37.8 for the six months ended March 31, 1994,
and year ended September 30, 1993, respectively. Actual expenses paid by the
Company to Ralston for such services had declined to $1.7 for the year ended
September 30, 1996 from $19.2 for the year ended September 30, 1995 and $10.3
for the six months ended September 30, 1994.
In addition, the Company sells certain goods for resale outside the United
States to Ralston. These transactions were at negotiated prices. Included in the
Statement of Earnings are sales to Ralston of $17.7 for the year ended September
30, 1994.
The Company also provides certain coupon and promotional materials
processing services to Ralston. Terms and conditions for such services are
similar to those negotiated by unrelated parties at arm's length, and the
Company's charges to Ralston for these services were $7.7 for the year ended
September 30, 1994.
NOTE 7: ACQUISITIONS
In November 1993, the Company purchased the oats processing and packaging
and cereal making operations of the National Oats Company division of Curtice
Burns Foods, Inc., along with certain related manufacturing assets for $39.2.
This acquisition was accounted for using the purchase method of accounting,
and accordingly, the results of operations are included in the Consolidated
Statement of Earnings from the date of acquisition.
27
<PAGE> 29
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 8: INCOME TAXES
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Current:
United States....................................................... $ 17.9 $26.2 $27.0
State............................................................... 1.6 3.6 4.1
------ ----- -----
Total current.................................................. 19.5 29.8 31.1
------ ----- -----
Deferred:
United States....................................................... (42.1) (7.9) 3.1
State............................................................... (3.7) (.5) .1
------ ----- -----
Total deferred................................................. (45.8) (8.4) 3.2
------ ----- -----
Income taxes before cumulative effect of accounting changes........... $(26.3) $21.4 $34.3
====== ===== =====
</TABLE>
Income taxes were 36.0%, 39.1% and 39.0% of pre-tax earnings in 1996, 1995
and 1994, respectively. A reconciliation of income taxes with the amounts
computed at the statutory federal rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Computed tax at federal statutory rate (35.0% for all years).......... $(25.6) $19.2 $30.8
State income taxes, net of federal tax benefit........................ (2.3) 2.0 2.7
Other, net............................................................ 1.6 .2 .8
------ ----- -----
$(26.3) $21.4 $34.3
====== ===== =====
</TABLE>
The deferred tax assets and deferred tax liabilities as set forth on the
consolidated balance sheet at September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
-------------- --------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Current:
Accrued liabilities........................................... $ 5.4 $ 4.4
Inventories................................................... 3.0 1.9
Other items................................................... .4 .3
----- -----
Total current............................................ 8.8 6.6
----- -----
Noncurrent:
Property basis differences.................................... 4.0 $35.4
Postretirement benefits....................................... 5.9 5.5
Intangible assets............................................. 7.0 3.9
Workers' compensation......................................... 3.0 2.1
Deferred compensation......................................... 1.7 2.4
Other items................................................... 1.8 2.3
----- ----- ----- -----
Total noncurrent......................................... 23.4 15.2 35.4
----- ----- ----- -----
Total deferred taxes............................................ $32.2 $21.8 -- $35.4
===== ===== ===== =====
</TABLE>
The significant change in property basis differences and intangible assets
from September 30, 1995 to September 30, 1996 is directly attributable to the
asset writedowns taken in conjunction with the impairment
28
<PAGE> 30
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
of certain operating assets. See the "Nonrecurring Charges" footnote, found
elsewhere in these Notes to Consolidated Financial Statements, for further
information and details.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company believes it
is probable that the net deferred tax assets, reflected above, will be realized
on future tax returns, primarily from the generation of future taxable income.
Total income tax payments made by the Company were $25.9 and $29.7 for the
years ended September 30, 1996 and 1995, respectively. Tax payments due on
income earned prior to the 1994 Spin-off Date are the responsibility of Ralston.
NOTE 9: PENSION PLAN
The Company sponsors a noncontributory defined benefit pension plan which
covers substantially all regular employees in the United States. The plan
provides retirement benefits based on years of service and final-average or
career-average earnings. It is the Company's practice to fund pension
liabilities in accordance with the minimum and maximum limits imposed by the
Employee Retirement Income Security Act of 1974 (ERISA) and federal income tax
laws. Plan assets consist primarily of investments in commingled employee
benefit trusts consisting of marketable equity securities, corporate and
government debt securities and real estate.
Prior to the spin-off from Ralston, the Company participated in Ralston's
defined benefit pension plans and certain jointly-administered multi-employer
defined benefit plans and recorded pension costs as allocated by Ralston. The
amount of such costs were $2.1 for the six months ended March 31, 1994, which
includes the Company's expenses related to the multi-employer plans. The
components of net pension costs for the periods subsequent to the spin-off
include the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
SEPT. 30, 1996 SEPT. 30, 1995 SEPT. 30, 1994
-------------- -------------- ----------------
<S> <C> <C> <C>
DEFINED BENEFIT PLAN
Service cost (benefits earned during the period).... $ 4.3 $ 4.0 $ 1.9
Interest cost on projected benefit obligation....... 5.6 4.8 2.4
Return on plan assets............................... (10.7) (8.3) (2.9)
Net amortization and deferral....................... 4.8 3.1 .4
------ ----- -----
Total.......................................... $ 4.0 $ 3.6 $ 1.8
====== ===== =====
</TABLE>
29
<PAGE> 31
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The following table presents the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet at September 30, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Actuarial present value of:
Vested benefits........................................................... $(54.6) $(48.1)
Nonvested benefits........................................................ (7.5) (6.4)
------ ------
Accumulated benefit obligation............................................ (62.1) (54.5)
Effect of projected future salary increases............................... (17.3) (18.1)
------ ------
Projected benefit obligation.............................................. (79.4) (72.6)
Plan assets at fair value................................................... 86.3 77.5
------ ------
Plan assets in excess of projected benefit obligation....................... 6.9 4.9
Unrecognized net gain....................................................... (16.7) (12.7)
Unrecognized prior service cost............................................. 3.9 5.0
Unrecognized net asset at transition........................................ (.6) (.6)
------ ------
Accrued pension costs included in Consolidated Balance Sheet................ $ (6.5) $ (3.4)
====== ======
</TABLE>
As a result of the elimination of a significant number of jobs through the
restructuring initiatives taken in the third quarter of fiscal 1996, see the
"Restructuring Charge" footnote, the Company recognized a curtailment gain of
$.7 to the pension plan.
The key actuarial assumptions used in determining net pension costs and the
projected benefit obligation were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C> <C> <C>
Discount rate.................................................................. 7 5/8% 7 5/8%
Rate of future compensation increases.......................................... 5 1/4% 5 1/4%
Long-term rate of return on plan assets........................................ 9 1/2% 9 1/2%
</TABLE>
In addition, the Company sponsors a defined contribution plan covering a
substantial majority of its employees under which the Company makes matching
contributions of up to 100% of employee contributions depending on years of
service. The Company matching contribution is capped at a certain percentage of
employee earnings. Prior to the spin-off from Ralston, most employees of the
Company participated in Ralston's defined contribution plan which provided
benefits on the same basis. The cost of the Company's defined contribution plan
for the years ended September 30, 1996 and 1995 and six months ended September
30, 1994 were $5.2, $5.7 and $3.0, respectively. The costs allocated to the
Company related to its participation in Ralston's defined contribution plan
prior to the spin-off totaled $3.1 for the six months ended March 31, 1994.
NOTE 10: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT BENEFITS
The Company provides health care and life insurance benefits for certain
groups of retired employees who meet specified age and years of service
requirements. The Company is, however, phasing out its subsidy of medical
benefits for a substantial majority of its future retirees. Retiree
contributions are adjusted periodically in order to share increases in the costs
of providing medical benefits.
Prior to the spin-off from Ralston, Ralston allocated the cost of these
benefits to the Company. The costs of retiree health and life insurance benefits
allocated to the Company by Ralston prior to the spin-off were $.7 for the six
months ended March 31, 1994.
30
<PAGE> 32
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The net periodic cost of postretirement benefits for the period subsequent
to the spin-off includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
SEPT. 30, 1996 SEPT. 30, 1995 SEPT. 30, 1994
-------------- -------------- ----------------
<S> <C> <C> <C>
Service cost........................................ $ .3 $ .3 $ .2
Interest cost....................................... 1.0 .9 .5
Amortization of unrecognized prior service cost..... .1 (.1)
---- ------ ------
Net periodic postretirement benefit costs........... $1.4 $ 1.1 $ .7
==== ====== ======
</TABLE>
The following table sets forth the status of the Company's postretirement
benefit plans at September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- ----------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................... $ 3.4 $ 2.1
Fully eligible active plan participants....................... 6.5 6.8
Other active plan participants................................ 4.4 4.6
------ ------
Total accumulated postretirement benefit obligation............. 14.3 13.5
Unrecognized net gain........................................... 1.8 1.8
Unrecognized prior service cost................................. (.7) (.8)
------ ------
Accrued postretirement benefit costs included in Consolidated
Balance Sheet................................................. $ 15.4 $ 14.5
====== ======
</TABLE>
As a result of the elimination of a significant number of jobs through the
restructuring initiatives taken in the third quarter of fiscal 1996, see the
"Restructuring Charge" footnote, the Company recognized a curtailment gain of
$.2 to the postretirement medical and life insurance plan.
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation include a discount rate of 7 5/8% in 1996 and 1995. In 1996
and 1995, the annual increase in per capita costs of covered health care
benefits is assumed to be 6% for all years. If the health care trend rates were
increased one percentage point, the current year postretirement benefit costs
would have increased $.2 and the accumulated postretirement benefit obligation
as of September 30, 1996 would have increased $2.1.
In 1995, the Company adopted Statement of Financial Accounting Standards
No. 112 (FAS 112), "Employers' Accounting for Postemployment Benefits." FAS 112
requires recognition of benefits provided by an employer to former or inactive
employees after employment but prior to such employees' retirement. The effect
of the adoption of this standard did not have a material impact on the Company's
financial position or results of operations.
NOTE 11: LONG TERM DEBT
The Company has available certain borrowings under credit agreements with a
number of banks (Bank Credit Agreements). Provisions of the Bank Credit
Agreements require that the Company maintain certain financial ratios and a
minimum level of shareholders' equity. There was $300.0 available under the Bank
Credit Agreements at September 30, 1995 and through an amendment, in March 1996,
the funds available under the Bank Credit Agreements were reduced to $275.0. The
March 1996 amendment also revised the Bank Credit Agreements maturity date to
March 12, 2001.
31
<PAGE> 33
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
At September 30, 1996 and 1995, long-term debt associated with the
Company's businesses consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
8.75% Notes due 2004......................................... $150.0 $150.0
Bank Credit Agreements....................................... 200.1 217.1
10.85% and 11.15% Notes due 9/30/97 and 9/30/98.............. 3.0 4.5
Refunding Revenue Bonds Series 90
7.20%-7.875% due 9/2/98, 9/1/06 and 9/1/08................. 20.4 20.4
Refunding Revenue Bonds Series 91
7.125% and 7.375% due 9/1/02 and 9/1/10.................... 3.0 3.0
Other........................................................ 1.9 2.2
------ ------
378.4 397.2
Less Current Portion......................................... (1.8) (1.8)
------ ------
$376.6 $395.4
====== ======
</TABLE>
Included in the Bank Credit Agreements line item, at September 30, 1996, is
$140.0 of bank debt that has been borrowed directly by the Company's Resort
Operations and is fully guaranteed by the Company. Also included in the Bank
Credit Agreements line item are short term notes which have maturities ranging
from one day to one month and have been classified as long term debt based on
the Company's intent and ability to renew the obligations on a long-term basis.
Scheduled aggregate maturities on all long-term debt outstanding as of
September 30, 1996 are $3.2, $.3, $.3 and $200.5 for the years ending September
30, 1998 through 2001. These aggregate maturities include outstanding
commitments at September 30, 1996 under the Bank Credit Agreements, which expire
on March 12, 2001. The Company is subject to the payment of commitment fees
based on a fraction of a percentage on the unused portion of the revolving
credit facility included in the Bank Credit Agreements.
NOTE 12: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair Values
The Company's financial instruments primarily include certain short-term
instruments and short and long-term debt. As of September 30, 1996 and 1995, the
fair value of long-term debt, including current maturities, was $391.6 and
$414.2, respectively, compared to the carrying value of $378.4 and $397.2,
respectively. The fair value of the Company's long-term debt has been estimated
using primarily quoted market prices obtained through independent pricing
sources for the same or similar types of borrowing arrangements, taking into
consideration the underlying terms of the debt, such as the coupon rate, term to
maturity, tax impact to investors and imbedded call options, if any.
Due to their nature, the carrying amounts of short-term financial
instruments, such as receivables and accounts payable, reported on the
Consolidated Balance Sheet approximate fair value.
Interest Rate Swap Agreements
In November 1995, in order to hedge its exposure to interest rate
fluctuations on $100 of existing floating rate borrowings under the bank credit
agreements, the Company entered into two interest rate swap transactions.
Notional amounts under both transactions are $50 and have terms that expire in
November 1997 and November 1998. Through these interest rate swaps, the Company
pays interest based on fixed rates of 5.575 percent, for the swap expiring in
November 1997, and 5.682 percent, for the swap expiring November
32
<PAGE> 34
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1998, while receiving a LIBOR-based floating rate. The Company is exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate swap agreements. However, management does not anticipate such
nonperformance. The impact of these interest rate swaps on fiscal 1996 interest
expense was immaterial to the Company's results of operations.
At September 30, 1996, the fair value of the outstanding interest rate
swaps was approximately $.7 of income. This fair value is the estimated amount
the Company would receive to unwind the interest rate swap agreements, taking
into account current interest rates and the credit risk of the counterparties.
Concentration of Credit Risk
The Company's primary concentration of credit risk is related to certain
trade accounts receivable due from several highly leveraged or "at risk"
customers. At September 30, 1996 and 1995 the amount of such receivables was
$3.1 and $4.0, respectively. Consideration was given to the financial position
of these customers when determining the appropriate allowance for doubtful
accounts.
NOTE 13: SHAREHOLDERS' EQUITY
The Company's Restated Articles of Incorporation authorize the issuance of
up to 300,000,000 shares of Common Stock, par value $.01, and 10,000,000 shares
of Preferred Stock, par value $.01. As of September 30, 1996, the Company had
approximately 32,917,000 shares of Common Stock issued and outstanding. The
Company has not issued any shares of Preferred Stock. The terms of any series of
Preferred Stock (including but not limited to the dividend rate, voting rights,
convertibility into other Company securities and redemption) may be set by the
Company's Board of Directors.
On March 24, 1994 the Ralston Board of Directors declared a dividend
distribution of one share purchase right (Right) for each outstanding share of
the Company's Common Stock. Each Right entitles a shareholder to purchase from
the Company one common share at an exercise price of $75 per share subject to
antidilution adjustments. The Rights, however, become exercisable only at the
time a person or group acquires or commences a public tender offer for 20% or
more of the Company's Common Stock. If an acquiring person or group acquires 20%
or more of the Company's Common Stock, the price will be further adjusted so
that holders of Rights (other than the acquiring person or group) may purchase
Common Stock at one-third of its then market price. In the event that the
Company merges with, or transfers 50% or more of its assets or earning power to,
any person or group after the Rights become exercisable, holders of the Rights
may purchase, at the exercise price, Common Stock of the acquiring entity having
a value equal to twice the exercise price. The Rights can be redeemed by the
Board of Directors at $.05 per Right only up to the date a person or group
acquires 20% or more of the Company's Common Stock. Also, following the
acquisition by a person or group of beneficial ownership of at least 20% but
less than 50% of the Company's Common Stock, the Board may exchange the Rights
for Common Stock at a ratio of one share of Common Stock per Right. The Rights
expire on March 31, 2004.
On May 25, 1995, the Company's Board of Directors authorized the repurchase
of up to one million shares of the Company's Common Stock. This authorization
allows the Company's management to make purchases from time to time at
prevailing market prices. The previous year's Board-approved repurchase
authorization of $15.0 worth of the Company's Common Stock was completed during
the current fiscal year. For the year ended September 30, 1996, the Company
repurchased approximately 349,000 shares for $8.6, for the year ended September
30, 1995, the Company repurchased approximately 633,000 shares for $13.5 and for
the six month period ended September 30, 1994 the Company repurchased
approximately 126,000 shares for $2.0, pursuant to such authorizations.
33
<PAGE> 35
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
On September 23, 1994, the Company's Board of Directors approved the grant
of 170,000 shares of Common Stock for restricted stock awards. All of the
previously repurchased treasury shares during the six months ended September 30,
1994, along with approximately 44,000 new shares, were issued under the
restricted stock award.
At September 30, 1996, there were 2,665,304 shares of Company Common Stock
reserved under various employee incentive compensation and benefit plans.
NOTE 14: INCENTIVE COMPENSATION
The Company's Incentive Stock Plan (Plan), adopted in March 1994, reserves
shares which will be used for various stock based compensation awards. The Plan
provides that eligible employees may receive stock option awards and other stock
awards payable in whole or part by the issuance of stock. During 1995, the
Company issued performance-based stock option awards at an option price equal to
the fair market value of the shares at grant date. These awards would vest and
become exercisable only upon achievement of certain share price growth targets.
Compensation expense was recognized throughout the first six months of fiscal
1996 for these awards based on the difference between the share price at grant
date and the share price when the required growth targets are achieved. The
recognition of compensation expense was discontinued, however, upon the
determination that the share price growth targets would not be met. At spin-off
from Ralston, stock option awards relating to shares of RPG Stock held by
employees of the Company were replaced with awards based on the Company's Common
Stock according to a formula which maintained the then current relationship
between the option price and the market value of the shares. During 1994,
subsequent to the spin-off from Ralston, additional stock option awards were
issued at an option price equal to the fair market value of the shares at grant
date and, accordingly, no charge against earnings was made. Proceeds from the
exercise of stock options are credited to the appropriate capital accounts.
Changes in incentive and nonqualified stock options outstanding are
summarized as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
-------------------
<S> <C>
Outstanding at September 30, 1994 ($13.23 to $26.14 per share)............. 994,842
Granted ($23.63 per share)................................................. 318,800
Exercised ($13.23 per share)............................................... (3,576)
Canceled................................................................... (7,439)
---------
Outstanding at September 30, 1995 ($13.23 to $26.14 per share)............. 1,302,627
---------
Granted.................................................................... --
Exercised ($13.23 to $24.08 per share)..................................... (13,555)
Canceled................................................................... (63,191)
---------
Outstanding at September 30, 1996 ($13.23 to $26.14 per share)............. 1,225,881
=========
Shares exercisable at:
September 30, 1995....................................................... 175,815
---------
September 30, 1996....................................................... 245,019
---------
</TABLE>
At September 30, 1996 and 1995 there were 1,386,803 and 1,381,081 shares,
respectively, available for future awards. In addition, at September 30, 1996
and 1995, 98,122 and 140,482 shares, respectively, of restricted stock awards
were outstanding. Restrictions on shares of restricted stock issued to eligible
employees lapse over periods ranging up to 36 months provided continued
employment and, in certain cases, minimum stock price requirements are met.
Compensation cost is recognized over this vesting period.
34
<PAGE> 36
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The Ralcorp Board has determined that immediately prior to the
Distribution, the value of stock options in Ralcorp Common Stock held by
employees will be paid to the recipient in cash. Stock options that have an
exercise price higher than the current price of Ralcorp Common Stock will be
valued at $0.50 per share. The Company estimates that total payments related to
the cash settlement of stock options will be $4.7, which will be recognized as
additional compensation expense in fiscal 1997.
NOTE 15: COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of legal proceedings in various state
and federal jurisdictions. These proceedings are in varying stages and many may
proceed for protracted periods of time. Some proceedings involve highly complex
questions of fact and law.
On January 4, 1993, Ralston was served with the first of nine substantively
identical actions currently pending in the United States District Court for the
District of New Jersey. The suits have been consolidated and styled In Re Baby
Food Antitrust Litigation, No. 92-5495 (NHP). The consolidated proceeding is a
certified class action by and on behalf of all direct purchasers of baby foods
(other than the defendants and governmental entities), alleging that the
Beech-Nut baby food business (and its predecessor Nestle Holdings, Inc.)
together with Gerber Products Company and H. J. Heinz Company, conspired to fix,
maintain and stabilize the prices of baby foods during the period January 1,
1975 to August 31, 1992, and seeking treble damages.
On January 19 and 21, 1993, Ralston was served with two class actions on
behalf of indirect purchasers (consumers) of baby food in California, which
contain substantially identical charges. These actions have been consolidated in
the Superior Court for the County of San Francisco and styled Bruce, et al. v.
Gerber Products Company, et al., No. 94-8857. On January 19, 1993, Ralston was
served with a similar action filed in Alabama state court on behalf of indirect
purchasers of baby food in Alabama, styled Johnson, et al. v. Gerber Products
Company, et al., No. 93-L-0333-NE. Both state actions allege violations of state
antitrust laws and are substantively identical to each other. Similar state
actions may be filed in states having laws permitting suits by indirect
purchasers. Ralston and the Company have agreed in the Reorganization Agreement
that all expenses related to the above antitrust matters will be shared equally,
but that Ralcorp's liability for any settlement or judgment will not exceed $5
million. Expenses and liability with respect to certain other lawsuits which are
not believed by the Company to be material, either individually or in the
aggregate, will also be shared pursuant to the Reorganization Agreement.
The operations of the Company, like those of similar businesses, are
subject to various federal, state, and local laws and regulations intended to
protect public health and the environment, including air and water quality and
waste handling and disposal. Certain Company businesses have received notices
from the U.S. Environmental Protection Agency, state agencies, and /or private
parties seeking contribution, that they have been identified as a "potentially
responsible party" (PRP) under the Comprehensive Environmental Response,
Compensation and Liability Act, and the Company may be required to share in the
cost of cleanup with respect to three waste disposal sites. The Company's
ultimate liability in connection with environmental matters may depend on many
factors including, but not limited to, the volume of material contributed to a
site, the existence of other parties responsible for remediation and their
financial viability, reports of experts (internal or external), and the
remediation methods and technology to be used.
Except as noted, many of the foregoing matters are in preliminary stages,
involve complex issues of law and fact and may proceed for protracted periods of
time. The amount of alleged liability, if any, from these proceedings cannot be
determined with certainty; however, in the opinion of Company management, based
upon the information presently known as well as upon the limitation of its
liabilities set forth in the Reorganization Agreement, the ultimate liability of
the Company, if any, arising from the pending legal proceedings, as well as from
asserted legal claims and known potential legal clams which are probable of
35
<PAGE> 37
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
assertion, taking into account established accruals for estimated liabilities,
should not be material to the Company's consolidated financial position or
results of operations. In addition, while it is difficult to quantify with
certainty the potential financial impact of actions regarding expenditures for
environmental matters, in the opinion of management, based upon the information
currently available, the ultimate liability arising from such environmental
matters should not be material to the Company's consolidated financial position
or results of operations.
LEASE COMMITMENTS
Future minimum rental commitments under noncancelable operating leases in
effect as of September 30, 1996 were: 1997 - $3.8, 1998 - $3.5, 1999 - $3.1,
2000 - $2.3, 2001 - $1.0, thereafter - $0.8.
Total rental expense for all operating leases was $5.3 in 1996, $4.1 in
1995 and $4.2 in 1994.
NOTE 16: SUPPLEMENTAL EARNINGS STATEMENT INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Maintenance and repairs................................................ $32.5 $29.7 $29.3
Research and development............................................... 6.5 7.4 6.7
</TABLE>
NOTE 17: SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Interest paid.......................................................... $27.6 $27.9 $11.3
Income taxes paid...................................................... 25.9 29.7 38.5
</TABLE>
Interest paid by the Company during the six month period ended September
30, 1994 was $10.2. Interest payments for the six month period ended March 31,
1994 and prior years were the responsibility of Ralston. Total income tax
payments made by the Company after the 1994 Spin-off Date were $14.5. Tax
payments due on income earned prior to the 1994 Spin-off Date are the
responsibility of Ralston.
36
<PAGE> 38
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 18: SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Receivables (current) --
Trade..................................................................... $ 63.3 $ 77.9
Income taxes.............................................................. 6.6 4.4
Other..................................................................... 6.6 4.8
Allowance for doubtful accounts........................................... (1.0) (.8)
------ ------
$ 75.5 $ 86.3
====== ======
Inventories --
Raw materials and supplies................................................ $ 26.5 $ 33.4
Finished products......................................................... 76.8 76.7
------ ------
$103.3 $110.1
====== ======
Prepaid Expenses --
Deferred income tax benefits.............................................. $ 8.8 $ 6.6
Prepaid expenses.......................................................... 5.4 4.5
------ ------
$ 14.2 $ 11.1
====== ======
Investments and Other Assets --
Intangible assets (net of accumulated amortization:
1996 -- $10.4 and 1995 -- $7.5(a))..................................... $ 43.2 $ 45.3
Property held for development............................................. 12.4 17.3
Investments in affiliated companies....................................... 29.1 25.3
Deferred charges and other assets......................................... 3.4 3.7
------ ------
$ 88.1 $ 91.6
====== ======
Accounts Payable and Accrued Liabilities --
Trade accounts payable.................................................... $ 54.7 $ 66.1
Incentive compensation, salaries and vacations............................ 7.0 6.6
Property taxes............................................................ 5.3 4.6
Shutdown reserves......................................................... 7.6 5.8
Advertising............................................................... 9.6 6.4
Other items............................................................... 16.4 13.3
------ ------
$100.6 $102.8
====== ======
</TABLE>
- -------------------------
(a) Excludes $.8 of amortization related to National Oats goodwill, all of which
was eliminated through the September 1995 nonrecurring charges.
NOTE 19: ANALYSIS OF BALANCE SHEET CHANGES
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Allowance for Doubtful Accounts --
Balance, beginning of year.................................... $ .8 $ .7 $ .9
Provision charged to expense.................................. .8 .4 .3
Writeoffs, less recoveries.................................... (.6) (.3) (.5)*
---- ---- ----
Balance, end of year............................................ $1.0 $ .8 $ .7
==== ==== ====
</TABLE>
- -------------------------
* Includes $.4 adjustment to beginning allocated balance, actual writeoffs were
$.1.
37
<PAGE> 39
RALCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Property at Cost --
Balance, beginning of year....................... $669.3 $634.9 $590.5
Additions........................................ 60.2 59.3 62.0(d,e)
Acquisitions(f).................................. 22.4
Disposals........................................ (192.5)(a) (24.9)(c) (40.0)(g)
------ ------ ------
Balance, end of year............................... $537.0 $669.3 $634.9
====== ====== ======
Accumulated Depreciation --
Balance, beginning of year....................... $252.2 $218.7 $177.9
Depreciation provision........................... 43.5 44.1 60.6(d,e)
Disposals........................................ (81.3)(b) (10.6)(c) (19.8)(g)
------ ------ ------
Balance, end of year............................... $214.4 $252.2 $218.7
====== ====== ======
</TABLE>
- -------------------------
(a) Includes the impairment of assets related to the private label ready-to-eat
cereal and consumer hot cereal operations (decrease of $178.6).
(b) Includes the impairment of assets related to the private label ready-to-eat
cereal and consumer hot cereal operations (decrease of $78.0). Also,
includes asset writedown related to the third quarter fiscal 1996
restructuring charge, which increased accumulated depreciation $5.8.
(c) Includes write-down of fixed assets related to exit of industrial oats and
oats milling operations and impairment of the consumer hot cereal business
(decreases of $13.1 in property and $3.1 in accumulated depreciation).
(d) Includes valuation adjustment related to Keystone Resort ($13.9 addition to
property and accumulated depreciation).
(e) Includes asset transfers from Ralston at spin-off of $9.9, and related
accumulated depreciation of $5.0.
(f) Includes acquisition of National Oats in 1994.
(g) Represents net book value of property disposals. Actual proceeds from the
sale of the related property were $19.2.
38
<PAGE> 40
RALCORP HOLDINGS, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The results of any single quarter are not necessarily indicative of the
Company's results for the full year. Net earnings of the Company are highly
seasonal, primarily due to resort operations which earn more than the entire
year's operating profit during the second fiscal quarter. Cereal operations are
also affected by seasonal CHEX party mix promotions which increase sales volume
during the first fiscal quarter of the year.
<TABLE>
<CAPTION>
FISCAL 1996 FIRST SECOND THIRD FOURTH
- ---------------------------------------------- ------ ------ -------- -------
<S> <C> <C> <C> <C>
Net sales..................................... $295.3 $277.4 $ 230.1 $ 224.6
Gross profit.................................. 153.0 138.0 103.5 96.1
Net earnings (loss)........................... 14.7 21.2 (16.3)(a) (66.4)(b)(c)
Net earnings per common share(e)(f)........... .44 .64 (.50)(a) (2.02)(b)(c)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995 FIRST SECOND THIRD FOURTH
- ---------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales..................................... $278.4 $258.3 $231.5 $245.2
Gross profit.................................. 146.0 123.4 105.4 108.2
Net earnings.................................. 17.1 21.9 5.1 (10.7)(d)
Net earnings per common share(e)(f)........... .51 .65 .15 (.32)(d)
</TABLE>
- -------------------------
(a) Net earnings (loss) and earnings (loss) per share were negatively affected
by the inclusion of pre-tax restructuring charge of $20.7 ($12.7 after
taxes, or $.39 per share).
(b) Net earnings (loss) and earnings (loss) per share were negatively affected
by the inclusion of pre-tax nonrecurring charges of $109.5 ($68.8 after
taxes, or $2.09 per share) and the recording of certain transaction costs
related to the Company's proposed resorts sale totaling $4.0, pre-tax ($2.5
after taxes, or $.08 per share). Partially offsetting these negative factors
was a pre-tax adjustment to the third quarter restructuring charge of $4.2
($2.6 after taxes, or $.08 per share).
(c) Net earnings were favorably impacted by adjustments to advertising and
promotion accruals recorded earlier in the year. Advertising and promotion
expense for the fiscal 1996 fourth quarter was $44.1 compared to fiscal 1995
fourth quarter expense of $52.1, despite full fiscal 1996 advertising and
promotion expense being $20.1 higher than fiscal 1995. This adjustment
became necessary when it was determined that redemption levels for in-ad
coupon programs and cereal sales volumes were below the expectations used to
record advertising and promotion expense in the previous fiscal 1996
quarters.
(d) Net earnings (loss) and earnings (loss) per share for the fourth quarter of
1995 were negatively affected by the inclusion of pre-tax nonrecurring
charges of $21.9 ($13.6 after taxes, or $.41 per share) and by the write-off
of small dollar accounts receivable of $2.4, pre-tax ($1.5, after taxes, or
$.045 per share).
(e) Based on actual weighted average outstanding shares of Ralcorp Stock for all
periods presented.
(f) Earnings (loss) per common share is computed independently for each of the
periods presented, therefore, the sum of the earnings per common share
amounts for the quarters may not equal the total for the year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to the Ralcorp Restated Articles of Incorporation and Bylaws, the
Board of Directors of Ralcorp (the "Ralcorp Board") consists of from five to
twelve individuals, divided into three approximately equal
39
<PAGE> 41
classes with each class serving a three-year term. The Ralcorp Board has set the
number of directors as six. The following table sets forth information as to
each member of the Ralcorp Board (the directors' ages are as of December 31,
1996). Ralcorp's Bylaws provide that no person may stand for election or
re-election as a director after having attained the age of 70. Mr. Stiritz
serves as the Chairman of the Ralcorp Board.
<TABLE>
<CAPTION>
TERM
NAME AGE EXPIRES INFORMATION
- ------------------------------ --- ------- -----------------------------------------------
<S> <C> <C> <C>
William H. Danforth........... 70 1999 Dr. Danforth has been a director of Ralcorp
since March, 1994. He is Chairman of the Board
of Trustees of Washington University and has
served in that capacity since July, 1995. He
retired as Chancellor of Washington University
in June, 1995, a position he held since 1971.
He is also a director of McDonnell Douglas
Corporation and Ralston Purina Company.
William D. George, Jr. ....... 64 1998 Mr. George has been a director of Ralcorp since
March, 1994. He is President and Chief
Executive Officer and a member of the Board of
Directors of S. C. Johnson & Son, Inc. and has
served in that capacity since 1993. He served
as S. C. Johnson's President and Chief
Operating Officer, Worldwide Consumer Products
from 1990 to 1993. He is also a director of
Arvin Industries, Inc. and Moorman
Manufacturing Company.
Jack W. Goodall............... 58 1997 Mr. Goodall has been a director of Ralcorp
since March, 1994. He is Chairman of the Board
of Foodmaker, Inc. and has served in that
capacity since April, 1996. He served as
Chairman, President and Chief Executive Officer
of Foodmaker, Inc. from 1985 to 1996. He is
also a director of Thrifty PayLess, Inc. and
Van Camp Seafood Co., Inc.
David W. Kemper............... 46 1998 Mr. Kemper has been a director of Ralcorp since
October, 1994. He is Chairman, President and
Chief Executive Officer of Commerce Bancshares,
Inc. and has served in that capacity since
1991. He served as Commerce Bancshares' Chief
Executive Officer and President from 1986 to
1991. He is also a director of Seafield Capital
Corporation, Tower Properties Company and Wave
Technologies International, Inc.
Joe R. Micheletto............. 60 1997 Mr. Micheletto has been a director of Ralcorp
since January, 1994. See additional information
under Item 4(a).
William P. Stiritz............ 62 1998 Mr. Stiritz has been a director and the
Chairman of the Board of Ralcorp since January,
1994. He is Chairman of the Board, Chief
Executive Officer and President of Ralston
Purina Company and has served in that capacity
since 1982. He is also a director of Angelica
Corporation, Ball Corporation, Boatmen's
Bancshares, Inc., Interstate Bakeries
Corporation, Reinsurance Group of America,
Incorporated and The May Department Stores
Company.
</TABLE>
40
<PAGE> 42
DIRECTORS' MEETINGS, FEES AND COMMITTEES
The Ralcorp Board has five regularly scheduled meetings per year, and holds
such special meetings as deemed advisable, to review significant matters
affecting the Company and to act upon matters requiring Board approval. During
fiscal year 1996, five regular meetings, two special telephonic meetings and one
consent of Board of Directors in lieu of special meeting were held.
Non-management directors receive an annual retainer of $20,000, and are also
paid $2,500 for attending each regular or special Board meeting and $1,000 for
attending each standing committee meeting and for each telephonic meeting and
consent to action without a meeting. The Company also pays the premiums on
Directors' and Officers' Liability, and travel accident insurance policies
insuring directors. A director who is also an employee (Mr. Micheletto) receives
no renumeration for service as a Director.
The Company has a Deferred Compensation Plan for Non-Management Directors
(the "DCP"). Under this plan, any non-management director may elect to defer,
with certain limitations, all retainers and fees until retirement or other
termination of his directorship. Deferrals may be made in Common Stock
equivalents in an Equity Option (stock equivalents) or may be made in cash under
a Variable Interest Option (interest at prime rate). Deferrals in the Equity
Option receive a 33 1/3% Company matching contribution which will also be in
Common Stock equivalents. All Stock equivalents credited to a recipient will
also be credited with dividend equivalents at any time that cash dividends are
declared and paid on Common Stock; when sufficient in amount, such equivalents
will be converted into additional Common Stock equivalents. Deferrals and
related earnings will be paid out in a lump sum in cash to the Director at the
Director's termination of service, or total disability or to the Director's
estate or beneficiary upon the Director's death.
The Ralcorp Board has established and designated specific functions and
areas of oversight to a Nominating and Compensation Committee and an Audit
Committee. A description of these standing committees and their membership as of
December 30, 1996 follows:
Audit Committee -- D. W. Kemper (Chairman); W. H. Danforth; W. D. George,
Jr.; J. W. Goodall; W. P. Stiritz
The Audit Committee consists entirely of non-management Directors. It is
responsible for matters relating to accounting policies and practices, financial
reporting, and internal controls. Each year it recommends to the Ralcorp Board
the appointment of a firm of independent accountants to examine the financial
statements of Ralcorp, and reviews with representatives of the independent
accountants the scope of the examination of Ralcorp financial statements,
results of audits, audit costs, and recommendations with respect to internal
controls and financial matters. It also reviews nonaudit services rendered by
Ralcorp's independent accountants and periodically meets with or receive reports
from principal corporate officers. The Audit Committee met twice in fiscal year
1996.
Nominating and Compensation Committee -- J. W. Goodall (Chairman); W. H.
Danforth; W. D. George, Jr.; D. W. Kemper; W. P. Stiritz
The Nominating and Compensation Committee consists entirely of
non-management Directors free from interlocking or other relationships that
might be considered a conflict of interest. It recommends to the Ralcorp Board
nominees for election as Directors and Executive Officers of the Company.
Additionally, it makes recommendations to the Ralcorp Board regarding election
of Directors to positions on committees of the Ralcorp Board and compensation
and benefits for Directors. The Nominating and Compensation Committee also
considers suggestions from shareholders regarding possible Director candidates.
Such suggestions, together with appropriate biographical information, should be
submitted to the Secretary of the Company. This Committee also sets the
compensation of all Executive Officers and administers Ralcorp's Deferred
Compensation Plan for Key Employees and Incentive Stock Plan, including the
granting of awards under the latter plan, other than to Directors on this
Committee. It also reviews the competitiveness of management compensation and
benefit programs, and principal employee relations policies and procedures. The
Nominating and Compensation Committee met twice in fiscal year 1996.
41
<PAGE> 43
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
INTRODUCTION AND SUMMARY
The following tables and narrative text discuss the compensation paid in
fiscal year 1996 to the Named Executive Officers, i.e., the Company's current
Chief Executive Officer and President, its former Chief Executive Officer and
President and the Company's three other most highly compensated executive
officers (collectively, the "Named Executive Officers").
The Summary Compensation Table set forth below also summarizes compensation
received by the Named Executive Officers from the date of the spin-off of the
Company by Ralston Purina Company on March 31, 1994 through the end of fiscal
year 1994, that is, for six months rather than for a full fiscal year.
Annualized salaries, i.e., the salary amounts which would have been paid to the
Named Executive Officers had they been paid for the full 1994 fiscal year at the
rates in effect from the spin-off date through the end of the 1994 fiscal year
are as follows: Micheletto -- $210,000; Bresler -- $130,000; Lockwood --
$160,000; Nichols -- $135,000; and Pearce -- $300,000.
The full amount of bonuses paid by the Company at the end of fiscal year
1994 are reflected in the "Bonus" column. No attempt has been made to pro rate
bonuses based on the relationship between the period before the spin-off and the
period after the spin-off.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
(AWARDS)
ANNUAL COMPENSATION ---------------------------
---------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
SALARY COMPENSATION STOCK AWARD(S) OPTIONS COMPENSATION
NAME & PRINCIPAL POSITION(1) YEAR ($)(2) BONUS($) ($) ($)(3) (#) ($)(4)
- ---------------------------- ---- -------- -------- ------------ -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. R. Micheletto............ 1996 $210,000 $100,000 $ 19,481 0 0 $ 46,733
Chief Executive Officer 1995 $210,000 $100,000 $ 13,169 0 20,000 $ 41,497
and President 1994 $105,000 $100,000 $ 6,361 $638,750 156,746 $ 26,940
A. R. Bresler............... 1996 $152,000 $ 55,010 0 0 0 $1,396,165
Vice President; and
President 1995 $135,000 $ 55,010 $ 12,676 0 12,000 $ 35,795
Beech-Nut Nutrition 1994 $ 65,000 $ 57,000 $ 6,000 $182,500 131,014 $ 29,242
Corporation
R. W. Lockwood.............. 1996 $182,000 $ 43,000 $ 0 0 0 $ 21,863
Vice President, General 1995 $165,000 $ 43,000 $ 12,815 0 12,000 $ 20,900
Counsel and Secretary 1994 $ 80,000 $ 38,000 $ 6,239 $182,500 32,256 $ 9,800
J. A. Nichols............... 1996 $157,000 $ 60,000 $ 596 0 0 $ 42,080
Vice President; and 1995 $140,000 $ 60,000 $ 12,286 0 15,000 $ 38,904
President, Ralston Foods 1994 $ 67,500 $ 46,000 $ 6,000 $146,000 112,781 $ 26,227
R. A. Pearce................ 1996 $300,000 $150,000 $ 22,473 0 0 $1,418,685
Chief Executive Officer 1995 $300,000 $150,000 $ 15,848 0 20,000 $ 41,560
and President 1994 $150,000 $150,000 $ 7,920 $638,750 141,552 $ 27,614
</TABLE>
- ---------------
1. Mr. Pearce, Chief Executive Officer and President, resigned this position on
September 27, 1996. Mr. Bresler, Vice President; and President, Beech-Nut
Nutrition Corporation, resigned this position on October 14, 1996.
2. In fiscal year 1996, car allowances for Messrs. Bresler, Lockwood and Nichols
were rolled into their salaries. Prior to that time, car allowances were
included in the column "Other Annual Compensation."
3. The aggregate restricted stock holdings and value at September 30, 1996 for
the Named Executive Officers were as follows: Micheletto -- 21,000 shares
($435,750); Bresler -- 6,000 shares ($124,500); Lockwood -- 6,000 shares
($124,500); Nichols -- 4,800 shares ($99,600); and Pearce -- 21,000 shares
($435,750).
42
<PAGE> 44
Under the terms of the grant, restricted shares reflected in this column
vested or will vest as follows: 20% of the total award on September 23 of
each of the years 1995, 1996, 1997, and 1998 and on March 30, 1999.
The Company does not currently pay dividends on its Common Stock. If it does
so in the future, dividends on restricted stock will be retained by the
Company until the restrictions on the underlying shares lapse, at which time
the dividends, with interest at the prime rate, will be distributed. If the
shares are forfeited, accrued dividends and interest would also be forfeited.
4. The amounts shown in this column consist of the following: (i) Company
matching contributions or accruals to Ralcorp's Savings Investment Plan and
Executive Savings Investment Plan. Such amounts are $19,600, $9,120, $11,113,
$9,513, and $28,500, respectively, for Messrs. Micheletto, Bresler, Lockwood,
Nichols and Pearce; (ii) Amounts attributable to the portion of split-dollar
life insurance premiums paid by Ralcorp. These amounts will be repaid on a
specified future date. Amounts included are equal to the premiums outstanding
during fiscal year 1996 multiplied by the Company's approximate borrowing
rate for money borrowed for comparable periods. Such amounts are $27,133,
$16,645, $17,567 and $4,458, respectively, for Messrs. Micheletto, Bresler,
Nichols and Pearce; (iii) Company 25% matching contributions on deferrals
under the Equity Option of the Deferred Compensation Plan for Key Employees.
Such amounts are $5,000, $10,750 and $15,000, respectively, for Messrs.
Bresler, Lockwood and Nichols; and, (iv) For Messrs. Bresler and Pearce,
$1,365,400 and $1,385,727 respectively to be paid in cash pursuant to
severance arrangements described on page 44 (pursuant to such severance
arrangements). Mr. Bresler's restricted stock and Mr. Pearce's restricted
stock and stock options also vested.
STOCK OPTIONS
The following table sets forth fiscal year end option values. No options
were exercised by any of the Named Executive Officers during fiscal year 1996.
The Company has never granted Stock Appreciation Rights.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. R. Micheletto............................... 15,194 161,552 $ 56,031 $ 646,288
A. R. Bresler.................................. 30,389 112,625 $ 178,072 $ 460,330
R. W. Lockwood................................. 13,679 30,577 $ 96,404 $ 69,139
J. A. Nichols.................................. 64,424 63,357 $ 462,318 $ 244,557
R. A. Pearce................................... 42,544 119,008 $ 266,904 $ 415,381
</TABLE>
COMPENSATION PURSUANT TO PLANS
During fiscal year 1996, the Company maintained certain plans that provided
benefits to executive officers and other employees of the Company. Descriptions
of some of these plans follow. The descriptions provided are in summary form and
are contained in this Form 10-K solely in order to meet SEC requirements
regarding disclosure of the compensation of the Named Executive Officers and
should not be used for any other purpose.
SEVERANCE AGREEMENTS
The Company has management continuity agreements with the Named Executive
Officers. The purpose of the agreements is to provide severance compensation to
each covered executive officer in the event of the officer's voluntary or
involuntary termination after a change in control of the Company. The
compensation provided would be in the form of a lump sum payment equal to the
present value of continuing the executive officer's salary and bonus for a
specified period following the executive officer's termination of employment,
43
<PAGE> 45
the continuation of other executive benefits for the same applicable period and
certain pension bridging payments. The initial applicable period is three years
in the event of an involuntary termination of employment (including a
constructive termination) and one year, in the event of a voluntary termination
of employment, which periods are subject to reduction for each complete year the
executive officer remains employed following the change in control. No payments
would be made in the event the executive officer's termination is due to death,
disability or normal retirement, or is for cause, nor would any payments
continue beyond the executive officer's normal retirement date. Contracts
governing options and restricted stock awards to executive officers provide that
upon a change in control of the Company: all terms, conditions, restrictions and
limitations in effect with respect to any unexercised award lapse and no other
terms and conditions will be applied; any unexercised, unvested, unearned or
unpaid shares become 100% vested; and stock awards with performance conditions
will be treated as if the performance objectives had been obtained at a level of
100%.
Two of the Named Executive Officers have resigned as employees of the
Company effective, in the case of Mr. Pearce, on December 31, 1996, and, in the
case of Mr. Bresler, on November 30, 1996. Their resignations as officers were
effective as reflected in note 1 to the Summary Compensation Table on page 42.
In light of their past service and their agreement to meet certain conditions in
the future, the Company has entered into separation agreements with each of
these Named Executive Officers.
Pursuant to Mr. Pearce's agreement, he will receive a cash payment of
$1,385,727, the vesting of all restricted stock held by him and of the Company
match on his deferred compensation, the transfer to him of ownership of his
Company-provided automobile, outplacement assistance, the crediting of three
additional years of service and earnings for retirement plan purposes and the
vesting of his nonvested options (or payment of their value in cash).
Mr. Bresler will receive a cash payment of $1,365,400, the vesting of his
restricted stock and deferred compensation Company match and outplacement
assistance.
RETIREMENT PLAN
The Ralcorp Retirement Plan for Sales, Administrative and Clerical
Employees (the "Retirement Plan") may provide pension benefits in the future to
the Named Executive Officers. Substantially all regular U.S. sales,
administrative, clerical and production employees having one year of service
with the Company or certain of its majority-owned subsidiaries are eligible to
participate in the Retirement Plan. Employees become vested after five years of
service. Normal retirement is at age 65; however, employees who work beyond age
65 may continue to accrue benefits.
Annual benefits are computed by multiplying the participant's Final Average
Earnings (average of participant's five highest consecutive annual earnings
during the ten years of service prior to retirement or earlier termination) by
the product of 1.5% times the participant's years of service (to a maximum of 40
years) and by subtracting from that amount up to one-half of the participant's
primary social security benefit at retirement (with the actual amount of offset
determined by age and years of service at retirement).
The following table shows the estimated annual retirement benefits that
would be payable from the Retirement Plan to salaried employees, including the
Named Executive Officers, assuming age 65 retirement on the basis of a
straight-life annuity. To the extent an employee's compensation or benefits
exceed certain limits imposed by the Code, the table also includes benefits
payable from an unfunded supplemental retirement plan. The table reflects
benefits prior to the subtraction of social security benefits as described
above.
44
<PAGE> 46
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION YEARS OF SERVICE
(FINAL AVERAGE -------------------------------------------------------------------------------
EARNINGS) 10 15 20 25 30 35 40
- ----------------------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000............. $15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500 $ 60,000
$200,000............. $30,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $105,000 $120,000
$300,000............. $45,000 $ 67,500 $ 90,000 $112,500 $135,000 $157,500 $180,000
$400,000............. $60,000 $ 90,000 $120,000 $150,000 $180,000 $210,000 $240,000
$500,000............. $75,000 $112,500 $150,000 $187,500 $225,000 $262,500 $300,000
$600,000............. $90,000 $135,000 $180,000 $225,000 $270,000 $315,000 $360,000
</TABLE>
For the purpose of calculating retirement benefits, the Named Executive
Officers had, as of September 30, 1996, the following years of credited service,
calculated to the nearest year: Messrs. Micheletto -- 34 years; Bresler -- 18
years; Lockwood -- 20 years; Nichols -- 21 years; and Pearce -- 24 years.
Credited service includes service with Ralston Purina Company, the Company's
former parent corporation. Earnings used in calculating benefits under the
Retirement Plan and any unfunded supplemental retirement plan previously
described are approximately equal to amounts included in the Salary and Bonus
columns in the Summary Compensation Table on page 42.
OTHER BENEFIT PLANS
The Company has an Executive Life Plan, under which, following retirement,
beneficiaries of eligible executive officers or other eligible employees will be
provided a death benefit in an amount equal to 50% of the earnings recognized
under the Company's benefit plans for the executive officer or other eligible
employee during the last full year of employment. This benefit is not presently
insured or funded.
The Company's Executive Health Plan is a hospital and medical reimbursement
plan covering active key management employees, including certain executive
officers, and their dependents. Employees eligible for this plan must
participate in the Company's Comprehensive Health Plan, which is available to
certain employees at their own expense. The Executive Health Plan provides
coverage, at no cost to the participant, for 100% of medical expenses incurred,
up to $35,000 per year, provided such expenses constitute deductible medical
expenses for federal income tax purposes and provided that the expenses are not
payable by the Comprehensive Health Plan.
The Company has also adopted an Executive Long-Term Disability Plan which
provides benefits to its corporate officers, including certain executive
officers, in the event they become disabled. The Long-Term Disability Plan,
which is available to certain regular employees of the Company and in which
officers must participate at their own expense in order to be eligible for the
Executive Long-Term Disability Plan. The Plan imposes a limit of $5,000 per
month (60% of a maximum annual salary of $100,000) on the amount paid to a
disabled employee. The Executive Long-Term Disability Plan will provide a
supplemental benefit equal to 60% of the difference between the executive
officer's previous year's earnings recognized under the Company's benefit plans
and $100,000, with appropriate taxes withheld.
INDEBTEDNESS OF MANAGEMENT
Immediately prior to the spin-off, Ralston Purina Company loaned money to
certain executive officers of the Company to pay income taxes on the vesting of
Ralston restricted stock awards. The vesting of such awards was accelerated and
such executive officers were required to exchange the Ralston stock for Ralcorp
Common Stock immediately prior to the spin-off. Pursuant to certain securities
regulations and the IRS ruling concerning the federal tax treatment of the
spin-off, such executive officers are prohibited from selling the Common Stock
received pursuant to such exchange to pay taxes until certain events take place.
Ralston assigned the promissory notes governing the loans to the Company.
Subsequent to the spin-off it was determined that the amounts of the loans were
inadequate to cover the taxes and additional loans were made by the Company.
Interest on the loans has been forgiven. The loans are required to be repaid
once such
45
<PAGE> 47
executive officers are free to sell the Common Stock received in the exchange.
The principal amounts outstanding under the loans for such Named Executive
Officers are: Micheletto -- $236,760; Lockwood -- $18,769; and
Pearce -- $383,090. Amounts attributable to the forgiven interest are not
included in the Summary Compensation Table on page 42 because the loans are not
intended to be compensatory.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF COMMON STOCK
The following table sets forth Ralcorp Common Stock ownership information
with respect to each of Ralcorp's Directors, five highest paid Executive
Officers (the "Named Executive Officers"), and all Directors and Executive
Officers as a group and with respect to each person who owns more than 5% of
Ralcorp Common Stock. Ownership information for 5% holders is as of October 31,
1996. Ownership information for Directors, Named Executive Officers and all
Directors and Executive Officers as a group is as of November 30, 1996. Except
as noted, all such parties possess sole voting and investment powers with
respect to the shares noted. An asterisk in the column listing the percentage of
shares beneficially owned indicates the person owns less than 1% of the Ralcorp
Common Stock as of November 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF SHARES EXPLANATORY
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING(A) NOTES
- ---------------------------------------------------- ------------------ -------------- -----------
<S> <C> <C> <C>
Boatmen's Bancshares, Inc. ......................... 1,785,459 5.4% (B)
One Boatmen's Plaza
St. Louis, MO 63101
FMR Corp. .......................................... 2,825,317 8.6% (C)
82 Devonshire Street
Boston, MA 02109
William H. Danforth................................. 307,417 * (D)(E)(F)
William D. George, Jr. ............................. 1,000 *
Jack W. Goodall..................................... 35,100 *
David W. Kemper..................................... 1,000 * (E)
Joe R. Micheletto................................... 71,084 * (G)
William P. Stiritz.................................. 281,959 * (E)(H)
Andrew R. Bresler................................... 7,255 * (I)
Robert W. Lockwood.................................. 31,070 * (J)
James A. Nichols.................................... 96,182 * (K)
Richard A. Pearce................................... 162,100 * (L)
All Directors and Executive Officers as a group (15
persons).......................................... 1,045,673 3.2% (M)
</TABLE>
- ---------------
(A) For purposes of calculating the percentage of Shares Outstanding owned by
each individual or the group, Shares Outstanding were deemed to be (i)
shares actually outstanding on November 30, 1996, plus, in the case of each
Named Executive Officer and of the group, (ii) shares attributable to stock
options held by the officer or members of the group which could be exercised
for Common Stock within 60 days after December 3, 1996.
(B) This amount consists of shares of Common Stock owned by the following
subsidiaries of Boatmen's Bancshares, Inc: Boatmen's Trust Company --
1,783,259 shares and other Boatmen's Bancshares subsidiaries -- 2,200
shares. Of such shares, Boatmen's has voting and investment powers as
follows: sole voting -- 390,459 shares; shared voting -- 1,393,920 shares;
sole investment -- 87,934 shares; and shared investment -- 1,637,280
shares. Of such shares, voting and investment powers for 254,922 shares are
shared with Dr. Danforth who is a director of the Company.
46
<PAGE> 48
(C) Includes 1,979,132 shares beneficially owned by Fidelity Management &
Research Company, as a result of its serving as investment adviser to
various investment companies registered under Section 8 of the Investment
Company Act of 1940 and its serving as investment adviser to certain other
funds which are generally offered to limited groups of investors; 838,685
shares beneficially owned by Fidelity Management Trust Company, as a result
of its serving as trustee or managing agent for various private investment
accounts, primarily employee benefit plans and its serving as investment
adviser to certain other funds which are generally offered to limited groups
of investors; and 7,500 shares beneficially owned by Fidelity International
Limited, as a result of its serving as investment adviser to various
non-U.S. investment companies. FMR Corp. has sole voting power with respect
to 651,293 shares and sole investment power with respect to 2,817,817
shares. Fidelity International Limited has sole voting and investment powers
with respect to all the shares it beneficially owns.
(D) Excludes 1,100,000 shares, or 3.3% of the outstanding Common Stock, held by
The Danforth Foundation, St. Louis, Missouri. Dr. Danforth is one of the ten
trustees of the Foundation. Dr. Danforth disclaims beneficial ownership of
such shares.
(E) Excludes 841,870 shares, or 2.6% of the outstanding Common Stock, held by
Washington University, St. Louis, Missouri. Dr. Danforth is Chairman of the
Board of Trustees of the University and Messrs. Stiritz and Kemper serve on
the University's Board of Trustees, which consists of 49 members.
(F) Dr. Danforth has sole voting and investment powers respecting 22,648
shares. He shares voting and investment powers respecting 284,769 shares,
and disclaims beneficial ownership of 29,847 of such shares.
(G) Includes 21,000 restricted shares of Common Stock as to which Mr. Micheletto
presently has only voting power and 30,388 shares of Common Stock which are
not presently owned but could be acquired within 60 days by the exercise of
stock options. Also includes 9,381 shares of Common Stock held under the
Company's Savings Investment Plan. Mr. Micheletto has only voting power with
respect to 1,279 of these shares.
(H) Includes 3,333 shares of Common Stock owned by Mr. Stiritz's wife.
(I) Includes 1,699 shares of Common Stock held under the Company's Savings
Investment Plan. Mr. Bresler has only voting power with respect to these
shares.
(J) Includes 6,000 restricted shares of Common Stock as to which Mr. Lockwood
presently has only voting power, 216 shares of Common Stock as to which he
shares voting and investment powers, and 14,443 shares of Common Stock
which are not presently owned but could be acquired within 60 days by the
exercise of stock options. Also includes 2,085 shares of Common Stock held
under the Company's Savings Investment Plan. Mr. Lockwood has only voting
power with respect to 2,081 of these shares.
(K) Includes 4,800 restricted shares of Common Stock as to which Mr. Nichols
presently has only voting power and 64,424 shares of Common Stock which are
not presently owned but could be acquired within 60 days by the exercise of
stock options. Also includes 3,866 shares of Common Stock held under the
Company's Savings Investment Plan. Mr. Nichols has only voting power with
respect to 1,778 of these shares.
(L) Includes 21,000 shares of Common Stock as to which Mr. Pearce presently has
only voting power and 54,699 shares of Common Stock which are not presently
owned but could be acquired within 60 days by the exercise of stock
options. Also includes 14,898 shares of Common Stock held under the
Company's Savings Investment Plan. Mr. Pearce has only voting power with
respect to 1,166 of these shares.
(M) With respect to all Executive Officers except those named in the above
Table: includes 10,827 shares of Common Stock held under the Company's
Savings Investment Plan (the Executive Officers have only voting power with
respect to 6,607 of these shares); 14,237 restricted shares of Common Stock
as to which such officers presently have only voting power; and 12,774
shares of Common Stock which are not presently owned but could be acquired
within 60 days by the exercise of stock options.
47
<PAGE> 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Stiritz is the Chairman of the Ralcorp Board and is on the Company's
Nominating and Compensation Committee and is Chairman of the Board, Chief
Executive Officer and President of Ralston Purina. Since its spin-off from
Ralston Purina in 1994, Ralcorp has engaged in several transactions with Ralston
Purina. During fiscal 1996, Ralston Purina paid Ralcorp approximately $1.35
million for coupon and promotional processing services; such services have been
discontinued. Also, during fiscal 1996, Ralston Purina purchased approximately
$10.55 million of Ralcorp products for distribution outside of the United
States. Both arrangements were conducted in the ordinary course of business at
competitive prices and terms. During fiscal 1996, Ralcorp paid Ralston Purina
approximately $1.67 million for various services including, advertising creative
assistance, the leasing of research and development space, insurance
administration, and other administrative services. Ralcorp expects the majority
of these services will continue to be used by Ralcorp.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed with this report:
(1) Financial statements previously incorporated by reference under
Item 8 hereinabove.
All financial statements of the registrant are set forth under
Items 6, 7 and 8 of this Report.
(2) Financial Statement Schedules--None.
(3) Exhibits. See the Index to Exhibits that appears at the end of
this document and which is incorporated by reference herein.
Exhibits 10.06 to 10.22 are management compensation plans or
arrangements.
(b) Reports on Form 8-K. The Registrant filed the following reports on Form
8-K during the last quarter of the period covered by this report:
July 23, 1996; August 1, 1996; September 10, 1996; September 27, 1996;
and October 31, 1996.
48
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Ralcorp Holdings, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
RALCORP HOLDINGS, INC.
By: JOE R. MICHELETTO
-----------------------------------------
Joe R. Micheletto
Chief Executive Officer and President
December 30, 1996
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints R. W. Lockwood and J. R. Micheletto and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resolution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments to this report, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
JOE R. MICHELETTO Chief Executive Officer, December 30, 1996
- ------------------------------------------ President and Director (Also
Joe R. Micheletto Principal Executive Officer
and Principal Financial
Officer)
THOMAS G. GRANNEMAN Controller December 30, 1996
- ------------------------------------------
Thomas G. Granneman
WILLIAM H. DANFORTH Director December 30, 1996
- ------------------------------------------
William H. Danforth
WILLIAM D. GEORGE, JR. Director December 30, 1996
- ------------------------------------------
William D. George, Jr.
JACK W. GOODALL Director December 30, 1996
- ------------------------------------------
Jack W. Goodall
DAVID W. KEMPER Director December 30, 1996
- ------------------------------------------
David W. Kemper
WILLIAM P. STIRITZ Director December 30, 1996
- ------------------------------------------
William P. Stiritz
</TABLE>
49
<PAGE> 51
RALCORP HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1996
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
*2.01 Agreement and Plan of Reorganization (Filed as Exhibit 10.01 to the Company's 10-Q
filed for the Quarter Ending March 31, 1994)
*3.01 Restated Articles of Incorporation of Ralcorp Holdings, Inc. (Filed as Exhibit 2.1
to the Company's Registration Statement on Form 10 dated March 24, 1994, Reg. No.
1-12766)
*3.02 Bylaws of Ralcorp Holdings, Inc. (Filed as Exhibit 3.2 to the Company's Registration
Statement on Form 10 dated March 24, 1994, Reg. No. 1-12766)
*4.01 Rights Agreement (Filed as Exhibit 4 to the Company's Form 10-Q for the Period
Ending June 30, 1994)
*4.02 Form of Indenture between Ralcorp Holdings, Inc. and The First National Bank of
Chicago (Filed as Exhibit 4.01 to the Company's Amendment No. 2 to Form S-1
Registration Statement dated September 10, 1994)
*4.03 Form of Note (Filed as Exhibit 4.02 to the Company's Amendment No. 2 to Form S-1
Registration Statement dated September 10, 1994)
4.04 The Company will furnish to the SEC, upon its request, a copy of any instruments
defining the rights of holders of long-term debt of the Company and its consolidated
subsidiaries for which financial statements are required to be filed
*10.01 Tax Sharing Agreement (Filed as Exhibit 10.02 to the Company's Form 10-Q for the
Period Ending March 31, 1994)
*10.02 Bridging Agreement (Filed as Exhibit 10.03 to the Company's Form 10-Q for the Period
Ending March 31, 1994)
*10.03 Technology Agreement (Filed as Exhibit 10.04 to the Company's Form 10-Q for the
Period Ending March 31, 1994)
*10.04 Trademark Agreement (Filed as Exhibit 10.05 to the Company's Form 10-Q for the
Period Ending March 31, 1994)
*10.05 Credit Agreement (Filed as Exhibit 10.1 to the Company's Form 10-K for the Period
Ending December 31, 1994)
*10.06 Incentive Stock Plan (Filed as Exhibit 10.07 to the Company's Form 10-Q for the
Period Ending March 31, 1994)
*10.07 Form of Stock Option Award Contract (Filed as Exhibit 10.08 to Company's Form 10-Q
for the Period Ending March 31, 1994)
*10.08 Form of Restricted Stock Award Contract (Filed as Exhibit 10.09 to the Company's
Form 10-Q for the Period Ending March 31, 1994)
*10.09 Form of Management Continuity Agreement (Filed as Exhibit 10.1 to the Company's Form
10-Q for the Period Ending June 30, 1994)
*10.10 Split Dollar Second to Die Life Insurance Arrangement (Filed as Exhibit 10.10 to the
Company's Form 10-K for the Period Ending September 30, 1994)
*10.11 Change in Control Severance Compensation Plan (Filed as Exhibit 10.11 to the
Company's Form 10-K for the Period Ending September 30, 1995)
*10.12 Form of Agreement for Deferral of Annual or Special Cash Bonus (Filed as Exhibit
10.11 to the Company's Form 10-K for the Period Ending September 30, 1994)
*10.13 Deferred Compensation Plan for Non-Management Directors (Filed as Exhibit 10.13 to
the Company's Form 10-K for the Period Ending September 30, 1995)
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
*10.14 Deferred Compensation Plan for Key Employees (Filed as Exhibit 10.14 to the
Company's Form 10-K for the Period Ending September 30, 1995)
*10.15 Retirement Plan for Non-Management Directors (Filed as Exhibit 10.15 to the
Company's Form 10-K for the Period Ending September 30, 1995)
*10.16 Executive Life Insurance Plan (Filed as Exhibit 10.16 to the Company's Form 10-K for
the Period Ending September 30, 1994)
*10.17 Executive Health Plan (Filed as Exhibit 10.17 to the Company's Form 10-K for the
Period Ending September 30, 1994)
*10.18 Executive Long Term Disability Plan (Filed as Exhibit 10.18 to the Company's Form
10-K for the Period Ending September 30, 1994)
*10.19 Form of Indemnity Agreement
*10.20 Supplemental Retirement Plan (Filed as Exhibit 10.12 to the Company's Form S-1
Registration Statement dated July 8, 1994)
*10.21 Executive Savings Investment Plan (Filed as Exhibit 10.13 to the Company's Form S-1
Registration Statement dated July 8, 1994)
*10.22 Form of 1995 Non-qualified Stock Option Performance Award Contract (Filed as Exhibit
10.1 to the Company's Form 10-K for the Period Ending December 31, 1995)
*10.23 Leases with United States Forest Service relating to the Resort Operations (Filed as
Exhibit 10.22 to the Company's Form 10-K for the Period Ending September 30, 1994)
*10.24 Stock Purchase Agreement By and Among Vail Resorts, Inc., Ralston Foods, Inc. and
Ralston Resorts, Inc. dated July 22, 1996 (Filed as Exhibit 10.3 to the Company's
Form 10-Q for the Period Ending June 30, 1996)
10.25 First Amendment to Stock Purchase Agreement By and Among Vail Resorts, Inc., Ralston
Foods, Inc. and Ralston Resorts, Inc., dated July 22, 1996
10.26 Agreement and Plan of Merger By and Among Ralcorp Holdings, Inc., General Mills,
Inc. and General Mills Missouri, Inc.
*10.27 Amended and Restated Credit Agreement (5-year) dated as of March 12, 1996 (Filed as
Exhibit 10.1 to the Company's Form 10-Q for the Period Ending March 31, 1996)
*10.28 Amended and Restated Credit Agreement (364 day) dated as of March 12, 1996 (Filed as
Exhibit 10.2 to the Company's Form 10-Q for the Period Ending March 31, 1996)
10.29 Bridge Loan Facility By and Among Ralston Resorts, Inc. and NationsBank, N.A. (as
agent) dated as of September 30, 1996
10.30 Agreement By and Among Ralcorp Holdings, Inc. the Lenders and NationsBank, N.A., as
Agent for the Lenders with respect to the Credit Agreements dated as of September
30, 1996
10.31 First Amendment to Bridge Loan Facility dated as of December 20, 1996
10.32 Second Amendment to Credit Amended and Restated Credit Agreement dated as of
December 20, 1996.
21 Subsidiaries of the Company
23 Consent of Independent Accountants
*24 Power of Attorney (Included in Part II)
27 Financial Data Schedule
</TABLE>
- ---------
* Incorporated by reference
51
<PAGE> 1
EXHIBIT 10.25
FIRST AMENDMENT TO
THE STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT TO THE STOCK PURCHASE AGREEMENT dated as of December 20,
1996 ("First Amendment") is made by and among Vail Resorts, Inc., a Delaware
corporation ("Vail"), Ralston Foods, Inc., a Nevada corporation ("Foods"), and
Ralston Resorts Inc., a Colorado corporation ("Ralston"), amending certain
provisions of the Stock Purchase Agreement dated as of July 22, 1996 (the
"Purchase Agreement"), by and among Vail, Foods and Ralston. Terms not
otherwise defined herein which are defined in the Purchase Agreement shall have
the same respective meanings herein as therein.
WHEREAS, Vail, Foods and Ralston have agreed to modify certain terms and
conditions of the Purchase Agreement as specifically set forth in this First
Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE I
AMENDMENTS TO PURCHASE AGREEMENT
1.1 Section 11.3 of the Purchase Agreement is amended in its entirety
to read as follows:
11.3 Final Closing Date. This Agreement will terminate if the Closing
has not taken place on or before January 10, 1997.
ARTICLE II
PROVISIONS OF GENERAL APPLICATION
2.1 Except as otherwise expressly provided by this First Amendment,
all of the terms, conditions and provisions to the Purchase
Agreement remain unaltered. The Purchase Agreement and this First
Amendment shall be read and construed as one agreement.
<PAGE> 2
2.2 If any of the terms of this First Amendment shall conflict in any
respect
with any of the terms of the Purchase Agreement, the terms of the
First Amendment shall be controlling.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their duly authorized officers all as of the day and
year first above written.
VAIL RESORTS, INC.
By:
-----------------------------------
Name: James Mandel
Title: Senior Vice President
RALSTON FOODS, INC.
By:
-----------------------------------
Name: Joe R. Micheletto
Title: Chief Executive Officer
RALSTON RESORTS, INC.
By:
-----------------------------------
Name: Joe R. Micheletto
Title: Chief Executive Officer
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG RALCORP HOLDINGS, INC.,
GENERAL MILLS, INC. AND GENERAL MILLS MISSOURI, INC.
This Agreement and Plan of Merger is dated as of August 13, 1996 (as
amended, supplemented or otherwise modified from time to time, this
"AGREEMENT"), by and among Ralcorp Holdings, Inc., a Missouri corporation (the
"COMPANY"), General Mills, Inc., a Delaware corporation (the "ACQUIROR"), and
General Mills Missouri, Inc., a Missouri corporation and a wholly owned
subsidiary of Acquiror ("MERGER SUB").
WHEREAS, the Board of Directors of the Company has approved a plan of
distribution and reorganization as described in the Reorganization Agreement
attached hereto as Exhibit A (the "REORGANIZATION AGREEMENT"), which will be
entered into prior to the Effective Time (as defined in Section 1.3), subject to
the issuance of a private letter ruling from the Internal Revenue Service (the
"SERVICE") as described in Section 6.1(d) hereof in response to a ruling request
to be made by the Company (the "RULING REQUEST") or, alternatively, the issuance
of an opinion or opinions of counsel as described in Section 6.1(e) hereof,
pursuant to which (a) certain of the assets and liabilities of the branded
cereals and branded snacks business (the "BRANDED BUSINESS") currently operated
by the Company's wholly-owned subsidiary, Ralston Foods, Inc. ("FOODS"), will be
contributed by Foods to a newly-formed subsidiary (the "BRANDED SUBSIDIARY") as
provided in the Reorganization Agreement, (b) all the stock of the Branded
Subsidiary will be distributed by Foods to the Company pursuant to the
Reorganization Agreement (the "INTERNAL SPINOFF"), and (c) all of the shares of
capital stock of a Missouri corporation to be formed as a wholly-owned
subsidiary of the Company and the parent of Foods ("NEW HOLDINGS") will be
distributed on a pro rata basis to the Company's stockholders as provided in the
Reorganization Agreement (the "DISTRIBUTION");
WHEREAS, the respective Boards of Directors of Acquiror, Merger Sub and the
Company have determined that, following the Distribution, the merger of Merger
Sub with and into the Company (the "MERGER") with the Company as the surviving
corporation (the "SURVIVING CORPORATION") would be advantageous and beneficial
to their respective corporations and stockholders; and
WHEREAS, for Federal income tax purposes, it is intended that (a) the
Distribution and the Internal Spinoff shall each qualify as tax-free
distributions within the meaning of Section 355 of the Internal Revenue Code of
1986, as amended (the "CODE"), and (b) the Merger shall qualify as a
reorganization under Section 368(a)(1)(B) of the Code, and this Agreement is
intended to be and is adopted as a plan of reorganization.
A-1
<PAGE> 2
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General and Business
Corporation Law of Missouri (the "GBCL"), Merger Sub shall be merged with and
into the Company at the Effective Time. Following the Merger, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the Surviving Corporation and shall succeed to and assume all the rights and
obligations of Merger Sub in accordance with the GBCL.
SECTION 1.2 CLOSING. Subject to the next sentence, the closing of the
Merger (the "CLOSING") will take place as promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI (other than,
but subject to, those conditions to be performed at the Closing), at the offices
of Bryan Cave LLP, 211 No. Broadway, Suite 3600, St. Louis, Missouri, or on such
other date or at such other place is agreed to in writing by the parties hereto.
The parties agree to use reasonable efforts to cause the Closing to occur at the
end of a month. The date of the Closing is referred to herein as the "CLOSING
DATE."
SECTION 1.3 EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file articles of merger or other appropriate documents (in any such case,
the "CERTIFICATE OF MERGER") executed in accordance with the relevant provisions
of the GBCL, and shall make all other filings or recordings required under the
GBCL. The Merger shall become effective immediately following the Distribution
upon the filing of the Certificate of Merger with the Missouri Secretary of
State or at such other time as the Company and Acquiror shall agree should be
specified in the Certificate of Merger (the time the Merger becomes effective
being the "EFFECTIVE TIME").
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 351.450 of the GBCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Merger Sub and the Company shall
vest in the Surviving Corporation, and all debts, liabilities, obligations and
duties of Merger Sub and the Company shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The certificate of incorporation of Merger Sub as in effect at the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The by-laws of Merger Sub as in effect at the Effective Time shall be
the by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.6 DIRECTORS. The directors of Merger Sub at the Effective Time
shall be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
SECTION 1.7 OFFICERS. The officers of Merger Sub at the Effective Time
shall be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
A-2
<PAGE> 3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Common Stock, par value $.01 per share, of the Company ("COMPANY COMMON STOCK"):
(a) Cancellation of Treasury Stock and Acquiror-Owned Stock. Each share of
Company Common Stock that is owned by the Company or by any wholly owned
subsidiary of the Company (but not any Benefit Plan (as defined in Section
3.2(m)) of the Company or any of its subsidiaries) and each share of Company
Common Stock that is owned by Acquiror, Merger Sub or any other wholly owned
subsidiary of Acquiror, excluding, in each case, any such share held by the
Company, Acquiror or any of their wholly owned subsidiaries in a fiduciary,
custodial or similar capacity, shall automatically be canceled and retired and
shall cease to exist, and no common stock, par value $.10 per share, of Acquiror
("ACQUIROR COMMON STOCK") or other consideration shall be delivered in exchange
therefor.
(b) Conversion of Company Common Stock. Subject to Section 2.2(e), each
issued and outstanding share of Company Common Stock, other than (i) shares to
be canceled in accordance with Section 2.1(a) and (ii) as set forth in paragraph
(c) below, shares that have not been voted in favor of the approval of this
Agreement and with respect to which dissenters' rights shall have been perfected
in accordance with Section 351.455 of the GBCL ("DISSENTERS' SHARES"), shall be
converted into the right to receive a fraction of a fully paid and nonassessable
share of Acquiror Common Stock equal to the Conversion Number (the "MERGER
CONSIDERATION"). The term "CONVERSION NUMBER" shall mean a number, expressed to
three decimal places, equal to the fraction of (i) $570,000,000 less (A) the
amount of any Funded Debt of the Company and the Branded Subsidiary as of the
Effective Time and (B) the amount required to be paid by the Company to the
holders of the Rights to redeem the Rights, to the extent such amount remains
unpaid at the Effective Time (the "RIGHTS PAYMENT"), divided by (ii) the product
of (A) the Average Value of Acquiror Common Stock multiplied by (B) the number
of shares of Company Common Stock outstanding immediately before the Effective
Time. The term "FUNDED DEBT OF THE COMPANY" shall mean, without duplication, (i)
the Company's 8 3/4% Notes due September 15, 2004 (the "NOTES") (which shall be
valued at their face value, plus any accrued and unpaid interest thereon as of
the Closing Date), (ii) any amounts outstanding under any bank credit facility
of the Company or the Branded Subsidiary, (iii) all other indebtedness of the
Company or the Branded Subsidiary for borrowed money, and (iv) any other
indebtedness of the Company or the Branded Subsidiary that is evidenced by a
note, bond or similar security. The amount of any Funded Debt of the Company
referred to in the foregoing clauses (ii), (iii) and (iv) shall be the face
value thereof, plus any accrued and unpaid interest thereon as of the Closing
Date, plus an amount, if any, on an after-tax basis, equal to (i) the face value
thereof, multiplied by (ii)(A) the number of days, if any, following the
Effective Time during which such Funded Debt of the Company is not payable or
prepayable without premium or penalty divided by (B) 365, multiplied by (iii)(A)
the applicable annual interest rate of such Funded Debt minus (B) the annual
interest rate applicable to debt of Acquiror having a maturity equal to the
number of days referred to in clause (ii)(A) of this sentence (such rate to be
reasonably agreed upon by Lehman Brothers Inc. and Dillon Read & Co., Inc.). The
term "AVERAGE VALUE OF ACQUIROR COMMON STOCK" shall mean the volume-weighted
average of the prices per share of Acquiror Common Stock for all trades reported
on the New York Stock Exchange Inc. ("NYSE") during the 10 trading days
immediately preceding the last business day before the date of the Effective
Time; provided, however, that if, on any such day, there has been any suspension
of trading, the imposition of any NYSE market circuit breakers or any delay in
the opening of trading, in any such case affecting the trading of the Acquiror
Common Stock on the NYSE, such day shall be excluded and the measurement period
for the determination of the Average Value of Acquiror Common Stock shall be the
10 trading days immediately preceding the last business day before the date of
the Effective Time on which no such event shall have occurred. As of the
Effective Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate formerly representing any such shares of
Company Common Stock shall cease to have any
A-3
<PAGE> 4
rights with respect thereto, except the right to receive the shares of Acquiror
Common Stock and any cash in lieu of fractional shares of Acquiror Common Stock
to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.2, without interest thereon.
(c) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, no Dissenters' Shares shall be converted as described
in Section 2.1(b) but shall become the right to receive such consideration from
the Surviving Corporation as may be determined to be due in respect of such
Dissenters' Shares pursuant to the laws of the State of Missouri; provided,
however, that any Dissenters' Shares outstanding immediately prior to the
Effective Time and held by a stockholder who shall, after the Effective Time,
lose or withdraw his or her dissenter's rights pursuant to the GBCL, shall be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. As of the Effective Time, Acquiror shall deposit with
Norwest Bank Minnesota, N.A. (the "EXCHANGE AGENT"), for the benefit of the
holders of shares of Company Common Stock, for exchange through the Exchange
Agent in accordance with this Article II, certificates representing the shares
of Acquiror Common Stock (such shares of Acquiror Common Stock, together with
any dividends or distributions with respect thereto, being hereinafter referred
to as the "EXCHANGE FUND") issuable pursuant to Section 2.1 in exchange for
certificates formerly representing outstanding shares of Company Common Stock.
Acquiror shall or shall cause the Surviving Corporation to provide to the
Exchange Agent, on a timely basis, funds necessary to pay any cash payable in
lieu of fractional shares of Acquiror Common Stock in accordance with Section
2.2(e).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock (the "CERTIFICATES") whose shares were converted into the right to receive
shares of Acquiror Common Stock pursuant to Section 2.1, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Acquiror may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock and cash in lieu of any fractional
share. Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Acquiror, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole shares of Acquiror Common Stock, and cash in lieu of any
fractional share, which such holder has the right to receive pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Company Common
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Acquiror Common Stock
and cash in lieu of any fractional share may be issued to a person other than
the person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance and payment shall pay any
transfer or other taxes required by reason of the issuance of shares of Acquiror
Common Stock and payment of cash in lieu of any fractional share to a person
other than the registered holder of such Certificate or establish to the
satisfaction of Acquiror that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of Acquiror
Common Stock and cash in lieu of any fractional shares of Acquiror Common Stock
as contemplated by this Section 2.2. No interest will be paid or will accrue on
any shares of Acquiror Common Stock or cash payable in lieu of any fractional
shares of Acquiror Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Acquiror Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Acquiror Common Stock represented thereby and no
A-4
<PAGE> 5
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2(e) until the surrender of such Certificate in accordance
with this Article II. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificate representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Acquiror Common
Stock to which such holder is entitled pursuant to Section 2.2(e) and the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Acquiror Common Stock and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole shares of Acquiror Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II and any cash paid pursuant to
Section 2.2(c) or 2.2(e) shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such Certificates, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Article
II.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of
Acquiror Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any other rights as a stockholder of Acquiror.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Acquiror Common Stock (after taking into account all Certificates
registered to such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Acquiror
Common Stock multiplied by the Average Value of Acquiror Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to Acquiror, upon demand, and any holders
of the Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation or Acquiror for payment of
their claim for Acquiror Common Stock, any cash in lieu of fractional shares of
Acquiror Common Stock and any dividends or distributions with respect to
Acquiror Common Stock.
(g) No Liability. None of Acquiror, Merger Sub, the Company, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any shares of Acquiror Common Stock (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
SECTION 2.3 NET ASSETS ADJUSTMENT.
(a) If the value of the combined total assets minus the total liabilities
of the Company and the Branded Subsidiary on the Closing Date, as calculated in
the manner set forth on Schedule 2.3 ("CLOSING DATE NET ASSET VALUE"), is less
than $41,900,000, then Foods shall pay to the Surviving Corporation an amount
equal to such shortfall in the manner as provided on Schedule 2.3.
(b) If the Closing Date Net Asset Value is more than $41,900,000, then the
Surviving Corporation shall pay to Foods an amount equal to such excess in the
manner as provided on Schedule 2.3.
(c) Schedule 2.3 sets forth (i) the manner in which the Closing Date Net
Asset Value shall be calculated and (ii) the manner in which any payment
required by Sections 2.3(a) or 2.3(b) shall be made. The payments made under
this Section 2.3 shall not be deemed to be an adjustment of the consideration
paid for the Company Common Stock.
A-5
<PAGE> 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 CERTAIN DEFINITIONS. As used in Section 3.2, unless
specifically provided otherwise, any reference to the Company shall be a
reference to the Company and the Branded Subsidiary, assuming that the
contribution of the Branded Business to the Branded Subsidiary, the Internal
Spinoff and the Distribution had occurred immediately prior to the date hereof
on the terms and conditions set forth in the Reorganization Agreement. As used
in this Agreement, any reference to any event, change or effect having a
material adverse effect on or with respect to an entity (or group of entities
taken as a whole) means such event, change or effect is reasonably expected to
be materially adverse to the business, properties, assets, results of operations
or consolidated financial condition of such entity (or, if with respect thereto,
of such group of entities taken as a whole) or on the ability of such entity or
group of entities to consummate the transactions contemplated hereby, including
the Distribution and the Merger. As used in this Agreement, any reference to the
knowledge of the Company or the best knowledge of the Company means the actual
knowledge after reasonable inquiry of the relevant facts and circumstances of
the individuals listed on Schedule 3.1, and not any other person or entity.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Acquiror and Merger Sub as follows:
(a) Organization, Standing, Corporate Power and Subsidiaries. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Company is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing would not have a material
adverse effect on the Company. True, accurate and complete copies of the
Articles of Incorporation and Bylaws of the Company, as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
Acquiror. The Company has made available to legal counsel for Acquiror true,
accurate and complete copies of the minute books of the Company as maintained by
the Company, and such minute books contain minutes of all meetings of the boards
of directors and stockholders of the Company. At the Effective Time, except for
the Branded Subsidiary, the Company will not, directly or indirectly, own or
have the right to acquire any capital stock or other equity interest in any
other corporation, partnership, joint venture or other entity. At the Effective
Time, the Company will own all right, title and interest in and to all capital
stock and all rights with respect to all capital stock of the Branded
Subsidiary. The capitalization and the state, country or other jurisdiction of
incorporation of the Branded Subsidiary is accurately described and identified
on Schedule 3.2(a).
(b) Capital Structure. The authorized capital stock of the Company consists
of 300,000,000 shares of Company Common Stock and 10,000,000 shares of preferred
stock, par value $0.01 per share ("COMPANY PREFERRED STOCK"). At the close of
business on July 31, 1996, (i) 32,924,347 shares of Company Common Stock and no
shares of Company Preferred Stock were issued and outstanding, (ii) 1,000,501
shares of Company Common Stock were held by the Company in its treasury, (iii)
2,610,086 shares of Company Common Stock were reserved for issuance pursuant to
the Benefit Plans and (iv) 35,534,433 shares of Company Common Stock were
reserved for issuance in connection with the rights (the "RIGHTS") issued
pursuant to the Rights Agreement dated as of March 24, 1994 (as amended from
time to time, the "RIGHTS AGREEMENT"), between the Company and Boatmen's Trust
Company, as Rights Agent. Except as set forth above, at the close of business on
July 31, 1996, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company are, and all shares which may be issued
pursuant to the Benefit Plans will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are not any bonds, debentures, notes or other indebtedness of the Company having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of the Company may vote.
Except as set forth above, there are not, and immediately prior to the Effective
Time there will not
A-6
<PAGE> 7
be, any securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company is a party or by
which it is bound obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other voting
securities of the Company or of the Branded Subsidiary or obligating the Company
or the Branded Subsidiary to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are not any outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any shares of capital stock
of the Company. The Company has delivered to Acquiror a complete and correct
copy of the Rights Agreement as amended and supplemented to the date of this
Agreement.
(c) Authority; Noncontravention. The Company has, and, in the case of any
Ancillary Agreements (as defined in the Reorganization Agreement) executed at a
later time, the Company will have, the requisite corporate power and authority
(subject to the approvals described in the next sentence) to enter into this
Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Agreements and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, other than, with respect
to the Merger, the approval and adoption of this Agreement by the affirmative
vote of the holders of Company Common Stock representing two-thirds of the
shares entitled to vote (such holders of two-thirds of such shares, the
"REQUISITE STOCKHOLDERS"), and formal declaration of the Distribution by the
Company's Board of Directors (which will occur prior to the Closing Date). This
Agreement has been duly executed and delivered by the Company (excluding the
Branded Subsidiary) and, assuming this Agreement constitutes a valid and binding
obligation of Acquiror, constitutes a valid and binding obligation of the
Company (excluding the Branded Subsidiary), enforceable against the Company
(excluding the Branded Subsidiary) in accordance with its terms. Each of the
Ancillary Agreements has been, or prior to the Merger and the other transactions
contemplated thereby will be, duly executed and delivered by each of the Company
and the Branded Subsidiary, as the case may be, and constitutes, or upon such
execution and delivery will constitute, a valid and binding obligation of each
of the Company and the Branded Subsidiary, enforceable against it in accordance
with its terms. Except as set forth on Schedule 3.2(c), none of the execution
and delivery of this Agreement and the Ancillary Agreements or the consummation
of the transactions contemplated hereby or thereby and compliance with the
provisions of this Agreement and the Ancillary Agreements will conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, or result in the
creation of any adverse claim, restriction on voting or transfer, pledge, claim,
lien, charge, encumbrance or security interest of any kind or nature whatsoever
(collectively, "LIENS") upon any of the properties or assets of the Company (i)
under its Articles of Incorporation or Bylaws, (ii) under any Contract (as
defined in the Reorganization Agreement) to which the Company is a party or by
which the Company or any of its assets are bound, or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
under any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company, or any of its properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights, losses or Liens that individually or in the aggregate would not (A) have
a material adverse effect on the Company, (B) materially impair the ability of
the Company to perform its obligations under this Agreement or any of the
Ancillary Agreements to which the Company is a party or (C) prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement or any of the Ancillary Agreements. No consent, approval, order
or authorization of, or registration, declaration or filing with, any Federal,
state or local government or any court, administrative agency or commission or
other governmental authority or agency, or self-regulatory organization,
domestic or foreign (a "GOVERNMENTAL ENTITY"), is required by or with respect to
the Company in connection with the execution and delivery of this Agreement and
any of the Ancillary Agreements to which it is a party or the consummation by
the Company of the transactions contemplated hereby or thereby, except for (i)
the filing with the Securities and Exchange Commission ("SEC") of (x) a proxy
statement relating to the approval by the Company's stockholders of this
Agreement (as amended or supplemented from time to time, the "PROXY STATEMENT"),
(y) potentially, a registration statement on Form S-1 relating to the
Distribution
A-7
<PAGE> 8
and (z) a registration statement on Form 10 (the "FORM 10") under, and such
reports under Section 13(a) of, the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), as may be required in connection with this Agreement, the
Ancillary Agreements and the transactions contemplated hereby and thereby, (ii)
the filing of the Certificate of Merger with the Missouri Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company or the Branded Subsidiary is qualified to do business, (iii) expiration
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as are set forth on
Schedule 3.2(c) and (v) such other consents, approvals, orders, authorizations,
registrations, declarations and filings, the absence of which could not
reasonably be expected to have a material adverse effect on the Company.
(d) SEC Documents; Undisclosed Liabilities; Press Releases.
(i) The Company has filed all required reports, schedules, forms,
statements and other documents with the SEC since March 31, 1994 (the
"COMPANY SEC DOCUMENTS"). As of their respective dates (as amended), the
Company SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company
SEC Documents, and none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the Company SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except as permitted by Form 10-Q of the SEC
in the case of unaudited statements) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(ii) None of the press releases issued by the Company since March 31,
1994 contained at the time of issuance any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(e) Information in Disclosure Documents and Registration Statements. None
of the information supplied or to be supplied in writing by the Company or its
representatives for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Acquiror in
connection with the issuance of shares of Acquiror Common Stock in the Merger
(the "FORM S-4") or in a registration statement (if any) on Form S-1 or any
other applicable form to be filed with the SEC by New Holdings in connection
with the distribution of shares of Common Stock, par value $0.01 per share, of
New Holdings ("NEW HOLDINGS COMMON STOCK") in the Distribution (the "FORM S-1")
will, at the time such Registration Statements become effective under the
Securities Act and at the Effective Time, in the case of the Form S-4, and at
the time of the meeting of stockholders of the Company to be held in connection
with the Merger and the Distribution and at the time of the Distribution, in the
case of the Form S-1, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) the Proxy Statement will, at the date mailed to the
Company's stockholders and at the time of the meeting of stockholders to be held
in connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder, and the Form S-1 will comply as to form in all material
respects with the provisions of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Acquiror or its representatives for inclusion
in the Proxy Statement or the Form S-1,
A-8
<PAGE> 9
respectively, or with respect to information concerning Acquiror or any of its
subsidiaries incorporated by reference in the Proxy Statement.
(f) Absence of Certain Changes or Events. On the date of this Agreement,
except as disclosed in the Company SEC Documents filed and publicly available
prior to the date of this Agreement (the "FILED COMPANY SEC DOCUMENTS") or as
set forth in Schedule 3.2(f), and at the Closing Date, except as disclosed in
the Company SEC Documents filed and publicly available before the Closing Date
or in Schedule 3.2(f) or in the Company Bring Down Certificate (as defined in
Section 6.2(a)), since September 30, 1995, the Company has conducted its
business only in the ordinary course, consistent with past practice, and there
has not been (i) any material adverse change in the Company or any event that
could reasonably be expected to have a material adverse effect on the Company,
(ii) any split, combination or reclassification of any of its capital stock or
any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, (iii)
any damage, destruction or loss, whether or not covered by insurance, that has
had or could reasonably be expected to have a material adverse effect on the
Company and the Branded Subsidiary taken as a whole, (iv) any change in
accounting methods, principles or practices by the Company, or any of its
subsidiaries, except insofar as may have been required (in the opinion of the
Company's independent accountants) by a change in generally accepted accounting
principles (which change is set forth in Schedule 3.2(f) or will be set forth in
the Company Bring Down Certificate), (v) any acquisition or any sale or
disposition of any material assets or properties by the Company, except in the
ordinary course of business, consistent with past practice, or (vi) any entry
into any agreement, arrangement or commitment to take any of the actions set
forth in this Section.
(g) Litigation. Except as set forth in Schedule 3.2(g) or as disclosed in
the Filed Company SEC Documents or, with respect to claims, investigations,
suits, actions or proceedings arising, or to the knowledge of the Company first
expressly threatened, between the date hereof and the Closing Date, as disclosed
in the Company Bring Down Certificate, there is no claim, investigation, suit,
action or proceeding pending or, to the knowledge of the Company, expressly
threatened, against the Company before or by any Governmental Entity or
arbitrator that, individually or in the aggregate, could reasonably be expected
to (i) have a material adverse effect on the Company and the Branded Subsidiary
taken as a whole, (ii) materially impair the ability of the Company or Foods to
perform any obligation under this Agreement or any of the Ancillary Agreements
or (iii) prevent or materially delay or alter the consummation of any or all of
the transactions contemplated hereby or thereby. There are no unpaid judgments,
injunctions, orders, arbitration decisions or awards, or, except as set forth in
Schedule 3.2(g), other judicial or administrative mandates outstanding against
the Company.
(h) Compliance with Applicable Laws. Except as set forth in Schedule
3.2(h), the Company holds all permits, licenses, variances, exemptions, orders
and approvals of, and has made all filings, applications and registrations with,
all Governmental Entities which individually or in the aggregate are material to
the operation of the business of the Company and the Branded Subsidiary taken as
a whole (the "COMPANY PERMITS"). All Company Permits are in full force and
effect in all material respects. The Company is in compliance with the terms of
the Company Permits, except where the failure so to comply would not have a
material adverse effect on the Company and the Branded Subsidiary taken as a
whole. Except as disclosed in the Filed Company SEC Documents, the business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for violations, if any, that
individually or in the aggregate do not, and could not reasonably be expected
to, have a material adverse effect on the Company and the Branded Subsidiary
taken as a whole.
(i) Brokers or Finders. No broker, investment banker, financial advisor or
other person, other than Lehman Brothers, Inc., the fees and expenses of which
will be paid by Foods, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements based upon
arrangements made by or on behalf of the Company.
A-9
<PAGE> 10
(j) The Branded Business.
(i) At the Effective Time, except as contemplated by the Technology
Agreement, the Trademark Agreement and the Supply Agreement and except as
set forth on Schedule 3.2(j), neither New Holdings, Foods nor any of their
respective subsidiaries will use in the conduct of its business or own or
have rights to use any material assets or property, whether tangible,
intangible or mixed, which have also been heretofore used in the conduct of
the business of the Branded Business. At the Effective Time, neither Foods
nor any of its subsidiaries will be a party to any contract, agreement,
arrangement or understanding with the Company (other than the Ancillary
Agreements and the agreements specifically contemplated thereby) relating
to the business or operations of the Company or pursuant to which the
Company may have any obligation or liability. After the Effective Time, the
Company, the Surviving Corporation, the Branded Subsidiary and Acquiror and
its other subsidiaries will not have any liability whatsoever, direct or
indirect, contingent or otherwise, in any way relating to the business,
operations, indebtedness, assets or liabilities of New Holdings, Foods or
any of their respective subsidiaries, except as contemplated by the
Reorganization Agreement or any of the other Ancillary Agreements.
(ii) Except as set forth on Schedule 3.2(j), the Branded Assets (as
defined in the Reorganization Agreement) and the rights under the
Technology Agreement, the Trademark Agreement and the Supply Agreement are
sufficient to permit Acquiror and the Surviving Corporation to operate the
Branded Business from and after the Effective Time in substantially the
same manner as currently conducted.
(k) Material Contracts. On the date of this Agreement, except as set forth
in Schedule 3.2(k) and, at the Closing Date, except as set forth in Schedule
3.2(k) or as disclosed in the Company Bring Down Certificate, (i) all Material
Contracts (as defined below), together with all modifications and amendments
thereto, are valid and binding obligations of the parties thereto and in full
force and effect, and (ii) the Company is not in breach or default under any
Material Contract, except for such breaches or defaults in the ordinary course
of business that do not, and will not with the passage of time or the giving of
notice, or both, individually or in the aggregate, have a material adverse
effect on the Company and the Branded Subsidiary taken as a whole and, to the
knowledge of the Company, no other party is in material default thereunder.
Except as set forth on Schedule 3.2(k), the Company is not a party to any
Material Contracts. True and complete copies of each Material Contract to which
the Company is a party have been made available to the Acquiror. As used herein,
the term "MATERIAL CONTRACT," shall mean any contract, agreement, arrangement or
understanding to which the Company is a party or by which the Company or any of
its assets is bound, that is or contains any of the following: (A) a contract of
employment that is other than at will or any arrangement binding on the Company
providing any employee with termination benefits other than those available
under the Company's generally applicable severance plan; (B) a contract with any
labor union or association; (C) a contract with any affiliate of the Company
(including, without limitation, Foods and its subsidiaries); (D) a contract
containing a covenant not to compete; (E) a loan or similar agreement relating
to the borrowing of money or any guarantee of indebtedness of any other person
in excess of $100,000; (F) any lease or sublease relating to real property; (G)
any contract not fully performed for the purchase of any commodity, material,
services or equipment, including without limitation fixed assets, for a price in
excess of $100,000 in the aggregate over the life of the contract; (H) any
license agreement (as licensor or licensee) providing for future payments in
excess of $100,000; (I) any other contract which creates future payment
obligations in excess of $100,000; (J) any contract that obligates the Company
to obtain all or a substantial portion of its requirements of any goods or
services from, or supply all or a substantial portion of the requirements for
any goods or services of, any other person; (K) any contract with Ralston Purina
Company or any of its affiliates; (L) any guarantee of any obligation of Foods
or its subsidiaries (other than the Branded Subsidiary); or (M) any contract
that does not permit the Company to terminate the contract upon less than 90
days' notice or expressly requires it to pay liquidated damages of more than
$100,000 upon early termination.
(l) Absence of Changes in Benefit Plans. Except as set forth in Schedule
3.2(l) or as disclosed in the Filed Company SEC Documents, since the date of the
most recent audited financial statements included in the Filed Company SEC
Documents, there has not been any adoption or amendment in any material respect
A-10
<PAGE> 11
by the Company of any collective bargaining agreement or any Benefit Plan other
than any adoption or amendment of a Benefit Plan permitted under Section 4.1(h).
(m) Benefit Plans, Employment and Labor Relations.
(i) Schedule 3.2(m) contains a list of all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein
as "PENSION PLANS"), "employee welfare benefit plans" (as defined in
Section 3(1) of ERISA) and all other plans, agreements, policies or
arrangements relating to stock options, stock purchases, compensation,
deferred compensation, severance, and other employee benefits, in each case
maintained or contributed to as of the date of this Agreement by the
Company for the benefit of any current or former employees, officers or
directors of the Company or for which the Company is or could be liable, as
a result of its status as an ERISA Affiliate (as defined below)
(collectively, the "BENEFIT PLANS"), except that Schedule 3.2(m) does not
list any Benefit Plan of any ERISA Affiliate of the Company that ceased to
be an ERISA Affiliate of the Company on or prior to April 1, 1994. The
Company has made available to Acquiror true, complete and correct copies of
(a) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (b) the most recent annual report on Form 5500 filed
with the Internal Revenue Service with respect to each Benefit Plan (if any
such report was required), (c) the most recent summary plan description for
each Benefit Plan for which such summary plan description is required and
(d) each trust agreement or group annuity contract relating to any Benefit
Plan. The Company shall update Schedule 3.2(m) and the information shall be
made available to the Acquiror through the Distribution Date. "ERISA
AFFILIATE" means, with respect to any entity, trade or business, any other
entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that
includes the first entity, trade or business, or that is a member of the
same "controlled group" as the first entity, trade or business pursuant to
Section 4001(a)(14) of ERISA, at any time.
(ii) Each Benefit Plan has been administered in all material respects
in accordance with its terms and is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other applicable law.
(iii) Except as set forth on Schedule 3.2(m), the Company does not now
sponsor, maintain, contribute to or have an obligation to contribute to,
and has not at any time since September 2, 1974, sponsored, maintained,
contributed to, or been obligated to contribute to, any single employer,
multiple employer or multiemployer pension plan subject to the provisions
of Section 302 or Title IV of ERISA or Section 412 or 4971 of the Code. No
liability currently exists, and under no circumstances could the Company or
any of its ERISA Affiliates incur a liability pursuant to the provisions of
Title I, II or IV of ERISA or Section 412, 4971 or 4980B of the Code that
could become a liability of the Surviving Corporation or Acquiror after the
consummation of the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, neither the Company nor any of
its ERISA Affiliates has engaged in any transaction described in Section
4069 or Section 4204 of ERISA for the purpose of evading liability under
subtitle D of Title IV of ERISA. The Company has not incurred a "complete
withdrawal" or a "partial withdrawal" (as such terms are defined in Section
4203 and Section 4205, respectively, of ERISA) with respect to any
"multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA)
that has led to or could lead to the imposition of a material withdrawal
liability under Section 4201 of ERISA that remains unpaid as of the date
hereof; and the Company does not maintain or contribute to, nor is it
obligated to maintain or contribute to, any such multiemployer plan.
(iv) The Company has not incurred any material liability, nor has any
event occurred that could reasonably result in any material liability,
under Title I or Title IV of ERISA (other than to a Pension Plan for
contributions not yet due or to the Pension Benefit Guaranty Corporation
for payment of premiums not yet due) or under Section 412 or Chapter 43 of
the Code that has not been fully paid as of the date hereof.
A-11
<PAGE> 12
(v) As of the most recent valuation date for any Pension Plan subject
to Section 412 of the Code or Title IV of ERISA, other than any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA, the
fair market value of the assets of such Pension Plan exceed the present
value (determined on the basis of reasonable assumptions employed by the
independent actuary for such Pension Plan) of the "benefit liabilities"
(within the meaning of Section 4001(a)(16) of ERISA) of such Pension Plan.
(vi) Except as set forth in Schedule 3.2(m), the Company is not a
party to, or bound by, any Contract with any labor union or association,
including, without limitation, any collective bargaining, labor or similar
agreement. Neither the execution and delivery of this Agreement, the
Reorganization Agreement or the other Ancillary Agreements, nor the
consummation of the transactions contemplated hereby or thereby will
constitute a breach or default under any such agreement or give rise to any
right to terminate, amend or modify any such agreement. The Company is in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and is
not engaged in any unfair labor practices, except where the failure to so
comply or the result of such unfair labor practice, as the case may be,
would not have a material adverse effect on the Company.
(vii) As of the date of this Agreement, there are no employees who
have been laid off from the Branded Plant (as defined in the Reorganization
Agreement) and who have recall rights.
(n) Rights Agreement; Antitakeover Statutes.
(i) The Company has taken, or prior to the Effective Time will take,
all necessary action to:
A. redeem the Rights pursuant to Section 23 of the Rights
Agreement; and
B. render inapplicable to the Merger, the Distribution and the
other transactions contemplated by this Agreement and the Ancillary
Agreements any "fair price," "moratorium," "control share acquisition"
or similar anti-takeover statute or regulation enacted under the state
or federal law in the United States.
(ii) The Company has delivered, or will deliver prior to the Closing,
to Acquiror a true and correct copy of the Board resolutions and any other
action taken to accomplish the foregoing.
(o) Intellectual Property.
(i) Schedule 3.2(o) sets forth a complete list of all Intellectual
Property applications and registrations therefor which are unexpired or
uncancelled as of the date hereof. Except for the matters set forth on
Schedule 3.2(o) and except for such matters that individually or in the
aggregate have not had and could not reasonably be expected to have a
material adverse effect on the Company and the Branded Subsidiary taken as
a whole, (A) the Intellectual Property owned by the Company is valid and
enforceable, free and clear of all Liens; (B) the Company has taken all
reasonable actions necessary to maintain and protect the Company's rights
to the Intellectual Property; (C) the owners of the Intellectual Property
licensed to the Company have taken all reasonable actions necessary to
maintain and protect the Intellectual Property subject to such licenses;
(D) there has been no claim made against the Company asserting the
invalidity, misuse, unregistrability or unenforceability of any of the
Intellectual Property or challenging the Company's right to use or
ownership of any of the Intellectual Property; (E) the Company has no
knowledge of any infringement or misappropriation of any of the
Intellectual Property; (F) the conduct of the Branded Business has not
infringed or misappropriated and does not infringe or misappropriate any
intellectual property or proprietary right of any other entity; (G) no loss
of any of the Intellectual Property is pending or to the knowledge of the
Company threatened; (H) the Intellectual Property is sufficient to operate
the Branded Business as it is currently conducted; (I) the consummation of
the transactions contemplated by this Agreement will not alter, impair or
extinguish any of the Intellectual Property; and (J) the Company has not
licensed or in any other way authorized any other party to use the
Intellectual Property.
(ii) For purposes of this Agreement, "INTELLECTUAL PROPERTY" shall
mean all of the following (in whatever form or medium) which are owned by
or licensed to the Company and are used in
A-12
<PAGE> 13
the conduct of the Branded Business as conducted currently: (A) patents,
trademarks, service marks, trade dress and copyrights, (B) applications for
patents and for registration of trademarks, service marks, trade dress and
copyrights, (C) trade secrets and trade names, and (D) know how,
manufacturing, research and other technical information. Intellectual
Property shall not include any widely available off-the-shelf software.
(p) Taxes. The Company has filed all income tax returns and all other
material returns and reports required to be filed by it and has paid all taxes
required to be paid by it except for taxes which in the aggregate are not
material, and the most recent financial statements contained in the Filed
Company SEC Documents reflect an adequate reserve for all taxes payable by the
Company for all taxable periods and portions thereof through the date of such
financial statements. Except as disclosed in Schedule 3.2(p), no deficiencies
for any taxes have been proposed, asserted or assessed against the Company, and
no requests for waivers of the time to assess any such taxes are pending. The
Federal income tax returns of the Company have not been examined by and settled
with the Service. As used in this Agreement, "TAXES" shall include all Federal,
state, local and foreign income, property, sales, excise and other taxes,
tariffs or governmental charges of any nature whatsoever, including interest and
penalties thereon.
(q) Branded Financial Statements. Attached as Schedule 3.2(q)(i) hereto are
the statement of assets and liabilities as of March 31, 1996 (the "BRANDED
BALANCE SHEET") and statement of profit and loss (to a brand contribution level
of detail only) for the period October 1, 1995 through March 31, 1996 for the
Company and the Branded Subsidiary on a combined basis (collectively, the
"BRANDED FINANCIAL STATEMENTS"). The Branded Financial Statements were prepared
in accordance with the accounting principles and procedures set forth on
Schedule 3.2(q)(ii), consistently applied, and fairly present the financial
condition and results of operations (to the brand contribution level) of the
Company and the Branded Subsidiary on a combined basis as of March 31, 1996 and
for the period then ended. Neither this Section 3.2(q) nor any other provision
in this Agreement shall be construed as a representation or warranty as to the
accuracy or completeness of any budgets or projections relating to or reflecting
the Company as the Branded Subsidiary.
(r) Properties. Except (A) as may be reflected in the Branded Balance
Sheet, (B) for any Lien for current taxes not yet delinquent, and (C) for such
other Liens as do not materially affect the value of the property reflected in
the Branded Balance Sheet or acquired since the date of the Branded Balance
Sheet and which do not, individually or in the aggregate, materially interfere
with or impair the present and continued use of such property, the Company has
good title, free and clear of any Liens, to all of the property reflected in the
Branded Balance Sheet, and all property acquired since the date of the Branded
Balance Sheet, except such property as has been disposed of (or, in the case of
receivables, collected or paid) in the ordinary course of business consistent
with past practice. As of the date of the Branded Balance Sheet, all the
material tangible personal property owned or leased by the Company was in good
working condition (normal wear and tear excepted) and was suitable in all
material respects for the purposes for which it was being used.
(s) Capacity of Branded Plant. The production capacity per eight hour shift
of the Branded Plant (by production line, type of product which is run thereon
and package size) is set forth on Schedule 3.2(s).
(t) Actions Affecting 1994 Spinoff. The Company and its subsidiaries have
complied in all material respects with all of the terms and obligations of all
of the agreements between the Company or its subsidiaries and Ralston Purina
Company or its affiliates relating to or arising out of the spin-off of the
Company by Ralston Purina Company effective March 31, 1994 (the "1994 SPINOFF"),
and the Company has not taken, and has not permitted any of its subsidiaries to
take, any action that would disqualify the 1994 Spinoff as a tax-free
transaction within the meaning of Section 355 of the Code.
(u) Real Property.
(i) Owned Real Property. Schedule 3.2(u) attached hereto sets forth a
true and complete legal description of the Real Property (as defined
below). Except as set forth in attached Schedule 3.2(u), the Company has
good and marketable title to the Real Property, free and clear of any
Liens. Except as set forth in attached Schedule 3.2(u), all buildings and
improvements located thereon are in good operating
A-13
<PAGE> 14
condition and repair, ordinary wear and tear excepted, and do not violate
any zoning or building regulations or ordinances where located, except for
violations that do not materially impair the use of the Real Property. The
term "REAL PROPERTY" means the Branded Plant, appurtenant land, and
fixtures and improvement thereon operated by Foods on the date hereof.
(ii) Leased Real Property. Except as set forth on Schedule 3.2(u), the
Company is not a party to any lease of real property that is primarily used
in the Branded Business.
(iii) Real Property Documents. True, correct and complete copies of
title reports, surveys and leases in the Company's possession relating to
such Real Property have been furnished or made available to Acquiror.
(iv) Takings. Since March 31, 1994, neither the whole nor any portion
of any Real Property has been condemned, requisitioned or otherwise taken
by any public authority, and, to the Company's knowledge, no such
condemnation, requisition or taking is threatened.
(v) Environmental Matters. (i) Except as set forth in attached Schedule
3.2(v), (A) the Company, with respect to the Branded Business and the Real
Property, is in material compliance with all applicable laws and regulations for
the protection of the environment, and the Company, with respect to the Branded
Business and the Real Property, has received no notices of unremedied violations
from any Governmental Entity and there are no governmental investigations or
audits, whether pending, threatened or otherwise with respect thereto, other
than notices of matters set forth in attached Schedule 3.2(v), the violation of
which could result in the imposition of a material fine, penalty, liability,
cost or expense; and (B) the Company, with respect to the Branded Business, has
obtained or has made or will, before Closing, make application and pay for all
permits, licenses, orders and approvals of governmental or administrative
authorities required by applicable environmental protection laws or regulations
to permit it to carry on the Branded Business in substantially the same manner
as currently conducted, or which is applicable to the Real Property, and is in
material compliance with the requirements set out in such permits, licenses,
orders and approvals.
(ii) Hazardous Waste Disposal. Set forth in attached Schedule 3.2(v)
hereto is a summary description of current procedures of the Branded
Business with respect to the disposal of hazardous waste materials. Except
as set forth in attached Schedule 3.2(v), such procedures comply in all
material respects with all municipal, state or federal requirements
applicable thereto with respect to which non-compliance could result in the
imposition of a fine, penalty, liability, cost or expense.
(w) Actions Affecting Internal Spin-off or Distribution. The Company has
not taken, and has not permitted any of its subsidiaries to take, any action
that would disqualify the Internal Spinoff or the Distribution as tax-free
transactions within the meaning of Section 355 of the Code.
SECTION 3.3 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER
SUB. Acquiror and Merger Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Acquiror and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its state of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of Acquiror and Merger Sub is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except where the failure
to be so duly qualified or licensed and in good standing would not in the
aggregate have a material adverse effect on Acquiror and its subsidiaries taken
as a whole. True, accurate and complete copies of Acquiror's certificate of
incorporation and by-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been made available to the Company.
(b) Capital Structure. The authorized capital stock of Acquiror consists of
1,000,000,000 shares of Acquiror Common Stock and 5,000,000 shares of preferred
stock, without par value ("ACQUIROR PREFERRED STOCK"). At the close of business
on August 1, 1996, (i) 157,157,501 shares of Acquiror Common Stock and no shares
of Acquiror Preferred Stock were issued and outstanding, (ii) 46,995,831
A-14
<PAGE> 15
shares of Acquiror Common Stock were held by Acquiror in its treasury, and (iii)
2,000,000 shares of Acquiror Preferred Stock were reserved for issuance in
connection with the Rights Agreement dated as of December 11, 1995, between
Acquiror and Norwest Bank Minnesota, N.A., as Rights Agent. Except as set forth
above and except for shares issuable pursuant to employee stock options and
benefit plans, at the close of business on August 1, 1996, no shares of capital
stock or other voting securities of Acquiror were issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of Acquiror are, and all
shares which may be issued pursuant to this Agreement will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. There are not any bonds, debentures, notes or other
indebtedness of Acquiror having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of Acquiror may vote. Except as set forth above or in connection
with Acquiror's dividend reinvestment plan, as of the date of this Agreement,
there are not any securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Acquiror or any of
its subsidiaries is a party or by which any of them is bound obligating Acquiror
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Acquiror or obligating Acquiror or any of its subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.
(c) Authority; Noncontravention. Each of Acquiror and Merger Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the Ancillary Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of each of Acquiror and
Merger Sub. This Agreement has been duly executed and delivered by each of
Acquiror and Merger Sub and, assuming this Agreement constitutes a valid and
binding obligation of the Company, constitutes a valid and binding obligation of
each of Acquiror and Merger Sub, enforceable against it in accordance with its
terms. None of the execution and delivery of this Agreement, the Ancillary
Agreements to which Acquiror or Merger Sub is a party or the consummation of the
transactions contemplated hereby and thereby and compliance with the provisions
of this Agreement or such Ancillary Agreements will conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of Acquiror or Merger Sub under, (i)
the certificate of incorporation or by-laws of Acquiror or Merger Sub or the
comparable charter or organizational documents of any other subsidiary of
Acquiror, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
to which Acquiror or any of its subsidiaries is a party or by which Acquiror or
any of its subsidiaries or any of their respective assets are bound or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Acquiror, or any of its subsidiaries or their
respective properties or assets other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a material adverse effect on
Acquiror and its subsidiaries taken as a whole, (y) materially impair the
ability of Acquiror to perform its obligations under this Agreement or the
Ancillary Agreements to which it is a party or (z) prevent or materially delay
the consummation of any of the transactions contemplated by this Agreement or
such Ancillary Agreements to which it is party. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Acquiror or any subsidiary of Acquiror
in connection with the execution and delivery of this Agreement and any of the
Ancillary Agreements to which it is a party, or the consummation by Acquiror or
any of its subsidiaries of any of the transactions contemplated hereby and
thereby, except for (i) the filing with the SEC of the Form S-4 and such reports
under Sections 13 and 16(a) of the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated by this Agreement, (ii)
the filing of the Certificate of Merger with the Missouri Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the "takeover" or "blue sky" laws of various states, (iv) expiration of the
waiting period under the HSR
A-15
<PAGE> 16
Act, (v) such consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth on Schedule 3.3(c), and (vi) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings, the failure of which to obtain or make could not reasonably be
expected to have a material adverse effect on Acquiror and its subsidiaries
taken as a whole.
(d) SEC Documents; Undisclosed Liabilities.
(i) Acquiror has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1994 (the
"ACQUIROR SEC DOCUMENTS"). As of their respective dates, the Acquiror SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Acquiror
SEC Documents, and none of the Acquiror SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of Acquiror included in the Acquiror SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except as permitted by Form 10-Q of the SEC in the
case of unaudited statements) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of Acquiror and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(ii) None of the press releases issued by Acquiror since March 31,
1994 contained at the time of issuance any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(e) Information in Disclosure Documents and Registration Statements. None
of the information supplied or to be supplied in writing by Acquiror or its
representatives for inclusion or incorporation by reference in (i) the Form S-4
will, at the time the Form S-4 becomes effective under the Securities Act and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading and (ii) the Proxy Statement will, at the date mailed to stockholders
and at the time of the meeting of the Company's stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations thereunder, except that no representation is made by Acquiror with
respect to statements made therein based on information supplied by the Company
or its representatives for inclusion in the Form S-4 or with respect to
information concerning the Company or any of its subsidiaries incorporated by
reference in the Form S-4.
(f) Absence of Certain Changes or Events. On the date of this Agreement,
except as disclosed in the Acquiror SEC Documents filed and publicly available
prior to the date of this Agreement (the "FILED ACQUIROR SEC DOCUMENTS") or as
set forth in Schedule 3.3(f), and at the Closing Date, except as disclosed in
the Acquiror SEC Documents filed and publicly available before the Closing Date
or in Schedule 3.3(f) or in the Acquiror Bring Down Certificate (as defined in
Section 6.3(a)), since May 28, 1995, (i) there has not been any material adverse
change in Acquiror and its subsidiaries taken as a whole or any event affecting
Acquiror and its subsidiaries that could reasonably be expected to have such a
material adverse effect, and (ii) there has not been (A) any split, combination
or reclassification of any of Acquiror's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (B) any damage, destruction
or loss, whether or not covered by insurance, that has had or could reasonably
be expected to have a material adverse effect on Acquiror and its subsidiaries
taken as a whole, or (C) any change in accounting methods, principles or
practices by Acquiror
A-16
<PAGE> 17
materially affecting its assets, liabilities or business, except insofar as may
have been required (in the opinion of the Acquiror's independent accountants) by
a change in generally accepted accounting principles.
(g) Litigation. Except as disclosed in the Filed Acquiror SEC Documents or,
with respect to claims, investigations, suits, actions or proceedings arising,
or to the knowledge of Acquiror, first expressly threatened, between the date
hereof and the Closing Date, as disclosed in Acquiror SEC Documents filed and
publicly available before the Closing Date or in the Acquiror Bring Down
Certificate, there is no claim, investigation, suit, action or proceeding
pending or, to the knowledge of Acquiror, expressly threatened, against any of
Acquiror or any of its subsidiaries before or by any Governmental Entity or
arbitrator that, individually or in the aggregate, could reasonably be expected
to (i) have a material adverse effect on Acquiror and its subsidiaries taken as
a whole, (ii) materially impair the ability of Acquiror to perform its
obligations under this Agreement or any of the Ancillary Agreements to which it
is a party or (iii) prevent or materially delay or alter the consummation of any
or all of the transactions contemplated hereby or thereby.
(h) Compliance with Applicable Laws. Acquiror and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of, and have made
all filings, applications and registrations with, all Governmental Entities
which individually or in the aggregate are material to the operation of the
businesses of Acquiror and its subsidiaries taken as a whole (the "ACQUIROR
PERMITS"). All Acquiror Permits are in full force and effect in all material
respects. Acquiror and its subsidiaries are in compliance with the terms of the
Acquiror Permits, except where the failure so to comply would not have a
material adverse effect on Acquiror and its subsidiaries taken as a whole.
Except as disclosed in the Filed Acquiror SEC Documents, the businesses of
Acquiror and its subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for violations, if
any, which individually or in the aggregate do not, and could not reasonably be
expected to, have a material adverse effect on Acquiror and its subsidiaries
taken as a whole.
(i) Consummation of Transactions. As of the date of this Agreement,
Acquiror has not received written notice from any Federal or state governmental
agency or authority indicating that such agency or authority would oppose or
refuse to grant or issue its consent or approval, if required, with respect to
the transactions contemplated by this Agreement.
(j) Voting Requirements. No action by the stockholders of Acquiror is
required to approve this Agreement and the transactions contemplated by this
Agreement.
(k) Brokers. No broker, investment banker, financial advisor or other
person, other than Dillon, Read & Co. Inc., the fees and expenses of which will
be paid by Acquiror, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Acquiror.
ARTICLE IV
COVENANTS
SECTION 4.1 COVENANTS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the Effective Time, the Company agrees as to
itself and its subsidiaries that, except for the Distribution and the other
transactions expressly provided for in the Reorganization Agreement, as
expressly contemplated or permitted by this Agreement, or to the extent that
Acquiror shall otherwise consent in writing:
(a) Ordinary Course. The Company and its subsidiaries shall conduct the
Branded Business in the ordinary course, including, without limitation, using
reasonable efforts to preserve beneficial relationships between the Branded
Business and its distributors, brokers, lessors, suppliers, employees and
customers in connection with the Branded Business, it being understood that the
Company and its subsidiaries may comply with their respective contractual
obligations under the contracts to which they are parties (so long as the
execution of such contracts by the Company or the applicable subsidiary does not
constitute a breach of, or
A-17
<PAGE> 18
default under, this Agreement). Without limiting the generality of the
foregoing, the Company and its subsidiaries will, with respect to the Branded
Business:
(i) not commence or commit to any capital projects having an
individual cost of $100,000 or more, or with an aggregate cost for all such
projects of $1,000,000 or more, and will continue the consolidation at the
Branded Plant in substantially the manner contemplated on the date hereof;
(ii) not enter into any contracts or agreements other than in the
ordinary course of the Branded Business relating to or obligating the
Branded Business, that involve amounts in excess of $100,000 individually
or $500,000 in the aggregate unless such contracts or agreements are
cancelable on 30 days or less notice without penalty or premium;
(iii) maintain overall broker sales incentive programs for all of the
Company's and its subsidiaries' products of the Branded Business handled by
brokers that will provide compensation to brokers at a rate that is at
least equal to those maintained by the Company during the comparable period
during the last fiscal year;
(iv) on a fiscal quarterly basis, and cumulatively, maintain direct
and indirect trade, consumer promotions (including coupon expense and
sampling) and advertising expenditures (excluding broker sales incentives)
relating to the Branded Business at such level as the Company may determine
necessary, in its reasonable judgment, to preserve the health of the
Branded Business;
(v) not take any action to intentionally (i) build excessive inventory
levels at the trade or factory level or (ii) permit factory inventory
levels to fall below reasonably expected requirements; and
(vi) not transfer or reassign any of the marketing and/or research and
development employees presently associated primarily with the Branded
Business (all of such persons being identified on Schedule 4.1(a)(vi)), or
any employees to or from the Branded Plant, or recall laid-off employees at
the Branded Plant other than in the ordinary course of business consistent
with past practice, it being understood that, in addition to the employees
at the Branded Plant, Acquiror shall have the opportunity to interview such
identified marketing and/or research and development employees prior to the
Effective Time and to discuss the possibility of employing or causing the
Surviving Corporation to employ those persons from and after the Effective
Time.
(b) Changes in Stock. The Company shall not (i) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (ii) other than in connection with the
exercise of stock options outstanding as of
the date of this Agreement under any Benefit Plan, repurchase, redeem or
otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise
acquire, any shares of capital stock of the Company or any of its subsidiaries.
(c) Issuance of Securities. The Company shall not, nor shall the Company
permit the Branded Subsidiary to, issue, transfer or sell, or authorize or
propose or agree to the issuance, transfer or sale by the Company or the Branded
Subsidiary of, any shares of its capital stock of any class or other equity
interests or any securities convertible into, or any rights, warrants, calls,
subscriptions, options or other rights or agreements, commitments or
understandings to acquire, any such shares, equity interests or convertible
securities, other than: (i) the issuance of shares of Company Common Stock (w)
upon the exercise of stock options outstanding as of the date of this Agreement
pursuant to any Benefit Plan, (x) to make any payment under any Benefit Plan
that is required as of the date of this Agreement to be made in the form of
shares of Company Common Stock or (y) to make acquisitions of capital stock or
assets of, or in connection with a merger with, another entity provided that
such transaction is permitted pursuant to paragraph (e) of this Section 4.1; or
(z) the grant of stock options pursuant to Benefit Plans consistent with past
practices (provided that any such newly granted options will by their terms be
converted into options to acquire New Holdings Common Stock at or prior to the
Effective Time); and (ii) issuances by the Branded Subsidiary of its capital
stock to its parent.
A-18
<PAGE> 19
(d) Governing Documents. The Company shall not, nor shall it permit the
Branded Subsidiary to, amend or propose to amend its articles of incorporation
(or, if applicable, its certificate of incorporation or other charter document)
or by-laws.
(e) No Acquisitions. The Company shall not, nor shall it permit the Branded
Subsidiary to, (i) acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation or other
business organization that would be directly or indirectly acquired by Acquiror
in the Merger or that would create liabilities or obligations that would be
binding upon Acquiror or its subsidiaries, the Branded Subsidiary or the
Surviving Corporation following the Effective Time, or (ii) except for
investments by the Company in its existing wholly owned subsidiaries or any
investments by or in any Benefit Plan, make any other investment in any person
(whether by means of loan, capital contribution, purchase of capital stock,
obligations or other securities, purchase of all or any integral part of the
business of the person or any commitment or option to make an investment or
otherwise) that would be directly or indirectly acquired by Acquiror in the
Merger or that would create liabilities or obligations that would be binding
upon Acquiror or its subsidiaries, the Branded Subsidiary or the Surviving
Corporation following the Effective Time.
(f) No Dispositions. The Company shall not, nor shall it permit any of its
subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any of the
assets of the Branded Business (including, without limitation, any real
property, inventory, equipment or Intellectual Property) other than (except with
respect to Intellectual Property) in the ordinary course of business consistent
with past practice and the sale or other disposition of obsolete equipment.
(g) Indebtedness. The Company shall take such action as may be necessary so
that, as of the Effective Time, the Company and the Branded Subsidiary, taken as
a whole, shall not have any indebtedness for borrowed money or any obligation
evidenced by a promissory note or other instrument or guarantee other than: (i)
the Notes, not to exceed $150,000,000 in face value in the aggregate, plus
accrued and unpaid interest thereon, (ii) other indebtedness other than that
described in clause (i) or (iii) below, not to exceed $150,000,000 in principal
amount in the aggregate, plus accrued and unpaid interest thereon (provided that
such indebtedness shall not contain, as of the Effective Time, any terms which
are more restrictive in any material respect on the Company or the Branded
Subsidiary than the terms of the existing indebtedness of the Company on the
date hereof and provided that such indebtedness can be paid without penalty or
premium within thirty (30) days after the Effective Time), and (iii)
indebtedness incurred pursuant to a written agreement that provides that such
indebtedness will be assumed by Foods or a subsidiary of Foods at or prior to
the Effective Time and that, upon such assumption, the Company and its
subsidiaries shall have no obligation or liability in respect of such
indebtedness.
(h) Benefit Plans; Collective Bargaining Agreement. Except as contemplated
by the Reorganization Agreement, the Company shall not, nor shall it permit the
Branded Subsidiary to: (i) adopt any Benefit Plan or amend any Benefit Plan to
the extent such adoption or amendment (x) would create or increase any liability
or obligation on the part of the Company or the Branded Subsidiary that will not
either (A) be fully performed or satisfied prior to the Effective Time or (B) be
assumed by Foods pursuant to the Reorganization Agreement with no remaining
obligation on the part of the Company or the Branded Subsidiary, or (y) would
increase the number of shares of Company Common Stock (if any) to be issued
under such Benefit Plan; (ii) except for normal increases in the ordinary course
of business consistent with past practice, increase the base salary of any
employee of the Branded Business; or (iii) enter into or modify in any material
respect any collective bargaining agreement governing employees of the Branded
Business.
(i) Filings. The Company shall promptly provide counsel for Acquiror copies
of all filings (other than those filings, or portions thereof, which Acquiror
has no reasonable interest in obtaining in connection with the Merger or the
transactions contemplated hereby) made by the Company or any of its subsidiaries
with any Federal, state or foreign Governmental Entity in connection with this
Agreement, the Reorganization Agreement and the transactions contemplated hereby
and thereby.
(j) Accounting Policies and Procedures. The Company will not and will not
permit the Branded Subsidiary to change any of its accounting principles,
policies or procedures, except such changes as may be
A-19
<PAGE> 20
required, in the opinion of the Company's independent accountants, by generally
accepted accounting principles or changes that in the opinion of said
accountants are not material to the Company's consolidated financial statements
(as to which changes and opinion the Company shall promptly notify Acquiror).
(k) Liens. The Company shall not, and shall not permit the Branded
Subsidiary to, create, incur or assume any Lien on the Branded Assets (as
defined in the Reorganization Agreement), except for Liens created, incurred or
assumed in the ordinary course of business consistent with the past practices of
the Company and its subsidiaries, which Liens would not have a material adverse
effect on the Company and the Branded Subsidiary, taken as a whole.
(l) Actions Affecting Merger, Internal Spin-off or Distribution. The
Company shall not, and shall not permit any of its subsidiaries to, take any
action that would or is reasonably likely to result in any of the conditions to
the Merger set forth in Article VI not being satisfied or that would materially
impair the ability of the Company to consummate the Internal Spinoff or the
Distribution in accordance with the terms of the Reorganization Agreement, or
the Merger in accordance with the terms hereof, or would materially delay such
consummation or that would disqualify the Internal Spinoff or the Distribution
as tax-free transactions within the meaning of Section 355 of the Code.
(m) Delivery of Certain Information. The Company shall furnish to Acquiror
as soon as available and in any event within 20 days after the end of each
month, (i) a balance sheet as of the end of each month for the Company and the
Branded Subsidiary on a combined basis substantially in the form of the Branded
Balance Sheet, (ii) statements of profits and loss (at a brand contribution
level) for the Company and the Branded Subsidiary on a combined basis for each
such month, substantially in the form of Schedule 3.2(q)(i), and (iii) monthly
operating reports, including inventory levels, sales volume, marketing spending
by brand and promotional spending plans for forward periods as and when
developed (but excluding any information that the Company is advised by legal
counsel is not appropriate information to be exchanged under applicable law).
(n) Exclusivity. Neither the Company nor any of its directors, officers or
employees shall, and the Company shall use its best efforts to ensure that none
of its representatives shall, directly or indirectly, solicit, initiate or
encourage any inquiries or proposals from or with any person (other than
Acquiror) or such person's directors, officers, employees, representatives and
agents that constitute, or could reasonably be expected to lead to a Third Party
Acquisition. For purposes of this Agreement, a "THIRD PARTY ACQUISITION" shall
mean (i) the acquisition by any person of more than twenty percent of the total
assets of the Branded Business, (ii) the acquisition by any person (other than
an acquisition by a person in connection with a transaction permitted by Section
4.1(e), provided such person agrees to vote the Company Common Stock acquired in
such transaction in favor of the Merger) of twenty percent or more of (A) the
Company Common Stock or (B) the total number of votes that may be cast in the
election of directors of the Company at any meeting of shareholders of the
Company assuming all shares of Company Common Stock and all other securities of
the Company, if any, entitled to vote generally in the election of directors
were present and voted at such meeting, or (iii) any merger, amalgamation or
other combination of the Company with any person. The Company has, upon
execution of this Agreement, immediately ceased or caused to be terminated any
existing discussions or negotiations with any parties other than Acquiror
conducted prior to the date hereof with respect to any Third Party Acquisition.
The Company may furnish or cause to be furnished information (pursuant to
confidentiality arrangements no less favorable to the Company than the
Confidentiality Agreement (as hereinafter defined), unless already in existence
on the date hereof) and may participate in such discussions and negotiations
directly or through its representatives if (i) the failure to provide such
information or participate in such negotiations and discussions would, in the
opinion of its outside counsel, reasonably be deemed to cause the members of the
Company's Board of Directors to breach their fiduciary duties under applicable
law or (ii) another corporation, partnership, person or other entity or group
makes a written offer or written proposal which, based upon the identity of the
person or entity making such offer or proposal and the terms thereof, and the
availability of adequate financing therefor, the Company's Board of Directors
believes, in the good faith exercise of its business judgment and based upon
advice of its outside legal and financial advisors, would reasonably be expected
to be consummated and represents a transaction more favorable to its
shareholders than the transactions contemplated by this Agreement (a "Higher
Offer"). The Company shall notify Acquiror as soon as practicable if any such
inquiries or proposals are received by,
A-20
<PAGE> 21
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with it, which notice shall provide the
identity of the third party or parties and the terms of any such proposal or
proposals. The Company's Board of Directors may fail to recommend or fail to
continue to recommend this Agreement in connection with any vote of its
shareholders, or withdraw, modify, or change any such recommendation, or
recommend any other offer or proposal, if the Company's Board of Directors,
based on the opinion of its outside counsel, determines that making such
recommendation, or the failure to recommend any other offer or proposal, or the
failure to so withdraw, modify, or change its recommendation, or the failure to
recommend any other offer or proposal, would reasonably be deemed to cause the
members of the Company's Board of Directors to breach their fiduciary duties
under applicable law in connection with a Higher Offer. In such event,
notwithstanding anything contained in this Agreement to the contrary, any such
failure to recommend, withdrawal, modification, or change of recommendation or
recommendation of such other offer or proposal, or the entering by the Company
into an agreement with respect to a Higher Offer (provided that the Company
shall have provided Acquiror with at least six business days' notice of its
intention to so enter, the terms of the Higher Offer and the identity of the
other party thereto), shall not constitute a breach of this Agreement by the
Company. Notwithstanding the foregoing, the Company shall not enter into an
agreement with a third party with respect to, or waive, modify or redeem the
Rights or take any action to approve such transaction under any antitakeover
provision of the Company's certificate of incorporation or state law in
connection with, any Third Party Acquisition unless and until this Agreement is
terminated in accordance with the provisions of Article VII.
(o) New Contracts. Other than in the ordinary course of the Branded
Business and consistent with past practice, the Company will not and will not
permit any of its subsidiaries to enter into any new contract, agreement,
arrangement or understanding that would or could reasonably be expected to
impose any new obligations or liabilities on the Company from and after the
Effective Time.
(p) Confidentiality and Standstill Agreements. The Company will not amend,
waive or modify any provision of any confidentiality or standstill agreement
entered into with any other party in connection with such party's interest in
acquiring the Company or the Branded Business or any substantial portion of the
Branded Business.
(q) Broker Transition. The Company will reasonably cooperate, at Acquiror's
expense, with Acquiror to facilitate such post-Closing transition arrangements
between Acquiror or its subsidiaries and brokers distributing products of the
Branded Business as Acquiror may determine necessary or advisable.
(r) Pending Actions. The Company will continue to defend in the ordinary
course, consistent with past practice, the litigation and other proceedings set
forth in Schedule 1.1(c) to the Reorganization Agreement, including resolving
any such litigation and other proceedings as can be resolved prior to the
Effective Time on a commercially reasonable basis and consistent with past
practice.
(s) No Agreement to Prohibited Actions. The Company will not, and will not
permit any of its subsidiaries to, agree or commit to take any action that is
prohibited under this Section 4.1.
SECTION 4.2 COVENANTS OF ACQUIROR. During the period from the date of this
Agreement and continuing until the Effective Time, Acquiror agrees as to itself
and its subsidiaries that:
(a) Actions Affecting Merger. Acquiror shall not, and shall not permit
any of its subsidiaries to, take any action that would or is reasonably
likely to result in any of the conditions to the Merger set forth in
Article VI not being satisfied, or that would materially impair the ability
of Acquiror to consummate the Merger in accordance with the terms hereof or
materially delay such consummation.
(b) Filings. Acquiror shall promptly provide the Company (or its
counsel) copies of all filings (other than those filings, or portions
thereof, which the Company has no reasonable interest in obtaining in
connection with the Merger or the transactions contemplated hereby) made by
Acquiror with any Federal, state or foreign Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
A-21
<PAGE> 22
(c) Acquiror Common Stock. Except at a time and in a manner which will not
increase the Average Value of Acquiror Common Stock, Acquiror shall not split,
combine or reclassify any of the Acquiror Common Stock or authorize the (i)
making of any in-kind distribution or extraordinary cash dividend with respect
to the Acquiror Common Stock or (ii) issuance of any other securities in respect
of or in exchange for shares of the Acquiror Common Stock.
(d) Tax Free Status of Merger and Spin-Offs. Acquiror shall not, and shall
not permit any of its subsidiaries to, take any action that would disqualify the
Merger as a tax-free reorganization under Section 368(a)(1)(B) of the Code, or
any other action that would disqualify the Internal Spinoff or the Distribution
as tax-free transactions within the meaning of Section 355 of the Code.
SECTION 4.3 MUTUAL COVENANTS.
(a) The Company and Acquiror shall use their reasonable best efforts not
to, and not to permit any of their respective subsidiaries to, take any action
that would, or that could reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) the failure to satisfy any of the conditions to the
Merger set forth in Article VI.
(b) The Company and Acquiror shall promptly advise the other party orally
and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have, a material adverse
effect on such party and its subsidiaries taken as a whole.
(c) (i) Subject to the terms and conditions herein provided, the parties
hereto agree to use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to cooperate with each other in
connection with the foregoing, including, but not limited to, (A) defending all
lawsuits or other legal proceedings challenging this Agreement, or the
transactions contemplated hereby, (B) attempting to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby, and (C)
effecting all necessary filings and submissions of information requested by
governmental authorities.
(ii) Without limiting the foregoing, the parties hereto shall, as soon
as reasonably practicable, make their filing under the HSR Act, shall
endeavor to obtain early termination of the waiting period thereunder, and
shall promptly make any further filings requested pursuant thereto or which
may be necessary to consummate the transactions contemplated herein. Each
party shall furnish to the other, upon request, such information as shall
reasonably be required in connection with the preparation of the requesting
party's filings under the HSR Act.
(iii) Notwithstanding the foregoing or any other provision of this
Agreement, (A) neither the Company nor any of its subsidiaries will,
without Acquiror's prior written consent, agree or commit to any
divestiture, hold-separate order or other restriction relating to the
Branded Business and (B) neither Acquiror nor any of its subsidiaries will
be required to agree or commit to any divestiture, hold-separate order or
other restriction relating to the Branded Business or to any of its
existing businesses or any other governmental order or obligation that
otherwise imposes any conditions or limitations in connection with
Acquiror's acquisition of the Branded Business.
(d) The Company will use reasonable efforts to reach an agreement prior to
the Effective Time with Ralston Purina Company ("RPCo."), reasonably
satisfactory in form and substance to Acquiror, providing for (i) the
termination or other resolution of Foods' obligations under the Distributorship
Agreement (as defined in the Reorganization Agreement) as of the Effective Time
and (ii) the substitution of Foods for the Company, with a novation of the
Company, effective as of the Effective Time, with respect to any liabilities of
the Company to RPCo. under the agreements entered into between the Company and
RPCo. in connection with the 1994 spinoff of the Company from RPCo., except for
any liabilities assumed or retained by the Company or the Branded Subsidiary
pursuant to this Agreement and the Ancillary Agreements. In connection with and
subject to the execution of an agreement with RPCo. as contemplated by the
preceding sentence, to
A-22
<PAGE> 23
the extent such agreement does not provide for termination of the
Distributorship Agreement, Acquiror will use its reasonable efforts to reach a
mutually satisfactory arrangement under which the Company, effective as of the
Effective Time, would supply Foods with Branded Business products for Foods to
supply to RPCo. for distribution under the Distributorship Agreement (subject to
limitations to be determined by Acquiror and Foods). The foregoing covenants
shall not be construed to require payments by any of Acquiror, the Company or
Foods to RPCo. in exchange for RPCo.'s execution of such agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 PREPARATION OF FORM S-4, FORM S-1, FORM 10 AND THE PROXY
STATEMENT; STOCKHOLDERS MEETING.
(a) As soon as practicable following the date of this Agreement, the
Company and Acquiror shall prepare and file with the SEC the Form S-4, the Form
S-1 (if required), the Form 10 and the Proxy Statement. Each of the Company and
Acquiror shall use its reasonable best efforts to have the Form S-4 and Form S-1
(if required) declared effective under the Securities Act, and the Form 10
declared effective under the Exchange Act, as promptly as practicable after such
filing. The Company will use its reasonable best efforts to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as practicable
after the Form S-4, Form S-1 (if required) and Form 10 are declared effective
under the Securities Act and the Exchange Act, as the case may be. Acquiror
shall also use its reasonable best efforts to take any action required to be
taken under any applicable state securities laws in connection with the issuance
of Acquiror Common Stock in the Merger and the Company shall furnish all
information concerning the Company and the holders of the Company Common Stock
and rights to acquire Company Common Stock pursuant to the Benefit Plans as may
be reasonably requested in connection with any such action.
(b) The Company shall, as soon as practicable following the date on which
the Form S-4, Form S-1 (if required) and Form 10 are declared effective, duly
call, give notice of, convene and hold a meeting of its stockholders (the
"STOCKHOLDERS MEETING") for the purpose of voting upon the approval and adoption
of this Agreement and, if the Company determines it to be necessary or
appropriate, upon the Distribution. Subject to the provisions of Section 4.1(n),
the Company shall, through its Board of Directors, recommend to its stockholders
approval of this Agreement and the transactions contemplated by this Agreement.
SECTION 5.2 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) The Company shall, and shall cause its subsidiaries to, afford to
Acquiror and its officers, employees, accountants, counsel, financial advisors
and other representatives of Acquiror, reasonable access during the period prior
to the Effective Time to all its properties, books, contracts, commitments,
personnel and records relating to the Branded Business. During the period prior
to the Effective Time, the Company shall, and shall cause its subsidiaries to,
furnish promptly to Acquiror (i) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of Section 13(a) and 15(d) of the Exchange Act, (ii) each press
release issued by it, and (iii) all other information relating to the Branded
Business as Acquiror may reasonably request; provided that the Company shall not
be required to provide information regarding Foods unless such information
relates to liabilities or obligations that could reasonably be expected to be
incurred by or imposed on the Company and that would remain in effect after the
Effective Time. The Company shall not be obligated to provide any aforementioned
access or information to Acquiror if the Company's legal counsel advises the
Company that such action would violate any law, regulation, rule, order or
decree or a confidentiality agreement.
(b) During the period prior to the Effective Time, Acquiror shall furnish
promptly to the Company a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of Section 13(a) and 15(d) of the Exchange Act (other than Forms 11-K).
A-23
<PAGE> 24
(c) Except as required by law, each of the Company and Acquiror will hold,
and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in confidence in accordance with the confidentiality
agreement, dated June 17, 1996 (the "CONFIDENTIALITY AGREEMENT"), between
Acquiror and the Company.
SECTION 5.3 LEGAL CONDITIONS TO DISTRIBUTION AND MERGER; LEGAL COMPLIANCE.
(a) Subject to the terms and conditions hereof, including, without
limitation, Section 4.3(c)(iii), (i) Acquiror shall use reasonable best efforts
to comply promptly with all legal and regulatory requirements which may be
imposed on itself or its subsidiaries with respect to the Merger and (ii)
Acquiror will, and will cause its subsidiaries to, promptly use its reasonable
best efforts to obtain any consent, authorization, order or approval of, or any
exemption by, and to satisfy any condition or requirement imposed by, any
Governmental Entity or other public or private third party, required to be
obtained, made or satisfied by Acquiror or any of its subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement or the Reorganization Agreement.
(b) Subject to the terms and conditions hereof, including, without
limitation, Section 4.3(c)(iii), (i) the Company will use its reasonable best
efforts to comply promptly with all legal and regulatory requirements which may
be imposed on itself or its subsidiaries with respect to the Distribution and
the Merger and (ii) the Company will, and will cause its subsidiaries to,
promptly use its reasonable best efforts to obtain any consent, authorization,
order or approval of, or any exemption by, and to satisfy any condition or
requirement imposed by, any Governmental Entity or other public or private third
party, required to be obtained, made or satisfied by the Company or any of its
subsidiaries in connection with the Distribution or the Merger or the taking of
any action contemplated thereby or by this Agreement or the Reorganization
Agreement.
(c) Each of the Company and Acquiror will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their respective subsidiaries in connection
with the Distribution or the Merger.
SECTION 5.4 RIGHTS AGREEMENT. The Board of Directors of the Company shall
take all further action (in addition to that referred to in Section 3.2(n))
requested in writing by Acquiror (including, if necessary, redeeming the Rights
immediately prior to the Effective Time or amending the Rights Agreement) in
order to render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement and the Reorganization Agreement.
SECTION 5.5 EMPLOYMENT MATTERS.
(a) Employment with Branded Business. Acquiror agrees to cause the Company
or the Branded Subsidiary to offer to retain all Branded Employees (as defined
in the Reorganization Agreement) as of 12:01 a.m. on the Closing Date. The offer
of continuing employment to be made hereunder shall include provision for the
payment of base salary to each such employee at a rate at least equal to the
rate of base salary in effect for such employee immediately prior to the
Closing. Notwithstanding the foregoing, nothing contained herein shall be
construed as obligating Acquiror, the Surviving Corporation or any of its
affiliates (x) to offer employment after the Closing to any employee whose
employment with the Company terminates for any reason prior to the Closing, (y)
to maintain any term or condition of employment (including base salary) for any
period following the Effective Time, except as provided in Section 5.5(b), or
(z) to recall any employee who does not have recall rights.
(b) Severance and Other Benefits on Termination. With respect to Branded
Employees who are terminated by the Surviving Corporation or the Branded
Subsidiary after the Effective Time, the Surviving Corporation shall be
responsible for severance benefits payable pursuant to severance plans, policies
and practices of the Surviving Corporation applicable to Branded Employees at
the time of their termination. The Surviving Corporation further agrees to
provide any required notice under federal, state and local laws, regulations or
rules for any termination of Branded Employees after the Effective Time.
A-24
<PAGE> 25
(c) Data to be Furnished. Prior to Closing, the Company shall furnish
Acquiror with information as to (i) the rate of base salary in effect for each
Branded Employee immediately before the Closing, (ii) each Branded Employee's
position with the Company immediately before the Closing and (iii) each Branded
Employee's prior service.
(d) Cooperation. Prior to the Closing, the Company will reasonably
cooperate with Acquiror in conducting a review of the Benefit Plans, including
jointly engaging (with Acquiror and Foods) a firm or firms, as promptly as
practicable after the date hereof, selected by Acquiror and at Acquiror's sole
expense, to conduct such review. The Company and Foods will provide such firm or
firms with such documents and other information relating to the Benefit Plans as
such firm or firms may reasonably request. Following such review, the Company
will, as promptly as practicable, take any actions that Acquiror and the Company
may reasonably, mutually determine to be necessary or advisable in light of such
review.
SECTION 5.6 FEES AND EXPENSES. Except as provided in Section 7.2(b)(iii),
all fees and expenses incurred in connection with the Merger, the Distribution,
this Agreement, the Reorganization Agreement and the transactions contemplated
by this Agreement and the Ancillary Agreements shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that expenses incurred in connection with printing and mailing the Proxy
Statement, the Form S-4, the Form S-1 (if required) and the Form 10, shall be
shared equally by Acquiror and the Company. Any such fees or expenses incurred
by the Company or its subsidiaries but not paid prior to the Effective Time
shall be accrued and reflected as liabilities of the Company and taken into
account in calculating the Closing Date Net Assets as set forth in Section 2.3.
SECTION 5.7 DISTRIBUTION. Prior to the Closing, the Company will (a) enter
into the Reorganization Agreement and each of the Ancillary Agreements to which
the Company is to be a party and (b) cause Foods and any other applicable
subsidiaries to enter into the Reorganization Agreement and each of the other
Ancillary Agreements to which it is to be a party. The Company will, and will
cause Foods to, take all action necessary to effect the Distribution immediately
prior to the Effective Time, pursuant to the terms of the Reorganization
Agreement and the Ancillary Agreements. Prior to the Effective Time, the Company
will not agree to or permit any modification, amendment, supplement or waiver of
the Reorganization Agreement or any of the Ancillary Agreements without the
prior written consent of Acquiror.
SECTION 5.8 PUBLIC ANNOUNCEMENTS. Acquiror and the Company will consult
with each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other public statements (it being
understood that discussions by the parties with financial analysts or other
advisors shall not constitute public statements) with respect to the
transactions contemplated by this Agreement and the Ancillary Agreements,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
SECTION 5.9 PRIVATE LETTER RULING AND TAX OPINIONS. The Company and
Acquiror each hereby agree to cooperate with the other party and to use their
reasonable best efforts to obtain from the Internal Revenue Service (or tax
counsel) the private letter ruling (or tax opinions) contemplated by Section
6.1(d) or (e) of this Agreement.
SECTION 5.10 AFFILIATES. Prior to the Closing Date, the Company shall
deliver to Acquiror a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its reasonable best efforts to cause each such person to
deliver to Acquiror on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit B hereto.
SECTION 5.11 STOCK EXCHANGE LISTING. Acquiror shall use its reasonable best
efforts to cause the shares of Acquiror Common Stock to be issued in the Merger
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
SECTION 5.12 TITLE INSURANCE. In the event Acquiror shall elect at Closing
to purchase an A.L.T.A. Owner's Title Insurance Policy with standard extended
coverage for the Real Property, to the extent
A-25
<PAGE> 26
reasonably required by the issuer of such title insurance, the Company will and
will cause Foods to cooperate reasonably in the execution of documents
customarily required by an issuer of title insurance to provide extended title
insurance coverage.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote or consent of the Requisite Stockholders of the
Company.
(b) Stock Exchange Listing. The shares of Acquiror Company Stock issuable
to the Company's stockholders pursuant to this Agreement and under the Benefit
Plans shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(c) Regulatory Approvals. Each of Acquiror and the Company shall have
obtained all requisite approvals of, or satisfied all requisite filing
requirements with, Governmental Entities in connection with the transactions
contemplated hereby and by the Ancillary Agreements, including all requisite
approvals under, and the expiration of all waiting periods in respect of, the
HSR Act.
(d) Private Letter Ruling. Unless otherwise agreed upon by the Company and
the Acquiror as set forth in paragraph (e) below, the Company shall have
received from the Service a private letter ruling (the "PRIVATE LETTER RULING"),
reasonably satisfactory in form and substance to Acquiror, substantially to the
effect that, on the basis of the facts, representations, and applicable law
existing at the Effective Time:
(i) The transfer by Foods to the Branded Subsidiary of its Branded
Business assets and liabilities, and the distribution of the Branded
Subsidiary stock to the Company, as contemplated by the Reorganization
Agreement, will qualify for Federal income tax purposes as a reorganization
within the meaning of Sections 368(a)(1)(D) of the Code and 355(a) of the
Code; and that, among other consequences of such qualification, no taxable
gain, loss or income will be realized by Foods, the Branded Subsidiary or
the Company as a result of such transaction.
(ii) The pro rata distribution of the stock of New Holdings to the
holders of the Company Common Stock will be non-taxable for Federal income
tax purposes, to both the Company's stockholders and the Company, under
Sections 355(a) and (c) of the Code.
(iii) The Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(B) of the Code; and
that, among other consequences of such qualification, no taxable gain, loss
or income will be realized by the Company, Acquiror or the Company's
shareholders as a result of the Merger.
(e) Joint Tax Opinion or Tax Opinions. In the event that the Company and
Acquiror agree to complete the transactions contemplated by this Agreement
without obtaining the Private Letter Ruling, Acquiror shall have received a
jointly rendered opinion of Wachtell, Lipton, Rosen & Katz, counsel to Acquiror,
and Bryan Cave LLP, counsel to the Company, or separate opinions of each such
firm, in each case reasonably satisfactory in form and substance to Acquiror, to
the same effect as set forth in clauses (i), (ii) and (iii) of the foregoing
paragraph (d).
(f) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, the Internal Spinoff or the Distribution shall be in
effect; provided, however, that subject to the terms and conditions of this
Agreement including, without limitation, Section 4.3(c)(iii), each of the
parties shall have used its reasonable efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any such
injunction or other order that may be entered. No action,
A-26
<PAGE> 27
suit or other proceeding shall be pending by any Governmental Entity that, if
successful, would restrict or prohibit the consummation of the Merger, the
Internal Spinoff or the Distribution; provided, however, that the Company will
not unreasonably withhold its waiver of the condition set forth in this sentence
upon Acquiror's request in the event such an action, suit or other proceeding is
pending with respect to the Merger alone.
(g) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or pending proceedings by a
Governmental Entity seeking a stop order.
(h) Consummation of the Distribution. The Distribution shall have become
effective in accordance with the terms of the Reorganization Agreement and each
of the agreements contemplated thereby.
(i) Tax Legislation. There shall be no proposed legislation introduced in
bill form and pending congressional action which, if passed, would have the
effect of amending the Internal Revenue Code so as to alter in any materially
adverse respect any of the tax consequences prescribed by the Private Letter
Ruling or the tax opinions contemplated by paragraphs (d) and (e) above.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF ACQUIROR AND MERGER SUB. The
obligation of Acquiror and Merger Sub to effect the Merger is further subject to
the following conditions, unless waived in writing by Acquiror:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of the Company
set forth in this Agreement that are not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement, except to the extent that any
representation or warranty shall be as of a specific date, in which case such
representation and warranty shall be true and correct as of such date, and
Acquiror shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the Company to
the effect of this sentence. The Company shall have delivered to Acquiror a
certificate (the "COMPANY BRING DOWN CERTIFICATE"), dated as of the Closing Date
and reasonably satisfactory in form to Acquiror, that sets forth each event that
has occurred and each condition that exists that (i) had not occurred or was not
in existence as of the date of this Agreement and (ii) if it had occurred or was
in existence as of the date of this Agreement would be required to be disclosed
pursuant to Section 3.2.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement and the Reorganization Agreement at or prior to the
Closing Date, and Acquiror shall have received a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer of
the Company to such effect.
(c) Opinion of the Company's Counsel. Acquiror shall have received an
opinion dated the Closing Date of Bryan Cave LLP, counsel to the Company, and/or
R. W. Lockwood, General Counsel of the Company, to the effect that:
(i) the Company, Foods and the Branded Subsidiary (collectively, the
"COMPANY PARTIES") are each corporations validly existing and in good
standing under the laws of the states of their respective incorporation;
(ii) each of the Company Parties has the power and authority to
execute each Document to which it is a party and to consummate the
transactions contemplated hereby and thereby; the execution and delivery of
this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by
requisite corporate action on the part of each Company Party that is a
party thereto and the stockholders of each such Company Party and each
Document has been duly executed and delivered by the Company Parties that
are party thereto and constitutes a legal, valid and binding obligation of
each such Company Party, enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, receivership or other similar laws
affecting the enforcement of creditors' rights generally and subject, as to
enforceability, to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law; and
A-27
<PAGE> 28
(iii) the execution, delivery and performance of the Ancillary
Agreements by each Company Party thereto will not (x) violate any
applicable Federal law or the laws of the states of their respective
incorporation or (y) conflict with any provision of the articles of
incorporation or by-laws of the applicable Company Party. Such counsel will
express no opinion, however, as to any violation of any law or regulation
which may have become applicable to any Company Party as a result of the
involvement of Acquiror or any of its subsidiaries in the transactions
contemplated by this Agreement because of Acquiror's or any of its
subsidiaries' legal or regulatory status or because of any other facts
specifically pertaining to Acquiror or any of its subsidiaries.
(d) No Material Adverse Change. Whether or not any event or change is
reflected in the Company Bring Down Certificate, since March 31, 1996, there
shall have been no material adverse change, and no event that could reasonably
be expected to result in a material adverse change, to the business, properties,
assets, results of operations, or financial condition of the Company and the
Branded Subsidiary taken as a whole; provided, however, that "material adverse
change" for this purpose shall not include (i) any adverse change resulting from
economic or market conditions generally affecting businesses engaged in the same
or substantially similar activities as the Company and the Branded Subsidiary or
(ii) any adverse change resulting directly from any action taken by Acquiror or
any subsidiary of Acquiror except an action specifically permitted or
contemplated by this Agreement; provided, further, that regardless of cause
(including as a result of any condition or action referred to in the foregoing
proviso), "material adverse change" for this purpose shall include (i) a 10% or
greater decline in the ACV grocery distribution of mainline CHEX, multi-grain
CHEX and COOKIE CRISP cereals in the aggregate for the last reported 12-week
period ending at the end of the last reported week prior to the Closing compared
to the comparable period in the prior year (reported on a consistent basis) or
(ii) a 15% or greater decline in the IRI-reported pound market share of mainline
CHEX, multi-bran CHEX and COOKIE CRISP cereals in the aggregate for the last
reported 12-week period ending at the end of the last reported week prior to the
Closing compared to the comparable period in the prior year (reported on a
consistent basis), except that if such a 15% or greater decline is due to
differences in timing of trade promotions relating to such cereals during such
12-week period compared to the prior year, such decline shall not be considered
a material adverse change unless there has been a 15% or greater decline in the
IRI-reported pound market share of mainline CHEX, multi-bran CHEX and COOKIE
CRISP cereals in the aggregate for the last reported 16-week period ending at
the end of the last reported week prior to the Closing compared to the
comparable period in the prior year (reported on a consistent basis).
(e) Ancillary Agreements. Each of the Ancillary Agreements shall have been
executed substantially in the forms attached as Exhibits hereto or to the
Reorganization Agreement or, if not included as Exhibits, in the form reasonably
agreed to by the Acquiror and the Company and shall have become effective in
accordance with its terms. The Company shall have delivered to Acquiror true,
correct and complete copies of each such agreement to which Acquiror is not a
party.
(f) Amendments to SEC Documents. Since the effective date of the Form S-4
or the Proxy Statement, as applicable, no event with respect to the Company, any
subsidiary of the Company or any security holder of the Company shall have
occurred which should have been set forth in an amendment to the Form S-4 or a
supplement to the Proxy Statement which has not been set forth in such an
amendment or supplement.
(g) Rule 145 Letters. The Company shall have delivered letters regarding
Rule 145 of the Securities Act, substantially in the form of Exhibit B hereto,
executed by each affiliate of the Company who will acquire shares of Acquiror
Common Stock in connection with the Merger.
(h) Scheduled Agreements. Each agreement set forth on a schedule hereto or
on a schedule to the Reorganization Agreement or any of the other Ancillary
Agreements, and required to be assigned or terminated by the Company pursuant to
the provisions hereof or thereof, shall have been so assigned or terminated,
except where the failure to do so could not reasonably be expected to have a
material adverse effect on the Company and the Branded Subsidiary.
(i) Certificate of Trustee. The Company shall have delivered to Acquiror a
certificate from the indenture trustee with respect to the Notes, in form and
substance reasonably satisfactory to Acquiror, to the
A-28
<PAGE> 29
effect that the Trustee has not, as of the Closing Date, received any notice of
and is not aware of any default or event of default with respect to the Notes.
(j) Dissenters. Holders of no more than 5% of the aggregate number of
outstanding shares of Company Common Stock shall have exercised dissenters'
rights with respect to the Merger or, if available, the value of the Company
Common Stock before giving effect to the Distribution.
SECTION 6.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger is further subject to the following conditions,
unless waived in writing by the Company:
(a) Representations and Warranties. The representations and warranties of
Acquiror and Merger Sub set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and warranties of
Acquiror set forth in this Agreement that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date, except
as otherwise contemplated by this Agreement, except to the extent that any
representation or warranty shall be as of a specific date, in which case such
representation and warranty shall be true and correct as of such date, and the
Company shall have received a certificate signed on behalf of Acquiror by the
chief executive officer and the chief financial officer of Acquiror to the
effect of this sentence. Acquiror shall have delivered to the Company a
certificate (the "ACQUIROR BRING DOWN CERTIFICATE"), dated as of the Closing
Date and reasonably satisfactory in form to the Company, that sets forth each
event that has occurred and each condition that exists that (i) had not occurred
or was not in existence as of the date of this Agreement and (ii) if it had
occurred or was in existence as of the date of this Agreement would be required
to be disclosed pursuant to Section 3.3.
(b) Performance of Obligations of Acquiror. Acquiror shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Acquiror by the chief executive
officer and the chief financial officer of Acquiror to such effect.
(c) Opinion of Acquiror's Counsel. The Company shall have received an
opinion dated the Closing Date of Wachtell, Lipton, Rosen & Katz, special
counsel to Acquiror, and/or in-house Counsel of Acquiror, to the effect that:
(i) Each of Acquiror and Merger Sub is a corporation validly existing
and in good standing under the laws of its state of incorporation;
(ii) Each of Acquiror and Merger Sub have the requisite power and
authority to execute this Agreement and the Reorganization Agreement and to
consummate the transactions contemplated hereby and thereby; the execution
and delivery of this Agreement and the Reorganization Agreement and the
consummation of the transactions contemplated hereby and thereby has been
duly authorized by all requisite corporate action on the part of Acquiror
and Merger Sub; and this Agreement and the Reorganization Agreement have
been duly executed and delivered by Acquiror and Merger Sub and constitute
valid and binding obligations of Acquiror and Merger Sub enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
receivership or other similar laws affecting the enforcement of creditors'
rights generally and subject, as to enforceability, to general principles
of equity, regardless of whether such enforceability is considered in a
proceeding in equity or at law; and
(iii) the execution, delivery and performance of this Agreement and
the Reorganization Agreement by Acquiror and Merger Sub will not (x)
violate any applicable Federal law or any law of the states of their
respective incorporation or (y) conflict with any provision of the
certificate of incorporation or bylaws of Acquiror or Merger Sub. Such
counsel will express no opinion, however, as to any violation of any law or
regulation which may have become applicable to Acquiror or Merger Sub as a
result of the involvement of any Company Party and any subsidiary of such
party in the transactions contemplated by this Agreement because of such
party's legal or regulatory status or because of any other facts
specifically pertaining to any such party.
A-29
<PAGE> 30
(d) Amendments to SEC Documents. Since the effective date of the Form S-4
or the Proxy Statement, as applicable, no event with respect to Acquiror, any
subsidiary of Acquiror or any security holder of Acquiror shall have occurred
which should have been set forth in an amendment to the Form S-4 or a supplement
to the Proxy Statement which has not been set forth in such an amendment or
supplement.
(e) Ancillary Agreements. Each of the Ancillary Agreements to which
Acquiror is a party shall have been executed substantially in the forms attached
as Exhibits hereto or to the Reorganization Agreement and shall have become
effective in accordance with its terms.
(f) Dissenters. Holders of no more than 5% of the aggregate number of
outstanding shares of Company Common Stock shall have exercised dissenters'
rights, if available, with respect to the value of the Company Common Stock
before giving effect to the Distribution.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Acquiror and the Company; or
(b) by either Acquiror or the Company:
(i) if, upon a vote at a duly held Stockholders Meeting or any
adjournment thereof, any required approval of the stockholders of the
Company shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before August
31, 1997, unless the failure to consummate the Merger is the result of a
wilful and material breach of this Agreement by the party seeking to
terminate this Agreement; provided, however, that the passage of such
period shall be tolled for any part thereof (but in no event for more than
an additional three months) during which any party shall be subject to a
nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or
holding of the Stockholders Meeting;
(iii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iv) if prior to the Effective Time, the Internal Revenue Code is
amended so as to alter in any materially adverse respect any of the tax
consequences prescribed by the Private Letter Ruling (or tax opinions)
described in Section 6.1(d) (or (e)); or
(c) by Acquiror if (i) the Board of Directors of the Company shall have
withdrawn, or modified or changed, in a manner adverse to Acquiror, its approval
or recommendation of the Merger or the other transactions contemplated by this
Agreement and the Ancillary Agreements or shall have recommended another offer
or proposal with respect to a Third Party Acquisition, or (ii) a Third Party
Acquisition has occurred or any person shall have entered into a definitive
agreement with the Company with respect to a Third Party Acquisition; or
(d) by the Company if (i) the Company's Board of Directors shall have
failed to recommend to its shareholders the approval of the transactions
contemplated hereby, or shall have withdrawn, modified or changed such
recommendation, in a manner permitted by the penultimate sentence of Section
4.1(n), or (ii) the Company shall have entered into an agreement with respect to
a Higher Offer in a manner permitted by the penultimate sentence of Section
4.1(n).
A-30
<PAGE> 31
SECTION 7.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either the Company or
Acquiror as provided in Section 7.1, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of Acquiror
or the Company, other than the provisions of Section 3.2(i), Section 3.3(k),
Section 5.2(c), Section 5.6, this Section and Article VIII and except to the
extent that such termination results from the wilful and material breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement, the Reorganization Agreement, or any agreement
contemplated hereby or thereby.
(b) If the transactions contemplated by this Agreement are terminated as
provided herein:
(i) Acquiror shall return all documents and other material received
from the Company or its representatives relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to the Company; and
(ii) all confidential information received by Acquiror with respect to
the businesses of the Company shall be treated in accordance with the
Confidentiality Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) In the event that: (i) Acquiror terminates this Agreement pursuant to
Section 7.1(c), (ii) the Company terminates this Agreement pursuant to Section
7.1(d) or (iii) this Agreement shall be terminated pursuant to Section 7.1(b)(i)
and, at the time of the meeting called for the approval of the Company's
shareholders referred to in Section 7.1(b)(i), there shall have been made a
proposal relating to a Third Party Acquisition that has become public and,
within six months following such termination, the Company shall enter into a
definitive agreement with respect to the sale of the Branded Business; then the
Company shall promptly pay to Acquiror (by wire transfer to an account
designated by the Acquiror for this purpose) an amount equal to the sum of (i)
$20 million and (ii) notwithstanding the provisions of Section 5.6, the fees and
expenses actually incurred by the Acquiror in connection with the negotiation
and preparation of this Agreement and the Ancillary Agreements to which the
Acquiror is a party, the performance of the Acquiror's covenants herein and
therein, and the transactions contemplated hereby and thereby, including,
without limitation, all fees and disbursements of the Acquiror's financial
advisors, legal counsel, accountants and other advisors, up to a maximum of an
additional $2.5 million.
SECTION 7.3 AMENDMENT. This Agreement may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the stockholders of the Company; provided, however, that
after any such approval, there shall be made no amendment that by law requires
further approval by such stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement, or (c) subject to the proviso of Section
7.3, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
SECTION 7.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of Acquiror or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
A-31
<PAGE> 32
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as and to
the extent provided in the Reorganization Agreement, none of the representations
and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time. This Section 8.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
SECTION 8.2 NOTICES. Any notice, request, instruction or other document to
be given hereunder by any party to any other party shall be in writing and shall
be deemed to have been duly given (a) on the first business day occurring on or
after the date of transmission if transmitted by facsimile (upon confirmation of
receipt by journal or report generated by the facsimile machine of the party
giving such notice), (b) on the first business day occurring on or after the
date of delivery if delivered personally, or (c) on the first business day
following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) if to Acquiror or Merger Sub, to
General Mills, Inc.
Number One General Mills Boulevard
Minneapolis, Minnesota 55426
Attention: Siri S. Marshall
with a copy (which shall not constitute notice) to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd St.
New York, New York 10019
Attention: Steven A. Rosenblum
(b) if to the Company, to
Ralcorp Holdings, Inc.
800 Market Street, Suite 2900
St. Louis, Missouri 63101
Attention: Robert W. Lockwood
with a copy (which shall not constitute notice) to:
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102
Attention: William F. Seabaugh
SECTION 8.3 CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) an "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(c) a "SUBSIDIARY" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
A-32
<PAGE> 33
SECTION 8.4 INTERPRETATION. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement,
the Ancillary Agreements and the agreements referred to herein and therein or
required to be delivered in connection with the transactions contemplated by the
Ancillary Agreements constitute the entire agreement, and supersede all prior
agreements (other than the Confidentiality Agreement) and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement, and except for the provisions of Article II, this Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies.
SECTION 8.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.8 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and permitted assigns.
SECTION 8.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of any
Federal court located in the State of Missouri or the State of Minnesota in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any court
other than a Federal court (or if such court does not have subject matter
jurisdiction, in a state court) sitting in the State of Missouri or the State of
Minnesota. THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY DISPUTE ARISING HEREUNDER.
A-33
<PAGE> 34
IN WITNESS WHEREOF, Acquiror, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
GENERAL MILLS, INC.
By: /s/ T.J. BROWN
--------------------------------------
Name: T.J. Brown
Title: Vice President
GENERAL MILLS MISSOURI, INC.
By: /s/ T.J. BROWN
--------------------------------------
Name: T.J. Brown
Title: Vice President
RALCORP HOLDINGS, INC.
By: /s/ RICHARD A. PEARCE
--------------------------------------
Name: Richard A. Pearce
Title: Chief Executive Officer and
President
A-34
<PAGE> 35
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG RALCORP HOLDINGS, INC.,
GENERAL MILLS, INC. AND GENERAL MILLS MISSOURI, INC.
This Amendment to Agreement and Plan of Merger is dated as of October 25,
1996 by and among Ralcorp Holdings, Inc., a Missouri corporation (the
"Company"), General Mills, Inc., a Delaware corporation (the "Acquiror"), and
General Mills Missouri, Inc., a Missouri corporation and a wholly-owned
subsidiary of Acquiror ("Merger Sub").
WHEREAS, the parties hereto are parties to an Agreement and Plan of Merger
dated as of August 13, 1996 (the "Merger Agreement");
WHEREAS, pursuant and subject to the terms and conditions of the Merger
Agreement and the Reorganization Agreement attached thereto as Exhibit A (the
"Reorganization Agreement"), which will be entered into prior to the effective
time of the merger contemplated thereby, the parties hereto have agreed to
consummate the following transactions: (a) certain of the assets and liabilities
of the branded cereals and branded snacks business (the "Branded Business")
currently operated by the Company's wholly-owned subsidiary, Ralston Foods, Inc.
("Foods"), will be contributed by Foods to a newly-formed subsidiary (the
"Branded Subsidiary"); (b) all the stock of the Branded Subsidiary will be
distributed by Foods to the Company; (c) all of the shares of capital stock of a
Missouri corporation to be formed as a wholly-owned subsidiary of the Company
and the parent of Foods ("New Holdings") will be distributed on a pro rata basis
to the Company's stockholders; and (d) Merger Sub will be merged into the
Company, with the Company as the surviving corporation; and
WHEREAS, the parties desire to amend the Merger Agreement and the exhibits
thereto (the "Transaction Documents") to reflect the following revised version
of the transactions recited above: (a) the Company will form a wholly-owned
Missouri subsidiary ("New Ralcorp"), into which Foods will be merged (the
"Internal Merger"), with New Ralcorp as the surviving corporation; (b) the
Branded Business will be contributed by New Ralcorp (as successor to Foods) to
the Branded Subsidiary (the "Branded Contribution"); (c) all the stock of the
Branded Subsidiary will be distributed by New Ralcorp to the Company; (d) all of
the shares of the capital stock of New Ralcorp will be distributed on a pro rata
basis to the Company's stockholders; and (d) Merger Sub will be merged into the
Company, with the Company as the surviving corporation; and
WHEREAS, these revisions are structural only and are not intended to affect
the substantive rights or obligations of the parties to the Merger Agreement and
the related agreements.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in the Merger Agreement and this Amendment,
the parties hereto agree as follows:
1. Section 2.1 of the Reorganization Agreement is hereby amended in its
entirety as follows:
2.1 INTERNAL MERGER; SPINOFF TO RALCORP. Prior to the transactions
contemplated by Article III, Ralcorp shall merge Foods into New Ralcorp
with New Ralcorp surviving the Internal Merger. After the Internal Merger
and the transactions contemplated by Article III but prior to the
Distribution Date, New Ralcorp shall distribute all of the issued and
outstanding shares of capital stock of the Branded Subsidiary to Ralcorp.
2. The parties acknowledge and agree that the Internal Merger will occur
prior to the Branded Contribution. The parties further acknowledge and agree
that New Ralcorp will take the place of New Holdings and, after the Internal
Merger, Foods in the transactions contemplated by the Merger Agreement and the
Ancillary Agreements (as defined in the Reorganization Agreement). Accordingly,
the parties hereby agree that each of the Merger Agreement and the Ancillary
Agreements is hereby amended to (a) substitute New Ralcorp for New Holdings in
each instance, and (b) substitute New Ralcorp for Foods in each instance to the
extent the context refers to Foods after the Internal Merger.
A-35
<PAGE> 36
3. The parties agree that, prior to their execution, the Ancillary
Agreements will be revised to reflect the foregoing amendments and will be
executed and delivered, as so revised, at the Closing.
4. Except as expressly amended hereby, the Merger Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, Acquiror, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
GENERAL MILLS, INC.
By: /s/ T. J. BROWN
------------------------------------
Name: T. J. Brown
Title: Vice President
GENERAL MILLS MISSOURI, INC.
By: /s/ T. J. BROWN
------------------------------------
Name: T. J. Brown
Title: Vice President
RALCORP HOLDINGS, INC.
By: /s/ J.R. MICHELETTO
------------------------------------
Name: J.R. Micheletto
Title: Chief Executive Officer and
President
A-36
<PAGE> 1
EXHIBIT 10.29
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, dated as of September 30, 1996 (the "Guaranty
Agreement"), is given by
RALCORP HOLDINGS, INC., a Missouri corporation (the "Guarantor"), in favor
of
NATIONSBANK, N.A., a national banking association, in its capacity as
agent (in such capacity, hereinafter referred to as the "Agent") for the
various lenders from time to time parties to that certain Credit Agreement
dated as of the date hereof (such Credit Agreement, as the same may be modified
or amended from time to time, being hereinafter referred to as the "Credit
Agreement") among the Borrower hereinafter referred to, the Agent and the
Lenders (capitalized terms used but not otherwise defined herein shall have the
meanings provided in the Credit Agreement), for the benefit of
RALSTON RESORTS, INC., a Colorado corporation (the "Borrower").
RECITALS:
1. Pursuant to the Credit Agreement, the Lenders have agreed, subject to
certain terms and conditions, to make a $140,000,000 bridge loan facility
available to the Borrower.
2. As a condition precedent to making the bridge loan facility available
to the Borrower pursuant to the Credit Agreement, the Lenders have required,
among other things, that the Guarantor guarantee all of the Borrower's
obligations arising under the Credit Agreement and the other Credit Documents
referred to therein.
3. The Borrower is a direct wholly-owned Subsidiary of the Guarantor.
NOW, THEREFORE, for and in consideration of the execution and delivery by
the Lenders of the Credit Agreement, and other good and valuable consideration,
receipt whereof is hereby acknowledged, the Guarantor hereby agrees as follows:
<PAGE> 2
1. Guarantee of Payment. The Guarantor hereby irrevocably and
unconditionally guarantees to the Agent and the Lenders the prompt payment,
when due, by acceleration or otherwise, of the Borrower's Obligations. For the
purposes hereof the "Borrower's Obligations" means all indebtedness,
obligations and liabilities of the Borrower under the Credit Agreement or any
other of the Credit Documents to which the Borrower is a party, now existing or
hereafter arising, due or to become due, direct or indirect, absolute or
contingent, howsoever evidenced, held or acquired, as such indebtedness,
obligations and liabilities may be modified, extended, renewed or replaced from
time to time. The guaranty of the Guarantor as set forth in this section is a
guaranty of payment and not of collection.
2. Release of Collateral, Parties Liable, etc. The Guarantor agrees that
the whole or any part of any security now or hereafter held for the Borrower's
Obligations may be exchanged, compromised, impaired, released or surrendered
from time to time; that neither the Agent nor the Lenders shall have any
obligation to protect, perfect, secure or insure any Liens now or hereafter
held for the Borrower's Obligations or the properties subject thereto; that the
time or place of payment of the Borrower's Obligations may be changed or
extended, in whole or in part, to a time certain or otherwise, and may be
renewed or accelerated, in whole or in part; that the Borrower may be granted
indulgences generally; that any provisions of the Credit Documents or any other
documents executed in connection with this transaction may be modified, amended
or waived; that any party liable for the payment of the Borrower's Obligations
may be granted indulgences or released; and that any deposit balance for the
credit of the Borrower or any other party liable for the payment of the
Borrower's Obligations or liable upon any security therefor may be released, in
whole or in part, at, before and/or after the stated, extended or accelerated
maturity of the Borrower's Obligations, all without notice to or further assent
by the Guarantor, who shall remain bound thereon, notwithstanding any such
exchange, compromise, surrender, extension, renewal, acceleration,
modification, indulgence or release.
3. Waiver of Rights. The Guarantor expressly waives: (a) notice of
acceptance of this Guaranty Agreement by the Agent and the Lenders and of all
extensions of credit to the Borrower by the Agent or any Lender; (b)
presentment and demand for payment of any of the Borrower's Obligations; (c)
protest and notice of dishonor or of default to the Guarantor or to any other
party
- 2 -
<PAGE> 3
with respect to the Borrower's Obligations or with respect to any security
therefor; (d) notice of the Agent or any Lender obtaining, amending,
substituting for, releasing, waiving or modifying any security interest, liens,
or encumbrances now or hereafter securing the Borrower's Obligations, or the
Agent's or any Lender's subordinating, compromising, discharging or releasing
such security interests, liens or encumbrances; (e) all other notices to which
the Guarantor might otherwise be entitled; (f) demand for payment under this
Guaranty Agreement; and (g) any right to assert against the Agent or any
Lender, as a defense, counterclaim, set-off or cross-claim, any defense (legal
or equitable), set-off, counterclaim or claim which the Guarantor may now or
hereafter have against the Agent or any Lender or the Borrower, but such waiver
shall not prevent the Guarantor from asserting against the Agent or any Lender
in a separate action, any claim, action, cause of action, or demand that the
Guarantor might have, whether or not arising out of this Guaranty Agreement.
4. Primary Liability of the Guarantor. The Guarantor agrees that this
Guaranty Agreement may be enforced by the Agent and the Lenders without the
necessity at any time of resorting to or exhausting any other security or
collateral and without the necessity at any time of having recourse to the
Borrower or any other Person under the Credit Agreement or any collateral now
or hereafter securing the Borrower's Obligations or otherwise, and the
Guarantor hereby waives the right to require the Agent and the Lenders to
proceed against the Borrower or any other Person (including a co-guarantor) or
to require the Agent and the Lenders to pursue any other remedy or enforce any
other right. Without limiting the generality of the foregoing, the Guarantor
hereby specifically waives, to the extent permitted by applicable law, the
benefits of North Carolina General Statutes Sections 26-7 through 26-9,
inclusive. In addition, the Guarantor agrees that it shall have no right of
subrogation, indemnity, reimbursement or contribution against the Borrower for
amounts paid under this Guaranty Agreement until such time as the Lenders have
been paid in full and no Person or Governmental Authority shall have any right
to request any return or reimbursement of funds from the Lenders in connection
with monies received under the Credit Documents. The Guarantor further agrees
that nothing contained herein shall prevent the Agent or the Lenders from suing
the Borrower with respect to its obligations under the Credit Agreement or
foreclosing any security interest in or lien on any collateral now or hereafter
securing the Borrower's
- 3 -
<PAGE> 4
Obligations or from exercising any other rights available to the Agent or the
Lenders under the Credit Agreement if neither the Borrower nor the Guarantor
timely performs the obligations of the Borrower thereunder, and the exercise of
any of the aforesaid rights and the completion of any foreclosure proceedings
shall not constitute a discharge of the Guarantor's obligations hereunder; it
being the purpose and intent of the Guarantor that the Guarantor's obligations
hereunder shall be absolute, irrevocable, independent and unconditional under
any and all circumstances. Neither the Guarantor's obligations under this
Guaranty Agreement nor any remedy for the enforcement thereof shall be
impaired, modified, changed or released in any manner whatsoever by an
impairment, modification, change, release or limitation of the liability of the
Borrower, by reason of the Borrower's bankruptcy or insolvency or by reason of
the invalidity or unenforceability of all or any portion of the Borrower's
Obligations. The Guarantor acknowledges that the term the "Borrower's
Obligations" as used herein includes any payments made by the Borrower to the
Agent or any Lender and subsequently recovered by the Borrower or a trustee for
the Borrower pursuant to the Borrower's bankruptcy or insolvency and that the
guaranty of the Guarantor hereunder shall be reinstated to the extent of such
recovery.
5. Attorneys' Fees and Costs of Collection. If at any time or times
hereafter the Agent or the Lenders employ counsel to pursue collection, to
intervene, to sue for enforcement of the terms hereof or of the Credit
Agreement or any other of the Credit Documents, or to file a petition,
complaint, answer, motion or other pleading in any suit or proceeding relating
to this Guaranty Agreement, the Credit Agreement or any other of the Credit
Documents, then, in such event, all of the reasonable attorneys' fees relating
thereto shall be an additional liability of the Guarantor to the Agent and the
Lenders hereunder, payable on demand.
6. Security Interests and Setoff. As security for the Guarantor's
obligations hereunder, the Guarantor agrees that in the event the Guarantor
fails to pay its obligations hereunder when due and payable under this Guaranty
Agreement, (a) any of the Guarantor's assets of any kind, nature or description
(including, without limitation, deposit accounts) in the possession, control or
custody of the Agent or any Lender may, without prior notice (but promptly
confirmed in writing by the Agent or such Lender, as applicable, to the
Guarantor, provided that failure to provide such written confirmation will not
affect
- 4 -
<PAGE> 5
the liabilities of the Guarantor hereunder) to the Guarantor, be reduced to
cash or the like and applied by the Agent or such Lender in reduction or
payment of the Guarantor's obligations hereunder; and (b) the Agent and each
Lender shall have the right, immediately and without further action by them, to
set off pro tanto against the Borrower's Obligations all money owed by the
Agent or such Lender in any capacity to the Guarantor, whether or not due, and
the Agent or such Lender shall be deemed to have made a charge against any such
money immediately upon the occurrence of such obligation becoming due even
though such charge is made or entered on the books of the Agent or such Lender
subsequent thereto.
7. Term of Guarantee; Warranties; etc. This Guaranty Agreement shall
continue in full force and effect until the Borrower's Obligations are fully
and indefeasibly paid, performed and discharged. This Guaranty Agreement
covers the Borrower's Obligations whether presently outstanding or arising
subsequent to the date hereof including all amounts advanced by the Agent or
any Lender in stages or installments. The Guarantor warrants and represents to
the Agent (i) that the Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, (ii) that the Guarantor has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, (iii) that the execution and
delivery by the Guarantor of this Guaranty Agreement and the performance by the
Guarantor of its obligations hereunder are within the corporate power of the
Guarantor, have been duly authorized by all necessary corporate action, require
no action by or in respect of, or filing with, any governmental body, agency or
official (except for any such action or filing that has been taken and is in
full force and effect) and do not contravene, or constitute a default under,
any provision of applicable law or regulation or of the certificate of
incorporation or bylaws (or other constitutional documents) of the Guarantor or
of any material agreement, judgment, injunction, order, decree, or other
material instrument binding upon the Guarantor or result in the creation or
imposition of any Lien on any asset of the Guarantor, (iv) that this Guaranty
Agreement constitutes the valid, binding and enforceable agreement of the
Guarantor and, when executed and delivered will constitute valid and binding
obligations of the Guarantor and (v) that the Incorporated Representations and
Warranties are true and correct in all material respects as of the Closing Date
(except for those
- 5 -
<PAGE> 6
which expressly relate to an earlier date). The Guarantor hereby covenants and
agrees that, so long as this Guaranty Agreement is in effect or any of the
Borrower's Obligations remain outstanding, the Guarantor shall comply with the
Incorporated Covenants.
8. Further Representations and Warranties. The Guarantor agrees that the
Agent and the Lenders will have no obligation to investigate the financial
condition or affairs of the Borrower for the benefit of the Guarantor or to
advise the Guarantor of any fact respecting, or any change in, the financial
condition or affairs of the Borrower which might come to the knowledge of the
Agent or any Lender at any time, whether or not the Agent or any Lender knows
or believes or has reason to know or believe that any such fact or change is
unknown to the Guarantor or might (or does) materially increase the risk of the
Guarantor as guarantor or might (or would) affect the willingness of the
Guarantor to continue as guarantor with respect to the Borrower's Obligations.
9. Additional Liability of the Guarantor. If the Guarantor is or becomes
liable for any indebtedness owing by the Borrower to the Agent or any Lender by
endorsement or otherwise other than under this Guaranty Agreement, such
liability shall not be in any manner impaired or reduced hereby but shall have
all and the same force and effect it would have had if this Guaranty Agreement
had not existed and the Guarantor's liability hereunder shall not be in any
manner impaired or reduced thereby.
10. Cumulative Rights. All rights of the Agent and the Lenders hereunder
or otherwise arising under any documents executed in connection with or as
security for the Borrower's Obligations are separate and cumulative and may be
pursued separately, successively or concurrently, or not pursued, without
affecting or limiting any other right of the Agent or any Lender and without
affecting or impairing the liability of the Guarantor.
11. Usury. Notwithstanding any other provisions herein contained, no
provision of this Guaranty Agreement shall require or permit the collection
from the Guarantor of interest in excess of the maximum rate or amount that the
Guarantor may be required or permitted to pay pursuant to any applicable law.
In the event any such interest is collected, it shall be applied in reduction
of the Guarantor's obligations hereunder, and the remainder of
- 6 -
<PAGE> 7
such excess collected shall be returned to the Guarantor once such obligations
have been fully satisfied.
12. The Agent. In acting under or by virtue of this Guaranty Agreement,
the Agent shall be entitled to all the rights, authority, privileges and
immunities provided in Article IX of the Credit Agreement, all of which
provisions are incorporated by reference herein with the same force and effect
as if set forth herein. The Guarantor hereby releases the Agent from any
liability for any act or omission relating to this Guaranty Agreement, except
such as may result from the Agent's gross negligence or willful misconduct.
13. Successors and Assigns. This Guaranty Agreement shall be binding on
and enforceable against the Guarantor and its successors and assigns; provided
that the Guarantor may not assign or transfer any of its obligations hereunder
without prior written consent of the Lenders. This Guaranty Agreement is
intended for and shall inure to the benefit of the Agent and each Lender and
each and every person who shall from time to time be or become the owner or
holder of any of the Borrower's Obligations, and each and every reference
herein to "Agent" or "Lender" shall include and refer to each and every
successor or assignee of the Agent or any Lender at any time holding or owning
any part of or interest in any part of the Borrower's Obligations. This
Guaranty Agreement shall be transferable and negotiable with the same force and
effect, and to the same extent, that the Borrower's Obligations are
transferable and negotiable, it being understood and stipulated that upon
assignment or transfer by the Agent or any Lender of any of the Borrower's
Obligations the legal holder or owner of the Borrower's Obligations (or a part
thereof or interest therein thus transferred or assigned by the Agent or any
Lender) shall (except as otherwise stipulated by the Agent or any such Lender
in its assignment) have and may exercise all of the rights granted to the Agent
or such Lender under this Guaranty Agreement to the extent of that part of or
interest in the Borrower's Obligations thus assigned or transferred to said
person. The Guarantor expressly waives notice of transfer or assignment of the
Borrower's Obligations, or any part thereof, or of the rights of the Agent or
any Lender hereunder. Failure to give notice will not affect the liabilities
of the Guarantor hereunder.
14. Application of Payments. Each of the Agent and the Lenders may apply
any payments received by it from any source
- 7 -
<PAGE> 8
against that portion of the Borrower's Obligations (principal, interest, court
costs, attorneys' fees or other) in such priority and fashion as it may deem
appropriate.
15. Modifications. Subject to the terms of Section 10.08 of the Credit
Agreement, this Guaranty Agreement and the provisions hereof may be changed,
discharged or terminated only by an instrument in writing signed by the
Guarantor and the Agent.
16. Notices. Notices and other communications provided for herein shall
be in writing and shall be delivered by hand or overnight courier service,
mailed or sent by telex, telecopy, graphic scanning or other telegraphic
communications equipment of the sending party, as follows:
(a) if to the Guarantor, to it at 800 Market Street, 29th Floor, St.
Louis, Missouri 63101, Attention of T. C. Oviatt, Treasurer (Facsimile No.
314-877-7729);
(b) if to the Agent, to it at 233 S. Wacker Drive, Sears Tower, Suite
2800, Chicago, Illinois 60606-6308, Attention of Valerie Mills (Facsimile No.
312-234-5601);
With a copy to: NationsBank, N.A.
NationsBank Corporate Center, 6th Floor
NC1-002-06-19
Charlotte, North Carolina 28255
Attention of Agency Services
(Facsimile No. 704-386-9923)
All notices and other communications given to any party hereto in accordance
with the provisions of this Guaranty Agreement shall be deemed to have been
given on the date of receipt if delivered by hand or overnight courier service
or sent by telex, telecopy, graphic scanning or other telegraphic
communications equipment of the sender, or on the date five (5) Business Days
after dispatch by certified or registered mail if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in
this Section 16 or at such other address or telex, telecopy or other number as
shall be designated by such party in a notice to each other party complying
with the terms of this Section 16.
- 8 -
<PAGE> 9
17. Severability. In the event that any provision hereof shall be deemed
to be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Guaranty Agreement shall be
construed as not containing such provision, but only as to such jurisdictions
where such law or interpretation is operative, and the invalidity of such
provision shall not affect the validity of any remaining provision hereof, and
any and all other provisions hereof which are otherwise lawful and valid shall
remain in full force and effect.
18. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury
Trial.
(a) THIS GUARANTY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NORTH CAROLINA. The Guarantor hereby submits to the
non-exclusive jurisdiction of the United States District Court for the Western
District of North Carolina or the courts of the State of North Carolina in
Mecklenburg County for the purposes of any legal action or proceeding with
respect to this Guaranty Agreement. The Guarantor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that such proceeding has been brought in an inconvenient form.
The Guarantor hereby consents to process being served in any such proceeding by
the mailing of a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the address specified for notices to the Guarantor
pursuant to Section 16 or in any other manner permitted by law. Nothing herein
shall affect the right of the Agent to serve process in any other manner
permitted by law or to commence legal proceedings or to otherwise proceed
against the Guarantor in any other jurisdiction.
(b) EACH OF THE AGENT, THE LENDERS AND THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS GUARANTY AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
19. Headings. The headings in this instrument are for convenience of
reference only and shall not limit or otherwise affect the meaning of any
provisions hereof.
- 9 -
<PAGE> 10
20. Counterparts. This Guaranty Agreement may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
constituting an original, but all together one and the same instrument.
21. Rights of the Required Lenders. All rights of the Agent hereunder, if
not exercised by the Agent, may be exercised by the Required Lenders.
22. Entirety. This Guaranty Agreement represents the entire agreement of
the parties hereto and supersedes all prior agreements and understandings, oral
or written, if any, including any commitment letters or correspondence,
relating to this Guaranty Agreement or the transactions contemplated herein.
- 10 -
<PAGE> 11
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty Agreement to be
duly executed as of the date first above written.
RALCORP HOLDINGS, INC.
By _______________________________
Title ____________________________
ACCEPTED:
NATIONSBANK, N.A., as Agent as aforesaid for
the Lenders
By _________________________________
Title ______________________________
- 11 -
<PAGE> 1
EXHIBIT 10.30
AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of September 30, 1996, is made
by and among RALCORP HOLDINGS, INC., a Missouri corporation (the "Borrower"),
THE PERSONS IDENTIFIED AS A "LENDER" ON THE SIGNATURE PAGES HERETO (the
"Lenders") and NATIONSBANK, N.A., as agent for the Lenders (in such capacity,
the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement dated as of March 12, 1996, as
amended or waived from time to time thereafter (as previously amended or
waived, the "5-Year Credit Agreement") among the Borrower, the Lenders and the
Agent, the Lenders have made available a $175,000,000 5-year revolving credit
facility to the Borrower;
WHEREAS, pursuant to a Credit Agreement dated as of March 12, 1996, as
amended or waived from time to time thereafter (as previously amended or
waived, the "364-Day Credit Agreement", and, together with the 5-Year Credit
Agreement, the "Credit Agreements") among the Borrower, the Lenders and the
Agent, the Lenders have made available a $100,000,000 364-day revolving credit
facility to the Borrower; and
WHEREAS, the parties hereto have agreed to enter into this Agreement in
order to evidence certain agreements of the parties with respect to the Credit
Agreements as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein
or the context otherwise requires, the following term used in this
Agreement has the following meaning:
"Effective Date" is defined in Subpart 4.1.
<PAGE> 2
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including
its preamble and recitals, have the meanings provided in the Credit
Agreements.
- 2 -
<PAGE> 3
PART II
5-YEAR CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Effective Date, the
parties hereto hereby agree as follows with respect to the 5-Year Credit
Agreement:
SUBPART 2.1. Amendments to Section 1.01.
(a) The definition of "Commitment" set forth in Section 1.01 of the
5-Year Credit Agreement is hereby amended in its entirety to read as
follows:
"Commitment" shall mean, (i) with respect to each Lender, the
commitment of such Lender (A) to make Revolving Loans in an
aggregate principal amount at any time outstanding of up to such
Lender's Commitment Percentage multiplied by the Revolving
Committed Amount (as such Revolving Committed Amount may be reduced
or increased from time to time pursuant to Section 2.04) and (B) to
purchase participation interests in the Swingline Loans in
accordance with the provisions of Section 2.03(b)(iii), and (ii)
with respect to the Swingline Lender, the commitment of the
Swingline Lender to make Swingline Loans in an aggregate principal
amount at any time outstanding of up to the Swingline Committed
Amount.
(b) The definition of "Interest Period" set forth in Section 1.01 of
the 5-Year Credit Agreement is hereby amended in its entirety to read as
follows:
"Interest Period" shall mean (i) as to any Eurodollar Loan, a
period of one (1) week or a period of one, two, three or six
months' duration, as the Borrower may elect, commencing in each
case on the date of the borrowing (including conversions,
extensions and renewals), (ii) as to any Fixed Rate Loan, a period
commencing in each case on the date of the borrowing and ending on
the date specified in the applicable Competitive Bid whereby the
offer to make such Fixed Rate Loan was extended (such ending date
in any event to be not less than 15 nor more than 180 days from the
date of borrowing) and (iii) as to any Quoted Rate Swingline Loan,
a period commencing in each case on the
- 3 -
<PAGE> 4
date of the borrowing and ending on the date agreed to by the
Borrower and the Swingline Lender in accordance with the provisions
of Section 2.03(b)(i) (such ending date in any event to be not more
than 7 Business Days from the date of borrowing); provided,
however, (A) if any Interest Period would end on a day which is not
a Business Day, such Interest Period shall be extended to the next
succeeding Business Day (except that where the next succeeding
Business Day falls in the next succeeding calendar month, then on
the next preceding Business Day), (B) no Interest Period shall
extend beyond the Maturity Date, (C) in the case of Eurodollar
Loans made, extended or converted during the Term Loan Amortization
Period, no Interest Period shall extend beyond any principal
amortization payment date unless the portion of the Term Loans
comprised of Base Rate Loans, together with the portion of the Term
Loans comprised of Eurodollar Loans with Interest Periods expiring
prior to the date such principal amortization payment is due, is at
least equal to the amount of such principal amortization payment
due on such date and (D) in the case of Eurodollar Loans (other
than any Eurodollar Loans having a one (1) week Interest Period),
where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall, subject to
clause (A) above, end on the last Business Day of such calendar
month.
(c) The definition of "Loan" set forth in Section 1.01 of the 5-Year
Credit Agreement is hereby amended in its entirety to read as follows:
"Loan" or "Loans" shall mean the Revolving Loans (or any
Revolving Loan bearing interest at the Base Rate or the Adjusted
Eurodollar Rate and referred to as a Base Rate Loan or a Eurodollar
Loan), the Competitive Loans, the Swingline Loans, and/or the Term
Loans (or any Term Loan bearing interest at the Base Rate or the
Adjusted Eurodollar Rate and referred to as a Base Rate Loan or a
Eurodollar Loan), individually or collectively, as appropriate.
- 4 -
<PAGE> 5
(d) The definition of "Unused Revolving Committed Amount" set forth
in Section 1.01 of the 5-Year Credit Agreement is hereby amended in its
entirety to read as follows:
"Unused Revolving Committed Amount" shall mean, for any
period, (i) at all times prior to the first to occur of a
Commitment Increase Event and the Ralston Resorts Disposition, the
amount by which (A) the sum of (1) the then applicable Revolving
Committed Amount plus (2) $140,000,000 exceeds (B) the daily
average sum for such period of (1) the outstanding aggregate
principal amount of all Loans other than Swingline Loans and
Competitive Loans and (2) 50% of the outstanding aggregate
principal amount of all Swingline Loans and (ii) at all times
thereafter, the amount by which (A) the then applicable Revolving
Committed Amount exceeds (B) the daily average sum for such period
of (1) the outstanding aggregate principal amount of all Loans
other than Swingline Loans and Competitive Loans and (2) 50% of the
outstanding aggregate principal amount of all Swingline Loans.
(e) The following additional definitions are hereby added to Section
1.01 in appropriate alphabetical order:
A "Commitment Increase Event" shall be deemed to occur if the
Ralston Resorts Disposition shall not have occurred by January 28,
1997.
"Ralston Resorts" shall mean Ralston Resorts, Inc., a Colorado
corporation wholly-owned by the Borrower.
"Ralston Resorts Credit Agreement" shall mean that certain
Credit Agreement dated as of September 30, 1996, as amended from
time to time, among Ralston Resorts, the lenders party thereto and
NationsBank, N.A. as agent for such lenders.
"Ralston Resorts Disposition" shall mean the occurrence of
both of (i) the sale by the Borrower of all of the capital stock of
Ralston Resorts and (ii) the receipt by the Agent of evidence
satisfactory to it that (a) all of the obligations of Ralston
Resorts
- 5 -
<PAGE> 6
under the Ralston Resorts Credit Agreement shall have been
satisfied in full and (b) the Commitments under and as defined in
the Ralston Resorts Credit Agreement shall have been terminated.
"Term Loans" shall have the meaning assigned to such term in
Section 2.01(e).
"Term Loan Amortization Date" shall have the meaning assigned
to such term in Section 2.01(e).
"Term Loan Termination Date" shall have the meaning assigned
to such term in Section 2.01(e).
SUBPART 2.2. Amendments to Section 2.01. Section 2.01 of the
5-Year Credit Agreement is hereby amended in the following respects:
(a) Subsection (a) of Section 2.01 of the 5-Year Credit Agreement is
hereby amended in its entirety to read as follows:
(a) Revolving Commitment. Subject to and upon the terms and
conditions and relying upon the representations and warranties
herein set forth, each Lender agrees, severally and not jointly, at
any time and from time to time from the Closing Date until the
Maturity Date, to make revolving credit loans (each a "Revolving
Loan" and, collectively, "Revolving Loans") to the Borrower for the
purposes set forth in Section 7.10; provided, however, (i) with
regard to each Lender individually, such Lender's pro rata share of
outstanding Revolving Loans shall not exceed such Lender's
Commitment Percentage of the Revolving Committed Amount, (ii) with
regard to the Lenders collectively, the aggregate amount of
Revolving Loans outstanding shall not exceed ONE HUNDRED
THIRTY-FIVE MILLION DOLLARS ($135,000,000), as such maximum amount
may be reduced or increased from time to time as provided in
Section 2.04 or as otherwise provided herein (such amount, as so
reduced or increased from time to time, the "Revolving Committed
Amount"), and (iii) in addition to the limitations set forth in the
preceding subparagraphs (i) and (ii), in no event shall the sum of
Revolving Loans outstanding plus Competitive
- 6 -
<PAGE> 7
Loans outstanding exceed the Revolving Committed Amount. Revolving
Loans hereunder may consist of Base Rate Loans or Eurodollar Loans
(or a combination thereof) as the Borrower may request, and may be
repaid and reborrowed in accordance with the provisions hereof.
(b) The following new subsection (e) is added to Section 2.01 of the
5-Year Credit Agreement immediately succeeding existing subsection (d)
thereof:
(e) Amortization of Certain Loans.
(i) The principal balance of the Revolving Loans, Competitive
Loans and Swingline Loans, if any, in excess of $175,000,000
outstanding as of the date of reduction of the Revolving Committed
Amount required pursuant to the terms of Section 2.04(a)(ii) shall
be payable in sixteen (16) equal consecutive quarterly
installments on the last day of each March, June, September and
December commencing with the first of such dates to occur after the
date of such reduction of the Revolving Committed Amount (each such
date referred to herein as a "Term Loan Amortization Date" and the
last such date referred to herein as the "Term Loan Termination
Date"). Revolving Loans, Competitive Loans and/or Swingline Loans
remaining outstanding after the date of the reduction of the
Revolving Committed Amount required pursuant to the terms of
Section 2.04(a)(ii) shall be referred to collectively as the "Term
Loans". The Term Loans may be comprised of Base Rate Loans and
Eurodollar Loans as the Borrower may elect in accordance with the
provisions hereof, and amounts repaid or prepaid on the Term Loans
may not be reborrowed.
(ii) It is the intention of the parties hereto that the Term
Loans bear interest on the same terms as apply to Revolving Loans
prior to the Maturity Date.
SUBPART 2.3. Amendments to Section 2.04. Section 2.04 of the
5-Year Credit Agreement is hereby amended in its entirety to read as
follows:
- 7 -
<PAGE> 8
SECTION 2.04. Termination and Reduction of Commitments;
Commitment Increase Event.
(a) Termination and Reduction.
(i) The Borrower may from time to time permanently reduce or
terminate the aggregate Revolving Committed Amount in whole or in
part (in minimum aggregate amounts of the lesser of $5,000,000 or
the full remaining amount of the Revolving Committed Amount) upon
three Business Days' prior written notice to the Agent; provided,
however, no such termination or reduction shall be made which would
reduce the Revolving Committed Amount to an amount less than the
sum of Revolving Loans outstanding plus Competitive Loans
outstanding. The Agent shall promptly notify each of the Lenders
of receipt by the Agent of any notice from the Borrower pursuant to
this Section 2.04(a)(i).
(ii) If the Commitment Increase Event shall occur pursuant to
the terms of Section 2.04(b), then the Revolving Committed Amount
shall automatically be permanently reduced to $175,000,000 on March
11, 1997.
(iii) The Commitments of the Lenders to make, extend or
convert Revolving Loans shall automatically terminate on the
Maturity Date.
(b) Commitment Increase Event. Upon the occurrence of the
Commitment Increase Event and receipt by the Agent of evidence
satisfactory to it that (i) all of the obligations of Ralston
Resorts under the Ralston Resorts Credit Agreement have been
satisfied in full and (ii) the Commitments under and as defined in
the Ralston Resorts Credit Agreement have been terminated, the
Revolving Committed Amount automatically shall be increased by
$140,000,000
SUBPART 2.4. Amendments to Section 3.02. Section 3.02 of the
5-Year Credit Agreement is hereby amended in its entirety to read as
follows:
SECTION 3.02. Prepayments.
- 8 -
<PAGE> 9
(a) Revolving Loans. The Borrower shall have the right to
prepay Revolving Loans in whole or in part from time to time
without premium or penalty; provided, however, that (A) each such
partial prepayment shall be a minimum principal amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof
and (B) no Eurodollar Loan may be prepaid prior to the last day of
the Interest Period applicable thereto unless accompanied by
payment of amounts specified in Section 3.07. Amounts prepaid on
the Revolving Loans may be reborrowed in accordance with the
provisions hereof.
(b) Competitive Loans. Competitive Loans may not be prepaid
unless accompanied by payment of amounts specified in Section 3.07.
(c) Swingline Loans. The Borrower shall have the right to
prepay Swingline Loans which are Base Rate Loans in whole or in
part from time to time without premium or penalty; provided,
however, that (A) each such partial prepayment shall be a minimum
principal amount of $100,000 or an integral multiple of $100,000 in
excess thereof. Swingline Loans which are Quoted Rate Swingline
Loans may not be prepaid unless accompanied by payment of amounts
specified in Section 3.07. Amounts prepaid on the Swingline Loans
may be reborrowed in accordance with the provisions hereof.
(d) Term Loans. The Borrower shall have the right to prepay
Term Loans in whole or in part from time to time without
premium or penalty; provided, however, that (A) each such partial
prepayment shall be a minimum principal amount of $5,000,000 or an
integral multiple of $1,000,000 in excess thereof and (B) no
Eurodollar Loan may be prepaid prior to the last day of the
Interest Period applicable thereto unless accompanied by payment of
amounts specified in Section 3.07. Amounts prepaid on the Term
Loans may not be reborrowed.
(d) Application. Amounts prepaid hereunder shall be applied
to the Revolving Loans, the Competitive Loans, the Swingline Loans,
and the Term Loans as the Borrower may elect, provided that, if the
Borrower shall fail to specify its application, prepayments
- 9 -
<PAGE> 10
shall be applied first to Swingline Loans (and with respect to Base
Rate Loans and Quoted Rate Swingline Loans comprising such Loans,
first to Base Rate Loans and then to Quoted Rate Swingline Loans in
direct order of Interest Period maturities), second to Revolving
Loans (and with respect to Base Rate Loans and Eurodollar Loans
comprising such Loans, first to Base Rate Loans and then to
Eurodollar Loans in direct order of Interest Period maturities),
third to the Competitive Loans (in direct order of Interest Period
maturities), and fourth, during the Term Loan Amortization Period
to the Term Loans, ratably to the remaining principal installments
of the Term Loans (and with respect to Base Rate Loans and
Eurodollar Loans comprising such Loans, first to Base Rate Loans
and then to Eurodollar Loans in direct order of Interest Period
maturities).
(e) General. All prepayments of Loans shall be subject to
Section 3.07 but otherwise without premium or penalty and shall be
accompanied by accrued interest on the principal amount being
prepaid to the date of prepayment and all other amounts due and
payable hereunder with respect to such Loans.
SUBPART 2.5. Amendments to Section 4.02. The first sentence of
Section 4.02 of the 5-Year Credit Agreement is hereby amended in its
entirety to read as follows:
SECTION 4.02. Pro Rata Treatment. Except to the extent
otherwise provided herein, each Revolving Loan and Term Loan, each
payment or prepayment of principal of any Revolving Loan or Term
Loan, each payment of interest on the Revolving Loans or Term
Loans, each payment of Unused Fees, each reduction and increase of
the Revolving Committed Amount and each conversion or extension of
any Revolving Loan or Term Loan, shall be allocated pro rata among
the Lenders in accordance with their respective Commitment
Percentages.
SUBPART 2.6. Amendments to Section 5.02. Subsection (a) of Section
5.02 of the 5-Year Credit Agreement is hereby amended in its entirety to
read as follows:
- 10 -
<PAGE> 11
SECTION 5.02. Each Loan. The obligation of each Lender to make,
convert or extend any Loan (including the obligation of the Swingline
Lender to make any Swingline Loan) is subject to satisfaction of the
following conditions in addition to satisfaction on the Closing Date of
the conditions set forth in Section 5.01:
(a) (i) In the case of any Revolving Loan, the Agent shall
have received an appropriate Notice of Borrowing or Notice of
Extension/Conversion; (ii) in the case of any Competitive Loan, the
applicable Competitive Loan Lender shall have received an
appropriate notice of acceptance of its related Competitive Bid;
(iii) in the case of any Swingline Loan, the Swingline Lender shall
have received an appropriate notice of borrowing in accordance with
the provisions of Section 2.03(b)(i); and (iv) in the case of any
Term Loan, the Agent shall have received notice pursuant to the
terms of Section 2.01(e)(i);
SUBPART 2.7. Amendments to Section 8.01. The word "and" at the end
of existing subsection (e) of Section 8.01 of the 5-Year Credit Agreement
is hereby deleted, the "." at the end of existing subsection (f) of
Section 8.01 of the 5-Year Credit Agreement is hereby deleted and a ";"
and the word "and" are hereby substituted therefor, and the following new
subsection (g) is hereby added to Section 8.01 of the 5-Year Credit
Agreement immediately succeeding such subsection (f):
SECTION 8.01. Funded Indebtedness. The Borrower will not,
nor will it permit any of its Subsidiaries to, contract, create,
incur, assume or permit to exist any Funded Indebtedness, except:
**********
(g) (i) indebtedness of Ralston Resorts arising under that
certain Credit Agreement dated as of September 30, 1996 among
Ralston Resorts, the lenders party thereto and NationsBank, N.A.,
as Agent for such lenders; and
- 11 -
<PAGE> 12
(ii) Guaranty Obligations of the Borrower in respect of the
indebtedness referred to in subsection (g)(i) above.
PART III
364-DAY CREDIT AGREEMENT
SUBPART 3.1. Termination of 364-Day Credit Agreement. Effective on
(and subject to the occurrence of) the Effective Date, the 364-Day Credit
Agreement and the Commitments under and as defined therein automatically
shall be terminated (notwithstanding any notice requirements pursuant to
Section 2.04 of the 364-Day Credit Agreement, but subject to the terms of
Section 11.11 of the 364-Day Credit Agreement).
PART IV
CONDITIONS TO EFFECTIVENESS
SUBPART 4.1. Effective Date. The agreements of the parties set
forth in Part II and Part III of this Agreement shall be and become
effective as of the date hereof (the "Effective Date") when all of the
conditions set forth in this Part IV shall have been satisfied.
SUBPART 4.1.1. Execution of Counterparts of Agreement. The Agent
shall have received counterparts of this Agreement, which collectively
shall have been duly executed on behalf of each of the Borrower and the
Lenders.
SUBPART 4.1.2. Ralston Resorts Credit Documents. The Credit
Agreement dated as of September 30, 1996 among Ralston Resorts, Inc., the
lenders party thereto and NationsBank, N.A., as agent for such lenders,
shall have become effective in accordance with the terms of Section 10.03
thereof and all conditions precedent set forth in Section 5.01 thereof
shall have been satisfied.
SUBPART 4.1.3. Prepayments of Loans. The Agent shall have
received, on behalf of the Lenders, (i) payment of the outstanding
Revolving Loans, Competitive Loans and/or Swingline Loans under the
5-Year Credit Agreement to the extent necessary to reduce the aggregate
outstanding
- 12 -
<PAGE> 13
principal balance of such Loans to $135,000,000 (it being understood
and agreed by the parties hereto that any notice requirement pursuant to
the terms of the 5-Year Credit Agreement shall not be applicable in
connection with such payment, but that such payment shall be subject to
the terms of Section 3.07 of the 5-Year Credit Agreement) and (ii)
payment of the principal of and accrued but unpaid interest on the
outstanding Loans, and all accrued but unpaid Fees, under the 364-Day
Credit Agreement (it being understood and agreed by the parties hereto
that any notice requirement pursuant to the terms of the 364-Day Credit
Agreement shall not be applicable in connection with such payment, but
that such payment shall be subject to the terms of Section 3.07 of the
364-Day Credit Agreement).
SUBPART 4.1.4. Other Documents. The Agent shall have received such
other documentation as the Agent may reasonably request in connection
with the foregoing.
PART V
MISCELLANEOUS
SUBPART 5.1. Cross-References. References in this Agreement to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart
of this Agreement.
SUBPART 5.2. Instrument Pursuant to Credit Agreements. This
Agreement is a Credit Document executed pursuant to the Credit Agreements
and shall (unless otherwise expressly indicated therein) be construed,
administered and applied in accordance with the terms and provisions of
the Credit Agreements.
SUBPART 5.3. References in Other Credit Documents. At such time as
this Agreement shall become effective pursuant to the terms of Subpart
4.1, all references in the Credit Documents (as defined in the 5-Year
Credit Agreement) to the Credit Agreement shall be deemed to refer to the
5-Year Credit Agreement as amended by this Agreement.
SUBPART 5.4. Representations and Warranties. The Borrower hereby
represents and warrants that (i) the representations and warranties
contained in Section 6 of the 5-Year Credit Agreement are correct on and
as of the date
- 13 -
<PAGE> 14
hereof as though made on and as of such date and after giving effect to
the amendments contained herein and (ii) no Default or Event of Default
exists under the 5-Year Credit Agreement on and as of the date hereof and
after giving effect to the amendments contained herein.
SUBPART 5.5. Survival. Except as expressly modified and amended in
this Agreement, all of the terms and provisions and conditions of each of
the Credit Agreements shall remain unchanged.
SUBPART 5.6. Counterparts. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to
be an original and all of which shall constitute together but one and the
same agreement.
SUBPART 5.7. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
NORTH CAROLINA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SUBPART 5.8. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
[The remainder of this page has been left blank intentionally]
- 14 -
<PAGE> 15
Each of the parties hereto has caused a counterpart of this Agreement to be
duly executed and delivered as of the date first above written.
BORROWER: RALCORP HOLDINGS, INC.
- ---------
By
------------------------------
Title:
LENDERS: NATIONSBANK, N.A.
- ---------
By
------------------------------
Title:
BANK OF AMERICA, NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
------------------------------
Title:
THE BANK OF NEW YORK
By
------------------------------
Title:
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By
------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
<PAGE> 16
By
------------------------------
Title:
THE CHASE MANHATTAN BANK, N.A.
By
------------------------------
Title:
[Signatures continued]
WACHOVIA BANK OF GEORGIA, N.A.
By
------------------------------
Title:
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By
------------------------------
Title:
CREDIT SUISSE
By
------------------------------
Title:
By
------------------------------
Title:
AGENT: NATIONSBANK, N.A.
- ------
By
------------------------------
Title:
<PAGE> 1
EXHIBIT 10.31
FIRST AMENDMENT TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
December 20, 1996, is made by and among RALSTON RESORTS, INC., a Colorado
corporation (the "Borrower"), THE PERSONS IDENTIFIED AS A "LENDER" ON THE
SIGNATURE PAGES HERETO (the "Lenders") and NATIONSBANK, N.A., as agent for the
Lenders (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of September 30,
1996 (the "Credit Agreement"), among the Borrower, the Lenders and the Agent,
the Lenders have made available a $140,000,000 bridge loan facility to the
Borrower; and
WHEREAS, the parties hereto have agreed to enter into this Amendment
in order to evidence certain agreements of the parties with respect to the
Credit Agreement as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the
context otherwise requires, the following term used in this Amendment has the
following meaning:
"Effective Date" is defined in Subpart 3.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Agreement, including its preamble
and recitals, have the meanings provided in the Credit Agreement.
PART II
CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Effective Date,
the parties hereto hereby agree as follows with respect to the Credit
Agreement:
1
<PAGE> 2
SUBPART 2.1. Amendments to Section 1.01. The definition of "Applicable
Margin" set forth in Section 1.01 of the Credit Agreement is amended in its
entirety to read as follows:
"Applicable Margin" shall mean, for purposes of calculating the
applicable interest rate for any day for any Eurodollar Loan, 87.5 bps.
SUBPART 2.2. Amendment to Section 10.15. Section 10.15 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 10.15. Incorporated Provisions. The Borrower hereby agrees
that (i) the representations and warranties contained in Article VI of the
Ralcorp Credit Agreement (together with any defined terms set forth in
Article I of the Ralcorp Credit Agreement utilized in such representations
and warranties), as in effect as of December 20, 1996 (after giving effect
to all amendments to the Ralcorp Credit Agreement occurring as of or before
such date), but excluding those which expressly relate to an earlier date
(the "Incorporated Representations and Warranties"), (ii) the covenants
contained in Articles VII and VIII of the Ralcorp Credit Agreement
(together with any defined terms set forth in Article I of the Ralcorp
Credit Agreement utilized in such covenants), as in effect as December 20,
1996 (after giving effect to all amendments to the Ralcorp Credit Agreement
occurring as of or before such date) (the "Incorporated Covenants") and
(iii) the events of default contained in Article IX of the Ralcorp Credit
Agreement (together with any defined terms set forth in Article I of the
Ralcorp Credit Agreement utilized in such events of default), as in effect
as of December 20, 1996 (after giving effect to all amendments to the
Ralcorp Credit Agreement occurring as of or before such date) (the
"Incorporated Events of Default"), are hereby incorporated by reference and
shall be as binding on the Borrower as if set forth fully herein. The
incorporation of provisions by reference to the Ralcorp Credit Agreement
pursuant to this Section 10.15 shall survive the termination of the Ralcorp
Credit Agreement. For purposes of the incorporation of provisions in the
Ralcorp Credit Agreement pursuant to this Section 10.15, (A) all references
in the Incorporated Representations and Warranties, the Incorporated
Covenants and the Incorporated Events of Default to a "Lender" or the
"Lenders" shall be deemed to refer to a Lender or the Lenders hereunder,
(B) all references in the Incorporated Representations and Warranties, the
Incorporated Covenants and the Incorporated Events of Default to the
"Required Lenders" shall be deemed to refer to the Required Lenders
hereunder, (C) all references in the Incorporated Representations and
Warranties, the Incorporated Covenants and the Incorporated Events of
Default to the "Agent" shall be deemed to refer to the Agent hereunder and
(D) all references in the Incorporated Representations and Warranties, the
Incorporated Covenants and the Incorporated Events of Default to the
"Agreement" shall be deemed to refer to this Agreement.
2
<PAGE> 3
PART III CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Effective Date. The agreements of the parties set forth in
Part II of this Amendment shall be and become effective as of the date hereof
(the "Effective Date") when all of the conditions set forth in this Part III
shall have been satisfied.
SUBPART 3.1.1. Execution of Counterparts of Amendment. The
Agent shall have received counterparts of this Amendment, which collectively
shall have been duly executed on behalf of the Borrower, the Agent and each of
the Lenders.
SUBPART 3.1.2. Representations and Warranties, Etc.
(a) After giving effect to the amendments
contained herein, the representations and warranties contained in Article VI of
the Credit Agreement shall be true and correct in all material respects on and
as of the Effective Date (except for those which expressly relate to an earlier
date).
(b) After giving effect to the amendments
contained herein, no Default or Event of Default shall exist under the Credit
Agreement on and as of the Effective Date.
SUBPART 3.1.3. Other Documents. The Agent shall have
received such other documentation as the Agent may reasonably request in
connection with the foregoing.
PART IV
MISCELLANEOUS
SUBPART 4.1. Cross-References. References in this Amendment to any Part
or Subpart are, unless otherwise specified, to such Part or Subpart of this
Amendment.
SUBPART 4.2. Instrument Pursuant to Credit Agreement. This Amendment is a
Credit Document executed pursuant to the Credit Agreement and shall (unless
otherwise expressly indicated therein) be construed, administered and applied in
accordance with the terms and provisions of the Credit Agreement.
SUBPART 4.3. References in Other Credit Documents. At such time as this
Amendment shall become effective pursuant to the terms of Subpart 3.1, all
references in the Credit Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended by this Amendment.
SUBPART 4.4. Survival. Except as expressly modified and amended in this
Amendment, all of the terms and provisions and conditions of the Credit
Agreement shall remain unchanged.
3
<PAGE> 4
SUBPART 4.5. Counterparts. This Amendment may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
SUBPART 4.6. Entirety. This Amendment, the Credit Agreement and the other
Credit Documents embody the entire agreement between the parties and supersede
all prior agreements and understandings, if any, relating to the subject matter
hereof and thereof. The Credit Documents represent the final agreement between
the parties relating to such subject matter and may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the parties.
SUBPART 4.7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NORTH
CAROLINA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SUBPART 4.8. Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
[The remainder of this page has been left blank intentionally]
4
<PAGE> 5
Each of the parties hereto has caused a counterpart of this Amendment to be
duly executed and delivered as of the date first above written.
BORROWER: RALSTON RESORTS, INC.
By:
Name:
Title:
LENDERS: NATIONSBANK, N.A., individually in its
capacity as a Lender and in its
capacity as Agent
By:
Name:
Title:
BANK OF AMERICA, NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
Name:
Title:
THE BANK OF NEW YORK
By:
Name:
Title:
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By:
Name:
Title:
[Signatures Continue]
5
<PAGE> 6
THE FIRST NATIONAL BANK OF CHICAGO
By:
Name:
Title:
TORONTO-DOMINION (TEXAS), INC.
By:
Name:
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By:
Name:
Title:
MERCANTILE BANK OF ST. LOUIS NATIONAL
ASSOCIATION
By:
Name:
Title:
CREDIT SUISSE
By:
Name:
Title:
By:
Name:
Title:
6
<PAGE> 1
EXHIBIT 10.32
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of December 20, 1996, is made by and among RALCORP
HOLDINGS, INC., a Missouri corporation (the "Borrower"), THE PERSONS IDENTIFIED
AS A "LENDER" ON THE SIGNATURE PAGES HERETO (the "Lenders") and NATIONSBANK,
N.A., as agent for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Amended and Restated Credit Agreement, dated as
of March 12, 1996, as amended or waived from time to time thereafter (as
previously amended or waived, the "Credit Agreement"), among the Borrower, the
Lenders and the Agent, the Lenders have made available a $135,000,000 5-year
revolving credit facility to the Borrower; and
WHEREAS, the parties hereto have agreed to enter into this Amendment in
order to evidence certain agreements of the parties with respect to the Credit
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the
context otherwise requires, the following term used in this Amendment has the
following meaning:
"Effective Date" is defined in Subpart 3.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Agreement, including its
preamble and recitals, have the meanings provided in the Credit Agreement.
PART II
CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Effective Date, the
parties hereto hereby agree as follows with respect to the Credit Agreement:
1
<PAGE> 2
SUBPART 2.1. Amendments to Section 1.01.
(a) The following definitions in Section 1.01 of the Credit Agreement are
amended in their entireties to read as follows:
"Applicable Margin" shall mean, for purposes of calculating the
applicable interest rate for any day for any Eurodollar Loan, the
applicable rate of the Unused Fee for any day for purposes of Section
2.05(a) or the applicable rate of the Letter of Credit Fee for any day
for purposes of Section 2.05(d)(i), the appropriate applicable margin
corresponding to the ratio described below in effect as of the most
recent Calculation Date:
<TABLE>
<CAPTION>
Applicable Applicable Applicable Margin
Pricing Consolidated Debt Margin for Margin for for
Level Coverage Ratio Eurodollar Loans Letter of Credit Fee Unused Fee
- ------- ------------------------ ---------------- -------------------- -----------------
<S> <C> <C> <C> <C>
V Greater than 3.25 to 1.0 87.5 bps 87.5 bps 27.5 bps
IV Equal to or less than 60.0 bps 60.0 bps 22.5 bps
3.25 to 1.0 but greater
than 2.75 to 1.0
III Equal to or less than 45.0 bps 45.0 bps 17.5 bps
2.75 to 1.0 but greater
than 2.25 to 1.0
II Equal to or less than 40.0 bps 40.0 bps 15.0 bps
2.25 to 1.0 but greater
than 1.75 to 1.0
I Equal to or less than 35.0 bps 35.0 bps 12.5 bps
1.75 to 1.0
</TABLE>
The Applicable Margin as of December 20, 1996 and continuing until the
Calculation Date occurring on March 31, 1997 is (i) 87.5 bps for
Eurodollar Loans, (ii) 87.5 bps for the Letter of Credit Fee and (iii)
27.5 bps for the Unused Fee. Thereafter, determination of the
appropriate Applicable Margins based on the Consolidated Debt Coverage
Ratio shall be made as of each Calculation Date. The Consolidated Debt
Coverage Ratio in effect as of any Calculation Date shall establish the
Applicable Margins that shall be effective as of the date designated by
the Agent as the Applicable Margin Change Date. The Agent shall determine
the Applicable Margins as of each Calculation Date and shall promptly
notify the Borrower and the Lenders of the Applicable Margins so
determined and of the Applicable Margin Change Date. Such determinations
by the Agent of the Applicable Margins shall be conclusive absent
manifest error.
"Commitment" shall mean, (i) with respect to each Lender, the
commitment of such Lender (A) to make Revolving Loans in an aggregate
principal amount at any time outstanding of up to such Lender's
Commitment Percentage multiplied by the Revolving Committed Amount (as
such Revolving Committed Amount may be reduced or increased from time to
time pursuant to Section 2.04), (B) to purchase participation interests
in the Swingline Loans in accordance with the provisions of Section
2.03(b)(iii) and (C) to purchase participation interests in the Letters
of Credit in accordance with the provisions
2
<PAGE> 3
of Section 2.06(c), (ii) with respect to the Swingline Lender, the
commitment of the Swingline Lender to make Swingline Loans in an aggregate
principal amount at any time outstanding of up to the Swingline Committed
Amount and (iii) with respect to the Issuing Lender, the commitment of the
Issuing Lender to issue Letters of Credit in an aggregate face amount at
any time outstanding (together with the amounts of any unreimbursed
drawings thereon) of up to the LOC Committed Amount.
"Credit Documents" shall mean (i) this Agreement, (ii) the LOC
Documents and (iii) all other related agreements and documents issued or
delivered under this Agreement or pursuant hereto.
"Required Lenders" shall mean, at any time, Lenders which are then
in compliance with their obligations hereunder (as determined by the
Agent) and holding in the aggregate at least 51% of (i) the Commitments
of all Lenders to make Revolving Loans (including any participation
interests in any Swingline Loans or any Letters of Credit) or (ii) if the
Commitments have been terminated, the outstanding Loans (including the
participation interests of the Issuing Lender in any Letters of Credit).
"Unused Revolving Committed Amount" shall mean, for any period, (i)
at all times prior to the first to occur of a Commitment Increase Event
and the Ralston Resorts Disposition, the amount by which (A) the sum of
(1) the then applicable Revolving Committed Amount plus (2) $140,000,000
exceeds (B) the daily average sum for such period of (1) the outstanding
aggregate principal amount of all Loans other than Swingline Loans and
Competitive Loans plus (2) 50% of the outstanding aggregate principal
amount of all Swingline Loans plus (3) the outstanding aggregate
principal amount of all LOC Obligations and (ii) at all times thereafter,
the amount by which (A) the then applicable Revolving Committed Amount
exceeds (B) the daily average sum for such period of (1) the outstanding
aggregate principal amount of all Loans other than Swingline Loans and
Competitive Loans plus (2) 50% of the outstanding aggregate principal
amount of all Swingline Loans plus (3) the outstanding aggregate
principal amount of all LOC Obligations.
(b) Section 1.01 of the Credit Agreement is amended to include the
following definitions in their proper alphabetical order:
"Issuing Lender" shall mean NationsBank.
"Issuing Lender Fee" shall have the meaning assigned to such term in
Section 2.05(d)(ii).
"Letter of Credit" shall mean any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the
terms of Section 2.06.
3
<PAGE> 4
"Letter of Credit Fee" shall have the meaning assigned to such term
in Section 2.05(d)(i).
"LOC Committed Amount" shall have the meaning assigned to such term
in Section 2.06.
"LOC Documents" shall mean, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned or
at risk or (ii) any collateral security for such obligations.
"LOC Obligations" shall mean, at any time, the sum of (i) the
maximum amount which is, or at any time thereafter may become, available
to be drawn under Letters of Credit then outstanding, assuming compliance
with all requirements for drawings referred to in such Letters of Credit
plus (ii) the aggregate amount of all drawings under Letters of Credit
honored by the Issuing Lender but not theretofore reimbursed.
SUBPART 2.2. Amendment to Section 2.01(a). Subparagraph (iii) of Section
2.01(a) of the Credit Agreement is amended in its entirety to read as follows:
(iii) in addition to the limitations set forth in the preceding
subparagraphs (i) and (ii), in no event shall the sum of Revolving Loans
outstanding plus Competitive Loans outstanding plus Swingline Loans
outstanding plus LOC Obligations outstanding exceed the Revolving
Committed Amount.
SUBPART 2.3. Amendment to Section 2.01(e)(i). Section 2.01(e)(i) of the
Credit Agreement is amended in its entirety to read as follows:
SECTION 2.01. Revolving Loans.
* * * * *
(e) Amortization of Certain Loans.
(i) To the extent exceeding an amount equal to $175,000,000
minus the aggregate LOC Obligations outstanding, the principal
balance of the Revolving Loans, Competitive Loans and Swingline
Loans, if any, outstanding as of the date of reduction of the
Revolving Committed Amount required pursuant to the terms of
Section 2.04(a)(ii) shall be payable in sixteen (16) equal
consecutive quarterly installments on the last day of each March,
June, September and December commencing with the first of such
dates to occur after the date of such reduction of the Revolving
Committed Amount (each such date referred to herein as a "Term Loan
Amortization Date" and the last such date referred to herein as
4
<PAGE> 5
the "Term Loan Termination Date"). The Revolving Loans,
Competitive Loans and/or Swingline Loans subject to amortization
under the preceding sentence shall be referred to collectively as
the "Term Loans". The Term Loans may be comprised of Base Rate
Loans and Eurodollar Loans as the Borrower may elect in accordance
with the provisions hereof, and amounts repaid or prepaid on the
Term Loans may not be reborrowed.
SUBPART 2.4. Amendment to Section 2.02(a). Subparagraph (ii) of Section
2.02(a) of the Credit Agreement is amended in its entirety to read as follows:
(ii) the sum of Revolving Loans outstanding plus Competitive Loans
outstanding plus Swingline Loans outstanding plus LOC Obligations
outstanding shall not at any time exceed the Revolving Committed Amount.
SUBPART 2.5. Amendment to Section 2.03(a). Subparagraph (ii) of Section
2.03(a) of the Credit Agreement is amended in its entirety to read as follows:
(ii) the sum of Revolving Loans outstanding plus Competitive Loans
outstanding plus Swingline Loans outstanding plus LOC Obligations
outstanding shall not exceed at any time the Revolving Committed Amount.
SUBPART 2.6. Amendment to Section 2.04(a)(i). Section 2.04(a)(i) of the
Credit Agreement is amended in its entirety to read as follows:
SECTION 2.04. Termination and Reduction of Commitments; Commitment
Increase Event.
(a) Termination and Reduction.
(i) The Borrower may from time to time permanently reduce or
terminate the aggregate Revolving Committed Amount in whole or in
part (in minimum aggregate amounts of the lesser of $5,000,000 or
the full remaining amount of the Revolving Committed Amount) upon
three Business Days' prior written notice to the Agent; provided,
however, no such termination or reduction shall be made which would
reduce the Revolving Committed Amount to an amount less than the
sum of Revolving Loans outstanding plus Competitive Loans
outstanding plus Swingline Loans outstanding plus LOC Obligations
outstanding. The Agent shall promptly notify each of the Lenders
of receipt by the Agent of any notice from the Borrower pursuant to
this Section 2.04(a)(i).
5
<PAGE> 6
SUBPART 2.7. Addition of Section 2.05(d). The following subsection (d)
is added to Section 2.05 of the Credit Agreement:
SECTION 2.05. Fees.
* * * * *
(d) Letter of Credit Fees.
(i) Letter of Credit Issuance Fee. In consideration of the
issuance of Letters of Credit hereunder, the Borrower promises to
pay to the Agent for the account of each Lender a fee (the "Letter
of Credit Fee") on such Lender's Commitment Percentage of the
average daily maximum amount available to be drawn under each such
Letter of Credit computed at a per annum rate for each day from the
date of issuance to the date of expiration equal to the Applicable
Margin for the Letter of Credit Fee. The Letter of Credit Fee will
be payable quarterly in arrears on the last day of each March,
June, September and December for the immediately preceding quarter
(or a portion thereof) and on the Maturity Date.
(ii) Issuing Lender Fees. In addition to the Letter of
Credit Fee payable pursuant to clause (i) above, the Borrower
promises to pay to the Issuing Lender for its own account a fee
(the "Issuing Lender Fee") on the average daily maximum amount
available to be drawn under each Letter of Credit computed at a per
annum rate for each day from the date of issuance to the date of
expiration equal to 12.5 basis points. The Issuing Lender Fee will
be payable quarterly in arrears on the last day of each March,
June, September and December for the immediately preceding fiscal
quarter (or a portion thereof) and on the Maturity Date.
SUBPART 2.8. Addition of Section 2.06. The following Section 2.06 is
added to the Credit Agreement:
2.06 Letter of Credit Subfacility.
(a) Issuance. Subject to the terms and conditions hereof and of the
LOC Documents, if any, and any other terms and conditions which the
Issuing Lender may reasonably require, the Lenders will participate in
the issuance by the Issuing Lender from time to time of such standby
Letters of Credit in Dollars from the Closing Date until the Maturity
Date as the Borrower may request, in a form acceptable to the Issuing
Lender; provided, however, that (i) the LOC Obligations outstanding shall
not at any time exceed THIRTY MILLION DOLLARS ($30,000,000) (the "LOC
Committed Amount") and (ii) in no event shall the sum of Revolving Loans
outstanding plus Competitive Loans outstanding plus Swingline Loans
outstanding plus LOC Obligations outstanding at any time exceed the
aggregate Revolving Committed Amount. No Letter
6
<PAGE> 7
of Credit shall (x) have an original expiry date more than one year from
the date of issuance or (y) as originally issued or as extended, have an
expiry date extending beyond the Termination Date. Each Letter of Credit
shall comply with the related LOC Documents. The issuance and expiry date
of each Letter of Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted by the Borrower to the Issuing Lender at least
three (3) Business Days prior to the requested date of issuance. The
Issuing Lender will, at least quarterly and more frequently upon request,
disseminate to each of the Lenders a detailed report specifying the
Letters of Credit which are then issued and outstanding and any activity
with respect thereto which may have occurred since the date of the prior
report, and including therein, among other things, the beneficiary, the
face amount, expiry date as well as any payment or expirations which may
have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of
Credit, shall be deemed to have purchased without recourse a risk
participation from the Issuing Lender in such Letter of Credit and the
obligations arising thereunder, in each case in an amount equal to its
pro rata share of the obligations under such Letter of Credit (based on
the respective Commitment Percentages of the Lenders) and shall
absolutely, unconditionally and irrevocably be obligated to pay to the
Issuing Lender and discharge when due, its pro rata share of the
obligations arising under such Letter of Credit. Without limiting the
scope and nature of each Lender's participation in any Letter of Credit,
to the extent that the Issuing Lender has not been reimbursed as required
hereunder or under any such Letter of Credit, each such Lender shall pay
to the Issuing Lender its pro rata share of such unreimbursed drawing in
same day funds on the day of notification by the Issuing Lender of an
unreimbursed drawing pursuant to the provisions of subsection (d) hereof.
The obligation of each Lender to so reimburse the Issuing Lender shall
be absolute and unconditional and shall not be affected by the occurrence
of a Default, an Event of Default or any other occurrence or event. Any
such reimbursement shall not relieve or otherwise impair the obligation
of the Borrower to reimburse the Issuing Lender under any Letter of
Credit, together with interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Borrower. Unless the
Borrower shall immediately notify the Issuing Lender that the Borrower
intends to otherwise reimburse the Issuing Lender for such drawing, the
Borrower shall be deemed to have requested that the Lenders make a
Revolving Loan in the amount of the drawing as provided in subsection (e)
hereof on the related Letter of Credit, the proceeds of which will be
used to satisfy the related reimbursement obligations. The Borrower
promises to reimburse the Issuing Lender on the day of drawing under any
Letter of Credit (either with the proceeds of a Revolving Loan obtained
hereunder or otherwise) in same day funds. If the Borrower shall fail to
reimburse the Issuing Lender as provided hereinabove, the unreimbursed
amount of such drawing shall bear interest at a per annum rate equal to
the
7
<PAGE> 8
Base Rate plus two percent (2%). The Borrower's reimbursement
obligations hereunder shall be absolute and unconditional under all
circumstances irrespective of any rights of setoff, counterclaim or
defense to payment the Borrower may claim or have against the Issuing
Lender, the Agent, the Lenders, the beneficiary of the Letter of Credit
drawn upon or any other Person, including without limitation any defense
based on any failure of the Borrower to receive consideration or the
legality, validity, regularity or unenforceability of any Letter of
Credit. The Issuing Lender will promptly notify the other Lenders of the
amount of any unreimbursed drawing and each Lender shall promptly pay to
the Agent for the account of the Issuing Lender in Dollars and in
immediately available funds, the amount of such Lender's pro rata share of
such unreimbursed drawing. Such payment shall be made on the day such
notice is received by such Lender from the Issuing Lender if such notice
is received at or before 2:00 P.M. (Charlotte, North Carolina time)
otherwise such payment shall be made at or before 12:00 Noon (Charlotte,
North Carolina time) on the Business Day next succeeding the day such
notice is received. If such Lender does not pay such amount to the
Issuing Lender in full upon such request, such Lender shall, on demand,
pay to the Agent for the account of the Issuing Lender interest on the
unpaid amount during the period from the date of such drawing until such
Lender pays such amount to the Issuing Lender in full at a rate per annum
equal to, if paid within two (2) Business Days of the date that such
Lender is required to make payments of such amount pursuant to the
preceding sentence, the Federal Funds Rate and thereafter at a rate equal
to the Base Rate. Each Lender's obligation to make such payment to the
Issuing Lender, and the right of the Issuing Lender to receive the same,
shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this
Agreement or the Commitments hereunder, the existence of a Default or
Event of Default or the acceleration of the obligations of the Borrower
hereunder and shall be made without any offset, abatement, withholding or
reduction whatsoever. Simultaneously with the making of each such payment
by a Lender to the Issuing Lender, such Lender shall, automatically and
without any further action on the part of the Issuing Lender or such
Lender, acquire a participation in an amount equal to such payment
(excluding the portion of such payment constituting interest owing to the
Issuing Lender) in the related unreimbursed drawing portion of the LOC
Obligation and in the interest thereon and in the related LOC Documents,
and shall have a claim against the Borrower with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Borrower shall have requested, or been deemed to have requested, a
Revolving Loan advance to reimburse a drawing under a Letter of Credit,
the Agent shall give notice to the Lenders that a Revolving Loan has been
requested or deemed requested by the Borrower to be made in connection
with a drawing under a Letter of Credit, in which case a Revolving Loan
advance comprised of Base Rate Loans (or Eurodollar Loans to the extent
the Borrower has complied with the procedures of Section 2.01(b)(i) with
respect thereto) shall be immediately made to the Borrower by all Lenders
(notwithstanding any termination of the Commitments pursuant to Section
9.02) pro rata based on the respective Commitment Percentages of the
Lenders (determined before giving effect to
8
<PAGE> 9
any termination of the Commitments pursuant to Section 9.02) and the
proceeds thereof shall be paid directly to the Issuing Lender for
application to the respective LOC Obligations. Each such Lender hereby
irrevocably agrees to make its pro rata share of each such Revolving Loan
immediately upon any such request or deemed request in the amount, in the
manner and on the date specified in the preceding sentence notwithstanding
(i) the amount of such borrowing may not comply with the minimum amount
for advances of Revolving Loans otherwise required hereunder, (ii) whether
any conditions specified in Section 5.02 are then satisfied, (iii) whether
a Default or an Event of Default then exists, (iv) failure for any such
request or deemed request for Revolving Loan to be made by the time
otherwise required hereunder, (v) whether the date of such borrowing is a
date on which Revolving Loans are otherwise permitted to be made hereunder
or (vi) any termination of the Commitments relating thereto immediately
prior to or contemporaneously with such borrowing. In the event that any
Revolving Loan cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of any
Bankruptcy Event), then each such Lender hereby agrees that it shall
forthwith purchase (as of the date such borrowing would otherwise have
occurred, but adjusted for any payments received from the Borrower on or
after such date and prior to such purchase) from the Issuing Lender such
participation in the outstanding LOC Obligations as shall be necessary to
cause each such Lender to share in such LOC Obligations ratably (based
upon the respective Commitment Percentages of the Lenders (determined
before giving effect to any termination of the Commitments pursuant to
Section 9.02)), provided that at the time any purchase of participation
pursuant to this sentence is actually made, the purchasing Lender shall be
required to pay to the Issuing Lender, to the extent not paid to the
Issuer by the Borrower in accordance with the terms of subsection (d)
hereof, interest on the principal amount of participation purchased for
each day from and including the day upon which such borrowing would
otherwise have occurred to but excluding the date of payment for such
participation, at the rate equal to, if paid within two (2) Business Days
of the date of the Revolving Loan advance, the Federal Funds Rate, and
thereafter at a rate equal to the Base Rate.
(f) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as
the issuance of a new Letter of Credit hereunder.
(g) Uniform Customs and Practices. The Issuing Lender may have the
Letters of Credit be subject to The Uniform Customs and Practice for
Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (the "UCP"), in which case the UCP may
be incorporated therein and deemed in all respects to be a part thereof.
(h) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section
2.06, the Borrower hereby agrees to pay, and protect, indemnify,
and save each Lender
9
<PAGE> 10
(including the Issuing Lender) harmless from and against, any
and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees) that any
may incur or be subject to as a consequence, direct or indirect, of
(A) the issuance of any Letter of Credit or (B) the failure of any
Lender (including the Issuing Lender) to honor a drawing under a
Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions,
herein called "Government Acts").
(ii) As between the Borrower and the Lenders (including the
Issuing Lender), the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary
thereof. No Lender (including the Issuing Lender) shall be
responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party
in connection with the application for and issuance of any Letter
of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(B) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, that may prove to be invalid or ineffective for
any reason; (C) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher;
(D) for any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Letter of
Credit or of the proceeds thereof; and (E) for any consequences
arising from causes beyond the control of such Lender, including,
without limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or
omitted by any Lender (including the Issuing Lender), under or in
connection with any Letter of Credit or the related certificates,
if taken or omitted in good faith, shall not put such Lender under
any resulting liability to the Borrower or any other Credit Party.
It is the intention of the parties that this Agreement shall be
construed and applied to protect and indemnify each Lender
(including the Issuing Lender) against any and all risks involved
in the issuance of the Letters of Credit, all of which risks are
hereby assumed by the Borrower, including, without limitation, any
and all Government Acts. No Lender (including the Issuing Lender)
shall, in any way, be liable for any failure by such Lender or
anyone else to pay any drawing under any Letter of Credit as a
result of any Government Acts or any other cause beyond the control
of such Lender.
(iv) Nothing in this subsection (h) is intended to limit the
reimbursement obligations of the Borrower contained in subsection
(d) above.
10
<PAGE> 11
The obligations of the Borrower under this subsection (h) shall
survive the termination of this Agreement. No act or omissions of
any current or prior beneficiary of a Letter of Credit shall in any
way affect or impair the rights of any Lender (including the Issuing
Lender) to enforce any right, power or benefit under this Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (h), the Borrower shall have no obligation to indemnify
each Lender (including the Issuing Lender) in respect of any
liability incurred by such Lender (A) arising solely out of the
gross negligence or willful misconduct of such Lender, as
determined by a court of competent jurisdiction, or (B) caused by
such Lender's failure to pay under any Letter of Credit after
presentation to it of a request strictly complying with the terms
and conditions of such Letter of Credit, as determined by a court
of competent jurisdiction, unless such payment is prohibited by any
law, regulation, court order or decree.
(i) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the
Lenders are only those expressly set forth in this Agreement and that the
Issuing Lender shall be entitled to assume that the conditions precedent
set forth in Section 5.02 have been satisfied unless it shall have
acquired actual knowledge that any such condition precedent has not been
satisfied; provided, however, that nothing set forth in this Section 2.06
shall be deemed to prejudice the right of any Lender to recover from the
Issuing Lender any amounts made available by such Lender to the Issuing
Lender pursuant to this Section 2.06 in the event that it is determined
by a court of competent jurisdiction that the payment with respect to a
Letter of Credit constituted gross negligence or willful misconduct on
the part of the Issuing Lender.
(j) Conflict with LOC Documents. In the event of any conflict
between this Agreement and any LOC Document (including any letter of
credit application), this Agreement shall control.
SUBPART 2.9. Amendment to Section 3.05(a). Section 3.05(a) of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 3.05. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of law) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of,
deposits with or for the account of or credit extended by such Lender, or
shall impose on such Lender or the London interbank market any other
condition affecting this Agreement, such Lender's Commitment, any Loan
made by such Lender or any Letter of Credit, and the result of
11
<PAGE> 12
any of the foregoing shall be to increase the cost to such Lender of
making or maintaining such Loan or issuing or participating in such Letter
of Credit or to reduce the amount of any sum received or receivable by
such Lender hereunder (whether of principal, interest or otherwise) by an
amount deemed by such Lender to be material, then the Borrower will pay to
such Lender in accordance with paragraph (c) below upon demand such
additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered.
SUBPART 2.10. Amendment to Section 4.01. The third sentence of Section
4.01 of the Credit Agreement is amended in its entirety to read as follows:
The Borrower shall, at the time it makes any payment under this
Agreement, specify to the Agent the Loans, LOC Obligations, Fees or other
amounts payable by the Borrower hereunder to which such payment is to be
applied (and in the event that it fails so to specify, or if such
application would be inconsistent with the terms hereof, the Agent shall
distribute such payment to the Lenders in such manner as the Agent may
determine to be appropriate in respect of obligations owing by the
Borrower hereunder, subject to the terms of Section 4.02).
SUBPART 2.11. Amendment to Section 4.02. The first sentence of Section
4.02 of the Credit Agreement is amended in its entirety to read as follows:
SECTION 4.02. Except to the extent otherwise provided herein, each
Revolving Loan and Term Loan, each payment or prepayment of principal of
any Revolving Loan, Term Loan or reimbursement obligations arising from
drawings under Letters of Credit, each payment of interest on the
Revolving Loans, Term Loans or reimbursement obligations arising from
drawings under Letters of Credit, each payment of Unused Fees, each
payment of the Letter of Credit Fee, each reduction and increase of the
Revolving Committed Amount and each conversion or extension of any
Revolving Loan, shall be allocated pro rata among the Lenders in
accordance with their respective Commitment Percentages.
SUBPART 2.12. Amendment to Section 4.03. Section 4.03 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 4.03. Sharing of Payments. The Lenders agree among
themselves that, in the event that any Lender shall obtain payment in
respect of any Loan, LOC Obligations or other obligation owing to such
Lender under this Agreement through the exercise of a right of set-off,
banker's lien, counterclaim or otherwise in excess of its pro rata share
as provided for in this Agreement, such Lender shall promptly purchase
from the other Lenders a participation in such Loans, LOC Obligations and
other obligations in such amounts, and make such other adjustments from
time to time, as shall be equitable to the end that all Lenders share
such payment in accordance with their respective ratable shares as
provided for in this Agreement. The Lenders further agree among
themselves
12
<PAGE> 13
that if payment to a Lender obtained by such Lender through the exercise
of a right of set-off, banker's lien, counterclaim or otherwise as
aforesaid shall be rescinded or must otherwise be restored, each Lender
which shall have shared the benefit of such payment shall, by repurchase
of a participation theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect
thereto) to each Lender whose payment shall have been rescinded or
otherwise restored. The Borrower agrees that any Lender so purchasing
such a participation may, to the fullest extent permitted by law, exercise
all rights of payment, including set-off, banker's lien or counterclaim,
with respect to such participation as fully as if such Lender were a
holder of such Loan, LOC Obligation or other obligation in the amount of
such participation. Except as otherwise expressly provided in this
Agreement, if any Lender or the Agent shall fail to remit to the Agent or
any other Lender an amount payable by such Lender or the Agent to the
Agent or such other Lender pursuant to this Agreement on the date when
such amount is due, such payments shall be made together with interest
thereon for each date from the date such amount is due until the date such
amount is paid to the Agent or such other Lender at a rate per annum equal
to the Federal Funds Effective Rate.
SUBPART 2.13. Amendment to Section 5.02. Section 5.02 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 5.02. Each Loan. The obligations of each Lender to make,
convert or extend any Loan (including the obligation of the Swingline
Lender to make any Swingline Loan) and of the Issuing Lender to issue or
extend Letters of Credit are subject to satisfaction of the following
conditions in addition to satisfaction on the Closing Date of the
conditions set forth in Section 5.01:
(a) (i) In the case of any Revolving Loan, the Agent shall
have received an appropriate Notice of Borrowing or Notice of
Extension/Conversion; (ii) in the case of any Competitive Loan, the
applicable Competitive Loan Lender shall have received an
appropriate notice of acceptance of its related Competitive Bid;
(iii) in the case of any Swingline Loan, the Swingline Lender shall
have received an appropriate notice of borrowing in accordance with
the provisions of Section 2.03(b)(i); (iv) in connection with the
conversion or extension of any portion of a Term Loan, the Agent
shall have received an appropriate notice of such conversion or
extension; and (v) in the case of any Letter of Credit, the Issuing
Lender shall have received an appropriate request for issuance in
accordance with the provisions of Section 2.06(b);
(b) The representations and warranties set forth in Article VI
shall be true and correct in all material respects as of such date
(except for those which expressly relate to an earlier date);
13
<PAGE> 14
(c) There shall not have been commenced against the Borrower
an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or any case,
proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Borrower or for any substantial part of its
Property or for the winding up or liquidation of its affairs, and
such involuntary case or other case, proceeding or other action
shall remain undismissed, undischarged or unbonded; and
(d) No Default or Event of Default shall exist and be
continuing either prior to or after giving effect thereto.
The delivery of each Notice of Borrowing and each Notice of
Extension/Conversion, each request for a Competitive Bid pursuant to a
Competitive Bid Request, each request for a Swingline Loan pursuant to
Section 2.03(b)(i) and each request for a Letter of Credit pursuant to
Section 2.06(b) shall constitute a representation and warranty by the
Borrower of the correctness of the matters specified in subsections (b),
(c) and (d) above.
SUBPART 2.14. Amendment to Section 7.10. Section 7.10 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 7.10. Use of Proceeds. The proceeds of the Loans hereunder
shall be used, subject to the terms of Section 8.05 and Section 8.07, to
refinance existing indebtedness of the Borrower under the Existing Credit
Agreement and for the working capital and the general corporate purposes
(including, without limitation, acquisitions) of the Borrower and its
Subsidiaries. The Letters of Credit shall be used (i) to provide
security for the Borrower's indemnity obligations under that certain
Agreement and Plan of Reorganization, dated as of March 31, 1994, by and
among Ralston Purina Company, certain of its wholly-owned subsidiaries
and the Borrower or (ii) for or in connection with appeal bonds,
reimbursement obligations arising in connection with surety and
reclamation bonds, reinsurance and obligations not otherwise
aforementioned relating to transactions entered into by the applicable
account party in the ordinary course of business.
SUBPART 2.15. Amendments to Section 7.11(a) and (b). Sections 7.11(a)
and (b) of the Credit Agreement are amended in their entireties to read as
follows:
SECTION 7.11. Financial Covenants.
(a) Consolidated Debt Coverage Ratio. The Borrower shall cause the
Consolidated Debt Coverage Ratio to be no greater than (i) at the
Calculation Date occurring on December 31, 1996, 4.00 to 1.00 and (ii) at
each Calculation Date thereafter, 3.25 to 1.00.
14
<PAGE> 15
(b) Consolidated Interest Coverage Ratio. The Borrower shall cause
the Consolidated Interest Coverage Ratio to be no less than (i) at the
Calculation Date occurring on December 31, 1996, 1.50 to 1.00 and (ii) at
each Calculation Date thereafter, 3.00 to 1.00.
SUBPART 2.16. Amendment to Section 9.01(a). Section 9.01(a) of the
Credit Agreement is amended in its entirety to read as follows:
SECTION 9.01. Events of Default. Each of the following shall be an
event of default (each an "Event of Default") hereunder:
(a) Payment. The Borrower shall
(i) default in the payment when due of any principal of any of
the Loans or any reimbursement obligations arising from drawings
under the Letters of Credit, or
(ii) default, and such default shall continue for five (5) or
more days, in the payment when due of any interest on the Loans or
on any reimbursement obligations arising under drawings under
Letters of Credit, or of any Fees or other amounts owing hereunder,
under any of the other Credit Documents or in connection herewith
or therewith; or
* * * * *
SUBPART 2.17. Amendment to Section 9.02. Section 9.02 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 9.02. Acceleration; Remedies. Upon the occurrence of an
Event of Default, and at any time thereafter unless and until such Event
of Default has been waived by the Lenders or cured to the satisfaction of
the Lenders (pursuant to the voting procedures in Section 11.08), the
Agent, upon the request of the Required Lenders, shall, by written notice
to the Borrower, take any of the following actions without prejudice to
the rights of the Agent or any Lender to enforce its claims against the
Borrower, except as otherwise specifically provided for herein:
(i) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately
terminated.
(ii) Acceleration of Loans. Declare the unpaid principal of
and any accrued interest in respect of all Loans, any reimbursement
obligations arising from drawings under Letters of Credit, all
accrued and unpaid Fees and other indebtedness or obligations of
any and every kind owing by the Borrower to any of the Lenders
hereunder to be due whereupon the same shall be immediately due
15
<PAGE> 16
and payable without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower.
(iii) Cash Collateral. Direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default under Section 9.01(d), it will
immediately pay) to the Agent additional cash, to be held by the
Agent, for the benefit of the Lenders, in a cash collateral account
as additional security for the LOC Obligations in respect of
subsequent drawings under all then outstanding Letters of Credit in
an amount equal to the maximum aggregate amount which may be drawn
under all Letters of Credit then outstanding.
(iv) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents and all
rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.01(d) shall occur, then the Commitments shall automatically
terminate and all Loans, all reimbursement obligations arising from
drawings under Letters of Credit, all accrued interest in respect
thereof, all accrued and unpaid Fees and other indebtedness or
obligations of any and every kind owing by the Borrower to any of the
Lenders hereunder automatically shall immediately become due and payable
without the giving of any notice or other action by the Agent.
SUBPART 2.18. Amendment to Section 10.10. The second sentence of Section
10.10 of the Credit Agreement is amended in its entirety to read as follows:
Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own
appraisal of and investigations into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and
made its own decision to make Loans hereunder, to participate in Letters
of Credit hereunder and to enter into this Agreement.
SUBPART 2.19. Amendment to Section 11.02. Section 11.02 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 11.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection
with or pursuant to this Agreement shall be considered to have been
relied upon by the Lenders and shall survive the making of Loans by the
Lenders hereunder and the issuance of the Letters of Credit by the
Issuing Lender hereunder, regardless of any investigation made by the
Lenders or on their behalf, and shall continue in full force and effect
as long as any Loans, LOC Obligations or any
16
<PAGE> 17
amounts are outstanding under this Agreement or any of the other Credit
Documents and so long as the Commitments have not been terminated.
SUBPART 2.20. Amendment to Section 11.07. Subparagraph (iii) of Section
11.07 of the Credit Agreement is amended in its entirety to read as follows:
(iii) indemnify each Lender, its officers, directors, employees,
representatives and agents from and hold each of them harmless against
any and all losses, liabilities, claims, damages or reasonable
out-of-pocket expenses incurred by any of them as a result of, or arising
out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not any Lender is a party
thereto) related to the entering into and/or performance of any Credit
Document, to the use of proceeds of any Loans hereunder, to the use of
any Letters of Credit hereunder, to the consummation of any other
transactions contemplated in any Credit Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding
(but excluding any such losses, liabilities, claims, damages or expenses
to the extent incurred by reason of gross negligence or willful
misconduct on the part of the Person to be indemnified).
SUBPART 2.21. Amendment to Section 11.08. The final sentence of Section
11.08 of the Credit Agreement is amended in its entirety to read as follows:
No provision of Section 2.03 may be amended without the consent of the
Swingline Lender, no provision of Section 2.06 may be amended without the
consent of the Issuing Lender and no provision of Article X may be
amended without the consent of the Agent.
SUBPART 2.22. Amendment to Section 11.11. Section 11.11 of the Credit
Agreement is amended in its entirety to read as follows:
SECTION 11.11. Survival of Indemnification. All indemnities set
forth herein, including, without limitation, in Section 2.06(h), 3.05,
3.07, 4.04, 10.09 or 11.07 shall survive the execution and delivery of
this Agreement, and the making of the Loans, the issuance of the Letters
of Credit, the repayment of the Loans, LOC Obligations and other
obligations and the termination of the Commitments hereunder.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Effective Date. The agreements of the parties set forth in
Part II of this Amendment shall be and become effective as of the date hereof
(the "Effective Date") when all of the conditions set forth in this Part III
shall have been satisfied.
17
<PAGE> 18
SUBPART 3.1.1. Execution of Counterparts of Amendment. The Agent shall
have received counterparts of this Amendment, which collectively shall have
been duly executed on behalf of the Borrower, the Agent and each of the
Lenders.
SUBPART 3.1.2. Representations and Warranties, Etc.
(a) After giving effect to the amendments contained herein, the
representations and warranties contained in Article VI of the Credit Agreement
shall be true and correct in all material respects on and as of the Effective
Date (except for those which expressly relate to an earlier date).
(b) After giving effect to the amendments contained herein, no Default or
Event of Default shall exist on and as of the Effective Date.
SUBPART 3.1.3. Other Documents. The Agent shall have received such other
documentation as the Agent may reasonably request in connection with the
foregoing.
PART IV
MISCELLANEOUS
SUBPART 4.1. Cross-References. References in this Amendment to any Part
or Subpart are, unless otherwise specified, to such Part or Subpart of this
Amendment.
SUBPART 4.2. Instrument Pursuant to Credit Agreement. This Amendment is
a Credit Document executed pursuant to the Credit Agreement and shall (unless
otherwise expressly indicated therein) be construed, administered and applied
in accordance with the terms and provisions of the Credit Agreement.
SUBPART 4.3. References in Other Credit Documents. At such time as this
Amendment shall become effective pursuant to the terms of Subpart 3.1, all
references in the Credit Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended by this Amendment.
SUBPART 4.4. Survival. Except as expressly modified and amended in this
Amendment, all of the terms and provisions and conditions of the Credit
Agreement shall remain unchanged.
SUBPART 4.5. Counterparts. This Amendment may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
18
<PAGE> 19
SUBPART 4.6. Entirety. This Amendment, the Credit Agreement and the
other Credit Documents embody the entire agreement between the parties and
supersede all prior agreements and understandings, if any, relating to the
subject matter hereof and thereof. The Credit Documents represent the final
agreement between the parties relating to such subject matter and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties.
SUBPART 4.7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NORTH
CAROLINA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SUBPART 4.8. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
[The remainder of this page has been left blank intentionally]
19
<PAGE> 20
Each of the parties hereto has caused a counterpart of this Amendment to be
duly executed and delivered as of the date first above written.
<TABLE>
<S> <C>
BORROWER: RALCORP HOLDINGS, INC.
- ---------
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
LENDERS: NATIONSBANK, N.A., individually in its
- --------- capacity as a Lender and in its capacity as Agent
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
BANK OF AMERICA, NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
THE BANK OF NEW YORK
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
</TABLE>
[Signatures Continue]
20
<PAGE> 21
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
TORONTO-DOMINION (TEXAS), INC.
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
WACHOVIA BANK OF GEORGIA, N.A.
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
CREDIT SUISSE
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
By:
-------------------------------------------------
Name:
-------------------------------------------------
Title:
-------------------------------------------------
21
<PAGE> 1
EXHIBIT 21
LIST OF RALCORP HOLDINGS, INC. SUBSIDIARIES
Beech-Nut Nutrition Corporation
State of Incorporation: Nevada
Bremner Finance, Inc.
State of Incorporation: Delaware
Bremner, Inc.
State of Incorporation: Nevada
Keystone Conference Services, Inc.
State of Incorporation: Colorado
Keystone Development Sales, Inc.
State of Incorporation: Colorado
Keystone Food & Beverage Company
State of Incorporation: Colorado
Keystone Resort Property Management Company
State of Incorporation: Colorado
National Oats Company
State of Incorporation: Nevada
Ralston Food Sales, Inc.
State of Incorporation: Nevada
Ralston Foods, Inc.
State of Incorporation: Nevada
Ralston Resorts, Inc.
State of Incorporation: Colorado
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-76912, No. 33-76914 and No. 33-97036) of our
report dated October 30, 1996 which appears on page 19 of the Ralcorp
Holdings, Inc. Annual Report on Form 10-K for the year ended September 30, 1996.
Price Waterhouse LLP
St. Louis, Missouri
December 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Excluded from the below cost/expense information are nonrecurring and
restructuring charges of $110 and $17, respectively.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 77
<ALLOWANCES> 1
<INVENTORY> 103
<CURRENT-ASSETS> 193
<PP&E> 537
<DEPRECIATION> 214
<TOTAL-ASSETS> 627
<CURRENT-LIABILITIES> 102
<BONDS> 377
0
0
<COMMON> 0
<OTHER-SE> 107
<TOTAL-LIABILITY-AND-EQUITY> 627
<SALES> 1,027
<TOTAL-REVENUES> 1,027
<CGS> 537
<TOTAL-COSTS> 537
<OTHER-EXPENSES> 411
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (73)
<INCOME-TAX> (26)
<INCOME-CONTINUING> (47)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47)
<EPS-PRIMARY> (1.42)
<EPS-DILUTED> (1.42)
</TABLE>
