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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOODBRANDS AMERICA, INC.
(NAME OF SUBJECT COMPANY)
FOODBRANDS AMERICA, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
344822 10 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
R. RANDOLPH DEVENING
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1601 N.W. EXPRESSWAY
SUITE 1700
OKLAHOMA CITY, OKLAHOMA 73118
(405) 879-4100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT).
WITH COPIES TO:
JOHN M. MEE, ESQ. MARK C. SMITH, ESQ.
W. CHRIS COLEMAN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER
MCAFEE & TAFT & FLOM LLP
A PROFESSIONAL CORPORATION 919 THIRD AVENUE
221 NORTH ROBINSON NEW YORK, NEW YORK 10022
OKLAHOMA CITY, OKLAHOMA 73102 (212) 735-3000
(405) 235-9821
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Foodbrands America, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is 1601 N.W. Expressway, Suite 1700, Oklahoma City,
Oklahoma 73118. The title of the class of equity securities to which this
Statement relates is the common stock, par value $.01 per share, of the
Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the tender offer by IBP Sub, Inc., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of IBP Foodservice
L.L.C., a Delaware limited liability company, whose sole members are IBP,
inc., a Delaware corporation (the "Parent") and Prepared Foods, Inc., a Texas
corporation and a wholly owned subsidiary of the Parent, disclosed in a Tender
Offer Statement on Schedule 14D-1 dated April 1, 1997 (the "Schedule 14D-1"),
to purchase all of the outstanding shares of Common Stock of the Company (the
"Shares") at a price of $23.40 per Share, net to the seller in cash (such
amount or any greater amount paid pursuant to the Offer, being hereafter
referred to as the "Share Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated April 1, 1997 (the "Offer
to Purchase") and the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer").
The Offer is being made by the Purchaser pursuant to an Agreement and Plan
of Merger, dated as of March 25, 1997 (the "Merger Agreement"), by and among
the Parent, the Purchaser and the Company. The Merger Agreement provides,
among other things, for the making of the Offer by the Purchaser and further
provides that, upon the terms and subject to the conditions contained in the
Merger Agreement, unless the parties otherwise agree, the Purchaser will be
merged with and into the Company (the "Merger") no later than the second
business day after the satisfaction or waiver of all conditions to the Merger.
Following consummation of the Merger, the Company will continue as the
surviving corporation (the "Surviving Corporation") and a wholly owned
indirect subsidiary of the Parent. In the Merger, each Share issued and
outstanding immediately prior to the Effective Time (as defined below) (other
than Shares owned by the Parent or any subsidiary of the Parent or held in the
treasury of the Company or by wholly owned subsidiaries of the Company, all of
which will be cancelled, and other than Dissenters' Shares (as defined below)
under the Delaware General Corporation Law (the "DGCL")) will be converted
into the right to receive the per share consideration in the Offer, without
interest (the "Merger Consideration"). A copy of the Merger Agreement is filed
as Exhibit 2 hereto and is incorporated herein by reference.
The Offer to Purchase states that the principal executive offices of the
Purchaser and the Parent are located at IBP Avenue, P.O. Box 515, Dakota City,
Nebraska 68731.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company or its affiliates and certain of its executive officers,
directors or affiliates are described under the heading "Executive
Compensation" at pages 17 to 21 of the Company's Proxy Statement dated April
4, 1996 for its 1996 Annual Meeting of Stockholders (the "1996 Proxy
Statement"). Copies of such pages are filed as Exhibit 98.1 hereto and are
incorporated herein by reference.
Set forth below is a summary of such agreements and arrangements entered
into since the date of the 1996 Proxy Statement.
Devening Employment Agreement. Pursuant to the Employment Agreement dated
August 2, 1994 between the Company and R. Randolph Devening, Chairman of the
Board, President and Chief Executive Officer of the Company, as amended by the
First Amendment to Employment Agreement, dated as of December 31, 1996,
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(the "Devening Employment Agreement"), Mr. Devening is paid a base salary of
$700,000 per annum (the "Base Salary"). The Devening Employment Agreement also
provides that Mr. Devening will be paid a performance bonus for each fiscal
year beginning after December 31, 1995 in an amount equal to the sum of 100%
of his Base Salary (the "Target Bonus") for such year if the Company meets its
EBIT (earnings before interest and taxes) target for such year (as set by the
compensation committee of the Board of Directors), plus a minimum of 25% of
his Base Salary for such year if the Company exceeds such EBIT target by 10%
or more, plus a minimum of an additional 25% of his Base Salary for such year
if the Company exceeds such EBIT target by 20% or more; provided, however,
that Mr. Devening remains an employee of the Company on the last day of each
such fiscal year for which a performance bonus is being paid, and provided
further, however, that, in the event of Mr. Devening's death or his
qualification for a benefit under the Company's long-term disability plan, Mr.
Devening or his estate will be entitled to the entire bonus to which he would
otherwise be entitled had he remained an employee of the Company as of the
last day of the year in which such event of death or qualification occurred.
The Devening Employment Agreement also provides that Mr. Devening's
employment period will extend to December 31, 1999, and, unless previously
terminated as provided for in the Devening Employment Agreement, shall be
extended automatically for one (1) year after December 31, 1999, unless prior
to January 1, 1999, either party provides to the other written notice of the
intent of such party not to extend. If, however. a Change of Control (as
defined in the Devening Employment Agreement) occurs, the employment period
will be extended to the second anniversary of the Change of Control.
Before a Change of Control, Mr. Devening's employment may be terminated
without cause at any time by the Board of Directors of the Company during the
employment period. Upon such termination, the Company will pay to Mr. Devening
a severance payment equal to three (3) times the sum of (i) the Base Salary
for the last twelve-month period ending prior to such termination, plus (ii)
an amount equal to Mr. Devening's Target Bonus of 100% of his base salary
regardless of whether such bonus was paid, as discussed above, for the last
fiscal year of the Company ending prior to such termination (the "Termination
Bonus"). The Termination Bonus will be paid in thirty-six (36) equal monthly
installments, commencing within thirty (30) days after the date of
termination. Such payment shall be in lieu of any other benefits that may
otherwise be payable to Mr. Devening under any severance pay plan or
arrangement. In the event Mr. Devening should die prior to the end of said
thirty-six (36) month period, the unpaid portion of the Termination Bonus will
nonetheless be paid to Mr. Devening's surviving spouse, and if none, to his
estate.
Consummation of the Offer will result in a Change of Control under the
Devening Employment Agreement. As a result, Mr. Devening will be entitled to
receive a single lump sum payment equal to the Termination Bonus or
approximately $4.2 million (the "Change of Control Payment"). Also, under the
Devening Employment Agreement, Mr. Devening will continue his employment
during the one year period immediately following a Change of Control (the
"Devening Stay Period") upon the Company paying to him the Change of Control
Payment. During the Devening Stay Period, Mr. Devening shall be entitled to
all compensation, perquisites and benefits he would otherwise be entitled to
under the Devening Employment Agreement. Mr. Devening is required to pay
liquidated damages to the Company of one-third of the Change of Control
Payment if he terminates his employment the Company during the Devening Stay
Period. In addition to the Change of Control Payment, the Company will be
required to pay Mr. Devening an amount equal to any excise tax, interest and
penalties (including income tax) he is required to pay under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), resulting from the
Change of Control Payment (described above) and the Option Payment described
below.
The Devening Employment Agreement also contains an agreement by Mr. Devening
not to compete for a period of twenty four (24) months (the "Covenant Period")
after his termination of employment from the Company at any time following a
Change of Control for any reason. In consideration for such covenant, the
Company shall pay Mr. Devening the sum of $1 million (the "Covenant Payment")
in twenty-four (24) equal
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monthly installments following such termination. In the event of Mr.
Devening's death during the Covenant Period, the balance of the Covenant
Payment, if any, shall be paid to his surviving spouse, and if none, to his
estate.
In addition to all amounts required to be paid to Mr. Devening by the
Company upon his termination of employment for any reason prior to or after a
Change of Control, Mr. Devening shall be entitled to continue to participate
in all of the Company's health plans during the thirty-six (36) month period
following any such termination, and after the expiration of such thirty-six
(36) month period, Mr. Devening shall then be eligible to elect COBRA
continuation coverage under the Company's health plan. During such thirty-six
(36) month period Mr. Devening shall also be entitled to continue to receive
certain other welfare benefits and perquisites described in the Devening
Employment Agreement at the higher of the level of such coverage and
perquisites immediately prior to the Change of Control or immediately prior to
such termination.
Copies of the Devening Employment Agreement and the First Amendment to
Employment Agreement are filed as Exhibits 10.1 and 10.2, respectively, hereto
and are incorporated herein by reference.
Devening Stock Options. In 1994, the Company granted to Mr. Devening options
to purchase, in the aggregate, 625,593 shares of the Company Common Stock at
an option price of $9.00 per share. Nine percent of such options vested on
December 31, 1994, 18.2% of such options vested on each of December 31, 1995
and 1996, with the remaining such options to vest on December 31 of each of
the subsequent three years if Mr. Devening remains an employee and the Company
meets the specified earnings target for such year. The options terminate 10
years from the date of grant and must be exercised within 90 days after Mr.
Devening ceases to be an employee. Consummation of the Offer will result in a
Change of Control resulting in the vesting of all such options. Upon
consummation of the Offer Mr. Devening will receive approximately $9 million,
representing the difference between the option exercise price of $9.00 and the
Share Price, multiplied by the 625,593 options held by Mr. Devening (the
"Option Payment").
Stay Bonus Agreements. On December 31, 1996, the Company entered into Stay
Bonus Agreements, dated as of December 31, 1996 (the "Stay Bonus Agreements"),
with the following key employees and officers: Thomas A. McCarley, Patrick A.
O'Ray, Raymond J. Haefele, Bryant P. Bynum, William L. Brady, David J. Clapp,
Horst O. Sieben, William E. Rosenthal, Howard S. Katz, Tony L. Prater, Roger
E. LeBreck and Howard C. Madsen (each, an "Executive"). Each of the Stay Bonus
Agreements provide that the Executive will continue his employment during the
one year period immediately following a Change of Control Event (as defined in
the Stay Bonus Agreements) (the "Stay Period"). The Executive will be paid a
bonus (i) upon the completion of the Executive's employment with the Company
for the Stay Period or (ii) if earlier, upon his termination of employment
with the Company for Good Reason (as defined in the Stay Bonus Agreements) or
the termination of his employment by the Company for reasons other than for
Cause (as defined in the Stay Bonus Agreements) (excluding death or permanent
disability). The transactions contemplated by the Merger Agreement would
constitute a Change of Control Event for purposes of the Stay Bonus
Agreements. The aggregate amount payable pursuant to the Stay Bonus Agreements
is approximately $3.2 million.
The Stay Bonus Agreements provide that during the Stay Period if the
Executive voluntarily terminates his employment other than for Good Reason or
if he dies or becomes permanently disabled, he shall nonetheless receive a
proportionate part of the Stay Bonus computed by multiplying the Stay Bonus by
a fraction, the numerator of which is the number of days in the Stay Period
the executive is employed by the Company before the occurrence of his
resignation, death or permanent disability and the denominator of which is
365. In addition, the Stay Bonus Agreements also include a non-competition
agreement for a period of two years unless the Executive is already subject to
another non-competition provision.
A copy of the form of the Stay Bonus Agreement between the Company and
certain key employees and officers is filed as Exhibit 10.3 hereto and is
incorporated herein by reference.
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Other. Pursuant to the Merger Agreement, the Parent and the Purchaser have
also agreed that the Surviving Corporation and its subsidiaries will honor,
and the Parent has agreed to cause the Surviving Corporation and its
subsidiaries to honor, all of the employment, transition employment, non-
compete, consulting, benefit, compensation or severance agreements of the
Company and its subsidiaries in accordance with their terms and, for a period
of not less than twelve months immediately following the Effective Date (as
defined below), all of the Company's written employee severance plans (or
policies), in existence on the date hereof, including, without limitation, the
separation pay plans for corporate officers.
The Merger Agreement also provides that immediately prior to the Effective
Time (as defined below), subject to obtaining any consent which may be
necessary from the holder of outstanding options, the Company shall cancel and
settle, by cash payment to the holders thereof (the "Option Settlement
Agreement"), all the outstanding options to purchase shares of Common Stock
(whether or not such options are currently exercisable or vested) which were
granted prior to the date of the Merger Agreement under the Company's stock
plans and agreements. Currently options to purchase 1,472,410 shares of Common
Stock at exercise prices varying from $7.875 to $15.25 per share are held by
employees and directors of the Company. The Option Settlement Amount with
respect to each cancelled option shall be an amount in cash equal to the
excess, if any, of the Merger Consideration over the per share exercise price
of such cancelled option, multiplied by the number of shares of Common Stock
into which such cancelled options would be exercisable, less any amounts that
the Company is required to withhold and pay over to any federal, state, local
or other tax authorities under applicable law with respect to such Option
Settlement Amount.
Amendments to TNT and KPR Agreements
Amendment of TNT Crust, Inc. Agreement. Roger E. LeBreck, who is an officer
of the Company but not an executive officer, was a stockholder of TNT Crust,
Inc. ("TNT") which was acquired by the Company on December 18, 1995. Pursuant
to the Stock Purchase Agreement by and among TNT and the stockholders of TNT
(the "TNT Sellers") and the Company dated as of November 22, 1995 (the "TNT
Agreement"), the Company agreed to a contingent purchase price payment payable
in Common Stock of the Company (at a price of $11.54 per share) or cash, at
the option of the TNT Sellers, not to exceed $6.5 million based on sales
growth to certain customers. Mr. LeBreck, as one of the TNT Sellers, is
entitled to a portion of the contingent payment. Mr. LeBreck was also granted
40,000 options at an exercise price of $12.125 with vesting provisions similar
to Mr. Devening's.
Pursuant to the letter dated March 24, 1997 (the "TNT Letter") a copy of
which is filed as Exhibit 10.4 hereto and is incorporated herein by reference,
the TNT Agreement was amended, to provide that the Company will pay $9.5
million to an agent for the benefit of the TNT Sellers, subject to successful
completion of the Offer. Additionally, the TNT Letter provides that the TNT
Seller's indemnification for TNT's tax liability for Income Tax Claims (as
defined in the TNT Agreement) is limited to the lesser of 50% up to the first
$1 million of such claims or $500,000. In connection with these changes, the
TNT Sellers agreed to waive various contingent purchase price and stock
options provisions contained in the TNT Agreement.
Amendment of KPR Holdings, Inc. Agreement. Pursuant to a letter dated March
24, 1997 (the "KPR Letter"), a copy of which is filed as Exhibit 10.5 hereto
and is incorporated herein by reference, the Purchase Agreement by and among
KPR Holdings, Inc. ("KPR"), the shareholders of RKR-GP, Inc. (collectively,
the "KPR Sellers") and the Company, dated as of November 14, 1995 (the "KPR
Agreement"), has been amended to provide that:
(i) the Contingent Purchase Price (as defined in the KPR Agreement) of
approximately $4.3 million which is payable on April 1, 1997 (the "Original
Amount") will be paid in cash only;
(ii) upon the earlier of the consummation of the Offer or the Effective
Time, the KPR Sellers will receive $400,000 plus an additional amount equal
to approximately $4.3 million (the product of 328,233 (the number of shares
the KPR Sellers could have received on April 1, 1997) multiplied by the
Share Price less $13.125);
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(iii) the provisions of the Contingent Purchase Price contained in the
KPR Agreement will be modified such that the KPR Sellers will no longer
have the right to elect to receive Common Stock at $13.125 per share in
satisfaction of the Contingent Purchase Price, but instead will have the
right to elect to receive common stock of the Parent at $22.50 per share;
and
(iv) the Parent will enter into a guarantee of KPR's lease of real
property with BAM Corporation in substantially the form of that lease
executed by the Company.
If the transactions as contemplated by the Merger Agreement are not
completed, then the KPR Sellers are entitled to the Contingent Purchase Price
in cash or Company Common Stock.
(b)(2) THE MERGER AGREEMENT. On March 25, 1997 the Company, Parent and
Purchaser entered into the Merger Agreement. The following is a summary of
certain provisions of the Merger Agreement. Such summary is qualified in its
entirety by the Merger Agreement, a copy of which is filed hereto as Exhibit 2
and is incorporated herein by reference.
The Offer. The Merger Agreement provides for the commencement of the Offer,
in connection with which Parent and the Purchaser have expressly reserved the
right to waive certain conditions of the Offer, however, without the consent
of the Company, the Purchaser has agreed not to: (i) waive the condition that
at least a majority of the Shares outstanding, on a fully diluted basis, be
tendered and not withdrawn in the Offer ("the Minimum Condition"); (ii)
subject to clause (z) below, extend the Offer if all of the Offer conditions
are satisfied or waived; (iii) decrease the Share Price, change the form of
consideration payable in the Offer or decrease the number of Shares sought;
(iv) impose additional conditions to the Offer; (v) waive the condition which
requires that the Charter Amendment (as defined below) be effective prior to
the close of business on September 24, 1997; or (vi) amend the conditions of
the Offer or any other term of the Offer in any manner adverse to the holders
of Shares (other than as described above). The initial expiration date of the
Offer shall be at 12:00 midnight New York City time on April 28, 1997 (the
"Expiration Date"). Notwithstanding anything in the Merger Agreement to the
contrary, the Purchaser may, from time to time, in its sole discretion, extend
the Expiration Date, but not beyond the close of business on September 24,
1997, without the consent of the Company (x) if any of the conditions to the
Offer have not been satisfied, for the minimum period of time necessary to
satisfy such condition; (y) for any period required by any order, decree or
ruling of, or any rule, regulation, interpretation or position of any
Governmental Entity (as defined below) applicable in the Offer; or (z) for a
period of not more than five business days beyond the latest expiration date
that would otherwise be permitted under clause (x) or (y) of this sentence
solely for the purposes of obtaining valid tenders (which are not withdrawn)
of 90% of the Shares.
Consideration To Be Paid in the Merger. The Merger Agreement provides that
upon the terms (but subject to the conditions) set forth in the Merger
Agreement, the Purchaser will be merged with and into the Company whereupon
the separate existence of the Purchaser will cease, and the Company shall be
the Surviving Corporation and shall be a wholly owned indirect subsidiary of
the Parent. In the Merger, each share of common stock, $.01 par value per
share, of the Purchaser outstanding immediately prior to the time of filing of
a certificate of merger relating to the Merger with the Secretary of State of
the State of Delaware, or such later time as is agreed by the parties (the
"Effective Time"), shall be converted into one fully paid and non-assessable
share of common stock, par value $.01 per share, of the Surviving Corporation.
The date on which the Effective Time occurs is referred to herein as the
"Effective Date." In the Merger, each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held by the Company as treasury
stock or by any wholly-owned subsidiary of the Company or owned by the Parent,
the Purchaser or any subsidiaries of the Parent, and other than the
Dissenters' Shares) shall, by virtue of the Merger and without any action on
the part of the holder thereof, be cancelled and converted into the right to
receive an amount in cash, without interest thereon, equal to the Share Price
(the "Merger Consideration"). The Merger Agreement provides that, unless the
parties otherwise agree, the closing of the Merger shall take place no later
than the second business day after the satisfaction or waiver of the
conditions to the obligations of the parties set forth in Article VI of the
Merger Agreement.
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Board Representation. The Merger Agreement provides that promptly upon the
purchase of and payment for Shares by the Parent or any of its subsidiaries
which represents at least a majority of the outstanding Shares (on a fully
diluted basis), the Parent shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors of
the Company as is equal to the product of (i) the total number of directors on
the Board of Directors and (ii) the percentage that the number of Shares so
accepted for payment bears to the total number of Shares then outstanding. The
Company's obligation to appoint such designees shall be subject to Section
14(f) of the Exchange Act. The Company is required to take all action
necessary to effect any such election and to include in this Statement the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Such information is attached to this Statement as
Annex A. Notwithstanding the foregoing, until the Effective Time, the Company
shall use all reasonable efforts to have at least two members of the Board of
Directors who are neither officers of the Parent or designees, stockholders or
affiliates of the Parent.
Stockholders' Meeting. The Merger Agreement provides that, if required to
consummate the Merger, following the expiration of the Offer (i) the Company
shall, in accordance with applicable law and the Amended and Restated
Certificate of Incorporation (the "Charter") and the Amended and Restated
Bylaws of the Company, duly call a special meeting of its stockholders (the
"Special Meeting") as promptly as practicable for the purpose of considering
and taking action upon the Merger Agreement and the Merger and (ii) the Board
of Directors of the Company shall, subject to its fiduciary duties under
applicable law as advised by outside counsel, recommend to its stockholders
the approval and adoption of the Merger Agreement and the Merger. At the
Special Meeting, the Parent shall vote, or cause to be voted, all of the
Shares then owned by the Parent or the Purchaser or any of their affiliates in
favor of the Merger and the Merger Agreement. The Merger Agreement provides
that, notwithstanding the foregoing, if the Parent acquires at least 90
percent of the outstanding Shares, the parties thereto shall take all
necessary and appropriate action to cause the Merger to become effective as
soon as practicable after such acquisition without a meeting of stockholders
of the Company, in accordance with the DGCL.
Charter Amendment. In connection with the Merger Agreement and the Tender
Agreements, the Board of Directors of the Company has approved, and
stockholders representing a majority of the Shares have approved by written
consent in lieu of a meeting of stockholders, amendments (the "Charter
Amendment") to the Company's Charter which exclude the Merger Agreement, the
Tender Agreements and the transactions contemplated therein from the
restrictions of Article Fifth of the Charter (relating to certain stock
transfer restrictions intended to preserve the tax benefits from the Company's
previous net operating losses). The Company has filed with the Securities and
Exchange Commission a preliminary information statement relating to the
Charter Amendment and has agreed to distribute definitive copies of the
information statement (the "Information Statement") to the Company's
stockholders as soon as practicable. The Company has agreed to file with the
Secretary of State of the State of Delaware a certificate of amendment (the
"Certificate of Amendment") relating to the Charter Amendment the next
business day following the expiration of any required period of distribution
of the Information Statement.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to (i) the due
incorporation, existence and, subject to certain limitations, the
qualification, good standing, corporate power and authority of the Company and
certain significant subsidiaries; (ii) the due authorization, execution, and
delivery of the Merger Agreement and the consummation of transactions
contemplated thereby, and the validity and enforceability thereof; (iii) the
approval of the Board of Directors of the Company of the transactions
contemplated by Merger Agreement and the Tender Agreements (as defined below),
the taking of all necessary corporate action to render Section 203 of the DGCL
inapplicable to such transactions and the absence of any applicable Oklahoma
takeover statute or similar law; (iv) the approval and taking of certain
actions required to approve the Charter Amendment; (v) subject to certain
qualifications, the absence of additional actions necessary for the
effectiveness of the Charter Amendment, the absence of conflicts with Article
Fifth of the Charter by the
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execution and delivery of the Tender Agreements, the tender of shares in the
Offer and the grant of the Options (as defined below) contemplated by the
Tender Agreements; (vi) subject to certain qualifications, the absence of any
violations of Article Fifth of the Amended and Restated Certificate of
Incorporation by the purchase of Shares pursuant to the Offer or the exercise
of such options; (vii) the capitalization of the Company, including the number
of shares of capital stock of the Company outstanding, the number of shares
reserved for issuance on the exercise of options and similar rights to
purchase shares; (viii) the identity, ownership (subject to certain exceptions
and limitations) and capitalization of each of the Company's subsidiaries and
ownership by the Company and its subsidiaries of interests or investments in
entities other than subsidiaries of the Company or its subsidiaries; (ix)
subject to certain exceptions, the absence of certain contingent liabilities;
(x) subject to certain exceptions, the absence of certain changes or events;
(xi) subject to certain exceptions, title to the assets reflected in the
audited financial statements of the Company and its subsidiaries as of and for
the fiscal year ended December 28, 1996 (the "Financial Statements") and the
absence of any encumbrances or liabilities with respect to such assets except
as disclosed in the Financial Statements; (xii) subject to certain
limitations, the good operating condition of certain tangible assets; (xiii)
certain material contracts of the Company and its subsidiaries and, subject to
certain limitations, the absence of material breaches, violations of, or
defaults under certain contracts; (xiv) subject to certain exceptions, the
absence of violations, conflicts, breaches or defaults, or the imposition of
material liens or other encumbrances resulting from the execution and delivery
of, and the consummation of the transactions contemplated by, the Merger
Agreement; (xv) subject to certain exceptions and limitations, the absence of
consents and approvals necessary for consummation by the Company of the
Merger; (xvi) subject to certain exceptions, compliance with the various
permits, licenses, variances, exemptions, orders and approvals of all foreign,
federal, state or local governmental or regulatory authority (each a
"Governmental Entity") necessary for the lawful conduct of their respective
businesses as currently being conducted; (xvii) certain fees in connection
with the transaction contemplated by the Merger Agreement; (xviii) the absence
of any other agreement to sell the Company to another party; (xix) certain
intellectual property of the Company and its subsidiaries; (xx) certain
employee benefit and ERISA matters; (xxi) certain tax matters; (xxii) the
information contained in each registration statement, report, proxy statement
or information statement (as defined under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) prepared by it since January 2, 1994,
each in the form (including exhibits and any amendments thereto) filed with
the Securities and Exchange Commission (the "Commission") (collectively, the
"Company Reports") and the financial statements included therein filed by the
Company with the Commission, the Schedule 14D-9, the information statement, if
any, filed by the Company in connection with the Offer pursuant to Rule 14f-1
under the Exchange Act; (xxiii) certain environmental matters; (xxiv) the
information to be supplied by the Company for inclusion in the Proxy Statement
with respect to the Merger or the Information Statement mailed to the
stockholders of the Company; (xxv) subject to exceptions, the absence of
certain agreements relating to the Company's capital stock; (xxvi) the
required vote of stockholders of the Company with respect to the transaction
contemplated by the Merger Agreement; and (xxvii) the fairness opinion from
Morgan Stanley & Co., Incorporated ("Morgan Stanley"), the Company's financial
advisor.
The Parent and the Purchaser have also made certain representations and
warranties, including with respect to (i) the due organization, existence,
good standing and, corporate power and authority of the Parent and the
Purchaser and the absence of certain actions by the Purchaser; (ii) the due
authorization, execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby, and the validity and
enforceability thereof; (iii) subject to certain exceptions and limitations,
the absence of consents and approvals necessary for consummation by the Parent
and the Purchaser; (iv) subject to certain exceptions, the absence of any
violations of the certificate of incorporation or bylaws or other
organizational documents, other agreements or contracts or violation of other
statutes, rules, regulations, ordinances, orders, judgments, writs,
injunctions or decrees or imposition of any material lien, mortgage, pledge,
encumbrance, claim, restriction or charge on the business; (v) certain
arrangements with Donaldson, Lufkin & Jenrette Securities Corporation
regarding investment banking services; (vi) the accuracy and the adequacy of
the information contained in the Proxy Material except that no representation
or warranty is made by the Parent or the Purchaser with respect to statements
made or incorporated by reference therein based on information supplied by the
Company for inclusion or incorporation by reference therein and the
information supplied for the Information Statement; (vii)
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ownership by the Parent and the Purchaser of Shares; and (viii) the
sufficiency of funds available to Parent and the Purchaser for the
consummation of the Offer and the Merger.
Conduct of Business Pending Merger. The Company has agreed that from the
date of the Merger Agreement to the Effective Date, unless Parent has
consented in writing thereto, the Company will, and will cause each of its
subsidiaries to (i) carry on their respective businesses in the ordinary
course of business consistent with past practice (ii) use their commercially
reasonable efforts to preserve the goodwill of those having business
relationships with them and (iii) use their reasonable best efforts to
preserve intact their current business organizations, keep available the
services of their current officers and key employees and preserve their
relationships with customers, and suppliers and others having business
dealings with them.
The Company has agreed that from the date of the Merger Agreement to the
Effective Date, with certain exceptions, unless the Parent has consented in
writing thereto, the Company will not, and will not permit any of its
subsidiaries to:
(i) incur any additional indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for the obligations of any other
individual, partnership, firm or corporation or make loans or advances to any
individual, partnership, firm or corporation, in an amount in excess of
$30,000,000; provided, however, that total indebtedness for borrowed money
under the Credit Agreement with Chase Manhattan Bank as the Managing Agent, as
of the Effective Date, shall not exceed $251,000,000; and provided further,
however, that the Company shall not be prohibited from repaying any
indebtedness of the Company or its subsidiaries prior to the Effective Date if
such repayments are made without penalty; (ii) subject to certain exceptions,
enter into any capital or operating leases of equipment; (iii) except for the
Charter Amendment, amend its Charter or Amended and Restated Bylaws or the
articles or certificate of incorporation or bylaws of any of its subsidiaries;
(iv) subject to certain exceptions, issue, deliver, sell, pledge, dispose of
or otherwise encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible or exchangeable
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or equity equivalent; (v) mortgage,
pledge or otherwise encumber any of its material properties or assets or sell,
transfer (except pursuant to intercompany transfers) or otherwise dispose of
any of its material properties or material assets or cancel, release or assign
any indebtedness owed to it or any claims held by it, except in the ordinary
course of business and consistent with past practice; (vi) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of or equity in, or by any other manner, any business or
any corporation, partnership, limited liability company, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets, in each case that are material, individually or in the
aggregate, to the Company and its subsidiaries, taken as a whole; (vii)
subject to certain exceptions, enter into, terminate or permit any renewal or
extension options to expire with respect to any material contract or
agreement, or make any material change in any of its leases and contracts,
other than in the ordinary course of business and consistent with past
practice; (viii) declare, set aside or pay any dividend or distribution with
respect to the capital stock of the Company or any of its subsidiaries or
directly or indirectly redeem, purchase or otherwise acquire any capital stock
of the Company or any of its subsidiaries or effect a split or
reclassification of any capital stock of the Company or any of its
subsidiaries or a recapitalization of the Company or any of its subsidiaries
except for intercompany transactions in the ordinary course of business
consistent with past practice; (ix) alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate structure
or ownership of the Company or any of its subsidiaries; (x) enter into or
adopt or amend any existing severance plan, severance agreement or severance
arrangement, any benefit plan or arrangement (including without limitation,
the Stock Option Plans) or employment or consulting agreement except as
required by law; (xi) increase the compensation payable or to become payable
to its officers or employees, except for increases in the ordinary course of
business in accordance with past practices, or grant any severance or
termination pay to, or enter into any employment or severance agreement with
any director or officer of the Company or any of its subsidiaries, or
establish, adopt, enter into or, except as may be required to comply with
applicable law, amend in any material respect or take action to enhance in any
material respect or accelerate any rights or benefits under any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred
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compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee; (xii) subject to a certain exception, settle or compromise any suit,
proceeding or claim or threatened suit, proceeding or claim for an amount that
is more than $50,000 in the case of any individual suit, provided that such
settlement or compromise shall be made in the ordinary course of business in
accordance with past practice; (xiii) knowingly violate or fail to perform any
material obligation or duty imposed upon it by any applicable foreign,
federal, state or local law, rule, regulation, guideline, ordinance, order,
judgment or decree; (xiv) make any tax election or change any method of
accounting for tax purposes, in each case except to the extent required by
law, or settle or compromise any tax liability; (xv) change any of the
accounting principles or practices used by it except as required by the
Commission or the Financial Accounting Standards Board; (xvi) grant any
license relating to its intellectual property, except in connection with the
settlement of a protest by the Company or the use of the mark El Posado by a
third party; (xvii) enter into any agreement to enter a new line of business,
nor will the Company expend over $10,000 to produce or provide a product in a
new line of business; or (xviii) authorize or enter into an agreement,
contract, commitment or arrangement to do any of the foregoing.
Investigation by the Parent and the Purchaser. From the date of the Merger
Agreement, upon reasonable advance notice, the Company has agreed to allow the
Parent and the Purchaser at their own expense, during regular business hours
to make such investigation of the businesses, properties, books and records of
the Company and Subsidiaries, and to conduct such examination of the condition
of the Company and Subsidiaries as the Parent and the Purchaser deem necessary
or advisable to familiarize themselves further with such businesses,
properties, books, records, condition and other matters, and to verify the
representations and warranties of the Company thereunder.
Information Statement. The Merger Agreement provides that as soon as
practicable after the date of the Merger Agreement, the Company will prepare
and file with the Commission, and the Parent and the Purchaser shall cooperate
with the Company in such preparation and filing, a preliminary information
statement relating to the Charter Amendment and use its reasonable best
efforts to furnish the information required to be included by the Commission
in the Information Statement and, after consultation with the Parent, to
respond promptly to any comments made by the SEC with respect to the
preliminary information statement and shall use its reasonable best efforts to
cause the Information Statement to be mailed to the Company's stockholders as
soon as practicable. The Company will cause the Certificate of Amendment to be
filed with the Secretary of State of Delaware the next business day after all
applicable time periods for taking such actions have expired. If at any time
prior to the effectiveness of the Charter Amendment there shall occur any
event that is required to be set forth in an amendment or supplement to the
Information Statement, the Company will prepare and mail to its stockholders
such an amendment or supplement.
No Solicitation. The Merger Agreement provides that until the earlier of the
Effective Date or the consummation of the Offer, except as provided below (a)
neither the Company nor its subsidiaries shall, and the Company shall not
authorize or permit its officers, directors, employees, agents or
representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its subsidiaries) to,
initiate, solicit or knowingly encourage, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to
a merger, acquisition, consolidation, tender offer, exchange offer or similar
transaction involving, or any purchase of all or any significant portion of
the assets or any significant portion of the equity securities (excluding any
issuable pursuant to agreement existing on the date hereof) of, the Company or
its subsidiaries (any such proposal or offer, other than by the Parent or its
affiliates, being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning, or provide any confidential information
or data to, or have any substantive discussions with, any person relating to
an Acquisition Proposal, or otherwise knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) it will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing; and (c) it will notify the Parent immediately (but in no event
later than 24 hours) if any such Acquisition Proposals are received by the
Company, any such information is requested from the
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Company, or any such negotiations or discussions are sought to be initiated or
continued with the Company. Any such notice pursuant to clause (c) of the
previous sentence shall include the identity of the party making the
Acquisition Proposal and the terms of such proposal. The Merger Agreement
provides that the Board of Directors of the Company may (i) furnish
information to or enter into discussions or negotiations with, any person or
entity that indicates an interest in making a Superior Proposal (as defined
below), if, and only to the extent that, (A) the Board of Directors reasonably
determines in good faith after consultation with outside counsel that such
action is required for the Board of Directors to comply with its fiduciary
duties to its stockholders under applicable law and (B) the Company keeps the
Parent informed of the status and terms of any discussions or negotiations;
and (ii) to the extent applicable, comply with Rule 14d-9 and Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal. If
any person or entity makes a Superior Proposal, upon receipt and determination
thereof, the Company shall promptly (but in no event later than 24 hours after
determination) provide written notice to the Parent of such Superior Proposal,
including the identity of the parties and the terms thereof. For purposes of
the Merger Agreement, "Superior Proposal" means an unsolicited bona fide
Acquisition Proposal by a third party in writing that the Board of Directors
of the Company determines in its good faith reasonable judgment (based on the
advice of a nationally recognized investment banking firm) provides greater
aggregate value to the Company's stockholders than the transactions
contemplated by the Merger Agreement and for which any required financing is
committed or which, in the good faith reasonable judgment of the Board of
Directors (based on the advice of a nationally recognized investment banking
firm), is reasonably capable of being financed by such third party.
The foregoing shall not, however, (x) permit the Company to terminate the
Merger Agreement, (y) permit the Company to enter into any agreement with
respect to an Acquisition Proposal during the term of the Merger Agreement, or
(z) affect any other obligation of any party under the Merger Agreement.
Third Party Standstill Agreements. During the period from the date of the
Merger Agreement until the earlier of the Effective Date or termination of the
Merger Agreement, the Company shall not terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement to which the Company
or any of its subsidiaries is a party (other than those involving the Parent
or its affiliates). During such period, the Company agrees to enforce, to the
fullest extent under applicable law, the provisions of any such agreements,
including, but not limited to, injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in any
court of the United States or any state thereof having jurisdiction.
Fees and Expenses. Except as provided below, all costs and expenses incurred
in connection with the Merger Agreement, the Merger and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
cost or expense.
Pursuant to the Merger Agreement, the Company shall pay to the Parent (x)
the Expenses (as defined below) in an amount up to but not to exceed
$3,000,000, and (y) $9,900,000 (the "Termination Fee") under the circumstances
and at the time set forth below:
(i) if the Company or the Parent terminates the Merger Agreement under
clause (b) of "Termination" below and a Takeover Proposal (as defined
below) shall have been made and concurrently with or within twelve months
after such termination, the Company shall enter into an agreement providing
for a Takeover Proposal or a Takeover Proposal shall have been consummated,
the Company shall pay the Expenses and the Termination Fee concurrently
with the entering into of such agreement or the consummation of such
Takeover Proposal;
(ii) if the Company or the Parent terminates the Merger Agreement under
clause (c) of "Termination" below and after the date hereof (but prior to
the date of termination) a Takeover Proposal shall have been made, the
Company shall pay the Expenses and the Termination Fee concurrently with
such termination;
(iii) if the Parent or the Company terminates the Merger Agreement under
clause (e) of "Termination" below as a result of the failure of the
condition set forth in clause (b) or clause (h) of Section 15 of the Offer
to Purchase, the Company shall pay the Expenses;
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(iv) if the Company or the Parent terminates the Merger Agreement under
clause (e) of "Termination" below as a result of the failure of the
condition set forth in clauses (x) and (b) of Section 15 of the Offer to
Purchase or the failure to attain the Minimum Condition and, after the date
hereof (but prior to the date of termination) a Takeover Proposal shall
have been made, the Company shall pay the Termination Fee concurrently with
such termination; and
(v) if the Parent terminates the Merger Agreement under clause (f) of
"Termination" below, the Company shall pay the Expenses and the Termination
Fee concurrently with such termination.
As used herein, (i) "Expenses" shall mean all out-of-pocket fees and
expenses incurred or paid by or on behalf of the Parent or any affiliate of
the Parent in connection with the Merger Agreement and the transactions
contemplated therein, including all fees and expenses of counsel, investment
banking firms, accountants and consultants which are evidenced by written
invoice or other supporting documentation provided by the Parent; and (ii)
"Takeover Proposal" shall mean any proposal or offer to the Company or its
stockholders by a third party with respect to (x) a tender offer or exchange
offer for 30% or more of the outstanding shares of capital stock of the
Company, (y) a merger, acquisition, consolidation, sale of, all or
substantially all of the assets of the Company in a similar transaction, or
(z) any liquidation or recapitalization having the foregoing effect.
Restructuring of Transaction. Notwithstanding any provision contained in the
Merger Agreement to the contrary, in the event that any claim, suit,
proceeding or action is brought against any of the Parent, the Purchaser or
the Company seeking to limit, void or enjoin any of the transactions
contemplated by the Merger Agreement or the Tender Agreements or any action
taken by the Board of Directors of the Company to facilitate any transaction
contemplated by the Merger Agreement or the Tender Agreements on the basis of
the transfer restriction contained in Article Fifth of the Company's Charter
or the rules of the New York Stock Exchange, either the Parent or the Company
may, at its option, upon written notice to the other parties, elect to amend
the Merger Agreement to provide for a cash merger of the Purchaser with and
into the Company in lieu of the Offer upon terms and conditions which are
substantially consistent with those contained in the Merger Agreement, and all
parties shall as promptly as practicable following receipt of such notice
amend the Merger Agreement.
Other Agreements. The Merger Agreement provides that, subject to the terms
and conditions provided in the Merger Agreement, the Company, the Parent, and
the Purchaser shall: (a) use their best efforts to cooperate with one another
in (i) determining which filings are required to be made prior to the
Effective Time and which consents, approvals, permits, authorizations or
waivers are required to be obtained prior to the Effective Time from
governmental entities or other third parties in connection with the execution
and delivery of the Merger Agreement and certain other ancillary documents and
the consummation of the transactions contemplated thereby and (ii) timely
making all such filings and timely seeking all such consents, approvals,
permits, authorizations and waivers; and (b) use their best efforts to take,
or cause to be taken, all other actions and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by the Merger Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of the Merger Agreement, the proper officers and directors of Parent,
the Purchaser and the Surviving Corporation shall take all such necessary
action.
Conditions to the Merger.
The respective obligations of each party to effect the Merger are subject to
the satisfaction or waiver, where permissible, prior to the Effective Time, of
the following conditions: (a) if approval of the Merger Agreement and the
Merger by the holders of Common Stock is required by applicable law, the
Merger Agreement and the Merger shall have been approved by the requisite vote
of such holders; and (b) no injunction or any other order, decree or ruling
shall have been issued by a court of competent jurisdiction or by a
Governmental Entity (as defined in the Merger Agreement), nor shall any
statute, rule, regulation or executive order have been promulgated or enacted
by any Governmental Entity, in each case that prevents the consummation of the
Merger;
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provided, however, that each of the parties shall have used reasonable efforts
to prevent the entry of any such injunction or other order, decree or ruling
and to appeal promptly the same after issuance thereof.
The obligations of the Parent and the Purchaser to effect the Merger shall
be further subject to the satisfaction or waiver, on or prior to the Effective
Time, of the condition that the Purchaser shall have accepted for payment and
paid for Shares tendered pursuant to the Offer; provided, that this condition
shall be deemed satisfied if the Purchaser's failure to accept for payment and
pay for such Shares breaches the Merger Agreement or violates the terms and
conditions of the Offer.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
Company has obtained stockholder approval:
(a) by the mutual written consent of the Board of Directors of each of
the Company and the Parent;
(b) by either the Company or the Parent, if the Merger has not been
consummated by the close of business on September 24, 1997, or such other
date, if any, as the Company and the Parent shall agree upon (provided,
however, that the right to terminate the Merger Agreement pursuant to this
clause (b) shall not be available to any party whose failure to fulfill any
of its obligations contained in the Merger Agreement has been the cause of,
or resulted in, the failure of the Merger to have occurred prior to the
aforesaid date);
(c) by either the Company or the Parent, if the acquisition of the
Company has been restructured to be a cash merger pursuant to the terms
described in "Restructuring of Transaction" above and the stockholders of
the Company fail to approve and adopt the Merger Agreement and the Merger
at the Special Meeting or any postponement or adjournment thereof;
(d) by either the Company or the Parent, if any Governmental Entity shall
have issued any judgment, injunction, order or decree enjoining Parent or
the Company from consummating the Offer or the Merger and such judgment,
injunction, order or decree shall become final and nonappealable;
(e) by the Company or the Parent if the Offer terminates or expires on
account of the failure of any condition specified in Section 15 of the
Offer to Purchase without the Parent having purchased any Shares thereunder
(provided, however, that the right to terminate the Merger Agreement
pursuant to this clause (e) shall not be available to any party whose
failure to fulfill any of its obligations contained in the Merger Agreement
has been the cause of, or resulted in, the failure of any such condition);
(f) by the Parent prior to the consummation of the Offer if (i) the Board
of Directors of the Company shall not have recommended, or shall have
resolved not to recommend, or shall have modified or withdrawn its
recommendation of the Offer, the Merger or the determination that the Offer
or the Merger is fair to and in the best interest of the Company and its
stockholders, or shall have resolved to do so, or (ii) the Board of
Directors of the Company fails to recommend against acceptance of an
Acquisition Proposal within five business days after a request by Parent or
Purchaser to do so.
Indemnification; Insurance. The Merger Agreement provides that the Company
shall indemnify and hold harmless and, from and after the Effective Date, the
Surviving Corporation and the Parent shall indemnify and hold harmless, each
present and former director and officer of the Company (the "Indemnified
Parties") against any expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such
Indemnified Party in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative to which such Indemnified Party was made, or threatened to be
made, a party by reason of the fact that such Indemnified Party was or is a
director, officer, employee or agent of the Company, or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture trust or other enterprise and which
arises out of or pertains to any action or omission occurring prior to the
Effective Date (including, without limitation, any which arise out of or
relate to the transactions contemplated by the Merger Agreement) to the full
extent permitted under the DGCL (and the Company or the Surviving Corporation
and the Parent, as the case may be, will advance expenses to each such person
to the full extent so permitted); provided, that any determination required to
be made with respect to whether an Indemnified Party's conduct complied with
the standards set forth in the
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DGCL shall be made by independent counsel selected by such Indemnified Party
and reasonably satisfactory to the Company or the Surviving Corporation and
the Parent, as the case may be (which shall pay such counsel's fees and
expenses). The Merger Agreement also provides that the Surviving Corporation
and the Parent shall use their respective reasonable best efforts to provide
officers' and directors' liability insurance for events occurring prior to the
Effective Time covering the Indemnified Parties who are currently covered by
the Company's officers' and directors' liability insurance policy on terms no
less favorable than those of such policy in terms of coverage and amounts or,
if substantially similar insurance coverage is unavailable, the best available
coverage; provided, however, that the Surviving Corporation shall not be
required to pay a per annum amount of premiums for such officers' and
directors' insurance in excess of 200 percent of the last per annum amount of
premiums incurred prior to the date hereof, but in such case shall purchase as
much coverage as possible for such amount.
Certain Employee Matters. The Merger Agreement provides that the Surviving
Corporation and its subsidiaries will honor, and the Parent will cause the
Surviving Corporation and its subsidiaries to honor, all of the Company's
employment, transition employment, non-compete, consulting, benefit,
compensation or severance agreements in accordance with their terms and, for a
period of not less than twelve (12) months immediately following the Effective
Date, all of the Company's written employee severance plans (or policies), in
existence on the date hereof, including, without limitation, the separation
pay plan for corporate officers.
The Merger Agreement also provides that if any salaried employee of the
Company becomes a participant in any employee benefit plan, practice or policy
of the Parent, the Purchaser, any of their affiliates or the Surviving
Corporation, such employee shall be given credit under such plan, practice or
policy for all service prior to the Effective Time with the Company, or any
predecessor employer (to the extent such credit was given by the Company), and
all service after the Effective Time and prior to the time such employee
becomes such a participant, for purposes of eligibility and vesting and for
all other purposes for which such service is either taken into account or
recognized; provided, however, such service need not be credited to the extent
it would result in a duplication of benefits, including, without limitation,
benefit accrual service under defined benefit plans.
For at least twelve months following the Effective Date, the Parent shall
cause the Surviving Corporation to maintain employee benefits for management
and hourly employees of the Company and its subsidiaries that are no less than
the employee benefits in the aggregate, available to similarly situated
management and hourly employees of the Parent and its subsidiaries. Neither
the Parent nor any of its subsidiaries are obligated to employ, or cause the
Company or its subsidiaries from and after the Effective Date to continue to
employ, any management or hourly employee of the Company or its subsidiaries.
Amendment. From and after the time, if any, that the Parent's designees
constitute a majority of the Company's Board of Directors and prior to the
Effective Date, any amendment of the Merger Agreement by the Company, any
termination of the Merger Agreement by the Company, any extension of time for
performance of any of the obligations of the Parent or the Purchaser
thereunder, any waiver of any condition to the Company's obligations
thereunder or any of the Company's rights hereunder or action to amend or
otherwise modify the Company's Charter or Amended and Restated By-Laws may be
effected only by the action of a majority of the directors of the Company then
in office who were not officers of the Parent or designees, stockholders or
affiliates of the Parent, which action shall be deemed to constitute the
action of any committee specifically designated by the Board of Directors to
approve the actions and transactions contemplated hereby and the full Board of
Directors; provided, that if there shall be no such directors, such actions
may be effected by majority vote of the entire Board of Directors of the
Company. No supplement, notification or waiver of the Merger Agreement shall
be binding unless executed in writing by party or parties to be bound thereby.
Timing. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by the Purchaser pursuant to the Offer. Although the Parent has
agreed to cause the Merger to be consummated on the terms set forth above,
there can be no assurance as to the timing of the Merger.
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THE TENDER AGREEMENTS
The following is a summary of the material terms of the Tender Agreement,
dated as of March 25, 1997, among the Parent, the Purchaser, Joseph Littlejohn
& Levy Fund, L.P. and Joseph Littlejohn & Levy Fund II, L.P. (collectively,
"JLL") (the "JLL Tender Agreement") and the Tender Agreement, dated as of
March 25, 1997, among the Parent, the Purchaser and The Airlie Group, L.P.
("Airlie") (the "Airlie Tender Agreement" and, together with the JLL Tender
Agreement, the "Tender Agreements"). This summary is qualified in its entirety
by reference to the JLL Tender Agreement and the Airlie Tender Agreement which
are filed as Exhibits 10.6 and 10.7, respectively, hereto and are incorporated
herein by reference.
JLL Tender Agreement
Tender of Shares. Concurrently with the execution of the Merger Agreement,
the Parent and the Purchaser entered into the JLL Tender Agreement. Upon the
terms and subject to the conditions of such agreement, JLL will validly tender
(and not withdraw) all Shares owned by JLL pursuant to and in accordance with
the terms of the Offer, not later than the fifth business day after
commencement of the Offer, the number of Shares owned beneficially by JLL,
provided, however, JLL may decline to tender, or may withdraw, any and all
Shares owned by JLL if the Purchaser amends the Offer to (w) reduce the Share
Price to less than $23.40 in cash, net to the stockholders, (x) reduce the
number of shares of Company Common Stock subject to the Offer, (y) change the
form of consideration payable in the Offer or (z) amend or modify any term or
condition of the Offer in a manner adverse to the stockholders of the Company
(other than insignificant changes or amendments or other than to waive any
condition). JLL shall give the Purchaser at least two business days' prior
notice of any withdrawal of Shares owned by the JLL pursuant to the
immediately preceding proviso.
Stock Option. JLL has granted to the Parent an irrevocable option (the "JLL
Option") to purchase any or all of JLL's Shares (the "JLL Option Shares") at a
purchase price per Share equal to the Share Price. Pursuant to the JLL Tender
Agreement, the Purchaser may exercise the JLL Option in whole or in part at
any time prior to the date 60 days after the expiration or termination of the
Offer if (x) JLL fails to comply with any of its obligations under the JLL
Tender Agreement or withdraws the tender of the Shares except under the
circumstances set forth above under "Tender of Shares" or (y) the Offer is not
consummated because of the failure to satisfy any of the conditions to the
Offer set forth in Section 15 to the Offer to Purchase (other than as a result
of any action or inaction of the Parent or the Purchaser which constitutes a
breach of the Merger Agreement), so long as: (i) all waiting periods under the
HSR Act required for the purchase of the JLL Option Shares upon such exercise,
shall have expired or been terminated and (ii) there shall not be in effect
any preliminary or permanent injunction or other order issued by any court or
governmental, administrative or regulatory agency or authority or legislative
body or commission prohibiting the exercise of the JLL Option pursuant to the
JLL Tender Agreement.
Purchaser may allow the Offer to expire without accepting for payment or
paying for any Shares, on the terms and conditions set forth in the Offer to
Purchase, and may allow the JLL Option to expire without exercising the JLL
Option and purchasing all or any JLL Option Shares pursuant to such exercise.
If all Shares validly tendered and not withdrawn are not accepted for payment
and paid for in accordance with the terms of the Offer to Purchase or pursuant
to the exercise of the JLL Option, Shares tendered by JLL shall be returned to
JLL, whereupon they shall continue to be held by JLL subject to the terms and
conditions of the JLL Tender Agreement.
Other Covenants, Representations, Warranties. In connection with the JLL
Tender Agreement, JLL made certain representations, warranties and covenants,
including with respect to (i) ownership of its Shares, (ii) JLL's authority to
enter into and perform obligations under the JLL Tender Agreement, (iii) the
absence of liens and encumbrances on and in respect of JLL's Shares, and (iv)
the solicitation of Acquisition Proposals. The Purchaser has made certain
representations and warranties with respect to the Purchaser's authority to
enter into the JLL Tender Agreement and restrictions on the Purchaser's sale
of the JLL Stock Option or the JLL Option Shares.
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<PAGE>
Termination. The JLL Tender Agreement shall expire and be of no further
force or effect if (i) the conditions to the Purchaser's obligations to accept
for payment and pay for Shares pursuant to the Offer shall have been satisfied
and the Purchaser breaches any obligation of the Purchaser under the Merger
Agreement to accept for payment and promptly pay for all Shares validly
tendered and not withdrawn pursuant to the Offer upon expiration of the Offer
or (ii) the Purchaser amends the Offer to (w) reduce the Share Price to less
than $23.40 in cash, net to the sellers, (x) reduce the number of shares of
the Company's Common Stock subject to the Offer, (y) change the form of
consideration payable in the Offer or (z) amend or modify any term or
condition of the Offer in a manner adverse to the stockholders of the Company
(other than insignificant changes or amendments or other than to waive any
condition). The JLL Tender Agreement will also terminate upon the earlier of
(i) close of business on September 24, 1997, or (ii) the Effective Time.
The Airlie Tender Agreement
Tender of Shares. Concurrently with the execution of the Merger Agreement,
Parent and Purchaser entered into the Airlie Tender Agreement. Upon the terms
and subject to the conditions of such agreements, Airlie will be required to
validly tender (and not withdraw) pursuant to and in accordance with the terms
of the Offer, after commencement of the Offer, from time to time the number of
Shares owned beneficially by such Airlie which amount does not exceed the
Maximum Share Number (as defined below), provided, however, Airlie may decline
to tender, or may withdraw, any and all Shares owned by Airlie if the
Purchaser amends the Offer to (w) reduce the Share Price to less than $23.40
in cash, net to the stockholders, (x) reduce the number of shares of Company
Common Stock subject to the Offer, (y) change the form of consideration
payable in the Offer or (z) amend or modify any term or condition of the Offer
in a manner adverse to the stockholders of the Company (other than
insignificant changes or amendments or other than to waive any condition).
Airlie shall give the Purchaser at least two business days' prior notice of
any withdrawal of Shares owned by Airlie pursuant to the immediately preceding
proviso.
Stock Option. Airlie has granted to Parent an irrevocable option (a "Airlie
Stock Option" and, together with the JLL Option, the "Options") to purchase
any or all of Airlie's Shares (up to the Maximum Share Number) at a purchase
price per Share equal to the Share Price. Pursuant to the Airlie Tender
Agreement, the Purchaser may exercise the Airlie Option in whole or in part
upon terms and conditions substantially similar to those governing the JLL
Option discussed above.
Maximum Share Number. For purposes of the Airlie Tender Agreement, the term
"Maximum Share Number" means, as of any time of determination, such number of
Shares that, when taken together with all shares of the Company's Common Stock
that the Parent or any of its affiliates (i) owns directly or indirectly,
beneficially or of record, at such time of determination and (ii) has the
right to acquire, at such time of determination, from JLL in accordance with
the terms of the JLL Tender Agreement, would cause Parent or its affiliates to
own directly or indirectly, beneficially or of record, not more than 49.9% of
the aggregate voting power represented by the issued and outstanding capital
stock of the Company.
The other terms of the Airlie Tender Agreement, including the provisions
with respect to termination thereof, are substantially similar to those
contained in the JLL Tender Agreement described above.
THE CONFIDENTIALITY AGREEMENT.
On January 25, 1997, the Parent entered into a confidentiality agreement
with the Company (the "Confidentiality Agreement") pursuant to which the
Parent agreed to treat as confidential certain information provided to it by
or on behalf of the Company and agreed for eighteen months not to acquire or
agree to acquire any voting securities or any assets of the Company or any of
its subsidiaries, solicit proxies or seek to influence the voting of Common
Stock or propose any extraordinary transaction involving the Company without
the Company's consent, with certain exceptions. To the extent any of the
provisions of the Merger Agreement or the Tender Agreements conflict with any
of the provisions of the Confidentiality Agreement, the provisions of the
Merger Agreement or the Tender Agreements, as the case may be, shall control
and any such provisions of the Confidentiality Agreement shall be deemed
amended and superseded. A copy of the Confidentiality Agreement is filed as
Exhibit 10.8 hereto and is incorporated herein by reference.
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<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation. The Board of Directors of the Company has approved the
Offer, the Merger, the Merger Agreement and the Tender Agreements and the
transactions contemplated thereby and determined that each of the Offer and
the Merger is fair to, and in the best interests of, the stockholders of the
Company. The Board of Directors of the Company recommends that all holders of
Shares accept the Offer and tender their Shares pursuant to the Offer and
approve and adopt the Merger Agreement and the Merger.
(b) Background; Reasons for the Recommendation. For some time, the Company's
strategic business plan has envisioned growth through selective acquisitions
of well-positioned premium producers of value-added processed food products
serving niche markets in the foodservice industry. The Company acquired KPR
and TNT in December 1995, financing these acquisitions with bank borrowings
which significantly increased the Company's leverage. Beginning in the second
quarter of 1996, the Company's performance, as well as the trading prices of
its Common Stock, came under negative pressure due, in large part, to rising
prices for the Company's meat-based raw materials and the effects of increased
competition in certain of the Company's markets.
At a meeting held on September 26, 1996, the Company's Board of Directors
discussed, among other matters, the possibility that the Company's highly
leveraged balance sheet and rising prices for raw materials might restrict the
Company's ability to grow through acquisitions and capital expenditures.
Concluding that neither the equity nor the debt capital markets were likely to
be accessible by the Company on acceptable terms over the foreseeable future,
the Board determined to explore alternative methods to pursue the Company's
strategic business plan, including the possible sale of the Company.
During October 1996, the Company held preliminary discussions with two
investment banking firms that were subsequently invited to make presentations
to management and certain members of the Board. Based, in part, on such
presentations, which focussed on the possibility, advisability, methodology
and structure of a potential business combination involving the Company, the
Company engaged Morgan Stanley as its financial advisor.
During November and December 1996 and January 1997, Morgan Stanley held
informal discussions with approximately twenty-five potential buyers,
including the Parent, to determine the degree of interest, if any, such
parties might have in a business combination involving the Company. Morgan
Stanley delivered confidentiality and standstill agreements (each, a
"Confidentiality Agreement") to sixteen potential bidders who expressed an
interest in evaluating a transaction involving the Company.
On December 20, 1996, R. Randolph Devening, Chairman, President and Chief
Executive Officer of the Company, met with Robert L. Peterson, Chairman and
Chief Executive Officer of the Parent, and Larry Shipley, Executive Vice
President--Corporate Development of the Parent. During the previous year, an
executive of the Parent had contacted a representative of JLL to discuss JLL's
intention with respect to JLL's investment in the Company. At the December
20th meeting, Mr. Devening discussed the Company's business relationship with
the Parent (for several years, the Parent has served as one of the Company's
suppliers of raw materials) and inquired about the Parent's continued interest
in the Company. On January 13, 1997, Morgan Stanley delivered to the Parent a
draft Confidentiality Agreement. The Parent executed a Confidentiality
Agreement with the Company on January 25, 1997.
Ultimately, the Company received executed Confidentiality Agreements from
sixteen potential bidders. During January and February of 1997, following
receipt of executed Confidentiality Agreements, the Company and Morgan Stanley
provided selected non-public information to, and held numerous discussions
with, potential bidders, including the Parent. On January 30, 1997, the
Company's management made a presentation to Robert L. Peterson, Larry Shipley
and several other officers of the Parent. The Company also made presentations
to certain other potential bidders.
On January 14, 1997, Morgan Stanley requested written indications of
interest from all potential bidders, to be submitted on or prior to February
18, 1997. By February 19, 1997, Morgan Stanley, on behalf of the Company, had
received four preliminary non-binding indications of interest ranging from
$15.00 to $20.00 per
16
<PAGE>
share. On February 18, 1997, the Parent submitted its indication of interest
in acquiring the Company, subject to further due diligence, at a price between
$18.00 and $20.00 per share.
The Board then granted each bidder access to a "data room" containing
detailed non-public information concerning the Company's history, its business
and business prospects, and its financial condition. Representatives of all
four interested bidders separately visited the data room and met with and/or
inspected Company facilities.
On March 3, 1997, the Parent's financial advisor conducted an on-site review
of the information made available in the data room. From March 11, 1997
through March 13, 1997, representatives of the Parent visited certain
manufacturing facilities of the Company. The Company also furnished to the
potential bidders, including the Parent, a draft of a proposed merger
agreement. On March 13 and 14, 1997, management personnel of the Parent, along
with its outside legal counsel, conducted due diligence investigations of the
Company and conducted various interviews with members of the Company's
management.
During this due diligence phase, Morgan Stanley continued discussions with
all four potential bidders, supplying supplemental information and answering
questions. Pursuant to a request from the Parent, the Company's management
prepared and delivered certain financial projections (which were subsequently
provided to one other potential bidder who also requested financial
projections).
On March 13, 1997, Morgan Stanley delivered to each potential bidder a
letter requesting the submission, on or prior to April 4, 1997, of formal
written proposals for a business combination with the Company, and
establishing the procedures to be followed in submitting such proposals.
On March 14, 1997, representatives of the Parent and the Company discussed
the possibility of the Parent submitting a bid and the parties entering into a
definitive agreement before the April 4th deadline. On March 17, 1997, the
Executive Committee of the Board of Directors met by telephone to discuss the
Parent's potential bid. Although the Company determined that active
discussions with other potential bidders should continue, the Company decided
to open direct negotiations with the Parent due to the Parent's preliminary
indication of interest, the Company's belief that the Company was more
valuable to the Parent than to any other bidder and the Company's further
belief that it was unlikely that any other party would propose a transaction
that was more favorable to the Company's stockholders.
On March 18, 1997, at the behest of the Executive Committee, Morgan Stanley
met with the Parent financial advisor to discuss the valuation analysis
previously shared with members of the Company's Board of Directors.
On March 19, 1997, the Parent provided the Company with comments to the
draft merger agreement which had been previously provided by the Company. The
comments included a draft tender agreement which the Parent indicated it would
require JLL and Airlie to enter into in connection with the Merger Agreement.
On March 20, 1997, the Company, the Parent and their respective legal counsel
met to begin negotiations on the Merger Agreement and the Tender Agreements.
These negotiations continued from March 20, 1997 through March 25, 1997.
The initial negotiations centered on a possible acquisition price of $23.50
per share. The Parent indicated that its willingness to proceed at such price
was, however, conditioned upon the satisfactory completion of due diligence,
the resolution to its satisfaction of certain "earn-out" payment obligations
of the Company to third parties and the resolution of certain issues under the
Merger Agreement and the Tender Agreements. As these negotiations evolved it
became apparent to the Parent that the arrangements relating to settling such
payment obligations would involve higher than anticipated costs. In light of
these costs, the Parent revised its offer to $23.40 per share.
17
<PAGE>
The Company's Board of Directors met by telephone on March 22, 24, and 25,
1997, to discuss the terms of the Merger, the Merger Agreement, the Offer and
the Tender Agreements and to obtain advice from its legal counsel and
financial advisor. At the meetings held on March 22 and 24, 1997, the Board of
Directors analyzed and discussed the Offer, the Merger, the Merger Agreement,
the Tender Agreements as well as the KPR Letter and the TNT Letter and the
transactions contemplated thereby. At the meeting held on March 24, 1997,
Morgan Stanley made a presentation to the Board of Directors and at the
meeting held on March 25, 1997, delivered its opinion, subject to the
assumptions made, the matters considered and the limitations of the reveiw, as
to the fairness to the stockholders of the Company (other than the Parent and
its affiliates) from a financial point of view of the consideration to be
received by such stockholders pursuant to the Merger Agreement.
At the meetings held on March 22, 24 and 25, 1997, the Board of Directors
reviewed the Tender Agreements and their effect on certain tax benefits of the
Company. In connection therewith, the Board reviewed certain financial
analyses prepared by management and received advice and opinions from outside
legal counsel with respect to the Tender Agreements.
At the meeting of the Board on March 25, 1997, based upon the foregoing, the
Board of Directors determined that the Tender Agreements, the tender of shares
and the grant of the Options to the Purchaser described therein would not
jeopardize the full utilization of certain of the Company's tax benefits under
the Company's Charter (see Item 8(b).). The Board of Directors further
reviewed and discussed the Offer, the Merger, the Merger Agreement, the Tender
Agreements, the KPR Letter and the TNT Letter and reviewed proposed
resolutions relating to the transactions. After discussion and further
analysis, all of the members of the Board present at the meeting on March 25,
1997 (which members constituted a quorum), approved the Merger Agreement, the
Offer, the Merger, the KPR Letter, the TNT Letter and the Tender Agreements,
the tender of shares and the grant of the Options to the Purchaser described
therein, and recommended that all holders of Shares accept the Offer and
tender their Shares pursuant to the Offer. With respect to the Merger, the
Board of Directors recommended that, if a stockholder vote is required by
applicable law, the stockholders of the Company vote in favor of approval and
adoption of the Merger Agreement and the Merger.
On March 25, 1997, representatives of the Company informed the Parent that
the Board of Directors of the Company had accepted the Parent's offer. On
March 25, 1997, the Parent, the Purchaser and the Company executed and
delivered the Merger Agreement, and the Parent, the Purchaser and each of JLL
and Airlie executed and delivered the Tender Agreements. On March 26, 1997,
the Parent and the Company issued a press release
jointly announcing the signing of the definitive Merger Agreement and the
Tender Agreements. On April 1, 1997, pursuant to the terms of the Merger
Agreement, the Purchaser commenced the Offer. A copy of the press release
announcing the transaction is filed as Exhibit 99.2 hereto and is incorporated
herein by reference. A copy of a letter to stockholders of the Company, which
accompanies this Statement, is filed as Exhibit 99.3 hereto and is
incorporated by reference herein.
In making this recommendation, the Board of Directors considered a number of
factors, including, but not limited to, the following:
(i) the terms and provisions of the Offer, the Merger, the Merger
Agreement and the Tender Agreements;
(ii) presentations by management of the Company (at board meetings on
March 22, March 24 and March 25, 1997 and at previous board meetings)
relating to the financial position, results of operations, business and
prospects of the Company, including the prospects of the Company if the
Company were to remain independent;
(iii) the results of the process undertaken to identify and solicit
proposals from third parties to enter into a strategic transaction with the
Company;
(iv) the trading price of the Company Common Stock over the last three
years, and the fact that the $23.40 Share Price in connection with the
Offer and the Merger represents a premium of approximately 49% over the
closing price of $15.75 for the Company Common Stock on the New York Stock
Exchange on March 25, 1997, the day prior to the public announcement of the
execution of the Merger Agreement and the Tender Agreements;
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<PAGE>
(v) the views expressed by management and Morgan Stanley, that there
appeared to be a limited number of parties with which the Company would be
a good strategic fit, and that it was unlikely that any other party would
propose a transaction that was more favorable to the Company's
stockholders;
(vi) the presentations by Morgan Stanley at the March 22 and March 24,
1997 board meetings and the written opinion of Morgan Stanley dated March
25, 1997, to the effect that, as of such date, and based on the assumptions
made, matters considered and limits of review as set forth in such opinion,
the consideration to be received by the Company's stockholders in the Offer
and the Merger (other than Parent and its affiliates) pursuant to the
Merger Agreement, is fair from a financial point of view to such
stockholders. A copy of the written opinion of Morgan Stanley, which sets
forth the assumptions made, matters considered and certain limitations on
the scope of review undertaken by Morgan Stanley, is attached as Annex B,
is filed as Exhibit 99.4 hereto and is hereby incorporated herein by
reference. STOCKHOLDERS ARE URGED TO READ THE OPINION OF MORGAN STANLEY
CAREFULLY IN ITS ENTIRETY;
(vii) the representation of the Parent and the Purchaser that they have
sufficient funds available to them to consummate the Offer and the Merger;
and
(viii) the recommendation of management that the Offer and the Merger be
approved.
Considering these factors, the Board of Directors determined that acceptance
of the Offer and the tender of Shares pursuant to the Offer, and the approval
and adoption of the Merger and the Merger Agreement would be in the best
interest of the Company's stockholders.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Morgan Stanley was retained, pursuant to the terms of a letter agreement,
dated November 25, 1996 (the "Engagement Letter"), as financial advisor to the
Company in connection with considering, structuring and consummating a
transaction designed to maximize shareholder value.
The Company has agreed to pay Morgan Stanley (i) an advisory fee estimated
to be $150,000 to $300,000 in the event the Offer is not consummated or (ii) a
transaction fee of approximately $5.6 million if the Offer is consummated,
which is payable by the Company when control of 50% or more of the Company's
Shares changes hands and is to be paid by the Company at the closing of such
transaction. In addition to the advisory fee, the Company agreed to reimburse
Morgan Stanley for its expenses. Pursuant to the Engagement Letter, the
Company has agreed to indemnify Morgan Stanley against certain liabilities in
connection with its engagement.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, each executive officer,
director and affiliate of the Company currently intends to tender all Shares
over which each person has sole dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
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<PAGE>
(b) There are presently no transactions, board resolutions, agreements in
principle or signed contracts in response to the offer, other than as
described in or incorporated by reference into Item 3(b), which relate to or
would result in one or more of the matters referred to in Item 7(a)(i), (ii),
(iii) or (iv).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) DGCL 203
Section 203 of the DGCL purports to regulate certain business combinations
of a corporation organized under Delaware law, such as the Company, with a
stockholder beneficially owning 15% or more of the outstanding voting stock of
such corporation (an "Interested Stockholder"). Section 203 provides, in
relevant part, that the corporation shall not engage in any business
combination for a period of three years following the date such stockholder
first becomes an Interested Stockholder unless (i) prior to the date the
stockholder first becomes an Interested Stockholder, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an Interested Stockholder, (ii)
upon becoming an Interested Stockholder, the Interested Stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, or (iii) on or subsequent to the date the stockholder
becomes an Interested Stockholder, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the Interested Stockholder. The Company's
Board of Directors has approved the Tender Agreements, the Merger Agreement
and the transactions contemplated thereby, and, therefore, Section 203 of the
DGCL is inapplicable to such transactions.
(b) Charter Amendment
In connection with the Merger Agreement and the Tender Agreements, the Board
of Directors of the Company has approved, and stockholders representing a
majority of the Shares have approved by written consent in lieu of a meeting
of stockholders, the Charter Amendment which excludes the Merger Agreement,
the Tender Agreements and the transactions contemplated therein from the
restrictions of Article Fifth of the Charter (relating to certain stock
transfer restrictions intended to preserve the tax benefits from the Company's
previous net operating losses). The Company has filed with the Commission the
Information Statement relating to the Charter Amendment and has agreed to
distribute definitive copies of the Information Statement to the Company's
stockholders as soon as practicable. The Company has agreed to file with the
Secretary of State of the State of Delaware the Certificate of Amendment
relating to the Charter Amendment the next business day following the
expiration of any required period of distribution of the Information
Statement.
(c) Information Statement
The information statement containing the information required to be
delivered to stockholders of the Company pursuant to Section 14(f) and Rule
14f-1 under the Exchange Act attached as Annex A hereto is being furnished in
connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's stockholders.
(d) Appraisal Rights
No appraisal rights are available to holders of Shares in connection with
the Offer. However, if the Merger is consummated, holders of Shares will have
certain rights under Section 262 of the DGCL to dissent and demand appraisal
of, and payment in cash for the fair value of, their Shares (the "Dissenting
Shares"). Such rights, if the statutory procedures are complied with, could
lead to a judicial determination of the fair value required to be paid in cash
to such dissenting holders for their Shares. Any such judicial determination
of the fair value of Shares could be based upon considerations other than in
addition to the Offer Price and the market value of the Shares, including
asset values and the investment value of the Shares. The value so determined
could be more or less than the Share Price or the Merger Consideration.
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<PAGE>
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses his right to appraisal, as
provided in the DGCL, the shares of such holder will be converted into the
Merger Consideration in accordance with the Merger Agreement. A stockholder
may withdraw his demand for appraisal by delivery to Parent of a written
withdrawal of his demand for appraisal and acceptance of the Merger.
Failure to follow the steps required by Section 262 of the DGCL perfecting
appraisal rights may result in the loss of such rights.
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<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
Exhibit 2. Agreement and Plan of Merger, dated as of March 25, 1997, by and
among Parent, the Purchaser and the Company (incorporated by
reference to Exhibit 2.1 to the Annual Report on Form 10-K for
the fiscal year ended December 28, 1996 of the Parent).
Exhibit 10.1 Employment Agreement between the Company and R. Randolph Devening
dated August 2, 1994 (incorporated by reference to the Exhibit
filed with the Company's Current Report on Form 8-K dated August
15, 1995).
Exhibit 10.2 First Amendment to Employment Agreement, dated as of December 31,
1996 between the Company and R. Randolph Devening (incorporated
by reference to Exhibit 10.8a to the Company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996).
Exhibit 10.3 Form of Stay Bonus Agreement, dated December 31, 1996, between
the Company and Thomas G. McCarley, Patrick A. O'Ray, Raymond J.
Haefele, Bryant P. Bynum, William L. Brady, David J. Clapp, Horst
O. Sieben, William E. Rosenthal, Howard S. Katz, Tony L. Prater,
Roger E. LeBreck and Howard C. Madsen (incorporated by reference
to Exhibit 10.35 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1996).
Exhibit 10.4 Letter, dated March 24, 1997 between the Company and Morgan
Stanley Capital Partners III, L.P. for itself and as agent for
TNT Crust, Inc. and the shareholders of TNT Crust, Inc.
(incorporated by reference to Exhibit 10.30d to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28,
1996).
Exhibit 10.5 Letter, dated March 24, 1997, between the Company and the KPR
Sellers (incorporated by reference to Exhibit 10.29a to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996).
Exhibit 10.6 Tender Agreement between Joseph Littlejohn & Levy Fund, L.P. and
Joseph Littlejohn & Levy Fund II, L.P. and the Parent and the
Purchaser, dated March 25, 1997 (incorporated by reference to
Exhibit 2.2 to the Annual Report on Form 10-K of the Parent for
the fiscal year ended December 28, 1996).
Exhibit 10.7 Tender Agreement between The Airlie Group, L.P. and the Parent
and the Purchaser, dated March 25, 1997 (incorporated by
reference to Exhibit 2.3 to the Annual Report on Form 10-K of the
Parent for the fiscal year ended December 28, 1996).
Exhibit 10.8 Confidentiality Agreement, dated January 25, 1997, between the
Company and the Parent.
Exhibit 99.1 Pages 17 through 21 of the Proxy Statement, dated April 4, 1996,
relating to the Company's 1996 Annual Meeting of Stockholders.
Exhibit 99.2 Press Release issued jointly by the Parent and the Company, dated
March 26, 1997 (incorporated by reference to Exhibit 99.1 to the
Annual Report on Form 10-K of the Parent for the fiscal year
ended December 28, 1996).
Exhibit 99.3 Letter to Stockholders of the Company, dated April 1, 1997.*
Exhibit 99.4 Opinion of Morgan Stanley & Co. Incorporated, dated March 25,
1997.*
</TABLE>
- --------
* Included with Schedule 14D-9 mailed to stockholders.
22
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: April 1, 1997 FOODBRANDS AMERICA, INC.
/s/ R. Randolph Devening
By: _________________________________
Name:R. Randolph Devening
Title: Chairman of the Board,
President and Chief
Executive Officer
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<PAGE>
ANNEX A
FOODBRANDS AMERICA, INC.
1601 N.W. EXPRESSWAY
SUITE 1700
OKLAHOMA CITY, OKLAHOMA 73118
----------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about April 1, 1997 as a
part of Foodbrands America, Inc.'s (the "Company") Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") at the close of business on or about April 1, 1997. You are receiving
this Information Statement in connection with the possible election of persons
designated by the Parent (as defined below) to a majority of the seats on the
Board of Directors of the Company.
On March 25, 1997 the Company, IBP Sub Inc., a Delaware corporation (the
"Purchaser"), and IBP, inc. (the "Parent") entered into an Agreement and Plan
of Merger (the "Merger Agreement") in accordance with the terms and subject to
the conditions of which (i) the Parent will cause the Purchaser to commence a
tender offer (the "Offer") for all outstanding shares of Common Stock (the
"Shares") at a price of $23.40 per Share net to the seller in cash, and (ii)
following the consummation of the Offer, the Purchaser will be merged with and
into the Company (the "Merger"). As a result of the Offer and the Merger, the
Company will become an indirect wholly owned subsidiary of the Parent.
The Merger Agreement requires the Company to take such action as Parent may
reasonably request to cause the Parent's designees to be elected to the Board
of Directors under the circumstances described therein. See "Board of
Directors and Executive Officers--Right to Designate Directors; the Parent
Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-
9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on April
1, 1997. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on April 28, 1997, unless the Offer is extended.
The information contained in this Information Statement concerning the
Parent has been furnished to the Company by the Parent, and the Company
assumes no responsibility for the accuracy or completeness of such
information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of March 25, 1997, there were
12,465,107 Shares outstanding. The Board of Directors of the Company currently
consists of eleven (11) seats and there are currently two vacancies on the
Board of Directors. Each director holds office until such director's successor
is duly elected and qualified or until such director's earlier resignation or
removal.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
Board Representation. The Merger Agreement provides that promptly upon the
purchase of and payment for Shares by the Parent or any of its subsidiaries
which represents at least a majority of the outstanding Shares
<PAGE>
(on a fully diluted basis), the Parent shall be entitled to designate such
number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as is equal to the product of the total number of
directors on the Board of Directors (giving effect to the directors designated
by the Parent) and the percentage that the number of Shares so accepted for
payment bears to the total number of Shares then outstanding. In furtherance
thereof, the Company has agreed, upon request of the Purchaser, to use its
best efforts promptly either to increase the size of the Board or secure the
resignations of such number of incumbent directors, or both, as is necessary
to enable the Parent's designees to be so elected to the Company's Board and
shall take all actions available to the Company to cause the Parent's
designees to be so elected. The Company's obligation to appoint such designees
is subject to Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company is required to take all action necessary to
effect any such election and to include in this Information Statement the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Notwithstanding the foregoing, until the Effective
Time, the Company will use all reasonable efforts to have at least two members
of the Board of Directors who are neither officers of the Parent or designees,
stockholders or affiliates of the Parent.
Parent Designees. The Parent has informed the Company that the Parent will
choose one or more of the following individuals as designees to the Board of
Directors (the "Parent Designees"): Richard L. Bond, David C. Layhee, Eugene
D. Leman, Robert L. Peterson, Lonnie O. Grigsby, Charles F. Mostek, Jerry S.
Scott and Larry Shipley as its designees to the Board of Directors. The names
and certain biographical information concerning the Parent Designees are set
forth below. The current business address of each such person is IBP Avenue,
P.O. Box 515, Dakota City, Nebraska 68731, and each such person is a citizen
of the United States of America.
The Parent and the Purchaser have informed the Company that each of the
Parent Designees listed below has consented to act as a director.
Richard L. Bond, 49, has served as the President, Fresh Meats of the Parent
since March 1, 1995. Prior to that he was the Executive Vice President, Beef
Division since 1994 and the Group Vice President, Beef Sales and Marketing
since 1989. Also, Mr. Bond has been a Director of the Parent since 1995.
David C. Layhee, 52, has served as the President, Consumer Products of the
Parent since March 1, 1995. Prior to that he was the Group Vice President,
Design Products since 1989. Also, Mr. Layhee has been a Director of the Parent
since 1995.
Eugene D. Leman, 54, has served as the President, Allied Group of the Parent
since March 1, 1995. Prior to that he was the Executive Vice President, Pork
Division since 1986. Also, Mr. Leman has been a Director of the Parent since
1989, and a Director on the Norwest Bank Community Banking Board.
Robert L. Peterson, 64, has served as Chairman of the Board and Chief
Executive Officer of the Parent since August 12, 1981. Mr. Peterson joined the
Parent in 1961. He left the Parent in 1969 for a period during which he
started a pork products company, Madison Foods, Inc. He returned to the Parent
in 1976 when the Parent acquired Madison Foods, Inc. In 1977, he was elected
the Parent's President and Chief Operating Officer. Mr. Peterson is a Director
of MidAmerican Energy Company and the Omaha Branch of the Federal Reserve Bank
of Kansas City. Also, Mr. Peterson has been a Director of the Parent since
1976.
Lonnie O. Grigsby, 57, has served as Executive Vice President and General
Counsel of the Parent since 1995; Secretary since 1985; 1988-1995 Executive
Vice President, Finance & Administration; General Counsel 1985-1990 and since
1993; 1987-1988 Senior Vice President; 1985-1987 Vice President.
Charles F. Mostek, 49, has served as Executive Vice President, Fresh Meat
Sales and Marketing of the Parent since 1995; 1989-1995 Vice President, Beef
Sales; 1985-1989 Vice President, Slaughter Division Sales; 1981-1985 Assistant
Vice President, Carcass Grading and Administration.
A-2
<PAGE>
Jerry S. Scott, 51, has served as Executive Vice President, Fresh Meat
Operations of the Parent since 1995; 1986-1995 Vice President Pork Operations.
Larry Shipley, 41, has served as Executive Vice President, Corporate
Development of the Parent since 1995; 1995 Senior Vice President, Corporate
Development; 1994-1995 Assistant to the Chairman; 1989-1994 Assistant to the
President.
None of the Parent Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any
directors or executive officers of the Company or (iii) to the best knowledge
of the Parent, beneficially owns any securities (or rights to acquire such
securities) of the Company. The Company has been advised by the Parent that,
to the best of Parent's knowledge, none of the Parent Designees has been
involved in any transactions with the Company or any of its directors,
executive officers or affiliates which are required to be disclosed pursuant
to the rules and regulations of the Commission, except as may be disclosed
herein or in the Schedule 14D-9. Each of the Parent Designees is an executive
officer of Parent. In the ordinary course of business the Company purchases
raw materials from Parent on terms generally available to similarly situated
customers. In fiscal 1996 these purchases of raw materials from Parent
totalled approximately $55.6 million.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than 12:00 Midnight, New York City time, on April
28, 1997, and that, upon assuming office, the Parent Designees will thereafter
constitute at least a majority of the Board of Directors.
BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors currently consists of nine persons, one of whom is an
employee of the Company, and there are currently two vacancies on the Board of
Directors. In accordance with the Amended and Restated Certificate of
Incorporation of the Company, directors are divided into three classes
composed as nearly as possible of an equal number of directors. The term of
the directors in class I expires in 1997, class II expires in 1998 and class
III expires in 1999.
Biographical information concerning each of the Company's current directors
and executive officers is presented below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION SINCE CLASS
----------------------------- -------- -----
<S> <C> <C>
Mr. Richard T. Berg, age 71, has been a Director of the Company 1991 III
since October 1991. From September 1990 to October 1991, Mr.
Berg served as an employee of a subsidiary of the Company and
from October 1991 to December 1992 served as a consultant to a
subsidiary of the Company. Mr. Berg was retired from October
1988 to September 1990. Mr. Berg was a Director of Wilson Foods
Corporation from July 1981 to October 1988 and President and
Chief Operating Officer of Wilson Foods Corporation from
November 1985 to October 1988.
Mr. Peter A. Joseph, age 44, has been a partner of JLL and its 1995 III
predecessors since July 1987. Mr. Joseph serves on the Board of
Directors of Lancer Industries Inc., Hayes Wheels Corporation,
Tenet Healthcare Corporation, Peregrine, Inc. and Freedom
Chemical Company.
Mr. Paul W. Marshall, age 55, has been Senior Lecturer at 1991 III
Harvard Graduate School of Business Administration since 1996
and has been Chairman and Chief Executive Officer of the
Rochester Shoe Tree Company, a shoe tree manufacturing company,
since October 1991. Mr. Marshall was an adjunct professor of
the Harvard Graduate School of Business Administration from
July 1989 through February 1992. He also was Chairman of
Industrial Economics, Incorporated, a consulting firm, from
1989 to 1991. He was also a Member of the Lexington Board of
Selectmen from 1984 to 1993. Prior to that time, he was
President of Marshall Bartlett Incorporated from 1981 to 1989.
He currently serves on the Board of Directors of Applied
Extrusion Technologies, Inc. and Raymond James Financial, Inc.
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION SINCE CLASS
----------------------------- -------- -----
<S> <C> <C>
Mr. R. Theodore Ammon, age 47, has been Chairman of the Board 1993 I
and Chief Executive Officer of Big Flower Press Holdings, Inc.
since its inception in 1993. Mr. Ammon has also been the
Chairman of the Board of Treasure Chest since 1993. Mr. Ammon
was a General Partner of Kohlberg Kravis Roberts & Co. (a New
York and San Francisco-based investment firm) from 1990 to
1992, and an executive of such firm prior to 1990. Mr. Ammon is
also a member of the Board of Directors of Host Marriott
Corporation, Samsonite Corporation and Culligan Water
Technologies, Inc. In addition, Mr. Ammon serves on the Board
of Directors of Jazz at Lincoln Center, Institute of
International Education, the New York YMCA and on the Board of
Trustees of Bucknell University.
Mr. Dort A. Cameron, age 52, has been the general partner of 1992 I
EBD, L.P., the general partner of The Airlie Group L.P., a
manager of private investment funds, since October 1988. Mr.
Cameron has also been the general partner of BMA Limited
Partnership, the general partner of Investment Limited
Partnership, since July 1984. Mr. Cameron currently serves as
Chairman of the Board of Entex Information Services, Inc. and
as a member of the Board of Directors of Perkins Management
Company, Inc., which is a general partner of Perkins Family
Restaurants, L.P.
Mr. R. Randolph Devening, age 55, has been Chairman, President 1994 II
and Chief Executive Officer of the Company since August 1994.
From May 1993 to July 1994, Mr. Devening was Vice Chairman and
Chief Financial Officer of Fleming Companies, Inc., which is
the second largest food marketing and distribution company in
the United States and one of the Company's largest customers.
From June 1989 to April 1993, Mr. Devening was Executive Vice
President and Chief Financial Officer and from February 1990 to
July 1994, a director of Fleming. He currently serves as a
member of the Board of Directors of Arkwright Mutual Insurance
Company, Del Monte Corporation, Hancock Fabrics, Inc.,
Autocraft Industries, Inc. and Entex Information Services, Inc.
Mr. Terry M. Grimm, age 55, has been a partner with the law 1991 I
firm of Winston & Strawn for more than five years and is a
member of that firm's Executive Committee and Litigation
Committee.
Mr. Paul S. Levy, age 49, has been a partner of JLL and its 1993 II
predecessors since May 1988. Mr. Levy currently serves as
Chairman of the Board of Directors of Lancer Industries Inc.
and as a member of the Board of Directors of Hayes Wheels
Corporation, Freedom Chemical Company, Peregrine, Inc. and
Tenet Healthcare Corporation.
Mr. Angus C. Littlejohn, age 45, has been a General Partner of 1993 II
Littlejohn & Co., LLC since September 1996 and prior to that
was partner of JLL and its predecessors since July 1987. Mr.
Littlejohn serves on the Board of Directors of Freedom Chemical
Corporation.
</TABLE>
Current Nominating Agreements. Pursuant to that certain Stock Purchase
Agreement (the "JLL Agreement") dated February 16, 1993, between the Company
and Joseph Littlejohn & Levy Fund, L.P. ("JLL"), on March 22, 1993, JLL
purchased two million newly-issued shares of Common Stock at $15.00 per share.
As of the date of this Information Statement, JLL's ownership constitutes
approximately 44.3% of the outstanding shares of Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management." Pursuant to the terms
of the JLL Agreement, JLL is entitled to designate for nomination to the
Company's Board of Directors (the "JLL Designees") one less than the number of
persons that would constitute a majority of the members of the Company's Board
of Directors and the Company agreed to nominate and use its best efforts to
cause the JLL Designees to be elected to the Company's Board of Directors. The
number of JLL Designees will be reduced as JLL's stock holdings decrease.
Further, pursuant to the JLL Agreement, for so long as JLL is entitled to
nominate a JLL Designee, the Company agrees to nominate and use its best
efforts to
A-4
<PAGE>
cause to be elected to the Company's Board of Directors one individual who is
not affiliated either with the Company or with JLL (the "Independent
Director") mutually acceptable to both a majority of the Directors who are JLL
Designees and a majority of the Directors who are not JLL Designees.
Pursuant to the terms of the JLL Agreement, the Company entered into a
Stockholders Agreement dated March 22, 1993 (the "Airlie Agreement") with The
Airlie Group, L.P. ("Airlie") pursuant to which, among other things, Airlie
has the right, for so long as it owns more than 5% of the Outstanding Shares
(as defined in the Airlie Agreement), to nominate one person for election to
the Board of Directors of the Company, provided that such person is mutually
acceptable to both a majority of the Directors who are JLL Designees and a
majority of the Directors who are not JLL Designees (the "Airlie Designee").
The Director who is the Airlie Designee shall be the Independent Director, so
long as there is a Director who is the Airlie Designee.
JLL and Airlie each separately have agreed to vote all voting securities
held by them in favor of persons nominated by the Company in accordance with
the JLL Agreement and the Airlie Agreement, respectively. JLL shall have the
right to fill vacancies created if a Director who is a JLL Designee shall
resign, die, or is removed, or declines to stand for re-election or is not
renominated for re-election (a "Vacancy"). Any Vacancy involving the Director
who is the Airlie Designee shall be filled with another Airlie Designee. The
Directors who are not JLL Designees shall have the right to fill any Vacancy
involving a Director who is not a JLL Designee, except that any Vacancy
involving the Independent Director (if he or she is not the Airlie Designee)
shall be filled by a person mutually acceptable to both a majority of the
Directors who are JLL Designees and a majority of the Directors who are not
JLL Designees.
The JLL Agreement and the Airlie Agreement each include certain restrictions
on the ability of JLL and Airlie, respectively, among other things, to resell
or otherwise transfer securities of the Company or to purchase additional
securities of the Company and grant certain demand and piggyback registration
rights to each of JLL and Airlie.
Pursuant to the terms of the JLL Agreement, the existing JLL Designees on
the Company's Board of Directors through Fiscal 1996 (as defined below) are
Messrs. Ammon, Joseph and Levy. Pursuant to the terms of the Airlie Agreement,
the existing Airlie Designee and the Independent Director is Mr. Cameron. The
Directors who are neither a JLL Designee nor an Airlie Designee are Messrs.
Berg, Devening, Grimm, Littlejohn and Marshall. Mr. Littlejohn, a Director who
was a JLL Designee, resigned from JLL in September, 1996 but remains a member
of the Board.
Meetings of the Board; Compensation of Directors. During the Company's
fiscal year ended December 28, 1996 ("Fiscal 1996"), the Board of Directors of
the Company held four regular meetings and one special meeting.
Directors who are not employees of the Company or its subsidiaries each
receive from the Company $20,000 per year (prorated for partial years) for
serving on the Board of Directors, plus expenses, $750 for each Board meeting
attended and $500 for each committee meeting attended. In April 1995, the
Board of Directors also granted to each non-employee director, other than the
JLL Designees, options to purchase 5,000 shares of Common Stock. The options
were granted at fair market value on the date of grant, are currently
exercisable and have a term of 10 years. In addition, Directors who are not
employees of the Company or its subsidiaries and who serve as committee
chairmen receive an additional $2,000 per year.
In April 1995, the Board of Directors adopted the Non-Employee Directors'
Deferred Stock Compensation Plan ("Deferred Stock Plan"). The Deferred Stock
Plan enables members of the Board of Directors who are not employees of the
Company to receive shares of Common Stock in lieu of all or a portion of the
compensation they receive for membership on the Board of Directors and
committees.
During Fiscal 1996, Theodore Ammon attended less than 75% of the aggregate
of (i) the total number of meetings of the Board of Directors (held during the
period for which he served as a Director of the Company) and (ii) the total
number of meetings held by all committees of the Board of Directors on which
he served, if any (during the periods that he served).
A-5
<PAGE>
Committees. The Board of Directors of the Company has standing Executive,
Audit and Compensation Committees. Pursuant to the Merger Agreement and upon
the Parent Designees becoming directors, the Parent will be entitled to have
similar representation on each committee of the Board. The Company does not
have a standing nominating committee. The normal duties of such a committee
are carried out by the Executive Committee.
The Executive Committee is responsible for submitting major long-range plans
and policies to the Board of Directors for consideration and approval, and,
subject to certain exceptions, has the full power of the Board. The Executive
Committee also recommends to the Board the names of candidates for election
to, or to fill vacancies on, the Board of Directors. The Committee will
consider qualified candidates recommended by stockholders. The Executive
Committee currently is composed of R. Randolph Devening, Chairman, Richard T.
Berg, Dort A. Cameron III, and Paul S. Levy. During Fiscal 1996, the Executive
Committee conferred frequently and took action by written consent and held
four meetings.
The Audit Committee is responsible for recommending the selection of
independent auditors, reviewing with the independent auditors the general
scope of their audit services to be performed and the annual results of their
audit. The Audit Committee also reviews (i) reports and recommendations made
to the Committee by the independent auditors and (ii) the Company's system of
internal controls. It also consults with management, as it deems appropriate,
on the results of its reviews. The Audit Committee currently is composed of
Paul W. Marshall, Chairman, Richard T. Berg and Angus C. Littlejohn, Jr. The
Audit Committee held three meetings during Fiscal 1996.
The Compensation Committee is responsible for reviewing salaries, bonuses
and other compensation arrangements of all officers of the Company and
granting incentive awards and stock options pursuant to the Company's
incentive plans. The Compensation Committee currently is composed of Terry M.
Grimm, Chairman, Theodore Ammon and Dort A. Cameron III. The Compensation
Committee held two meetings during Fiscal 1996.
INFORMATION CONCERNING OTHER EXECUTIVE OFFICERS
The following individuals currently serve as executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Randolph
Devening(1) 55 Chairman, Chief Executive Officer and President
Horst O.
Sieben(2) 58 Senior Vice President and Chief Financial Officer
Thomas G. Mc-
Carley(3) 51 Senior Vice President and President, Food Service Division
Patrick A.
O'Ray(4) 44 Senior Vice President and President, Specialty Brands Division
William E.
Rosenthal(5) 46 Senior Vice President and President, KPR Foods Division
Raymond J.
Haefele(6) 46 Senior Vice President and President, Deli Division
William L.
Brady(7) 48 Vice President and Controller
Bryant P.
Bynum(8) 34 Vice President-Finance, Treasurer and Secretary
David J.
Clapp(9) 52 Vice President-Operating Services
Howard S.
Katz(10) 46 Vice President and President, Kettle Cooked Foods
Howard C.
Madsen(11) 53 Vice President-Procurement
</TABLE>
- --------
(1) Mr. Devening has been Chairman, President and Chief Executive Officer and
a Director of the Company since August 1994. See "--Board of Directors of
the Company" for a description of Mr. Devening's business experience.
(2) Mr. Sieben has been Senior Vice President and Chief Financial Officer of
the Company since October 1994. Prior thereto, Mr. Sieben was Chief
Financial Officer of various companies operated by Lancer Industries, Inc.
for the last six years. Mr. Sieben also acted as a consultant to the
Company during its acquisition of the Specialty Brands Division in 1994.
Previously, Mr. Sieben worked at two public companies, at Nashua
Corporation in various controllership positions and at Gradco Systems,
Inc. as Chief Financial Officer.
(3) Mr. McCarley has been Senior Vice President of the Company since October
1991 and President, Doskocil Food Service Company, L.L.C. since December
1995. Prior thereto, Mr. McCarley was Senior Vice
A-6
<PAGE>
President-General Manager of the Food Service Division from June 1993 to
December 1995. Mr. McCarley was Senior Vice President-General Manager of
the Food Service and Deli Divisions from October 1991 to January 1993.
Prior thereto, Mr. McCarley was Executive Vice President-Food Service
Sales from February 1990 to October 1991 and was Senior Vice President-
Sales and Marketing of the Company from January 1989 to January 1990. Mr.
McCarley was Senior Vice President of Sara Lee Bakery F.S. Division, a
diversified food company, and of Chef Pierre, a division of Sara Lee
Corporation, from January 1988 to December 1988 and Vice President-
Marketing and Research and Development of Sara Lee Bakery F.S. Division
prior thereto.
(4) Mr. O'Ray has been Senior Vice President of the Company and President,
Specialty Brands, Inc. since October 1995. From 1988 to 1995, Mr. O'Ray
was Vice President of the Foodservice Division of American Home Products
with the added responsibility of General Manager of the Foodservice and
International Divisions since 1993.
(5) Mr. Rosenthal has been Senior Vice President of the Company and President,
KPR Foods Division since December 1995. From 1990 to 1995 Mr. Rosenthal
was President of KPR Holdings, L.P. Mr. Rosenthal was President of
Standard Meat Company, a division of Sara Lee Corporation, prior thereto.
(6) Mr. Haefele has been Senior Vice President of the Company since December
1996, Vice President of the Company since October 1991 and President,
Continental Deli Foods, Inc. since December 1995. Prior thereto Mr.
Haefele was Vice President-General Manager of the Deli Division from
January 1993 to December 1995. Mr. Haefele was Vice President-Retail Sales
of the Company from October 1991 to January 1993 and Vice President of
Sales of Wilson Brands from October 1989 to October 1991. Prior to that
time, Mr. Haefele was Director and National Sales Manager-Deli of Wilson
Foods Corporation.
(7) Mr. Brady has been Vice President of the Company since January 1990 and
Controller of the Company since May 1990. Mr. Brady served as Vice
President and Controller of Wilson Foods prior thereto.
(8) Mr. Bynum has been Vice President-Finance of the Company since February
1993, Treasurer of the Company since January 1994 and Secretary of the
Company since July 1995. Mr. Bynum was Director-Corporate Planning and
Development from November 1989 to February 1993. Mr. Bynum was a
management consultant at the accounting firm of Coopers & Lybrand prior
thereto.
(9) Mr. Clapp has been Vice President-Operating Services of the Company since
October 1991. Mr. Clapp was Vice President of Operations of the Wilson
Brands from October 1989 to September 1991 and was Corporate Director of
Engineering of Wilson Foods prior thereto.
(10) Mr. Katz has been Vice President of the Company since December 1995. From
1989 to 1995, Mr. Katz was President of Kettle Cooked Foods, a division
of KPR Holdings, L.P. Prior thereto, he was Vice President of Sales of
Standard Meat Company, a division of Sara Lee Corporation.
(11) Dr. Madsen has been Vice President-Procurement of the Company since
February 1994. Dr. Madsen was Vice President of Purchasing at Sara Lee
Meat Group for more than five years prior thereto.
A-7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of March 24, 1997 with respect to (i) each
person known by the Company to beneficially own in excess of 5% of the
outstanding shares of Common Stock, (ii) each of the Company's Directors,
(iii) each executive officer of the Company listed in the Summary Compensation
Table set forth under the caption "Executive Compensation", and (iv) all
Directors and executive officers as a group. Unless otherwise indicated, each
of the stockholders has sole voting and investment power with respect to the
shares beneficially owned. The following table does not reflect any Shares
which may be beneficially owned by the Parent as a result of the execution of
the Tender Agreements.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
BENEFICIALLY SHARES
NAME OWNED OUTSTANDING
- ---- ------------ -----------
<S> <C> <C>
Joseph Littlejohn & Levy Fund, L.P. (1)............... 5,515,833 44.3%
450 Lexington Avenue, Suite 3350
New York, NY 10017
The Airlie Group L.P. (2)............................. 797,200 6.4%
115 East Putnam Avenue
Greenwich, CT 06830
R. Randolph Devening (3).............................. 296,145 2.3%
Horst O. Sieben (4)................................... 33,962 *
Thomas G. McCarley (5)................................ 39,936 *
Patrick A. O'Ray (6).................................. 18,717 *
William E. Rosenthal (7).............................. 3,264 *
R. Theodore Ammon (8)................................. 10,000 *
Richard T. Berg (8)................................... 50,467 *
Dort A. Cameron III (2)(8)(9)......................... 807,200 6.5%
Terry M. Grimm (8).................................... 10,226 *
Peter A. Joseph (1)(10)............................... 5,515,833 43.2%
Paul S. Levy (1)(10).................................. 5,515,833 43.2%
Angus C. Littlejohn, Jr............................... 0 *
Paul W. Marshall (8)(11).............................. 13,340 *
All directors and executive officers as a group (19
persons)............................................. 6,905,964 53.3%
</TABLE>
- -------
*Less than one percent
(1) Pursuant to a Schedule 13D filed on or about February 16, 1993, as amended
March 22, 1993, November 18, 1993, and October 27, 1994, Messrs. Levy and
Joseph reported that they had shared voting and dispositive power over the
shares of Common Stock held by Joseph Littlejohn & Levy Fund, L.P. and
Joseph Littlejohn & Levy Fund II, L.P.
(2) The following persons filed a Schedule 13D on or about November 8, 1991,
as amended on April 2, 1993, and October 25, 1994, reporting that they had
shared or sole voting and dispositive power over the shares of Common
Stock held by The Airlie Group L.P.; EBD L.P.; TMT-FW, Inc.; Dort A.
Cameron III; and Thomas M. Taylor. As part of that Schedule 13D, the
following persons reported sole dispositive power over 6,962 shares of
Common Stock, which shares are not included in the preceding table: Sid R.
Bass; Sid R. Bass, Inc.; Lee M. Bass; Lee M. Bass, Inc.; Edward D. Bass;
and Thru Line Inc.
The Schedule 13D states that the single, joint filing was made by all such
persons because they may be deemed to constitute a "group" under Section
13(d)(3) of the Exchange Act, but all such persons disclaim membership in
such group.
(3) Includes 284,019 shares subject to options which are currently
exercisable.
(4) Includes 33,962 shares subject to options which are currently exercisable.
A-8
<PAGE>
(5) Includes 25,352 shares subject to options which are currently exercisable.
(6) Includes 18,717 shares subject to options which are currently exercisable.
(7) Includes 3,264 shares subject to options which are currently exercisable.
(8) Includes 10,000 shares each subject to options which are currently
exercisable.
(9) Includes the 797,200 shares beneficially owned by The Airlie Group L.P.
Mr. Cameron is the General Partner of EBD L.P., which is a general partner
of The Airlie Group L.P., and may disclaim beneficial ownership of some or
all of these shares.
(10) Includes the 5,515,833 shares held by JLL; these Directors, who are
general partners of JLL Associates, L.P., the general partner of JLL, may
disclaim beneficial ownership of some or all of these shares.
(11) Includes 3,340 shares held by Paul W. Marshall, as Trustee of the Paul W.
Marshall Self-Directed Retirement Plan.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation. The following table summarizes, for each of Fiscal
1996, fiscal 1995 and fiscal 1994 the compensation awarded, paid to or earned
by (i) R. Randolph Devening, the Chief Executive Officer (the "CEO") of the
Company, and (ii) each of the four most highly compensated executive officers
other than the CEO who served as executive officers of the Company or its
subsidiaries as of December 28, 1996, whose annual compensation exceeded
$100,000 for Fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------- -------------------
SECURITIES ALL OTHER
YEAR SALARY ($) BONUS (1) UNDERLYING OPTIONS COMPENSATION (2)
---- ---------- --------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
R. Randolph Devening
(3).................... 1996 $700,000 $ -- -- $48,903
Chairman, President and
Chief 1995 550,000 550,000 -- 26,423
Executive Officer 1994 229,187 500,000 625,593 10,559
Horst O. Sieben (4)..... 1996 238,500 46,700 -- 11,654
Senior Vice President
and Chief 1995 227,292 119,969 10,000 4,586
Financial Officer 1994 42,692 65,000 68,814 2,657
Thomas G. McCarley...... 1996 239,519 75,000 -- 5,338
Senior Vice President, 1995 214,165 116,425 -- 5,428
President, Food Service 1994 171,593 101,276 33,814 4,750
Division
Patrick A. O'Ray (5).... 1996 211,375 75,000 -- 477
Senior Vice President,
President, 1995 47,788 50,000 68,814 --
Specialty Brands
Division 1994 -- -- -- --
William E. Rosenthal
(6).................... 1996 215,000 98,233 -- 6,235
Senior Vice President, 1995 12,404 -- 12,000 372
President,
KPR Foods Division 1994 -- -- -- --
</TABLE>
- --------
(1) The amounts in this column are for performance in the year indicated under
the Cash Incentive Plan. For fiscal 1996 the Committee granted
discretionary bonuses to Mr. Sieben and Mr. McCarley of $46,700 and
$75,000, respectively. The $75,000 1996 bonus to Mr. O'Ray was made
pursuant to his employment agreement. For fiscal 1994, amounts in the
column include signing bonuses of $500,000 and $65,000 for Mr. Devening
and Mr. Sieben, respectively. In addition, the Committee waived certain
target requirements under the Cash Incentive Plan and granted a special
bonus of $101,276 to Mr. McCarley because of the high level of performance
of the Company's Food Service Division.
A-9
<PAGE>
(2) For Mr. Devening, includes $43,567 paid by the Company for term life
insurance and $5,336 contributed by the Company to the Retirement & Profit
Sharing Plan during Fiscal 1996; and $20,991 paid by the Company for life
insurance and $5,432 contributed by the Company to the Retirement & Profit
Sharing Plan during fiscal 1995; and $7,520 paid by the Company for life
insurance and $3,039 contributed by the Company to the Retirement and
Profit Sharing Plan during fiscal 1994.
For Mr. Sieben, includes $6,314 paid by the Company for term life insurance
and $5,340 contributed by the Company to the Retirement & Profit Sharing
Plan during Fiscal 1996; $2,989 paid by the Company for life insurance and
$1,597 contributed by the Company to the Retirement & Profit Sharing Plan
during fiscal 1995; and $2,657 paid by the Company for life insurance
during fiscal 1994.
For Mr. McCarley, includes amounts contributed by the Company to the
Retirement & Profit Sharing Plan of $5,338, $5,428 and $4,750 for Fiscal
1996, fiscal 1995 and fiscal 1994, respectively.
For Mr. O'Ray, includes amounts contributed by the Company to the
Retirement & Profit Sharing Plan of $4,471 for Fiscal 1996.
For Mr. Rosenthal, includes amounts contributed by the Company to the
Retirement & Profit Sharing Plan of $6,235 and $372 for Fiscal 1996 and
fiscal 1995, respectively.
(3) On August 1, 1994, Mr. Devening became Chairman of the Board, President
and Chief Executive Officer of the Company. See "--Employment, Termination
of Employment, Change-In-Control and Other Agreements--Devening Employment
Agreement".
(4) On October 24, 1994, Mr. Sieben became Senior Vice President and Chief
Financial Officer of the Company. Prior to employment with the Company,
Mr. Sieben was a consultant to the Company and received $48,000 in
consulting fees in fiscal 1994. See "--Employment, Termination of
Employment, Change-In-Control and Other Agreements--Sieben Agreement".
(5) Mr. O'Ray first became employed by the Company on October 9, 1995.
(6) Mr. Rosenthal first became employed by the Company on December 11, 1995.
STOCK OPTION INFORMATION
Option Exercises. The following table sets forth information concerning each
exercise of stock options by the named executive officers during the fiscal
year ended December 28, 1996 with information as of the fiscal year-end of any
unexercised in-the-money options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS AT FY- MONEY OPTIONS AT
NO. OF SHARES VALUE END (#) FY-END ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE ($) UNEXERCISABLE UNEXERCISABLE (1)
---- ------------- -------- --------------- -------------------
<S> <C> <C> <C> <C>
R. Randolph Devening.... 0 0 284,019/341,574 1,349,090/1,622,476
Horst O. Sieben......... 0 0 33,962/44,582 150,440/183,927
Thomas G. McCarley...... 0 0 25,352/18,462 72,922/87,695
Patrick A. O'Ray........ 0 0 18,717/50,097 4,679/12,524
William E. Rosenthal.... 0 0 3,264/8,736 2,040/5,460
</TABLE>
- --------
(1) The values shown in this column are based on a market price of the Common
Stock on December 28, 1996 of $13.75 per share.
A-10
<PAGE>
EMPLOYMENT, TERMINATION OF EMPLOYMENT, CHANGE-IN-CONTROL AND OTHER AGREEMENTS
Devening Employment Agreement. Pursuant to the Employment Agreement dated
August 2, 1994 between the Company and R. Randolph Devening, Chairman of the
Board, President and Chief Executive Officer of the Company, as amended by the
First Amendment to Employment Agreement, dated as of December 31, 1996,
(the "Devening Employment Agreement"), Mr. Devening is paid a base salary of
$700,000 per annum (the "Base Salary"). The Devening Employment Agreement also
provides that Mr. Devening will be paid a performance bonus for each fiscal
year beginning after December 31, 1995 in an amount equal to the sum of 100%
of his Base Salary (the "Target Bonus") for such year if the Company meets its
EBIT (earnings before interest and taxes) target for such year (as set by the
compensation committee of the Board of Directors), plus a minimum of 25% of
his Base Salary for such year if the Company exceeds such EBIT target by 10%
or more, plus a minimum of an additional 25% of his Base Salary for such year
if the Company exceeds such EBIT target by 20% or more; provided, however,
that Mr. Devening remains an employee of the Company on the last day of each
such fiscal year for which a performance bonus is being paid, and provided
further, however, that, in the event of Mr. Devening's death or his
qualification for a benefit under the Company's long-term disability plan, Mr.
Devening or his estate will be entitled to the entire bonus to which he would
otherwise be entitled had he remained an employee of the Company as of the
last day of the year in which such event of death or qualification occurred.
The Devening Employment Agreement also provides that Mr. Devening's
employment period will extend to December 31, 1999, and, unless previously
terminated as provided for in the Devening Employment Agreement, shall be
extended automatically for one (1) year after December 31, 1999, unless prior
to January 1, 1999, either party provides to the other written notice of the
intent of such party not to extend. If, however. a Change of Control (as
defined in the Devening Employment Agreement) occurs, the employment period
will be extended to the second anniversary of the Change of Control.
Mr. Devening's employment may be terminated without cause at any time by the
Board of Directors of the Company during the employment period and before a
Change of Control. In such event, the Company will pay to Mr. Devening a
severance payment equal to three (3) times the sum of (i) the Base Salary for
the last twelve-month period ending prior to such termination, plus (ii) an
amount equal to Mr. Devening's Target Bonus of 100% of his base salary
regardless of whether such bonus was paid, as discussed above, for the last
fiscal year of the Company ending prior to such termination (the "Termination
Bonus"). The Termination Bonus will be paid in thirty-six (36) equal monthly
installments, commencing within thirty (30) days after the date of
termination, unless termination occurs after a Change of Control which is
described below. Such payment shall be in lieu of any other benefits that may
otherwise be payable to Mr. Devening under any severance pay plan or
arrangement. In the event Mr. Devening should die prior to the end of said
thirty-six (36) month period, the unpaid portion of the Termination Bonus will
nonetheless be paid to Mr. Devening's surviving spouse, and if none, to his
estate.
In the event of a Change of Control under the Devening Employment Agreement,
Mr. Devening will be entitled to receive a single lump sum payment equal to
the Termination Bonus or approximately $4.2 million (the "Change of Control
Payment"). Also, under the Devening Employment Agreement, Mr. Devening will
continue his employment during the one year period immediately following a
Change of Control (the "Devening Stay Period") upon the Company paying to him
the Change of Control Payment. During the Devening Stay Period, Mr. Devening
shall be entitled to all compensation, perquisites and benefits he would
otherwise be entitled to under the Devening Employment Agreement. Mr. Devening
is required to pay liquidated damages to the Company of one-third of the
Change of Control Payment if he terminates his employment the Company during
the Devening Stay Period. In addition to the Change of Control Payment, the
Company will be required to pay Mr. Devening an amount equal to any excise
tax, interest and penalties (including income tax) he is required to pay under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
resulting from the Change of Control Payment (described above).
The Devening Employment Agreement also contains an agreement by Mr. Devening
not to compete for a period of twenty four (24) months (the "Covenant Period")
after his termination of employment from the
A-11
<PAGE>
Company at any time following a Change of Control for any reason. In
consideration for such covenant, the Company shall pay Mr. Devening the sum of
$1 million (the "Covenant Payment") in twenty-four (24) equal
monthly installments following such termination. In the event of Mr.
Devening's death during the Covenant Period, the balance of the Covenant
Payment, if any, shall be paid to his surviving spouse, and if none, to his
estate.
In addition to all amounts required to be paid to Mr. Devening by the
Company upon his termination of employment for any reason, Mr. Devening shall
be entitled to continue to participate in all of the Company's health plans
during the thirty-six (36) month period following any such termination, and
after the expiration of such thirty-six (36) month period, Mr. Devening shall
then be eligible to elect COBRA continuation coverage under the Company's
health plan. During such thirty-six (36) month period Mr. Devening shall also
be entitled to continue to receive certain other welfare benefits and
perquisites described in the Devening Employment Agreement at the higher of
the level of such coverage and perquisites immediately prior to the Change of
Control or immediately prior to such termination.
The Company granted to Mr. Devening options to purchase, in the aggregate, a
number of shares of the Company's common stock equal to 5% of the total number
of shares outstanding on the date of the grant (as adjusted to reflect the
number of shares issued in the rights offering made pursuant to the offering
prospectus dated September 19, 1994) at an option price per share equal to the
greater of the exercise price under such rights offering ($9.00) or the fair
market value on the date of the grant. Nine percent of such options vested on
December 31, 1994, 18.2% of such options vested on December 31, 1995, 18.2% of
such options vested on December 31, 1996, with the remaining such options to
vest on December 31 of each of the subsequent three years if Mr. Devening
remains an employee and the Company meets the specified earnings target for
such year. All options vest upon a Change of Control. The options terminate 10
years from the date of grant and must be exercised within 90 days after Mr.
Devening ceases to be an employee. Consummation of the Offer will result in a
Change of Control resulting in the vesting of all such options. Mr. Devening
will receive approximately $9 million, representing the difference between the
option exercise price and the Share Price, times the 625,593 options held by
Mr. Devening (the "Option Payment").
Stay Bonus Agreements. On December 31, 1996, the Company entered into Stay
Bonus Agreements, dated as of December 31, 1996 (the "Stay Bonus Agreements"),
with the following key employees and officers: Thomas A. McCarley, Patrick A.
O'Ray, Raymond J. Haefele, Bryant P. Bynum, William L. Brady, David J. Clapp,
Horst O. Sieben, William E. Rosenthal, Howard S. Katz, Tony L. Prater, Roger
E. LeBreck and Howard C. Madsen (each, a "Key Employee"). Each of the Stay
Bonus Agreements provide that the Key Employee will continue his employment
during the one year period immediately following a Change of Control Event (as
defined in the Stay Bonus Agreements) (the "Stay Period"). The Key Employee
will be paid a bonus (i) upon the completion of the Key Employee's employment
with the Company for the Stay Period or (ii) if earlier, upon his termination
of employment with the Company for Good Reason (as defined in the Stay Bonus
Agreements) or the termination of his employment by the Company for reasons
other than for Cause (as defined in the Stay Bonus Agreements) (excluding
death or permanent disability). The aggregate amount payable pursuant to the
Stay Bonus Agreements is approximately $3.2 million.
The Stay Bonus Agreements provide that during the Stay Period if the Key
Employee voluntarily terminates his employment other than for Good Reason or
if he dies or becomes permanently disabled, he shall nonetheless receive a
proportionate part of the Stay Bonus computed by multiplying the Stay Bonus by
a fraction, the numerator of which is the number of days in the Stay Period
the executive is employed by the Company before the occurrence of his
resignation, death or permanent disability and the denominator of which is
365. In addition, the Stay Bonus Agreements also include a non-competition
agreement for a period of two years unless the Key Employee is already subject
to another non-competition provision.
Sieben Agreement. Pursuant to the terms of a letter agreement (the "Sieben
Agreement") with the Company, Mr. Sieben receives an annual salary of $225,000
and, for the first year of his employment, certain temporary living cost
reimbursements up to $2,000 per month. Pursuant to the Sieben Agreement, he is
eligible
A-12
<PAGE>
for an annual bonus of up to 50% of his base salary if certain performance
objectives are met. In addition, Mr. Sieben received a signing bonus of
$65,000 and was granted options to purchase, in the aggregate, 68,814 shares
of Common Stock at an exercise price per share of $9.00. These options have a
vesting schedule similar to Mr. Devening's. Upon a "Change of Control Event"
(as defined in the Stock Incentive Plan) or in the event of the death of Mr.
Sieben, all outstanding option shares not previously vested will vest,
provided Mr. Sieben is an employee on the date of such event. In the event Mr.
Sieben is terminated for any reason other than dishonesty or malfeasance, he
will be entitled to receive his base salary for a period of six months from
the termination date. In addition, the Company and Mr. Sieben have entered
into a Transition Employment Agreement. See "Executive Compensation--
Employment, Termination of Employment, Change-in-Control and Other
Agreements--Transition Employment Agreements".
O'Ray Employment Agreement. Effective as of October 9, 1995, Mr. O'Ray and
the Company entered into an employment agreement (the "O'Ray Agreement")
pursuant to which Mr. O'Ray serves as Senior Vice President of the Company and
President of the Specialty Brands Division. The O'Ray Agreement provides for
an annual salary of $210,000 and a signing bonus of $50,000. In addition, Mr.
O'Ray received options to purchase 68,814 shares of Company Common Stock at an
exercise price of $13.50 per share, which have a vesting schedule similar to
Mr. Devening's options adjusted to reflect the different grant date.
The O'Ray Agreement also provides that in fiscal 1996 the Company will pay
Mr. O'Ray a minimum cash bonus of $75,000, subject to upward adjustment. Any
amount of cash incentive in excess of such amount shall be provided by the
Company's Cash Incentive Plan conditioned upon the Specialty Brands Division
achieving the performance targets established for 1996. Such cash incentive
was paid in February 1997.
If Mr. O'Ray's employment is terminated by the Company for "Cause" (as
defined in the O'Ray Agreement) or as a result of a voluntary termination, the
Company will pay Mr. O'Ray his base compensation through the date specified as
his last day of employment. If Mr. O'Ray's employment is terminated during the
term of the O'Ray Agreement by the Company without Cause, the Company will pay
Mr. O'Ray an amount equal to one-half of his annual base compensation.
Rosenthal Agreements. Effective as of December 11, 1995, Mr. Rosenthal and
the Company entered into an employment agreement (the "Rosenthal Agreement")
pursuant to which Mr. Rosenthal serves as Senior Vice President of the Company
and President of the KPR Foods Division. The term of the Rosenthal Agreement
is from December 11, 1995 until December 10, 2000. The Rosenthal Agreement
provides for an annual salary of $175,000 as President of the KPR Foods
Division. Mr. Rosenthal will also receive an annual salary of $40,000 in
payment of his duties as Senior Vice President. In addition, Mr. Rosenthal
received options to purchase 12,000 shares of Company Common Stock at an
exercise price of $13.125 per share, which have a vesting schedule similar to
Mr. Devening's options adjusted to reflect the different grant date.
If Mr. Rosenthal's employment is terminated during the term of the Rosenthal
Agreement by reason of death, the Company shall pay to Mr. Rosenthal's estate
his base compensation as though employment was terminated by the Company
without "Cause" (as defined in the Rosenthal Agreement) and the bonus, if any,
for the bonus period in which the "Termination Date" (as defined in the
Rosenthal Agreement) occurs. If Mr. Rosenthal's employment is terminated
during the term of the Rosenthal Agreement by disability, Mr. Rosenthal will
continue to receive his base compensation for a period of one year and the
bonus, if any, for the bonus period in which the disability occurs until the
Rosenthal Agreement is terminated. Mr. Rosenthal shall also continue to
receive all compensation payable under the Company's disability benefit
programs then in effect through the expiration of the term of the Rosenthal
Agreement. Thereafter, benefits shall be determined under the retirement,
insurance and other compensation programs. If Mr. Rosenthal's employment is
terminated by the Company for Cause or as a result of a voluntary termination,
the Company will pay Mr. Rosenthal his base compensation through the date
specified as his last day of employment. If Mr. Rosenthal's employment is
terminated during the term of the Rosenthal Agreement by the Company without
Cause, the Company will pay Rosenthal an amount equal to his base compensation
for a period not to exceed one year.
A-13
<PAGE>
In connection with the acquisition of KPR Holdings, L.P. ("KPR") pursuant to
the Purchase Agreement dated November 14, 1995 (the "KPR Agreement"), the
Company has agreed to certain contingent payments payable in Common Stock of
the Company or cash, at the option of the sellers, aggregating approximately
$14.3 million over the next three years subsequent to 1995 based on the
attainment of specified earning levels by KPR. If the sellers elect to receive
the contingent payment in Common Stock of the Company, it will be payable
based on a price of $13.125 per share. The right to this contingent payment is
currently held by KPR Holdings, Inc., one of the sellers, and Mr. Rosenthal
holds an equity position in KPR Holdings, Inc. In addition, in connection with
the acquisition of KPR, KPR entered into a lease agreement with BAM
Corporation pursuant to which BAM leases to KPR the production and office
facility located in Fort Worth, Texas (the "Lease"). The Lease is for a period
of ten years, with base rental payments of approximately $71,000 per month.
KPR has the option, pursuant to the Lease, to purchase the leased facility
based on its fair market value. Mr. Rosenthal and other members of his
immediate family own all of the equity securities of BAM Corporation.
Pursuant to a letter dated March 24, 1997 (the "KPR Letter"), the KPR
Agreement has been amended to provide that:
(i) the Contingent Purchase Price (as defined in the KPR Agreement) of
approximately $4.3 million which is payable on April 1, 1997 (the "Original
Amount") will be paid in cash only;
(ii) upon the earlier of the consummation of the Offer or the Effective
Time, the KPR Sellers will receive $400,000 plus an additional amount equal
to approximately $4.3 million (the product of 328,233 (the number of shares
KPR could have received on April 1, 1997) multiplied by the Share Price
payable in the Offer less $13.125);
(iii) the provisions of the Contingent Purchase Price contained in the
KPR Agreement will be modified such that the KPR Sellers will no longer
have the right to elect to receive Common Stock at $13.125 per share in
satisfaction of the Contingent Purchase Price, but instead will have the
right to elect to receive common stock of the Parent at $22.50 per share;
and
(iv) the Parent will enter into a guarantee of KPR's lease of real
property with BAM Corporation in substantially the form of that lease
executed by the Company.
Katz Agreements. Effective as of December 11, 1995, Mr. Katz and the Company
entered into an employment agreement (the "Katz Agreement") pursuant to which
Mr. Katz serves as Vice President of the Company and President of Kettle
Cooked Foods, a subdivision of the KPR Foods Division. The term of the Katz
Agreement is from December 11, 1995 until December 10, 2000. The Katz
Agreement provides for an annual salary of $175,000. In addition, Mr. Katz
received options to purchase 12,000 shares of Company Common Stock at an
exercise price of $13.125, per share which have a vesting schedule similar to
Mr. Devening's options adjusted to reflect the different grant date.
If Mr. Katz's employment is terminated during the term of the Katz Agreement
by reason of death, the Company shall pay to Mr. Katz's estate his base
compensation as though employment was terminated by the Company without
"Cause" (as defined in the Katz Agreement) and the bonus, if any, for the
bonus period in which the "Termination Date" (as defined in the Katz
Agreement) occurs. If Mr. Katz's employment is terminated during the term of
the Katz Agreement by disability, Mr. Katz will continue to receive his base
compensation for a period of one year and the bonus, if any, for the bonus
period in which the disability occurs until the Katz Agreement is terminated.
Mr. Katz shall also continue to receive all compensation payable under the
Company's disability benefit programs then in effect through the expiration of
the term of the Katz Agreement. Thereafter, benefits shall be determined under
the retirement, insurance and other compensation programs. If Mr. Katz's
employment is terminated by the Company for Cause or as a result of a
voluntary termination, the Company will pay Mr. Katz his base compensation
through the date specified as his last day of employment. If Mr. Katz's
employment is terminated during the term of the Katz Agreement by the Company
without Cause, the Company will pay Katz an amount equal to his base
compensation for a period not to exceed one year.
Mr. Katz holds an equity position in KPR Holdings, Inc. which is entitled to
the contingent payment under the KPR Agreement as described above. See "--
Employment, Termination of Employment, Change-In-Control and Other
Agreements--Rosenthal Agreements".
A-14
<PAGE>
Transition Employment Agreements. The Company has entered into Transition
Employment Agreements ("Agreement") with certain of the executive officers
(each an "Executive"). The Agreements are effective for a period of two years
(the "Term" of the Agreement) after a "Change of Control" (as defined in the
Agreement), which includes, among other things, a change in stock ownership
whereby a person or group acquires a sufficiently large block of Common Stock
which, when voted with shares solicited by proxy or written consent
solicitation without the benefit of a management supported proxy, would enable
such person or group to elect a member of the Board of Directors and will
include (i) a sale by JLL of all of its interest in the Company, and (ii) a
sale of the Company. If the Executive's employment is terminated by the
Company without "Cause" (as defined in the Agreement) or by the Executive for
"Good Reason" (as defined in the Agreement), within two years following a
Change of Control, then (i) for the remainder of the Term of the Agreement the
Executive shall continue to be paid his or her "Compensation" (as defined in
the Agreement); (ii) all "Stock Options", "Performance Shares", and shares of
"Restricted Stock" (as such terms are defined in the Agreement) held by the
Executive shall vest; and (iii) the Executive shall have a period of three
months to exercise any such Stock Options. The Agreement also provides that
the Company will indemnify the Executives to the fullest extent permitted by
the Certificate of Incorporation, the Company's bylaws, and Delaware law;
confidentiality and noncompetition covenants by the Executives; notice
requirements prior to termination; and for continuation of pre-Change of
Control pay levels after a Change of Control.
Officer Separation Pay Plan. In 1995, the Company adopted a separation pay
plan for corporate officers which takes effect on termination of employment of
a corporate officer other than by voluntary resignation or for "Cause" (as
defined in the plan). The plan provides that separation pay will be made up of
a lump sum of 100% of current annual base salary and current allowances (e.g.,
auto allowance) for a 20-week period for a corporate officer who has served
for less than two years and for a 9-month period for an officer who has served
two years or more. Such officer will be eligible for outplacement service
(selected and paid for by the Company) as needed. If a corporate officer is
terminated for death, disability or Cause, then no separation payment will be
made. At the time of separation, unused but accrued vacation will be paid in
addition to earned but unpaid bonus(es).
Foodbrands America, Inc. Retirement & Profit Sharing Plan. The Retirement &
Profit Sharing Plan, formerly the Doskocil Companies Incorporated Retirement &
Profit Sharing Plan, provides that all eligible employees of the Company who
have attained the age of 21, have completed one year of service and are not
subject to a collective bargaining agreement are permitted to contribute up to
15% of their salary to the Retirement & Profit Sharing Plan. The Company makes
contributions on behalf of each participant of a matching amount up to an
employee contribution of 3% of such employee's salary. The Company also makes
a 1% seed contribution to the employee's account up to $250. Employees become
fully vested in Company matching contributions and profit sharing accounts in
the Retirement & Profit Sharing Plan after three years of employment with the
Company. The Company made a profit-sharing contribution to the Retirement &
Profit Sharing Plan for Fiscal 1996. The profit-sharing contribution amount
was determined and authorized by the Board of Directors of the Company. Upon
severance from service with the Company, participants are entitled to a
distribution in a single lump sum of their vested interest in the Retirement &
Profit Sharing Plan.
Foodbrands America, Inc. 1992 Stock Incentive Plan. Pursuant to the terms of
the 1992 Stock Incentive Plan, awards granted under the Plan may, in the
discretion of the Committee be immediately vested, fully earned and
exercisable upon a "Change of Control Event" (as defined in the 1992 Stock
Incentive Plan) except (i) if such award has been terminated due to acts such
as fraud, misrepresentation and embezzlement or (ii) as otherwise provided in
any employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1996, the Compensation Committee of the Board of Directors of
the Company was comprised of Terry W. Grimm, Chairman, Theodore Ammon and Dort
A. Cameron III. None of the members of the Compensation Committee has ever
been (i) an employee or officer of the Company or any of its subsidiaries or
(ii) had any relationship requiring disclosure under any paragraph of Item 404
or in Item 402(j)(3) of Regulation S-K promulgated by the Securities and
Exchange Commission.
A-15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The following is the report of the Compensation Committee of the Company
(the "Committee") on executive compensation for Fiscal 1996.
Compensation Philosophy. The Committee believes that it is in the best
interests of the stockholders of the Company for the Company to attract,
maintain, and motivate top quality management personnel, especially its
executive officers, by offering and maintaining a competitive compensation
package that exhibits an appropriate relationship between executive pay and
the creation of stockholder value. The general philosophy of the Committee is
to integrate (i) reasonable levels of annual base compensation; (ii) annual
cash bonuses and equity awards based on achievement of short-term corporate
and individual performance goals, such that executive compensation levels will
be higher in years in which performance goals are achieved or exceeded; and
(iii) equity awards, to ensure that management has a continuing stake in the
long-term success of the Company and return of value to its stockholders.
The elements of the Committee's integrated compensation philosophy are
summarized as follows:
Base Compensation Levels. Although the Company must maintain base
compensation levels commensurate with other comparable companies in its
industry with whom the Company competes for management personnel (the
"Comparable Companies", as discussed below), the Committee believes that
performance-based pay elements should be the primary elements in the
compensation packages for its executive officers. Therefore, the Committee
believes that, in general, the Company's base compensation levels are
competitive with those of the Comparable Companies. The Comparable Companies
selected by the Company are food industry companies which have production and
marketing strategies similar to those of the Company, which are similar in
size to the Company and which compete for executives in the same markets as
the Company. Management of the Company compiled the list of Comparable
Companies and their compensation information based upon executive compensation
studies of Wyatt Data Services and William L. Mercer, Incorporated, as well as
proxy statement disclosure for companies meeting the criteria set forth in the
preceding sentence. Although the process of setting base compensation levels
often reflects subjective factors such as leadership, commitment, attitude and
motivational effect, the Committee also considers objective factors such as
achievement of performance goals (primarily profitability of the areas over
which the executive has management responsibility), level of responsibility
and prior experience. Although there is only a slight overlap between the
Comparable Companies and those companies included in the Dow Jones Food Sub-
Industry Group (the "Sub-Industry Group"), see "Stock Price Performance
Graph," the Committee believes that both groups generally consist of similar
companies, but that the Company more closely competes with the Comparable
Companies for executive officers and for employees than with others in the
Sub-Industry Group.
At the beginning of Fiscal 1996, the Committee set base salaries for
executive officers and set the "EBIT" (as hereafter defined) targets and
individual performance goals based on total Company profitability, respective
business unit profitability and individual objectives under the "Cash
Incentive Plan" (as hereafter defined), based on the recommendations of the
Chief Executive Officer of the Company. The base salaries were increased over
fiscal 1995 amounts between 4.8% and 27.2%. The increases were not linked
directly to any element of the Company's performance for Fiscal 1996, but
instead were linked to individual levels of responsibilities, performance and
contributions.
Performance-Based Compensation. The Company provides executive officers with
the following performance-based compensation programs:
. Cash Bonuses. Annual cash bonuses may be earned under the Company's Key
Management Cash Incentive Plan ("Cash Incentive Plan"), based on the
achievement of Company, division/function and individual-based
performance goals determined by the Committee at the beginning of each
year. For Fiscal 1996, earnings before interest and taxes ("EBIT") was
the primary measure of Company and division performance, and specific
individual performance goals included matters such as profitability of
A-16
<PAGE>
individual business activities and measures of plant efficiency. The
Company as a whole has to meet its EBIT goal before any payments are made
under the Cash Incentive Plan with the exception that if a division meets
its EBIT goal and the Company does not meet its EBIT goal, the division
president and other personnel in that division will qualify for a
substantially reduced bonus. For Fiscal 1996, the target bonus could be
exceeded (up to a set maximum) if the target goals were exceeded. The
Company did not meet its goals for Fiscal 1996 under the Cash Incentive
Plan. The Deli Division and KPR Foods Division met their respective goals
and therefore were entitled to reduced bonuses. In addition, the Committee
awarded discretionary bonuses of $217,900 under the Cash Incentive Plan to
certain key employees.
. Stock Options. Options may be granted pursuant to the Foodbrands America,
Inc. 1992 Stock Incentive Plan (the "Stock Incentive Plan") at an
exercise price equal to or greater than the fair market value of the
shares of Common Stock on the date of the grant in the case of Incentive
Stock Options (as defined in the Stock Incentive Plan) or at any price in
the case of other options. The value of the options is related directly
to the market price of the Common Stock and, accordingly, to the long-
term performance of the Company. In September 1994, the Company granted
options to Mr. Devening based on negotiations between the Company and Mr.
Devening. Pursuant to such negotiations, Mr. Devening holds 625,593
options (approximately 5% of the shares of outstanding Common Stock),
which vest over a six-year period. Vesting is tied to the achievement by
the Company of specified EBIT targets. The Committee then approved a
revised approach to granting options proposed by Mr. Devening, pursuant
to which options were granted to the executive officer group on terms
similar to those granted to Mr. Devening and in amounts determined by the
employee's level of responsibility as recommended by Mr. Devening and
reviewed and approved by the Committee. The Committee considers the
number of options already held by an executive when determining whether
to grant additional options. As a result, since September of 1994, all
option grants to executive officers have vesting schedules similar to
that applicable to Mr. Devening's options. Options were not granted to
executive officers for Fiscal 1996.
Equity-Based Incentives. In addition to stock options, pursuant to the Stock
Incentive Plan, the Committee may grant awards of performance shares and
restricted stock to executive officers. The purpose of these awards and stock
options is to create in the Company's management a vested interest in
maximizing the value of the Company's stock and align management's interest in
maximizing stockholder value on a long-term basis with that of all other
stockholders. No performance awards or restricted stock awards were made
during Fiscal 1996.
Compensation of Chief Executive Officer. Pursuant to the terms of the
Devening Employment Agreement, Mr. Devening is entitled to an annual salary of
not less than $700,000 and a target bonus for each fiscal year, if the Company
achieves certain financial goals for such year set by the Committee in
consultation with senior management. The target bonus amount is 100% of Mr.
Devening's base salary for such year, plus additional minimum percentages of
such base salary if the financial goals are exceeded by specified amounts. For
Fiscal 1996, Mr. Devening's bonus was based on the achievement by the Company
of specified EBIT targets. For Fiscal 1996, Mr. Devening did not receive a
target bonus. See "Executive Compensation--Termination of Employment, Change-
In-Control and Other Agreements--Devening Employment Agreement."
Deduction Limitation on Executive Compensation. Section 162(m) ("Section
162(m)") of the Internal Revenue Code of 1986, as amended (the "Code") limits
the deductibility of certain compensation paid by the Company to its Chief
Executive Officer and certain of its other executive officers. In fiscal 1997,
it is possible that circumstances may warrant compensation payments which will
not qualify as a tax deductible expense. It shall be the policy of the
Committee to compensate executive officers based on performance, and the
Committee recognizes that flexibility with respect to the payment of
compensation must be insured in order to maintain this policy. Accordingly,
although the Committee will to the extent possible attempt to qualify all
compensation payments for deductibility under Section 162(m), circumstances
may arise which require it to authorize compensation which is not deductible
under Section 162(m).
Terry M. Grimm
R. Theodore Ammon
Dort A. Cameron III
A-17
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following line graph compares the yearly percentage change:
(i) in the Company's cumulative Total Stockholder Return (as herein
defined) (the solid line); with
(ii) the cumulative Total Stockholder Return of the Standard & Poor's 500
Stock Index (the long broken line); and with
(iii) the cumulative Total Stockholder Return of the Dow Jones Food Sub-
Industry Group (the short broken line).
"Total Stockholder Return" is measured by dividing (i) the sum of (A) the
cumulative amount of dividends for measurement period, assuming dividend
reinvestment and (B) the difference between the share price at the end and the
beginning of the measurement period; by (ii) the share price at the beginning
of the measurement period.
As depicted by the graph, the Company's cumulative stock price performance
through 1994 underperformed both the Standard & Poor's Stock Index and the Dow
Jones Food Sub-Industry Group. The Company believes the underperformance prior
to 1995 was directly related to significant losses incurred by the Company.
In mid-1994, the Company began taking a series of steps to eliminate the
losses and to return the Company to profitability. Those steps included
strengthening its management team by naming a new Chief Executive Officer and
a new Chief Financial Officer, sale of the Retail Meat Division and the
elimination of losses associated with its operation, implementing a
restructuring and cost reduction program and completing acquisitions of three
businesses have improved the Company's profitability.
The Company believes these actions have had a positive impact on the stock
price performance which improved approximately 82 percent over the December
1994 level. This improvement exceeded both the improvements of the Standard &
Poor's 500 Stock Index and Dow Jones Food Sub-Industry Group over the same
time frame.
LOGO
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Foodbrands America,
Inc.................... $100 $154 $113 $ 78 $124 $142
S&P 500................. $100 $108 $118 $120 $165 $203
Dow Jones Food Index.... $100 $101 $ 93 $101 $130 $151
</TABLE>
A-18
<PAGE>
COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Exchange Act requires that companies, directors and
executive officers, and persons who own more than 5% of common stock, to file
with the Securities and Exchange Commission and the New York Stock Exchange
initial reports of beneficial ownership and reports of changes in beneficial
ownership of common stock of the Company. Said persons are also required by
applicable regulations to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representations
that no other reports were required to be filed, during 1996 all Section 16(a)
filings requirements were submitted.
Foodbrands America, Inc.
A-19
<PAGE>
EXHIBIT 99.4
ANNEX B
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
March 25, 1997
Board of Directors
Foodbrands America, Inc.
1601 Northwest Expressway, Suite 1700
Oklahoma City, OK 73118-1495
Gentlemen:
We understand that Foodbrands America, Inc. ("Foodbrands" or the "Company"),
IBP, inc. ("IBP") and IBP Sub, Inc., a wholly-owned subsidiary of IBP ("IBP
Sub"), propose to enter into an Agreement and Plan of Merger, substantially in
the form of the draft dated March 25, 1997 (the "Merger Agreement"), which
provides, among other things, for (i) the commencement by IBP Sub of a tender
offer (the "Tender Offer") for all outstanding shares of common stock, par
value $0.01 per share (the "Foodbrands Common Stock") of Foodbrands for $23.40
per share net to the seller in cash, and (ii) the merger (the "Merger") of IBP
Sub with and into Foodbrands. Pursuant to the Merger, Foodbrands will become a
wholly-owned subsidiary of IBP and each outstanding share of Foodbrands Common
Stock, other than shares held in treasury or by any wholly-owned subsidiary of
Foodbrands or held by IBP or any affiliate of IBP or as to which dissenters'
rights have been perfected, will be converted into the right to receive $23.40
per share in cash. The terms and conditions of the Tender Offer and the Merger
are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Foodbrands Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders (other
than IBP and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
(iii) analyzed certain financial projections, including projections of the
utilization for tax purposes of the Company's Net Operating Loss
carryforwards, prepared by the management of the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the pro forma impact of the Merger on IBP's earnings per
share, cash flow, consolidated capitalization and credit ratios;
(vi) reviewed the reported prices and trading activity for the Foodbrands
Common Stock;
(vii) compared the financial performance of the Company and the prices and
trading activity of the Foodbrands Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) participated in discussions and negotiations among representatives of
the Company, IBP and certain other parties and their financial and
legal advisors;
(x) reviewed the draft Merger Agreement and certain related documents; and
(xi) performed such other analyses as we have deemed appropriate;
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation or
<PAGE>
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information
made available to us as of, the date hereof.
We have acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose
without our prior written consent, except that this opinion may be included in
its entirety in any filing made by the Company in respect of the transaction
with the Securities and Exchange Commission.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Foodbrands Common
Stock pursuant to the Merger Agreement is fair from a financial point of view
to such holders (other than IBP and its affiliates).
Very truly yours,
Morgan Stanley & Co. Incorporated
B-2
<PAGE>
EXHIBIT 10.8
January 25, 1997
Mr. Larry Shipley
IBP, Incorporated
IBP Avenue
Highway 35
Dakota City, NE 68731
CONFIDENTIALITY AGREEMENT
-------------------------
Dear Sirs:
In connection with your interest in a possible transaction (the "Transaction")
involving Foodbrands America, Inc. (the "Company"), you have requested that we
or our representatives furnish you or your representatives with certain
information relating to the Company or the Transaction. All such information
(irrespective of the form of communication) furnished (after the date hereof) by
us or out directors, officers, employees, affiliates, representatives
(including, without limitation, financial advisors, attorneys and accountants)
or agents (collectively, "our Representatives") to you or your directors,
officers, employees, affiliates, representatives (including, without limitation,
financial advisors, attorneys and accountants) or agents or your potential
sources of financing for the Transaction (collectively, "your Representatives")
and all analyses, compilations, forecasts, studies or other documents prepared
by you or your Representatives in connection with your or their review of, or
your interest in, the Transaction which contain or reflect any such information
provided by our Representatives is hereinafter referred to as the "Information".
The term Information will not, however, include information which (i) is or
becomes publicly available other than as a result of a disclosure by you or your
Representatives (ii) is or becomes available to you on a nonconfidential basis
from a source (other than us or our Representatives) which, to the best of your
knowledge after due inquiry, is not prohibited from disclosing such information
to you by a legal, contractual or fiduciary obligation to us or (iii) was
already in your possession prior to the date of this letter agreement. In no
event will the Information be made available to any person who is primarily
responsible for the pricing or marketing of any products in competition with the
Company.
Accordingly, you hereby agree that:
1. You and your Representatives (i) will keep the Information confidential and
will not (except as required by applicable law, regulation or legal
process, and only after compliance with paragraph 3 below), without our
prior written consent, disclose any Information in any manner whatsoever,
and (ii) will not use any Information other than in connection with the
Transaction; provided, however, that you may reveal the Information to your
Representatives (a) who need to know the Information for the purpose of
evaluating the Transaction, (b) who are informed by you of the confidential
nature of the Information and (c) who agree to act in accordance with the
terms of this letter Agreement. You will use your reasonable best efforts
to cause your
<PAGE>
Representatives to observe the terms of this letter agreement, and you will
be responsible for any breach of this letter agreement by any of your
Representatives.
2. You and your Representatives will not (except as required by applicable
law, regulation or legal process, and only after compliance with paragraph
3 below), without our prior written consent, disclose to any person the
fact that the Information exists or has been made available, that you are
considering the Transaction involving the Company, or that discussions or
negotiations are taking or have taken place concerning the Transaction or
involving the Company or any term, condition or other fact relating to the
Transaction or involving the Company or any term, condition or other fact
relating to the Transaction or such discussions or negotiations,
including, without limitation, the status thereof.
3. In the event that you or any of your Representatives are requested pursuant
to, or required by, applicable law, regulation or legal process to disclose
any of the Information (or any of the facts described in paragraph 2 of
this letter agreement), you will notify us promptly so that we may seek a
protective order or other appropriate remedy or, in our sole discretion,
waive compliance with the terms of this letter agreement. In the event
that no such protective order or other remedy is obtained, or that the
Company waives compliance with the terms of this letter agreement, you will
furnish only that portion of the Information (or any of the facts described
in paragraph 2 of this letter agreement) which you are advised by counsel
is legally required and will exercise all reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded the
Information.
4. If you determine not to proceed with the Transaction, you will promptly
inform our Representative, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), of that decision and, in that case, and at any time upon the
request of the Company or any of our Representatives, you will either (i)
promptly destroy all copies of the written Information in your or your
Representatives' possession and confirm such destruction to us in writing,
or (ii) promptly deliver to the Company at your own expense all copies of
the written Information in your or your Representatives' possession. For a
period of three years from the date of this letter agreement, any oral
Information will continue to be subject to the terms of this letter
agreement.
5. You acknowledge that neither we, nor Morgan Stanley or its affiliates, nor
our other Representatives, nor any of our or their respective officers,
directors, employees, agents or controlling persons within the meaning of
Section 20 of the Securities Exchange Act of 1934, as amended, makes any
express or implied representation or warranty as to the accuracy or
completeness of the Information, and you agree that no such person will
have any liability relating to the Information or for any errors therein or
omissions therefrom; except for intentional misrepresentations or
omissions. You further agree that you are not entitled to rely on the
accuracy or completeness of the Information and that you will be entitled
to rely solely on such representations and warranties as may be included in
any definitive agreement with respect to the Transaction, subject to such
limitations and restrictions as may be contained therein.
6. You are aware, and you will advise your Representatives who are informed of
the matters that are the subject of this letter agreement, of the
restrictions imposed by the United States securities laws on the purchase
or sale of securities by any person who
2
<PAGE>
has received material, non-public information from the issuer of such
securities and on the communication of such information to any other person
when it is reasonably foreseeable that such other person is likely to
purchase or sell such securities in reliance upon such information.
7. You agree that, for a period of eighteen months from the date of this
letter agreement, neither you nor any of your affiliates will, without the
prior written consent of the Company or its Board of Directors: (i)
acquire, offer to acquire, or agree to acquire, directly or indirectly, by
purchase or otherwise, any voting securities or direct or indirect rights
to acquire any voting securities of the Company or any subsidiary thereof
or any assets of the Company or any subsidiary or division thereof; (ii)
make, or in any way participate in, directly or indirectly, any
"solicitation" or "proxies" (as such terms are used in the rules of the
Securities Exchange Commission) to vote, or seek to advise or influence any
person or entity with respect to the voting of, any voting securities of
the Company; (iii) make any public announcement with respect to, or submit
a proposal for, or offer of (with or without conditions) any extraordinary
Transaction involving the Company or its securities or assets; (iv) form
joint or in any way participate in a "group" (as defined in Section 13
(d)(3) of the Securities Exchange Act of 1934, as amended) in connection
with any of the foregoing; or (v) request the Company or any of our
Representatives, directly or indirectly, to amend or waive any provision of
this paragraph.
8. You agree that, for a period of eighteen months from the date of this
letter agreement, you will not, directly or indirectly, solicit for
employment or hire any employee of the Company or any of its subsidiaries
with whom you have had contact or who became known to you in connection
with your consideration of the Transaction; provided, however, that the
foregoing provision will not prevent you from employing any such person who
contacts you on his or her own initiative without any direct or indirect
solicitation by or encouragement from you. Direct and indirect
solicitation does not include general advertisement.
9. You agree that all (1) communications regarding the Transaction, (ii)
requests for additional information, facility tours or management meetings,
and (iii) discussions or questions regarding procedures with respect to the
Transaction, will be first submitted or directed to Morgan Stanley and not
to the Company. You acknowledge and agree that (a) we and our
Representatives are free to conduct the process leading up to a possible
Transaction as we and our Representatives, in our sole discretion,
determine (including, without limitation, by negotiating with any
prospective buyer and entering into a preliminary or definitive agreement
without prior notice to you or any other person), (b) we reserve the right,
in our sole discretion, to change the procedures relating to our
consideration of the Transaction at any time without prior notice to you or
any other person, to reject any and all proposals made by you or any of
your Representatives with regard to the Transaction, and to terminate
discussions and negotiations with you at any time and for any reason, and
(c) unless and until a written definitive agreement concerning the
Transaction has been executed, neither we nor any of our Representatives
will have any liability to you with respect to the Transaction, whether by
virtue of this letter agreement, any other written or oral expression with
respect to the Transaction or otherwise.
10. You acknowledge that remedies at law may be inadequate to protect us
against any
3
<PAGE>
actual or threatened breach of this letter agreement by you or by your
Representatives, and, without prejudice to any other rights and remedies
otherwise available to us, you agree to the granting or injunctive relief
in our favor without proof of actual damages. In the event of litigation
relating to this letter agreement, the unsuccessful party will pay all
reasonable legal fees and expenses incurred by the successful party in
connection with all such litigation.
11. You agree that no failure or delay by us in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any right, power or privilege hereunder.
12. This letter agreement will be governed by and construed in accordance with
the laws of the State of Oklahoma applicable to contracts between residents
of that State and executed in and to be performed in that State.
13. This letter agreement contains the entire agreement between you and us
concerning the confidentiality of the Information, and no modifications of
this letter agreement or waiver of the terms and conditions hereof will be
binding upon you or us, unless approved in writing by each of you and us.
4
<PAGE>
Please confirm your agreement with the foregoing by signing and returning to the
undersigned the duplicate copy of this letter enclosed herewith.
Very truly yours,
FOODBRANDS AMERICA, INC.
By its authorized representative
MORGAN STANLEY & CO. INCORPORATED
By: ____________________________
Name: __________________________
Title: _________________________
Accepted and Agreed as of the date
first written above:
_____________________________
IBP. INCORPORATED
By: _________________________
Name: _______________________
Title: ______________________
5
<PAGE>
EXHIBIT 99.1
EMPLOYMENT, TERMINATION OF EMPLOYMENT, CHANGE-IN-CONTROL AND OTHER AGREEMENTS.
Devening Employment Agreement. Pursuant to the Devening Agreement, Mr.
Devening serves as the Chairman of the Board, President and Chief Executive
Officer of the Company. The Devening Agreement has a term ending on December
31, 1998, but automatically extends for an additional one-year term unless
either party elects not to extend the term (the "Employment Period"). See
"Report of the Compensation Committee of the Board of Directors--Compensation
of Chief Executive Officer" for information regarding the salary and bonus
provisions of the Devening Agreement. Bonuses payable under the Devening
Agreement are payable in cash or common stock (based on the market price on
the payment date) or a combination thereof as selected by Mr. Devening,
subject to such limitation on the number of shares as the Committee may have
set for the year.
The Company granted to Mr. Devening options to purchase, in the aggregate, a
number of shares of the Company's common stock equal to 5% of the total number
of shares outstanding on the date of the grant (as adjusted to reflect the
number of shares issued in the rights offering made pursuant to the offering
prospectus dated September 19, 1994) at an option price per share equal to the
greater of the exercise price under such rights offering ($9.00) or the fair
market value on the date of the grant. Nine percent of such options vested on
December 31, 1994, and 18.2% of such options vested on December 31, 1995, with
the remaining such options to vest on December 31 of each of the subsequent
four years if Mr. Devening remains an employee and the Company meets the
specified earnings target for such year. The options terminate 10 years from
the date of grant and must be exercised within 90 days after Mr. Devening
ceases to be an employee.
In the event that Mr. Devening's employment is terminated during the
Employment Period other than for "Cause" (as defined in the Devening
Agreement), or if Mr. Devening terminates his employment for "Good Reason" or
within eighteen months after a "Change of Control" (as those terms are defined
in the Devening Agreement), the Company will be required to pay him an amount
equal to two times the sum of his base salary for the previous twelve-month
period plus the amount of his performance bonus, if any, for the previous
fiscal year. Upon a Change of Control, all outstanding option shares not
previously vested will vest, provided Mr. Devening is an employee on such
date. In the event of the death of Mr. Devening between July 31, 1997 and
January 1, 2000 while an employee of the Company, all outstanding option
shares not previously vested will vest. Mr. Devening is entitled to employee
benefit arrangements on a comparable basis with other senior executives, and
to financial, tax planning and consulting services.
Sieben Agreement. Pursuant to the terms of a letter agreement (the "Sieben
Agreement") with the Company, Mr. Sieben receives an annual salary of $225,000
and, for the first year of his employment, a monthly living allowance of
$2,000 in lieu of certain other allowances. Pursuant to the Sieben Agreement,
he is eligible for an annual bonus of up to 50% of his base salary if certain
performance objectives are met. In addition, Mr. Sieben received a signing
bonus of $65,000 and was granted options to purchase, in the aggregate, 68,814
shares of Common Stock at an exercise price per share of $9.00. These options
have a vesting schedule similar to Mr. Devening's. Upon a "Change of Control
Event" (as defined in the Stock Incentive Plan) or in the event of the death
of Mr. Sieben, all outstanding option shares not previously vested will vest,
provided Mr. Sieben is an employee on the date of such event. In the event Mr.
Sieben is terminated for any reason other than dishonesty or malfeasance, he
will be entitled to receive his base salary for a period of six months from
the termination date. In addition, the Company and Mr. Sieben have entered
into a Transition Employment Agreement. See "Compensation of Directors and
Executive Officers--Employment, Termination of Employment, Change-in-Control
and Other Agreements--Transition Employment Agreements".
O'Ray Employment Agreement. Effective as of October 9, 1995, Mr. O'Ray and
the Company entered into an employment agreement (the "O'Ray Agreement")
pursuant to which Mr. O'Ray serves as Senior Vice President of the Company and
President of the Specialty Brands Division. The O'Ray Agreement provides for
an annual salary of $210,000 and a signing bonus of $50,000. In addition, Mr.
O'Ray received options to purchase 68,814 shares of Company Common Stock at an
exercise price of $13.50 per share, which have a vesting schedule similar to
Mr. Devening's options adjusted to reflect the different grant date.
1
<PAGE>
The O'Ray Agreement also provides that in fiscal 1996 the Company will pay
Mr. O'Ray a minimum cash bonus of $75,000, subject to upward adjustment. Any
amount of cash incentive in excess of such amount shall be provided by the
Company's Cash Incentive Plan conditioned upon the Specialty Brands Division
achieving the performance targets established for 1996. Such cash incentive is
payable in February 1997.
If Mr. O'Ray's employment is terminated by the Company for "Cause" (as
defined in the O'Ray Agreement) or as a result of a voluntary termination, the
Company will pay Mr. O'Ray his base compensation through the date specified as
his last day of employment. If Mr. O'Ray's employment is terminated during the
term of the O'Ray Agreement by the Company without Cause, the Company will pay
Mr. O'Ray an amount equal to one-half of his annual base compensation.
Rosenthal Agreements. Effective as of December 11, 1995, Mr. Rosenthal and
the Company entered into an employment agreement (the "Rosenthal Agreement")
pursuant to which Mr. Rosenthal serves as Senior Vice President of the Company
and President of the KPR Foods Division. The term of the Rosenthal Agreement
is from December 11, 1995 until December 10, 2000. The Rosenthal Agreement
provides for an annual salary of $175,000 as President of the KPR Foods
Division. Mr. Rosenthal will also receive an annual salary of $40,000 in
payment of his duties as Senior Vice President. In addition, Mr. Rosenthal
received options to purchase 12,000 shares of Company Common Stock at an
exercise price of $13.125 per share, which have a vesting schedule similar to
Mr. Devening's options adjusted to reflect the different grant date.
If Mr. Rosenthal's employment is terminated during the term of the Rosenthal
Agreement by reason of death, the Company shall pay to Mr. Rosenthal's estate
his base compensation as though employment was terminated by the Company
without "Cause" (as defined in the Rosenthal Agreement) and the bonus, if any,
for the bonus period in which the "Termination Date" (as defined in the
Rosenthal Agreement) occurs. If Mr. Rosenthal's employment is terminated
during the term of the Rosenthal Agreement by disability, Mr. Rosenthal will
continue to receive his base compensation for a period of one year and the
bonus, if any, for the bonus period in which the disability occurs until the
Rosenthal Agreement is terminated. Mr. Rosenthal shall also continue to
receive all compensation payable under the Company's disability benefit
programs then in effect through the expiration of the term of the Rosenthal
Agreement. Thereafter, benefits shall be determined under the retirement,
insurance and other compensation programs. If Mr. Rosenthal's employment is
terminated by the Company for Cause or as a result of a voluntary termination,
the Company will pay Mr. Rosenthal his base compensation through the date
specified as his last day of employment. If Mr. Rosenthal's employment is
terminated during the term of the Rosenthal Agreement by the Company without
Cause, the Company will pay Rosenthal an amount equal to his base compensation
for a period not to exceed one year.
In connection with the acquisition of KPR Holdings, L.P. ("KPR") pursuant to
the Purchase Agreement dated November 14, 1995 (the "KPR Agreement"), the
Company has agreed to certain contingent payments payable in Common Stock of
the Company or cash, at the option of the sellers, aggregating approximately
$14.3 million over the next three years based on the attainment of specified
earning levels by KPR. If the sellers elect to receive the contingent payment
in Common Stock of the Company, it will be payable based on a price of $13.125
per share. The right to this contingent payment is currently held by KPR
Holdings, Inc., one of the sellers, and Mr. Rosenthal holds an equity position
in KPR Holdings, Inc. In addition, in connection with the acquisition of KPR,
KPR entered into a lease agreement with BAM Corporation pursuant to which BAM
leases to KPR the production and office facility located in Fort Worth, Texas
(the "Lease"). The Lease is for a period of ten years, with base rental
payments of approximately $71,000 per month. KPR has the option, pursuant to
the Lease, to purchase the leased facility based on its fair market value. Mr.
Rosenthal and other members of his immediate family own all of the equity
securities of BAM Corporation.
Katz Agreements. Effective as of December 11, 1995, Mr. Katz and the Company
entered into an employment agreement (the "Katz Agreement") pursuant to which
Mr. Katz serves as Vice President of the Company and President of Kettle
Cooked Foods, a subdivision of the KPR Foods Division. The term of the Katz
Agreement is from December 11, 1995 until December 10, 2000. The Katz
Agreement provides for an annual
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salary of $175,000. In addition, Mr. Katz received options to purchase 12,000
shares of Company Common Stock at an exercise price of $13.125, per share
which have a vesting schedule similar to Mr. Devening's options adjusted to
reflect the different grant date.
If Mr. Katz's employment is terminated during the term of the Katz Agreement
by reason of death, the Company shall pay to Mr. Katz's estate his base
compensation as though employment was terminated by the Company without
"Cause" (as defined in the Katz Agreement) and the bonus, if any, for the
bonus period in which the "Termination Date" (as defined in the Katz
Agreement) occurs. If Mr. Katz's employment is terminated during the term of
the Katz Agreement by disability, Mr. Katz will continue to receive his base
compensation for a period of one year and the bonus, if any, for the bonus
period in which the disability occurs until the Katz Agreement is terminated.
Mr. Katz shall also continue to receive all compensation payable under the
Company's disability benefit programs then in effect through the expiration of
the term of the Katz Agreement. Thereafter, benefits shall be determined under
the retirement, insurance and other compensation programs. If Mr. Katz's
employment is terminated by the Company for Cause or as a result of a
voluntary termination, the Company will pay Mr. Katz his base compensation
through the date specified as his last day of employment. If Mr. Katz's
employment is terminated during the term of the Katz Agreement by the Company
without Cause, the Company will pay Katz an amount equal to his base
compensation for a period not to exceed one year.
Mr. Katz holds an equity position in KPR Holdings, Inc. which is entitled to
the contingent payment under the KPR Agreement as described above. See "--
Employment, Termination of Employment, Change-In-Control and Other
Agreements--Rosenthal Agreements".
Wright Agreement. Mr. Wright resigned as of August 11, 1995. Pursuant to the
terms of an employment agreement between Robert S. Wright and the Company, Mr.
Wright received his base compensation through the date specified as his last
day of employment.
Swafford Separation Agreement. As a result of the sale of the Retail
Division on May 30, 1995, Mr. Swafford resigned as Senior Vice President of
the Company and President of the Retail Division as of June 30, 1995. Mr.
Swafford and the Company entered into a Separation Agreement dated May 25,
1995 (the "Swafford Separation Agreement") concerning the payment of certain
consideration upon his resignation. Pursuant to the Swafford Separation
Agreement, Mr. Swafford received his base salary through June 30, 1995 and
under the terms of his employment agreement a one-time bonus payment of
$70,000. The Company made a separation payment to Mr. Swafford in the amount
of $400,000.
Transition Employment Agreements. The Company has entered into Transition
Employment Agreements ("Agreement") with each of 13 of the key employees of
the Company, including all of the executive officers listed in the "Summary
Compensation Table" above, other than Mr. Devening (each an "Executive"). The
Agreements are effective for a period of two years (the "Term" of the
Agreement) after a "Change of Control" (as defined in the Agreement), which
includes, among other things, a change in stock ownership whereby a person or
group acquires a sufficiently large block of Common Stock which, when voted
with shares solicited by proxy or written consent solicitation without the
benefit of a management supported proxy, would enable such person or group to
elect a member of the Board of Directors and will include (i) a sale by JLL of
all of its interest in the Company, and (ii) a sale of the Company, if
Proposal IV is adopted. If the Executive's employment is terminated by the
Company without "Cause" (as defined in the Agreement) or by the Executive for
"Good Reason" (as defined in the Agreement), within two years following a
Change of Control, then (i) for the remainder of the Term of the Agreement the
Executive shall continue to be paid his or her "Compensation" (as defined in
the Agreement); (ii) all "Stock Options", "Performance Shares", and shares of
"Restricted Stock" (as such terms are defined in the Agreement) held by the
Executive shall vest; and (iii) the Executive shall have a period of three
months to exercise any such Stock Options. The Agreement also provides that
the Company will indemnify the Executives to the fullest extent permitted by
the Certificate of Incorporation, the Company's bylaws, and Delaware law;
confidentiality and noncompetition covenants by the Executives; notice
requirements prior to termination; and for continuation of pre-Change of
Control pay levels after a Change of Control. The
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Company intends to amend the Agreements and/or the stock option agreements to
provide for automatic vesting of any stock options, Performance Shares and
shares of Restricted Stock, following a Change of Control as redefined under
Proposal IV. Mr. Sieben's Agreement has been amended to provide for such
automatic vesting after a Change of Control.
Officer Separation Pay Plan. In 1995, the Company adopted a separation pay
plan for corporate officers which takes effect on termination of employment of
a corporate officer other than by voluntary resignation or for "Cause" (as
defined in the plan). The plan provides that separation pay will be made up of
a lump sum of 100% of current annual base salary and current allowances (e.g.,
auto allowance) for a 20-week period for a corporate officer who has served
for less than two years and for a 9-month period for an officer who has served
two years or more. Such officer will be eligible for outplacement service
(selected and paid for by the Company) as needed. If a corporate officer is
terminated for death, disability or Cause, then no separation payment will be
made. At the time of separation, unused but accrued vacation will be paid in
addition to earned but unpaid bonus(es).
Foodbrands America, Inc. Retirement & Profit Sharing Plan. The Retirement &
Profit Sharing Plan, formerly the Doskocil Companies Incorporated Retirement &
Profit Sharing Plan, provides that all eligible employees of the Company who
have attained the age of 21, have completed one year of service and are not
subject to a collective bargaining agreement are permitted to contribute up to
15% of their salary to the Retirement & Profit Sharing Plan. The Company makes
contributions on behalf of each participant of a matching amount up to an
employee contribution of 3% of such employee's salary. The Company also makes
a 1% seed contribution to the employee's account up to $250. Employees become
fully vested in Company matching contributions and profit sharing accounts in
the Retirement & Profit Sharing Plan after three years of employment with the
Company. The Company made a profit-sharing contribution to the Retirement &
Profit Sharing Plan for Fiscal 1995. The profit-sharing contribution amount
was determined and authorized by the Board of Directors of the Company. Upon
severance from service with the Company, participants are entitled to a
distribution in a single lump sum of their vested interest in the Retirement &
Profit Sharing Plan.
Foodbrands America, Inc. 1992 Stock Incentive Plan Pursuant to the terms of
the 1992 Stock Incentive Plan, awards granted under the Plan may, in the
discretion of the Committee be immediately vested, fully earned and
exercisable upon the termination of a participant's employment within the two
year period following a "Change of Control Event" (as defined in the 1992
Stock Incentive Plan) except (i) if such award has been terminated due to acts
such as fraud, misrepresentation and embezzlement or (ii) as otherwise
provided in any employment agreement. This Section of the 1992 Stock Incentive
Plan has been proposed to be amended. See "PROPOSAL IV. AMENDMENTS TO THE 1992
STOCK INCENTIVE PLAN".
4
<PAGE>
EXHIBIT 99.3
[FOODBRANDS AMERICA, INC. LETTERHEAD]
April 1, 1997
To Our Stockholders:
On behalf of the Board of Directors of Foodbrands America, Inc. (the
"Company"), we are pleased to inform you that on March 25, 1997, the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
IBP, inc. (the "Parent") and its subsidiary, IBP Sub. Inc. (the "Purchaser").
Pursuant to the Merger Agreement, IBP Sub, Inc. has today commenced a cash
tender offer (the "Offer") to purchase all of the outstanding Shares (the
"Shares") of the Common Stock of the Company at $23.40 per Share, net to the
seller in cash, subject to the terms and conditions in the Offer to Purchase
accompanying this letter. The Offer is not conditioned upon obtaining any
arrangements for financing.
Subject to certain conditions specified in the Merger Agreement, the Offer
will be followed by a merger (the "Merger") in which any remaining shares of
the Common Stock of the Company will be converted into the right to receive
$23.40 in cash, without interest (except any Shares as to which the holder has
properly exercised dissenter's rights of appraisal). Certain stockholders have
entered into agreements to tender up to 49.9% of the outstanding Shares in the
Offer, and have granted the Parent an irrevocable option to purchase a like
number of Shares at a price equal to the Share Price, payable in cash, upon
the occurrence of certain conditions.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE OFFER AND MERGER ARE FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND HAS APPROVED
THE OFFER AND MERGER. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving as its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including the
opinion of Morgan Stanley & Co., Incorporated, the Company's financial
advisor, relating to the fairness from a financial point of view of the
consideration to be received by the stockholders in the Offer and the Merger.
In addition to the attached Schedule 14D-9, also enclosed is the Offer to
Purchase dated April 1, 1997, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer.
These documents state the terms and conditions of the Offer and the Merger and
provide instructions as to how to tender your Shares. WE URGE YOU TO READ
THESE DOCUMENTS CAREFULLY IN MAKING YOUR DECISION WITH RESPECT TO TENDERING
YOUR SHARES PURSUANT TO THE OFFER.
On behalf of the Board of Directors,
R. Randolph Devening
Chairman of the Board
<PAGE>
EXHIBIT 99.4
ANNEX B
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
March 25, 1997
Board of Directors
Foodbrands America, Inc.
1601 Northwest Expressway, Suite 1700
Oklahoma City, OK 73118-1495
Gentlemen:
We understand that Foodbrands America, Inc. ("Foodbrands" or the "Company"),
IBP, inc. ("IBP") and IBP Sub, Inc., a wholly-owned subsidiary of IBP ("IBP
Sub"), propose to enter into an Agreement and Plan of Merger, substantially in
the form of the draft dated March 25, 1997 (the "Merger Agreement"), which
provides, among other things, for (i) the commencement by IBP Sub of a tender
offer (the "Tender Offer") for all outstanding shares of common stock, par
value $0.01 per share (the "Foodbrands Common Stock") of Foodbrands for $23.40
per share net to the seller in cash, and (ii) the merger (the "Merger") of IBP
Sub with and into Foodbrands. Pursuant to the Merger, Foodbrands will become a
wholly-owned subsidiary of IBP and each outstanding share of Foodbrands Common
Stock, other than shares held in treasury or by any wholly-owned subsidiary of
Foodbrands or held by IBP or any affiliate of IBP or as to which dissenters'
rights have been perfected, will be converted into the right to receive $23.40
per share in cash. The terms and conditions of the Tender Offer and the Merger
are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Foodbrands Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders (other
than IBP and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
(iii) analyzed certain financial projections, including projections of the
utilization for tax purposes of the Company's Net Operating Loss
carryforwards, prepared by the management of the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the pro forma impact of the Merger on IBP's earnings per
share, cash flow, consolidated capitalization and credit ratios;
(vi) reviewed the reported prices and trading activity for the Foodbrands
Common Stock;
(vii) compared the financial performance of the Company and the prices and
trading activity of the Foodbrands Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) participated in discussions and negotiations among representatives of
the Company, IBP and certain other parties and their financial and
legal advisors;
(x) reviewed the draft Merger Agreement and certain related documents; and
(xi) performed such other analyses as we have deemed appropriate;
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation or
<PAGE>
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information
made available to us as of, the date hereof.
We have acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose
without our prior written consent, except that this opinion may be included in
its entirety in any filing made by the Company in respect of the transaction
with the Securities and Exchange Commission.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Foodbrands Common
Stock pursuant to the Merger Agreement is fair from a financial point of view
to such holders (other than IBP and its affiliates).
Very truly yours,
Morgan Stanley & Co. Incorporated
B-2
