SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [__]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential. For use of the Commission only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
RALCORP HOLDINGS, INC.
--------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
--------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 (the "Ralcorp Common Stock")
................................................................................
(2) Aggregate number of securities to which transaction applies:
29,854,907 shares of Ralcorp Common Stock. (A)
................................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$13.8125 per share (B)
................................................................................
(4) Proposed maximum aggregate value of transaction:
$412,370,902.94 (C)
................................................................................
(5) Total fee paid:
$82,474.18 (C)
................................................................................
(A) The maximum number of shares of Ralcorp Common Stock which
could be outstanding on the closing date of the merger
described in the accompanying document (the "Merger").
(B) Estimated pursuant to Rule 0-11 of the Securities Exchange Act
of 1934 (the "Exchange Act"), based upon the market value of
the maximum number of shares of Ralcorp Common Stock to be
canceled in the Merger ($13.8125 per share, which is the
average of the reported high and low sales prices of a share
of Ralcorp Common Stock on The New York Stock Exchange on
September 27, 2000).
(C) Fee payable in connection with transaction of $82,474.18,
calculated pursuant to Rule 0-11 of the Exchange Act as
follows: 1/50th of one percent of (a) $13.8125, the average of
the reported high and low sale prices of a share of Ralcorp
Common Stock on The New York Stock Exchange on September 27,
2000, multiplied by (b) 29,854,907, the estimated maximum
number of shares of Ralcorp Common Stock which may be canceled
in the Merger.
[ ] Fee paid previously with preliminary materials.
[ ] Checkbox if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
PRELIMINARY PROXY MATERIALS DATED SEPTEMBER 29, 2000
To the Shareholders of Ralcorp Holdings, Inc. and Agribrands International,
Inc.:
Special Meeting of Shareholders
A MERGER PROPOSAL --YOUR VOTE IS VERY IMPORTANT
Ralcorp (NYSE:RAH) and Agribrands (NYSE:AGX) have agreed to combine in a
merger of equals. We are proposing the merger because the combination of the
companies will create an entity with the substantial cash flows and borrowing
capacity needed to enhance our position as a leading private label food company
and as a world leader in agricultural animal nutrition. The new corporation will
be named Newco* and its Board of Directors will be comprised of directors of
Ralcorp and Agribrands. Senior management of Newco will be comprised of
corporate officers from both Ralcorp and Agribrands as determined by the Newco
Board of Directors.
When the merger is completed, Ralcorp shareholders will receive one share
of Newco common stock for each share they own and Agribrands shareholders will
receive three shares of Newco common stock for each share they own.
Alternatively, shareholders may elect to receive $15 in cash for each share of
Ralcorp stock or $39 in cash for each share of Agribrands stock. At least 80% of
each company's outstanding stock must be exchanged for shares. Therefore, if the
total number of shares elected to be exchanged for shares is less than 80% of a
company's outstanding shares, then cash elections of the company's shareholders
will be reduced on a pro rata basis. As a result of the stock exchange and
assuming full use of the 20% cash election for each company, former shareholders
of Ralcorp will hold approximately 50%, and former shareholders of Agribrands
will hold approximately 50%, of the outstanding common stock of Newco. Newco
intends to apply to list its common stock on the New York Stock Exchange under
the symbol .
The Boards of Directors of both Ralcorp and Agribrands, acting upon the
recommendation of each board's special committee made up of independent
directors, have approved the merger and recommend that their respective
shareholders vote FOR the merger proposal. Information about the merger is
contained in this joint proxy statement/prospectus. We urge you to read this
joint proxy statement/prospectus, including the section describing risk factors
that begins on page 18.
The dates, times and places of the special meetings are as follows:
For Ralcorp shareholders: For Agribrands shareholders:
, 2001 at , 2001 at
Your vote is very important, regardless of the number of shares you own.
Whether or not you plan to attend the special meeting, please vote as soon as
possible to make sure that your shares are represented at the special meeting.
If you do not vote, it will have the same effect as voting against the merger.
We strongly support this combination of our companies and join with our
Boards of Directors in enthusiastically recommending that you vote to approve
the merger.
Joe R. Micheletto William P. Stiritz
Chief Executive Officer and Chairman, Chief Executive Officer and
President President
Ralcorp Holdings, Inc. Agribrands International, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in
connection with the merger or determined if this joint proxy
statement/prospectus is accurate or complete. Any representation to the contrary
is a criminal offense.
This joint proxy statement/prospectus is dated , 2000, and
is first being mailed to shareholders of Ralcorp and
Agribrands on or about , 2000.
The information in this joint proxy statement/prospectus is not complete and may
be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This joint proxy
statement/prospectus is not an offer to sell those securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
[FN]
- --------
* The name of the new corporation will be changed prior to the filing of the
definitive joint proxy statement/proxy. The company is referred to as
"Newco" in this document.
</FN>
ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Ralcorp and Agribrands from other documents that are
not included in or delivered with the joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents incorporated by reference in this joint
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company:
If you are a Ralcorp shareholder If you are an Agribrands shareholder:
Ralcorp Holdings, Inc. Agribrands International Inc.
Shareholder Services Investor Relations
P.O. Box 618 9811 South Forty Dr.
St. Louis, Missouri 63188-0618 St. Louis, Missouri 63124-1103
1-800 1-800
If you would like to request any documents, please do so by no later than ,
2000 in order to receive them before the special meetings. You may also obtain
the documents via the Internet at the website of the Securities and Exchange
Commission: http://www.sec.gov.
See "Where You Can Find More Information" that begins on page 107 of this
joint proxy statement/prospectus.
PRELIMINARY PROXY MATERIALS DATED SEPTEMBER 29, 2000
Ralcorp Holdings, Inc.
P.O. Box 618
St. Louis, Missouri 63188-0618
Notice of Special Meeting of Ralcorp Shareholders
January , 2001 at am
at
To the shareholders of Ralcorp Holdings, Inc.:
We will hold a special meeting of the shareholders of Ralcorp Holdings, Inc. on
January , 2001 at am local time at
for the following purpose:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Reorganization dated August 7, 2000 between Agribrands
International, Inc. and Ralcorp pursuant to which Agribrands and
Ralcorp each will become a wholly owned subsidiary of a new holding
company that will be named Newco and you may elect to have each of
your shares of Ralcorp common stock converted into either one share of
Newco common stock or $15 in cash (subject to the limitation that at
least 80% of our outstanding shares must be exchanged for shares); and
2. To transact any other business that may properly come before the
special meeting or any adjournment or postponement of the special
meeting including, without limitation, potential adjournments or
postponements for the purpose of soliciting additional proxies in
order to approve the principal terms of the merger.
The proposed merger is described in the attached joint proxy
statement/prospectus. Holders of record of Ralcorp common stock at the close of
business on , 2000, the record date, are entitled to vote at the special meeting
and any adjournments or postponements of the special meeting. The approval of
the reorganization agreement will require the affirmative vote of the holders of
two-thirds of the shares of Ralcorp common stock outstanding on the record date.
Your vote is very important, regardless of the number of shares you own. Please
vote as soon as possible to make sure that your shares are represented at the
meeting. To vote your shares, you may complete and return the enclosed proxy
card or you may submit your proxy or voting instructions by telephone or the
Internet. If you are a holder of record, you may also cast your vote in person
at the special meeting. If your shares are held in an account at a brokerage
firm or bank, you must instruct your bank or broker on how to vote your shares.
In almost all cases, if you do not vote or do not instruct your broker or bank
on how to vote, it will have the same effect as voting against the merger.
By Order of the Board of Directors,
Ralcorp Holdings, Inc.
Robert W. Lockwood
Secretary
, 2000
PRELIMINARY PROXY MATERIALS DATED SEPTEMBER 29, 2000
TABLE OF CONTENTS
Questions and Answers About the Merger..................................................................1
Summary of the Joint Proxy Statement/Prospectus.........................................................5
The Companies.........................................................................................5
The Structure of the Merger ..........................................................................8
Recommendation of the Boards of Directors and Opinions of Financial Advisors .........................9
Dissenters' Rights ...................................................................................9
The Special Meetings .................................................................................9
Board of Directors and Management Following the Merger ..............................................10
Interests of Directors and Executive Officers in the Merger..........................................10
Treatment of Stock Options and Stock Appreciation Rights ............................................10
Tax Consequences.....................................................................................10
Overview of the Reorganization Agreement ............................................................10
Comparative Market Price Information.................................................................12
Selected Historical and Pro Forma Financial Data.......................................................13
Ralcorp Selected Historical Financial Data.............................................................13
Agribrands Selected Historical Financial Data..........................................................14
Newco Selected Unaudited Pro Forma Combined Financial Data ............................................15
Newco Unaudited Comparative Per Share Data.............................................................16
Forward Looking Statements.............................................................................17
Risk Factors...........................................................................................18
Risks Related to the Merger..........................................................................18
Agribrands' Company and Industry Specific Risks......................................................19
Agribrands Foreign Operations Risk...................................................................20
Ralcorp's Company and Industry Specific Risks........................................................20
Introduction...........................................................................................22
The Special Meetings...................................................................................22
Date, Time and Place of the Special Meetings.........................................................22
Purpose of the Special Meetings......................................................................22
Shareholder Record Date, Outstanding Shares and Voting Rights........................................22
Vote Required for Approval of the Reorganization Agreement; Quorum...................................23
Proxies, Abstentions, and Related Matters............................................................23
Revoking a Proxy.....................................................................................23
Voting in Person.....................................................................................23
Voting by Telephone or on the Internet...............................................................23
Other Matters at the Special Meeting.................................................................24
Costs of Solicitation................................................................................24
Ralcorp Savings Investment Plan Voting...............................................................24
The Merger.............................................................................................25
Background of the Merger............................................................................25
Ralcorp's Reasons for the Merger.....................................................................30
Recommendation of Ralcorp's Board of Directors.......................................................32
Agribrands' Reasons for the Merger...................................................................32
Recommendation of Agribrands' Board of Directors.....................................................35
Opinions of Financial Advisors.......................................................................35
Interests of Certain Agribrands Directors and Executive Officers in the Merger.......................60
Interests of Certain Ralcorp Directors and Executive Officers in the Merger..........................60
Completion and Effectiveness of the Merger...........................................................61
Structure of the Merger and Conversion of Agribrands and Ralcorp Stock...............................61
Exchange of Stock Certificates for Newco Stock Certificates..........................................62
Treatment of Agribrands and Ralcorp Stock Options and Other Equity Based Awards......................63
Material United States Federal Income Tax Consequences of the Merger.................................63
Accounting Treatment of the Merger...................................................................67
Regulatory Matters...................................................................................67
Restrictions on Sales of Shares by Affiliates of Agribrands and Ralcorp..............................67
New York Stock Exchange Listing of Newco Common Stock to be Issued in the Merger.....................68
Dissenters' Rights...................................................................................68
Delisting and Deregistration of Agribrands and Ralcorp Common Stock After the Merger.................69
Shareholder Lawsuit Challenging the Merger...........................................................69
The Reorganization Agreement...........................................................................70
Conditions to the Merger.............................................................................70
No Other Transactions Involving Agribrands or Ralcorp................................................71
Termination..........................................................................................72
Effect of Termination................................................................................73
Representations and Warranties.......................................................................74
Newco Charter and Bylaws...............................................................................74
Newco Unaudited Pro Forma Combined Condensed Financial Statements .....................................75
Description of Newco Capital Stock.....................................................................88
Authorized Capital Stock.............................................................................88
Newco Common Stock...................................................................................88
Newco Preferred Stock................................................................................88
Book-Entry Record Keeping............................................................................88
Common Stock Purchase Rights.........................................................................88
Anti-Takeover Provisions.............................................................................90
Comparison of Rights of Newco Shareholders, Agribrands Shareholders and Ralcorp Shareholders...........90
Capitalization.......................................................................................90
Voting Rights........................................................................................91
Number and Election of Directors; Classification of Directors........................................91
Vacancies on the Board of Directors and Removal of Directors.........................................92
Amendments to the Articles of Incorporation..........................................................92
Amendments to Bylaws.................................................................................93
Action by Written Consent............................................................................93
Ability to Call Special Meetings.....................................................................93
Notice of Shareholder Action.........................................................................94
Indemnification of Directors and Officers............................................................95
Shareholder Rights Plans.............................................................................96
State Anti-Takeover Statutes.........................................................................99
Management of Newco After the Merger..................................................................102
Board of Directors of Newco.........................................................................102
Committees of Newco Board of Directors..............................................................103
Compensation of Directors...........................................................................103
Certain Relationships Between Directors and Ralcorp or Agribrands...................................103
Business Relationships Between Agribrands and Ralston Related to Spin-Off...........................104
Business Relationships Between Ralcorp and Agribrands...............................................105
Executive Officers of Newco.........................................................................105
Compensation of Executive Officers..................................................................105
Legal Matters.........................................................................................106
Experts...............................................................................................106
Other Matters.........................................................................................106
Shareholder Proposals.................................................................................107
Where You Can Find More Information...................................................................107
Annexes
Reorganization Agreement............................................Annex A
Opinion of Bank of America Securities LLC ..........................Annex B
Opinion of A.G. Edwards & Sons, Inc.................................Annex C
Opinion of Wasserstein Perella & Co., Inc...........................Annex D
Opinion of Houlihan Lokey Howard & Zukin Capital....................Annex E
Section 351.455, Missouri Revised Statutes..........................Annex F
Newco Articles of Incorporation.....................................Annex G
Newco Bylaws........................................................Annex H
PRELIMINARY PROXY MATERIALS DATED SEPTEMBER 29, 2000
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. Why are Ralcorp and Agribrands proposing the merger?
A. We are proposing the merger because we believe the combined strengths of
our companies will generate long-term benefits for our shareholders.
Agribrands has substantial cash flows and as of August 31, 2000 had
approximately $170 million in cash reserves. Since April of 1997, Ralcorp
has acquired ten private label food businesses. We believe that combining
the companies will enhance the combined companies' ability to complete
acquisitions in the private label food industry utilizing Agribrands' cash,
cash flows and debt capacity. We expect that shareholders of both companies
will share in Newco's anticipated growth through acquisitions. Also, Newco
expects to continue to explore avenues of growth for its animal feed and
nutrition business. Though our products and locations of operations are
diverse, the companies share a driving purpose: delivering long-term
shareholder value.
Q What overall benefits do Ralcorp and Agribrands anticipate from the merger?
A. The merger is intended to transform the prospects and perceptions of both
companies. Currently, both are perceived as commodity suppliers in
industries where consolidating customer bases can be expected to apply
increasing pressure on margins and growth. While these are valid concerns,
we believe, particularly with respect to domestic private label foods, that
by assembling a broad portfolio of products and customer service
capabilities we will be positioned to enhance retailers' overall store
brand programs and form mutually beneficial long-term partnerships with the
retail trade. This should deliver revenue and earnings growth.
Additionally, we hope that our increased activity in expanding our
business, along with the greater size, will attract more attention from the
investment community than Ralcorp and Agribrands presently receive. This
increased attention should increase the liquidity of all shareholders'
investments.
Successfully expanding our private label business and improving investment
liquidity should improve the value of shareholders' investments in Newco
because even modest increases in the stock markets' implied rate of growth
or profitability assigned to Newco should raise the value of Newco's
shares.
Q How do you anticipate that the merger would benefit the Ralcorp
shareholders?
A. With the consummation of its largest acquisition yet (Red Wing) in July
2000, Ralcorp has achieved a scale and product line scope where it can
begin to move forward with its strategy of establishing partnerships with
the retail trade. The level of benefits derived from such partnerships will
be influenced by the timing and extent of continued expansion through
acquisitions. While we cannot assure you that we will successfully
implement future acquisitions, the merger provides immediately substantial
financial flexibility to pursue additional or larger acquisitions. The
merger also affords Ralcorp shareholders the ability to accelerate the
growth of our product offerings, and to realize the benefits of Agribrands'
excess cash flow at a time when Agribrands' stock price is depressed.
Q. How do you anticipate that the merger would benefit the Agribrands
shareholders?
A. Agribrands is generating cash flow in excess of the opportunities to invest
such funds profitably in its core business. Agribrands believes that the
merger with Ralcorp will allow it to invest these excess funds in a company
known to its board and management at a time when the financial markets are
undervaluing the securities of both companies. Agribrands management will
then be able to continue to focus on improving the returns from its core
business, to expand into new underdeveloped agricultural animal feed
markets and to acquire related businesses.
Agribrands management believes that the combined company, with Ralcorp's
growth prospects and Agribrands' strong balance sheet and stable cash
flows, can reasonably be expected to have a revenue growth rate greater
than that of either Agribrands or Ralcorp on a stand alone basis.
Q. What will I receive in the merger?
A. Shareholders of Ralcorp and Agribrands will receive the following in the
merger:
1
o Ralcorp shareholders may elect to have each share of Ralcorp common
stock converted into either one share of Newco common stock or $15 in
cash (subject to the limitation that at least 80% of Ralcorp's
outstanding shares must be exchanged for shares).
o Agribrands shareholders may elect to have each share of Agribrands
common stock converted into either three shares of Newco common stock
or $39 in cash (subject to the limitation that at least 80% of
Ralcorp's outstanding shares must be exchanged for shares).
Q. Why is there a cash option? How were the amounts determined?
A. The cash option is being offered to any current shareholders who would like
partial liquidity of their investment. The cash amounts were established at
a slight premium to pre-announcement trading values. Offering a slight
premium balances the benefits of repurchasing shares at attractive prices
with using Newco's cash and borrowing capacity to fund acquisitions.
Q. How did you determine the merger ratios and cash election amounts?
A As noted above, the cash amounts were intended to provide a slight premium
to pre-announcement trading levels. The determination of the cash amounts
took place in tandem with the determination of the stock merger ratio. The
merger ratios and the cash amounts offered were both elements in this
negotiation and were influenced by numerous factors, including the trading
relationships of the stocks over various periods of time. The difference
between the final cash offers and stock merger ratios is the outcome of
these negotiations.
Q. Did management consider alternatives to this merger which would provide
shareholders with a premium to current market prices for our shares?
A. Our Boards of Directors, with the assistance of their financial advisors,
considered several alternatives to the merger. Each group of directors
believes that the merger provides the best opportunity for delivering
long-term shareholder value.
Q. How did you address the overlapping directorships between Ralcorp and
Agribrands?
A. Each company's Board of Directors established a committee of independent
directors to consider, evaluate and negotiate the transaction. Each company
and each company's special committee was advised by separate financial
advisors and legal counsel. Each committee recommended the transaction
unanimously to its entire Board of Directors, each of which unanimously
approved the transaction, and fairness opinions were provided by the
financial advisors. We believe that successfully completing a combination
of businesses with the particular benefits we anticipate requires an
in-depth understanding of both businesses and confidence in the ability of
the management and directors to work together. The relationships between
our companies ensures that Newco will move forward with a unified vision of
how to expand Ralcorp's store brand business and to continue improving
Agribrands' international animal nutrition business.
The managers and board members involved in the merger decision, especially
Mr. Stiritz and Mr. Micheletto, have a substantial interest in maximizing
the value of their separate holdings in Ralcorp and Agribrands. Along with
Messrs. Stiritz and Micheletto, the members of both boards have unanimously
approved the merger and recommended its approval.
Q. How do I make an election between Newco common stock and cash?
A. When the merger is consummated, we will send you materials to allow you to
elect whether to receive Newco common stock or cash for your shares of
Ralcorp or Agribrands common stock.
Q. What if I don't make an election between Newco common stock and cash?
A. If you do not make an election, upon consummation of the merger you will
receive Newco common stock for your shares of Ralcorp or Agribrands common
stock.
Q. Can I exchange only some of my shares for cash?
A. Yes. You may elect to exchange your shares for any combination of stock and
cash. However, at least 80% of the outstanding shares of each company must
be converted into Newco common stock.
2
Q. What if the shareholders of Ralcorp or Agribrands make the Newco cash
election for more than 20% of the outstanding shares?
A. The cash elections made by shareholders of that company will be changed to
Newco stock elections on a pro rata basis so that 80% of that company's
shares are converted into Newco common stock.
Q. What shareholder approvals are needed?
A. For Ralcorp and Agribrands, the affirmative vote of the holders of
two-thirds of the outstanding shares of each company's common stock is
required to approve the merger. Each holder of common stock is entitled to
one vote per share. All of the directors and officers of Ralcorp and
Agribrands have expressed their intention to vote their shares in favor of
the merger. As of the record date, Ralcorp directors and executive officers
and their affiliates owned approximately 3.6% of Ralcorp's outstanding
shares. Also, as of the record date, directors and executive officers of
Agribrands owned approximately 0.5% of its outstanding shares.
Q. What do I need to do now?
A. After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please respond by completing, signing and
dating your proxy card and returning it in the enclosed postage paid
envelope, or by submitting your proxy or voting instructions by telephone
or the Internet, as soon as possible so that your shares may be represented
at your special meeting.
Q. How do I vote by telephone or Internet?
A. As an alternative to using the enclosed proxy card or attending the special
meeting and voting in person, you can vote by telephone by calling
toll-free and by following the instructions given at that
telephone number. You can also vote on the Internet at http://www. . If you
vote by telephone or on the Internet, you should have your proxy card
available when you begin voting. If you vote by telephone or on the
Internet, you should not mail in your proxy card. The Internet and
telephone voting facilities will be available until midnight on , 2001, the
day before the special meetings.
Q. What if I don't vote?
A. If you fail to respond, it will have the same effect as a vote against the
merger. If you respond and do not indicate how you want to vote, your
shares will be treated as present and entitled to vote and your proxy will
be counted as a vote in favor of the merger. If you respond and abstain
from voting, your shares will be treated as present and entitled to vote
but your proxy will have the same effect as a vote against the merger.
Q. How do I vote my shares held by a broker or bank?
A. Your broker or bank will provide you with instructions on how to vote via
proxy card, telephone or the Internet. If you have any concerns on how to
vote such shares, please contact your broker or bank.
Q. Can I change my vote after I have delivered my proxy?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways:
o first, you can revoke your proxy;
o second, you can submit a new proxy; or
o third, if you are a holder of record, you can attend the special
meeting and vote in person.
If you choose either of the first two methods, you must submit your notice
of revocation or your new proxy to the Secretary of Ralcorp or Agribrands,
as appropriate, before the special meeting. If your shares are held in an
account at a brokerage firm or bank, you should contact your brokerage firm
or bank to change your vote. If you submit your proxy or voting
instructions through the Internet or by telephone, you can change your vote
by submitting a proxy at a later date, using the same procedures, in which
case your later submitted proxy will be recorded and your earlier proxy
revoked.
3
Q. Should I send in my stock certificates now?
A. No. After the merger is completed, you will receive written instructions
from the exchange agent on how to exchange your stock certificates for
shares of Newco or cash depending on your election. Please do not send in
your stock certificates with your proxy. Your decision whether to elect
cash, stock or a combination will be made by you once the exchange agent
sends you a transmittal letter.
Q. Where will my shares of Newco common stock be listed?
A. We intend to apply to list the Newco common stock on the New York Stock
Exchange under the symbol .
Q. Will I receive dividends on my Newco shares?
A. Newco does not currently intend to pay dividends on its common stock.
Neither Ralcorp nor Agribrands has ever paid dividends.
Q. When do you expect the merger to be completed?
A. We are working to complete the merger as quickly as possible. We expect to
complete the merger during the first quarter of calendar year 2001.
Q. What are the tax consequences of the merger to me?
A. In most cases, the exchange of Ralcorp or Agribrands common stock for Newco
common stock should be tax-free to you for federal income tax purposes. You
will have to report taxable income, gain or loss to the extent you elect
and receive cash for your shares. To review the tax consequences to you in
more detail, see pages 63 through 67. Also, you should consult your tax
advisor.
Q. How do I vote my Ralcorp common stock held in the Ralcorp Employee Savings
Investment Plan?
A. If you are both a registered shareholder of Ralcorp and an employee
participant in the Ralcorp Holdings, Inc. Savings Investment Plan, you will
receive a single proxy card that covers shares of Ralcorp common stock
credited to your plan account as well as shares of record registered in
exactly the same name. Consequently, when you vote either by returning your
proxy card or electronically, your vote will also serve as a voting
instruction to the trustee of the Savings Investment Plan. If your plan
account is not carried in exactly the same name as your shares of record,
you will receive separate proxy cards for individual and plan holdings. If
you own shares through the plan and we have not received your vote by , the
trustee will vote your shares in the same proportion as the shares that are
voted on behalf of the other participants in the plan. The trustee will
also vote unallocated shares of Ralcorp common stock held in the plan in
direct proportion of the voting of allocated shares in the plan as to which
voting instructions have been received, unless doing so would be
inconsistent with the trustee's duties.
Q. Who can help answer my questions?
A. If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this joint proxy statement/prospectus or
the enclosed proxy card or voting instructions, you should contact:
Georgeson Shareholder Communications Inc.
17 State Street, 10th Floor
New York, New York 10004-1501
Telephone: 1-800-223-2064 or 1-212-440-9800
Also, you may contact the companies directly.
If you are a Ralcorp shareholder: If you are an Agribrands shareholder:
Ralcorp Holdings, Inc. Agribrands International, Inc.
Shareholder Services Shareholder Relations
P.O. Box 618 9811 South Forty Dr.
St. Louis, Missouri 63188-0618 St. Louis, Missouri 63124-1103
1-800- 1-800-
4
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This summary highlights selected information in the joint proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire joint proxy
statement/prospectus and the other documents we refer to for a more complete
understanding of the merger. In particular, you should read the documents
attached to this joint proxy statement/prospectus, including the Agreement and
Plan of Reorganization which is attached as Annex A. In addition, we incorporate
by reference important business and financial information about Ralcorp and
Agribrands into this joint proxy statement/prospectus. You may obtain the
information incorporated by reference into this joint proxy statement/prospectus
without charge by following the instructions in the section entitled "Where You
Can Find More Information" that begins on page 107 of this joint proxy
statement/prospectus.
The Companies
Ralcorp Holdings, Inc. (NYSE:RAH)
P.O. Box 618
St. Louis, Missouri 63188-0618
(314) 877-7000
http://www.ralcorp.com*
Q. What does Ralcorp produce?
A. Ralcorp is a leader in the manufacturing of private label or store brand
food products for sale in the United States and Canada. Store brand
products encompass all merchandise sold under a retail store's private
label. That label can be the store's own name or a name created exclusively
by that store. In some cases, a store may belong to a wholesale buying
group that owns labels which are available to the members of the group.
These wholesale-owned labels are referred to as controlled labels. Today,
the parameters for private label have been extended into virtually every
product category found in retail outlets.
We were formed in 1994 through a spin-off from our former parent company,
Ralston Purina Company. Originally, we produced branded and private label
foods and operated three ski resorts. In 1997, we undertook a significant
restructuring when we sold our ski resort and branded cereal businesses. As
a result, we are now focused on becoming a leader in private label food.
Through organic growth and strategic acquisitions, we have emerged among
the private label leaders in each of our competitive categories. We operate
20 manufacturing facilities throughout the United States. On an annualized
basis, we have approximately $1.1 billion in sales and approximately $120
million in earnings before interest, taxes, depreciation and amortization.
o Our Ralston Foods division is the industry leader in high quality
private label ready-to-eat and hot cereals.
o Bremner, Inc. gives us the number one private label cracker position.
Bremner also produces a full line of private label cookies, and has
greatly enhanced its cookie-making capacity and expertise with the
August 1998 acquisition of Sugar Kake Cookie Inc.; October 1999
acquisition of Ripon Foods, Inc.; and January 2000 acquisition of
Cascade Cookie Company, Inc.
o We have obtained the leading position in store brand and value brand
snack nuts through the acquisition of Nutcracker Brands, Inc.
(September 1998), Flavor House Products, Inc. (April 1998) and
Southern Roasted Nuts of Georgia, Inc. (March 1999). We expanded this
segment into the store brand chocolate candy business with the
acquisition of James P. Linette, Inc. in May 2000.
o Through the March 1999 acquisition of Martin Gillet & Co., Inc. and
the July 2000 acquisition of The Red Wing Company, Inc., we hold a
leading position in private label mayonnaise and shelf-stable salad
dressings, syrups, peanut butter, jams and jellies and various sauces.
- --------
* This is not an active hyperlink to the website nor is the information on
the website incorporated by reference into this joint proxy
statement/prospectus.
5
o Finally, we hold a 21.8% equity interest in the premier mountain
resort operator in North America, Vail Resorts, Inc. (NYSE: MTN).
o On August 30, 2000 we announced that we had signed a letter of intent
to purchase Ontario Foods, Inc., a manufacturer of private label dry
mixed products with annual sales of approximately $50 million. The
transaction is subject to execution of a definitive agreement,
approval of Ontario Foods' parent company's shareholders and customary
regulatory consents.
Currently, we employ approximately 4,500 people and maintain our
headquarters in St. Louis, Missouri.
Agribrands International, Inc. (NYSE:AGX)
9811 South Forty Drive
St. Louis, Missouri 63124-1103
(314) 812-0500
http://www.agribrands.com*
Q. What does Agribrands produce?
A. We are a world leader in the development and sale of animal feed as well as
other products critical to animal nutrition. All products are made and
substantially all are sold outside of the United States. Our agricultural
products are predominantly value-added premium offerings and are generally
marketed outside of the United States under the "Purina" (R) and "Chow" (R)
trademarks and the "Checkerboard" (R) logo, and product names such as
"Omolene"(R) and "Hi-Octane"(R) and "Promote" (R).
We were spun-off from Ralston Purina in 1998. The spin-off allowed us to
focus our efforts exclusively on building a solid international animal
nutrition company.
We produce and market a broad line of animal feeds and other agricultural
and nutrition products for hogs, dairy cows, beef cattle, poultry (broilers
and layers), rabbits, horses, shrimp and fish. With 71 manufacturing plants
in 16 countries on four continents, we believe that our business is the
most geographically diversified commercial animal feeds company in the
world. We may have opportunities to expand within our existing markets,
into new countries and regions, and to offer new products related to animal
feed and nutrition.
We were owned by Ralston Purina, and now benefit from a history of more
than 100 years of experience in the animal feeds and agricultural products
industries. We provide high-quality, research-proven products and customer
service in our international animal feed and agricultural products
businesses and have more than 30 years of experience in operating across
four continents. Our international subsidiaries produce and market
approximately 5,000,000 tons of animal feeds, consisting of complete
rations and concentrated formulations (requiring the addition of other
ingredients by our customers) which are designed to provide the best value
for our global customer base. Our products are formulated based on
extensive research programs conducted around the world in order to satisfy
our customers' local needs.
Because our local markets vary dramatically, local managers with extensive
experience and knowledge of local factors make day-to-day operating
decisions. Our distribution network consists of more than 3,400 independent
dealers, most selling the company's products on an exclusive basis. As a
whole, we employ approximately 60 employees in the United States and
approximately 5,000 in foreign jurisdictions.
- --------
* This is not an active hyperlink to the website nor is the information on
the website incorporated by reference into this joint proxy
statement/prospectus.
6
Newco
P.O. Box 618
St. Louis, Missouri 63188-0618
(314) 877-7000
Newco is a newly formed Missouri corporation that has not, to date,
conducted any activities other than those incident to its formation, the matters
contemplated by the reorganization agreement and the preparation of this joint
proxy statement/prospectus. The shares of Newco are now held by . Upon
completion of the merger, Ralcorp and Agribrands will each become a wholly owned
subsidiary of Newco. The business of Newco will be the combined businesses
currently conducted by Ralcorp and Agribrands.
The financial statements of Newco are omitted from this joint proxy
statement/prospectus because it has nominal assets and no liabilities, and has
had no operations.
We have applied to have the common stock of Newco listed on the New York
Stock Exchange under the symbol .
7
The Structure of the Merger (see page 61)
The following is only a summary of the merger structure and may not contain
all the information you may find important. You should review the entire
reorganization agreement which is attached as Annex A.
To accomplish the combination of Ralcorp and Agribrands, a new company,
Newco, has been formed with two subsidiaries, Ralcorp Merger Sub, Inc. and
Agribrands Merger Sub, Inc. At the time the merger is completed:
o Ralcorp Merger Sub will be merged into Ralcorp, with Ralcorp as the
surviving corporation; and
o Agribrands Merger Sub will be merged into Agribrands, with Agribrands
as the surviving corporation.
As a result, Ralcorp and Agribrands will each become a wholly owned subsidiary
of Newco.
The organization of the companies before and
after the merger is illustrated below:
[Diagram showing the companies and their shareholders before the merger and
after the merger, and showing that:
o There are 29,854,907 Ralcorp shares outstanding
o There are 9,813,851 Agribrands shares outstanding
o Newco will form two merger subs prior to the merger
o In the merger one of the merger subs will be merged into Ralcorp and
one of the merger subs will be merged into Agribrands
o Former Ralcorp shareholders will receive 1 share of Newco common stock
or $15 for each share of Ralcorp common stock in the merger
o Former Agribrands shareholders will receive 3 shares of Newco common
stock or $39 for each share of Agribrands common stock in the merger
o After the merger, former Ralcorp shareholders will own 23,887,925
shares of Newco and former Agribrands shareholders will own 23,553,242
shares of Newco, assuming full use of the cash election by
shareholders of both companies]
o No fractional shares will be issued in the merger.
o After shareholder approval, the exchange agent will send you a letter
instructing you how to exchange your Ralcorp or Agribrands shares for Newco
shares or cash.
8
Recommendation of the Boards of Directors and Opinions of Financial Advisors
(see page 32, 35)
To Ralcorp Shareholders: The Ralcorp Board of Directors believes that the
merger is fair to you and in your best interest and unanimously voted to approve
the merger and unanimously recommends that you vote FOR the approval of the
reorganization agreement. Ralcorp's directors formed a special committee of
independent directors to review and recommend to the entire board whether to
proceed with the merger. The committee unanimously recommended that the entire
board approve the merger.
To Agribrands Shareholders: The Agribrands Board of Directors believes that
the merger is fair to you and in your best interest and unanimously voted to
approve the merger and unanimously recommends that you vote FOR the approval of
the reorganization agreement. Agribrands' directors formed a special committee
of independent directors to review and recommend to the entire board whether to
proceed with the merger. The committee unanimously recommended that the entire
board approve the merger.
Opinion of Ralcorp's Financial Advisors. In deciding to approve the merger,
the Ralcorp Board of Directors considered the opinion of its financial advisor,
Banc of America Securities LLC, addressed solely to the Ralcorp Board of
Directors that, as of the date of its opinion, and subject to and based on the
assumptions and limitations referred to in its opinion, the consideration to be
received by Ralcorp shareholders in the merger is fair, from a financial point
of view, to Ralcorp shareholders. The full text of this opinion is attached as
Annex B to this joint proxy statement/prospectus. Ralcorp urges its shareholders
to read the opinion of Banc of America Securities in its entirety.
Ralcorp's special committee of independent directors retained A.G. Edwards
& Sons, Inc. as a financial advisor to the committee. The committee considered
the opinion of A.G. Edwards that, as of the date of its opinion, and subject to
and based on the considerations referred to in its opinion, the consideration to
be received by Ralcorp shareholders in the merger is fair, from a financial
point of view, to Ralcorp shareholders. The full text of this opinion is
attached as Annex C to this joint proxy statement/prospectus. Ralcorp urges its
shareholders to read the opinion of A.G. Edwards in its entirety.
Opinion of Agribrands' Financial Advisors. In deciding to approve the
merger, the Agribrands Board of Directors considered the opinion of its
financial advisor, Wasserstein Perella & Co., Inc., that, as of the date of its
opinion, and subject to and based on the considerations referred to in its
opinion, the consideration to be received by Agribrands shareholders in the
merger is fair, from a financial point of view, to Agribrands shareholders. The
full text of this opinion is attached as Annex D to this joint proxy
statement/prospectus. Agribrands urges its shareholders to read the opinion of
Wasserstein Perella in its entirety.
Agribrands' special committee of independent directors retained Houlihan
Lokey Howard & Zukin Capital to provide a fairness opinion to the Agribrands
special committee with respect to the merger. The committee considered the
opinion of Houlihan Lokey that, as of the date of its opinion, and subject to
and based on the considerations referred to in its opinion, the consideration to
be received by Agribrands shareholders in the merger is fair, from a financial
point of view, to Agribrands shareholders. The full text of this opinion is
attached as Annex E to this joint proxy statement/prospectus. Agribrands urges
its shareholders to read the opinion of Houlihan Lokey in its entirety.
Dissenters' Rights (see page 68)
Under Missouri law, you have the right to dissent from and obtain payment
in cash of the fair value of your shares in connection with the merger. If you
wish to avail yourself of such statutory dissenters' rights, you must submit a
written objection and comply with the other applicable statutory procedures
under Missouri law, including not voting in favor of approval of the
reorganization agreement. For a more complete description of these rights, see
the "Merger-Dissenters' Rights" section and Annex F which contains the
applicable Missouri statute.
The Special Meetings (see page 22)
Special Meeting of Ralcorp Shareholders. The Ralcorp special meeting will
be held at the on , 2001 starting at a.m.,
local time.
Special Meeting of Agribrands Shareholders. The Agribrands special meeting
will be held at the on , 2001 starting at a.m.,
local time.
Holders of two-thirds of the outstanding shares of each company must vote
to approve the reorganization agreement.
9
Board of Directors and Management Following the Merger (see page 102)
We have agreed that, initially, the nine directors of Newco will be all of
Ralcorp's existing directors (excluding William D. George who will retire prior
to the merger) and Agribrands' existing directors.
William P. Stiritz, Chairman, Chief Executive Officer and President of
Agribrands and Chairman of Ralcorp, will become Executive Chairman of the Board
of Directors of Newco. Joe R. Micheletto, Chief Executive Officer, President and
a director of Ralcorp and a director of Agribrands, will become Chief Executive
Officer and President of Newco and will be a member of Newco's Board of
Directors. Bill G. Armstrong, Chief Operating Officer of Agribrands, will become
Chief Executive Officer of Agribrands. David R. Wenzel, Chief Financial Officer
of Agribrands, will become Chief Financial Officer of Newco.
Interests of Directors and Executive Officers in the Merger (see page 60)
Some of the directors and executive officers of Ralcorp and Agribrands have
interests in the merger that are different from, or are in addition to, the
interests of their company's shareholders. These interests include potential
positions as directors or executive officers of Newco, the granting of
employment agreements, the exchange of existing stock options for Newco stock
options and the right to continued indemnification and insurance coverage by
Newco for acts or omissions occurring prior to the merger.
Treatment of Stock Options and Stock Appreciation Rights (see page 63)
Ralcorp. When the merger is completed, each outstanding Ralcorp employee
stock option will be converted into an option to purchase the number of shares
of Newco common stock that is the product of 1.03 multiplied by the number of
shares of Ralcorp common stock that would have been obtained prior to the merger
upon the exercise of the option, rounded up to the nearest whole share. The
exercise price per share will be equal to the exercise price per share of the
Ralcorp option before the conversion, divided by 1.03. We expect that the
original vesting schedules will be retained for most employees.
Agribrands. When the merger is completed, each outstanding Agribrands stock
option will be converted into an option to purchase the number of shares of
Newco common stock that is equal to the product of 3 multiplied by the number of
shares of Agribrands common stock that would have been obtained prior to the
merger upon the exercise of the option. The exercise price per share will be
equal to the exercise price per share of the Agribrands option before the
conversion divided by 3. We expect that the original stock option vesting
schedules will be retained for Agribrands' executive officers who will become
executive officers of Newco. Such individuals hold over 90% of Agribrands'
outstanding stock options. In addition, each outstanding stock appreciation
right relating to Agribrands common stock will be similarly converted into Newco
stock appreciation rights. The rights will vest and the recipient will be paid
the value of the rights upon the holder's election.
Tax Consequences (see page 63)
We have structured the merger so that our companies and our respective
shareholders who exchange their shares for shares of Newco common stock should
not recognize income, gain or loss for United States federal income tax purposes
in connection with the exchange. Shareholders who exchange shares for cash will
be subject to taxation on any resulting income, gain or loss. We believe that
for most shareholders such income, gain or loss will be taxed as a capital gain
(or loss). You should know that we are not seeking a ruling from the IRS
regarding the tax-free treatment of the merger. The tax consequences of the
merger to you will depend in part on your individual situation and you should
consult your tax advisor.
Overview of the Reorganization Agreement (see page 69)
Conditions to the Completion of the Merger. Each of Ralcorp's and
Agribrands' obligations to complete the merger is subject to the satisfaction or
waiver of specified conditions, including those listed below:
o the reorganization agreement must be approved by holders of at least
two-thirds of the outstanding shares each of company;
o Agribrands must obtain a ruling from the Internal Revenue Service that
the merger will not affect the tax-free status of Agribrands' spin-off
from Ralston Purina in 1998;
o no law, injunction or order preventing the completion of the merger
may be in effect;
o the applicable waiting period under U.S. antitrust laws must expire or
be terminated;
10
o to the extent required, we must obtain other regulatory approvals from
foreign governmental entities;
o the shares of Newco common stock to be issued in the merger must have
been approved for listing on the New York Stock Exchange;
o we must have complied with our respective covenants in the
reorganization agreement;
o our respective representations and warranties in the reorganization
agreement must be true and correct in all material respects and there
must not have been a material adverse change in either company's
business, assets, financial condition, properties, liabilities or
results of operations;
o we must each receive an opinion of tax counsel to the effect that the
merger will qualify as a tax-free exchange or reorganization, or both;
and
o holders of no more than 5% of the shares of either company shall have
properly demanded their statutory dissenters' rights.
Termination of the reorganization agreement. Ralcorp and Agribrands can
jointly agree to terminate the reorganization agreement at any time. Either
company may also terminate the reorganization agreement if:
o the merger is not completed on or before March 31, 2001, so long as
the failure to complete the merger is not the result of the failure by
that company to fulfill any of its obligations under the
reorganization agreement;
o such party accepts a superior proposal as referred to on page 72;
o government actions do not permit the completion of the merger;
o either company's shareholders do not vote to approve the
reorganization agreement at a duly held meeting of that company's
shareholders provided that the failure to obtain the approval is not
the result of the failure by that company to fulfill one of its
obligations under the reorganization agreement;
o the Board of Directors of the other company fails to recommend the
merger to its shareholders, as described on page 72; or
o the other company breaches its representations, warranties or
covenants in the reorganization agreement in a material way and the
breach is not cured within 30 days.
Termination Fees. The reorganization agreement provides that under several
circumstances, either of us may be required to pay termination fees of $5
million to the other party as described on page 72.
"No Solicitation" Provisions. The reorganization agreement contains
detailed provisions prohibiting Ralcorp and Agribrands from seeking an
alternative transaction or proposal. These "no solicitation" provisions prohibit
Ralcorp and Agribrands, as well as their officers, directors, subsidiaries and
representatives, from taking any action to solicit an acquisition proposal as
described on page 71. The reorganization agreement does not, however, prohibit
either party or its Board of Directors from considering, and potentially
recommending, an unsolicited bona fide written superior proposal from a third
party as described on page 71.
Regulatory Matters. Under U.S. antitrust laws, we may not complete the
merger until we have notified the Antitrust Division of the Department of
Justice and the Federal Trade Commission of the merger, filed the necessary
report forms and allowed the applicable waiting period to expire. We expect to
file the required information and materials to notify the Department of Justice
and the Federal Trade Commission of the merger on or about , 2000. The waiting
period should expire on or about .
Accounting Treatment. We intend to account for the merger under the
purchase method of accounting for business combinations in accordance with
generally accepted accounting principles. In a purchase business combination,
unless evidence clearly indicates otherwise, identification of the accounting
acquiror is dependent upon identifying the shareholder group that retains or
receives the larger portion of the voting rights in the combined enterprise.
Many criteria have been evaluated to assist in identifying the acquiror in the
merger, including composition of management, composition of the Board of
Directors and relative size of the combining companies. Given that these
factors, individually and in the aggregate, do not clearly indicate the
acquiror, we believe the ultimate identification of the acquiror will be
dependent upon determining the shareholder group with voting control. This
merger has been structured to allow for an election by the shareholders of
Agribrands and Ralcorp to receive cash rather than stock of Newco, subject to a
limitation that at least 80% of the shares of each company must be exchanged for
shares. Currently, assuming the merger ratios of 1 for 1 for Ralcorp and 3 for 1
11
for Agribrands and equal cash elections for both companies, the Ralcorp and
Agribrands shareholder groups would have approximately equal ownership
percentages in Newco. However, differences in the percentage of cash taken by
each shareholder group will impact the relative ownership percentages in Newco.
The cash elections will be dependent on many factors, which cannot be
anticipated at this time, including the market prices of the companies' stocks
prior to the required cash election. Due to the sensitivity of the cash election
in determining the acquiring corporation, we have presented elsewhere in this
joint proxy statement/prospectus two sets of unaudited pro forma combined
condensed financial statements with different assumptions, one assuming Ralcorp
shareholders acquire a majority of Newco common stock in the merger and the
other assuming Agribrands shareholders acquire a majority.
Completion and Effectiveness of the Merger. We will complete the merger
when all of the conditions to the merger are satisfied or waived in accordance
with the reorganization agreement. The merger will become effective when we file
articles of merger with the State of Missouri and the Secretary of State issues
the certificate of merger. We expect to complete the merger during the first
quarter of calendar 2001.
Comparative Market Price Information
Shares of Ralcorp's common stock have traded on the New York Stock Exchange
since 1997, and shares of Agribrands' common stock have traded on the New York
Stock Exchange since 1998. Neither Ralcorp nor Agribrands has ever paid
dividends. The following table sets forth comparative market price information
as of August 7, 2000, the last trading day before the public announcement of the
merger, and as of , 2000, the most recent date for which information was
available at the time of printing this joint proxy statement/prospectus.
Agribrands
Ralcorp Per Share Ralcorp Equivalent Agribrands Per Equivalent Per
Date Price Per Share Value Share Price Share Value
- ----------------------- --------------------- -------------------- --------------------- --------------------
August 7, 2000 $13.25 $13.25 $36.25 $39.75
, 2000
12
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present (1) selected historical financial data of
Ralcorp, (2) selected historical financial data of Agribrands and (3) selected
unaudited pro forma combined financial data of Newco which reflect the merger.
RALCORP
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Ralcorp has been derived from the
audited historical consolidated financial statements and related notes of
Ralcorp for each of the years in the five-year period ended September 30, 1999
and the unaudited historical consolidated financial statements for the nine
months ended June 30, 2000 and 1999. The historical data is only a summary, and
you should read it in conjunction with the historical financial statements and
related notes contained in the annual and quarterly reports of Ralcorp which
have been incorporated by reference into this joint proxy statement/prospectus.
(In millions, except per share data) Nine Months Ended June 30, Year Ended September 30,
----------------------- ---------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -------------
Statements of Earnings and Cash Flows Data
Net sales $550.2 $459.6 $636.6 $582.9 $739.7 $ 1,027.4 $ 1,013.4
Costs and expenses (481.7) (401.4) (558.5) (523.6) (665.9) (901.3) (861.8)
Depreciation and amortization (23.0) (17.2) (23.1) (18.2) (24.4) (46.4) (46.7)
Interest expense, net (4.3) (.8) (1.4) - (7.9) (26.8) (28.2)
Gains on sales of businesses (a) - - - 18.7 515.4 - -
Restructuring charges (b) - - - - (19.7) (16.5) -
Nonrecurring charges (c) - - - - - (109.5) (21.9)
Equity in earnings of Vail Resorts, Inc. 8.2 7.1 4.7 10.6 4.7 - -
Income taxes (18.3) (18.0) (21.9) (26.8) (10.4) 26.3 (21.4)
----------- ----------- ----------- ----------- ----------- ----------- -------------
Net earnings (loss) $ 31.1 $ 29.3 $ 36.4 $ 43.6 $531.5 $ (46.8) $ 33.4
=========== =========== =========== =========== =========== =========== =============
Earnings (loss) per share:
Basic $ 1.03 $ 0.94 $ 1.17 $ 1.33 $16.11 $ (1.42) $ 1.00
Diluted $ 1.01 $ 0.92 $ 1.15 $ 1.32 $16.01 $ (1.42) $ 0.99
Weighted average shares outstanding:
Basic 30.2 31.2 31.1 32.7 33.0 33.0 33.5
Diluted 30.7 31.8 31.7 33.1 33.2 33.0 33.9
Cash provided (used) by:
Operations $ 42.2 $ 27.4 $ 42.0 $ 38.1 $ 77.5 $ 91.8 $ 80.4
Investing activities (109.5) (68.6) (75.6) (11.2) (66.0) (64.4) (64.5)
Financing activities 66.3 31.0 23.2 (23.0) (3.1) (27.4) (15.9)
Adjusted EBITDA (d) 76.7 65.3 82.8 69.9 78.5 126.1 151.6
Balance Sheet Data
Working capital (e) $ 77.8 $ 63.6 $ 66.4 $ 33.3 $ 56.5 $ 92.4 $ 104.7
Total assets 586.8 471.4 483.8 417.9 400.3 627.1 716.2
Long-term debt 119.3 40.8 42.8 - - 376.6 395.4
Shareholders' equity 345.0 326.8 324.1 307.3 286.7 107.4 162.4
<FN>
(a) On September 10, 1998, Ralcorp completed the sale of its branded baby food
subsidiary, Beech-Nut Nutrition Corporation, resulting in an after-tax gain
of $11.6. On January 31, 1997, Ralcorp sold its branded cereal and snack
mix businesses (Branded Business), resulting in a tax-free gain of $515.4.
(b) During 1997, Ralcorp recorded restructuring charges ($12.4 after taxes) to
cover costs associated with the sale of the Branded Business as well as
severance costs for certain employees whose jobs were eliminated in
downsizing initiatives. During 1996, Ralcorp recorded a charge ($10.4 after
taxes) to recognize the costs related to the restructuring of its cereal
subsidiary, Ralston Foods.
(c) During 1996, Ralcorp recorded an impairment charge ($68.8 after taxes)
related to its private label ready-to-eat cereal and consumer hot cereal
operations. During 1995 Ralcorp recorded charges ($13.6 after taxes)
related to its exit from industrial oats and oats milling operations and an
impairment of the consumer hot cereal business.
(d) Adjusted EBITDA consists of earnings before interest, income taxes,
depreciation and amortization, excluding restructuring charges,
nonrecurring charges and gains on sales of businesses. Ralcorp considers
adjusted EBITDA to be an important indicator of the operational strength
and performance of its businesses, including the ability to provide cash
flows to service debt and fund capital expenditures. Adjusted EBITDA,
however, should not be considered an alternative to operating or net income
as an indicator of the performance of Ralcorp, or as an alternative to cash
flows from operating activities as a measure of liquidity, in each case
determined in accordance with generally accepted accounting principles. In
addition, this definition of adjusted adjusted EBITDA may not be comparable
to similarly titled measures reported by other companies.
(e) Working capital excludes cash and cash equivalents and current maturities
of long-term debt, where applicable.
</FN>
13
AGRIBRANDS
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Agribrands has been derived from
the audited historical consolidated financial statements and related notes of
Agribrands for each of the years in the five-year period ended August 30, 1999
and the unaudited historical consolidated financial statements for the nine
months ended May 31, 2000 and 1999. The historical data is only a summary, and
you should read it in conjunction with the historical financial statements and
related notes contained in the annual and quarterly reports of Agribrands which
have been incorporated by reference into this joint proxy statement/prospectus.
(In millions, except per share data) Nine Months Ended May 31, Year Ended August 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
Statements of Earnings and Cash Flows Data
Net sales $ 890.2 $ 954.9 $ 1,261.5 $ 1,410.1 $ 1,527.6 $ 1,401.3 $ 1,147.2
Costs and expenses (823.2) (883.6) (1,169.3) (1,332.1) (1,459.0) (1,333.6) (1,084.9)
Depreciation and amortization (18.9) (17.6) (24.8) (21.2) (21.9) (20.4) (17.5)
Restructuring charges (a) (1.2) - - (3.0) (3.2) (8.3) (1.8)
Gains on sales of property (b) - .5 2.3 - - 3.6 1.6
Interest expense (2.3) (6.9) (8.0) (12.0) (10.9) (13.0) (12.1)
Investment income 6.9 8.0 10.2 5.2 4.2 3.6 4.9
Foreign exchange loss (.1) (.6) (1.5) (12.8) (3.7) (8.3) (4.0)
Income taxes (17.1) (22.3) (26.4) (20.4) (24.4) (14.0) (18.7)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings $ 34.3 $ 32.4 $ 44.0 $ 13.8 $ 8.7 $ 10.9 $ 14.7
=========== =========== =========== =========== =========== =========== ===========
Earnings per share:
Basic (c) $ 3.37 $ 3.06 $ 4.16 $ 1.29 $ 0.82 $ 1.02 $ 1.37
Diluted (c) $ 3.27 $ 3.02 $ 4.11 $ 1.29 $ 0.82 $ 1.02 $ 1.37
Weighted average shares outstanding:
Basic (c) 10.2 10.6 10.6 10.7 10.7 10.7 10.7
Diluted (c) 10.5 10.7 10.7 10.7 10.7 10.7 10.7
Cash provided (used) by:
Operations $ 27.2 $ 93.0 $ 110.6 $ 33.3 $ 67.8 $ (18.3) $ 7.0
Investing activities (16.7) (25.2) (27.4) (59.7) (38.5) (36.1) (26.6)
Financing activities (22.4) (32.5) (43.9) 145.2 (21.1) 61.1 20.0
Adjusted EBITDA (d) $ 67.5 $ 70.7 $ 90.7 $ 65.2 $ 64.9 $ 59.4 $ 58.3
Balance Sheet Data
Working capital $ 197.5 $ 175.4 $ 186.4 $ 153.7 $ 46.7 $ 59.4 $ 37.4
Total assets 568.0 571.7 566.2 578.4 481.2 497.8 407.8
Long-term debt 11.0 9.5 11.5 14.2 22.8 41.3 34.3
Shareholders' equity 382.4 367.5 373.3 339.4 198.1 190.3 139.9
<FN>
(a) After-tax provisions for restructuring reduced net earnings by $1.2 in the
nine months ended May 31, 2000 and $1.7 in the year ended August 31, 1998,
$3.2 in 1997, $7.2 in 1996 and $1.0 in 1995.
(b) After-tax gain on the sale of property increased net earnings by $1.5 in
the year ended August 31, 1999, $2.9 in 1996 and $1.1 in 1995.
(c) Assumes 10.7 million weighted average shares outstanding for all periods
prior to April 1, 1998.
(d) Adjusted EBITDA consists of earnings before interest, investment income,
income taxes, depreciation and amortization, excluding restructuring
charges, nonrecurring charges and gains on sale of property. Agribrands
considers adjusted EBITDA to be an important indicator of the operational
strength and performance of its businesses, including the ability to
provide cash flows to service debt and fund capital expenditures. Adjusted
EBITDA, however, should not be considered an alternative to operating or
net income as an indicator of the performance of Agribrands, or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles. In addition, this definition of adjusted EBITDA may
not be comparable to similarly titled measures reported by other companies.
</FN>
14
NEWCO
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected unaudited pro forma combined financial data of Newco have been
derived from the unaudited pro forma combined condensed financial statements
included elsewhere in this joint proxy statement/prospectus. As discussed under
"Newco Unaudited Pro Forma Combined Condensed Financial Statements" on page 75,
because Ralcorp and Agribrands shareholders may elect to receive cash in lieu of
shares of Newco common stock (subject to the limitation that at least 80% of
each company's shares must be exchanged for shares), the portion of the voting
rights in Newco that will be held by former Ralcorp and Agribrands shareholders,
and thus the identity of the acquiring corporation, cannot be determined at this
time. Accordingly, the following selected unaudited pro forma combined financial
data are presented on two different bases: (1) assuming Ralcorp is the acquiring
corporation, with 100% of each company's outstanding stock being exchanged for
common stock, and (2) assuming Agribrands is the acquiring corporation, with
98.5% of Ralcorp shares and 100% of Agribrands shares being exchanged for common
stock. Upon completion of the merger, the future operating results and combined
financial position may differ materially from the pro forma accounts reflected
in the following statements due to a variety of factors, including changes of
operating results between the date of the pro forma information and the time of
completion of the merger, as well as the factors discussed under the caption
entitled "Risk Factors" discussed elsewhere in this joint proxy
statement/prospectus.
(In millions, except per share data) Assuming Ralcorp is the Assuming Agribrands is the
Acquiring Corporation Acquiring Corporation
---------------------------- ----------------------------
Nine Months Year Ended Nine Months Year Ended
Ended June 30, September 30, Ended May 31, August 31,
2000 1999 2000 1999
------------- ------------- ------------- -------------
STATEMENT OF EARNINGS DATA
Net sales $ 1,699.7 $ 2,392.8 $ 1,699.7 $ 2,392.8
Net earnings 65.9 80.6 66.8 81.8
Earnings per share:
Basic $ 1.08 $ 1.28 $ 1.11 $ 1.31
Diluted 1.06 1.26 1.08 1.29
Weighted average shares outstanding:
Basic 60.8 62.8 60.4 62.4
Diluted 62.2 63.8 61.8 63.4
Adjusted EBITDA (a) $ 164.0 $ 211.1 $ 165.8 $ 213.5
June 30, 2000 May 31, 2000
------------- -------------
BALANCE SHEET DATA
Working capital (b) $ 134.3 $ 316.9
Total assets 1,400.8 1,396.8
Long-term debt 281.2 281.2
Shareholders' equity 777.5 773.5
<FN>
(a) Adjusted EBITDA consists of earnings before interest, income taxes,
depreciation and amortization, excluding restructuring charges,
nonrecurring charges and gains on sales of property. NEWCO considers
adjusted EBITDA to be an important indicator of the operational strength
and performance of its businesses, including the ability to provide cash
flows to service debt and fund capital expenditures. Adjusted EBITDA,
however, should not be considered an alternative to operating or net income
as an indicator of the performance of NEWCO, or as an alternative to cash
flows from operating activities as a measure of liquidity, in each case
determined in accordance with generally accepted accounting principles. In
addition, this definition of adjusted EBITDA may not be comparable to
similarly titled measures reported by other companies.
(b) Working capital is presented based on the historical calculation method of
the acquiring corporation. For Ralcorp, working capital is current assets
less current liabilities, excluding cash and cash equivalents and current
maturities of long-term debt, where applicable. For Agribrands, working
capital is total current assets less total current liabilities.
</FN>
The following table presents the unaudited pro forma diluted earnings per
share of Newco common stock assuming various cash election percentages:
Assumed Cash Election Percentages
----------------------------------------------------------------------------------
(as presented above)
--------------------------------
Ralcorp shareholders 0.0% 1.5% 10.0% 20.0% 20.0%
Agribrands shareholders 0.0% 0.0% 10.0% 18.5% 20.0%
- ----------------------------------- ---------------- --------------- ---------------- ---------------- ---------------
Nine months of fiscal 2000 $ 1.06 $ 1.08 $ 1.10 $ 1.15 $ 1.14
Fiscal year 1999 1.26 1.29 1.30 1.35 1.34
15
NEWCO UNAUDITED COMPARATIVE PER SHARE DATA
The following table reflects (a) the historical net earnings and book value
per share of Ralcorp common stock in comparison with the pro forma net earnings
and book value per share after giving effect to the proposed merger (1 for 1
exchange for Newco common stock), and (b) the historical net earnings and book
value per share of Agribrands common stock in comparison with the equivalent pro
forma net earnings and book value per share attributable to 3 shares of Newco
common stock which will be received for each share of Agribrands. No dividends
have been paid by either company. We have derived the unaudited pro forma
combined per share information from the unaudited pro forma combined condensed
financial statements presented elsewhere in this joint proxy
statement/prospectus. You should read the information below in conjunction with
the financial statements and accompanying notes of Ralcorp and Agribrands that
are incorporated by reference in this joint proxy statement/prospectus and with
the unaudited pro forma combined condensed information included under "Newco
Unaudited Pro Forma Combined Condensed Financial Statements."
Ralcorp Agribrands
----------------------- -----------------------
Nine Fiscal Nine Fiscal
Assuming Ralcorp is the months year months year
Acquiring Corporation fiscal 2000 1999 fiscal 2000 1999
- ------------------------------------------- ---------- ----------- ---------- ----------
Net earnings per share (basic):
Historical $1.03 $1.17 $3.37 $4.16
Pro forma 1.08 1.28
Equivalent pro forma 1.08 1.28 3.24 3.84
Net earnings per share (diluted):
Historical $1.01 $1.15 $3.27 $4.11
Pro forma 1.06 1.26
Equivalent pro forma 1.06 1.26 3.18 3.78
Book value per share at end of period:
Historical $11.55 $38.97
Pro forma 13.11
Equivalent pro forma 13.11 39.33
Ralcorp Agribrands
----------------------- -----------------------
Nine Fiscal Nine Fiscal
Assuming Agribrands is the months year months year
Acquiring Corporation fiscal 2000 1999 fiscal 2000 1999
- ------------------------------------------- ---------- ----------- ---------- ----------
Net earnings per share (basic):
Historical $1.03 $1.17 $3.37 $4.16
Pro forma 1.11 1.31
Equivalent pro forma 1.11 1.31 3.33 3.93
Net earnings per share (diluted):
Historical $1.01 $1.15 $3.27 $4.11
Pro forma 1.08 1.29
Equivalent pro forma 1.08 1.29 3.24 3.87
Book value per share at end of period:
Historical $11.55 $38.97
Pro forma 13.14
Equivalent pro forma 13.14 39.42
16
FORWARD LOOKING STATEMENTS
This joint proxy statement/prospectus contains certain forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995, with respect to the financial condition, results of operations,
business strategies, operating efficiencies or synergies, competitive positions,
growth opportunities for existing products, plans and objectives of management,
markets for stock of Agribrands and Ralcorp and other matters. Statements in
this joint proxy statement/prospectus that are not historical facts are
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933. These forward-looking statements, wherever they occur in
this joint proxy statement/prospectus, are necessarily estimates reflecting the
best judgment of management of our companies; they involve risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Certain factors that could affect
the future results of Newco and could cause results to be materially difference
from those indicated by such forward looking statements are described in this
joint proxy statement/prospectus, under "Risk Factors" and elsewhere herein, and
include the following:
o Whether financial markets will value the shares of Newco in a manner
which reflects the anticipated benefits from the merger;
o Whether Newco is able to realize the anticipated benefits of the
merger;
o Business conditions, including competition, raw materials costs and
ongoing consolidation, in the markets in which Ralcorp and Agribrands
have operated, and in which Newco will operate, which could adversely
affect the ability of management to achieve its objectives;
o The ability of Newco able to maintain pricing levels for its products
which will allow it to achieve ongoing profitability;
o The ability of Newco to identify appropriate acquisition candidates
and complete such acquisitions at satisfactory prices and otherwise on
satisfactory terms, or at all;
o The ability of Newco to successfully integrate acquired companies with
its other operations and to operate such companies in order to achieve
the anticipated benefits of the acquisitions; and
o The factors affecting the international operations now conducted by
Agribrands, including currency exchange rates, higher foreign income
tax rates and government regulation.
Words such as "estimate," "project," "plan," "intend," expect," "believe" and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this joint
proxy statement/prospectus and the other documents incorporated by reference in
this joint proxy statement/prospectus. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this joint proxy statement/prospectus. Neither Agribrands nor Ralcorp undertakes
any obligation to publicly update or release any revisions to these
forward-looking statements to reflect events and circumstances after the date of
this joint proxy statement/prospectus or to reflect the occurrence of
unanticipated events.
17
RISK FACTORS
In evaluating these statements, shareholders of Ralcorp and Agribrands
should specifically consider various factors, including the risks outlined below
and those listed from time to time in Ralcorp's and Agribrands' public
disclosure filings with the Securities and Exchange Commission.
You should consider carefully the following risk factors in evaluating
whether to approve the merger. You should consider the following risk factors in
conjunction with any additional information included in this proxy
statement/prospectus, including in conjunction with forward-looking statements
made herein.
Risks Related to the Merger
Fluctuations in market prices may cause the value of the shares of Newco
stock that you receive to be less than the value of your shares of
Ralcorp stock or Agribrands stock.
Upon completion of the merger, all shares of Ralcorp stock and Agribrands
stock (except shares that are purchased for cash in the merger) will be
converted into shares of Newco stock. The ratios at which your shares will be
converted are fixed, and there will be no adjustment for changes in the market
price of either Ralcorp stock or Agribrands stock. Any change in the price of
either Ralcorp stock or Agribrands stock will affect the value Ralcorp and
Agribrands shareholders will receive in the merger. Stock price changes may
result from a variety of factors that are beyond the control of Ralcorp and
Agribrands, including changes in our businesses, operations and prospects,
regulatory considerations and general market and economic conditions. We are not
permitted to "walk away" from the merger or resolicit the vote of its
shareholders solely because of changes in the market price of either party's
common stock.
The prices of Ralcorp's stock and Agribrands' stock at the closing of the
merger may vary from their prices on the date of this joint proxy
statement/prospectus and the dates of the special meetings. Because the date the
merger is completed will be later than the dates of the special meetings, the
prices of Ralcorp and Agribrands stock on the dates of the special meetings may
not be indicative of their prices on the date the merger is completed.
Newco business model may be difficult to value.
The combination of Ralcorp and Agribrands creates a new business model that
the marketplace may have difficulty valuing. The market value of shares of
common stock generally reflects a "multiple" of selected measures of financial
performance, such as operating profits or earnings per share. The multiple for
shares of Newco common stock may be similar to the multiple for shares of
Ralcorp common stock, or it may be similar to the multiple for shares of
Agribrands common stock, or it may reflect a "blending" of the two. To our
knowledge, Newco will be the only publicly traded company combining a domestic
private label food company with an international agricultural feed producer and
marketer. Further, the market price of Newco common stock may be affected by
factors different than those affecting either Ralcorp's or Agribrands' stock
individually. As a result, shares of Newco common stock may not achieve a
valuation in the public trading market that fully reflects the value of the
combined company.
Newco may fail to realize the anticipated benefits of the merger.
The success of the merger will depend, in part, on the ability of Newco to
identify potential strategic acquisitions and to successfully complete and
manage such acquisitions. To realize anticipated benefits of making
acquisitions, Newco must:
o identify potential acquisition candidates and negotiate satisfactory
terms (including the purchase price), upon which to purchase such
candidates;
o effectively and efficiently integrate acquired businesses into
existing Newco operations and systems;
o successfully retain and attract key employees to operate acquired
businesses;
o maintain adequate focus on existing core businesses of Newco while
responding to the challenges of managing newly acquired businesses;
and
o continue to generate sufficient cash from operations to fund strategic
investments.
18
If the merger is not completed, each company's stock may be negatively
impacted.
In the event the merger is not completed, each company will bear certain
fees and expenses associated with the transaction and such amounts may be
significant. Under certain circumstances, if one company terminates the
reorganization agreement, then the terminating company may be required to pay a
$5 million breakup fee. Investors and potential investors may consider the
failure to consummate the merger to be a significantly negative development
regarding one or both companies. As a consequence of any or all of the
foregoing, either company's stock price may be negatively impacted by the
failure to complete the merger.
Directors of Ralcorp and Agribrands have potential conflicts of interest in
recommending that you vote in favor of the reorganization agreement.
Two directors of Ralcorp and Agribrands have compensation, severance or
benefit arrangements that provide them with interests in the merger different
from yours. William P. Stiritz, Chairman, Chief Executive Officer and President
of Agribrands and Chairman of Ralcorp, will serve as Executive Chairman of
Newco's Board of Directors and Joe R. Micheletto, Chief Executive Officer and
President of Ralcorp and director of Agribrands, will serve as Chief Executive
Officer and director of Newco. Mr. Micheletto will have an employment agreement
and management continuity agreement with Newco, and Messrs. Stiritz and
Micheletto will have indemnification agreements with Newco. The existence of
such arrangements may have influenced their recommendation that you vote to
approve the reorganization agreement.
Agribrands' Company and Industry Specific Risks
Developments in the animal feeds industry may put profit pressure on
Agribrands.
Agribrands, as a supplier of animal feeds and other agricultural products,
is subject to the risks and uncertainties associated with the animal production
industry and the resulting fluctuations in demand for Agribrands' products. The
animal production industry, and consequently the animal feeds industry, in a
particular country can be negatively affected by many different factors. In
certain markets, the increasing nutritional efficiency of available feeds has
resulted in lower volume demand for feeds. Profit pressure and overcapacity in
various markets have led to consolidation of both the feed production and animal
production industries in those markets. Larger animal producers have tended to
integrate their business by acquiring or constructing feed production facilities
to meet some or all of their feed requirements, and consequently have relied
less on outside suppliers of animal feeds.
Significant competitive activity can lead to price declines.
There is substantial excess capacity in the animal feed business worldwide,
including the countries in which Agribrands operates. Agribrands currently faces
intense, and as a result of expected consolidation may face increasingly
intense, competition from large multinational and other international as well as
local and regional feed manufacturers, cooperatives, single-owner establishments
and government feed companies. Some of these competitors are larger and have
greater financial resources than Agribrands, and in some countries in which we
operate cooperatives and government feed companies may have significant
financial and political advantages. Because of limited technological or capital
constraints on entry into the animal feed industry and the extremely fragmented
nature of the industry, new competitors with relatively modest return objectives
can arise in any market at any time. As large producers vertically integrate
their businesses by acquiring or constructing feed production facilities they
place less reliance on outside suppliers of feed. As the consolidation of animal
producers continues, competition is likely to increase among independent feed
suppliers, and that industry is also likely to consolidate.
Agribrands' structure may result in higher costs than those of competitors.
As Agribrands operates on an international basis and markets a broad line
of animal feeds and other agricultural products, it bears higher costs
associated with a multi-layered distribution system, a complex production
system, and tax and financing obligations imposed by its international and
multi-currency structure, than certain of its competitors. Such higher costs may
restrict its ability to compete in particular markets on the basis of price.
Low commodity prices can adversely impact the demand for Agribrands
products.
Low commodity prices may reduce the value of and demand for complete feeds
as livestock and poultry feeders switch to pre-mix or concentrate products which
are mixed with directly acquired commodities. A significant reduction in demand
for complete feeds could materially affect the utilization of our fixed assets
thereby affecting our financial performance.
19
Raw material price volatility can negatively impact profits.
The prices of raw materials are susceptible to fluctuations, possibly
volatile, due to weather conditions, crop disease or pestilence, government
regulations (for example, regulation of genetically modified organisms),
economic climate, labor disputes and other unforeseen circumstances. Raw
materials constitute a substantial component of our cost of goods sold.
Agribrands Foreign Operations Risk
Worldwide regulatory and political risk can restrict how Agribrands
operates.
Agribrands has operating companies in 16 countries around the world and we
are subject to government regulation and political risk in each market. Because
we operate primarily through our subsidiaries, we are subject to regulation by
numerous common market, national and local governmental entities and agencies
around the world. Changes in laws or administrative practices in these countries
could have a material adverse effect on our operations and prospects.
Inflation and high local interest rates may negatively impact profits.
Inflation, hyperinflation and rapid fluctuations in inflation rates have
had and may continue to have negative effects on the currencies, economies,
capital markets and the business environment of certain countries in which
Agribrands operates, which could have an adverse effect on various of our
operating subsidiaries and investments in those countries.
Adverse application of international taxes may reduce tax credits.
Agribrands and its subsidiaries are subject to taxation in the
jurisdictions in which such entities are formed or operating. Tax rates are
higher in certain jurisdictions than the comparable tax rates in the U.S. We may
not be in a position to fully utilize foreign taxes as a credit against our U.S.
tax liability.
Changing currency exchange rates may adversely affect Agribrands.
Substantially all of Agribrands sales are made outside of the U.S. The
monetary assets and liabilities of Agribrands' operating subsidiaries are
typically denominated in local currency. Consequently, their value in dollar
terms will fluctuate with changes in the exchange rate between the local
currency and the dollar. As a result, we may experience economic loss with
respect to our local currency exposures. In addition, Agribrands' operating
subsidiaries report their results of operations and financial position in the
local currency while Agribrands reports its results of operations and other
financial data in dollars. Accordingly, Newco's reported operating results and
financial position will be affected by changes in currency exchange rates
between those currencies and the dollar. Many of the currencies of the countries
where Agribrands operates have experienced steady devaluations relative to the
dollar. Sudden major adjustments have occurred in the past, may again occur in
the future and could have a material adverse effect on Agribrands.
Ralcorp's Company and Industry Specific Risks
Inability to maintain price gaps may reduce profits.
At the retail level, Ralcorp's products sell at a discount to those of its
branded competitors. If companies producing branded products reduce the price of
their products (through price cuts or trade deals), the price of such branded
products offered to consumers may approximate or be lower than the price of our
store brand products. In such an event, Ralcorp's sales of store brand products
are likely to decline dramatically. In 1996, branded cereal manufacturers
undertook such competitive actions and Ralcorp's earnings were adversely and
materially impacted.
Consolidation among grocery trade may hurt profit margins.
Over the past several years, the grocery trade has undergone significant
consolidation. As retailers get bigger, they often seek price discounts from
suppliers since they represent more volume. Consequently, profit margins of
grocery suppliers like us will be negatively impacted. Also, in the event of
retailer consolidation, if the surviving entity is not a customer, then we may
lose key business once held with the acquired retailer.
Significant ownership of Vail Resorts creates a risk to Ralcorp's earnings.
Ralcorp owns 21.8% of Vail Resorts, Inc. (NYSE:MTN). Ralcorp acquired the
shares in 1997 when it sold its Ralston Resorts, Inc. subsidiary to Vail
Resorts. Vail Resorts common stock is publicly traded and fluctuations in Vail
20
Resort's stock may significantly impact Newco's common stock price. Also,
Ralcorp recognizes non-cash earnings from its holdings in Vail Resorts. Thus,
Ralcorp's and Newco's non-cash earnings can be negatively impacted by Vail
Resort's unfavorable performance. Ralcorp is subject to a shareholders agreement
with Vail Resorts and its controlling shareholder. The agreement restricts
Ralcorp's ability to sell its shares in Vail Resorts other than through a public
offering or, in limited circumstances, a private transaction. The inability to
effect an expeditious sale of the Vail Resorts stock could negatively impact the
ultimate proceeds received by Ralcorp if during a delay Vail Resort's stock
price declines.
Raw material price volatility can reduce profits.
Our business has risk similar to Agribrands with respect to raw materials
price volatility. Key raw materials for Ralcorp include wheat, corn, sugar, corn
sweetener, nuts and soybean oil. In the event the price of key raw materials
increases, Ralcorp's profits may be reduced unless it can pass along such
increases to customers.
Ralcorp competes in mature categories and growth can be difficult.
All categories in which we compete are mature. Overall category growth is
often slow with growth sometimes less than inflation. As a consequence,
competition for sales is intense. Category growth often depends on introductions
of new products, which can be expensive to develop and slow to gain retailer and
consumer acceptance. If large branded manufacturers do not achieve category
growth, then they often increase trade promotions and price deals to gain
volume, which may reduce consumers' purchases of store brand products.
21
INTRODUCTION
This joint proxy statement/prospectus is being furnished to you in
connection with the solicitation of proxies by each of Ralcorp's and Agribrands'
Board of Directors in connection with the proposed merger. This joint proxy
statement/prospectus is first being furnished to shareholders of Ralcorp and
Agribrands on or about , 2000. Each of us has filed important financial
statements and reports with the Securities and Exchange Commission. Since the
information is publicly available, we assume you have read it or will read it in
conjunction with reading this joint proxy statement/prospectus. Please see the
section under the caption "Where You Can Find More Information" beginning on
page 107. That section lists our filings that may contain information important
to you.
THE SPECIAL MEETINGS
Date, Time and Place of the Special Meetings
The special meetings are scheduled to be held as follows:
For Ralcorp Shareholders: For Agribrands Shareholders:
Purpose of the Special Meetings
The special meetings are being held so that shareholders of each of Ralcorp
and Agribrands may consider and vote upon a proposal to approve a reorganization
agreement between Ralcorp and Agribrands pursuant to which Ralcorp and
Agribrands will each become a wholly owned subsidiary of Newco, and transact any
other business that properly comes before the special meetings or any
adjournments or postponements of the special meetings. Approval of the
reorganization agreement will also constitute approval of the merger and the
other transactions contemplated by the reorganization agreement.
If the shareholders of Ralcorp and Agribrands approve the reorganization
agreement, upon completion of the merger:
o Ralcorp shareholders may elect to have each share of Ralcorp common
stock converted into either one share of Newco common stock or $15 in
cash (subject to the limitation that at least 80% of Ralcorp's shares
must be exchanged for shares); and
o Agribrands shareholders may elect to have each share of Agribrands
common stock converted into either three shares of Newco common stock
or $39 in cash (subject to the limitation that at least 80% of
Agribrands shares must be exchanged for shares).
If a shareholder of Ralcorp or Agribrands does not specify an election of
either Newco common stock or cash, that shareholder will receive Newco common
stock upon consummation of the merger.
Shareholder Record Date, Outstanding Shares and Voting Rights
Ralcorp. Ralcorp's Board of Directors has fixed the close of business
on , 2000 as the record date for determination of Ralcorp
shareholders entitled to notice of and to vote at the special meeting. On
the record date, there were shares of Ralcorp common stock outstanding,
held by approximately holders of record.
Agribrands. Agribrands' Board of Directors has fixed the close of business
on , 2000 as the record date for determination of Agribrands shareholders
entitled to notice of and to vote at the Agribrands special meeting. On the
record date, there were shares of Agribrands common stock outstanding, held by
approximately holders of record.
Voting Rights. For both companies, each share is entitled to one vote.
22
Vote Required for Approval of the Reorganization Agreement; Quorum
Both Ralcorp and Agribrands are Missouri corporations. Under the Missouri
corporation law, a majority of the outstanding shares of the common stock of
each company must be represented, either in person or by proxy, to constitute a
quorum at the applicable special meeting. The affirmative vote of the holders of
two-thirds of the outstanding shares of each company's common stock outstanding
as of the record date is required to approve the reorganization agreement. At
the special meetings, each share of a company's common stock is entitled to one
vote on all matters properly submitted to the shareholders.
All of the directors and executive officers of Ralcorp have expressed their
intention to vote their shares in favor of the merger. As of the record date,
Ralcorp directors and executive officers and their affiliates owned
approximately 3.6% of the outstanding shares of Ralcorp common stock.
All of the directors and executive officers of Agribrands have expressed
their intention to vote their shares in favor of the merger. As of the record
date, Agribrands directors and executive officers and their affiliates owned
approximately 0.5% of the outstanding shares of Agribrands common stock.
Proxies, Abstentions, and Related Matters
Since both Ralcorp and Agribrands are Missouri companies, the rules
relating to proxies, abstentions and related matters are the same. Therefore,
the following description sets forth how proxies will be voted and the effect of
abstentions, broker non-votes and general failures to vote:
o all shares of common stock represented by properly executed proxies
received before a company's special meeting will be, unless revoked
properly, voted in accordance with the instructions indicated;
o if no instructions are indicated on a properly executed proxy card,
the shares will be voted FOR approval of the reorganization agreement;
o shares represented by proxies or voting instructions that are marked
"ABSTAIN" will be treated as shares present and entitled to vote,
which will have the same effect as a vote against the merger;
o if a broker or trustee indicates on the proxy or voting instructions
that it does not have discretionary authority as to the merger, that
will have the same effect as a vote against the merger;
o a failure to vote will have the same effect as a vote against the
merger; and
o in the event any matter other than approval of the reorganization
agreement is properly brought before the special meeting, an event not
anticipated, persons named as proxies will vote in accordance with
their judgment. If, however, authority to so vote is withheld on a
proxy, the persons named as proxies will not vote on the other matter.
Revoking a Proxy
A proxy or other voting instruction may be revoked at any time before it is
voted by:
o sending in another proxy or voting again electronically after your
original vote;
o notifying the appropriate Corporate Secretary before the special
meeting of the revocation; or
o voting in person at the special meeting.
Voting in Person
In lieu of voting by proxy, you may vote in person by attending the special
meeting. If you are not a record holder, you must bring a statement of ownership
from your bank or broker.
Voting by Telephone or on the Internet
Shareholders of both companies can vote by telephone by calling toll-free
( ) and following the instructions given at the telephone
number.
o Ralcorp shareholders can vote via the Internet at http://www. .
Agribrands shareholders can vote via the Internet at http://www. .
o Telephone and Internet voting for both companies will cease at
midnight on , 2001.
o If you vote via telephone or Internet, do not send in your proxy card.
23
o When you vote by telephone or Internet, please have your proxy card
available for reference.
o If your broker, bank or other holder of record holds your shares, you
must follow the voting directions provided by such person with respect
to telephone or Internet voting.
Other Matters at the Special Meeting
Both companies' bylaws provide that only matters identified in a Notice of
Special Meeting can be considered and voted upon at special meetings.
Consequently, we expect that only the approval of the reorganization agreement
will be considered and voted upon. We know of no other motions intended to be
voted upon other than the approval of the reorganization agreement. Either
company may adjourn or postpone its special meeting in order to further solicit
proxies. No proxy or voting instruction voting against the merger will be
exercised on any proposal to adjourn or postpone the special meeting that is
submitted to a shareholder vote.
Costs of Solicitation
Ralcorp and Agribrands will equally share the expenses incurred in
connection with the printing and mailing of this joint proxy
statement/prospectus. The companies have retained Georgeson Shareholder
Communications Inc., for a fee of $20,000 plus additional charges related to
telephone calls and other services, to assist in the solicitation of proxies.
Ralcorp, Agribrands and their proxy solicitor will also request banks, brokers
and other intermediaries holding shares of Ralcorp or Agribrands stock
beneficially owned by others to send this joint proxy statement/prospectus to,
and obtain proxies from, the beneficial owners and will reimburse the holders
for their reasonable expenses in so doing. Solicitation of proxies by mail may
be supplemented by telephone, telegram and other electronic means,
advertisements and personal solicitation by the directors, officers or employees
of Ralcorp or Agribrands. No additional compensation will be paid to directors,
officers or employees for such solicitation.
Ralcorp Savings Investment Plan Voting
If you are both a registered shareholder of Ralcorp and an employee
participant in the Ralcorp Holdings, Inc. Savings Investment Plan, you will
receive a single proxy card that covers shares of Ralcorp common stock credited
to your plan account as well as shares of record registered in exactly the same
name. Consequently, when you vote either by returning your proxy card or
electronically, your vote will also serve as a voting instruction to the trustee
of the Savings Investment Plan. If your plan account is not carried in exactly
the same name as your shares of record, you will receive separate proxy cards
for individual and plan holdings. If you own shares through the plan and we have
not received your vote by , the trustee will vote your shares in the same
proportion as the shares that are voted on behalf of the other participants in
the plan. The trustee will also vote unallocated shares of Ralcorp common stock
held in the plan in direct proportion to the voting of allocated shares in the
plan as to which voting instructions have been received, unless doing so would
be inconsistent with the trustee's duties.
24
THE MERGER
This section of the joint proxy statement/prospectus describes material
aspects of the proposed merger, including the reasons for the merger and the
reorganization agreement. While we believe that the description covers the
material terms of the merger, this summary may not contain all of the
information that is important to you. You should read this entire joint proxy
statement/prospectus and the other documents we refer to carefully for a more
complete understanding of the merger. You should also read the reorganization
agreement attached as Annex A. In addition, we incorporate important business
and financial information about each of us into this joint proxy
statement/prospectus by reference. You may obtain the information incorporated
by reference into this joint proxy statement/prospectus without charge by
following the instructions in the section entitled "Where You Can Find More
Information" that begins on page 107 of this joint proxy statement/prospectus.
Background of the Merger
After Agribrands' spin-off from Ralston Purina in April 1998, its
management focused on identifying growth opportunities and improving cash flow
generation from existing operations. During this period, management pursued
discussions with numerous potential partners and targets without success.
Ultimately, management concluded that attractive investment opportunities
related to Agribrands' core animal feed operations would be limited and
primarily in ancillary product lines and services (such as the animal health
business).
Meanwhile, Agribrands' cash reserves increased to $178.8 million on
November 30, 1999. Confident that existing operations would continue to produce
cash flows exceeding that needed for operating requirements and identified
agribusiness related investment opportunities, management began to consider
investments in unrelated enterprises. At management's recommendation, on
January, 28, 2000, the Agribrands Board of Directors approved a resolution
authorizing management to invest up to $30 million in equity securities of
publicly listed companies traded on a U.S. stock exchange.
Between February and April, 2000, several investment banks which were not
formally engaged by Agribrands (including Banc of America Securities) made
presentations based on publicly available information to Agribrands' management
regarding various strategic alternatives such as a leveraged buyout, a
significant share repurchase program and potential acquisitions. Management
concluded that, based on these presentations and on internal analysis, a
leveraged buyout was not likely to be feasible based on equity returns in light
of the estimated premiums needed to be paid to shareholders. Also, Agribrands
management determined that a large share repurchase would be accretive to
earnings in the near term but in the long term would greatly reduce the
liquidity of Agribrands' stock, which could lead to downward pressure on the
stock price over time.
In March 2000, Joe R. Micheletto, Chief Executive Officer and President of
Ralcorp, along with several key managers, participated in several meetings at
Ralcorp's headquarters with various investment banking firms. The firms, on
their own initiative, presented preliminary studies of Ralcorp undertaking a
leveraged buyout. Each firm indicated that its interest in proposing a buyout
was prompted by Ralcorp's stock price decline during the first two months of
2000 (Ralcorp's stock had closed on January 3, 2000 at $19.1875 and by March 1,
2000 it closed at $14.4375).
On several occasions during April and early May, Mr. Micheletto reviewed
the status of Ralcorp's analyses of a leveraged buyout with William P. Stiritz,
Chairman of Ralcorp and Chairman, Chief Executive Officer and President of
Agribrands. These meetings were conducted as part of Mr. Micheletto's normal
reporting responsibilities to Mr. Stiritz. No decisions were made regarding a
leveraged buyout or other strategic alternatives.
On May 17, 2000, Banc of America Securities met with management of Ralcorp,
including Mr. Micheletto, at Ralcorp's St. Louis headquarters, to discuss a
potential leveraged recapitalization transaction. Several days after the
meeting, Mr. Micheletto and Ralcorp key managers provided Banc of America
Securities with internal financial data for use by Banc of America Securities in
completing a more detailed analysis of the feasibility of a leveraged
recapitalization transaction.
After the meeting and during the remainder of that week, Messrs. Stiritz
and Micheletto had several telephone conversations discussing the feasibility of
a Ralcorp leveraged buyout. These discussions were part of Mr. Micheletto's
normal reporting responsibilities to Mr. Stiritz. During one of these
discussions, Mr. Micheletto suggested that Agribrands might want to consider
participating in a leveraged buyout of Ralcorp as the lead equity investor.
After consulting with Agribrands' key managers, Mr. Stiritz informed Mr.
Micheletto that Agribrands was receptive to considering such a transaction.
25
At the May 25, 2000 regularly scheduled meeting of the Ralcorp Board of
Directors, Mr. Micheletto reviewed management's analysis of a leveraged buyout
transaction. Mr. Micheletto indicated that a leveraged buyout may deliver value
to shareholders during a period in which Ralcorp's stock price was depressed. He
indicated that, based on his discussions with Mr. Stiritz, he believed
Agribrands would consider being the lead equity investor in such a transaction.
Mr. Stiritz left the meeting and the remaining directors reviewed with Mr.
Micheletto in detail various aspects of the potential leveraged buyout. When Mr.
Stiritz returned to the meeting, the Board of Directors informed Messrs. Stiritz
and Micheletto that Mr. Micheletto was authorized to explore a leveraged buyout
to determine if it was financially feasible, would allow Ralcorp to continue its
strategy of expanding its store brand business through acquisitions and would
deliver adequate value to Ralcorp shareholders.
On May 26, 2000, the Agribrands Board of Directors held a regularly
scheduled meeting and reviewed strategic options available to Agribrands. After
the review, the Board of Directors authorized management to engage the
investment banking firm Wasserstein Perella as Agribrands' financial advisor to
assist Agribrands in evaluating its strategic options, including a potential
merger with Ralcorp. At this meeting, a special committee of the Board of
Directors was established to review any potential transaction and Mr. David
Banks, a director of Agribrands, was elected as its chairman. The Agribrands
special committee was granted the authority to review, negotiate and evaluate
the terms and conditions and determine the advisability of a potential business
transaction with Ralcorp and to make recommendations to the Agribrands board
with respect to any proposed transaction.
On June 5, 2000, Banc of America Securities met with Mr. Micheletto, key
representatives of Ralcorp's management, and Mr. Stiritz and Mr. David R.
Wenzel, Chief Financial Officer of Agribrands, at Ralcorp's offices to provide
an update to the leveraged recapitalization analysis presented on May 17, 2000.
In the presentation, Banc of America Securities noted that the private label
food industry remained fragmented and that numerous acquisition candidates
existed. They also discussed Ralcorp's current earnings level and potential
earnings growth through acquisitions. As an alternative to a leveraged
transaction, Banc of America Securities discussed potential business
combinations between Ralcorp and Agribrands. Banc of America Securities also
discussed the possibility that this type of transaction could aid Ralcorp's
growth strategy and benefit Agribrands' desire to utilize its cash flow and cash
reserves. Messrs. Stiritz and Micheletto requested that Banc of America
Securities prepare a more detailed presentation concerning a merger-of-equals
transaction.
On June 21, 2000, Banc of America Securities met with Messrs. Stiritz and
Micheletto and key representatives of Ralcorp's management (via teleconference)
to review an analysis of various transaction structures with Agribrands. Banc of
America Securities presented a preliminary analysis indicating that a merger of
equals was attractive because it combined the strengths of both companies
without incurring the high level of debt required for a leveraged buyout. For
example, Banc of America Securities' preliminary analysis indicated that jointly
Ralcorp and Agribrands could fund more transactions similar to Ralcorp's
contemplated (and later completed) purchase of Red Wing if they merged. Banc of
America Securities' preliminary analysis also indicated that the high level of
debt that would result from a leveraged buyout at a price reflecting an adequate
cash premium to Ralcorp shareholders could significantly reduce Ralcorp's
ability to undertake its acquisition strategy on a stand alone basis.
On June 27, 2000, representatives of Wasserstein Perella met with Messrs.
Stiritz and Wenzel at Agribrands' offices to discuss the possibility of a merger
transaction with Ralcorp. At the end of the meeting, Mr. Stiritz directed
Wasserstein Perella to prepare a presentation concerning a proposed merger with
Ralcorp and to distribute it to the Agribrands Board of Directors.
During this period, the chairman of the special committee of Agribrands and
the individual members of the Board of Directors were periodically advised by
Agribrands management of the evolving nature of the discussions among the
companies and the investment advisers.
On July 6, 2000, a special meeting (via teleconference) of the Agribrands'
Board of Directors was held to update the directors about the proposed project
and to inform them of the possibility of a merger transaction with Ralcorp.
Wasserstein Perella presented a preliminary analysis based on publicly available
information. The disinterested members of the Board of Directors discussed the
project with management, initially in a private session with Mr. Stiritz, and
then in turn with certain officers of Agribrands, including Michael J. Costello,
General Counsel and Corporate Secretary, Bill G. Armstrong, Chief Operating
Officer, and Mr. Wenzel.
On July 7, 2000, Banc of America Securities presented to the Ralcorp Board
of Directors (via teleconference) an analysis of various merger transaction
structures with Agribrands. Following the meeting, the Board of Directors agreed
to pursue a more detailed investigation of a merger with Agribrands. An
engagement letter was signed on July 7, 2000 with Banc of America Securities
26
providing for Banc of America Securities to advise and assist the Ralcorp Board
of Directors in analyzing such a transaction. The Board of Directors decided
that if Ralcorp's preliminary due diligence review of Agribrands indicated a
merger was feasible, then the directors other than Messrs. Micheletto and
Stiritz would form a special committee of independent directors. The Board of
Directors determined that the special committee would be authorized to exercise
all powers of the Board of Directors in respect of a possible merger with
Agribrands, subject to the Board of Directors' retention of authority to approve
the definitive terms of the merger and the reorganization agreement.
On July 11, 2000, Mr. Micheletto, Robert Lockwood, Vice President, General
Counsel and Secretary of Ralcorp, and Thomas Granneman, Vice President and
Controller of Ralcorp, along with representatives of Banc of America Securities
and Messrs. Armstrong, Costello, and Wenzel, along with representatives of
Wasserstein Perella met at Banc of America Securities' New York office to begin
preliminary due diligence including making management presentations of each
company's business. At this meeting, Agribrands and Ralcorp each discussed the
future prospects of their respective businesses. Mr. Micheletto reviewed the
performance of several of Ralcorp's prior acquisitions and explained the
significant contributions the transactions have made to Ralcorp's earnings
growth. He also reviewed the potential synergies the purchase of Red Wing was
expected to deliver over the next several fiscal years. Mr. Wenzel reviewed the
ability of Agribrands to generate consistent cash flow through its diverse
operations and earnings sources. He discussed the potential for future
acquisitions in the feed sector, but indicated no progress had yet been made in
effecting any such acquisitions.
Following the July 11 meeting, Ralcorp management determined that a merger
with Agribrands appeared feasible. On July 12, 2000, the directors of Ralcorp,
excluding Messrs. Micheletto and Stiritz, held a telephonic meeting and
constituted themselves as a special committee of independent directors pursuant
to the Board of Directors' previous authorization. The committee elected Jack W.
Goodall as its Chairman and retained Gibson, Dunn & Crutcher LLP as counsel to
the special committee. Representatives of Gibson, Dunn & Crutcher discussed the
role and fiduciary duties of a special committee under applicable law. The
committee discussed the July 7 analysis of possible merger scenarios prepared by
Banc of America Securities. The committee also considered the fact that Banc of
America Securities had previously made preliminary presentations based on
publicly available information to, although it was not formally retained by,
Agribrands and concluded that it would be desirable to retain an additional
independent financial advisor separate and apart from the independent financial
advisor that had been previously retained by the Board of Directors. The
committee decided to authorize Gibson, Dunn & Crutcher to solicit proposals from
investment bankers to assist the committee in its analysis of the merger and to
provide a fairness opinion to the committee.
On July 13, 2000, the Agribrands special committee held a telephonic
meeting with Wasserstein Perella to review the status of discussions with
Ralcorp and its representatives and to discuss a potential business combination
with Ralcorp. The committee engaged Latham & Watkins as special counsel to
advise it on legal matters. Representatives of Latham & Watkins discussed with
the Agribrands special committee its fiduciary duties under applicable law with
respect to its consideration of a business combination. The committee also
directed the representatives of Wasserstein Perella to continue its due
diligence activities and to discuss valuation and structuring issues with
Ralcorp's financial advisors.
On July 13, 2000, Messrs. Micheletto and Granneman, along with
representatives of Banc of America Securities, and Messrs. Stiritz and Wenzel,
along with representatives of Wasserstein Perella, again met at Banc of America
Securities' New York offices to begin preliminary discussions regarding a
potential merger-of-equals transaction. This meeting represented the first
discussions on transaction structure, governance and valuation concepts.
On July 18, 2000, the Ralcorp special committee held a telephonic meeting
with Gibson, Dunn & Crutcher to discuss the status of recent developments
regarding the potential transaction with Agribrands and the retention of an
independent financial advisor and authorized Mr. Goodall to retain A.G. Edwards
& Sons, Inc. as the committee's advisor.
On July 18, 2000, the Agribrands special committee held a telephonic
meeting with Wasserstein Perella and Latham & Watkins to discuss and review
recent developments regarding the proposed transaction with Ralcorp, including
the status of ongoing negotiations, due diligence and financial aspects of the
transaction. Representatives of Wasserstein Perella conferred with the
Agribrands special committee regarding a review of its preliminary valuation
analyses for both Agribrands and Ralcorp and a comparison of alternative
structures. Wasserstein Perella's discussion as to alternative structures
27
focused on a tax-free transaction and the possibility of a cash election option
and the impact of the payment of cash consideration on the combined company's
ability to finance Ralcorp's acquisition strategy. Representatives of
Wasserstein Perella also discussed briefly alternatives to a transaction with
Ralcorp, including using Agribrands' cash to effect a significant stock
repurchase of outstanding Agribrands shares and the possibility of pursuing
potential business combination partners other than Ralcorp. Messrs. Costello and
Wenzel also made presentations at this meeting to the Agribrands special
committee with respect to the financial and legal due diligence they had
conducted on behalf of Agribrands. The Agribrands special committee also
considered certain management issues for the combined company.
On July 21, 2000, the Ralcorp special committee, together with
representatives from Gibson, Dunn & Crutcher and A.G. Edwards, heard a
telephonic presentation from Banc of America Securities reviewing the status of
current discussions and recent developments, including a possible cash component
to the merger consideration. Banc of America Securities presented its updated
financial analysis of the possible merger, including valuation analyses based on
alternative structures and the impact of a cash component to the merger
consideration. Representatives of Gibson, Dunn & Crutcher briefed the committee
on its due diligence review of Agribrands.
On July 21, 2000, the Agribrands special committee held a telephonic
meeting with Wasserstein Perella and Latham & Watkins. Wasserstein Perella
discussed recent developments regarding the status of negotiations, due
diligence and the financial aspects of the proposed transaction. Wasserstein
Perella also presented the Agribrands special committee with further detail
regarding Ralcorp's growth and margin improvement plans and expectations as to
the financial impact of such plans on Ralcorp. The committee decided to retain
Houlihan Lokey to provide, if necessary, a fairness opinion to the Agribrands
special committee with respect to a proposed business combination.
During this period, Banc of America Securities and Wasserstein Perella
continued negotiations regarding a proposed merger transaction and the
appropriate merger ratio while representatives from A.G. Edwards and Houlihan
Lokey conducted due diligence meetings with the respective officers of
Agribrands and Ralcorp.
On July 26, 2000, Ralcorp's special committee held a telephonic meeting
with Banc of America Securities, A.G. Edwards and Gibson, Dunn & Crutcher. Banc
of America Securities informed the committee of the status of its negotiations.
The committee members discussed the proposed merger ratios and the potential for
each company's shareholders to make cash elections. Gibson, Dunn & Crutcher
provided a detailed review of the terms of the reorganization agreement as
negotiated to date as well as an analysis of the issues on which agreement had
not been reached.
Later on July 26, 2000, Ralcorp's special committee held a second
telephonic meeting with A.G. Edwards and Gibson, Dunn & Crutcher. A.G. Edwards
made a detailed presentation of its financial analysis of the proposed merger
terms and the impact of using a cash component in the merger consideration. The
committee considered the future benefits and risks that each of Ralcorp and
Agribrands would contribute to a combined operation and contrasted those with
the continued operation of Ralcorp as a separate entity. The committee focused
on Ralcorp's future acquisition strategy and the ability of Agribrands'
operations to generate sufficient cash flow to finance those activities. The
committee also evaluated the various implied stock merger ratios based on a
contribution analysis of various financial measures for the two companies. Based
on this analysis, the committee concluded that a merger ratio of 2.86 Ralcorp
shares to one Agribrands share, which approximated their then-current stock
price ratio and the ratio of their 180-day trading price averages, was
appropriate.
Also on July 26, 2000, the Agribrands special committee held a telephonic
meeting with Wasserstein Perella, Houlihan Lokey and Latham & Watkins.
Representatives of Wasserstein Perella made a presentation with respect to its
preliminary valuation analysis of Ralcorp, which included an overview of
projections pertaining to hypothetical acquisitions, a historical analysis of
Ralcorp's past acquisitions, a discussion of potential acquisition candidates
for Ralcorp, and a summary of Ralcorp's financial condition. Wasserstein
Perella's presentation also included a transactional analysis, with a discussion
of possible merger ratios and the possibility of offering the shareholders of
each company the option to elect cash consideration. The Agribrands special
committee considered the possible ranges of merger ratios, the various methods
in which to calculate the merger ratio and the effect on the combined company of
providing a portion of the merger consideration in cash.
During the July 26, 2000 meeting of the Agribrands special committee,
representatives of Latham & Watkins reviewed the terms contained in the draft
reorganization agreement and potential legal issues pertaining to the proposed
merger, including the effect of the proposed merger on the severance and benefit
plans of Agribrands and Ralcorp and the need for a supplemental ruling from the
Internal Revenue Service that the proposed transaction would not adversely
affect the tax consequences of the transactions relating to the April 1, 1998
28
distribution by Ralston Purina Company of Agribrands shares to the Ralston
Purina shareholders. Upon conclusion of the meeting, the Agribrands special
committee instructed Wasserstein Perella and Latham & Watkins to continue
ongoing negotiations with Ralcorp and its advisors.
On July 27, 2000, the Agribrands special committee held a telephonic
meeting with Wasserstein Perella, Houlihan Lokey and Latham & Watkins to
consider the terms of the Ralcorp special committee's proposed merger ratio of
2.86 Ralcorp shares to one Agribrands share. The Agribrands special committee
rejected Ralcorp's proposed merger ratio because the committee believed that the
proposal undervalued Agribrands and that any merger ratio should reflect the
long-term trading value of the stock of the respective companies.
Representatives of Latham & Watkins updated the Agribrands special committee on
potential legal issues pertaining to the proposed transaction and the status of
negotiations regarding the reorganization agreement. The Agribrands special
committee instructed Wasserstein Perella and Latham & Watkins to continue
negotiations with Ralcorp and its financial and legal advisors.
After July 27, the respective chairmen of the special committees discussed
telephonically various aspects of the merger consideration in an effort to reach
an agreement. Between July 28, 2000 and August 5, 2000, the chairmen of the
special committees and the financial and legal advisors to Agribrands and
Ralcorp, respectively, continued to negotiate the merger ratio and to discuss
the inclusion of a cash election.
On August 3, 2000, Ralcorp's special committee (excluding Mr. David Kemper
who was unavailable) held a telephonic meeting with Banc of America Securities,
A.G. Edwards and Gibson, Dunn & Crutcher. Banc of America Securities advised the
committee that Agribrands had rejected their proposed merger ratio and was
insisting on a merger ratio of three Ralcorp shares to one Agribrands share.
Gibson, Dunn & Crutcher discussed the status of negotiations on the
reorganization agreement and the remaining open issues, and the committee
expressed its positions on those issues. The committee again reviewed the
various financial analyses of its advisors and the merger ratios implied by
those analyses. At the conclusion of these discussions, the committee agreed on
a revised proposal: a merger ratio of three Ralcorp shares to one Agribrands
share, but Ralcorp shareholders could elect a cash payment of $15 per share and
Agribrands shareholders could elect a cash payment of $39 per share, in each
case so long as at least 80% of the shares of each company are exchanged for
shares of Newco. If the cash election were fully utilized by the shareholders of
each company, the ratio of per share value received by Agribrands shareholders
to the per share value received by Ralcorp shareholders would be 2.91.
On August 5, 2000, the Agribrands special committee held a telephonic
meeting with Wasserstein Perella, Houlihan Lokey and Latham & Watkins. During
the meeting, the Agribrands special committee's financial and legal advisors
reviewed the status of negotiations, including the resolution of previously open
issues, the principal terms of the proposed transaction, the strategic reasons
for the merger, the material factors for and against the merger and legal issues
that remain unresolved. Representatives of Wasserstein Perella gave a
presentation as to various alternative scenarios for the use of Agribrands' cash
reserve and cash flows and the possible effects of these scenarios on the
price-to-earnings ratio and trading price of Agribrands common stock. Upon
completion of Wasserstein Perella's presentation, representatives of Latham &
Watkins gave a detailed overview of the remaining open legal issues with respect
to the reorganization agreement. At the conclusion of the meeting, the
Agribrands special committee considered Ralcorp's revised stock and cash merger
consideration proposal. After consideration of this proposal, the Agribrands
special committee unanimously approved and accepted the proposed merger ratio,
and instructed Wasserstein Perella and Latham & Watkins to continue ongoing
negotiations with Ralcorp and its advisors with a view toward resolving any open
issues and finalizing the reorganization agreement.
On August 7, 2000, Ralcorp's special committee held a telephonic meeting
with Banc of America Securities, A.G. Edwards and Gibson, Dunn & Crutcher and
reviewed in detail the latest results of negotiations between Wasserstein
Perella and Banc of America Securities. Following this discussion, at the
request of the committee, Mr. Armstrong joined the meeting. Mr. Armstrong
provided a current update of Agribrands' operations and answered questions
concerning the operations of Agribrands and its prospects, as well as his view
of the prospects for the combined companies. He then left the meeting. At that
time, each of Banc of America Securities and A.G. Edwards made presentations to
the committee. A.G. Edwards expressed its oral opinion to the special committee
that as of that date and subject to the assumptions and limitations in its
opinion the proposed consideration to be received by the Ralcorp shareholders in
the merger was fair, from a financial point of view, to the Ralcorp
shareholders. Gibson, Dunn & Crutcher briefed the committee on the resolution of
the remaining significant issues under the reorganization agreement and reviewed
the committee's responsibilities. The committee then unanimously approved
29
recommending to the Ralcorp Board of Directors that the merger and the
reorganization agreement be approved. Shortly thereafter, Messrs. Stiritz and
Micheletto joined the meeting telephonically and a meeting of Ralcorp's Board of
Directors was convened. The Ralcorp special committee recommended to the Board
of Directors the adoption of a resolution to approve Ralcorp's merger with
Agribrands, the reorganization agreement and the transactions contemplated
thereby as negotiated by the special committee and its advisors. Banc of America
then expressed its oral opinion, addressed solely to the Ralcorp Board of
Directors, that as of such date and subject to the assumptions and limitations
in its opinion, the consideration to be received by the shareholders of Ralcorp
in the proposed merger was fair to the Ralcorp shareholders from a financial
point of view. The Board of Directors then unanimously adopted the proposed
resolution and resolved to recommend approval of the same by the shareholders of
Ralcorp. Subsequent to the meeting, Banc of America Securities and A.G. Edwards
confirmed their opinions in writing.
On August 7, 2000, the Agribrands special committee held a telephonic
meeting with Wasserstein Perella, Houlihan Lokey and Latham & Watkins to further
consider the Ralcorp merger proposal, review the status of negotiations,
including resolution of previously open issues and the principal terms of the
proposed merger, and to be presented with the results of the final financial
analyses of its financial advisors. Representatives of Houlihan Lokey gave a
presentation which included a summary description of the scope of its engagement
and the proposed transaction, the financial due diligence it performed, an
analysis of the proposed merger ratio, and a market valuation analysis for each
of Agribrands and Ralcorp. In addition, each of Wasserstein Perella and Houlihan
Lokey rendered oral opinions to the Agribrands special committee that, as of
that date, based upon and subject to the considerations stated in their
respective opinions, the merger consideration was fair, from a financial point
of view, to the Agribrands shareholders. Upon conclusion of Houlihan Lokey's
presentation, representatives of Latham & Watkins reviewed the principal terms
of the reorganization agreement and related legal issues. After the Agribrands
special committee satisfied itself as to the principal terms and conditions of
the proposed merger as so presented, the committee authorized its Chairman, in
conjunction with Wasserstein Perella and Latham & Watkins, to negotiate and
finalize definitive agreements for the proposed merger. The Agribrands special
committee then unanimously approved the merger and all related transactions and
resolved to recommend that the Agribrands board approve the merger, the
reorganization agreement and all related transactions as negotiated by the
Agribrands special committee and its advisors. Following the meeting of the
special committee, Agribrands' Board of Directors held a telephonic meeting to
discuss the proposed merger and consider the recommendation of the special
committee. Prior to the conclusion of the board meeting, the Agribrands Board of
Directors unanimously adopted resolutions authorizing Agribrands to enter into
the reorganization agreement and to present to the Agribrands shareholders the
reorganization agreement for their approval with the Board of Directors'
recommendation that they approve the reorganization agreement.
Ralcorp's Reasons for the Merger
Ralcorp's merger with Agribrands will create a company with substantial
cash flow and borrowing capacity. Ralcorp's Board of Directors believes Newco
will be favorably positioned to expand its store brand food business through
strategic acquisitions. Such expansion will further Ralcorp's strategic goal of
creating the leading store brand and value brand food manufacturer. Ralcorp's
Board of Directors believes that the merger will create long-term value for its
shareholders. Also, the Board of Directors believes that the exchange of up to
20% of Agribrands and Ralcorp stock for cash as part of the merger should
increase Newco's earnings per share and stock price allowing Newco to take
advantage of depressed trading values for food and agricultural stocks.
Strong Cash Flow. Assuming full utilization of the cash exchange option,
Newco will have an initial combined debt level of approximately $260 million,
net of available cash. Initially, the annualized free cash flow (operating cash
flow less capital expenditures) after interest expense on such debt is estimated
at $100 million per year. This level of cash flow should allow Newco to pursue a
wider array of acquisitions than would be possible without the merger, and such
acquisitions can be accomplished without incurring a debt burden that would
unduly restrict Newco's operations and strategic options.
Acquisitions. During fiscal year 2000, Ralcorp added approximately $37
million in annual earnings before interest, taxes, depreciation and amortization
from acquired businesses. With the added debt from the Red Wing purchase, the
pace of growth through synergistic acquisitions like Red Wing may slow. However,
since Newco will possess much more free cash, it should be able to maintain and
potentially accelerate Ralcorp's pace of acquisitions. Ralcorp's management
believes that long-term success in private label foods can be achieved by
expanding existing segments and entering into new categories. Such expansion
should allow Ralcorp to increase its importance to large, growing food
retailers. The success of Ralcorp's cracker and cookie business is an example of
30
what Ralcorp believes Ralcorp could accomplish through continued acquisitions.
In January 1997, Ralcorp's cracker and cookie business had annualized sales of
approximately $80 million and was comprised of two facilities. As of August 31,
2000, the business has approximately $240 million in annualized sales, operates
seven facilities, and has the leadership position in private label crackers and
a rapidly expanding position in private label cookies. In the first nine months
of fiscal year 2000, Ralcorp's cracker and cookie operating profit increased
approximately 28% from the prior year. This increase was due to the good
performance of businesses acquired during the year as well as improvements in
the remainder of the division's business driven by synergies from previous
acquisitions.
Earnings Diversification and Critical Scale. The combination of Ralcorp and
Agribrands should create a company that has a diverse source of earnings,
thereby minimizing the impact of fluctuations in one business on the entire
company. Currently, if one business unit at Ralcorp has lower than expected
earnings, the effect on overall earnings, and thus share price, can be
significant. Ralcorp believes Agribrands' strategy of diversifying its earnings
by having operations in numerous countries has provided Agribrands with good
diversification of currency and economic climate risks. The result has been a
steady stream of excess cash flow not required for operations or capital
expenditures. Moreover, even though Ralcorp has grown significantly in the past
twelve to eighteen months, it has just recently reached the $1 billion level in
annualized sales. Newco will be even more diversified than Agribrands which
should yield dependable cash flows. Given its current size, management believes
financial markets are not focused on Ralcorp and its growth story. Newco will be
slightly over twice the size of Ralcorp stand-alone. With Newco's diversity in
earnings and larger scale, management anticipates that the financial markets
will be more focused on Newco. The added focus is expected to yield greater
investor interest.
Certain Information and Factors Considered. In addition to the matters
discussed above, the Ralcorp Board of Directors and its special committee also
considered the following material information and facts in reaching its
determination to approve the merger, to conclude the merger is fair to and in
the best interest of Ralcorp's shareholders, and to recommend that shareholders
approve the reorganization agreement:
o Ralcorp's need for funding to implement its strategic plan of growth
and expansion of product lines through acquisitions; o presentations
by Ralcorp senior management and outside counsel regarding the results
of management's operational and legal due diligence review;
o presentations by Ralcorp senior management and outside counsel
regarding the results of management's operational and legal due
diligence review;
o presentations by Ralcorp senior management, Banc of America
Securities, A.G. Edwards, and outside counsel regarding the strategic
advantages of combining with Agribrands and the operational aspects of
the transaction;
o historical information concerning Ralcorp's and Agribrands' respective
businesses, financial performance and condition, operations,
technology, management, competitive position, and stock performance;
o the opportunities and alternatives available to Ralcorp if the merger
were not to be undertaken, including pursuing an acquisition of or
business combination or joint venture with entities other than
Agribrands and the conclusion that a combination with Agribrands is
expected to yield greater benefits and is more feasible than the
alternatives;
o the separate analyses and presentations of Banc of America Securities
and A.G. Edwards on the financial aspects of the proposed merger, and
their respective written opinions to the effect that, as of August 7,
2000, and based on and subject to the assumptions and limitations set
forth in such opinions, the consideration to be received in the merger
by Ralcorp shareholders was fair from a financial point of view to
Ralcorp shareholders (the full text of which are attached to this
joint proxy statement/prospectus as Annexes B and C, which you are
urged to read);
o the terms and conditions of the reorganization agreement, including
the fact that the merger ratios are fixed, the limitations on the
interim business operations of each of Ralcorp and Agribrands, the
conditions to consummation of the merger, the right of the parties to
the reorganization agreement, under certain circumstances, to respond
to, evaluate and negotiate with respect to other business combination
proposals, the circumstances under which the reorganization agreement
could be terminated and the size and impact of termination fees
associated with a termination;
o the fact that a large stock repurchase program would deliver only
short-term earnings per share growth and not long-term shareholder
value, which is expected to result from Ralcorp's growth through
further consolidating the private label sector;
31
o the corporate governance arrangements established for the transaction,
including the board composition and designation of key senior
management which are designed to promote the continuity of management
from each company and smooth integration of the businesses;
o Agribrands' need for an IRS ruling in order to enter into the merger;
o the expected tax treatment of the merger for U.S. federal income tax
purposes;
o the accounting treatment of the transaction as a "purchase"
transaction; and
o the interests of the officers and directors of Ralcorp and Agribrands
in the merger, including the matters described under "Interests of
Certain Ralcorp Directors and Executive Officers in the Merger,"
beginning on page 60.
The Ralcorp board and special committee also considered the potential
adverse consequences of other factors on the proposed merger, including:
o the challenges of identifying and completing strategic acquisitions
after the merger;
o the risk of diverting management focus and resources from other
strategic opportunities and from operational matters while working to
implement the merger;
o low valuation multiples currently being applied to animal feeds
businesses;
o the risk that the merger will not be consummated; and
o other relevant factors described under the caption "Risk Factors" in
this joint proxy statement/prospectus.
This discussion of the information and factors considered by the Ralcorp
Board of Directors and its special committee is not intended to be exhaustive,
but is believed to include the material factors considered. The Ralcorp board
did not assign particular weight or rank to the factors it considered in
approving the merger. In considering the factors described above, individual
members of the Board of Directors and the special committee may have given
different weight to various ones. The Ralcorp Board of Directors and its special
committee considered all these factors as a whole, and overall considered them
to be favorable to and to support their determination. The Ralcorp Board of
Directors concluded that the potential adverse consequences could be avoided or
diminished and that together the adverse consequences were outweighed by the
anticipated benefits of the merger.
Recommendation of Ralcorp's Board of Directors
Upon careful consideration, the Ralcorp Board of Directors unanimously
determined that the terms of the reorganization agreement and the merger are in
the best interests of Ralcorp and its shareholders, has unanimously approved the
merger and the reorganization agreement and unanimously recommends that the
Ralcorp shareholders vote "FOR" the approval of the reorganization agreement.
You should read the section entitled "Interests of Certain Ralcorp
Directors and Executive Officers in the Merger" that begins on page 60 of this
joint proxy statement/prospectus.
Agribrands' Reasons for the Merger
As described above, the Agribrands special committee has unanimously
resolved that the merger is in the best interest of Agribrands and the
Agribrands shareholders. The Agribrands special committee unanimously
recommended that the Agribrands Board of Directors approve the reorganization
agreement and the merger and that it should recommend that the Agribrands
shareholders approve the reorganization agreement.
Upon the recommendation of the special committee, the Agribrands Board of
Directors unanimously resolved that the merger is in the best interest of
Agribrands and the Agribrands shareholders. The Agribrands Board of Directors,
upon recommendation of the special committee, unanimously approved the
reorganization agreement and recommended that Agribrands shareholders approve
the reorganization agreement.
In reaching its conclusion to recommend the merger with Ralcorp, the
Agribrands special committee considered the presentations by, and consulted
with, members of Agribrands' management as well as its financial advisors and
outside and internal legal counsel. Likewise, in reaching its conclusion to
approve a strategic combination with Ralcorp, the Agribrands board considered
the recommendations of the special committee and presentations by, and consulted
with, members of Agribrands' management as well as their financial advisors and
outside and internal legal counsel. In unanimously approving the merger and the
reorganization agreement, each of the Agribrands board and the special committee
32
carefully considered a variety of reasons, factors and information, including
the following:
o Agribrands is generating cash flow in excess of the opportunities to
invest such funds profitably in its core business. Agribrands believes
that the merger with Ralcorp will allow it to invest these excess
funds in a company known to its board and management at a time when
the financial markets are undervaluing the securities of both
companies. Having deployed its excess cash in an investment which
Agribrands believes has the possibility of generating above average
returns for its shareholders, Agribrands management will be able to
continue to focus on improving the returns from its core business, to
expand into new underdeveloped agri-animal feed markets and to acquire
related businesses.
o The combined company, with Ralcorp's growth prospects and Agribrands'
strong balance sheet and stable cash flows, can reasonably be expected
to have a revenue growth rate greater than that of either Agribrands
or Ralcorp on a stand alone basis. While the combined company will be
more leveraged than Agribrands, the Agribrands board and special
committee expect the combined company to have investment grade credit
with the cash flow and financial capacity to fund the growth
opportunities created by the merger.
o The presentations by senior management, Wasserstein Perella and
Houlihan Lokey regarding the strategic advantages of combining with
Ralcorp, operational aspects of the transaction, and the results of
management's operational and legal due diligence review, historical
information concerning Agribrands' and Ralcorp's respective
businesses, financial performance and condition, operations,
technology, management, competitive position and stock performance.
o The financial presentations made to the Agribrands special committee
and opinions rendered by Wasserstein Perella and Houlihan Lokey that,
as of the date of the opinions and subject to various assumptions and
limitations set forth in such opinions, the merger consideration was
fair to the Agribrands shareholders from a financial point of view.
o The view of Agribrands' management and financial advisors as to the
financial condition, results of operations and businesses of
Agribrands and Ralcorp before and after giving effect to the merger
based on the due diligence of Agribrands' management and financial
advisors.
o The merger would create a combined company with considerable financial
resources and growth opportunities. The combination of Agribrands and
Ralcorp is expected to create a company that has a diverse source of
earnings, thereby minimizing the impact of fluctuations in one
business on the entire company. Moreover, the combined company with
its greater size, stronger balance sheet and growth prospects is more
likely to attract the attention of financial analysts.
o The opportunities and alternatives available to Agribrands if the
merger were not to be undertaken, including pursuing a major share
buyback, an acquisition of, or business combination or joint venture
with, entities other than Ralcorp and the conclusion that a
combination with Ralcorp is expected to yield greater benefits and is
more feasible than the alternatives.
o The corporate governance arrangements established for the transaction,
including the board composition and designation of key senior
management for the combined company, which are designed to promote the
continuity of management from each company and smooth integration of
the businesses.
o The terms and conditions of the reorganization agreement, including
the representations, warranties, covenants and conditions to
consummate the proposed transaction and the circumstances under which
either Agribrands or Ralcorp would have the right to terminate the
reorganization agreement, including the right of either Agribrands or
Ralcorp to terminate the reorganization agreement under specified
circumstances if there is a superior proposal, and the circumstances
in which a termination fee would be payable in the event that the
reorganization agreement were terminated.
In the course of its deliberations, the Agribrands board and the special
committee considered and reviewed with management, its financial advisors and
its legal advisors a number of other factors relevant to the merger, including,
but not limited to:
o the merger consideration;
o the option of holders of Agribrands common stock to elect cash
consideration, subject to proration, for their shares;
33
o the potential for improved trading liquidity for shareholders of the
combined company;
o the expected tax treatment of the merger for U.S. federal income tax
purposes;
o the likelihood of obtaining the required approvals and the time period
necessary to obtain the approvals for the merger;
o the likelihood that the merger will be completed;
o the accounting treatment of the transaction as a "purchase"
transaction;
o the interest of the officers and directors of Agribrands and Ralcorp
in the merger, including the matters described under "Interests of
Certain Agribrands Directors and Executive Officers in the Merger,"
beginning on page 60;
o current financial market conditions and historical market prices,
volatility and trading information with respect to the Agribrands and
Ralcorp common stock; and
o the likelihood of continued consolidation in the private label grocery
product industry and possible competition from other industry
competitors.
The Agribrands board and the special committee also identified and
considered several potentially negative factors while deliberating the merger,
including, but not limited to:
o the risk of possible severance payments to employees of Agribrands and
Ralcorp that will be triggered under the change of control provisions
of various agreements and plans of Agribrands and Ralcorp;
o the effect of accelerated vesting of employee options to purchase
common stock of Agribrands and Ralcorp upon completion of the merger;
o the risk of not receiving a supplemental ruling from the Internal
Revenue Service that the merger would not adversely affect the tax
consequences of Agribrands' 1998 spin-off from Ralston Purina;
o foregoing possible strategic alternatives, including possible business
combinations with other companies;
o the challenges of identifying and completing acquisitions after the
merger;
o the effect of the public announcement of the merger on the market
price of Agribrands' and Ralcorp's common stock;
o the risk that the combined company may lose some management personnel;
o the possibility that the merger may not be completed, even if approved
by the shareholders of both Agribrands and Ralcorp;
o the risk that the potential benefits of the merger may not be fully
realized; and
o other applicable risks described in this joint proxy
statement/prospectus under the caption "Risk Factors," on page 18.
The Agribrands board and special committee determined that these risks were
unlikely to occur, that Agribrands and Ralcorp could avoid or mitigate these and
other risks, and that, in the aggregate, these risks were outweighed by the
potential benefits of the merger.
The above discussion factors considered by the Agribrands board and special
committee is not intended to be exhaustive, but is believed to include all
material factors considered by them. In view of the variety of factors
considered in connection with its evaluation of the reorganization agreement and
the merger, the Agribrands board and special committee did not consider it
practical to, and did not try to, rank or weigh the importance of each factor,
and the different members of the Agribrands board and special committee may have
given different weight to different factors. The Agribrands board and special
committee did not attempt to analyze the fairness of the merger consideration in
isolation from the considerations as regarding the businesses of Agribrands and
Ralcorp, the strategic and business merits of the merger or the other
considerations referred to above.
111
Recommendation of Agribrands' Board of Directors
Upon careful consideration, the Agribrands Board of Directors unanimously
determined that the terms of the reorganization agreement and the merger are in
the best interests of Agribrands and its shareholders, has unanimously approved
the merger and the reorganization agreement and unanimously recommends that the
Agribrands shareholders vote "FOR" the approval of the reorganization agreement.
You should read the section entitled "Interests of Certain Agribrands
Directors and Executive Officers in the Merger" that begins on page 60 of this
joint proxy statement/prospectus.
Opinions of Financial Advisors
Opinion of Banc of America Securities, Financial Advisor to Ralcorp
On August 7, 2000, Banc of America Securities delivered to the Ralcorp
Board of Directors its oral opinion, subsequently confirmed in writing, that, as
of August 7, 2000, and based upon and subject to the considerations contained in
the opinion, the consideration to be received by the Ralcorp shareholders in
connection with the proposed merger was fair from a financial point of view to
those shareholders.
The full text of the Banc of America Securities opinion, dated August 7,
2000, which states the assumptions made, procedures followed, matters considered
and limitations on the scope of the review undertaken by Banc of America
Securities in rendering its opinion, is attached to this joint proxy
statement/prospectus and is incorporated by reference. Shareholders of Ralcorp
are urged to, and should, read the Banc of America Securities opinion carefully
and in its entirety. The Banc of America Securities opinion was for the use and
benefit of the Ralcorp Board of Directors and addresses only the fairness, from
a financial point of view, to the shareholders, of the consideration to be
received pursuant to the reorganization agreement. The Banc of America
Securities opinion does not address the merits of the underlying decision by
Ralcorp to engage in the merger and does not constitute a recommendation as to
how any shareholder of Ralcorp should vote at any shareholders' meeting held in
connection with the merger. The summary of the Banc of America Securities
opinion set forth in this proxy statement is qualified in its entirety by
reference to the full text of the Banc of America Securities opinion.
In connection with this opinion, Banc of America Securities, among other
things:
o reviewed certain publicly available financial statements and other
business and financial information of Ralcorp and Agribrands,
respectively;
o reviewed certain internal financial statements and other financial and
operating data concerning Ralcorp and Agribrands, respectively;
o analyzed certain financial forecasts prepared by the management of
Ralcorp and Agribrands, respectively;
o reviewed and discussed with senior executives of Ralcorp and
Agribrands information relating to certain strategic, financial and
operational benefits anticipated from the merger prepared by their
respective managements;
o discussed the past and current operations, financial condition and
prospects of Ralcorp with senior executives of Ralcorp and discussed
the past and current operations, financial condition and prospects of
Agribrands with senior executives of Agribrands;
o reviewed the pro forma impact of the merger on Ralcorp's earnings per
share, cash flow, consolidated capitalization and financial ratios;
o reviewed and considered in the analysis information prepared by
members of senior management of Ralcorp and Agribrands relating to the
relative contributions of Ralcorp and Agribrands to Newco;
o reviewed the reported prices and trading activity for the Ralcorp
common stock and Agribrands common stock;
o compared the financial performance of Ralcorp and Agribrands and the
prices and trading activity of Ralcorp common stock and Agribrands
common stock with that of certain other publicly traded companies it
deemed relevant;
o compared certain financial terms of the merger to financial terms, to
the extent publicly available, of certain other business combination
transactions it deemed relevant;
35
o participated in discussions and negotiations among representatives of
Ralcorp and Agribrands and their financial and legal advisors;
o reviewed the August 4, 2000 draft of the reorganization agreement and
certain related documents; and
o performed such other analyses and considered such other factors as it
deemed appropriate.
Banc of America Securities assumed and relied upon, without independent
verification, the accuracy and completeness of the financial and other
information reviewed by it for the purposes of its opinion. With respect to the
financial forecasts, including information relating to certain strategic,
financial and operational benefits anticipated from the merger, Banc of America
Securities assumed that they had been reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the future
financial performance of Ralcorp and Agribrands. In arriving at its opinion,
Banc of America Securities relied upon Ralcorp's estimates relating to certain
strategic, financial and operational benefits anticipated from the merger. Banc
of America Securities did not make any independent valuation or appraisal of the
assets or liabilities of Ralcorp and Agribrands, nor was it furnished with any
such appraisals.
The following is a summary of the material financial analyses used by Banc
of America Securities in connection with its oral opinion and the preparation of
its written opinion. Some of the summaries of the financial analyses include
information presented in tabular format. The tables must be read together with
the text accompanying each summary.
In performing its analyses, Banc of America Securities assumed that the
transaction would be structured such that Agribrands shareholders who exchanged
their shares for shares of the combined company would receive one share of Newco
Common stock for each share of Agribrands common stock and Ralcorp shareholders
who exchanged their shares for shares of the combined company would receive a
fraction of one share of Newco Common Stock for each share of Ralcorp common
stock. The analyses below are presented accordingly, and are also shown
converted to the structure currently proposed, wherein Agribrands shareholders
who exchange their shares for shares of the combined company will receive three
shares of Newco Common Stock for each share of Agribrands common stock and
Ralcorp shareholders who exchange their shares for shares of the combined
company will receive one share of Newco Common Stock for each share of Ralcorp
common stock.
Analysis of Implied Transaction Merger Ratio. Banc of America Securities
reviewed the consideration to be received by shareholders of Ralcorp and
Agribrands in connection with the proposed merger and the implied merger ratio
based on the mix of forms of consideration.
If all Ralcorp shareholders and all Agribrands shareholders elect to
receive 100% of their consideration in stock, the merger ratio implied by the
transaction is 1.000 share of Newco Common Stock per share of Ralcorp common
stock and 3.000 shares of Newco Common Stock per share of Agribrands common
stock.
Assuming Ralcorp shareholders and Agribrands shareholders each elect the
full 20% cash consideration, Banc of America Securities calculated the implied
merger ratio, and its inverse, based on Agribrands' closing stock price on
August 4, 2000 of $36.56, as follows:
Blended Values
-------------------------------------------------------------------------------------
Ralcorp Agribrands
-------------------------------------------- ----------------------------------------
Share Implied Per Share Share Implied Per Share
Consideration Value/ Weighted Consideration Value/ Weighted
Consideration Weighting Share Consideration Weighting Share Consideration
------------------------------------------ ----------- -------------- ------------- --------- -------------
Cash 20.0% @ $ 15.00 $ 3.00 20.0% @ $39.00 $ 7.80
Stock (Based on 0.333
Merger Ratio) 80.0% @ 12.19 9.75 80.0% @ 36.56 29.25
-------------- -------------
Blended 12.75 37.05
Implied Merger Ratio Based on: Inverse of Implied Merger Ratio
Agribrands Stock Price
(at August 4, 2000) 0.349 2.865
Agribrands Blended Value 2.907
0.344
36
Assuming Ralcorp shareholders and Agribrands shareholders each elect the
full 20% cash consideration, Banc of America Securities calculated the implied
merger ratio, and its inverse, based on Ralcorp's closing stock price on August
4, 2000 of $13.00, as follows:
Blended Values
---------------------------------------------------------------------------------------
Ralcorp Agribrands
--------------------------------------------- -----------------------------------------
Share Implied Per Share Share Implied Per Share
Consideration Value/ Weighted Consideration Value/ Weighted
Consideration Weighting Share Consideration Weighting Share Consideration
- ---------------------------- -------------- ----------- --------------- ------------- --------- --------------
Cash 20.0% @ $ 15.00 $ 3.00 20.0% @ $39.00 $ 7.80
Stock (Based on 3.000
Merger Ratio) 80.0% @ 13.00 10.40 80.0% @ 39.00 31.20
--------------- --------------
Blended 13.40 39.00
Implied Merger Ratio Based
on:
Ralcorp Stock Price 3.000
(at August 4, 2000)
Ralcorp Blended Value 2.910
Analysis of Historical Merger Ratios. Banc of America Securities reviewed
the implied historical merger ratio for Ralcorp common stock and Agribrands
common stock determined by dividing the average closing prices per share of the
Ralcorp common stock by the average closing prices per share of Agribrands
common stock for various periods over a one-year period ended August 4, 2000.
This review indicated the following implied historical merger ratios and their
inverses:
Historical Merger Ratio
Period ending: August 4, 2000 ---------------------------------------------
Calendar Days Ralcorp / Agribrands Agribrands / Ralcorp
----------------------------- ---------------------- --------------------
Current 0.356x 2.813x
10 days 0.359 2.784
20 days 0.356 2.806
30 days 0.349 2.867
90 days 0.324 3.088
180 days 0.354 2.827
360 days 0.371 2.692
Analysis of Relative Financial Contribution. Banc of America Securities
reviewed estimated future operating and financial information, including among
other things, revenue, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), earnings before interest and taxes ("EBIT"), net income
and total assets, for Ralcorp and Agribrands and the relative contribution of
Ralcorp and Agribrands to the combined entity resulting from the merger, based
on publicly available information for the companies and internal estimates for
the companies from their respective managements. Banc of America Securities
adjusted these statistics to reflect each company's capital structure.
The resulting merger ratios and their inverses based on the combined
financial contribution are as follows:
Contribution Implied Merger Ratio
----------------------------------- ------------------------------------
Ralcorp / Agribrands /
Ralcorp Agribrands Agribrands Ralcorp
---------------- --------------- ------------- -------------------
2000E Revenues 48.5% 51.5% 0.109x 9.166x
2000E EBITDA 56.8 43.2 0.179 5.586
2000E EBIT 54.1 45.9 0.154 6.493
2000E Net Income 44.5 55.5 0.263 3.800
Total Assets (a) 58.0 42.0 0.190 5.253
Shareholders Equity (a) 48.2 51.8 0.305 3.272
Equity Value (b) (c) 52.0 48.0 0.356 2.813
<FN>
(a) Ralcorp balance sheet projected based on management projections as of June
30, 2000. Agribrands balance sheet as of May 31, 2000.
37
(b) On March 3, 2000, Ralcorp had 29.862 million shares outstanding and 0.031
million options exercisable with average exercise price of $12.00. On May
31, 2000, Agribrands had 9.813 million shares outstanding and no
exercisable options outstanding. Shares outstanding are calculated pursuant
to the treasury stock method of accounting.
(c) Based on closing stock prices of $13.00 for Ralcorp and $36.56 for
Agribrands as of August 4, 2000.
</FN>
Comparison with Selected Publicly Traded Companies. Banc of America
Securities reviewed and compared certain financial information, ratios and
multiples relating to Ralcorp and Agribrands with corresponding financial
information, ratios and public market multiples of food industry companies that
it deemed similar in certain respects to Ralcorp and Agribrands. While Banc of
America Securities was of the view that there was no single company that exactly
approximates either of Ralcorp's or Agribrands' mix of businesses and market
position, Banc of America Securities selected nine publicly traded companies for
Ralcorp and twelve public traded companies for Agribrands that were comparable
in certain respects. The group of companies for Ralcorp consisted of Midwest
Grain Products, Michael Foods, Inc, Seneca Foods Corp, American Italian Pasta,
Riviana Foods, Earthgrains, Interstate Bakeries, Flowers Industries and
Performance Food Group. The group of companies for Agribrands consisted of
Midwest Grain Products, Archer-Daniels Midland, Seneca Foods Corp, Spigadoro,
Scope Industries, Performance Food Group, Chiquita Brands International, Inc.,
Dole Food Company, Michael Foods, Inc., Omega Protein, Nutreco and Ridley Inc.
Among other analyses, for each of the selected publicly traded companies, Banc
of America Securities calculated the ratio of their enterprise value (based on
their closing stock prices) as of August 4, 2000 to their respective net sales,
EBITDA and EBIT for both the last 12-month ("LTM") period and estimated 2000
data, and the ratios of their stock prices as of August 4, 2000 to the LTM
earnings and estimated earnings per share for 2000 and 2001. The following
tables present the high, the average, the median and the low figures for the
selected companies. Based on its observations, Banc of America Securities
calculated the implied equity value and implied equity value per share for each
of Ralcorp and Agribrands. The results of these analyses are summarized as
follows:
Enterprise Value as a Multiple of: Stock Price as a
Net Sales(a) EBITDA(a) EBIT(a) Multiple of earnings per share(b)
LTM 2000 LTM 2000 LTM 2000 LTM 2000 2001
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
Comparables
for Ralcorp:
- ---------------
High 1.74x 1.53x 11.2x 9.7x 16.8x 16.0x 27.3x 29.5x 19.5x
Average 0.72 0.69 7.2 6.4 12.4 9.7 16.0 14.8 13.2
Median 0.60 0.54 6.9 6.7 15.3 8.5 13.6 11.8 11.5
Low 0.29 0.25 4.8 3.5 7.0 6.6 9.4 8.6 8.2
Implied Equity Value of Ralcorp
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
High $1,621.3 $1,460.8 $ 999.9 $ 908.0 $ 1,001.2 $ 998.8 $1,025.4 $ 1,080.2 $766.2
Average 519.9 517.6 552.1 511.9 672.6 504.9 601.3 541.9 520.6
Median 385.4 347.6 512.6 547.1 888.1 409.8 509.9 431.1 450.5
Low 48.1 23.7 281.1 156.0 267.0 258.3 352.2 315.9 321.5
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
Implied Equity Value per Share of Ralcorp
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
High $54.29 $ 48.92 $ 33.48 $30.41 $ 33.53 $ 33.45 $ 34.34 $ 36.17 $25.66
Average 17.41 17.33 18.49 17.14 22.52 16.91 20.13 18.15 17.43
Median 12.91 11.64 17.17 18.32 29.74 13.72 17.07 14.44 15.09
Low 1.61 0.79 9.41 5.22 8.94 8.65 11.80 10.58 10.77
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
Comparables for
Agribrands:
- ------------------
High 0.86x 0.64x 15.9x 9.7x 29.4x 15.6x 27.3x 20.5x 17.3x
Average 0.58 0.49 9.2 6.6 16.1 10.4 19.5 14.8 9.7
Median 0.60 0.53 8.9 6.6 15.4 10.0 21.2 17.1 8.2
Low 0.29 0.25 4.8 3.5 7.2 6.6 9.6 7.8 4.0
Implied Equity Value of Agribrands
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
High $1,113.6 $ 849.5 $1,469.9 $ 973.2 $ 1,887.9 $1,126.3 $1,237.0 $ 936.4 $836.2
Average 780.5 676.4 884.3 685.8 1,072.9 779.5 881.2 677.9 470.4
Median 803.5 713.2 862.4 690.7 1,027.1 753.7 957.8 783.2 395.2
Low 427.9 388.2 505.6 401.9 522.5 525.8 434.7 354.8 193.2
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
38
Implied Equity Value per Share of Agribrands
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
High $113.48 $ 86.57 $ 149.79 $ 99.18 $ 192.38 $ 114.78 $ 126.06 $ 95.43 $85.22
Average 79.54 68.93 90.12 69.88 109.34 79.44 89.80 69.08 47.93
Median 81.88 72.67 87.88 70.38 104.67 76.81 97.61 79.81 40.27
Low 43.61 39.56 51.52 40.96 53.24 53.58 44.30 36.15 19.69
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ------------
<FN>
(a) Net sales and earnings estimates were based on research of Banc of America
Securities research analysts (with respect to those companies to which Banc
of America Securities provides research coverage), and on research reports
prepared by Credit Suisse First Boston, Morgan Stanley Dean Witter, George
K Baum & Company, and Burkenoads Reports (with respect to those companies
for which Banc of America Securities did not provide research coverage).
(b) Earning per share information based on information published by First Call
Corporation, which compiles summaries of financial forecasts published by
various investment banking firms.
</FN>
Based on the foregoing analysis, Banc of America Securities calculated an
implied merger ratio of 0.250 to 0.280 and an inverse implied merger ratio of
3.571 to 4.000.
Analysis of Selected Mergers and Acquisitions. Banc of America Securities
reviewed certain publicly available information relating to 24 selected prior
acquisitions of comparable food industry companies occurring since 1995. Among
other analyses, for each of the selected merger and acquisitions, Banc of
America Securities calculated the ratio of their enterprise value, based upon
the transaction price, to their respective net sales, EBITDA and EBIT for the
latest twelve months prior to transaction announcement, and the ratio of the
equity consideration in the transaction to their respective net income for the
latest twelve months prior to transaction announcement and book value.
The following tables present the high, the average, the median and the low
figures for the selected mergers and acquisitions. Based on its observations,
Banc of America Securities calculated the implied equity value and implied
equity value per share for each of Ralcorp and Agribrands.
The results of these analyses are summarized as follows:
Enterprise Value Equity Value as
as a Multiple of a Multiple of
------------------------------------------- -----------------------------
Net Sales EBITDA EBIT Net Income Book Value
------------- -------------- -------------- -------------- --------------
Comparable Transactions:
- -------------------------
High 1.5x 8.9x 22.7x 31.0x 2.7x
Average 0.7 6.5 11.4 15.9 1.6
Median 0.6 6.2 10.2 14.3 1.5
Low 0.3 4.6 6.6 10.0 0.7
Implied Equity Value per Share of Ralcorp
------------- -------------- -------------- -------------- --------------
High $ 43.69 $ 24.97 $ 48.37 $ 38.93 $ 32.15
Average 17.85 15.91 19.86 19.91 18.85
Median 13.83 14.61 16.90 17.89 17.27
Low 3.76 8.57 7.83 12.56 8.34
------------- -------------- -------------- -------------- --------------
Implied Equity Value per Share of Agribrands
------------- -------------- -------------- -------------- --------------
High $185.40 $ 88.24 $ 150.36 $ 142.92 $ 105.21
Average 98.34 66.86 79.63 73.11 61.70
Median 84.78 63.78 72.28 65.69 56.50
Low 50.85 49.53 49.79 46.10 27.28
------------- -------------- -------------- -------------- --------------
Banc of America Securities noted that there was no single transaction that
exactly approximated Ralcorp's and Agribrands' intended combination; that many
of the transactions occurred a number of years ago when industry conditions and
the economic cycle might have caused an acquirer to have a different perspective
on future performance of any target acquisition; and that the target
acquisition's strategic importance to the acquirer should be considered in
evaluating the applicability of the acquisition transactions.
Based on the foregoing analysis, Banc of America Securities calculated an
implied merger ratio of 0.292 to 0.405 and an inverse implied merger ratio of
2.469 to 3.425.
39
Discounted Cash Flow Analysis. Based on estimates provided by Ralcorp's and
Agribrands' respective managements, Banc of America Securities performed
discounted cash flow analyses of Ralcorp, Agribrands and the combined entities
following the merger for the years ending September 30, 2001 to 2005 for Ralcorp
and the merger, and August 31, 2001 to 2005 for Agribrands.
Ralcorp Stand-alone:
Banc of America Securities performed a discounted cash flow analysis for
Ralcorp on a stand-alone basis, using a range of discount rates of 9.0% to
11.0%, based on an estimated cost of capital for Ralcorp, and terminal values
based on a range of terminal EBITDA multiples of 5.0 to 7.0 times. Based upon
these parameters, Banc of America Securities calculated a range of present
values of Ralcorp. Based on this analysis, Banc of America Securities calculated
the enterprise value of Ralcorp to range from $706.3 million to $958.1 million,
its equity value to range from $530.4 million to $782.1 million, and an implied
value per share to range from $17.76 to $26.19.
Agribrands Stand-alone:
Banc of America Securities performed a discounted cash flow analysis for
Agribrands on a stand-alone basis, using a range of discount rates of 10.0% to
12.0%, based on an estimated cost of capital for Agribrands, and terminal values
based on a range of terminal EBITDA multiples of 2.0 to 4.0 times. Based upon
these parameters, Banc of America Securities calculated a range of present
values of Agribrands. Banc of America Securities calculated the enterprise value
of Agribrands to range from $288.7 million to $437.2 million, its equity value
to range from $372.7 million to $521.2 million, and an implied value per share
to range from $37.98 to $53.11.
Combined Ralcorp and Agribrands - 100% Stock Transaction:
Banc of America Securities performed a discounted cash flow analysis for
the combined companies of Ralcorp and Agribrands for the years ending September
30, 2001 to 2005. Banc of America Securities assumed a 100% stock transaction
(without assuming any cash distribution to shareholders as part of the
consideration from the merger and without assuming and potential synergies or
benefits from implementation of Ralcorp's strategic plan) for the analysis using
a range of discount rates of 10.5% to 12.5%, based on an estimated cost of
capital for the combined entity, and terminal values based on a range of
terminal EBITDA multiples of 3.8 to 5.8 time, calculated using a weighted
average of the respective contributions of EBITDA from Ralcorp and Agribrands.
Based upon these parameters, Banc of America Securities calculated a range of
present values of the combined entity. Banc of America Securities calculated the
enterprise value of the combined entity to range from $951.2 million to $1,330.9
million, and its equity value to range from $859.2 million to $1,238.9 million.
Based on the foregoing analysis, Banc of America Securities calculated an
implied merger ratio of 0.490 to 0.500 and an inverse implied merger ratio of
2.000 to 2.041
Illustrative Analysis of Potential Stock Price Appreciation. Banc of
America Securities reviewed the potential future value per share of Ralcorp
common stock in year 2005 in a stand-alone scenario assuming a range of annual
stock price appreciation rates through the year 2005 of 7.0% to 12.0%, which
Banc of America believed were reasonable stock price appreciation rates based on
past performance of the stock, earnings growth estimates and a beginning stock
price range of values based on the 52 week trading range of Ralcorp common
stock.
Future Value per Ralcorp Share in Year 2005 Assuming an
52-week Annual Stock Price Appreciation Rate of :
Trading Implied Premium/Discount ------------------------------------------------------------------------
Range 2000 P/E To Current Price 7.0% 8.0% 9.0% 10.0% 11.0% 12.0%
- -----------------------------------------------------------------------------------------------------------------------
$11.50 9.3x (11.5)% $16.13 $16.90 $17.69 $18.52 $19.38 $20.27
12.00 9.7 (7.7) 16.83 17.63 18.46 19.33 20.22 21.15
13.00 10.5 0.0 18.23 19.10 20.00 20.94 21.91 22.91
14.00 11.3 7.7 19.64 20.57 21.54 22.55 23.59 24.67
15.00 12.1 15.4 21.04 22.04 23.08 24.16 25.28 26.44
16.00 12.9 23.1 22.44 23.51 24.62 25.77 26.96 28.20
17.00 13.7 30.8 23.84 24.98 26.16 27.38 28.65 29.96
18.00 14.5 38.5 25.25 26.45 27.70 28.99 30.33 31.72
19.00 15.3 46.2 26.65 27.92 29.23 30.60 32.02 33.48
20.00 16.1 53.8 28.05 29.39 30.77 32.21 33.70 35.25
20.75 16.7 59.6 29.10 30.49 31.93 33.42 34.96 36.57
40
The potential future value per share calculated in the foregoing analysis
was compared with the potential future value per share calculated in the
following analyses.
Illustrative Comparison of Potential Future Stock Price under Acquisitions
Scenarios. Banc of America Securities compared the prospects of Ralcorp common
stock assuming annual strategic add-on acquisitions in line with Ralcorp's
strategic plan, assuming, in the first instance, Ralcorp remained independent
and, in the second instance, Ralcorp combined pursuant to the merger, assuming
the full 20% cash election.
In order to perform its analysis, Banc of America Securities first reviewed
the projected growth rates of Ralcorp on a stand-alone basis and of Ralcorp on a
combined basis in a 100% stock merger with Agribrands, based on Ralcorp's and
Agribrands' management's projections, which indicated projected revenue, EBITDA
and free cash flow growth of 2.6%, 5.1% and 7.7%, respectively, on a stand-alone
basis, and 2.6%, 4.0% and 13.2%, respectively, on a combined basis.
Banc of America Securities next reviewed the static incremental debt
capacity (incremental amount of debt for the company to reach a total set level
of debt based on the current financial profile) based on a total debt to EBITDA
of 3.25x and theoretical incremental debt capacity based (incremental amount of
debt for the company to reach a total set level of debt based on the financial
profile of the company after accounting for the additional EBITDA acquired) on a
total debt to EBITDA of 3.25x and assuming acquired EBITDA at a multiple of 5.0x
target EBITDA under, in the first instance, a stand-alone scenario and, in the
second instance, Ralcorp combined pursuant to the merger. Under the stand-alone
scenario Ralcorp would have $129.8 million and $310.8 million static and
theoretical incremental debt capacity, respectively, and under the merger
scenario Ralcorp would have $359.4 million and $995.0 million static and
theoretical incremental debt capacity, respectively.
Based on the foregoing analyses, and assuming, for both the stand-alone and
the merger scenarios, that the incremental debt capacity was used to fund future
acquisitions at a weighted average post-synergy EBITDA multiple of 4.8x, Banc of
America Securities calculated the potential future value per old equivalent
Ralcorp common share. In the Ralcorp stand-alone scenario, Banc of America
Securities used multiples ranging from 10.0 to 14.0 times year 2005 earnings,
which is in line with historical trading ranges. For the merger scenario
assuming the full 20% cash election, Banc of America Securities used terminal
EBITDA ranging from 9.0 to 13.0, based on a blended multiple of the combination
of Ralcorp and Agribrands. Banc of America Securities analyzed the sensitivity
of the future stock price based on a range of purchase multiples to acquired
EBITDA of 5.0x to 7.0x. The results of these analyses are summarized as follows:
Future Value per Old Ralcorp Equivalent Share at
Purchase Multiple to EBITDA Multiple to Terminal EBITDA
- ---------------------------------------- ------------- ------------- -------------- ----------- ----------
10.0x 11.0x 12.0x 13.0x 14.0x
------------- ------------- -------------- ----------- ----------
Stand-alone
5.0x $32.74 $36.01 $39.28 $42.56 $45.83
6.0x 31.36 34.50 37.63 40.77 43.91
7.0x 29.98 32.98 35.98 38.98 41.90
9.0x 10.0x 11.0x 12.0x 13.0x
------------- ------------- -------------- ----------- ----------
Mergers - 80% Stock / 20% cash
5.0x $35.61 $38.99 $42.37 $45.75 $49.13
6.0x 33.29 36.43 39.58 42.73 45.87
7.0x 31.23 34.17 37.11 40.05 42.99
Comparison of Discounted Cash Flow Analyses Under Acquisitions Scenarios.
Based on estimates provided by Ralcorp's and Agribrands' respective managements,
Banc of America Securities performed a discounted cash flow analysis of Ralcorp,
and the combined companies following the merger, with on-going acquisitions.
Ralcorp Stand-alone with Acquisitions:
Banc of America Securities performed a discounted cash flow analysis for
Ralcorp on a stand-alone basis assuming annual strategic add-on acquisitions in
line with Ralcorp's strategic plan at a transaction value multiple to EBITDA of
6.0 times. Banc of America Securities used a range of discount rates of 10.5% to
12.5%, based on an estimated cost of capital for Ralcorp with acquisitions, and
a range of terminal EBITDA multiples of 6.0 to 8.0. Based upon these parameters,
Banc of America Securities calculated a range of present values of Ralcorp. Banc
of America Securities calculated the enterprise value of Ralcorp to range from
41
$908.1 million to $1,269.2 million, its equity value to range from $732.1
million to $1,093.2 million, and an implied value per share to range from $24.52
to $36.61.
80% Stock, 20% Cash Transaction with Acquisitions
Banc of America Securities performed a discounted cash flow analysis for
the combined companies of Ralcorp and Agribrands for the years ending September
30, 2001 to 2005 assuming the merger were consummated using 80% stock and 20%
cash consideration and the combined entity made annual strategic add-on
acquisitions in line with Ralcorp's strategic plan at a transaction value
multiple to EBITDA of 6.0 times. Banc of America Securities used a range of
discount rates of 10.5% to 12.5%, based on an estimated cost of capital for the
combined entity, and a range of terminal EBITDA multiples of 5.2 to 7.2 times,
calculated using a weighted average of the respective contributions of EBITDA
from Ralcorp and Agribrands. Based upon these parameters, Banc of America
Securities calculated a range of present values of the combined entity. Banc of
America Securities calculated an implied value per share (equivalent to one old
Ralcorp share) to range from $26.30 to $39.47.
Pro Forma Merger Analysis. Banc of America Securities reviewed the impact
of the proposed merger to Ralcorp's and Agribrands' management projected
earnings per share for 2001 on a reported basis and on a cash basis. Banc of
America Securities assumed the existing debt of Ralcorp is refinanced and that
shareholders elect the full 20% cash consideration. Banc of America Securities
noted that the merger were accretive to the earnings per share and cash earnings
per share of Ralcorp and Agribrands.
Impact on Ralcorp: Impact on Agribrands:
Reported EPS Cash EPS Reported EPS Cash EPS
------------------ -------------- ------------------ --------------
Original 2001 EPS $1.32 $1.75 $4.92 $5.15
Post-Transaction EPS 1.70 2.02 5.11 6.08
Accretion / (Dilution) - $ 0.39 0.27 0.19 0.92
Accretion / (Dilution) - % 29.3% 15.4% 3.9% 17.9%
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the Banc of America Securities opinion. In arriving at its fairness
determination, Banc of America Securities considered the results of each of
these analyses in their totality and did not attribute any particular weight to
any analysis or factor considered by it. Rather, Banc of America Securities made
its determination as to fairness on the basis of its experience and professional
judgment, after considering the results of all of these analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Ralcorp or Agribrands. The analyses were prepared solely for the purpose of Banc
of America Securities' providing its opinion, as of August 7, 2000, to the
Ralcorp Board of Directors as to the fairness from a financial point of view of
the consideration to be received by the shareholders pursuant to the
reorganization agreement, and do not purport to be appraisals or necessarily
reflective of the prices at which the combined entity's securities may trade.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by those analyses. Because these analyses are inherently subject to
uncertainty and are based upon numerous factors or events beyond the control of
the parties or their advisors, future results may be different from those
forecast.
Banc of America Securities' opinion to Ralcorp's Board of Directors was one
of many factors taken into consideration by the Ralcorp Board of Directors in
making its determination to approve the reorganization agreement. The foregoing
summary is not a complete description of the analyses performed by Banc of
America Securities. You should read the entire opinion of Banc of America
Securities, which is attached as Annex B.
Banc of America Securities, as part of its investment banking and financial
advisory business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Banc of America Securities or its affiliates have provided in the past
and currently provide financial advisory and financing services for Ralcorp and
Agribrands and have received, and will receive, fees for the rendering of these
services. In the ordinary course of its businesses, Banc of America Securities
and its affiliates may actively trade the debt and equity securities of Ralcorp
and Agribrands for their own accounts or for the accounts of customers, and,
accordingly, may at any time hold long or short positions in such securities.
42
Ralcorp engaged Banc of America Securities to explore strategic
alternatives, including the possible sale of all or a portion of the stock or
assets of Ralcorp. A fee of $2,000,000 will be payable to Banc of America
Securities by Ralcorp as compensation for its services, including a fee of
$1,750,000 which is payable upon completion of the merger. In addition, Ralcorp
has agreed to reimburse Banc of America Securities for its reasonable
out-of-pocket expenses, including the fees and expenses of Banc of America
Securities' attorneys, and to indemnify Banc of America Securities against
various liabilities, including certain liabilities under the federal securities
laws.
Opinion of A.G. Edwards, Financial Advisor to Ralcorp's Special Committee
Pursuant to a letter agreement dated July 21, 2000, A.G. Edwards & Sons,
Inc. provided to the Ralcorp special committee of independent directors and the
Ralcorp Board of Directors a fairness opinion in connection with the proposed
reorganization agreement. A.G. Edwards was selected by the Ralcorp special
committee to act as its financial advisor based on A.G. Edwards' qualifications,
expertise and reputation. A.G. Edwards assisted the Ralcorp special committee in
evaluating the significant business terms contained in the reorganization
agreement and, at the meetings of the Ralcorp special committee and the Ralcorp
Board of Directors on August 7, 2000, A.G. Edwards delivered its oral and
written opinion (such written opinion dated August 7, 2000, the "A.G. Edwards
opinion") that, as of that date, based upon and subject to the various factors
set forth in the opinion, the consideration to be received in the merger by the
Ralcorp shareholders was fair, from a financial point of view, to the Ralcorp
shareholders.
In arriving at its opinion, A.G. Edwards analyzed the "Implied Merger
Ratio" for Ralcorp shareholders in the merger based upon the relative weighted
average consideration to be received for each share of Ralcorp common stock
compared to the weighted average consideration to be received for each share of
Agribrands common stock. Assuming an all-stock election by the Agribrands and
Ralcorp shareholders, the "Implied Merger Ratio" for Agribrands shareholders is
3.0 times the consideration to be received by the Ralcorp shareholders on a per
share basis. Assuming a combination cash election for the maximum amount of 20%
of the outstanding shares of each of Agribrands and Ralcorp, the "Implied Merger
Ratio" for Agribrands shareholders is 2.9 times the consideration to be received
by the Ralcorp shareholders on a per share basis. These ratios, based on an
all-stock and a maximum cash election, are collectively referred to herein as
the "Implied Merger Ratios."
The full text of the A.G. Edwards opinion which sets forth, among other
things, assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken by A.G. Edwards in rendering
such opinion, is attached as Annex C to this joint proxy statement/prospectus.
Ralcorp shareholders are urged to, and should, read the A.G. Edwards opinion
carefully and in its entirety. The A.G. Edwards opinion was directed to the
Ralcorp special committee and the Ralcorp Board of Directors and addresses only
the fairness to the Ralcorp shareholders of the consideration to be received in
the merger, from a financial point of view, as of the date of the opinion, and
does not constitute a recommendation to any holder of Ralcorp common stock as to
how to vote with respect to the merger. The summary of the A.G. Edwards opinion
set forth in this joint proxy statement/prospectus is qualified in its entirety
by reference to the full text of such opinion.
In arriving at the A.G. Edwards opinion, A.G. Edwards, among other things:
o reviewed the reorganization agreement;
o reviewed certain publicly-available Ralcorp and Agribrands historical
audited financial statements and certain unaudited interim financial
statements;
o reviewed certain internal financial analyses and estimates for Ralcorp
and Agribrands prepared by their respective managements;
o held conversations with Banc of America Securities, representatives of
the Ralcorp special committee and legal counsel to the special
committee regarding the nature and extent of development of the terms
of the reorganization agreement;
o held discussions with management of Ralcorp and Agribrands regarding
the past and current business operations, financial condition and
future prospects of Ralcorp and Agribrands, respectively, including
discussions relating to the strategic, financial and operational
benefits anticipated from the merger;
o reviewed the pro forma impact of the merger on the earnings per share
("EPS") of Ralcorp;
43
o compared certain financial information for Ralcorp and Agribrands with
similar information for certain other companies, the securities of
which are publicly traded;
o reviewed the historical trading activity of the Ralcorp common stock
and the Agribrands common stock;
o reviewed the financial terms of certain recent business combinations
in the food and agricultural industries; and
o completed such other studies and analyses as A.G. Edwards considered
appropriate.
A.G. Edwards assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by it
for purposes of its opinion. A.G. Edwards was informed and assumed, without
independent verification, that the internal financial statements and other
financial and operating data, including stand-alone forecasts and estimates of
the strategic, financial and operational benefits anticipated from the merger,
supplied to, discussed with or otherwise made available to A.G. Edwards by
Ralcorp and Agribrands, were reasonably prepared on bases reflecting the best
then currently available estimates and judgments of their respective managements
as to the expected future financial performance of Ralcorp and Agribrands, in
each case, on a stand-alone basis and after giving effect to the merger. A.G.
Edwards has not independently verified such information or assumptions nor does
it express any opinion with respect thereto. A.G. Edwards did not make any
independent valuation or appraisal of the assets or liabilities of Ralcorp or
Agribrands nor was A.G. Edwards furnished with any such appraisals. A.G. Edwards
assumed that the merger will be accounted for as a purchase business combination
in accordance with generally accepted accounting principles and that the merger
will be consummated in accordance with the terms set forth in the reorganization
agreement, without any waiver by Ralcorp of any material terms or conditions.
A.G. Edwards also assumed the merger will not negatively impact the tax-free
nature of Agribrands' spin-off from its prior parent company, Ralston Purina.
The A.G. Edwards opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of, the
date of the opinion. The A.G. Edwards opinion as summarized herein is limited to
the fairness, from a financial point of view, to the Ralcorp shareholders, of
the consideration to be received by the Ralcorp shareholders in the merger. In
arriving at its opinion, A.G. Edwards was not authorized to solicit, and did not
solicit, interest from any third party with respect to an acquisition, business
combination or other extraordinary transaction involving Ralcorp.
The following is a summary of the analyses performed by A.G. Edwards in
arriving at the A.G. Edwards opinion.
Comparative Stock Price Performance. A.G. Edwards reviewed the recent stock
price performance of both the Ralcorp common stock and the Agribrands common
stock and compared such performance over various periods since April 1, 1998,
the date Agribrands became an independently traded public company. The following
table sets forth the relative stock price performance of Ralcorp and Agribrands
during a number of periods ending August 4, 2000.
Percent Change from
------------------- ------------------------------------------------------------
August 4, 2000 180 Days 90 Days 60 Days 30 Days 10 Days
Share Price Prior Prior Prior Prior Prior
- ------------------- ------------------- ------------ ----------- ----------- ----------- -----------
Ralcorp $13.000 -17.13% -4.59% 0.97% 0.97% 0.00%
Agribrands $36.563 -14.97% -6.10% -12.16% -11.76% -0.34%
- ------------------- ------------------- ------------ ----------- ----------- ----------- -----------
A.G. Edwards also observed that during the twelve month period ending
August 4, 2000 the average differential in the total market capitalization
(defined as market value of common equity plus total debt less cash and cash
equivalents) to EBITDA (defined as income (loss) from operations before
nonrecurring charges, plus depreciation and amortization charged to operations)
multiples and the price to earnings multiples for Ralcorp versus Agribrands was
2.6 times and 3.6 times, respectively, with Ralcorp enjoying the higher
multiples in both cases.
Merger Ratio Analysis. A.G. Edwards performed an analysis of the ratios of
the closing price of Agribrands common stock to the closing price of Ralcorp
common stock (the "Market-Based Ratio") at various points and on average over
various periods between April 1, 1998 and August 4, 2000 as compared to the
Implied Merger Ratios. The following table sets forth the historical
Market-Based Ratios based on arithmetic average prices and weighted average
(based on trading volume) prices for a number of periods ending August 4, 2000.
44
Analysis of Historical Merger Ratios - Agribrands/Ralcorp
--------------------------------------------------------------
Arithmetic Weighted
Average Prices Average Prices
---------------------------- ----------------- ---------------
10 days 2.79x 2.79x
30 days 2.87x 2.86x
60 days 3.03x 3.02x
90 days 3.09x 3.12x
180 days 2.83x 2.80x
A.G. Edwards also observed that on September 18, 1998, the Market-Based
Ratio was 1.21 times, representing the lowest closing Market-Based Ratio since
April 1, 1998. Based on the closing stock prices of Agribrands and Ralcorp and
the Market-Based Ratio of 2.81 times on August 4, 2000, A.G. Edwards observed
that the Implied Merger Ratio, assuming a full cash election by Agribrands and
Ralcorp shareholders, represented for the Agribrands shareholders a 3.4% premium
to the Market-Based Ratio on that date. A.G. Edwards also noted that the Implied
Merger Ratios were within the range of Market-Based Ratios observed over the
periods reviewed.
Pro Forma Contribution Analysis. A.G. Edwards analyzed the relative pro
forma contribution of both Ralcorp and Agribrands to the pro forma combined
entity based on Ralcorp's and Agribrands' historical results from operations and
the respective companies' projections. For comparative purposes, A.G. Edwards
compared Ralcorp's historical last twelve months ended March 31, 2000 to
Agribrands' historical last twelve months ended May 31, 2000. This analysis
indicated, among other things, that Ralcorp would have contributed 37.2%, 54.1%,
48.9% and 44.5% of the pro forma combined entity's net sales, EBIT (defined as
income (loss) from operations before nonrecurring charges), EBITDA and net
income, respectively, for the periods analyzed. The analysis also indicated that
based on the respective management projections excluding anticipated synergies,
Ralcorp would contribute 48.5%, 54.7%, 56.6% and 43.8% of the pro forma combined
entity's estimated net sales, EBIT, EBITDA and net income, respectively, in the
year ending September 30, 2000 for Ralcorp and August 31, 2000 for Agribrands;
and 47.8%, 56.8%, 56.4% and 44.5% of the pro forma combined entity's estimated
net sales, EBIT, EBITDA and net income, respectively, for the year ending
September 30, 2001 for Ralcorp and August 31, 2001 for Agribrands. A.G. Edwards
calculated the implied merger ratios based on each of these contribution
percentages and compared them to the Implied Merger Ratios. A.G. Edwards noted
that the range of Implied Merger Ratios in the merger was more favorable to
Ralcorp shareholders than the implied merger ratios based on the contribution
percentages.
Discounted Cash Flows Analysis. A.G. Edwards analyzed the present value of
Ralcorp's and Agribrands' future tax-adjusted operating cash flows, in each case
on a stand-alone basis, as projected by Ralcorp's and Agribrands' managements,
using discount rates of 10.0%, 11.0%, 12.0%, 13.0% and 14.0% and terminal EBITDA
multiples of 5.6 times, 6.6 times and 7.6 times for Ralcorp and 3.0 times, 4.0
times and 5.0 times for Agribrands, reflecting the average differential between
the companies' market capitalization to EBITDA multiples over the past twelve
months. A.G. Edwards analyzed financial projections for Ralcorp and Agribrands
for the fiscal years 2001 to 2005. Based on this analysis and assuming an 11.0%
discount rate, A.G. Edwards estimated the present value as of October 1, 2000
and September 1, 2000 of the equity of Ralcorp and Agribrands to range from
$564.6 million to $742.1 million and from $511.4 million to $633.2 million,
respectively. At an assumed discount rate of 11.0% for both companies, A.G.
Edwards estimated the equity contribution by Ralcorp to be 52.5%, 53.3% and
54.0% of the combined pro forma present value based on the range of terminal
EBITDA multiples for Ralcorp and Agribrands noted above. A.G. Edwards calculated
a range of implied merger ratios based on the relative discounted cash flow
valuations and compared them to the Implied Merger Ratios. A.G. Edwards noted
that the range of Implied Merger Ratios in the merger was moderately less
favorable to Ralcorp shareholders than the implied merger ratios based on the
relative discounted cash flow valuations.
Public Company Trading Analysis. A.G. Edwards compared certain financial
information of Ralcorp with that of Agribrands and with that of a group of eight
selected large-capitalization public food companies (together, the
"Large-Capitalization Companies"), with that of a group of eleven selected
medium to small- capitalization public food companies (together, the "Medium and
Small-Capitalization Companies") and with that of a group of seven selected
agricultural companies (together, the "Agricultural Companies").
45
Large-Capitalization Companies were:
Dean Foods Company
Flowers Industries, Inc.
Hormel Foods Corporation
Interstate Bakeries Corporation
McCormick & Company, Incorporated
Smithfield Foods, Inc.
Suiza Foods Corporation
Tyson Foods, Inc.
Medium to Small-Capitalization Companies were:
American Italian Pasta Co
Dole Foods Company, Inc.
The Earthgrains Company
J&J Snack Foods Corp.
Lance, Inc.
Michael Foods, Inc.
Riviana Foods Inc.
Seneca Foods Corporation
The J.M. Smucker Company
Spigadoro, Inc.
Universal Foods Corporation
The Agricultural Companies were:
Archer-Daniels-Midland Company
Corn Products International, Inc.
Midwest Grain Products, Inc.
Nutreco Holding N.V.
Omega Protein Corporation
Ridley Inc.
Scope Industries
The financial information reviewed by A.G. Edwards included, among other
things, each company's "market multiples" including stock price as a multiple of
the last twelve months ("LTM") EPS and calendarized First Call Corporation
estimates for 2000 EPS, and each company's total market capitalization (defined
as market value of equity plus total debt less cash and cash equivalents) as a
multiple of LTM net sales, LTM EBITDA and LTM EBIT. The following table sets
forth a comparison of the current market multiples of Ralcorp and Agribrands as
of August 4, 2000, the Agribrands implied multiple range based on the Implied
Merger Ratios and the ranges and medians of the multiples of the comparable
companies categories.
Large- Medium to
Current Current Agribrands Capitalization Small-Capitalization
Ralcorp Agribrands Implied Companies Companies
Market Market Multiple ------------------------ -------------------------
Multiples Multiples Range (a) Range Median Range Median
------------ -------------- --------------- -------------- ------------ ------------- ----------
LTM Sales 0.6x 0.2x 0.2x - 0.2x 0.5x - 1.2x 0.6x 0.4x - 1.8x 0.6x
LTM EBITDA 4.9x 2.5x 2.8x - 2.9x 4.5x - 9.7x 8.1x 3.2x - 7.5x 6.6x
LTM EBIT 7.0x 3.6x 3.9x - 4.1x 7.0x - 15.4x 10.8x 6.8x - 14.8x 9.8x
LTM Net Income 11.1x 8.2x 8.7x - 9.0x 8.1x - 61.0x 15.3x 9.9x - 25.1x 11.9x
2000 EPS 10.6x 7.8x 8.2x - 8.5x 10.2x - 29.5x 12.4x 7.8x - 14.1x 10.6x
<FN>
- --------------
(a) Based on the range of Implied Merger Ratios of 2.9x to 3.0x.
</FN>
46
Current Current Agribrands
Ralcorp Agribrands Implied Agricultural Companies
Market Market Multiple --------------- ----------
Multiples Multiples Range (a) Range Median
------------ -------------- ---------------- --------------- ----------
LTM Sales 0.6x 0.2x 0.2x - 0.2x 0.4x - 1.0x 0.6x
LTM EBITDA 4.9x 2.5x 2.8x - 2.9x 4.9x - 10.3x 7.5x
LTM EBIT 7.0x 3.6x 3.9x - 4.1x 10.3x - 16.3x 15.7x
LTM Net Income 11.1x 8.2x 8.7x - 9.0x 12.4x - 34.4x 23.1x
2000 EPS 10.6x 7.8x 8.2x - 8.5x 8.4x - 20.9x 13.0x
<FN>
- --------------
(a) Based on the range of Implied Merger Ratios of 2.9x to 3.0x.
</FN>
In certain cases, the range of multiples for the Public Company Trading
Analysis excluded certain multiples deemed not meaningful by A.G. Edwards due to
unusual factors associated with one or more specific company(ies). No company
used in the Public Company Trading Analysis is identical to Ralcorp or
Agribrands. A.G. Edwards noted that, in all cases, Ralcorp traded at multiples
at or below the median of the three indices of publicly-traded companies and
that Agribrands' multiples were below Ralcorp's multiples.
Analysis of Selected Precedent Transactions. A.G. Edwards reviewed publicly
available information regarding 42 completed and five announced but not
completed transactions involving the acquisition of food and agricultural
companies (collectively the "Precedent Transactions") since January 1997. A.G.
Edwards segregated the Precedent Transactions into four categories, three
categories involving the acquisition of food companies: (i) Large Transactions
($1 billion in transaction value (defined below) or greater), (ii) Small
Transactions ($100 million to $1 billion in transaction value) and (iii) Micro
Transactions (less than $100 million in transaction value); and a category
involving the acquisition of agricultural companies: (iv) "Agricultural
Transactions". A.G. Edwards compared, where available, certain financial
measures or market multiples for the Precedent Transactions to the same
financial measures for Agribrands. The market multiples reviewed included the
transaction value (defined as the value paid for the relevant target company's
equity on a fully diluted basis plus total debt less cash and cash equivalents)
as a multiple of LTM net sales, LTM EBIT and LTM EBITDA and the equity value to
LTM net income. The following tables set forth a comparison of the current
market multiples of Ralcorp and Agribrands as of August 4, 2000, the implied
multiple range for Agribrands based on the Implied Merger Ratios and the ranges
and medians of the multiples of the Precedent Transactions in each of the
categories.
Current Current Agribrands
Ralcorp Agribrands Implied Large Transactions Small Transactions
Market Market Multiple ------------------------ -------------------------
Multiples Multiples Range (a) Range Median Range Median
------------ -------------- --------------- -------------- ------------ ------------- ----------
LTM Sales 0.6x 0.2x 0.2x - 0.2x 0.4x - 2.9x 1.3x 0.4x - 2.4x 1.2x
LTM EBITDA 4.9x 2.5x 2.8x - 2.9x 6.3x - 14.3x 10.8x 6.1x - 12.8x 9.5x
LTM EBIT 7.0x 3.6x 3.9x - 4.1x 7.5x - 22.3x 12.6x 5.6x - 24.4x 12.0x
LTM Net Income 11.1x 8.2x 8.7x - 9.0x 12.5x - 44.0x 16.8x 9.3x - 55.4x 19.2x
<FN>
- ----------
(a) Based on the range of Implied Merger Ratios of 2.9x to 3.0x.
</FN>
Current Current Agribrands
Ralcorp Agribrands Implied Micro Transactions Agricultural Transactions
Market Market Multiple ------------------------ -----------------------
Multiples Multiples Range (a) Range Median Range Median
------------ -------------- --------------- -------------- ------------ ------------- --------
LTM Sales 0.6x 0.2x 0.2x - 0.2x 0.3x - 1.2x 0.6x 0.3x - 1.2x 0.6x
LTM EBITDA 4.9x 2.5x 2.8x - 2.9x 4.9x - 7.7x 5.7x 3.0x - 7.0x 6.1x
LTM EBIT 7.0x 3.6x 3.9x - 4.1x 6.0x - 14.8x 7.1x 5.8x - 10.8x 8.3x
LTM Net Income 11.1x 8.2x 8.7x - 9.0x 11.7x - 20.9x 16.3x 10.7x - 14.0x 12.4x
<FN>
- ----------
(a) Based on the range of Implied Merger Ratios of 2.9x to 3.0x.
</FN>
47
In certain cases, the range for the Precedent Transactions multiples
excluded certain multiples deemed not meaningful by A.G. Edwards due to unusual
factors associated with one or more specific transaction(s). No transaction used
in the Analysis of Selected Precedent Transactions is identical to the proposed
merger. A.G. Edwards noted that in all cases Agribrands' multiples implied in
the merger were below the medians of the corresponding multiples paid in the
Precedent Transactions.
Pro Forma Financial Analysis. A.G. Edwards analyzed the pro forma impact of
the merger on Ralcorp's estimated earnings per share and cash earnings per share
(defined as earnings per share adjusted to add back existing and transaction
goodwill amortization) for the calendar years 2000 and 2001 based on a range of
possible merger ratios. Such analysis was based on Ralcorp's and Agribrands'
respective managements' estimates for the fiscal years ended September 30 for
Ralcorp and August 31 for Agribrands. A.G. Edwards' analysis indicated that,
assuming the merger is treated as a purchase for accounting purposes and before
taking into account any one-time restructuring charges or any cost synergies
resulting from the combination, the merger would be expected to result in EPS
accretion for Ralcorp shareholders. A.G. Edwards' analysis also indicated that
the merger would be expected to result in cash EPS accretion for Ralcorp
shareholders. The following tables set forth the Implied Merger Ratio and the
estimated EPS and cash EPS accretion to Ralcorp based on an all stock election
and an 80% stock and 20% cash election for 2000 and 2001.
Ralcorp EPS Accretion
------------------------------------------------------
Implied 2000 2000 2001 2001
Merger Assumption Merger Ratio EPS Cash EPS EPS Cash EPS
- -------------------------- -------------- ------------ --------------- ----------- -------------
100% Stock 3.00x 18.1% 6.7% 18.2% 3.5%
80% Stock / 20% Cash 2.91x 33.7% 22.2% 34.3% 19.3%
Additionally, A.G. Edwards analyzed the pro forma impact of the merger
based on revised assumptions in which Agribrands' forecasted pre-tax
profitability was reduced by 5.0%, 10.0%, 15.0% and 20.0% per year below
management's estimates and assuming no cost saving synergies, and noted the
merger would not be expected to be dilutive to EPS based on these revised
forecasts.
The foregoing summary does not purport to be a complete description of all
the analyses performed by A.G. Edwards in arriving at its opinion. The
preparation of a fairness opinion is a complex process and is not susceptible to
partial analysis or summary description. In rendering the A.G. Edwards opinion,
A.G. Edwards applied its judgment to a variety of complex analyses and
assumptions, considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor considered by it.
Furthermore, selecting any portion of its analyses, without considering all
analyses, would create an incomplete view of the process underlying the A.G.
Edwards opinion. In addition, A.G. Edwards may have given various analyses and
factors more or less weight than other analyses and factors, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be A.G. Edwards' view of the actual value of Ralcorp and
Agribrands. In performing its analyses, A.G. Edwards made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Ralcorp or
Agribrands. The assumptions made and judgments applied by A.G. Edwards in
rendering its opinion are not readily susceptible to description beyond that set
forth in the written text of the A.G. Edwards opinion itself. Any estimates
contained herein are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than those suggested
by such estimates. A.G. Edwards does not assume responsibility if future results
are different from those projected. The analyses performed were prepared solely
as part of A.G. Edwards' analysis of the fairness of the consideration to be
received by the Ralcorp shareholders in the merger, from a financial point of
view, to the Ralcorp shareholders and were conducted in connection with the
delivery of A.G. Edwards' opinion. The analyses do not purport to be appraisals
or to reflect the prices at which Ralcorp or Agribrands might actually be sold.
As described above under "--Ralcorp's Reasons for the Merger," A.G. Edwards'
opinion to the Ralcorp special committee and the Ralcorp Board of Directors was
one of many factors taken into consideration by the Ralcorp Board of Directors
in making its determination to approve the reorganization agreement. Although
A.G. Edwards provided advice to the Ralcorp special committee during the course
of the negotiations, the decision to enter into the reorganization agreement and
to accept the consideration was solely that of the Ralcorp Board of Directors.
A.G. Edwards did not recommend any specific consideration to Ralcorp or that any
specific consideration constituted the only appropriate consideration for the
merger.
48
A.G. Edwards, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. A.G. Edwards is not
aware of any relationship that has existed within the last two years or any
contemplated relationship between A.G. Edwards, Ralcorp, Agribrands or their
respective directors, officers or other affiliates which in its opinion would
affect its ability to render a fair and independent opinion in this matter.
A.G. Edwards received from Ralcorp a fee of $300,000 for its services,
including delivery of its fairness opinion. Ralcorp has agreed to reimburse A.G.
Edwards for all of its reasonable out-of-pocket expenses and to indemnify A.G.
Edwards and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling A.G. Edwards or any of its
affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, related to A.G. Edwards'
engagement.
Opinion of Wasserstein Perella, Financial Advisor to Agribrands
Role of Financial Advisor. Agribrands Board of Directors retained
Wasserstein Perella to provide investment banking advice and services in
connection with a possible business combination between Agribrands and Ralcorp,
including rendering its opinion as to the fairness, from a financial point of
view, to the shareholders of Agribrands of the consideration to be received by
the shareholders of Agribrands pursuant to the reorganization agreement.
On August 7, 2000, Wasserstein Perella orally delivered its opinion to the
Agribrands Board of Directors, which it later confirmed in a written opinion
dated August 7, 2000, to the effect that, as of the date of the opinion and
based upon and subject to various assumptions and limitations set forth in the
opinion, the consideration provided to Agribrands shareholders pursuant to the
reorganization agreement was fair to the shareholders of Agribrands from a
financial point of view. Wasserstein Perella also presented to the Agribrands
Board of Directors the analyses described below. Agribrands and Ralcorp
determined the amount and the form of consideration through arms-length
negotiations and did not base this determination on any recommendation by
Wasserstein Perella, although Wasserstein Perella provided advice to Agribrands
from time to time during the course of the negotiations and the Agribrands Board
of Directors did take into consideration the opinion of Wasserstein Perella,
among other factors, in making its determination to recommend the approval of
the reorganization agreement by Agribrands shareholders. Agribrands engaged
Wasserstein Perella solely as advisor to the Agribrands Board of Directors and
Wasserstein Perella did not act as advisor to or agents of any other person.
The full text of Wasserstein Perella's opinion is attached as Annex D to
this proxy statement/prospectus and is incorporated by reference herein.
Shareholders of Agribrands are urged to, and should, read the Wasserstein
Perella opinion carefully in its entirety for information with respect to the
procedures followed, assumptions made, matters considered and limits on the
review undertaken by Wasserstein Perella in rendering its opinion. References to
Wasserstein Perella's opinion in this joint proxy statement/prospectus and the
summary of Wasserstein Perella's opinion in this section of this joint proxy
statement/prospectus are qualified in their entirety by reference to Annex D.
Wasserstein Perella's opinion addressed only the fairness from a financial point
of view to the shareholders of Agribrands of the consideration provided for
pursuant to the reorganization agreement. Wasserstein Perella did not express
any view on any other aspect of the merger or any other terms of the
reorganization agreement. Specifically, the opinion did not address Agribrands'
underlying business decision to enter into the reorganization agreement or to
effect the transactions contemplated by the reorganization agreement, nor did
Wasserstein Perella's opinion address any alternative transaction or business
strategy that may have been available to Agribrands. Wasserstein Perella's
opinion does not constitute a recommendation to any shareholder of Agribrands as
to how such shareholder should vote with respect to the merger, or otherwise act
in respect of the merger, and shareholders should not rely upon it as such.
Matters Reviewed. In arriving at its opinion, Wasserstein Perella reviewed
and analyzed, among other things, the following:
o a draft of the reorganization agreement which, for purposes of the
opinion, was assumed not to differ in any material respect from the
final form thereof;
o publicly available business and financial information concerning
Agribrands and Ralcorp that Wasserstein Perella believed to be
relevant to its analysis;
o certain financial and operating information with respect to the
business, operations and prospects of Agribrands and Ralcorp furnished
to it by Agribrands and Ralcorp, as the case may be;
49
o historical market prices and trading activity for Agribrands and
Ralcorp common stock and a comparison of that trading history with
those publicly traded companies selected as being relevant or
comparable in certain respects to Agribrands or Ralcorp, as the case
may be;
o comparisons of the historical financial results and present financial
condition of Agribrands and Ralcorp with those of other publicly
traded companies selected as being relevant or comparable in certain
respects to Agribrands and Ralcorp, as the case may be;
o the financial terms of certain recent acquisitions and business
combination transactions in the food and animal feed industries
specifically, and in other industries generally, that were considered
comparable to the merger or otherwise relevant; and
o the anticipated pro forma financial effects of the merger on the
combined company.
Wasserstein Perella also held discussions with the management and
representatives of Agribrands and Ralcorp concerning:
o the historic and current operations of Agribrands and Ralcorp;
o their respective financial condition and prospects;
o prospective financial information relating to Agribrands and Ralcorp;
and
o strategic and operating benefits anticipated from the merger.
Assumptions and Limitations. In its review and analysis and in rendering
its opinion, Wasserstein Perella, with Agribrands' consent, assumed and relied
without independent verification upon various matters, including:
o the accuracy and completeness of all historical financial and other
information that was publicly available or furnished to Wasserstein
Perella by or on behalf of Agribrands and Ralcorp;
o the reasonableness and accuracy of the financial estimates, forecasts
and analyses provided to Wasserstein Perella by or on behalf of
Agribrands and Ralcorp, and which Wasserstein Perella assumed were
reasonably prepared in good faith and on bases reflecting the best
currently available judgments and estimates of Agribrands' and
Ralcorp's management, as the case may be;
o that obtaining regulatory and other approvals and third-party consents
required for consummation of the merger would not have an adverse
impact on Agribrands or Ralcorp or on the anticipated benefits of the
transaction;
o that the merger would qualify as a tax-free reorganization for United
States Federal tax purposes; and
o that the transactions described in the reorganization agreement would
be consummated without waiver or modification of any of the material
terms or conditions contained in the reorganization agreement.
Among the limitations on the opinion are:
o the Wasserstein Perella opinion is for the use and benefit of the
Agribrands Board of Directors and was rendered to the Agribrands board
in connection with its consideration of the merger;
o the opinion of Wasserstein Perella does not address the merits of the
underlying business decision by Agribrands to effect the merger, the
effect on Agribrands of the merger or the prospective prices or
trading ranges at which shares of Ralcorp common stock will trade up
to the merger or at which shares Newco will trade following the
merger;
o the Wasserstein Perella opinion is directed only to the fairness, from
a financial point of view, of the consideration to the holders of
Agribrands common stock (other than Mr. Stiritz and Mr. Micheletto)
and does not constitute a recommendation to any Agribrands shareholder
as to how such shareholder should vote with respect to the merger and
should not be relied upon by any holder in respect of that matter;
o Wasserstein Perella did not review any of the books and records of
Agribrands or Ralcorp;
o Wasserstein Perella did not conduct a physical inspection of the
properties or facilities of Agribrands or Ralcorp or obtain or make an
independent valuation or appraisal of the assets or liabilities of
Agribrands or Ralcorp, and no such independent valuation or appraisal
of that type was provided to it; and
50
o Wasserstein Perella was not authorized to and did not solicit third
party indications of interest in acquiring all or any part of
Agribrands, or investigate any alternative transactions that may be
available to the company.
The Wasserstein Perella opinion is necessarily based upon economic and
market conditions and other circumstances existing as of the date of the opinion
and, accordingly, does not address the fairness of the consideration to the
Agribrands shareholders as of any other date. Additionally, forecasts of future
results of operations prepared by Agribrands and Ralcorp and relied on by
Wasserstein Perella may not be indicative of future results, which may be
significantly more or less favorable than suggested by the forecasts, because
the forecasts contain assumptions as to industry performance, general business
and economic conditions and other matters beyond the control of Agribrands and
Ralcorp. See "Risk Factors" for a discussion of certain risk factors relating to
Agribrands and Ralcorp.
Analyses Performed. In arriving at its opinion, Wasserstein Perella
performed quantitative analyses and considered a number of factors. The
preparation of opinions as to the fairness of a transaction from a financial
point of view involves various determinations as to the most appropriate and
relevant methods of financial and comparative analyses and the applications of
those methods to the particular circumstances. In arriving at its opinion,
Wasserstein Perella did not attribute any relative weight to any analysis or
factor considered but rather made qualitative judgments as to the significance
and relevance of each analysis and factor.
The following is a summary of the material financial analyses performed by
Wasserstein Perella in connection with providing its opinion to the Agribrands
Board of Directors. Certain of the summaries of financial analyses include
information presented in tabular form. In order to fully understand the
financial analyses used by Wasserstein Perella, the tables must be read together
with the text accompanying the tables. The tables alone do not constitute a
complete description of the financial analyses. In particular, you should note
that, in applying the various valuation methods to the particular circumstances
of Agribrands, Ralcorp and the merger, Wasserstein Perella made qualitative
judgments as to the significance and relevance of each analysis and factor. In
addition, Wasserstein Perella made numerous assumptions with respect to industry
performance, general business and economic conditions, and other matters, many
of which are beyond the control of Agribrands and Ralcorp. Accordingly, the
analyses listed in the tables and described below must be considered as a whole.
Considering any portion of the analyses and the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying the Wasserstein Perella opinion.
Summary Contribution Analysis. A contribution analysis measures the
relative contribution of Agribrands and Ralcorp to the combined company for
various financial measures such as EBITDA, EBIT and net income as well as equity
market value and enterprise value. For this analysis, Wasserstein Perella
analyzed the respective financial contributions of Agribrands and Ralcorp to the
combined companies' forecasted results for fiscal year 2000 reflected in the
prospective financial information for Agribrands and Ralcorp.
The following table presents the relative contribution of Agribrands to the
combined company's estimated 2000 revenues, EBITDA, EBIT and net income
contained in the prospective financial information described above, excluding
estimated operating synergies and strategic benefits which the management of
Agribrands believe would result from the merger, and the equity market value and
enterprise value (calculated as the equity market value and all interest bearing
liabilities and minority interests, and subtracting the enterprise's cash and
cash equivalents and short term investments) based upon the prospective
financial information described above and the closing stock prices for
Agribrands, Ralcorp and Vail Resorts (Ralcorp owning approximately 21.8% of Vail
Resort's outstanding stock) on August 4, 2000.
51
Agribrands Ralcorp
----------------- ----------------
Ownership implied by merger
consideration * 49.6% 50.4%
Contribution of:
2000E Revenues ** 51.5% 48.5%
2000E EBITDA ** 43.1% 56.9%
2000E EBIT ** 46.0% 54.0%
2000E Net Income ** 55.6% 44.4%
Equity Market Value 48.0% 52.0%
Enterprise Value 30.2% 69.8%
--------
* Assuming shareholders of both Agribrands and Ralcorp elect to receive the
maximum allowable percentage of merger consideration in cash.
** "E" indicates estimate contained in the prospective financial information
described above.
Pro Forma Merger Analysis. Wasserstein Perella analyzed the pro forma
impact of the merger on Ralcorp's earnings per share and cash earnings per share
based on forecasted results for fiscal 2001 reflected in the prospective
financial information for Agribrands and Ralcorp. Using these forecasts and
excluding any estimated synergies, Wasserstein Perella noted that the merger
would be accretive to Ralcorp's fully diluted earnings and cash earnings in
2001, in each case compared to Ralcorp on a stand-alone basis.
Analysis of Comparable Acquisitions. Wasserstein Perella reviewed publicly
available information to determine the purchase prices and multiples paid in
certain other transactions recently effected involving target companies which
were similar to Agribrands, respectively, in terms of business mix, product
portfolio and/or markets served that Wasserstein Perella considered comparable.
Wasserstein Perella calculated the enterprise value of such comparable
transactions and applied it to certain historical financial criteria of the
acquired business, including EBITDA for the trailing 12-month period. The
following table presents the range of implied prices per Agribrands common stock
from the selected transactions:
Comparable
Acquisitions Agribrands
----------------- ---------------
Enterprise Value to Trailing 12 Month
EBITDA 5.0x - 7.0x 2.9x
Because the circumstances surrounding each of the transactions analyzed
were so diverse and because of the inherent differences in the businesses,
operations, financial condition and prospects of Agribrands and the companies
included in the comparable transactions group, Wasserstein Perella believed that
a purely quantitative comparable transaction analysis would not be particularly
meaningful in the context of the merger. Wasserstein Perella believed that the
appropriate use of a comparable transaction analysis in this instance would
involve qualitative judgments concerning the differences between the
characteristics of these transactions and companies and the merger and
Agribrands which would affect the acquisition values of those acquired companies
and Agribrands. Instead, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning financial and operating
characteristics of Agribrands and other factors that could affect the public
trading values of the companies to which it is being compared.
Comparable Companies Trading Analysis. Wasserstein Perella reviewed the
stock market trading multiples and certain other financial characteristics for
selected companies that Wasserstein Perella deemed comparable to Agribrands.
Using publicly available information, Wasserstein Perella calculated and
analyzed the common equity market value multiples of certain historical and
projected financial criteria, such as net income, and the enterprise value
multiples of certain historical financial criteria, such as revenues, EBITDA and
EBIT, as of August 4, 2000, the last trading day prior to the Agribrands Board
of Directors meeting to consider the potential merger.
52
The following table presents the range of implied prices per Agribrands
common stock based upon enterprise value multiples of EBITDA for the preceding
12 months.
Comparable
Acquisitions Agribrands
----------------- ---------------
Enterprise Value to Trailing 12 Month
EBITDA 5.0x - 7.0x 2.9x
Because of the inherent differences between the businesses, operations,
financial condition and prospects of Agribrands and the businesses, operations,
financial condition and prospects of the companies included in the comparable
company group, Wasserstein Perella believed that it is inappropriate to, and
therefore Wasserstein Perella did not, rely solely on the quantitative results
of the comparable company analysis. Accordingly, Wasserstein Perella also made
qualitative judgments concerning differences between the financial and operating
characteristics of Agribrands and companies in the comparable company group that
would affect the public trading values of Agribrands and such comparable
companies.
Discounted Cash Flow Analysis. Wasserstein Perella also performed a
discounted cash flow analysis to generate an estimate of the net present value
of the projected after-tax unlevered free cash flows based upon Agribrands'
financial forecasts. For this purpose, after-tax unlevered free cash flows are
defined as operating cash flow available after working capital, capital spending
including acquisitions, tax and other operating requirements. Utilizing the
financial forecasts furnished by Agribrands, Wasserstein Perella calculated a
range of present values for Agribrands, on a stand alone basis, of $52.18 to
$66.39 per share, using a range of after-tax discount rates from 11.0% to 13.0%
and an estimated terminal value based upon a range of perpetuity growth rates
from 0.0% to 2.0%.
Merger Ratio Analysis. Wasserstein Perella reviewed the ratios of
Agribrands' implied common stock price to Ralcorp's implied common stock price
based upon various valuation methodologies analyzed for each company. Under each
valuation methodology, Wasserstein Perella calculated a range of implied merger
ratios where the low end of the range was derived by utilizing the high end of
the range of values for Ralcorp' common stock price and the low end of the range
of values for Agribrands' common stock price while the high end of the range of
implied merger ratios was derived by utilizing the low end of the range of
values for Ralcorp' common stock price and the high end of the range of values
for Agribrands' common stock price. The following table presents the merger
ratios calculated by Wasserstein Perella in this analysis under each valuation
methodology:
Range of Implied Merger Ratios
---------------------------------------
Valuation Methodology: Low High
----------------- --------------------
Comparable companies 2.4735 4.6194
Comparable acquisitions 2.1510 3.8047
Discounted cash flows 1.4075 2.8736
In addition, Wasserstein Perella also reviewed the merger ratios of the
historical closing stock prices of Agribrands common stock to Ralcorp common
stock over certain periods between March 27, 1998 (the date Agribrands was
spun-off from Ralston Purina) and August 4, 2000. The following table presents
the merger ratios calculated by Wasserstein Perella in this analysis:
Time Interval: Implied Merger Ratio
-------------- --------------------
Average since Agribrands spin-off 2.1946
(March 27, 1998 to August 4, 2000)
One year average 2.7228
(August 5, 1999 to August 4, 2000)
One month average 2.8724
(July 5, 2000 to August 4, 2000)
August 4, 2000 2.8125
The merger ratio in the merger for the stock portion of the merger
consideration is 3.0000 shares of Agribrands common stock to 1.0000 share of
Ralcorp common stock.
Other. In addition to the analyses outlined above, Wasserstein Perella
conducted such other financial studies, analyses and investigations and
considered such other factors it deemed appropriate for purposes of its opinion.
53
General Information. No company or transaction used in the foregoing
analyses is identical to Agribrands, Ralcorp or the transactions contemplated by
the reorganization agreement. The analyses described above were performed solely
as a part of the analytical process utilized by Wasserstein Perella in
connection with its analysis of the transaction and do not purport to be
appraisals or to reflect the prices at which a company may enter into a business
combination or sale transaction.
Wasserstein Perella is an investment banking and advisory firm and, as part
of its investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with:
o mergers and acquisitions;
o negotiated underwritings;
o competitive bids;
o secondary distributions of listed and unlisted securities;
o private placements; and
o valuations for corporate and other purposes.
The Agribrands Board of Directors selected Wasserstein Perella as its
financial advisor in connection with the proposed merger because Wasserstein
Perella is an internationally recognized investment banking firm and
representatives of Wasserstein Perella have substantial experience in
transactions similar to the merger and the valuation of companies.
As compensation for its services in connection with the merger, Agribrands
has agreed to pay Wasserstein Perella fees of $2 million for providing financial
advisory services in connection with the merger, including providing the opinion
described above. $1.75 million of such transaction fee is contingent upon the
consummation of the merger. In addition, Agribrands has agreed, among other
things, to reimburse Wasserstein Perella for the expenses reasonably incurred in
connection with its engagement (including counsel fees and expenses) and to
indemnify Wasserstein Perella and certain related parties from certain
liabilities that may arise out of its engagement by Agribrands, which may
include certain liabilities under the federal securities laws.
In addition, Wasserstein Perella has performed various investment banking
services for Agribrands from time to time in the past and has received customary
fees for rendering such services. Wasserstein Perella has performed various
investment banking services for Ralcorp from time to time in the past and have
received customary fees for rendering such services. In addition, from time to
time in the past Wasserstein Perella has performed various investment banking
services for entities for which Mr. Stiritz (Chairman of Agribrands) serves as
chairman and has received customary fees for rendering such services.
In the ordinary course of its business, Wasserstein Perella may actively
trade the debt and equity securities of Agribrands and Ralcorp for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in these securities.
Opinion of Houlihan Lokey Howard & Zukin Capital
Houlihan Lokey was retained by the special committee of independent
directors of the Agribrands Board of Directors for the sole purpose of rendering
an opinion as to the fairness, from a financial point of view, to holders of
Agribrands common stock (other than director shareholders) of the consideration
being offered to Agribrands' shareholders under the merger. Houlihan Lokey was
not retained to render, and has not rendered, any financial advisory or other
services to the special committee, Agribrands or any other participant in the
merger.
At the August 7, 2000 meeting of the special committee, Houlihan Lokey
delivered its written opinion to the effect that, based upon and subject to the
considerations and limitations set forth in the opinion, its work described
below and other factors it deemed relevant, as of August 7, 2000, the Agribrands
merger ratio and the cash payment of $39 per share for up to 20% of Agribands'
outstanding stock was fair, from a financial point of view, to the holders of
Agribrands common stock (other than director shareholders). This opinion will
not be updated prior to consummation of the merger.
THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS INCLUDED AS ANNEX E TO
THIS JOINT PROXY STATEMENT/PROSPECTUS. THE SUMMARY OF THE OPINION SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
54
AGRIBRANDS SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY
FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED AND THE
ASSUMPTIONS AND QUALIFICATIONS MADE BY HOULIHAN LOKEY.
Houlihan Lokey's opinion to the special committee addresses only the
fairness from a financial point of view of the consideration to be received by
the Agribrands shareholders (other than director shareholders), and does not
constitute a recommendation to any shareholder of Agribrands as to whether to
vote to approve the merger. Houlihan Lokey's opinion does not address
Agribrands' underlying business decision to effect the Agribrands Merger.
Houlihan Lokey was not requested to, and did not, solicit third-party
indications of interest in acquiring all or part of Agribrands. Furthermore,
Houlihan Lokey did not advise the special committee with respect to alternatives
to the merger. Houlihan Lokey was not asked to consider, and its opinion does
not in any manner address, the value of Newco's common stock or the price at
which Newco's common stock will actually trade following consummation of the
merger.
In arriving at its opinion, among other things, Houlihan Lokey:
o reviewed Agribrands' Forms 10-K and the related financial information
for the two fiscal years ended August 31, 1999, and the Forms 10-Q and
the related unaudited financial information for the quarterly periods
ended November 30, 1999, February 28, 2000 and May 31, 2000, and
Agribrands-prepared interim financial information since May 31, 2000;
o reviewed Ralcorp's Forms 10-K and the related financial information
for the four fiscal years ended September 30, 1999, and the Forms 10-Q
and the related unaudited financial information for the quarterly
periods ended December 31, 1999 and March 31, 2000, and
Ralcorp-prepared interim financial information since March 31, 2000;
o reviewed a draft copy of the reorganization agreement dated as of
August 7, 2000, and assumed no material changes in the form actually
executed by Agribrands;
o met with certain members of the senior management of Agribrands to
discuss the operations, financial condition, future prospects and
projected operations and performance of Agribrands, and met with
representatives of Agribrands' investment bankers and counsel to
discuss certain matters;
o met with certain members of the senior management of Ralcorp to
discuss the operations, financial condition, future prospects and
projected operations and performance of Ralcorp;
o visited the business offices of Agribrands and Ralcorp;
o reviewed forecasts and estimates prepared by Agribrands' management
with respect to Agribrands;
o reviewed forecasts and estimates prepared by Ralcorp's management with
respect to Ralcorp;
o reviewed certain information regarding Agribrands and Ralcorp
including investment research reports, news announcements and press
releases, and other public disclosures;
o reviewed the historical market prices and trading volume for
Agribrands' and Ralcorp's publicly traded securities;
o reviewed certain other publicly available financial data for certain
companies that Houlihan Lokey deemed comparable to Agribrands and
Ralcorp, and publicly available prices and premiums paid in other
transactions that Houlihan Lokey deemed to be relevant; and
o conducted such other studies, analyses and inquiries as it deemed
appropriate.
Houlihan Lokey relied upon and assumed, without independent verification,
that the forecasts and estimates provided to it were reasonably prepared and
reflected the best currently available estimates of the future financial results
and condition of Agribrands and Ralcorp. Houlihan Lokey also relied on
managements' assurances that there had been no material change in the assets,
financial condition, business or prospects of Agribrands and Ralcorp since the
date of the most recent financial statements, forecasts and estimates provided
to Houlihan Lokey.
Houlihan Lokey did not independently verify the accuracy and completeness
of the information supplied to it with respect to Agribrands or Ralcorp and does
not assume any responsibility with respect to it. Houlihan Lokey has not made
55
any independent appraisal of any of the properties or assets of Agribrands or
Ralcorp. Houlihan Lokey's opinion was necessarily based on business, economic,
market and other conditions as they existed and could be evaluated by it as of
August 7, 2000.
In arriving at its opinion, Houlihan Lokey assumed that the tax effects of
the merger of Agribrands and Ralcorp will be as described under "-- Material
United States Federal Income Tax Consequences of the Merger" on page 63.
In its analyses, Houlihan Lokey made numerous assumptions with respect to
Agribrands and Ralcorp, industry performance, general business, economic, market
and financial conditions, and other matters, many of which are beyond the
control of Agribrands and Ralcorp. Any estimates contained in Houlihan Lokey's
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by these analyses. Estimates of values of companies do not purport to
be appraisals or necessarily to reflect the prices at which companies may
actually be sold. Because these estimates are inherently subject to uncertainty,
Houlihan Lokey assumes no responsibility if future results or actual values
differ materially from the estimates. Houlihan Lokey's analyses were prepared
solely as part of its analysis of the fairness of the Agribrands merger ratio
and the cash payment of $39.00 per share for up to 20% of Agribands' outstanding
stock and were provided to the Agribrands special committee in that connection.
Furthermore, the opinion of Houlihan Lokey was only one of the factors taken
into consideration by the Agribrands special committee in making its
determination to recommend that the Agribrands Board of Directors approve the
merger.
As described below under "Assessment of Public Stock Trading History of
Agribrands and Ralcorp" and "Selected Companies Analysis," Houlihan Lokey
reviewed and compared certain actual and estimated financial information
relating to Agribrands and Ralcorp to corresponding financial information,
ratios and public market multiples for a number of other publicly-traded
corporations. For purposes of its Agribrands analysis, Houlihan Lokey selected
Anderson's, Inc., Archer-Daniels-Midland Company, Midwest Grain Products, Inc.,
Nutreco Holding NV, Ridley Corporation Limited and Saskatchewan Wheat Pool
(individually, a "Selected Company" and collectively, the "Agribrands Selected
Companies"). For purposes of its Ralcorp analysis, Houlihan Lokey selected
General Mills, Inc., Keebler Foods Company, Kellogg Company, Nabisco Group
Holdings Corporation, Quaker Oats Company, American Italian Pasta Company, Dean
Foods Company, Interstate Bakeries Corporation, Lance, Inc., Riviana Foods,
Inc., Smucker (JM) Company, Suiza Foods Corporation and Tasty Baking Company
(individually, a "Selected Company" and collectively, the "Ralcorp Selected
Companies").
No Selected Company used in Houlihan Lokey's analysis as a comparison was
identical to Agribrands or Ralcorp. Accordingly, Houlihan Lokey's analysis
necessarily involved complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of Agribrands and Ralcorp and the
companies to which they were compared. In addition, Houlihan Lokey advised the
special committee of certain special factors. First, with respect to Agribrands,
Houlihan Lokey advised that Agribrands has very unique business characteristics;
as a result, no companies were found that were identical or directly comparable
to Agribrands. For purposes of certain of its Agribrands analyses, Houlihan
Lokey therefore selected six publicly-held companies, three domestic and three
foreign, which it deemed to be relevant. With respect to Ralcorp, the Ralcorp
Selected Companies are comprised of two different categories of companies. Eight
of the Ralcorp Selected Companies are "Private Label - Mid-Cap Companies." While
substantially all of Ralcorp's business is private label, "Branded Label - Large
Cap Companies" were also deemed to be relevant; accordingly, five of these
companies were also included in the Ralcorp Selected Companies. In light of the
foregoing, the resulting analyses are inherently subject to substantial
uncertainty.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In rendering
its fairness opinion and making its written and oral presentations to the
special committee, Houlihan Lokey performed a variety of financial and
comparative analyses and considered a variety of factors. Houlihan Lokey did not
attribute any particular weight to any analysis or factor; rather, Houlihan
Lokey made its determination on the basis of qualitative judgments regarding the
significance and relevance of each analysis and factor. The following is a brief
summary and general description of the methodologies utilized by Houlihan Lokey.
The summary does not purport to be a complete statement of the analyses and
procedures applied, the judgments made or the conclusion reached by Houlihan
Lokey or a complete description of its presentation. Houlihan Lokey believes,
and so advised the special committee, that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all factors and analyses, could create an incomplete
view of the process underlying its analyses and opinions.
Assessment Of Market Trading Of Agribrands And Ralcorp Common Stock.
Houlihan Lokey analyzed the one-month, three-month, six-month and twelve-month
daily trading volume and the 10-day, 30-day, 60-day and 180-day historical
56
volatility of the common stock of each of Agribrands and Ralcorp. Additionally,
Houlihan Lokey considered the institutional ownership, common stock public float
and analyst following of each company. Houlihan Lokey then compared the ratios
of Agribrands' and Ralcorp's trading volumes to the trading volumes of the
Agribrands Selected Companies and the Ralcorp Selected Companies, respectively.
For Agribrands, Houlihan Lokey noted that the 30-day and 6-month median
daily trading volume for the Agribrands Selected Companies as a percent of
common shares outstanding were approximately 0.185% and 0.222%, respectively,
compared to the 30-day and 6-month daily trading volume of 0.143% and 0.231%,
respectively, for Agribrands. Houlihan Lokey also noted that the median ratio of
public float to total shares outstanding was approximately 89% for the three
domestic Agribrands Selected Companies compared to approximately 90% for
Agribrands. Accordingly, Houlihan Lokey concluded that Agribrands' common stock
trading activity is lower than the trading activity of the Agribrands Selected
Companies and has a float ratio (float to total shares outstanding) similar to
the float ratio of the Agribrands Selected Companies.
For Ralcorp, Houlihan Lokey noted that the 30-day and 6-month median daily
trading volume for the Ralcorp Selected Companies as a percent of common shares
outstanding were approximately 0.458% and 0.441%, respectively, compared to the
30-day and 6-month median daily trading volume of 0.215% and 0.258%,
respectively, for Ralcorp. Houlihan Lokey also noted that the median ratio of
public float to total shares outstanding was approximately 88% for the Ralcorp
Selected Companies compared to approximately 96% for Ralcorp. Accordingly,
Houlihan Lokey concluded that Ralcorp's common stock trading activity is lower
than the trading activity of the Ralcorp Selected companies and has a slightly
greater float than the shares of the Ralcorp Selected Companies (as a percent of
shares outstanding).
Merger Ratio Analysis. Houlihan Lokey analyzed the ratio of closing prices
of Agribrands common shares to the closing price of Ralcorp common shares over
several periods from August 4, 1999 through August 3, 2000. The following chart
summarizes the historical merger ratios:
[Graph showing the following:]
Spot Price (8/3/00) 2.79x
30 Day Average 2.87x
60 Day Average 3.04x
90 Day Average 3.09x
180 Day Average 2.83x
One-Year Average 2.69x
52 Week High 2.61x
52 Week Low 2.94x
Assessment Of Accretion/Dilution To Agribrands' Public Shareholders. Based
on estimates provided by management of Agribrands and Ralcorp, Houlihan Lokey
analyzed the impact to earnings with respect to Agribrands' shareholders due to
the merger. In its analysis, Houlihan Lokey considered the impact under two
scenarios: (i) no cash election is exercised by Agribrands and Ralcorp
shareholders, and (ii) all shareholders of Agribrands and Ralcorp exercise their
maximum 20% cash election. Under the no cash election scenario, the merger is
projected to dilute Agribrands' earnings per share by $0.37 and $0.63 for fiscal
year 2000 and 2001, respectively. However, if all of the shareholders of
Agribrands and Ralcorp exercise their maximum cash election of 20% the merger is
projected to be accretive in the amount of $0.64 per share in 2000 and dilutive
in the amount of $0.04 per share in 2001.
Selected Companies Analysis. Houlihan Lokey performed a market multiple
analysis, involving the multiplication of various earnings and cash flow
measures by appropriate risk-adjusted multiples. Multiples were determined
through an analysis of the Agribrands Selected Companies and the Ralcorp
Selected Companies, selected as described above. Earnings and cash flow
multiples were calculated for each Selected Company based upon daily trading
prices. A comparative risk analysis between Agribrands and Ralcorp and the
respective Selected Companies formed the basis for the selection of appropriate
risk adjusted multiples. The risk analysis incorporates both quantitative and
57
qualitative risk factors, which relate to, among other things, the nature of the
industries in which Agribrands, Ralcorp and the Selected Companies are engaged.
For the Agribrands Selected Companies, Houlihan Lokey calculated the
"aggregate equity" (defined as the total common shares outstanding times the
current stock price at the date of valuation) and "enterprise value" (defined as
aggregate equity, plus interest-bearing debt net of cash) for each of the
Selected Companies. Additionally, Houlihan Lokey calculated the enterprise value
to EBITDA and EBIT and aggregate equity to earnings and cash flow for each of
the Agribrands Selected Companies. A range of enterprise values for Agribrands
were calculated utilizing multiples of EBITDA and EBIT. The latest twelve months
EBITDA multiples for the Selected Companies ranged from 4.9x to 10.1x with a
median of 8.5x; and the latest twelve months EBIT multiples ranged from 12.8x to
33.9x with a median of 16.0x. The projected next twelve months EBITDA multiples
ranged from 3.6x to 5.8x with a median of 5.4x; and the projected next twelve
months EBIT multiples ranged from 7.4x to 8.3x with a median of 7.8x. Houlihan
Lokey also analyzed price to earnings multiples and price to cash flow multiples
of the Selected Companies. The price to earnings multiples for the latest twelve
months ranged from 7.2x to 27.3x with a median of 20.8x; and the price to cash
flow multiples for the latest twelve months ranged from 2.4x to 13.4x with a
median of 4.6x. The price to earnings multiples for the projected next twelve
months ranged from 6.3x to 11.5x with a median of 10.5x; and the price to cash
flow multiples for the projected next twelve months ranged from 3.0x to 5.2x
with a median of 3.8x. Since the price to earnings and cash flow multiples yield
aggregate equity values, interest-bearing debt, net of cash, must be added to
arrive at enterprise value. These multiples represent a marketable minority
position. Based on this analysis, the implied value per common share on a fully
diluted basis of a marketable minority interest in Agribrands ranged from $46.60
to $52.93.
For the Ralcorp Selected Companies, Houlihan Lokey calculated the aggregate
equity and the enterprise value for each of the Ralcorp Selected Companies. A
range of enterprise values for Ralcorp were calculated as multiples of EBITDA,
EBIT and revenue. For the Branded Label/Large Cap Selected Companies, the latest
twelve months EBITDA multiples ranged from 9.4x to 12.1x with a median of 11.5x;
the latest twelve months EBIT multiples ranged from 11.8x to 16.3x with a median
of 13.5x; and the latest twelve months revenue multiples ranged from 1.61x to
2.03x with a median of 1.86x. The projected next twelve months EBITDA multiples
ranged from 8.2x to 12.0x with a median of 10.0x; and the projected next twelve
months EBIT multiples ranged from 10.0x to 14.3x with a median of 11.4x. For the
Private Label/Mid Cap Selected Companies, the latest twelve months EBITDA
multiples ranged from 4.9x to 8.5x with a median of 6.5x; the latest twelve
months EBIT multiples ranged from 6.9x to 12.0x with a median of 9.5x; and the
latest twelve months revenue multiples ranged from 0.49x to 1.86x with a median
of 0.68x. The projected next twelve months EBITDA multiples ranged from 4.5x to
8.2x with a median of 5.6x; and the projected next twelve months EBIT multiples
ranged from 7.4x to 11.4x with a median of 7.6x. Houlihan Lokey also analyzed
price to earnings multiples and price to cash flow multiples. For the Branded
Label/Large Cap Selected Companies, the price to earnings multiples for the
latest twelve months ranged from 17.2x to 35.7x with a median of 19.1x; and the
price to cash flow multiples for the latest twelve months ranged from 12.2x to
19.1x with a median of 15.1x. The price to earnings multiples for the projected
next twelve months ranged from 15.5x to 24.0x with a median of 19.1x; and the
price to cash flow multiples for the projected next twelve months ranged from
11.0x to 16.5x with a median of 12.7x. For the Private Label/Mid Cap Selected
Companies, the price to earnings multiples for the latest twelve months ranged
from 9.1x to 14.5x with a median of 11.9x; and the price to cash flow multiples
for the latest twelve months ranged from 5.3x to 9.0x with a median of 6.4x. The
price to earnings multiples for the projected next twelve months ranged from
10.6x to 11.2x with a median of 10.8x; and the price to cash flow multiples for
the projected next twelve months ranged from 5.0x to 7.4x with a median of 5.7x.
Since the price to earnings and cash flow multiples yield aggregate equity
values, interest-bearing debt, net of cash must be added to arrive at enterprise
value. These multiples represent a marketable minority position. Based on this
analysis, the implied value per common share on a fully diluted basis of a
marketable minority interest in Ralcorp ranged from $14.53 to $17.69.
Selected Transactions Analysis. For Agribrands, Houlihan Lokey analyzed the
multiples of certain financial performance measures implied by the consideration
paid to the shareholders of the acquired companies in 16 merger and acquisition
transactions deemed relevant to Agribrands, but in which control premiums were
paid. Among other factors, Houlihan Lokey considered that the merger and
acquisition transaction environment varies over time. For each acquired company,
Houlihan Lokey considered the implied multiples of enterprise value to latest
twelve month EBITDA, EBIT and revenue. No company or transaction used in this
analysis was directly comparable to Agribrands or the merger. Accordingly,
Houlihan Lokey's analysis of the selected transactions involved complex
considerations and judgments concerning, among other things, differences in
58
financial and operating characteristics of the companies that could affect
public trading values.
The latest twelve months EBITDA multiples ranged from 5.4x to 15.2x with a
median of 8.3x. The latest twelve months EBIT multiples ranged from 6.0x to
15.5x with a median of 9.6x. The latest twelve months revenue ranged from 0.1x
to 1.5x with a median of 0.6x. However, these multiples were derived from
transactions in which control premiums were paid; the selected transactions
analyzed did not include any merger of equals strategic combinations, such as
the merger, in which control premiums are not paid. Accordingly, Houlihan Lokey
determined to apply a minority interest discount of 16.7% to the foregoing
multiples. This resulted in an implied value per common share on a fully diluted
basis for a marketable minority interest in Agribrands of between $41.14 and
$46.03.
For Ralcorp, Houlihan Lokey analyzed the multiples of certain financial
performance measures implied by the consideration paid to the shareholders of
the acquired companies in 66 merger and acquisition transactions deemed relevant
to Ralcorp. Among other factors, Houlihan Lokey considered that the merger and
acquisition transaction environment varies over time. For each acquired company,
Houlihan Lokey considered the implied multiples of enterprise value to latest
twelve month EBITDA, EBIT and revenue. No company or transaction used in this
analysis was directly comparable to Ralcorp or the merger. Accordingly, Houlihan
Lokey's analysis of the selected transactions involved complex considerations
and judgments concerning, among other things, differences in financial and
operating characteristics of the companies that could affect public trading
values.
The latest twelve months EBITDA multiples ranged from 5.3x to 27.0x with a
median of 8.5x. The latest twelve months EBIT multiples ranged from 5.5x to
255.1x with a median of 14.2x. The latest twelve months revenue multiples ranged
from 0.3x to 4.2x with a median of 1.0x. However, these multiples were derived
from transactions in which control premiums were paid; the selected transactions
analyzed did not include any merger of equals strategic combinations, such as
the merger, in which control premiums are not paid. Accordingly, Houlihan Lokey
determined to apply a minority interest discount of 16.7% to the foregoing
multiples. This resulted in an implied value per common share on a fully diluted
basis for a marketable minority interest in Ralcorp of between $9.34 and $22.78.
Discounted Cash Flow Analysis. Houlihan Lokey performed discounted cash
flow analyses for the projected unlevered after tax cash flows of Agribrands. In
conducting its analysis, Houlihan Lokey relied on certain assumptions, financial
forecasts and other information provided by the management of Agribrands with
respect to Agribrands. The enterprise value indications from the discounted cash
flow analysis of the projected free cash flow were determined by adding (x) the
present value of the projected free cash flows and (y) the present value of the
estimated terminal values. The terminal values were calculated using a range of
multiples of EBITDA from 4.0x to 5.0x. The unlevered after-tax discount rates
utilized in the discounted cash flow analysis ranged from 13.0% to 15.0%. After
applying a 16.7% minority interest discount, the implied value of Agribrands
based on management's forecasts was $37.64 to $43.23 for a marketable minority
interest value per share of Agribrands common stock on a fully diluted basis.
Houlihan Lokey also performed discounted cash flow analyses for the
projected unlevered after tax cash flows of Ralcorp. In conducting its analysis,
Houlihan Lokey relied on certain assumptions, financial forecasts and other
information provided by the management of Ralcorp with respect to Ralcorp. The
enterprise value indications from the discounted cash flow analysis of the
projected free cash flow were determined by adding (x) the present value of the
projected free cash flows and (y) the present value of the estimated terminal
values. The terminal values were calculated using a range of multiples of EBITDA
from 5.5x to 6.5x. The unlevered after-tax discount rates utilized in the
discounted cash flow analysis ranged from 12.0% to 14.0%. After applying a 16.7%
minority interest discount, the implied value of Ralcorp based on management's
forecasts was $14.61 to $18.30 for a minority interest value per share of
Ralcorp common stock on a fully diluted basis.
Houlihan Lokey is a nationally recognized investment banking firm with
experience and expertise in, among other things, valuing businesses and
securities and rendering fairness opinions. Houlihan Lokey is continually
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans and other purposes.
Agribrands special committee selected Houlihan Lokey because of this recognized
experience and expertise. Houlihan Lokey does not beneficially own any interest
in Agribrands or Ralcorp.
Pursuant to its agreement with Houlihan Lokey, Agribrands has paid Houlihan
Lokey a fee of $300,000 for the preparation and delivery of its fairness
opinion. No portion of Houlihan Lokey's fee was contingent upon the successful
completion of the merger. In addition, Agribrands has agreed to reimburse
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Houlihan Lokey for its reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its attorneys, and to indemnify Houlihan Lokey
and certain related persons against certain liabilities (including liabilities
under the federal securities laws) arising out of or relating to its engagement.
Interests of Certain Agribrands Directors and Executive Officers in the Merger
In considering the recommendation of the Agribrands Board of Directors to
approve the reorganization agreement, shareholders of Agribrands should be aware
that members of the Agribrands Board of Directors and members of Agribrands'
management team have agreements or arrangements that provide them with interests
in the merger that differ from those of Agribrands shareholders. The Agribrands
Board of Directors was aware of these agreements and arrangements during its
deliberations of the merits of the merger and in determining to recommend to the
shareholders of Agribrands that they vote to approve the reorganization
agreement.
Governance Structure and Management Positions. Pursuant to the terms of the
reorganization agreement, upon completion of the merger:
o the Newco Board of Directors will be initially comprised of nine
individuals, five of whom are directors of Agribrands, two of whom are
directors of Ralcorp, and two of whom are directors of both Agribrands
and Ralcorp.
Upon completion of the merger:
o William P. Stiritz, Chairman, Chief Executive Officer and President of
Agribrands, will be Executive Chairman of Newco.
o Bill G. Armstrong, Chief Operating Officer of Agribrands, will be
Chief Executive Officer of the Agribrands subsidiary of Newco.
o David R. Wenzel, Chief Financial Officer of Agribrands, will be Chief
Financial Officer of Newco.
Agribrands Employee Stock Options, Stock Appreciation Rights and Management
Continuity Agreements. Pursuant to the reorganization agreement, as of the
effective time, each option granted by Agribrands to purchase shares of
Agribrands' common stock which is outstanding and unexercised immediately prior
to the effective time shall either be assumed by Newco or converted into an
option to purchase shares of Newco common stock having the same terms and
conditions as are in effect immediately prior to the effective time except that
the exercise price and number of shares issuable upon exercise shall be divided
and multiplied, respectively, by 3.00. As a result of the merger, the stock
options of certain Agribrands employees will automatically vest pursuant to the
terms of the option contracts. The Agribrands executive officers have agreed to
waive the accelerated vesting of their stock options.
Agribrands stock appreciation rights pursuant to their terms will vest upon
the merger and sums owed to the holders will be paid out at the holders'
discretion. Agribrands has management continuity agreements with its executive
officers. Such agreements provide for the payment of salaries, bonuses and
benefit continuation in the event of a termination of employment following a
change of control. We anticipate that all such Agribrands executive officers
will be offered management continuity agreements with Newco.
Indemnification and Insurance. The reorganization agreement provides that,
upon completion of the merger, Newco will indemnify and hold harmless, and
provide advancement of expenses to, all past and present directors and officers
of Agribrands with respect to acts or omissions by them in their capacities as
such occurring at or prior to the effective time to the fullest extent
permissible under applicable law.
The reorganization agreement also provides that, upon completion of the
merger, Newco will cause to be maintained, for a period of six years after
completion of the merger, the current policies of directors' and officers'
liability insurance maintained by Agribrands, or policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to the insured with respect to claims arising from facts or events
that occurred on or before the effective time, although Newco will not be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by Agribrands for directors' and officers' liability
insurance.
Interests of Certain Ralcorp Directors and Executive Officers in the Merger
In considering the recommendation of the Ralcorp Board of Directors to vote
to approve the reorganization agreement, shareholders of Ralcorp should be aware
that members of the Ralcorp Board of Directors and members of Ralcorp's
60
management team have agreements or arrangements that provide them with interests
in the merger that differ from those of Ralcorp shareholders. The Ralcorp Board
of Directors was aware of these agreements and arrangements during its
deliberations of the merits of the merger and in determining to recommend to the
shareholders of Ralcorp that they vote to approve the reorganization agreement.
Governance Structure and Management Positions. Pursuant to the terms of the
reorganization agreement, upon completion of the merger:
o the Newco Board of Directors will be initially comprised of nine
individuals, five of whom are directors of Agribrands, two of whom are
directors of Ralcorp, and two of whom are directors of Agribrands and
Ralcorp.
Upon completion of the merger:
o William P. Stiritz, Chairman of Ralcorp, will be Executive Chairman of
Newco; and
o Joe R. Micheletto, Chief Executive Officer and President of Ralcorp,
will be Chief Executive Officer and President of Newco.
Ralcorp Employee Stock Options. Pursuant to the reorganization agreement,
as of the effective time, each option granted by Ralcorp to purchase shares of
Ralcorp's common stock which is outstanding and unexercised immediately prior to
the effective time shall be converted into an option to purchase shares of Newco
common stock having the same terms and conditions as are in effect immediately
prior to the effective time except that the exercise price and number of shares
issuable upon exercise shall be divided and multiplied, respectively, by 1.03.
Ralcorp expects that substantially all holders of Ralcorp stock options will
accept stock options in Newco shares with the vesting schedules identical to the
Ralcorp stock options.
Indemnification and Insurance. The reorganization agreement provides that,
upon completion of the merger, Newco will indemnify and hold harmless, and
provide advancements of expenses to, all past, present directors and officers of
Ralcorp with respect to acts or omissions by them in their capacities as such
occurring at or prior to the effective time to the fullest extent permissible
under applicable law.
The reorganization agreement also provides that, upon completion of the
merger, Newco will cause to be maintained, for a period of six years after
completion of the merger, the current policies of directors' and officers'
liability insurance maintained by Ralcorp, or policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to the insured, with respect to claims arising from facts or events
that occurred on or before the effective time, although Newco will not be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by Ralcorp for directors' and officers' liability
insurance.
Completion and Effectiveness of the Merger
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including the approval of the reorganization
agreement by the shareholders of Agribrands and Ralcorp. The merger will become
effective upon the issuance of the certificates of merger by the Secretary of
State of the State of Missouri.
We are working toward completing the merger as quickly as possible. We
expect to complete the merger during the first quarter of calendar 2001.
Structure of the Merger and Conversion of Agribrands and Ralcorp Stock
Structure. To accomplish the combination of their businesses, Agribrands
and Ralcorp jointly formed a new company, Newco, with two subsidiaries,
Agribrands Merger Sub and Ralcorp Merger Sub. At the time the merger is
completed:
o Agribrands Merger Sub will be merged into Agribrands, and Agribrands
will be the surviving corporation (the "Agribrands Merger"); and
o Ralcorp Merger Sub will be merged into Ralcorp, and Ralcorp will be
the surviving corporation (the "Ralcorp Merger").
As a result, Agribrands and Ralcorp will each become a wholly owned
subsidiary of Newco.
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Conversion of Agribrands and Ralcorp Stock.
o Pursuant to the reorganization agreement and the Agribrands Merger
Agreement, upon consummation of the Agribrands merger, each share of
Agribrands common stock issued and outstanding immediately prior to
the effective time of the merger, except for Agribrands Treasury Stock
or Dissenting Shares, will be converted, at the election of the holder
thereof, into either (a) the right to receive three shares of Newco
common stock (the "Agribrands Stock Election"), or (b) the right to
receive (subject to proration) an amount in cash, without interest,
equal to $39.00 (the "Agribrands Cash Election"); and
o Pursuant to the reorganization agreement and the Ralcorp Merger
Agreement, upon consummation of the Ralcorp merger, each share of
Ralcorp common stock issued and outstanding immediately prior to the
effective time, except for Ralcorp Treasury Stock or Dissenting
Shares, will be converted, at the election of the holder thereof, into
either (a) the right to receive one share of Newco common stock (the
"Ralcorp Stock Election"), or (b) the right to receive (subject to
proration) an amount in cash, without interest, equal to $15.00 (the
"Ralcorp Cash Election").
The number of shares of Newco stock issuable in the merger will be
proportionately adjusted for any stock split, stock dividend or similar event
with respect to the Agribrands common stock or Ralcorp common stock effected
between the date of the reorganization agreement and the effective time.
Proration. The reorganization agreement provides:
o If the percentage of shares of Agribrands common stock outstanding
immediately prior to the effective time for which Agribrands Stock
Elections were made (the "Agribrands Stock Election Percentage") is
less than 80%, then the shares of Agribrands common stock covered by
Agribrands Cash Elections shall be treated as follows:
o Each holder of such stock shall be deemed to have made an Agribrands
Stock Election in respect of a fraction of such holder's shares
covered by an Agribrands Cash Election, (x) the numerator of which is
the difference of 80% minus the Agribrands Stock Election Percentage,
and (y) the denominator of which is the percentage of shares of
Agribrands common stock outstanding immediately prior to the effective
time for which Agribrands Cash Elections were made; and
o The balance of such holder's shares for which an Agribrands' Cash
Election was made shall be converted into the right to receive the
Cash Consideration.
o If the percentage of shares of Ralcorp common stock outstanding
immediately prior to the effective time for which Ralcorp Stock
Elections were made (the "Ralcorp Stock Election Percentage") is less
than 80%, then the shares of Ralcorp common stock covered by Ralcorp
Cash Elections shall be treated as follows:
o Each holder of such stock shall be deemed to have made a Ralcorp Stock
Election in respect of a fraction of such holder's shares covered by a
Ralcorp Cash Election, (x) the numerator of which is the difference of
80% minus the Ralcorp Stock Election Percentage, and (y) the
denominator of which is the percentage of shares of Ralcorp common
stock outstanding immediately prior to the effective time for which
Ralcorp Cash Elections were made; and
o The balance of such holder's shares for which a Ralcorp Cash Election
was made shall be converted into the right to receive the Cash
Consideration.
Exchange of Stock Certificates for Newco Stock Certificates
When the merger is completed, the exchange agent will mail to you an
election form and instructions for use in surrendering your Agribrands or
Ralcorp stock certificates in exchange for Newco stock certificates (which will
be issued in book-entry form) or the cash consideration. You will have the right
to submit an election form specifying the number of shares you desire to have
converted into the right to receive shares of Newco Common Stock pursuant to a
Stock Election and the number of shares that you desire to have converted into
the right (subject to proration) to receive cash pursuant to the Cash Election.
When you deliver your stock certificates to the exchange agent along with a
properly executed election form and any other required documents, your stock
certificates will be canceled. Next, you will receive an account statement
setting forth the number of Newco shares you own through the Newco book-entry
share record keeping system. If you own your shares through a bank or broker,
the book-entry account statement will be sent to your bank or broker who then
should forward you an account statement.
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You should not submit your Agribrands or Ralcorp stock certificates for
exchange until you receive the transmittal instructions and an election form
from the exchange agent.
You are not entitled to receive any dividends or other distributions on
Newco common stock until the merger is completed and you have surrendered your
Agribrands or Ralcorp stock certificates in exchange for Newco stock
certificates.
If there is any dividend or other distribution on Newco stock with a record
date after the date on which the merger is completed and a payment date prior to
the date you surrender your Agribrands or Ralcorp stock certificates, you will
receive the dividend or distribution with respect to the whole shares of Newco
stock issued to you promptly after they are issued. If there is any dividend or
other distribution on Newco stock with a record date after the date on which the
merger is completed and a payment date after the date you surrender your
Agribrands or Ralcorp stock certificates in exchange for Newco stock
certificates, you will receive the dividend or distribution with respect to the
whole shares of Newco stock issued to you at the payment date.
Treatment of Agribrands and Ralcorp Stock Options and Other Equity Based Awards
Newco will file a registration statement covering the issuance of the
shares of Newco common stock subject to each Agribrands and Ralcorp option, and
Newco will maintain the effectiveness of that registration statement for as long
as any of the options remain outstanding. As discussed earlier, existing stock
options in Ralcorp and Agribrands stock will be converted into stock options to
purchase Newco stock. When the merger is completed, each outstanding Ralcorp
employee stock option will be converted into an option to purchase the number of
shares of Newco common stock that is the product of 1.03 multiplied by the
number of shares of Ralcorp common stock that would have been obtained before
the merger upon the exercise of the option, rounded up to the nearest whole
share. The exercise price per share will be equal to the exercise price per
share of the Ralcorp option before the conversion, divided by 1.03. We expect
that all original vesting schedules will be retained by substantially all
holders of Ralcorp stock options including all of Ralcorp's executive officers.
When the merger is completed, each outstanding Agribrands stock option will
be converted into an option to purchase the number of shares of Newco common
stock that is equal to the product of 3 multiplied by the number of shares of
Agribrands common stock that would have been obtained before the merger upon the
exercise of the option. The exercise price per share will be equal to the
exercise price per share of the Agribrands option before the conversion divided
by 3. We expect that all original vesting schedules will be retained with
respect to executive officers of Agribrands. The stock options of all other
employees will accelerate and vest upon the completion of the merger pursuant to
their terms. In addition, each outstanding stock appreciation right of
Agribrands common stock will be accelerated and will be payable to the holders
at their discretion.
Material United States Federal Income Tax Consequences of the Merger
Certain U.S. Federal Income Tax Consequences
General. The following discussion summarizes the material U.S. federal
income tax consequences of the merger to holders of shares of Ralcorp common
stock and Agribrands common stock. The discussion is based upon current law and
is subject to the qualifications contained herein. The discussion assumes that
each person holds Ralcorp common stock or Agribrands common stock as a capital
asset within the meaning of section 1221 the Internal Revenue Code.
This summary does not purport to address all aspects of U.S. federal income
taxation that may be relevant to a particular holder of Ralcorp common stock or
Agribrands common stock based on such holder's unique situation. In addition, it
does not apply to holders entitled to special treatment under U.S. federal
income tax law (including, without limitation, dealers in securities, tax-exempt
organizations, banks or other financial institutions, trusts, insurance
companies, persons that hold common stock as part of a straddle, a hedge against
currency risk or as a constructive sale or conversion transaction, persons that
have a functional currency other than the United States dollar, investors in
pass-through entities and foreign persons, including foreign individuals,
partnerships and corporations). This discussion also does not describe tax
consequences arising out of the tax laws of any state, local or foreign
jurisdiction.
Further, this summary does not purport to discuss the U.S. federal income
taxation of holders of Ralcorp common stock or Agribrands common stock who
acquired such stock as compensation or as result of the exercise of compensatory
options.
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Holders of Ralcorp common stock and Agribrands common stock are urged to
consult their tax advisors as to specific tax considerations of the mergers,
including the application and effect of federal, state, local and foreign tax
laws in their particular circumstances.
U.S. Federal Income Tax Consequences of the Merger.
In the opinion of Bryan Cave LLP, counsel to Ralcorp and Agribrands, under
current law:
o the merger of Ralcorp Merger Sub with and into Ralcorp will qualify as
a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code,
o Ralcorp, Newco and Ralcorp Merger Sub will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Internal
Revenue Code,
o the merger of Agribrands Merger Sub with and into Agribrands, together
with the Ralcorp merger, will qualify as a transfer of property by the
Agribrands shareholders, other than dissenting shareholders, to Newco
as described in Section 351(a) of the Internal Revenue Code,
o no income, gain or loss will be recognized by Newco, Ralcorp, Ralcorp
Merger Sub, Agribrands, or Agribrands Merger Sub as a result of the
mergers,
o holders of Ralcorp common stock or Agribrands common stock who
exchange such common stock solely for Newco common stock will not
recognize gain or loss for United States federal income tax purposes.
This opinion is subject to the qualifications set forth herein and assumes,
among other things, that the merger is consummated in accordance with the terms
of the reorganization agreement and as described in this joint proxy statement/
prospectus. This opinion also assumes that the representations and assumptions
set forth in certain certificates of officers of Agribrands and Ralcorp are
true, correct and complete as of the date of this joint proxy
statement/prospectus and will be true, correct and complete at the effective
time of the mergers. This opinion is based on the Internal Revenue Code,
Treasury Regulations promulgated thereunder and in effect as of the date hereof,
current administrative rulings and practice, and judicial precedent, all of
which are subject to change, possibly with retroactive effect. Any change in law
or failure of the factual representations and assumptions to be true, correct
and complete in all material respects could alter the tax consequences discussed
herein.
The merger is conditioned upon a ruling from the Internal Revenue Service
as to whether the mergers will adversely affect the tax-free nature of Ralston
Purina's distribution of the stock of Agribrands in 1998, a transaction intended
to qualify as a tax-free distribution under section 355 of the Internal Revenue
Code. However, the parties will not request, and the merger is not conditioned
upon, a ruling from the Internal Revenue Service as to any of the United States
federal income tax consequences of the merger to persons other than Ralston
Purina. As a result, there can be no assurance that the Internal Revenue Service
will not disagree with or challenge any of the conclusions set forth in this
discussion.
Consequences to Holders of Ralcorp Common Stock.
This section sets forth the opinion of Bryan Cave LLP, as counsel to
Ralcorp, as to the material U.S. federal income tax consequences of the Ralcorp
merger to holders of Ralcorp common stock.
Exchange of Ralcorp Common Stock Solely for Newco Common Stock. Holders of
Ralcorp common stock who exchange their Ralcorp common stock solely for Newco
common stock in the Ralcorp merger will not recognize gain or loss upon the
exchange. Each holder's aggregate tax basis in the Newco common stock received
in the merger will be the same as the holder's aggregate tax basis in the
Ralcorp common stock surrendered in the merger. The holding period of the Newco
common stock received in the merger will include the holding period of the
Ralcorp common stock surrendered in the merger.
Exchange of Ralcorp Common Stock Solely for Cash. Holders of Ralcorp common
stock who exchange their Ralcorp common stock solely for cash whether (i)
pursuant to the cash election or (ii) as a result of the exercise of the right
to dissent from the merger will recognize gain or loss equal to the difference
between the amount of cash received and the holder's aggregate tax basis in the
stock exchanged therefor, assuming thereafter that such holder owns no Newco
stock, directly or indirectly (including Newco stock received in exchange for
Agribrands stock), following the exchange. The gain or loss will generally
constitute capital gain or loss. It will constitute long-term capital gain or
loss if the holder held the Ralcorp common stock for more than 12 months at the
effective time of the Ralcorp merger.
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Exchange of Ralcorp Common Stock for a Combination of Newco Common Stock
and Cash. Holders of Ralcorp common stock who exchange their Ralcorp common
stock for a combination of Newco common stock and cash either because of (i)
making a cash election only with respect to certain shares of Ralcorp common
stock or (ii) proration under the cash election, will generally recognize gain,
but not loss, in the transaction. Subject to section 304 of the Internal Revenue
Code as discussed below, the amount of gain recognized will be equal to the
lesser of the holder's total gain realized on the Ralcorp common stock
surrendered in the Ralcorp merger or the amount of cash received therefor. The
gain realized would generally be equal to the fair market value of the Newco
stock and cash received in exchange for the Ralcorp common stock surrendered
less the holder's aggregate tax basis in such stock surrendered. Subject to
section 304, the gain will generally constitute capital gain. It will constitute
long-term capital gain if the holder held the Ralcorp common stock for more than
12 months at the effective time of the merger. The holder's aggregate tax basis
in the Newco shares received in connection with the Ralcorp merger will equal
the holder's aggregate tax basis in the Ralcorp stock surrendered pursuant to
the merger (including the stock exchanged for cash) plus the gain recognized in
conjunction with the Ralcorp merger less the cash received in conjunction with
the Ralcorp merger. The holder's holding period in the Newco common stock
received would include the holding period of the Ralcorp stock surrendered.
In certain circumstances, the receipt of cash by certain holders of Ralcorp
common stock would be subject to section 304 of the Internal Revenue Code.
Section 304 could, in those circumstances, cause the entire amount of cash
received in the merger to be treated as a dividend regardless of the gain
realized on the merger. Section 304 may apply if either (i) the Ralcorp
shareholders collectively are deemed to "control" Newco immediately after the
mergers or (ii) Ralcorp is deemed to "control" Newco prior to the merger.
"Control" for this purpose is the ownership of stock possessing at least 50
percent of the combined voting power or at least 50 percent of the total
combined value of all classes of stock of Newco. Whether or not the Ralcorp
shareholders collectively will control Newco following the merger depends on
certain facts and circumstances as of the effective time of the merger which
cannot be predicted. For example, whether or not the Ralcorp shareholders or the
Agribrands shareholders fully subscribe for the cash election could effect which
group of shareholders are in control of Newco immediately after the merger. If
the cash election is fully subscribed for by both the Ralcorp shareholders and
the Agribrands shareholders, it is likely the shareholders of Ralcorp would be
in control of Newco immediately after the transaction.
If section 304 applies to the merger, the cash received in the merger to
which section 304 applies will be treated as a redemption of such stock. This
deemed redemption will be treated either as a dividend distribution or as a sale
of shares to Newco depending on whether the deemed redemption is "substantially
disproportionate" or "not essentially equivalent to a dividend." This
determination will be made by comparing each shareholder's pre-merger direct and
indirect ownership of Ralcorp common stock with such shareholder's post-merger
indirect ownership of Ralcorp through Newco (with certain modifications to
constructive ownership rules.) In general, because of the substantial dilution
resulting from the issuance of shares to the Agribrands shareholders, a holder
of Ralcorp common stock to whom section 304 applies should be able to report the
deemed redemption as a sale unless such holder owns actually or constructively
the same or a higher percentage of Ralcorp after the merger than before.
A deemed dividend distribution under section 304 will be taxable as
ordinary income to the extent of the allocable share of the earnings and profits
of Ralcorp. Any portion of the distribution not paid out of earnings and profits
will reduce the shareholder's tax basis in the Newco shares to the extent
thereof, and thereafter will be treated as gain from the sale of the shares. To
the extent that a corporate holder of Ralcorp common stock is treated as having
received a dividend as a result of section 304, such dividend will constitute an
extraordinary dividend within the meaning of section 1059 of the Internal
Revenue Code. Section 1059 will require a corporate holder entitled to a
dividends received deduction for such dividend to apply the amount of the
non-taxed portion of the dividend against its tax basis in the Ralcorp common
stock and recognize gain to the extent the dividend exceeds the tax basis in
that stock.
The rules of section 304 are very complex and all holders should consult
their tax advisor with respect to the applicability of section 304 to their
individual circumstances.
Consequences to Holders of Agribrands Common Stock.
This section sets forth the opinion of Bryan Cave LLP, as counsel to
Agribrands, as to the material U.S. federal income tax consequences of the
Agribrands merger to holders of Agribrands common stock. This discussion is
premised on the Agribrands merger qualifying as an exchange within the meaning
of section 351(a) of the Internal Revenue Code, but not as a reorganization
within the meaning of section 368(a) of the Internal Revenue Code, as it is
anticipated that Newco will not acquire substantially all of the assets of
Agribrands.
65
Exchange of Agribrands Common Stock Solely for Newco Common Stock. Holders
of Agribrands common stock who exchange their Agribrands common stock solely for
Newco common stock in the merger will not recognize gain or loss upon the
exchange. Each holder's aggregate tax basis in the Newco common stock received
in the merger will be the same as the holder's aggregate tax basis in the
Agribrands common stock surrendered in the merger. The holding period of the
Newco common stock received in the merger will include the holding period of the
Agribrands common stock surrendered in the merger.
Exchange of Agribrands Common Stock Solely for Cash. Holders of Agribrands
common stock who exchange their Agribrands common stock solely for cash whether
(i) pursuant to the cash election or (ii) as a result of the exercise of the
right to dissent from the merger will recognize gain or loss equal to the
difference between the amount of cash received and the holder's allocable tax
basis in the stock exchanged therefor, assuming thereafter that such holder owns
no Newco stock, directly or indirectly (including Newco stock received in
exchange for Ralcorp stock), following the exchange. The gain or loss will
generally constitute capital gain or loss. It will constitute long-term gain or
loss if the holder held the Agribrands common stock for more than 12 months at
the effective time of the merger.
Exchange of Agribrands Common Stock for a Combination of Newco Common Stock
and Cash. Holders of Agribrands common stock who exchange their Agribrands
common stock for a combination of Newco common stock and cash either because of
(i) making a cash election only with respect to certain shares of Agribrands
common stock or (ii) proration under the cash election will generally recognize
gain, but not loss, in the transaction. Subject to section 304 of the Internal
Revenue Code as discussed below, the amount of gain recognized will be the
lesser of the holder's total gain realized on the Agribrands common stock
surrendered in the Agribrands merger or the aggregate cash received therefor.
The gain realized would be equal to the fair market value of the Newco stock and
cash received in exchange for the Agribrands common stock less the holder's
aggregate tax basis in such stock surrendered. Subject to section 304, the gain
will generally constitute capital gain. It will constitute long-term gain if the
holder held the Agribrands common stock for more than 12 months at the effective
time of the merger. The holder's aggregate tax basis in the Newco shares
received in connection with the Agribrands merger will equal the holder's
aggregate tax basis in the Agribrands stock surrendered pursuant to the merger
(including the stock exchanged for cash) plus the gain recognized in conjunction
with the Agribrands merger less the cash received in conjunction with the
Agribrands merger. The holder's holding period in the Newco common stock
received would include the holding period of the Agribrands stock surrendered.
If the Agribrands shareholders collectively "control" Newco within the
meaning of section 304 of the Internal Revenue Code immediately after the
merger, the cash received will be treated in the same manner as discussed above
with respect to the holders of Ralcorp common stock who exchange their Ralcorp
common stock for a combination of Newco common stock and cash.
Additional Consequences to Holders of Agribrands Common Stock and Ralcorp
Common Stock.
This section sets forth additional U.S. federal income tax consequences of
the merger to holders of Agribrands common stock and Ralcorp common stock.
Backup withholding. Non-corporate holders of Agribrands common stock or
Ralcorp common stock may be subject to backup withholding at a rate of 31% on
cash payments received upon exercise of dissenter's rights or in exchange for
shares of Agribrands common stock or Ralcorp common stock. Backup withholding
will not apply, however, to a holder who;
o furnishes a correct taxpayer identification number and certifies under
penalty of perjury that he or she is not subject to backup withholding
on the substitute Form W-9 (or successor form) included in the letter
of transmittal to be delivered to holders of Agribrands common stock
and Ralcorp common stock following consummation of the mergers,
o provides a certification of foreign status on Form W-8 (or successor
form), or
o is otherwise exempt from backup withholding.
Any amount withheld under these rules will be credited against the holder's
U.S. federal income tax liability.
Because of the complexity of the tax laws, and because the tax consequences
to any particular holder of Ralcorp common stock or Agribrands common stock may
be affected by matters not discussed herein, each holder of Ralcorp common stock
and Agribrands common stock is urged to consult his or her personal tax advisor
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concerning the applicability to him or her of the foregoing discussion, as well
as of any other tax consequences of the merger.
Accounting Treatment of the Merger
We intend to account for the merger under the purchase method of accounting
for business combinations in accordance with generally accepted accounting
principles. In a purchase business combination, unless evidence clearly
indicates otherwise, identification of the accounting acquiror is dependent upon
identifying the shareholder group that retains or receives the larger portion of
the voting rights in the combined enterprise. Many criteria have been evaluated
to assist in identifying the acquiror in the merger, including composition of
management, composition of the Board of Directors and relative size of the
combining companies. Given that these factors, individually and in the
aggregate, do not clearly indicate the acquiror, we believe the ultimate
identification of the acquiror will be dependent upon determining the
shareholder group with voting control. This merger has been structured to allow
for an election by the shareholders of Agribrands and Ralcorp to receive cash
rather than stock of Newco, subject to the limitation that at least 80% of each
company's shares must be exchanged for shares. Currently, assuming the merger
ratios of 1 for 1 for Ralcorp and 3 for 1 for Agribrands and equal cash
elections for both companies, the Ralcorp and Agribrands shareholder groups
would have approximately equal ownership percentages in Newco. However,
differences in the percentage of cash taken by each shareholder group will
impact the relative ownership percentages in Newco. The cash elections will be
dependent on many factors, which cannot be anticipated this time, including the
market prices of the companies' stocks prior to the required cash election. Due
to the sensitivity of the cash election in determining the acquiring
corporation, we have presented elsewhere in this joint proxy
statement/prospectus two sets of unaudited pro forma combined condensed
financial statements with different assumptions, one assuming ralcorp is the
acquiror and one assuming agribrands is the acquiror.
Regulatory Matters
We have summarized below the material regulatory requirements affecting the
merger. Although we have not yet received the required approvals we discuss, we
anticipate that we will receive regulatory approval sufficient to complete the
merger by the first quarter of calendar 2001.
Antitrust Considerations.
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, which prevents specified transactions from
being completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and specified waiting periods are terminated or expired. We expect to file the
required information and materials with the Department of Justice and the
Federal Trade Commission on or about , 2000.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the merger on antitrust grounds, either before or after
expiration of the waiting period. Accordingly, at any time before or after the
completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest, or other persons
could take action under the antitrust laws, including seeking to enjoin the
merger. Additionally, at any time before or after the completion of the merger,
notwithstanding that the applicable waiting period expired or was terminated,
any state could take action under the antitrust laws as it deems necessary or
desirable in the public interest. There can be no assurance that a challenge to
the merger will not be made or that, if a challenge is made, we will prevail.
IRS Revenue Ruling.
Pursuant to an agreement between Ralston Purina and Agribrands relating to
the spin-off of Agribrands in 1998, Agribrands must deliver to Ralston Purina a
supplemental ruling from the Internal Revenue Service that the transactions
contemplated by the reorganization agreement would not cause Agribrands'
spin-off from Ralston Purina to be a taxable transaction.
Restrictions on Sales of Shares by Affiliates of Agribrands and Ralcorp
The shares of Newco common stock to be issued in connection with the merger
will be registered under the Securities Act and will be freely transferable
under the Securities Act, except for shares of Newco common stock issued to any
person who is deemed to be an "affiliate" of either Agribrands or Ralcorp at the
time of the special meetings. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
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control with either Agribrands or Ralcorp and may include our executive officers
and directors, as well as our significant shareholders. Affiliates may not sell
their shares of Newco common stock acquired in connection with the merger except
pursuant to:
o an effective registration statement under the Securities Act covering
the resale of those shares;
o an exemption under paragraph (d) of Rule 145 of the Securities Act; or
o any other applicable exemption under the Securities Act.
Newco's registration statement on Form S-4, of which this joint proxy
statement/prospectus forms a part, does not cover the resale of shares of Newco
common stock to be received by our affiliates in the merger.
New York Stock Exchange Listing of Newco Common Stock to be Issued in the Merger
Newco will use reasonable efforts to cause the shares of Newco common stock
to be issued in connection with the merger to be approved for listing on the New
York Stock Exchange, subject to official notice of issuance, before the
completion of the merger. We intend to apply to list the Newco common stock
under the symbol .
Dissenters' Rights
Under Section 351.455 of the Missouri General and Business Corporation Law,
Agribrands and Ralcorp shareholders who do not vote to approve the
reorganization agreement and who follow the procedure summarized below will have
the right to dissent from and obtain payment in cash of the fair value of their
shares of Agribrands and Ralcorp common stock (the "Dissenting Shares"), as of
the day prior to the day of the special meeting, in the event of the
consummation of the merger. However, Agribrands and Ralcorp may elect to
terminate the reorganization agreement if holders of more than 5% of Agribrands
and Ralcorp outstanding shares exercise dissenters' rights. No holder of
Agribrands or Ralcorp common stock dissenting from the merger will be entitled
to shares of Newco common stock or any dividends or other distributions unless
and until the holder fails to perfect or effectively withdraws or loses such
holder's right to dissent from the reorganization agreement.
The following is a summary of the procedures which must be followed by any
shareholder who wishes to dissent and demand payment for his or her shares in
the event of the consummation of the merger. The text of Section 351.455
contains the applicable procedures. It is set forth in Annex F to this joint
proxy statement/prospectus. Holders of Agribrands and Ralcorp common stock
receiving cash upon exercise of dissenters' rights may recognize income, gain or
loss for U.S. federal income tax purposes. See "Material United States Federal
Income Tax Consequences of the Merger."
Agribrands and Ralcorp shareholders may assert dissenters' rights only by
complying with all of the following requirements:
o The shareholder must deliver to Agribrands or Ralcorp, as the case may
be, prior to or at the special meeting a written objection to the
reorganization agreement. Such objection should be delivered or mailed
in time to arrive before the special meeting to . Such a written
objection must be made in addition to and separate from any proxy or
other vote against the approval of the reorganization agreement.
Neither a vote against, a failure to vote for, or an abstention from
voting will satisfy the requirement that a written objection be
delivered to Agribrands or Ralcorp, as the case may be, before the
vote is taken. Unless a shareholder files a written objection as
provided above, he or she will not have any dissenters' rights of
appraisal.
o The shareholder must not vote to approve the reorganization agreement.
o The shareholder must deliver to Newco, within twenty (20) days after
the effective time of the merger, a written demand for payment of the
fair value of his or her shares of Agribrands or Ralcorp common stock
as of the day prior to the date on which the vote for the approval of
the reorganization agreement was taken. That demand must include a
statement of the number of shares of common stock owned. The demand
must be mailed or delivered to Newco at .
Any shareholder who fails to make a written demand for payment within
the 20-day period after the effective time will be conclusively
presumed to have consented to the reorganization agreement and will be
bound by the terms thereof. Neither a vote against the reorganization
agreement nor the written objection referred to above will satisfy the
written demand requirement referred to in this paragraph.
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A beneficial owner of shares of Agribrands or Ralcorp common stock who is
not the record owner may not assert dissenters' rights. If the shares of
Agribrands or Ralcorp common stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, or by a nominee, the written demand
asserting dissenters' rights must be executed by the fiduciary or nominee. If
the shares of Agribrands or Ralcorp common stock are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand must be
executed by all joint owners. An authorized agent, including an agent for two or
more joint owners, may execute the demand for a shareholder of record; however,
the agent must identify the record owner and expressly disclose the fact that,
in executing the demand, he is acting as agent for the record owner.
If within 30 days of the effective time the value of a dissenting
shareholder's shares of Agribrands or Ralcorp common stock is agreed upon
between the shareholder and Newco, Newco will make payment to the shareholder
within 90 days of the effective time, upon the shareholder's surrender of his or
her shares. Upon payment of the agreed value, the dissenting shareholder will
cease to have any interest in such shares or in Newco.
If the dissenting shareholder and Newco do not agree on the fair value of
the shares within 30 days after the effective time, the dissenting shareholder
may, within 60 days after the expiration of 30 days, file a petition in any
court of competent jurisdiction within St. Louis County, Missouri, asking for a
finding and a determination of fair value of the shares. The dissenting
shareholder is entitled to judgment against Newco for the amount of such fair
value as of the day prior to the date on which the vote was taken approving the
reorganization agreement, together with interest thereon to the date of
judgment. The judgment is payable only upon and simultaneously with the
surrender to Newco of the shares representing such Agribrands or Ralcorp shares.
Upon payment of the judgment, the dissenting shareholders shall cease to have
any interest in such shares or in Newco. Unless the dissenting shareholder files
such petition within the time herein limited, such shareholder and all persons
claiming under such shareholder will be conclusively presumed to have approved
and ratified the reorganization agreement, and will be bound by the terms
thereof.
Delisting and Deregistration of Agribrands and Ralcorp Common Stock After the
Merger
When the merger is completed, Agribrands common stock and Ralcorp common
stock will each be delisted from the New York Stock Exchange and will be
deregistered under the Securities Exchange Act of 1934. We intend to cause the
shares of common stock of Newco to be issued in connection with the merger to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance, before the completion of the merger.
Shareholder Lawsuit Challenging the Merger
One complaint has been filed and remains pending in the Circuit Court of
St. Louis County, Missouri naming as defendants Agribrands and the directors of
Agribrands. The complaint purports to be filed on behalf of the shareholder of
Agribrands. The complaint alleges breaches of fiduciary duties and other common
law duties by the Agribrands directors. The Plaintiff seeks to enjoin completion
of the merger and seeks recovery of his costs and expenses, including attorneys'
fees. Agribrands and its directors intend to defend the lawsuit vigorously.
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THE REORGANIZATION AGREEMENT
The following summary of the reorganization agreement is qualified in its
entirety by reference to the complete text of the reorganization agreement,
which is attached as Annex A to this joint proxy statement/prospectus. We urge
you to read the full text of the reorganization agreement.
Conditions to the Merger
Each of Agribrands' and Ralcorp's obligations to complete the merger are
subject to the satisfaction or waiver of specified conditions before completion
of the merger, including the following:
o the approval of the reorganization agreement by the affirmative vote
of:
o the holders of two-thirds of the outstanding shares of Ralcorp
common stock; and
o the holder of two-thirds of the outstanding shares of Agribrands
common stock;
o the absence of any law, order or injunction prohibiting the
consummation of the merger;
o the expiration or termination of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvement Acts of 1976;
o the receipt of all approvals and the completion of filings, or notices
necessary for completion of the merger, except for any, the failure of
which to obtain would not individually or in the aggregate reasonably
be expected to have a Material Adverse Effect, as described below, on
Newco after the merger;
o the approval for listing by the New York Stock Exchange of the shares
of Newco stock to be issued, or to be reserved for issuance, in
connection with the merger, subject to official notice of issuance;
o the declaration of effectiveness of the registration statement on Form
S-4, of which this joint proxy statement/prospectus forms a part, by
the SEC, and the absence of any stop order or threatened or pending
proceedings seeking a stop order;
o the holders of not more than 5% of Agribrands and Ralcorp outstanding
shares having exercised dissenters' rights;
o the satisfaction by Agribrands of its post spin-off covenant to
Ralston Purina by delivering to Ralston Purina a supplemental ruling
from the IRS that the transactions contemplated by the reorganization
agreement would not cause Agribrands' spin-off from Ralston Purina to
be a taxable transaction; and
o the receipt by Ralcorp of an opinion of its tax counsel in form and
substance reasonably satisfactory to Ralcorp and on the basis of
facts, representations and assumption set forth in such opinion,
substantially to the effect that the Ralcorp merger will qualify
either as a reorganization within the meaning of section 368(a) of the
Internal Revenue Code or, taken together with the Agribrands merger,
as an exchange under section 351(a) of the Internal Revenue Code, and
the receipt by Agribrands of an opinion of its tax counsel, in and
form and substance reasonably satisfactory to Ralcorp and on the basis
of facts, representations and assumptions set forth in such opinion,
substantially to the effect that the Agribrands merger will qualify
either as a reorganization within the meaning of section 368(a) of the
Internal Revenue Code or, taken together with the Ralcorp merger, as
an exchange under section 351(a) of the Internal Revenue Code.
"Material Adverse Effect," when used in reference to any entity, means a
material adverse effect on:
o the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of the entity and the
entity's subsidiaries, taken as a whole;
o the ability of the entity to perform its obligations set forth in the
reorganization agreement; or
o the ability of the entity to timely consummate the transactions
contemplated by the reorganization agreement.
Agribrands' obligations to complete the merger are subject to the
satisfaction or waiver of the following additional conditions before completion
of the merger:
o Ralcorp's representations and warranties, disregarding all
qualifications and exceptions contained in the reorganization
agreement relating to materiality or Ralcorp Material Adverse Effect,
must be true and correct as of the date of the reorganization
agreement and as of the date of completion of the merger, except for:
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o representations and warranties that expressly address matters
only as of a particular date, which must be true and correct as
of such date;
o any failure of such representations and warranties to be true and
correct that would not, individually or in the aggregate,
reasonably be expected to have a Ralcorp Material Adverse Effect;
and
o Ralcorp's business shall not have experienced an event (excluding
conditions impacting the store brand category taken as a whole) that
would be expected to have a Material Adverse Effect.
o Ralcorp must have:
o performed and complied with all agreements and covenants required
to be performed by it under the reorganization agreement that are
qualified as to materiality;
o performed or complied in all material respects with all other
material agreements and covenants required to be performed by it
under the reorganization agreement that are not so qualified; and
o conditions for the benefit of Ralcorp must have been satisfied or
waived by Ralcorp.
Ralcorp's obligations to complete the merger relating to Ralcorp are
subject to the satisfaction or waiver of the following additional conditions
before completion of the merger:
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o Agribrands' representations and warranties, disregarding all
qualifications and exceptions contained in the reorganization
agreement relating to the materiality or Agribrands' Material Adverse
Effect, must be true and correct as of the date of the reorganization
agreement and as of the date of the completion of the merger, except
for:
o representations and warranties that expressly address matters
only as of a particular date, which must be true and correct as
of such date; and
o any failure of such representations and warranties to be true and
correct that would not, individually or in the aggregate,
reasonably be expected to have an Agribrands Material Adverse
Effect;
o Agribrands' business shall not have experienced an event (excluding
conditions impacting the animal feed business taken as a whole and
currency fluctuation in only one country) that would be expected to
have a Material Adverse Effect.
o Agribrands must have:
o performed or complied with all the agreements and covenants
required to be performed by it under the reorganization agreement
that are qualified as to materiality or Agribrands Material
Adverse Effect; and
o performed or complied in all material respects with all other
material agreements and covenants required to be performed by it
under the reorganization agreement that are not so qualified; and
o conditions for the benefit of Agribrands must have been satisfied or
waived by Agribrands.
No Other Transactions Involving Agribrands or Ralcorp
The reorganization agreement contains detailed provisions prohibiting
Agribrands and Ralcorp from seeking an alternative transaction. Under these "no
solicitation" provisions, each of Agribrands and Ralcorp has agreed that it
shall not, directly or indirectly, take any action to:
o encourage (including by way of furnishing nonpublic information),
solicit, initiate or facilitate any Acquisition Proposal, as defined
below;
o enter into any agreement with respect to any Acquisition Proposal; or
o participate in any way in discussions or negotiations with, or furnish
any information to, any person in connection with, or take any other
action to facilitate any inquiries or making of any proposal that
constitutes, or could reasonably be expected to lead to any
Acquisition Proposal.
"Acquisition Proposal" means, with respect to any entity, any offer or
proposal concerning:
o a merger, consolidation, business combination or similar transaction;
o sale, lease or other disposition of assets of the entity representing
20% or more of the consolidated assets of the entity and the entity's
subsidiaries;
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o issuance, sale, or other disposition of (including by way of merger,
consolidation, business combination, share exchange, joint venture, or
any similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into or exchangeable for, such
securities) representing 20% or more of the voting power of the
entity; or
o a transaction in which any person shall acquire beneficial ownership
(as such term is defined in Rule 13d-3 under the Exchange Act), or the
right to acquire beneficial ownership or any "group" (as such term is
defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of
20% percent or more of the outstanding voting capital stock of the
entity.
However, the reorganization agreement does not prevent Agribrands or
Ralcorp, or their Boards of Directors, from responding to an Acquisition
Proposal that the applicable Board of Directors determines in good faith is
reasonably likely to result in a Superior Proposal (as defined below), if the
Board of Directors determines in good faith, after consultation with outside
counsel, that such response is necessary to discharge properly its fiduciary
duties to shareholders. In such an instance, the Board of Directors may furnish
information to the person making such an Acquisition Proposal pursuant to a
customary confidentiality agreement the terms of which are no more favorable to
the other party to such confidentiality agreement than those in place between
Agribrands and Ralcorp. Furthermore, the Board of Directors may participate in
discussions with respect to such Acquisition Proposal.
"Superior Proposal" means a bona fide Acquisition Proposal made by a third
party which was not solicited by Agribrands or Ralcorp, as the case may be,
their subsidiaries, representatives or other affiliates and which, in the good
faith judgment of the Board of Directors, taking into account, to the extent
deemed appropriate by the Board of Directors, the various legal, financial and
regulatory aspects of the proposal and the person making such proposal:
o if accepted, is reasonably likely to be consummated; or
o if consummated, is reasonably likely to result in a transaction that
is more favorable to Agribrands or Ralcorp shareholders, as the case
may be, from a financial point of view, than the transactions
contemplated by the reorganization agreement.
If the Board of Directors is prepared to accept a Superior Proposal, then
the company receiving the Superior Proposal shall give the other party to the
reorganization agreement 48 hours notice that it is prepared to accept the
Superior Proposal, provided that it may not definitively accept a Superior
Proposal unless it concurrently terminates the reorganization agreement and,
concurrently with such termination, makes the termination payment described
below.
Termination
The reorganization agreement may be terminated at any time prior to the
completion of the merger, whether before or after the shareholder approvals have
been obtained:
o by mutual consent of Agribrands and Ralcorp;
o by Agribrands or Ralcorp, if there has been a material breach by the
non-terminating party of any of the representations, warranties,
covenants or agreements contained in the reorganization agreement, or
any such representation and warranty shall have become untrue, such
that the closing conditions shall not have been met, and in either
such case, such breach or condition has not been promptly cured within
30 days following receipt of written notice of such breach;
o by either Ralcorp or Agribrands if any decree, permanent injunction,
judgment, order or other action by any court of competent
jurisdiction, any arbitrator or any governmental authority preventing
or prohibiting consummation of the merger shall have become final and
non-appealable;
o by either Ralcorp or Agribrands if the merger shall not have been
consummated before March 31, 2001 unless the failure of the effective
time to occur by such date shall be due to the failure of the party
seeking to terminate the reorganization agreement in performing or
observing in all material respects the covenants and agreements of
such party set forth therein;
o by either Ralcorp or Agribrands if the transactions contemplated by
the reorganization agreement shall fail to receive the requisite vote
for approval by the respective shareholders;
o by either Agribrands or Ralcorp concurrently with the acceptance of a
Superior Proposal; or
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o by either Agribrands or Ralcorp, if the Board of Directors of the
other shall have withdrawn, or modified or changed in any manner
adverse to the terminating party its approval or recommendation of the
merger in connection with the exercise of the fiduciary duties of the
Board of Directors.
Effect of Termination
As set forth in more detail below, the reorganization agreement requires
Agribrands or Ralcorp to pay a termination fee to one another in specified
circumstances.
Agribrands Termination Fee
Ralcorp shall pay to Agribrands the sum of $5,000,000 in the event of the
following:
o if all of the following occur:
o Agribrands or Ralcorp shall terminate the reorganization
agreement because of the failure to consummate the transactions
before March 31, 2001 or because the Ralcorp shareholders failed
to approve the transactions contemplated by the reorganization
agreement, in either case where Ralcorp shareholders have failed
to approve the transactions contemplated by the reorganization
agreement and, if the Agribrands special meeting has been held,
Agribrands shareholders have approved such transactions.
o at any time after the date of the reorganization agreement and
prior to the Ralcorp special meeting, if any, there shall have
been a publicly announced Ralcorp Acquisition Proposal;
o Agribrands shall not at any time, prior to the Agribrands special
meeting, have withdrawn, modified or changed in a manner adverse
to Ralcorp, its approval or recommendation of the Agribrands
merger; and
o within nine months of the termination of the reorganization
agreement, Ralcorp enters into a definitive agreement with
respect to such Ralcorp Acquisition Proposal; or
o if Ralcorp shall terminate the reorganization agreement due to the
acceptance of a Superior Proposal; or
o if Agribrands shall terminate the reorganization agreement due to the
withdrawal or modification of, or change in, the recommendation of the
Ralcorp Board of Directors.
Ralcorp Termination Fee
Agribrands shall pay to Ralcorp the sum of $5,000,000 in the event of the
following:
o if all of the following occur:
o Agribrands or Ralcorp shall terminate the reorganization
agreement because of the failure to consummate the transactions
before March 31, 2001 or because the Agribrands shareholders
failed to approve the transactions contemplated by the
reorganization agreement, in either case where Agribrands
shareholders have failed to approve the transactions contemplated
by the reorganization agreement and, if the Ralcorp special
meeting has been held, Ralcorp shareholders have approved such
transactions;
o at any time after the date of the reorganization agreement and
prior to the Agribrands special meeting, if any, there shall have
been a publicly announced Agribrands Acquisition Proposal;
o Ralcorp shall not at any time, prior to the Ralcorp special
meeting, have withdrawn, modified or changed in a manner adverse
to Agribrands, its approval or recommendation of the Ralcorp
merger; and
o within nine months of the termination of the reorganization
agreement, Agribrands enters into a definitive agreement with
respect to such Agribrands Acquisition Proposal; or
o if Agribrands shall terminate the reorganization agreement due to the
acceptance of a Superior Proposal; or
o if Ralcorp shall terminate the reorganization due to the withdrawal or
modification of, or change in, of the recommendation of Agribrands
Board of Directors.
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Representations and Warranties
The reorganization agreement contains customary representations and
warranties of Agribrands and Ralcorp relating to, among other things:
o corporate organization and good standing;
o capitalization;
o subsidiaries;
o authorization;
o documents filed with the SEC and financial statements included in
those documents;
o absence of certain changes or events;
o related party transactions;
o compliance with laws;
o permits;
o finders and investment bankers;
o material contracts;
o employee benefit plans;
o taxes;
o applicable state takeover laws;
o rights plans.
NEWCO CHARTER AND BYLAWS
Upon completion of the merger, the articles of incorporation for Newco will
be in substantially the form set forth in Annex G to this joint proxy
statement/prospectus and the bylaws of Newco will be in substantially in the
form set forth on Annex H to this joint proxy statement/prospectus. For a
summary of the material provisions of the articles of incorporation and bylaws
of Newco, and the rights of shareholders of Newco under these articles of
incorporation and bylaws, see the section entitled "Description of Newco Capital
Stock."
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NEWCO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following pro forma combined condensed financial statements are
presented to illustrate the effects of the merger on the historical financial
position (assuming the merger occurred at the balance sheet dates presented) and
operating results (assuming the merger occurred at the beginning of each of the
periods presented) of Ralcorp and Agribrands using the purchase method of
accounting for business combinations. Under the purchase method, the acquiring
corporation records at its cost the acquired assets less liabilities assumed.
Any difference between the cost of the acquired enterprise and the sum of the
fair values of tangible and identifiable intangible assets less liabilities
assumed is recorded as goodwill. This merger has been structured to allow for an
election by the shareholders of Agribrands and Ralcorp to receive cash rather
than stock of Newco, subject to the limitation that at least 80% of the shares
of each company must be exchanged for shares. Currently, assuming the merger
ratios of 1 for 1 for Ralcorp and 3 for 1 for Agribrands and equal cash
elections for both companies, the companies would have approximately equal
ownership percentages in Newco. However, differences in the percentage of cash
taken by each shareholder group will impact the relative ownership percentages
in Newco. The cash elections will be dependent on many factors, which cannot be
anticipated at this time, including the market prices of the stocks prior to the
cash election. In a purchase business combination, unless evidence clearly
indicates otherwise, identification of the accounting acquiror will be dependent
upon identifying the shareholder group that retains or receives the larger
portion of the voting rights in the combined enterprise. Because the identity of
the acquiror will not be known until irrevocable cash elections are made, pro
forma financial information has been presented on two different bases: (1)
assuming Ralcorp is the acquiring corporation, with 100% of each company's
outstanding stock being exchanged for Newco common stock, and (2) assuming
Agribrands is the acquiring corporation, with 98.5% of Ralcorp shares and 100%
of Agribrands shares being exchanged for Newco common stock (the 1.5% difference
was applied because it is sufficient to cause Agribrands to be considered the
acquiring corporation for accounting purposes). In addition, the purchase price
to be used in recording the purchase accounting entries is dependent upon the
market price of the stock of the acquiror when all contingencies are resolved,
specifically, when irrevocable cash elections are made by the shareholder
groups. Therefore, the actual purchase price will be different from the
estimated purchase prices presented in either set of unaudited pro forma
combined condensed financial statements included herein. If the stock price of
the acquiror is higher as of the time the shareholder cash elections are made
versus the stock price assumed in the unaudited pro forma combined condensed
financial statements, then the actual purchase price and future amortization and
depreciation expense will be higher than reflected in the unaudited pro forma
combined condensed financial statements included herein. The following table
presents the accounting acquiror and unaudited pro forma amounts of certain key
financial statement line items assuming various cash election percentages.
(Dollars in millions, except per share data)
Assumed Cash Election Percentages
-----------------------------------------------------------------
(as presented herein)
--------------------------
Ralcorp shareholders 0.0% 1.5% 10.0% 20.0% 20.0%
Agribrands shareholders 0.0% 0.0% 10.0% 18.5% 20.0%
- -----------------------------------------------------------------------------------------------------
Acquiring corporation Ralcorp Agribrands Ralcorp Agribrands Ralcorp
Cash and cash equivalents $189.7 $183.0 $106.6 $29.3 $23.6
Excess purchase price 55.1 57.8 53.2 68.9 51.4
Total shareholders' equity 777.5 773.5 692.5 630.9 607.7
Net earnings:
Nine months of fiscal 2000 $65.9 $66.8 $64.0 $62.5 $62.0
Fiscal year 1999 80.6 81.8 77.9 75.4 74.8
Diluted earnings per share:
Nine months of fiscal 2000 $1.06 $1.08 $1.10 $1.15 $1.14
Fiscal year 1999 1.26 1.29 1.30 1.35 1.34
The pro forma combined condensed financial statements have been derived
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes contained in the annual and quarterly
reports of Ralcorp and Agribrands, as well as the pro forma condensed financial
statements and related notes contained in Ralcorp's Current Report on Form 8-K/A
dated September 21, 2000, which have been incorporated by reference into this
joint proxy statement/prospectus. Note that Ralcorp acquired several businesses
since October 1, 1998 as follows: Martin Gillet & Co., Inc. (Martin Gillet) on
March 4, 1999; Southern Roasted Nuts of Georgia, Inc. (Southern) on March 24,
1999; Ripon Foods, Inc. (Ripon) on October 4, 1999; Cascade Cookie Company, Inc.
(Cascade) on January 31, 2000; James P. Linette, Inc. (Linette) on May 1, 2000;
and The Red Wing Company, Inc. (Red Wing) on July 14, 2000. These businesses had
aggregate annual sales of approximately $559 million and an aggregate purchase
price of $282 million. The pro forma combined condensed financial statements
include the pro forma effects of these acquisitions, as described in the related
notes.
The pro forma combined condensed financial statements are presented for
informational purposes only and are not necessarily indicative of the financial
position or results of operations of Newco that would have occurred had the
merger been consummated as of the dates indicated. In addition, the pro forma
combined condensed financial statements are not necessarily indicative of the
future financial condition or operating results of Newco.
75
NEWCO
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
ASSUMING RALCORP IS THE ACQUIRING CORPORATION
June 30, 2000
(in millions)
Ralcorp Pro Forma Newco
Pro Forma (a) Agribrands (b) Adjustments Pro Forma
------------- -------------- ------------- ------------
Assets
Current Assets
Cash and cash equivalents $ 28.3 $ 161.4 $ - $ 189.7
Receivables, net 76.9 78.1 - 155.0
Inventories 130.5 98.2 - 228.7
Other current assets 9.5 7.3 - 16.8
------------- ------------- ------------- ------------
Total Current Assets 245.2 345.0 - 590.2
Investment in Vail Resorts, Inc. 78.9 - - 78.9
Intangible Assets, Net 214.8 27.6 - 242.4
Excess Purchase Price - - 55.1 (c) 55.1
Property and Equipment, Net 234.8 168.0 - 402.8
Other Assets 4.0 27.4 - 31.4
------------- ------------- ------------- ------------
Total Assets $ 777.7 $ 568.0 $ 55.1 $1,400.8
============= ============= ============= ============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts and notes payable $ 69.0 $ 100.9 $ - $ 169.9
Other current liabilities 45.1 46.6 5.0 (d) 96.7
------------- ------------- ------------- ------------
Total Current Liabilities 114.1 147.5 5.0 266.6
Long-term Debt 270.2 11.0 - 281.2
Deferred Income Taxes and Other Liabilities 48.4 27.1 - 75.5
Shareholders' Equity 345.0 382.4 50.1 (e) 777.5
------------- ------------- ------------- ------------
Total Liabilities and Shareholders' Equity $ 777.7 $ 568.0 $ 55.1 $1,400.8
============= ============= ============= ============
See accompanying notes.
76
NEWCO
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
ASSUMING RALCORP IS THE ACQUIRING CORPORATION
June 30, 2000
(a) Reflects the pro forma financial position of Ralcorp at June 30, 2000
assuming the acquisition of Red Wing occurred on that date (see Ralcorp's
Current Report on Form 8-K/A dated September 21, 2000).
(b) Reflects the historical financial position of Agribrands at May 31, 2000.
(c) Reflects the excess purchase price computed as follows (in millions):
Common stock issued $ 401.4
Stock options issued 38.9
Transaction costs 5.0
------------
Total purchase price 445.3
Less amounts allocated to:
Agribrands' historical net assets (382.4)
Unearned compensation (options) (7.8)
------------
Excess purchase price $ 55.1
============
At this time, the work needed to determine the fair values of the net
assets of Agribrands has not been completed. A preliminary allocation of
the excess of purchase price over the book value of the net assets acquired
has been made to "excess purchase price" and unearned compensation (for
unvested stock options issued in exchange for all outstanding Agribrands
stock options). Upon completion of the merger, the excess purchase price is
expected to be allocated to property, pension accruals, deferred taxes,
goodwill and other intangible assets based on appraisals and other fair
valuation methods.
(d) Reflects the estimated amount of transaction costs incurred by Agribrands
and Ralcorp, including legal, investment banking and registration fees.
(e) Reflects the following adjustments to shareholders' equity:
o an increase of $401.4 million relating to the issuance of 29.4 million
shares of common stock in exchange for all of Agribrands common stock,
based on a merger ratio of 3 for 1. The common stock to be issued was
valued based on a price per share of $13.63, which is the average
closing market price of Ralcorp common stock for a few days before and
after the date the merger was announced;
o an increase of $38.9 million relating to the issuance of 5.3 million
stock options in exchange for all outstanding Agribrands stock
options, based on a weighted average fair value of $7.37 per option.
o a decrease of $7.8 million to record unearned compensation for the
portion of the intrinsic value related to the future vesting (service)
period of the stock options discussed above; and
o a decrease of $382.4 million to eliminate Agribrands' historical
shareholders' equity.
77
NEWCO
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
ASSUMING RALCORP IS THE ACQUIRING CORPORATION
Nine Months Ended June 30, 2000
(in millions, except per share data)
Adjusted
Ralcorp Pro Forma Newco
Pro Forma (a) Agribrands (b) Adjustments Pro Forma
------------- -------------- ------------ ------------
Net Sales $ 809.5 $ 890.2 $ - $ 1,699.7
------------ ------------ ------------ ------------
Costs and Expenses
Cost of products sold 627.3 741.4 - 1,368.7
Selling, general and administrative 121.1 100.7 4.1 (c) 225.9
Interest expense 13.2 2.3 - 15.5
Equity in earnings of Vail Resorts, Inc. (8.2) - - (8.2)
Other income, net - (5.6) - (5.6)
------------ ------------ ------------ ------------
753.4 838.8 4.1 1,596.3
------------ ------------ ------------ ------------
Earnings before Income Taxes 56.1 51.4 (4.1) 103.4
Income Taxes 21.1 17.1 (.7)(d) 37.5
------------ ------------ ------------ ------------
Net Earnings $ 35.0 $ 34.3 $(3.4) $ 65.9
============ ============ ============ ============
Earnings per Share:
Basic $ 1.16 $ 3.37 $ 1.08
============ ============ ============
Diluted $ 1.14 $ 3.27 $ 1.06
============ ============ ============
Weighted Average Shares Outstanding (e):
Basic 30.2 10.2 60.8
============ ============ ============
Diluted 30.7 10.5 62.2
============ ============ ============
See accompanying notes.
78
NEWCO
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
EARNINGS ASSUMING RALCORP IS THE ACQUIRING CORPORATION
Nine Months Ended June 30, 2000
(a) Reflects the adjusted pro forma operating results of Ralcorp for the nine
months ended June 30, 2000 assuming the acquisitions of Ripon, Cascade,
Linette and Red Wing had occurred as of the beginning of the period. Pro
forma results for the period assuming the acquisition of Red Wing had
occurred as of the beginning of the period were presented in Ralcorp's
Current Report on Form 8-K/A filed September 21, 2000. To arrive at the
adjusted pro forma results of Ralcorp presented herein, those pro forma
results were adjusted for the following:
o historical operating results of Cascade for the pre-acquisition period
from October 1, 1999 to January 31, 2000 and Linette for the
pre-acquisition period from October 1, 1999 to May 1, 2000. No
adjustment was made for the immaterial historical operating results of
Ripon for the short pre-acquisition period from October 1, 1999 to
October 4, 1999;
o an increase in selling, general and administrative expense of $.2
million relating to additional goodwill amortization for Cascade and
Linette for the pre-acquisition periods noted above;
o an increase in interest expense of $1.4 million relating to the
additional amount that would have been incurred if the acquisitions of
Cascade and Linette had occurred on October 1, 1999 with assumed
interest rates of 90-day LIBOR plus 1%, commensurate with Ralcorp's
new bridge credit facility (a 1/8% variance in which assumed interest
rates would have a $.3 million effect on this adjustment); and
o a reduction in income taxes of $.6 million, calculated at an estimated
effective rate of 37% on the aggregate pro forma reduction in pretax
income due to the adjustments noted above, excluding nondeductible
goodwill amortization.
(b) Reflects the historical operating results of Agribrands for the nine months
ended May 31, 2000.
(c) Reflects an increase of $2.0 million to recognize compensation expense
related to the intrinsic value of converted options amortized over the
remaining weighted average vesting period of 3.0 years, and an increase of
$2.1 million relating to the amortization of the excess purchase price,
amortized on a straight-line basis over a 20 year weighted average period.
The final purchase price allocation may result in a different weighted
average amortization period, which would impact the amount of annual
amortization expense. For example, weighted average amortization periods of
15 years and 25 years would result in amortization of $2.8 million and $1.7
million, respectively, for nine months.
(d) Reflects a reduction in income taxes, provided at a 37% tax rate, on the
aggregate pro forma reduction in pretax income before nondeductible
amortization of excess purchase price.
(e) The weighted average number of shares outstanding used in the calculation
of the pro forma per share data is based on the historical weighted average
number of shares outstanding during the period, adjusted to give effect to
the merger ratio for the merger (i.e., historical weighted average
Agribrands shares times three, plus historical weighted average Ralcorp
shares outstanding).
79
NEWCO
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
ASSUMING RALCORP IS THE ACQUIRING CORPORATION
Year Ended September 30, 1999
(in millions, except per share data)
Adjusted
Ralcorp Pro Forma Newco
Pro Forma (a) Agribrands (b) Adjustments Pro Forma
------------- -------------- ------------ ------------
Net Sales $ 1,131.3 $ 1,261.5 $ - $ 2,392.8
------------ ------------- ------------ ------------
Costs and Expenses
Cost of products sold 872.6 1,050.6 - 1,923.2
Selling, general and administrative 180.3 143.5 5.4 (c) 329.2
Interest expense 15.6 8.0 - 23.6
Equity in earnings of Vail Resorts, Inc. (4.7) - - (4.7)
Other income, net - (11.0) - (11.0)
------------ ------------- ------------ ------------
1,063.8 1,191.1 5.4 2,260.3
------------ ------------- ------------ ------------
Earnings before Income Taxes 67.5 70.4 (5.4) 132.5
Income Taxes 26.4 26.4 (.9)(d) 51.9
------------ ------------- ------------ ------------
Net Earnings $ 41.1 $ 44.0 $(4.5) $ 80.6
============ ============= ============ ============
Earnings per Share:
Basic $ 1.32 $ 4.16 $ 1.28
============ ============= ============
Diluted $ 1.30 $ 4.11 $ 1.26
============ ============= ============
Weighted Average Shares Outstanding (e):
Basic 31.1 10.6 62.8
============ ============= ============
Diluted 31.7 10.7 63.8
============ ============= ============
See accompanying notes.
80
NEWCO
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
EARNINGS ASSUMING RALCORP IS THE ACQUIRING CORPORATION
Year Ended September 30, 1999
(a) Reflects the adjusted pro forma operating results of Ralcorp for the year
ended September 30, 1999 assuming the acquisitions of Martin Gillet,
Southern, Ripon, Cascade, Linette and Red Wing had occurred as of the
beginning of the period. Pro forma results for the period assuming the
acquisition of Red Wing had occurred as of the beginning of the period were
presented in Ralcorp's Current Report on Form 8-K/A filed September 21,
2000. To arrive at the adjusted pro forma results of Ralcorp presented
herein, those pro forma results were adjusted for the following:
o historical operating results of Ripon, Cascade and Linette for the
year ended September 30, 1999, Martin Gillet for the pre-acquisition
period from October 1, 1998 to March 4, 1999, and Southern for the
pre-acquisition period from October 1, 1998 to March 24, 1999;
o an increase in selling, general and administrative expense of $2.3
million relating to additional goodwill amortization for Ripon,
Cascade, Linette, Martin Gillet and Southern for the pre-acquisition
periods noted above;
o an increase in interest expense of $2.3 million relating to the
additional amount that would have been incurred if the acquisitions of
Ripon, Cascade, Linette, Martin Gillet and Southern had occurred on
October 1, 1998 with assumed interest rates of 90-day LIBOR plus 1%,
commensurate with Ralcorp's new bridge credit facility (a 1/8%
variance in which assumed interest rates would have a $.3 million
effect on this adjustment); and
o a reduction in income taxes of $1.2 million, calculated at an
estimated effective rate of 37% on the aggregate pro forma reduction
in pretax income due to the adjustments noted above, excluding
nondeductible goodwill amortization.
(b) Reflects the historical operating results of Agribrands for the year ended
August 31, 1999.
(c) Reflects an increase of $2.6 million to recognize compensation expense
related to the intrinsic value of converted options amortized over the
remaining weighted average vesting period of 3.0 years, and an increase of
$2.8 million relating to the amortization of the excess purchase price,
amortized on a straight-line basis over a 20 year weighted average period.
The final purchase price allocation may result in a different weighted
average amortization period, which would impact the amount of annual
amortization expense. For example, weighted average amortization periods of
15 years and 25 years would result in annual amortization of $3.7 million
and $2.2 million, respectively.
(d) Reflects a reduction in income taxes, provided at a 37% tax rate, on the
aggregate pro forma reduction in pretax income before nondeductible
amortization of excess purchase price.
(e) The weighted average number of shares outstanding used in the calculation
of the pro forma per share data is based on the historical weighted average
number of shares outstanding during the period, adjusted to give effect to
the merger ratio for the merger (i.e., historical weighted average
Agribrands shares times three, plus historical weighted average Ralcorp
shares outstanding).
81
NEWCO
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
ASSUMING AGRIBRANDS IS THE ACQUIRING CORPORATION
May 31, 2000
(in millions)
Ralcorp Pro Forma Newco
Agribrands(a) Pro Forma (b) Adjustments Pro Forma
------------- --------------- ------------- ------------
Assets
Current Assets
Cash and cash equivalents $ 161.4 $ 28.3 $ (6.7)(c) $ 183.0
Receivables, net 78.1 76.9 - 155.0
Inventories 98.2 130.5 - 228.7
Other current assets 7.3 9.5 - 16.8
------------- ------------- ------------- ------------
Total Current Assets 345.0 245.2 (6.7) 583.5
Investment in Vail Resorts, Inc. - 78.9 - 78.9
Intangible Assets, Net 27.6 214.8 - 242.4
Excess Purchase Price - - 57.8 (d) 57.8
Property and Equipment, Net 168.0 234.8 - 402.8
Other Assets 27.4 4.0 - 31.4
------------- ------------- ------------- ------------
Total Assets $ 568.0 $ 777.7 $ 51.1 $1,396.8
============= ============= ============= ============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts and notes payable $ 100.9 $ 69.0 $ - $ 169.9
Other current liabilities 46.6 45.1 5.0 (e) 96.7
------------- ------------- ------------- ------------
Total Current Liabilities 147.5 114.1 5.0 266.6
Long-term Debt 11.0 270.2 - 281.2
Deferred Income Taxes and Other Liabilities 27.1 48.4 - 75.5
Shareholders' Equity 382.4 345.0 46.1 (f) 773.5
------------- ------------- ------------- ------------
Total Liabilities and Shareholders' Equity $ 568.0 $ 777.7 $ 51.1 $1,396.8
============= ============= ============= ============
See accompanying notes.
82
NEWCO
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
ASSUMING AGRIBRANDS IS THE ACQUIRING CORPORATION
May 31, 2000
(a) Reflects the historical financial position of Agribrands at May 31, 2000.
(b) Reflects the pro forma financial position of Ralcorp at June 30, 2000
assuming the acquisition of Red Wing occurred on that date (see Ralcorp's
Current Report on Form 8-K/A dated September 21, 2000).
(c) Reflects payments to Ralcorp shareholders assuming 1.5% of Ralcorp common
stock is exchanged for cash pursuant to the Ralcorp cash election.
(d) Reflects the excess purchase price computed as follows (in millions):
Common stock issued $ 382.3
Stock options issued 9.6
Cash paid 6.7
Transaction costs 5.0
------------
Total purchase price 403.6
Less amounts allocated to:
Ralcorp's historical net assets (345.0)
Unearned compensation (options) (0.8)
------------
Excess purchase price $ 57.8
============
At this time, the work needed to determine the fair values of the net
assets of Ralcorp has not been completed. A preliminary allocation of the
excess of purchase price over the book value of the net assets acquired has
been made to "excess purchase price" and unearned compensation (for
unvested stock options issued in exchange for all outstanding Ralcorp stock
options). Upon completion of the merger, the excess purchase price is
expected to be allocated to the investment in Vail Resorts, property,
pension accruals, deferred taxes, goodwill and other intangible assets
based on appraisals and other fair valuation methods.
(e) Reflects the estimated amount of transaction costs incurred by Agribrands
and Ralcorp, including legal, investment banking and registration fees.
(f) Reflects the following adjustments to shareholders' equity:
o an increase of $382.3 million relating to the issuance of 29.4 million
shares of common stock in exchange for Ralcorp common stock, based on
a merger ratio of 1 for 1. The common stock to be issued was valued
based on a price per share of $13.00, which is one third of the
average closing market price of Agribrands common stock for a few days
before and after the date the merger was announced;
o an increase of $9.6 million relating to the issuance of 1.6 million
stock options in exchange for all outstanding Ralcorp stock options,
based on a weighted average fair value of $5.83 per option;
o a decrease of $.8 million to record unearned compensation for the
portion of the intrinsic value related to the future vesting (service)
period of the stock options discussed above; and
o a decrease of $345.0 million to eliminate Ralcorp's historical
shareholders' equity.
83
NEWCO
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
ASSUMING AGRIBRANDS IS THE ACQUIRING CORPORATION
Nine Months Ended May 31, 2000
(in millions, except per share data)
Adjusted
Ralcorp Pro Forma Newco
Agribrands(a) Pro Forma (b) Adjustments Pro Forma
------------- ------------- ------------- ------------
Ralcorp Pro Forma NEWCO
Agribrands (a) Pro Forma (b) Adjustments Pro Forma
-------------- ------------- ------------ ------------
Net Sales $ 890.2 $ 809.5 $ - $ 1,699.7
------------ ------------ ------------ ------------
Costs and Expenses
Cost of products sold 741.4 627.3 - 1,368.7
Selling, general and administrative 100.7 121.1 2.4 (c) 224.2
Interest expense 2.3 13.2 - 15.5
Equity in earnings of Vail Resorts, Inc. - (8.2) - (8.2)
Other income, net (5.6) - .3 (d) (5.3)
------------ ------------ ------------ ------------
838.8 753.4 2.7 1,594.9
------------ ------------ ------------ ------------
Earnings before Income Taxes 51.4 56.1 (2.7) 104.8
Income Taxes 17.1 21.1 (.2)(e) 38.0
------------ ------------ ------------ ------------
Net Earnings $ 34.3 $ 35.0 $(2.5) $ 66.8
============ ============ ============ ============
Earnings per Share:
Basic $ 3.37 $ 1.16 $ 1.11
============ ============ ============
Diluted $ 3.27 $ 1.14 $ 1.08
============ ============ ============
Weighted Average Shares Outstanding (f):
Basic 10.2 30.2 60.4
============ ============ ============
Diluted 10.5 30.7 61.8
============ ============ ============
See accompanying notes.
84
NEWCO
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
EARNINGS ASSUMING AGRIBRANDS IS THE ACQUIRING CORPORATION
Nine Months Ended May 31, 2000
(a) Reflects the historical operating results of Agribrands for the nine months
ended May 31, 2000.
(b) Reflects the adjusted pro forma operating results of Ralcorp for the nine
months ended June 30, 2000 assuming the acquisitions of Ripon, Cascade,
Linette and Red Wing had occurred as of the beginning of the period. Pro
forma results for the period assuming the acquisition of Red Wing had
occurred as of the beginning of the period were presented in Ralcorp's
Current Report on Form 8-K/A filed September 21, 2000. To arrive at the
adjusted pro forma results of Ralcorp presented herein, those pro forma
results were adjusted for the following:
o historical operating results of Cascade for the pre-acquisition period
from October 1, 1999 to January 31, 2000 and Linette for the
pre-acquisition period from October 1, 1999 to May 1, 2000. No
adjustment was made for the immaterial historical operating results of
Ripon for the short pre-acquisition period from October 1, 1999 to
October 4, 1999;
o an increase in selling, general and administrative expense of $.2
million relating to additional goodwill amortization for Cascade and
Linette for the pre-acquisition periods noted above;
o an increase in interest expense of $1.4 million relating to the
additional amount that would have been incurred if the acquisitions of
Cascade and Linette had occurred on October 1, 1999 with assumed
interest rates of 90- day LIBOR plus 1%, commensurate with Ralcorp's
new bridge credit facility (a 1/8% variance in which assumed interest
rates would have a $.3 million effect on this adjustment); and
o a reduction in income taxes of $.6 million, calculated at an estimated
effective rate of 37% on the aggregate pro forma reduction in pretax
income due to the adjustments noted above, excluding nondeductible
goodwill amortization.
(c) Reflects an increase of $.2 million to recognize compensation expense
related to the intrinsic value of converted options amortized over the
remaining weighted average vesting period of 4.3 years, and an increase of
$2.2 million relating to the amortization of the excess purchase price,
amortized on a straight-line basis over a 20 year weighted average period.
The final purchase price allocation may result in a different weighted
average amortization period, which would impact the amount of annual
amortization expense. For example, weighted average amortization periods of
15 years and 25 years would result in amortization of $2.9 million and $1.7
million, respectively, for nine months.
(d) Reflects a reduction in Agribrands' historical investment income associated
with the $6.7 million of cash to be paid to Ralcorp shareholders assuming
1.5% of Ralcorp shares are exchanged for cash. The reduction in investment
income is based on a historical average rate of return of 5.3%.
(e) Reflects a reduction in income taxes, provided at a 37% tax rate, on the
aggregate pro forma reduction in pretax income before nondeductible
amortization of excess purchase price.
(f) The weighted average number of shares outstanding used in the calculation
of the pro forma per share data is based on the historical weighted average
number of shares outstanding during the period, adjusted to give effect to
the merger ratio for the merger and the assumed purchase of Ralcorp shares
for cash (i.e., historical weighted average Agribrands shares times three,
plus historical weighted average Ralcorp shares outstanding, less
approximately 448,000 Ralcorp shares purchased for cash).
85
NEWCO
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
ASSUMING AGRIBRANDS IS THE ACQUIRING CORPORATION
Year Ended August 31, 1999
(in millions, except per share data)
Adjusted
Ralcorp Pro Forma Newco
Agribrands(a) Pro Forma (b) Adjustments Pro Forma
------------- ------------- ------------ ------------
Net Sales $ 1,261.5 $ 1,131.3 $ - $ 2,392.8
------------ ------------ ------------ ------------
Costs and Expenses
Cost of products sold 1,050.6 872.6 - 1,923.2
Selling, general and administrative 143.5 180.3 3.1 (c) 326.9
Interest expense 8.0 15.6 - 23.6
Equity in earnings of Vail Resorts, Inc. - (4.7) - (4.7)
Other income, net (11.0) - .4 (d) (10.6)
------------ ------------ ------------ ------------
1,191.1 1,063.8 3.5 2,258.4
------------ ------------ ------------ ------------
Earnings before Income Taxes 70.4 67.5 (3.5) 134.4
Income Taxes 26.4 26.4 (.2)(e) 52.6
------------ ------------ ------------ ------------
Net Earnings $ 44.0 $ 41.1 $(3.3) $ 81.8
============ ============ ============ ============
Earnings per Share:
Basic $ 4.16 $ 1.32 $ 1.31
============ ============ ============
Diluted $ 4.11 $ 1.30 $ 1.29
============ ============ ============
Weighted Average Shares Outstanding (f):
Basic 10.6 31.1 62.4
============ ============ ============
Diluted 10.7 31.7 63.4
============ ============ ============
See accompanying notes.
86
NEWCO
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
EARNINGS ASSUMING AGRIBRANDS IS THE ACQUIRING CORPORATION
Year Ended August 31, 1999
(a) Reflects the historical operating results of Agribrands for the year ended
August 31, 1999.
(b) Reflects the adjusted pro forma operating results of Ralcorp for the year
ended September 30, 1999 assuming the acquisitions of Martin Gillet,
Southern, Ripon, Cascade, Linette and Red Wing had occurred as of the
beginning of the period. Pro forma results for the period assuming the
acquisition of Red Wing had occurred as of the beginning of the period were
presented in Ralcorp's Current Report on Form 8-K/A filed September 21,
2000. To arrive at the adjusted pro forma results of Ralcorp presented
herein, those pro forma results were adjusted for the following:
o historical operating results of Ripon, Cascade and Linette for the
year ended September 30, 1999, Martin Gillet for the pre-acquisition
period from October 1, 1998 to March 4, 1999, and Southern for the
pre-acquisition period from October 1, 1998 to March 24, 1999;
o an increase in selling, general and administrative expense of $2.3
million relating to additional goodwill amortization for Ripon,
Cascade, Linette, Martin Gillet and Southern for the pre-acquisition
periods noted above;
o an increase in interest expense of $2.3 million relating to the
additional amount that would have been incurred if the acquisitions of
Ripon, Cascade, Linette, Martin Gillet and Southern had occurred on
October 1, 1998 with assumed interest rates of 90-day LIBOR plus 1%,
commensurate with Ralcorp's new bridge credit facility (a 1/8%
variance in which assumed interest rates would have a $.3 million
effect on this adjustment); and
o a reduction in income taxes of $1.2 million, calculated at an
estimated effective rate of 37% on the aggregate pro forma reduction
in pretax income due to the adjustments noted above, excluding
nondeductible goodwill amortization.
(c) Reflects an increase of $.2 million to recognize compensation expense
related to the intrinsic value of converted options amortized over the
remaining weighted average vesting period of 4.3 years, and an increase of
$2.9 million relating to the amortization of the excess purchase price,
amortized on a straight-line basis over a 20 year weighted average period.
The final purchase price allocation may result in a different weighted
average amortization period, which would impact the amount of annual
amortization expense. For example, weighted average amortization periods of
15 years and 25 years would result in annual amortization of $3.9 million
and $2.3 million, respectively.
(d) Reflects a reduction in Agribrands' historical investment income associated
with the $6.7 million of cash to be paid to Ralcorp shareholders assuming
1.5% of Ralcorp shares are exchanged for cash. The reduction in investment
income is based on a historical average rate of return of 6.1%.
(e) Reflects a reduction in income taxes, provided at a 37% tax rate, on the
aggregate pro forma reduction in pretax income before nondeductible
amortization of excess purchase price.
(f) The weighted average number of shares outstanding used in the calculation
of the pro forma per share data is based on the historical weighted average
number of shares outstanding during the period, adjusted to give effect to
the merger ratio for the merger and the assumed purchase of Ralcorp shares
for cash (i.e., historical weighted average Agribrands shares times three,
plus historical weighted average Ralcorp shares outstanding, less
approximately 448,000 Ralcorp shares purchased for cash).
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DESCRIPTION OF NEWCO CAPITAL STOCK
This section of the joint proxy statement/prospectus describes the material
terms of the capital stock of Newco. The Newco articles of incorporation and
bylaws are more detailed than this description. Thus, you should carefully
consider the actual provisions of the Newco articles of incorporation attached
as Annex G and bylaws attached as Annex H.
Authorized Capital Stock
Under Newco's articles of incorporation, the total number of shares of all
classes of stock that Newco will have authority to issue will be 700 million, of
which million will be shares of $ par value preferred stock, and million will be
shares of Newco common stock. No shares of Newco preferred stock will be issued
in connection with the merger. Based on the number of shares of Newco common
stock outstanding at , 2000, and considering the merger ratios and assuming full
use of the cash election, approximately 46 million shares of Newco common stock
will be issued in the merger. To the extent the cash elections are not fully
utilized, the number of Newco shares actually issued will increase. All of the
shares of Newco common stock issued in the merger, will be validly issued, fully
paid and nonassessable. Shareholders of Newco are not entitled to preemptive
rights.
Newco Common Stock
The holders of Newco common stock will be entitled to one vote for each
share held of record on the applicable record date on all matters voted on by
shareholders, including elections of directors. Except as otherwise required by
law or provided in any resolution adopted by the Newco Board of Directors with
respect to any shares of Newco preferred stock, the holders of Newco common
stock will possess exclusively all voting power. The Newco Articles do not
provide for cumulative voting in the election of directors or any preemptive
rights to purchase or subscribe for any stock or other securities and there are
no conversion rights or redemption or sinking fund provisions with respect to
such stock. Subject to any preferential rights of any outstanding series of
Newco preferred stock created by the Newco Board of Directors from time to time,
the holders of Newco common stock on the applicable record date will be entitled
to such dividends as may be declared from time to time by the Newco Board of
Directors from funds available therefor, and upon liquidation will be entitled
to receive pro rata all assets of Newco available for distribution to such
holders.
Newco Preferred Stock
The Newco Board of Directors will have the authority to issue shares of
Newco preferred stock in one or more series and to fix, by resolution, the
voting powers, which may be full or limited or no voting powers, designations,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof, including liquidation
preferences, dividend rates, conversion rights and redemption provisions of the
shares constituting any series, without any further vote or action by the
shareholders. Any shares of Newco preferred stock so authorized and issued could
have priority over the Newco common stock with respect to dividend and/or
liquidation rights.
Book-Entry Record Keeping
A book-entry system will be used to distribute shares of Newco common stock
and to maintain shareholder transfer records thereafter. In a book-entry system,
ownership of stock is recorded in the records maintained by Newco's transfer
agent , but physical certificates
will not be issued unless requested. When your shares of Ralcorp or Agribrands
common stock are exchanged for shares of Newco common stock, you will receive a
statement of the shares of Newco common stock credited to your account. Newco's
stock transfers will be maintained on the book-entry system. Therefore, you will
not be required to actually hold and keep track of physical certificates.
Agribrands currently utilizes a book-entry system and believes it is a
cost-effective and convenient way to maintain its shareholder records. Ralcorp
does not use a book-entry method. If you desire, you can request to receive
physical certificates instead of participating in the book-entry system. In such
an event, you will be given physical certificates for your Newco common stock
holdings.
Common Stock Purchase Rights
Introduction. The Newco Board of Directors is expected to declare a
dividend distribution of one right for each outstanding share of Newco common
stock to be distributed to Newco shareholders pursuant to the merger. Except as
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set forth below, each right will entitle the registered holder to purchase from
Newco one share of Newco common stock at a price of $ per share, subject to
adjustment.
The description and terms of the rights will be set forth in a Shareholder
Protection Rights Plan between Newco and a rights agent. The plan is designed to
discourage coercive and unfair takeover tactics by encouraging entities to
negotiate a fair price for all shareholders in the event an offer is made to
obtain control of Newco.
Exercise of Rights. The rights will not be exercisable or transferable
separately from the shares of Newco common stock to which they are attached
until the earlier of (i) the close of business on the tenth business day
following the public announcement that a person or group of affiliated or
associated persons (other than Newco, any subsidiary of Newco or any employee
benefit plan of Newco) has acquired or obtained the right to acquire, 20% or
more of the outstanding shares of Newco common stock without the prior express
written consent of Newco following express approval by action of at least a
majority of the members of the Newco directors then in office, or (ii) the close
of business on the tenth business day (or such later date as determined by the
Newco Board of Directors) following the commencement of a tender offer or
exchange offer, without the prior written consent of Newco, by a person which,
upon consummation, would result in such party's control of 20% or more of
Newco's voting stock. As soon as practicable following the earlier of the dates
in (i) or (ii), separate certificates evidencing the rights will be mailed to
holders of record of Newco common stock and such separate certificates alone
will then evidence the rights.
The rights are not exercisable until one of the events in (i) or (ii) above
occur. The rights will expire on the ten-year anniversary of the merger, unless
earlier redeemed or exchanged by Newco. The rights are not triggered by the
acquisitions of Newco common stock by Newco or its subsidiaries, benefit plans
or directors who were serving at the time the plan is adopted. The exemption
with respect to directors applies to their family members. Once an exempted
director ceases to serve as a director of Newco, the plan will apply to
subsequent purchases by the director and his or her family.
Purchase Price Adjustment. The purchase price payable, and the number of
shares of Newco common stock or other securities or property issuable, upon
exercise of the rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of the Newco common stock, (ii) upon the issuance of Newco
common stock or rights to subscribe for shares of Newco common stock or
securities convertible into Newco common stock at less than the then current
market price of the Newco common stock, or (iii) upon the distribution to
holders of Newco common stock of securities (other than those described in (ii)
above), evidences of indebtedness or assets (excluding regular periodic cash
dividends out of earning or retained earnings).
"Flip In" Feature. If any person or group acquires 20% or more of Newco's
outstanding voting stock without the prior written consent of its Board of
Directors, each right, except those held by the acquiring persons, would entitle
each holder of a right to acquire such number of shares of Newco common stock as
shall equal the result obtained by multiplying the then current purchase price
by the number of shares of Newco common stock for which a right is then
exercisable and dividing that product by 50% of the then current market price
per share of Newco common stock.
"Exchange" Feature. If any person or group acquires more than 20% but less
than 50% of the outstanding Newco common stock without prior written consent of
the Newco Board of Directors, each right, except those held by such persons, may
be exchanged by the Newco Board for one share of Newco common stock.
"Flip Over" Feature. If Newco were acquired in a merger or other business
combination transaction where it is not the surviving corporation or where its
common stock is exchanged or changed or 50% or more of its assets or earnings
power is sold in one or several transactions without the prior written consent
of the Newco Board of Directors, each right would entitle the holders thereof
(except for the acquiring person) to receive such number of shares of the
acquiring company's common stock as shall be equal to the result obtained by
multiplying the then current purchase price of the rights by the number of
shares of Newco common stock for which a right is then exercisable and dividing
that product by 50% of the then current market price per share of the common
stock of the acquiring company on the date of such merger or other business
combination transaction.
Adjustments to Purchase Price. With certain exceptions, no adjustment in
the purchase price will be required until cumulative adjustments require an
adjustment of at least 1% in such purchase price. No fractional shares will be
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issued. In lieu of fractional shares, an adjustment in cash will be made based
on the market price of the Newco common stock on the last trading date prior to
the date of exercise.
Redemption. The rights will be redeemable by the Newco Board of Directors
for $.01 per right at any time prior to the tenth business day following the
acquisition of 20% of Newco's common stock without the Board of Directors' prior
consent. Upon the action of electing to redeem the rights, Newco will make an
announcement thereof, and the right to exercise the rights will terminate and
the only right of the holders of rights will be to receive the redemption price.
Amendment. The terms of the rights may be amended by the Newco Board of
Directors without the consent of the holders of the rights, including, but not
limited to, an amendment to lower certain thresholds described above to not less
than the greater of: (i) any percentage greater than the largest percentage of
the voting power of Newco then known by Newco to be beneficially owned by any
person or group of affiliated or associated persons (other than an excepted
person); and (ii) 10%. However, from and after such time as any person or group
of affiliated or associated persons owns 20% or more of Newco without the prior
consent of Newco's Board, the Board of Directors may not amend the rights
agreement in any manner that may adversely affect the interests of the holders
of the rights.
No Rights Until Exercised. Until a right is exercised, the holder thereof,
as such, will have no rights as a shareholder of Newco, including, without
limitation, the right to vote or to receive dividends.
Anti-Takeover Provisions
The Newco articles, bylaws and Missouri law contain certain provisions
which may have the effect of discouraging certain types of transactions that
involve an actual or threatened change of control of Newco, see "Comparison of
Rights of Newco Shareholders, Agribrands Shareholders and Ralcorp
Shareholders--Amendment to Bylaws," "--Amendment to Articles of Incorporation,"
and "--State Anti-Takeover Statutes."
COMPARISON OF RIGHTS OF NEWCO SHAREHOLDERS, AGRIBRANDS
SHAREHOLDERS AND RALCORP SHAREHOLDERS
Newco, Agribrands and Ralcorp are all organized under the laws of the State
of Missouri. Any differences, therefore, in the rights of holders of Newco
common stock, Agribrands common stock and Ralcorp common stock will arise
primarily from differences in their respective articles of incorporation, bylaws
and rights agreements. Upon completion of the merger, holders of Agribrands
common stock and holders of Ralcorp common stock will become holders of Newco
common stock and their rights will be governed by Missouri law, Newco's articles
of incorporation and Newco's bylaws.
This section of the joint proxy statement/prospectus describes the material
differences between the rights of Agribrands shareholders and of Ralcorp
shareholders. This section also includes a brief description of the material
rights that Newco shareholders are expected to have following the completion of
the merger although in some cases the Newco Board of Directors retains the
discretion to alter those rights without shareholder consent. This section may
not include all information you may find important. In addition, the
identification of some of the differences in the rights of these shareholders as
material is not intended to indicate that other differences that are equally
important do not exist. All Agribrands shareholders and Ralcorp shareholders are
urged to read carefully the relevant provisions of Missouri law, as well as the
articles of incorporation and bylaws of each of Agribrands, Ralcorp and Newco.
You should carefully review the copies of the forms of the articles of
incorporation and bylaws of Newco are attached to this joint proxy
statement/prospectus as Annexes G and H, respectively. Copies of the articles of
incorporation and bylaws of Agribrands and Ralcorp will be sent to Agribrands
shareholders and Ralcorp shareholders, as applicable, upon request. See "Where
You Can Find More Information."
Capitalization
Agribrands. The authorized capital stock of Agribrands consists of:
o 50,000,000 shares of Agribrands common stock par value $.01 per share;
and
o 10,000,000 shares of Agribrands preferred stock par value $.01 per
share.
Ralcorp. The authorized capital stock of Ralcorp consists of:
o 300,000,000 shares of Ralcorp common stock and par value $.01 per
share; and
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o 10,000,000 shares of Ralcorp preferred stock, par value $.01 per
share.
Newco. For a description of the authorized capital stock of Newco, see
"Description of Newco Capital Stock-- Common Stock," and "--Preferred Stock."
Voting Rights
Agribrands. Each holder of Agribrands common stock has the right to cast
one vote for each share of common stock held by such holder on all matters to be
voted on by the shareholders.
Ralcorp. Each holder of Ralcorp common stock has the right to cast one vote
for each share of common stock held by such holder on all matters to be voted on
by the shareholders.
Newco. Each holder of Newco common stock will have the right to cast one
vote for each share of Newco common stock held by such holder on all matters to
be voted on by the shareholders.
Number and Election of Directors; Classification of Directors
Agribrands. The Agribrands Board of Directors has seven members. The
Agribrands bylaws provide that the Agribrands Board of Directors will consist of
a number of directors to be fixed from time to time by the Agribrands Board of
Directors, but shall consist of not less than three nor more than twelve
members.
Agribrands' articles of incorporation and bylaws provide for the Agribrands
Board of Directors to be divided into three classes, as nearly equal in number
as possible, with one class being elected annually. Members of the Agribrands
Board of Directors are elected to serve a term of three years, and until their
successors are elected and qualified.
The Agribrands bylaws do not address the required vote for the election of
directors. Under Missouri law, every decision of the holder of a majority of
shares entitled to vote on the subject matter and represented in person or by
proxy at a meeting at which a quorum is present shall be valid as an act of the
shareholders. The preceding voting requirement applies in the election of
directors, provided that cumulative voting shall not apply in the election of
directors.
Under Missouri law, shareholders have cumulative voting rights for the
election of directors unless the corporation's articles of incorporation
otherwise provides. Agribrands' articles of incorporation provide that
shareholders do not have the right to cumulative voting in the election of the
Agribrands Board of Directors or for any other purpose.
Ralcorp. The Ralcorp Board of Directors has five members. The Ralcorp
bylaws provide that the Ralcorp Board of Directors will consist of a number of
directors to be fixed from time to time by the Ralcorp Board of Directors, but
shall consist of not less than five nor more than twelve members.
Ralcorp's articles of incorporation and bylaws provide for the Ralcorp
Board of Directors to be divided into three classes, as nearly equal in number
as possible, with one class being elected annually. Members of the Ralcorp Board
of Directors are elected to serve a term of three years, and until their
successors are elected and qualified.
The Ralcorp bylaws provide for directors to be elected by the affirmative
vote of the holders of a majority of the shares represented at the meeting at
which a quorum is present.
Ralcorp's articles of incorporation provide that shareholders do not have
the right to cumulative voting in the election of the Board of Directors or for
any other purpose.
Newco. The Newco Board of Directors initially will consist of nine members,
five of whom are directors of Agribrands, two of whom are directors of Ralcorp,
and two of whom are directors of Agribrands and Ralcorp. The Newco bylaws will
provide that the Newco Board of Directors will consist of a number of directors
to be fixed from time to time by the Newco Board of Directors, but shall consist
of not less than ____ nor more than ____ members.
Newco's articles of incorporation and bylaws will provide for the Newco
Board of Directors to be divided into three classes, as nearly equal in number
as possible, with one class being elected annually. Members of the Newco Board
of Directors shall be elected to serve a term of three years, and until their
successors are elected and qualified.
The Newco bylaws will provide for directors to be elected by the
affirmative vote of the holders of a majority of the shares represented at the
meeting at which a quorum is present.
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Newco's articles of incorporation will provide that shareholders do not
have the right to cumulative voting in the election of the Board of Directors or
for any other purpose.
Vacancies on the Board of Directors and Removal of Directors
Agribrands. Vacancies on the Agribrands Board of Directors, including
vacancies and unfilled newly created directorships resulting from any increase
in the authorized number of directors, may be filled only by a majority vote of
the directors then in office, even if less than a quorum.
Agribrands' articles of incorporation provide that a director may be
removed:
o for cause and only by the affirmative vote of the holders of at least
two-thirds of the voting power of the then outstanding shares of
capital stock of Agribrands entitled to vote generally in the election
of directors, voting together as a single class; or
o by an affirmative vote of a majority of the entire Board of Directors
at any time prior to the expiration of his or her term of office, as
provided by law, in the event that the director fails to meet any
qualifications stated in the Agribrands bylaws for election as a
director or in the event that the director is in breach of any
agreement between the director and Agribrands relating to the
director's service as a director or employee of Agribrands.
Ralcorp. Vacancies on the Ralcorp Board of Directors, including vacancies
and unfilled newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by a majority vote of the
directors then in office, even if less than a quorum.
Ralcorp's articles of incorporation provide that directors may be removed:
o at a meeting called expressly for that purpose, only for cause and
only by the affirmative vote of at least two-thirds of all members of
the Ralcorp Board of Directors, and two-thirds of all of the then
outstanding shares of capital stock of Ralcorp then entitled to vote
generally in the election of directors, voting together as a single
class; or
o by an affirmative vote of a majority of the entire Board of Directors
at any time prior to the expiration of his or her term of office, as
provided by law, in the event that the director fails to meet any
qualifications stated in the Ralcorp bylaws for election as a director
or in the event that the director is in breach of any agreement
between the director and Ralcorp relating to the director's service as
a director or employee of Ralcorp.
Newco. Vacancies on the Newco Board of Directors, including vacancies and
unfilled newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by a majority vote of the
directors then in office, even if less than a quorum.
Newco's articles of incorporation provide that a director may be removed:
o for cause and only by the affirmative vote of the holders of at least
two-thirds of the voting power of the then outstanding shares of
capital stock of Newco entitled to vote generally in the election of
directors, voting together as a single class; or
o by an affirmative vote of a majority of the entire Board of Directors
at any time prior to the expiration of his or her term of office, as
provided by law, in the event that the director fails to meet any
qualifications stated in the Newco bylaws for election as a director
or in the event that the director is in breach of any agreement
between the director and Newco relating to the director's service as a
director or employee of Newco.
Amendments to the Articles of Incorporation
General. Under Missouri law, an amendment to the articles of incorporation
of a corporation requires the approval of holders of a majority of the
outstanding stock entitled to vote upon the proposed amendment, unless a higher
vote is required by the corporation's articles of incorporation.
Agribrands. Agribrands' articles of incorporation provide that the
affirmative vote of the holders of two-thirds or more of all of the outstanding
shares of capital stock of Agribrands then entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
amend, alter, change or repeal, or adopt any provision or provisions
inconsistent with, the provisions of the articles of incorporation relating to:
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o restrictions on voting stock and certain business combinations;
o the Board of Directors;
o the bylaws; and
o indemnification of officers and directors of Agribrands.
Ralcorp. Ralcorp's articles of incorporation provide that the affirmative
vote of not less than two-thirds of all outstanding shares of capital stock of
Ralcorp then entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, alter, change or repeal
the provision of the articles of incorporation relating to the Board of
Directors.
The provisions of the Ralcorp articles of incorporation regarding fair
price and indemnification require the vote of 85% of the affirmative outstanding
shares to amend, alter, change or repeal such sections.
Newco. Certain portions of the Newco articles of incorporation may be
amended, altered, changed or repealed only by the affirmative vote of the
holders of the number of outstanding shares of capital stock of Newco then
entitled to vote generally in the election of directors, voting together as a
single class, as indicated below:
o certain business combinations - 85%;
o the Board of Directors - two-thirds;
o the bylaws - two-thirds; and
o indemnification of officers and directors - 85%.
Amendments to Bylaws
General. Under Missouri law, shareholders entitled to vote have the power
to adopt, amend or repeal bylaws, except that a corporation may, in its articles
of incorporation, confer this power on the Board of Directors.
Agribrands. Agribrands' articles of incorporation provide that only a
majority of the entire Board of Directors may make, amend, alter, change or
repeal any provision or provisions of the Agribrands bylaws provided that in no
event shall the bylaws be inconsistent with law or, in substance to a material
degree, with any of the terms, conditions or provisions of the articles of
incorporation.
Ralcorp. Ralcorp's articles of incorporation provide that the bylaws may be
amended, altered, changed or repealed and a provision or provisions inconsistent
with the provisions of the bylaws as they may exist from time to time may be
adopted, only by two-thirds of all members of the Board of Directors.
Newco. Newco's articles of incorporation are the same as Ralcorp's
regarding the amendments of Newco's bylaws.
Action by Written Consent
General. Under Missouri law, shareholders may act without a meeting, but
must do so by unanimous written consent.
Agribrands. The Agribrands bylaws provide that any action which may be
taken at a meeting of the shareholders, except the annual meeting of the
shareholders, may be taken without a meeting if consent in writing, setting
forth the actions so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof.
Ralcorp. The Ralcorp bylaws provide that any action required or permitted
to be taken by the shareholders of Ralcorp may, if otherwise allowed by law, be
taken without a meeting of shareholders only if consent in writing, setting for
the actions so taken, are signed by all of the shareholders entitled to vote
with respect to the subject matter thereof.
Newco. Newco's bylaws regarding actions by written consent are the same as
Ralcorp's bylaws.
Ability to Call Special Meetings
General. Under Missouri law, special meetings may be called only by the
Board of Directors or by such other person as may be authorized by the articles
of incorporation or the bylaws.
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Agribrands. The Agribrands bylaws provide that special meetings of
shareholders may be called by the Chairman of the Board of Directors, the
President or the Secretary, or in any other manner permitted by law.
Ralcorp. The Ralcorp bylaws provide that special meetings of the
shareholders or the holders of any special class of stock of Ralcorp, unless
otherwise prescribed by statute or by the articles of incorporation, may be
called only by the affirmative vote of a majority of the entire Board of
Directors or by the Chairman of the Board of Directors, or the President by
request for such a meeting in writing.
Newco. Newco's bylaws provide that special meeting of shareholders may be
called by the affirmative vote of a majority of the Board of Directors, or by
the Chairman of the Board of Directors or the President.
Notice of Shareholder Action
Agribrands. Under the Agribrands bylaws, in order for a shareholder to
nominate candidates for election to the Agribrands Board of Directors or
otherwise propose business to be brought before any shareholder meeting, such
nominations or proposals shall be made pursuant to timely written notice to the
Secretary of Agribrands.
Under the Agribrands bylaws, to be timely, a shareholder's notice must be
delivered to or mailed and received by the Secretary of Agribrands at the
principal executive offices of Agribrands not less than 90 days prior to the
meeting; provided, however, that in the event that less than 90 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the seventh day following the day on which such notice of the date of
the meeting was mailed or on which such public notice was given.
A shareholder's notice to the Secretary shall set forth as to each matter
he or she proposes to bring before the meeting:
o As to each person the shareholder proposes to nominate for election or
reelection as a director:
o the name, age, business address and residence address of such person;
o the principal occupation or employment of such person for the previous
five years;
o the class and number of shares of Agribrands capital stock which are
beneficially owned by such person;
o such person's written consent to being named as a nominee and to
serving as a director if elected; and
o any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act.
o With respect to business proposals, a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, and any material interest of
the proposing shareholder in such business;
o The name and address, as they appear in the Agribrands shareholder
records, of the shareholder proposing such business;
o The class and number of shares of Agribrands capital stock which are
beneficially owned by the proposing shareholder.
The chairman of any Agribrands shareholder meeting has the power to
determine whether the nomination or proposal was made by the shareholder in
accordance with the advance notice procedure set forth in the Agribrands bylaws.
If the chairman determines that the nomination or proposal is not in compliance
with Agribrands' advance notice procedures, the chairman may declare that the
defective proposal or nomination will be disregarded. The chairman of a meeting
shall have the absolute authority to decide questions of compliance with the
procedures described above, and his or her ruling thereon shall be final and
conclusive.
Ralcorp. Under the Ralcorp bylaws, in order for a shareholder to nominate
candidates for election to the Ralcorp Board of Directors or otherwise propose
business to be considered, the shareholder must have given timely notice in
writing to the Secretary of Ralcorp.
Under the Ralcorp bylaws, to be timely, a shareholder's notice shall be
delivered to the Secretary of Ralcorp at the principal executive offices of
Ralcorp not less sixty days nor more than ninety days prior to the first
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anniversary of the preceding year's annual meeting; provided however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such date, notice by the shareholder to be
timely must also be so delivered not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which the
public announcement of the date to such meeting is first made.
The shareholder notice shall set forth:
o As to each person the shareholder proposes to nominate for election or
reelection as a director:
o the name, age, business and residential addresses, and principal
occupation or employment of each proposed nominee;
o the class and number of shares of capital stock of Ralcorp, if any,
that are beneficially owned by such nominee on the date of such
notice;
o a description of all arrangements or understandings between the
shareholder and each nominee;
o all other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or as
otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act;
o the written consent of each proposed nominee to be named as a nominee
in Ralcorp's proxy statement and to serve as director of Ralcorp, if
so elected.
o As to any other business that the shareholder proposes to bring before
the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting, and any material interest in such business of such
shareholder;
o As to the shareholder giving the notice, and the beneficial owner, if
any, on whose behalf the nomination or proposal is made:
o the name and address of such shareholder, as they appear on Ralcorp's
books;
o the class and number of shares of stock of Ralcorp which are owned
beneficially and of record by such shareholder; and
o a representation that the shareholder intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in
the notice, or to propose such other business.
The Board of Directors may reject any nomination or shareholder proposal
submitted for consideration at the annual meeting which is not made in
accordance with the procedures set forth in the Ralcorp bylaws, or which is not
a proper subject for shareholder action in accordance with the provisions of
Missouri law. The presiding officer of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in the Ralcorp
bylaws, and if any proposed nomination or business is not in compliance, to
declare that such defective nomination or proposal be disregarded.
Newco. The Newco bylaws will contain provisions regarding the ability of
shareholders to nominate candidates for election to Newco's Board of Directors
or otherwise propose business to be brought before any shareholder meeting. Such
provisions are the same as Agribrands' bylaws on the topic.
Indemnification of Directors and Officers
General. Under Missouri law, a corporation, subject to approval or
ratification by shareholders, may indemnify any director, officer, employee or
agent to any degree for any conduct whatsoever except for conduct which is
finally adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct. Indemnification may cover not only expenses, but also
settlements or even judgments in derivative litigation.
Agribrands. Agribrands' articles of incorporation provide that any person
who was or is a party to, or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, because that person is
or was a director, officer, or employee, or is or was serving at the request of
Agribrands as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, will be indemnified
against expenses, including attorneys' fees, and held harmless by Agribrands to
the fullest extent permitted by Missouri law. The indemnification provided by
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the articles of incorporation is not exclusive of any other rights to which
those seeking indemnification may be entitled, whether under the Agribrands
bylaws or any statute, agreement, vote of shareholders or disinterested
directors or otherwise. In addition, Agribrands is authorized to purchase and
maintain insurance on behalf of its directors and officers and employees in
respect of any such liability.
Agribrands may pay expenses incurred by its directors, officers and
employees in defending a similar criminal action, suit or proceeding in advance
of the final disposition of the action, suit or proceeding. The payment of
expenses will only be made if Agribrands receives an undertaking by or on behalf
of the director, officer or employee receiving the payments to repay all amounts
advanced if it is ultimately determined that the director, officer or employee
is not entitled to be indemnified by Agribrands, as authorized by Agribrands'
articles of incorporation.
Ralcorp. Ralcorp's articles of incorporation provide that any person who
was or is a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, because that person is or was
a director or officer, or is or was serving at the request of Ralcorp as a
director, employee or agent of another corporation, or of a partnership, joint
venture, trust or other enterprise, will be indemnified against expenses,
including attorneys' fees, and held harmless by Ralcorp to the fullest extent
permitted by Missouri law. The indemnification and other rights provided in the
articles of incorporation are not deemed to be exclusive of any other rights to
which those seeking indemnification may be entitled under any agreement, vote of
shareholders or disinterested directors or otherwise, and Ralcorp is
specifically authorized to provide such indemnification and other rights by any
agreement, vote of shareholders, or disinterested directors or otherwise. In
addition, Ralcorp is authorized to purchase and maintain insurance on behalf of
its directors and officers in respect of any such liability.
Ralcorp may pay expenses incurred by its directors and officers in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of the action, suit or proceeding. The payment of expenses will be
made only if Ralcorp receives an undertaking by or on behalf of the director or
officer receiving the payment to repay all amounts advanced if it is ultimately
determined that the director or officer is not entitled to be indemnified by
Ralcorp, as authorized by Ralcorp's articles of incorporation.
Newco
The Newco articles of incorporation will contain indemnification provisions
the same as those of Ralcorp.
Shareholder Rights Plans
Agribrands.
General. In 1998, Agribrands adopted a shareholder rights plan pursuant to
a rights agreement with Continental Stock Transfer & Trust Company, as rights
agent. Set forth below is a summary of the material provisions of the rights
agreement. The summary does not include a complete description of all of the
terms of the rights agreement. All Agribrands shareholders and Ralcorp
shareholders are urged to read carefully the relevant provisions of Agribrands'
rights plan, copies of which will be sent to Agribrands shareholders upon
request. See "Where you can find more information" on page 107.
Exercisability of Rights. Under the Agribrands rights agreement, one right,
referred to as an Agribrands right, attaches to each share of Agribrands common
stock outstanding and, when exercisable, entitles the registered holder to
purchase from Agribrands one share of Agribrands common stock at an initial
purchase price of $125, subject to antidilution adjustments in the event of a
stock split, stock dividend or similar transaction with respect to Agribrands
common stock.
The Agribrands rights will not become exercisable until the earlier of:
o ten business days following a public announcement that a person or a
group of affiliated or associated persons has become the beneficial
owner of 20% or more of the Agribrands common stock then outstanding;
or
o ten business days, or such later date as may be determined by the
Agribrands Board of Directors, following the commencement of, or the
announcement of an intention to make, a tender offer or exchange offer
that would result in a person or group's becoming the beneficial owner
of 20% or more of the Agribrands common stock then outstanding.
The rights agreement is not triggered by the acquisition of Agribrands
common stock by Agribrands, any subsidiary of Agribrands, any employee benefit
plan of Agribrands or any subsidiary of Agribrands or certain "grandfathered
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persons" (being the members of Agribrands' Board of Directors at the time of the
adoption of the shareholder rights plan together with their immediate families,
for so long as they remain on the Board of Directors, and provided that, after
they are no longer members of the Board of Directors, they do not acquire any
more shares of Agribrands common stock except in certain limited circumstances).
In connection with the merger described herein, the Agribrands rights agreement
was amended to provide that the Agribrands rights will not become exercisable
solely by reason of the merger, reorganization agreement and the related
transactions.
"Flip In" Feature. In the event a person becomes the beneficial owner of
20% or more of the Agribrands common stock outstanding, each holder of an
Agribrands right, except for that person, will have the right to acquire, upon
exercise of the Agribrands right, one share of common stock for 33 1/3% of the
then current market price, rather than for the exercise price. The flip-in
feature will not apply if the person who becomes the beneficial owner of 20% or
more of the Agribrands common stock does so as a result of a tender or exchange
offer for all outstanding shares of Agribrands common stock at a price and on
terms which a majority of the members of the Board of Directors who are not
officers of Agribrands or the acquiring person determines to be adequate and in
the best interests of Agribrands.
"Exchange" Feature. At any time after a person becomes the beneficial owner
of 20% or more, but less than 50%, of the Agribrands common stock then
outstanding, the Agribrands Board of Directors may, at its option, exchange all
or some of the Agribrands rights, except for those held by such person, for
Agribrands common stock at a merger ratio of one share of Agribrands common
stock for each Agribrands right, subject to adjustment. Use of this exchange
feature means that eligible Agribrands rights holders would not have to pay a
purchase price before receiving shares of Agribrands common stock.
"Flip Over" Feature. In the event that, after the rights become
exercisable:
o Agribrands is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding shares of
Agribrands common stock immediately prior to the consummation of the
transaction are not the holders of all of the surviving corporation's
voting power merges into another entity;
o an acquiring entity merges into Agribrands; or
o Agribrands sells or transfers more than 50% of its assets or earning
power, then each holder of an Agribrands right, except for a person
that is the beneficial owner of 20% or more of the Agribrands common
stock then outstanding, will have the right to receive, upon exercise
of the Agribrands right, the number of shares of the acquiring
company's capital stock with the greatest voting power having a value
equal to twice the exercise price of the Agribrands right.
Redemption of Rights. At any time prior to the time a person has become the
beneficial owner of 20% or more of the Agribrands common stock then outstanding,
the Agribrands Board of Directors may redeem all of the Agribrands rights at a
redemption price of $0.01 per right, subject to adjustment. The right to
exercise the Agribrands rights will terminate upon redemption, and at that time
the holders of the Agribrands rights will have the right to receive only the
redemption price for each Agribrands right they hold.
Amendment of Rights. The terms of the existing Agribrands rights agreement
may be amended by the Agribrands Board of Directors without the approval of the
holders of the rights. However, after the date any person acquires at least 20%
of Agribrands' outstanding common stock, the rights agreement may not be amended
in any manner that would adversely affect the interests of the holders of the
Agribrands rights, excluding the interests of the acquirer.
Termination of Rights. If not previously exercised, the Agribrands rights
will expire on March 31, 2008, unless Agribrands earlier redeems or exchanges
the Agribrands rights or extends the expiration date.
Anti-Takeover Effects. The Agribrands rights have anti-takeover effects.
Once the Agribrands rights have become exercisable, in most cases the Agribrands
rights will cause substantial dilution to a person that attempts to acquire or
merge with Agribrands. Accordingly, the existence of the Agribrands rights may
deter potential acquirers from making a takeover proposal or a tender offer. The
Agribrands rights should not interfere with any merger or other business
combination approved by the Agribrands Board of Directors since Agribrands may
redeem the Agribrands rights.
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Ralcorp
General. In 1996, Ralcorp adopted a shareholder rights plan pursuant to a
rights agreement, which was subsequently amended in 1997, with First Chicago
Trust Company of New York, as rights agent. Set forth below is a summary of the
material provisions of the rights agreement. The summary does not include a
complete description of all of the terms of the rights agreement. All Ralcorp
shareholders and Agribrands shareholders are urged to read carefully the
relevant provisions of Ralcorp's rights plan, copies of which will be sent to
Ralcorp shareholders upon request. See "Where you can find more information" on
page 107.
Exercisability of Rights. Under the Ralcorp rights agreement, one right,
referred to as a Ralcorp right, attaches to each share of Ralcorp common stock
outstanding and, when exercisable, entitles the registered holder to purchase
from Ralcorp one share of Ralcorp common stock at an initial purchase price of
$30, subject to antidilution adjustments in the event of a stock split, stock
dividend or similar transaction with respect to Ralcorp common stock.
The Ralcorp rights will not become exercisable until the earlier of:
o ten business days following the earlier of a public announcement or
when Ralcorp has notice that a person or a group of affiliated or
associated persons has become the beneficial owner of 20% or more of
the Ralcorp common stock then outstanding; and
o ten business days, or such later date as may be determined by the
Ralcorp Board of Directors, following the commencement of, or the
announcement of an intention to commence, a tender offer or exchange
offer that would result in a person or group's becoming the beneficial
owner of 20% or more of the Ralcorp common stock then outstanding.
In connection with the merger described herein, the Ralcorp rights
agreement was amended to provide that the Ralcorp rights will not become
exercisable solely by reason of the merger, reorganization agreement and the
related transactions.
"Flip In" Feature. In the event a person becomes the beneficial owner of
20% or more of the outstanding Ralcorp common stock without the prior written
consent of the Ralcorp Board of Directors, each holder of a Ralcorp right,
except for such person, will have the right to acquire, upon exercise of the
Ralcorp right, instead of one share of Ralcorp common stock, shares of Ralcorp
common stock having a value equal to twice the exercise price of the Ralcorp
right. For example, if we assume that the initial purchase price of $30 is in
effect on the date that the flip-in feature of the Ralcorp right is exercised,
any holder of a Ralcorp right, except for the person that has become the
beneficial owner of 20% or more of the outstanding Ralcorp common stock, can
exercise his or her Ralcorp right by paying to Ralcorp $30 in order to receive
from Ralcorp shares of Ralcorp common stock having a value equal to $60.
"Exchange" Feature. At any time after a person becomes the beneficial owner
of 20% or more, but less than 50%, of the Ralcorp common stock then outstanding,
the Ralcorp Board of Directors may, at its option, exchange all or some of the
Ralcorp rights, except for those held by such person, for Ralcorp common stock
at a merger ratio of one share of Ralcorp common stock per Ralcorp right,
subject to adjustment. Use of this exchange feature means that eligible Ralcorp
rights holders would not have to pay a purchase price before receiving shares of
Ralcorp common stock.
"Flip Over" Feature. In the event that, after the rights become
exercisable:
o Ralcorp consolidates with or merges into another entity;
o any entity merges into Ralcorp; or
o Ralcorp sells more than 50% of its assets or earning power,
then each holder of a Ralcorp right, except for a person that is the beneficial
owner of 20% or more of the Ralcorp common stock then outstanding, will have the
right to receive, upon exercise of the Ralcorp right, the number of shares of
the acquiring company's capital stock with the greatest voting power having a
value equal to twice the exercise price of the Ralcorp right.
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Redemption of Rights. At any time prior to the earlier to occur of:
o ten days after a person becoming the beneficial owner of securities
representing 20% or more of the outstanding Ralcorp common stock; and
o January 31, 2007,
The Ralcorp Board of Directors may redeem all of the Ralcorp rights at a
redemption price of $0.01 per right, subject to adjustment. The right to
exercise the Ralcorp rights will terminate upon redemption, and at such time,
the holders of the Ralcorp rights will have the right to receive only the
redemption price for each Ralcorp right held.
Amendment of Rights. The terms of the existing Ralcorp rights agreement may
be amended by the Ralcorp Board of Directors without the approval of the holders
of the rights. After the date any person acquires at least 20% of Ralcorp's
common stock, however, the rights agreement may not be amended in any manner
which would adversely affect the interests of the holders of the Ralcorp rights,
excluding the interests of the acquirer.
Termination of Rights. If not previously exercised, the Ralcorp rights will
expire on January 31, 2007, unless Ralcorp earlier redeems or exchanges the
Ralcorp rights or shortens or extends the final expiration date.
Newco
Newco expects to adopt a Shareholder Protection Rights Agreement the
expected terms of which are described under the caption "Description of Newco
Common Stock - Common Stock Purchase Rights".
State Anti-Takeover Statutes
General. Section 351.459 and 351.407 of the Missouri General and Business
Corporation Law ("MGBCL") contains certain provisions applicable to Missouri
corporations such as Ralcorp and Agribrands which may be deemed to have an
anti-takeover effect. Such provisions include Missouri's Business Combination
Statute and the Control Share Acquisition Statute.
Section 351.459 protects domestic corporations from hostile takeovers by
prohibiting certain transactions once an acquirer has gained control. The
statute restricts certain "Business Combinations" between a corporation and an
"Interested Shareholder" for a period of five years following such interested
shareholder's stock acquisition date unless certain conditions are met. A
"Business Combination" includes a merger or consolidation, certain sales,
leases, exchanges, pledges, transfers and other dispositions of corporate assets
or stock and certain reclassifications and recapitalizations. An "Interested
Shareholder" includes any person or entity which beneficially owns or controls
twenty percent or more of the outstanding voting shares of the corporation.
o During the initial five year restricted period, no Business
Combination may occur unless such business combination or the
transaction in which an Interested Shareholder becomes "interested" is
approved by the Board of Directors of the corporation on or prior to
such Interested Shareholder's stock acquisition date. After the
expiration of the initial five year restricted period, Business
Combinations are still subject to restrictions unless prior to the
stock acquisition by the Interested Shareholder, the Board of
Directors approves a transaction in which the Interested Shareholder
became such or approves the Business Combination in question;
o the holders of a majority of the outstanding voting stock, other than
the stock owned by the Interested Shareholder and its affiliates and
associates, approved the Business Combination; or
o the Business Combination satisfies certain detailed fairness and
procedural requirements.
The Business Combination Statute contains a number of exceptions,
including:
o corporations not having a class of voting stock registered under
Section 12 of the Exchange Act;
o corporations which adopt provisions in their articles of incorporation
or bylaws expressly electing not to be covered by the statute;
o certain circumstances in which a shareholder inadvertently becomes an
Interested Shareholder if it takes action promptly thereafter to
reduce its stockholdings below the twenty percent threshold; and
o certain circumstances in which a shareholder becomes an Interested
Shareholder at a time when the restrictions do not apply.
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The "Control Share Acquisition Statute" (Section 351.407) provides that an
"Acquiring Person" who acquires "control shares" of an issuing public
corporation in a "control share acquisition" will not have voting rights, unless
certain disclosure requirements are satisfied and retention or restoration of
the voting rights is approved by shareholders. "Control shares" are defined as
shares which, when added to all other shares of the same corporation previously
owned or controlled by the Acquiring Person, would entitle the Acquiring Person
to exercise or direct the exercise of the voting power with respect to stock of
the issuing public corporation in the election of directors within any one of
the following three ranges: (i) 20% or more but less than 33-1/3%, (ii) 33-1/3%
or more but less than a majority or (iii) a majority, or more of all voting
power of outstanding stock of such corporation retention or restoration of
voting rights requires approval by both: (i) a majority of all outstanding
voting stock, and (ii) a majority of all outstanding voting stock after
exclusion of the "Interested Shares." "Interested Shares" are defined as shares
of an issuing public corporation in respect of which (i) the Acquiring Person,
(ii) employees who are also directors, or (iii) officers of the corporation may
exercise or direct exercise of the voting power of the corporation in the
election of directors. A number of acquisitions of shares are deemed not to
constitute Control Share Acquisitions, including good faith gifts, transfers
pursuant to wills, purchases pursuant to an issuance by the corporation, mergers
involving a corporation which satisfy the other requirements of the MGBCL,
transactions with a person who owned a majority of the voting power of the
corporation within the prior year, or purchases from a person who has previously
satisfied the provisions of the Controlled Share Acquisition statute so long as
the transaction does not result in the purchasing party having voting power
after the purchase in a percentage range (such ranges are set forth in the
immediately preceding paragraph) beyond the range for which the selling party
previously satisfied the provisions of the statute. Additionally, a corporation
may exempt itself from application of the statute by inserting a provision in
its articles of incorporation or bylaws expressly electing not to be covered by
the statute.
Agribrands
The Agribrands bylaws provide that the provisions of the Control Share
Acquisition Statute do not apply to control share acquisitions of Agribrands'
capital stock. Agribrands' articles of incorporation provide for certain
restrictions on voting stock of Agribrands and certain restrictions on business
combinations. The articles of incorporation grant Agribrands the right to
inquire of any person whom the corporation believes may be a Substantial
Shareholder or any other person who purports to exercise similar voting rights
with respect to any voting stock, and each such person shall have the obligation
to provide such information to Agribrands as Agribrands may reasonably request,
including:
o the number of shares owned by such person;
o whether shares owned of record by such person are owned by other
persons and the identity of such other persons and the nature of their
ownership interest;
o whether any affiliates or associates of such person own any voting
stock;
o whether such person is a member of a group of persons owning voting
stock;
o or whether such person or any such person's affiliates or associates
has any agreement, arrangement or understanding with any other person
with respect to any voting stock.
Agribrands' articles of incorporation define "Substantial Shareholder" to
mean any person which, together with its affiliates and associates, is the
beneficial owner of shares of voting stock in the aggregate of twenty percent
(20%) or more of the outstanding voting stock.
Under the articles of incorporation of Agribrands, any Business Combination
shall, in addition to any affirmative vote required by Missouri law, require the
affirmative vote of the holders of not less than two-thirds of the aggregate
voting power of the outstanding shares of the voting stock entitled to vote at a
meeting of shareholders called for such purpose and a majority of the voting
power of all such shares of which a Substantial Shareholder is not a beneficial
owner; provided, however, that any such Business Combination may be approved
upon any affirmative vote required under Missouri law if:
o There are one or more Continuing Directors and the Business
Combination shall have been approved by a majority of them; or
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o The cash, or fair market value of the property, securities or other
consideration to be received per share by the shareholders of each
class of stock of Agribrands in the Business Combination is not less
than the higher of:
o the highest per share price paid by the Substantial Shareholder for
the acquisition of any shares of such class, with appropriate
adjustments for stock splits, stock dividends and like distributions;
or
o the fair market value of such shares on the date the Business
Combination is approved by the Board of Directors.
"Continuing Director" means any member of the Agribrands Board of Directors
who is not an affiliate or associate of a Substantial Shareholder and who is a
member of the Board of Directors prior to the time that any Substantial
Shareholder became a Substantial Shareholder, and any successor of any
Continuing Director if such successor is not an affiliate or an associate of any
Substantial Shareholder and is designated as a Continuing Director by a majority
of the then Continuing Directors.
"Business Combinations" means:
o any merger or consolidation of the corporation or any subsidiary with:
o any Substantial Shareholder; or
o any other person which, after such merger or consolidation, would be a
Substantial Shareholder, regardless of which entity survives;
o any sale, lease, exchange, mortgage, pledge, transfer or any
disposition (in one transaction or in a series of transactions) to or
with any Substantial Shareholder of any assets of the corporation or
any subsidiary, or both, that have an aggregate fair market value of
more than twenty percent 20% of the book value of the total assets of
the corporation as shown on its consolidated balance sheet as of the
end of the calendar quarter immediately proceeding any such
transaction;
o the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of a
Substantial Shareholder;
o the acquisition by the corporation or any subsidiary of any securities
of any Substantial Shareholder;
o any transaction involving the corporation or any subsidiary, including
the issuance or transfer of any securities of, any reclassification of
securities of, or any recapitalization of, the corporation or any
subsidiary, or any merger or consolidation of the corporation with any
subsidiary (whether or not involving a Substantial Shareholder), if
the transaction would have the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any
class of equitable or convertible securities of the corporation or any
subsidiary of which shares a Substantial Shareholder is the beneficial
owner; or
o any agreement, contract or other arrangement entered into by the
corporation providing for any of the transactions described above.
Ralcorp
Ralcorp's articles of incorporation provide that any Business Combination
shall, in addition to any affirmative vote otherwise required under Missouri
law, require the recommendation of the Board of Directors and the affirmative
vote of the holders of not less than 85% of all of the outstanding shares of
capital stock of the company then entitled to vote at a meeting of shareholders
called for such purpose of which an Interested Shareholder is not the beneficial
owner; provided, however, that, notwithstanding the foregoing, any such Business
Combination may be approved on any affirmative vote required under Missouri law
if:
o there are one or more Continuing Directors and the Business
Combination shall have been approved by a majority of them; or
o the following conditions are satisfied:
o the consideration to be received by the shareholders of each
class of stock of the corporation shall be in cash or in the same
form as the Interested Shareholder and its affiliates have
previously paid for a majority of the shares of such class of
stock owned by the Interested Shareholder; and
o the cash, or market value of the property, securities or other
shareholders of each class of stock of the corporation in the
Business Combination is not less than the higher of:
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o the highest per share price paid by the Interested
Shareholder for the acquisition of any shares of such class
in the two years immediately preceding the announcement date
of the Business Combination with appropriate adjustment for
stock splits, stock dividends and like distributions; or
o the market value of such shares on the date the Business
Combination is approved by the Board of Directors.
The term "Continuing Director" shall mean any member of the Board of
Directors of the corporation who is not an affiliate or associate of the
Interested Shareholder and who is a member of the Board of Directors prior to
the time that the Interested Shareholder became an Interested Shareholder, and
any successor of a Continuing Director if the successor is not an affiliate or
associate of the Interested Shareholder and is recommended or elected to succeed
a Continuing Director by a majority of Continuing Directors.
The terms "Business Combination" and "Interested Shareholder" shall have
the same meanings set forth in Section 351.459 of the MGBCL.
Newco
The provisions of Newco's bylaws relating to Business Combinations are
similar to those of the Ralcorp bylaws described above.
MANAGEMENT OF NEWCO
AFTER THE MERGER
Board of Directors of Newco
Upon completion of the merger, the Newco Board of Directors will be
comprised of nine individuals. Five proposed directors are currently directors
of Agribrands. Two proposed directors are currently directors of Ralcorp. Two
proposed directors are currently directors of both Ralcorp and Agribrands. Upon
completion of the merger, the directors of Newco will be divided into three
classes consisting of three directors. The initial terms of Newco's directors
will expire in 2001, 2002, and 2003 depending on the class in which a director
is placed.
The following individuals are expected to be the directors of Newco and the
following descriptions provide five years of work experience for each
individual. The ages shown are as of August 31, 2000.
David R. Banks, Director of Agribrands Since 1998, Age 63
Chairman of the Board and Chief Executive Officer, Beverly
Enterprises, Inc. since 1995 (health care services). Also a director
of Nationwide Health Properties, Inc. and Ralston Purina Company.
Jay W. Brown, Director of Agribrands Since 1998, Age 55
Principal in Westgate Group, LLC (private equity investment firm),
responsible for operational management of portfolio companies since
1998. Former President and Chief Executive Officer, Protein
Technologies International, Inc., a subsidiary of E. I. DuPont de
Nemours and Company from 1995 to 1998 (soy protein products), former
Vice President, Ralston Purina Company and former Chairman and Chief
Executive Officer, Continental Baking Company from 1984 to 1995 (fresh
bakery products). Also a director of Jack in the Box Inc.
Jack W. Goodall, Director of Ralcorp Since 1994, Age 61
Chairman of the Board of Jack in the Box Inc. since April, 1996. Mr.
Goodall served as Chairman, President and Chief Executive Officer of
Foodmaker, Inc. (now Jack in the Box Inc.) from 1985 to 1996.
M. Darrel Ingram, Director of Agribrands Since 1998, Age 67
Non-Executive Chairman, First Financial Planners Inc. (private
financial services company), and former Non-Executive Chairman, Red
Fox Environmental Services, Inc. (pollution control services). Also a
director of Ralston Purina Company.
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David W. Kemper, Director of Ralcorp Since 1994, Age 49
Chairman, President and Chief Executive Officer of Commerce
Bancshares, Inc. since 1991. Also a director of Tower Properties
Company and Wave Technologies International, Inc.
H. Davis McCarty, Director of Agribrands Since 1998, Age 60
Private consultant for agri business marketing and strategic planning.
Former President, Consolidated Nutrition, a subsidiary of Archer
Daniels Midland and AGP, Inc., and former Chairman and President of
Innovative Pork Concepts subsidiary of Central Soya.
Joe R. Micheletto, Chief Executive Officer and President of Newco,
Director of Agribrands Since 1998 and a Director of Ralcorp Since
1994, Age 63
Chief Executive Officer and President, Ralcorp Holdings, Inc. (food
products). Also a director of Agribrands International, Inc.,
Energizer Holdings, Inc., Ralcorp Holdings, Inc., and Vail Resorts,
Inc.
Martin K. Sneider, Director of Agribrands Since 1998, Age 57
Adjunct Professor of Retailing, Washington University, St. Louis,
Missouri. Former President of Edison Brothers Store, Inc. from 1987 to
1995 (specialty retail). Also a director of CPI corporation. Edison
Brothers filed for protection under Chapter 11 of the Federal
Bankruptcy Code in November 1995 and emerged from those proceedings in
September 1997. Mr. Sneider had been President of Edison Brothers
until April, 1995.
William P. Stiritz, Executive Chairman of Newco, Director of
Agribrands Since 1998 and Ralcorp Since 1994, Age 66
Chairman of the Board, Chief Executive Officer and President,
Agribrands International, Inc. since 1998. Chairman of the Board of
Directors and Chairman, Management Strategy and Finance Committee,
Energizer Holdings, Inc. since 2000. Chairman of the Board, and former
Chief Executive Officer and President, Ralston Purina Company from
1982 to 1997. Also Chairman of the Investment Committee of Westgate
Group, LLC, (a private equity investment firm). Also a director of
American Freightways Corporation, Ball Corporation, The May Department
Stores Company, Ralcorp Holdings, Inc., Reinsurance Group of America,
Incorporated and Vail Resorts, Inc.
Committees of Newco Board of Directors
Upon completion of the merger, the Newco Board of Directors will initially
have three committees:
o an Executive Committee;
o an Audit Committee consisting of non-management directors; and
o a Nominating and Compensation Committee consisting of non-management
directors.
The Newco Board of Directors will elect chairpersons of each committee once
the merger is completed.
Compensation of Directors
In accordance with existing practice of Ralcorp and Agribrands, it is
expected that directors of Newco who are also full-time employees of Newco will
receive no additional compensation for their services as directors. Each
non-employee director of Newco will receive compensation for service on the
Newco Board of Directors as determined by the Newco Board of Directors upon the
recommendation of the nominating and compensation committee.
Certain Relationships Between Directors and Ralcorp or Agribrands
Mr. Stiritz is Chairman of the Board of Ralston Purina Company. During
fiscal year 1999, Ralcorp paid Ralston Purina approximately $1.6 million for
research facilities and quality assurance services, telecommunications, and
other administrative services. These arrangements have continued during the
103
current fiscal year and have been conducted in the ordinary course of business
at competitive prices and terms. During fiscal year 2000, Agribrands paid
Ralston Purina approximately $1.1 million for risk management and government
affairs services and use of Ralston Purina's aircraft in which Agribrands
maintains a minority ownership interest. These transactions are expected to
continue and have been negotiated at competitive rates and terms.
Mr. Kemper is Chairman, President and Chief Executive Officer of Commerce
Bancshares, Inc. which is one of six banks participating in Ralcorp's committed
credit facility. Commerce Bancshares' lending commitment under that facility is
limited to $16 million out of a total syndicate commitment of $125 million. In
addition, Ralcorp has an uncommitted line of credit with Commerce Bancshares in
an amount not exceeding $8 million.
Business Relationships between Agribrands and Ralston Purina Related to Spin-Off
In connection with the spin-off of Agribrands from Ralston Purina on April
1, 1998, Agribrands entered into certain agreements with Ralston Purina, some of
which remain in effect.
The Reorganization Agreement. Ralston Purina and Agribrands entered into a
reorganization agreement which provided for the implementation of the spin-off.
This agreement also provided that:
o Ralston Purina would indemnify Agribrands against certain liabilities,
including those relating to the operation of the businesses conducted,
or to be conducted, by Ralston Purina and its subsidiaries (other than
businesses and assets associated with Ralston Purina's international
animal feeds business);
o Agribrands would indemnify Ralston Purina against certain liabilities,
including those relating to the operation of the businesses formerly
associated with Ralston Purina's international animal feeds
operations;
o each of Ralston Purina and Agribrands would indemnify the other with
respect to certain employee benefit programs associated with the
employees of its separate business;
o for three years following the spin-off, Agribrands would not enter
into certain specified transactions (including a transaction such as
the merger described in this joint proxy statement/prospectus, as well
as certain dispositions of assets, certain issuances or repurchases of
Agribrands shares and other transactions) without providing, at
Ralston Purina's discretion, either an opinion of counsel to
Agribrands or a supplemental ruling from the IRS that such transaction
will not adversely affect the Federal income tax consequences of the
spin-off and related transactions;
o if Agribrands engages in any such transaction and, as a result, the
spin-off fails to qualify as tax-free, Agribrands would indemnify
Ralston Purina and its shareholders as of the date of the spin-off
against all tax liabilities incurred as a result;
o for five years following the spin-off, Ralston Purina and its
subsidiaries will not compete anywhere in the world, directly or
indirectly, in the international animal feeds and agricultural
products business;
o for five years following the spin-off, Agribrands and its subsidiaries
will not compete anywhere in the world, directly or indirectly, in the
pet products, battery and lighting products businesses, except that
Agribrands may manufacture and sell certain lines of pet food in
Canada, and may manufacture or sell, subject to various limitations,
certain dog and cat foods in other countries.
If any other person acquires a voting or equity interest of 20% or more in
either Ralston Purina or Agribrands, the other party will be relieved of its
non-compete restrictions.
Trademark Agreement. Under a trademark agreement entered into at the time
of the spin-off:
o Ralston Purina has assigned to Agribrands or its subsidiaries all of
Ralston Purina's rights in certain trademarks associated solely with
the business conducted by Agribrands; and
o Ralston Purina has perpetually licensed to Agribrands, on a
royalty-free basis, the right to use trademarks "Purina"(R) and
"Chow"(R) brands and the "Checkerboard"(R) logo, and certain
trademarks similar to such trademarks, with respect to agricultural
and certain other products, subject to the rights of another company
which utilizes such trademarks in the United States.
Agribrands is not permitted to use such trademarks on pet food products other
than products produced for Ralston Purina or provided by Ralston Purina.
104
Technology Agreement. Ralston Purina has licensed to Agribrands the
perpetual right to utilize Ralston Purina's technology for animal feed and other
agricultural products on a royalty-free basis, subject to certain rights which
Ralston Purina previously granted to other companies.
Other Business Relationships. An affiliate of Ralston Purina continues to
provide certain insurance-related products and services to Agribrands. In
addition, in a number of countries in which Agribrands does business, Agribrands
and Ralston Purina have not yet completed the full separation of Agribrands'
animal feeds business from other businesses conducted by Ralston Purina, and
there are, as a result, various ongoing transactions between the companies in
those countries, none of which Agribrands considers to be material
Business Relationships Between Ralcorp and Agribrands
Presently there are no business relationships between Ralcorp and
Agribrands. In Ralcorp's fiscal years 1997 and 1998, Agribrands, through its
former parent Ralston Purina, purchased approximately $9.08 million and
$750,000, respectively of Ralcorp products for distribution outside of the
United States. This relationship terminated in December 1997.
Executive Officers of Newco
The principal executive officers of Newco upon completion of the merger
will be as follows (all ages are as of August 31, 2000):
Name Age Title
---- --- -----
Joe R. Micheletto....... 63 Chief Executive Officer and President
Bill G. Armstrong....... 52 Chief Executive Officer, Agribrands
David R. Wenzel......... 37 Chief Financial Officer
For information regarding the executive officers of Newco who will also
serve as directors of Newco see page 102. Information regarding the non-director
executive officers of Newco is set forth below.
Bill G. Armstrong. Chief Operating Officer of Agribrands since 1998. Mr.
Armstrong served as Executive Vice President of Operations of Ralston Purina's
international agricultural products business during 1997 and Regional Chief
Executive Officer-South Asia from 1995 to 1997. He served as Managing Director
of Ralston Purina's international agricultural products Philippine operations
from 1992 to 1995.
David R. Wenzel. Chief Financial Officer of Agribrands since 1998. Mr.
Wenzel served as the Chief Financial Officer of Ralston Purina's international
agricultural products business since 1996. He joined Ralston Purina's Protein
Technologies subsidiary as Director of Strategic Planning in 1993 and in 1994
became Director of Corporate Planning for Ralston Purina. Prior to joining
Ralston Purina, Mr. Wenzel was a Manager, Tax Services, for
PricewaterhouseCoopers LLP in its St. Louis office.
Compensation of Executive Officers
Newco has not yet paid any compensation to its chief executive officer,
chief financial executive officer, chief executive officer for Agribrands or any
other person expected to become an executive officer of Newco. The form and
amount of the compensation to be paid to each of Newco's executive officers in
any future period will be determined by the nominating and compensation
committee of the Newco Board of Directors.
For information concerning the compensation paid to the chief executive
officer and the other four most highly compensated executive officers of Ralcorp
for the 1999 fiscal year, see Ralcorp's proxy statement used in connection with
its 2000 Annual Meeting of Shareholders, the relevant portions of which are
incorporated by reference into Ralcorp's annual report on Form 10-K for the
fiscal year ended September 30, 1999. For information concerning the
compensation paid to, and the employment agreements with, the chief executive
officer and the other four most highly compensated executive officers of
Agribrands for the 1999 fiscal year, see Agribrands' proxy statement used in
connection with its 2000 Annual Meeting of Shareholders, the relevant portions
of which are incorporated by reference into Agribrands' annual report on Form
10-K for the fiscal year ended August 31, 1999.
105
Messrs. Micheletto, Armstrong and Wenzel have three-year employment
agreements with their respective current company. The agreements provide that
upon the completion of the merger the executive will hold specified positions
with Newco (see the above list) and will be entitled to the following
compensation:
o a salary equal to the greater of the executive's current salary or a
salary granted by the Newco Board of Directors after completion of the
merger;
o an annual bonus in an amount that is the greater of their current
minimum bonus or a bonus granted by the Newco Board of Directors after
completion of the merger;
o an executive level benefits program including stock based awards as
determined by the Newco Board of Directors; and
o participation under such pension plan, health insurance, 401(k) plan,
vacation, holiday and other programs in effect from time to time for
salaried executives of Newco.
The employment agreements also provide that the executive may be terminated
at any time without "cause" but if such termination occurs prior to the end of
the term, the executive will be entitled to receive his base salary, minimum
bonuses and employee benefits through the end of the term. Notwithstanding these
provisions, Newco will be entitled to terminate any employment agreement
immediately and without notice if the executive engages in certain specified
conduct, including the refusal without cause, to perform his assigned duties,
the open criticism in the media of the company and the participation in any
conduct that the Newco Board of Directors determines to be inimical to or
contrary to the best interest of Newco. Upon such termination, Newco will be
obligated to pay the executive his base salary prorated to the date of the
termination event.
All other executive officers of Newco are expected to enter into employment
agreements with Newco once the merger is completed. In exchange for entering
into the employment agreement all executive officers will waive any rights they
had under the Ralcorp and Agribrands Management Continuity Agreements (which
provided severance benefits in the event of a change of control). Also, all
executive officers of Newco will waive any rights they have (if any) to
accelerate the vesting of stock options received from Ralcorp or Agribrands, as
the case may be.
LEGAL MATTERS
The validity of the shares of Newco offered by this joint proxy
statement/prospectus will be passed upon for Newco by Bryan Cave LLP, St. Louis,
Missouri. Bryan Cave LLP, St. Louis, Missouri, counsel for Ralcorp and
Agribrands will pass upon certain Federal income tax consequences of the merger
for Ralcorp and Agribrands.
EXPERTS
The financial statements incorporated in this joint proxy
statement/prospectus by reference to the Annual Report on Form 10-K of Ralcorp
Holdings, Inc. for the year ended September 30, 1999 have been so incorporated
in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements incorporated in this joint proxy
statement/prospectus by reference to the Annual Report on Form 10-K of
Agribrands International, Inc. for the year ended August 31, 1999 have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The prospective financial information included elsewhere in this joint
proxy statement/prospectus has been prepared by, and is the responsibility of,
Ralcorp and Agribrands management. PricewaterhouseCoopers has neither examined
nor compiled such prospective financial information and, accordingly,
PricewaterhouseCoopers does not express an opinion or any other form of
assurance with respect thereto. The PricewaterhouseCoopers reports incorporated
by reference in this joint proxy statement/prospectus relate to the historical
financial information of Ralcorp and Agribrands. It does not extend to the
prospective financial information and should not be read to do so.
OTHER MATTERS
Neither Ralcorp nor Agribrands presently intends to bring any matters other
than those described in this joint proxy statement/prospectus before its special
meeting. Further, neither Ralcorp nor Agribrands has any knowledge of any other
matters that may be introduced by other persons. If any other matters do
properly come before either company's special meeting or any adjournment or
106
postponement of either company's special meeting, the persons named in the
enclosed proxy forms of Ralcorp or Agribrands, as applicable, will vote the
proxies in keeping with their judgment on such matters.
SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, shareholders may present
proper proposals for inclusion in a company's proxy statement and for
consideration at the next annual meeting of its shareholders by submitting their
proposals to the company in a timely manner. However, due to the contemplated
merger, neither Ralcorp nor Agribrands currently intends to hold a 2001 annual
meeting of shareholders. In the event either company would hold such a meeting,
any proposals of shareholders must have been received by the Secretary of
Agribrands no later than , 2001 or the Secretary of Ralcorp no later than
, 2001, whichever is applicable.
WHERE YOU CAN FIND MORE INFORMATION
All documents filed by Ralcorp or Agribrands pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this joint proxy
statement/prospectus and before the date of each company's special meeting are
incorporated by reference into and are deemed to be a part of this joint proxy
statement/prospectus from the date of filing of those documents.
You should rely only on the information contained in this joint proxy
statement/prospectus or that which we have referred you to. We have not
authorized anyone to provide you with any additional information.
This joint proxy statement/prospectus incorporates documents by reference
which are not presented in or delivered with this joint proxy
statement/prospectus. We are also incorporating by reference additional
documents that we may file with the SEC between the date of this joint proxy
statement/prospectus and the date of our special meetings. The SEC allows us to
"incorporate by reference" information into this joint proxy
statement/prospectus, which means that we can disclose important information to
you by referring you to another document or report filed separately with the
SEC. The information incorporated by reference is deemed to be a part of this
joint proxy statement/prospectus, except to the extent any information is
superseded by this joint proxy statement/prospectus.
Ralcorp SEC Filings. The following documents, which have been filed by
Ralcorp with the Securities and Exchange Commission (SEC file number 001-12619)
and contain important information about Ralcorp and its finances, are
incorporated by reference into this joint proxy statement/prospectus:
Ralcorp's Annual Report on Form 10-K for the fiscal year ended September
30, 1999
Ralcorp's Quarterly Report on Form 10-Q, for the quarterly period ended
June 30, 2000
Ralcorp's Quarterly Report on Form 10-Q, for the quarterly period ended
March 31, 2000
Ralcorp's Quarterly Report on Form 10-Q, for the quarterly period ended
December 31, 1999
Ralcorp's Current Report on Form 8-K/A dated September 21, 2000
Ralcorp's Current Report on Form 8-K dated August 30, 2000
Ralcorp's Current Report on Form 8-K dated August 8, 2000
Ralcorp's Current Report on Form 8-K dated August 4, 2000
Ralcorp's Current Report on Form 8-K dated August 2, 2000
Ralcorp's Current Report on Form 8-K dated July 27, 2000
Ralcorp's Current Report on Form 8-K dated July 26, 2000
Ralcorp's Current Report on Form 8-K dated July 25, 2000
Ralcorp's Current Report on Form 8-K dated July 14, 2000
Ralcorp's Current Report on Form 8-K dated June 19, 2000
Ralcorp's Current Report on Form 8-K dated April 27, 2000
Ralcorp's Current Report on Form 8-K dated January 28, 2000
Ralcorp's Current Report on Form 8-K dated November 2, 1999
Ralcorp's Current Report on Form 8-K dated October 5, 1999
Ralcorp's Current Report on Form 8-K dated September 16, 1999
Ralcorp's Current Report on Form 8-K dated September 13, 1999
107
Agribrands SEC Filings. The following documents which have been filed by
Agribrands with the Securities and Exchange Commission (SEC File Number
001-1347) and contain important information about Agribrands and its finances,
are incorporated into this joint proxy statement/prospectus:
Agribrands' Annual Report on Form 10-K for the fiscal year ended August 31,
1999
Agribrands' Quarterly Report on Form 10-Q for the quarterly period ended
May 31, 2000
Agribrands' Quarterly Report on Form 10-Q for the quarterly period ended
February 29, 2000
Agribrands' Quarterly Report on Form 10-Q for the quarterly period ended
November 30, 1999
Agribrands' Current Report on Form 8-K dated August 8, 2000
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this joint proxy statement/prospectus will be
deemed to be modified or superseded for purposes of this joint proxy
statement/prospectus to the extent that a statement contained in this joint
proxy statement/prospectus or any other subsequently filed document that is
deemed to be incorporated by reference into this joint proxy
statement/prospectus modifies or supersedes the statement. Any statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this joint proxy statement/prospectus.
The documents incorporated by reference into this joint proxy
statement/prospectus are available from us upon request. We will provide a copy
of any and all of the information that is incorporated by reference in this
joint proxy statement/prospectus to any person, without charge, upon written or
oral request. If exhibits to the documents incorporated by reference in this
joint proxy statement/prospectus are not themselves specifically incorporated by
reference in this joint proxy statement/prospectus, then the exhibits will not
be provided. Any request for documents should be made by to ensure timely
delivery of the documents.
Requests for documents relating to Ralcorp should be directed to:
Ralcorp Holdings, Inc., P.O. Box 618, St. Louis, Missouri 63188-0618.
Attention: Shareholder Services, telephone .
Requests for documents relating to Agribrands should be directed to:
Agribrands International, Inc., 9811 South Forty Drive, St. Louis, Missouri
63124-1103. Attention: Investor Relations, telephone .
We file reports, proxy statements and other information with the SEC.
Copies of our reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the SEC at:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Reports, proxy statements and other information concerning Ralcorp and
Agribrands may be inspected at:
New York Stock Exchange, Inc.
20 Broad Street
New York, New York 10005
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, W., Washington,
D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains reports, proxy statements and other information regarding each of
us. The address of the SEC website is http://www.sec.gov.
Newco has filed a registration statement on Form S-4 under the Securities
Act with the Securities and Exchange Commission with respect to Newco's stock to
be issued in the merger. This joint proxy statement/prospectus constitutes the
prospectus of Newco filed as part of the registration statement. This joint
proxy statement/prospectus does not contain all of the information set forth in
the registration statement because certain parts of the registration statement
are omitted in accordance with the rules and regulations of the SEC. The
registration statement and its exhibits are available for inspection and copying
as set forth above.
If you have any questions about the merger, please call either Ralcorp
Shareholder Services at or Agribrands Investor Relations at .
108
This joint proxy statement/prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this joint
proxy statement/prospectus, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this joint proxy statement/prospectus nor any distribution of
securities pursuant to this joint proxy statement/prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth or incorporated into this joint proxy statement/prospectus
by reference or in our affairs since the date of this joint proxy
statement/prospectus. The information contained in this joint proxy
statement/prospectus with respect to Ralcorp was provided by Ralcorp and the
information contained in this joint proxy statement/prospectus with respect to
Agribrands was provided by Agribrands.
109
================================================================================
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
RALCORP HOLDINGS, INC.
AND
AGRIBRANDS INTERNATIONAL, INC.,
DATED AS OF
AUGUST 7, 2000
================================================================================
Table of Contents
Page
ARTICLE I.FORMATION OF HOLDING COMPANY AND SUBSIDIARIES........................1
1.1. Organization of Holding Company.................................1
1.2. Directors and Officers of Holding Company.......................1
1.3. Organization of Merger Subsidiaries.............................2
1.4. Actions of Agribrands, Ralcorp and Holding Company..............2
ARTICLE II.THE MERGERS; CLOSING................................................2
2.1. The Mergers.....................................................2
2.2. Directors and Officers..........................................3
2.3. Certificate of Incorporation and Bylaws.........................3
ARTICLE III.EFFECT OF THE MERGERS ON SECURITIES OF AGRIBRANDS, RALCORP AND THE
MERGER SUBSIDIARIES................................................4
3.1. Conversion of Merger Subsidiaries Stock.........................4
3.2. Cancellation of Holding Company Capital Stock...................4
3.3. Conversion of Common Stock......................................4
3.4. Surrender and Payment...........................................6
3.5. Options.........................................................9
3.6. Fractional Shares...............................................9
3.7. Withholding Rights..............................................9
ARTICLE IV.REPRESENTATIONS AND WARRANTIES OF AGRIBRANDS.......................10
4.1. Organization and Good Standing.................................10
4.2. Capitalization.................................................10
4.3. Subsidiaries...................................................11
4.4. Authorization; Binding Agreement...............................11
4.5. Governmental Approvals.........................................11
4.6. No Violations..................................................12
4.7. Securities Filings and Litigation..............................12
4.8. Agribrands Financial Statements................................13
4.9. Absence of Certain Changes or Events...........................13
4.10. Related Party Transactions....................................14
4.11. Compliance with Laws..........................................14
4.12. Permits.......................................................14
4.13. Finders and Investment Bankers................................14
4.14. Material Contracts............................................14
4.15. Employee Benefit Plans........................................15
4.16. Taxes and Returns.............................................17
4.17. No Adverse Actions............................................18
4.18. Fairness Opinions.............................................19
4.19. Takeover Statutes and Charter.................................19
ii
4.20. Agribrands Rights Plan........................................19
ARTICLE V.REPRESENTATIONS AND WARRANTIES OF RALCORP...........................19
5.1. Organization and Good Standing.................................19
5.2. Capitalization.................................................20
5.3. Subsidiaries...................................................20
5.4. Authorization; Binding Agreement...............................21
5.5. Governmental Approvals.........................................21
5.6. No Violations..................................................21
5.7. Securities Filings and Litigation..............................22
5.8. Ralcorp Financial Statements...................................22
5.9. Absence of Certain Changes or Events...........................23
5.10. Related Party Transactions....................................23
5.11. Compliance with Laws..........................................23
5.12. Permits.......................................................23
5.13. Finders and Investment Bankers................................24
5.14. Material Contracts............................................24
5.15. Employee Benefit Plans........................................24
5.16. Taxes and Returns.............................................25
5.17. No Adverse Actions............................................26
5.18. Fairness Opinion..............................................26
5.19. Takeover Statutes and Charter.................................26
5.20. Ralcorp Rights Plan...........................................27
ARTICLE VI.ADDITIONAL COVENANTS OF AGRIBRANDS.................................27
6.1. Conduct of Business of Agribrands and the Agribrands
Subsidiaries...................................................27
6.2. Notification of Certain Matters................................29
6.3. Access and Information.........................................29
6.4. Shareholder Approval...........................................30
6.5. Reasonable Best Efforts........................................30
6.6. Public Announcements...........................................31
6.7. Compliance.....................................................31
6.8. Tax Treatment..................................................31
6.9. Agribrands Benefit Plans.......................................31
6.10. No Solicitation of Acquisition Proposal.......................31
6.11. SEC and Shareholder Filings...................................33
6.12. Affiliate Agreements..........................................33
6.13. Takeover Statutes.............................................33
6.14. Comfort Letters...............................................33
ARTICLE VII.ADDITIONAL COVENANTS OF RALCORP...................................34
7.1. Conduct of Business of Ralcorp and the Ralcorp Subsidiaries....34
7.2. Notification of Certain Matters................................36
7.3. Access and Information.........................................36
7.4. Shareholder Approval...........................................37
iii
7.5. Reasonable Best Efforts........................................37
7.6. Public Announcements...........................................37
7.7. Compliance.....................................................38
7.8. Tax Treatment..................................................38
7.9. Ralcorp Benefit Plans..........................................38
7.10. No Solicitation of Acquisition Proposal.......................38
7.11. SEC and Shareholder Filings...................................39
7.12. Affiliate Agreements..........................................40
7.13. Takeover Statutes.............................................40
7.14. Comfort Letters...............................................40
ARTICLE VIII.ADDITIONAL COVENANTS OF AGRIBRANDS AND RALCORP WITH RESPECT
TO HOLDING COMPANY...............................................40
8.1. Director and Officer Liability................................40
8.2. Listing of Stock..............................................41
8.3. Registration Statement; Prospectus/Proxy Statement............42
8.4. Tax Treatment.................................................43
8.5. Shareholder Rights Agreement..................................43
ARTICLE IX.CONDITIONS.........................................................43
9.1. Conditions to Each Party's Obligations........................43
9.1.1. Shareholder Approvals.................................43
9.1.2. No Injunction or Action...............................43
9.1.3. Governmental Approvals................................43
9.1.4. HSR Act...............................................44
9.1.5. Required Consents.....................................44
9.1.6. Registration Statement................................44
9.1.7. Spin-Off Covenant.....................................44
9.1.8. Tax Opinion...........................................45
9.1.9. Dissenting Shares.....................................45
9.1.10. Holding Company Acts.................................45
9.2. Conditions to Obligations of Agribrands.......................45
9.2.1. Ralcorp Representations and Warranties................45
9.2.2. Performance by Ralcorp................................45
9.2.3. No Material Adverse Change............................45
9.2.4. Certificates and Other Deliveries.....................46
9.2.5. Opinion of Ralcorp Counsel............................46
9.3. Conditions to Obligations of Ralcorp..........................46
9.3.1. Agribrands Representations and Warranties.............46
9.3.2. Performance by Agribrands.............................46
9.3.3. No Material Adverse Change............................46
9.3.4. Certificates and Other Deliveries.....................47
9.3.5. Opinion of Agribrands Counsel........................47
iv
ARTICLE X.TERMINATION AND ABANDONMENT.........................................47
10.1. Termination..................................................47
10.2. Effect of Termination........................................48
ARTICLE XI.MISCELLANEOUS......................................................50
11.1. Confidentiality..............................................50
11.2. Amendment and Modification...................................51
11.3. Waiver of Compliance; Consents...............................51
11.4. Survival of Representations and Warranties...................51
11.5. Notices......................................................51
11.6. Binding Effect; Assignment...................................53
11.7. Expenses.....................................................53
11.8. Governing Law................................................53
11.9. Counterparts.................................................53
11.10. Interpretation..............................................53
11.11. Entire Agreement............................................53
11.12. Specific Performance........................................54
11.13. Third Parties...............................................54
v
GLOSSARY OF DEFINED TERMS
Page Where
Term Defined
Affiliate.....................................................................53
Agreement......................................................................1
Agribrands.....................................................................1
Agribrands Acquisition Proposal...............................................32
Agribrands Ancillary Agreements...............................................11
Agribrands Cash Consideration..................................................4
Agribrands Cash Election.......................................................4
Agribrands Common Stock........................................................4
Agribrands Dissenting Shares...................................................5
Agribrands Financial Statements...............................................13
Agribrands Holders.............................................................7
Agribrands Material Adverse Effect............................................10
Agribrands Material Contract..................................................15
Agribrands Merger..............................................................2
Agribrands Merger Agreement....................................................2
Agribrands Merger Consideration................................................4
Agribrands Options.............................................................9
Agribrands Permits............................................................14
Agribrands Preferred Stock....................................................10
Agribrands Proposals..........................................................30
Agribrands Rights Agreement...................................................19
Agribrands Securities Filings.................................................13
Agribrands Shareholders Meeting...............................................30
Agribrands Stock Consideration.................................................4
Agribrands Stock Election......................................................4
Agribrands Subsidiaries.......................................................10
Agribrands Superior Proposal..................................................32
Agribrands Termination Fee....................................................48
Articles of Merger.............................................................3
Benefit Plan..................................................................15
Cash Election..................................................................5
Certificates...................................................................5
Closing........................................................................3
Closing Date...................................................................3
Consent.......................................................................11
Continuing Directors..........................................................19
Dissenting Shares..............................................................5
Effective Time.................................................................3
Election Deadline..............................................................6
Election Form..................................................................6
vi
Enforceability Exceptions.....................................................11
ERISA.........................................................................15
Event.........................................................................13
Exchange Agent.................................................................6
Exchange Fund..................................................................6
Final Order...................................................................44
Form S-4......................................................................42
Governmental Authority........................................................12
Holding Company................................................................1
Holding Company Common Stock...................................................1
Holding Company Material Adverse Effect.......................................44
HSR Act.......................................................................12
Indemnified Losses............................................................41
Indemnified Person............................................................40
IRS...........................................................................12
Law...........................................................................12
Litigation....................................................................13
Merger Agreements..............................................................2
Merger Consideration...........................................................5
Merger Sub A...................................................................2
Merger Sub R...................................................................2
Merger Subsidiaries............................................................2
Mergers....................................................................... 3
Missouri Code..................................................................2
Multi-Employer Plan...........................................................15
New Agribrands Options.........................................................9
New Ralcorp Options............................................................9
NYSE..........................................................................12
person........................................................................53
Proxy Statement/Prospectus....................................................42
Ralcorp........................................................................1
Ralcorp Acquisition Proposal..................................................39
Ralcorp Ancillary Agreements..................................................21
Ralcorp Cash Consideration.....................................................5
Ralcorp Cash Election..........................................................5
Ralcorp Common Stock...........................................................5
Ralcorp Dissenting Shares......................................................5
Ralcorp Financial Statements..................................................22
Ralcorp Holders................................................................7
Ralcorp Material Adverse Effect...............................................20
Ralcorp Material Contract.....................................................24
Ralcorp Merger.................................................................3
Ralcorp Merger Agreement.......................................................2
Ralcorp Merger Consideration...................................................5
Ralcorp Options................................................................9
ii
Ralcorp Permits...............................................................23
Ralcorp Preferred Stock.......................................................20
Ralcorp Proposals.............................................................37
Ralcorp Rights Agreement......................................................27
Ralcorp Securities Filings....................................................22
Ralcorp Shareholders Meeting..................................................37
Ralcorp Stock Consideration....................................................5
Ralcorp Stock Election.........................................................5
Ralcorp Subsidiaries..........................................................19
Ralcorp Superior Proposal.....................................................39
Ralcorp Termination Fee.......................................................49
Ralston Purina................................................................33
Reorganization.................................................................1
Stock Election.................................................................5
subsidiary....................................................................53
Takeover Statute..............................................................19
iii
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made and
entered into as of August 7, 2000, by and between Ralcorp Holdings, Inc., a
Missouri corporation ("Ralcorp") and Agribrands International, Inc., a Missouri
corporation ("Agribrands").
Recitals
A. The respective Special Committees of the Boards of Directors
of Agribrands and Ralcorp have recommended and the Boards of Directors of
Agribrands and Ralcorp have approved and deem it advisable and in the best
interests of their respective companies and shareholders to consummate the
reorganization (the "Reorganization") provided for herein, pursuant to which a
newly formed holding company ("Holding Company"), will acquire all of the common
stock of each of Agribrands and Ralcorp through mergers of separate subsidiaries
of Holding Company with and into each of Agribrands and Ralcorp (the "Mergers").
Upon consummation of the Reorganization, the shareholders of each of Agribrands
and Ralcorp will become shareholders of Holding Company.
B. For federal income tax purposes, it is intended that (i) the
Ralcorp Merger qualify as a reorganization described in Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), or, taken
together with the Agribrands Merger, qualifies as an exchange described in
Section 351(a) of the Code and (ii) the Agribrands Merger qualify as a
reorganization described in Section 368(a) of the Code or , taken together with
the Ralcorp Merger, qualifies as an exchange described in Section 351(a) of the
Code.
C. Agribrands and Ralcorp desire to make certain representations,
warranties, covenants and agreements in connection with the Mergers.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
FORMATION OF HOLDING COMPANY AND SUBSIDIARIES
1.1. Organization of Holding Company. As promptly as practicable
following the execution of this Agreement, Agribrands and Ralcorp will cause
Holding Company to be organized under Missouri law. The authorized capital stock
of Holding Company will consist of 100 shares of common stock, par value $ 0.01
per share (the "Holding Company Common Stock").
1.2. Directors and Officers of Holding Company. Agribrands and
Ralcorp agree that the directors of Holding Company will be as set forth on
Schedule 1.2 attached hereto and the officers of Holding Company will be as the
Holding Company Board of Directors shall determine.
1.3. Organization of Merger Subsidiaries. As promptly as
practicable following the execution of this Agreement, Agribrands and Ralcorp
shall cause the following companies to be organized for the sole purpose of
effectuating the Agribrands Merger and the Ralcorp Merger contemplated herein:
(i) Holding Company Subsidiary A, a corporation organized
under the laws of the State of Missouri ("Merger Sub A"). The authorized capital
stock of Merger Sub A shall initially consist of 100 shares of common stock,
$.01 par value per share, one share of which shall be issued to Holding Company
at a price of $1.00. Holding Company shall own directly all of the outstanding
capital stock of Merger Sub A.
(ii) Holding Company Subsidiary R, a corporation organized
under the laws of the State of Missouri ("Merger Sub R" and, together with
Merger Sub A, the "Merger Subsidiaries"). The authorized capital stock of Merger
Sub R shall initially consist of 100 shares of common stock, par value $.01 per
share, one share of which shall be issued to Holding Company at a price of
$1.00. Holding Company shall own directly all of the outstanding capital
stock of Merger Sub R.
1.4. Actions of Agribrands, Ralcorp and Holding Company. As
promptly as practicable following the execution of this Agreement, Agribrands
and Ralcorp shall cause (i) Holding Company to elect the directors of the Merger
Subsidiaries, (ii) the directors of Merger Sub A and Merger Sub R to elect their
respective officers, (iii) the directors of Holding Company to ratify and
approve this Agreement and to approve the forms of the Merger Agreements (as
hereinafter defined), (iv) the directors and officers of the Merger Subsidiaries
to take such steps as may be necessary or appropriate to complete the
organization of the Merger Subsidiaries and to approve the Merger Agreements;
and (v) the Merger Agreements to be executed on behalf of the parties thereto.
ARTICLE II.
THE MERGERS; CLOSING
2.1. The Mergers. Pursuant to plans of merger, each in
substantially the form attached hereto as Exhibit A (sometimes hereinafter
referred to individually as the "Agribrands Merger Agreement" and the "Ralcorp
Merger Agreement," respectively, and collectively as the "Merger Agreements"),
upon the terms and subject to the conditions set forth in this Agreement and in
the Merger Agreements:
(a) Merger Sub A shall be merged with and into Agribrands (the
"Agribrands Merger") in accordance with the applicable provisions of the General
and Business Corporation Law of Missouri (the "Missouri Code"). Agribrands shall
be the surviving corporation in the Agribrands Merger and shall continue its
2
corporate existence under the laws of the State of Missouri. As a result of the
Agribrands Merger, Agribrands shall become a direct, wholly owned Subsidiary of
Holding Company. The effects and consequences of the Agribrands Merger shall be
as set forth in the Agribrands Merger Agreement.
(b) Merger Sub R will be merged with and into Ralcorp (the
"Ralcorp Merger"), in accordance with the applicable provisions of the Missouri
Code. Ralcorp shall be the surviving corporation in the Ralcorp Merger and shall
continue its corporate existence under the laws of the State of Missouri. As a
result of the Ralcorp Merger, Ralcorp shall become a direct, wholly owned
Subsidiary of Holding Company. The effects and consequences of the Ralcorp
Merger shall be as set forth in the Ralcorp Merger Agreement. The term "Mergers"
shall mean, collectively, the Agribrands Merger and the Ralcorp Merger.
(c) Subject to the terms and conditions of this Agreement, the
closing of the Mergers (the "Closing") shall take place (a) at the offices of
Bryan Cave LLP, One Metropolitan Square, Suite 3600, St. Louis, Missouri, at
10:00 a.m. local time, on the fifth Business Day following the day on which the
last to be fulfilled or waived of the conditions set forth in Article IX
(excluding conditions that, by their terms cannot be satisfied until the Closing
Date, but subject to the fulfillment or waiver of such conditions) shall be
fulfilled or waived in accordance herewith or (b) at such other time, date or
place as Agribrands and Ralcorp may agree. The date on which the Closing occurs
is hereinafter referred to as the "Closing Date."
(d) As soon as practicable following the Closing, the parties
shall (i) file articles of merger with respect to each of the Mergers (the
"Articles of Merger") in such form as is required by and executed in accordance
with the Missouri Code and (ii) make all other filings or recordings required
under the laws of Missouri. The Mergers shall become effective at such time and
date (the "Effective Time") which is the later of (i) the date and time of the
filing of the Articles of Merger with respect to the Agribrands Merger (or such
other date and time as may be specified in such certificate as may be permitted
by the Missouri Code) and (ii) the date and time of the filing of the Articles
of Merger with respect to the Ralcorp Merger (or such other date and time as may
be specified in such certificate as may be permitted by the Missouri Code).
(e) The consummation of the Agribrands Merger shall be
conditioned on the simultaneous consummation of the Ralcorp Merger, and the
consummation of the Ralcorp Merger shall be conditioned on the simultaneous
consummation of the Agribrands Merger.
2.2 Directors and Officers. The directors and officers of Merger
Sub A and Merger Sub R immediately prior to the Effective Time shall be the
directors and officers of the surviving corporations of the Agribrands Merger
and the Ralcorp Merger, respectively, as of the Effective Time and until their
successors are duly appointed or elected in accordance with the laws of Missouri
or until their earlier death, resignation or removal.
2.3 Certificate of Incorporation and Bylaws. The articles of
incorporation and bylaws of Merger Sub A and Merger Sub R immediately prior to
the Effective Time shall be the articles of incorporation and bylaws of the
3
surviving corporation of the Agribrands Merger and the Ralcorp Merger,
respectively, as of the Effective Time.
ARTICLE III.
EFFECT OF THE MERGERS ON SECURITIES OF AGRIBRANDS, RALCORP
AND THE MERGER SUBSIDIARIES
3.1 Conversion of Merger Subsidiaries Stock. At the Effective
Time, by virtue of the Agribrands Merger and without any action on the part of
any of the parties, each share of the common stock of Merger Sub A outstanding
immediately prior to the Effective Time shall be converted into and shall become
one share of common stock of the surviving corporation of the Agribrands Merger.
At the Effective Time, by virtue of the Ralcorp Merger and without any action on
the part of any of the parties, each share of the common stock of Merger Sub R
outstanding immediately prior to the Effective Time shall be converted into and
shall become one share of common stock of the surviving corporation of the
Ralcorp Merger.
3.2. Cancellation of Holding Company Capital Stock. At the
Effective Time, the shares of the capital stock of Holding Company issued and
outstanding immediately prior to the Effective Time shall be canceled and cease
to exist.
3.3. Conversion of Common Stock.
(a) Subject to the provisions of this Agreement, at the
Effective Time each issued and outstanding share of common stock, par value $.01
per share, of Agribrands together with the associated rights issued pursuant to
the Agribrands Rights Agreement (as hereinafter defined) (the "Agribrands Common
Stock"), shall be converted into, at the election of the holder thereof, one of
the following (as may be adjusted pursuant to Section 3.3(e), the "Agribrands
Merger Consideration"):
(i) for each such share of Agribrands Common Stock with
respect to which an election to receive cash has been effectively made and not
revoked or lost, pursuant to Section 3.3(c) and (d) (the "Agribrands Cash
Election"), the right to receive in cash from Holding Company, without interest,
an amount equal to $39.00 (the "Agribrands Cash Consideration");
(ii) for each such share of Agribrands Common Stock (other
than shares as to which an Agribrands Cash Election has been made) ("Agribrands
Stock Election"), the right to receive three (3) shares of Holding Company
Common Stock (the "Agribrands Stock Consideration").
(b) Subject to the provisions of this Agreement, at the
Effective Time each issued and outstanding share of common stock, par value $.01
per share, of Ralcorp together with the associated rights issued pursuant to the
4
Ralcorp Rights Agreement (as hereinafter defined) (the "Ralcorp Common Stock"),
shall be converted into, at the election of the holder thereof, one of the
following (as may be adjusted pursuant to Section 3.3(e), the "Ralcorp Merger
Consideration", together with Agribrands Merger Consideration, the "Merger
Consideration"):
(i) for each such share of Ralcorp Common Stock with
respect to which an election to receive cash has been effectively made and not
revoked or lost, pursuant to Section 3.3(c) and (d) (the "Ralcorp Cash
Election", together with Agribrands Cash Election, the "Cash Election"), the
right to receive in cash from Holding Company, without interest, an amount equal
to $15.00 (the "Ralcorp Cash Consideration").
(ii) for each such share of Ralcorp Common Stock (other
than shares as to which a Ralcorp Cash Election has been made) (a "Ralcorp Stock
Election", together with Agribrands Stock Election, the "Stock Election"), the
right to receive one (1) share of Holding Company Common Stock (the "Ralcorp
Stock Consideration");
(c) As a result of the Agribrands Merger and the Ralcorp
Merger and without any action on the part of the holder thereof, at the
Effective Time all shares of Agribrands Common Stock and Ralcorp Common Stock
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of shares of Agribrands Common Stock and Ralcorp
Common Stock shall thereafter cease to have any rights with respect to such
shares of Agribrands Common Stock and Ralcorp Common Stock, except the right to
receive, without interest, the applicable Merger Consideration and cash for
fractional shares in accordance with Section 3.6 upon the surrender of a
certificate or an election form by Agribrands shareholders holding stock in
book-entry form representing such shares of Agribrands Common Stock and/or
Ralcorp Common Stock (the "Certificates"). To the extent that objecting
shareholders' rights are available under Section 351.455 of the Missouri Code,
shares of Agribrands Common Stock (the "Agribrands Dissenting Shares") or
Ralcorp Common Stock (the "Ralcorp Dissenting Shares") that are issued and
outstanding immediately prior to the Effective Time and that have not voted for
the adoption of this Agreement and with respect to which such rights have been
properly demanded in accordance with Section 351.455 of the Missouri Code
(collectively, the "Dissenting Shares") shall not be converted into the right to
receive Merger Consideration at or after the Effective Time unless and until the
holder of such shares becomes ineligible for such rights. If a holder of
Dissenting Shares becomes ineligible under Section 351.455, then, as of the
Effective Time or the occurrence of such event whichever later occurs, such
holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
converted into and represent the right to receive the Merger Consideration upon
surrender of the Certificates representing such Dissenting Shares in accordance
with Section 3.4. Agribrands and Ralcorp shall give prompt notice to the other
of any demand received by Agribrands or Ralcorp, as the case may be, from an
objecting shareholder demanding fair value for the Agribrands Common Stock or
Ralcorp Common Stock. Prior to the Effective Time, except with the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed, or as may otherwise be required under applicable law, neither
5
Agribrands nor Ralcorp, as the case may be, shall make any payment with respect
to, or settle or offer to settle, any such demands.
(d) Notwithstanding anything contained in this Section to the
contrary, each share of Agribrands Common Stock and Ralcorp Common Stock issued
and held in the respective company's treasury immediately prior to the Effective
Time shall, by virtue of the Agribrands Merger and the Ralcorp Merger, cease to
be outstanding and shall be canceled and retired without payment of any
consideration therefor and will not be deemed outstanding for purposes of
Section 3.4.
(e) Notwithstanding the foregoing, each share of Agribrands
Common Stock or Ralcorp Common Stock owned by Agribrands or Ralcorp or their
respective subsidiaries at the Effective Time shall, by virtue of the Agribrands
Merger and the Ralcorp Merger, be canceled and retired without payment of any
consideration therefor and will not be deemed outstanding for purposes of
Section 3.4.
(f) The Stock Election shall be subject to appropriate
adjustment in the event of a stock split, stock dividend or recapitalization
after the date of this Agreement applicable to the Ralcorp Common Stock or the
Agribrands Common Stock.
3.4 Surrender and Payment.
(a) Prior to the Effective Time, Agribrands and Ralcorp shall
cause Holding Company to appoint an agent as designated by Agribrands and
Ralcorp (the "Exchange Agent") for the purpose of exchanging the Certificates
for the Merger Consideration. Immediately after the Effective Time, Agribrands
and Ralcorp shall cause Holding Company to deposit with or make available to the
Exchange Agent the Merger Consideration to be paid in respect of the shares (the
"Exchange Fund"). If deposited, upon receipt, the Exchange Agent will invest the
cash portion of the Exchange Fund in United States government securities
maturing at the Election Deadline or such other investments as Holding Company
may direct. Promptly after the Effective Time, Holding Company will send, or
will cause the Exchange Agent to send, (A) to each record holder of shares of
Agribrands Common Stock and Ralcorp Common Stock, at the Effective Time, a
letter of transmittal and instructions (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) for use in such exchange,
and (B) to each record holder of shares of Agribrands Common Stock and Ralcorp
Common Stock, an election form (the "Election Form") providing for such holders
to make a Stock Election or a Cash Election. Any Stock Election or Cash Election
shall be validly made only if the Exchange Agent shall have received by 5:00
p.m., St. Louis time, on a date (the "Election Deadline") to be mutually agreed
upon by Agribrands and Ralcorp (which date shall not be later than the twentieth
Business Day after the Effective Time), an Election Form properly completed and
executed (with the signature or signatures thereon guaranteed to the extent
required by the Election Form) by such holder accompanied by such holder's
Certificates, or by an appropriate guarantee of delivery of such Certificates
from a member of any registered national securities exchange or of the National
6
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States as set forth in such Election Form. Any holder of Agribrands
Common Stock or Ralcorp Common Stock who has made an election by submitting an
Election Form to the Exchange Agent shall be deemed to have irrevocably made
such election. Any holder of Agribrands Common Stock or Ralcorp Common Stock who
fails to properly make the required election shall be deemed to have made a
Stock Election with respect to the shares (other than Dissenting Shares) owned
by such holder for which no such election has been made.
(b) Upon surrender to the Exchange Agent of his Certificate
together with a properly completed letter of transmittal, each holder of shares
of Agribrands Common Stock (the "Agribrands Holders") or Ralcorp Common Stock
(the "Ralcorp Holders") will be entitled to receive promptly after the Election
Deadline the Merger Consideration in respect of the shares of the Agribrands
Common Stock or Ralcorp Common Stock represented by his Certificate. Until so
surrendered, each such Certificate shall represent after the Effective Time, for
all purposes, only the right to receive the Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to
a Person other than the Person in whose name the Certificate so surrendered is
registered, it shall be a condition to such payment that such Certificate shall
be properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Certificate, or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) Any portion of the Exchange Fund made available to or
deposited with the Exchange Agent pursuant to Section 3.4 that remains unclaimed
by the Agribrands Holders and Ralcorp Holders, six months after the Effective
Time shall be returned to Holding Company, upon demand, and any such holder who
has not exchanged his shares for the Merger Consideration in accordance with
this Section 3.4 prior to that time shall thereafter look only to Holding
Company for payment of such consideration, and any dividends and distributions
in respect of such shares, in each case without any interest thereon.
Notwithstanding the foregoing, Holding Company shall not be liable to any
Agribrands Holder or Ralcorp Holder for any amounts paid to a public official
pursuant to applicable abandoned property, escheat or similar laws. Any amounts
remaining unclaimed by the Agribrands Holders or Ralcorp Holders five years
after the Effective Time (or such earlier date, immediately prior to such time
when the amounts would otherwise escheat to or become property of any
Governmental Authority) shall become, to the extent permitted by applicable law,
the property of Holding Company free and clear of any claims or interest of any
Person previously entitled thereto.
(e) No dividends or other distributions with respect to any
Holding Company Common Stock and no cash payment in lieu of fractional shares as
provided in Section 3.6, shall be paid to the holder of any unsurrendered
Certificates until such Certificates are surrendered as provided in Section 3.4.
Following such surrender, there shall be paid, without interest, to the Person
in whose name such Holding Company Common Stock has been registered, (i) at the
7
time of such surrender, (A) in the case of Certificates, the amount of any cash
payable in lieu of fractional shares to which such Person is entitled pursuant
to Section 3.6, and (B) the amount of all dividends or other distributions with
a record date after the Effective Time previously paid or payable on the date of
such surrender, with respect to such Holding Company Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender, and with a
payment date subsequent to surrender, payable with respect to such Holding
Company Common Stock.
(f) (i) If the percentage of shares of Agribrands Common
Stock outstanding immediately prior to the Effective Time for which Agribrands
Stock Elections were made (the "Agribrands Stock Election Percentage") is equal
to or greater than 80%, then all shares of Agribrands Common Stock covered by
Agribrands Stock Elections shall be converted into the right to receive shares
of Holding Company Common Stock, and all shares of Agribrands Common Stock
covered by Agribrands Cash Elections shall be converted into the right to
receive the Agribrands Cash Consideration.
(ii) If the Agribrands Stock Election Percentage is less
than 80%, then all shares of Agribrands Common Stock covered by Agribrands Stock
Elections shall be converted into the right to receive shares of Holding Company
Common Stock, and the shares for which each holder made an Agribrands Cash
Election (the "Agribrands Cash Election Shares") shall be treated as follows:
(A) Such holder shall be deemed to have made the
Agribrands Stock Election in respect of a fraction (not greater than one) of
such holder's Agribrands Cash Election Shares, (x) the numerator of which is the
difference of 80% minus the Agribrands Stock Election Percentage, and (y) the
denominator of which is the percentage of shares of Agribrands Common Stock
outstanding immediately prior to the Effective Time for which Agribrands Cash
Elections were made; and
(B) The balance of such holder's Agribrands Cash
Election Shares shall be converted into the right to receive the Agribrands Cash
Consideration.
(g) (i) If the percentage of shares of Ralcorp Common Stock
outstanding immediately prior to the Effective Time for which Ralcorp Stock
Elections were made (the "Ralcorp Stock Election Percentage") is equal to or
greater than 80%, then all shares of Ralcorp Common Stock covered by Ralcorp
Stock Elections shall be converted into the right to receive shares of Holding
Company Common Stock, and all shares of Ralcorp Common Stock covered by Ralcorp
Cash Elections shall be converted into the right to receive the Ralcorp Cash
Consideration.
(ii) If the Ralcorp Stock Election Percentage is less
than 80%, then all shares of Ralcorp Common Stock covered by Ralcorp Stock
Elections shall be converted into the right to receive shares of Holding Company
Common Stock, and the shares for which each holder made a Ralcorp Cash Election
(the "Ralcorp Cash Election Shares") shall be treated as follows:
8
(A) Such holder shall be deemed to have made the
Ralcorp Stock Election in respect of a fraction (not greater than one) of such
holder's Ralcorp Cash Election Shares, (x) the numerator of which is the
difference of 80% minus the Ralcorp Stock Election Percentage, and (y) the
denominator of which is the percentage of shares of Ralcorp Common Stock
outstanding immediately prior to the Effective Time for which Ralcorp Cash
Elections were made; and
(B) The balance of such holder's Ralcorp Cash
Election Shares shall be converted into the right to receive the Ralcorp Cash
Consideration.
3.5. Options.
(a) At the Effective Time, each option granted by Agribrands
to purchase shares of Agribrands Common Stock (the "Agribrands Options") which
is outstanding and unexercised immediately prior to the Effective Time shall
either be assumed by Holding Company or converted into an option ("New
Agribrands Options") to purchase shares of Holding Company Common Stock having
the same terms and conditions as are in effect immediately prior to the
Effective Time (including such terms and conditions as may be incorporated by
reference into the agreements evidencing Agribrands Options pursuant to the
plans or arrangements pursuant to which such Agribrands Options were granted and
taking into account the provisions of Section 6.9 hereof) except that the
exercise price and number of shares issuable upon exercise shall be divided and
multiplied, respectively, by 3.00.
(b) At the Effective Time, each option granted by Ralcorp to
purchase shares of Ralcorp Common Stock (the "Ralcorp Options") which is
outstanding and unexercised immediately prior to the Effective Time shall either
be assumed by Holding Company or converted into an option ("New Ralcorp
Options") to purchase shares of Holding Company Common Stock having the same
terms and conditions as are in effect immediately prior to the Effective Time
(including such terms and conditions as may be incorporated by reference into
the agreements evidencing Ralcorp Options pursuant to the plans or arrangements
pursuant to which such Ralcorp Options were granted and taking into account the
provisions of Section 7.9 hereof) except that the exercise price and number of
shares issuable upon exercise shall be divided and multiplied, respectively, by
1.03.
3.6. Fractional Shares. No fractional shares of Holding Company
Common Stock shall be issued in the Mergers. All fractional shares of Holding
Company Common Stock that a holder of shares of Agribrands Common Stock or
Ralcorp Common Stock would otherwise be entitled to receive as a result of the
Mergers shall be aggregated and if a fractional share results from such
aggregation, such holder shall be entitled to receive, in lieu thereof, an
amount in cash without interest determined by multiplying the fraction of a
share of Holding Company Common Stock to which such holder would otherwise have
been entitled by $15.00.
9
3.7. Withholding Rights. Holding Company shall be entitled to
deduct and withhold from the consideration otherwise payable to any Person
pursuant to this Article 3 such amounts as it is required to deduct and withhold
with respect to the making of such payment under any provision of federal,
state, local or foreign tax law. If Holding Company so withholds amounts, such
amounts shall be treated for all purposes of this Agreement as having been paid
to the Agribrands Holder or Ralcorp Holder, as the case may be, in respect of
which Holding Company made such deduction and withholding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AGRIBRANDS
Agribrands represents and warrants to Ralcorp that the statements
contained in this Article IV are true and correct, except as set forth in the
disclosure schedule delivered by Agribrands to Ralcorp prior to the execution of
this Agreement (the "Agribrands Disclosure Schedule") or as otherwise expressly
contemplated by this Agreement.
4.1. Organization and Good Standing. Agribrands is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Missouri. Each of the subsidiaries of Agribrands (the "Agribrands
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of
Agribrands and the Agribrands Subsidiaries is qualified to do business as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have an Agribrands Material Adverse Effect. For purposes of this
Agreement, "Agribrands Material Adverse Effect" shall mean a material adverse
effect on (i) the business, assets, condition (financial or otherwise),
properties, liabilities or the results of operations of Agribrands and the
Agribrands Subsidiaries, taken as a whole, (ii) the ability of Agribrands to
perform its obligations set forth in this Agreement, or (iii) the ability of
Agribrands to timely consummate the transactions contemplated by this Agreement.
The Articles of Incorporation and Bylaws of Agribrands and the Agribrands
Subsidiaries will not be amended prior to the Closing Date. Agribrands and the
Agribrands Subsidiaries have all corporate power and all material governmental
licenses, authorizations, consents and approvals required to carry on their
respective businesses substantially as now being conducted and necessary to own,
operate and lease their properties and assets.
4.2. Capitalization. As of the date hereof, the authorized capital
stock of Agribrands consists of 50,000,000 shares of Agribrands Common Stock and
10,000,000 shares of preferred stock, par value $.01 per share (the "Agribrands
Preferred Stock"). Of such authorized shares, as of the date hereof, there are
issued and outstanding 9,813,101 shares of Agribrands Common Stock, 854,810
shares of Agribrands Common Stock are issued and held in the treasury of
Agribrands, no shares of the Agribrands Preferred Stock have been designated or
issued, and no other capital stock of Agribrands is issued or outstanding. All
issued and outstanding shares of Agribrands Common Stock are duly authorized,
validly issued and outstanding, fully paid and nonassessable and were issued
free of preemptive rights in compliance with applicable corporate and securities
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Laws. Except as set forth in the Agribrands Securities Filings (as hereinafter
defined), as of the date hereof there are no outstanding rights, subscriptions,
warrants, puts, calls, unsatisfied preemptive rights, options or other
agreements of any kind relating to any of the outstanding, authorized but not
issued, unauthorized or treasury shares of the capital stock or any other
security of Agribrands, and there is no authorized or outstanding security of
any kind convertible into or exchangeable for any such capital stock or other
security. Except as disclosed in the Agribrands Securities Filings, there are no
restrictions upon the transfer of or otherwise pertaining to the securities
(including, but not limited to, the ability to pay dividends thereon) or
retained earnings of Agribrands and the Agribrands Subsidiaries or the ownership
thereof other than those imposed by the Securities Act, the Securities Exchange
Act, applicable state securities Laws or applicable corporate Law.
4.3. Subsidiaries. Each Agribrands Subsidiary is wholly owned by
Agribrands and all of the capital stock and other interests of the Agribrands
Subsidiaries so held by Agribrands are directly or indirectly owned by it, free
and clear of any claim, lien, encumbrance, security interest or agreement with
respect thereto. All of the outstanding shares of capital stock in each of the
Agribrands Subsidiaries directly or indirectly held by Agribrands are duly
authorized, validly issued and outstanding, fully paid and nonassessable and
were issued free of preemptive rights in compliance with applicable corporate
and securities Laws. There are no irrevocable proxies or similar obligations
with respect to such capital stock of the Agribrands Subsidiaries held by
Agribrands and no equity securities or other interests of any of the Agribrands
Subsidiaries are or may become required to be issued or purchased by reason of
any options, warrants, rights to subscribe to, puts, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any capital stock of any Agribrands Subsidiary, and
there are no contracts, commitments, understandings or arrangements by which any
Agribrands Subsidiary is bound to issue additional shares of its capital stock,
or options, warrants or rights to purchase or acquire any additional shares of
its capital stock or securities convertible into or exchangeable for such
shares.
4.4. Authorization; Binding Agreement. Agribrands has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the other agreements and documents referred to herein to
which Agribrands is or will be a party or a signatory (the "Agribrands Ancillary
Agreements") and the consummation of the transactions contemplated hereby and
thereby, including, but not limited to, the Agribrands Merger, have been duly
and validly authorized by Agribrands' Board of Directors, and no other corporate
proceedings on the part of Agribrands or any Agribrands Subsidiary are necessary
to authorize the execution and delivery of this Agreement or to consummate the
transactions contemplated hereby (other than the approval and adoption of this
Agreement, the Agribrands Merger Agreement and the transactions contemplated
hereby and thereby by the shareholders of Agribrands in accordance with the
Missouri Code and the Articles of Incorporation and Bylaws of Agribrands). This
Agreement has been duly and validly executed and delivered by Agribrands and
constitutes, and upon execution and delivery thereof as contemplated by this
Agreement, the Agribrands Ancillary Agreements will constitute, the legal, valid
and binding agreements of Agribrands, enforceable against Agribrands in
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accordance with its and their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity ("Enforceability Exceptions").
4.5. Governmental Approvals. No consent, approval, waiver or
authorization of, notice to or declaration or filing with ("Consent") any nation
or government, any state or other political subdivision thereof, any person,
authority or body exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government including, without
limitation, any governmental or regulatory authority, agency, department, board,
commission or instrumentality, any court, tribunal or arbitrator and any
self-regulatory organization ("Governmental Authority") on the part of
Agribrands or any of the Agribrands Subsidiaries is required in connection with
the execution or delivery by Agribrands of this Agreement or the consummation by
Agribrands of the transactions contemplated hereby other than (i) the filing of
the Articles of Merger with the Secretary of State of the State of Missouri in
accordance with the Missouri Code, (ii) filings with the SEC, state securities
laws administrators, and the New York Stock Exchange (the "NYSE"), (iii)
Consents from or with Governmental Authorities set forth on the Agribrands
Disclosure Schedule, (iv) filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), (v) the supplemental ruling from the Internal
Revenue Service (the "IRS") referred to in Section 6.15 below; and (vi) those
Consents that, if they were not obtained or made, do not or would not reasonably
be expected to have an Agribrands Material Adverse Effect.
4.6. No Violations. The execution and delivery of this Agreement
and the Agribrands Ancillary Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Agribrands with any of the
provisions hereof or thereof will not (i) conflict with or result in any breach
of any provision of the Articles and/or Certificate of Incorporation or Bylaws
or other governing instruments of Agribrands or any of the Agribrands
Subsidiaries, (ii) require any Consent under or result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration
or augment the performance required) under any of the terms, conditions or
provisions of any Agribrands Material Contract (as hereinafter defined) or other
material obligation to which Agribrands or any Agribrands Subsidiary is a party
or by which any of them or any of their properties or assets may be bound, (iii)
result in the creation or imposition of any lien or encumbrance of any kind upon
any of the assets of Agribrands or any Agribrands Subsidiary, or (iv) subject to
obtaining the Consents from Governmental Authorities referred to in Section 4.5,
above, contravene any applicable provision of any constitution, treaty, statute,
law, code, rule, regulation, ordinance, policy or order of any Governmental
Authority or other matters having the force of law including, but not limited
to, any orders, decisions, injunctions, judgments, awards and decrees of or
agreements with any court or other Governmental Authority ("Law") currently in
effect to which Agribrands or any Agribrands Subsidiary or its or any of their
respective assets or properties are subject, except in the case of clauses (ii),
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(iii) and (iv) above, for any deviations from the foregoing which do not or
would not reasonably be expected to have an Agribrands Material Adverse Effect.
4.7. Securities Filings and Litigation. Agribrands has made
available to Ralcorp true and complete copies of (i) its Annual Reports on Form
10-K, as amended, for the years ended August 31, 1998 and 1999, as filed with
the SEC, (ii) its proxy statements relating to all of the meetings of
shareholders (whether annual or special) of Agribrands since April 1, 1998, as
filed with the SEC, and (iii) all other reports, statements and registration
statements and amendments thereto (including, without limitation, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by
Agribrands with the SEC since April 1, 1998. The reports and statements set
forth in clauses (i) through (iii), above, and those subsequently provided or
required to be provided pursuant to this Section, are referred to collectively
herein as the "Agribrands Securities Filings." As of their respective dates, or
as of the date of the last amendment thereof, if amended after filing, none of
the Agribrands Securities Filings (including all schedules thereto and
disclosure documents incorporated by reference therein), contained or, as to
Agribrands Securities Filings subsequent to the date hereof, will contain any
untrue statement of a material fact or omitted or, as to Agribrands Securities
Filings subsequent to the date hereof, will omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
the Agribrands Securities Filings was filed in a timely manner and at the time
of filing or as of the date of the last amendment thereof, if amended after
filing, complied or, as to Agribrands Securities Filings subsequent to the date
hereof, will comply in all material respects with the Securities Exchange Act or
the Securities Act, as applicable. There is no action, cause of action, claim,
demand, suit, proceeding, citation, summons, subpoena, inquiry or investigation
of any nature, civil, criminal, regulatory or otherwise, in law or in equity, by
or before any court, tribunal, arbitrator or other Governmental Authority
("Litigation") pending or, to the knowledge of Agribrands, threatened against
Agribrands or any of its subsidiaries, any officer, director, employee or agent
thereof, in his or her capacity as such, or as a fiduciary with respect to any
Agribrands Benefit Plan, as hereinafter defined, or otherwise relating to
Agribrands or any of its subsidiaries or the securities of any of them, or any
properties or rights of Agribrands or any of its subsidiaries or any Agribrands
Benefit Plan which is required to be described in any Agribrands Securities
Filing that is not so described. No event has occurred as a consequence of which
Agribrands would be required to file a Current Report on Form 8-K pursuant to
the requirements of the Securities Exchange Act as to which such a report has
not been timely filed with the SEC. Any reports, statements and registration
statements and amendments thereof (including, without limitation, Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
amended) filed by Agribrands with the SEC after the date hereof shall be
provided to Ralcorp on the date of such filing.
4.8. Agribrands Financial Statements. The audited consolidated
financial statements and unaudited interim financial statements of Agribrands
included in the Agribrands Securities Filings (the "Agribrands Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and present fairly, in all material respects, the
13
financial position of Agribrands and the Agribrands Subsidiaries as at the dates
thereof and the results of their operations and cash flows for the periods then
ended subject, in the case of the unaudited interim financial statements, to
normal year-end audit adjustments, any other adjustments described therein and
the fact that certain information and notes have been condensed or omitted in
accordance with the Securities Exchange Act.
4.9. Absence of Certain Changes or Events. Except as set forth in
the Agribrands Securities Filings, since August 31, 1999, there has not been:
(i) any event, occurrence, fact, condition, change, development or effect
("Event") (except for those Events caused by (x) conditions affecting national,
regional or world economies such as currency fluctuations (but excluding
extraordinary disruptions in regional or world economies or markets or
US/foreign currency exchange ratios involving multiple countries), (y)
conditions affecting the animal feed industry in the regions in which Agribrands
operates, or (z) the pendency or announcement of this Agreement, or the
transactions contemplated hereby) that has had or would reasonably be expected
to have an Agribrands Material Adverse Effect; (ii) any declaration, payment or
setting aside for payment of any dividend (except to Agribrands or an Agribrands
Subsidiary wholly owned by Agribrands) or other distribution or any redemption,
purchase or other acquisition of any shares of capital stock or securities of
Agribrands or any Agribrands Subsidiary; (iii) any return of any capital or
other distribution of assets to shareholders of Agribrands or any Agribrands
Subsidiary (except to Agribrands or an Agribrands Subsidiary wholly owned by
Agribrands); (iv) any acquisition (by merger, consolidation, acquisition of
stock or assets or otherwise) of any person or business; or (v) any other action
or agreement or undertaking by Agribrands or any Agribrands Subsidiary that, if
taken or done on or after the date hereof without Ralcorp's consent, would
result in a breach of Section 6.1, below, and that has had or would reasonably
be expected to have an Agribrands Material Adverse Effect.
4.10. Related Party Transactions. Except as set forth in the
Agribrands Securities Filings, since November 23, 1999, Agribrands has not
entered into any relationship or transaction of a sort that would be required to
be disclosed pursuant to Item 404 of Regulation S-K by Agribrands in a proxy
statement in connection with an annual meeting of shareholders.
4.11. Compliance with Laws. The business of Agribrands and each
Agribrands Subsidiary has been operated in compliance with all Laws applicable
thereto, except for any instances of non-compliance which do not and would not
reasonably be expected to have an Agribrands Material Adverse Effect. Without
limiting the generality of the foregoing, neither Agribrands nor any Agribrands
Subsidiary has conducted its business in violation of applicable Laws, tariffs,
rules and regulations in any jurisdiction, foreign or domestic, which violation
has had or would reasonably be expected to have an Agribrands Material Adverse
Effect.
4.12. Permits. Agribrands and the Agribrands Subsidiaries have all
material permits, certificates, licenses, approvals, tariffs and other
authorizations required in connection with the operation of their respective
businesses (collectively, "Agribrands Permits"), and neither Agribrands nor any
Agribrands Subsidiary is in violation of any Agribrands Permit, and no
proceedings are pending or, to the knowledge of Agribrands, threatened, to
14
revoke or limit any Agribrands Permit, except any such violation or proceeding
which does not and would not reasonably be expected to have an Agribrands
Material Adverse Effect.
4.13. Finders and Investment Bankers. Neither Agribrands nor any of
its officers or directors has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby other than pursuant to the agreements
with Wasserstein Perella & Co., Inc. and Houlihan Lokey Howard & Zukin, accurate
and complete copies of which have been provided to Ralcorp.
4.14. Material Contracts. Neither Agribrands nor any Agribrands
Subsidiary is a party or is subject to any note, bond, mortgage, indenture,
contract, lease, license, agreement, understanding, instrument, bid or proposal
that is required to be described in or filed as an exhibit to any Agribrands
Securities Filing ("Agribrands Material Contract") that is not so described in
or filed as required by the Securities Act or the Securities Exchange Act, as
the case may be. Agribrands has made available to Ralcorp true and accurate
copies of the Agribrands Material Contracts. All such Agribrands Material
Contracts are valid and binding and are in full force and effect and enforceable
against Agribrands or such subsidiary in accordance with their respective terms,
subject to the Enforceability Exceptions. Except as referenced in Section 4.6
above, (i) no Consent of any person is needed in order that each such Agribrands
Material Contract shall continue in full force and effect in accordance with its
terms without penalty, acceleration or rights of early termination by reason of
the consummation of the transactions contemplated by this Agreement, except for
Consents the absence of which would not have an Agribrands Material Adverse
Effect, and (ii) neither Agribrands nor any of its subsidiaries is in violation
or breach of or default under any such Agribrands Material Contract; nor to
Agribrands' knowledge is any other party to any such Agribrands Material
Contract in violation or breach of or default under any such Agribrands Material
Contract in each case where such violation or breach would have an Agribrands
Material Adverse Effect.
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4.15. Employee Benefit Plans. (a) There are no Benefit Plans (as
defined below) or Foreign Plans (as defined below) maintained or contributed to
by Agribrands or an Agribrands Subsidiary under which Agribrands or an
Agribrands Subsidiary could incur any material liability. A "Benefit Plan" shall
include (i) an employee benefit plan as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, together with all
regulations thereunder ("ERISA"), even if, because of some other provision of
ERISA, such plan is not subject to any or all of ERISA's provisions, and (ii)
whether or not described in the preceding clause, (a) any pension, profit
sharing, stock bonus, deferred or supplemental compensation, retirement, thrift,
stock purchase, stock appreciation or stock option plan, or any other
compensation, welfare, fringe benefit or retirement plan, program, policy,
course of conduct, understanding or arrangement of any kind whatsoever, whether
formal or informal, oral or written, providing for benefits for or the welfare
of any or all of the current or former employees or agents of a specified person
or their beneficiaries or dependents, (b) a multi-employer plan as defined in
Section 3(37) of ERISA (a "Multi-Employer Plan"), or (c) a multiple employer
plan as defined in Section 413 of the Code.
(b) With respect to each Benefit Plan (where applicable):
Agribrands has made available to Ralcorp complete and accurate copies of (i) all
plan and trust texts and agreements, insurance contracts and other funding
arrangements; (ii) the most recent annual report on the Form 5500 series; (iii)
the most recent financial statement and/or annual and periodic accounting of
plan assets; (iv) the most recent determination letter received from the IRS;
and (v) the most recent summary plan description as defined in ERISA.
(c) With respect to each Benefit Plan while maintained or
contributed to by Agribrands: (i) if intended to qualify under Code Sections
401(a) or 403(a), such Benefit Plan has received a favorable determination
letter from the IRS that it so qualifies, and its trust is exempt from taxation
under Code Section 501(a) and, to the knowledge of Agribrands, nothing has since
occurred to cause the loss of the Benefit Plan's qualification; (ii) except for
payment of benefits made in the ordinary course of the plan administration, no
event has occurred and, to the knowledge of Agribrands, there exists no
circumstance under which Agribrands or Holding Company could incur liability
under ERISA, the Code or otherwise; (iii) no non-exempt prohibited transaction
as defined under ERISA and the Code has occurred; (iv) all contributions and
premiums due have fully been made and paid on a timely basis; and (v) all
contributions made or required to be made under any Benefit Plan meet the
requirements for deductibility under the Code, and all contributions accrued
prior to the Effective Time which have not been made have been properly recorded
on the Agribrands Financial Statements in a manner satisfying the requirements
of Financial Accounting Standards 87 and 88 except, in each case, for any
deviations from the foregoing which do not and would not reasonably be expected
to have an Agribrands Material Adverse Effect.
(d) No Benefit Plan is a pension plan subject to Title IV of
ERISA or Section 412 of the Code. Each of the Benefit Plans has been maintained
in compliance with its terms and all applicable Law, except where the failure to
do so would not reasonably be expected to have an Agribrands Material Adverse
16
Effect. Agribrands does not contribute to, or have any outstanding liability
with respect to, any Multi-employer Plan.
(e) With respect to each Benefit Plan which is a welfare plan
(as defined in ERISA Section 3(1)): (i) any liability for medical or death
benefits with respect to current or former employees beyond their termination of
employment (except as may be required by applicable Law) is provided for in the
Agribrands Financial Statements to the extent required by generally accepted
accounting principles; (ii) there are no reserves, assets, surplus or prepaid
premiums under any such plan; (iii) no term or provision of any such plan
prohibits the amendment or termination thereof; (iv) Agribrands has complied
with Code Section 4980B, except, in each case, for any deviations from the
foregoing which do not and would not reasonably be expected to have an
Agribrands Material Adverse Effect; and (v) each such Benefit Plan which is
intended to meet the requirements for tax-favored treatment under Subchapter B
of Chapter 1 of the Code meets such requirements.
(f) Except as provided in Section 6.9 below, the consummation
of the Agribrands Merger will not, either alone or in conjunction with another
Event under the terms of any Benefit Plan: (i) entitle any individual to
severance pay, (ii) accelerate the time of payment or vesting of benefits or
increase the amount of compensation due to any individual; or (iii) give rise to
the payment of any amount that would not be deductible pursuant to Section 280G
of the Code.
(g) With respect to each Benefit Plan which is contributed to
or required to be maintained by the law or applicable custom or rule of the
relevant jurisdiction outside of the United States (the "Foreign Plans") except,
in each case, for any deviations from the below which do not and would not
reasonably be expected to have an Agribrands Material Adverse Effect:
(i) Each of the Foreign Plans is in compliance with
the provisions of the laws of each jurisdiction in which each such Foreign Plan
is maintained, to the extent those laws are applicable to the Foreign Plans;
(ii) All contributions to, and payments from, the
Foreign Plans which may have been required to be made in accordance with the
terms of any such Foreign Plan, and, when applicable, the law of the
jurisdiction in which such Foreign Plan is maintained, have been timely made or
shall be made by the Closing Date. All such contributions to the Foreign Plans,
and all payments under the Foreign Plans, for any period ending before the
Closing Date that are not yet, but will be, required to be made, are reflected
as an accrued liability on the Balance Sheet;
(iii) All reports, returns and similar documents, if
any, with respect to any Foreign Plan required to be filed with any governmental
body or distributed to any Foreign Plan participant have been duly and timely
filed or distributed or will be filed or distributed by the Closing Date, and
all of the Foreign Plans have obtained from the governmental body having
jurisdiction with respect to such plans any required determinations, if any,
17
that such Foreign Plans are in compliance with the laws of the relevant
jurisdiction if such determinations are required in order to give effect to the
Foreign Plan;
(iv) Each of the Foreign Plans has been administered
at all times in accordance with its terms. To the knowledge of Agribrands, there
are no pending investigations by any governmental body involving the Foreign
Plans, and no pending claims (except for claims for benefits payable in the
normal operations of the Foreign Plans), suits or proceedings against any
Foreign Plan or asserting any rights or claims to benefits under any Foreign
Plan; and
(v) The consummation of the transactions contemplated
by this Agreement will not by itself create or otherwise result in any liability
with respect to any Foreign Plan other than the triggering of payment to
participants.
4.16. Taxes and Returns. (a) Agribrands and each of the Agribrands
Subsidiaries have timely filed or caused to be filed all material Tax Returns
required to be filed by it, and all Tax Returns filed by Agribrands and the
Agribrands Subsidiaries are true, complete and correct in all material respects.
(b) Agribrands and the Agribrands Subsidiaries have each
timely paid, collected or withheld, or caused to be timely paid, collected or
withheld, all material amounts of Taxes required to be paid, collected or
withheld, other than such Taxes for which adequate reserves in the Agribrands
Financial Statements have been established.
(c) There are no claims or assessments pending against
Agribrands or any of the Agribrands Subsidiaries for any alleged deficiency in
any Tax, and Agribrands has not been notified in writing of any proposed Tax
claims or assessments against Agribrands or any of the Agribrands Subsidiaries
(other than in each case, claims or assessments for which adequate reserves in
the Agribrands Financial Statements have been established or which are being
contested in good faith or are immaterial in amount).
(d) There are no material federal, state, local or foreign
audits or administrative proceedings pending with regard to any material amounts
of Tax or Tax Return of Agribrands or the Agribrands Subsidiaries and none of
them has received a written notice of any proposed material audit or proceeding.
(e) Neither Agribrands nor any of the Agribrands Subsidiaries
has any waivers or extensions of any applicable statute of limitations to assess
any material amount of Taxes.
(f) There are no outstanding requests by Agribrands or any of
the Agribrands Subsidiaries for any extension of time within which to file any
material Tax Return or within which to pay any material amounts of Taxes shown
to be due on any return.
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(g) There are no liens for material amounts of Taxes on the
assets of Agribrands or any of the Agribrands Subsidiaries except for statutory
liens for current Taxes not yet due and payable.
(h) Neither Agribrands nor any Agribrands Subsidiary is a
party to any agreement, contract, arrangement, or plan that has resulted or
would result, individually or in the aggregate, in connection with this
Agreement or any change of control of Agribrands or any of the Agribrands
Subsidiaries in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(i) For purposes of this Agreement, the term "Tax" shall mean
any federal, state, local, foreign or provincial income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll,
alternative or added minimum, ad valorem, withholding, estimated, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty imposed by any Governmental Authority. The term "Tax Return" shall mean
a report, return or other information (including any attached schedules or any
amendments to such report, return or other information) required to be supplied
to or filed with a governmental entity with respect to any Tax, including an
information return, claim for refund, amended return or declaration of estimated
Tax.
4.17. No Adverse Actions. There is no existing, pending or, to the
knowledge of Agribrands, threatened termination, cancellation, limitation,
modification or change in the business relationship of Agribrands or any of the
Agribrands Subsidiaries, with any supplier, customer or other person except such
as would not reasonably be expected to have an Agribrands Material Adverse
Effect. None of Agribrands, any Agribrands Subsidiary or, to the knowledge of
Agribrands, any director, officer, agent, employee or other person acting on
behalf of any of the foregoing has used any corporate funds for unlawful
contributions, payments, gifts or entertainment or for the payment of other
unlawful expenses relating to political activity, or made any direct or indirect
unlawful payments to governmental or regulatory officials or others, which would
reasonably be expected to have an Agribrands Material Adverse Effect.
4.18. Fairness Opinions. Agribrands' Board of Directors and the
Independent Committee of the Agribrands Board of Directors received from their
respective financial advisors, Wasserstein Perella & Co., Inc. and Houlihan
Lokey Howard & Zukin, opinions to the effect that the Merger Consideration is
fair to the holders of the Agribrands Shares (other than common directors of
both Agribrands and Ralcorp) from a financial point of view.
4.19. Takeover Statutes and Charter. No "business combination,"
"fair price," "moratorium," "control share acquisition" or other similar
antitakeover statute or regulation enacted under state or federal laws in the
United States (each a "Takeover Statute"), including, without limitation,
Sections 351.407 and 351.459 of the Missouri Code, applicable to Agribrands or
any of the Agribrands Subsidiaries is applicable to the Agribrands Merger, this
Agreement, the Agribrands Ancillary Agreements or the other transactions
contemplated hereby or thereby (inasmuch as Agribrands has approved the
19
transactions contemplated by this Agreement and the Agribrands Ancillary
Agreements for purposes of Section 351.459 of the Missouri Code and has taken
all other requisite corporate action under the Takeover Statutes). The
provisions of Article Four of the Articles of Incorporation of Agribrands are
not applicable to the Agribrands Merger, this Agreement, the Agribrands
Ancillary Agreements or the other transactions contemplated hereby or thereby
(inasmuch as there are one or more "Continuing Directors" (as defined in the
Articles of Incorporation of Agribrands) and the Agribrands Merger has been
approved by a majority of them).
4.20. Agribrands Rights Plan. Under the Rights Agreement between
Agribrands and Continental Stock Transfer & Trust Company, dated as of March 31,
1998 and as amended on August 7, 2000 (the "Agribrands Rights Agreement"),
neither Merger Sub A nor Holding Company will become an "Acquiring Person," no
"Shares Acquisition Date" or "Distribution Date" (as such terms are defined in
the Agribrands Rights Agreement) will occur, and the holders of any rights
issued pursuant to the Agribrands Rights Agreement will not be entitled to
receive any benefits under the Agribrands Rights Agreement as a result of the
approval, execution or delivery of this Agreement, the Agribrands Merger
Agreement or any of the Agribrands Ancillary Agreements or the consummation of
the transactions contemplated hereby and thereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RALCORP
Ralcorp represents and warrants to Agribrands that the statements
contained in this Article V are true and correct, except as set forth in the
disclosure schedule delivered by Ralcorp to Agribrands prior to the execution of
this Agreement (the "Ralcorp Disclosure Schedule") or as otherwise expressly
contemplated by this Agreement.
5.1. Organization and Good Standing. Ralcorp is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Missouri. Each of the subsidiaries of Ralcorp (the "Ralcorp Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Each of Ralcorp and the Ralcorp
Subsidiaries is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a Ralcorp
Material Adverse Effect. For purposes of this Agreement, "Ralcorp Material
Adverse Effect" shall mean a material adverse effect on (i) the business,
assets, condition (financial or otherwise), properties, liabilities or the
results of operations of Ralcorp and the Ralcorp Subsidiaries, taken as a whole,
(ii) the ability of Ralcorp to perform its obligations set forth in this
Agreement, or (iii) the ability of Ralcorp to timely consummate the transactions
contemplated by this Agreement. The Articles of Incorporation and Bylaws of
Ralcorp and the Ralcorp Subsidiaries will not be amended prior to the Closing
Date. Ralcorp and the Ralcorp Subsidiaries have all corporate power and all
material governmental licenses, authorizations, consents and approvals required
20
to carry on their respective businesses substantially as now being conducted and
necessary to own, operate and lease their properties and assets.
5.2. Capitalization. As of the date hereof, the authorized capital
stock of Ralcorp consists of 300,000,000 shares of Ralcorp Common Stock and
10,000,000 shares of preferred stock, par value $.01 per share (the "Ralcorp
Preferred Stock"). Of such authorized shares, as of the date hereof, there are
issued and outstanding 29,859,907 shares of Ralcorp Common Stock, 3,151,410
shares of Ralcorp Common Stock are issued and held in the treasury of Ralcorp,
no shares of the Ralcorp Preferred Stock have been designated or issued, and no
other capital stock of Ralcorp is issued or outstanding. All issued and
outstanding shares of Ralcorp Common Stock are duly authorized, validly issued
and outstanding, fully paid and nonassessable and were issued free of preemptive
rights in compliance with applicable corporate and securities Laws. Except as
set forth in the Ralcorp Securities Filings (as hereinafter defined), as of the
date hereof there are no outstanding rights, subscriptions, warrants, puts,
calls, unsatisfied preemptive rights, options or other agreements of any kind
relating to any of the outstanding, authorized but not issued, unauthorized or
treasury shares of the capital stock or any other security of Ralcorp, and there
is no authorized or outstanding security of any kind convertible into or
exchangeable for any such capital stock or other security. Except as disclosed
in the Ralcorp Securities Filings, there are no restrictions upon the transfer
of or otherwise pertaining to the securities (including, but not limited to, the
ability to pay dividends thereon) or retained earnings of Ralcorp and the
Ralcorp Subsidiaries or the ownership thereof other than those imposed by the
Securities Act, the Securities Exchange Act, applicable state securities Laws or
applicable corporate Law.
5.3. Subsidiaries. Each Ralcorp Subsidiary is wholly owned by
Ralcorp and all of the capital stock and other interests of the Ralcorp
Subsidiaries so held by Ralcorp are directly or indirectly owned by it, free and
clear of any claim, lien, encumbrance, security interest or agreement with
respect thereto. All of the outstanding shares of capital stock in each of the
Ralcorp Subsidiaries directly or indirectly held by Ralcorp are duly authorized,
validly issued and outstanding, fully paid and nonassessable and were issued
free of preemptive rights in compliance with applicable corporate and securities
Laws. There are no irrevocable proxies or similar obligations with respect to
such capital stock of the Ralcorp Subsidiaries held by Ralcorp and no equity
securities or other interests of any of the Ralcorp Subsidiaries are or may
become required to be issued or purchased by reason of any options, warrants,
rights to subscribe to, puts, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any capital stock of any Ralcorp Subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any Ralcorp
Subsidiary is bound to issue additional shares of its capital stock, or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock or securities convertible into or exchangeable for such shares.
5.4. Authorization; Binding Agreement. Ralcorp has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the other agreements and documents referred to herein to
which Ralcorp is or will be a party or a signatory (the "Ralcorp Ancillary
21
Agreements") and the consummation of the transactions contemplated hereby and
thereby, including, but not limited to, the Ralcorp Merger, have been duly and
validly authorized by Ralcorp's Board of Directors, and no other corporate
proceedings on the part of Ralcorp or any Ralcorp Subsidiary are necessary to
authorize the execution and delivery of this Agreement or to consummate the
transactions contemplated hereby (other than the approval and adoption of this
Agreement, the Ralcorp Merger Agreement and the transactions contemplated hereby
and thereby by the shareholders of Ralcorp in accordance with the Missouri Code
and the Articles of Incorporation and Bylaws of Ralcorp). This Agreement has
been duly and validly executed and delivered by Ralcorp and constitutes, and
upon execution and delivery thereof as contemplated by this Agreement, the
Ralcorp Ancillary Agreements will constitute, the legal, valid and binding
agreements of Ralcorp, enforceable against Ralcorp in accordance with its and
their respective terms, subject to the Enforceability Exceptions.
5.5. Governmental Approvals. No Consent from or with any
Governmental Authority on the part of Ralcorp or any of the Ralcorp Subsidiaries
is required in connection with the execution or delivery by Ralcorp of this
Agreement or the consummation by Ralcorp of the transactions contemplated hereby
other than (i) the filing of the Articles of Merger with the Secretary of State
of the State of Missouri in accordance with the Missouri Code, (ii) filings with
the SEC, state securities laws administrators, the NYSE and any securities
exchange on which the Ralcorp Common Stock is listed, (iii) Consents from or
with Governmental Authorities set forth on the Ralcorp Disclosure Schedule, (iv)
filings under the HSR Act, and (v) those Consents that, if they were not
obtained or made, do not or would not reasonably be expected to have a Ralcorp
Material Adverse Effect.
5.6. No Violations. The execution and delivery of this Agreement
and the Ralcorp Ancillary Agreements, the consummation of the transactions
contemplated hereby and thereby and compliance by Ralcorp with any of the
provisions hereof or thereof will not (i) conflict with or result in any breach
of any provision of the Articles and/or Certificate of Incorporation or Bylaws
or other governing instruments of Ralcorp or any of the Ralcorp Subsidiaries,
(ii) require any Consent under or result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration or augment
the performance required) under any of the terms, conditions or provisions of
any Ralcorp Material Contract (as hereinafter defined) or other material
obligation to which Ralcorp or any Ralcorp Subsidiary is a party or by which any
of them or any of their properties or assets may be bound, (iii) result in the
creation or imposition of any lien or encumbrance of any kind upon any of the
assets of Ralcorp or any Ralcorp Subsidiary, or (iv) subject to obtaining the
Consents from Governmental Authorities referred to in Section 5.5, above,
contravene any Law currently in effect to which Ralcorp or any Ralcorp
Subsidiary or its or any of their respective assets or properties are subject,
except in the case of clauses (ii), (iii) and (iv) above, for any deviations
from the foregoing which do not or would not reasonably be expected to have a
Ralcorp Material Adverse Effect.
5.7. Securities Filings and Litigation. Ralcorp has made available
to Agribrands true and complete copies of (i) its Annual Reports on Form 10-K,
as amended, for the years ended September 30, 1998 and 1999, as filed with the
22
SEC, (ii) its proxy statements relating to all of the meetings of shareholders
(whether annual or special) of Ralcorp since January 31, 1997, as filed with the
SEC, and (iii) all other reports, statements and registration statements and
amendments thereto (including, without limitation, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as amended) filed by Ralcorp with the SEC
since January 31, 1997. The reports and statements set forth in clauses (i)
through (iii), above, and those subsequently provided or required to be provided
pursuant to this Section, are referred to collectively herein as the "Ralcorp
Securities Filings." As of their respective dates, or as of the date of the last
amendment thereof, if amended after filing, none of the Ralcorp Securities
Filings (including all schedules thereto and disclosure documents incorporated
by reference therein), contained or, as to Ralcorp Securities Filings subsequent
to the date hereof, will contain any untrue statement of a material fact or
omitted or, as to Ralcorp Securities Filings subsequent to the date hereof, will
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the Ralcorp Securities Filings was filed in a
timely manner and at the time of filing or as of the date of the last amendment
thereof, if amended after filing, complied or, as to Ralcorp Securities Filings
subsequent to the date hereof, will comply in all material respects with the
Securities Exchange Act or the Securities Act, as applicable. There is no
Litigation pending or, to the knowledge of Ralcorp, threatened against Ralcorp
or any of its subsidiaries, any officer, director, employee or agent thereof, in
his or her capacity as such, or as a fiduciary with respect to any Ralcorp
Benefit Plan, as hereinafter defined, or otherwise relating to Ralcorp or any of
its subsidiaries or the securities of any of them, or any properties or rights
of Ralcorp or any of its subsidiaries or any Ralcorp Benefit Plan which is
required to be described in any Ralcorp Securities Filing that is not so
described. No event has occurred as a consequence of which Ralcorp would be
required to file a Current Report on Form 8-K pursuant to the requirements of
the Securities Exchange Act as to which such a report has not been timely filed
with the SEC. Any reports, statements and registration statements and amendments
thereof (including, without limitation, Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as amended) filed by Ralcorp with
the SEC after the date hereof shall be provided to Ralcorp on the date of such
filing.
5.8. Ralcorp Financial Statements. The audited consolidated
financial statements and unaudited interim financial statements of Ralcorp
included in the Ralcorp Securities Filings (the "Ralcorp Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and present fairly, in all material respects, the financial
position of Ralcorp and the Ralcorp Subsidiaries as at the dates thereof and the
results of their operations and cash flows for the periods then ended subject,
in the case of the unaudited interim financial statements, to normal year-end
audit adjustments, any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Securities Exchange Act.
5.9. Absence of Certain Changes or Events. Except as set forth in
the Ralcorp Securities Filings, since September 30, 1999, there has not been:
(i) any Event (except for those Events caused by (y) conditions affecting the
23
store brand and value brand grocery product industry in the regions in which
Ralcorp operates, or (z) the pendency or announcement of this Agreement, or the
transactions contemplated hereby) that has had or would reasonably be expected
to have a Ralcorp Material Adverse Effect; (ii) any declaration, payment or
setting aside for payment of any dividend (except to Ralcorp or a Ralcorp
Subsidiary wholly owned by Ralcorp) or other distribution or any redemption,
purchase or other acquisition of any shares of capital stock or securities of
Ralcorp or any Ralcorp Subsidiary; (iii) any return of any capital or other
distribution of assets to shareholders of Ralcorp or any Ralcorp Subsidiary
(except to Ralcorp or a Ralcorp Subsidiary wholly owned by Ralcorp); (iv) any
acquisition (by merger, consolidation, acquisition of stock or assets or
otherwise) of any person or business; or (v) any other action or agreement or
undertaking by Ralcorp or any Ralcorp Subsidiary that, if taken or done on or
after the date hereof without Ralcorp's consent, would result in a breach of
Section 7.1, below, and that has had or would reasonably be expected to have a
Ralcorp Material Adverse Effect.
5.10. Related Party Transactions. Except as set forth in the Ralcorp
Securities Filings, since December 20, 1999, Ralcorp has not entered into any
relationship or transaction of a sort that would be required to be disclosed
pursuant to Item 404 of Regulation S-K by Ralcorp in a proxy statement in
connection with an annual meeting of shareholders.
5.11. Compliance with Laws. The business of Ralcorp and each Ralcorp
Subsidiary has been operated in compliance with all Laws applicable thereto,
except for any instances of non-compliance which do not and would not reasonably
be expected to have a Ralcorp Material Adverse Effect. Without limiting the
generality of the foregoing, neither Ralcorp nor any Ralcorp Subsidiary has
conducted its business in violation of applicable Laws, tariffs, rules and
regulations in any jurisdiction, foreign or domestic, which violation has had or
would reasonably be expected to have a Ralcorp Material Adverse Effect.
5.12. Permits. Ralcorp and the Ralcorp Subsidiaries have all
material permits, certificates, licenses, approvals, tariffs and other
authorizations required in connection with the operation of their respective
businesses (collectively, "Ralcorp Permits") and neither Ralcorp nor any Ralcorp
Subsidiary is in violation of any Ralcorp Permit, and no proceedings are pending
or, to the knowledge of Ralcorp, threatened, to revoke or limit any material
Ralcorp Permit, except any such violation or proceeding which does not and would
not reasonably be expected to have a Ralcorp Material Adverse Effect.
5.13. Finders and Investment Bankers. Neither Ralcorp nor any of its
officers or directors has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby other than pursuant to the agreements
with Banc of America Securities LLC and A.G. Edwards & Sons, Inc., accurate and
complete copies of which have been provided to Agribrands.
5.14. Material Contracts. Neither Ralcorp nor any Ralcorp Subsidiary
is a party or is subject to any note, bond, mortgage, indenture, contract,
lease, license, agreement, understanding, instrument, bid or proposal that is
24
required to be described in or filed as an exhibit to any Ralcorp Securities
Filing ("Ralcorp Material Contract") that is not so described in or filed as
required by the Securities Act or the Securities Exchange Act, as the case may
be. Ralcorp has made available to Agribrands true and accurate copies of the
Ralcorp Material Contracts. All such Ralcorp Material Contracts are valid and
binding and are in full force and effect and enforceable against Ralcorp or such
subsidiary in accordance with their respective terms, subject to the
Enforceability Exceptions. Except as referenced in Section 5.6 above, (i) no
Consent of any person is needed in order that each such Ralcorp Material
Contract shall continue in full force and effect in accordance with its terms
without penalty, acceleration or rights of early termination by reason of the
consummation of the transactions contemplated by this Agreement, except for
Consents the absence of which would not have a Ralcorp Material Adverse Effect,
and (ii) neither Ralcorp nor any of its subsidiaries is in violation or breach
of or default under any such Ralcorp Material Contract; nor to Ralcorp's
knowledge is any other party to any such Ralcorp Material Contract in violation
or breach of or default under any such Ralcorp Material Contract in each case
where such violation or breach would have a Ralcorp Material Adverse Effect.
5.15. Employee Benefit Plans. (a) There are no Benefit Plans
maintained or contributed to by Ralcorp or a Ralcorp Subsidiary under which
Ralcorp, a Ralcorp Subsidiary or the Surviving Corporation could incur any
material liability.
(b) With respect to each Benefit Plan (where applicable):
Ralcorp has made available to Agribrands complete and accurate copies of (i) all
plan and trust texts and agreements, insurance contracts and other funding
arrangements; (ii) the most recent annual report on the Form 5500 series; (iii)
the most recent financial statement and/or annual and periodic accounting of
plan assets; (iv) the most recent determination letter received from the IRS;
and (v) the most recent summary plan description as defined in ERISA.
(c) With respect to each Benefit Plan while maintained or
contributed to by Ralcorp or a Ralcorp Subsidiary: (i) if intended to qualify
under Code Sections 401(a) or 403(a), such Benefit Plan has received a favorable
determination letter from the IRS that it so qualifies, and its trust is exempt
from taxation under Code Section 501(a) and, to the knowledge of Ralcorp,
nothing has since occurred to cause the loss of the Benefit Plan's
qualification; (ii) except for payment of benefits made in the ordinary course
of the plan administration, no event has occurred and, to the knowledge of
Ralcorp, there exists no circumstance under which Ralcorp, a Ralcorp Subsidiary
or Holding Company could incur liability under ERISA, the Code or otherwise;
(iii) no accumulated funding deficiency as defined in Code Section 412 has
occurred or exists, whether or not waived; (iv) no non-exempt prohibited
transaction as defined under ERISA and the Code has occurred; (v) no reportable
event as defined in Section 4043 of ERISA has occurred or will occur by virtue
of consummation of the transaction contemplated by this Agreement (other than
events as to which the 30-day notice period is waived pursuant to Section 4043
of ERISA); (vi) all contributions and premiums due including premiums to the
PBGC have fully been made and paid on a timely basis; and (vii) all
contributions made or required to be made under any Benefit Plan meet the
requirements for deductibility under the Code, and all contributions accrued
25
prior to the Effective Time which have not been made have been properly recorded
on the Ralcorp Financial Statements in a manner satisfying the requirements of
Financial Accounting Standards 87 and 88; (viii) the present value of all
"benefit liabilities" (as defined in ERISA Section 4001(a)(16) and determined
based on the actuarial assumptions and methods used under such Benefit Plan for
the most recent Benefit Plan actuarial valuation and assuming for such purposes
that all benefits provided under the Benefit Plan are fully vested) under each
such Benefit Plan did not exceed as of the most recent Benefit Plan actuarial
valuation date, and will not exceed as of the Closing Date, the then current
value of the assets of such Benefit Plan as determined pursuant to Code Section
412, and (ix) neither Ralcorp nor any Ralcorp Subsidiary has completely or
partially withdrawn from a Plan that is a Multi-employer Plan, and Ralcorp would
not become subject to liability under ERISA if Ralcorp were to withdraw
completely from all multi-employer plans in which it currently participates,
except, in each case, for any deviations from the foregoing which do not and
would not reasonably be expected to have a Ralcorp Material Adverse Effect.
5.16. Taxes and Returns. (a) Ralcorp and each of the Ralcorp
Subsidiaries has timely filed or caused to be filed all material Tax Returns
required to be filed by it, and all Tax Returns filed by Ralcorp and the Ralcorp
Subsidiaries are true, complete and correct in all material respects.
(b) Ralcorp and the Ralcorp Subsidiaries have each timely
paid, collected or withheld, or caused to be timely paid, collected or withheld,
all material amounts of Taxes required to be paid, collected or withheld, other
than such Taxes for which adequate reserves in the Ralcorp Financial Statements
have been established.
(c) There are no claims or assessments pending against Ralcorp
or any of the Ralcorp Subsidiaries for any alleged deficiency in any Tax, and
Ralcorp has not been notified in writing of any proposed Tax claims or
assessments against Ralcorp or any of the Ralcorp Subsidiaries (other than in
each case, claims or assessments for which adequate reserves in the Ralcorp
Financial Statements have been established or which are being contested in good
faith or are immaterial in amount).
(d) There are no material federal, state, local or foreign
audits or administrative proceedings pending with regard to any material amounts
of Tax or Tax Returns of Ralcorp or the Ralcorp Subsidiaries and none of them
has received a written notice of any proposed material audit or proceeding.
(e) Neither Ralcorp nor any of the Ralcorp Subsidiaries has
any waivers or extensions of any applicable statute of limitations to assess any
material amount of Taxes.
(f) There are no outstanding requests by Ralcorp or any of
Ralcorp Subsidiaries for any extension of time within which to file any material
Tax Return or within which to pay any material amounts of Taxes shown to be due
on any return.
26
(g) There are no liens for material amounts of Taxes on the
assets of Ralcorp or any of Ralcorp Subsidiaries except for statutory liens for
current Taxes not yet due and payable.
(h) Neither Ralcorp nor any Ralcorp Subsidiary is a party to
any agreement, contract, arrangement, or plan that has resulted or would result,
individually or in the aggregate, in connection with this Agreement or any
change of control of Ralcorp or any of Ralcorp Subsidiaries in the payment of
any "excess parachute payments" within the meaning of Section 280G of the Code.
5.17. No Adverse Actions. There is no existing, pending or, to the
knowledge of Ralcorp, overtly threatened termination, cancellation, limitation,
modification or change in the business relationship of Ralcorp or any of the
Ralcorp Subsidiaries, with any supplier, customer or other person except such as
would not reasonably be expected to have a Ralcorp Material Adverse Effect. None
of Ralcorp, any Ralcorp Subsidiary or, to the knowledge of Ralcorp, any
director, officer, agent, employee or other person acting on behalf of any of
the foregoing has used any corporate funds for unlawful contributions, payments,
gifts or entertainment or for the payment of other unlawful expenses relating to
political activity, or made any direct or indirect unlawful payments to
governmental or regulatory officials or others, which would reasonably be
expected to have a Ralcorp Material Adverse Effect.
5.18. Fairness Opinion. Ralcorp's Board of Directors and the Special
Committee of the Ralcorp Board of Directors received from their respective
financial advisors, Banc of America Securities LLC and A.G. Edwards & Sons,
Inc., opinions to the effect that the Merger Consideration is fair to the
holders of Ralcorp Common Stock from a financial point of view.
5.19. Takeover Statutes and Charter. No Takeover Statute, including,
without limitation, Sections 351.407 and 351.459 of the Missouri Code,
applicable to Ralcorp or any of the Ralcorp Subsidiaries is applicable to the
Ralcorp Merger, this Agreement, the Ralcorp Ancillary Agreements or the other
transactions contemplated hereby or thereby (inasmuch as Ralcorp has approved
the transactions contemplated by this Agreement and the Ralcorp Ancillary
Agreements for purposes of Section 351.459 of the Missouri Code and has taken
all other requisite corporate action under the Takeover Statutes). The
provisions of Article Nine of the Articles of Incorporation of Ralcorp are not
applicable to the Ralcorp Merger, this Agreement, the Ralcorp Ancillary
Agreements or the other transactions contemplated hereby or thereby (inasmuch as
there are one or more "Continuing Directors" (as defined in the Articles of
Incorporation of Ralcorp) and the Ralcorp Merger has been approved by a majority
of them).
5.20. Ralcorp Rights Plan. Under the Rights Agreement between
Ralcorp and First Chicago Trust Company of New York (as successor Rights Agent
to Boatmen's Trust Company), dated as of December 27,1996, as amended as of July
1, 1997 and as amended on August 7, 2000 (the "Ralcorp Rights Agreement"),
neither Merger Sub R nor Holding Company will not become an "Acquiring Person,"
no "Stock Acquisition Date" or "Distribution Date" (as such terms are defined in
the Ralcorp Rights Agreement) will occur, and the holders of any rights issued
27
pursuant to the Ralcorp Rights Agreement will not be entitled to receive any
benefits under the Ralcorp Rights Agreement as a result of the approval,
execution or delivery of this Agreement, the Ralcorp Merger Agreement or any of
the Ralcorp Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby.
ARTICLE VI
ADDITIONAL COVENANTS OF AGRIBRANDS
Agribrands covenants and agrees as follows:
6.1. Conduct of Business of Agribrands and the Agribrands
Subsidiaries. Except as expressly contemplated by this Agreement, disclosed in
the Agribrands Securities Filings filed as of the date hereof or set forth in
the Agribrands Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, Agribrands shall conduct, and it shall cause
the Agribrands Subsidiaries to conduct, its or their respective businesses in
the ordinary course and consistent with past practice, subject to the
limitations contained in this Agreement, and Agribrands shall, and it shall
cause the Agribrands Subsidiaries to, use its or their respective reasonable
best efforts to preserve intact its or their respective business organizations,
to keep available the services of its or their respective officers, agents and
employees and to maintain satisfactory relationships with all persons with whom
any of them does business. Without limiting the generality of the foregoing, and
except as otherwise expressly provided in this Agreement, after the date of this
Agreement and prior to the Effective Time, neither Agribrands nor any Agribrands
Subsidiary will, without the prior written consent of Ralcorp, which shall not
be unreasonably withheld or delayed:
(i) amend or propose to amend its Articles or Certificate
of Incorporation or Bylaws (or comparable governing instruments) in
any material respect;
(ii) authorize for issuance, issue, grant, sell, pledge,
dispose of or propose to issue, grant, sell, pledge or dispose of any
shares of, or any options, warrants, commitments, subscriptions or
rights of any kind to acquire or sell any shares of, the capital stock
or other securities of Agribrands or any Agribrands Subsidiary
including, but not limited to, any securities convertible into or
exchangeable for shares of capital stock of any class of Agribrands or
any Agribrands Subsidiary, except for the issuance of shares of
Agribrands Common Stock pursuant to the exercise of Agribrands Options
outstanding on the date of this Agreement in accordance with their
present terms;
(iii) split, combine or reclassify any shares of its capital
stock or declare, pay or set aside any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock, other than dividends or distributions to
Agribrands or an Agribrands Subsidiary wholly owned by Agribrands, or
redeem, purchase or otherwise acquire or offer to acquire any shares of
its capital stock or other securities;
28
(iv) other than in the ordinary course of business consistent
with past practice, (a) create, incur or assume any debt or obligations
in respect of capital leases, except refinancings of existing
obligations on terms and conditions prevailing in the market; (b)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, indirectly, contingently or otherwise) for the
obligations of any person; (c) make any capital expenditures or make
any loans, advances or capital contributions to, or investments in, any
other person (other than to an Agribrands Subsidiary and customary
travel, relocation or business advances to employees) made in the
ordinary course of business consistent with past practice; (d) acquire
the stock or assets of, or merge or consolidate with, any other person;
(e) voluntarily incur any material liability or obligation (absolute,
accrued, contingent or otherwise); or (f) sell, transfer, mortgage,
pledge or otherwise dispose of, or encumber, or agree to sell,
transfer, mortgage, pledge or otherwise dispose of or encumber, any
assets or properties, real, personal or mixed material to Agribrands
and the Agribrands Subsidiaries taken as a whole other than to secure
debt permitted under (a) of this clause (iv), and except for transfers
made for fair and adequate consideration;
(v) increase in any manner the compensation of any of its
officers or employees or enter into, establish, amend or terminate any
employment, consulting, retention, change in control, collective
bargaining, bonus or other incentive compensation, profit sharing,
health or other welfare, stock option or other equity, pension,
retirement, vacation, severance, deferred compensation or other
compensation or benefit plan, policy, agreement, trust, fund or
arrangement with, for or in respect of, any shareholder, officer,
director, other employee, agent, consultant or affiliate other than (a)
as required pursuant to the terms of agreements in effect on the date
of this Agreement, (b) with respect to non-officer employees, such as
are in the ordinary course of business consistent with past practice,
or (c) in connection with the acquisition by Agribrands of another
company or business.
(vi) enter into any lease or amend any lease of real property
other than in the ordinary course of business consistent with past
practice;
(vii) make or rescind any express or deemed election relating
to Taxes of Agribrands, unless required to do so by applicable Law;
(viii) settle or compromise any Tax liability of Agribrands or
agree to an extension of a statute of limitations with respect to the
assessment or determination of Taxes;
(ix) file or cause to be filed any amended Tax Return with
respect to Agribrands or any Agribrands Subsidiaries or file or cause
to be filed any claim for refund of Taxes paid by or on behalf of
Agribrands or any Agribrands Subsidiaries; or
29
(x) prepare or file any Tax Return of Agribrands inconsistent
with past practice in preparing or filing similar Tax Returns in prior
periods or, on any such Tax Return, take any position, make any
election, or adopt any method that is inconsistent with positions
taken, elections made or methods used in preparing or filing similar
Tax Returns in prior periods, in each case except to the extent
required by Law.
Furthermore, Agribrands covenants that from and after the date of this
Agreement, unless Ralcorp shall otherwise expressly consent in writing,
Agribrands shall, and Agribrands shall cause each of the Agribrands Subsidiaries
to, use its or their reasonable business efforts to comply in all material
respects with all Laws applicable to it or any of its properties, assets or
business and maintain in full force and effect all Agribrands Permits necessary
for, or otherwise material to, such business.
6.2. Notification of Certain Matters. Agribrands shall give prompt
notice to Ralcorp if any of the following occurs after the date of this
Agreement: (i) any notice of, or other communication relating to, a material
default or Event which, with notice or lapse of time or both, would become a
material default under any Agribrands Material Contract; (ii) receipt of any
notice or other communication in writing from any third party alleging that the
Consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement, other than a Consent disclosed
pursuant to Section 4.5 or 4.6 above or not required to be disclosed pursuant to
the terms thereof; (iii) receipt of any material notice or other communication
from any Governmental Authority (including, but not limited to, the NYSE or any
other securities exchange) in connection with the transactions contemplated by
this Agreement; (iv) the occurrence of an Event which would reasonably be
expected to have an Agribrands Material Adverse Effect; (v) the commencement or
threat of any Litigation involving or affecting Agribrands or any Agribrands
Subsidiary, or any of their respective properties or assets, or, to its
knowledge, any employee, agent, director or officer of Agribrands or any
Agribrands Subsidiary, in his or her capacity as such or as a fiduciary under a
Benefit Plan of Agribrands, which, if pending on the date hereof, would have
been required to have been disclosed in or pursuant to this Agreement or which
relates to the consummation of the Agribrands Merger, or any material
development in connection with any Litigation disclosed by Agribrands in or
pursuant to this Agreement or the Agribrands Securities Filings; (vi) the
occurrence of any Event that would reasonably be expected to cause a breach by
Agribrands of any provision of this Agreement, and (vii) the occurrence of any
Event that, had it occurred prior to the date of this Agreement without any
additional disclosure hereunder, would have constituted a breach by Agribrands
of any provision of this Agreement.
6.3. Access and Information. Between the date of this Agreement and
the Effective Time, Agribrands will give, and will cause each of the Agribrands
Subsidiaries to give, and shall direct its financial advisors, accountants and
legal counsel to give, upon reasonable notice, Ralcorp, its lenders, financial
advisors, accountants and legal counsel and their respective authorized
representatives at all reasonable times access to all offices and other
facilities and to all contracts, agreements, commitments, books and records of
or pertaining to Agribrands and the Agribrands Subsidiaries, will permit the
foregoing to make such reasonable inspections as they may require and will cause
30
its officers promptly to furnish Ralcorp with (a) such financial and operating
data and other information with respect to the business and properties of
Agribrands and the Agribrands Subsidiaries as Ralcorp may from time to time
reasonably request, including, but not limited to, data and information required
for inclusion in the Registration Statement and/or other Ralcorp securities Law
filings, and (b) a copy of each material report, schedule and other document
filed or received by Agribrands or any of the Agribrands Subsidiaries pursuant
to the requirements of applicable securities laws or the NYSE. The foregoing
access will be subject to restrictions contained in confidentiality agreements
to which Agribrands is subject; provided that Agribrands shall use its
reasonable best efforts to obtain waivers of such restrictions.
6.4. Shareholder Approval. As soon as practicable, Agribrands will
take all steps necessary to duly call, give notice of, convene and hold a
meeting of its shareholders (the "Agribrands Shareholders Meeting") for the
purpose of approving this Agreement and the Agribrands Merger and the
transactions contemplated hereby and thereby and for such other purposes as may
be necessary or desirable in connection with effectuating the transactions
contemplated hereby (the "Agribrands Proposals"). Except as otherwise
contemplated by this Agreement and subject to the exercise of their fiduciary
duties, the Board of Directors of Agribrands (i) will recommend to the
shareholders of Agribrands that they approve the Agribrands Proposals, and (ii)
will use its reasonable best efforts to obtain any necessary approval by
Agribrands' shareholders of the Agribrands Proposals including, without
limitation, voting the Agribrands Shares held by such Directors for such
adoption and approval.
6.5. Reasonable Best Efforts. Subject to the terms and conditions
herein provided, Agribrands agrees to use its reasonable best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the Agribrands Merger and the other transactions contemplated by
this Agreement including, but not limited to (i) obtaining any third party
Consent required in connection with the execution and delivery by Agribrands of
this Agreement or the consummation by Agribrands of the transactions
contemplated hereby, (ii) the defending of any Litigation against Agribrands or
any Agribrands Subsidiary challenging this Agreement or the consummation of the
transactions contemplated hereby, (iii) obtaining all Consents from Governmental
Authorities required for the consummation of the Agribrands Merger and the
transactions contemplated hereby, and (iv) timely making all necessary filings
under the HSR Act. Upon the terms and subject to the conditions hereof,
Agribrands agrees to use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary to
satisfy the other conditions of the Closing set forth herein. Agribrands will
consult with counsel for Ralcorp as to, and will permit such counsel to
participate in, at Ralcorp's expense, any Litigation referred to in clause (ii)
above brought against or involving Agribrands or any Agribrands Subsidiary.
6.6. Public Announcements. So long as this Agreement is in effect,
Agribrands shall not, and shall cause its affiliates not to, issue or cause the
publication of any press release or any other announcement with respect to the
Mergers, the Agribrands Proposals, the Ralcorp Proposals or the transactions
contemplated by this Agreement without the consent of Ralcorp which shall not be
31
unreasonably withheld or delayed, except when such release or announcement is
required by applicable Law or any applicable listing agreement with, or rules or
regulations of, the NYSE or any securities exchange, in which case Agribrands,
to the extent practicable, prior to making such announcement, shall consult with
Ralcorp regarding the same.
6.7. Compliance. In consummating the Agribrands Merger and the
transactions contemplated hereby, Agribrands shall comply, and/or cause the
Agribrands Subsidiaries to comply or to be in compliance, in all material
respects, with all applicable Laws.
6.8. Tax Treatment. Agribrands shall use its reasonable best
efforts to cause the Ralcorp Merger and the Agribrands Merger to qualify as
either, and will not take any action which to its knowledge could reasonably be
expected to prevent the Ralcorp Merger and the Agribrands Merger from qualifying
as either, a reorganization under Section 368(a) of the Code or an exchange
under Section 351(a) of the Code. Prior to the Effective Time, Agribrands shall
provide tax counsel to Agribrands and Ralcorp rendering an opinion under Section
9.1.8 below with such certificates concerning such factual matters as such
counsel identifies are relevant to its opinion and will use its reasonable best
efforts to obtain such a certificate from any shareholder of Agribrands
identified by such counsel.
6.9. Agribrands Benefit Plans. Between the date of this Agreement
and through the Effective Time, no discretionary award or grant under any
Benefit Plan of Agribrands or an Agribrands Subsidiary shall be made without the
consent of Ralcorp which shall not be unreasonably withheld or delayed, except
options for shares of Agribrands Common Stock (with exercise prices at or above
the fair market value of the underlying shares of Agribrands Common Stock on the
date of grant) granted to employees of Agribrands hired on or after the date of
this Agreement in the ordinary course of business consistent with past practice
as heretofore disclosed to Ralcorp; nor shall Agribrands or an Agribrands
Subsidiary take any action or permit any action to be taken to accelerate the
vesting of any warrants or options previously granted pursuant to any such
Benefit Plan except as specifically required pursuant to the terms thereof as in
effect on the date of this Agreement. Neither Agribrands nor any Agribrands
Subsidiary shall make any amendment to any Benefit Plan or any awards thereunder
without the consent of Ralcorp.
6.10. No Solicitation of Acquisition Proposal.
(a) Agribrands shall not, directly or indirectly, take any action
to (1) encourage (including by way of furnishing nonpublic information),
solicit, initiate or facilitate any Agribrands Acquisition Proposal (as defined
in Section 6.10(c)), (2) enter into any agreement with respect to any Agribrands
Acquisition Proposal or (3) participate in any way in discussions or
negotiations with, or furnish any information to, any person in connection with,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or could reasonably be expected to lead to, any
Agribrands Acquisition Proposal; provided, however, that if the Board of
Directors of Agribrands determines in good faith, after consultation with
outside counsel, that it is necessary to do so to discharge properly its
32
fiduciary duties to shareholders, Agribrands may, in response to an Agribrands
Acquisition Proposal that such Board determines in good faith is reasonably
likely to result in an Agribrands Superior Proposal (as defined in Section
6.10(c)), and subject to such party's compliance with Section 6.10(b), (A)
furnish information with respect to Agribrands to the person making such
Agribrands Acquisition Proposal pursuant to a customary confidentiality
agreement the terms of which are no more favorable to the other party to such
confidentiality agreement than those in place with Ralcorp and (B) participate
in discussions with respect to such Agribrands Acquisition Proposal. It is
expressly understood and agreed that with respect to the foregoing proviso,
Agribrands' legal and financial advisors shall be able to make inquiries, and
engage in discussions, with any party that has made an Agribrands Acquisition
Proposal (and such party's legal and financial advisors) in order to elicit
information to allow the Board of Directors of Agribrands to determine in good
faith if such Agribrands Acquisition Proposal is reasonably likely to result in
an Agribrands Superior Proposal.
(b) Agribrands will as promptly as practicable communicate to
Ralcorp any inquiry received by it relating to any potential Agribrands
Acquisition Proposal and the material terms of any proposal or inquiry,
including the identity of the person and its affiliates making the same, that it
may receive in respect of any such transaction, or of any such information
requested from it or of any such negotiations or discussions being sought to be
initiated with it.
(c) "Agribrands Acquisition Proposal" means any offer or proposal
concerning any (1) merger, consolidation, business combination, or similar
transaction involving Agribrands, (2) sale, lease or other disposition of assets
of Agribrands representing 20% or more of the consolidated assets of Agribrands
and the Agribrands Subsidiaries, (3) issuance, sale, or other disposition of
(including by way of merger, consolidation, business combination, share
exchange, joint venture, or any similar transaction) securities (or options,
rights or warrants to purchase, or securities convertible into or exchangeable
for, such securities) representing 20% or more of the voting power of Agribrands
or (4) transaction in which any person shall acquire beneficial ownership (as
such term is defined in Rule 13d-3 under the Exchange Act), or the right to
acquire beneficial ownership or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, 20% or more of the outstanding voting capital
stock of Agribrands. "Agribrands Superior Proposal" means a bona fide Agribrands
Acquisition Proposal made by a third party which was not solicited by
Agribrands, its subsidiaries, representatives or other affiliates and which, in
the good faith judgment of Agribrands' Board of Directors, taking into account,
to the extent deemed appropriate by Agribrands' Board of Directors, the various
legal, financial and regulatory aspects of the proposal and the person making
such proposal (A) if accepted, is reasonably likely to be consummated, and (B)
if consummated, is reasonably likely to result in a transaction that is more
favorable to Agribrands' shareholders (in their capacity as shareholders), from
a financial point of view, than the transactions contemplated by this Agreement.
(d) If the Agribrands Board of Directors is prepared to accept
an Agribrands Superior Proposal, then Agribrands shall give Ralcorp 48 hours
notice that Agribrands is prepared to accept the Agribrands Superior Proposal,
33
provided that Agribrands may not definitively accept an Agribrands Superior
Proposal unless Agribrands concurrently therewith terminates this Agreement
pursuant to Section 10.1(f) and, concurrently with such termination, makes the
payment required by Section 10.2(d).
6.11. SEC and Shareholder Filings.
Agribrands shall send to Ralcorp a copy of all public reports and
materials as and when it sends the same to its shareholders, the SEC or any
state or foreign securities commission.
6.12. Affiliate Agreements. Agribrands shall use reasonable best
efforts to ensure that each person who is or may be an "affiliate" of Agribrands
within the meaning of Rule 145 promulgated under the Securities Act shall enter
into an agreement in customary form.
6.13. Takeover Statutes. If any Takeover Statute is or may become
applicable to the Agribrands Merger or the transactions contemplated hereby,
Agribrands and the members of its Board of Directors will grant such approvals
and will take such other actions as are necessary so that the Agribrands Merger
and the other transactions contemplated by this Agreement may be consummated as
promptly as practicable on the terms contemplated hereby and will otherwise act
to eliminate or minimize the effects of any Takeover Statute on the Agribrands
Merger and any of the transactions contemplated hereby.
6.14. Comfort Letters. Upon the request of Ralcorp, Agribrands shall
use its reasonable best efforts to provide to Ralcorp on or prior to the Closing
Date "comfort letters" from the independent certified public accountants for
Agribrands dated the date on which the Registration Statement, or last amendment
thereto, shall become effective, and dated the Closing Date, addressed to the
Board of Directors of each of Agribrands and Ralcorp, covering such matters as
Ralcorp shall reasonably request with respect to facts concerning the financial
condition of Agribrands and the Agribrands Subsidiaries as are customary for
certified public accountants to deliver in connection with a transaction similar
to the Agribrands Merger.
6.15 Spin-Off Covenant. Agribrands shall satisfy its post spin-
off covenant to Ralston Purina Company ("Ralston Purina") by delivering to
Ralston Purina (i) an opinion of tax counsel in form and substance satisfactory
to Ralston Purina (which opinion shall recite that it may be relied upon by
Ralcorp) or (ii) a supplemental ruling from the IRS that the transactions
contemplated by this Agreement would not cause Agribrands' spin-off from Ralston
Purina to be a taxable transaction.
34
ARTICLE VII
ADDITIONAL COVENANTS OF RALCORP
Ralcorp covenants and agrees as follows:
7.1. Conduct of Business of Ralcorp and the Ralcorp Subsidiaries.
Except as expressly contemplated by this Agreement, disclosed in the Ralcorp
Securities Filings filed as of the date hereof or set forth in the Ralcorp
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, Ralcorp shall conduct, and it shall cause the Ralcorp
Subsidiaries to conduct, its or their respective businesses in the ordinary
course and consistent with past practice, subject to the limitations contained
in this Agreement, and Ralcorp shall, and it shall cause the Ralcorp
Subsidiaries to, use its or their respective reasonable best efforts to preserve
intact its or their respective business organizations, to keep available the
services of its or their respective officers, agents and employees and to
maintain satisfactory relationships with all persons with whom any of them does
business. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, after the date of this Agreement
and prior to the Effective Time, neither Ralcorp nor any Ralcorp Subsidiary
will, without the prior written consent of Agribrands, which shall not be
unreasonably withheld or delayed:
(i) amend or propose to amend its Articles or Certificate
of Incorporation or Bylaws (or comparable governing instruments) in
any material respect;
(ii) authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose
of any shares of, or any options, warrants, commitments, subscriptions
or rights of any kind to acquire or sell any shares of, the capital
stock or other securities of Ralcorp or any Ralcorp Subsidiary
including, but not limited to, any securities convertible into or
exchangeable for shares of capital stock of any class of Ralcorp or
any Ralcorp Subsidiary, except for the issuance of shares of Ralcorp
Common Stock pursuant to the exercise of Ralcorp Options outstanding
on the date of this Agreement in accordance with their present terms;
(iii) split, combine or reclassify any shares of its
capital stock or declare, pay or set aside any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, other than dividends or
distributions to Ralcorp or a Ralcorp Subsidiary wholly owned by
Ralcorp, or redeem, purchase or otherwise acquire or offer to acquire
any shares of its capital stock or other securities;
(iv) other than in the ordinary course of business
consistent with past practice, (a) create, incur or assume any debt or
obligations in respect of capital leases, except refinancings of
existing obligations on terms and conditions prevailing in the market;
(b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise)
for the obligations of any person; (c) make any capital expenditures
35
or make any loans, advances or capital contributions to, or
investments in, any other person (other than to an Ralcorp Subsidiary
and customary travel, relocation or business advances to employees)
made in the ordinary course of business consistent with past practice;
(d) acquire the stock or assets of, or merge or consolidate with, any
other person; (e) voluntarily incur any material liability or
obligation (absolute, accrued, contingent or otherwise); or (f) sell,
transfer, mortgage, pledge or otherwise dispose of, or encumber, or
agree to sell, transfer, mortgage, pledge or otherwise dispose of or
encumber, any assets or properties, real, personal or mixed material
to Ralcorp and the Ralcorp Subsidiaries taken as a whole other than to
secure debt permitted under (a) of this clause (iv), and except for
transfers made for fair and adequate consideration; provided that
subparagraphs (a), (c), (d) and (e) shall not apply to acquisitions of
businesses, whether by purchase of stock or assets or by merger or
consolidation, or to debt incurred in connection therewith, for cash
consideration in an aggregate amount for all such acquisitions of up
to $50 million;
(v) increase in any manner the compensation of any of its
officers or employees or enter into, establish, amend or terminate any
employment, consulting, retention, change in control, collective
bargaining, bonus or other incentive compensation, profit sharing,
health or other welfare, stock option or other equity, pension,
retirement, vacation, severance, deferred compensation or other
compensation or benefit plan, policy, agreement, trust, fund or
arrangement with, for or in respect of, any shareholder, officer,
director, other employee, agent, consultant or affiliate other than
(a) as required pursuant to the terms of agreements in effect on the
date of this Agreement, (b) with respect to non-officer employees,
such as are in the ordinary course of business consistent with past
practice, or (c) in connection with the acquisition by Ralcorp of
another company or business.
(vi) enter into any lease or amend any lease of real
property other than in the ordinary course of business consistent with
past practice;
(vii) make or rescind any express or deemed election
relating to Taxes of Ralcorp, unless required to do so by applicable
Law;
(viii) settle or compromise any Tax liability of Ralcorp or
agree to an extension of a statute of limitations with respect to the
assessment or determination of Taxes;
(ix) file or cause to be filed any amended Tax Return with
respect to Ralcorp or any of Ralcorp Subsidiaries or file or cause to
be filed any claim for refund of Taxes paid by or on behalf of Ralcorp
or any of Ralcorp Subsidiaries; or
(x) prepare or file any Tax Return of Ralcorp
inconsistent with past practice in preparing or filing similar Tax
Returns in prior periods or, on any such Tax Return, take any
position, make any election, or adopt any method that is inconsistent
36
with positions taken, elections made or methods used in preparing or
filing similar Tax Returns in prior periods, in each case except to
the extent required by Law.
Furthermore, Ralcorp covenants that from and after the date of this
Agreement, unless Agribrands shall otherwise expressly consent in writing,
Ralcorp shall, and Ralcorp shall cause each of the Ralcorp Subsidiaries to, use
its or their reasonable business efforts to comply in all material respects with
all Laws applicable to it or any of its properties, assets or business and
maintain in full force and effect all Ralcorp Permits necessary for, or
otherwise material to, such business.
7.2. Notification of Certain Matters. Ralcorp shall give prompt
notice to Agribrands if any of the following occurs after the date of this
Agreement: (i) any notice of, or other communication relating to, a material
default or Event which, with notice or lapse of time or both, would become a
material default under any Ralcorp Material Contract; (ii) receipt of any notice
or other communication in writing from any third party alleging that the Consent
of such third party is or may be required in connection with the transactions
contemplated by this Agreement, other than a Consent disclosed pursuant to
Section 5.5 or 5.6 above or not required to be disclosed pursuant to the terms
thereof; (iii) receipt of any material notice or other communication from any
Governmental Authority (including, but not limited to, the NYSE or any other
securities exchange) in connection with the transactions contemplated by this
Agreement; (iv) the occurrence of an Event which would reasonably be expected to
have a Ralcorp Material Adverse Effect; (v) the commencement or threat of any
Litigation involving or affecting Ralcorp or any Ralcorp Subsidiary, or any of
their respective properties or assets, or, to its knowledge, any employee,
agent, director or officer of Ralcorp or any Ralcorp Subsidiary, in his or her
capacity as such or as a fiduciary under a Benefit Plan of Ralcorp, which, if
pending on the date hereof, would have been required to have been disclosed in
or pursuant to this Agreement or which relates to the consummation of the
Ralcorp Merger, or any material development in connection with any Litigation
disclosed by Ralcorp in or pursuant to this Agreement or the Ralcorp Securities
Filings; and (vi) the occurrence of any Event that would reasonably be expected
to cause a breach by Ralcorp of any provision of this Agreement, and (vii) the
occurrence of any Event that, had it occurred prior to the date of this
Agreement without any additional disclosure hereunder, would have constituted a
breach by Ralcorp of any provision of this Agreement.
7.3. Access and Information. Between the date of this Agreement and
the Effective Time, Ralcorp will give, and will cause each of the Ralcorp
Subsidiaries to give, and shall direct its financial advisors, accountants and
legal counsel to give, upon reasonable notice, Agribrands, its lenders,
financial advisors, accountants and legal counsel and their respective
authorized representatives at all reasonable times access to all offices and
other facilities and to all contracts, agreements, commitments, books and
records of or pertaining to Ralcorp and the Ralcorp Subsidiaries, will permit
the foregoing to make such reasonable inspections as they may require and will
cause its officers promptly to furnish Ralcorp with (a) such financial and
operating data and other information with respect to the business and properties
of Ralcorp and the Ralcorp Subsidiaries as Agribrands may from time to time
reasonably request, including, but not limited to, data and information required
37
for inclusion in the Registration Statement and/or other Ralcorp securities Law
filings, and (b) a copy of each material report, schedule and other document
filed or received by Ralcorp or any of the Ralcorp Subsidiaries pursuant to the
requirements of applicable securities laws or the NYSE. The foregoing access
will be subject to restrictions contained in confidentiality agreements to which
Ralcorp is subject; provided that Ralcorp shall use its reasonable best efforts
to obtain waivers of such restrictions.
7.4. Shareholder Approval. As soon as practicable, Ralcorp will
take all steps necessary to duly call, give notice of, convene and hold a
meeting of its shareholders (the "Ralcorp Shareholders Meeting") for the purpose
of approving this Agreement and the Ralcorp Merger and the transactions
contemplated hereby and thereby, for such other purposes as may be necessary or
desirable in connection with effectuating the transactions contemplated hereby
and for such other purposes as Ralcorp shall determine (the "Ralcorp
Proposals"). Except as otherwise contemplated by this Agreement and subject to
the exercise of their fiduciary duties, the Board of Directors of Ralcorp (i)
will recommend to the shareholders of Ralcorp that they approve the Ralcorp
Proposals, and (ii) will use its reasonable best efforts to obtain any necessary
approval by Ralcorp's shareholders of the Ralcorp Proposals, including, without
limitation, voting the Ralcorp Common Stock held by such Directors for such
approval.
7.5. Reasonable Best Efforts. Subject to the terms and conditions
herein provided, Ralcorp agrees to use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the Ralcorp Merger and the other transactions contemplated by this
Agreement including, but not limited to (i) obtaining any third party Consent
required in connection with the execution and delivery by Ralcorp of this
Agreement or the consummation by Ralcorp of the transactions contemplated
hereby, (ii) the defending of any Litigation against Ralcorp or any Ralcorp
Subsidiary challenging this Agreement or the consummation of the transactions
contemplated hereby, (iii) obtaining all Consents from Governmental Authorities
required for the consummation of the Ralcorp Merger and the transactions
contemplated hereby, and (iv) timely making all necessary filings under the HSR
Act. Upon the terms and subject to the conditions hereof, Ralcorp agrees to use
its reasonable best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary to satisfy the other conditions of
the Closing set forth herein. Ralcorp will consult with counsel for Agribrands
as to, and will permit such counsel to participate in, at Agribrands' expense,
any Litigation referred to in clause (ii) above brought against or involving
Ralcorp or any Ralcorp Subsidiary.
7.6. Public Announcements. So long as this Agreement is in effect,
Ralcorp shall not, and shall cause its affiliates not to, issue or cause the
publication of any press release or any other announcement with respect to the
Mergers, the Agribrands Proposals, the Ralcorp Proposals or the transactions
contemplated by this Agreement without the consent of Agribrands which shall not
be unreasonably withheld or delayed, except when such release or announcement is
required by applicable Law or any applicable listing agreement with, or rules or
regulations of, the NYSE or any securities exchange, in which case Ralcorp, to
the extent practicable, prior to making such announcement, shall consult with
Agribrands regarding the same.
38
7.7. Compliance. In consummating the Ralcorp Merger and the
transactions contemplated hereby, Ralcorp shall comply and/or cause the Ralcorp
Subsidiaries to comply or to be in compliance, in all material respects, with
all applicable Laws.
7.8. Tax Treatment. Ralcorp shall use its reasonable best efforts
to cause the Ralcorp Merger and the Agribrands Merger to qualify as either, and
will not take any action which to its knowledge could reasonably be expected to
prevent the Ralcorp Merger and the Agribrands Merger from qualifying as either,
a reorganization under Section 368(a) of the Code or as an exchange under
Section 351(a) of the Code. Prior to the Effective Time, Ralcorp shall provide
tax counsel to Agribrands and Ralcorp rendering an opinion under Section 9.1.8
below with such certificates concerning such factual matters as such counsel
identifies are relevant to its opinion and will use its reasonable best efforts
to obtain such a certificate from any shareholder of Ralcorp identified by such
counsel.
7.9. Ralcorp Benefit Plans.
Between the date of this Agreement and through the Effective Time, no
discretionary award or grant under any Benefit Plan of Ralcorp or a Ralcorp
Subsidiary shall be made without the consent of Agribrands which shall not be
unreasonably withheld or delayed, except options for shares of Ralcorp Common
Stock (with exercise prices at or above the fair market value of the underlying
shares of Ralcorp Common Stock on the date of grant) granted to employees of
Ralcorp hired on or after the date of this Agreement in the ordinary course of
business consistent with past practice as heretofore disclosed to Agribrands;
nor shall Ralcorp or a Ralcorp Subsidiary take any action or permit any action
to be taken to accelerate the vesting of any warrants or options previously
granted pursuant to any such Benefit Plan except as specifically required
pursuant to the terms thereof as in effect on the date of this Agreement.
Neither Ralcorp nor any Ralcorp Subsidiary shall make any amendment to any
Benefit Plan or any awards thereunder without the consent of Agribrands.
7.10. No Solicitation of Acquisition Proposal.
(a) Ralcorp shall not, directly or indirectly, take any action to (1)
encourage (including by way of furnishing nonpublic information), solicit,
initiate or facilitate any Ralcorp Acquisition Proposal (as defined in Section
7.10(c)), (2) enter into any agreement with respect to any Ralcorp Acquisition
Proposal or (3) participate in any way in discussions or negotiations with, or
furnish any information to, any person in connection with, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or could reasonably be expected to lead to, any Ralcorp Acquisition
Proposal; provided, however, that if the Board of Directors of Ralcorp
determines in good faith, after consultation with outside counsel, that it is
necessary to do so to discharge properly its fiduciary duties to shareholders,
Ralcorp may, in response to a Ralcorp Acquisition Proposal that such Board
determines in good faith is reasonably likely to result in a Ralcorp Superior
Proposal (as defined in Section 7.10(c)), and subject to such party's compliance
with Section 7.10(b), (A) furnish information with respect to Ralcorp to the
person making such Ralcorp Acquisition Proposal pursuant to a customary
39
confidentiality agreement the terms of which are no more favorable to the other
party to such confidentiality agreement than those in place with Agribrands and
(B) participate in discussions with respect to such Ralcorp Acquisition
Proposal. It is expressly understood and agreed that with respect to the
foregoing proviso, Ralcorp's legal and financial advisors shall be able to make
inquiries, and engage in discussions, with any party that has made a Ralcorp
Acquisition Proposal (and such party's legal and financial advisors) in order to
elicit information to allow the Board of Directors of Ralcorp to determine in
good faith if such Ralcorp Acquisition Proposal is reasonably likely to result
in a Ralcorp Superior Proposal.
(b) Ralcorp will as promptly as practicable communicate to Agribrands
any inquiry received by it relating to any potential Ralcorp Acquisition
Proposal and the material terms of any proposal or inquiry, including the
identity of the person and its affiliates making the same, that it may receive
in respect of any such transaction, or of any such information requested from it
or of any such negotiations or discussions being sought to be initiated with it.
(c) "Ralcorp Acquisition Proposal" means any offer or proposal
concerning any (1) merger, consolidation, business combination, or similar
transaction involving Ralcorp, (2) sale, lease or other disposition of assets of
Ralcorp representing 20% or more of the consolidated assets of Ralcorp and the
Ralcorp Subsidiaries, (3) issuance, sale, or other disposition of (including by
way of merger, consolidation, business combination, share exchange, joint
venture, or any similar transaction) securities (or options, rights or warrants
to purchase, or securities convertible into or exchangeable for, such
securities) representing 20% or more of the voting power of Ralcorp or (4)
transaction in which any person shall acquire beneficial ownership (as such term
is defined in Rule 13d-3 under the Exchange Act), or the right to acquire
beneficial ownership or any "group" (as such term is defined under the Exchange
Act) shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 20% or more of the outstanding voting capital stock of
Ralcorp. "Ralcorp Superior Proposal" means a bona fide Ralcorp Acquisition
Proposal made by a third party which was not solicited by Ralcorp, its
subsidiaries, representatives or other affiliates and which, in the good faith
judgment of Ralcorp's Board of Directors, taking into account, to the extent
deemed appropriate by Ralcorp's Board of Directors, the various legal, financial
and regulatory aspects of the proposal and the person making such proposal (A)
if accepted, is reasonably likely to be consummated, and (B) if consummated, is
reasonably likely to result in a transaction that is more favorable to Ralcorp's
shareholders (in their capacity as shareholders), from a financial point of
view, than the transactions contemplated by this Agreement.
(d) If the Ralcorp Board of Directors is prepared to accept a Ralcorp
Superior Proposal, then Ralcorp shall give Agribrands 48 hours notice that
Ralcorp is prepared to accept the Ralcorp Superior Proposal, provided that
Ralcorp may not definitively accept a Ralcorp Superior Proposal unless Ralcorp
concurrently therewith terminates this Agreement pursuant to Section 10.1(f)
and, concurrently with such termination, makes the payment required by Section
10.2(d).
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7.11. SEC and Shareholder Filings.
Ralcorp shall send to Agribrands a copy of all public reports and
materials as and when it sends the same to its shareholders, the SEC or any
state or foreign securities commission.
7.12. Affiliate Agreements.
Ralcorp shall use reasonable best efforts to ensure that each person
who is or may be an "affiliate" of Ralcorp within the meaning of Rule 145
promulgated under the Securities Act shall enter into an agreement in customary
form.
7.13. Takeover Statutes.
If any Takeover Statute is or may become applicable to the Ralcorp
Merger or the transactions contemplated hereby, Ralcorp and the members of its
Board of Directors will grant such approvals and will take such other actions as
are necessary so that the Ralcorp Merger and the other transactions contemplated
by this Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and will otherwise act to eliminate or minimize the effects
of any Takeover Statute on the Ralcorp Merger and any of the transactions
contemplated hereby.
7.14. Comfort Letters. Upon the request of Agribrands, Ralcorp shall
use its reasonable best efforts to provide to Agribrands on or prior to the
Closing Date "comfort letters" from the independent certified public accountants
for Ralcorp and the Ralcorp Subsidiaries, dated the date on which the
Registration Statement, or last amendment thereto, shall become effective, and
dated the Closing Date, addressed to the Board of Directors of each of
Agribrands and Ralcorp, covering such matters as Agribrands shall reasonably
request with respect to facts concerning the financial condition of Ralcorp and
the Ralcorp Subsidiaries as are customary for certified public accountants to
deliver in connection with a transaction similar to the Ralcorp Merger.
ARTICLE VIII
ADDITIONAL COVENANTS OF AGRIBRANDS AND RALCORP WITH RESPECT TO HOLDING COMPANY
Agribrands and Ralcorp covenant and agree that they will take the
necessary actions prior to the Effective Time to cause Holding Company to do the
following:
8.1. Director and Officer Liability.
(a) Holding Company shall indemnify and hold harmless and
advance expenses to the present and former officers and directors of Agribrands
and Ralcorp, and each person who prior to the Effective Time becomes an officer
or director of Agribrands or Ralcorp (each an "Indemnified Person"), in respect
41
of acts or omissions by them in their capacities as such occurring at or prior
to the Effective Time (including, without limitation, for acts or omissions
occurring in connection with this Agreement and the consummation of the Mergers)
to the fullest extent permissible under applicable law (collectively, the
"Indemnified Losses"). Without limiting the generality of the foregoing, the
Indemnified Losses shall include reasonable costs of prosecuting a claim under
this Section 8.1(a). Holding Company shall periodically advance or reimburse
each Indemnified Person for all reasonable fees and expenses of counsel
constituting Indemnified Losses as such fees and expenses are incurred; provided
that such Indemnified Person shall agree to promptly repay to Holding Company
the amount of any such reimbursement if it shall be judicially determined by
judgment or order not subject to further appeal or discretionary review that
such Indemnified Person is not entitled to be indemnified by Holding Company in
connection with such matter.
(b) For six years after the Effective Time, Holding Company
shall provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time (including, without limitation,
for acts or omissions occurring in connection with this Agreement and the
consummation of the Mergers) covering each such Indemnified Person currently
covered by Agribrands' officers' and directors' liability insurance policy (with
respect to officers and directors of Agribrands) or by Ralcorp's officers' and
directors' liability insurance policy (with respect to officers and directors of
Ralcorp) on terms with respect to coverage and amount (including with respect to
the payment of attorney's fees) no less favorable than those of such policy in
effect on the date hereof (which policies have been made available by Agribrands
and Ralcorp to each other and to Holding Company); provided that if the
aggregate annual premiums for such insurance during such period shall exceed
200% of the per annum rate of premium paid by Agribrands (with respect to the
liability insurance policies of the officers and directors of Agribrands) or
Ralcorp (with respect to the liability insurance policies of the officers and
directors of Ralcorp) as of the date hereof for such insurance, then Holding
Company shall provide a policy with the best coverage as shall then be available
at 200% of such rate.
(c) The rights of each Indemnified Person and his or her heirs
and legal representatives under this Section 8.1 shall be in addition to any
rights such Person may have under the articles of incorporation or bylaws of
Agribrands (with respect to the Agribrands officers and directors) or Ralcorp
(with respect to the Ralcorp officers and directors), any agreement providing
for indemnification, or under the laws of the State of Missouri or any other
applicable Laws. These rights shall survive consummation of the Mergers and are
intended to benefit, and shall be enforceable by, each Indemnified Person.
8.2. Listing of Stock.
Holding Company shall use its reasonable best efforts to cause
(i) the shares of Holding Company Common Stock to be registered under the
Securities Act and issued in connection with the Mergers (and the shares of
Holding Company Common Stock underlying the securities to be issued pursuant to
Section 3.5) to be approved for listing on the NYSE, subject to official notice
42
of issuance, and (ii) the securities of Agribrands and Ralcorp to be de-listed
from NYSE in connection with the Closing.
8.3. Registration Statement; Prospectus/Proxy Statement.
Agribrands, Ralcorp and Holding Company shall cooperate and promptly prepare and
Holding Company shall file with the SEC as soon as practicable a Registration
Statement on Form S-4 or other applicable form (the "Form S-4") under the
Securities Act, with respect to Holding Company Common Stock issuable in the
Mergers, a portion of which Registration Statement shall also serve as the joint
proxy statement with respect to the Agribrands Shareholder Meeting and Ralcorp
Shareholder Meeting (the "Proxy Statement/Prospectus"). The respective parties
will cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form
in all material respects with the applicable provisions of the Securities Act,
the Exchange Act and the rules and regulations thereunder. Holding Company shall
use all reasonable efforts, and Agribrands and Ralcorp will cooperate with
Holding Company, to have the Form S-4 declared effective by the SEC as promptly
as practicable and to keep the Form S-4 effective as long as is necessary to
consummate the Mergers. Holding Company shall, as promptly as practicable,
provide copies of any written comments received from the SEC with respect to the
Form S-4 to Agribrands and Ralcorp and advise Agribrands and Ralcorp of any
verbal comments with respect to the Form S-4 received from the SEC. Holding
Company shall use its best efforts to obtain, prior to the effective date of the
Form S-4, all necessary state securities law or "Blue Sky" permits or approvals
required to carry out the transactions contemplated by this Agreement and will
pay all expenses incident thereto. Holding Company agrees that the Proxy
Statement/Prospectus and each amendment or supplement thereto at the time of
mailing thereof and at the time of the Agribrands Shareholder Meeting and
Ralcorp Shareholder Meeting, or, in the case of the Form S-4 and each amendment
or supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the foregoing shall not apply to the extent that any such untrue
statement of a material fact or omission to state a material fact was made by
Holding Company in reliance upon and in conformity with written information
concerning Agribrands and/or Ralcorp furnished to Holding Company by Agribrands
and/or Ralcorp specifically for use in the Proxy Statement/Prospectus.
Agribrands and Ralcorp agree that the written information provided by them for
inclusion in the Proxy Statement/Prospectus and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the Agribrands
Shareholder Meeting and Ralcorp Shareholder Meeting, or, in the case of written
information concerning either Agribrands or Ralcorp for inclusion in the Form
S-4 or any amendment or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No amendment or supplement to the Proxy Statement/Prospectus
will be made by Holding Company without the approval of Agribrands and Ralcorp.
Holding Company will advise Agribrands and Ralcorp, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Holding Company Common Stock issuable in
43
connection with the Mergers for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/Prospectus or the Form
S-4 or comments thereon and responses thereto or requests by the SEC for
additional information. Whenever any event or condition affecting Agribrands or
Ralcorp occurs that is required to be set forth in an amendment or supplement to
the Proxy Statement/Prospectus, such party will promptly inform the other of
such occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and in mailing to shareholders of Agribrands and Ralcorp,
such amendment or supplement.
8.4. Tax Treatment. Holding Company shall use its reasonable best
efforts to cause the Ralcorp Merger and the Agribrands Merger to qualify as
either, and will not take any action which to its knowledge could reasonably be
expected to prevent the Ralcorp Merger and the Agribrands Merger from qualifying
as either, a reorganization under Section 368(a) of the Code or as an exchange
under Section 351(a) of the Code. Prior to the Effective Time, Holding Company
shall provide tax counsel to Agribrands and Ralcorp rendering an opinion under
Section 9.1.8 below with such certificates concerning such factual matters as
such counsel identifies are relevant to its opinion.
8.5. Shareholder Rights Agreement. Holding Company shall use its
reasonable best efforts to have adopted prior to the Effective Time a
shareholder rights agreement so that the holders of Agribrands Common Stock and
Ralcorp Common Stock who receive shares of Holding Company Common Stock pursuant
to the terms hereof will also receive associated rights that are similar to the
rights as provided by the Agribrands Rights Agreement and the Ralcorp Rights
Agreement.
ARTICLE IX.
CONDITIONS
9.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the Mergers shall be subject to the
fulfillment or waiver on or prior to the Closing Date of the following
conditions:
9.1.1. Shareholder Approvals. The Agribrands Proposals shall
have been approved at or prior to the Effective Time by the requisite
vote of the shareholders of Agribrands in accordance with the Missouri
Code and the Agribrands' Articles of Incorporation and the Ralcorp
Proposals shall have been approved by the requisite vote of the
shareholders of Ralcorp in accordance with the Missouri Code and
Ralcorp's Articles of Incorporation.
9.1.2. No Injunction or Action. No order, statute, rule,
regulation, executive order, stay, decree, judgment or injunction shall
have been enacted, entered, promulgated or enforced by any court or
other Governmental Authority, which prohibits or prevents the
consummation of the Mergers and which has not been vacated, dismissed
44
or withdrawn by the Effective Time. Agribrands and Ralcorp shall use
their reasonable best efforts to have any of the foregoing vacated,
dismissed or withdrawn on or prior to the Effective Time.
9.1.3. Governmental Approvals. All Consents of any
Governmental Authority required for the consummation of the Mergers and
the transactions contemplated by this Agreement shall have been
obtained by Final Order (as hereafter defined), except as may be waived
by Agribrands and Ralcorp or those Consents the failure of which to
obtain will not have a Holding Company Material Adverse Effect (as
defined below). The term "Final Order" with respect to any Consent of a
Governmental Authority shall mean an action by the appropriate
Governmental Authority as to which: (i) no request for stay by such
Governmental Authority of the action is pending, no such stay is in
effect, and, if any deadline for filing any such request is designated
by statute or regulation, it has passed; (ii) no petition for rehearing
or reconsideration of the action is pending before such Governmental
Authority, and no appeal or comparable administrative remedy with such
or any other Governmental Authority is pending before such Governmental
Authority, and the time for filing any such petition, appeal or
administrative remedy has passed; (iii) such Governmental Authority
does not have the action under reconsideration on its own motion and
the time for such reconsideration has passed; and (iv) no appeal to a
court, or request for stay by a court, of the Governmental Authority
action is pending or in effect, and if any deadline for filing any such
appeal or request is designated by statute or rule, it has passed.
9.1.4. HSR Act. The waiting period applicable to the Mergers
under the HSR Act shall have expired or earlier termination thereof
shall have been granted, and no action, suit, proceeding or
investigation shall have been instituted by either the United States
Department of Justice or the Federal Trade Commission to prevent the
consummation of the transactions contemplated by this Agreement or to
modify or amend such transactions in any material manner, or if any
such action shall have been instituted, it shall have been withdrawn or
a Final Order having the effect of permitting the consummation of the
transactions contemplated by this Agreement shall have been entered
against such Department or Commission, as the case may be.
9.1.5. Required Consents. Any required Consents of any person
to the Mergers or the transactions contemplated hereby as described in
Sections 4.5, 4.6, 5.5 and 5.6 shall have been obtained and be in full
force and effect, except for those the failure of which to obtain will
not have a material adverse effect on the business, assets (including,
but not limited to, intangible assets), prospects, condition (financial
or otherwise), properties (including, but not limited to, intangible
properties), liabilities or the result of operations of the Holding
Company and its subsidiaries taken as a whole ("Holding Company
Material Adverse Effect").
9.1.6. Registration Statement. The Registration Statement
shall have been declared effective and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
45
no action, suit, proceeding or investigation for that purpose shall
have been initiated or threatened by any Governmental Authority.
9.1.7. Spin-Off Covenant. Agribrands shall have satisfied
its post spin-off covenant to Ralston Purina by delivering to Ralston
Purina (i) an opinion of tax counsel in form and substance satisfactory
to Ralston Purina (which opinion shall recite that it may be relied
upon by Ralcorp) or (ii) a supplemental ruling from the IRS that the
transactions contemplated by this Agreement would not cause Agribrands'
spin-off from Ralston Purina to be a taxable transaction.
9.1.8. Tax Opinion. Ralcorp shall have received an opinion
from its tax counsel, in form and substance reasonably satisfactory to
Ralcorp and on the basis of facts, representations and assumptions set
forth in such opinion, substantially to the effect that the Ralcorp
Merger will qualify either as a reorganization within the meaning of
Section 368(a) of the Code or, taken together with the Agribrands
Merger, as an exchange under Section 351(a) of the Code, and Agribrands
shall have received an opinion from its tax counsel, in form and
substance reasonably satisfactory to Ralcorp and on the basis of facts,
representations and assumptions set forth in such opinion,
substantially to the effect that the Agribrands Merger will qualify
either as a reorganization within the meaning of Section 368(a) of the
Code or, taken together with the Ralcorp Merger, as an exchange under
Section 351(a) of the Code.
9.1.9. Dissenting Shares. At the Effective Time, the
Agribrands Dissenting Shares shall not exceed 5% of the outstanding
shares of Agribrands Common Stock and the Ralcorp Dissenting Shares
shall not exceed 5% of the outstanding shares of Ralcorp Common Stock.
9.1.10. Holding Company Acts. Holding Company shall have done
each of the things required for it to do pursuant to Article VIII of
this Agreement.
9.2. Conditions to Obligations of Agribrands. The obligation of
Agribrands to effect the Agribrands Merger shall be subject to the fulfillment
on or prior to the Closing Date of the following additional conditions, any one
or more of which may be waived by Agribrands:
9.2.1. Ralcorp Representations and Warranties. As of the
Closing Date, none of the representations or warranties of Ralcorp
contained in this Agreement, disregarding any qualifications herein
regarding materiality or Ralcorp Material Adverse Effect, shall be
untrue or incorrect as of the Closing Date, except to the extent such
representations and warranties speak as of an earlier date, to the
extent that such untrue or incorrect representations or warranties,
when taken together as a whole, have had or would reasonably be
expected to have a Ralcorp Material Adverse Effect.
9.2.2. Performance by Ralcorp. Ralcorp shall have performed
and complied with all of the covenants and agreements in all material
respects and satisfied in all material respects all of the conditions
46
required by this Agreement to be performed or complied with or
satisfied by Ralcorp on or prior to the Closing Date.
9.2.3. No Material Adverse Change. There shall not have
occurred after the date hereof any Event (except for those Events
caused by (y) conditions affecting the store brand and value brand
grocery product industry in the regions in which Ralcorp operates or
(z) the pendency or announcement of this Agreement, or the transactions
contemplated hereby) that has had or reasonably would be expected to
have a Ralcorp Material Adverse Effect.
9.2.4. Certificates and Other Deliveries. Ralcorp shall have
delivered to Agribrands (i) a certificate executed on its behalf by its
Chief Executive Officer to the effect that the conditions set forth in
Subsections 9.2.1, 9.2.2 and 9.2.3, above, have been satisfied; (ii) a
certificate of good standing from the Secretary of State of the State
of Missouri stating that Ralcorp is a validly existing corporation in
good standing; (iii) duly adopted resolutions of the Board of Directors
of Ralcorp approving the execution, delivery and performance of this
Agreement and the instruments contemplated hereby and of the
shareholders of Ralcorp approving the Ralcorp Proposals, each certified
by the Secretary or an Assistant Secretary of Ralcorp; (iv) a true and
complete copy of the Articles of Incorporation of Ralcorp certified by
the Secretary of State of the State of Missouri, and a true and
complete copy of the Bylaws of Ralcorp certified by the Secretary or an
Assistant Secretary of Ralcorp; (v) the certificate referred to in
Section 8.5 hereof; and (vi) such other documents and instruments as
Agribrands reasonably may request.
9.2.5. Opinion of Ralcorp Counsel. Agribrands shall have
received a customary opinion of counsel to Ralcorp, in form and
substance reasonably satisfactory to Agribrands.
9.3. Conditions to Obligations of Ralcorp. The obligations of Ralcorp
to effect the Ralcorp Merger shall be subject to the fulfillment on or prior to
the Closing Date of the following additional conditions, any one or more of
which may be waived by Ralcorp:
9.3.1. Agribrands Representations and Warranties. As of the
Closing Date, none of the representations or warranties of Agribrands
contained in this Agreement, disregarding any qualifications herein
regarding materiality or Agribrands Material Adverse Effect shall be
untrue or incorrect as of the Closing Date, except to the extent such
representations and warranties speak as of an earlier date, to the
extent that such untrue or incorrect representations or warranties,
when taken together as a whole, have had or would reasonably be
expected to have an Agribrands Material Adverse Effect.
9.3.2. Performance by Agribrands. Agribrands shall have
performed and complied with all the covenants and agreements in all
material respects and satisfied in all material respects all the
47
conditions required by this Agreement to be performed or complied with
or satisfied by Agribrands on or prior to the Closing Date.
9.3.3. No Material Adverse Change. There shall have not
occurred after the date hereof any Event (except for those Events
caused by (x) conditions affecting national, regional or world
economies such as currency fluctuations (but excluding extraordinary
disruptions in regional or world economies or markets or US/foreign
currency exchange ratios involving multiple countries), (y) conditions
affecting the animal feed industry in the regions in which Agribrands
operates, or (z) the pendency or announcement of this Agreement, or the
transactions contemplated hereby) that has had or reasonably would be
expected to have an Agribrands Material Adverse Effect.
9.3.4. Certificates and Other Deliveries. Agribrands shall
have delivered, or caused to be delivered, to Ralcorp (i) a certificate
executed on its behalf by its Chief Executive Officer to the effect
that the conditions set forth in Subsections 9.3.1, 9.3.2 and 9.3.3,
above, have been satisfied; (ii) a certificate of good standing from
the Secretary of State of the State of Missouri stating that Agribrands
is a validly existing corporation in good standing; (iii) duly adopted
resolutions of the Board of Directors of Agribrands approving the
execution, delivery and performance of this Agreement and the
instruments contemplated hereby and of the shareholders of Agribrands
approving the Agribrands Proposals, certified by the Secretary or an
Assistant Secretary of Agribrands; (iv) a true and complete copy of the
Articles of Incorporation of Agribrands certified by the Secretary of
State of the State of Missouri, and a true and complete copy of the
Bylaws of Agribrands certified by the Secretary or an Assistant
Secretary of Agribrands; (v) the certificate referred to in Section 8.5
hereof; and (vi) such other documents and instruments as Ralcorp
reasonably may request.
9.3.5. Opinion of Agribrands Counsel. Ralcorp shall have
received the opinion of counsel to Agribrands, in form and substance
reasonably satisfactory to Ralcorp.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Mergers by the shareholders of Agribrands and the shareholders of
Ralcorp:
(a) by mutual consent of Agribrands and Ralcorp;
(b) (1) by Agribrands (provided that Agribrands is not then in
material breach of any representation, warranty, covenant or other agreement
contained herein), if there has been a breach by Ralcorp of any of its
representations, warranties, covenants or agreements contained in this
48
Agreement, or any such representation and warranty shall have become untrue, in
any such case such that Section 9.2.1 or Section 9.2.2 will not be satisfied
and, in either such case, such breach or condition has not been promptly cured
within 30 days following receipt by Ralcorp of written notice of such breach;
(2) by Ralcorp (provided that Ralcorp is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), if
there has been a breach by Agribrands of any of its representations, warranties,
covenants or agreements contained in this Agreement, or any such representation
and warranty shall have become untrue, in any such case such that Section 9.3.1
or Section 9.3.2 will not be satisfied and such breach or condition has not been
promptly cured within 30 days following receipt by Agribrands of written notice
of such breach;
(c) by either Ralcorp or Agribrands if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction, any arbitrator or any Governmental Authority preventing or
prohibiting consummation of the Mergers shall have become final and
nonappealable (so long as the party seeking termination is not in breach of
Section 6.5 or Section 7.5 hereof);
(d) by either Ralcorp or Agribrands if the Mergers shall not
have been consummated before March 31, 2001 unless the failure of the Effective
Time to occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe in all material respects the
covenants and agreements of such party set forth herein;
(e) by either Ralcorp or Agribrands if the transactions
contemplated by this Agreement shall fail to receive the requisite vote for
approval and adoption (1) by the shareholders of Agribrands at the Agribrands
Shareholders Meeting or any adjournment or postponement thereof or (2) by the
shareholders of Ralcorp at the Ralcorp Shareholders Meeting or any adjournment
or postponement thereof; provided that the right to terminate this Agreement
under this Section 10.1(e) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of such approval to have been obtained;
(f) By either Agribrands or Ralcorp concurrently with its
acceptance of a Superior Proposal; or
(g) By either Agribrands or Ralcorp, if the Board of Directors
of the other shall have withdrawn, or modified or changed in a manner adverse to
the terminating party its approval or recommendation of the Agribrands or
Ralcorp Merger and/or the Agribrands or Ralcorp Proposals, each as the case may
be.
10.2. Effect of Termination.
(a) In the event of the termination of this Agreement by
either Agribrands or Ralcorp pursuant to Section 10.1, this Agreement shall
forthwith become void, there shall be no liability under this Agreement on the
part of Ralcorp or Agribrands, other than the provisions of this Section 10.2,
Section 11.1 and Section 11.7, and except to the extent that such termination
49
results from the willful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
(b) Agribrands and Ralcorp agree that Ralcorp shall pay to
Agribrands the sum of $5 million (the "Agribrands Termination Fee") solely as
follows: (1) if all of the following occur (A) Agribrands or Ralcorp shall
terminate this Agreement pursuant to Section 10.1(d) or (e)(2), in either case
where Ralcorp's shareholders have failed to approve the transactions
contemplated by this Agreement and, if the Agribrands Shareholders Meeting has
been held, Agribrands' shareholders have approved such transactions, (B) at any
time after the date of this Agreement and prior to Ralcorp Shareholders Meeting,
if any, there shall have been publicly announced a Ralcorp Acquisition Proposal,
(C) Agribrands shall not at any time prior to the Agribrands Shareholders
Meeting have withdrawn, or modified or changed in a manner adverse to Ralcorp,
its approval or recommendation of the Agribrands Merger and (D) within nine
months of the termination of this Agreement, Ralcorp enters into a definitive
agreement with respect to such Ralcorp Acquisition Proposal, (2) if Ralcorp
shall terminate this Agreement pursuant to Section 10.1(f), or (3) if Agribrands
shall terminate this Agreement pursuant to Section 10.1(g), unless Ralcorp's
Board of Directors' withdrawal, or modification or change to its approval or
recommendation of the Ralcorp Merger and/or the Ralcorp Proposals was as a
result of any Event (except for those Events caused by (x) conditions affecting
national, regional or world economies such as currency fluctuations (but
excluding extraordinary disruptions in regional or world economies or markets or
US/foreign currency exchange ratios involving multiple countries), (y)
conditions affecting the animal feed industry in the regions in which Agribrands
operates, or (z) the pendency or announcement of this Agreement, or the
transactions contemplated hereby) that has had or reasonably would be expected
to have an Agribrands Material Adverse Effect.
(c) The Agribrands Termination Fee required to be paid
pursuant to Section 10.2(b)(1) shall be paid to Agribrands not later than five
Business Days after Ralcorp enters into a definitive agreement with respect to a
Ralcorp Acquisition Proposal. The Agribrands Termination Fee to be paid to
Agribrands pursuant to Section 10.2(b)(2) shall be paid to Agribrands
concurrently with notice of termination of this Agreement by Ralcorp. The
Agribrands Termination Fee to be paid to Agribrands pursuant to Section
10.2(b)(3) shall be paid to Agribrands no later than five Business Days after
Ralcorp's receipt of notice of termination of this Agreement by Agribrands. All
payments under Section 10.2 (b) shall be made by wire transfer of immediately
available funds to an account designated by Agribrands.
(d) Agribrands and Ralcorp agree that Agribrands shall pay to
Ralcorp the sum of $5 million (the "Ralcorp Termination Fee") solely as follows:
(1) if all of the following occur (A) Agribrands or Ralcorp shall terminate this
Agreement pursuant to Section 10.1(d) or (e)(1), in either case where
Agribrands' shareholders have failed to approve the transactions contemplated by
this Agreement and, if the Ralcorp Shareholders Meeting has been held, Ralcorp's
shareholders have approved such transactions, (B) at any time after the date of
this Agreement and prior to Agribrands Shareholders Meeting, if any, there shall
have been publicly announced an Agribrands Acquisition Proposal, (C) Ralcorp
50
shall not at any time prior to the Ralcorp Shareholders Meeting have withdrawn,
or modified or changed in a manner adverse to Agribrands, its approval or
recommendation of the Ralcorp Merger and (D) within nine months of the
termination of this Agreement, Agribrands enters into a definitive agreement
with respect to such Agribrands Acquisition Proposal, (2) if Agribrands shall
terminate this Agreement pursuant to Section 10.1(f), or (3) if Ralcorp shall
terminate this Agreement pursuant to Section 10.1(g), unless Agribrands' Board
of Directors' withdrawal, or modification or change to its approval or
recommendation of the Agribrands Merger and/or the Agribrands Proposals was as a
result of any Event (except for those Events caused by (y) conditions affecting
the store brand and value brand grocery product industry in the regions in which
Ralcorp operates, or (z) the pendency or announcement of this Agreement, or the
transactions contemplated hereby) that has had or reasonably would be expected
to have a Ralcorp Material Adverse Effect.
(e) The Ralcorp Termination Fee required to be paid pursuant
to Section 10.2(d)(1) shall be paid to Ralcorp not later than five Business Days
after Agribrands enters into a definitive agreement with respect to an
Agribrands Acquisition Proposal. The Ralcorp Termination Fee to be paid pursuant
to Section 10.2(d)(2) shall be paid to Ralcorp concurrently with notice of
termination of this Agreement by Agribrands. The Ralcorp Termination Fee to be
paid to Ralcorp pursuant to Section 10.2(d)(3) shall be paid to Ralcorp no later
than five Business Days after Agribrands' receipt of notice of termination of
this Agreement by Ralcorp. All payments under Section 10.2(d) shall be made by
wire transfer of immediately available funds to an account designated by
Ralcorp.
ARTICLE XI.
MISCELLANEOUS
11.1. Confidentiality. Unless (i) otherwise expressly provided in
this Agreement, (ii) required by applicable Law, (iii) necessary to secure any
required Consents as to which the other party has been advised, or (iv)
consented to in writing by Ralcorp and Agribrands, this Agreement and any
information or documents furnished in connection herewith shall be kept strictly
confidential by Agribrands and the Agribrands Subsidiaries, Ralcorp and the
Ralcorp Subsidiaries, and their respective officers, directors, employees and
agents. Prior to any disclosure pursuant to the preceding sentence, the party
intending to make such disclosure shall consult with the other party to the
extent practicable regarding the nature and extent of the disclosure. Subject to
the preceding sentence, nothing contained herein shall preclude disclosures to
the extent necessary to comply with accounting, SEC and other disclosure
obligations imposed by applicable Law. To the extent required by such disclosure
obligations, Ralcorp or Agribrands, after consultation with the other party to
the extent practicable, may file with the SEC any written communications
relating to the Mergers and the transactions contemplated hereby pursuant to
Rule 425 promulgated under the Securities Act. Ralcorp and Agribrands shall
cooperate with the other and provide such information and documents as may be
required in connection with any such filings. In the event the Mergers are not
51
consummated, Ralcorp and Agribrands shall return to the other all documents
furnished by the other and all copies thereof made by such party and will hold
in absolute confidence all information obtained from the other party except to
the extent (i) such party is required to disclose such information by Law or
such disclosure is necessary in connection with the pursuit or defense of a
claim, (ii) such information was known by such party prior to such disclosure or
was thereafter developed or obtained by such party independent of such
disclosure, (iii) such party received such information on a non-confidential
basis from a source, other than the other party, which is not known by such
party to be bound by a confidentiality obligation with respect thereto or (iv)
such information becomes generally available to the public or is otherwise no
longer confidential. Prior to any disclosure of information pursuant to the
exception in clause (i) of the preceding sentence, the party intending to
disclose the same shall so notify the party which provided the same to the
extent practicable in order that such party may seek a protective order or other
appropriate remedy should it choose to do so.
11.2. Amendment and Modification. To the extent permitted by
applicable Law, this Agreement may be amended, modified or supplemented only by
a written agreement among Agribrands, Ralcorp and Holding Company, whether
before or after approval of this Agreement and the Merger Agreement by the
shareholders of Agribrands and Ralcorp, except that following approval by the
shareholders of either Agribrands or Ralcorp, there shall be no amendment or
change to the provisions hereof with respect to the Merger Consideration without
further approval by such approving shareholders, and no other amendment shall be
made which by law requires further approval by such shareholders without such
further approval.
11.3. Waiver of Compliance; Consents. Any failure of Agribrands on
the one hand, or Ralcorp on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived by Ralcorp on the one
hand, or Agribrands on the other hand, only by a written instrument signed by
the party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Any failure of the Holding Company to comply with any obligation,
covenant, agreement or condition herein may be waived only by a written
instrument signed by both Ralcorp and Agribrands, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 11.3.
11.4. Survival of Representations and Warranties. The respective
representations and warranties of Agribrands and Ralcorp contained herein or in
any certificates or other documents delivered prior to or at the Closing shall
survive the execution and delivery of this Agreement, notwithstanding any
investigation made or information obtained by the other party, but shall
terminate at the Effective Time.
52
11.5. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when delivered in
person, by facsimile, receipt confirmed, or on the next business day when sent
by overnight courier or on the second succeeding business day when sent by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(i) if to Agribrands, to:
Agribrands International, Inc.
9811 South Forty Dr.
St. Louis, Missouri 63124
Attention: Chairman of the Board, Chief Executive
Officer and President
Telecopy: (314) 812-0409
with a copy to:
Latham & Watkins
633 West 5th Street, Suite 4000
Los Angeles, CA 90071
Attention: Gary Olson, Esq.
Telecopy: (213) 891-8763
and with a copy to:
Bryan Cave LLP
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
Attention: Don G. Lents, Esq.
Telecopy: (314) 259-2020
and
(ii) if to Ralcorp, to:
Ralcorp Holdings, Inc.
800 Market Street
St. Louis, Missouri 63101
Attention: Chief Executive Officer
and President
Telecopy: (314) 877-7663
53
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071
Attention: Andrew E. Bogen, Esq.
Telecopy: (213) 229-7520
and with a copy to:
Bryan Cave LLP
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
Attention: Don G. Lents, Esq.
Telecopy: (314) 259-2020
11.6. Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto prior to the Effective Time without the
prior written consent of the other parties hereto.
11.7. Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses, provided, however, that each of Ralcorp
and Agribrands shall pay one-half of the expenses related to printing, filing
and mailing the Form S-4 and the Proxy Statement/Prospectus, the fees and
expenses of Bryan Cave LLP and all SEC and other regulatory filing fees incurred
in connection with the Mergers or the issuance of the Holding Company Common
Stock. Without limiting the generality of the foregoing, Agribrands agrees to
pay all fees and expenses incurred in connection with obtaining the IRS
supplemental ruling or opinion of tax counsel referred to in Section 6.15 above.
11.8. Governing Law. This Agreement shall be deemed to be made in,
and in all respects shall be interpreted, construed and governed by and in
accordance with the internal laws of, the State of Missouri, and the parties
hereto consent to the jurisdiction of the courts of or in the State of Missouri
in connection with any dispute or controversy relating to or arising out of this
Agreement and the transactions contemplated hereby.
11.9. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11.10. Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
54
interpretation of this Agreement. No rule of construction shall apply to this
Agreement which construes ambiguous language in favor of or against any party by
reason of that party's role in drafting this Agreement. As used in this
Agreement, (i) the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
trust, an association, an unincorporated organization, a Governmental Authority
and any other entity; (ii) the term "Affiliate," with respect to any person,
shall mean and include any person controlling, controlled by or under common
control with such person; and (iii) the term "subsidiary" of any specified
person shall mean any corporation 50 percent or more of the outstanding voting
power of which, or any partnership, joint venture, limited liability company or
other entity 50 percent or more of the total equity interest of which, is
directly or indirectly owned by such specified person.
11.11. Entire Agreement. This Agreement and the other agreements,
documents or instruments referred to herein or executed in connection herewith
including, but not limited to, the Agribrands Disclosure Schedule and Ralcorp
Disclosure Schedule, which schedules are incorporated herein by reference,
embody the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants, or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and the understandings between the parties with respect to such
subject matter.
11.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions in this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, the parties further agree that each party shall
be entitled to an injunction or restraining order to prevent breaches hereof or
thereof and to enforce specifically the terms and provisions hereof or thereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other right or remedy to which such party may be entitled
under this Agreement, at law or in equity.
11.13. Third Parties. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person that is not a party hereto or thereto,
or, a successor or permitted assign of such a party; provided, however, that the
parties hereto specifically acknowledge that the provisions of Section 8.1
above, are intended to be for the benefit of, and shall enforceable by, the
officers and directors of Agribrands and/or the Agribrands Subsidiaries and of
Ralcorp and/or the Ralcorp Subsidiaries affected thereby and their heirs and
representatives.
[Remainder of Page Intentionally Left Blank]
55
IN WITNESS WHEREOF, Agribrands and Ralcorp have caused this Agreement
to be signed and delivered by their respective duly authorized officers as of
the date first above written.
AGRIBRANDS INTERNATIONAL, INC.
By: /s/ W.P. Stiritz
---------------------------------------
Name: W.P. Stiritz
-------------------------------------
Title: Chief Executive Officer and President
--------------------------------------
RALCORP HOLDINGS, INC.
By: /s/ J. R. Micheletto
-----------------------------------------
Name: J. R. Micheletto
---------------------------------------
Title: Chief Executive Officer and President
--------------------------------------
Schedule 1.2
DIRECTORS OF HOLDING COMPANY
William P. Stiritz - Chairman
David R. Banks
William D. George
Jack W. Goodall
M. Darrell Ingram
David W. Kemper
H. Davis McCarty
Joe R. Micheletto
Jay W. Brown
Martin K. Sneider
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated _________, 2000,
between [Agribrands International, Inc./Ralcorp Holdings, Inc.], a Missouri
corporation (the "Company"), and Merger Sub ____, a Missouri corporation
("Merger Sub ___").
WHEREAS, the Company has entered into an Agreement and Plan of
Reorganization dated as of August __, 2000 by and between _____, Inc., a
Missouri corporation ("_____") and the Company (the "Reorganization Agreement")
pursuant to which the Company and _____ agreed to form a holding company (the
"Holding Company") and the Company and _____ each agreed to merge with separate
wholly owned subsidiaries of Holding Company; and
WHEREAS, Holding Company formed Merger Sub __ for such purpose; and
WHEREAS, the Board of Directors of Merger Sub ___ and the Board of
Directors of the Company deem it advisable and in the best interests of the
Company and Merger Sub ____ respectively that Merger Sub ___ merge with and into
the Company, in accordance with Section 351.410 of The General and Business
Corporation Law of Missouri (the "Missouri Code"), upon the terms and subject to
the conditions of the Reorganization Agreement and this Agreement, and have
approved and adopted the Reorganization Agreement and this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereby agree, subject to
the terms and conditions hereinafter set forth, as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and conditions hereof, and in
accordance with the provisions of the Missouri Code, Merger Sub ____ shall be
merged with and into the Company (the "Merger") and the Company shall be the
surviving entity in the Merger (in this capacity, the "Surviving Entity"). The
Company shall continue its corporate existence under the laws of the State of
Missouri and shall become a direct, wholly owned subsidiary of Holding Company.
SECTION 1.02. Effective Time. As soon as practicable after approval of
the transactions contemplated by the Reorganization Agreement, Articles of
Merger with respect to the Merger shall be filed with the Secretary of State of
Missouri in accordance with the provisions of Section 351.430 of the Missouri
Code. The Merger shall be effective at such time as the Articles of Merger are
duly filed with the Secretary of State of the State of Missouri in accordance
with Sections 351.435 and 351.440 of the Missouri Code or at such later time as
is specified in the Articles of Merger (the "Effective Time").
SECTION 1.03. Certain Effects of the Merger. After the Effective Time
of the Merger (i) the separate existence of Merger Sub ____ shall cease and
Merger Sub ____ shall be merged with and into the Company and (ii) the Merger
shall have all the effects set forth in Section 351.450 of the Missouri Code.
SECTION 1.04. Articles of Incorporation and By-Laws. The Articles of
Incorporation and By-Laws of Merger Sub ___ as in effect immediately prior to
the Effective Time shall be the Articles of Incorporation and By-Laws of the
Surviving Entity until further amended or supplemented in accordance with their
respective terms and the provisions of the Missouri Code.
SECTION 1.05. Directors and Officers of the Surviving Entity. The
directors and officers of Merger Sub ____ immediately prior to the Effective
Time shall be the directors and officers of the Surviving Entity, until their
respective successors are duly elected and appointed or until their earlier
death, resignation or removal.
ARTICLE II
EFFECT OF MERGER ON CAPITAL STOCK
OF THE CONSTITUENT ENTITIES
SECTION 2.01. Conversion of Merger Sub__ Stock. Pursuant to Section
3.1 of the Reorganization Agreement, at the Effective Time by virtue of the
Merger and without any action on the part of any of the parties, each issued and
outstanding share of common stock, par value $0.01 per share, of Merger Sub ___
shall be converted into and shall become one share of common stock of the
Company.
SECTION 2.02. Conversion of the Company's Common Stock. Subject to the
provisions of this Agreement and the Reorganization Agreement, at the Effective
Time each issued and outstanding share of common stock, par value $0.01 per
share, of the Company together with the associated rights issued pursuant to the
Company's Rights Agreement (the "Common Stock"), shall be converted into, at the
election of the holder thereof as provided in the Reorganization Agreement, one
of the following:
(a) for each such share of Common Stock with respect to which an
election to receive cash has been effectively made and not revoked or lost,
pursuant to Section 3.3 of the Reorganization Agreement (the "Cash Election"),
the right to receive in cash from Holding Company, without interest, an amount
equal to $____ (the "Cash Consideration");
(b) for each such share of Common Stock (other than shares as to
which a Cash Election has been made), the right to receive ____ share[s] of
Holding Company Common Stock (the "Stock Election").
If the percentage of shares of the Company's Common Stock outstanding
immediately prior to the Effective Time for which Stock Elections were made (the
"Stock Election Percentage") is equal to or greater than 80%, then all shares of
the Company's Common Stock covered by Stock Elections shall be converted into
the right to receive shares of Holding Company Common Stock, and all shares of
the Company's Common Stock covered by Cash Elections shall be converted into the
right to receive the Cash Consideration.
If the Stock Election Percentage is less than 80%, then all shares of
the Company's Common Stock covered by Stock Elections shall be converted into
the right to receive shares of Holding Company Common Stock, and the shares for
which each holder made a Cash Election (the "Cash Election Shares") shall be
treated as follows:
(x) Such holder shall be deemed to have made the Stock Election
in respect of a fraction (not greater than one) of such holder's Cash Election
Shares, (i) the numerator of which is the difference of 80% minus the Stock
Election Percentage, and (ii) the denominator of which is the percentage of
shares of the Company's Common Stock outstanding immediately prior to the
Effective Time for which Cash Elections were made; and
(y) The balance of such holder's Cash Election Shares shall be
converted into the right to receive the Cash Consideration.
SECTION 2.03. Other Effects. The Merger shall have such other effects
as provided in the Reorganization Agreement, including, but not limited to, the
conversion of options to purchase the Company's Common Stock as provided in
Section 3.5 of the Reorganization Agreement.
ARTICLE III
CLOSING CONDITIONS
SECTION 3.01. Conditions to Closing. The obligations of the Company
and Merger Sub ____ are subject to the satisfaction or waiver on or before the
Closing Date (as defined in the Reorganization Agreement) of all agreements and
conditions contained in the Reorganization Agreement.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of both parties.
SECTION 4.02. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Missouri, without
regard to its conflict of laws principles.
SECTION 4.03. Descriptive Headings. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
SECTION 4.04. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 4.05. Parties in Interest. This Agreement shall be binding
upon and inure to the benefit of each party hereto and their respective
successors, and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 4.06. Capitalized Terms. All terms capitalized but not
otherwise defined herein shall have the same meanings herein as in the
Reorganization Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
[Agribrands International, Inc./Ralcorp Holdings, Inc..]
By:
------------------------------
Merger Sub _______
By:
------------------------------
Annex B
BANK OF AMERICA
Bank of America Securities LLC 9 West 57th Street
New York, NY 10019
Tel 212.583.8000
August 7, 2000
Board of Directors
Ralcorp Holdings, Inc.
800 Market Street
St. Louis, MO 63101-0618
Members of the Board of Directors:
You have requested our opinion as to the fairness from a financial
point of view to the stockholders of Ralcorp Holdings, Inc. (the "Purchaser") of
the consideration to be received by such stockholders provided for in connection
with the proposed mergers (the "Mergers") of (i) the Purchaser with a wholly
owned subsidiary of a newly formed holding company (the "Holding Company"),
whose outstanding capital stock is owned 50% by the Purchaser and 50% by
Agribrands International, Inc. (the "Company"), and (ii) the Company with a
separate wholly-owned subsidiary of the Holding Company. Pursuant to the terms
of the Agreement and Plan of Reorganization, dated as of August 7, 2000 (the
"Agreement"), among the Company, the Purchaser and the Holding Company, the
Purchaser and the Company will each become a wholly owned subsidiary of the
Holding Company, and stockholders of the Purchaser will receive for each share
of Common Stock, par value $0.01 per share, of the Purchaser (the "Purchaser
Common Stock") held by them, other than shares held in treasury or as to which
dissenters' or appraisal rights have been perfected, consideration equal to, at
the election of the stockholder, $15.00 or 1.000 share of Common Stock, par
value $0.01 per share, of the Holding Company (the "Holding Company Common
Stock") and stockholders of the Company will receive for each share of Common
Stock, par value $0.01 per share, of the Company (the "Company Common Stock")
held by them, other than shares held in treasury or as to which dissenters' or
appraisal rights have been perfected, consideration equal to, at the election of
the stockholder, $39.00 or 3.000 shares of Holding Company Common Stock. The
terms and conditions of the Mergers are more fully set out in the Agreement.
Board of Directors
Ralcorp Holdings, Inc.
August 7, 2000
Page 2
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements
and other business and financial information of the Company and the
Purchaser, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and the Purchaser,
respectively;
(iii) analyzed certain financial forecasts prepared by the
management of the Company and the Purchaser, respectively;
(iv) reviewed and discussed with senior executives of the
Purchaser and the Company information relating to certain strategic,
financial and operational benefits anticipated from the Mergers
prepared by the management of the Company and the Purchaser,
respectively;
(v) discussed the past and current operations, financial
condition and prospects of the Company with senior executives of the
Company and discussed the past and current operations, financial
condition and prospects of the Purchaser with senior executives of the
Purchaser;
(vi) reviewed the pro forma impact of the Mergers on the
Purchaser's earnings per share, cash flow, consolidated capitalization
and financial ratios;
(vii) reviewed and considered in the analysis, information
prepared by members of senior management of the Company and the
Purchaser relating to the relative contributions of the Company and the
Purchaser to the Holding Company;
(viii) reviewed the reported prices and trading activity for
the Company Common Stock and the Purchaser Common Stock;
(ix) compared the financial performance of the Company and the
Purchaser and the prices and trading activity of the Company Common
Stock and the Purchaser Common Stock with that of certain other
publicly traded companies we deemed relevant;
(x) compared certain financial terms of the Mergers to
financial terms, to the extent publicly available, of certain other
business combination transactions we deemed relevant;
(xi) participated in discussions and negotiations among
representatives of the Company and the Purchaser and their financial
and legal advisors;
Board of Directors
Ralcorp Holdings, Inc.
August 7, 2000
Page 3
(xii) reviewed the August 4, 2000 draft of the Agreement and
certain related documents; and
(xiii) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by us
for the purposes of this opinion. With respect to the financial forecasts,
including information relating to certain strategic, financial and operational
benefits anticipated from the Mergers, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the future financial performance of the Company and
the Purchaser. In arriving at our opinion, we have relied upon the Company's
estimates relating to certain strategic, financial and operational benefits
anticipated from the Mergers. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals.
We have assumed that in connection with the receipt of all the
necessary regulatory approvals for the proposed Mergers, no restrictions will be
imposed that would have a material adverse effect on the contemplated benefits
expected to be derived in the proposed Mergers. In addition, we have assumed
that the Mergers will not materially adversely affect the tax-free treatment
afforded the spin-off of the Company from Ralston Purina Company under the
Internal Revenue Code of 1986, as amended.
We have acted as financial advisor to the Board of Directors of the
Purchaser in connection with this transaction and will receive a fee for our
services, including a fee which is contingent upon the consummation of the
Mergers. Banc of America Securities LLC or its affiliates has provided in the
past and currently provides financial advisory and financing services for the
Purchaser and the Company and have received, and will receive, fees for the
rendering of these services. In the ordinary course of our businesses, we and
our affiliates may actively trade the debt and equity securities of the Company
and the Purchaser for our own account or for the accounts of customers, and,
accordingly, we or our affiliates may at any time hold long or short positions
in such securities.
It is understood that this letter is for the benefit and use of the
Board of Directors of the Purchaser in connection with and for the purposes of
its evaluation of the Mergers. This opinion may not be disclosed, referred to,
or communicated (in whole or in part) to any third party for any purpose
whatsoever except with our prior written consent in each instance. However, this
opinion may be included in its entirety in any filing made by the Purchaser in
respect of the Mergers with the Securities and Exchange Commission, so long as
Board of Directors
Ralcorp Holdings, Inc.
August 7, 2000
Page 4
this opinion is reproduced in such filing in full and any description of or
reference to us or summary of this opinion and the related analysis in such
filing is in a form acceptable to us and our counsel. In furnishing this
opinion, we do not admit that we are experts within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended (the "Securities
Act") and the rules and regulations promulgated thereunder, nor do we admit that
this opinion constitutes a report or valuation within the meaning of Section 11
of the Securities Act. 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. It should be understood that subsequent developments may
affect this opinion and we do not have any obligation to update, revise or
reaffirm this opinion. This opinion does not in any manner address the prices at
which the Holding Company Common Stock will trade following consummation of the
Mergers. In addition, BAS expresses no opinion or recommendation as to how the
stockholders of the Purchaser and the Company should vote at the respective
stockholders' meetings held in connection with the Mergers.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, we are of the opinion on the date
hereof that the consideration to be received by the Purchaser's stockholders in
the proposed Mergers is fair from a financial point of view to such
stockholders.
Very truly yours,
BANC OF AMERICA SECURITIES LLC
By:
--------------------------
David T. Lender
Managing Director
Annex C
A.G. EDWARDS & SONS, INC.
August 7, 2000
Special Committee of the Board of Directors and
The Board of Directors
Ralcorp Holdings, Inc.
800 Market Street
St. Louis, MO 63101
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders (the "Shareholders") of the outstanding
shares of common stock, par value $0.01 per share ("Company Common Stock"), of
Ralcorp Holdings, Inc. ("Ralcorp" or the "Company") of the consideration (the
"Consideration") to be received (as described in the Agreement) in the proposed
mergers (collectively the "Merger") pursuant to the Agreement and Plan of
Reorganization (the "Agreement"), dated as of August 7, 2000, between the
Company and Agribrands International, Inc. ("Agribrands").
A.G. Edwards & Sons, Inc. ("A.G. Edwards"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. We are not aware of any present or contemplated relationship
between A.G. Edwards, the Company, the Company's directors and officers or its
shareholders, or between A.G. Edwards, Agribrands, Agribrands' directors and
officers or shareholders, which in our opinion would affect our ability to
render a fair and independent opinion in this matter.
In connection with this opinion, we have, among other things:
(i) reviewed the Agreement and related documents;
(ii) reviewed the Company's and Agribrands' historical audited
financial statements, certain unaudited financial statements and
financial projections;
(iii) held discussions with management of the Company and
Agribrands regarding the past and current business operations,
financial condition and future prospects of the Company and Agribrands,
respectively, including information relating to the strategic,
financial and operational benefits anticipated from the Merger;
(iv) reviewed the pro forma impact of the Merger on the sales,
operating cash flow, operating income, earnings per share and cash
earnings per share of Ralcorp;
(v) compared certain financial and stock market information
for the Company and Agribrands with similar information and stock
market information for certain other companies, the securities of which
are publicly traded;
(vi) reviewed the historical trading activity of the Company's
Common Stock and Agribrands' common stock;
(vii) reviewed the financial terms of certain recent business
combinations which A.G. Edwards deems comparable for analytical
purposes; and
(viii)completed such other studies and analyses that we
considered appropriate.
Ralcorp Holdings, Inc.
Page 2
August 7, 2000
In preparing our opinion, A.G. Edwards has assumed and relied upon the
accuracy and completeness of all financial and other information that was
supplied or otherwise made available to us by Ralcorp and Agribrands. We have
not been engaged to, and therefore we have not, verified the accuracy or
completeness of any such information. A.G. Edwards has been informed and assumed
that financial projections supplied to, discussed with or otherwise made
available to us reflect the best currently available estimates and judgments of
the managements of the Company and Agribrands as to the expected future
financial performance of the Company and Agribrands, in each case on a
stand-alone basis and after giving effect to the Merger. A.G. Edwards has not
independently verified such information or assumptions nor do we express any
opinion with respect thereto. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company or Agribrands, nor have we
been furnished with any such appraisals.
In rendering our opinion, A.G. Edwards has also assumed that the Merger
will be accounted for as a "purchase" business combination in accordance with
U.S. Generally Accepted Accounting Principles, that the Merger will not
negatively impact the tax-free nature of Agribrands' tax-free spin-off from its
prior parent company, Ralston Purina Companies, and that the Merger will be
consummated on the terms contained in the Agreement, without any waiver of any
material terms or conditions by the Company.
A.G. Edwards' opinion is necessarily based on economic, market and
other conditions including foreign currency exchange rates and commodity market
conditions, as in effect on, and the information made available to us as of, the
date hereof. The analyses performed by A.G. Edwards are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Our opinion as expressed
herein, in any event, is limited to the fairness, from a financial point of
view, to the Shareholders, of the Consideration to be received in the Merger,
pursuant to the Agreement.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors and the Board of Directors of the Company
and does not constitute a recommendation as to how any holder of the Company
Common Stock should vote with respect to the Merger. This opinion may not be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent, except that this opinion may be included in its entirety in the
proxy materials to be distributed to the Shareholders regarding the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration to be received by the Company's Shareholders
in the Merger pursuant to the Agreement is fair, from a financial point of view,
to the Shareholders.
Very truly yours,
A.G. Edwards & Sons, Inc.
By: _____________________
Douglas E. Reynolds
Managing Director
Annex D
WASSERSTEIN PERELLA & CO., INC.
Premier Investment Banking
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019-6118
Telephone 212-969-2700
Fax 212-969=7836
August 7, 2000
Board of Directors
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the stockholders of Agribrands International, Inc.
(the "Company") (other than William P. Stiritz and Joe Micheletto (the "Excluded
Stockholders")) of the Merger Consideration (as defined below) provided for
pursuant to the terms of the Agreement and Plan of Reorganization, dated as of
August 7, 2000, (the "Merger Agreement"), between Ralcorp Holdings, Inc.
("Ralcorp") and the Company. In accordance with the Merger Agreement, the
parties will form a new company ("Holding Co."), which will have two
subsidiaries. One of the subsidiaries will merge with and into the Company (the
"Company Merger") and the other subsidiary will merge with and into Ralcorp (the
"Ralcorp Merger"). As a result of the Company Merger and the Ralcorp Merger,
each of the Company and Ralcorp will become wholly owned subsidiaries of Holding
Co. Pursuant to the Company Merger, each issued outstanding share of common
stock of the Company will be converted into the right to receive (the "Merger
Consideration") 3.0000 shares of the common stock of Holding Co. ("Holding Co.
Common Stock"); provided that each holder of a share of common stock of the
Company shall have the right to elect to receive $39.00 in cash for each share
of common stock of the Company held by such holder, subject to certain
provisions which effectively limit the cash election to 20% of the outstanding
shares of common stock of the Company. Pursuant to the Ralcorp Merger Agreement,
each issued and outstanding share of common stock of Ralcorp will be converted
into the right to receive 1.0000 share of the Holding Co. Common Stock; provided
that each holder of a share of common stock of Ralcorp shall have the right to
elect to receive $15 in cash for each share of common stock of Ralcorp held by
such holder, subject to certain provisions which effectively limit the cash
election to 20% of the outstanding shares of common stock of Ralcorp. The terms
and conditions of the Merger are set forth in more detail in the Merger
Agreement.
In connection with rendering our opinion, we have reviewed a draft of the
Merger Agreement, and for purposes hereof, we have assumed that the final form
Board of Directors
August 7, 2000
Page 2
of this document will not differ in any material respect from the draft provided
to us. We have also reviewed and analyzed certain publicly available business
and financial information relating to the Company and Ralcorp for recent years
and interim periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared by
or on behalf of the Company and Ralcorp and provided to us for purposes of our
analysis, and we have met with management of the Company and Ralcorp to review
and discuss such information and, among other matters, each of the Company's and
Ralcorp's business, operations, assets, financial condition and future
prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company and Ralcorp, and we have compared that data with similar
data for certain other companies, the securities of which are publicly traded,
that we believe may be relevant or comparable in certain respects to the Company
and Ralcorp or one or more of their respective businesses or assets, and we have
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions in the food and animal feed industries
specifically, and in other industries generally, that we believe to be
reasonably comparable to the Merger or otherwise relevant to our inquiry. We
have also performed such other financial studies, analyses, and investigations
and reviewed such other information as we considered appropriate for purposes of
this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the historical financial
and other information provided to or discussed with us or publicly available,
and we have not assumed any responsibility for independent verification of any
of such information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and we have assumed that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's and Ralcorp's management. We
express no opinion with respect to such projections, forecasts and analyses or
the assumptions upon which they are based. In addition, we have not reviewed any
of the books and records of the Company or Ralcorp, or assumed any
responsibility for conducting a physical inspection of the properties or
facilities of the Company or Ralcorp, or for making or obtaining an independent
valuation or appraisal of the assets or liabilities of the Company or Ralcorp,
and no such independent valuation or appraisal was provided to us. We note that
the Merger is intended to qualify as a tax free reorganization for United States
Federal tax purposes, and we have assumed that the Merger will so qualify. You
have informed us, and we have assumed, that the Merger will be recorded as a
Board of Directors
August 7, 2000
Page 3
purchase under generally accepted accounting principles. We also have assumed
that obtaining all regulatory and other approvals and third party consents
required for consummation of the Merger will not have an adverse impact on the
Company or Ralcorp or on the anticipated benefits of the Merger, and we have
assumed that the transactions described in the Merger Agreement will be
consummated without waiver or modification of any of the material terms or
conditions contained therein by any party thereto. Our opinion is necessarily
based on economic and market conditions and other circumstances as they exist
and can be evaluated by us as of the date hereof. We are not expressing any
opinion herein as to the prices at which any securities of Ralcorp or the
Company will actually trade at any time.
It should be noted that in the context of our current engagement by the
Company, we were not authorized to and did not solicit third party indications
of interest in acquiring all or any part of the Company, or investigate any
alternative transactions that may be available to the Company.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Company and Ralcorp for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
We are acting as financial advisor to the Board of Directors of the Company
in connection with the proposed Merger and will receive a fee for our services,
a significant portion of which is contingent upon the consummation of the
Merger. In addition, we have performed various investment banking services for
the Company from time to time in the past and have received customary fees for
rendering such services. We have performed various investment banking services
for Ralcorp from time to time in the past and have received customary fees for
rendering such services. In addition, from time to time in the past we have
performed various investment banking services for entities for which the
Chairman of the Company serves as Chairman and have received customary fees for
rendering such services.
Our opinion addresses only the fairness from a financial point of view to
the stockholders of the Company (other than the Excluded Stockholders) of the
Merger Consideration provided for pursuant to the Merger Agreement, and we do
not express any views on any other term of the Merger. Specifically, our opinion
does not address the Company's underlying business decision to effect the
transactions contemplated by the Merger Agreement.
Board of Directors
August 7, 2000
Page 4
It is understood that this letter is solely for the benefit and use of the
Board of Directors of the Company in its consideration of the Merger and may not
be relied upon by any other person, and except for inclusion in its entirety in
any registration statement or proxy statement required to be circulated to
stockholders of the Company relating to the Merger, may not be quoted, referred
to or reproduced at any time or in any manner without our prior written consent.
This opinion does not constitute a recommendation to any stockholder or as to
how such holder should vote with respect to the Merger, and should not be relied
upon by any stockholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof
the Merger Consideration provided for pursuant to the Merger Agreement is fair
to the stockholders of the Company (other than the Excluded Stockholders) from a
financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
Annex E
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
Investment Bankers
August 7, 2000
Special Committee of the Board of Directors
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
Dear Members of the Special Committee:
We understand that Agribrands International, Inc. ("Agribrands" or the
"Company") and Ralcorp Holdings, Inc. ("Ralcorp") intend to enter into a
business combination in a merger of equals, the terms and conditions of which
are set forth in that certain proposed Agreement and Plan of Reorganization by
and between Agribrands and Ralcorp (the "Agreement"). Pursuant to the Agreement,
Agribrands and Ralcorp will form a holding company ("Holding Company") and,
solely to effect the business combination, will also form Holding Company
Subsidiary A ("Merger Sub A") and Holding Company Subsidiary R ("Merger Sub R").
The Agreement provides for, among other things, (i) the merger of Merger Sub A
with and into Agribrands (the "Agribrands Merger"), and (ii) the merger of
Merger Sub R with and into Ralcorp (the "Ralcorp Merger"). Pursuant to the
Agribrands Merger, and subject to the adjustments and limitations set forth in
the Agreement, each issued and outstanding share of common stock, par value $.01
per share, of Agribrands (together with the associated rights issued pursuant to
the Agribrands Rights Agreement, the "Agribrands Common Stock") (other than
Agribrands Dissenting Shares), will be converted into the right to receive, at
the election of the holder, either (i) three shares of Holding Company Common
Stock, or (ii) $39 in cash from Holding Company, without interest. Pursuant to
the Ralcorp Merger, and subject to the adjustments and limitations set forth in
the Agreement, each issued and outstanding share of common stock, par value $.01
per share, of Ralcorp (together with the associated rights issued pursuant to
the Ralcorp Rights Agreement, the "Ralcorp Common Stock") (other than Ralcorp
Dissenting Shares), will be converted into the right to receive, at the election
of the holder, either (i) one share of Holding Company Common Stock, or (ii) $15
in cash from Holding Company, without interest.
As a result of the Agribrands Merger and the Ralcorp Merger, Agribrands and
Ralcorp will become subsidiaries of Holding Company, and the stockholders of
each of Agribrands and Ralcorp will become shareholders of Holding Company. Upon
consummation of the Reorganization, the shareholders of Agribrands will
collectively own between 44% and 55% of Holding Company. Holding Company's
common shares will be listed and traded on the New York Stock Exchange.
Capitalized terms used herein but not defined have the meanings ascribed to them
in the Agreement.
Special Committee of the Board of Directors
Agribrands International, Inc.
August 7, 2000
-2-
We further understand that Agribrands and Ralcorp, each of whose common shares
are traded on the New York Stock Exchange, are both spin-offs from Ralston
Purina Company. Though Agribrands and Ralcorp operate separate and distinct
businesses, the three companies have a number of connections, including several
common directors, one of whom is Chairman of the Board of both Agribrands and
Ralcorp and a director of Ralston Purina, as well as certain business
inter-relationships.
You have requested our opinion with respect to the fairness, from a financial
point of view, to holders of Agribrands Common Stock (other than director
shareholders) of the Agribrands Merger Consideration to be offered in the
Agribrands Merger. This opinion does not address the Company's or Ralcorp's
underlying business decision to effect the Reorganization. We have not been
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of the Company or Ralcorp. Houlihan Lokey was not
asked to opine on and does not express any opinion as to the public market
values or realizable value of the Holding Company's common shares to be received
as consideration in connection with the Reorganization and the prices at which
the Holding Company's common shares may trade in the future following the
Reorganization. This opinion is not intended to be, and does not constitute, a
recommendation to any stockholder as to how such stockholder should act with
respect to the Reorganization, and is subject to the conditions and limitations
set forth in our engagement letter.
We have assumed that the Agribrand and Ralcorp Mergers will be an exchange as
described in Section 351 of the Internal Revenue Code of 1986, as amended, and
the regulations thereunder, and that no person who exchanges their shares solely
for Holding Company Common Stock will recognize any gain or loss for federal
income tax purposes as a result of the consummation of the Reorganization. We
understand that the Company intends to obtain a supplemental ruling from the
Internal Revenue Service with respect to certain matters related to its 1998
spin-off from Ralston Purina Company, and will not consummate the Reorganization
prior to the receipt of such ruling; our opinion assumes such ruling is
received.
In connection with this opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary or appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's Forms 10-K and the related financial
information for the two fiscal years ended August 31, 1999, and the
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended November 30, 1999, February 28, 2000 and May
31, 2000, and Company-prepared interim financial information since May
31, 2000;
2. reviewed Ralcorp's Forms 10-K and the related financial information
for the four fiscal years ended September 30, 1999, and the Forms 10-Q
and the related unaudited financial information for the quarterly
periods ended December 31, 1999 and March 31, 2000, and
company-prepared interim financial information since March 31,2000;
3. reviewed a copy of the Agreement and Plan of Reorganization dated as
of August 7, 2000 in substantially the form to be executed by the
Company;
4. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and
projected operations and performance of the Company, and met with
representatives of the Company's investment bankers and counsel to
discuss certain matters;
Special Committee of the Board of Directors
Agribrands International, Inc.
August 7, 2000
-3-
5. met with certain members of the senior management of Ralcorp to
discuss the operations, financial condition, future prospects and
projected operations and performance of Ralcorp;
6. visited the business offices of the Company and Ralcorp;
7. reviewed forecasts and projections prepared by the Company's
management with respect to the Company;
8. reviewed forecasts and projections prepared by Ralcorp's management
with respect to Ralcorp;
9. reviewed certain information regarding the Company and Ralcorp
including investment research reports, news announcements and press
releases, and other public disclosures;
10. reviewed the historical market prices and trading volume for the
Company's and Ralcorp's publicly traded securities;
11. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company and Ralcorp, and
publicly available prices and premiums paid in other transactions that
we deemed to be relevant; and
12. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
forecasts and projections provided to us have been reasonably prepared and
reflect the best currently available estimates of the future financial results
and condition of the Company and Ralcorp, and that there has been no material
change in the assets, financial condition, business or prospects of the Company
or Ralcorp since the date of the most recent financial statements, forecasts and
projections made available to us. We have further relied upon the assurances of
management of Agribrands and Ralcorp that they are not aware of any facts that
would make such information inaccurate, incomplete or misleading.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and Ralcorp and do not
assume any responsibility with respect to it. We have not made any physical
inspection or independent appraisal of any of the properties or assets of the
Company or Ralcorp. Our opinion is necessarily based on business, economic,
foreign currency, market and other conditions as they exist and can be evaluated
by us at the date of this letter.
The opinion expressed herein is for the information of the Company's Board of
Directors in evaluating the Reorganization, and is not provided on behalf of, or
intended to confer rights or remedies upon, any stockholder of the Company,
Ralcorp or any person other than the Company's Board of Directors. Except for
its publication in the Proxy Statement/Prospectus which will be distributed to
holders of Agribrands Common Stock and Ralcorp Common Stock in connection with
approval of the Reorganization, our opinion may not be published or otherwise
used or referred to without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Agribrands Merger Consideration is fair, from a financial point of
view, to the holders of the Agribrands Shares (other than director
shareholders).
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
Annex F
Missouri Revised Statutes
Section 351.455
Shareholder who objects to merger may demand value of shares, when.
351.455. 1. If a shareholder of a corporation which is a party to a merger
or consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholder and the surviving
or new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in any
court of competent jurisdiction within the county in which the registered office
of the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporation of the certificate or certificates
representing said shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares, or in the surviving
or new corporation. Such shares may be held and disposed of by the surviving or
new corporation as it may see fit. Unless the dissenting shareholder shall file
such petition within the time herein limited, such shareholder and all persons
claiming under him shall be conclusively presumed to have approved and ratified
the merger or consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger or consolidation.
Annex G
[Newco Articles of Incorporation]
Annex H
[Newco Bylaws]