-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FjzMfcx5oFT2TPu6BS6r9g01Ilns8m6W+zcFC9aPY0lg5UYaxjwUccgrU/g1IQfk OmXv3wAg1CQXmB67eRlGPA== 0000950124-99-006626.txt : 19991229 0000950124-99-006626.hdr.sgml : 19991229 ACCESSION NUMBER: 0000950124-99-006626 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL FOODS CORP CENTRAL INDEX KEY: 0000310142 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 390561070 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07626 FILM NUMBER: 99781861 BUSINESS ADDRESS: STREET 1: 433 EAST MICHIGAN ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142716755 MAIL ADDRESS: STREET 1: PO BOX 737 CITY: MILWAUKEE STATE: WI ZIP: 53201 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ ------------ Commission File Number 1-7626 UNIVERSAL FOODS CORPORATION ----------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WISCONSIN 39-0561070 ------------------------------- ----------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 433 EAST MICHIGAN STREET MILWAUKEE, WISCONSIN 53202 ---------------------------------------- ----------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 271-6755 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT NAME OF EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------------------- ------------------------------ Common Stock, $.10 par value New York Stock Exchange, Inc. Associated Preferred Share Purchase Rights SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT None 2 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of December 3, 1999: 53,954,874 shares of Common Stock, $.10 par value, including 3,720,851 treasury shares. Aggregate market value of Universal Foods Corporation Common Stock, excluding treasury shares, held by non-affiliates as of December 3, 1999 was $1,052,579,853. In determining who are affiliates of the Company for purposes of this computation, it is assumed that directors, officers, and any persons filing a Schedule 13D or Schedule 13G are "affiliates" of the Company. The characterization of such directors, officers, and other persons as affiliates is for purposes of this computation only and should not be construed as a determination or admission for any other purpose that any of such persons are, in fact, affiliates of the Company. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Universal Foods Corporation Annual Report to Shareholders for the fiscal year ended September 30, 1999 (Parts I, II and IV of Form 10-K) 2. Portions of Universal Foods Corporation Notice of Annual Meeting and Proxy Statement of the Company dated December 17, 1999 (Parts II and III of Form 10-K) 2 3 PART I ITEM 1. BUSINESS--FOOD AND OTHER INDUSTRIES Universal Foods Corporation (the "Company") was incorporated in 1882 in Wisconsin. Its principal executive offices are located at 433 East Michigan Street, Milwaukee, Wisconsin 53202, telephone (414) 271-6755. DESCRIPTION OF BUSINESS Universal Foods Corporation is an industrial marketer of high-performance components that add functionality to foods, cosmetics, pharmaceuticals and other products. The Company's principal products include: - - flavors, flavor enhancers, and aroma chemicals for foods, beverages, dairy/ice cream products, animal feed, personal care and household items; - - certified synthetic and natural colors for foods, cosmetics, specialty inks and pharmaceuticals; - - dehydrated vegetable products sold primarily to food processors; and - - a broad line of yeast products for commercial baking and other uses. The Company's operations, except for the Asia Pacific Division, are managed on a products and services basis. The Company's two reportable segments are the Performance Products Group and the Natural Products Group. PERFORMANCE PRODUCTS The Company's Performance Products Group produces flavor and color products that impart a desired taste, smell or color to a broad range of consumer products. FLAVOR DIVISION The Company is a leading manufacturer and supplier of flavors, ingredient systems and aroma chemicals to the dairy, food processing, beverage, personal care and household products industries worldwide. The Company has a broad, distinctive and fully integrated product offering, ranging from savory flavor components to fully formulated flavor systems for dairy, beverage, and processed food applications. During 1998 the Company combined its bioproducts business (which was formerly operated as a separate division known as Red Star BioProducts) with its Flavor Division. The bioproducts business served the food and animal feed processing, as well as the bionutrient industries with a broad line of natural extracts and specialty flavors. The Company produces various specialty extracts from yeast, vegetable proteins, meat, milk protein and other natural products which are used primarily as savory flavor, texture modifiers and enhancers in processed foods. The nutritional and functional properties of these extracts also make them useful in enzyme and pharmaceutical production. The Company believes it is the leading supplier of yeast extracts and the second leading supplier of hydrolized vegetable proteins in the U.S. market. Strategic acquisitions have expanded Universal Flavors' product lines and processing capabilities. The January 1994 acquisition of Destillaciones Garcia de la Fuente, S.A. (DGF), based in Granada, Spain, provided a depth of expertise for expanding into aroma chemicals, which are used to create flavors as well as fragrances. In July 1994, Universal Flavors, through its international subsidiary, purchased its 3 4 partner's 51% interest in Azteca en Ambesco de Mexico S.A. de C.V. This purchase brought beverages and dairy flavor product lines to the Company's existing Mexican flavor business. In January 1998, the Company acquired Arancia Ingredients Especiales, S.A. de C.V., a manufacturer of savory flavors and other food ingredients, improving access to the rapidly growing Latin American savory flavor market. In April 1998, the Company acquired an English savory and seasonings flavor manufacturer, DC Flavours Ltd., which further expanded the Company's technology and worldwide market presence and also gives the Company access to the snack food market, the fastest growing segment in Europe's food market. In May 1998, the acquisition of substantially all of the assets and business of the beverage business of German flavor manufacturer Sundi GmbH, with its emphasis on all-natural flavor ingredients, provided the Company with a point of entry into Germany, Europe's largest flavor market. The Flavor Division operates through the Company's subsidiary, Universal Flavor Corporation and its subsidiaries, with plants in Illinois, Indiana, Michigan, Missouri, Wisconsin, Belgium, Canada, France, Germany, Italy, Mexico, Spain, and the United Kingdom. COLOR DIVISION The Company believes it is the world's leading manufacturer of certified food colors. It makes certified synthetic and natural colors for domestic and international producers of beverages, bakery products, processed foods, confections, pet foods, cosmetics and pharmaceuticals. It also makes ink-jet inks and other high-purity organic dyes. The Color Division operates through the Company's subsidiary, Warner-Jenkinson Company Inc., which has its principal manufacturing facility in Missouri and other subsidiaries with plants in New Jersey, Canada, Mexico, France, Italy, the United Kingdom, and the Netherlands. The Company became a supplier of ink-jet inks for the ink-jet printer market with the acquisition of Tricon Colors, Inc. in 1997. It produces pharmaceutical colors, ink-jet inks and other high-purity organic dyes in the Tricon plant, which is located in New Jersey. In September 1997, the Company strengthened its presence in Latin America by acquiring certain assets of the food color business of Pyosa, S.A. de C.V., which is located in Monterrey, Mexico. In September 1998, the Company acquired Italian natural color producer Reggiana Antociani S.R.L., a company which specializes in the production of anthocyanin, which is extracted from grape skins for use in fruit juices, flavored teas, wine coolers and fruit fillings, strengthening the Company's offerings in natural colors, the fastest growing segment of the worldwide food colors market. In February 1999, the Company expanded its cosmetics business through the purchase of Les Colorants Wackherr, a Paris-based producer of colors for major cosmetics houses throughout Europe, Asia and North America. Also in February 1999, the Company further developed its natural colors offerings by acquiring certain assets of Quimica Universal, a Peruvian producer of carminic acid and annatto, natural colors used in food and other applications. The Company acquired Pointing Holdings Limited, a manufacturer of food colors, flavors and specialty chemicals located in the United Kingdom in April 1999. The Pointing international color business significantly strengthened the Company's worldwide color capabilities. In August 1999, the Company acquired certain assets of Nino Fornaciari fu Riccardo SNC, an Italian producer of natural colors for the food and beverage industries. NATURAL PRODUCTS GROUP The Natural Products Group produces dehydrated vegetable and yeast products which are used as ingredients in the manufacture of various food products. DEHYDRATED PRODUCTS DIVISION The Company believes it is the third largest producer of dehydrated onion and garlic products in the United States. The Company is also one of the largest producers and distributors of chili powder, paprika, chili pepper and dehydrated vegetables such as parsley, celery and spinach. Domestically, the Company sells dehydrated products to food manufacturers for use as ingredients and also for repackaging under private labels for sale to the retail market and to the food service industry. The Dehydrated Products Division operates in the United States through the Company's subsidiary, Rogers Foods Inc., which has its processing facilities in California. 4 5 The Company believes it is one of the leading dehydrators of specialty vegetables in Europe. During 1994 and 1995, the Company acquired three European dehydrated vegetable processors. The acquisitions gave the Company a base from which to expand its dehydrated products business internationally, as the acquisitions included processing facilities in the Netherlands, France and Ireland. These acquisitions also expanded the Company's dehydrated technology base to include puffed drying, freeze drying and vacuum drying. Vegetables processed using these technologies rehydrate faster and absorb water more effectively than vegetables processed using straight heat drying methods. This is a benefit with today's convenience foods such as soups, snacks and other dry foods. RED STAR YEAST & PRODUCTS DIVISION The Company believes it is the largest North American supplier of yeast to the commercial bakery market. It also exports yeast and related products throughout the world. The Company specializes in the production of baker's yeast in cream (liquid), compressed (semi-solid), and active dry form, as well as nutritional yeast and yeast used in the wine-making process, which are all sold under the RED STAR trademark. The Company sells active dry yeast to food processors for inclusion in bread, pizza and similar mixes. The Company also manufactures compressed, active dry and fast-acting dry yeast products in ready-to-use packages which are sold on grocery store shelves and in convenient packages for food service use. The Company believes it is the second largest supplier of yeast to the domestic retail market. In 1994, the Company purchased a 20% interest in and entered into an agreement with Minn-Dak Yeast Company, located in North Dakota, for contract manufacturing under the Red Star label and to supply molasses, a major raw material in yeast production. Red Star Yeast & Product's yeast plants are located in Wisconsin, Maryland and California. ----------------------------------------- ASIA PACIFIC DIVISION In 1997, the Company established the Asia Pacific Division as a separate operating Division to focus on marketing its diverse product line in the Pacific Rim under one unified name. Through the Asia Pacific Division, the Company offers a full range of products from its other four divisions as well as products developed by regional technical teams to appeal to local preferences. Sales, marketing and technical functions previously directed by U.S. based divisions are managed through the Asia Pacific Division's headquarters in Singapore. Manufacturing operations are located in Australia, Hong Kong, New Zealand, and the Philippines. RESEARCH AND DEVELOPMENT/QUALITY ASSURANCE The development of specialized products and services is a complex, technical process calling upon the combined knowledge and talents of the Company's research, development and quality assurance personnel. The Company believes that its competitive advantage lies in its ability to work with its customers to develop and deliver high-performance products which address the broad, but unique and distinct, needs of those customers. The Company's research, development and quality assurance personnel make significant contributions toward improving existing products and developing new products tailored to its customer's needs, while providing on-going technical support and know-how to the Company's manufacturing activities. The Company employs approximately 220 people in research, development and quality assurance. Expenditures for research, development and quality assurance in 1999 were $29.5 million compared with $29.4 million in 1998 and $31.5 million in 1997. Of the foregoing amounts, approximately $20.5 million in 1999, $18.7 million in 1998 and $19.7 million in 1997 were research and development expenses. 5 6 As part of its commitment to quality as a competitive advantage, the Company has undertaken efforts to achieve certification to the requirements established by the International Organization for Standardization in Geneva, Switzerland, through its ISO 9000 series of quality standards. Facilities currently certified include Universal Flavors facilities in the United States, Spain, Italy, Mexico, Belgium, Germany, the United Kingdom and Canada; Warner-Jenkinson facilities in the United States, the Netherlands and United Kingdom; Dehydrated Products facilities in the United States, France and the Netherlands; and Asia Pacific facilities in the Philippines. COMPETITION All Company products are sold in highly competitive markets. While no single factor is determinative, the Company's competitive position is based principally on process and applications expertise, quality, technological advances resulting from its research and development, and customer service and support. Because of its highly differentiated products, the Company competes with only a few companies across multiple ingredient lines, and is more likely to encounter competition specific to an individual product. - Flavor. Competition to supply the flavor industry has taken on an increasingly global nature. Most of the Company's customers do not buy all their flavor products from a single supplier. As a result, the Company does not compete with a single company in all product categories. Competition for the supply of flavors is based on the development of customized ingredients for new and reformulated customer products, as well as on quality, customer service and price. - Color. Although statistics are not available, the Company believes that it is one of the world's largest producers of synthetic and natural colors. State-of-the-art equipment, the latest process technology, a Color Service Laboratory unequaled in the industry, and the most complete range of synthetic and natural colors constitute the basis for its market leadership position. Strategic acquisitions continue to enhance product and process technology synergies, as well as a growing international presence. - Dehydrated. Competition for dehydrated onion, garlic, capsicums, carrots and parsley products, the main products of the Dehydrated Products Division, is limited to three main competitors. Competition for other dehydrated business is limited to single, as opposed to multiple, product lines. State-of-the-art dehydration technology, extensive plant breeding and seed development programs, and comprehensive crop management techniques produce consistent, top-quality dehydrated products which helps the Company maintain its competitive position. Competition for dehydrated business is on the basis of quality, customer service and price. - Yeast. The Company believes that it is the largest supplier of commercial baker's yeast and the second largest supplier of retail yeast in North America. In both the commercial and retail yeast areas, the Company competes with several yeast producers. Competition for the supply of yeast is on the basis of quality, customer service and price. - Asia Pacific. Because of the broad array of products available to customers of the Asia Pacific Division, the Company is able to offer a wider product base than many of its competitors. Competition is based upon reliability in product quality, service and price as well as technical support available to customers. PRODUCTS AND APPLICATION ACTIVITIES With the Company's strategic focus on high-performance ingredients and ingredient systems, the Company's emphasis is in application activities and processing improvements in the support of its 6 7 customers' numerous new and reformulated products. The Company maintains many of its proprietary processes and formulae as trade secrets and under secrecy agreements with customers. Lower calorie ingredients and non-nutritive sweeteners for dairy, food and beverage applications are a focus of development activity for Universal Flavors. Formulations for functional and textured beverages and flavors for snack and main meal items offer opportunities as well. Development of savory flavors has accelerated with the integration of the Company's BioProducts Division in 1998. The development of natural food colors remains a growth opportunity for the Color Division. With the 1997 acquisition of Tricon Colors, Inc., the Color Division expanded its purification technology, with the primary opportunity in colors for ink-jet printers. European acquisitions in 1994 and 1995 expanded the Dehydrated Products product line to include peas, carrots, beans, potatoes and other specialty vegetables. The Red Star Yeast & Products Division has been producing baker's yeast for over 115 years, serving the commercial and consumer markets. The move to cream yeast and the development of cream yeast delivery systems has revolutionized the commercial baking industry, improving efficiencies and increasing productivity. The development of yeast derivatives and other specialty ingredients provide growth opportunities in bionutrients and biotechnology markets such as pharmaceuticals, vitamins, vaccines and bioremediation. In addition, the discussion of operational activities in the "Business Profile" on Pages 4 and 5 of the 1999 Annual Report to Shareholders is incorporated by reference. RAW MATERIALS In producing its products, the Company uses a wide range of raw materials. Chemicals and petrochemicals used to produce certified colors are obtained from several domestic and foreign suppliers. Raw materials for natural colors, such as carmine, beta-carotene, annatto and turmeric, are purchased from overseas and U.S. sources. In the production of flavors, the principal raw materials include essential oils, aroma chemicals, botanicals, fruits and juices, and are obtained from local vendors. Flavor enhancers and secondary flavors are produced from brewer's yeast, baker's yeast from the Company's own operations, and vegetable materials such as corn and soybean. The acquisition of the Biolux Group in 1994 provides long-term supply arrangements for brewer's yeast to be used for European production needs. Chili peppers, onion, garlic and other vegetables are acquired under annual contracts with numerous growers in the western United States and Europe. The principal raw material used in the production of yeast products is molasses, which is purchased through brokers and producers, usually under yearly fixed-price contracts. Processes have been developed to permit partial replacement of molasses with alternate, readily available substrates for use if molasses supplies should become limited. In 1994, the Company entered into a supply agreement with Minn-Dak Yeast Company, a major North American molasses supplier, to provide additional assurances of adequate supplies of molasses. The Company believes that alternate sources of materials are available to enable it to maintain its competitive position in the event of an interruption in the supply of raw materials from a single supplier. FOREIGN OPERATIONS Note 12 of the Consolidated Financial Statements of the Company contained in the Universal Foods Corporation 1999 Annual Report is incorporated herein by reference. 7 8 PATENTS, FORMULAE AND TRADEMARKS The Company owns or controls many patents, formulae and trademarks related to its businesses. The businesses are not materially dependent upon patent or trademark protection; however, trademarks, patents and formulae are important for the continued consistent growth of the Company. EMPLOYEES As of September 30, 1999, the Company employed 4,252 persons in the U.S. and worldwide. A total of 652 U.S. employees are represented by one of the three unions with which the Company has collective bargaining relationships pursuant to eleven collective bargaining agreements. REGULATION Compliance with government provisions regulating the discharge of material into the environment, or otherwise relating to the protection of the environment, did not have a material adverse effect on the Company's operations for the year covered by this report. Compliance is not expected to have a material adverse effect in the succeeding two years as well. As is true with the food industry in general, the production, packaging, labeling and distribution of the products of the Company are subject to the regulations of various federal, state and local governmental agencies, in particular the U.S. Food & Drug Administration. ITEM 2. PROPERTIES Domestically, the Company operated 16 manufacturing and processing plants in eight states as of September 30, 1999. Three plants produced yeast, two facilities produced flavor enhancers and other bioproducts, three produced dehydrated products, five plants produced colors and related products, and three plants produced flavors. None of these properties are held subject to any material encumbrances. At September 30, 1999, the Company operated 32 foreign manufacturing facilities located in 14 foreign countries. Of these facilities, five produced flavor enhancers and other bioproducts, three manufactured dehydrated and frozen vegetables, eight produced colors, 15 produced or distributed flavors and aroma chemicals, and one produced both flavors and colors. In addition, the Company has minority interests in seven companies located in the U.S. and five foreign countries. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings related to its business. The Company believes that adverse decisions in these proceedings would not, in the aggregate, subject the Company to damages of a material amount. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the last quarter of fiscal 1999. 8 9 ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the registrant and their ages as of December 1, 1999 are as follows: EXECUTIVE OFFICERS
Name Age Position - ----------------------- --- -------------------------------- Kenneth P. Manning 57 Chairman, President and Chief Executive Officer Patrick R. Bartling 43 Vice President and Group Executive - Natural Products Richard Carney 49 Vice President - Human Resources Steven O. Cordier 43 Vice President and Treasurer Michael DuBois 53 President - Flavor Michael Fung 49 Vice President and Chief Financial Officer John L. Hammond 53 Vice President, Secretary and General Counsel Michael L. Hennen 46 Vice President and Controller Richard F. Hobbs 52 Vice President - Administration R. Steven Martin 43 Vice President and Group Executive - Performance Products James F. Palo 59 President - Dehydrated Products Jorge Slater 52 President - Asia Pacific K.T. Thomas Tchang 48 President - Red Star Yeast & Products William Tesch 49 Vice President; Vice President - Operations, Red Star Yeast & Products Michael A. Wick 56 President - Color Dr. Ho-Seung Yang 51 Vice President - Technologies
Messrs. Bartling, Cordier, DuBois, Fung, Hammond, Hennen, Martin, Slater, Tchang, Tesch and Yang have been employed by the Company in an executive capacity for less than five years. All of the other individuals named above have been employed by the Company for at least five years. Mr. Bartling joined the Company in January 1999 as Vice President and Group Executive. From 1995 to 1999, he served as General Manager of the Automotive Division of Modine Manufacturing Company, a leading manufacturer of automotive parts. Prior to that Mr. Bartling served as Vice President - Operations of MagneTek, a manufacturer of drive systems. Mr. Cordier joined the Company in October 1995 as Treasurer. In September 1999, Mr. Cordier was elected a Vice President of the Company. From 1990 until joining the Company he was Director of Financial Planning at International Flavors and Fragrances, Inc. Mr. DuBois joined the Company in May 1998 as President of the Flavor Division. From 1994 until joining Universal Foods, Mr. DuBois was employed by Bush Boake Allen, Inc., a food technology company, first as Vice President Sales and Marketing, Flavors North America, and, beginning in 1996 as Vice President and General Manager, Seasonings Division. From 1992 to 1994 he served as Vice President - Sales and Marketing, Flavor and Fruit Division for Sanofi Bio-Industries, a flavor company. Prior to joining Sanofi Bio-Industries, Mr. DuBois held several positions with Firmenich, Incorporated, a fragrance and flavor company. Mr. Fung joined the Company in June 1995 as Vice President and Chief Financial Officer. From 1992 to 1995 he served as Senior Vice President and Chief Financial Officer for Vanstar Corporation, a leading provider of products and services to design, build and manage computer network infrastructures for large enterprises. From 1988 to 1992, Mr. Fung was Vice President and Chief Financial Officer of 9 10 Bass Pro Shops and Tracker Marine Corporation, privately held companies operated under common ownership involved in the manufacture and marketing of outdoor sporting goods. From 1977 to 1988, Mr. Fung was employed by the Beatrice Company in various positions, ultimately as Vice President and Controller. Mr. Hammond joined the Company in January 1998, as Vice President, Secretary and General Counsel. From 1992 to 1997, Mr. Hammond was employed by The Providence Journal Company, a newspaper, cable and broadcast television company, initially as Vice President - Legal, and subsequently as Vice President, General Counsel and Chief Administrative Officer. From 1989 to 1992, Mr. Hammond was Vice President, General Counsel and Secretary of Landstar System, Inc., a trucking company. Prior to that, Mr. Hammond was employed by The Singer Company for ten years and was Deputy General Counsel at the time of his departure. Mr. Hennen joined the Company in January 1995 as Controller. In September 1999, Mr. Hennen was elected a Vice President of the Company. From 1985 until joining the Company he was a Senior Manager at Deloitte & Touche LLP, a public accounting firm providing audit and tax services to the Company as its outside auditor. Mr. Martin was elected Vice President and Group Executive in June 1997. He joined the Company as Vice President - Marketing of its Red Star Yeast & Products Division in 1993. In June 1995, Mr. Martin was elected President - Red Star Yeast & Products Division. Prior to joining the Company, Mr. Martin was with the Monsanto Company, now operating as Solutia, a chemical company, since 1978 in various management positions. Mr. Slater was elected President - Asia Pacific Division in April 1998. Mr. Slater was hired by the Company in August of 1996 and served as Vice President and Managing Director of the Asia Pacific Division prior to being elected its President. From 1994 to 1996, Mr. Slater worked at McCormick & Company, Inc., a spice and seasonings company, as Vice President and Managing Director Asia Pacific. Prior to joining McCormick & Company, Inc., Mr. Slater worked for Dole Packaged Foods Company and, prior to that, for International Flavors and Fragrances, Inc. Mr. Tchang was elected President - Red Star Yeast & Products Division in September 1997. He joined the Company in 1995 as Vice President, Sales and Marketing for the Company's BioProducts Division. Prior to joining the Company, he was Marketing Director of Huntsman Specialty Chemicals Corp., a chemical company, which purchased the Maleic Anhydride business of the specialty chemicals division of the Monsanto Company. Prior to such purchase, Mr. Tchang was employed by the Monsanto Company for 20 years in various manufacturing, and later sales and marketing positions. Mr. Tesch joined the Company in 1971, becoming Plant Manager of the Red Star BioProducts Division in 1989. From 1993 to 1994, he was Director, Training and Development of The Universal Way. From 1994 to 1996, he served as Vice President, Manufacturing Operations of the Red Star BioProducts Division, and in April 1996, Mr. Tesch was elected President of the Red Star BioProducts Division, a position he held until the completion of the consolidation of the Flavor and BioProducts Divisions in January 1998. From January 1998 until July 1998, Mr. Tesch was the Vice President of Corporate Engineering. Mr. Tesch is currently a corporate Vice President, and the Vice President of Operations for Red Star Yeast & Products. Dr. Yang was elected Vice President - Technologies in January 1998. From 1990 to 1998, Dr. Yang was employed by Sunkyong Industries in Seoul, Korea, where he held the positions of managing director of corporate planning and development, managing director, group chairman's office and director, life science and development. 10 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The only market in which the common stock of the Company is traded is the New York Stock Exchange. The range of the high and low sales prices as quoted in the New York Stock Exchange - Composite Transaction tape for the common stock of the Company and the amount of dividends declared for fiscal 1999 appearing under "Common Stock prices and dividends" on Page 34 of the 1999 Annual Report to Shareholders are incorporated by reference. In fiscal 1999, common stock dividends were paid on a quarterly basis, and it is expected that quarterly dividends will continue to be paid in the future. In addition to the restrictions contained in its Amended and Restated Articles of Incorporation, the Company is subject to restrictions on the amount of dividends which may be paid on its common stock under the provisions of various credit agreements. On the basis of the consolidated financial statements of the Company as of September 30, 1999, $18,740,000 is available for the payment of dividends on the common stock of the Company under the most restrictive loan covenants. On January 27, 1994 the Board of Directors established a share repurchase program which authorizes the Company to repurchase up to 5 million shares. As of September 30, 1999, 4,145,096 shares had been repurchased under that program. On June 25, 1998, the Board of Directors of the Company adopted a preferred stock shareholder rights plan which is described at Note 7 of Notes to Consolidated Financial Statements - "Shareholders' Equity" on Pages 25 and 26 of the 1999 Annual Report to Shareholders and which is incorporated by reference. The number of shareholders of record on December 3, 1999 was 5,121. ITEM 6. SELECTED FINANCIAL DATA The selected financial data required by this item is incorporated by reference from the "Five-Year Review" and the notes thereto on Page 33 of the 1999 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The information required by this item is set forth under "Management's Analysis of Operations and Financial Condition" on Pages 13 through 17 of the 1999 Annual Report to Shareholders and is incorporated by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is set forth under "Market Risk Factors" on Page 15 of the 1999 Annual Report to Shareholders and is incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this item are set forth on Pages 18 through 32 and Page 34 of the 1999 Annual Report to Shareholders and are incorporated by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 11 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and officers appearing under "Election of Directors" (ending before "Committees of the Board of Directors") and "Other Matters" on Pages 2 through 6 and Page 28, respectively, of the Notice of Annual Meeting and Proxy Statement of the Company dated December 17, 1999, is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information relating to compensation of directors and officers is incorporated by reference from "Director Compensation and Benefits," "Compensation and Development Committee Report" and "Executive Compensation" on Pages 7 and 8 and Pages 9 through 16 of the Notice of Annual Meeting and Proxy Statement of the Company dated December 17, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The discussion of securities ownership of certain beneficial owners and management appearing under "Principal Shareholders" on Pages 8 and 9 of the Notice of Annual Meeting and Proxy Statement of the Company dated December 17, 1999, is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There are no family relationships between any of the directors, nominees for director and officers of the Company nor any arrangement or understanding between any director or officer or any other person pursuant to which any of the nominees has been nominated. No director, nominee for director or officer had any material interest, direct or indirect, in any business transaction of the Company or any subsidiary during the period October 1, 1998 through September 30, 1999, or in any such proposed transaction. In the ordinary course of business, the Company engages in business transactions with companies whose officers or directors are also directors of the Company. These transactions are routine in nature and are conducted on an arm's-length basis. The terms of any such transactions are comparable at all times to those obtainable in business transactions with unrelated persons. 12 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed: 1. and 2. Financial Statements and Financial Statement Schedule. (See following "List of Financial Statements and Financial Statement Schedules.") 3. Exhibits. (See Exhibit Index following this report.) (Other than Exhibit 10.1(a), no instruments defining the rights of holders of long- term debt of the Company and its consolidated subsidiaries are filed herewith because no long-term debt instrument authorizes securities exceeding 10% of the total consolidated assets of the Company. The Company agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.) (b) Reports on Form 8-K: No reports on Form 8-K were required to be filed during the quarter ended September 30, 1999. LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE REFERENCE IN 1999 ANNUAL REPORT 1. FINANCIAL STATEMENTS TO SHAREHOLDERS ---------------------------- The following consolidated financial statements of Universal Foods Corporation and Subsidiaries are incorporated by reference from the Annual Report to Shareholders for the year ended September 30, 1999. Independent Auditors' Report 32 Consolidated Balance Sheets - September 30, 1999 and 1998 19 Consolidated Statements of Earnings - Years ended September 30, 1999, 18 1998 and 1997 Consolidated Statements of Shareholders' Equity - Years ended September 30, 1999, 1998 and 1997 20 Consolidated Statements of Cash Flows - Years ended September 30, 1999, 1998 and 1997 21 Notes to Consolidated Financial Statements 22 - 31
13 14
PAGE REFERENCE IN 2. FINANCIAL STATEMENT SCHEDULES FORM 10-K --------------------- Independent Auditors' Report 14 Schedule II - Valuation and Qualifying Accounts and Reserves 15
All other schedules are omitted because they are inapplicable, not required by the instructions or the information is included in the consolidated financial statements or notes thereto. INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Universal Foods Corporation: We have audited the consolidated financial statements of Universal Foods Corporation and subsidiaries as of September 30, 1999 and 1998, and for each of the three years in the period ended September 30, 1999, and have issued our report thereon dated November 11, 1999. Such consolidated financial statements and report are included in your 1999 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Universal Foods Corporation, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Milwaukee, Wisconsin November 11, 1999 14 15 SCHEDULE II UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
VALUATION ACCOUNTS DEDUCTED IN THE BALANCE AT ADDITIONS CHARGED BALANCE BALANCE SHEET FROM THE ASSETS TO BEGINNING OF TO COSTS AND AT END OF WHICH THEY APPLY PERIOD EXPENSES DEDUCTIONS(A) PERIOD - ---------------------------------- ------------ ----------------- ------------- ---------- 1997 Allowance for losses: $ 3,509 $ 572 $ 47 $ 4,034 Trade accounts receivable ======= ======= ====== ======= 1998 Allowance for losses: $ 4,034 $ 1,245 $ 731 $ 4,548 Trade accounts receivable ======= ======= ====== ======= 1999 Allowance for losses: $ 4,548 $ 431 $ 900 $ 4,079 Trade accounts receivable ======= ====== ====== =======
(A) Accounts written off, less recoveries. 15 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNIVERSAL FOODS CORPORATION By: /s/ John L. Hammond --------------------------- John L. Hammond, Vice President Secretary & General Counsel Dated: December 28, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of December 28, 1999, by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Kenneth P. Manning Chairman of the Board, President and - --------------------------- Chief Executive Officer Kenneth P. Manning /s/ Michael Fung Vice President and Chief Financial - --------------------------- Officer Michael Fung /s/ Michael L. Hennen Vice President and Controller - ------------------------------ Michael L. Hennen /s/ Richard A. Abdoo Director - ------------------------------ Richard A. Abdoo /s/ Michael E. Batten Director - ------------------------------ Michael E. Batten /s/ John F. Bergstrom Director - ------------------------------ John F. Bergstrom /s/ Dr. Fergus M. Clydesdale Director - ------------------------------ Dr. Fergus M. Clydesdale /s/ James A.D. Croft Director - ------------------------------ James A.D. Croft /s/ Alberto Fernandez Director - ------------------------------ Alberto Fernandez /s/ James L. Forbes Director - ------------------------------ James L. Forbes /s/ Dr. Carol I. Waslien Ghazaii Director - -------------------------------- Dr. Carol I. Waslien Ghazaii /s/ William V. Hickey Director - ------------------------------ William V. Hickey /s/ Essie Whitelaw Director - ------------------------------ Essie Whitelaw S-1 17 UNIVERSAL FOODS CORPORATION EXHIBIT INDEX 1999 ANNUAL REPORT ON FORM 10-K The Company will furnish a copy of any exhibit described below upon request and upon reimbursement to the Company of its reasonable expenses of furnishing such exhibit, which shall be limited to a photocopying charge of $0.25 per page and, if mailed to the requesting party, the cost of first-class postage.
Exhibit Incorporated by Filed Number Description Reference From Herewith --------- --------------------------------------- ------------------------------------ --------- 3.1 Universal Foods Corporation Amended Exhibit 3.1 to Annual Report on and Restated Articles of Incorporation, Form 10-K for the fiscal year ended adopted November 12, 1998 September 30, 1998 (Commission File No. 1-7626) 3.2 Universal Foods Corporation Amended X and Restated Bylaws, adopted November 11, 1999 4.1 Rights Agreement, dated as of August Exhibit 1.1 to Registration 6, 1998, between Registrant and Statement on Form 8-A dated Firstar Trust Company July 20, 1998 (Commission File No. 1-7626) 10.1 Material Contracts 10.1(a) Indenture between Registrant and The Exhibit 4.1 to Registration First National Bank of Chicago, as Statement on Form S-3 dated Trustee November 9, 1998 (Commission File 333-67015) 10.2 Management Contracts or Compensatory Plans 10.2(a) Executive Employment Contract X between Registrant and Kenneth P. Manning dated November 11, 1999 10.2(b) Amended and Restated Change of X Control Employment and Severance Agreement between Registrant and Kenneth P. Manning dated November 11, 1999 10.2(c) 1985 Stock Plan for Executive Exhibit 10.2(c) to Annual Report on Employees Form 10-K for the fiscal year ended September 30, 1998 (Commission File No. 1-7626)
Exhibit Index -- 1 18 UNIVERSAL FOODS CORPORATION EXHIBIT INDEX 1999 ANNUAL REPORT ON FORM 10-K
Exhibit Incorporated by Filed Number Description Reference From Herewith --------- --------------------------------------- ------------------------------------ --------- 10.2(d) Universal Foods Corporation 1990 Exhibit 10.2(d) to Annual Report on Employee Stock Plan, as amended Form 10-K for the fiscal year ended September 10, 1998 September 30, 1998 (Commission File No. 1-7626) 10.2(e) Universal Foods Corporation 1994 Exhibit 10.2(f) Annual Report on Employee Stock Plan, as amended Form 10-K for the fiscal year ended September 10, 1998 September 30, 1998 (Commission File No. 1-7626) 10.2(f) Universal Foods Corporation 1998 Exhibit 10.2(h) to Annual Report on Stock Option Plan, as amended Form 10-K for the fiscal year ended September 10, 1998 September 30, 1998 (Commission File No. 1-7626) 10.2(g) 1999 Non-Employee Director Stock Appendix A to Registrant's Option Plan definitive Proxy Statement for its Annual Meeting of Shareholders to be held on January 27, 2000 filed with the Commission on Schedule 14A on December 17, 1999. 10.2(h) Amended and Restated Directors Appendix B to Registrant's Deferred Compensation Plan definitive Proxy Statement for its Annual Meeting of Shareholders to be held on January 27, 2000 filed with the Commission on Schedule 14A on December 17, 1999. 10.2(i) Director Stock Grant Plan, as Exhibit 10.2(j) to Annual Report on amended November 14, 1991 Form 10-K for the fiscal year ended September 30, 1998 (Commission File No. 1-7626) 10.2(j) Management Income Deferral Plan, Exhibit 10.2(k) to Annual Report on including Amendment No. 1 thereto Form 10-K for the fiscal year ended dated September 10, 1998 September 30, 1998 (Commission File No. 1-7626) 10.2(k) Executive Income Deferral Plan, Exhibit 10.2(l) to Annual Report on including Amendment No. 1 thereto Form 10-K for the fiscal year ended dated September 10, 1998 September 30, 1998 (Commission File No. 1-7626) 10.2(l) Form of Amended and Restated Exhibit 10.2(n) to Annual Report on Change of Control Employment and Form 10-K for the fiscal year ended Severance Agreement for Executive September 30, 1998 (Commission File Officers. No. 1-7626) 10.2(m) Amended and Restated Trust Exhibit 10.2(o) to Annual Report on Agreement dated September 10, 1998 Form 10-K for the fiscal year ended between the Registrant and Firstar September 30, 1998 (Commission Bank, Milwaukee, N.A. File No. 1-7626) ("Rabbi Trust A")
Exhibit Index -- 2 19 UNIVERSAL FOODS CORPORATION EXHIBIT INDEX 1999 ANNUAL REPORT ON FORM 10-K
Exhibit Incorporated by Filed Number Description Reference From Herewith --------- ------------------------------------------- ------------------------------------ --------- 10.2(n) Trust Agreement, including Changes Exhibit 10.2(p) to Annual Report on upon Appointment of Successor Form 10-K for the fiscal year ended Trustee dated as of February 1, 1998 September 30, 1998 (Commission between the Registrant and Firstar File No. 1-7626) Bank, Milwaukee, N.A. ("Rabbi Trust B") 10.2(o) Trust Agreement, including Changes Exhibit 10.2(q) to Annual Report on upon Appointment of Successor Form 10-K for the fiscal year ended Trustee dated as of February 1, 1998 September 30, 1998 (Commission between the Registrant and Firstar File No. 1-7626) Bank, Milwaukee, N.A. ("Rabbi Trust C") 10.2(p) Incentive Compensation Plan for Elected Appendix C to Registrant's Corporate Officers definitive Proxy Statement for its Annual Meeting of Shareholders to be held on January 27, 2000 filed with the Commission on Schedule 14A on December 17, 1999. 10.2(q) Form of Management Incentive Plan for Division Exhibit 10.2(s) to Annual Report on Presidents Form 10-K for the fiscal year ended September 30, 1998 (Commission File No. 1-7626) 10.2(r) Form of Management Incentive Plan for Corporate Exhibit 10.2(t) to Annual Report on Management Form 10-K for the fiscal year ended September 30, 1998 (Commission File No. 1-7626) 10.2(s) Form of Management Incentive Plan for Division Exhibit 10.2(u) to Annual Report on Management Form 10-K for the fiscal year ended September 30, 1998 (Commission File No. 1-7626) 10.2(t) Form of Agreement for Executive Exhibit 10.2(v) to Annual Report on Officers (Supplemental Executive Form 10-K for the fiscal year ended Retirement Plan A), including September 30, 1998 (Commission File Amendment No.1 thereto dated No. 1-7626) September 10, 1998 10.2(u) Universal Foods Corporation Supplemental Exhibit 10.2(w) to Annual Report on Benefit Plan, including Amendment No. 1 Form 10-K for the fiscal year ended thereto dated September 10, 1998 September 30, 1998 (Commission File No. 1-7626) 10.2(v) Universal Foods Corporation Transition Exhibit 10.2(x) to Annual Report on Retirement Plan, including Amendment No. 1 Form 10-K for the fiscal year ended thereto dated September 10, 1998 September 30, 1998 (Commission File No. 1-7626)
Exhibit index -- 3 20 UNIVERSAL FOODS CORPORATION EXHIBIT INDEX 1999 ANNUAL REPORT ON FORM 10-K
Exhibit Incorporated by Filed Number Description Reference From Herewith --------- --------------------------------------- ------------------------------------ --------- 13.1 Portions of Annual Report to Shareholders X for the year ending September 30, 1999 that are incorporated by reference 21 Subsidiaries of the Registrant X 23 Consent of Deloitte & Touche LLP X 27 Financial Data Schedule X 99 Notice of Annual Meeting and Proxy Previously filed on Schedule 14A Statement dated December 17, 1999 dated December 17, 1999 (Commission File No. 1-7626) Except to the extent incorporated by reference, the Proxy Statement shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K
Exhibit Index -- 4 EX-3.2 2 UNIVERSAL FOODS CORPORATION AMENDED & RESTATED 1 EXHIBIT 3.2 UNIVERSAL FOODS CORPORATION AMENDED AND RESTATED BY-LAWS 1. OFFICES 1.1 Business Offices. The principal office of the corporation in the State of Wisconsin shall be located in the City of Milwaukee, County of Milwaukee. The corporation may have such other offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. 1.2 Registered Office. The registered office of the corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors. 2. SHAREHOLDERS 2.1 Annual Meeting. The date of the annual meeting of shareholders shall be set by the Board of Directors each year for the third Thursday after the first Friday of January, or on such other day as may be designated by the Board of Directors, upon the recommendation of the Nominating Committee, for the purpose of electing directors and transacting such other business as may come before the meeting; provided, however, that any such other date shall be not later than March 1. In fixing a meeting date for any annual meeting of shareholders, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. 2.2 Purposes of Annual Meeting. At an annual meeting of shareholders (an "Annual Meeting"), only business properly brought before the meeting as provided in this Section may be transacted. To be properly brought before an Annual Meeting, business must be (i) brought before the meeting by or at the direction of the Board of Directors, or (ii) otherwise properly brought before the meeting by a shareholder of record where the shareholder has complied with the requirements of this Section. To bring business before an Annual Meeting, a shareholder must have given written notice thereof, either by personal delivery or by United States certified mail, postage prepaid, to the Secretary of the corporation, that is received by the Secretary not less than fifty (50) days in advance of the third Thursday after the first Friday in the month of January next following the last Annual Meeting held; provided, that if the Annual Meeting of shareholders is held earlier than the third Thursday after the first Friday in the month of January, such notice must be given on or before the later of (x) the date fifty (50) days prior to the earlier date of the Annual Meeting 2 and (y) the date ten (10) business days after the first public disclosure, which may include any public filing with the Securities and Exchange Commission or a press release to Dow Jones & Company or any similar service, of the earlier date of the Annual Meeting. Any such notice shall set forth the following as to each matter the shareholder proposes to bring before the Annual Meeting: (A) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and, if such business includes a proposal to amend the Amended and Restated Articles of Incorporation or By-laws of the corporation, the language of the proposed amendment; (B) the name and address, as they appear on the corporation's books, of the shareholder proposing such business and the beneficial owner or owners, if any, on whose behalf the business is proposed; (C) the class and number of shares of the corporation which are beneficially owned by such shareholder and beneficial owner or owners; (D) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business; and (E) any material interest of the shareholder and beneficial owner or owners in such business and such persons' reasons for conducting such business at the meeting. If the chairman of the shareholders meeting shall determine that business was not properly brought before the meeting and in accordance with the provisions of the By-laws, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. 2.3 Special Meetings. (a) A special meeting of the shareholders of the corporation (a "Special Meeting") may be called only by (i) the Chairman of the Board, (ii) the Chief Executive Officer, or (iii) the Board of Directors, and shall be called by the Chairman of the Board or the Chief Executive Officer upon the written demand, in accordance with this Section 2.3, of the holders of record of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting. Only such business shall be conducted at a Special Meeting as shall have been described in the notice of meeting sent to shareholders pursuant to Section 2.5 of these By-laws. (b) To enable the corporation to determine the shareholders entitled to demand a Special Meeting, the Board of Directors may fix a record date to determine the shareholders entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than ten (10) days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareholder of record seeking to have shareholders demand a Special 2 3 Meeting shall, by written notice to the Secretary of the corporation, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within ten (10) days after the date on which such request is received by the Secretary, the Demand Record Date shall be the tenth (10th) day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the Special Meeting is to be held, shall be signed by one or more shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative) and shall set forth all information about each such shareholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareholder's notice described in Sections 2.2 and 3.9 of these By-laws. (c) For a shareholder or shareholders to demand a Special Meeting, a written demand or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares representing at least ten percent (10%) of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting must be delivered to the corporation. To be valid, each written demand by a shareholder for a Special Meeting shall set forth the specific purpose or purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the corporation pursuant to paragraph (b) of this Section 2.3), shall be signed by one or more persons who as of the Demand Record Date are shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative), shall set forth the name and address, as they appear in the corporation's books, of each shareholder signing such demand and the class or series and number of shares of the corporation which are owned of record and beneficially by each such shareholder, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within seventy (70) days after the Demand Record Date. (d) The corporation shall not be required to call a Special Meeting upon shareholder demand unless, in addition to the documents required by paragraph (c) of this Section 2.3, the Secretary receives a written agreement signed by each Soliciting Shareholder (as defined herein), pursuant to which each Soliciting Shareholder, jointly and severally, agrees to pay the corporation's costs of holding the Special Meeting, including the costs of preparing and mailing proxy materials for the corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareholder at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareholder for election as director at such meeting is elected, then the Soliciting Shareholders shall not be 3 4 required to pay such costs. For purposes of this paragraph (d) the following terms shall have the meanings set forth below: (i) "Affiliate" shall have the meaning assigned to such term in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (ii) "Participant" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (vi) "Soliciting Shareholder" shall mean, with respect to any Special Meeting demanded by a shareholder or shareholders, any of the following Persons: (A) if the number of shareholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 2.3 is ten (10) or fewer, each shareholder signing any such demand; (B) if the number of shareholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 2.3 is more than ten (10), each Person who either (I) was a Participant in any Solicitation of such demand or demands or (II) at the time of the delivery to the corporation of the documents described in paragraph (c) of this Section 2.3, had engaged or intended to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the corporation); or (C) any Affiliate of a Soliciting Shareholder, if a majority of the directors of the corporation then in office determine, 4 5 reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 2.3 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 2.3 from being evaded. (e) Except as provided in the following sentence, any Special Meeting shall be held at such hour and day as may be designated by whichever of the Chairman of the Board, the Chief Executive Officer or the Board of Directors shall have called such meeting. In the case of any Special Meeting called by the Chairman of the Board or the Chief Executive Officer upon the demand of shareholders (a "Demand Special Meeting"), such meeting shall be held at such hour and day as may be designated by the Board of Directors; provided, however, that the date of any Demand Special Meeting shall be not more than seventy (70) days after the Meeting Record Date (as defined in Section 2.6); and provided further that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within ten (10) days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing at least ten percent (10%) of all the votes entitled to be cast on each issue proposed to be considered at the special meeting are delivered to the corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M. local time on the one hundredth (100th) day after the Delivery Date, or if such one hundredth (100th) day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any Special Meeting, the Chairman of the Board, the Chief Executive Officer or the Board of Directors may consider such factors as he or it deems relevant within the good faith exercise of his or its business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting for the conduct of related business. (f) The corporation may engage independent inspectors of elections to act as an agent of the corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a Special Meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the corporation until the earlier of (i) five (5) Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors certify to the corporation that the valid demands received by the Secretary represent at least ten percent (10%) of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any shareholder shall not be entitled to contest the validity of any demand, whether during or after such five (5) Business Day period, or to take any other action 5 6 (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (g) For purposes of these By-laws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close. 2.4 Place of Meeting. The Board of Directors, the Chairman of the Board or the Chief Executive Officer may designate any place, either within or without the State of Wisconsin, as the place of meeting for the Annual Meeting, any Special Meeting or any postponement thereof. If the Board of Directors, the Chairman of the Board or the Chief Executive Officer shall fail or neglect to make such designation, the Secretary shall designate the place of such meeting. If no designation is made, the place of meeting shall be the registered office of the corporation in the State of Wisconsin. Any adjourned meeting may be reconvened at any place designated by vote of the Board of Directors or by the Chairman of the Board or the Chief Executive Officer. 2.5 Notice of Meeting. The corporation shall send written or printed notice stating the place, day and hour of any Annual Meeting or Special Meeting not less than ten (10) days nor more than sixty (60) days before the date of such meeting either personally or by mail to each shareholder of record entitled to vote at such meeting and to other shareholders as may be required by law or by the Amended and Restated Articles of Incorporation. In the event of any Demand Special Meeting, such notice of meeting shall be sent not more than thirty (30) days after the Delivery Date. If mailed, such notice of meeting shall be addressed to the shareholder at the shareholder's address as it appears on the corporation's record of shareholders. Unless otherwise required by law or the Amended and Restated Articles of Incorporation, a notice of an Annual Meeting need not include a description of the purpose for which the meeting is called. In the case of any Special Meeting, (a) the notice of meeting shall describe any business that the Board of Directors shall have theretofore determined to bring before the meeting and (b) in the case of a Demand Special Meeting, the notice of meeting (i) shall describe any business set forth in the statement of purpose of the demands received by the corporation in accordance with Section 2.3 of these By-laws and (ii) shall contain all of the information required in the notice received by the corporation in accordance with Section 2.3(b) of these By-laws. A shareholder's attendance at a meeting, in person or by proxy, waives objection to the following: (A) lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (B) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 6 7 2.6 Fixing of Certain Record Dates. (a) The Board of Directors may fix a future date not less than ten (10) days and not more than sixty (60) days prior to the date of any Annual Meeting or Special Meeting as the record date for the determination of shareholders entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the thirtieth (30th) day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within thirty (30) days after the Delivery Date, then the close of business on such thirtieth (30th) day shall be the Meeting Record Date. The shareholders of record on the Meeting Record Date shall be the shareholders entitled to notice of and to vote at the meeting. Except as may be otherwise provided by law, a determination of shareholders entitled to notice of or to vote at a meeting of shareholders is effective for any adjournment of such meeting unless the Board of Directors fixes a new Meeting Record Date, which it shall do if the meeting is postponed or adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. (b) The Board of Directors may fix a future date as the record date for the determination of shareholders entitled to receive payment of any share dividend or distribution. If no record date is so fixed by the Board of Directors, the record date for determining shareholders entitled to a distribution (other than a distribution involving a purchase, redemption or other acquisition of the corporation's shares) or a share dividend is the date on which the Board of Directors authorized the distribution or share dividend, as the case may be. 2.7 Voting Lists. After a record date for a Special Meeting or Annual Meeting has been fixed, the corporation shall prepare a list of the names of all of the shareholders entitled to notice of the meeting. The list shall be arranged by class or series of shares, if any, and show the address of and number of shares held by each shareholder. Such list shall be available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The corporation shall make the shareholders' list available at the meeting, and any shareholder or his or her agent or attorney may inspect the list at any time during the meeting or any adjournment thereof. Refusal or failure to prepare or make available the shareholders' list shall not affect the validity of any action taken at a meeting of shareholders. 2.8 Quorum; Votes. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. If the corporation has only one class of stock outstanding, such class shall constitute a separate voting group for purposes of this Section 2.8. Except as otherwise provided in the 7 8 Amended and Restated Articles of Incorporation or the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Amended and Restated Articles of Incorporation or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the Amended and Restated Articles of Incorporation, each director shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. 2.9 Proxies. At all meetings of shareholders, a shareholder entitled to vote may vote his or her shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by his or her attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent of the corporation authorized to tabulate votes. An appointment is valid for eleven months from the date of its signing unless a different period is expressly provided in the appointment form. 2.10 Voting of Shares. Each outstanding share, regardless of class, shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are enlarged, limited, or denied by the Amended and Restated Articles of Incorporation of the corporation or by the Wisconsin Business Corporation Law. 2.11 Subsidiary Shares. Shares held by another corporation, if a sufficient number of shares entitled to elect a majority of the directors of such other corporation is held directly or indirectly by the corporation, shall not be entitled to vote at any meeting, but shares held in a fiduciary capacity may be voted. 2.12 Acceptance of Instruments Showing Shareholder Action. If the name signed on a vote, consent, waiver or proxy appointment corresponds to the name of a shareholder, the corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the act of a shareholder. If the name signed on a vote, consent, waiver or proxy appointment does not correspond to the name of a shareholder, the corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder if any of the following apply: 8 9 (a) The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity. (b) The name purports to be that of a personal representative, administrator, executor, guardian or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation is presented with respect to the vote, consent, waiver or proxy appointment. (c) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation is presented with respect to the vote, consent, waiver or proxy appointment. (d) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder is presented with respect to the vote, consent, waiver or proxy appointment. (e) Two or more persons are the shareholders as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners. The corporation may reject a vote, consent, waiver or proxy appointment if the Secretary or other officer or agent of the corporation who is authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. 2.13 Conduct of Meeting. The Chairman of the Board, and in his or her absence, any officer or director designated by the Chairman of the Board, and in his or her absence, the Chief Executive Officer, and in his or her absence, the President, and in his or her absence, a Vice President in the order provided under Section 4.7 of these By-laws, and in their absence, any person chosen by the shareholders present, shall call any Annual Meeting or Special Meeting to order and shall act as Chairman of the Meeting, and the Secretary of the corporation shall act as secretary of any meeting of the shareholders, but in the absence of the Secretary, the Chairman of the Meeting may appoint any other person to act as secretary of the meeting. 2.14 Postponement; Adjournment. (a) Any Annual Meeting or any Special Meeting called by the Chairman of the Board, the Chief Executive Officer (other than a Demand Special Meeting) or the Board of Directors may be postponed at any time or from time to time after written notice of the meeting 9 10 has been delivered to shareholders as follows: (i) in the case of the Annual Meeting or a Special Meeting called by the Board of Directors, by action of the Board of Directors or a duly authorized committee thereof and (ii) in the case of a Special Meeting called by the Chairman of the Board or the Chief Executive Officer, at the request of the person calling the meeting and with the consent of the Board of Directors or a duly authorized committee thereof. Any such postponement or postponements shall be disclosed in any public filing with the Securities and Exchange Commission or by means of a press release to Dow Jones & Company or any similar service promptly following such postponement, and promptly thereafter written notice of such postponement stating the place, day and hour to which the meeting was postponed shall be delivered to each shareholder of record entitled to vote at such meeting. (b) A meeting of shareholders may be adjourned to a different date, time or place from time to time, whether or not there is a quorum, (i) at any time, upon a resolution of shareholders if the number of votes cast in favor of such resolution exceed the number of votes cast against such resolution, or (ii) by order of the chairman of the meeting, but only where such order is delivered before any business is transacted at such meeting and such adjournment is for a period of thirty (30) days or less. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting originally noticed. Any such adjournment or adjournments pursuant to clause (i), if the new date, time and place of the meeting are not announced at the meeting prior to adjournment or if a new record date is or must be fixed for the meeting, or pursuant to clause (ii) shall be disclosed in any public filing with the Securities and Exchange Commission or by means of a press release to Dow Jones & Company or any similar service promptly following such adjournment, and promptly thereafter written notice of such adjournment stating the date, time and place to which the meeting was adjourned shall be delivered to each shareholder of record entitled to vote at such meeting, except that (except as may be otherwise required by law) no such disclosure in filings, press releases or notices to shareholders shall be required if an adjournment is for a period of forty-eight (48) hours or less. 3. BOARD OF DIRECTORS 3.1 General Powers. All corporate powers of the corporation shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its Board of Directors. 3.2 Number, Tenure and Qualifications. (a) The number of directors of the corporation shall be eleven (11). No more than two (2) officers or employees of the corporation or any of its subsidiaries shall simultaneously serve as directors of the corporation. The directors shall be divided into three (3) classes with the first class to consist of three (3) directors and the second and third classes 10 11 to consist of four (4) directors each. The term of office of those of the first class shall expire at the Annual Meeting to be held in January, 1984, and of the second class one year thereafter and of the third class, two years thereafter, and in all cases, until their respective successors shall have been elected and qualified. At the Annual Meetings following the initial election of directors by classes, the successors to the class of directors whose term expires in that year shall be elected for a term of three (3) years to succeed those whose terms expire, so that the term of office of one class of directors shall expire in each year, but, subject to the provisions of the By-laws of the corporation, each director shall hold office for the term for which he or she is elected and until his or her successor is elected and, if necessary, qualified or until there is a decrease in the number of directors that takes effect upon or after the expiration of the term for which he or she is elected. (b) Directors need not be residents of the State of Wisconsin or shareholders of the corporation. A director having attained age seventy (70) shall automatically cease to be a director of the corporation effective as of the Annual Meeting immediately following such director's seventieth (70th) birthday. All directors who are also officers of the corporation shall automatically cease to be directors of the corporation, effective as of his or her date of termination of employment from the corporation, with the exception of any corporate officer holding, or who has held the position of Chief Executive Officer. (c) A Chairman of the Board shall be elected by the Board of Directors from among its members to preside at all meetings of the shareholders and the Board of Directors. The Director, who need not be an employee of the corporation, elected Chairman of the Board shall serve in such position for the term of office as elected by the shareholders or the Board of Directors and until his or her successor shall have been duly elected or until his or her death or until resignation or removal in the manner hereinafter provided. The Chairman of the Board, if an employee of the corporation, may be elected Chief Executive Officer of the corporation by the Board of Directors. The Chairman of the Board shall perform all duties incident to the office and such other duties as may be prescribed by the Board of Directors from time to time. (d) All directors of the corporation, who are not simultaneously employed as officers by the corporation, shall be properly compensated and reimbursed for their services as a director on the basis of an annual retainer, meeting attendance fees and reasonable expenses incurred as a director as established and approved annually by the Board of Directors upon the recommendation of the Nominating Committee. Any employee of the corporation, who is elected a director of the corporation, shall not receive any compensation, expense reimbursement or participation in director benefit programs for his or her services as a director of the corporation. A Chief Executive Officer, who retires from the corporation prior to attaining age seventy (70) while serving as a director, immediately becomes eligible 11 12 for compensation, expense reimbursement and director benefit program participation as a non employee director effective as of the individual's retirement date from the corporation. 3.3 Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this By-law immediately after, and at the same place as, the Annual Meeting of shareholders, and each adjourned session thereof. The Board of Directors may, by resolution, provide the time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings without other notice than such resolution. 3.4 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, Chief Executive Officer or a majority of the number of directors fixed by Section 3.2. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors called by them. 3.5 Notice of Meetings. Except as otherwise provided in the Amended and Restated Articles of Incorporation or the Wisconsin Business Corporation Law, notice of the date, time and place of any special meeting of the Board of Directors and of any special meeting of a committee of the Board of Directors shall be given orally or in writing to each director or committee member at least forty-eight (48) hours prior to the meeting, except that notice by mail shall be given at least seventy-two (72) hours prior to the meeting. The notice need not describe the purpose of the meeting. 3.6 Quorum; Votes. One-third (1/3) of the number of directors fixed by Section 3.2 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but though less than such quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present shall be the act of the Board of Directors, unless the act of a greater number is required by law, by the Amended and Restated Articles of Incorporation or by these By-laws. 3.7 Removal and Resignation. A director may be removed from office by the affirmative vote of the holders of two-thirds (2/3) of the outstanding shares entitled to vote taken at a meeting called for that purpose. A director may resign at any time by delivering his or her written resignation to the Secretary of the corporation or to the Chairman of the Board. A resignation is effective when the notice is received unless the notice specifies a later effective date. 3.8 Vacancies. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled by any of the following: (i) the shareholders, (ii) the Board of Directors or (iii) if the directors remaining in 12 13 office constitute fewer than a quorum of the Board of Directors, the directors, by the affirmative vote of a majority of all directors remaining in office; provided, however, that if the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group may vote to fill the vacancy if it is filled by the shareholders, and only the remaining directors elected by that voting group may vote to fill the vacancy if it is filled by the directors. The Directors so elected shall hold office until the next succeeding election of the class for which such director shall have been elected. 3.9 Nominations. Nominations for the election of directors may be made only by the Board of Directors, by the Nominating Committee of the Board of Directors (or, if none, any other committee serving a similar function) or by any shareholder entitled to vote generally in elections of directors where the shareholder complies with the requirements of this Section. Any shareholder of record entitled to vote generally in elections of directors may nominate one or more persons for election as directors at a meeting of shareholders only if written notice of such shareholder's intent to make such nomination or nominations has been given to the Secretary of the corporation and is received by the Secretary (i) with respect to an election to be held at an Annual Meeting, not more than ninety (90) days nor less than fifty (50) days in advance of the third Thursday after the first Friday of the month of January next following the last Annual Meeting held; provided, that if the Annual Meeting is held earlier than the third Thursday after the first Friday of the month of January, such notice must be given on or before the later of (x) the date fifty (50) days prior to the earlier date of the Annual Meeting and (y) the date ten (10) business days after the first public disclosure, which may include any public filing with the Securities and Exchange Commission or a press release to Dow Jones & Company or any similar service, of the earlier date of the Annual Meeting, and (ii) with respect to an election to be held at a Special Meeting as to which notice of such meeting states that it is to be held for the election of directors, not earlier than ninety (90) days prior to such Special Meeting and not later than the close of business on the later of (x) the tenth (10th) business day following the date on which notice of such meeting is first given to shareholders and (y) the fiftieth (50th) day prior to such Special Meeting. Each such notice of a shareholder's intent to nominate a director or directors at an Annual Meeting or Special Meeting shall set forth the following: (A) the name and address, as they appear on the corporation's books, of the shareholder who intends to make the nomination and of the beneficial owner or owners, if any, on whose behalf the nomination is to be made and the name and residence address of the person or persons to be nominated; (B) the class and number of shares of the corporation which are beneficially owned by the shareholder and beneficial owner or owners; (C) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (D) a description of all arrangements or understandings between the shareholder and/or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholders; (E) such other information regarding each nominee proposed by such 13 14 shareholder as would be required to be disclosed in solicitations of proxies for election of directors, or would be otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (F) the written consent of each nominee to be named in a proxy statement and to serve as a director of the corporation if so elected. No person shall be eligible to serve as a director of the corporation unless nominated in accordance with the procedures set forth in this By-law. If the chairman of the shareholders meeting shall determine that a nomination was not made in accordance with the procedures prescribed by the By-laws, he or she shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 3.9, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. 3.10 Compensation. The Board of Directors, irrespective of any personal interest of any of its members, upon the recommendation of the Nominating Committee, may establish compensation of all directors for services to the corporation as directors, or may delegate such authority to an appropriate committee. 3.11 Presumption of Assent. A director of the corporation who is present and is announced as present at a meeting of the Board of Directors or a committee thereof of which he or she is a member at which action on any corporate matter is taken assents to the action taken, unless any of the following occurs: (i) the director objects at the beginning of the meeting or promptly upon his or her arrival to the holding of the meeting or transacting business at the meeting; (ii) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; (iii) the director delivers written notice of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting; or (iv) the director dissents or abstains from action taken, minutes of the meeting are prepared that fail to show the director's dissent or abstention from the action taken and the director delivers to the corporation a written notice of that failure that complies with Section 180.0141 of the Wisconsin Business Corporation Law promptly after receiving the minutes. Such right to dissent or abstain shall not apply to a director who voted in favor of such action. 3.12 Committees of the Board of Directors. (a) Subject to the provisions of the Wisconsin Business Corporation Law, there shall be those committees of the Board of Directors set forth in Sections 3.13-3.18 of these By-laws, and the Board of Directors may from time to time establish other committees including standing or special committees, which shall have such duties and powers as are authorized by these By-laws or by the Board of Directors; provided, however, that no 14 15 committee shall do any of the following: (i) authorize distributions; (ii) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires be approved by shareholders; (iii) fill vacancies on the Board of Directors or, unless the Board of Directors provides by resolution that any vacancies on a committee shall be filled by the affirmative vote of a majority of the remaining committee members, on any of its committees; (iv) amend the corporation's Amended and Restated Articles of Incorporation; (v) adopt, amend or repeal the corporation's By-laws; (vi) approve a plan of merger not requiring shareholder approval; (vii) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (viii) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee or the Chief Executive Officer of the corporation to do so within limits prescribed by the Board of Directors. In addition to the powers expressly enumerated in these By-laws, the Board of Directors may, by resolution, at any time desirable, adopt new powers and authority of any committee. (b) Committee members and the chairman of each committee, including any alternates, shall be appointed by the Board of Directors as provided in the Wisconsin Business Corporation Law. The Chief Executive Officer of the corporation shall make recommendations to the Board of Directors for its action concerning members to be appointed to the several committees of the Board of Directors. Any member of any committee may be removed at any time with or without cause by the Board of Directors. Vacancies which occur in any committee may be filled by a resolution of the Board of Directors. If any vacancy shall occur in any committee by reason of death, resignation, disqualification, removal or otherwise, the remaining members of such committee, so long as the committee has at least two (2) members and a quorum is present, may continue to act until such vacancy is filled. The Board of Directors may, by resolution, at any time deemed desirable, discontinue any standing or special committee, subject to the requirements of the By-laws of the corporation. Members of standing committees, and their chairmen, shall be appointed yearly at the organizational meeting of the Board of Directors which is held immediately following the Annual Meeting of shareholders. Members of committees may receive such compensation for their services as the Board of Directors, upon the recommendation of the Nominating Committee, may determine. 3.13 Executive Committee. There shall be an Executive Committee of the Board of Directors. The Executive Committee shall consist of the Chief Executive Officer of the corporation and not less than three (3) other directors. Subject to the Wisconsin Business Corporation Law and Section 3.12 of these By-laws, the Executive Committee shall have all of the powers of the Board of Directors in the management and conduct of the business and affairs of the corporation in the intervals between meetings of the Board of Directors, and shall report its actions to the Board of Directors at its regular meetings. 15 16 3.14 Audit Committee. There shall be an Audit Committee of the Board of Directors. The Committee shall have the following membership and powers: (a) The Committee shall have at least three (3) members. All members of the Committee shall be non employee directors. (b) The Committee shall recommend to the Board of Directors for its action the appointment or discharge of the corporation's independent auditors, based upon the Committee's evaluation of the quality of their audit work and the appropriateness of the fees charged both for audit and non-audit services. (c) The Committee shall review and approve the fees of the corporation's independent auditors and the scope and plan of the audit and shall meet with the independent auditors at appropriate times to review, among other things, the results of the audit, any certification, report or opinion which the auditors propose to render in connection with the corporation's financial statements, and the corporation's internal control structure. (d) The Committee shall review the adequacy and appropriateness of internal controls governing performance of the corporation's activities, as well as recommendations for improvements in such internal controls, including: (a) the corporation's Code of Conduct and other policies, and procedures to monitor compliance therewith; (b) management's assessment of internal controls; and (c) the internal audit function. (e) The Committee shall review with the independent auditors the adequacy of the financial reporting process, including the selection of accounting policies. (f) The Committee shall have such other duties as may be lawfully delegated to it from time to time by the Board of Directors. (g) Notwithstanding the foregoing, the composition of the Audit Committee, the qualification of its members, and its functions and responsibilities, shall at all times comply with the listing requirements of the New York Stock Exchange or other exchange on which the corporation's stock is listed as such listing requirements may be amended from time to time. 3.15 Compensation and Development Committee. There shall be a Compensation and Development Committee of the Board of Directors. The Committee shall have the following membership and powers: (a) The Committee shall be composed of at least three (3) members. Each member of the Committee shall be both a "nonemployee director" (within the meaning of 16 17 Rule 16b-3 of the Securities and Exchange Act) and an "outside director" (within the meaning of Section 162(m)(4)(C) of the Internal Revenue Code). (b) The Committee shall review and approve all compensation plans and programs (philosophy and guidelines) for the senior management of the corporation including salary structure, base salary, short and long-term incentive compensation plans, including stock options and nonqualified benefit plans and programs, including fringe benefit plans and programs. (c) The Committee shall prepare such reports as are required to be included in the corporation's proxy statement. (d) The Committee shall review and approve annual changes in the compensation of each officer appointed by the Board of Directors including base salary and short- and long-term incentive awards. (e) The Committee shall review and approve all awards under the corporation's Stock Option Plans. (f) The Committee shall consider and make recommendations to the Board of Directors regarding the selection and retention of all elected officers of the corporation (as defined in Section 4.1) and shall annually recommend to the Board of Directors the appointment of such officers of the corporation at the time of the Annual Meeting of shareholders. (g) The Committee shall approve all executive employment contracts. (h) The Committee shall oversee the selection of outside consultants to review the compensation programs of the corporation and shall meet with such consultants with or without management as appropriate. (i) The Committee shall annually review the performance of the Chief Executive Officer. (j) The Committee shall annually review and approve the Chief Executive Officer's management development and succession plans for the corporation. (k) The Committee shall have such other duties as may be lawfully delegated to it from time to time by the Board of Directors. 3.16 Finance Committee. There shall be a Finance Committee of the Board of Directors. The Committee shall have the following membership and powers: 17 18 (a) The Committee shall have at least three (3) members. At least fifty percent (50%) of the members of the Committee shall be non employee directors. (b) The Committee shall review and approve the corporation's annual capital budget, long-term financing plans, existing credit facilities, investments and commercial and investment banking relationships. (c) The Committee shall review and approve the corporation's existing insurance coverages, foreign currency management and Stock Repurchase Program. (d) The Committee shall review and approve the financial management and administrative operation of the corporation's qualified and non qualified employee benefit plans. (e) The Committee shall have such other duties as lawfully may be delegated to it from time to time by the Board of Directors. 3.17 Nominating Committee. There shall be a Nominating Committee of the Board of Directors. The Committee shall have the following membership and powers: (a) The Committee shall have at least three (3) members. All members of the Committee shall be non employee directors. (b) The Committee shall review candidates to serve as director and shall recommend candidates to the Board of Directors for nomination to stand for election at each Annual Meeting of shareholders or other meetings where directors are to be elected and shall recommend persons to serve as proxies to vote proxies solicited by the Board of Directors in connection with such meetings. (c) The Committee shall cause the names of all director candidates that are approved by the Board of Directors to be listed in the corporation's proxy materials and shall support the election of all candidates so nominated by the Board of Directors to the extent permitted by law. (d) The Committee shall review and make recommendations to the Board of Directors concerning the composition and size of the Board of Directors and potential candidates to serve in the future on the Board of Directors. (e) The Committee shall review candidates for election as directors submitted by shareholders for compliance with these By-laws. 18 19 (f) The Committee shall review and recommend to the Board of Directors the overall compensation programs for directors, including annual retainer, meeting fees, deferred compensation, stock or option plans or other incentive plans, and retirement plans. (g) The Committee shall recommend to the Board of Directors the date, time and place of the Annual Meeting of the shareholders. (h) The Committee shall have such other duties as lawfully may be delegated to it from time to time by the Board of Directors. 3.18 Scientific Advisory Committee. There shall be a Scientific Advisory Committee of the Board of Directors. The Committee shall have the following membership and powers: (a) The Committee shall have at least three (3) members. At least fifty percent (50%) of the members of the Committee shall be non employee directors. (b) The Committee shall review and evaluate the research and development programs of the corporation with respect to quality and scope. (c) The Committee shall advise the Board of Directors on maintaining product leadership through technological innovation. (d) The Committee shall review and make recommendations to the Board of Directors regarding the technological aspects of the corporation's business, including new business opportunities. (e) The Committee shall report to the Board of Directors on new technological and regulatory trends that will have a significant impact on the business of the corporation. (f) The Committee shall have such other duties as lawfully may be delegated to it from time to time by the Board of Directors. 3.19 Meetings of Committees. Each committee of the Board of Directors shall fix its own rules of procedure which shall include and be consistent with the provisions of the Wisconsin Business Corporation Law, these By-laws and any resolutions of the Board of Directors governing such committee, and shall make such reports to the Board of Directors of its activities as the Board of Directors may request. Each committee shall meet as provided by such rules and shall also meet at the call of its chairman or any two (2) members of such committee. Unless otherwise provided by such rules, the provisions of these By-laws under Section 3. entitled "Board of Directors" relating to the place of holding meetings and 19 20 the notice required for meetings of the Board of Directors shall govern the place of meetings and notice of meetings for committees of the Board of Directors. A majority of the members of each committee shall constitute a quorum thereof, except that when a committee consists of two (2) members, then the two (2) members shall constitute a quorum. In the absence of a quorum, a majority of the members present at the time and place of any meeting may adjourn the meeting from time to time until a quorum shall be present and the meeting may be held as adjourned without further notice or waiver. Except in cases where it is otherwise provided by the rules of such committee, the vote of a majority of the members present at a duly constituted meeting at which a quorum is present shall be sufficient to pass any measure by the committee. 3.20 Informal Action Without Meeting. Any action required or permitted by the Amended and Restated Articles of Incorporation or By-laws or any provision of law to be taken by the Board of Directors or a committee at a meeting may be taken without a meeting if the action is taken by all members of the Board of Directors or of the committee. The action shall be evidenced by one or more written consents describing the action taken, signed by each director or committee member and retained by the corporation. Such action shall be effective when the last director or committee member signs the consent, unless the consent specifies a different effective date. 3.21 Telephonic Meetings. Notwithstanding any place set forth in the notice of the meeting or these By-laws, members of the Board of Directors may participate in regular or special meetings of the Board of Directors and all Committees of the Board of Directors by or through the use of any means of communication by which either: (a) all directors participating may simultaneously hear each other, such as by conference telephone, or (b) all communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors; provided, however, that the Chairman of the Board or the chairman of the respective Committee of the Board of Directors or other person or persons calling a meeting may determine that the directors cannot participate by such means, in which case the notice of the meeting, or other notice to directors given prior to the meeting, shall state that each director's physical presence shall be required. If a meeting is conducted through the use of such means, then at the commencement of such meeting all participating directors shall be informed that a meeting is taking place at which official business may be transacted. A director participating in a meeting by such means shall be deemed present in person at such meeting. The identity of each director participating in such a meeting must be verified in such manner as the chairman of the meeting deems reasonable under the circumstances before a vote may be taken. 20 21 4. OFFICERS 4.1 Number. (a) The principal executive officers of the corporation shall be a Chairman, a Chief Executive Officer, a President, one or more Vice Presidents, one or more of whom may be designated Executive Vice President, one or more of whom may be designated Senior Vice President, and one or more of whom may be designated Vice President and Group Executive, a Secretary, a Treasurer, a Controller, a Chief Financial Officer and divisional presidents, each of whom shall be appointed by the Board of Directors (the officers thus appointed by the Board of Directors are sometimes referred to herein as the "elected"officers). All other officers, other designated divisional or staff officers, and all assistant officers (including one or more Assistant Secretaries and/or Assistant Treasurers) shall be appointed by the Board of Directors or the Chief Executive Officer. Such officers, agents and employees appointed by the Chief Executive Officer shall hold office at the discretion of the Chief Executive Officer. Any two or more offices may be held by the same person. (b) The duties of the elected officers shall be those enumerated herein and any further duties designated by the Board of Directors. The duties herein specified for particular officers may be transferred to and vested in such other officers as the Board of Directors shall appoint from time to time and for such periods or without limitation as to time as the Board of Directors shall order. (c) The duties and powers of all officers appointed by the Chief Executive Officer shall be those specifically prescribed for the position(s) by the Chief Executive Officer at the time of appointment. 4.2 Appointment and Term of Office. (a) The elected officers of the corporation shall be appointed annually by the Board of Directors at the first meeting of the Board of Directors held after each Annual Meeting of the shareholders. If the appointment of officers shall not be held at such meeting, such appointment shall be held as soon thereafter as convenient. Each such officer shall hold office until his or her successor shall have been duly appointed or until his or her death or until he or she shall resign or shall have been removed in the manner hereinafter provided. (b) A vacancy in any office appointed by the Board of Directors, because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. 21 22 4.3 Removal. The Board of Directors may remove any officer or agent at any time, with or without cause and notwithstanding the contract rights, if any, of the officer or agent removed. Appointment shall not of itself create contract rights. 4.4 Resignation. An officer may resign at any time by delivering written notice to the Secretary of the corporation. The resignation is effective when the notice is delivered, unless the notice specifies a later effective date and the corporation accepts the later effective date. 4.5 The Chief Executive Officer. The Chief Executive Officer, subject to the control of the Board of Directors, shall supervise and control all of the business and affairs of the corporation. He or she shall, in the absence of the Chairman of the Board, preside at all meetings of the shareholders and directors. He or she shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint and remove certain officers and such agents and employees of the corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. He or she shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by the Board of Directors; and except as otherwise provided by law or the Board of Directors, he or she may authorize any other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his or her place and stead. In general, he or she shall perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. 4.6 The President. The President shall be the chief operating officer of the corporation. In the absence of the Chief Executive Officer or in the event of his or her death, inability or refusal to act, or in the event for any reason it shall be impracticable for the Chief Executive Officer to act personally, the President shall perform the duties of the Chief Executive Officer and when so acting shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The President shall have the authority to sign all stock certificates, contracts, and other instruments of the corporation necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by the Board of Directors, and shall perform all duties as are incident to his or her office or are properly required of him or her by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. He or she shall have the authority, subject to such rules, directions, or orders as may be prescribed by the Chairman of the Board, the Board of Directors or the Chief Executive Officer, to appoint and terminate the appointment of such agents and employees of the corporation as he or she shall deem necessary, to prescribe their power, duties and compensation and to delegate authority to them. 22 23 4.7 Vice Presidents. At the time of appointment, one or more of the elected Vice Presidents may be designated Executive Vice President and one or more of them may be designated Senior Vice President. In the absence of the President or in the event of his or her death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, the Executive Vice Presidents in the order of their tenure in such position, or in the absence of any such designation, or in the event of his or her inability to act, any Senior Vice President in the order of their tenure in such position, or in the absence of any such designation, or in the event of his or her inability to act, then the other Vice Presidents in order of their tenure in such position, shall perform the duties of the President and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation and shall perform such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the Chief Executive Officer or the Board of Directors. 4.8 The Secretary. The Secretary shall: (a) keep as permanent records, the minutes of the shareholders' and of the Board of Directors' meetings, records of actions taken by the Board of Directors without a meeting, and records of actions taken by a Committee of the Board of Directors in place of the Board of Directors and on behalf of the corporation; (b) see that all notices are duly given in accordance with the provisions of these By-laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) maintain or cause an authorized agent to maintain a record of the corporation's shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, by class or series of shares and showing the number and class or series of shares held by each shareholder; and (e) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Chief Executive Officer or by the Board of Directors. 4.9 The Treasurer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine. He or she shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation, receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Section 5. of these By-laws; and (b) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Chief Executive Officer or by the Board of Directors. 23 24 4.10 The Controller. The Controller shall be the chief accounting officer of the corporation. He or she shall: (a) maintain appropriate accounting records for the corporation; (b) cause regular audits of these accounting records to be made; and (c) in general perform all of the duties incident to the office of Controller and such other duties as from time to time may be assigned to him or her by the Chief Executive Officer or by the Board of Directors. 4.11 Compensation. (a) The compensation of the elected officers shall be fixed from time to time by the Compensation and Development Committee of the Board of Directors and no such officer shall be prevented from receiving such compensation by reason of the fact that he or she is also a Director of the corporation. (b) The compensation of all officers appointed by the Chief Executive Officer shall be set by the Chief Executive Officer, from time to time. 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS 5.1 Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. 5.2 Loans. No indebtedness for borrowed money shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 5.3 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner, including by means of facsimile signatures, as shall from time to time be determined by or under the authority of resolution of the Board of Directors. 5.4 Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as may be selected by or under the authority of the Board of Directors. 24 25 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.1 Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman, Chief Executive Officer, President or Chief Financial Officer and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and the date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificates shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. 6.2 Signature by Former Officer, Transfer Agent or Registrar. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate for shares has ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the corporation with the same effect as if that person were still an officer, transfer agent or registrar at the date of its issue. 6.3 Uncertificated Shares. The Board of Directors may authorize the issuance of any shares of any of the corporation's classes or series without certificates. The authorization does not affect shares already represented by certificates until the certificates are surrendered to the corporation. 6.4 Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. 6.5 Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction upon the transfer of such shares imposed by the corporation. 6.6 Lost, Destroyed or Stolen Certificates. Where the owner claims that his or her certificate for shares has been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the corporation has notice that such 25 26 shares have been acquired by a bona fide purchaser, and (b) if required by the corporation, files with the corporation a sufficient indemnity bond, and (c) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 6.7 Consideration for Shares. The shares of the corporation may be issued for such consideration as shall be fixed from time to time and determined to be adequate by the Board of Directors, provided that any shares having a par value shall not be issued for a consideration less than the par value thereof. The consideration may consist of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation. When the corporation receives the consideration for which the Board of Directors authorized the issuance of shares, such shares shall be deemed to be fully paid and nonassessable by the corporation. 6.8 Stock Regulations. The Board of Directors shall have the power and authority to make all such rules and regulations not inconsistent with the statutes of the State of Wisconsin as they may deem expedient concerning the issue, transfer and registration of certificates representing shares of the corporation including the appointment or designation of one or more stock transfer agents and one or more stock registrars. 7. WAIVER OF NOTICE 7.1 Shareholder Written Waiver. A shareholder may waive any notice required by the Wisconsin Business Corporation Law, the Amended and Restated Articles of Incorporation or these By-laws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareholder entitled to the notice, shall contain the same information that would have been required in the notice under the Wisconsin Business Corporation Law except that the time and place of meeting need not be stated, and shall be delivered to the corporation for inclusion in the corporate records. 7.2 Shareholder Waiver by Attendance. A shareholder's attendance at a meeting, in person or by proxy, waives objection to both of the following: (a) Lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting. (b) Consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 26 27 7.3 Director Written Waiver. A director may waive any notice required by the Wisconsin Business Corporation Law, the Amended and Restated Articles of Incorporation or these By-laws before or after the date and time stated in the notice. The waiver shall be in writing, signed by the director entitled to the notice and retained by the corporation. 7.4 Director Waiver by Attendance. A director's attendance at or participation in a meeting of the Board of Directors or any committee thereof waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 8. LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS 8.1 Limited Liability of Directors to Corporation and Shareholders. A director is not liable to the corporation, its shareholders, or any person asserting rights on behalf of the corporation or its shareholders, for damages, settlements, fees, fines, penalties or other monetary liabilities arising from a breach of, or failure to perform, any duty resulting solely from his or her status as a director, unless the person asserting liability proves that the breach or failure to perform constitutes any of the following: (a) a willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe his or her conduct was lawful, or no reasonable cause to believe his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; or (d) willful misconduct. 8.2 Indemnification. (a) A corporation shall indemnify a director or officer, to the extent he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the director or officer was a party because he or she is a director or officer of the corporation. (b) In cases not included under the foregoing paragraph, a corporation shall indemnify a director or officer against liability incurred by the director or officer in a 27 28 proceeding to which the director or officer was a party because he or she is a director or officer of the corporation, unless liability was incurred because the director or officer breached or failed to perform a duty he or she owes to the corporation and the breach or failure to perform constitutes any of the following: (i) a willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest; (ii) a violation of criminal law, unless the director or officer had reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful; (iii) a transaction from which the director or officer derived an improper personal profit; or (iv) willful misconduct. (c) Determination of whether indemnification is required under this Section shall be made under Section 180.0855 of the Wisconsin Business Corporation Law. (d) The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea, does not, by itself, create a presumption that indemnification of the director or officer is not required under this Section. (e) A director or officer who seeks indemnification under this Section shall make a written request to the corporation. (f) Indemnification under this Section is not required if the director or officer has previously received indemnification or allowance of expenses from any person, including the corporation, in connection with the same proceeding. 8.3 Reliance by Directors and Officers. Unless a director or officer has knowledge that makes reliance unwarranted, a director or officer, in discharging his or her duties to the corporation, may rely on information, opinions, reports or statements, any of which may be written or oral, formal or informal, including financial statements and other financial data, if prepared or presented by any of the following: (a) an officer or employee of the corporation whom the director or officer believes in good faith to be reliable and competent in the matters presented; or 28 29 (b) legal counsel, public accountants or other persons as to matters the director or officer believes in good faith are within the person's professional or expert competence. (c) In the case of reliance by a director, a committee of the Board of Directors of which the director is not a member if the director believes in good faith that the committee merits confidence. 8.4 Consideration of Interests in Addition to Shareholders Interests. In discharging his or her duties to the corporation and in determining what he or she believes to be in the best interests of the corporation, a director or officer may, in addition to considering the effects of any action on shareholders, consider any of the following: (a) the effects of the action on employees, suppliers and customers of the corporation; (b) the effects of the action on communities in which the corporation operates; or (c) any other factors the director or officer considers pertinent. 8.5 Insurance. The corporation may purchase and maintain insurance on behalf of an individual who is an employee, agent, director or officer of the corporation against liability asserted against or incurred by the individual in his or her capacity as an employee, agent, director or officer or arising from his or her status as an employee, agent, director or officer, regardless of whether the corporation is required or authorized to indemnify or allow expenses to the individual against the same liability under Sections 180.0851, 180.0853, 180.0856 and 180.0858 of the Wisconsin Business Corporation Law. 8.6 General. (a) Except as limited by law, the indemnification and allowance of expenses provided by Sections 8.1 through 8.5 of this Article do not preclude any additional right to indemnification or allowance of expenses that a director, officer or employee may have under any written agreement between such person and the corporation, resolution of the Board of Directors or resolution adopted by the corporation's shareholders. (b) For purposes of this article, the definitions contained in Section 180.0850 of the Wisconsin Business Corporation Law are incorporated herein by this reference. The term "employee" shall mean a natural person who is or was an employee of the corporation or who, while an employee of the corporation, is or was serving at the corporation's request as a director, officer, partner, committee, employee or agent of another 29 30 corporation, partnership, joint venture, trust, or other enterprise, and, unless the context requires otherwise, the estate or personal representative of the employee. (c) The corporation, by its Board of Directors, may indemnify under Section 8.2, or with any limitations, any employee or former employee of the corporation with respect to any action taken or not taken in his or her capacity as or while an employee. Notwithstanding the foregoing, the corporation shall indemnify an employee who is not a director or officer of the corporation, to the extent that he or she has been successful on the merits or otherwise in defense of a proceeding, for all expenses incurred in the proceeding if the employee was a party because he or she was an employee of the corporation. 9. GENERAL 9.1 Fiscal Year. The fiscal year of the corporation shall end on September 30 of each year, commencing September 30, 1961. 9.2 Seal. The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Wisconsin". 9.3 Notices. Except as otherwise required by law or these By-laws, any notice required to be given by these By-laws may be given orally or in writing and notice may be communicated in person, by mail or private carrier, by telephone, telegraph, teletype, facsimile or other form of wire or wireless communication, and, if these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television or other form of public broadcast communication. Oral notice is effective when communicated. Written notice is effective as follows: (a) if delivered in person, when received; (b) if given by mail, when deposited, postage prepaid, in the United States mail addressed to the director at his or her business or home address (or such other address as the director may have designated in writing filed with the Secretary); (c) if given by private carrier, when delivered to the carrier; (d) if given by telegraph, when delivered to the telegraph company; and (e) if given by facsimile, e-mail or other form of wireless communication, at the time transmitted to a facsimile number or e-mail address at any address designated in (b) above. 9.4 No Nominee Procedures. The corporation has not established, and nothing contained in these By-laws shall be deemed to establish, any procedure by which a beneficial owner of the corporation's shares that are registered in the name of a nominee is recognized by the corporation as the shareholder under Section 180.0723 of the Wisconsin Business Corporation Law. 30 31 10. AMENDMENTS 10.1 Power to Amend and Repeal. Except as may be limited pursuant to Section 10.2, these By-laws may be amended or repealed, and new By-laws may be adopted, either by the shareholders at any meeting, or by vote of a majority of the shares present or represented thereat, or by the Board of Directors by a vote of a majority of the Board of Directors; except that Sections 2.3, 2.8, 3.2, 3.7, 3.8, 10.1, and 10.2 of the By-laws may be amended only by the affirmative vote of the holders of two-thirds (2/3) of the outstanding shares entitled to vote thereon or by the affirmative vote of a majority of the directors. Except as may be limited pursuant to Section 10.2, the Board of Directors shall have the power to amend or repeal any By-law adopted by the shareholders, and any By-law adopted by the Board of Directors shall be subject to amendment or repeal by the shareholders as well as by the directors. 10.2 Restrictions on Amendment and Repeal. (a) The Board of Directors shall have no power to amend or repeal any By-law or amendment adopted by the shareholders which contains a specific provision to the effect that such By-law or amendment shall not be subject to amendment or repeal by the Board of Directors. (b) The Board of Directors shall have no power to amend or repeal any By-law adopted or amended by the shareholders that fixes a greater or lower quorum requirement or a greater voting requirement for the Board of Directors than otherwise is provided in the Wisconsin Business Corporation Law unless the By-law expressly provides that it may be amended or repealed by a specified vote of the Board of Directors. Action by the Board of Directors to adopt or amend a By-law that changes the quorum or voting requirement for the Board of Directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect, unless a different voting requirement is specified as provided by the preceding sentence. A By-law that fixes a greater or lower quorum requirement or a greater voting requirement for shareholders or voting groups of shareholders than otherwise is provided in the Wisconsin Business Corporation Law may not be adopted, amended or repealed by the Board of Directors. (c) No amendment or repeal of these By-laws by the shareholders at any meeting shall be effective unless the notice of such meeting shall have set forth the general nature of the proposed amendment or repeal. 31 EX-10.2(A) 3 EXECUTIVE EMPLOYMENT CONTRACT 1 EXHIBIT 10.2(a) EXECUTIVE EMPLOYMENT CONTRACT THIS AGREEMENT, made and entered into as of the 11th day of November, 1999 by and between Universal Foods Corporation, a Wisconsin corporation (hereinafter referred to as the "Company"), and Kenneth P. Manning (hereinafter referred to as "Executive"); W I T N E S S E T H : WHEREAS, the Executive is presently employed by the Company as its President, Chief Executive Officer and Chairman of the Board of Directors of the Company (the "Board"); WHEREAS, the Board recognizes that the Executive's contribution to the growth and success of the Company has been substantial; WHEREAS, the Board desires to provide for the continued employment of the Executive and to encourage the continued attention and dedication to the Company of the Executive as a member of the Company's management; WHEREAS, the Executive and the Company intend that this Agreement shall supersede and replace the Executive Employment Contract made and entered into as of November 5, 1987, and amended as of May 10, 1988, by and between the Company and the Executive (the "Prior Agreement"); WHEREAS, the Executive and the Company intend that in the event of a Change of Control (as defined in the Amended and Restated Change of Control Severance and Employment Agreement, made and entered into as of November 11, 1999, by and between the Executive and the Company (the "Change of Control Agreement")), this Agreement shall be superseded and replaced by the Change of Control Agreement; and 2 WHEREAS, the Executive is willing to commit himself to continue to serve the Company, on the terms and conditions herein provided; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto mutually covenant and agree as follows: 1. Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Company, on the terms and conditions set forth herein. 2. Term. The employment of the Executive by the Company as provided in Section 1 of this Agreement will commence on the date hereof and end on November 11, 2002, unless further extended or sooner terminated as hereinafter provided (the "Employment Period"). On November 11, 2000, and on November 11 of each year thereafter, the term of the Executive's employment shall be automatically extended for one additional year unless at least ninety days prior to such renewal date either party hereto shall give notice to the other that the Employment Period shall not be so extended; provided, however, that in no event shall the term of the Executive's employment extend beyond the end of the calendar month in which the Executive's 65th birthday occurs and provided further that no automatic extension of the term of the Executive's employment shall occur if the Executive is disabled, as determined pursuant to Section 8 of this Agreement, at the time such extension would otherwise automatically become effective. 3. Position and Duties. (a) During the Employment Period, the Executive shall serve as President and Chief Executive Officer of the Company and the Chairman of the Board and shall have such responsibilities and authority as may from time to time be assigned to the Executive by the Company's Board of Directors consistent with his position as President and Chief Executive Officer of the Company. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially all his -2- 3 working time and efforts during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive under this Agreement, use the Executive's reasonable best efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement or otherwise violate the provisions of Section 14. 4. Place of Performance. In connection with the Executive's employment by the Company, the Executive shall be based in Milwaukee, Wisconsin (at the principal executive offices of the Company) except for required travel on the Company's business to an extent substantially consistent with his present business travel obligations. 5. Compensation and Related Matters. (a) Base Salary. During the Employment Period, the Company shall pay to the Executive a salary at a rate of not less than $621,000 per annum pursuant to the Company's normal payroll practices (the "Base Salary"). The Base Salary shall be reviewed on or before October 1 of each year following the date of this Agreement, while this Agreement remains in force, to ascertain whether in the judgment of the Board or such Committee to whom the Board may have delegated authority, such Base Salary should be increased. If so increased, the Base Salary shall not thereafter during the term of this Agreement be decreased and the term Base Salary as utilized in this Agreement shall refer to the Base Salary as so increased. Compensation of the Executive by salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of the Company. The base salary payments (including any increased salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's base salary hereunder. -3- 4 (b) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be eligible to be awarded, for each fiscal year or portion of a fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") pursuant to the terms of the Company's Incentive Compensation Plan for Elected Corporate Officers, or any successor or replacement plan. (c) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including all expenses of travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. (d) Other Benefits. During the Employment Period: (i) the Executive shall be entitled to participate in incentive, savings and retirement plans, practices, policies and programs of the Company to an extent no less favorable than the participation provided generally to other senior executives of the Company; and (ii) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in, and shall receive benefits under, welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs) to an extent no less favorable than the participation and benefits provided to other senior executives of the Company (and/or their families). (e) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation that is no less favorable than the paid vacation provided generally to other senior executives of the Company and to all paid holidays given by the Company to its other senior executives. (f) Office and Support Staff. During the Employment Period, the Company shall furnish the Executive with office space, secretarial assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of his duties as set forth in Section 3. -4- 5 (g) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits and perquisites, which shall be no less favorable than the fringe benefits and perquisites provided generally to other senior executives of the Company. 6. Offices. The Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of the Company and any of its subsidiaries and in one or more executive offices of any of the Company's subsidiaries, provided that the Executive is indemnified for serving in any such capacities on a basis no less favorable than is currently provided by the Company's By-laws. 7. Death. If the Executive shall die during the Employment Period but prior to the delivery of a Notice of Termination (as hereinafter defined) by the Company or by the Executive for Good Reason (as hereinafter defined), the Company shall pay the Executive's estate or legal representative, within thirty days following the Executive's Date of Termination (as hereinafter defined), a lump sum payment equal to the sum of: (1) the Executive's Annual Base Salary through the Date of Termination, (2) the value of the Executive's accrued, but unused, vacation days (based on the Executive's Annual Base Salary) and (3) the product of (x) the average annual bonus earned by the Executive for the three years immediately prior to the year in which the Date of Termination occurs and (y) a fraction, the numerator of which is the number of full and partial months in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is twelve, in each case to the extent not theretofore paid (the "Bonus Amount"), and the Company shall have no further obligations to pay other benefits under this Agreement. The amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations". 8. Disability. (a) If during the Employment Period, the Company or the Executive terminates the Executive's employment due to the Executive's Disability, the Company shall pay the Executive (1) within thirty days following the Executive's Date of Termination, a lump sum payment of the Accrued Obligations and (2) commencing on the Date of Termination until he reaches age 65 or the termination of his Disability, whichever is first to occur, such amounts which an individual in his earnings category would be normally entitled to receive as full Long -5- 6 Term Disability ("LTD") coverage under the Company LTD plan then in effect, but not less than 60% of his Base Salary as determined under Section 5(a) at the time of the Date of Termination. During the term of his Disability, the Executive also shall receive the employee benefits (or service credits therefor, as the case may be) he would have been entitled to receive, as provided in Section 5(d) (other than under incentive plans). The obligation to provide the foregoing disability benefits shall survive the termination of this Agreement provided the Disability was incurred before termination, and the Company shall have no further obligations to pay compensation or benefits under this Agreement. (b) For purposes of this Agreement, "Disability" means that (i) the Executive has been unable, for a period of 180 consecutive business days, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury, and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive's incapacity is total and permanent. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. 9. Termination by the Company. (a) Termination for Cause. The Executive's employment may be terminated by the Board at any time for Cause which shall be defined to mean (I) conviction of the Executive of any act of fraud, theft or embezzlement or (II) the commission of any of the following acts by the Executive which is substantially injurious to the Company: dishonesty, gross misconduct, willful disclosure of trade secrets, gross dereliction of duty or other grave misconduct on the part of the Executive. The Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (ii) an opportunity for the Executive, together with his counsel, to be heard -6- 7 before the Board and (iii) delivery to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in this Section 9(a), and specifying the particulars thereof in detail. In the event the Executive's employment is terminated for Cause, the Executive shall be entitled to his accrued and unpaid Base Salary through the date of termination and shall forfeit his right to any and all compensation and benefits he would otherwise have been entitled to receive under this Agreement. (b) Termination without Cause. The Company has the right to terminate the employment of the Executive without Cause, upon at least thirty days' prior written notice, if such termination is approved by a majority vote of the Board taken at a meeting duly called to consider such matter. In the event of termination of the Executive's employment pursuant to this Section 9(b), the Company shall provide the Executive with the following "Termination Benefits," and the Company shall have no further obligations to pay compensation or benefits under this Agreement: (i) a lump sum cash payment, within thirty days following the Date of Termination, equal to the sum of: (A) the Accrued Obligations, and (B) the product of (1) three and (2) the sum of the Base Salary, plus the higher of Executive's most recent annual bonus or Executive's target bonus for the year in which the Date of Termination occurs (if no target bonus has been set for such year, the Executive's target bonus for the prior year shall be used). (ii) the Executive shall be credited with three additional years of service for purposes of calculating his retirement benefit under any supplemental or excess retirement plan of the Company in which he was a participant as of the Date of Termination; (iii) from the Date of Termination until 36 months following the end of the month in which the Date of Termination occurs, the Company shall continue benefits to the Executive (and/or the Executive's family) at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 5(d)(ii) if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other senior executives -7- 8 of the Company (and their families), (in addition, if the Executive is eligible for "COBRA" continuation health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (or any successor provision), such coverage shall commence upon the end of the coverage for the Severance Period); provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; and (iv) the Executive shall be credited with three additional years of service and age for purposes of eligibility for retiree health benefits under the retiree health plan maintained by the Company. 10. Termination by the Executive. (a) Without Good Reason. The Executive has the right to terminate his employment at any time without Good Reason upon no less than thirty days' prior written notice delivered to the Company. If the Executive terminates his employment during the Employment Period for any reason other than Disability or Good Reason, the Company shall pay a lump sum payment to the Executive of the Accrued Obligations (other than the Bonus Amount), and the Company shall have no further obligations to pay compensation or benefits under this Agreement. (b) For Good Reason. The Executive has the right to terminate his employment for Good Reason upon thirty days' prior written notice delivered to the Company within 120 days of the occurrence of one of the events set forth below. For purposes of this Agreement, "Good Reason" shall mean, without the Executive's written consent: (i) any reduction in the Executive's Base Salary; (ii) the assignment to the Executive of any duties inconsistent with, or the reduction of powers or functions associated with, his positions, duties, responsibilities and status with the Company set forth in Section 3; -8- 9 (iii) the Company's mandatory transfer of the Executive to another geographic location other than a location within 35 miles of Milwaukee, Wisconsin or to a location other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations as of the date hereof; or (iv) any other material breach of this Agreement by the Company. An isolated, insubstantial and inadvertent action not taken in bad faith, and which is remedied by the Company within ten days after notice from the Executive, shall not be treated as Good Reason under this Agreement. In the event of a termination of employment by the Executive for Good Reason during the Employment Period, the Executive shall be provided with the Termination Benefits set forth in Section 9(b) hereof. In the event that the Executive shall in good faith give a Notice of Termination (as hereinafter defined) for Good Reason and it shall thereafter be determined that Good Reason did not exist, the employment of the Executive hereunder shall, at the Executive's option, continue after such determination; provided, that the Executive continued his employment during the dispute concerning his alleged Good Reason pursuant to his option to do so as provided in Section 11 and provided further, that in no event shall such employment extend beyond the Employment Period. If the Executive does not choose to continue his employment hereunder after such determination, the employment of the Executive shall be deemed to have terminated at the date of giving such purported Notice of Termination by mutual consent of the Company and the Executive; provided, however, that if the Executive exercises his option to continue his employment during the period of dispute concerning his alleged Good Reason as provided in Section 11, the Executive shall be entitled to compensation and benefits during such continued employment in accordance with Section 5 of this Agreement. 11. Notice of Termination; Date of Termination. (a) Any termination of the Executive's employment by the Company under Section 9 or by the Executive under Section 10 shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the date of the Executive's -9- 10 termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. In the event that one party notifies the other that a dispute exists concerning the termination of the Executive's employment, the Executive's employment under this Agreement shall, at the Executive's option, not be terminated until such dispute is finally resolved either by mutual written agreement of the parties or in accordance with Section 16, as the case may be; provided, however, that in no event shall such employment extend beyond the Employment Period. (b) Date of Termination. The Executive's "Date of Termination" shall mean: (i) in the event of his death, the date of death; (ii) in the event of his Disability, the Disability Effective Date; and (iii) in the event of any other termination of employment, the date specified in the Notice of Termination. 12. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company for which the Executive may qualify, nor, subject to Section 24, shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company. Accrued benefits and other amounts that the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company on or after the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 13. Interest and Costs. In the event that any payments due to the Executive hereunder shall fail to be paid when due, such unpaid amounts shall bear interest at the rate of 12% per annum and if such unpaid amounts are collected by law or through an attorney-at-law, the Executive shall also be entitled to collect reasonable attorneys' fees and all costs of collection. Within ten (10) days after the Executive's written request therefor, the Company shall pay to the Executive, or such other person or entity as the Executive may designate in writing to the Company, such reasonable attorneys' fees and costs of collection in advance of the final disposition or conclusion of any dispute, legal or arbitration proceeding with respect to such collection. -10- 11 14. Noncompetition; Nonsolicitation and Confidential Information. (a) During the Employment Period and for a period of one year after the Executive's Date of Termination (the "Noncompetition Period"), the Executive shall not, within the United States, except as permitted by the Company's prior written consent, engage in, be employed by, or in any way advise or act for, or have any financial interest in any business which is a competitor of the Company. Notwithstanding the foregoing, this Section 14(a) shall not apply during the Noncompetition Period if the Executive's employment is terminated without Cause or the Executive terminates his employment for Good Reason. The ownership of less than five percent of any class of securities of any corporation listed on a national securities exchange or regularly traded over the counter even though such corporation may be a competitor of the Company as specified above, shall not be deemed as constituting a financial interest in such competitor. (b) During the Noncompetition Period, other than on behalf of the Company, the Executive shall not induce or solicit any employee of the Company to terminate his or her employment. (c) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company and its respective businesses that the Executive obtains during the Executive's employment by the Company and that is not public knowledge (other than as a result of the Executive's violation of this Section 14(c) ("Confidential Information")). The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Company, except with the prior written consent of the Company or as otherwise required by law or legal process. (d) All computer software, business cards, telephone lists, customer lists, price lists, contract forms, catalogs, the Company books, records, files and know-how acquired while the Executive is an employee of the Company are acknowledged to be the property of the Company and shall not be duplicated, removed from the Company's possession or premises or made use of other than in pursuit of the Company's business or as may otherwise required by law or any legal process, or as is necessary in connection with any adversarial proceeding against the Company and, upon termination of employment for any reason, the Executive shall deliver to -11- 12 the Company, without further demands, all copies thereof which are then in his possession or under his control. (e) The provisions of Sections 14(a), (b), (c) and (d) shall remain in full force and effect until the expiration of the period specified herein notwithstanding the earlier termination of the Executive's employment hereunder. In the event of a breach of the Executive's covenants under this Section 14, it is understood and agreed that the Company shall be entitled to injunctive relief, as well as any other legal remedies. For purposes of this Section 14, the "Company" shall include all entities controlling, controlled by or under common control with the Company. 15. Resolution of Disputes. Any dispute arising out of this Agreement shall, at the Executive's option, be determined by arbitration under the rules of the American Arbitration Association then in effect, other than any requests for injunctive relief under Section 14(e), or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be Milwaukee, Wisconsin or, if the Executive is no longer residing or working in Milwaukee, Wisconsin, such venue shall, at the Executive's election, be the city in which the Executive resides. More specifically, if litigation is the method for settling any such dispute, venue for the litigation shall be in the Circuit Court of Milwaukee County or, if the Executive is no longer residing or working in Milwaukee, Wisconsin, such venue shall, at the Executive's election, be the county court for the county in which the Executive resides. The parties consent to jurisdiction in the selected venue notwithstanding their residence or situs. 16. Payment Obligations Absolute. The Company's obligation during and after the term of the Executive's employment hereunder to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else, except as provided in Section 9(b)(iii). All amounts payable by the Company hereunder shall be paid without notice (except as provided in Section 12) or demand. The Company will not seek to recover all or any part of any such payment from the Executive or from whomsoever may be entitled thereto, for any reason whatsoever, except as provided in Section 9(b)(iii). -12- 13 17. Strict Compliance. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. 18. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 18 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 19. Notice. All notices, requests, demands and other communications required or permitted to be given by either party to the other party by this Agreement (including, without limitation, any Notice of Termination of employment) shall be in writing and shall be deemed to have been duly given when delivered personally or received by certified or registered mail, return receipt requested, postage prepaid, at the address of the other party, as follows: -13- 14 If to the Company, to: Universal Foods Corporation 433 East Michigan Street Milwaukee, Wisconsin 53202 Attention: Secretary If to Executive, to: At the last address for the Executive in the Company's records. Either party hereto may change its address for purposes of this Section 19 by giving fifteen (15) days prior notice to the other party hereto. 20. Severability. If any term or provision of this Agreement or the application hereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 21. Headings. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of this Agreement. 22. Governing Law. This Agreement has been executed and delivered in the State of Wisconsin and shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Wisconsin. 23. Payroll and Withholding Taxes. All payments to be made or benefits to be provided hereunder by the Company shall be subject to reduction for any applicable payroll-related or withholding taxes. -14- 15 24. Entire Agreement. This Agreement supersedes any and all other oral or written agreements heretofore made relating to the subject matter hereof (including, without limitation, the Prior Agreement) other than the Change of Control Agreement, and constitutes the entire agreement of the parties relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. UNIVERSAL FOODS CORPORATION ("Company") By: /s/ Richard F. Hobbs ------------------------------------- Richard F. Hobbs Vice President - Administration [CORPORATE SEAL] Attest /s/ John L. Hammond ------------------------------------- EXECUTIVE /s/ Kenneth P. Manning -------------------------------------------- Kenneth P. Manning -15- EX-10.2(B) 4 AMENDED & RESTATED CHANGE OF CTRL. EMPLOYMENT AGT. 1 EXHIBIT 10.2(b) AMENDED AND RESTATED CHANGE OF CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT AGREEMENT by and between Universal Foods Corporation, a Wisconsin corporation (the "Company"), and Kenneth P. Manning (the "Executive"), dated as of the 11th day of November, 1999. WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement; WHEREAS, the Company and the Executive intend that, upon a Change of Control, this Agreement shall supersede and replace the Executive Employment Contract made and entered into as of November 11, 1999, by and between the Company and the Executive (the "Prior Agreement"). NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of September 10, 1998, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to September 10, 1998, whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the 2 3 corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120 day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed and increased a minimum of 3% no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement and shall be commensurate with increases given to peer executives. Annual Base Salary shall not be reduced after any such increase and 3 4 the term "Annual Base Salary" as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's Management Incentive Plan, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all qualified and non-qualified incentive (cash and stock related), savings and retirement plans, and/or comparable practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect 4 5 generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for 5 6 performance is delivered to the Executive by the non-employee member of the Board of Directors of the Company who has served longest (the "Senior Director") which specifically identifies the manner in which the Senior Director believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. Any termination of the Executive's employment by the Company during the Employment Period (other than a termination under Section 5(a)) shall be deemed to be a termination other than for Cause unless it meets all requirements of this Section 5(b). (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; 6 7 (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason where the Date of Termination (as defined below) is during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason, Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion 7 8 thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year of the Company through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. the sum of (i) all vested and nonforfeitable amounts under the Company's savings and retirement plans (qualified and non-qualified) described in Section 4(b)(iii), (ii) the amount equal to the product of (x) three and (y) the highest aggregate annual amount contributed by the Company (as a Company contribution, and not a salary reduction) on behalf of the Executive, during the last three full fiscal years prior to the Effective Date, to the Company's Savings Plan, and Supplemental Benefits Plan, or any successor or replacement defined contribution plans, and (iii) the amount equal to the product of (x) the greater of (1) three and (2) the number of full years from the Date of Termination until the Executive would attain age 65 and (y) the highest aggregate annual amount contributed by the Company (as a Company contribution, and not a salary reduction) on behalf of the Executive, during the last three fiscal years prior to the Effective Date, to the Company's Transition Retirement Plan and Retirement Employee Stock Ownership Plan, or any successor or replacement defined contribution plans. (ii) for three years after the Executive's Date of Termination, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) for purposes of calculating the Executive's benefits under the Company's Supplemental Executive Retirement Plan, the Executive will be deemed to have received three additional years of base salary in amounts equal to the Executive's Annual Base Salary as of the Date of Termination, as increased for purposes of this subparagraph in each of such three years, 8 9 by the percentage increase in the Executive's Annual Base Salary from the year prior to the year which the Date of Termination occurs to the year in which the Date of Termination occurs; (iv) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (v) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term "Other Benefits" as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability (the "Disability Benefit") and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families; provided that the Executive shall receive an annual Disability Benefit commencing upon his Disability Effective Date at least equal to 60% of the Executive's Annual Base Salary, which shall be paid on a monthly basis until the earlier of (i) the date on which the Executive reaches age 65 or (ii) the termination of the Executive's Disability. During the period of the 9 10 Disability, the Executive shall also receive the employee benefits (or service credits therefor, as the case may be) under any employee benefit plan or arrangement as in effect on the Date of Termination (including, without limitation, each pension and retirement plan and arrangement, supplemental pension and retirement plan and arrangement, deferred compensation plan, profit sharing plan, stock option plan, health and split-dollar life insurance, disability plan, dental program, executive car program and vacation plan) or made available in the future to other peer executives of the Company, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify (provided that the Executive hereby waives any right to participate in any severance plan, program or policy of the Company during the Employment Period), nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligations to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. Each and every payment made hereunder by the Company shall be final, and the Company will not seek to recover all or any part of such payment from the Executive for any reason. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in 10 11 each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche LLP or such certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within ten days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the 11 12 Company of the nature of such claim and the date on which said claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or Income Tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Income Tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with 12 13 respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) Notices given pursuant to this Agreement shall be in writing and shall be deemed given when actually received by the Executive or actually received by the Company's secretary. If mailed, such notices shall be mailed by United States registered or certified mail, 13 14 return receipt requested, addressee only, postage prepaid, if to the Company, to Attention: Secretary (or President, if the Executive is then Secretary), or if to the Executive, at the address set forth below the Executive's signature to this Agreement, or to such other address as the party to be notified shall have theretofore given to the other party in writing. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, including the Prior Agreement and any predecessor agreement thereto. Prior to the Effective Date, the Prior Agreement shall remain in effect pursuant to its terms. 13. Governing Law; Resolution of Disputes. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Wisconsin. Any dispute arising out of this Agreement shall, at the Executive's election, be determined by arbitration under the rules of the American Arbitration Association then in effect (in which case both parties shall be bound by the arbitration award) or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be in the judicial district encompassing the city in which the Executive resides; provided that if the Executive is not then residing in the United States, the election of the Executive with respect to such venue shall be Wisconsin. The parties consent to personal jurisdiction in each trial court in the selected venue having subject matter jurisdiction, and each party irrevocably consents to service of process in the manner provided hereunder for the giving of notices. 14 15 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. UNIVERSAL FOODS CORPORATION By /s/ Richard F. Hobbs ----------------------------------- Richard F. Hobbs Vice President-Administration /s/ Kenneth P. Manning ----------------------------------- Kenneth P. Manning Address: 5240 North Lake Drive Whitefish Bay, WI 53217 15 EX-13.1 5 PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS 1 Exhibit 13.1 BUSINESS PROFILE Universal Foods Corporation is a global leader in the manufacture and supply of high-performance flavors, colors, yeast and dehydrated products. The Company's Performance Products segment produces flavor and color products for food, beverages, cosmetics, pharmaceuticals, specialty inks and a variety of other applications. The Natural Products segment produces dehydrated ingredients and a broad range of yeast products for commercial and retail markets. PERFORMANCE PRODUCTS Flavor REVENUE (in millions) [BAR CHART] 95 371 96 359 97 321 98 347 99 374 OPERATES AS: UNIVERSAL FLAVORS We offer one of the most complete ranges of flavors, flavor enhancers and flavor systems for the food, beverage and dairy industries. Our flavor chemists and application specialists work closely with customers in the development of custom taste products with a focus on sensory superiority, ease-of-use and value. PRODUCTS Savory, dairy, sweet goods and beverage flavors and flavor systems. Extracts from yeast, vegetable proteins, meat, milk protein and other natural products for use primarily as flavor enhancers. Aroma chemicals and fragrances for personal care and household products. 1999 AND BEYOND Revenue was up for the year due to strong double-digit gains in sales to the dairy, beverage and food ingredients categories and the positive contribution of our first full year following the integration of the bioproducts savory flavor business. Our year-old creative centers in Indianapolis and Fenton, Missouri, along with a new flavor creative center in Canada, are providing enhanced customer support in new product development. Acquisitions completed during the past two years continue to provide new access to key customers around the globe. Strategies have been developed for further penetration of the growing markets for 2 nutraceuticals, frozen novelties, cultured dairy products and snack foods. CUSTOMERS % OF REVENUE [PIE CHART] Food Processors 44% Dairy Product Companies 28% Beverage Companies 19% Other 9% ESTIMATED GLOBAL MARKET $15 billion Color REVENUE (in millions) [BAR CHART] 95 149 96 159 97 192 98 195 99 232 OPERATES AS: WARNER-JENKINSON COMPANY We are the world's leading supplier of synthetic food colors, with a rapidly growing share of the global market for natural and cosmetic colors. Our skilled chemists and color technicians provide outstanding technical support in the development of high-performance colors and color systems that meet specific application requirements and performance characteristics. PRODUCTS Natural and synthetic colors for food, beverages, confections, cosmetics, pharmaceuticals, personal care items, inks for ink-jet printers, and a variety of other products. In addition to our broad range of standard products, we provide specially tailored products that simplify and enhance the use of color. 1999 AND BEYOND Revenue for our Color division grew significantly as a result of increased sales volumes of synthetic, natural and cosmetic colors. New acquisitions added to the results and further strengthened our Color division during fiscal 1999. Les Colorants Wackherr, Paris, France, expanded our offerings in colors for cosmetics and added a new range of 3 cosmetic ingredient products. The acquisition of certain assets of Quimica Universal, Lima, Peru, enhanced our capabilities in the production of annatto and carminic acid-based products. The acquisition of Pointing Holdings Ltd. in the U.K. has provided greater access to international markets. The natural color business of Nino Fornaciari fu Riccardo S.N.C. strengthened our position as the number one supplier of anthocyanin, a natural color, sold worldwide. Our Color division continues to grow as we focus on areas with the greatest opportunities for growth, including natural colors, cosmetic colors, new dyes and specialty chemical synthesis and purification. CUSTOMERS % OF REVENUE [PIE CHART] Food Processors 75% Cosmetics Mfrs/Pharmaceutical Companies/Ink-jet Printer Mfrs 25% ESTIMATED GLOBAL MARKET $2.9 billion NATURAL PRODUCTS Yeast REVENUE (in millions) [BAR CHART] 95 155 96 156 97 159 98 164 99 164 OPERATES AS: RED STAR YEAST & PRODUCTS We are the largest North American supplier of yeast to the commercial bakery market. Our Red Star name denotes quality and reliability in the production and delivery of yeast products for commercial and retail markets. PRODUCTS A diversified line of yeast products including compressed, cream and active dry yeast for commercial and retail applications, including bakery goods, pizza, frozen dough, prepared bread machine mixes, and wine making. Nutritional yeast for health conscious consumers, and bionutrients for use in pharmaceuticals, biotechnology, and starter cultures for the dairy industry. 4 1999 AND BEYOND Revenue was comparable to last year due to competitive pressures in the yeast industry. Favorable raw material costs helped to offset the impact of lower prices. Red Star Yeast continues to excel in this challenging competitive environment. Our focus remains on programs to reduce costs and improve productivity. In addition, we continue to explore opportunities for growth outside the traditional commercial baking industry. Greater emphasis is being placed on the production and marketing of higher-margin yeast derivatives, including bionutrients and nutraceuticals. CUSTOMERS % OF REVENUE [PIE CHART] Commercial Baking Companies 72% Retail 16% Bionutrients/Nutraceuticals 12% ESTIMATED GLOBAL MARKET $2.3 billion DEHYDRATED PRODUCTS REVENUE (in millions) [BAR CHART] 95 117 96 132 97 135 98 147 99 147 OPERATES AS: ROGERS FOODS (U.S.) UNIVERSAL DEHYDRATES (EUROPE) We are a market leader in the U.S. production of dehydrated onion, garlic and chili products and the number one supplier of dehydrated vegetables in Europe. Our modern dehydration technology, extensive plant breeding and seed development programs, and comprehensive crop management techniques produce consistent, top-quality dehydrated products. PRODUCTS Dehydrated onion, garlic, chili pepper, paprika, parsley, celery, spinach and other vegetables for use as ingredients by food processors and sale under private labels to the retail market and food service industry. 5 1999 AND BEYOND Revenue for our Dehydrated Products division was flat primarily due to lower volumes of garlic as a result of a U.S. crop shortage. Onion and chili volumes were on plan for the year. We closed our unprofitable frozen vegetable processing operations in Ireland during the latter part of the fiscal year. The remaining Dehydrated Products operations in Europe continue to turn in a stronger performance each quarter. Plant breeding and seed development programs and new crop management techniques provide opportunities for further improvements in productivity and product quality. CUSTOMERS % OF REVENUE [PIE CHART] Food Processors 55% Spice Blenders 20% Repackers/Distributors/Retail 25% ESTIMATED GLOBAL MARKET $1.2 billion MANAGEMENT'S ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION [ Years ended September 30, 1999, 1998 and 1997 ] The following financial review provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The financial review should be read in conjunction with the consolidated financial statements and notes thereto. RESULTS OF OPERATIONS In 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and Related Information" which establishes new standards for reporting and disclosure relating to segments and geographic data. The Company's reportable segments are as follows: Performance Products This segment includes the Flavor and Color divisions, which produce flavor and color products that impart a desired taste, smell or color to a broad range of consumer products. Natural Products This segment produces yeast and dehydrated products which are used by manufacturers of various food products. 6 NET EARNINGS (in millions) (excluding unusual items) [BAR CHART] 95 $56.9 96 $60.9 97 $64.7 98 $72.6 99 $80.1 1999 VS. 1998 Revenue for 1999 increased $63.4 million, or 7.4%, to $920.2 million from $856.8 million in 1998. The overall increase in revenue was attributable to increases in the Performance Products segment resulting from volume increases and acquisitions of natural and cosmetic color businesses. U.S. Flavor volume was particularly strong in the dairy, beverage and food ingredient product categories. The Color division recorded gains in all product categories. Revenue in the Natural Products segment was $311 million in both 1999 and 1998. The U.S. dehydrated products business recorded revenue increases for onion products offset by lower garlic volumes. In Europe, revenue was flat as the closure of the frozen vegetable business in Ireland offset increases in dehydrated products. Revenue in Yeast was flat as volumes and average selling prices were comparable to 1998. The strengthening of the U.S. dollar relative to foreign currencies during the year had the effect of reducing reported revenue by approximately 1.0%. Cost of products sold as a percent of revenue was 65.2% in 1999 compared to 64.9% in 1998. In the Performance Products segment, cost of products sold as a percent of revenue increased to 67.4% in 1999 from 66.8% in 1998. This increase is primarily attributable to changes in product mix at the Color division caused by additional sales of lower margin synthetic dyes and higher cost of products sold related to the Pointing business acquired in 1999. In addition, the Flavor division had increased sales of dairy products in 1999 at lower margins than other product categories. In the Natural Products segment, cost of products sold as a percent of revenue decreased to 64.2% in 1999 from 64.9% in 1998 as raw material costs decreased for most product categories except garlic. Selling and administrative expenses increased $3.4 million to $175.3 million from $171.9 million but decreased as a percent of revenue to 19.0% from 20.1%. Selling and administrative expenses as a percent of revenue were lower in both the Performance Products and Natural Products segments. Corporate expenses were lower as increases in intangible amortization expense were offset by a $1.9 million favorable settlement of a previously accrued litigation claim. During 1999, the Company 7 closed the frozen vegetable business in Ireland at a cost of approximately $2.7 million. Operating income in 1999 increased $16.2 million, or 12.6%, to $145.1 million. Operating income increased $9.6 million, or 10.3%, in the Performance Products segment as the flavor business in the U.S. continues to improve and the segment benefited from recent acquisitions. Operating income in the Natural Products segment was $60.5 million in 1999 compared to $56.6 million in 1998, an increase of 7.0%. The increase is the result of lower product costs and reduced selling and administrative expenses. Interest expense increased $4.8 million to $26.0 million in 1999. The increase was caused by additional outstanding borrowings which were used primarily to fund acquisitions (see Note 5 to the Consolidated Financial Statements). The effective income tax rate for 1999 was 32.7% compared to 32.5% last year. Both years include the benefits from settlements of prior years' issues that reduced the effective rate 1.2% in 1999 and 1.4% in 1998. Net earnings were $80.1 million in 1999 compared to $72.6 million in 1998, an increase of 10.3%. In 1999, diluted earnings per share increased to $1.57 from $1.40, an increase of 12.1%. 1998 VS. 1997 Revenue for 1998 increased $31.1 million, or 3.8%, to $856.8 million from $825.7 million in 1997. Revenue in the Performance Products segment increased $28.4 million, or 5.5%, primarily due to volume gains in the international Flavor business which benefited from 1998 acquisitions. Revenue in the Natural Products segment was $311.1 million in 1998 compared to $294.3 million in 1997 as volumes increased in the U.S. dehydrated products business. The overall strengthening of the U.S. dollar relative to foreign currencies during the year had the effect of reducing reported revenue by approximately 2.1%. Cost of products sold as a percent of revenue was 64.9% in 1998 compared to 66.7% in 1997. In the Performance Products segment, cost of products sold as a percent of revenue decreased to 66.8% in 1998 from 68.5% in 1997. In the Natural Products segment, cost of products sold as a percent of revenue decreased to 64.9% in 1998 from 65.4% in 1997. The decreases are attributable to increased productivity and lower raw material costs in the Color and Yeast divisions. Selling and administrative expenses increased $4.5 million to $171.9 million from $167.4 million, or 2.7%. As a percent of revenue, selling and administrative expenses decreased to 20.1% from 20.3%. Included in 1997 selling and administrative expenses are $7.5 million of integration expenses for the cost of combining the Company's bioproducts business with the Flavor division. 8 Operating income increased $21.6 million in 1998, or 20.2%, to $128.9 million. Operating income increased $24.1 million, or 35.2%, in the Performance Products segment as the Flavor division was favorably impacted by acquisitions and cost savings from the integration of the bioproducts business. Operating income in the Natural Products segment was $56.6 million in 1998 compared to $51.1 million in 1997, an increase of 10.7%. The increase primarily resulted from higher volumes in the U.S. dehydrated products business. Interest expense increased $4.4 million to $21.2 million in 1998. The increase was primarily attributable to additional outstanding borrowings which were used to fund fiscal 1998 acquisitions. The effective tax rate for 1998 was 32.5% compared to 28.5% for 1997. Both years include the benefits from settlements of prior years' issues that reduced the effective rate 1.4% in 1998 and 5.3% in 1997. Excluding the effects of these items the effective tax rate would have been approximately 34.0%. Net earnings were $72.6 million in 1998 compared to $64.7 million in 1997, an increase of 12.3%. In 1998, diluted earnings per share increased to $1.40 from $1.26, an increase of 11.1%. FOREIGN REVENUE (in millions) [BAR CHART] 95 $313 96 $325 97 $324 98 $343 99 $402 LIQUIDITY AND FINANCIAL POSITION Cash provided by operating activities was $102.5 million in 1999, $95.4 million in 1998 and $93.7 million in 1997. The 1999 and 1998 amounts include increases in net earnings and depreciation and amortization expense, offset by normal increases in net operating assets. Cash used for investing activities was $121.2 million in 1999, $133.9 million in 1998 and $129.3 million in 1997. Cash used for acquisitions was $58.4 million in 1999 and $68.7 million in 1998. The net assets of the Performance Products segment grew significantly in 1999 and 1998 as all of the recent acquisitions were in the Color and Flavor divisions. Capital expenditures totaled $62.6 million in 1999 and $66.1 million in 1998. 9 Financing activities provided cash of $21.8 million in 1999, $39.6 million in 1998 and $35.6 million in 1997. Net additional borrowings were $69.2 million in 1999 and $75.0 million in 1998. In November 1998, the Company filed a shelf registration statement with the Securities and Exchange Commission pursuant to which the Company may from time to time issue debt securities of up to $300 million in the aggregate. The first transaction under the shelf registration statement was the sale of $150 million of unsecured notes due in April 2009. The net proceeds from the sale of the notes were used to repay existing short term indebtedness, which was used to acquire other companies and to meet the Company's working capital needs. The Company maintains debt levels considered prudent based on its cash flows, interest coverage and percentage of total debt to total capital. During 1999 and 1998, the Company repurchased 1,084,000 and 964,396 shares of treasury stock at a cost of $24.3 million and $21.8 million, respectively. The Company has paid uninterrupted quarterly cash dividends since commencing public trading in its stock over thirty-six years ago. In 1999 and 1998, dividends paid per share were $0.53. The impact of inflation on both the Company's financial position and results of operations has been minimal and is not expected to adversely affect 2000 results. The Company's financial position remains strong, enabling it to meet cash requirements for operations, capital expansion programs and dividends to shareholders. OPERATING MARGINS (excluding unusual items) [BAR CHART] 95 13.0% 96 13.5% 97 13.0% 98 15.0% 99 15.8% MARKET RISK FACTORS The Company is exposed to market risk, including changes in interest rates, currency exchange rates and commodity prices. To manage the volatility relating to these exposures on a consolidated basis, the Company nets the exposures to take advantage of natural offsets and enters into various derivative transactions for some of the remaining exposures pursuant to the Company's policies covering hedging practices. The financial impacts of these hedging instruments are offset by corresponding changes in the underlying exposures being hedged. The 10 Company does not hold or issue derivative financial instruments for trading purposes. Note 1 to the consolidated financial statements includes a discussion of the Company's accounting policies for financial instruments. The Company manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The major foreign currency exposures involve the markets in Western Europe, Mexico and Canada. The primary purpose of the Company's foreign currency hedging activities is to protect against the volatility associated with foreign currency sales, purchases of materials and other assets and liabilities created in the normal course of business. The Company utilizes forward exchange contracts with durations of generally less than 12 months. In addition, the Company enters into forward exchange contracts to hedge intercompany financing transactions and foreign source income. At September 30, 1999 and 1998, unrealized gains and losses on outstanding forward exchange contracts are not material. At September 30, 1999 and 1998, the potential gain or loss in the fair value of the Company's outstanding forward exchange contracts, assuming a hypothetical 10% fluctuation in the currencies of such contracts, would be approximately $5.7 million and $5.9 million, respectively. However, it should be noted that any change in the value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. In addition, this hypothetical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. The Company manages its debt structure and interest rate risk through the use of fixed-rate and floating-rate debt and through the use of derivatives. The Company uses interest-rate swaps to hedge its exposure to interest rate changes and also to lower its financing costs. Certain foreign currency interest rate swaps are designated as hedges to the Company's related net foreign investments. The Company's primary exposure is to U.S. interest rates. At September 30, 1999 and 1998, unrealized gains and losses related to interest rate swap agreements were not material. As of September 30, 1999 and 1998, the potential gain or loss in the fair value of the Company's outstanding interest rate swap agreements assuming a hypothetical 10% fluctuation in the currencies and interest rates of such contracts would be approximately $10.1 million and $2.5 million, respectively. However, any change in the value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. The Company is the purchaser of certain commodities such as corn, soybean meal, molasses and fruits. The Company generally purchases these commodities based upon market prices that are established with the vendor as part of the purchase process. In general, the Company does not use commodity financial instruments to hedge commodity prices due to a high correlation between the commodity cost and the ultimate selling price of the product. On occasion, the Company may enter into non- 11 cancelable contracts, as deemed appropriate, to reduce the effect of price fluctuations on some future manufacturing requirements. YEAR 2000 With the new millennium approaching, organizations are examining their installed computer systems, network elements, software applications and other business systems to ensure that they are Year 2000 compliant. This issue occurs because many computers and computer applications define the year using only the last two digits. The assumption is that the first two digits are always 19. Therefore, the year 2000 would be stored as "00" and could be mistakenly identified as 1900 by the computer. This mistake could lead to errors in calculations, comparisons, and the sorting of data. The Company has developed a comprehensive Project Plan ("the Plan") for addressing the Year 2000 issue. The Plan includes the following components: 1 Vendor and system surveys, including an assessment of Company systems, applications and business-critical third-party systems; 2 Development of action plans to remedy business critical, non-compliant systems; 3 Implementation of those action plans; 4 System testing using multiple critical dates; 5 Creation of Year 2000 rollover and contingency plans; 6 Implementation of the Year 2000 rollover and contingency plans; and 7 Post Year 2000 strategies. TOTAL DEBT TO TOTAL CAPITAL [BAR CHART] 95 34.3% 96 36.9% 97 41.1% 98 45.7% 99 50.8% The Company is implementing the Plan primarily using internal personnel. The Company has engaged certain outside consultants with recognized expertise in assessing and dealing with Year 2000 needs to assist in the management of the Plan. Management of each division is responsible for identifying and fixing the problems within its operations. Plan coordination is being overseen by the Corporate executive staff and the Board of Directors. To date, key financial, operational, and informational systems, including equipment with embedded microprocessors, have been inventoried and assessed. Detailed plans have been developed and a majority of these plans have been implemented. 12 System implementation at the Company has included upgrading system code and/or replacing hardware and upgrading or replacing current systems. The Plan also includes an evaluation of the Company's communication systems, security systems and other non-information technology systems for purposes of determining whether Year 2000 issues exist. Since most of the business critical systems of the Company have been purchased from third-party vendors, the majority of remedies have been through upgrades. When available, written certifications of Year 2000 compliance for these systems have been obtained. Because of the nature of implementation plans for business critical systems, system testing activities have overlapped implementation activities. As of September 30, 1999, systems testing has been completed. Once a system has been tested, no upgrades or modifications will be made to that system until after March 2000. A critical part of the Plan involves the investigation and assessment of the Year 2000 preparedness of important suppliers, vendors, customers, utilities and other third parties. The Company's initial round of assessments has been completed. Generally, these third parties have indicated that they are progressing on schedule with their Year 2000 issues. The Company is continuing to monitor critical suppliers and vendors and these efforts will continue throughout the balance of 1999 in order to minimize the risk that any significant adverse consequences will result due to the failure of these third parties to be Year 2000 ready. While the Company has no reason to believe that its exposure to the risks of its failure or that of third parties to be Year 2000 ready is any greater than the exposure to such risks that affect its competitors, generally, there can be no assurance that the consequences of such failures would not have a material adverse impact on the Company's operations. Although the Company does not anticipate any major noncompliance issues, the Company believes the most likely worst case scenario would be the temporary disruption of its business in certain locations in the event of noncompliance by the Company or such third parties, which could include temporary plant closings, delays in the delivery and receipt of products and supplies, invoice and collection errors and inventory obsolescence. The Company believes that its diverse operations and its contingency planning should significantly reduce the adverse effect any such disruptions may have. The Company has developed and is implementing contingency plans to allow the Company to continue critical operations in the event either the Company or major key suppliers or customers fail to resolve their respective Year 2000 issues in a timely manner. Contingency plans include stockpiling raw and packaging materials, increasing finished goods inventory levels, developing emergency backup and recovery procedures, securing alternate suppliers, replacing electronic applications with manual processes or other appropriate measures. Standardized progress reporting has been implemented for all divisions 13 to report their contingency planning and remediation status to the Corporate executive staff. The Company's Year 2000 readiness plan, including the further development and refinement of contingency plans, is an ongoing process and will continue to evolve and change as new information becomes available. The cost of outside consultants to assist with software redemption and project management has not been and is not expected to be material. During 1999, the Company incurred capital expenditures of approximately $10.0 million as a result of accelerating the rollout of computer operating systems and the replacement of non-compliant process control systems in various plants. In addition, the Company estimates that during 1999, approximately 30% of its information technology (IT) personnel were dedicated to implementation of the Company's Plan. The foregoing allocation of resources had no significant impact on other IT projects as many of the planned and in process projects are normal business system migrations that upgrade and improve the Company's current systems in addition to resolving Year 2000 issues. DEPRECIATION/CAPITAL EXPENDITURES (in millions) [BAR CHART] 95 $28.2/$42.6 96 $29.2/$59.0 97 $32.4/$73.5 98 $38.0/$66.1 99 $41.3/$62.6 EURO CONVERSION A single currency, the Euro, was introduced in Europe on January 1, 1999. Of the fifteen member countries of the European Union, eleven adopted the Euro as their legal currency on that date. Fixed conversion rates between the national currencies of these eleven countries and the Euro were established on that date. The national currencies are scheduled to remain legal tender as denominations of the Euro during the transition period ending December 31, 2001. During this transition period, parties may settle transactions using either the Euro or a participating country's national currency. At the current time, the Company does not believe that the conversion to the Euro will have a material impact on its business or its financial condition. OUTLOOK This report contains forward-looking statements that reflect management's current assumptions and estimates of future economic circumstances, industry conditions, Company performance and financial results, and Year 2000 compliance. The Private Securities Litigation 14 Reform Act of 1995 provides a safe harbor for such forward-looking statements. A variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results. These factors and assumptions include the pace and nature of new product introductions by the Company's customers; execution of the Company's acquisition program; industry and economic factors related to the Company's domestic and international business; and the outcome of various productivity-improvement and cost-reduction efforts. The Company seeks to increase revenue and profits through a number of strategic actions. Strategies for growth include further penetration of existing markets and entry into new product and geographic markets. In addition, the Company continues to enhance its technologies and broaden its product base. The Company has built strong relationships with market leaders in each of the industries that its serves by providing superior technical support and service. Universal Foods Corporation continues to seek opportunities to grow in both its primary market, the food industry, and in non-food markets. Current non-food applications include cosmetics, personal care products, pharmaceuticals, inks for ink-jet printers and a variety of other products. The Company believes that the technologies of the Performance Products segment provide the greatest opportunities for growth in non-food applications. The Company completed four acquisitions for its Color division during fiscal 1999. The acquisition of Pointing Holdings Ltd. has provided new opportunities for geographic growth. The acquisition of Les Colorants Wackherr provides the Company with an important strategic base and an enhanced line of colors and ingredient systems for the cosmetic industry. The Company continues to broaden its line of natural colors. The acquisition of certain assets of Quimica Universal has enhanced the Company's capabilities in the production of annatto and carminic acid- based products. The acquisition of the natural color business of Nino Fornaciari fu Riccardo S.N.C. broadens and expands the Company's offerings in anthocyanin. Acquisitions remain an important part of the Company's overall plan for growth. The Company continues to aggressively pursue attractive acquisition opportunities and expects to add additional new businesses during fiscal 2000. CONSOLIDATED STATEMENTS OF EARNINGS [ In thousands except per share amounts ]
Years ended September 30, 1999 1998 1997 - -------------------------------------------------------------------------------- Revenue $920,192 $856,772 $825,714 Cost of products sold 599,797 556,048 551,090 Selling and administrative expenses 175,285 171,862 167,390 ------- ------- ------- Operating income 145,110 128,862 107,234 Interest expense 26,034 21,185 16,798 ------- ------- ------- Earnings before income taxes 119,076 107,677 90,436 Income taxes 38,938 35,033 25,748 - -------------------------------------------------------------------------------- Net earnings $ 80,138 $ 72,644 $ 64,688 ------- ------- ------- Basic net earnings per common share $ 1.59 $ 1.42 $ 1.27 ------- ------- ------- Diluted net earnings per common share $ 1.57 $ 1.40 $ 1.26 ------- ------- ------- Average common shares outstanding - basic 50,528 51,155 51,026 ------- ------- ------- Average common shares outstanding - diluted 51,109 51,837 51,390 ------- ------- -------
See notes to consolidated financial statements. 15 CONSOLIDATED BALANCE SHEETS [ Dollars in thousands except per share amounts ]
September 30, 1999 1998 - --------------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 4,645 $ 1,632 Trade accounts receivable less allowance for losses of $4,079 and $4,548 143,435 121,833 Inventories 217,217 197,089 Prepaid expenses and other current assets 28,887 21,436 Deferred income taxes 10,386 15,765 --------- ------- Total current assets 404,570 357,755 Investments 38,269 32,400 Other assets 31,252 28,485 Intangibles-at cost, less accumulated amortization of $47,776 and $40,533 278,309 217,007 Property, Plant and Equipment: Cost: Land 18,014 17,365 Buildings 154,642 138,320 Machinery and equipment 509,107 469,915 --------- ------- 681,763 625,600 Less accumulated depreciation 291,455 270,021 --------- ------- 390,308 355,579 - --------------------------------------------------------------------------------- Total Assets $1,142,708 $ 991,226 --------- ------- Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $ 51,464 $ 42,773 Accounts payable and accrued expenses 140,119 122,297 Salaries, wages and withholdings from employees 16,777 15,744 Income taxes 23,849 22,066 Current maturities of long-term debt 9,484 6,940 --------- ------- Total current liabilities 241,693 209,820 Deferred income taxes 28,446 25,489 Other deferred liabilities 20,912 22,619 Accrued employee and retiree benefits 34,678 36,065 Long-term debt 385,397 291,588 Commitments and contingencies -- -- Shareholders' Equity: Common stock par value $.10 a share, authorized 250,000,000 shares; issued 53,954,874 shares 5,396 5,396 Additional paid-in capital 74,524 74,663 Earnings reinvested in the business 470,253 416,949 Less: Treasury stock, 3,614,759 and 2,797,976 shares, respectively, at cost 71,309 51,979 Accumulated other comprehensive income 45,278 37,845 Other 2,004 1,539 --------- ------- 431,582 405,645 - --------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,142,708 $ 991,226 --------- -------
See notes to consolidated financial statements. 16 ] CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Earnings Unearned Accumulated Additional reinvested portion of other Total [ Dollars in thousands Common paid-in in the Treasury stock restricted comprehensive comprehensive except per share amounts ] stock capital business Shares Amount stock income income - ------------------------------------------------------------------------------------------------------------------------------- Balances at September 30, 1996 $5,396 $75,479 $333,290 3,114,016 $(49,892) $(953) $(12,354) Net earnings 64,688 $64,688 Currency translation (11,393) (11,393) ------- Total comprehensive income $53,295 ------- Cash dividends paid $.52 a share (26,534) Stock options exercised (1,513) (609,638) 9,768 Restricted stock 109 (20,800) 334 (23) Other 1 3,718 (167) Purchase of treasury stock 285,200 (5,785) - ------------------------------------------------------------------------------------------------------------------- Balances at September 30, 1997 5,396 74,076 371,444 2,772,496 (45,742) (976) (23,747) Net earnings 72,644 $72,644 Currency translation (14,098) (14,098) ------- Total comprehensive income $58,546 ------- Cash dividends paid - $.53 a share (27,139) Stock options exercised (393) (802,674) 13,672 Benefit plans 377 (100,000) 1,713 Restricted stock 128 (39,200) 734 (563) Other 475 2,958 (560) Purchase of treasury stock 964,396 (21,796) - ------------------------------------------------------------------------------------------------------------------- Balances at September 30, 1998 5,396 74,663 416,949 2,797,976 (51,979) (1,539) (37,845) Net earnings 80,138 $80,138 Currency translation (7,433) (7,433) ------- Total comprehensive income $72,705 ------- Cash dividends paid - $.53 a share (26,834) Stock options exercised (309) (207,282) 3,878 Benefit plans 64 (26,582) 482 Restricted stock 106 (39,000) 769 (465) Other 5,647 (114) Purchase of treasury stock 1,084,000 (24,345) - ------------------------------------------------------------------------------------------------------------------- Balances at September 30, 1999 $5,396 $74,524 $470,253 3,614,759 $(71,309) $(2,004) $(45,278) ------ ------- -------- --------- -------- ------- --------
See notes to consolidated financial statements. 17 CONSOLIDATED STATEMENTS OF CASH FLOWS [ Dollars in thousands ]
Years ended September 30, 1999 1998 1997 Cash Flows from Operating Activities - --------------------------------------------------------------------------------------------------------- Net earnings $ 80,138 $ 72,644 $ 64,688 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 41,264 38,011 32,399 Amortization 7,653 6,221 4,927 (Gain) loss on sale of property, plant and equipment and other productive assets (2,446) (3,277) 16 Changes in operating assets and liabilities (net of effects from acquisition of businesses): Trade accounts receivable (10,786) (1,135) (13,351) Inventories (11,266) (5,710) (13,418) Prepaid expenses and other assets (3,714) (7,678) 198 Accounts payable and accrued expenses (1,495) (22,425) 7,844 Salaries, wages and withholdings from employees (1,573) 1,355 2,882 Income taxes (536) 7,537 2,044 Deferred income taxes 9,245 9,681 4,357 Other liabilities (3,982) 199 1,160 - --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 102,502 95,423 93,746 -------- -------- -------- Cash Flows from Investing Activities Acquisition of property, plant and equipment (62,555) (66,063) (73,502) Acquisition of new businesses - net of cash acquired (58,361) (68,670) (50,492) Proceeds from sale of property, plant and equipment and other productive assets 4,465 6,656 438 Increase in investments (4,794) (5,860) (5,719) - --------------------------------------------------------------------------------------------------------- Net cash used in investing activities (121,245) (133,937) (129,275) -------- -------- -------- Cash Flows from Financing Activities Proceeds from additional borrowings 235,872 80,690 66,455 Reduction in debt (166,652) (5,720) (6,651) Purchase of treasury stock (24,345) (21,796) (5,785) Dividends (26,834) (27,139) (26,534) Proceeds from options exercised and other equity transactions 3,729 13,579 8,089 - --------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 21,770 39,614 35,574 -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (14) (726) (2,182) - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 3,013 374 (2,137) Cash and cash equivalents at beginning of year 1,632 1,258 3,395 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 4,645 $ 1,632 $ 1,258 -------- -------- -------- Cash paid during the year for: Interest $ 21,182 $ 21,372 $ 16,062 Income taxes 26,447 16,074 16,261 Liabilities assumed in acquisitions 34,868 -- 1,500
See notes to consolidated financial statements. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [ Tabular amounts in thousands except per share data ] [ Years ended September 30, 1999, 1998 and 1997 ] 1 Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Universal Foods Corporation and its subsidiaries ("the Company"). All significant intercompany accounts and transactions are eliminated. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Revenue Recognition The Company recognizes operating revenues upon shipment of goods to customers. Cash Equivalents Highly liquid investments with maturities of three months or less when acquired are considered cash equivalents. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property, Plant and Equipment Property, plant and equipment are recorded at cost reduced by accumulated depreciation. Depreciation is provided over the estimated useful life using the straight-line method for financial reporting. Accelerated methods are used for income tax purposes. Intangibles The excess cost over net assets of businesses acquired and other intangibles are being amortized using the straight-line method over periods ranging from 5 to 40 years. 19 Software Costs The Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use in accordance with Statement of Position No. 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which was adopted by the Company in 1999. The adoption of SOP 98-1 had no material effect on the Company's financial position or results of operations. Capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. Impairment of Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company performs undiscounted cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Financial Instruments The Company uses derivative financial instruments for the purpose of hedging currency and interest rate exposures which exist as part of ongoing business operations. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes. Interest Rate Swap Agreements The Company may utilize interest rate swap agreements to lower funding costs, to diversify sources of funding or to alter interest rate exposure. Amounts paid or received on interest rate swap agreements are deferred and recognized as adjustments to interest expense. Gains and losses realized upon the settlement of such contracts are deferred and amortized to interest expense over the remaining term of the debt instrument or are recognized immediately if the underlying instrument is settled. Foreign Currency Contracts The Company enters into forward and swap contracts to hedge transactions denominated in foreign currencies in order to reduce the currency risk associated with fluctuating exchange rates. Such contracts are used primarily to hedge certain intercompany cash flows, purchases of certain raw materials and finished goods, for payments arising from certain foreign currency denominated obligations and to hedge net assets in foreign subsidiaries. Realized and unrealized gains and losses from instruments qualifying as hedges are deferred as part of the cost basis of the underlying transaction. Realized and unrealized gains and losses from foreign currency contracts used as economic hedges but not qualifying for hedge accounting are recognized currently as income or expense. 20 Translation of Foreign Currencies For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of foreign operations are translated into United States dollars at current exchange rates. Income and expense accounts are translated into United States dollars at average rates of exchange prevailing during the year. Adjustments resulting from the translation to U.S. dollars are included as foreign currency translation adjustments in shareholders' equity. Transaction gains and losses are included in earnings for the period. Stock-Based Compensation The Company accounts for its stock-based compensation plans using the intrinsic value-based method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Earnings Per Share In the first quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which requires the disclosure of both diluted and basic earnings per share. Previously reported earnings per share amounts have been restated, as necessary, to conform to SFAS No. 128 requirements. The difference between basic and diluted earnings per share is the dilutive effect of stock options and restricted stock. All earnings per share amounts are presented on a diluted basis unless otherwise noted. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company is not required to adopt the statement until fiscal 2001. The Company is currently evaluating the effect that implementation of the new standard will have on its results of operations, financial position and cash flows. 2 Acquisitions During fiscal 1999, the Company acquired businesses for a total of $92,440,000. The preliminary allocations of purchase price resulted in goodwill of $70,626,000 which is being amortized on a straight-line- basis over 40 years. The businesses acquired were: In January 1999, the Company acquired for cash the stock of Les Colorants Wackherr, a manufacturer of colors and ingredients for the cosmetic industry. 21 In January 1999, the Company acquired certain assets of Quimica Universal, a manufacturer of annatto and carminic acid-based products, natural colors primarily used in food. In April 1999, the Company acquired the stock of Pointing Holdings Ltd., a manufacturer of food colors, flavors and specialty chemicals. The purchase price was a combination of cash, notes and the assumption of debt. In July 1999, the Company acquired for cash the natural color business of Nino Fornaciari fu Riccardo S.N.C., a worldwide supplier of anthocyanin. During fiscal 1998, the Company acquired four businesses for cash of $69,459,000. The allocations of purchase price resulted in goodwill of $46,931,000 which is being amortized on a straight-line-basis over 40 years. The businesses acquired were: In January 1998, the Company acquired the stock of Arancia Ingredientes Especiales, S.A. de C.V., a manufacturer of savory flavors and other food ingredients. In April 1998, the Company acquired the stock of DC Flavours Ltd., a manufacturer of savory flavors and seasonings. In May 1998, the Company acquired substantially all of the assets and business of the beverage business of Sundi GmbH, a German flavor manufacturer. In September 1998, the Company acquired the stock of Reggiana Antociani S.R.L., a manufacturer of natural colors for the food and beverage industries. During the second quarter of 1997, the Company acquired Tricon Colors, Inc., an ink and dye producer, for cash of $44,492,000. The allocation of the purchase price resulted in goodwill of $37,923,000 which is being amortized on a straight-line-basis over 40 years. In September 1997, the Company acquired certain assets of the food color business of Pyosa S.A., for cash and notes aggregating $7,500,000. The above acquisitions have been accounted for as purchases and, accordingly, their results of operations have been included in the financial statements since their respective dates of acquisition. On an unaudited pro-forma basis, the effects of the acquisitions were not significant to the Company's results of operations. 3 Integration Charge In 1997, the Company recorded an integration charge of $7,500,000 ($4,600,000 after tax, or $.09 per share) for the cost of combining its 22 BioProducts and Flavor divisions. This charge, which is classified in selling and administrative expenses, relates primarily to severance costs substantially all of which were paid in 1998. 4 Inventories Inventories include finished and in-process products totaling $159,117,000 and $145,135,000 at September 30, 1999 and 1998, respectively, and raw materials and supplies of $58,100,000 and $51,954,000 at September 30, 1999 and 1998, respectively. 5 Debt Long-term debt consists of the following obligations at September 30:
1999 1998 Payable in U.S. Dollars: 9.06% senior notes due through July 2004 $ 29,000 $ 34,000 7.59% senior notes due through December 2008 30,000 30,000 7.06% senior notes due through December 2002 30,000 30,000 6.99% senior notes due through December 2007 40,000 40,000 6.77% senior notes due through January 2010 15,000 15,000 6.70% senior notes due through December 2009 20,000 20,000 6.68% senior notes due through January 2011 15,000 15,000 6.38% senior notes due through December 2003 20,000 20,000 6.60% notes due April 2009 148,918 -- Commercial paper and other short-term notes -- 70,000 Various mortgage notes, capital lease obligations and other notes 6,964 4,714 Notes and credit facilities payable in foreign currencies 39,999 19,814 -------- -------- 394,881 298,528 Current maturities 9,484 6,940 - --------------------------------------------------------------------------------------------------------- Total long-term debt $385,397 $291,588 -------- --------
In November 1998, the Company filed a shelf registration statement with the Securities and Exchange Commission pursuant to which the Company may from time to time issue debt securities of up to $300 million in the aggregate. The first transaction under the shelf registration statement was the issuance of $150 million in unsecured notes due April 1, 2009 with an annual stated interest rate of 6.50% (effective rate 6.60%). The Company has a $70,000,000 multicurrency revolving loan agreement with a group of three banks. Under the agreement, the Company has the option to elect to have interest rates determined based upon the LIBOR rate plus margin or the certificate of deposit rate plus margin. A commitment fee is payable on the unused amount of credit. The facility matures in August 2003. The Company issues short-term commercial paper obligations supported by committed lines of credit included in the Revolving Loan Agreement. The 23 Company also issues other short-term notes. At September 30, 1999, the Company had $57,000,000 available under the revolving loan agreement and $78,000,000 available under uncommitted lines of credit from several banks. At September 30, 1998, $70,000,000 of short-term borrowings were classified as long-term debt reflecting the Company's intent and ability, through the existence of the unused credit facility, to refinance these borrowings. The aggregate amounts of maturities on long-term debt each year for the five years subsequent to September 30, 1999 are as follows: 2000, $9,484,000; 2001, $15,973,000; 2002, $15,589,000; 2003, $49,387,000, and 2004, $18,958,000. Substantially all of the senior loan agreements contain restrictions concerning working capital, borrowings, investments and dividends. Earnings reinvested of $18,740,000 at September 30, 1999 were unrestricted. Short-term borrowings consist of commercial paper, uncommitted loans and loans to foreign subsidiaries denominated in local currencies which are borrowed under various foreign uncommitted lines of credit. The weighted average interest rates on short-term borrowings were 6.04% and 5.75% at September 30, 1999 and 1998, respectively. This includes $70,000,000 reclassified to long-term debt on September 30, 1998. 6 Financial Instruments and Risk Management Foreign Currency Contracts The Company uses forward exchange contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known foreign currency exposures. At September 30, 1999 and 1998, the Company had forward exchange contracts, generally with maturities of one year or less, of $73,939,000 and $65,709,000, respectively. The Company has foreign currency and related interest rate swap agreements which were executed to reduce the Company's borrowing costs and serve as hedges of the Company's net assets in foreign subsidiaries, principally those denominated in Euros. At September 30, 1999 and 1998, the notional principal amounts of these agreements were $90,175,000 and $15,175,000, respectively. Aggregate maturities are $75,000,000 in 2000 and $15,175,000 in 2008. The notional amount is used to calculate interest payments which are exchanged over the life of the swap transaction and is equal to the amount of foreign currency or dollar principal exchanged at maturity. Net unrealized gains and losses associated with the Company's foreign currency contracts as of September 30, 1999 and 1998 were not material. 24 Concentrations of Credit Risk Counterparties to currency exchange and interest rate swap contracts consist of large major international financial institutions. The Company continually monitors its positions and the credit ratings of the counterparties involved and limits the amount of credit exposure to any one party. While the Company may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers, generally short payment terms, and their dispersion across geographic areas. Fair Values The carrying amount of cash and cash equivalents, trade receivables, investments, financial instruments, accounts payable and short-term borrowings approximated fair value as of September 30, 1999 and 1998. The fair value of the Company's long-term debt, including current maturities, is estimated using discounted cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair value at September 30, 1999 and 1998 was approximately $383,357,000 and $314,669,000, respectively. 7 Shareholders' Equity On April 9, 1998, the Company declared a 2-for-1 stock split in the form of a 100% stock dividend, which was distributed on May 22, 1998, to shareholders of record on May 6, 1998. On June 25, 1998, the Board of Directors declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock, par value of $.10 per share, of the Company. The dividend was paid on August 6, 1998, to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Participating Cumulative Preferred Stock, without par value (the "Preferred Share"), of the Company at a price of $125 per one one-thousandth of a Preferred Share, subject to adjustment. The Right becomes exercisable and tradable ten days after a person or group acquires 20% or more, or makes an offer to acquire 20% or more, of the Company's outstanding common stock. When exercisable, each Right entitles the holder to purchase $250 worth of Company common stock for $125. Further, upon the occurrence of a merger or transfer of more than 50% of the Company's assets, the Right entitles the holder to purchase common stock of an acquiring company having a market value equivalent to two times the exercise price of the Right. At no time does the Right have any voting power. The Right is subject to redemption by the Company's Board of Directors for $.01 per Right at any time prior to the date on which a person or group acquires beneficial ownership of 20% or more of the Company's common stock. The Rights expire on September 30, 2008. The Rights replace rights issued under a prior rights plan, which were redeemed on August 6, 1998. 25 The Company is authorized to issue 250,000 shares of cumulative preferred stock, of which 100,000 shares are classified as Series A Participating Cumulative Preferred Stock and were initially reserved for issuance under the Rights plan. 8 Stock Plans In January 1998, the shareholders approved the 1998 Stock Option Plan. Under the 1998 Plan up to 2,400,000 shares of common stock are available for awards, of which no more than 600,000 shares may be restricted stock. The Company may also issue up to 2,400,000 shares of common stock pursuant to the exercise of stock options or the grant of restricted stock under the 1994 Employee Stock Plan. Under the 1994 Plan, up to 500,000 shares may be awarded as restricted stock. Generally, stock options become exercisable over a three year vesting period and expire 10 years from the date of grant. Awarded shares of restricted stock become freely transferable at the end of five years. During the period of restriction, the employee has voting rights and is entitled to receive all dividends and other distributions paid with respect to the stock. The 1994 Plan also authorizes the grant of up to 800,000 stock appreciation rights (SARs) in connection with stock options. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the Company's stock option plans. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net earnings and earnings per common share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- Pro forma net earnings $78,225 $71,120 $63,626 Pro forma net earnings per common share: Basic $ 1.55 $ 1.39 $ 1.25 Diluted 1.53 1.37 1.24
The pro forma effect on net earnings is not representative of the pro forma effect on net earnings in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1996. The weighted-average fair value per share of options granted was $6.21 in 1999, $3.83 in 1998 and $3.90 in 1997. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
1999 1998 1997 - ------------------------------------------------------------------------- Dividend yield 2.3% 2.5% 2.6% Volatility 24% 19% 19% Risk-free interest rate 5.8% 4.2% 5.8% Expected term (years) 6 5 5
26 The changes in outstanding stock options during the three years ended September 30, 1999 are summarized below:
Shares Weighted Outstanding average options Available price - ---------------------------------------------------------------------------------------- Balances at September 30, 1996 3,880 1,112 $15.56 Granted 685 (685) 18.71 Restricted stock -- (28) 20.09 Exercised (648) -- 13.68 Cancelled (121) 121 16.81 - ---------------------------------------------------------------------------------------- Balances at September 30, 1997 3,796 520 16.43 Authorized under the 1998 Plan -- 2,400 -- Granted 600 (600) 20.79 Restricted stock -- (42) 21.56 Exercised (867) -- 15.01 Cancelled (146) 146 17.80 - ---------------------------------------------------------------------------------------- Balances at September 30, 1998 3,383 2,424 17.61 Granted 621 (621) 22.37 Restricted stock -- (39) 22.19 Exercised (237) -- 16.16 Cancelled (43) 43 20.39 - ---------------------------------------------------------------------------------------- Balances at September 30, 1999 3,724 1,807 $18.52 ----- ----- -----
Weighted Options average exercisable price September 30, 1997 2,462 $15.75 September 30, 1998 2,208 $16.46 September 30, 1999 2,555 $17.07
The following summarizes information concerning currently outstanding and exercisable options:
Range of exercise price $12.06- $16.16- $20.51- 16.15 20.50 23.50 - --------------------------------------------------------------------------------------------------------- Number outstanding 999 1,555 1,170 Weighted average remaining contractual life, in years 5.6 5.8 9.2 Weighted average exercise price $15.36 $17.88 $22.08 - --------------------------------------------------------------------------------------------------------- Number exercisable 999 1,368 188 Weighted average exercise price $15.36 $17.73 $21.40
27 9 Retirement Plans The Company provides benefits under defined contribution plans including a savings plan and ESOP. The savings plan covers substantially all domestic salaried and certain non-union hourly employees and provides for matching contributions up to 4% of each employee's salary. The ESOP covers substantially all domestic employees not covered by a defined benefit plan and provides for contributions based on a percentage (6% each of the last three years) of each employee's compensation. Total expense for the Company's defined contribution plans was $8,001,000, $6,746,000 and $6,984,000 in 1999, 1998 and 1997, respectively. 10 Other Postretirement Benefits The Company provides certain health insurance benefits to eligible domestic retirees and their dependents. In 1997, the Company implemented programs intended to mitigate rising costs, including adopting a provision that limits its future obligation to absorb health care cost inflation. The amendment resulted in an unrecognized prior service gain of $4,318,000 which is being amortized over the employees average remaining service life. The Company funds benefit costs on a pay-as-you- go basis, with retirees paying a portion of the costs. The funded status of the postretirement benefit plan at September 30 was:
1999 1998 - -------------------------------------------------------------------------------- Benefit obligation at beginning of year $ 13,120 $ 13,290 Service cost 415 418 Interest cost 859 966 Benefits paid (1,106) (622) Actuarial gain (398) (932) - -------------------------------------------------------------------------------- Benefit obligation at end of year 12,890 13,120 Plan assets -- -- - -------------------------------------------------------------------------------- Funded status (12,890) (13,120) Unrecognized prior service cost (7,395) (7,943) Unrecognized net actuarial gain (10,777) (10,874) - -------------------------------------------------------------------------------- Net amount recognized $ (31,062) $(31,937) --------- --------
Components of net periodic benefit cost were:
1999 1998 1997 - ---------------------------------------------------------------------------------- Service cost $ 415 $ 418 $ 419 Interest cost 859 966 959 Amortization of prior service cost (548) (548) (548) Recognized actuarial gain (506) (425) (441) - ---------------------------------------------------------------------------------- Postretirement benefit expense $ 220 $ 411 $ 389 ----- ----- -----
The weighted average discount rates used in determining the accumulated postretirement benefit obligation at September 30, 1999 and 1998 were 7.25% and 6.75%, respectively. The health care cost trend rates were assumed to be 7.75% in 1999 and 8.50% in 1998, gradually declining to 5.5% by the year 2002 and remaining at that level thereafter. 28 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
1% 1% increase decrease - -------------------------------------------------------------------------------- Effect on total of service and interest cost 100 (92) components Effect on postretirement benefit obligation 890 (827)
11 Income Taxes The provision for income taxes is as follows:
1999 1998 1997 - -------------------------------------------------------------------------------- Currently payable: Federal $14,524 $12,831 $10,556 State 3,385 3,195 3,192 Foreign 11,784 9,509 8,171 Deferred (benefit): Federal 7,070 8,640 3,426 State 1,108 1,059 403 Foreign 1,067 (201) -- - -------------------------------------------------------------------------------- $38,938 $35,033 $25,748 ------ ------ ------
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consist of the following:
1999 1998 - -------------------------------------------------------------------------------- Deferred tax assets: Benefit plans $(16,988) $(18,501) Liabilities and reserves (4,875) (9,417) Other (17,551) (16,393) ------- ------- Gross deferred tax assets (39,414) (44,311) Valuation allowance 14,307 13,697 ------- ------- Total deferred tax assets (25,107) (30,614) ------- ------- Deferred tax liabilities: Property, plant and equipment 24,839 21,867 Other 18,328 18,471 ------- ------- Total deferred tax liabilities 43,167 40,338 - -------------------------------------------------------------------------------- Net deferred tax liabilities $ 18,060 $ 9,724 ------- -------
29 The effective tax rate differs from the statutory Federal income tax rate of 35% as described below:
1999 1998 1997 - -------------------------------------------------------------------------------- Taxes at statutory rate 35.0% 35.0% 35.0% State income taxes, net of Federal income tax benefit 2.5 2.6 2.6 Tax credits (4.2) (3.9) (4.6) Settlements of prior years' issues (1.2) (1.4) (5.3) Other, net 0.6 0.2 0.8 - -------------------------------------------------------------------------------- Effective tax rate 32.7% 32.5% 28.5% ---- ---- ----
The effective tax rates reflect the reversal of tax accruals no longer required resulting from settlement of prior years' issues. The effective tax rates would have been 33.9%, 33.9% and 33.8%, in 1999, 1998 and 1997, respectively excluding the favorable impact of these items. Earnings before income taxes are summarized as follows:
1999 1998 1997 - -------------------------------------------------------------------------------- United States $ 85,656 $ 81,311 $67,960 Foreign 33,420 26,366 22,476 - -------------------------------------------------------------------------------- $119,076 $107,677 $90,436 ------- ------- ------
Domestic income taxes have not been provided on undistributed earnings of foreign subsidiaries which are considered to be permanently invested. If undistributed foreign earnings were to be remitted, foreign tax credits would substantially offset any resulting domestic tax liability. 12 Segment and Geographic Information In 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for the reporting of financial information about a company's operating segments for both interim and annual reporting. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income of the respective business units before goodwill amortization, interest expense and income taxes. Total revenue and operating income by business segment and geographic region include both sales to customers, as reported in the Company's consolidated statements of earnings, and intersegment sales, which are accounted for at prices which approximate market prices and are eliminated in consolidation. Corporate and other revenue consist primarily of flavor and color products sold by the Asia Pacific division. Assets by business segment and geographic region are those assets used in company operations in each segment and geographic region. Corporate and other assets consist primarily of property, investments and goodwill. Capital expenditures are reported exclusive of acquisitions. Segment Information The Company's operations, except for the Asia Pacific division, are managed on a products and services basis. The Company's two reportable segments are Performance Products and Natural 30 Products. The Company's Performance Products segment produces flavor and color products that impart a desired taste, smell or color to a broad range of consumer products. The Natural Products segment produces yeast and dehydrated vegetable products which are used by manufacturers of various food products.
Performance Natural Corporate Products Products and Other Consolidated 1997 - ----------------------------------------------------------------------------------------------------------- Revenue from external customers $492,158 $289,959 $43,597 $ 825,714 Intersegment revenue 21,047 4,362 -- 25,409 ------- ------- ------ ------- Total revenue 513,205 294,321 43,597 851,123 Operating income 68,347 51,092 (12,205) 107,234 Interest expense -- -- 16,798 16,798 Earnings before income taxes 68,347 51,092 (29,003) 90,436 Assets 414,852 209,671 263,206 887,729 Capital expenditures 39,261 32,467 1,774 73,502 Depreciation and amortization 20,455 10,275 6,596 37,326 Restructuring/integration costs 7,500 -- -- 7,500 1998 Revenue from external customers $511,214 $300,633 $44,925 $ 856,772 Intersegment revenue 30,390 10,417 -- 40,807 ------- ------- ------ ------- Total revenue 541,604 311,050 44,925 897,579 Operating income 92,403 56,567 (20,108) 128,862 Interest expense -- -- 21,185 21,185 Earnings before income taxes 92,403 56,567 (41,293) 107,677 Assets 462,310 234,491 294,425 991,226 Capital expenditures 42,158 20,586 3,319 66,063 Depreciation and amortization 22,571 13,501 8,160 44,232 1999 Revenue from external customers $572,370 $301,238 $ 46,584 $ 920,192 Intersegment revenue 33,778 10,075 -- 43,853 ------- ------- ------ ------- Total revenue 606,148 311,313 46,584 964,045 Operating income 101,953 60,503 (17,346) 145,110 Interest expense -- -- 26,034 26,034 Earnings before income taxes 101,953 60,503 (43,380) 119,076 Assets 529,757 232,228 380,723 1,142,708 Capital expenditures 40,437 16,623 5,495 62,555 Depreciation and amortization 25,144 13,926 9,847 48,917
Geographic Information The Company has manufacturing plants or sales offices in North and South America, Europe, Asia, Australia and Africa. 31
1999 1998 1997 - ----------------------------------------------------------------------------- Revenue from external customers U.S.A. $518,455 $513,828 $501,457 Europe 229,679 172,292 158,759 Asia Pacific 47,156 45,017 55,831 Other 124,902 125,635 109,667 - ----------------------------------------------------------------------------- Consolidated $920,192 $856,772 $825,714 ------- ------- ------- Long-lived assets U.S.A. $375,529 $351,774 $334,003 Europe 279,675 202,667 146,122 Asia Pacific 8,258 7,697 8,525 Other 74,676 71,333 56,831 - ----------------------------------------------------------------------------- Consolidated $738,138 $633,471 $545,481 ------- ------- -------
13 Contingencies The Company is involved in various claims and litigation arising in the normal course of business. In the opinion of management and Company counsel, the ultimate resolution of these actions will not materially affect the consolidated financial position, results of operations or cash flows of the Company. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS [ Years ended September 30, 1999, 1998 and 1997 ] The management of Universal Foods Corporation is responsible for preparation of the financial statements and other financial information included in this annual report. The financial statements have been prepared in accordance with generally accepted accounting principles. It is management's policy to maintain a control-conscious environment through an effective system of internal accounting controls. These controls are supported by the careful selection of competent and knowledgeable personnel and by the communication of standard accounting and reporting policies and procedures throughout the Company. These controls are adequate to provide reasonable assurance that assets are safeguarded against material loss or unauthorized use and to produce the records necessary for the preparation of reliable financial information. There are limits inherent in all systems of internal control based on the recognition that the costs of such systems should be related to the benefits to be derived. Management believes that its systems provide this appropriate balance. The control environment is complemented by the Company's internal audit function, which evaluates the adequacy of the controls, policies and procedures in place, as well as adherence to them, and recommends improvements for implementation when applicable. In addition, the Company's independent auditors, Deloitte & Touche LLP, have developed an 32 understanding of the Company's accounting and financial controls and have conducted such tests as they considered necessary to render an opinion on the Company's financial statements. The Board of Directors pursues its oversight role with respect to the Company's financial statements through the Audit Committee, which is composed solely of outside directors. The Audit Committee recommends selection of the Company's auditors and meets with them and the internal auditors to review the overall scope and specific plans for their respective audits and results from those audits. The Committee also meets with management to review overall accounting policies relating to the reporting of financial results. Both the independent auditors and internal auditors have unrestricted access to the Audit Committee. /s/ Kenneth P. Manning /s/ Michael Fung Kenneth P. Manning Michael Fung Chairman, President and Vice President and Chief Executive Officer Chief Financial Officer INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Universal Foods Corporation: We have audited the accompanying consolidated balance sheets of Universal Foods Corporation and subsidiaries as of September 30, 1999 and 1998, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies as of September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Milwaukee, Wisconsin November 11, 1999 33 FIVE YEAR REVIEW
[Dollars in thousands except per share data] 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Revenue $ 920,192 100.0% $ 856,772 100.0% $ 825,714 100.0% $ 806,352 100.0% $ 792,971 100.0% Cost of products sold 599,797 65.2 556,048 64.9 551,090 66.7 533,260 66.1 518,194 65.3 Selling and administrative expenses 175,285 19.0 171,862 20.1 167,390 20.3 164,186 20.4 171,914 21.7 Unusual items -- -- -- -- -- -- 25,000 3.1 (26,847) (3.4) - ----------------------------------------------------------------------------------------------------------------------------------- Operating income 145,110 15.8 128,862 15.0 107,234 13.0 83,906 10.4 129,710 16.4 Interest expense 26,034 2.9 21,185 2.4 16,798 2.0 15,266 1.9 15,107 1.9 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 119,076 12.9 107,677 12.6 90,436 11.0 68,640 8.5 114,603 14.5 Income taxes 38,938 4.2 35,033 4.1 25,748 3.2 24,435 3.0 48,500 6.2 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings $ 80,138 8.7% $ 72,644 8.5% $ 64,688 7.8% $ 44,205 5.5% $ 66,103 8.3% ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Net earnings per common share: Basic $ 1.59 $ 1.42 $ 1.27 $ .86 $ 1.27 Diluted 1.57 1.40 1.26 .85 1.26 ------------------------------------------------------------------------------------------------------ OTHER RELATED DATA Earnings per common share excluding unusual items: Basic $ 1.59 $ 1.42 $ 1.27 $ 1.18 $ 1.09 Diluted 1.57 1.40 1.26 1.17 1.09 Dividend per common share, declared and paid .53 .53 .52 .50 .48 Average shares outstanding: Basic 50,527,998 51,155,000 51,025,542 51,596,964 52,122,538 Diluted 51,109,097 51,836,577 51,389,997 51,936,078 52,338,578 Book value per common share $ 8.60 $ 7.95 $ 7.45 $ 6.93 $ 6.95 Price range per common share 19.44-27.75 18.72-25.44 15.94-20.69 14.00-20.50 13.06-17.44 Share price at September 30 22.94 20.88 20.13 16.25 17.44 Research and development expenditures 29,533 29,413 31,510 29,824 28,558 Capital expenditures 62,555 66,063 73,502 59,012 42,562 Depreciation 41,264 38,011 32,399 29,178 28,206 Amortization 7,653 6,221 4,927 4,341 6,435 Total assets 1,142,708 991,226 887,729 780,472 776,870 Long-term debt 385,397 291,588 252,526 196,869 160,678 Shareholders' equity 431,582 405,645 380,451 350,966 361,780 Return on average shareholders' equity 19.2% 18.4% 17.5% 12.2% 18.5% Total debt to total capital 50.8% 45.7% 41.1% 36.9% 34.3% Employees 4,252 4,196 4,127 4,035 4,104
The 1997 results include a pretax charge of $7.5 million for integrating two divisions. The 1996 results include pretax charges of $25 million relating to adopting SFAS No. 121 and restructuring costs. The 1995 results include a net pretax gain of $26.8 million relating to the sale of the Frozen Foods business, the cost of discontinuing a product line and other items. 34 QUARTERLY DATA [Dollars in thousands except per share amounts]
[ Unaudited ] Earnings Earnings Gross Net per share per share Revenue profit earnings basic diluted 1999 First Quarter $217,535 $75,688 $16,875 $.33 $.33 Second Quarter 219,914 76,137 19,032 .38 .37 Third Quarter 236,556 81,979 20,726 .41 .41 Fourth Quarter 246,187 86,591 23,505 .47 .46 1998 First Quarter $208,889 $71,882 $15,271 $.30 $.30 Second Quarter 205,015 72,441 17,354 .34 .33 Third Quarter 214,506 74,994 19,174 .37 .37 Fourth Quarter 228,362 81,407 20,845 .41 .40
COMMON STOCK PRICES AND DIVIDENDS
Market price Dividends High Low per share 1999 First Quarter $27.75 $19.44 $.1325 Second Quarter 27.38 20.00 .1325 Third Quarter 23.63 20.06 .1325 Fourth Quarter 23.56 20.13 .1325 1998 First Quarter $21.47 $18.72 $.1325 Second Quarter 24.69 20.38 .1325 Third Quarter 25.44 21.88 .1325 Fourth Quarter 24.00 20.06 .1325
EX-21 6 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Universal Foods Corporation and Subsidiaries Universal Foods Corporation Universal Foods Canada, Inc. Canada Universal Foods Foreign Sales Corporation Virgin Islands Universal Holding, Inc. Nevada Universal Foods Corporation - Ireland Ireland Universal Health Care Management Company Wisconsin Universal Foods (UK) Limited United Kingdom Universal Foods Holding Sarl (Luxembourg) Luxembourg Universal Foods (Luxembourg) Sarl Luxembourg UF Holdings (Malta) Limited Malta Universal Holdings Cayman Cayman Universal Foods Holding Deutschland GmbH Germany Min-Dak North Dakota Yeast Industries Company Jordan General Milling Corporation Philippines Universal Foods Products Int'l Co. Ltd. Costa Rica Red Star De Peru Peru Leviatan Y Universal CIA Guatemala Productos Alimenticios Nacionales, SA Costa Rica Costa Rica Industrias Mexicana De Aliamentos SA Mexico Levadura Azteca SA De CV Mexico Universal Flavor Corporation Delaware Universal Flavors Canada, Incorporated Canada Universal Flavors International, Incorporated Indiana Universal Flavors SARL France DGF Universal Fragrances, S.A . Spain Universal Flavors Belgium N.V. Belgium Universal Flavors SRL Italy Universal Flavors Mexico S.A. de C.V. Mexico DGF - Universal Fragrances Mexico S.A. de C.V. Mexico Flavor Burst, Inc. Illinois Flavor Burst Co. Indiana Biolux Finance S.A. (Biofin) Belgium U.F. Biolux S.A. Belgium Red Star BioProducts (Anciennement Vitalevor) S.A.S. France Promavil S.A. Belgium Red Star BioProducts Limited United Kingdom Universal Flavors Limited United Kingdom D.C. Flavours Limited United Kingdom Sundi Aromen Distribution GmbH Germany Sundi Aromen GmbH Germany Warner-Jenkinson Universal Foods B.V. Netherlands Warner-Jenkinson (Canada) Limited Canada Tricon Colors, LLC New Jersey
2 Warner-Jenkinson Company, Inc. New York Warner-Jenkinson S.A. de C.V. Mexico Warner-Jenkinson Europe Limited United Kingdom Warner-Jenkinson Europe SARL France Reggiana - Warner Jenkinson S.r.l. Italy Warner - Jenkinson S.A. Argentina SCI Cesar France SCI Griseda France Warner Jenkinson Europe GmbH Germany Warner Jenkinson Europe - Goldmann Geschaftsfuhrungs GmbH Germany Warner Jenkinson Europe - Goldmann GmbH & Co KG Germany Universal Foods S.A.S. France Financiere Wackherr France Les Colorants Wackherr France LCW do Brasil Brazil LCW Polska Poland LCW Iberica Spain Pointing Holdings Limited United Kingdom Pointing Chemicals Limited United Kingdom Dinoval Chemicals Limited United Kingdom Pointing Limited United Kingdom Dinoval Chemicals UK Limited United Kingdom Pointing International Limited United Kingdom Pointing (SA) (Pty.) Limited South Africa Pointing Color Inc. Minnesota Monarch Food Colour L.P. Missouri Pointing Canada Limited Canada Pointing Mexico S.A. de C.V. Mexico Antociani Italia S.r.l. Italy Ratina Partecipation Luxembourg Luxembourg Inter Agro U.S.A., Inc. New York Universal Dehydrates Ltd. Ireland Freshfield Foods Ltd. Ireland Rogers Foods, Inc. California Universal Dehydrates B.V. Netherlands Universal Foods Limited United Kingdom Universal Dehydrates France SARL France Hecon Groningen B.V. Netherlands Universal Foods Corporation (Asia Pacific) Pte. Ltd. Singapore Universal Flavors (Thailand), Ltd. Thailand Universal Foods Corporation (Australia) Pty. Ltd. Australia Universal Foods Corporation (Japan) Japan Universal Flavors (Philippines), Inc. Philippines Universal Foods Corporation (China) Ltd. Hong Kong Pointing Asia Limited Hong Kong Pointing Hodgsons Pty. Limited Australia
EX-23 7 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Amendment No. 1 to Registration Statements No. 33-34555 and 33-55437, Registration Statements No. 33-27356, 333-35877 and 333-45931 of Universal Foods Corporation on Form S-8 and Registration Statement No. 333-67015 of Universal Foods Corporation on Form S-3 of our reports dated November 11, 1999, appearing in and incorporated by reference in this Annual Report on Form 10-K of Universal Foods Corporation for the year ended September 30, 1999. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin December 28, 1999 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS SEP-30-1999 OCT-01-1998 SEP-30-1999 4,645 0 147,514 4,079 217,217 404,570 681,763 291,455 1,142,708 241,693 385,397 0 0 5,396 426,186 1,142,708 920,192 920,192 599,797 599,797 0 431 26,034 119,076 38,938 80,138 0 0 0 80,138 1.59 1.57
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