<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
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 1-9787
FLOWERS INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-0244940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 FLOWERS CIRCLE 31757
THOMASVILLE, GEORGIA (Zip Code)
(Address of principal executive offices)
</TABLE>
(Registrant's telephone number, including area code) (912) 226-9110
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $.625 PAR VALUE, TOGETHER WITH NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS
NEW YORK STOCK EXCHANGE
7.15% DEBENTURES DUE 2028
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing sales price on the New York
Stock Exchange on March 24, 2000: $1,277,230,765
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OUTSTANDING AT MARCH 24, 2000
------------------- -----------------------------
<S> <C>
COMMON STOCK, $.625 PAR VALUE 99,984,967
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED JANUARY 1, 2000 OF KEEBLER FOODS COMPANY, A
DELAWARE CORPORATION, AND PORTIONS OF THE COMPANY'S DEFINITIVE PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 31, 2000 IN PART III.
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. [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FORM 10-K REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ITEM NO. 1. BUSINESS.................................................... 1
2. PROPERTIES.................................................. 10
3. LEGAL PROCEEDINGS........................................... 10
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10
ITEM NO. 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 11
6. SELECTED FINANCIAL DATA..................................... 12
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.......................... 13
7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 24
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 25
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 25
ITEM NO. 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 25
11. EXECUTIVE COMPENSATION...................................... 25
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 25
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 25
ITEM NO. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 25
</TABLE>
i
<PAGE> 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Registrant incorporates by reference into this Annual Report on Form
10-K for the fiscal year ended January 1, 2000, certain portions of the Annual
Report on Form 10-K of Keebler Foods Company for its fiscal year ended January
1, 2000, filed with the Securities and Exchange Commission on March 23, 2000
(File No. 001-13705) (the "Keebler Form 10-K"), as follows:
<TABLE>
<CAPTION>
ITEM OF KEEBLER ANNUAL REPORT ITEM OF FLOWERS ANNUAL REPORT
ON FORM 10-K BEING ON FORM 10-K BEING
INCORPORATED BY REFERENCE INCORPORATED BY REFERENCE
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
PART II PART II
Item 6. Selected Financial Data Item 6. Selected Financial Data
Item 7. Management's Discussion and Item 7. Management's Discussion and
Analysis of Financial Condition Analysis of Financial Condition
and Results of Operations and Results of Operations
Item 7a. Quantitative and Qualitative Item 7a. Quantitative and Qualitative
Disclosures About Market Risk Disclosures About Market Risk
</TABLE>
ii
<PAGE> 4
PART I
ITEM 1. BUSINESS
As used herein, unless the context otherwise indicates, (i) "FII" means
Flowers Industries, Inc., the publicly traded holding company, which owns all of
the outstanding common stock of Flowers Bakeries, Inc. ("Flowers Bakeries") and
Mrs. Smith's Bakeries, Inc. ("Mrs. Smith's Bakeries"), and owns a majority of
the outstanding common stock of Keebler Foods Company; (ii) "Keebler" means
Keebler Foods Company and its consolidated subsidiaries; (iii) "Flowers" means
FII and its wholly owned subsidiaries, Flowers Bakeries and Mrs. Smith's
Bakeries, and their respective subsidiaries, excluding Keebler, and (iv) the
"Company" means Flowers and its consolidated, majority-owned subsidiary,
Keebler, collectively.
THE COMPANY
The Company is the largest nationally branded producer and marketer of a
full line of baked foods in the United States. The products of the Company's
three segments include Flowers Bakeries' fresh breads and rolls, Mrs. Smith's
Bakeries' fresh and frozen baked desserts, snacks, breads and rolls, as well as
Keebler's cookies and crackers. Since its founding in 1919 in Thomasville,
Georgia, the Company has dramatically expanded the diversity and geographic
scope of its operations and is now a leader in the market for baked foods
throughout the United States.
In the fresh baked product line (Flowers Bakeries), the Company focuses on
the production and marketing of baked foods to customers in the super-regional
16 state area in and surrounding the southeastern United States. In this effort,
the Company has devoted significant resources to modernizing production
facilities and improving its distribution capabilities, as well as actively
marketing well-recognized brands such as Nature's Own and Cobblestone Mill
bread. Since 1980, the Company has acquired 26 local bakery operations which are
generally within or contiguous to its existing region and which can be served
with its extensive direct store door delivery ("DSD") system. The Company's
strategy is to use acquisitions to better serve new and existing customers,
principally by increasing the productivity and efficiency of newly acquired
plants, establishing reciprocal baking arrangements among its bakeries and by
extending its DSD system. Flowers Bakeries' DSD system utilizes approximately
3,100 independent distributors who own the right to sell the Company's fresh
baked products within their respective territories.
The Company's frozen baked foods operations (Mrs. Smith's Bakeries) began
in the mid-1970s with the acquisition of Stilwell Foods, a producer of frozen
products initially marketed to customers in the southeastern and southwestern
United States. In 1989, the Company entered the frozen bread and dough market in
the southeastern United States with its acquisition of the bakery operations of
Winn-Dixie, Inc. In 1991, the Company undertook its first significant entry into
the national market for frozen baked dessert products with the acquisition of
Pies, Inc., a midwest-based producer of premium desserts for the restaurant and
foodservice markets, and further expanded its national presence by acquiring the
Oregon Farms brand of retail frozen desserts. In 1996, the Company obtained a
leading presence in the frozen baked dessert category with the acquisition of
the business of Mrs. Smith's Inc., which markets the leading national brand of
frozen pies sold at retail. In 1998, the Company launched "Operation 365," a
strategy aimed at significantly expanding year-round sales in the frozen dessert
baked product category through product line extensions designed to take
advantage of nationwide consumer recognition of the Mrs. Smith's brand name.
Examples of significant product line extensions include Mrs. Smith's frozen
fruit cobblers and Mrs. Smith's Restaurant Classics frozen pies for retail and
foodservice distribution. In 1999, Mrs. Smith's developed a new line of Mrs.
Smith's Cookies and Cream frozen deserts that are co-branded with Keebler. These
pies were introduced to the market during the first quarter of 2000.
In a series of transactions from 1996 through 1998, the Company entered the
cookie and cracker marketplace by acquiring Keebler, the number two producer and
marketer of cookies and crackers in the United States. On February 3, 1998,
Keebler completed its initial public offering in which Flowers' co-investors
sold a portion of their shares to the public. Concurrently with that offering,
Flowers purchased an
1
<PAGE> 5
additional 11.5% of Keebler from its co-investors for approximately $309 million
in cash, thereby increasing its ownership to approximately 55% of the total
Keebler shares outstanding. In September, 1998, Keebler purchased all of the
outstanding common stock of President International, Inc. ("President").
President was the fifth largest cookie marketer in the United States and the
leading supplier of Girl Scout cookies. Its key brands include Famous Amos,
Plantation and Murray. In March 2000, Keebler acquired Austin Foods, Inc.
("Austin"). Austin is a leading producer and marketer of single serve baked
snacks, including cracker sandwiches and bite sized crackers and cookies.
The Company has a leading presence in each of the major product categories
in which it competes. Flowers Bakeries' fresh baked branded bread and roll sales
rank first or second in 18 of the 22 major markets it serves. It's Nature's Own
brand is the number one volume brand of wheat/variety bread in the country
despite being marketed in only 40% of the United States. Mrs. Smith's Bakeries
is one of the leading frozen baked dessert producers and marketers in the United
States, and its Mrs. Smith's pies are the leading national brand of frozen pies
sold at retail. Keebler is the number two producer and marketer of branded
cookies and crackers, the number one producer and marketer of private label
cookies and the number one producer and marketer of crackers for the foodservice
market.
The Company is committed to being the low cost producer in all of its
operations and has made significant capital investments in recent years to
modernize, automate and expand its production and distribution capabilities.
Flowers has invested heavily over the past five years at both Flowers Bakeries
and Mrs. Smith's Bakeries. Capital spending at Flowers Bakeries was primarily
directed toward expanding and modernizing existing production facilities. In
1999, the most significant production facility expenditure was the installation
of a fully automated wrapping system for three production lines in a new 6,000
square foot facility at its Goldsboro facility. Mrs. Smith's Bakeries has
completely realigned its production capabilities over the last two years
spending approximately $174.0 million. This realignment included the relocation
and upgrading of 25 production lines at seven of its 10 operating facilities.
When complete in 2000, Mrs. Smith's Bakeries will have significantly more
capacity at fewer locations and will be operating much more efficiently. These
competitive advantages will give Mrs. Smith's Bakeries the ability to exploit
every opportunity in the rapidly growing foodservice segment as well as continue
its growth in the retail market. With these major projects complete, capital
spending in 2000 will be substantially reduced and directed toward completing
1999 carryover projects and performing normal repair and maintenance at existing
facilities. Keebler has invested significantly in streamlining its operations,
including the integration of the production capacity of Sunshine and President.
Keebler has closed plants, consolidated production and invested in new
technology to become a more efficient producer of cookies and crackers.
PRODUCTS
The Company produces baked foods in three segments: Flowers Bakeries
(fresh baked foods), Mrs. Smith's Bakeries (frozen baked foods) and Keebler
(cookies and crackers).
Flowers Bakeries -- Fresh Baked Foods
In 1999, Flowers Bakeries was the leading producer of fresh baked foods and
ranked first or second in 18 of the 22 major markets it serves and was
developing its presence in the other markets it has recently entered. Flowers
Bakeries' market includes 16 states in the eastern, southeastern and south
central United States.
Flowers Bakeries markets its fresh soft variety and white breads under
numerous brand names, including Flowers, Nature's Own, Whitewheat, Cobblestone
Mill, Dandee, Evangeline Maid, Betsy Ross, ButterKrust and Purity, among others.
Within licensed geographic territories, Flowers Bakeries also markets fresh
bread under the Sunbeam, Roman Meal, and Bunny trademarks. Nature's Own is the
best selling brand by volume of soft variety bread in the United States, despite
being marketed in only 40% of the United States. Rolls and buns are marketed
under the Cobblestone Mill, Breads International and other brand names. Flowers
Bakeries has used its strong brand recognition to expand to new product lines,
such as the successful introduction of Cobblestone Mill Breakfast Breads and in
1999, a highly successful 100% wheat, sugar free loaf under the
2
<PAGE> 6
Natures Own brand. Fresh baked snack cakes, donuts, pastries and other sweet
snacks are sold primarily under the BlueBird brand, as well as ButterKrust and
Sunbeam.
In addition to its branded products, Flowers Bakeries also packages baked
foods under private labels for retailers. While private label products carry
lower margins than branded products, Flowers Bakeries is able to use private
label offerings to expand total shelf space and to effectively maximize capacity
utilization.
Flowers Bakeries also supplies numerous restaurants, institutions and
foodservice companies, with fresh bread products, including Burger King,
Wendy's, Krystal, Arby's, Outback Steakhouse, Hardees, Applebees, Dairy Queen
and Chili's. Flowers Bakeries is a preferred supplier to Burger King and
currently supplies baked products to approximately 2,150 Burger King restaurants
in the Southeast. Flowers Bakeries also sells fresh baked products to wholesale
distributors for ultimate sale to a wide variety of food outlets.
Mrs. Smith's Bakeries -- Frozen Baked Foods
Mrs. Smith's Bakeries and Sara Lee have the two largest shares of the
frozen baked dessert market. Mrs. Smith's Bakeries' frozen baked pies were the
number one retail frozen brand pies in the United States for 1999. Mrs. Smith's
Bakeries' frozen baked foods are marketed throughout the United States; and,
based on consumer surveys, Mrs. Smith's enjoys a 94% brand awareness in United
States households.
Mrs. Smith's Bakeries' frozen pies, cakes, cobblers and other baked
desserts are sold under the Mrs. Smith's, Mrs. Smith's Restaurant Classics, Mrs.
Smith's Special Recipe, Oregon Farms, Stilwell, Pet-Ritz, Banquet and Oronoque
Orchard brand names in the frozen foods sections of supermarkets, as are Mrs.
Smith's Bakeries' frozen pie shells, mixed fruits and quiche fillings. Mrs.
Smith's Bakeries has also introduced a line of frozen baked desserts that
feature low fat crusts and no-sugar-added fruit fillings. In the first quarter
of fiscal 2000, Mrs. Smith's Bakeries introduced the Mrs. Smith's Cookies and
Cream line of frozen pies that are co-branded with Keebler. Mrs. Smith's
Bakeries' frozen baked products also include specialty baked and parbaked
(partially baked) breads, buns and rolls marketed under the European Bakers,
Ltd. and Our Special Touch brands, which are sold at retail. Mrs. Smith's
Bakeries also co-packs these and other fresh bakery snack food products on
behalf of other industry participants who sell these products under their own
proprietary brand names.
Mrs. Smith's Bakeries produces frozen pies, cakes and desserts as well as
bread, rolls and buns for sale to foodservice customers and wholesalers, such as
Sysco, and markets fresh and frozen hearth-baked specialty bread, breadsticks
and rolls to chain restaurants such as Outback Steakhouse and Olive Garden.
Traditionally, frozen pie sales are heavily concentrated throughout the
year-end holiday season. In 1998, Mrs. Smith's Bakeries launched "Operation
365," a strategy aimed at significantly expanding non-seasonal sales in the
frozen baked product line by introducing new products under the Mrs. Smith's
brand, thereby extending the well-recognized Mrs. Smith's brand name to existing
and related products. In fiscal 1998, Mrs. Smith's Bakeries' introduced Mrs.
Smith's Restaurant Classics, which are frozen premium, restaurant-quality cream
pies sold for retail and foodservice distribution. In the first quarter of
fiscal 2000, Mrs. Smith's Bakeries introduced the Mrs. Smith's Cookies and Cream
line of frozen pies that are co-branded with Keebler.
Mrs. Smith's Bakeries also produces fresh baked snack products under the
Mrs. Freshley's brand, such as donuts, honeybuns, cream horns, pecan spins,
jelly rolls and cinnamon buns for sale as single packs in vending machines and
in multi-packs marketed through grocery stores and mass merchandisers as center
aisle promotions. Mrs. Smith's Bakeries produces fresh baked snack foods at some
of its production facilities in order to maximize the use of capacity.
Keebler -- Cookies and Crackers
Keebler is the second largest cookie and cracker producer in the United
States with net sales of over $2.6 billion and a 25.4% share of the United
States cookie and cracker market. In the United States, Keebler is the number
two producer and marketer of branded cookies and crackers, the leading licensed
supplier of Girl Scout cookies, the number one producer of private label cookies
and the number one producer of crackers for the foodservice market. Keebler
produces cookies and crackers under well-recognized brands including,
3
<PAGE> 7
among others, Chips Deluxe, Sandies, Fudge Shoppe, Vienna Fingers, Droxies,
Famous Amos, Olde New England, Murray, Carr's, Town House, Club, Wheatables,
Zesta, Cheez-It, Sunshine Krispy, Munch'ems and Ready Crust. The relative mix
between cookie and cracker sales varies throughout the year with stronger
cracker sales in the last quarter of the calendar year.
In addition, Keebler is the number one producer and marketer of retail
branded ice cream cones in the United States, and a major producer of retail
branded pie crusts. Keebler also produces custom-baked products for other
marketers of branded food products, including Kellogg Pop Tarts, Kellogg
Nutri-Grain bars, McDonaldland cookies and Gerber Biter biscuits, as well as
crackers for Oscar Mayer Lunchables, Starkist Charlie Tuna snack kits and Kraft
Handi-Snacks.
With the acquisition of President, Keebler also became the leading licensed
supplier of cookies for the Girl Scouts of America. Keebler exclusively supplies
more than one-half of the approximately 320 Girl Scout Councils in the United
States and is one of only three cookie manufacturers licensed by the Girl Scouts
of America to manufacture Girl Scout cookies. Keebler employs dedicated
marketing personnel to assist the various Girl Scout Councils with sales,
marketing and public relations. Historically, President's net sales, net income
and cash flow have been higher in the first quarter than any other fiscal
quarter because substantially all sales of Girl Scout cookies have occurred in
that quarter. In March 2000, Keebler acquired Austin Quality Foods, Inc., a
leading producer and marketer of single-serve baked snacks, including cracker
sandwiches and bite-sized crackers and cookies. Austin will provide Keebler with
enhanced growth opportunities in key alternate retail channels.
MANUFACTURING AND DISTRIBUTION
The Company designs its production facilities and distribution systems to
meet the marketing and production demands of its major product lines. Through a
significant program of capital improvements and careful planning of plant
locations, which, among other things, allows the Company to establish reciprocal
baking arrangements among its bakeries, the Company seeks to remain the
country's leading low cost producer and marketer of branded fresh and frozen
baked products on a national and super-regional basis and to provide the highest
quality customer service. In addition to the independent distributor system for
its fresh baked products and the DSD system used for Flowers Bakeries and
Keebler, the Company also uses both owned and public warehouses and distribution
centers in central locations for the distribution of certain of its frozen and
other shelf stable products.
Flowers Bakeries -- Fresh Baked Foods
Flowers Bakeries owns and operates 26 fresh bread and bun bakeries in 10
states. Flowers Bakeries has invested approximately $281 million over the past
five years, primarily to build new state-of-the-art baking facilities and to
significantly upgrade existing facilities. During this period, Flowers Bakeries
has added 13 new highly-automated production lines in eight of its facilities.
In 1999, a fully automated wrapping system for three production lines was
installed in a new 6,000 square foot facility at Flowers Bakeries' Goldsboro
facility. The Company believes that these investments, undertaken at a time when
many competitors were minimizing capital improvements due to leverage or
earnings pressure, have made Flowers Bakeries the most efficient major producer
of fresh baked foods in the United States. Flowers Bakeries believes that its
capital investment yields long-term benefits in the form of more consistent
product quality, highly sanitary processes and greater production volume at a
lower cost per unit. While its major capital improvement program is largely
complete, Flowers Bakeries intends to continue to invest in its plant and
equipment to maintain the highest levels of efficiency.
Distribution of fresh baked foods involves determining appropriate order
levels, delivering the product from the plant to the customer, stocking the
product on the shelves, visiting the customer one to three times daily to ensure
that inventory levels remain adequate and removing stale goods. In 1986, Flowers
Bakeries began converting its bakery sales routes from employees operating
company-owned vehicles to a DSD system of exclusive independent distributors.
Flowers Bakeries effected this change by selling its sales routes, primarily to
its sales employees. Flowers Bakeries initially financed these purchases over
ten years, but in
4
<PAGE> 8
1996, these obligations were sold to a financial institution. Currently, all
distributor purchase arrangements are made directly with a financial
institution, and, pursuant to an agreement, Flowers Bakeries manages and
services these arrangements.
Management believes that Flowers Bakeries' independent distributor system
is unique in the industry as to its size, with approximately 3,100 distributors,
and with respect to its super-regional scope. In Flowers Bakeries' DSD system,
an aggregate of over 70,000 stops are made each day. The program is designed to
provide Flowers Bakeries' retailers with superior service because distributors,
highly motivated by route ownership, strive to increase sales by maximizing
service. In turn, distributors have the opportunity to benefit directly from the
enhanced value of their routes resulting from higher sales volume.
Mrs. Smith's Bakeries -- Frozen Baked Foods
Mrs. Smith's Bakeries operates 10 production facilities with 44 production
lines for its pies, cakes, breads, rolls and snack foods. Mrs. Smith's Bakeries
maintains maximum operating efficiency by producing high volume fresh snack
products on long runs to complement its branded frozen baked products, sales of
which are seasonal in nature. Mrs. Smith's Bakeries completely realigned its
production capabilities over the last two years, spending $174.0 million. This
realignment included the relocation and upgrading of 25 production lines at
seven of its 10 operating facilities. When complete in 2000, Mrs. Smith's
Bakeries will have significantly more capacity at fewer locations and will be
operating much more efficiently. These competitive advantages will give Mrs.
Smith's Bakeries the ability to exploit every opportunity in the growing
foodservice segment as well as continue its growth in the retail market. With
these major projects near completion, capital spending in 2000 will be used to
finish 1999 carryover projects and for normal repair and maintenance at existing
facilities.
Mrs. Smith's Bakeries' distribution facilities are strategically located
near its production facilities to simplify distribution logistics and shorten
delivery times. The plant in Stilwell, Oklahoma was the focus of a $60.0 million
capital spending project to add production capacity and will be the primary
producer of frozen pies. This facility also serves as a principal point of
distribution for Mrs. Smith's Bakeries' products. The state-of-the-art Suwanee
distribution facility is located on a major interstate corridor near four of
Mrs. Smith's Bakeries' frozen dessert production facilities. This facility
contains such innovations as five 78-foot tall, laser-guided cranes specifically
designed for the facility, a six million cubic foot freezer, and
computer-controlled bar-coding and inventorying. The automation of this facility
enables Mrs. Smith's Bakeries to move extremely large volumes of product without
a significant labor component and enables the facility to operate with extremely
cold temperatures that preserve high product quality. In addition to cost
efficiencies, these features allow the Suwanee facility to better serve
customers by processing customer orders much more quickly than conventional
freezer facilities. Production capacity was added to this facility as part of
the realignment project, increasing Mrs. Smith's Bakeries' production capacity
and enhancing operating efficiencies by having contiguous production and frozen
storage.
In addition to Mrs. Smith's Bakeries' two strategically-located freezer and
distribution facilities in Suwanee and Stilwell, the Company leases additional
freezer and distribution facilities on the West Coast to facilitate distribution
of its products nationwide. These owned and leased facilities allow Mrs. Smith's
Bakeries to build and store necessary inventory in seasonal products, and to
expedite the national distribution of both its seasonal and non-seasonal
products.
Mrs. Smith's Bakeries distributes its fresh baked snack products from a
centralized distribution facility located near Knoxville, Tennessee. Centralized
distribution allows Mrs. Smith's Bakeries to achieve both production and
distribution efficiencies. The production facilities are able to operate longer,
more efficient production runs of a single product, which are then shipped to
the centralized distribution facility. Products coming from different production
facilities are then cross-docked and shipped directly to customer warehouses.
Keebler -- Cookies and Crackers
Keebler attempts to meet the changing demands of its customers by planning
appropriate stock levels and optimal delivery times. To achieve these
objectives, Keebler has developed a network of modern and efficient production
facilities with contiguous or strategically located shipping centers and
distribution warehouses.
5
<PAGE> 9
Keebler operates 15 manufacturing facilities located throughout the United
States, of which 13 are owned and two are leased. Keebler also owns and operates
a dairy in Fremont, Ohio that produces cheese under a proprietary formula which
is used as an ingredient in Cheez-It crackers. Keebler's distribution facilities
consist of 15 shipping centers attached to its manufacturing facilities, nine
stand-alone shipping centers (two owned and seven leased) and 63 distribution
centers (10 owned and 53 leased) throughout the United States. Of the 63
distribution centers, 11 are subleased. Keebler also leases 100 warehouses (of
which one is idle) and 20 depots that are located throughout the United States
and are utilized by the sales force in the distribution of Keebler's products.
Keebler distributes its retail branded cookie and cracker products through
its DSD distribution system, which services substantially all supermarkets in
the United States, as measured by Information Resources, Inc. ("IRI"). Members
of Keebler's sales force, rather than store employees, stock and arrange
Keebler's products on store shelves and build end-aisle and free-standing
product displays. Frequent presence of Keebler's sales force employees provides
Keebler with a high level of control over the availability and presentation of
its products. Keebler believes that this control allows it to maintain shelf
space, better execute in-store promotions and more effectively introduce new
products.
With the acquisition of President, Keebler acquired its franchised DSD
system, which principally distributes products east of the Mississippi River.
President's distribution system, which services both supermarkets and
non-supermarket channels, is comprised of independent franchisees who purchase
and resell President products.
In addition to the Keebler and President DSD systems, Keebler uses a
network of independent distributors and brokers to serve convenience stores and
vending distributors. In the case of club stores, Keebler uses a dedicated sales
force and ships products directly to the customers' warehouses. Keebler also
uses a warehouse sales and distribution system to sell and distribute Keebler
Ready Crust pie crusts. Carr's crackers are sold through a network of
independent specialty distributors.
CUSTOMERS
The Company's top ten customers in 1999 accounted for 31% of sales. No
single customer accounted for more than 10% of the Company's sales.
COMPETITION
Flowers Bakeries -- Fresh Baked Foods
The United States fresh baked foods segment is intensely competitive and is
comprised of large food companies, large independent bakeries with national
distribution, and smaller regional and local bakeries. Primary national
competitors include Interstate, Earthgrains, Bestfoods and Pepperidge Farm.
Competition is based on product quality, brand loyalty, price effective
promotions and the ability to target changing consumer preferences. Customer
service, including frequent delivery and well-stocked shelves, is an
increasingly important competitive factor. While Flowers Bakeries experiences
price pressure from time to time, primarily as a result of competitors'
promotional efforts, Flowers Bakeries believes that its status as the low cost
producer and consumer brand loyalty, as well as Flowers Bakeries' diversity
within its region in terms of geographic markets, products, and sales channels,
limit the effects of such competition. Recent consolidation in the baked foods
industry has reduced prior excess capacity and has further enhanced the ability
of the larger firms to compete with small regional bakeries. Flowers Bakeries
believes that it enjoys significant competitive advantages over smaller regional
bakeries due to economies of scale in areas such as purchasing, production,
advertising, marketing and distribution, and its lower production costs.
Mrs. Smith's Bakeries -- Frozen Baked Foods
The frozen baked foods industry is led by Mrs. Smith's Bakeries, Pillsbury
and Sara Lee. Other significant competitors in the frozen baked dessert category
include Rich Products, Edwards and Pepperidge Farm. Competitors for the Mrs.
Freshley's brand products produced by Mrs. Smith's Bakeries include
6
<PAGE> 10
Interstate (Hostess) and McKee (Little Debbie). Mrs. Freshley's is the country's
number three fresh pastry brand sold through vending machines.
Competition for branded frozen baked products depends primarily on brand
recognition and loyalty, perceived product quality, effective promotions and, to
a lesser extent, price. Based on consumer surveys, Mrs. Smith's has an
approximate 94% brand awareness in United States households. For the nonbranded
products manufactured by Mrs. Smith's Bakeries, competition is based upon
high-quality products requested by foodservice customers, excellent service and
price.
Keebler -- Cookies and Crackers
The United States branded cookie and cracker industry is led by Keebler and
Nabisco, which together accounted for approximately 59.9% of total sales volume
in 1999. Keebler has an approximate 25.4% share of the retail cookie and cracker
market, while Nabisco, the largest manufacturer in the United States cookie and
cracker industry, has an approximate 34.5% share. The remaining industry
participants primarily target certain segments of the industry or focus on
certain regions of the United States. Smaller competitors include numerous
national, regional and local manufacturers of both branded and private label
products. Competition in Keebler's markets takes many forms including
establishing favorable brand recognition, developing products sought by
consumers, implementing appropriate pricing, providing strong marketing support
and obtaining access to retail outlets and sufficient shelf space.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks and trade names, as well as certain
patents and licenses. Flowers Bakeries' principal brand names include Flowers,
Nature's Own, Whitewheat, Cobblestone Mill, Dandee, Evangeline Maid, Betsy Ross,
ButterKrust, Purity, and BlueBird, among others, and its licensed trademarks
include Sunbeam, Roman Meal, Country Hearth and Bunny. Mrs. Smith's Bakeries'
principal brand names include Mrs. Smith's, Mrs. Smith's Restaurant Classics,
Mrs. Smith's Special Recipe, Stilwell, Oregon Farms, Pet-Ritz, Banquet, Oronoque
Orchard, European Bakers, Ltd., Our Special Touch, Mrs. Freshley's, Danish
Kitchen and Pour-a-Quiche. Keebler's principal trademarks and trade names
include Keebler, Ernie the Keebler Elf, the Hollow Tree logo, Cheez-It, Chips
Deluxe, Club, Famous Amos, Fudge Shoppe, Hi-Ho, Hydrox, Sunshine Krispy,
Munch'ems, Murray, Olde New England, Ready Crust, Sandies, Soft Batch, Sunshine,
Toasteds, Town House, Vienna Fingers, Wheatables and Zesta. Keebler is the
exclusive licensee of the Carr's brand name in the United States. Such
trademarks and trade names are considered to be important to the business of the
Company since they have the effect of developing brand identification and
maintaining consumer loyalty. Management is not aware of any fact that would
negatively impact the continuing use of any of its trademarks, trade names,
patents or licenses.
RAW MATERIALS
The Company's primary baking ingredients are flour, sugar, shortening,
fruit and dairy products. The Company also uses paper products, such as
corrugated cardboard, aluminum products, such as pie plates, and films and
plastics to package its baked foods. In addition, the Company is also dependent
upon natural gas and propane as a fuel for firing ovens. On average, baking
ingredients constitute approximately 10% to 15%, and packaging represents
approximately 1% to 5%, of the wholesale selling price of the Company's baked
foods. The Company maintains diversified sources for all of its baking
ingredients and packaging products.
Commodities, such as the Company's baking ingredients, periodically
experience price fluctuations and, for that reason, the market for these
commodities is continuously monitored. From time to time, the Company enters
into forward purchase agreements and derivative financial instruments to reduce
the impact of volatility in raw materials prices.
RESEARCH AND DEVELOPMENT
The Company engages in research activities, which principally involve
development of new products, improvement of the quality of existing products and
improvement and modernization of production processes.
7
<PAGE> 11
The Company also carries out development and evaluation of new processing
techniques for both current and proposed product lines.
REGULATION
As a producer and marketer of food items, the Company's operations are
subject to regulation by various federal governmental agencies, including the
Food and Drug Administration, the Department of Agriculture, the Federal Trade
Commission (the "FTC"), the Environmental Protection Agency, and the Department
of Commerce, as well as various state agencies, with respect to production
processes, product quality, packaging, labeling, storage and distribution. Under
various statutes and regulations, such agencies prescribe requirements and
establish standards for quality, purity and labeling. The finding of a failure
to comply with one or more regulatory requirements can result in a variety of
sanctions, including monetary fines or compulsory withdrawal of products from
store shelves.
In addition, advertising of the Company's businesses is subject to
regulation by the FTC, and the Company is subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health
Act.
The operations of the Company, like those of similar businesses, are
subject to various Federal, state, and local laws and regulations with respect
to environmental matters, including air and water quality, underground fuel
storage tanks, and other regulations intended to protect public health and the
environment. The operations and the products of the Company's businesses also
are subject to state and local regulation through such measures as licensing of
plants, enforcement by state health agencies of various state standards and
inspection of the facilities. The Company believes that it is currently in
material compliance with applicable laws and regulations.
EMPLOYEES
Flowers employs approximately 6,300 persons, approximately 500 of whom are
covered by collective bargaining agreements. Keebler employs approximately
11,600 persons, of whom approximately 5,400 are covered by collective bargaining
agreements. The Company believes that it has good relations with its employees.
EXECUTIVE OFFICES
The address and telephone number of the principal executive offices of the
Company are 1919 Flowers Circle, Thomasville, Georgia 31757, (912) 226-9110.
8
<PAGE> 12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of the Company's
Executive Officers, together with all offices held with the Company by such
Executive Officers.
<TABLE>
<CAPTION>
NAME, AGE AND OFFICE BUSINESS EXPERIENCE
- -------------------- -------------------
<S> <C>
AMOS R. MCMULLIAN Chairman of the Board of Directors of the Company since
Age 62 January 1985; Chairman of the Executive Committee since
Chairman of the Board and January 1984; Chief Executive Officer of the Company
Chief Executive Officer since April 1981; Vice Chairman of the Board of
Directors (1984-1985); Co-Chairman of the Executive
Committee (1983-1984); President and Chief Operating
Officer (1976-1984); Director of the Company since
1975; joined the Company in 1963; Director of Keebler
since January 1996.
ROBERT P. CROZER Vice Chairman of the Board of Directors of the Company
Age 53 since 1989; Vice President -- Marketing (1985-1989);
Vice Chairman of the Board President and Chief Operating Officer, Convenience
Products Group (1979-1989); Corporate Director of
Marketing Planning (1979-1985); Director of the Company
since 1979; joined the Company in 1973; Director of
Keebler since January 1996 and Chairman of the Board of
Directors of Keebler since February 1998.
G. ANTHONY CAMPBELL Secretary and General Counsel of the Company since
Age 47 January 1985; Assistant General Counsel (1983-1985);
Secretary and General Counsel joined the Company in 1983; Director of the Company
since 1991; Director of Keebler since February 1998.
GEORGE E. DEESE President and Chief Operating Officer of Flowers
Age 53 Bakeries, Inc. since January 1997; President and Chief
President and Chief Operating Operating Officer, Baked Products Group (1983-1997);
Officer, Flowers Bakeries, Inc. Regional Vice President, Baked Products Group
(1981-1983); President of Atlanta Baking Company
(1980-1981); joined the Company in 1964.
GARY L. HARRISON President and Chief Operating Officer of Mrs. Smith's
Age 62 Bakeries, Inc., since January 1997; President and Chief
President and Chief Operating Operating Officer, Specialty Foods Group (1989-1997);
Officer, Mrs. Smith's Bakeries, Inc. Executive Vice President, Baked Products Group
(1987-1989); Regional Vice President, Baked Products
Group (1977-1987); President of Flowers Baking Company
of Thomasville (1976-1977); joined the Company in 1954.
JIMMY M. WOODWARD Vice President and Chief Financial Officer since
Age 39 February 2000; Treasurer and Chief Accounting Officer
Vice President and of the Company October 1997 to January 2000; Assistant
Chief Financial Officer Treasurer, for more than five years prior to that time;
joined the Company in 1985; Director of Keebler since
February 1998.
MARTA JONES TURNER Vice President of Public Affairs of the Company since
Age 46 September 1997; Director of Public Affairs, for more
Vice President of Public Affairs than five years prior to that time; joined the Company
in 1978.
</TABLE>
All Executive Officers are elected by the Board of Directors for one year
terms with the exception of the positions of President, Flowers Bakeries, Inc.
and President, Mrs. Smith's Bakeries, Inc., which are appointed offices.
9
ITEM 2. PROPERTIES
Forty-nine of the Company's production facilities are owned, four
facilities are leased and three facilities are owned by local industrial
development authorities under terms of Industrial Revenue Bond ("IRB") financing
agreements. The leased properties are leased for terms of ten to fifteen years
with certain renewal options. Under the terms of the IRB financing agreements,
title to these properties passes to the Company at maturity for little or no
consideration. The Company's production plant locations are:
10
<PAGE> 13
FLOWERS BAKERIES
Birmingham, Alabama
Opelika, Alabama
Tuscaloosa, Alabama
Ft. Smith, Arkansas
Pine Bluff, Arkansas
Texarkana, Arkansas
Bradenton, Florida
Jacksonville, Florida
Miami, Florida
Atlanta, Georgia
Chamblee, Georgia
Thomasville, Georgia
Villa Rica, Georgia
Baton Rouge, Louisiana
Lafayette, Louisiana
New Orleans, Louisiana
Goldsboro, North Carolina
Jamestown, North Carolina
Morristown, Tennessee
El Paso, Texas
Houston, Texas
San Antonio, Texas
Tyler, Texas
Lynchburg, Virginia
Bluefield, West Virginia
Charleston, West Virginia
MRS. SMITH'S BAKERIES
Montgomery, Alabama
Atlanta, Georgia
Forest Park, Georgia
Suwannee, Georgia
Tucker, Georgia
London, Kentucky
Pembroke, North Carolina
Stilwell, Oklahoma
Spartanburg, South Carolina
Crossville, Tennessee
KEEBLER
Birmingham, Alabama
North Little Rock, Arkansas
Denver, Colorado
Athens, Georgia
Augusta, Georgia
Columbus, Georgia
Macon, Georgia
Chicago, Illinois
Des Plaines, Illinois
Kansas City, Kansas
Florence, Kentucky
Louisville, Kentucky
Grand Rapids, Michigan
Charlotte, North Carolina
Cincinnati, Ohio
Marietta, Oklahoma
Cleveland, Tennessee
11
Management considers that its properties are well maintained and sufficient
for its present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in various legal proceedings which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to those proceedings will not be material to the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
CASH DIVIDEND
MARKET PRICE PER COMMON SHARE
------------------------------------ -----------------
FY 1999 FY 1998
----------------- -----------------
QUARTER HIGH LOW HIGH LOW FY 1999 FY 1998
- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First......................................... 25 1/2 21 3/4 26 5/16 20 1/8 .1250 .1150
Second........................................ 25 1/16 16 3/8 23 7/8 19 3/8 .1275 .1175
Third......................................... 17 7/8 13 5/16 22 7/16 16 1/2 .1300 .1200
Fourth........................................ 17 5/8 14 5/16 24 3/4 18 1/2 .1325 .1225
----- -----
Total............................... .5150 .4750
===== =====
</TABLE>
EQUITY SECURITY HOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHAREHOLDERS OF
TITLE OF CLASS RECORD AT MARCH 24, 2000
- -------------- -------------------------
<S> <C>
Common Stock, $.625 Par Value,
Together with Preferred Share Purchase Rights............. 8,205
</TABLE>
The preceding table presents the high and low market price and cash
dividend information for each fiscal quarter as it relates to the Company's
common stock, $.625 par value. The Company's common stock is traded on the New
York Stock Exchange. Cash dividends have been paid on these shares every quarter
since December 1971.
The declaration of dividends is at the discretion of the Board of Directors
of the Company and is subject to the satisfaction of covenants under its
existing credit facilities. While the Company intends to continue to pay
quarterly cash dividends on its Common Stock, the declaration and payment of
future dividends and the amount thereof will be dependent upon the Company's
financial condition, results of operations, cash requirements for its business,
future prospects and other factors deemed relevant by the Board of Directors. In
addition, the existing debt agreements of Keebler contain covenants which limit
Keebler's ability to, among other things, pay dividends. As of January 1, 2000,
Keebler was in compliance with all dividend restrictions and declared a dividend
on February 23, 2000 of $0.1125 per share. Declaration and payment of future
Keebler dividends and the amount thereof will be dependent upon Keebler's
financial condition, results of operations and cash requirements for its
business, future prospects and other factors deemed relevant by Keebler's Board
of Directors.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated historical financial data presented below as of
and for the fiscal years 1999 and 1998, transition period 1998, fiscal years
1997, 1996 and 1995 have been derived from the consolidated financial statements
of the Company which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The results of operations presented below are not
necessarily indicative of results to be expected for any future period and
should be read in conjunction with "Matters Affecting Analysis" included in Item
7, Management's Discussion and Analysis of Results of Operations and Financial
Condition, of this Form 10-K.
<TABLE>
<CAPTION>
FOR THE 27
FOR THE 52 WEEKS ENDED WEEKS ENDED FOR THE 52 WEEKS ENDED
--------------------------------- --------------- --------------------------------------------
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
--------------- --------------- --------------- ------------- ------------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales........................ $4,236,010 $3,765,367 $ 784,097 $1,437,713 $1,238,564 $1,129,203
Materials, supplies, labor
and other production
costs...................... 2,001,956 1,702,581 418,926 787,799 674,762 599,416
Selling, marketing and
administrative expenses.... 1,845,101 1,633,319 301,426 534,285 461,610 418,082
Depreciation and
amortization............... 144,619 128,765 26,930 45,970 40,848 36,604
Non-recurring charge......... 60,355 68,313 -- -- -- --
Interest expense............. 82,565 72,840 12,144 25,691 13,004 7,086
Interest income.............. (1,700) (4,115) (348) (582)
Gain on sale of distributor
notes receivable........... 43,244
Income before income taxes,
investment in
unconsolidated affiliate,
minority interest,
extraordinary loss and
cumulative effect of
changes in accounting
principles................. 103,114 163,664 25,019 87,794 48,340 68,015
Income taxes................. 56,260 74,391 9,632 33,191 18,185 25,714
Income from investment in
unconsolidated affiliate... -- -- 18,061 7,721 613 --
Income before minority
interest, extraordinary
loss and cumulative effect
of changes in accounting
principles................. 46,854 89,273 33,448 62,324 30,768 42,301
Minority interest............ (39,560) (43,305) -- -- -- --
Income before extraordinary
loss and cumulative effect
of changes in accounting
principles................. 7,294 45,968 33,448 62,324 30,768 42,301
Extraordinary loss due to
early extinguishment of
debt, net of tax benefit
and minority interest...... -- (938) -- -- -- --
Cumulative effect of changes
in accounting principles,
net of tax benefit......... -- (3,131) (9,888) -- -- --
Net income................... $ 7,294 $ 41,899 $ 23,560 $ 62,324 $ 30,768 $ 42,301
NET INCOME PER COMMON SHARE:
Basic:
Income before extraordinary
loss and cumulative
effect of changes in
accounting principles.... $ .07 $ .47 $ .38 $ .71 $ .35 $ .49
Extraordinary loss due to
early extinguishment of
debt, net of tax benefit
and minority interest.... -- (.01) -- -- -- --
Cumulative effect of
changes in accounting
principles, net of tax
benefit.................. -- (.03) (.11) -- -- --
Net income per common
share.................... $ .07 $ .43 $ .27 $ .71 $ .35 $ .49
Weighted average shares
outstanding.............. 100,112 96,393 88,368 88,000 86,933 86,229
Diluted:
Income before extraordinary
loss and cumulative
effect of changes in
accounting principles.... $ .07 $ .47 $ .38 $ .71 $ .35 $ .49
Extraordinary loss due to
early extinguishment of
debt, net of tax benefit
and minority interest.... -- (.01) -- -- -- --
Cumulative effect of
changes in accounting
principles, net of tax
benefit.................. -- (.03) (.11) -- -- --
Net income per common
share.................... $ .07 $ .43 $ .27 $ .71 $ .35 $ .49
Weighted average shares
outstanding.............. 100,420 96,801 88,773 88,401 87,211 86,438
BALANCE SHEET DATA:
Total assets................. $2,900,478 $2,860,900 $ 898,880 $ 898,187 $ 849,443 $ 655,921
Long-term debt............... 1,208,630 1,038,998 276,211 275,247 274,698 120,944
Stockholders' equity......... 538,754 572,961 348,567 340,012 305,324 303,981
</TABLE>
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with "Selected
Financial Data" included herein and the consolidated financial statements and
the related notes thereto of the Company incorporated by reference or included
elsewhere. The following information contains forward-looking statements which
involve certain risks and uncertainties. See "Forward-Looking Statements."
OVERVIEW
General
The Company produces and markets fresh baked breads, rolls and snack foods,
frozen baked breads, desserts and snack foods, and cookies and crackers. Sales
are principally affected by pricing, quality, brand recognition, new product
introductions and product line extensions, marketing and service. The Company
manages these factors to achieve a sales mix favoring its higher-margin branded
products while using high-volume products to control costs and maximize use of
capacity.
The principal elements comprising the Company's production costs are
ingredients, packaging materials, labor and overhead. The major ingredients used
in the production of the Company's products are flour, sugar, shortening, fruits
and dairy products. The Company also uses paper products, such as corrugated
cardboard, aluminum products, such as pie plates, and plastic to package its
products. The prices of these materials are subject to significant volatility.
The Company has mitigated the effects of such price volatility in the past
through its hedging programs, but may not be successful in protecting itself
from fluctuations in the future. In addition to the foregoing factors,
production costs are affected by the efficiency of production methods and
capacity utilization.
The Company's selling, marketing and administrative expenses are comprised
mainly of distribution, logistics and advertising expenses. Distribution and
logistics costs represent the largest component of the Company's cost structure,
other than production costs, and are principally influenced by changes in sales
volume.
Depreciation and amortization expenses for the Company are comprised of
depreciation of property, plant and equipment and amortization of costs in
excess of net tangible assets associated with acquisitions. The Company's
interest expense related to its outstanding debt is discussed in Note 4 of Notes
to Consolidated Financial Statements.
Matters Affecting Analysis
As used herein, unless the context otherwise indicates: (i) "FII" means
Flowers Industries, Inc., the publicly traded holding company, which owns all
the outstanding common stock of Flowers Bakeries, Inc. ("Flowers Bakeries") and
Mrs. Smith's Bakeries, Inc. ("Mrs. Smith's Bakeries"), and owns a majority of
the outstanding common stock of Keebler Foods Company; (ii) "Keebler" means
Keebler Foods Company and its consolidated subsidiaries; (iii) "Flowers" means
FII and its wholly owned subsidiaries, Flowers Bakeries and Mrs. Smith's
Bakeries, and their respective subsidiaries, excluding Keebler; and (iv) the
"Company" means Flowers and its consolidated, majority-owned subsidiary,
Keebler, collectively.
Mrs. Smith's Bakeries experienced significant cost overruns in fiscal 1999
due primarily to the delay in completion of a major capital project involving 25
new or relocated and upgraded production lines at seven of its 10 operating
facilities. Additionally, after the end of the second quarter of fiscal 1999, a
review of Mrs. Smith's Bakeries business unit operations resulted in the
recognition of higher reserves related to accounts receivable and inventory.
These items are more fully addressed in the discussion of operating results by
business segment below.
On February 3, 1998, FII completed its purchase of additional shares of
Keebler to increase its ownership from approximately 45% to 55% ("Keebler
Acquisition"). Accordingly, the results of operations of Keebler are
consolidated with those of Flowers for the fiscal years ended January 1, 2000
and January 2, 1999. From January 26, 1996, the date of FII's initial investment
in Keebler, through February 3, 1998, FII accounted for its investment in
Keebler using the equity method of accounting.
15
<PAGE> 17
In January 1998, Flowers changed its fiscal year from the Saturday nearest
June 30 to the Saturday nearest December 31. Unless stated otherwise, all
references to: (i) "fiscal 1997" shall mean Flowers' full fiscal year ended June
28, 1997; (ii) the "twenty-seven week transition period ended January 3, 1998"
shall mean Flowers' twenty-seven week transition period from June 29, 1997
through January 3, 1998; (iii) "fiscal 1998" shall mean Flowers' full fiscal
year ended January 2, 1999; and (iv) "fiscal 1999" shall mean Flowers' full
fiscal year ended January 1, 2000. For purposes of this analysis and in light of
the change in fiscal year end discussed above, the Company has compared fiscal
1998 with the corresponding financial information for the fifty-two weeks ended
January 3, 1998 which has been developed solely for comparative purposes. The
Company's quarterly reporting periods for fiscal 1999 were as follows, first
quarter ended April 24, 1999, second quarter ended July 17, 1999, third quarter
ended October 9, 1999, and fourth quarter and fiscal year ended January 1, 2000
(the Saturday nearest December 31).
Prior to September 1996, Flowers Bakeries sold certain of its territories
to independent distributors and financed such sales with ten year notes. In
September 1996, Flowers Bakeries sold these notes, which totaled approximately
$66.0 million, to a financial institution. Approximately $43.2 million of
deferred pre-tax income was recognized. Subsequent to September 1996, all
distributor loans have been made directly between the distributor and a
financial institution. Pursuant to an agreement, Flowers Bakeries acts as the
servicing agent for the financial institution and receives a fee for these
services.
The Company enters into commodity future and option contracts and swap
agreements for wheat and, to a lesser extent, other commodities, in an effort to
provide a predictable and consistent commodity price, and thereby reduce the
impact and volatility in its raw material and packaging prices. In fiscal 1999,
the Company recorded a negative mark-to-market adjustment of $3.5 million
related to these activities. In fiscal 1998, a gain of $1.1 million was
recorded, and for the transition period ended January 3, 1998 and the fiscal
year ended June 28, 1997 losses of $0.8 million and $0 were recorded,
respectively. The charges are recorded as an FII expense and do not affect the
results of operations on a segment basis at Flowers Bakeries, Mrs. Smith's
Bakeries or Keebler.
Information on Restructurings and Acquisitions
The Company has undertaken a number of rationalizations and reorganizations
of its operations during fiscal 1999 and fiscal 1998. As a result of these
reorganizations and the resulting plant closures, production capability has been
eliminated or transferred to other facilities. The purpose of the various
reorganization plans was to realize long-term improved overall efficiencies and
to reduce costs. However, management expects that there may continue to be
short-term inefficiencies as the rationalizations and reorganizations are
completed.
During fiscal 1999, the Board of Directors of Keebler approved a plan to
close its Sayreville, New Jersey production facility due to excess capacity
within Keebler's 14-plant manufacturing network. As a result of this plan, the
Company recorded a pre-tax non-recurring charge of $69.2 million. The charge
included $46.1 million of non-cash asset impairments and $23.1 million of
severance and other exit costs related to the Sayreville facility. As a direct
result of this plan, asset impairments were recorded to write-down the closed
facility to net realizable value, less cost to sell, based on management's
estimate of fair value. Also, as part of this plan, asset impairments were
recorded to write-off certain other machinery and equipment currently held by
Keebler and to reduce goodwill acquired in the Sunshine Biscuits, Inc.
acquisition in June 1996, neither of which provides any future economic benefit.
Severance costs provided for the reduction of approximately 650 employees, of
which 600 were represented by unions, and, as of January 1, 2000, approximately
640 employees, of which 595 were represented by unions, had been severed. This
plan is substantially complete as of January 1, 2000. Accordingly, during the
fourth quarter of fiscal 1999, an adjustment of $2.9 million was recorded
against the original $69.2 million. The adjustment was due to lower than
expected severance costs and an earlier than expected disposal of the facility
as current real estate conditions resulted in a twelve month reduction in the
estimated disposal period. The adjusted net charge in fiscal 1999 related to
this plant closure was $66.3 million. Ongoing costs, including, but not limited
to, guard service, utilities, property taxes and preparing the facility for
sale, will continue for eighteen months or until the facility is disposed of,
whichever occurs earlier. The amount of suspended depreciation and amortization
that would have been recognized for
16
<PAGE> 18
the year ended January 1, 2000 if prior period impairment had not been
recognized was approximately $3.7 million, with $5.6 million of annualized
savings anticipated in 2000.
During the fourth quarter of fiscal 1998, the Board of Directors of the
Company approved a plan to realign production and distribution at Flowers
Bakeries and Mrs. Smith's Bakeries in order to enhance efficiency. The Company
recorded a pre-tax non-recurring charge of $68.3 million ($32.2 million, $32.3
million and $3.8 million for Flowers Bakeries, Mrs. Smith's Bakeries and
Keebler, respectively). The charge included $57.5 million of noncash asset
impairments, $4.8 million of severance costs and $6.1 million of other related
exit costs. The plan involved closing six less efficient facilities of Flowers
Bakeries and Mrs. Smith's Bakeries and shifting their production and
distribution to highly automated facilities. As a direct result of management's
decision to implement production line rationalizations, asset impairments were
recorded to write-down the closed facilities to net realizable value, less cost
to sell, based on management's estimate of fair value, and the related cost in
excess of net tangible assets. Also, as part of this plan, asset impairments
were recorded to write-off certain duplicate machinery and equipment designated
for disposal. The plan included severance costs for 695 employees, and, as of
January 1, 2000, all such employees had been terminated. During fiscal 1999,
Flowers Bakeries and Mrs. Smith's Bakeries recorded adjustments to the fiscal
1998 restructuring reserve of $1.1 million and $4.9 million, respectively. These
adjustments are the result of reduced carrying costs of plants held for sale, an
adjustment to the value of these assets due to the identification of a buyer and
changes in estimates of severance and other employee termination costs. As of
January 1, 2000, all significant actions related to the plans have been
completed. The remaining exit costs include ongoing costs such as guard service,
utilities and property taxes of closed facilities until the time of disposal.
Management anticipates the charges will result in operating savings of
approximately $40.0 million over the next five years, principally from reduced
depreciation of approximately $13.0 million and increased efficiencies and
reduced employee expense of approximately $27.0 million.
During fiscal 1998, as part of accounting for the acquisition of President,
Keebler recognized costs pursuant to a plan to exit certain activities and
operations of President in order to rationalize productivity and reduce costs
and inefficiencies. These exit costs, for which there is no anticipated future
economic benefit, were provided for in the allocation of the purchase price and
totaled $12.8 million. Company-wide staff reductions were initially estimated at
410 employees and $6.7 million, with the balance of the reserves allocated to
costs associated with the closing of seven production, sales or distribution
facilities, which principally include noncancelable lease obligations and
building maintenance costs. At January 1, 2000, approximately 40 employees not
under union contract had been terminated. In addition, during the year
management reviewed its exit plan and made a determination that approximately
110 employees not under union contract, would not be terminated. During fiscal
1999, Keebler adjusted accruals previously established in the accounting for the
President acquisition by reducing goodwill and other intangibles by $4.5 million
to recognize exit costs that are now expected to be less than initially
anticipated. The remainder of management's exit plan is expected to be
substantially complete before the end of fiscal 2000 with only noncancelable
lease obligations to be paid over the next six years, concluding in fiscal 2006.
As part of the acquisition of Mrs. Smith's Inc., Flowers recorded a
purchase accounting reserve of $37.1 million in order to realign production and
distribution at Mrs. Smith's Bakeries to reduce inefficiencies. The realignment
involved the shutdown of a leased production facility. The reserve includes
$27.6 million of noncancelable lease obligations and building maintenance costs,
$2.1 million of severance costs, and $7.4 million of other exit costs, including
health insurance, incremental workers' compensation costs and the costs
associated with dismantling and disposing of equipment, at the closed facility.
Under the plan, approximately 300 employees were to be and have been terminated.
With the exception of noncancelable lease obligations and building maintenance
costs that continue through fiscal 2006, this plan was substantially complete as
of the end of fiscal 1998. Spending against the reserve totaled $6.8 million,
$4.0 million, $.6 million and $1.6 million in fiscal 1999, fiscal 1998, the
twenty-seven week transition period ended January 3, 1998 and fiscal 1997,
respectively.
As part of INFLO's acquisition of Keebler and Keebler's subsequent
acquisition of Sunshine, Keebler's management team adopted and began executing a
plan to reduce costs and inefficiencies. Certain exit costs totaling $77.4
million were provided for in the allocation of the purchase price of both the
Keebler and
17
<PAGE> 19
Sunshine acquisitions. Management's plan included company-wide staff reductions,
the closure of production, distribution and sales force facilities and
information system exit costs. Severance costs were estimated at $39.4 million
for the approximately 1,400 employees anticipated to be terminated. As of the
end of fiscal 1998, all had been terminated. The plan included the closure of
its Atlanta, Georgia and Santa Fe Springs, California, production facilities, as
well as 39 sales force and distribution facilities. Costs incurred related to
the closing of production, distribution and sales force facilities, other than
severance costs, included primarily noncancelable lease obligations and building
maintenance costs of $31.2 million. An additional $6.8 million was anticipated
for lease costs related to exiting legacy information systems. As of January 4,
1998, the date FII began consolidating Keebler for financial reporting purposes,
the remaining liability was $22.5 million, of which $20.2 million related to
noncancelable lease obligations and building maintenance costs, $.3 million
related to severance costs and $2.0 million related to other exit costs. All
activity prior to that date occurred while FII accounted for its investment in
Keebler in accordance with the equity method of accounting. Spending against the
remaining reserves totaled $3.0 million for fiscal 1999 and $7.7 million for
fiscal 1998. In addition, during fiscal 1999 and fiscal 1998, Keebler expensed
$0.8 million and $2.8 million, respectively, principally for costs related to
the closure of two distribution facilities not included in the original plan.
During fiscal 1999, Keebler adjusted accruals previously established in the
accounting for the Keebler acquisition by reducing goodwill and other
intangibles by $0.5 million and reversing $1.3 million into income from
operations to recognize exit costs that are now expected to be less than
initially anticipated. The $1.3 million was credited to operating income as it
had originally been charged to income from operations in fiscal 1999 and fiscal
1998. During fiscal 1998, Keebler also adjusted accruals previously established
in the accounting for the Keebler and Sunshine acquisitions by reducing goodwill
and other intangibles by $3.7 million to recognize exit costs that are now
expected to be less than initially anticipated. The exit plan was substantially
complete at January 1, 2000 with only noncancelable lease obligations continuing
through 2006.
The Company's results of operations, expressed as a percentage of sales,
are set forth below:
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED
-----------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales......................................... 100.00% 100.00% 100.00% 100.00%
Gross margin.................................. 52.74 54.78 47.32 45.20
Selling, marketing and administrative
expenses.................................... 43.56 43.38 37.92 37.16
Depreciation and amortization................. 3.41 3.42 3.44 3.20
Non-recurring charge.......................... 1.42 1.81
Interest expense, net......................... 1.91 1.83 1.61 1.75
Income before income taxes, investment in
unconsolidated affiliate, minority interest,
extraordinary loss and cumulative effect of
changes in accounting principles............ 2.43 4.35 4.36 6.11
Income taxes.................................. 1.33 1.98 1.66 2.31
Net income.................................... .17% 1.11% 3.74% 4.33%
</TABLE>
FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 COMPARED TO FIFTY-TWO WEEKS ENDED JANUARY
2, 1999
Consolidated Results
Sales. For the fiscal year ended January 1, 2000, sales were $4,236.0
million, or 12.5%, higher than sales for the prior year of $3,765.4 million. The
effect on reported sales of businesses acquired, net of businesses sold
subsequent to the start of 1999 was 8.8%. The overall sales increase, excluding
acquisitions, is the result of a 5.3% increase at Keebler, a 2.4% increase at
Flowers Bakeries and a 1.1% increase at Mrs. Smith's Bakeries.
Gross Margin. Gross profit margin was 52.7% in fiscal 1999 as compared to
54.8% in fiscal 1998. Production difficulties and inefficiencies due to the
plant realignment project at Mrs. Smith's Bakeries offset improved efficiencies
and cost reduction programs at Flowers Bakeries and Keebler.
18
<PAGE> 20
Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses increased $211.8 million or 13.0% over fiscal 1998.
These expenses were 43.6% of sales in fiscal 1999 as compared to 43.4% in fiscal
1998.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $144.6 million for fiscal 1999, an increase of 12.3% over $128.8
million for fiscal 1998. This is primarily due to increased capital spending and
a full year of amortization related to Keebler's purchase of President.
Non-Recurring Charge. See discussion under the heading "Matters Affecting
Analysis" above.
Interest Expense. For fiscal 1999, net interest expense was $80.9 million,
an increase of 17.8% over fiscal 1998 interest expense of $68.7 million.
Interest expense at Keebler was $36.2 million in fiscal 1999 and $26.5 million
in fiscal 1998. The increase was primarily due to the overall higher average
debt balance outstanding as a result of the President acquisition in fiscal
1998. Interest expense at Flowers was $44.7 million in fiscal 1999 and $42.2
million in fiscal 1998. The increase was due to higher borrowings required to
fund capital expenditures at Flowers Bakeries and Mrs. Smith's Bakeries.
Income Before Income Taxes. Income before income taxes was $103.1 million
for fiscal 1999, a decrease of 37.0% compared to income of $163.7 million
reported in fiscal 1998. This decrease is primarily a result of losses in fiscal
1999 at Mrs. Smith's Bakeries due to costs related to a major production
realignment as discussed below. Before considering non-recurring charges and
credits, Mrs. Smith's Bakeries incurred an operating loss in fiscal 1999 of
$53.3 million compared to operating income in fiscal 1998 of $45.9 million.
Flowers Bakeries operating income, before non recurring credits, decreased $8.8
million in fiscal 1999 and unallocated expenses were higher by $12.5 million.
These decreases are somewhat offset by increases in operating income of $64.0
million at Keebler. See below for further discussion of the results of
operations by business segment.
Income Taxes. Income taxes were provided at an effective rate of 54.6% in
fiscal 1999 and 45.5% in fiscal 1998. The consolidated effective rate in fiscal
1999 is based on the interaction of the effective rate on Keebler's profits of
45.3% and the effective rate of the tax benefit on Flowers loss (excluding
Keebler) of 29.0%. In each year the effective rate exceeded the statutory rate
due to nondeductible expenses, principally amortization of intangibles,
including trademarks, trade names, other intangibles and goodwill. During fiscal
1999, nondeductible items increased at Keebler due to inclusion of a full year
of amortization for President intangibles and goodwill impairment related to the
closure of the Sayreville, New Jersey facility. The effective rate on the loss
at Flowers is indicative of the nondeductible charges included in the
calculation of the loss.
Net Income. For fiscal 1999, net income was $7.3 million, a decrease of
82.6% as compared to $41.9 million net income reported in fiscal 1998. Fiscal
1999 included a net non-recurring charge of $60.4 million and fiscal 1998
included a non-recurring charge of $68.3 million. Excluding the effect of these
charges in fiscal 1999 and fiscal 1998, net income was $27.7 million in fiscal
1999 and $89.5 million in fiscal 1998. The decrease of $61.8 million is
primarily attributable to production difficulties and inefficiencies at Mrs.
Smith's Bakeries offset by increases at Keebler. These items are discussed in
detail below.
Operating Results by Business Segment
Flowers Bakeries
Sales at Flowers Bakeries for fiscal 1999 were $961.7 million, an increase
of $22.6 million and 2.4% over sales of $939.1 million reported a year ago.
Acquisitions, net of divestitures, accounted for 0.5% of the increase. The total
sales increase was attributable to increases of 2.2% and 8.7% in branded retail
and foodservice sales, respectively, slightly offset by a decrease of 7.0% in
private label sales. Exclusive of the effect of acquisitions, the overall sales
increase was a result of an increase of 4.5% in overall pricing offset by a
decrease in volume of 2.2%.
Gross margins increased to $515.1 million and 53.6% of sales for fiscal
1999 compared to $498.3 million and 53.1% of sales in fiscal 1998. This
represents a combination of increased pricing offset by increased operating
costs. While the cost of ingredients decreased during the year, the shift to
sponge and dough
19
<PAGE> 21
production methods and the accompanying change in product formulation somewhat
offset these savings. Flowers Bakeries believes that the sponge and dough
process produces a better tasting product that will be valued in the market.
Additional incremental costs were incurred due to the production disruption at
the Goldsboro facility during construction of a new bun line.
Selling, marketing and administrative expenses increased 6.7% and $26.2
million to $415.3 million and 43.2% of sales in fiscal 1999 from $389.1 million
and 41.4% of sales in fiscal 1998. Distribution costs in fiscal 1999 were higher
due to rising fuel costs, additional miles incurred throughout the route system
and incremental distribution cost due to severe hurricanes and flooding in
Florida and North Carolina. Administrative costs increased as a result of
incremental costs associated with realigning the northern region to consolidate
the Goldsboro, North Carolina facility (acquired in 1998) and incremental costs
associated with the consolidation of the accounts receivable and accounts
payable functions to a central Shared Services Center. Y2K costs during fiscal
1999 were $0.6 million.
Depreciation and amortization expense was $32.9 million for fiscal 1999, a
decrease of 1.8% from $33.5 million for fiscal 1998. The decrease is a result of
the asset impairments recorded as a part of the non-recurring charge and
write-off of start-up costs recorded in the prior year, partially offset by
increased depreciation associated with capital improvements.
Operating income was $67.0 million in fiscal 1999, a decrease of $8.8
million and 11.6% from fiscal 1998 operating income of $75.8 million. Despite
these disappointing results in fiscal 1999, management expects operations at
Flowers Bakeries to return to historic growth rates in 2000.
Mrs. Smith's Bakeries
Sales at Mrs. Smith's Bakeries for fiscal 1999, after excluding
inter-segment sales, increased 1.1% to $606.5 million from $599.8 million
reported a year ago. This increase was primarily driven by increases of 6.7%,
8.5% and 1.2% in foodservice, in-store bakery and branded retail sales,
respectively, partially offset by a reduction of 7.8% in non-branded retail and
co-pack fresh snack products. The disappointing sales increase is attributable
to production difficulties, as discussed below, resulting in product shortages.
Gross margin for fiscal 1999 was $172.0 million and 28.4% of sales compared
to $246.4 million and 41.1% reported a year ago. This decrease is primarily the
result of costs associated with a massive production realignment project that
included the installation and start-up of 25 new or relocated and upgraded
production lines. Mrs. Smith's Bakeries experienced start-up costs, product
damage, spoilage and unabsorbed overhead at seven of its 10 production
facilities primarily in the third and fourth quarter of fiscal 1999. This
project fell behind due to the delay in the receipt and installation of
production equipment, and in the programming of production control software and
the hiring and training of additional production employees. Traditionally, the
third and fourth quarters are Mrs. Smith's Bakeries highest volume quarters.
However, product shortages in these quarters hurt overall sales especially in
the higher margin retail segment.
Selling, marketing and administrative expenses were $205.1 million and
33.8% of sales in fiscal 1999 as compared to $181.8 million and 30.3% of sales
in fiscal 1998. These costs increased primarily due to increased administrative
and distribution costs associated with Mrs. Smith's Bakeries' production
realignment and increased promotional expenses which were committed to the
retail market based on higher expected sales. As a result of lower production,
sales volume was lower than anticipated during the seasonally high sales period
of the third and fourth quarters. Also, following a review of Mrs. Smith's
Bakeries' business operations after the end of the second quarter of fiscal
1999, the Company determined to recognize higher reserves for customer
deductions, previously believed to be collectible, and trade promotions. At the
same time, the Company also revised estimates of the recoverable amount of
certain out of code, damaged or discontinued inventory. The conclusions reached
by the Company relative to the ultimate realization of certain accounts
receivable were based upon recent trends associated with Mrs. Smith's Bakeries'
promotional and discount programs. The reserves at January 1, 2000 are
considered adequate, and the promotional programs have been simplified. Y2K
costs during fiscal 1999 were $.4 million.
20
<PAGE> 22
Depreciation and amortization expense was $20.1 million for fiscal 1999, an
increase of 7.5% over $18.7 million for fiscal 1998. This increase is related to
capital spending during the period offset by decreases in depreciation and
amortization that resulted from the asset impairments recorded as a part of the
non-recurring charge recorded in fiscal 1998. Depreciation and amortization
expense will increase in fiscal 2000 as depreciation on the capital projects
associated with the production realignment is reflected for a full year.
The operating loss, excluding non-recurring charge credits, was $53.3
million in fiscal 1999, a decrease of $99.2 million from operating income,
excluding non-recurring charges, of $45.9 million in fiscal 1998. As discussed
above, the primary cause of this decrease was the costs associated with the
production realignment and the related effect on sales. Fiscal 1999 was a year
of tremendous challenges at Mrs. Smiths Bakeries. Management continues to
address these production issues and expects them to be fully resolved during
fiscal 2000. With the resolution of the production issues, elimination of the
unusual costs that were incurred in fiscal 1999 and increased sales volume, Mrs.
Smith's Bakeries is expected to have improved operating results in 2000.
Keebler
Sales at Keebler for fiscal 1999 increased 19.8% to $2,667.8 million from
$2,226.5 million in fiscal 1998. This increase is primarily due to an increase
in Keebler sales of branded products of 16.7% and an increase in the sales of
specialty products of 32.8%. The acquisition of President accounted for sales of
$423.3 million in fiscal 1999 as compared to sales of $95.3 million in fiscal
1998. Excluding the effects of President, sales increased 5.3% overall. Volume
gains in core Keebler branded business and specialty business of 6.0% and 2.3%,
respectively, accounted for this gain.
Gross margins at Keebler declined slightly to 58.1% of sales during fiscal
1999 from 59.2% during the same period a year ago. This is attributable to a
decrease in margins on specialty products, that was caused by a change in sales
mix toward the high cost, custom-baked products. This decrease was partially
offset by an increase in margins of branded products due to improved product mix
and higher volume due to the inclusion of President for a full year. Excluding
the impact of President, gross margins would have been 60.0% in fiscal 1999 and
58.8% in fiscal 1998. The improvement in year-over-year comparisons resulted
from the benefits received on productivity and cost savings programs designed to
improve efficiency at Keebler's production facilities, as well as from other
cost reduction initiatives.
Selling, marketing and administrative expenses increased $151.7 million in
fiscal 1999, but improved 2.1% as a percent of sales. In addition to the
inclusion of President expenses for a full year in fiscal 1999, as compared to
only fourteen weeks in fiscal 1998, higher selling, marketing and administrative
expenses were also experienced as a result of core Keebler volume growth. After
removing the expenses contributed by President, selling, marketing and
administrative expenses, as a percent of sales, were essentially flat year-over-
year. Total marketing expenses increased as Keebler continued its focus on
building brand equity and incremental trade promotion programs were instituted
in support of the national distribution of Famous Amos and Murray Sugar Free
cookies. Despite higher sales levels in fiscal 1999, more efficient marketing
processes resulted in a lower rate of marketing expenses as a percent of sales.
In addition, increased administrative expenses were incurred in fiscal 1999, due
principally to higher compensation costs resulting from growth in the core
Keebler business. Increases in selling and distribution expenses resulted mainly
from the volume gains, as savings were achieved through a more efficient selling
and distribution network. Keebler spent $2.9 million in fiscal 1999 preparing
for Y2K.
Depreciation and amortization expense was $84.1 million for fiscal 1999, an
increase of 21.7% over $69.1 million for fiscal 1998. This increase is due
primarily to increased goodwill amortization and depreciation relating to the
purchase of President and increased depreciation associated with capital
improvements.
Operating income for fiscal 1999 was $197.6 million, an increase of $1.6
million and 0.8% over fiscal 1998 operating income of $196.0 million. Excluding
the non-recurring charge in fiscal 1999, operating income was $263.9 million, an
increase of $64.0 million and 32.0% over the prior year. As previously
discussed, the increase in operating income before considering the non-recurring
charge reflects growth due to the inclusion
21
<PAGE> 23
of the President business for a full year, growth in the Keebler core business
and the benefits of productivity and cost savings programs.
FIFTY-TWO WEEKS ENDED JANUARY 2, 1999 COMPARED TO FIFTY-TWO WEEKS ENDED JANUARY
3, 1998
Consolidated Results
Sales. For fiscal 1998, sales were $3,765.4 million or 163% higher than
sales in the prior year, which were $1,432.2 million. A majority of the increase
was due to the consolidation of Keebler's sales, following the Keebler
Acquisition, in the amount of $2,226.5 million. Excluding the Keebler
Acquisition, the overall sales increase is the result of a 5% increase at
Flowers Bakeries and a 12% increase at Mrs. Smith's Bakeries.
Gross Margin. Gross margin for fiscal 1998 was $2,062.8 million, or 204%
higher than the gross margin for the prior year, for which gross margin was
$677.7 million. The Company's gross margin for fiscal 1998 includes $1,319.0
million attributable to Keebler, a factor not present in the prior year. Flowers
Bakeries' gross margin improved to 53% as compared to 51% of sales for fiscal
1997. Mrs. Smith's Bakeries' gross margin improved to 41% in fiscal 1998 from
37% in the prior year.
Selling, Marketing and Administrative Expense. For fiscal 1998, selling,
marketing and administrative expenses were $1,633.3 million, or 201% higher than
expense of $543.1 million for the prior year. The increase is due primarily to
the inclusion of such expenses attributable to Keebler.
Depreciation and Amortization. Depreciation and amortization expense was
$128.8 million for fiscal 1998, an increase of 162% over the prior year, in
which it was $49.2 million. The increase was primarily a result of the
consolidation of Keebler, increased goodwill amortization relating to the
Keebler Acquisition and increased depreciation associated with capital
improvements.
Non-Recurring Charge. See discussion under the heading "Matters Affecting
Analysis" above.
Interest Expense. For fiscal 1998, interest expense was $68.7 million, an
increase of 199% over the corresponding period in the prior year, which was
$23.0 million. Approximately $26.5 million in interest expense was attributable
to the consolidation of Keebler, with the remaining increase due to borrowings
used to fund the Keebler Acquisition.
Income Before Income Taxes. Income before income taxes was $163.7 million
for fiscal 1998, an increase of 162% over the $62.5 million reported for the
prior year. Approximately $169.5 million of the increase was the result of the
consolidation of Keebler, which was partially offset by the $68.3 million non-
recurring charge, and increased goodwill and interest expense, all of which are
discussed above and in the following business segment section.
Income Taxes. Income taxes for fiscal 1998 were $74.4 million, an increase
of 213% over the comparable period in the prior year, in which income taxes were
$23.8 million. This increase is due primarily to the inclusion of $73.0 million
of income taxes attributable to the consolidation of Keebler, partially offset
by a reduction of income tax expense related to the non-recurring charge.
Additionally, the effective tax rate increased to 45% from 38% due primarily to
increased nondeductible goodwill amortization.
Net Income. Net income for fiscal 1998 was $41.9 million, a decrease of
22%, as compared to $53.6 million reported in the prior year. The decrease was
attributable to the non-recurring charge, an extraordinary loss due to early
extinguishment of debt and a cumulative effect of a change in accounting
principle relating to the Company's adoption of SOP 98-5. These decreases were
partially offset by the consolidation of Keebler, which contributed $52.4
million, net of minority interest.
Operating Results by Business Segment
Flowers Bakeries
Fiscal 1998 sales at Flowers Bakeries increased $43.5 million, or 5% from
the prior year. Of the increase, 3% was due to an acquisition, 1% due to
increased volume and 1% due to pricing and product mix. Gross margin improved to
53% of sales in fiscal 1998 as compared to 51% in the prior year. Improved
volume,
22
<PAGE> 24
production efficiencies and lower ingredient costs contributed to the increase
in gross margin. Selling, marketing and administrative expenses increased,
primarily due to increased sales volume and expenses related to a project to
improve Flowers Bakeries' information systems.
Mrs. Smith's Bakeries
Sales at Mrs. Smith's Bakeries increased $63.1 million, or 12%, in fiscal
1998 from the prior year. Of the increase, 8% was due to the acquisition of two
businesses, 3% due to increased volume, and 1% due to pricing and product mix.
Gross margin improved to 41% of sales in fiscal 1998 from 37% for the prior
year. This increase was due primarily to increased volume, cost control and
greater plant efficiencies. Selling, marketing and administrative expenses
increased primarily due to increased sales volume and logistics costs related to
the closing of its production facility in Pottstown, Pennsylvania and the
shifting of its production to other Mrs. Smith's Bakeries' facilities.
Keebler
As discussed in matters affecting analysis, on February 3, 1998 FII
increased its ownership in Keebler to 55% from 45%, Prior to that date FII
accounted for its investment in Keebler under the equity method. During fiscal
1998, the first year the results of Keebler operations were consolidated, sales
and gross margin were $2,226.5 million, and $1,319.0 million, respectively.
Selling, marketing and administrative expenses were $1,053.8 million in fiscal
1998.
LIQUIDITY AND CAPITAL RESOURCES
FII owns a majority of the outstanding stock of Keebler, and therefore is
consolidating Keebler for financial reporting purposes. FII is limited in its
ability to access the cash flows of Keebler to support its other operations due
to the fact that Keebler is not wholly owned by FII. As a result of the
consolidation of Keebler, the Company's balance sheet reflects Keebler's
indebtedness of $456.4 million as of January 1, 2000; however, Flowers has not
guaranteed such indebtedness and it is to be repaid solely from the cash flows
of Keebler.
Net cash provided by operating activities for fiscal 1999 was $243.1
million. Operating cash flows were positively affected by decreases in inventory
and the timing of payments for vendor accounts. Operating cash flows were
negatively affected by increases in receivables, including income tax benefits,
and payments against facility closing cost reserves.
Net cash disbursed for investing activities for fiscal 1999 was $273.7
million. This amount primarily consisted of $10.8 million for acquisitions and
$266.6 million for capital expenditures. Capital expenditures of $73.6 million
at Flowers Bakeries, $127.3 million at Mrs. Smith's Bakeries, including non-cash
capital leases of $47.4 million, and $100.7 million at Keebler were made
primarily to update and enhance production and distribution facilities. The
remaining capital expenditures were $12.4 million at the FII corporate level.
In fiscal 2000, the Company expects capital spending at Flowers Bakeries
and Mrs. Smith's Bakeries to be approximately $35 million, a substantial
reduction from fiscal 1999, since the production enhancement program is largely
complete. Capital expenditures in fiscal 2000 will be used to finish projects
that carried over from fiscal 1999 and to perform normal repair and maintenance
items at existing facilities. Spending for facility closing and severance costs
related to exit plans established in the acquisitions effected by Flowers and
Keebler and the non-recurring charges are substantially complete as of the end
of fiscal 1999, except for noncancelable lease payments and building maintenance
costs that will continue through fiscal 2006. Management anticipates these cash
requirements will be funded through operating cash flow.
In fiscal 1999, net cash provided by financing activities was $15.4
million. Gross cash proceeds resulted from a receivable securitization at
Keebler of $103.0 million, a net decrease in debt of $30.6 million and receipts
from the exercise of stock compensation awards of $15.3 million. Keebler's debt
decreased $198.1 million and Flowers' debt increased $214.9 million (including
non cash capitalized leases of $47.4 million). Flowers' $100 million commercial
paper agreement terminated on January 14, 2000 and the outstanding
23
<PAGE> 25
balance of $25.0 million was paid with available funds under Flowers' $500
million revolving syndicated loan facility (the "Loan Facility").
For fiscal 1999, dividends paid per FII share increased 8.4% to $.515 from
$.475 paid in the prior year. Dividends are declared at the discretion of the
Board of Directors based on an assessment of the Company's financial position
and other considerations. FII's ability to pay dividends is limited by the terms
of its Loan Facility, as discussed below.
Keebler declared no cash dividends during fiscal 1999 or prior thereto.
Keebler's ability to pay cash dividends is limited by terms of its credit
facilities. The most restrictive provision limits dividend payments by Keebler
to the sum of (i) 50% of consolidated cumulative net income, (ii) net cash
proceeds received from the issuance of capital stock, (iii) net cash proceeds
received from the exercise of stock options and warrants, (iv) net cash proceeds
received from the conversion of indebtedness into capital stock and (v) the net
reduction in investments made by Keebler. Keebler is in compliance with these
dividend restrictions and, accordingly, Keebler's Board declared a dividend
subsequent to year end of $0.1125 per share that was paid on March 22, 2000. As
a result of its 55% ownership in Keebler, FII received approximately $5.2
million from this dividend.
The Company's credit facilities consist of the $500 million Loan Facility,
$125 million of senior notes, a $100 million synthetic lease facility and $200
million of 7.15% debentures due 2028.
Since September 1996, the Company has been a party to an $80 million loan
facility agreement relating to its distributor note program (the "Distributor
Facility") which is subject to the same financial covenants as the Loan
Facility. This agreement provides third party credit facilities for the
independent distributors serving Flowers Bakeries. The Company receives payments
from the independent distributors and remits such amounts, net of certain loan
servicing fees, to the financial institution. Additionally, the agreement
requires amounts to be placed in escrow by the Company upon the occurrence of
certain events as defined in the agreement. No events have occurred as of
January 1, 2000 that would require such funding by the Company.
During fiscal 1999 and subsequent to year-end, FII amended the Loan
Facility and the Distributor Facility. The amendments provided for increased
loan borrowing margins and facility fees and added and amended certain financial
covenants. The covenants currently in effect include, among others, (i) a
maximum leverage ratio of 0.65 to 1, (ii) an adjusted fixed charges coverage
ratio of 1.10 to 1 for the second quarter of fiscal 2000, with increased levels
for all quarters thereafter; (iii) minimum adjusted consolidated EBITDA at
specified levels for each fiscal quarter, (iv) a borrowing base covenant
requiring that FII's total indebtedness, measured quarterly, not exceed
specified percentages of the book value of accounts receivable, inventory,
property, plant and equipment and the fair market value of FII's interest in
Keebler, (v) a prohibition on acquisitions, (vi) a negative pledge on all assets
of the Company, (vii) a limit on Flowers capital expenditures, and (viii) limits
on cash dividends unless the Company would have, following payment thereof, at
least $15 million availability under the unused commitments and borrowing base
tests of the Loan Facility. The amount of retained earnings available for
payment of dividends at January 1, 2000 under the amendment was $125.0 million.
The Company was in compliance with all covenants under its Loan Facility as
in effect on January 1, 2000 and believes that, in light of its current cash
position, its cash flow from operating activities and its amended credit
facilities, it can comply with the current terms of its Loan Facility,
Distributor Facility and other credit facilities and can meet presently
foreseeable financial requirements.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 -- "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new rules for
accounting for derivative instruments and hedging activities. The statement
requires that all derivatives be recognized as either assets or liabilities in
the balance sheet and that the instruments be measured at fair value. The
accounting for changes in the fair value of a derivative depend on the intended
use of the derivative and the resulting designation. The effective date for this
standard has
24
<PAGE> 26
been extended to the Company's fiscal year 2001. The Company is currently
assessing the effects SFAS 133 will have on its financial position and results
of operations.
SEASONALITY
The Company's sales, net income and cash flows are affected by the timing
of new product introductions, promotional activities, price increases and a
seasonal sales bias toward the first quarter and second half of the calendar
year. The sales bias towards the first quarter is due primarily to Keebler being
the leading supplier of Girl Scout cookies and the sales bias toward the second
half of the year is primarily due to events such as back-to-school and the
Thanksgiving and Christmas holidays. Sales for Mrs. Smith's Bakeries are highly
seasonal since, historically, pie sales have been concentrated in the year-end
holiday season.
YEAR 2000 ISSUE
The Company utilizes a number of computer software programs and operating
systems throughout its organization, including applications used in order
processing, shipping and receiving, accounts payable and receivable processing,
financial reporting and in various other administrative functions. The Company
recognized the need to make every effort to ensure that its operations were not
adversely impacted by applications and processing issues related to the calendar
year 2000 (the "Year 2000 Issue"). The Year 2000 Issue is the result of computer
programs that have been written to recognize two-digit, rather than four-digit,
date codes to define the applicable year. To the extent that the Company's
software applications contain source codes that are unable to appropriately
interpret a code using "00" as the upcoming year 2000 rather than 1900, the
Company could have experienced system failures or miscalculations that could
have disrupted operations and caused a temporary inability to process
transactions, send and process invoices or engage in similar normal business
activities.
The Company did not experience any significant malfunctions or errors in
its operating or business systems when the date changed from 1999 to 2000. Based
on operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the Year 2000 Issue. However, it
is possible that the full impact of the date change has not been fully
recognized. For example, it is possible that Year 2000 or similar issues such as
leap year-related problems may occur with billing, payroll, or financial
closings at month, quarterly, or year end. The Company believes that any such
problems are likely to be minor and correctable. In addition, the Company could
still be negatively affected if its customers or suppliers are adversely
affected by the Year 2000 or similar issues. The Company currently is not aware
of any significant Year 2000 or similar problems that have arisen for its
customers and suppliers. Although a contingency plan does not exist regarding
these potential problems, if significant risk is identified, the Company will
develop contingency plans as deemed necessary at that time.
The Company expended $6.2 million on Year 2000 readiness efforts from 1997
to 1999. These efforts included replacing some outdated, non-compliant hardware
and non-compliant software as well as identifying and remediating Year 2000
problems.
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this discussion are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). These statements are subject
to the safe harbor provisions of the Reform Act. Such forward-looking statements
include, without limitation, statements about:
- the competitiveness of the baking industry;
- the future availability and prices of raw and packaging materials;
- potential regulatory obligations;
- our strategies;
- other statements that are not historical facts; and
25
<PAGE> 27
- Year 2000 issues.
When used in this discussion, the words "anticipate," "believe," "estimate"
and similar expressions are generally intended to identify forward-looking
statements. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements, including but not limited to:
- changes in general economic or business conditions (including in the
baking industry);
- actions of competitors;
- our ability to retain capital on terms acceptable to us;
- our ability to recover material costs in the pricing of our products;
- the extent to which we are able to develop new products and markets for
our products;
- the time required for such development;
- the level of demand for such products; and
- changes in our business strategies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to commodity price
and interest rate risks, primarily related to the purchase of raw materials and
packaging supplies and changes in interest rates. The Company manages its
exposure to these risks through the use of various financial instruments, none
of which are entered into for trading purposes. The Company has established
policies and procedures governing the use of financial instruments, specifically
as it relates to the type and volume of financial instruments entered into.
Financial instruments can only be used to hedge an economic exposure, and
speculation is prohibited. The Company's accounting policy related to financial
instruments is further described in Note 1 of Notes to Consolidated Financial
Statements.
Commodity Price Risk
The Company enters into commodity future and option contracts and swap
agreements for wheat and, to a lesser extent, other commodities in an effort to
provide a predictable and consistent commodity price and thereby reduce the
impact of volatility in its raw material and packaging prices. A sensitivity
analysis has been prepared to estimate the Company's exposure to commodity price
risk. Based on the Company's derivative portfolio as of January 1, 2000, a
hypothetical ten percent adverse change in commodity prices under normal market
conditions could potentially have a $19.5 million effect on the fair value of
the derivative portfolio. Based on the Company's derivative portfolio as of
January 2, 1999, a hypothetical ten percent adverse change in commodity prices
under normal market conditions could potentially have a $11.6 million effect on
the fair value of the derivative portfolio. The analysis disregards changes in
the exposures inherent in the underlying hedged item; however, the Company
expects that any loss in fair value of the portfolio would be substantially
offset by reductions in raw material and packaging prices.
Interest Rate Risk
The Company manages its exposure to interest rate risk primarily through
the use of a combination of fixed to floating rate debt, as well as interest
rate swap agreements, in order to reduce overall interest costs. Keebler has
entered into interest rate swap agreements on both its fixed and floating rate
debt. A sensitivity analysis has been prepared to estimate the Company's
exposure to interest rate risk. Based on Flowers' mix of fixed and floating rate
debt at January 1, 2000, assuming a ten percent increase in interest rates,
Flowers' interest cost would increase $3.3 million, while the impact of a ten
percent decrease in interest rates would reduce interest expense $3.3 million.
Based on Flowers' mix of fixed and floating rate debt at January 2, 1999,
assuming a ten percent increase in interest rates, Flowers' interest cost would
increase $1.5 million, while the impact of a ten percent decrease in interest
rates would reduce interest expense $1.5 million. Assuming a ten
26
<PAGE> 28
percent increase in market price, the fair value of Keebler's interest rate swap
agreements at January 1, 2000, with a notional amount of $334.0 million, would
increase the net receivable to $9.7 million, while the impact of a ten percent
decrease in market price would reduce the net receivable to $6.0 million. The
fair value of Keebler's interest rate swap agreements at January 2, 1999, with
an assumed ten percent increase in market price and the notional amount of
$527.3 million, would increase the net receivable to $3.1 million, while the
impact of a ten percent decrease in market price would result in a net payable
of $4.4 million. The analysis disregards changes in the exposures inherent in
the underlying hedged item; however, the Company expects that any loss in fair
value of the interest rate swap agreements would be substantially offset by
increases in the value of those hedged items. During 1999, an interest swap that
no longer served as a hedge, with a notional amount of $170.0 million, was
recognized in income from operations with a marked to market fair value of $2.8
million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement
Schedules for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers of the Registrant are incorporated herein
by reference from the Company's definitive proxy statement for the annual
meeting of shareholders on May 31, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation is incorporated herein by reference from the
Company's definitive proxy statement for the annual meeting of shareholders on
May 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management is
incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of shareholders on May 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions is incorporated herein by
reference from the Company's definitive proxy statement for the annual meeting
of shareholders on May 31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
a. List of documents filed as part of this report
1. Financial Statements of the Registrant
Report of independent accountants
Consolidated statement of income for the fifty-two weeks ended January 1,
2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998 and
the fifty-two weeks ended June 28, 1997
Consolidated balance sheet at January 1, 2000 and January 2, 1999
27
<PAGE> 29
Consolidated statement of changes in stockholders' equity for the fifty-two
weeks ended January 1, 2000 and January 2, 1999, the twenty-seven weeks
ended January 3, 1998 and the fifty-two weeks ended June 28, 1997
Consolidated statement of cash flows for the fifty-two weeks ended
January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January
3, 1998 and the fifty-two weeks ended June 28, 1997
Notes to consolidated financial statements
2. Financial Statement Schedules of the Registrant
Report of independent accountants on financial statement schedule
Schedule II Valuation and Qualifying Accounts -- for the fiscal years
ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended
January 3, 1998, and fiscal year ended June 28, 1997
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
2 -- Stock Purchase and Stockholder's Agreement dated as of
January 28, 1998 by and among Flowers, Bermore, Ltd, Artal
Luxembourg, S.A. and Keebler (Incorporated by reference to
the Company's Report on Form 8-K dated February 18, 1998,
File No. 1-9787)
3.1 -- Third Restated Articles of Incorporation (Incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999, File No. 1-9787)
3.2 -- Restated By-Laws, as of October 20, 1989 (Incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 27, 1992, File No. 1-9787)
4.1 -- Rights Agreement dated as of April 2, 1999 between Flowers
Industries, Inc. and First Union National Bank, as Rights
Agent (Incorporated by reference to the Company's
Registration Statement on Form 8-A filed April 2, 1999, File
No. 1-9787)
10.1 -- Flowers Industries, Inc. Annual Executive Bonus Plan dated
August 4, 1995 (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended July 1,
1995, File No. 1-9787)*
10.2 -- First Amendment to the Flowers Industries, Inc. Annual
Executive Bonus Plan (Incorporated by reference to the
Company's Transition Report on Form 10-K for the fiscal year
ended January 3, 1998, File No. 1-9787)*
10.3 -- Flowers Industries, Inc. 401(k) Retirement Savings Plan (as
amended and restated effective as of January 1, 1997), as
amended.++*
10.4 -- Severance Policy (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended July 1,
1989, File No. 1-9787)*
10.5 -- 1982 Incentive Stock Option Plan, as amended (Incorporated
by reference to the Company's Registration Statement on Form
S-3/S-8 filed May 18, 1990, File No. 33-34855)*
10.6 -- 1989 Executive Stock Incentive Plan (Incorporated by
reference to the Company's Registration Statement on Form
S-3/S-8 filed May 18, 1990, File No. 33-34855)*
10.7 -- Amendment to the 1989 Executive Stock Incentive Plan, dated
as of August 4, 1995 (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended July 1, 1995, File No. 1-9787)*
10.8 -- Second Amendment to Flowers Industries, Inc. 1989 Executive
Stock Incentive Plan (Incorporated by reference to the
Company's Transition Report on Form 10-K for the fiscal year
ended January 3, 1998, File No. 1-9787)*
10.9 -- Flowers Industries, Inc. 1990 Supplemental Executive
Retirement Plan (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended June
30, 1990, File No. 1-9787)*
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
10.10 -- Flowers Industries, Inc. Nonemployee Directors' Equity Plan
(Incorporated by reference to the Company's Transition
Report on Form 10-K for the fiscal year ended January 3,
1998, File No. 1-9787)*
10.11 -- Form of Separation Agreement between the Company and certain
members of management of the Company (Incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999, File No. 1-9787)*
10.12 -- Note Purchase Agreement dated as of December 20, 1995, among
Flowers and the Purchasers named therein, as amended by
First Amendment effective as of January 23, 1998, as further
amended by Second Amendment effective as of March 12, 1998
(Incorporated by reference to the Company's Transition
Report on Form 10-K for the fiscal year ended January 3,
1998, File No. 1-9787)
10.13 -- $500,000,000 Second Amended and Restated Credit Agreement
dated as of March 30, 2000, among Flowers, certain Banks
listed therein, Wachovia Bank, N.A., as Agent, The Bank of
Nova Scotia, as Documentation Agent and Bank of America,
N.A., as Syndications Agent.++
10.14 -- Indenture between Flowers Industries, Inc. and SunTrust
Bank, Atlanta, as Trustee (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999, File No. 1-9787)
10.15 -- Master Lease Agreement dated as of October 20, 1995 between
Wachovia Leasing Corporation and Flowers.++
10.16 -- Loan Facility Agreement dated as of November 5, 1999, by and
among Flowers, SunTrust Bank, Atlanta and each of the
Participants party thereto, as amended.++
11 -- Statement Re Computation of Per Share Earnings++
21 -- Subsidiaries of the Registrant++
23.1 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants++
23.2 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants++
27 -- Financial Data Schedule (for SEC use only)++
99.1 -- Portions of the Annual Report on Form 10-K for the fiscal
year ended January 1, 2000 of Keebler Foods Company
(Incorporated by reference to Keebler Foods Company Annual
Report on Form 10-K for the fiscal year ended January 1,
2000)
99.2 -- Financial Statements of Keebler Foods Company for the fiscal
year ended January 1, 2000++
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
++ Filed herewith.
29
<PAGE> 31
b. Reports on Form 8-K:
For purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-3/S-8, File No.
33-34855; and on Forms S-8, File No. 33-91198 and File No. 333-23351.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
30
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, Flowers Industries, Inc. has duly caused this Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on this
31st day of March, 2000.
FLOWERS INDUSTRIES, INC.
<TABLE>
<S> <C> <C>
/s/ AMOS R. MCMULLIAN /s/ ROBERT P. CROZER /s/ JIMMY M. WOODWARD
- -------------------------------- -------------------------------- --------------------------------
Amos R. McMullian Robert P. Crozer Jimmy M. Woodward
Chairman of the Board, Vice Chairman of the Board Vice President
Chairman of the Executive Chief Financial Officer and
Committee Chief Accounting Officer
and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ AMOS R. MCMULLIAN Chairman of the Board, Chairman March 31, 2000
- ----------------------------------------------------- of the Executive Committee
Amos R. McMullian and Chief Executive Officer
/s/ ROBERT P. CROZER Vice Chairman of the Board March 31, 2000
- -----------------------------------------------------
Robert P. Crozer
/s/ JIMMY M. WOODWARD Vice President and Chief March 31, 2000
- ----------------------------------------------------- Financial Officer
Jimmy M. Woodward
/s/ EDWARD L. BAKER Director March 31, 2000
- -----------------------------------------------------
Edward L. Baker
/s/ JOE E. BEVERLY Director March 31, 2000
- -----------------------------------------------------
Joe E. Beverly
/s/ FRANKLIN L. BURKE Director March 31, 2000
- -----------------------------------------------------
Franklin L. Burke
/s/ G. ANTHONY CAMPBELL General Counsel, Secretary and March 31, 2000
- ----------------------------------------------------- a Director
G. Anthony Campbell
/s/ LANGDON S. FLOWERS Director March 31, 2000
- -----------------------------------------------------
Langdon S. Flowers
/s/ JOSEPH L. LANIER, JR. Director March 31, 2000
- -----------------------------------------------------
Joseph L. Lanier, Jr.
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J.V. SHIELDS, JR. Director March 31, 2000
- -----------------------------------------------------
J. V. Shields, Jr.
/s/ JACKIE M. WARD Director March 31, 2000
- -----------------------------------------------------
Jackie M. Ward
/s/ C. MARTIN WOOD III Director March 31, 2000
- -----------------------------------------------------
C. Martin Wood III
</TABLE>
32
<PAGE> 34
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent accountants........................... F-2
Consolidated statement of income for the fifty-two weeks
ended January 1, 2000 and January 2, 1999, the
twenty-seven weeks ended January 3, 1998, and the
fifty-two weeks ended June 28, 1997....................... F-3
Consolidated balance sheet at January 1, 2000 and January 2,
1999...................................................... F-4
Consolidated statement of changes in stockholders' equity
for the fifty-two weeks ended January 1, 2000 and January
2, 1999, the twenty-seven weeks ended January 3, 1998, and
the fifty-two weeks ended June 28, 1997................... F-5
Consolidated statement of cash flows for the fifty-two weeks
ended January 1, 2000 and January 2, 1999, the
twenty-seven weeks ended January 3, 1998, and the
fifty-two weeks ended June 28, 1997....................... F-6
Notes to consolidated financial statements.................. F-7
</TABLE>
F-1
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Flowers Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in stockholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Flowers Industries, Inc. and its subsidiaries (the "Company") at
January 1, 2000 and January 2, 1999, and the results of their operations and
their cash flows for the years ended January 1, 2000 and January 2, 1999, for
the twenty-seven week period ended January 3, 1998, and for the year ended June
28, 1997, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
February 3, 2000
except for Note 15 which
is as of March 30, 2000
F-2
<PAGE> 36
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52
----------------------- WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales.................................................. $4,236,010 $3,765,367 $784,097 $1,437,713
---------- ---------- -------- ----------
Materials, supplies, labor and other production
costs................................................ 2,001,956 1,702,581 418,926 787,799
Selling, marketing and administrative expenses......... 1,845,101 1,633,319 301,426 534,285
Depreciation and amortization.......................... 144,619 128,765 26,930 45,970
Non-recurring charge................................... 60,355 68,313
---------- ---------- -------- ----------
Income from operations................................. 183,979 232,389 36,815 69,659
Interest expense..................................... 82,565 72,840 12,144 25,691
Interest (income).................................... (1,700) (4,115) (348) (582)
---------- ---------- -------- ----------
Interest expense, net.................................. 80,865 68,725 11,796 25,109
---------- ---------- -------- ----------
Gain on sale of distributor notes receivable........... 43,244
---------- ---------- -------- ----------
Income before income taxes, income from investment in
unconsolidated affiliate, minority interest,
extraordinary loss and cumulative effect of changes
in accounting principles............................. 103,114 163,664 25,019 87,794
Income taxes........................................... 56,260 74,391 9,632 33,191
Income from investment in unconsolidated affiliate..... 18,061 7,721
---------- ---------- -------- ----------
Income before minority interest, extraordinary loss and
cumulative effect of changes in accounting
principles........................................... 46,854 89,273 33,448 62,324
Minority interest...................................... (39,560) (43,305)
---------- ---------- -------- ----------
Income before extraordinary loss and cumulative effect
of changes in accounting principles.................. 7,294 45,968 33,448 62,324
Extraordinary loss due to early extinguishment of debt,
net of tax benefit and minority interest............. (938)
Cumulative effect of changes in accounting principles,
net of tax benefit................................... (3,131) (9,888)
---------- ---------- -------- ----------
Net income.................................... $ 7,294 $ 41,899 $ 23,560 $ 62,324
========== ========== ======== ==========
Net Income Per Common Share:
Basic --
Income before extraordinary loss and cumulative
effect of changes in accounting principles....... $ .07 $ .47 $ .38 $ .71
Extraordinary loss due to early extinguishment of
debt, net of tax benefit and minority interest... (.01)
Cumulative effect of changes in accounting
principles, net of tax benefit................... (.03) (.11)
---------- ---------- -------- ----------
Net income per common share........................ $ .07 $ .43 $ .27 $ .71
========== ========== ======== ==========
Weighted average shares outstanding................ 100,112 96,393 88,368 88,000
========== ========== ======== ==========
Diluted --
Income before extraordinary loss and cumulative
effect of changes in accounting principles....... $ .07 $ .47 $ .38 $ .71
Extraordinary loss due to early extinguishment of
debt, net of tax benefit and minority interest... (.01)
Cumulative effect of changes in accounting
principles, net of tax benefit................... (.03) (.11)
---------- ---------- -------- ----------
Net income per common share........................ $ .07 $ .43 $ .27 $ .71
========== ========== ======== ==========
Weighted average shares outstanding................ 100,420 96,801 88,773 88,401
========== ========== ======== ==========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
F-3
<PAGE> 37
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 39,382 $ 54,542
Accounts and notes receivable, net........................ 185,939 270,507
Inventories, net:
Raw materials........................................... 68,110 54,739
Packaging materials..................................... 29,855 27,056
Finished goods.......................................... 175,281 207,620
Other................................................... 7,679 8,178
---------- ----------
280,925 297,593
Deferred income taxes..................................... 71,498 76,327
Other..................................................... 112,794 84,276
---------- ----------
690,538 783,245
---------- ----------
Property, Plant and Equipment:
Land...................................................... 49,612 39,149
Buildings................................................. 386,197 350,067
Machinery and equipment................................... 958,176 816,495
Furniture, fixtures and transportation equipment.......... 148,565 116,219
Construction in progress.................................. 127,545 96,288
---------- ----------
1,670,095 1,418,218
Less: accumulated depreciation............................ (520,456) (430,516)
---------- ----------
1,149,639 987,702
---------- ----------
Other Assets................................................ 88,715 86,510
---------- ----------
Cost in Excess of Net Tangible Assets:
Cost in excess of net tangible assets..................... 1,033,272 1,033,632
Less: accumulated amortization............................ (61,686) (30,189)
---------- ----------
971,586 1,003,443
---------- ----------
$2,900,478 $2,860,900
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Commercial paper.......................................... $ -- $ 74,870
Current maturities of long-term debt and capital leases... 47,566 120,479
Accounts payable.......................................... 248,153 227,749
Income taxes.............................................. 23,603 --
Facility closing costs and severance...................... 16,836 23,670
Other accrued liabilities................................. 319,639 314,270
---------- ----------
655,797 761,038
---------- ----------
Long-term debt and capital leases........................... 1,208,630 1,038,998
---------- ----------
Other liabilities:
Deferred income taxes..................................... 162,470 182,244
Postretirement/postemployment obligations................. 64,772 63,754
Facility closing costs and severance...................... 30,188 41,331
Other..................................................... 56,289 52,915
---------- ----------
313,719 340,244
---------- ----------
Minority interest........................................... 183,578 147,659
---------- ----------
Stockholders' Equity:
Preferred stock -- $100 par value, authorized 10,467
shares and none issued..................................
Preferred stock -- $100 par value, authorized 249,533
shares and none issued..................................
Common stock -- $.625 par value, authorized 350,000,000
shares, issued 100,863,848 and 100,202,414 shares,
respectively............................................ 63,040 62,627
Capital in excess of par value............................ 291,377 274,255
Retained earnings......................................... 219,279 262,531
Common stock in treasury, 567,160 and 381,366 shares,
respectively............................................ (10,594) (6,762)
Stock compensation related adjustments.................... (24,348) (19,690)
---------- ----------
538,754 572,961
---------- ----------
$2,900,478 $2,860,900
========== ==========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
F-4
<PAGE> 38
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
----------------------- -------------------- STOCK
NUMBER OF CAPITAL IN COMPENSATION
SHARES EXCESS OF RETAINED NUMBER OF RELATED
ISSUED PAR VALUE PAR VALUE EARNINGS SHARES COST ADJUSTMENTS
----------- --------- ---------- -------- --------- -------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 29, 1996............... 88,636,089 $55,398 $ 40,317 $234,069 (761,010) $ (6,493) $(17,967)
Stock issued for acquisitions......... 1,025 322,233 2,975
Exercise of employee stock options.... (1,017) 400,853 3,988
Purchase of treasury stock............ (19,335) (289)
Net income for the year............... 62,324
Exercise of Restricted Stock Award.... 1,072 (78,106) (1,362) 1,169
Exercise of Equity Incentive Award.... 1,854 (151,469) (2,365) 1,738
Restricted Stock Award reversions..... (104) (56,430) (456) 557
Amortization of Restricted Stock Award
and Equity Incentive Award.......... 2,443
Stock received from escrow............ (219,812) (2,565)
Dividends paid -- $.4125 per common
share............................... (36,299)
----------- ------- -------- -------- -------- -------- --------
Balances at June 28, 1997............... 88,636,089 55,398 43,147 260,094 (563,076) (6,567) (12,060)
Exercise of employee stock options.... 45,000 524
Purchase of treasury stock............ (6,227) (117)
Net income for the year............... 23,560
Equity from investment in
unconsolidated affiliate............ 2,700
Stock issued into escrow in connection
with Restricted Stock Award......... 2,118 347,609 3,965 (6,083)
Restricted Stock Award reversions..... (65) (30,976) (257) 435
Amortization of Restricted Stock Award
and Equity Incentive Award.......... 1,395
Dividends paid -- $.2225 per common
share............................... (19,620)
----------- ------- -------- -------- -------- -------- --------
Balances at January 3, 1998............. 88,636,089 55,398 45,200 266,734 (207,670) (2,452) (16,313)
Common stock offering................. 9,000,000 5,625 182,305
Stock issued for acquisition.......... 2,000,000 1,250 38,750
Exercise of employee stock options.... 225,000 141 2,797 (61,424) (2,419)
Exercise of Equity Incentive Award.... 452 (44,263) (982) 524
Purchase of treasury stock............ (24,414) (532)
Net income for the year............... 41,899
Adjustment for Keebler stock
transactions........................ (3,677)
Stock issued into escrow in connection
with Restricted Stock Award......... 345,973 216 8,653 (8,869)
Restricted Stock Award reversions..... (4,648) (3) (225) (43,595) (377) 513
Amortization of Restricted Stock Award
and Equity Incentive Award.......... 4,455
Dividends paid -- $.4750 per common
share............................... (46,102)
----------- ------- -------- -------- -------- -------- --------
Balances at January 2, 1999............. 100,202,414 62,627 274,255 262,531 (381,366) (6,762) (19,690)
Net income for the year............... 7,294
Adjustment for Keebler stock
transactions........................ 2,907
Exercise of employee stock options.... (750) 78,044 1,494
Exercise of Equity Incentive Award.... 1,043 (91,547) (2,161) 1,025
Exercise of Restricted Stock Award.... 1,917 (121,078) (2,497) 1,666
Purchase of treasury stock............ (15,053) (335)
Stock issued into escrow in connection
with Restricted Stock Award......... 673,800 420 12,376 (12,796)
Restricted Stock Award reversions..... (12,366) (7) (371) (36,160) (333) 450
Amortization of Restricted Stock Award
and Equity Incentive Award.......... 4,997
Dividends paid -- $.515 per common
share............................... (50,546)
----------- ------- -------- -------- -------- -------- --------
Balances at January 1, 2000............. 100,863,848 $63,040 $291,377 $219,279 (567,160) $(10,594) $(24,348)
=========== ======= ======== ======== ======== ======== ========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
F-5
<PAGE> 39
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 52 WEEKS
ENDED FOR THE 27 FOR THE 52
----------------------- WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net income.............................................. $ 7,294 $ 41,899 $ 23,560 $ 62,324
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest..................................... 39,560 42,537
Income from investment in unconsolidated affiliate.... (18,061) (7,721)
Depreciation and amortization......................... 144,619 128,765 26,930 45,970
Deferred income taxes................................. (16,782) (1,504) (803) 1,506
Gain on sale of distributor notes receivable.......... (43,244)
Non-recurring charge.................................. 46,071 68,313
Loss due to early extinguishment of debt.............. 1,706
Cumulative effect of changes in accounting
principles.......................................... 3,131 9,888
Other................................................. 6,946 (1,486)
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net.................... (29,803) (11,330) (3,281) 12,343
Inventories, net...................................... 16,811 (35,828) (413) (36,144)
Other assets.......................................... (13,425) (53,486) (1,495) (2,242)
Accounts payable and other accrued liabilities........ 60,191 27,076 (16,658) (13,199)
Facility closing costs and severance.................. (18,389) (9,798) (577) (1,606)
--------- --------- -------- --------
Net cash provided by operating activities............... 243,093 199,995 19,090 17,987
--------- --------- -------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment............. (266,607) (140,275) (32,857) (77,510)
Acquisition of majority interest in Keebler (net of
cash acquired)...................................... (285,203)
Acquisition of President by Keebler (net of cash
acquired)........................................... (444,818)
Acquisition of other businesses, net of divestitures
(net of cash acquired).............................. (10,772) (28,992) (5,532) 617
Other................................................. 3,696 1,378 2,145 63
--------- --------- -------- --------
Net cash disbursed for investing activities............. (273,683) (897,910) (36,244) (76,830)
--------- --------- -------- --------
Cash flows from financing activities:
Common stock offering proceeds, net of underwriters'
discount and offering costs......................... 187,930
Dividends paid........................................ (50,546) (46,102) (19,620) (36,299)
Treasury stock purchases.............................. (21,688) (8,059) (117) (289)
Proceeds from receivables securitization.............. 103,000
Stock compensation and warrants exercised............. 15,306 20,744
Debentures proceeds................................... 199,417
Debentures issuance costs............................. (1,750)
Increase (decrease) in commercial paper............... (74,870) 21,364 7,713 40,792
Increase (decrease) in debt and capital lease
obligations......................................... 44,228 376,913 965 (794)
Distributor notes receivable proceeds................. 65,954
--------- --------- -------- --------
Net cash provided by (disbursed for) financing
activities............................................ 15,430 750,457 (11,059) 69,364
--------- --------- -------- --------
Net increase (decrease) in cash and cash equivalents.... (15,160) 52,542 (28,213) 10,521
Cash and cash equivalents at beginning of period........ 54,542 2,000 30,213 19,692
--------- --------- -------- --------
Cash and cash equivalents at end of period.............. $ 39,382 $ 54,542 $ 2,000 $ 30,213
========= ========= ======== ========
Schedule of noncash investing and financing activities:
Stock compensation transactions....................... $ 4,658 $ 20,431 $ 6,355 $ 9,263
Stock issued for acquisition.......................... 40,000 4,000
Capital lease obligations............................. 47,406
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized................ $ 86,054 $ 62,982 $ 11,878 $ 25,955
Income taxes........................................ 38,281 87,063 10,867 32,729
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
F-6
<PAGE> 40
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEFINITIONS
As used in this filing, unless the context otherwise indicates: (i) "FII"
means Flowers Industries, Inc., the publicly traded holding company, which owns
all of the outstanding common stock of Flowers Bakeries, Inc. ("Flowers
Bakeries") and Mrs. Smith's Bakeries, Inc. ("Mrs. Smith's Bakeries"), and owns a
majority of the outstanding common stock of Keebler Foods Company; (ii)
"Keebler" means Keebler Foods Company and its consolidated subsidiaries; (iii)
"Flowers" means FII and its wholly owned subsidiaries, Flowers Bakeries and Mrs.
Smith's Bakeries, and their respective subsidiaries, excluding Keebler; and (iv)
the "Company" means Flowers and its consolidated, majority-owned subsidiary,
Keebler, collectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company.
As further described in Note 2, FII purchased an additional 11.5% of the common
stock of Keebler on February 3, 1998 giving FII a majority ownership position in
Keebler of approximately 55%. As a result, all amounts included herein as of
January 2, 1999, for the fifty-two weeks then ended and forward, present Keebler
with Flowers on a consolidated basis. All amounts included herein related to
prior periods present FII's investment in Keebler under the equity method.
Intercompany accounts and transactions are eliminated in consolidation.
CHANGE IN FISCAL YEAR END
In January 1998, Flowers changed its fiscal year end from the Saturday
nearest June 30 to the Saturday nearest December 31. Unless stated otherwise,
all references to: (i) "fiscal 1997" shall mean Flowers' full fiscal year ended
June 28, 1997; (ii) "twenty-seven week transition period ended January 3, 1998"
shall mean Flowers' twenty-seven week transition period from June 29, 1997
through January 3, 1998; (iii) "fiscal 1998" shall mean the Company's full
fiscal year ended January 2, 1999; and (iv) "fiscal 1999" shall mean the
Company's full fiscal year ended January 1, 2000. As a result, the Company has
presented its financial position as of January 1, 2000 and January 2, 1999 and
has presented its results of operations, cash flow and changes in stockholders'
equity for fiscal 1999 and fiscal 1998, the twenty-seven week transition period
ended January 3, 1998 and fiscal 1997. For comparative purposes the Company has
included unaudited, condensed, consolidated financial information of Flowers in
Note 14 for the fifty-two weeks ended January 3, 1998 and the twenty-seven weeks
ended January 4, 1997.
RECLASSIFICATIONS
During fiscal 1998, the Company changed its method of presenting the
statement of cash flows from the direct method to the indirect method. This and
certain other reclassifications of prior year information were made to conform
with the current presentation.
REVENUE RECOGNITION
Revenue from sale of product at Flowers Bakeries is recognized at the time
of shipment to its independent distributors, with a discount given the
distributor recorded as an expense in selling, marketing and administrative
expenses. Revenue from sale of product at Mrs. Smith's Bakeries is recognized at
the time of shipment to the customer, recorded net of customer discounts.
Revenue from sale of product at Keebler is recognized at the time of shipment to
the customer or independent distributor, recorded net of customer and
distributor discounts. Sales to a single customer were approximately $84.0
million, or 11% of sales during the twenty-seven week transition period ended
January 3, 1998, and $163.0 million, or 11% of sales during fiscal 1997. During
fiscal 1999 and fiscal 1998, no sales to a single customer accounted for more
than 10% of sales.
F-7
<PAGE> 41
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers deposits in banks, certificates of deposits and
short-term investments with original maturities of three months or less as cash
and cash equivalents for the purposes of the statement of cash flows.
ACCOUNTS RECEIVABLE
Accounts receivable consists of trade receivables, current portion of notes
receivable and miscellaneous receivables. Allowances of $22.0 million and $7.8
million were recorded at January 1, 2000 and January 2, 1999, respectively.
CONCENTRATION OF CREDIT RISK
The Company grants credit to its customers and independent distributors,
who are primarily in the grocery and foodservice markets.
INVENTORIES
Inventories are carried at the lower of cost or market. Approximately 41%
and 47% of inventories at January 1, 2000 and January 2, 1999, respectively, are
valued using the first-in-first-out method ("FIFO"), with Keebler's finished
goods inventory valued primarily under the last-in-first-out ("LIFO") method.
Inventory valued under LIFO approximates FIFO at January 1, 2000 and January 2,
1999.
At January 1, 2000 and January 2, 1999, inventories are shown net of
allowances for slow-moving and aged inventory of $13.0 million and $9.6 million,
respectively.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment is stated at cost. Depreciation expense is
computed using the straight-line method based on the estimated useful lives of
the depreciable assets. Certain facilities and equipment held under capital
leases are classified as property, plant and equipment and amortized using the
straight-line method over the lease terms and the related obligations are
recorded as liabilities. Lease amortization is included in depreciation expense.
Buildings are depreciated over ten to forty years, machinery and equipment
over three to twenty-five years, and furniture, fixtures and transportation
equipment over three to fifteen years. Property under capital leases is
amortized over the lease term. Depreciation expense for fiscal 1999 and fiscal
1998, the twenty-seven week transition period ended January 3, 1998, and fiscal
1997 was $113.1 million, $108.5 million, $25.9 million and $44.8 million,
respectively.
NOTES RECEIVABLE AND DEFERRED INCOME
Prior to September 1996, Flowers Bakeries sold certain of its territories
to independent distributors and financed such sales with ten year notes. In
September 1996, Flowers Bakeries sold these notes, which totaled approximately
$66.0 million, to a financial institution. The proceeds were used to repay debt
outstanding at that time. Concurrently, approximately $43.2 million of deferred
pre-tax income was recognized by Flowers Bakeries during fiscal 1997. Subsequent
to September 1996, all distributor arrangements are made directly between the
distributor and a financial institution and, pursuant to an agreement, Flowers
Bakeries acts as the servicing agent for the financial institution and receives
a fee for these services. The agreement requires amounts to be placed in escrow
by the Company upon the occurrence of certain events as defined in the
agreement. No events have occurred as of January 1, 2000 that would require such
funding by the Company.
F-8
<PAGE> 42
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COST IN EXCESS OF NET TANGIBLE ASSETS
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Goodwill, net............................................... $731,804 $ 748,456
Trademarks and trade names, net............................. 239,782 254,987
$971,586 $1,003,443
======== ==========
</TABLE>
Costs in excess of the net tangible assets acquired are, in the opinion of
management, attributable to long-lived intangibles having continuing value.
Goodwill related to the purchases of businesses are amortized over twenty to
forty years from the acquisition date using the straight-line method. Costs of
purchased trademark and trade name rights are amortized over the period of
expected future benefit, ranging from ten to forty years. Amortization expense
for fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended
January 3, 1998 and fiscal 1997 was $31.5 million, $19.6 million, $1.0 million
and $1.1 million, respectively. During fiscal 1999, the Company recorded $9.8
million of goodwill and trademark adjustments related to purchase accounting and
non-recurring charge reserves (Note 7).
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments as part of an overall
strategy to manage market risk. The Company uses forward commodity futures and
options contracts to hedge existing or future exposure to changes in commodity
prices. The Company does not enter into these derivative financial instruments
for trading or speculative purposes.
Keebler uses interest rate swap agreements to effectively convert certain
fixed rate debt to a floating rate instrument and certain floating rate debt to
a fixed rate instrument. Amounts payable or receivable under the interest rate
swap agreements, calculated as the difference between the fixed and floating
rates multiplied by the notional amount, is recorded as an adjustment to
interest expense, in accordance with hedge accounting.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities" which is now effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The new statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that the
instruments be measured at fair value. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. The Company is currently assessing the effects SFAS133
will have on its financial position and results of operations.
TREASURY STOCK
FII records acquisitions of its common stock for treasury at cost.
Differences between proceeds for reissuances of treasury stock and average cost
are credited or charged to capital in excess of par value to the extent of prior
credits and thereafter to retained earnings.
RESEARCH AND DEVELOPMENT
Activities related to new product development and major improvements to
existing products and processes are expensed as incurred. Amounts were $13.1
million for fiscal 1999, $11.4 million for fiscal 1998, $.7 million for the
twenty-seven week transition period ended January 3, 1998 and $1.0 million for
fiscal 1997.
F-9
<PAGE> 43
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING AND CONSUMER PROMOTION
Advertising and consumer promotion costs are generally expensed as incurred
or no later than when the advertisement appears or the event is run. Advertising
and consumer promotion expense was approximately $111.2 million for fiscal 1999,
$108.4 million for fiscal 1998, $17.0 million for the twenty-seven week
transition period ended January 3, 1998 and $19.1 million for fiscal 1997.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No.
25 -- "Accounting for Stock Issued to Employees" ("APB 25") in accounting for
its plans. The excess of the market price at the date of grant over the purchase
price to be paid by the grantee, if any, is recognized ratably by the Company,
as compensation expense, over the vesting period.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121 -- "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company
determines whether there has been an impairment of long-lived assets and the
related unamortized goodwill, based on whether certain indicators of impairment
are present. In the event that facts and circumstances indicate that the cost of
any long-lived assets and the related unamortized goodwill may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future gross, undiscounted cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow value is required.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
American Institute of Certified Public Accountants Statement of Position ("SOP")
98-1, "Accounting for Cost of Computer Software Developed or Obtained for
Internal Use". In accordance with SOP 98-1, the Company expenses costs incurred
in the preliminary project stage, and thereafter, capitalizes costs incurred in
developing or obtaining internally used software. Certain costs, such as
maintenance and training, are expensed as incurred. Capitalized costs are
amortized over a period of not more than five years and are subject to
impairment evaluation in accordance with the provisions of SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Company capitalized software development costs of $14.7
million and $5.6 million in fiscal 1999 and fiscal 1998, respectively.
NET INCOME PER COMMON SHARE
The Company computes net income per common share in accordance with SFAS
No. 128 -- "Earnings Per Share." Basic net income per share is computed by
dividing net income by weighted average common shares outstanding for the
period. Diluted net income per share is computed by dividing net income by
weighted average common and common equivalent shares outstanding for the period.
Common stock equivalents consist of the incremental shares associated with the
Company's stock option plans, as determined under the treasury stock method.
CHANGES IN ACCOUNTING PRINCIPLES
On November 20, 1997, the Emerging Issues Task Force ("EITF"), a
subcommittee of the FASB, issued EITF 97-13, which requires the cost of business
process reengineering activities that are part of an information systems
development project be expensed as those costs are incurred. Any unamortized
costs that were previously capitalized were required to be written off as a
cumulative adjustment in the quarter that
F-10
<PAGE> 44
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
included November 20, 1997. During the twenty-seven week transition period ended
January 3, 1998, Flowers recorded a cumulative after-tax charge of $8.8 million,
or $.10 per share, as a result of its adoption of this pronouncement.
The Company measures its pension plan assets three months prior to the
beginning of its fiscal year. As a result of Flowers changing its fiscal year,
the measurement date has changed from March 31 to September 30 for
Flowers-sponsored defined benefit plans. This change resulted in a cumulative
adjustment, net of tax, of $1.0 million, or $.01 per share, for the twenty-seven
week transition period ended January 3, 1998.
On April 3, 1998, the Accounting Standards Executive Committee, a
subcommittee of the American Institute of Certified Public Accountants, issued
SOP 98-5 -- "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires
costs of start-up activities and organizational costs to be expensed as
incurred. As a result of adopting SOP 98-5, the Company recorded a cumulative
after-tax charge of $3.1 million, or $.03 per share in fiscal 1998.
COMPREHENSIVE INCOME
As of January 4, 1998, the Company adopted SFAS No. 130 -- "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components. The adoption of this
statement had no impact on the Company's net earnings or stockholders' equity.
During fiscal 1999 and the prior periods presented, total comprehensive income
equaled net income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. ACQUISITIONS
ACQUISITION OF KEEBLER
On January 26, 1996, FII acquired a 49.6% interest in INFLO Holdings
Corporation ("INFLO"), a newly formed corporation jointly owned by FII and Artal
Luxembourg Corporation S.A. for $62.5 million. On January 26, 1996, INFLO
acquired 100% of Keebler Corporation for an aggregate consideration of $454.9
million from United Biscuits (Holdings) plc. The acquisition of Keebler
Corporation was financed through the equity of INFLO and bank borrowings. FII
accounted for its investment in INFLO using the equity method of accounting from
January 26, 1996 up until the time of the control purchase as further described
below.
On June 4, 1996, Keebler Corporation acquired 100% of Sunshine Biscuits,
Inc. ("Sunshine") from G.F. Industries, Inc. ("GFI") for an aggregate purchase
price of $171.6 million. The acquisition was funded by Keebler Corporation's
working capital, bank financing and the issuance to GFI of $23.6 million of
INFLO common stock and warrants. As a result of this transaction, FII's interest
in INFLO was reduced to 45.2%.
On November 20, 1997, INFLO was merged into Keebler Corporation and
subsequently changed its name to Keebler Foods Company.
On February 3, 1998, FII acquired an additional 11.5% of the common stock
of Keebler, concurrent with Keebler's initial public offering, giving FII a
majority ownership position in Keebler of approximately 55% (the "Keebler
Acquisition"). The aggregate purchase price of the additional interest in
Keebler was approximately $312.4 million, including transaction expenses. The
Keebler Acquisition was initially financed
F-11
<PAGE> 45
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through borrowings under FII's $500.0 million Syndicated Loan Facility. The
acquisition of the additional interest in Keebler was accounted for using the
purchase method of accounting, and, accordingly, Keebler's assets and
liabilities are included in the consolidated balance sheet as of January 2, 1999
and January 1, 2000. The acquisition of the majority interest resulted in FII
consolidating Keebler's operating results effective January 4, 1998. Keebler's
operating results for the period January 4, 1998 through February 3, 1998, the
date FII acquired the majority interest, were not materially different had the
investment in Keebler been accounted for under the equity method, the method by
which FII previously accounted for its investment in Keebler. The purchase price
has been allocated to the net tangible and intangible assets acquired and
liabilities assumed of Keebler's based on their respective fair values. The
excess of the purchase price over the fair value of the net assets underlying
the additional interest acquired, approximately $264.2 million, has been
recorded as goodwill and is being amortized over forty years.
ACQUISITION OF PRESIDENT INTERNATIONAL, INC.
On September 28, 1998, Keebler acquired President International, Inc.
("President") from President International Trade and Investment Corporation for
an aggregate purchase price of $450.6 million, including transaction expenses
paid at closing. The President acquisition was funded by Keebler, with
approximately $75.0 million from existing resources and the remainder from
borrowings under the $700.0 million Senior Credit Facility Agreement ("Credit
Facility") and a $125.0 million Bridge Facility, both dated as of September 28,
1998.
The acquisition of President has been accounted for as a purchase. The
purchase price has been allocated to the net tangible and intangible assets of
President based on their respective fair values. The excess of the purchase
price over the fair value of net assets acquired is approximately $329.2
million, of which $12.8 million represents costs pursuant to a plan to exit
certain activities and operations of President. The unallocated excess purchase
price is being amortized straight-line over forty years.
Results of operations for President from September 28, 1998 to January 2,
1999 have been included in the consolidated statement of income for fiscal 1998.
The following unaudited, condensed, combined pro forma results of operations of
the Company assume the President acquisition and the Keebler Acquisition
occurred as of the beginning of each period presented. Additionally, the pro
forma results for the year ended January 3, 1998 give effect to (i) FII selling
9,000,000 shares of its common stock in a public offering at $22 per share on
April 27, 1998 and (ii) FII selling $200.0 million of 7.15% debentures on April
27, 1998, due April 15, 2028, as if such transactions had occurred at the
beginning of the period:
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED FOR THE 53 WEEKS ENDED
JANUARY 2, 1999 JANUARY 3, 1998
---------------------- ----------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales........................................ $4,133,481 $3,952,547
Income before extraordinary loss and
cumulative effect of changes in accounting
principles................................. 50,449 56,793
Net Income................................... 46,380 42,835
Diluted Net Income Per Common Share:
Income before extraordinary loss and
cumulative effect of changes in
accounting principles................... .52 .58
Net income................................. .48 .44
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the transactions been consummated
as of the beginning of each period presented, nor are they necessarily
indicative of future operating results.
F-12
<PAGE> 46
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Employee compensation....................................... $ 89,093 $ 93,942
Pension..................................................... 21,521 19,511
Insurance................................................... 61,268 63,551
Marketing and consumer promotions........................... 61,869 65,075
Other....................................................... 85,888 72,191
-------- --------
Total............................................. $319,639 $314,270
======== ========
</TABLE>
FII does not guarantee Keebler's other accrued liabilities of $237.4
million, which are included in the consolidated amount at January 1, 2000.
NOTE 4. DEBT AND LEASE COMMITMENTS
Long-term debt consisted of the following at January 1, 2000 and January 2,
1999:
<TABLE>
<CAPTION>
INTEREST FINAL JANUARY 1, JANUARY 2,
RATE MATURITY 2000 1999
-------- --------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Flowers:
Syndicated Loan Facility................. 7.56% 2003 $ 350,000 $ 150,000
Senior Notes............................. 6.84% 2016 125,000 125,000
Debentures............................... 7.15% 2028 200,000 200,000
Commercial Paper......................... 5.55% 2000 25,027 74,870
Capital Lease Obligations................ 7.75% Various 51,317 2,853
Other.................................... Various 2004-2017 48,409 27,129
---------- ----------
799,753 579,852
---------- ----------
Keebler:
Bridge Facility.......................... 6.26% 1999 75,000
Revolving Facility....................... 5.84% 2004 85,000
Term Facility............................ 5.81% 2004 314,000 350,000
Senior Subordinated Notes................ 10.75% 2006 124,400 124,400
Capital Lease Obligations................ Various 2002-2042 7,588 8,290
Other Senior Debt........................ Various 2001-2005 10,455 11,805
---------- ----------
456,443 654,495
---------- ----------
Consolidated Debt:......................... 1,256,196 1,234,347
Due within one year...................... 47,566 195,349
---------- ----------
Due after one year....................... $1,208,630 $1,038,998
========== ==========
</TABLE>
FLOWERS
On July 10, 1996, FII entered into a five year $300.0 million Syndicated
Loan Facility. The facility was amended in January 1998, increasing the limit to
$500.0 million, and extending the term to January 30, 2003. The facility was
amended primarily to provide financing for the purchase of the majority interest
in Keebler on February 3, 1998. At January 1, 2000 and January 2, 1999, $350.0
million and $150.0 million, respectively was outstanding. Amounts are borrowed
under this facility for periods not to exceed 180 days and can be
F-13
<PAGE> 47
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reborrowed as necessary during the term of the facility. Interest under the
facility is generally payable monthly and is variable based on a performance
grid using a choice of LIBOR plus 1.375% or money market rates. At January 1,
2000, the commitment fee was 0.375%.
On January 5, 1996, FII completed a private placement of $125.0 million of
Senior Notes. These notes are due in three tranches: $100.0 million due in
semiannual installments from January 5, 2004 through January 5, 2008 which bears
interest at 6.80% per annum; $20.0 million due January 5, 2011 which bears
interest at 6.99% per annum; and $5.0 million due January 5, 2016 which bears
interest at 7.08% per annum. Interest is payable semiannually.
On April 27, 1998, FII sold $200.0 million of 7.15% debentures due April
15, 2028, priced at 99.47%. Interest on the debentures is payable semiannually.
Net proceeds from the offering were used to reduce borrowings under the $500.0
million Syndicated Loan Facility.
On July 28, 1998, FII amended its short-term Commercial Paper Agreement to
increase the limit from $75.0 million to $100.0 million. Borrowings under this
agreement were used to finance inventory at Mrs. Smith's Bakeries. On January
14, 2000, this facility was terminated and repaid with borrowings from the
Syndicated Loan Facility. In accordance with FASB Statement No. 6,
"Classification of Short-Term Obligations Expected to be Refinanced", the
outstanding balance of $25.0 million was classified as long-term debt on January
1, 2000.
FII also has a $10.0 million revolving-term loan agreement with no amounts
outstanding at January 1, 2000 or January 2, 1999.
Several loan agreements of FII contain restrictions which, among other
things, require maintenance of certain financial ratios and restrict encumbrance
of assets and creation of indebtedness. At January 1, 2000, FII was in
compliance with these requirements.
KEEBLER
At January 1, 2000, and January 2, 1999, Keebler's primary credit financing
was provided by a $700.0 million Credit Facility consisting of $350.0 million
under the Revolving Facility and $350.0 million under the Term Facility. At
January 2, 1999, financing was also provided under a $125.0 million Bridge
Facility.
Outstanding balances under the Term Facility were $314.0 million and $350.0
million at January 1, 2000 and January 2, 1999, respectively. Quarterly
principal payments are scheduled through the final maturity at September 2004.
The Revolving Facility had outstanding balances of zero and $85.0 million and
available balances of $350.0 million and $265.0 million at January 1, 2000 and
January 2, 1999, respectively. The Revolving Facility has no scheduled principal
payment until maturity at September 2004. Any unused borrowings under the
Revolving Facility are subject to a commitment fee that will vary from
0.125% - 0.30% based on the relationship of debt to adjusted earnings. At
January 1, 2000, the commitment fee was 0.125%.
The $75.0 million Bridge Facility outstanding at January 2, 1999, that had
a final maturity of September 1999, with no scheduled principal payments, was
refinanced on January 29, 1999. Keebler entered into a Receivables Purchase
Agreement ("the Agreement") to replace the $75.0 million of debt held under the
Bridge Facility, allowing funds to be borrowed at a lower cost to Keebler. The
accounting for this Agreement is governed by SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities."
Under the guidelines of SFAS No. 125, a special purpose entity was created,
Keebler Funding Corporation, as a subsidiary of Keebler Foods Company. All
transactions under this Agreement occur through Keebler Funding Corporation and
are treated as a sale of accounts receivable and not as a debt instrument. At
January 1, 2000, a net of $103.0 million of accounts receivable had been sold at
fair value, which is below the maximum amount currently available under the
Agreement.
F-14
<PAGE> 48
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest on the Credit Facility is calculated based on base rate plus
applicable margin. The base rate can, at Keebler's option, be: (i) the higher of
the base domestic lending rate as established by the administrative agent for
the lender of the Credit Facility, or the Federal Funds Rate plus one-half of
one percent; or (ii) a reserve percentage adjusted LIBOR as offered by the
administrative agent. Interest on the Bridge Facility is calculated using the
same components as the Credit Facility.
In conjunction with the President acquisition on September 28, 1998, Term
Loan A was extinguished by using $145.0 million of borrowings under the new
Credit Facility. Keebler recorded a pre-tax extraordinary charge of $2.8 million
related primarily to expensing certain bank fees which were being amortized and
which were incurred at the time Term Loan A was issued. The related after-tax
charge, net of minority interest, was $.9 million.
On July 1, 1998, Keebler entered into a swap transaction which matures on
July 1, 2001. The swap transaction had the effect of converting the fixed rate
of 10.75% on $124.0 million of the Notes to a rate of 11.33% through July 3,
2000. In addition, on September 30, 1998 and October 5, 1998, Keebler entered
into two swap transactions both maturing on September 30, 2004, each of which
converts the base rate on $105.0 million of Credit Facility to fixed rate debt
of 5.084% and 4.89%, respectively.
Keebler also maintains an interest rate swap that does not qualify for
hedge accounting, which has a notional amount of $170.0 million and a fixed rate
obligation of 5.0185% through February 1, 2001. During fiscal 1999, $2.8 million
was recognized in income from operations in order to mark-to-market the interest
rate swap. The resulting receivable related to this transaction was recorded as
a current receivable as part of other current assets for $0.5 million and a
long-term receivable as part of other assets for $2.3 million in the statement
of financial position.
Several loan agreements of Keebler contain restrictions which, among other
things, require maintenance of certain financial ratios and restrict encumbrance
of assets and creation of indebtedness. At January 1, 2000, Keebler was in
compliance with these requirements.
Annual maturities of long-term debt and capital leases for each of the five
years following January 1, 2000 and thereafter are as follows:
<TABLE>
<CAPTION>
FLOWERS KEEBLER CONSOLIDATED
-------- -------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
2000.................................................. $ 35,310 $ 37,283 $ 72,593
2001.................................................. 7,138 42,162 49,300
2002.................................................. 7,257 68,647 75,904
2003.................................................. 7,404 105,596 113,000
2004.................................................. 32,797 75,769 108,566
2005 and thereafter................................... 709,847 126,986 836,833
-------- -------- ----------
Total....................................... $799,753 $456,443 $1,256,196
======== ======== ==========
</TABLE>
FII has not guaranteed any of the Keebler indebtedness and it is to be
repaid solely from the cash flows of Keebler.
LEASES
The Company leases certain property and equipment under various operating
and capital lease arrangements that expire over the next 25 years. Most of these
operating leases provide the Company with the option, after the initial lease
term, either to purchase the property at the then fair value or renew its lease
at the then fair value for periods from one month to ten years. Flowers has
entered into certain capital lease obligations requiring the Company to
guarantee the residual value to the lessor of approximately $29.0 million
F-15
<PAGE> 49
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at the termination of the lease. Assets recorded under capitalized lease
agreements included in property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 980 $ 980
Buildings................................................. 2,894 2,894
Machinery and Equipment................................... 54,159 4,811
Other Leased Assets....................................... 1 1
------- ------
58,034 8,686
Accumulated Depreciation.................................. (2,172) (242)
------- ------
$55,862 $8,444
======= ======
</TABLE>
Future minimum lease payments under scheduled capital and operating leases
that have initial or remaining noncancelable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
2000...................................................... $10,388 $ 50,655
2001...................................................... 9,452 42,664
2002...................................................... 8,462 35,324
2003...................................................... 7,187 31,919
2004...................................................... 11,230 23,266
2005 and thereafter....................................... 31,998 113,266
------- --------
Total minimum payments.......................... $78,717 $297,094
Amount representing interest.............................. (19,812)
-------
Obligations under capital leases.......................... 58,905
Obligations due within one year........................... (7,666)
=======
Long-term obligations under capital leases................ $51,239
=======
</TABLE>
Rent expense for all operating leases amounted to $96.2 million for fiscal
1999, $61.3 million for fiscal 1998, $16.2 million for the twenty-seven week
transition period ended January 3, 1998 and $24.2 million for fiscal 1997. FII
does not guarantee Keebler's lease obligations of $7.6 million, which are
included in the consolidated amount above.
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of short and long-term borrowing was estimated using
discounted cash flow analysis based on current interest rates which would be
obtained for similar financial instruments. The carrying value of cash and cash
equivalents and short-term debt approximates fair value at January 1, 2000 and
January 2, 1999, because of the short-term maturity of the instruments. The fair
value of Flowers long-term debt was $712.5 million at January 1, 2000 and
approximately equaled carrying value at January 2, 1999. The fair value of
Keebler's long-term debt was $417.2 million and $536.6 million at January 1,
2000 and January 2, 1999, respectively. The fair value of the Company's
outstanding commodity derivative financial instruments, based on the stated
market value as of January 1, 2000 and January 2, 1999, was $92.0 million and
$113.8 million, respectively. The fair value of Keebler's interest rate swap
agreements, a net receivable of $7.9 million, was estimated based on market
prices as of January 1, 2000.
F-16
<PAGE> 50
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. COMMODITY PURCHASE AGREEMENTS
The Company's primary raw materials are flour, sugar, shortening, fruits
and dairy products. Amounts payable or receivable under the commodity agreements
which qualify as hedges are recognized as deferred gains or losses when the
positions are closed, and are charged or credited to cost of sales as the
related raw materials are used in production. To qualify as a hedge, a commodity
agreement must reduce the exposure of the Company to price risk and must show
high correlation of changes in value with the value of the hedged item. For
fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended
January 3, 1998 and fiscal 1997, losses of $6.5 million, $7.9 million, $.6
million and $1.9 million, respectively, were recorded. As of January 1, 2000 and
January 2, 1999, deferred losses on closed contracts accounted for as hedges
were $5.8 million and $3.8 million, respectively. Gains and losses on agreements
which do not qualify as hedges are marked to market and recorded immediately as
other income or expense. For fiscal 1999, a loss of $3.5 million was recorded.
For fiscal 1998, a gain of $1.1 million was recorded and for the twenty-seven
week transition period ended January 3, 1998, a loss of $.8 million was
recorded. There was no gain or loss in fiscal 1997.
The Company's various commodity purchase agreements effectively commit the
Company to purchase raw materials in amounts approximating $113.0 million at
January 1, 2000, which will be used in production in future periods.
NOTE 7. FACILITY CLOSING COSTS AND SEVERANCE
NON-RECURRING CHARGES
During fiscal 1999, the Board of Directors of Keebler approved a plan to
close its Sayreville, New Jersey production facility due to excess capacity
within Keebler's 14-plant manufacturing network. As a result of this plan, the
Company recorded a pre-tax non-recurring charge of $69.2 million. The charge
included $46.1 million of non-cash asset impairments and $23.1 million of
severance and other exit costs related to the Sayreville facility. As a direct
result of this plan, asset impairments were recorded to write-down the closed
facility to net realizable value, less cost to sell, based on management's
estimate of fair value. Also, as part of this plan, asset impairments were
recorded to write-off certain other machinery and equipment currently held by
Keebler and to reduce goodwill acquired in the Sunshine Biscuits, Inc.
acquisition in June 1996, neither of which provides any future economic benefit.
Severance costs provided for the reduction of approximately 650 employees, of
which 600 were represented by unions. As of January 1, 2000, approximately 640
employees, of which 595 were represented by unions, had been severed. This plan
is substantially complete as of January 1, 2000. Accordingly, during the fourth
quarter of fiscal 1999, an adjustment of $2.9 million was recorded against the
original $69.2 million. The adjustment was due to lower than expected severance
costs and an earlier than expected disposal of the facility as current real
estate conditions resulted in a twelve month reduction in the estimated disposal
period. The adjusted net charge in fiscal 1999 related to this plant closure was
$66.3 million. Ongoing costs, including but not limited to, guard service,
utilities, property taxes and preparing the facility for sale, will continue for
eighteen months or until the facility is disposed of, whichever occurs earlier.
The amount of suspended depreciation and amortization that would have been
recognized for the year ended January 1, 2000, if prior period impairment had
not been recognized was approximately $3.7 million, with $5.6 million of
annualized savings anticipated in 2000.
During the fourth quarter of fiscal 1998, the Board of Directors of the
Company approved a plan to realign production and distribution at Flowers
Bakeries and Mrs. Smith's Bakeries in order to enhance efficiency. The Company
recorded a pre-tax non-recurring charge of $68.3 million ($32.2 million, $32.3
million and $3.8 million for Flowers Bakeries, Mrs. Smith's Bakeries and
Keebler, respectively). The charge included $57.5 million of noncash asset
impairments, $4.8 million of severance costs and $6.1 million of other related
exit costs. The plan involved closing six less efficient facilities of Flowers
Bakeries and Mrs. Smith's Bakeries and shifting their production and
distribution to highly automated facilities. As a direct result of management's
decision to implement production line rationalizations, asset impairments were
recorded to
F-17
<PAGE> 51
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
write-down the closed facilities to net realizable value, less cost to sell,
based on management's estimate of fair value, and the related cost in excess of
net tangible assets. Also, as part of this plan, asset impairments were recorded
to write-off certain duplicate machinery and equipment designated for disposal.
The plan included severance costs for 695 employees, and, as of January 1, 2000,
all such employees had been terminated. During fiscal 1999, Flowers Bakeries and
Mrs. Smith's Bakeries recorded adjustments to the fiscal 1998 restructuring
reserve of $1.1 million and $4.9 million, respectively. These adjustments are
the result of reduced carrying costs of plants held for sale, an adjustment to
the value of these assets due to the identification of a buyer and changes in
estimates of severance and other employee termination costs. As of January 1,
2000, all significant actions related to these plans have been completed. The
remaining exit costs include ongoing costs such as guard service, utilities and
property taxes of closed facilities until the time of disposal. Management
anticipates the charges will result in operating savings of approximately $40.0
million over the next five years, principally from reduced depreciation of
approximately $13.0 million and increased efficiencies and reduced employee
expense of approximately $27.0 million.
PURCHASE ACCOUNTING RESERVES
During fiscal 1998, as part of accounting for the acquisition of President,
Keebler recognized costs pursuant to a plan to exit certain activities and
operations of President in order to rationalize productivity and reduce costs
and inefficiencies. These exit costs, for which there is no anticipated future
economic benefit, were provided for in the allocation of the purchase price and
totaled $12.8 million. Company-wide staff reductions were initially estimated at
410 employees and $6.7 million, with the balance of the reserves allocated to
costs associated with the closing of seven production, sales or distribution
facilities, which principally include noncancelable lease obligations and
building maintenance costs. At January 1, 2000, approximately 40 employees not
under union contract had been terminated. In addition, during the year
management reviewed its exit plan and made a determination that approximately
110 employees not under union contract, would not be terminated. During fiscal
1999, Keebler adjusted accruals previously established in the accounting for the
President acquisition by reducing goodwill and other intangibles by $4.5 million
to recognize exit costs that are now expected to be less than initially
anticipated. The remainder of management's exit plan is expected to be
substantially complete before the end of fiscal 2000 with only noncancelable
lease obligations to be paid over the next six years, concluding in fiscal 2006.
As part of the acquisition of Mrs. Smith's Inc. in fiscal 1996, Flowers
recorded a purchase accounting reserve of $37.1 million in order to realign
production and distribution at Mrs. Smith's Bakeries to reduce inefficiencies.
The realignment involved the shutdown of a leased production facility. The
reserve includes $27.6 million of noncancelable lease obligations and building
maintenance costs, $2.1 million of severance costs, and $7.4 million of other
exit costs, including health insurance, incremental workers' compensation costs
and the costs associated with dismantling and disposing of equipment at the
closed facility. Under the plan, approximately 300 employees were to be and have
been terminated. With the exception of noncancelable lease obligations and
building maintenance costs that continue through fiscal 2006, this plan was
substantially complete as of the end of fiscal 1998. Spending against the
reserve totaled $6.8 million, $4.0 million, $.6 million and $1.6 million in
fiscal 1999, fiscal 1998, the twenty-seven week transition period ended January
3, 1998 and fiscal 1997, respectively.
As part of INFLO's acquisition of Keebler and Keebler's subsequent
acquisition of Sunshine, Keebler's management team adopted and began executing a
plan to reduce costs and inefficiencies. Certain exit costs totaling $77.4
million were provided for in the allocation of the purchase price of both the
Keebler and Sunshine acquisitions. Management's plan included company-wide staff
reductions, the closure of production, distribution and sales force facilities
and information system exit costs. Severance costs were estimated at $39.4
million for the approximately 1,400 employees anticipated to be terminated. As
of the end of fiscal 1998, all had been terminated. The plan included the
closure of its Atlanta, Georgia and Santa Fe Springs, California, production
facilities, as well as 39 sales force and distribution facilities. Costs
incurred related to
F-18
<PAGE> 52
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the closing of production, distribution and sales force facilities, other than
severance costs, included primarily noncancelable lease obligations and building
maintenance costs of $31.2 million. An additional $6.8 million was anticipated
for lease costs related to exiting legacy information systems. As of January 4,
1998, the date FII began consolidating Keebler for financial reporting purposes,
the remaining liability was $22.5 million, of which $20.2 million related to
noncancelable lease obligations and building maintenance costs, $.3 million
related to severance costs and $2.0 million related to other exit costs. All
activity prior to that date occurred while FII accounted for its investment in
Keebler in accordance with the equity method of accounting. Spending against the
remaining reserves totaled $3.0 million for fiscal 1999 and $7.7 million for
fiscal 1998. In addition, during fiscal 1999 and fiscal 1998, Keebler expensed
$0.8 million and $2.8 million, respectively, principally for costs related to
the closure of two distribution facilities not included in the original plan.
During fiscal 1999, Keebler adjusted accruals previously established in the
accounting for the Keebler acquisition by reducing goodwill and other
intangibles by $0.5 million and reversing $1.3 million into income from
operations to recognize exit costs that are now expected to be less than
initially anticipated. The $1.3 million was credited to operating income as it
had originally been charged to income from operations in fiscal 1999 and fiscal
1998. During fiscal 1998, Keebler also adjusted accruals previously established
in the accounting for the Keebler and Sunshine acquisitions by reducing goodwill
and other intangibles by $3.7 million to recognize exit costs that are now
expected to be less than initially anticipated. The exit plan was substantially
complete at January 1, 2000 with only noncancelable lease obligations continuing
through 2006.
Activity with respect to the non-recurring charges and purchase accounting
reserves was as follows (amounts in thousands):
Non-Recurring Charges:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 3, PROVISION/ NONCASH JANUARY 2,
1998 ADJUSTMENTS REDUCTIONS SPENDING 1999
---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Noncash impairments................. $ -- $57,489 $(57,489) $ -- $ --
Severance........................... -- 4,755 -- (3,217) 1,538
Noncancelable lease obligations and
facility closure costs............ -- 3,995 -- -- 3,995
Other............................... -- 2,074 -- (94) 1,980
------ ------- -------- -------- ------
Total..................... $ -- $68,313 $(57,489) $ (3,311) $7,513
====== ======= ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 2, PROVISION/ NONCASH JANUARY 1,
1999 ADJUSTMENTS REDUCTIONS SPENDING 2000
---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Noncash impairments................. $ -- $42,049 $(42,049) $ -- $ --
Severance........................... 1,538 14,377 -- (13,878) 2,037
Noncancelable lease obligations and
facility closure costs............ 3,995 1,358 -- (2,522) 2,831
Other............................... 1,980 2,571 -- (2,089) 2,462
------ ------- -------- -------- ------
Total..................... $7,513 $60,355 $(42,049) $(18,489) $7,330
====== ======= ======== ======== ======
</TABLE>
F-19
<PAGE> 53
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Accounting Reserves:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 3, PROVISION/ JANUARY 2,
1998 ADJUSTMENTS SPENDING 1999
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Mrs. Smith's Bakeries
Severance.................................... $ 1,735 $ -- $ (388) $ 1,347
Non cancelable lease obligations and other
facility closure costs..................... 27,149 -- (1,350) 25,799
Other........................................ 6,069 -- (2,308) 3,761
------- ------- -------- -------
Total.............................. $34,953 $ -- $ (4,046) $30,907
------- ------- -------- -------
Keebler Foods Company
Severance.................................... $ 231 $ 111 $ (293) $ 49
Non cancelable lease obligations and other
facility closure costs..................... 12,505 2,244 (3,265) 11,484
Other........................................ 1,895 (182) (1,689) 24
------- ------- -------- -------
Total.............................. $14,631 $ 2,173 $ (5,247) $11,557
------- ------- -------- -------
Sunshine Biscuits, Inc.
Severance.................................... $ 112 $ -- $ (26) $ 86
Non cancelable lease obligations and other
facility closure costs..................... 7,735 (3,120) (2,388) 2,227
------- ------- -------- -------
Total.............................. $ 7,847 $(3,120) $ (2,414) $ 2,313
------- ------- -------- -------
President International, Inc.
Severance.................................... $ -- $ 6,653 $ (59) $ 6,594
Non cancelable lease obligations and other
facility closure costs..................... -- 5,670 -- 5,670
Other........................................ -- 447 -- 447
------- ------- -------- -------
Total.............................. $ -- $12,770 $ (59) $12,711
------- ------- -------- -------
GRAND TOTAL........................ $57,431 $11,823 $(11,766) $57,488
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 2, PROVISION/ JANUARY 1,
1999 ADJUSTMENTS SPENDING 2000
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Mrs. Smith's Bakeries
Severance.................................... $ 1,347 $ -- $ (1,347) $ --
Non cancelable lease obligations and other
facility closure costs..................... 25,799 (1,405) (4,208) 20,186
Other........................................ 3,761 -- (1,285) 2,476
------- ------- -------- -------
Total.............................. $30,907 $(1,405) $ (6,840) $22,662
------- ------- -------- -------
Keebler Foods Company
Severance.................................... $ 49 $ 25 $ (50) $ 24
Non cancelable lease obligations and other
facility closure costs..................... 11,484 (1,009) (2,646) 7,829
Other........................................ 24 (10) (14) --
------- ------- -------- -------
Total.............................. $11,557 $ (994) $ (2,710) $ 7,853
------- ------- -------- -------
</TABLE>
F-20
<PAGE> 54
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 2, PROVISION/ JANUARY 1,
1999 ADJUSTMENTS SPENDING 2000
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Sunshine Biscuits, Inc.
Severance.................................... $ 86 $ -- $ (23) $ 63
Non cancelable lease obligations and other
facility closure costs..................... 2,227 -- (265) 1,962
------- ------- -------- -------
Total.............................. $ 2,313 $ -- $ (288) $ 2,025
------- ------- -------- -------
President International, Inc.
Severance.................................... $ 6,594 $(3,189) $ (576) $ 2,829
Non cancelable lease obligations and other
facility closure costs..................... 5,670 (991) (83) 4,596
Other........................................ 447 (319) (118) 10
------- ------- -------- -------
Total.............................. $12,711 $(4,499) $ (777) $ 7,435
------- ------- -------- -------
GRAND TOTAL........................ $57,488 $(6,898) $(10,615) $39,975
======= ======= ======== =======
</TABLE>
NOTE 8. STOCKHOLDERS' EQUITY
FII
FII's Articles of Incorporation provide that the authorized capital of FII
consists of 350,000,000 shares of common stock of $.625 par value per share (the
"Common Stock"), 10,467 shares of preferred stock, par value $100 per share,
convertible into Common Stock, and 249,533 shares of preferred stock, par value
$100 per share that, at the discretion of the Board of Directors, may be either
convertible or non-convertible, of which 100,000 shares has been designated by
the Board of Directors as Series A Junior Participating Preferred Stock ("Series
A Preferred Stock").
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Subject to
preferential rights of any issued and outstanding preferred stock, including the
Series A Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors of
FII out of funds legally available. In the event of a liquidation, dissolution
or winding-up of FII, holders of Common Stock are entitled to share ratably in
all assets of FII, if any, remaining after payment of liabilities and the
liquidation preferences of any issued and outstanding preferred stock, including
the Series A Preferred Stock. Holders of Common Stock have no preemptive rights,
no cumulative voting rights and no rights to convert their shares of Common
Stock into any other securities of FII or any other person. The Common Stock is
not subject to redemption or sinking fund redemption.
On April 27, 1998, FII sold 9,000,000 shares of its Common Stock in a
public offering at $22 per share. Net proceeds from the offering were used to
reduce borrowings under the $500.0 million Syndicated Loan Facility which were
primarily incurred to purchase the majority interest in Keebler.
Preferred Stock
The Board of Directors of FII has the authority to issue up to 249,533
shares of preferred stock in one or more series and to fix the designations,
relative powers, preferences, rights, qualifications, limitations and
restrictions of all shares of each such series, including without limitation,
dividend rates, conversion rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and the number of shares constituting each
such series, without any further vote or action by the holders of Common Stock.
Pursuant to
F-21
<PAGE> 55
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
such authority, the Board of Directors has designated 100,000 shares of
preferred stock as Series A Preferred Stock in connection with the adoption of
FII's Shareholder's Rights Plan. The issuance of one or more series of preferred
stock will likely decrease the amount of earnings and assets available for
distribution to holders of Common Stock as dividends or upon liquidation,
respectively, and may adversely affect the rights and powers, including voting
rights, of the holders of Common Stock. The issuance of preferred stock also
could have the effect of delaying, deterring or preventing a change in control
of FII.
FII SHAREHOLDER'S RIGHTS PLAN
On March 19, 1999, the Company's Board of Directors declared a dividend of
one preferred share purchase right (a "Right" or, collectively, the "Rights")
for each share of Common Stock held of record on the close of business on April
2, 1999. Under certain circumstances, a Right may be exercised to purchase one
ten-thousandth of a share of Series A Junior Participating Preferred Stock (the
"Preferred Stock") at an exercise price of $90.00.
The Rights become exercisable upon the earlier to occur of: (i) the tenth
calendar day after a person or group acquires 15% or more of the Company's
outstanding Common Stock, or (ii) the tenth business day after the commencement
of a tender offer for 15% or more of the Company's outstanding Common Stock. If
the Rights become exercisable, each Right will entitle the holder thereof to
purchase one ten-thousandth of a share of Preferred Stock. If a person or group
acquires 15% or more of the outstanding Common Stock of the Company, the holder
of each Right not owned by the 15% or more shareholder would be entitled to
purchase for $90.00 (the exercise price of the Right) Common Stock of the
Company having market value equal to $180.00. If the Company is a party to
certain mergers or business combination transactions or transfers 50% or more of
its assets or earning power to another party, each Right will entitle its holder
to buy a number of shares of Common Stock of the acquiring or surviving company
having a market value of twice the exercise price of the Rights, or $180.00. If
the Rights are fully exercised, the shares issued thereby would cause a
substantial dilution to the shareholders of the acquiring or surviving company.
The Company may also, under certain circumstances, exchange the Rights not owned
by the 15% or more shareholder at an exchange ratio of one share of Common Stock
per Right.
The Rights expire April 2, 2009, and may be redeemed by the Company for
$.01 per Right at any time prior to the close of business on the later of: (i)
the tenth calendar day after a person or group acquires 15% or more of the
Company's outstanding Common Stock, or (ii) the tenth business day after the
commencement of a tender offer for 15% or more of the Company's outstanding
Common Stock.
STOCK INCENTIVE PLANS
Flowers
FII has two stock incentive plans that authorize the Compensation Committee
of the Board of Directors to grant to eligible employees stock options, stock
appreciation rights, restricted or deferred stock awards, stock purchase rights
and other stock-based awards. The Executive Stock Incentive Plan ("ESIP"), the
only plan with shares available for grant, is authorized to grant to eligible
employees up to 12,050,000 shares of Common Stock, through October 17, 2007. The
FII Stock Option Plan expired on October 15, 1992, therefore no additional
grants will be made pursuant to this Plan. Additionally, FII has a Non-Employee
Directors' Equity Plan (the "Directors' Plan") pursuant to which an aggregate of
300,000 shares of Common Stock may be issued and awarded as stock options to
non-employee directors. All options granted under this plan have ten year terms
and vest one year from the date of grant.
During fiscal 1999, fiscal 1998 and the twenty-seven week transition period
ended January 3, 1998, 673,800 shares, 345,972 shares and 347,609 shares
respectively, of FII's Common Stock were issued as Restricted Stock Awards
("RSAs"). Pursuant to the ESIP, these shares are held in escrow by FII and will
be
F-22
<PAGE> 56
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
released to the grantee upon the grantee's satisfaction of continued employment
at the same or a higher level during the restriction periods and payment of the
purchase price. During fiscal 1999, special grants were made to key executives
that include the attainment of specific financial goals as a condition of
vesting. The restriction periods end at various dates through June 2003. The
purchase price is 50% of the mean of the high and low market value of FII's
Common Stock at the date of grant. The purchase price of the shares described
above and shares still outstanding granted prior to fiscal 1997 ranges from
$5.11 to $12.82 per share. Compensation expense for fiscal 1999 and fiscal 1998,
the twenty-seven week transition period ended January 3, 1998 and fiscal 1997
was $4.8 million, $3.8 million, $1.1 million and $1.7 million, respectively.
During fiscal 1996, 358,547 shares of FII's Common Stock were issued as
Equity Incentive Awards ("EIA"). Pursuant to the ESIP, these shares are held in
escrow by FII and may be released ratably to the grantee upon the grantee's
satisfaction of continued employment at the same or a higher level during the
restriction period which ends May 20, 1999, and upon payment of the purchase
price of $5.11 per share. The purchase price is 50% of the mean of the high and
low market value of FII's Common Stock on the date of grant. Compensation
expense for fiscal 1999, fiscal 1998, the twenty-seven week transition period
ended January 3, 1998 and fiscal 1997 was $.2 million, $.7 million, $.3 million
and $.8 million, respectively. The awards were fully exercised in fiscal 1999.
During fiscal 1998, 1,128,600 shares of FII's Common Stock were granted as
non-qualified stock options ("NQSOs"). Pursuant to the ESIP, the NQSOs vest at
the end of four years and expire ten years after the date of grant. The
optionees are required to pay the market value of the shares, determined as of
the grant date, which was $21.00 during fiscal 1998. As of January 1, 2000 and
January 2, 1999, there were 1,854,000 and 1,926,000 NQSOs outstanding,
respectively.
During fiscal 1999 and fiscal 1998, the twenty-seven week transition period
ended January 3, 1998 and fiscal 1997, the stock option activity pursuant to the
ESIP is set forth below:
<TABLE>
<CAPTION>
FOR THE 52 FOR THE 52 FOR THE 27 FOR THE 52
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 29, 1997
------------------ ------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....... 1,926 $15.34 1,165 $ 7.57 1,211 $7.52 1,664 $7.11
Granted................................ 1,129 21.00
Exercised.............................. (63) 5.50 (368) 8.10 (46) $6.06 (453) $6.03
Forfeitures............................ (9)
----- ------ ------ ------ ----- ----- ----- -----
Outstanding at end of year............. 1,854 $15.65 1,926 $15.34 1,165 $7.57 1,211 $7.52
===== ====== ===== =====
Exercisable at end of year............. 735 798 1,165 1,211
===== ====== ===== =====
Weighted average fair value of options
granted during the year.............. N/A $ 4.37 N/A N/A
===== ====== ===== =====
</TABLE>
F-23
<PAGE> 57
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock options outstanding and exercisable, under the ESIP, on January 1,
2000 were as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED AVERAGE
AVERAGE EXERCISE REMAINING CONTRACTUAL
RANGE OF EXERCISE PRICES PER SHARE SHARES PRICE PER SHARE LIFE IN YEARS
---------------------------------- --------- ---------------- ---------------------
<S> <C> <C> <C>
Outstanding:
$ 5.50 - $ 6.06................................. 262,234 $ 5.79 1.5
$ 8.45.......................................... 472,500 8.45 5.5
$21.00.......................................... 1,119,400 $21.00 8.5
--------- ------ ---
$ 5.50 - $21.00................................. 1,854,134 $15.65 6.7
========= ====== ===
Exercisable:
$ 5.50 - $ 6.06................................. 262,234 $ 5.79
$ 8.45.......................................... 472,500 8.45
--------- ------
$ 5.50 - $ 8.45................................. 734,734 $ 7.50
========= ======
</TABLE>
During fiscal 1999 and fiscal 1998, and the twenty-seven week transition
period ended January 3, 1998 stock option activity pursuant to the Directors'
Plan is set forth below:
<TABLE>
<CAPTION>
FOR THE 52 FOR THE 52 FOR THE 27
WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 57 $18.51 41 $17.50
Granted..................................... 28 24.12 16 21.00 41 $17.50
Exercised...................................
Forfeitures.................................
----- ----- -----
Outstanding at end of year.................. 85 $20.35 57 $18.51 41 $17.50
===== ===== =====
Exercisable at end of year.................. 57 41 0
===== ===== =====
Weighted average fair value of options
granted during the year................... $7.60 $4.37 $4.36
===== ===== =====
</TABLE>
As of January 1, 2000, 57,376 of the options, under the Directors' Plan are
exercisable with a weighted average price of $18.51. The weighted average
remaining contractual life of options outstanding is approximately eight and one
half years. The exercise price of the options range from $17.50 to $24.12.
Keebler
Keebler's 1996 Stock Option Plan has 9,673,594 shares of Keebler's common
stock authorized for future grant. All options granted have ten year terms and,
due to acceleration resulting from the achievement of certain performance
measures, vest by 2001. Under this plan, at January 1, 2000, options for
5,919,629 shares were outstanding, of which 4,493,801 are exercisable with a
weighted average price of $1.96. Keebler's 1998 Omnibus Stock Incentive Plan has
6,500,000 shares of Keebler's common stock authorized for future grant. All
options granted generally have ten year terms and vest at the end of five years.
Vesting can be accelerated if certain stock price performance measures are met.
Under this plan, at January 1, 2000, options for 2,817,602 shares were
outstanding, of which 899,699 are exercisable with a weighted average exercise
price of $25.74. Exercise prices as of January 1, 2000, for options outstanding
under the 1996 Stock Option Plan range from $1.74 to $5.23. The weighted average
remaining contractual life of these options is approximately six and one-half
years. Exercise prices as of January 1, 2000, for options outstanding under the
1998 Omnibus Stock
F-24
<PAGE> 58
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Incentive Plan range from $24.00 to $39.25. The weighted average remaining
contractual life of these options is approximately five years.
Keebler's Non-Employee Director Stock Plan has 300,000 shares of Keebler's
Common Stock authorized for future grant. All options granted have ten year
terms and vest automatically upon grant. Under this plan, at January 1, 2000,
options for 30,000 shares were outstanding and exercisable. The exercise price
of these options range from $27.44 to $30.75. The weighted average remaining
contractual life of these options is approximately eight and one half years.
As the Company applies APB 25 in accounting for its plans, and the option
price is the market price at date of grant, no compensation expense has been
recognized for options granted under the Company's plans.
Had compensation expense for the options and Restricted Stock Awards under
the Company's plans, inclusive of Keebler's options, been determined based on
the fair value at the grant dates for the awards consistent with the methodology
prescribed under SFAS No. 123 -- "Accounting for Stock-Based Compensation," the
Company's net income and net income per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE 52 FOR THE 52 FOR THE 27 FOR THE 52
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 28, 1997
--------------- --------------- --------------- -------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
As Reported:
Net Income............................. $7,294 $41,899 $23,560 $62,324
Net Income Per Common Share:
Basic............................... .07 .43 .27 .71
Diluted............................. .07 .43 .27 .71
Pro Forma:
Net Income............................. $5,676 $38,989 $22,735 $61,716
Net Income Per Common Share:
Basic............................... .06 .40 .26 .70
Diluted............................. .06 .40 .26 .70
</TABLE>
For awards granted the following weighted average assumptions were used to
determine fair value using the Black-Scholes option-pricing model:
<TABLE>
<CAPTION>
FOR THE 52 WEEKS FOR THE 52 WEEKS FOR THE 27
ENDED ENDED WEEKS ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3,
---------------- ---------------- 1998
FII KEEBLER FII KEEBLER FII
----- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C>
Dividend Yield............................... 0.00% 0.00% 3.64% 0.00% 0.00%
Expected Volatility.......................... 23.70% 24.80% 23.90% 27.20% 26.80%
Risk-free Interest Rate...................... 5.80% 5.76% 5.60% 5.04% 6.31%
Expected Option Life (Years)................. 4 5 5 5 4
</TABLE>
NOTE 9. RETIREMENT PLANS
DEFINED BENEFIT PLANS
Flowers
Flowers has a trusteed, noncontributory defined benefit pension plan
covering certain employees. The benefits are based on years of service and the
employee's career earnings. The plan is funded at amounts deductible for income
tax purposes but not less than the minimum funding required by the Employee
Retirement Income Security Act of 1974 ("ERISA"). As of January 1, 2000 and
January 2, 1999, the assets
F-25
<PAGE> 59
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the plan include certificates of deposit, marketable equity securities,
mutual funds, corporate and government debt securities and annuity contracts.
The marketable equity securities include 916,250 and 506,250 shares of FII's
Common Stock, respectively, with a fair value of approximately $14.6 million and
$12.1 million at January 1, 2000 and January 2, 1999, respectively. In addition
to the pension plan, Flowers also has an unfunded supplemental retirement plan
for certain highly compensated employees. Benefits provided by this supplemental
plan are reduced by benefits provided under the defined benefit pension plan.
Keebler
Keebler has a trusteed, noncontributory defined benefit pension plan
covering certain employees. Benefits provided under the plan are primarily based
on years of service and the employee's final level of compensation. Assets held
by the pension plan consist primarily of common stocks, government securities,
bonds and a real estate investment of $3.1 million in a distribution center
which is under an operating lease to Keebler. Keebler contributes annually not
less than the ERISA minimum funding requirements. Effective December 31, 1998,
the pension plans of President were merged with Keebler's pension plan. In
addition to the pension plan, Keebler also maintains an unfunded supplemental
retirement plan for certain highly compensated former executives and an unfunded
plan for certain highly compensated current and former executives ("the excess
retirement plan"). Benefits provided are based on years of service.
The net periodic pension cost for the Flowers plans that are not fully
funded and Keebler's unfunded supplemental retirement plan include the following
components:
<TABLE>
<CAPTION>
FOR THE 52 FOR THE 52 FOR THE 27 FOR THE 52
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 1, JUNE 28,
2000 1999 1998 1997
----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost.......................... $ 8,005 $ 6,268 $ 2,846 $ 5,603
Interest cost......................... 13,166 11,904 5,207 10,311
Expected return on plan assets........ (13,844) (13,635) (5,585) (10,415)
Amortization of transition assets..... (841) (841) (422) (841)
Prior service cost.................... 59 59 30 84
Recognized net actuarial (gain)
loss................................ 448 (177) 35 118
-------- -------- ------- --------
Net periodic pension cost............. $ 6,993 $ 3,578 $ 2,111 $ 4,860
======== ======== ======= ========
</TABLE>
F-26
<PAGE> 60
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funding status and the amounts recognized in the consolidated balance
sheet for the Flowers plans that are not fully funded and Keebler's unfunded
supplemental retirement plan are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year............... $(191,649) $(146,937)
Acquisitions.......................................... (10,303)
Service cost.......................................... (8,005) (6,268)
Interest cost......................................... (13,166) (11,904)
Actuarial gain (loss)................................. 24,650 (23,964)
Benefits paid......................................... 8,040 7,727
--------- ---------
Benefit obligation at end of year..................... (180,130) (191,649)
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year........ 146,793 154,828
Actual return on plan assets.......................... 14,294 (2,199)
Employer contribution................................. 252 1,141
Benefits paid......................................... (7,400) (6,977)
--------- ---------
Fair value of plan assets at end of year.............. 153,939 146,793
--------- ---------
Funded status......................................... (26,191) (44,856)
Unrecognized net actuarial (gain) loss................ (2,934) 22,749
Contribution between measurement date and fiscal year
end................................................ 183 185
Unrecognized prior service cost....................... 498 557
Unrecognized net transition asset..................... (2,472) (3,313)
--------- ---------
Net amount recognized at end of year.................. $ (30,916) $ (24,678)
========= =========
</TABLE>
The net periodic pension cost for Keebler's unfunded excess retirement plan
includes the following components:
<TABLE>
<CAPTION>
FOR THE 52
WEEKS ENDED
-----------------------
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Service cost................................................ $431 $173
Interest cost............................................... 155 78
Recognized net actuarial (gain) loss........................ 8 (47)
---- ----
Net periodic pension cost................................... $594 $204
==== ====
</TABLE>
F-27
<PAGE> 61
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unfunded status of Keebler's excess retirement plan and the amounts
recognized in the consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................. $(2,395) $(1,085)
Service cost............................................ (431) (173)
Interest cost........................................... (155) (78)
Actuarial (loss)........................................ (158) (1,076)
Benefits and expenses paid.............................. 31 17
------- -------
Benefit obligation at end of year....................... (3,108) (2,395)
Fair value of plan assets
------- -------
Funded status........................................... (3,108) (2,395)
Unrecognized net actuarial loss......................... 501 351
Benefit paid subsequent to measurement date............. 17
------- -------
Net amount recognized at end of year.................... $(2,590) $(2,044)
======= =======
</TABLE>
The net amount recognized at the end of the year includes $21.5 million
which is recorded in other accrued liabilities (Note 3) and the remainder is
included in other long-term liabilities.
Assumptions used in accounting for the Company's plans that are not fully
funded at each of the respective period-ends are as follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Weighted average assumptions:
Measurement date................... 9/30/99 9/30/98 9/30/97 3/31/97
Discount rate...................... 7.50%-7.75% 6.50%-7.50% 8.00% 8.00%
Expected return on plan assets..... 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase...... 4.50%-5.25% 4.00%-5.00% 5.50% 5.50%
</TABLE>
The net periodic pension cost for the Company's fully funded plan includes
the following components:
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED
---------------------------------
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Service cost.............................................. $ 13,364 $ 9,040
Interest cost............................................. 32,841 31,080
Expected return on plan assets............................ (41,887) (39,352)
Recognized net actuarial loss............................. 43
Prior service cost........................................ 689 689
-------- --------
Net periodic pension cost................................. $ 5,050 $ 1,457
======== ========
</TABLE>
F-28
<PAGE> 62
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status and the amounts recognized in the consolidated balance
sheet for the Company's fully funded plan is as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 2000
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Benefit obligation at beginning of year................... $(520,312) $ 0
Acquisitions............................................ (460,139)
Service cost............................................ (13,364) (9,040)
Interest cost........................................... (32,841) (31,080)
Amendments.............................................. 0 (4,874)
Actuarial gain (loss)................................... 60,261 (45,871)
Curtailment gain........................................ 897
Benefits paid........................................... 30,009 30,692
--------- ---------
Benefit obligation at end of year....................... (475,350) (520,312)
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year.......... 581,621
Acquisitions............................................ 515,290
Actual return on plan assets............................ 2,253 77,731
Employer contribution................................... 115 19,292
Benefits paid........................................... (30,009) (30,692)
--------- ---------
Fair value of plan assets at end of year................ 553,980 581,621
--------- ---------
Funded status........................................... 78,630 61,309
Unrecognized net actuarial gain......................... (37,209) (16,538)
Contribution between measurement date and fiscal year
end.................................................. 115
Unrecognized prior service cost......................... 7,730 9,230
--------- ---------
Net amount recognized at end of year.................... $ 49,151 $ 54,116
========= =========
</TABLE>
Assumptions used in accounting for the Company's fully funded plan are as
follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
<S> <C> <C>
Weighted average assumptions:
Measurement date.................................... 9/30/99 9/30/98
Discount rate....................................... 7.50% 6.50%
Expected return on plan assets...................... 8.70% 9.00%
Rate of compensation increase....................... 4.50% 4.00%
</TABLE>
FII is not obligated to satisfy the pension obligations of Keebler.
OTHER PLANS
Flowers
Flowers contributes to various multiemployer, union-administered defined
benefit and defined contribution pension plans. Benefits provided under the
multiemployer pension plans are generally based on years of service and employee
age. Expense under these plans was $.5 million for fiscal 1999, $.3 million for
fiscal 1998, $.5 million for the twenty-seven week transition period ended
January 3, 1998 and $.4 million for fiscal 1997.
The Flowers Industries, Inc. 401(k) Retirement Savings Plan covers
substantially all Flowers employees who have completed certain service
requirements. Generally, the cost and contributions for employees who
participate in the defined benefit pension plan is 25% of the first $400
contributed by the employee. The costs and contributions for employees who do
not participate in the defined benefit pension plan is 2% of
F-29
<PAGE> 63
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation and 25% of the employees' contributions, up to 6% of compensation.
During fiscal 1999 and fiscal 1998, the twenty-seven week transition period
ended January 3, 1998 and fiscal 1997, the total cost and contributions were
$1.9 million, $1.3 million, $.6 million and $1.4 million, respectively.
Keebler
Contributions are also made by Keebler to a retirement program for Grand
Rapids union employees. Benefits provided under the plan are based on a flat
monthly amount for each year of service and are unrelated to compensation.
Contributions are made based on a negotiated hourly rate. For fiscal 1999 and
fiscal 1998, Keebler expensed contributions of $2.5 million and $2.3 million,
respectively.
Keebler contributes to various multiemployer, union-administered defined
benefit and defined contribution pension plans. Benefits provided under the
multiemployer pension plans are generally based on years of service and employee
age. Expense under these plans was $6.8 million and $8.9 million for fiscal 1999
and fiscal 1998, respectively.
NOTE 10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Flowers
FII provides certain medical and life insurance benefits for eligible
retired employees. The medical plan covers eligible retirees under the active
medical and dental plans. The plan incorporates an up front deductible,
coinsurance payments and employee contributions at COBRA premium levels.
Eligibility and maximum period of coverage is based on age and length of
service. The life insurance plan offers coverage to a closed group of retirees.
Keebler
Keebler provides certain medical and life insurance benefits for eligible
retired employees of Keebler. The medical plan, which covers nonunion and
certain union employees with ten or more years of service, is a comprehensive
indemnity-type plan. The plan incorporates an up-front deductible, coinsurance
payments and employee contributions which are based on length of service. The
life insurance plan offers a small amount of coverage versus the amount the
employees had while employed. Keebler does not fund the plan.
Additionally, Keebler provides postemployment medical benefits to employees
on long-term disability. The plan is a comprehensive indemnity-type plan which
covers nonunion employees on long-term disability. There is no length of service
requirement. The plan incorporates coinsurance payments and deductibles. Keebler
does not pre-fund the plan. The postemployment obligation included in the
consolidated balance sheet at January 1, 2000 and January 2, 1999 was $5.5
million and $4.7 million, respectively. The plan was amended in fiscal 1999 for
a change in the calculation of retiree contribution rates that resulted in an
$8.5 million reduction to the benefit obligation and a corresponding decrease in
unrecognized prior service cost.
The net periodic postretirement benefit expense for the Company includes
the following components:
<TABLE>
<CAPTION>
52 WEEKS ENDED
---------------------------------
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Service cost............................................. $2,348 $2,045
Interest cost............................................ 3,722 3,961
Amortization of prior service cost....................... (115) (115)
Prior service cost....................................... 389
Amortization of net gain................................. (375)
------ ------
Net periodic postretirement benefit cost................. $5,969 $5,891
====== ======
</TABLE>
F-30
<PAGE> 64
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unfunded status and the amounts recognized in the balance sheet for the
Company's postretirement obligation are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................. $(60,738)
Acquisitions............................................ $(58,288)
Service cost............................................ (2,348) (2,045)
Interest cost........................................... (3,722) (3,961)
Amendments.............................................. 8,531
Participant contributions............................... 38
Actuarial gain.......................................... (21) (828)
Curtailment............................................. 108
Benefits paid........................................... 5,558 4,384
-------- --------
Benefit obligation at end of year....................... $(52,594) $(60,738)
Unrecognized actuarial gain.......................... (8,166) (7,856)
Unrecognized prior service cost...................... (4,817) 3,895
Benefit payments subsequent to measurement date...... 880 978
-------- --------
Accrued benefit obligation........................... $(64,697) $(63,721)
======== ========
</TABLE>
Assumptions used in accounting for the Company's postretirement benefit
plans at each of the respective period ends are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
<S> <C> <C>
Weighted average assumptions:
Measurement date..................................... 9/30/99 9/30/98
Discount rate........................................ 6.75%-7.50% 6.50%
Rate of increase..................................... 5.50%-8.00% 6.00%
</TABLE>
A one percent increase in the trend rate for health care costs would have
increased the accumulated benefit obligation as of January 1, 2000 by $2.3
million and the net periodic benefit cost by $0.4 million. A one percent
decrease in the trend rate for health care costs would have decreased the
accumulated benefit obligation and net periodic benefit cost by $2.1 million and
$0.3, as of January 1, 2000 and January 2, 1999, respectively.
FII is not obligated to satisfy the postretirement and postemployment
benefits of Keebler.
F-31
<PAGE> 65
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. INCOME TAXES
The Company's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE 52
WEEKS ENDED FOR THE 27 FOR THE 52
----------------------- WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current Taxes:
Federal................................. $ 60,139 $72,121 $5,686 $26,910
State................................... 9,203 6,010 2,395 5,557
-------- ------- ------ -------
69,342 78,131 8,081 32,467
-------- ------- ------ -------
Deferred Taxes:
Federal................................. (11,228) (3,346) 2,395 1,587
State................................... (1,854) (394) (844) (863)
-------- ------- ------ -------
(13,082) (3,740) 1,551 724
-------- ------- ------ -------
Provision for income taxes................ $ 56,260 $74,391 $9,632 $33,191
======== ======= ====== =======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Depreciation................................................ $132,792 $173,610
Trademarks, trade names and intangibles..................... 64,887 49,348
Prepaid pension............................................. 13,327 14,283
Inventory valuation......................................... 559 6,779
Other....................................................... 26,053 13,816
-------- --------
Gross deferred tax liabilities.................... 237,618 257,836
-------- --------
Workers compensation........................................ (9,070) (19,891)
Postretirement/postemployment benefits...................... (26,778) (26,171)
Employee benefits........................................... (34,667) (33,806)
Facility closing costs and severance........................ (37,342) (56,805)
Loss carryforwards.......................................... (21,910) (84,447)
Other....................................................... (19,891) (17,109)
-------- --------
Gross deferred tax assets......................... (149,658) (238,229)
Deferred tax assets valuation allowance..................... 3,012 86,310
-------- --------
$ 90,972 $105,917
======== ========
</TABLE>
The net change in the valuation allowance for deferred tax assets was a
decrease of $83.3 million, related to net operating loss carryforwards. The
decrease was primarily attributable to the utilization of the Keebler
pre-acquisition net operating loss carryforwards as a result of the resolution
of the uncertainty regarding the availability of these losses.
F-32
<PAGE> 66
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rate (35%) because of the effect of the following
items:
<TABLE>
<CAPTION>
FOR THE 52
WEEKS ENDED FOR THE 27 FOR THE 52
----------------------- WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at U.S. federal income tax rate........ $36,090 $57,283 $8,757 $30,728
State income taxes, net of U.S. federal
income tax benefit....................... 6,923 5,298 1,390 3,837
Benefit of operating loss carryforwards.... (522) (525) (1,210)
Intangible amortization.................... 9,150 6,910 174 122
Other...................................... 4,619 4,900 (164) (286)
------- ------- ------ -------
Provision for income taxes....... $56,260 $74,391 $9,632 $33,191
======= ======= ====== =======
</TABLE>
The amount of federal net operating loss carryforwards generated by certain
subsidiaries of FII prior to their acquisition is $2.8 million with expiration
dates through the fiscal year 2009. The use of pre-acquisition net operating
losses is subject to limitations imposed by the Internal Revenue Code. FII does
not anticipate that these limitations will affect utilization of the
carryforwards prior to their expiration. Various subsidiaries have state net
operating loss carryforwards of $156.0 million with expiration dates through
fiscal 2014.
In fiscal 1998, Keebler's net operating loss carryforwards were
approximately $207.1 million. All net operating loss carryforwards were used in
fiscal 1999 to offset gains incurred through the Section 338 income tax
election, which adjusted the tax basis of all assets and liabilities that
resulted from INFLO's acquisition of Keebler. Keebler's intangible asset
resulting from this transaction was reduced by a corresponding $11.8 million as
a result of resolving the pre-acquisition tax basis of acquired assets and
liabilities.
NOTE 12. SEGMENT REPORTING
In fiscal 1998, the Company adopted SFAS No. 131 -- "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes new standards for the manner in which companies report operating
segment information, as well as disclosures about products and services and
major customers.
The Company has three reportable segments: Flowers Bakeries, Mrs. Smith's
Bakeries and Keebler. Flowers Bakeries produces fresh breads and rolls, Mrs.
Smith's Bakeries produces fresh and frozen baked desserts, snacks, breads and
rolls, and Keebler produces a full line of cookies and crackers. The segments
are managed as strategic business units due to their distinct production
processes and marketing strategies.
The accounting policies of the segments are substantially the same as those
described in Note 1. The Company evaluates each segment's performance based on
income or loss before interest and income taxes,
F-33
<PAGE> 67
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excluding corporate and other unallocated expenses and non-recurring charges.
Information regarding the operations in these reportable segments is as follows:
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52
----------------------- WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales:
Flowers Bakeries............................. $ 961,699 $ 939,119 $457,803 $ 901,045
Mrs. Smith's Bakeries........................ 673,133 672,821 369,262 615,637
Keebler...................................... 2,667,771 2,226,480
Eliminations (1)............................. (66,593) (73,053) (42,968) (78,969)
---------- ---------- -------- ----------
$4,236,010 $3,765,367 $784,097 $1,437,713
========== ========== ======== ==========
Depreciation and Amortization:
Flowers Bakeries............................. $ 32,865 $ 33,487 $ 16,505 $ 28,533
Mrs. Smith's Bakeries........................ 20,127 18,676 9,427 15,830
Keebler...................................... 84,125 69,125
Other........................................ 7,502 7,477 998 1,607
---------- ---------- -------- ----------
$ 144,619 $ 128,765 $ 26,930 $ 45,970
========== ========== ======== ==========
Non-Recurring Charge:
Flowers Bakeries............................. $ (1,120) $ 32,161
Mrs. Smith's Bakeries........................ (4,874) 32,300
Keebler...................................... 66,349 3,852
---------- ----------
$ 60,355 $ 68,313
========== ==========
Income (Loss) Before Interest and Taxes:
Flowers Bakeries............................. $ 66,995 $ 75,779 $ 31,388 $ 46,189
Mrs. Smith's Bakeries........................ (53,256) 45,855 20,153 40,186
Keebler...................................... 263,903 199,891
Unallocated General Expenses................. (33,308) (20,823) (14,726) (16,716)
Non-Recurring Charge......................... (60,355) (68,313)
---------- ---------- -------- ----------
$ 183,979 $ 232,389 $ 36,815 $ 69,659
========== ========== ======== ==========
Interest Expense, Net.......................... $ 80,865 $ 68,725 $ 11,796 $ 25,109
========== ========== ======== ==========
Income Before Income Taxes, Investment in
Unconsolidated Affiliate, Minority Interest,
Extraordinary Loss and Cumulative Effect of
Changes in Accounting Principles............. $ 103,114 $ 163,664 $ 25,019 $ 87,794
========== ========== ======== ==========
Capital Expenditures:
Flowers Bakeries............................. $ 73,553 $ 38,573 $ 22,710 $ 48,334
Mrs. Smith's Bakeries (2).................... 127,340 34,711 9,817 28,577
Keebler...................................... 100,685 66,798
Other........................................ 12,435 193 330 599
---------- ---------- -------- ----------
$ 314,013 $ 140,275 $ 32,857 $ 77,510
========== ========== ======== ==========
</TABLE>
F-34
<PAGE> 68
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52
----------------------- WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28,
2000 1999 1998 1997
---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Flowers Bakeries............................. $ 491,396 $ 458,966 $401,787 $ 408,815
Mrs. Smith's Bakeries........................ 506,586 459,652 366,602 361,575
Keebler...................................... 1,528,183 1,655,780
Other........................................ 374,313 286,502 130,491 127,797
---------- ---------- -------- ----------
$2,900,478 $2,860,900 $898,880 $ 898,187
========== ========== ======== ==========
</TABLE>
- ---------------
(1) Primarily represents elimination of intersegment sales from Mrs. Smith's
Bakeries to Flowers Bakeries which are transferred at standard costs.
(2) Includes noncash capital leases of $47.4 million.
NOTE 13. UNAUDITED QUARTERLY FINANCIAL INFORMATION
Results of operations for each of the four quarters in the respective
fiscal years are as follows (each quarter represents a period of twelve weeks,
except the first quarter, which includes sixteen weeks):
<TABLE>
<CAPTION>
QUARTER FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- ------- ------------- -------------- ------------- --------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales............................... 1999 $1,301,695 $940,334 $983,223 $1,010,759
1998 1,075,037 833,059 859,517 997,754
Gross margin........................ 1999 693,750 496,406 493,900 549,998
1998 588,747 458,007 477,311 538,721
Income (loss) before extraordinary
loss and cumulative effect of
changes in accounting
principles........................ 1999 24,836 (27,735) (9,103) 19,296
1998 15,028 18,467 25,555 (13,082)
Extraordinary loss due to early
extinguishment of debt, net of tax
benefit and minority interest..... 1999 -- -- -- --
1998 -- -- (938) --
Cumulative effect of changes in
accounting principles, net of tax
benefit........................... 1999 -- -- -- --
1998 ( 3,131)(1) -- -- --
Net income (loss)................... 1999 24,836 (27,735) (9,103) 19,296
1998 11,897 18,467 24,617 (13,082)
Basic net income (loss) per common
share............................. 1999 .25 (.28) (.09) .19
1998 .13 .19 .25 (.13)
Diluted net income (loss) per common
share............................. 1999 .25 (.28) (.09) .19
1998 .13 .19 .25 (.13)
</TABLE>
- ---------------
(1) During the fourth quarter of fiscal 1998, the Company adopted SOP 98-5. The
cumulative effect of this change in accounting principles was retroactive to
the first quarter of fiscal 1998 and does not correspond with the amounts
reported in the Company's first quarter Form 10-Q for the sixteen weeks
ended April 25, 1998.
F-35
<PAGE> 69
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. UNAUDITED OPERATING RESULTS
The unaudited condensed consolidated results of operations of Flowers for
the fifty-two weeks ended January 3, 1998 and the twenty-seven weeks ended
January 4, 1997 are presented below. In the opinion of management, the
accompanying unaudited condensed consolidated results of operations contain all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the results of operations:
<TABLE>
<CAPTION>
FOR THE 52 FOR THE 27
WEEKS ENDED WEEKS ENDED
JANUARY 3, 1998 JANUARY 4, 1997
--------------- ---------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales................................................. $1,432,200 $774,767
Income before income taxes and cumulative effect of
changes in accounting principles.................... 62,478 50,335
Income tax expense.................................... 23,796 19,027
Income (loss) from investment in unconsolidated
affiliate........................................... 24,813 (195)
Income before cumulative effect of changes in
accounting principles............................... 63,495 31,113
Cumulative effect of changes in accounting
principles.......................................... (9,888)
Net income............................................ 53,607 31,113
Net Income per common share:
Net income per share before cumulative effect --
basic............................................ .72 .35
Net income per share before cumulative effect --
diluted.......................................... .72 .35
Net income per share -- basic....................... .61 .35
Net income per share -- diluted..................... .61 .35
</TABLE>
NOTE 15. SUBSEQUENT EVENTS
In January 2000, Flowers Bakeries acquired The Kroger Co.'s bakery in
Memphis, Tennessee ("Kroger"). The transaction was accounted for as a purchase.
The Memphis Bakery has two production lines, which produce breads, buns and
rolls for Kroger stores in Tennessee, northern Arkansas and southern Missouri.
On March 6, 2000, Keebler acquired Austin Quality Foods, Inc. ("Austin") in
a business combination that was accounted for as a purchase. Austin is a leading
producer and marketer of single serve baked snacks, including cracker sandwiches
and bite-sized crackers and cookies.
The Austin and Kroger transactions, valued collectively at approximately
$275 million, were financed with borrowings under the existing credit facilities
of Keebler and Flowers, respectively.
On March 30, 2000 FII amended the $500 million Syndicated Loan Facility.
The amendment adjusted the applicable interest margin to 2.0 % and the
commitment fee to .05%. In addition, certain financial covenants were amended
while others were added. The covenants in effect currently include, among
others, (1) a maximum leverage ratio, (2) a minimum fixed charge coverage ratio,
(3) minimum adjusted EBITDA, as defined, (4) a borrowing base covenant requiring
that FII's total indebtedness not exceed specified percentages of the book value
of accounts receivable, inventory, property, plant and equipment and the fair
value of FII's interest in Keebler, (5) a prohibition on acquisitions, (6) a
negative pledge on all assets of the Company, (7) a limit on Flowers capital
expenditures, and (8) limits on cash dividends unless the Company would have,
following payment thereof, at least $15 million availability under the unused
commitments and borrowing base tests of the facility. As of January 1, 2000 and
the date of the amendment the Company was in compliance with all covenants.
Further, the amount of retained earnings available for payment of dividends at
January 1, 2000 under the amendment was $125.0 million.
F-36
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Flowers Industries, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 3, 2000 and March 30, 2000 of this Report on Form 10-K
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
March 30, 2000
F-37
<PAGE> 71
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Those valuation and qualifying accounts which are deducted in the balance
sheet from the assets to which they apply:
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -------------- ---------- ---------- ---------- ---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 1, 2000
Discounts and doubtful accounts.......... $ 7,782 $82,755 $ -- $(68,556) $21,981
Deferred taxes........................... 86,310 -- -- (83,298)(6) 3,012
Inventory reserves....................... 9,614 10,338 -- (6,965) 12,987
------- ------- ------- -------- -------
YEAR ENDED JANUARY 2, 1999
Discounts and doubtful accounts.......... $ -- $20,148 $ 7,844(1) $ 20,210(2) $ 7,782
Deferred taxes........................... 2,119 -- 84,350(3) (159) 86,310
Inventory reserves....................... 501 7,484 8,589(4) (6,960)(5) 9,614
------- ------- ------- -------- -------
TWENTY-SEVEN WEEKS ENDED JANUARY 3, 1998
Deferred taxes........................... $ 2,240 $ -- $ -- $ (121) $ 2,119
Inventory reserves....................... -- 501 -- -- 501
------- ------- ------- -------- -------
YEAR ENDED JUNE 28, 1997
Deferred taxes........................... $ 2,774 $ -- $ -- $ (534) $ 2,240
------- ------- ------- -------- -------
</TABLE>
- ---------------
(1) $4,965 and $2,879 acquired in the Keebler Acquisition and President
acquisition by Keebler, respectively.
(2) Primarily charges against reserves, net of recoveries.
(3) Amount acquired in the Keebler Acquisition.
(4) $6,782 and $1,807 acquired in the Keebler Acquisition and President
acquisition by Keebler, respectively.
(5) Inventory write-offs, net.
(6) Primarily utilization of Keebler pre-acquisition operating loss
carryforwards as a result of the resolution of the uncertainty regarding the
availability of these losses.
F-38
<PAGE> 1
EXHIBIT 10.3
FLOWERS INDUSTRIES, INC.
401(k) RETIREMENT SAVINGS PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1997
<PAGE> 2
FLOWERS INDUSTRIES, INC.
401(k) RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREAMBLE .........................................................................................................1
ARTICLE I
DEFINITIONS.......................................................................................................2
1.1 Account.........................................................................................2
1.2 ACP Contributions...............................................................................2
1.3 Actual Deferral Percentage......................................................................2
1.4 ADP Contributions...............................................................................2
1.5 Allocation Participant..........................................................................2
1.6 Annual Additions................................................................................2
1.7 Average Actual Deferral Percentage..............................................................2
1.8 Average Contribution Percentage.................................................................2
1.9 Beneficiary.....................................................................................2
1.10 Benefit Commencement Date.......................................................................2
1.11 Code............................................................................................3
1.12 Company.........................................................................................3
1.13 Company Basic Contributions.....................................................................3
1.14 Company Basic Contributions Account.............................................................3
1.15 Compensation....................................................................................3
1.16 Contribution Percentage.........................................................................5
1.17 Controlled Group................................................................................5
1.18 Defined Benefit Fraction........................................................................5
1.19 Defined Contribution Dollar Limitation..........................................................5
1.20 Defined Contribution Fraction...................................................................5
1.21 Determination Date..............................................................................5
1.22 Disabled........................................................................................5
1.23 Effective Date..................................................................................5
1.24 Election........................................................................................5
1.25 Election Period.................................................................................5
1.26 Elective Contributions..........................................................................5
1.27 Elective Contributions Account..................................................................6
1.28 Elective Deferrals..............................................................................6
1.29 Eligibility Computation Period..................................................................6
1.30 Eligible Employee...............................................................................7
1.31 Eligible Highly Compensated Employee............................................................7
1.32 Employee........................................................................................7
1.33 Employer........................................................................................7
1.34 Employment Commencement Date....................................................................7
1.35 Entry Date......................................................................................7
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.36 ERISA...........................................................................................7
1.37 Excess Amount...................................................................................8
1.38 Excess Deferrals................................................................................8
1.39 Forfeitable Account.............................................................................8
1.40 Highest Average Compensation....................................................................8
1.41 Highly Compensated Employee.....................................................................8
1.42 Highly Compensated Participant..................................................................9
1.43 Hours of Service................................................................................9
1.44 Key Employee...................................................................................11
1.45 Leased Employee................................................................................11
1.46 Limitation Year................................................................................12
1.47 Matching Elective Contributions................................................................12
1.48 Matching Elective Contributions Account........................................................12
1.49 Nonforfeitable Accounts........................................................................12
1.50 Maximum Permissible Amount.....................................................................12
1.51 Normal Retirement Age..........................................................................12
1.52 Normal Retirement Date.........................................................................12
1.53 One-Year Break in Service (or Break in Service)................................................12
1.54 Participant....................................................................................13
1.55 Permissive Aggregation Group...................................................................13
1.56 Plan...........................................................................................13
1.57 Plan Administrator.............................................................................13
1.58 Plan Year......................................................................................13
1.59 Present Value..................................................................................13
1.60 Projected Annual Benefit.......................................................................13
1.61 Qualified Matching Contributions...............................................................13
1.62 Qualified Matching Contributions Account.......................................................13
1.63 Qualified Nonelective Contributions............................................................13
1.64 Qualified Nonelective Contributions Account....................................................13
1.65 Qualified Spousal Waiver.......................................................................13
1.66 Required Aggregation Group.....................................................................14
1.67 Required Beginning Date........................................................................14
1.68 Rollover Contributions.........................................................................14
1.69 Rollover Contributions Account.................................................................14
1.70 Self-Employed Individual.......................................................................14
1.71 Spouse.........................................................................................14
1.72 Surviving Spouse...............................................................................14
1.73 Top-Heavy Plan.................................................................................14
1.74 Top-Heavy Ratio................................................................................14
1.75 Trust..........................................................................................14
1.76 Trust Agreement................................................................................14
1.77 Trust Fund.....................................................................................15
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.78 Trustee........................................................................................15
1.79 Valuation Date.................................................................................15
1.80 Vesting Computation Period.....................................................................15
1.81 Year of Eligibility Service....................................................................15
1.82 Year of Vesting Service........................................................................15
ARTICLE II
ELIGIBILITY FOR PARTICIPATION....................................................................................17
2.1 Initial Attainment of Participation Status.....................................................17
2.2 Reemployment of Former Employees...............................................................18
2.3 Reemployment of Former Participants............................................................18
2.4 Transfers to/from Eligible Class...............................................................18
2.5 Family and Medical Leave Act...................................................................19
ARTICLE III
CONTRIBUTIONS AND ALLOCATIONS....................................................................................20
3.1 Employer Contributions.........................................................................20
3.2 Employee Contributions.........................................................................22
3.3 Time of Payment of Contributions...............................................................23
3.4 Return of Contributions........................................................................23
3.5 Provisions Regarding Elective Contributions....................................................24
3.6 Limitation of Elective Deferrals...............................................................26
3.7 Limitation of Employee and Employer Matching Contributions.....................................28
3.8 Corrections Required by Discrimination Tests...................................................30
3.9 Multiple Use of Alternative Limitation.........................................................33
3.10 Discretionary Cutbacks to Satisfy Discrimination Tests.........................................35
3.11 401(k)/401(m) Testing Provision................................................................35
ARTICLE IV
LIMITATION ON ALLOCATIONS........................................................................................36
4.1 General Rules..................................................................................36
4.2 Applicable Definitions.........................................................................38
4.3 Adjustments for Top Heavy Plan.................................................................42
ARTICLE V
VESTING IN ACCOUNTS..............................................................................................43
5.1 Vesting of Nonforfeitable Accounts.............................................................43
5.2 Vesting of Forfeitable Account.................................................................43
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.3 Forfeitures....................................................................................45
5.4 Reemployed Former Employees....................................................................45
5.5 Years of Vesting Service Disregarded...........................................................46
5.6 Vesting Upon Termination.......................................................................46
5.7 Family and Medical Leave Act...................................................................46
ARTICLE VI
ACCOUNTS AND INVESTMENTS.........................................................................................47
6.1 Separate Accounts..............................................................................47
6.2 Investment of Trust Fund.......................................................................47
6.3 Trustee's Reliance.............................................................................48
ARTICLE VII
ALLOCATION OF EARNINGS AND LOSSES TO ACCOUNTS
OF PARTICIPANTS..................................................................................................50
7.1 Allocations of Trust Fund Earnings and Losses..................................................50
7.2 Allocations Regarding Specific Investments.....................................................50
ARTICLE VIII
PAYMENT OF BENEFITS..............................................................................................51
8.1 Time of Payment of Benefits....................................................................51
8.2 Benefits Upon Death............................................................................52
8.3 Form of Payment of Benefits....................................................................54
8.4 Valuation of Accounts for Payments.............................................................54
8.5 Forfeitures....................................................................................54
8.6 Benefit Payment Commencement...................................................................55
8.7 Notice and Consent Requirements................................................................56
8.8 Restrictions on Elective Contribution Distributions............................................57
8.9 Payments to Alternate Payees...................................................................58
8.10 Hardship Distributions of Elective Contributions...............................................58
8.11 Loan of Account Balances to Participants.......................................................59
8.12 Rollover Distribution Election.................................................................64
8.13 Provision Pursuant to Code Section 401(a)(9)...................................................66
ARTICLE IX
THE TRUST FUND AND THE TRUSTEE...................................................................................68
9.1 Existence of Trust.............................................................................68
9.2 Exclusive Benefit Rule.........................................................................68
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
9.3 Removal or Resignation of Trustee..............................................................68
9.4 Powers of Trustee..............................................................................68
9.5 Integration of Trust Agreement.................................................................68
9.6 Records and Accounts...........................................................................68
9.7 Annual Reports.................................................................................69
ARTICLE X
ADMINISTRATION...................................................................................................70
10.1 Allocation of Responsibility...................................................................70
10.2 Administrative Expenses........................................................................70
10.3 Plan Administrator Powers and Duties...........................................................70
10.4 Records and Reports............................................................................70
10.5 Reporting and Disclosure.......................................................................70
10.6 Named Fiduciary................................................................................70
10.7 Administrator..................................................................................70
10.8 Interpretation of the Plan and Findings of Facts...............................................71
10.9 Bonding, Insurance and Indemnity...............................................................71
ARTICLE XI
AMENDMENT, TERMINATION, MERGER, CONSOLIDATION
AND ADOPTION.....................................................................................................73
11.1 Permanency of Plan.............................................................................73
11.2 Right to Amend Plan............................................................................73
11.3 Right to Terminate Plan........................................................................74
11.4 Termination of Participation in Plan by Employer other than Company............................75
11.5 Merger, Consolidation, or Transfer of Assets...................................................75
11.6 Adoption of Plan by Controlled Group Members...................................................76
ARTICLE XII
GENERAL PROVISIONS...............................................................................................78
12.1 Participant's Rights to Employment, Etc........................................................78
12.2 No Guarantee of Interests......................................................................78
12.3 Standard of Conduct............................................................................78
12.4 Allocation of Duties...........................................................................78
12.5 Claims Procedure...............................................................................79
12.6 Nonalienation or Assignment; QDRO's............................................................80
12.7 Plan Continuance Voluntary.....................................................................82
12.8 Payments to Minors and Others..................................................................82
12.9 Location of Payee; Unclaimed Benefits..........................................................82
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
12.10 Governing Law..................................................................................82
12.11 Correction of Participants' Accounts...........................................................82
12.12 Action of Employer and Plan Administrator......................................................83
12.13 Employer Records...............................................................................83
12.14 Gender and Number..............................................................................83
12.15 Headings.......................................................................................83
12.16 Liability Limited..............................................................................83
12.17 Prohibited Discrimination......................................................................83
12.18 Legal References...............................................................................83
12.19 Military Service...............................................................................83
12.20 Electronic Means of Communication..............................................................83
12.21 Plan Conversions...............................................................................84
ARTICLE XIII
SPECIAL RULES APPLICABLE TO TOP HEAVY PLAN YEARS.................................................................85
13.1 Top-Heavy Provisions...........................................................................85
13.2 Top-Heavy Special Definitions..................................................................86
APPENDIX I
SPECIAL PROVISIONS RELATING TO ANNUITY PAYMENTS..................................................................90
1.1 Forms of Benefit for Certain Accounts..........................................................90
1.2 Annuities......................................................................................91
1.3 Death On or After Benefit Commencement Date....................................................91
1.4 Valuation of Accounts for Payments.............................................................91
1.5 Definitions....................................................................................92
APPENDIX II
SPECIAL PROVISIONS REGARDING MERGER OF THE
MRS. BOEHME'S HOLSUM BAKERY, INC. 401(k) RETIREMENT
PLAN WITH AND INTO THE PLAN......................................................................................93
2.1 General Provisions.............................................................................93
2.2 Separate Accounting............................................................................93
2.3 Transfer of Plan Assets........................................................................93
2.4 Conditions for Merger and Transfer.............................................................93
2.5 Forms of Benefits for Boehme's Accounts........................................................94
2.6 Benefits Upon Death............................................................................95
2.7 Vesting........................................................................................95
2.8 In-Service Withdrawals.........................................................................95
2.9 Hours of Service...............................................................................96
</TABLE>
vi
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C>
APPENDIX III
SPECIAL PROVISIONS REGARDING MERGER OF THE
HOLSUM BAKING COMPANY RETIREMENT PLAN
WITH AND INTO THE PLAN...........................................................................................97
3.1 General Provisions.............................................................................97
3.2 Separate Accounting............................................................................97
3.3 Transfer of Plan Assets........................................................................97
3.4 Conditions for Merger and Transfer.............................................................98
3.5 Additional Forms of Benefit for Holsum Accounts................................................98
3.6 Vesting........................................................................................98
3.7 In-Service Withdrawals.........................................................................98
3.8 Hours of Service...............................................................................99
APPENDIX IV
SPECIAL PROVISIONS REGARDING MERGER OF THE
SHIPLEY BAKING COMPANY 401(k) RETIREMENT PLAN
AND TRUST WITH AND INTO THE PLAN................................................................................100
4.1 General Provisions............................................................................100
4.2 Separate Accounting...........................................................................100
4.3 Transfer of Plan Assets.......................................................................100
4.4 Conditions for Merger and Transfer............................................................101
4.5 Additional Forms of Benefit for Shipley Accounts..............................................101
4.6 Benefits Upon Death...........................................................................102
4.7 Vesting.......................................................................................102
4.8 In-Service Withdrawals........................................................................102
4.9 Hours of Service..............................................................................103
APPENDIX V
SPECIAL PROVISIONS REGARDING MERGER OF THE
FRANKLIN BAKING COMPANY, INC. PROFIT SHARING
PLAN AND THE FRANKLIN BAKING COMPANY, INC. 401(k)
RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN..................................................................104
5.1 General Provisions............................................................................104
5.2 Separate Accounting...........................................................................104
5.3 Transfer of Plan Assets.......................................................................104
5.4 Conditions for Merger and Transfer............................................................105
5.5 Additional Forms of Benefit for Franklin Accounts.............................................105
5.6 Vesting.......................................................................................105
</TABLE>
vii
<PAGE> 9
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.7 In-Service Withdrawals........................................................................105
5.8 Hours of Service..............................................................................105
APPENDIX VI
SPECIAL PROVISIONS REGARDING MERGER OF THE
PIES, INC. RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN.......................................................106
6.1 General Provisions............................................................................106
6.2 Separate Accounting...........................................................................106
6.3 Transfer of Plan Assets.......................................................................106
6.4 Conditions for Merger and Transfer............................................................106
6.5 Vesting.......................................................................................107
6.6 In-Service Withdrawals........................................................................107
6.7 Hours of Service..............................................................................107
EXHIBIT A TO FLOWERS INDUSTRIES, INC.
401(K) RETIREMENT SAVINGS PLAN..................................................................................108
</TABLE>
viii
<PAGE> 10
FLOWERS INDUSTRIES, INC.
401(k) RETIREMENT SAVINGS PLAN
PREAMBLE
This Flowers Industries, Inc. 401(k) Retirement Savings Plan (the
"Plan") and the Trust which forms a part of the Plan, are intended to be and to
remain qualified and exempt from taxation under Sections 401 and 501 of the
Internal Revenue Code of 1986, and shall be interpreted and administered in such
manner as shall be necessary to carry out this intention.
The original effective date of the Plan was April 1, 1995.
The Plan is herein amended and restated in order to comply with
applicable provisions of the Uruguay Round Agreements Act, the Uniformed
Services Employment and Reemployment Rights Act of 1994, the Small Business Job
Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Internal
Revenue Service Restructuring and Reform Act of 1998.
The effective date of the amendment and restatement of this Plan is
generally January 1, 1997, and the amendment and restatement shall apply only to
a Participant who is credited with an Hour of Service on or after that date,
except as may be otherwise stated herein. The rights and benefits of a
Participant who is not credited with an Hour of Service on or after January 1,
1997 shall be determined in accordance with the provisions of the Plan as in
effect on the Participant's termination of employment with the Employer.
<PAGE> 11
ARTICLE I
DEFINITIONS
The following words and phrases as used in this Plan shall have the
meanings set forth in this Article unless a different meaning is clearly
required by the context:
1.1 Account shall mean a separate account which is established and
maintained for a Participant (or his Beneficiary) and to which contributions
made under this Plan which are allocated to such Participant, if any, and
earnings or losses thereon, if any, shall be credited. See Section 6.1 herein.
1.2 ACP Contributions. See Section 3.7(b)(iii) of this Plan.
1.3 Actual Deferral Percentage. See Section 3.6(b)(ii) of this
Plan.
1.4 ADP Contributions. See Section 3.6(b)(iii) of this Plan.
1.5 Allocation Participant shall, for a Plan Year, mean those
Participants who are employed with the Employer on the last day of the Plan
Year.
1.6 Annual Additions. See Section 4.2(a) of this Plan.
1.7 Average Actual Deferral Percentage. See Section 3.6(b)(i) of
this Plan.
1.8 Average Contribution Percentage. See Section 3.7(b)(i) of this
Plan.
1.9 Beneficiary shall mean any person or persons, including a
trust for the benefit of individuals, last designated in writing by a
Participant pursuant to the provisions and conditions of Section 8.2(c), who is
or may become entitled to a benefit hereunder. If, at any time, no Beneficiary
has been validly designated by the Participant, or the Beneficiary validly
designated by the Participant is no longer living or no longer exists, whichever
is applicable, then the Participant's Beneficiary shall be deemed to be the
person or persons in the first of the following classes of beneficiaries with
one or more members of such class surviving or in existence as of the
Participant's death, and in the absence thereof, the Participant's estate:
(a) the Participant's Surviving Spouse; or
(b) the Participant's lineal descendants, per stirpes.
1.10 Benefit Commencement Date means the date of the distribution
determined pursuant to the provisions of Article VIII herein.
2
<PAGE> 12
1.11 Code shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
1.12 Company shall mean Flowers Industries, Inc., its successors
and assigns, and any other corporation, partnership or sole proprietorship into
which the Company may be merged or consolidated or to which all or substantially
all of its assets may be transferred unless such organization indicates in
writing that it does not approve of such automatic succession.
1.13 Company Basic Contributions shall mean Employer contributions,
if any, made to this Plan pursuant to Section 3.1(e) of this Plan, and shall be
allocated pursuant to Section 3.1(e)(ii) hereof.
1.14 Company Basic Contributions Account shall mean the Account of
a Participant to which are credited any Company Basic Contributions allocated
to the Participant each Plan Year under Section 3.1(e) of this Plan.
1.15 Compensation.
(a) General Definition. Subject to subsections (b) through (e)
below, Compensation for a Plan Year with respect to an Employee shall
mean "compensation" as that term is defined in Code ss.415(c)(3) and
Treas. Reg. ss.1.415-2(d)(1) and (2) and paid by an Employer to such
Employee.
(b) Safe Harbor Exclusions. Notwithstanding the provisions of
subsection (a) above, none of the following items shall be included in
the definition of Compensation, whether or not includable in taxable
gross income:
(i) reimbursement or other expense allowances;
(ii) fringe benefits (cash and noncash);
(iii) moving expenses;
(iv) deferred compensation;
(v) welfare benefits;
and, additionally, solely with respect to Highly Compensated Employees:
(vi) amounts received from the exercise of any
nonqualified stock options issued by an Employer;
(vii) amounts received from the sale or exchange of
stock transferred pursuant to the exercise of an incentive
stock option; and
3
<PAGE> 13
(viii) amounts required to be reported as income pursuant to
Code ss.7872.
(c) Non-Safe Harbor Exclusions. Notwithstanding the provisions of
subsection (a) above, and in addition to those items listed in subsection (b)
above, none of the following items shall also be included in the definition of
Compensation, whether or not includable in taxable gross income:
(i) job injury benefits pay;
(ii) sales contest prizes and safety contest prizes;
(iii) longevity pay;
(iv) restricted stock dividends, equity incentive award
dividends, and gain from purchase or receipt of stock or other property
or cash pertaining to either type of award; and
(v) lump sum bonus.
(d) Salary Reduction Arrangements. Notwithstanding the preceding
subsections of this Section, Compensation shall include any amount which is
contributed by an Employer pursuant to a salary reduction agreement and which is
not includable in the gross income of the Employee under Code ss.ss.125,
402(e)(3), 402(h) or 403(b).
(e) Limitation. The annual Compensation of each Employee taken
into account in determining contributions or benefits under the Plan for any
Plan Year shall not exceed the applicable "annual compensation limit" (as
defined in Code ss. 401(a)(17)) for the calendar year in which the Plan Year
begins. If the Plan determines Compensation for a period of time that contains
fewer than 12 calendar months, the above limitation is to be proportionately
reduced; provided, however, no proration is required for Employees who are
covered under the Plan for less than 1 full year if the contributions under the
Plan are based on Compensation for a period of at least 12 months.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
4
<PAGE> 14
(f) Special Provisions. The term Compensation may be specially
defined for purposes of certain provisions of this Plan. See, e.g.,
Sections 1.41(g)(iv), 1.45(b), 3.6(b)(iv), 3.7(b)(iv), 4.2(b),
13.1(a)(ii) and 13.2(f) of this Plan.
1.16 Contribution Percentage. See Section 3.7(b)(ii) of this Plan.
1.17 Controlled Group shall mean the Company and any other entity which
is required to be aggregated with the Company pursuant to Code ss.ss.414(b),
(c), (m) or (o).
1.18 Defined Benefit Fraction. See Section 4.2(c) of this Plan.
1.19 Defined Contribution Dollar Limitation. See Section 4.2(d) of
this Plan.
1.20 Defined Contribution Fraction. See Section 4.2(e) of this
Plan.
1.21 Determination Date. See Section 13.2(d) of this Plan.
1.22 Disabled shall mean unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment arising after an Employee has become a Participant and while employed
by an Employer resulting from demonstrable injury or disease that can be
expected to continue for an indefinite period of greater than 12 months or to
result in death and which prevents the Participant from engaging in his
occupation or performing any gainful occupation for which he is qualified by
reason of education, training or experience as determined by a qualified
physician selected by the Plan Administrator.
1.23 Effective Date shall mean the day on which this amended and
restated Plan becomes effective, which shall be January 1, 1997. The original
effective date of the Plan was April 1, 1995.
1.24 Election shall mean the election made by an Eligible Employee
to have the Employer make Elective Contributions on behalf of such Employee
pursuant to the provisions of Section 3.5 of this Plan. The Election may be made
by means of instructions provided by the Employee pursuant to any voice-response
system utilized by the Plan, and any hard copy confirmation of such verbal
instructions, as well as on any written form provided by the Plan Administrator
for said purpose.
1.25 Election Period shall mean, for each Participant, his payroll
period.
1.26 Elective Contributions shall mean Employer contributions, if
any, made to this Plan pursuant to Section 3.1(a) of this Plan that were subject
to a cash or deferred election under which, pursuant to Section 3.5 of this
Plan, an Eligible Employee could elect to have the Employer either contribute an
amount to this Plan or provide such amount to the Eligible Employee in cash or
in the form of some other taxable benefit. Elective Contributions shall be
allocated to Eligible Employees pursuant to Section 3.1(a)(ii) of this Plan.
5
<PAGE> 15
1.27 Elective Contributions Account shall mean the Account of a
Participant to which are credited any Elective Contributions allocated to the
Participant each Plan Year under Section 3.1(a) of this Plan.
1.28 Elective Deferrals shall mean:
(a) Any elective contribution (as defined in Treas. Reg.
ss.1.401(k)-1(g)(3)) by a given individual under any qualified cash or
deferred arrangement (as defined in Code ss.401(k)) to the extent such
contribution is not includible in the individual's gross income for the
taxable year on account of Code ss.402(e)(3), including Elective
Contributions to this Plan.
(b) Any employer contribution on behalf of a given individual
to a simplified employee pension (as defined in Code ss.408(k)) to the
extent such contribution is not includible in the individual's gross
income for the taxable year on account of Code ss.402(h)(1)(B).
(c) Any employer contribution on behalf of a given individual
to an annuity contract under Code ss.403(b) pursuant to a salary
reduction agreement (within the meaning of Code ss.3121(a)(5)(D)) to
the extent such contribution is not includible in the individual's
gross income for the taxable year on account of Code ss.403(b).
(d) Any employee contribution by a given individual which is
designated as deductible under a trust described in Code ss.501(c)(18),
to the extent that such contribution is deductible from such
individual's income for the taxable year on account of Code
ss.501(c)(18).
1.29 Eligibility Computation Period shall mean, for purposes of
determining Years of Eligibility Service and One-Year Breaks in Service for
eligibility, the following:
(a) The initial Eligibility Computation Period is the 12
consecutive month period beginning on the Employee's Employment
Commencement Date.
(b) The succeeding 12-consecutive-month Eligibility
Computation Periods commence with the first plan year which commences
prior to the first anniversary of the Employee's employment
commencement date regardless of whether the Employee is entitled
to be credited with 1,000 hours of service during the initial
Eligibility Computation Period. An Employee who is credited with 1,000
hours of service in both the initial Eligibility Computation Period and
the first Plan Year which commences prior to the first anniversary of
the Employee's initial Eligibility Computation Period will be credited
with two Years of Eligibility Service.
(c) In the case of a reemployed Employee, the Eligibility
Computation Period of such Employee after the Employee's date of
reemployment shall commence on his reemployment date.
6
<PAGE> 16
1.30 Eligible Employee.
(a) In General. Eligible Employee shall mean an Employee (i)
who is employed by an Employer, and (ii) who is eligible to participate
in this Plan and become a Participant for all or a portion of a Plan
Year pursuant to Article II of this Plan. (Employees described in
subsections (c) through (f) of Section 2.1 shall not be Eligible
Employees while such description is applicable.)
(b) Special Rules. Solely for purposes of applying the
discrimination tests in Article III associated with ADP Contributions
and ACP Contributions, an Eligible Employee generally means an Employee
who is directly or indirectly eligible to make Elective Contributions
and receive an allocation of Matching Elective Contributions under the
Plan for a Plan Year. An Employee who would be eligible to make
Elective Contributions or receive an allocation of Matching Elective
Contributions but for a suspension due to a hardship withdrawal or an
election not to participate in the Plan, is treated as an Eligible
Employee for purposes of applying the discrimination tests in Article
III associated with ADP Contributions and ACP Contributions. An
Employee will also be considered an Eligible Employee for such tests
even though the Employee does not receive additional Annual Additions
because of an Excess Amount.
1.31 Eligible Highly Compensated Employee shall mean an Eligible
Employee who is also a Highly Compensated Employee.
1.32 Employee shall mean a person who performs services for a
member of the Controlled Group and who is a common law employee of such
Controlled Group member and any Self-Employed Individual who is treated as
an employee of a member of the Controlled Group pursuant to Code ss.401(c)(1).
The term Employee shall also include any Leased Employee of a Controlled Group
member. The term "Employee" shall not include an individual who provides
services to the Employer or another Controlled Group member pursuant to a
contractual arrangement with another entity, but who is not deemed to
constitute a Leased Employee.
1.33 Employer shall mean the Company and each member of the
Controlled Group which has adopted this Plan pursuant to Section 11.6 herein.
See also Section 4.2(f) for a special definition applicable in Article IV.
1.34 Employment Commencement Date shall mean the date on which an
Employee first performs an Hour of Service (as defined in subsection (a) of
Section 1.43) for any member of the Controlled Group.
1.35 Entry Date shall mean the first day of the payroll period
beginning on or after the first day of the calendar month following the
Eligibility Computation Period in which an Eligible Employee first completes
1 Year of Service.
1.36 ERISA shall mean the Employee Retirement Income Security
Act of 1974, as the same may be amended from time to time.
7
<PAGE> 17
1.37 Excess Amount. See Section 4.2(g) of this Plan.
1.38 Excess Deferrals shall mean Elective Deferrals made by a
Participant for a calendar year in excess of the maximum amount specified in
Code ss.402(b)(1), as adjusted pursuant to Code ss.ss.402(g)(4) and (5),
applicable for such calendar year.
1.39 Forfeitable Account shall mean a Participant's Matching
Elective Contributions Account and/or Employer Contribution Account.
1.40 Highest Average Compensation. See Section 4.2(h) of this Plan.
1.41 Highly Compensated Employee shall mean the following:
(a) An individual shall be a Highly Compensated Employee, with
respect to a Plan Year, if the individual is described under either or
both subsection (b) or subsection (c) below.
(b) An individual is described under this subsection (b) if
the individual is performing services during the determination period
for the Controlled Group and: (1) the individual received compensation
from the Controlled Group during the look-back year in excess of
$80,000 and was a member of the top-paid group for such look-back year;
or (2) the individual was a 5-percent owner at any time during either
or both the look-back year or the determination period.
(c) An individual is described under this subsection (c) if
the individual was, at one time, an Employee of the Controlled Group
and the individual separated from service (or was deemed to have
separated from service pursuant to Treas. Reg. ss.1.414(q)-1T(Q&A-5))
from the Controlled Group prior to the determination period, such
individual performs no service for the Controlled Group during the
determination period, and such individual is a "highly compensated
employee" (as defined in Code ss.414(q)) for either the determination
period during which the individual separated from service with the
Controlled Group or any determination period ending on or after the
individual's 55th birthday.
(d) For purposes of this Section, the applicable dollar
amounts specified in clause (1) of subsection (b) shall be the
applicable dollar amount prescribed in Code ss.ss.414(q)(1)(B) and
shall be adjusted pursuant to the last sentence of Code ss.414(q)(1).
(e) For purposes of this Section the term "determination
period" shall mean the respective Plan Year specified in subsection (a)
above, and the term "look-back year" shall mean the 12-month period
immediately preceding the determination period.
(f) In determining who is a Highly Compensated Employee, the
following definitions shall apply:
8
<PAGE> 18
(i) Top-paid group shall mean the top 20% of
Employees of the Controlled Group ranked on the basis of
compensation received during the determination period or
look-back year, as applicable. For purposes of determining the
number of Employees in the top-paid group, Employees described
in Treas. Reg. ss.1.414(q)-1T(Q&A-9)(b) are excluded.
(ii) 5-percent owner shall mean a 5-percent owner
determined pursuant to Treas. Reg. ss.1.416-1(T-17) and
(T-18). If an individual is a 5-percent owner at any time
during a determination period or look-back year, the
individual shall be considered a 5-percent owner for such
period or year.
(iii) Compensation shall mean compensation as defined
in Section 4.2(b) herein, except that compensation shall
include any amount which is contributed by the Controlled
Group pursuant to a salary reduction agreement and which is
not includible in the gross income of the Employee under Code
ss.ss.125, 402(a)(8) or 403(b).
(g) The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of the
Employees in the top-paid group, the top 100 Employees, the number of
individuals treated as officers and the compensation that is
considered, will be made in accordance with Code ss.414(q) and the
regulations thereunder.
1.42 Highly Compensated Participant shall mean a Participant who
is a Highly Compensated Employee.
1.43 Hours of Service shall mean those hours calculated in
accordance with the following provisions:
(a) An Employee shall receive credit for an Hour of Service
for each hour for which he is paid or entitled to payment by the
Employer for the performance of duties.
(b) An Employee shall also receive credit for an Hour of
Service for each hour for which he is paid or entitled to payment by
the Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty or military duty; provided, however,
that:
(i) No more than 501 Hours of Service shall be
credited because of this subsection (b) to an Employee on
account of any single continuous period during which the
Employee performs no duties (whether or not said period occurs
in a single computation period), except as provided in
subsection (d) below;
(ii) An hour for which an Employee is directly or
indirectly paid or entitled to payment on account of a period
during which no duties are performed shall not be credited to
an Employee if said payment is made or due under a plan
9
<PAGE> 19
maintained solely for the purpose of complying with applicable
worker's compensation, unemployment compensation, or
disability insurance laws; and
(iii) Hours of Service shall not be credited for a
payment which reimburses an Employee solely for medical or
medically related expenses incurred by the Employee.
For purposes of subsection (b), a payment shall be deemed to be made by
or due from the Employer regardless of whether said payment is made by
or due from the Employer directly or indirectly through, among others,
a trust fund or insurer to which the Employer contributes or pays
premiums and regardless of whether contributions made or due to the
trust fund, insurer or other entity are for the benefit of particular
Employees or are on behalf of a group of Employees in the aggregate.
(c) An Employee shall also receive credit for an Hour of
Service for each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer provided that
no Hour of Service shall be credited pursuant both to this subsection
(c) and subsections (a) or (b) above. Crediting of Hours of Service for
back pay awarded or agreed to with respect to periods described in
subsection (b) above shall be subject to the limitations set forth in
that subsection.
(d) In addition to the Service for which an Hour of Service
must be credited pursuant to subsections (a), (b) and (c) above, an
Employee shall receive credit for an Hour of Service for:
(i) Each hour, whether or not said Employee is paid
therefor, during which he would otherwise perform an Hour of
Service, except for the fact that he is on an approved leave
of absence. If he does not return to work on or before the end
of his leave, service will be deemed to have terminated as of
the beginning of his leave; and
(ii) Each hour for which an Employee performs no
duties due to absence during any military service so long as
such hours are required to be taken into account under the
Selective Service and Training Act of 1940, as amended, the
Military Selective Service Act of 1967, as amended, and/or the
Vietnam Era Veteran's Readjustment Act of 1974, as amended, or
other applicable federal law.
(e) Each Employee for whom the Employer does not keep records
of actual Hours of Service shall be credited with 45 Hours of Service
for each week for which said Employee would be required to be credited
with at least 1 Hour of Service, in accordance with this Section and
applicable regulations promulgated by the Department of Labor.
(f) In determining and crediting to computation periods the
number of Hours of Service to be credited to an Employee, the
provisions of DOL Reg. ss.ss.2530.200b-2(b) and 2(c) are incorporated
herein by reference.
10
<PAGE> 20
(g) If an Employee is absent from service with the Employer as a result
of a maternity/paternity absence, then, solely for purposes of
determining whether the Employee incurs a One Year Break in Service for
purposes of eligibility to participate and vesting in benefits, the
Employee will be credited with up to 501 Hours of Service with respect
to the period of maternity/paternity absence. Such 501 Hours of Service
shall be credited at the rate at which the Employee would have
otherwise accrued Hours of Service but for the maternity/paternity
absence, provided that, if the Plan Administrator is unable to
determine the Hours of Service that would have otherwise been credited,
such Hours of Service shall be credited at the rate of eight hours for
each day of the maternity/paternity absence. Such 501 Hours of Service
shall be credited only in the Eligibility Computation Period or Vesting
Computation Period, as applicable, in which the Employee's
maternity/paternity absence commences if the Employee would have
incurred a One Year Break in Service in such Eligibility Computation
Period or Vesting Computation Period, as applicable, but for the
crediting of the additional Hours of Service. If such Hours of Service
(not in excess of 501) are not credited to the Eligibility Computation
Period or Vesting Computation Period, as applicable, in which the
maternity/paternity absence commences pursuant to the immediately
preceding sentence, such Hours of Service shall be credited to the next
Eligibility Computation Period or Vesting Computation Period, as
applicable, commencing after the maternity/paternity absence commences.
For purposes of this subsection, the term "maternity/paternity absence"
means an absence from service with the Employer by an Employee if the
absence is caused:
(i) By reason of the pregnancy of the Employee;
(ii) By reason of the birth of a child of the
Employee;
(iii) By reason of the placement of a child with the
Employee in connection with the adoption of such child by the
Employee; or
(iv) For purposes of caring for such child for a
period beginning immediately following such birth or
placement.
(h) For purposes of this Section, employment with other
members of the Controlled Group shall be considered employment with the
Employer. In addition, in the case of a Leased Employee of any member
of the Controlled Group, service with such member shall be considered
employment with the Employer.
1.44 Key Employee. See Section 13.2(f) of this Plan.
1.45 Leased Employee.
(a) Leased Employee shall mean any person (other than a common
law employee of a member of the Controlled Group) who pursuant to an
agreement between a member of the Controlled Group and any other person
("leasing organization") has performed services for a member of the
Controlled Group (or for a member of the Controlled Group and related
11
<PAGE> 21
persons determined in accordance with Code ss.414(n)(6)) on a
substantially full time basis for a period of at least one year, and
such services are performed under primary direction and control of a
member of the Controlled Group. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to
services performed for a member of the Controlled Group shall be
treated as provided by a member of the Controlled Group.
(b) A Leased Employee shall not, however, be considered an
Employee of a member of the Controlled Group if: (i) such Employee is
covered by a money purchase pension plan of his legal employer
providing: (1) a nonintegrated employer contribution rate of at least
10% of compensation (as defined in Code ss.415(c)(3), but including
amounts contributed pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Code ss.ss.125,
402(a)(8), 402(h) or 403(b)), (2) immediate participation, and (3) full
and immediate vesting; and (ii) Leased Employees do not constitute more
than 20% of the Controlled Group's nonhighly compensated workforce. For
purposes of this subsection (b), the term "nonhighly compensated
workforce" means the total number of individuals (other than Highly
Compensated Employees) who are either Employees of a member of the
Controlled Group or Leased Employees of a member of the Controlled
Group.
1.46 Limitation Year. See Section 4.2(i) of this Plan.
1.47 Matching Elective Contributions shall mean Employer
contributions, if any, made to this Plan pursuant to Section 3.1(b)(i) of this
Plan and allocated to all Participants pursuant to Section 3.1(b)(ii) of this
Plan.
1.48 Matching Elective Contributions Account shall mean the
Account of a Participant to which are credited any Matching Elective
Contributions allocated to the Participant under Section 3.1(b) of this Plan.
1.49 Nonforfeitable Accounts shall mean a Participant's Elective
Contributions Account, Qualified Nonelective Contributions Account, Qualified
Matching Contributions Account and Rollover Contributions Account.
1.50 Maximum Permissible Amount. See Section 4.2(j) of this Plan.
1.51 Normal Retirement Age shall mean age 65.
1.52 Normal Retirement Date shall mean the first day of the
calendar month coincident with or next following the date the Participant
attains his Normal Retirement Age.
1.53 One-Year Break in Service (or Break in Service) shall mean a
12-consecutive-month period (the Eligibility Computation Period or the Vesting
Computation Period, whichever the context requires) during which the Employee
does not complete more than 500 Hours of Service with the Employer.
12
<PAGE> 22
1.54 Participant shall mean an Eligible Employee who has met the
requirements of Article II for participation in this Plan and who is potentially
eligible to receive a benefit of any type from this Plan or whose Beneficiaries
are potentially eligible to receive a benefit of any type from this Plan, or a
former Employee who retains any Account balance in this Plan. An Eligible
Employee who has not completed the eligibility service requirement of Section
2.1(b) shall be treated as a Participant solely with respect to any Rollover
Contributions he made.
1.55 Permissive Aggregation Group. See Section 13.2(b) of this Plan.
1.56 Plan shall mean the Flowers Industries, Inc. 401(k) Retirement
Savings Plan, and all amendments to such plan made from time to time. This Plan
is intended to be a profit sharing plan within the meaning of Code ss.401(a) and
Treas. Reg. ss.1.401-1 under which contributions shall be made without regard to
current or accumulated profits as permitted by Code ss.401(a)(27)(A).
1.57 Plan Administrator shall mean the person or persons appointed
by the President of the Company to administer the Plan pursuant to Article X
herein. If no such appointment is made, the Company shall be the Plan
Administrator.
1.58 Plan Year shall mean the 12 consecutive month period for
keeping the books and records of the Plan, which shall be the calendar year.
1.59 Present Value. See Section 13.2(e) of this Plan.
1.60 Projected Annual Benefit. See Section 4.2(k) of this Plan.
1.61 Qualified Matching Contributions shall mean Employer
contributions, if any, made to this Plan pursuant to Section 3.1(c)(i) of this
Plan and allocated to a certain group of Eligible Employees pursuant to Section
3.1(c)(ii) of this Plan.
1.62 Qualified Matching Contributions Account shall mean the
Account of a Participant to which are credited any Qualified Matching
Contributions allocated to the Participant each Plan Year under Section 3.1(c)
of this Plan.
1.63 Qualified Nonelective Contributions shall mean Employer
contributions, if any, made to this Plan pursuant to Section 3.1(d)(i) of this
Plan and allocated to a certain group of Eligible Employees pursuant to Section
3.1(d)(ii) of this Plan.
1.64 Qualified Nonelective Contributions Account shall mean the
Account of a Participant to which are credited any Qualified Nonelective
Contributions allocated to the Participant in a given Plan Year under Section
3.1(d) of this Plan.
1.65 Qualified Spousal Waiver shall mean a Participant's written
election, delivered to the Plan Administrator, signed by the Participant's
Spouse, and witnessed by a notary public or an authorized Plan representative,
which consents to the payment of all or a specified part of the Participant's
benefit to a named Beneficiary other than the Participant's Spouse. Such
election may
13
<PAGE> 23
not be changed without Spousal consent (unless the consent expressly permits
designations by the Participant without further consent of the Spouse). A
Participant (but not the Participant's Spouse) may, however, revoke a Qualified
Spousal Waiver at any time prior to his Benefit Commencement Date by way of a
written signed statement to the Plan Administrator and a Qualified Spousal
Waiver shall not be effective at any time following delivery of such a
revocation to the Plan Administrator provided that such revocation is received
by the Plan Administrator prior to the Participant's Benefit Commencement Date.
If a Participant revokes a Qualified Spousal Waiver, the Participant's benefits
shall be payable under the terms and provisions of this Plan as if no Qualified
Spousal Waiver had ever been in existence.
1.66 Required Aggregation Group. See Section 13.2(c) of this Plan.
1.67 Required Beginning Date shall mean, with respect to a
Participant, the April 1 of the calendar year following the calendar year in
which the Participant attains age 70 1/2.
1.68 Rollover Contributions shall mean contributions, if any, made
by an Eligible Employee to the Plan which qualify as a "rollover contribution"
within the meaning of Code ss.ss.402(c)(5), 403(a)(4) or 408(d)(3), or a direct
trustee-to-trustee transfer within the meaning of Code ss. 401(a)(31).
1.69 Rollover Contributions Account shall mean the Account of a
Participant to which are credited the Rollover Contributions made by the
Participant in a given Plan Year pursuant to Section 3.2 of this Plan.
1.70 Self-Employed Individual shall mean an individual who has
Earned Income for the taxable year from the trade or business for which the Plan
is established; also an individual who would have Earned Income but for the fact
that the trade or business has no net profits for the taxable year.
1.71 Spouse shall mean the legally recognized spouse of a
Participant determined as of the Participant's Benefit Commencement Date, or, if
earlier, determined as of the Participant's date of death.
1.72 Surviving Spouse shall mean the surviving Spouse of a deceased
Participant. To the extent required by a qualified domestic relations order, an
alternate payee under such order shall be treated as the Surviving Spouse of a
deceased Participant. See Section 12.6 herein.
1.73 Top-Heavy Plan. See Section 13.2(g) of this Plan.
1.74 Top-Heavy Ratio. See Section 13.2(a) of this Plan.
1.75 Trust shall mean the trust accompanying the Plan hereby
created.
1.76 Trust Agreement shall mean the agreement between the Trustee
and the Company creating the Trust accompanying the Plan.
14
<PAGE> 24
1.77 Trust Fund shall mean the assets of the Trust held by the
Trustee pursuant to the provisions of the Trust Agreement and the Plan.
1.78 Trustee shall mean the entity, person or persons who have
entered into the Trust Agreement with the Company to act as trustee(s) of the
assets of the Plan.
1.79 Valuation Date shall mean each day of the Plan Year as of which
Plan assets held in the Trust and the Account balances of Participants shall be
valued by the Trustee. The Valuation Dates of the Plan shall be the last day of
each calendar month.
1.80 Vesting Computation Period shall mean, for purposes of
determining Years of Vesting Service and One-Year Breaks in Service for vesting,
the 12 consecutive month period coincident with the Plan Year.
1.81 Year of Eligibility Service.
(a) In General. A Year of Eligibility Service shall mean an
Eligibility Computation Period during which the Employee completes
1,000 Hours of Service.
(b) Other Controlled Group Service. For purposes of this
Section, employment with other members of the Controlled Group shall be
considered employment with the Employer. In addition, in the case of a
Leased Employee of any employing person or entity described in the
preceding sentence, employment with such employer shall be considered
employment with the Employer.
(c) Service with Predecessor Employer. For purposes of this
Section, in any case in which the Employer maintains a plan of a
predecessor employer, service for such predecessor shall be treated as
service for the Employer in accordance with Code ss.414(a).
(d) Special Rules. See Article II for special rules relating
to the determination of Years of Eligibility Service. In addition, the
instrument by which an Employer adopts the Plan (in cases of adoptions
subsequent to April 1, 1995) may contain special provisions with
respect to credit for service rendered prior to the Employer's becoming
a member of the Controlled Group.
1.82 Year of Vesting Service.
(a) In General. A Year of Vesting Service shall mean a Vesting
Computation Period during which an Employee completes 1,000 Hours of
Service.
(b) Other Controlled Group Service. For purposes of this
Section, employment with other members of the Controlled Group shall be
considered employment with the Employer. In addition, in the case of a
Leased Employee of any employing person or entity described in the
preceding sentence, employment with such employer shall be considered
employment with the Employer.
15
<PAGE> 25
(c) Service with Predecessor Employer. For purposes of this
Section, in any case in which the Employer maintains a plan of a
predecessor employer, service for such predecessor shall be treated as
service for the Employer in accordance with Code ss. 414(a).
(d) Special Rules. See Article V for special rules relating to
the determination of Years of Vesting Service. In addition, the
instrument by which an Employer adopts the Plan (in cases of adoptions
subsequent to April 1, 1995) may contain special provisions with
respect to credit for service rendered prior to the Employer's becoming
a member of the Controlled Group.
16
<PAGE> 26
ARTICLE II
ELIGIBILITY FOR PARTICIPATION
2.1 Initial Attainment of Participation Status.
(a) Subject to the special rules of Sections 2.2 through 2.5 below, all
Employees who are Eligible Employees shall become Participants hereunder on the
first Entry Date coincident with or next following the date on which the
Employee satisfies the eligibility requirements set forth in subsection (b)
below, provided such Employee is still in the service of an Employer as an
Eligible Employee on such Entry Date.
(b) Eligibility Requirements. For purposes of this Plan, the
eligibility requirements for participation in this Plan shall be as follows:
(i) An Employee must complete an Eligibility Computation
Period during which the Employee receives credit for 1 Year of
Eligibility Service.
(ii) In determining the Years of Eligibility Service completed
by an Employee for purposes of paragraph (i) above, Years of
Eligibility Service shall be determined pursuant to Sections 1.81, 2.2,
2.3, and 2.5 of this Plan.
(c) Leased Employees and Certain Independent Contractors Excluded.
Leased Employees shall not be Eligible Employees and shall not be eligible to
participate in this Plan while they remain Leased Employees notwithstanding any
provision of this Plan to the contrary. No individual shall be eligible to
participate if he is classified by a member of the Controlled Group as an
independent contractor performing services for the Controlled Group and as to
whom such member or members have determined in good faith that they (i) are not
required by law to, and do not pay, Federal Insurance Contributions Act taxes
with respect to such individual, or (ii) are required to pay taxes only by
reason of Code ss. 3121(d)(3).
(d) Collective Bargaining Employees Excluded. Employees shall not be
Eligible Employees if they are included in a unit of employees covered by a
collective bargaining agreement between the representative of such Employees and
the Employer if retirement benefits were the subject of good faith bargaining
between such representative and the Employer. If, however, the collective
bargaining agents of any collective bargaining unit accept the Plan, the
employees who are members of such unit shall become Eligible Employees for the
period of any such acceptance and until it is revoked, should that occur.
(e) Nonresident Aliens. Employees who are nonresident aliens and who
receive no earned income (within the meaning of Code ss.911(d)(2)) from the
Employer which constitutes income from sources within the United States (within
the meaning of Code ss.861(a)(3)) shall not be Eligible Employees and shall not
be eligible to participate in this Plan notwithstanding any provision of this
Plan to the contrary.
17
<PAGE> 27
(f) Distributors and Thrift Store Operators. Notwithstanding any
provision of the Plan to the contrary, individuals who are distributors or
thrift store operators and who have executed a written agreement with a member
of the Controlled Group for the distribution or sale of goods or products (and
any employees, agents or independent contractors of such distributors or thrift
store operators) shall not be eligible to participate in this Plan.
2.2 Reemployment of Former Employees.
(a) Any former Employee who terminated employment with the Controlled
Group prior to becoming a Participant hereunder shall, upon being rehired by the
Controlled Group as an Eligible Employee, receive credit for purposes of Years
of Eligibility Service for all service prior to his or her separation from
service, subject to subsections (b) and (c) below.
(b) One Year Holdout. Any former Employee who terminated employment
prior to becoming a Participant hereunder and who has a One-Year Break in
Service shall not receive credit for service prior to such break in service
unless and until such Employee has completed a Year of Eligibility Service after
his return.
(c) Rule of Parity. Any former Employee (i) who terminated employment
prior to becoming a Participant hereunder, (ii) who has one or more One-Year
Breaks in Service and (iii) for whom the number of consecutive One-Year Breaks
in Service prior to such Employee's reemployment equals or exceeds the greater
of 5 or the aggregate number of Years of Eligibility Service before such
One-Year Breaks in Service shall not receive credit for service prior to such
One-Year Breaks in Service.
2.3 Reemployment of Former Participants.
General Rule. Any former Participant who terminated employment with the
Controlled Group shall, upon being rehired by the Controlled Group as an
Eligible Employee, immediately become a Participant hereunder.
2.4 Transfers to/from Eligible Class.
(a) Exclusion After Participation. A Participant who ceases to be an
Eligible Employee, but who has not ceased to be an Employee, shall not share in
any contributions under Section 3.1 of this Plan until such Participant again
becomes an Eligible Employee. However, such Participant shall be entitled to
benefits in accordance with the other provisions of this Plan and shall continue
to earn Years of Eligibility Service and Years of Vesting Service nonetheless,
and amounts previously credited to the Participant's Accounts shall continue to
receive allocations of earnings and losses under Article VII of this Plan.
(b) Participation After Exclusion. An Employee who has not been an
Eligible Employee but who becomes an Eligible Employee shall become a
Participant hereunder as
18
<PAGE> 28
of the first Entry Date coincident with or next following the date on which the
Employee becomes an Eligible Employee.
2.5 Family and Medical Leave Act. Any period while an Employee is
on a leave of absence under the Family and Medical Leave Act of 1993 will be
treated as continued service for the purpose of computing Years of Eligibility
Service.
19
<PAGE> 29
ARTICLE III
CONTRIBUTIONS AND ALLOCATIONS
3.1 Employer Contributions. Each Employer may make contributions to
the Plan (all of which are hereby expressly conditioned on their deductibility
under Code ss.404) by making payments to the Trustee in one or more of the
methods described in subsections (a) through (e) below. Said contributions shall
be made in cash, or by payments of property acceptable to the Trustee if such
payments (i) are purely voluntary, (ii) do not relieve the Employer of an
obligation to make contributions to this Plan, and (iii) do not constitute
prohibited exchanges under ERISA ss.406(a)(1)(A)).
(a) Elective Contributions.
(i) Amount. For each Election Period, the Employer
shall make Elective Contributions to this Plan in an amount
equal to the aggregate Elective Contributions elected by
Participants pursuant to Elections consistent with the
provisions of Section 3.5 of this Plan, subject to the
limitation on allocations pursuant to Article IV of this Plan.
(ii) Allocation. Elective Contributions elected by a
Participant pursuant to Elections consistent with the
provisions of Section 3.5 of this Plan shall, subject to the
limitations of Sections 3.5, 3.6, 3.8, 3.9, 3.10 and Article
IV of this Plan, be allocated to such Participant's Elective
Contributions Account. The Participant's salary or wages from
the Employer shall be reduced accordingly.
(b) Matching Elective Contributions.
(i) Amount. For each Election Period, the Employer
shall make Matching Elective Contributions to this Plan in an
amount equal to the aggregate of the amounts to be allocated
to Participants under paragraph (ii) below.
(ii) Allocation. Matching Elective Contributions and
any forfeitures under Sections 3.5(f), 3.8(c) and 8.5 to be
reallocated for a Plan Year shall be allocated as of the date
contributed or for the Plan Year in which forfeited, as
appropriate, so that the amount allocated shall equal that
percentage, described in the relevant exhibit hereto for the
Employer in question, of the Participant's Elective
Contributions received during the Election Period (excluding
any Qualified Nonelective Contributions or Qualified Matching
Contributions treated as Elective Contributions under Section
3.6(b)(iii) of this Plan), subject to the limitations of
Sections 3.7, 3.8, 3.9, 3.10 and Article IV of this Plan. A
Participant need not remain employed as of the last day of the
Plan Year in order to receive a Matching Elective
Contribution. The stated percentage referred to in the first
sentence of this subsection and any other conditions or
provisions with respect to said contributions shall be set
20
<PAGE> 30
forth in Exhibit A of this Plan with respect to each Employer
which elects to make Matching Elective Contributions.
(iii) Limitations Concerning Matching Elective
Contributions. In addition to the other conditions and
limitations set forth in this Plan, Matching Elective
Contributions which are, for a Plan Year, allocated to the
Matching Elective Contributions Account of a Participant who
is an Eligible Highly Compensated Employee, and which cause
the Plan to fail the Contribution Percentage Test of Section
3.7 of this Plan or the special limitation of Section 3.9 of
this Plan for such Plan Year shall be corrected pursuant to
Section 3.8. Furthermore, in the case of each Participant, no
Matching Elective Contributions shall be allocated to a
Participant's Matching Elective Contributions Account which
would cause the Plan to fail to satisfy the limitations of
Article IV of this Plan.
(c) Qualified Matching Contributions.
(i) Amount. For each Plan Year, the Employer may make
Qualified Matching Contributions to this Plan in an amount
which shall be determined solely in the discretion of the
Company, and which shall be used to satisfy the Deferral
Percentage Test of Section 3.6 of this Plan and/or the
Contribution Percentage Test of Section 3.7 of this Plan.
(ii) Allocation. Qualified Matching Contributions for
a Plan Year shall be allocated as of the date contributed to
the Qualified Matching Contributions Account of each
Allocation Participant who is not a Highly Compensated
Participant in proportion to the ratio which his or her
Elective Contributions for such Plan Year bears to the total
of all such contributions of all such Allocation Participants
for such Plan Year, subject to the limitations of Sections 3.7
and 3.9 and Article IV of this Plan.
(d) Qualified Nonelective Contributions.
(i) Amount. For each Plan Year, the Employer may make
Qualified Nonelective Contributions to this Plan in an amount
which shall be determined solely in the discretion of the
Company, and which shall be used to satisfy the Deferral
Percentage Test of Section 3.6 of this Plan, the Special
Limitation of Section 3.9 of this Plan and/or the Contribution
Percentage Test of Section 3.7 of this Plan.
(ii) Allocation. Qualified Nonelective Contributions
for a Plan Year shall be allocated as of the last day of such
Plan Year to the Qualified Nonelective Contributions Account
of each Allocation Participant who is not a Highly Compensated
Participant in proportion to the ratio which his or her
Compensation during the Plan Year bears to the total
Compensation during such period of all such Participants
subject to the limitations of Article IV of this Plan.
21
<PAGE> 31
(e) Company Basic Contributions.
(i) Amount. Each Employer may, in lieu of or in
addition to the contributions described in subsections (a)
through (d) above, elect to make contributions on another
legally permissible basis to the Plan for the benefit of those
Participants who are employed by said Employer. In said event,
the Employer shall execute a description of the special
contribution formula which shall be included in its adopting
resolution referred to in Section 11.6, attached hereto, and
shall be reflected on Exhibit A to this Plan.
(ii) Allocation. In the event that an Employer shall
elect to make contributions pursuant to subparagraph (i) of
this subsection (e), said contributions shall be allocated to
Participants' accounts as described in each case in Exhibit A,
which may contain any other special provisions or definitions
relevant thereto.
In no event shall the aggregate contributions made by the Employer
under this Section exceed the amount deductible under Code ss.404. All
allocations to be made under this Section shall be subject to the
provisions of Section 13.1(a) of this Plan, if applicable.
3.2 Employee Contributions.
Rollover Contributions. Each Eligible Employee may, without
regard to whether such Eligible Employee is a Participant under this
Plan and subject to the consent of the Plan Administrator based on
satisfying the requirements of this subsection, make one or more
Rollover Contributions which shall be allocated to the Eligible
Employee's Rollover Contribution Account if the Rollover Contribution
is:
(a) all or any portion of a distribution which is an "eligible
rollover distribution" within the meaning of Code ss.402(c)(4);
(b) a distribution which is a "rollover contribution" within
the meaning of Code ss.408(d)(3)(A)(ii) (or a "partial rollover" within
the meaning of Code ss.408(d)(3)(D) and meeting the requirements
therein);
(c) all or any portion of a distribution which is a "rollover
amount" within the meaning of Code ss.403(a)(4); or
(d) in cash only, except that those Participants who direct a
rollover from the Flowers Industries, Inc. Employee Stock Ownership
Plan may rollover Company stock received from that plan.
The Plan Administrator shall have the right to reject any Rollover
Contribution which it determines in its sole judgment does not qualify
under the above-referenced provisions. Any Rollover Contributions
accepted by the Plan Administrator shall be promptly remitted to the
Trustee to be held in a Rollover Contribution Account for the Eligible
Employee's sole
22
<PAGE> 32
benefit, and shall be nonforfeitable at all times, but otherwise
subject to all of the terms and provisions of this Plan, including but
not limited to, restrictions upon availability.
3.3 Time of Payment of Contributions. Employer contributions made
under Section 3.1 of this Plan shall be made for each Plan Year within the time
prescribed by law (including extensions thereof) for filing the Employer's
federal income tax return for the Employer's taxable year ending with or within
the Plan Year and shall actually be paid to the Trustee no later than the
12-month period immediately following the Plan Year to which such contributions
relate. Elective Contributions and Rollover Contributions under Section 3.2 of
this Plan shall be remitted to the Trustee as of the earliest date on which such
amounts can reasonably be segregated from the Employer's general assets, but in
any event not later than the 15th business day after the end of the calendar
month in which such Contributions are withheld or would otherwise have been paid
to the Participant.
3.4 Return of Contributions. All contributions made to the Trustee
shall be irrevocable except as follows:
(a) Mistake of Fact. If an Employer contribution is made by an
Employer under a mistake of fact, the amount of such contribution
described in subsection (d) below shall be returned to the Employer
within one year after the payment of said contribution.
(b) Deductibility Condition. All contributions of the Employer
made to this Plan are hereby expressly conditioned on their
deductibility under Code ss.404; if an Employer contribution is
disallowed as a deduction under Code ss.404, the amount of the
contribution described in subsection (d) below shall be returned to the
Employer within one year after the disallowance of the deduction.
(c) Initial Qualification. All contributions made to this Plan
prior to the receipt of an initial determination from the Internal
Revenue Service that the Plan is qualified under Code ss.401(a) are
hereby expressly conditioned on the initial qualification of the Plan
under Code ss.401, and if a timely application for a determination has
been made to the Internal Revenue Service by the Employer, but is
denied, then said contribution shall be returned to the Employer within
one year after the date of said denial of qualification of the Plan.
(d) Amount Returned. For purposes of subsections (a) and (b)
above, the amount which may be returned to the Employer is the excess
of (i) the amount contributed over (ii) the amount that would have been
contributed had there not occurred a mistake of fact or a mistake in
determining the deduction. Earnings attributable to such amount will
not be returned to the Employer, but losses attributable thereto will
reduce the amount so returned. Furthermore, if the return of an amount
attributable to a mistaken contribution would cause the accrued benefit
of any Participant to be reduced to less than it would have been had
the mistaken amount not been contributed, then the amount to be
returned to the Employer will be limited so as to avoid such reduction.
23
<PAGE> 33
3.5 Provisions Regarding Elective Contributions.
(a) Elective Contribution Elections. Each Eligible Employee
may make an Election by which the Eligible Employee shall state the
percentage (in whole percentages) of his Compensation which shall
constitute his Elective Contribution applicable to each paycheck
received within said Election Period. Said amount shall be contributed
to his Elective Contribution Account by the Employer rather than paid
to the Eligible Employee as taxable cash compensation. The maximum
Elective Contribution that may be elected by an Eligible Employee for
any Election Period shall not exceed 15% of the Eligible Employee's
Compensation received during such Election Period and the minimum
percentage shall be one percent (1%) of said Compensation. Any
Participant who was a Highly Compensated Employee on the last day of
the prior Plan Year and is a Highly Compensated Employee during the
current Plan Year shall not be permitted to make Elective Contributions
for a given Plan Year in excess of an amount determined by the Plan
Administrator and communicated to said Employees. If an Eligible
Employee has an Elective Contribution election in effect for an
Election Period, such election automatically shall apply for the next
succeeding Election Periods unless the Eligible Employee modifies or
revokes the election in accordance with this Section. The Employer
shall contribute to the Elective Contribution Account of each Eligible
Employee the amount specified in an Eligible Employee's Elective
Contribution election for so long as such election is in effect.
(b) Effective Time of Initial Elections or Modification of
Elective Contribution Elections. An Eligible Employee may make an
Election which changes the percentage of the Eligible Employee's
Compensation to be deferred as an Elective Contribution. Any such
modification will become effective as soon as reasonably practicable
after said Election is made.
(c) Revocation of Elective Contribution Election. An election
to revoke Elective Contributions may be made at any time, and shall be
effective as soon as practicable after receipt of said election by the
Plan Administrator. An Eligible Employee who revokes his Elective
Contribution election may file a new Elective Contribution election to
be effective prior to the first Election Period beginning after the
date the Eligible Employee revoked his Elective Contribution election.
(d) Procedure for Making Elections. The Plan Administrator
shall have complete discretion to adopt and revise procedures to be
followed in making Elective Contribution elections. Such procedures may
include, but are not limited to, the format of the Election Forms, if
any, the ability of Participants to make elections orally or
telephonically, the deadline for making Elective Contribution elections
and for requesting a modification or revocation of an Elective
Contribution election, and the procedures for approval of Elective
Contribution elections; provided, however, that no election may be made
to defer as an Elective Contribution any amount of Compensation that
has already been paid to a Eligible Employee. Any procedures adopted by
the Plan Administrator which have been set forth in writing and
communicated to Eligible Employees that are inconsistent with the
deadlines
24
<PAGE> 34
specified in this Section shall supersede such provisions of this
Section without the necessity of a Plan amendment, and shall be applied
in a uniform and nondiscriminatory manner.
(e) Elective Contribution Limitations. Notwithstanding any
provision of this Plan to the contrary, an Eligible Employee shall not
be allowed to elect to make, and may not make, Elective Contributions
which, in the aggregate during a calendar year, exceed the maximum
amount specified in Code ss.402(g)(1), as adjusted pursuant to Code
ss.ss.402(g)(4) and (5), applicable to such calendar year.
(f) Return of Elective Deferrals; Correcting Distributions. To
the extent that an Eligible Employee elects during a calendar year to
make Elective Deferrals under a combination of this Plan and some other
plan, arrangement or annuity in excess of the maximum amount specified
in Code ss.402(g)(1), as adjusted pursuant to Code ss.402(g)(4) and
(5), applicable to such calendar year, the Plan Administrator, sua
sponte or upon written request of the Eligible Employee received by
March 1 of the following calendar year, shall direct the Trustee to
distribute, on or after January 1 of such following calendar year, but
in no event later than April 15 of such following calendar year, to
such Eligible Employee the portion of such Eligible Employee's Elective
Contributions made during the calendar year which the Plan
Administrator determines should be considered an Excess Deferral or
which the Eligible Employee has designated as an Excess Deferral in
such written request. Simultaneously therewith, the Matching Elective
Contributions attributable to such portion of the Eligible Employee's
Elective Contributions made during the calendar year shall be forfeited
and held in a suspense account to be used to reduce the amount of
future Matching Elective Contributions.
(g) Coordination with other Provisions. Any Elective
Contributions designated as an Excess Deferral under subsection (f)
above which are returned to the Participant pursuant to subsection (f)
shall nonetheless be included as Elective Contributions for purposes of
the Deferral Percentage Test specified in Section 3.6 of this Plan
unless such Participant is not a Highly Compensated Participant, and
may be distributed without regard to any notice or consent otherwise
required by the terms of this Plan. The portion of a Participant's
Elective Contributions made during a calendar year which has been
designated as an Excess Deferral and which is to be distributed under
subsection (f) above shall be reduced by any excess contributions (as
determined under Section 3.8(c) of this Plan) previously distributed
under Section 3.8(a) of this Plan with respect to such Participant for
the Plan Year beginning with or within such calendar year.
(h) Other Limitations Concerning Elective Contributions. In
addition to the other conditions and limitations set forth in this
Plan, Elective Contributions which may, for a Plan Year, be allocated
to a Participant's Account shall not be permitted, in the case of each
Highly Compensated Participant, if they would cause the Plan to fail
the Deferral Percentage Test specified in Section 3.6 of this Plan for
such Plan Year, and, in the case of each Participant, if they would
cause the Plan to fail to satisfy the limitations of Article IV of this
Plan for such Plan Year.
25
<PAGE> 35
3.6 Limitation of Elective Deferrals.
(a) Deferral Percentage Test. The Deferral Percentage Test
shall be satisfied for any Plan Year if the Average Actual Deferral
Percentage for the Eligible Highly Compensated Employees for such Plan
Year does not exceed the greater of (i) or (ii) as follows:
(i) The Average Actual Deferral Percentage for the
prior Plan Year for the Eligible Employees who are not Highly
Compensated Employees times 1.25; or
(ii) The lesser of:
(A) The Average Actual Deferral Percentage
for the prior Plan Year for the Eligible Employees
who are not Highly Compensated Employees times 2; or
(B) The Average Actual Deferral Percentage
for the prior Plan Year for the Eligible Employees
who are not Highly Compensated Employees plus two
percentage points.
(b) Definitions.
(i) Average Actual Deferral Percentage. For purposes
of this Section, the term "Average Actual Deferral Percentage"
of a group of Eligible Employees shall, for a Plan Year, mean
the numeric average of the Actual Deferral Percentages
calculated separately for each Eligible Employee in the group.
(ii) Actual Deferral Percentage. The Actual Deferral
Percentage of an Eligible Employee shall be obtained by
dividing the amount of ADP Contributions credited to the
Account of such Eligible Employee during such Plan Year by the
Eligible Employee's Compensation for the Plan Year, calculated
to the nearest one-hundredth of one percent. The Actual
Deferral Percentage of an Eligible Employee who has no ADP
Contributions credited to his Account during a Plan Year shall
be zero for such Plan Year.
(iii) ADP Contributions. "ADP Contributions" shall
mean the sum of Elective Contributions and, to the extent that
the Plan Administrator elects (uniformly with respect to all
Eligible Employees) to treat the following contributions as
Elective Contributions under Treas. Reg. ss.1.401(k)-1(b)(3)
and this paragraph (iii), Qualified Nonelective Contributions
and Qualified Matching Contributions. Any Qualified
Nonelective Contributions or Qualified Matching Contributions
which the Plan Administrator elects to treat as Elective
Contributions under the preceding sentence must not
discriminate in favor of Highly Compensated Employees within
the meaning of Code ss.401(a)(4).
26
<PAGE> 36
(iv) Compensation.
(A) General Definition. Subject to
subparagraphs (B) through (D) below, for purposes of
this Section 3.6 Compensation for a Plan Year with
respect to an Employee shall mean the Employee's
"wages" as defined in Code ss. 3401(a) for purposes
of income tax withholding at the source paid by an
Employer but determined without regard to any rules
that limit the remuneration included in wages based
on the nature or location of the employment or the
services performed (such as the exception for
agricultural labor in Code ss. 3401(a)(2)) and all
other payments of compensation (in the course of the
Employer's trade or business) for which the Employer
is required to furnish the Employee a written
statement under Code ss.ss. 6041(d), 6051(a)(3) and
6052 which are paid by the Employer to such Employee
for such Plan Year.
(B) Safe Harbor Exclusions. Notwithstanding
the provisions of subparagraph (A) above, none of the
following items shall be included in the definition
of Compensation, whether or not includable in taxable
gross income:
(1) reimbursements or other expense
allowances;
(2) fringe benefits (cash and noncash);
(3) moving expenses;
(4) deferred compensation;
(5) welfare benefits;
and, additionally, solely with respect to Highly
Compensated Employees:
(6) amounts received from the exercise of
any nonqualified stock options issued by an Employer;
(7) amounts received from the sale or
exchange of stock transferred pursuant to the
exercise of an incentive stock option; and
(8) amounts required to be reported as
income pursuant to Code ss. 7872.
(C) Salary Reduction Arrangements.
Notwithstanding the preceding subparagraphs of this
paragraph (iv), Compensation shall include any amount
which is contributed by the Employer pursuant to a
salary
27
<PAGE> 37
reduction agreement and which is not includable in
the gross income of the Employee under Code ss.ss.
125, 402(e)(3), 402(h) or 403(b).
(D) Limitation. Notwithstanding any
provision of this paragraph (iv) to the contrary
Compensation of an Eligible Employee shall not
include the Compensation of such Employee during a
period that the Employee is not an Eligible Employee
with respect to the Plan and shall be limited in the
manner provided in Section 1.15(e).
(c) Plan Aggregation Rules. In the case of an Eligible Highly
Compensated Employee who is eligible to participate in more than one
cash or deferred arrangement of the Controlled Group, the Actual
Deferral Percentage for such Employee shall be calculated by treating
all the cash or deferred arrangements in which the Eligible Highly
Compensated Employee is eligible to participate (including this Plan)
as one arrangement; provided, however, that plans that are not
permitted to be aggregated under Treas. Reg. ss.1.401(k)-1(b)(3)(ii)(B)
shall not be aggregated for this purpose. Furthermore, if any plan of
the Controlled Group which is subject to Code ss.401(k) is aggregated
with this Plan for purposes of Code ss.ss.401(a)(4) and 410(b), then
all elective contributions (as defined in Treas. Reg.
ss.1.401(k)-1(g)(3)) under such plan and this Plan shall be aggregated
in applying the limitations of this Section.
(d) Failure to Satisfy Test. If this Plan does not or may not
satisfy the Deferral Percentage Test of subsection (a) above for a Plan
Year, the Plan Administrator shall take such action permitted under
Sections 3.8 and 3.10 of this Plan as the Plan Administrator, in its
sole discretion, shall determine necessary in order to ensure that the
Plan satisfies such test for the Plan Year.
(e) Recordkeeping. The Plan Administrator shall, on behalf of
the Employer, maintain such records as are necessary to demonstrate
compliance with the Deferral Percentage Test of subsection (a) above
for each Plan Year, including the extent to which any Qualified
Nonelective Contributions and Qualified Matching Contributions are
treated as Elective Contributions under paragraph (iii) of subsection
(b) above.
3.7 Limitation of Employee and Employer Matching Contributions.
(a) Contribution Percentage Test. The Contribution Percentage
Test shall be satisfied for any Plan Year if the Average Contribution
Percentage for the Eligible Highly Compensated Employees for such Plan
Year does not exceed the greater of (i) or (ii) as follows:
(i) The Average Contribution Percentage for the prior
Plan Year for the Eligible Employees who are not Highly
Compensated Employees times 1.25 for the prior Plan Year; or
28
<PAGE> 38
(ii) The lesser of:
(A) The Average Contribution Percentage for
the prior Plan Year for the Eligible Employees who
are not Eligible Highly Compensated Employees times
2; or
(B) The Average Contribution Percentage for
the prior Plan Year for the Eligible Employees who
are not Eligible Highly Compensated Employees plus
two percentage points.
(b) Definitions.
(i) Average Contribution Percentage. For purposes of
this Section, the term "Average Contribution Percentage" of a
group of Employees shall, for a Plan Year, mean the numeric
average of the Contribution Percentages calculated separately
for each Employee in the group.
(ii) Contribution Percentage. The Contribution
Percentage of an Eligible Employee shall be obtained by
dividing the amount of ACP Contributions credited to the
Account of such Employee during such Plan Year by the Eligible
Employee's Compensation for the Plan Year, calculated to the
nearest one-hundredth of one percent. The Contribution
Percentage of an Eligible Employee who has no ACP
Contributions credited to his Account during a Plan Year shall
be zero for such Plan Year.
(iii) ACP Contributions. "ACP Contributions" shall
mean the sum of Qualified Matching Contributions to the extent
that such contributions are not treated as Elective
Contributions under Treas. Reg. ss.1.401(k)-1(b)(5) and
Section 3.6(b)(iii) of this Plan, Matching Elective
Contributions and, to the extent that the Plan Administrator
elects (uniformly with respect to all Eligible Employees) to
treat the following contributions as "matching contributions"
under Treas. Reg. ss.1.401(m)-1(b)(5) and this paragraph (iii)
and such contributions are not treated as Elective
Contributions under Treas. Reg. ss.1.401(k)-1(b)(5) and
Section 3.6(b)(iii) of this Plan, Qualified Nonelective
Contributions, and any forfeitures which are reallocated under
Sections 3.5(f) or 3.8(c) as Matching Elective Contributions.
Any Qualified Nonelective Contributions which the Plan
Administrator elects to treat as "matching contributions" or
any Qualified Matching Contributions treated as ACP
Contributions under the preceding sentence must not
discriminate in favor of Highly Compensated Employees within
the meaning of Code ss.401(a)(4) and must satisfy the
provisions of Treas. Reg. ss.1.401(m)-1(b).
(iv) Compensation. For purposes of this Section,
Compensation shall mean Compensation as defined in Section
3.6(b)(iv) of this Plan.
29
<PAGE> 39
(c) Plan Aggregation. In the case of an Eligible Highly
Compensated Employee who is eligible to participate in two or more
plans of the Controlled Group to which employee contributions (within
the meaning of Treas. Reg. ss.1.401(m)-1(f)(7)) or matching
contributions (within the meaning of Treas. Reg. ss.1.401(m)-1(f)(12)),
or both are made, all such contributions on behalf of such Eligible
Highly Compensated Employee must be aggregated for purposes of
determining such Employee's Contribution Percentage; provided, however,
that plans which are not permitted to be aggregated under Treas. Reg.
ss.1.401(m)-1(b)(3)(ii) shall not be aggregated for this purpose.
Furthermore, if any plan of the Controlled Group which is subject to
Code ss.401(m) is aggregated with this Plan for purposes of Code
ss.ss.410(b) and 401(a)(4), then all employee contributions (as defined
in the preceding sentence) and all matching contributions (as defined
in the preceding sentence) under such plan and this Plan shall be
aggregated in applying the limitations of this Section.
(d) Failure to Satisfy Test. If this Plan does not or may not
satisfy the Contribution Percentage Test of subsection (a) above for a
Plan Year, the Plan Administrator shall take such action permitted
under Sections 3.8 and 3.10 of this Plan as the Plan Administrator, in
its sole discretion, shall determine necessary in order to ensure that
the Plan satisfies such test for the Plan Year.
(e) Recordkeeping. The Plan Administrator shall, on behalf of
the Employer, maintain such records as are necessary to demonstrate
compliance with the Contribution Percentage Test of subsection (a)
above for each Plan Year, including the extent to which any Qualified
Nonelective Contributions and Qualified Matching Contributions are
treated as ACP Contributions under paragraph (iii) of subsection (b)
above.
3.8 Corrections Required by Discrimination Tests. If the Deferral
Percentage Test of Section 3.6 of this Plan, the Contribution Percentage Test of
Section 3.7 of this Plan and/or the special limitation of Section 3.9 of this
Plan are applicable to this Plan and are not satisfied for a Plan Year, the Plan
Administrator, in its discretion, may use any combination of the methods in
subsections (a) and (b) below to satisfy any one or more of these tests or
limitations, except as otherwise provided below:
(a) Distribution.
(i) Correcting Distributions. To the extent necessary
to satisfy the Applicable Test for any Plan Year in which such
test is not satisfied, the Plan Administrator shall direct the
Trustee to distribute to Highly Compensated Participants a
portion (determined in the manner set forth in subsections (c)
and/or (d) below) of their Applicable Contributions, together
with income allocable to such portions, after the close of
such Plan Year, but in no event later than the close of the
following Plan Year.
30
<PAGE> 40
(ii) Allocable Income or Loss.
(A) General Rules. For purposes of paragraph
(i) above, the income or loss allocable to the
portion of a Participant's Applicable Contributions
made during a Plan Year shall, at any relevant time,
be determined by the following formula:
income or loss = E x I
-------
D
For purposes of applying the formula, E is the
portion of such Participant's Applicable
Contributions made during the Plan Year; D is the
balance in the Participant's Account consisting of
Applicable Contributions as of the beginning of the
Plan Year increased by the Participant's Applicable
Contributions for the Plan Year and I is the income
for the Plan Year allocable to the Participant's
total Applicable Contributions for the Plan Year. A
distribution occurring on or before the fifteenth day
of the month will be treated as having been made on
the last day of the preceding month, and a
distribution occurring after such fifteenth day will
be treated as having been made on the first day of
the next subsequent month.
(b) Contribution. To the extent necessary to satisfy the
Applicable Test for any Plan Year in which such test is not satisfied,
the Plan Administrator shall direct the Trustee to contribute to
nonhighly compensated Participants, to the extent necessary, Qualified
Nonelective Contributions, Qualified Matching Contributions, or both. A
contribution under this paragraph must occur on or before 12 months
after the close of the Plan Year to which the contribution relates.
(c) Determination of Excess Contributions. For purposes of
paragraphs (a) and (b) above, the relevant portion of a Highly
Compensated Participant's ADP Contributions for a Plan Year shall be
equal to such Participant's excess contributions for such Plan Year.
The excess contributions, and the portion of the excess contributions
to be distributed, shall be calculated in the following manner:
(i) The excess contributions with respect to a Highly
Compensated Participant for a Plan Year are determined by
reducing the Elective Contributions of the Highly Compensated
Participant with the highest Actual Deferral Percentage by the
amount required to cause the Participant's Actual Deferral
Percentage to equal the Actual Deferral Percentage of the
Highly Compensated Participant with the next highest such
percentage. If a lesser reduction would enable the arrangement
to satisfy the Deferral Percentage Test, only this lesser
reduction will be made. This process must be repeated until
the Deferral Percentage Test would be satisfied.
(ii) The total of the reductions in the amounts of
Elective Contributions, determined in accordance with (i)
above, shall be determined.
31
<PAGE> 41
(iii) After the total in (ii) above has been
determined, the Elective Contributions of the Highly
Compensated Participant with the highest dollar amount of
Elective Contributions shall be reduced by the amount required
to cause that Highly Compensated Participant's Elective
Contributions to equal the dollar amount of the Elective
Contributions of the Highly Compensated Participant with the
next highest dollar amount of Elective Contributions. This
amount is then distributed to the Highly Compensated
Participant with the highest dollar amount of Elective
Contributions. However, if a lesser reduction, when added to
the total dollar amount already distributed under this step
would equal the total excess contributions determined under
(ii) above, the lesser reduction amount is distributed to the
appropriate Participant.
(iv) If the total amount distributed under (iii)
above is less than the total excess contributions determined
under (ii) above, then the procedure described in (iii) is
repeated until the full amount of the excess contributions,
determined under (ii) above, has been distributed to
Participants.
(d) Determination of Excess Aggregate Contributions. For
purposes of paragraph (a) above, the relevant portion of a Highly
Compensated Participant's ACP Contributions for a Plan Year shall be
equal to such Participant's excess aggregate contributions for such
Plan Year. The excess aggregate contributions, and the portion of such
excess aggregate contributions to be distributed, shall be calculated
in the following manner:
(i) The excess aggregate contributions with respect
to a Highly Compensated Participant for a Plan Year are
determined by reducing the ACP Contributions of the Highly
Compensated Participant with the highest Contribution
Percentage by the amount required to cause the Participant's
Contribution Percentage to equal the Contribution Percentage
of the Highly Compensated Participant with the next highest
such percentage. If a lesser reduction would enable the
arrangement to satisfy the Contribution Percentage Test, only
this lesser reduction will be made. This process must be
repeated until the Contribution Percentage Test would be
satisfied.
(ii) The total of the reductions in the amounts of
ACP Contributions, determined in accordance with (i) above,
shall be determined.
(iii) After the total in (ii) above has been
determined, the ACP Contributions of the Highly Compensated
Participant with the highest dollar amount of ACP
Contributions shall be reduced by the amount required to cause
that Highly Compensated Participant's ACP Contributions to
equal the dollar amount of the ACP Contributions of the Highly
Compensated Participant with the next highest dollar amount of
ACP Contributions. This amount is then distributed to the
Highly Compensated Participant with the highest dollar amount
of ACP Contributions. However, if a lesser reduction, when
added to the total dollar amount already distributed under
this step, would equal the total excess aggregate
contributions
32
<PAGE> 42
determined under (ii) above, the lesser reduction amount is
distributed to the appropriate Participant.
(iv) If the total amount distributed under (iii)
above is less than the total excess aggregate contributions
determined under (ii) above, then the procedure described in
(iii) is repeated until the full amount of the excess
aggregate contributions, determined under (ii) above, has been
distributed to Participants.
(v) With respect to paragraphs (i) through (iii)
above, any ACP Contributions which are determined to be excess
aggregate contributions and which are to be reduced shall be
distributed pursuant to subsection (a).
(e) Coordination With Other Provisions. Excess contributions
to be distributed under subsection (a) with respect to a Participant
for a Plan Year shall be reduced by any correcting distributions under
Section 3.5(f) of this Plan previously made to such Participant for the
calendar year ending with or within such Plan Year. Distributions under
subsections (a) above may be made without regard to any notice or
consent otherwise required by the terms of this Plan.
(f) Failure to Correct. If, for any reason, any excess
contributions and/or excess aggregate contributions for a Plan Year are
not distributed within two and one-half (2 1/2) months after the close
of such Plan Year or corrected by a contribution under Section 3.8(b)
of the Plan, then the Employer shall be liable for the Federal excise
tax imposed under Code ss.4979 in the amount of 10% of such excess
contributions and/or excess aggregate contributions.
(g) Definitions. For purposes of subsections (a) and (b):
(A) Applicable Test shall mean the Deferral
Percentage Test of Section 3.6 of this Plan or the
Contribution Percentage Test of Section 3.7 of this
Plan, whichever is applicable.
(B) Applicable Contributions shall mean:
(1) if the Applicable Test is the
Deferral Percentage Test, "ADP
Contributions" as defined in Section
3.6(b)(iii) of this Plan, or
(2) if the Applicable Test is the
Contribution Percentage Test, "ACP
Contributions" as defined in Section
3.7(b)(iii) of this Plan.
3.9 Multiple Use of Alternative Limitation. The provisions of this
Section shall only apply if one or more Highly Compensated Employees of the
Employer are Eligible Employees with respect to both a cash or deferred
arrangement (including this Plan) subject to Code ss.401(k) and a plan of the
Employer (including this Plan) subject to Code ss.401(m). Furthermore, for this
Section
33
<PAGE> 43
to apply, the Average Actual Deferral Percentage for the Eligible Highly
Compensated Employees during the Plan Year must be greater than 125% of the
Average Actual Deferral Percentage for the prior Plan Year for the Eligible
Employees who are not Highly Compensated Employees, and the Average Contribution
Percentage for the Eligible Highly Compensated Employees during the Plan Year
must be greater than 125% of the Average Contribution Percentage for the prior
Plan Year for the Eligible Employees who are not Highly Compensated Employees.
(a) Special Limitation. In addition to the other conditions
and limitations herein, for any Plan Year, the sum of the Average
Actual Deferral Percentage for the Eligible Highly Compensated
Employees and the Average Contribution Percentage for the Eligible
Highly Compensated Employees shall not exceed the greater of:
(i) the sum of (A) 1.25 multiplied by the greater of
the relevant Average Actual Deferral Percentage or the
relevant Average Contribution Percentage, and (B) 2% plus the
lesser of the relevant Average Actual Deferral Percentage or
the relevant Average Contribution Percentage; provided,
however, this sum shall not exceed twice the lesser of the
relevant Average Actual Deferral Percentage or the relevant
Average Contribution Percentage; or
(ii) the sum of (A) 1.25 multiplied by the lesser of
the relevant Average Actual Deferral Percentage or the
relevant Average Contribution Percentage, and (B) 2% plus the
greater of the relevant Average Actual Deferral Percentage or
the relevant Average Contribution Percentage; provided,
however, this sum shall not exceed twice the greater of the
relevant Average Actual Deferral Percentage or the relevant
Average Contribution Percentage.
For purposes of this subsection (a), the term "relevant Average Actual
Deferral Percentage" means the Average Actual Deferral Percentage for
the Eligible Employees who are not Highly Compensated Employees under
the cash or deferred arrangement subject to Code ss.401(k) for the
prior plan year, and the term "relevant Average Contribution
Percentage" means the Average Contribution Percentage for the Eligible
Employees who are not Highly Compensated Employees under the Plan
subject to Code ss.401(m) for the prior plan year.
(b) Coordination with Other Provisions. For purposes of this
Section, the Actual Deferral Percentage and the Contribution Percentage
of the Eligible Highly Compensated Employees shall be determined after
use of any Qualified Nonelective Contributions and Qualified Matching
Contributions to meet the Deferral Percentage Test pursuant to Section
3.6(b)(iii) of this Plan and after use of Qualified Nonelective
Contributions to meet the Contribution Percentage Test pursuant to
Section 3.7(b)(iii) of this Plan. Furthermore, the Actual Deferral
Percentage and the Contribution Percentage of the Eligible Highly
Compensated Employees shall be determined after any corrective
distribution of excess deferrals pursuant to Section 3.5(f) of this
Plan, or any corrective distribution of excess contributions and excess
aggregate contributions pursuant to Section 3.8(a) of this Plan.
34
<PAGE> 44
(c) Plan Aggregation. If the Controlled Group maintains two or
more cash or deferred arrangements subject to Code ss.401(k) which are
not aggregated for purposes of Section 3.6(d) of this Plan or if the
Controlled Group maintains two or more plans subject to Code ss.401(m)
which are not aggregated for purposes of Section 3.7(d) of this Plan,
the provisions of subsection (a) above shall apply separately with
respect to each such plan and cash or deferred arrangement.
Furthermore, if any plan of the Controlled Group which is subject to
Code ss.ss.401(k) and/or (m) is aggregated with this Plan for purposes
of Code ss.ss.410(b) and 401(a)(4), then all elective contributions (as
defined in Treas. Reg. ss.1.401(k)-1(g)(3)), employee contributions (as
defined in Treas. Reg. ss.1.401(m)-1(f)(6)) and all matching
contributions (as defined in Treas. Reg. ss.1.401(m)-1(f)(12)) under
such plan and this Plan shall be aggregated in applying the limitations
of this Section.
(d) Correcting Distributions. To the extent necessary to
satisfy the special limitation of subsection (a) above for any Plan
Year in which the special limitation is not satisfied, the Plan
Administrator shall first reduce the Contribution Percentage of the
Eligible Highly Compensated Employees by correcting distributions in
accordance with Section 3.8 of this Plan, and then shall reduce the
Actual Deferral Percentages of the Eligible Highly Compensated
Employees by correcting distributions in accordance with Section 3.8 of
this Plan.
3.10 Discretionary Cutbacks to Satisfy Discrimination Tests. In
addition to those powers granted the Plan Administrator elsewhere herein, the
Plan Administrator shall have the power to reduce the Elective Contribution
election of any Highly Compensated Participant at any time during a Plan Year if
the Plan Administrator, in his sole discretion and based on current contribution
data available, determines that the Deferral Percentage Test of Section 3.6 of
this Plan, the Contribution Percentage Test of Section 3.7 of this Plan, and/or
the special limitation of Section 3.9 of this Plan for such Plan Year may not be
satisfied. Any such reductions shall be made to the extent necessary in the
opinion of the Plan Administrator to satisfy the Deferral Percentage Test, the
Contribution Percentage Test, and/or the special limitation, whichever is
applicable, and shall be made by reducing the Elective Contribution election of
Highly Compensated Participants.
3.11 401(k)/401(m) Testing Provision. In applying the limitations
set forth in Sections 3.5(f), 3.6 and 3.7, the Plan Administrator may, at his
option, utilize such testing procedures as may be permitted under Code ss.ss.
401(a)(4), 401(k), 401(m) or 410(b), including, without limitation, (a)
aggregation of the Plan with one or more other qualified plans of the Controlled
Group, (b) inclusion of qualified matching contributions, qualified nonelective
contributions or elective deferrals described in, and meeting the requirements
of, Treasury Regulations under Code ss.ss. 401(k) and 401(m) to any other
qualified plan of the Controlled Group in applying the limitations set forth in
Sections 3.5(f), 3.6 and 3.7, (c) effective January 1, 1999, exclusion of all
Eligible Employees (other than Eligible Highly Compensated Employees) who have
not met the minimum age and service requirements of Code ss. 410(a)(1)(A) in
applying the limitations set forth in Sections 3.6 and 3.7, or (d) any
permissible combination thereof.
35
<PAGE> 45
ARTICLE IV
LIMITATION ON ALLOCATIONS
4.1 General Rules.
(a) Limitation. The Annual Additions which may be credited to
a Participant's Accounts under this Plan for any Limitation Year will
not exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to a Participant's accounts under any other defined
contribution plans (as defined in Code ss.414(i)), individual medical
accounts (as defined in Code ss.415(l)(2)) and welfare benefit funds
(as defined in Code ss.419(e)) maintained by the Employer for the same
Limitation Year. If the Annual Additions with respect to the
Participant under other defined contribution plans, individual medical
accounts and welfare benefit funds maintained by the Employer, if any,
are less than the Maximum Permissible Amount and the Employer
contribution that would otherwise be contributed or allocated under
this Plan to the Participant's Accounts under this Plan would cause the
Annual Additions for the Limitation Year to exceed this limitation, the
amount contributed or allocated to this Plan will be reduced so that
the Annual Additions under all such plans, accounts and funds for the
Limitation Year (including this Plan) will equal the Maximum
Permissible Amount. If the Annual Additions with respect to the
Participant under such other defined contribution plans, individual
medical accounts and welfare benefit funds in the aggregate are equal
to or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's Accounts under this Plan
for the Limitation Year.
(b) Use of Estimated Compensation. Prior to determining the
Participant's actual Compensation for the Limitation Year, the Employer
may determine the Maximum Permissible Amount for a Participant on the
basis of a reasonable estimation of the Participant's Compensation for
the Limitation Year, uniformly determined for all Participants
similarly situated. As soon as is administratively feasible after the
end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the Participant's
actual Compensation for the Limitation Year.
(c) Allocation of Excess Amounts Among Plans, Funds and
Accounts. If, pursuant to subsection (b) above or as a result of the
allocation of forfeitures, a reasonable error in determining the amount
of Elective Deferrals a Participant may make, or such other facts and
circumstances as may be allowed by the Internal Revenue Service, a
Participant's Annual Additions under this Plan and such other plans,
accounts and funds (if any) would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the
Annual Additions last allocated, except that the Annual Additions
attributable to a welfare benefit fund or an individual medical account
will be deemed to have been allocated first regardless of the actual
allocation date. If an Excess Amount was allocated to a Participant on
an allocation date of this Plan which coincides with an allocation date
of
36
<PAGE> 46
another qualified defined contribution plan, the Excess Amount
attributed to this Plan will be the product of:
(i) the total Excess Amount allocated as of such
date, multiplied by
(ii) the ratio of (A) the Annual Additions allocated
to the Participant for the Limitation Year as of such date
under this Plan to (B) the total Annual Additions allocated to
the Participant for the Limitation Year as of such date under
this and all other qualified defined contribution plans.
(d) Disposition of Excess Amounts. Any Excess Amount
attributed to this Plan will be disposed of as follows:
(i) If the Participant is covered by the Plan at the
end of the Limitation Year, any Elective Contributions (and
earnings thereon), to the extent they would reduce the Excess
Amount, will be returned to the Participant;
(ii) If, after application of paragraph (i) above, an
Excess Amount still exists, and the Participant is covered by
the Plan at the end of the Limitation Year, the Matching
Elective Contributions, to the extent they would reduce the
Excess Amount, will be used to reduce contributions made
pursuant to Section 3.1 of this Plan which would be allocated
to such Participant (including any allocation of forfeitures)
in the next Limitation Year, and each succeeding Limitation
Year if necessary;
(iii) If, after the application of the preceding
paragraphs, an Excess Amount still exists and the Participant
is not covered by the Plan at the end of the Limitation Year,
the Matching Elective Contributions, to the extent they would
reduce the Excess Amount, will be held unallocated in a
suspense account. The suspense account will be applied to
reduce future contributions made pursuant to Section 3.1 of
this Plan which would be allocated to remaining Participants
in the next Limitation Year, and each succeeding Limitation
Year if necessary;
(iv) If a suspense account is in existence at any
time during a Limitation Year pursuant to this subsection (d),
it will not participate in the allocation of the Trust's
investment gains and losses. If a suspense account is in
existence at any time during a particular Limitation Year, all
amounts in the suspense account must be allocated and
reallocated to Participants' Accounts before any contributions
made pursuant to Section 3.1 of this Plan may be made to the
Plan for that Limitation Year. Except as provided in paragraph
(i) above, Excess Amounts may not be distributed from the Plan
to Participants or former Participants.
(e) Other Defined Benefit Plans. If the Employer maintains, or
at any time maintained, one or more defined benefit plans covering any
Participant in this Plan, the sum of the Participant's Defined Benefit
Fraction and Defined Contribution Fraction will not
37
<PAGE> 47
exceed 1.0 in any Limitation Year beginning on or before January 1,
1999. The foregoing limitation will be met by reducing pro rata the
Projected Annual Benefit under one or more of such qualified defined
benefit plans.
4.2 Applicable Definitions. For purposes of this Article, the following
terms shall have the following meanings:
(a) Annual Additions shall mean the sum of the following
amounts allocated to a Participant's accounts for any Limitation Year:
(i) contributions made by the Employer;
(ii) contributions made by the Participant;
(iii) forfeitures;
(iv) amounts allocated to an individual medical
account, as defined in Code ss.415(l)(2), which is part of a
pension or annuity plan maintained by the Employer; and
(v) amounts derived from contributions paid or
accrued which are attributable to post-retirement medical
benefits allocated to a separate account of a "key employee,"
as defined in Code ss.419A(d)(3), under a welfare benefit
fund, as defined in Code ss.419(e), maintained by the
Employer.
For this purpose, any Excess Amount applied under subsection (d) of
Section 4.1 above in the Limitation Year to reduce Employer
contributions will be considered Annual Additions for such Limitation
Year; however, any nonvested amount restored to a Participant's
Accounts following his reemployment shall not be deemed an Annual
Addition, and any corrective allocation pursuant to Section 12.11 will
be considered an Annual Addition for the Limitation Year to which it
relates. Contributions do not fail to be Annual Additions merely
because such contributions are excess deferrals (as defined in Code
ss.402(g)(2)(A)), excess contributions (as defined in Code
ss.401(k)(8)(B)) or excess aggregate contributions (as defined in Code
ss.401(m)(6)(B)), or merely because such excess deferrals and excess
contributions are corrected through distribution or recharacterization,
except that excess deferrals which are timely corrected by distribution
shall not be treated as Annual Additions. Excess aggregate
contributions attributable to amounts other than employee
contributions, including forfeited matching contributions, shall be
counted as Annual Additions even if distributed. For purposes of this
subsection (a), the provisions of Treas. Reg. ss.1.415-6(b) shall
govern.
(b) Compensation (for purposes of this Article) shall mean a
Participant's Earned Income, wages, salaries, fees for professional
service and other amounts received (without regard to whether or not an
amount is paid in cash) for personal services actually rendered in the
course of employment with an Employer maintaining the Plan to the
extent that the
38
<PAGE> 48
amounts are includible in gross income (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements or other expense
allowances under a nonaccountable plan (as described in Treas. Reg.
ss.1.62-2(c))), including foreign earned income (as defined in Code
ss.911(b)) whether or not excludable from gross income under Code
ss.911, and determined without regard to the exclusions from gross
income in Code ss.ss. 931 and 933; amounts described in Code
ss.ss.104(a)(3), 105(a) and 105(h), but only to the extent that these
amounts are includible in the gross income of the Participant; amounts
paid or reimbursed by the Employer for moving expenses incurred by the
Participant, but only to the extent that at the time of the payment it
is reasonable to believe that these amounts are not deductible by the
Participant under Code ss.217; the value of a non-qualified stock
option granted to the Participant by the Employer, but only to the
extent that the value of the option is includible in the gross income
of the Participant for the taxable year in which granted; and the
amount includible in the gross income of the Participant upon making a
Code ss.83(b) election; and excluding the following:
(i) Employer contributions to a plan of deferred
compensation which are not (before the application of the Code
ss.415 limitations to the plan) includible in the
Participant's gross income for the taxable year in which
contributed, or Employer contributions under a simplified
employee pension plan described in Code ss.408(k), or any
distributions from a plan of deferred compensation (whether or
not includible in the Participant's gross income when
distributed), except that amounts received by the Participant
pursuant to an unfunded non-qualified plan shall be included
in the year such amounts are includible in the gross income of
the Participant;
(ii) amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by the Participant becomes freely transferable
or is no longer subject to a substantial risk of forfeiture
under Code ss.83;
(iii) amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock
option; and
(iv) other amounts which received special tax
benefits such as premiums for group-term life insurance (but
only to the extent that the premiums are not includible in the
gross income of the Participant), or contributions made by the
Employer (whether or not under a salary reduction agreement)
towards the purchase of an annuity described in Code ss.403(b)
(whether or not the amounts are actually excludable from the
gross income of the Participant).
In addition to the amounts described above, effective for Limitation
Years beginning on and after January 1, 1998, Compensation shall also
include the amount of the Participant's Elective Contributions or any
other contributions made by the Employer on behalf of the Employee
pursuant to a deferral election under an employee benefit plan
containing a cash or deferred arrangement under Code ss. 401(k) and any
amounts which would have been
39
<PAGE> 49
received as cash but for an election to receive benefits under a
cafeteria plan meeting the requirements of Code ss. 125.
For purposes of applying the limitations of this Article, Compensation
for a Limitation Year is the Compensation actually paid, made available
or includible in gross income during such year. Notwithstanding the
preceding sentence, Compensation for a Participant in a defined
contribution plan who is "permanently and totally disabled" (as defined
in Code ss.22(e)(3)) is the compensation such Participant would have
received for the Limitation Year if the Participant had been paid at
the rate of compensation paid immediately before becoming permanently
and totally disabled; such imputed compensation for the disabled
Participant may be taken into account only if the Participant is not a
Highly Compensated Employee and contributions made on behalf of such
Participant are nonforfeitable when made. In interpreting this
subsection (b), the provisions of Treas. Reg. ss.1.415-2(d)(1), (2) and
(3) or the corresponding provisions of any future Treasury Regulations
shall control.
(c) Defined Benefit Fraction shall mean a fraction, the
numerator of which is the sum of the Participant's Projected Annual
Benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator of which is
the lesser of (i) 125% of the dollar limitation determined for the
Limitation Year under Code ss.ss.415(b) and (d) or (ii) 140% of the
Highest Average Compensation including any adjustments under Code
ss.415(b).
(d) Defined Contribution Dollar Limitation shall mean $30,000,
as that amount may be adjusted upward for increases in the cost of
living, in accordance with applicable law.
(e) Defined Contribution Fraction shall mean a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's accounts under all the defined contribution plans
(whether or not terminated) maintained by the Employer for the current
and all prior Limitation Years, (including the Annual Additions to this
and all other qualified plans, whether or not terminated, maintained by
the Employer and the Annual Additions attributable to all welfare
benefit funds, as defined in Code ss.419(e), and individual medical
accounts, as defined in Code ss.415(l)(2), maintained by the Employer),
and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of service with
the Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any
Limitation Year is the lesser of (i) 125% of the dollar limitation in
effect under Code ss.415(c)(1)(A) or (ii) 35% of the Participant's
Compensation for such year.
(f) Employer shall mean, solely for purposes of this Article,
the Employer and all members of a controlled group of corporations (as
defined in Code ss.414(b) as modified by Code ss.415(h)), all commonly
controlled trades or businesses (as defined in Code ss.414(c) as
modified by Code ss.415(h)) or affiliated service groups (as defined in
Code ss.414(m)) of which the Employer is a part, and any other entity
required to be aggregated with the Employer pursuant to regulations
under Code ss.414(o).
40
<PAGE> 50
(g) Excess Amount shall mean the excess of the Participant's
Annual Additions for the Limitation Year over the Maximum Permissible
Amount.
(h) Highest Average Compensation shall mean the average
compensation for the three consecutive calendar years with the Employer
that produces the highest average. In lieu of calendar years, a plan
may use any 12 month period provided such period is uniformly and
consistently applied.
(i) Limitation Year shall mean the Plan Year. If the
Limitation Year is amended to a different 12-consecutive-month period,
the new Limitation Year must begin on a date within the Limitation Year
in which the amendment is made, and the provisions of Treas. Reg.
ss.1.415-2(b)(4)(iii) shall apply for the shortened Limitation Year.
(j) Maximum Permissible Amount shall mean the maximum Annual
Addition that may be contributed or allocated to a Participant's
Account under the Plan for any Limitation Year. The Maximum Permissible
Amount shall be the lesser of:
(i) the Defined Contribution Dollar Limitation,
or
(ii) 25% of the Participant's Compensation for
the Limitation Year.
The compensation limitation referred to in paragraph (ii) above shall
not apply to any contribution for medical benefits (within the meaning
of Code ss.401(h) or Code ss.419A(f)(2)) which is otherwise treated as
an annual addition under Code ss.ss.415(l)(1) or 419A(d)(2). If a short
Limitation Year is created because of an amendment changing the
Limitation Year to a different 12 consecutive-month period, the Maximum
Permissible Amount will not exceed the Defined Contribution Dollar
limitation multiplied by the following fraction:
number of months in the short Limitation Year
12
(k) Projected Annual Benefit shall mean the annual retirement
benefit (adjusted to an actuarially equivalent straight life annuity if
such benefit is expressed in a form other than a straight life annuity
or qualified joint and survivor annuity) to which the Participant would
be entitled under the terms of the Plan assuming:
(i) the Participant will continue employment until
normal retirement age under the Plan (or current age, if
later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used to
determine benefits under the Plan will remain constant for all
future Limitation Years.
41
<PAGE> 51
4.3 Adjustments for Top Heavy Plan. For purposes of computing the
Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction, the
125% factor in subsections (c)(i) and (e)(i) of Section 4.2 shall be decreased
to 100% if:
(i) The Plan is Super Top-Heavy; or
(ii) The Plan is Top-Heavy (whether or not Super
Top-Heavy) and the Plan and any other plans maintained by the
Employer do not provide the additional minimum accrued benefit
described in Code ss.416(h)(2)(A).
For purposes of this Section, the Plan is "Super Top-Heavy" if it would continue
to be Top-Heavy if the 60% tests in the definition of Top-Heavy in Section
13.2(g) herein were changed to 90% tests.
42
<PAGE> 52
ARTICLE V
VESTING IN ACCOUNTS
5.1 Vesting of Nonforfeitable Accounts. All amounts allocated to a
Participant's Elective Contributions Account, Qualified Nonelective
Contributions Account, Qualified Matching Contributions Account or Rollover
Contributions Account (a Participant's "Nonforfeitable Accounts") shall at all
times be and remain 100% vested and nonforfeitable, except as provided in
Section 12.9.
5.2 Vesting of Forfeitable Account. All amounts allocated to a
Participant's Matching Elective Contributions Account, Company Basic
Contributions Account, and Other Contributions Account (a Participant's
"Forfeitable Accounts") shall vest in accordance with the following rules,
except as provided in Section 12.9:
(a) Full Vesting Events. A Participant's Forfeitable Account
shall be 100% vested and nonforfeitable as of the earliest of the
following dates:
(i) The later of:
(A) the date on which the Participant
attains age 65; or
(B) the date on which occurs the 5th
anniversary of the date on which the Participant
became a Participant hereunder;
while still employed by the Employer;
(ii) The date the Participant dies while still
employed by the Employer; or
(iii) The date the Participant becomes Disabled while
still employed by the Employer.
(b) Vesting Schedule.
(i) Regular Schedule:
An Employee whose Forfeitable Account is not
100% vested under the provisions of subsection (a) above shall
be vested in such Account in accordance with the following
schedule:
43
<PAGE> 53
<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE VESTED PERCENTAGE OF
EARNED BY THE THE PARTICIPANT IN SUCH
PARTICIPANT ACCOUNT
--------------------------------------------------------------------------------------------
<S> <C>
Less than 5 Years 0%
--------------------------------------------------------------------------------------------
5 or more Years 100%
--------------------------------------------------------------------------------------------
</TABLE>
(ii) Alternate Schedules:
Any Employer may elect a different vesting
Schedule with respect to Forfeiture Accounts of Participants
employed by it by designating said alternate Schedule on
Exhibit B attached to and made a part of this Plan.
(c) Limitations and Restrictions Regarding Vesting.
(i) Nonforfeitability by Participant Conduct. No
vested portion of a Participant's Account shall be forfeited
as a result of conduct of the Participant (except forfeitures
described in Sections 5.3 and 8.5 on account of the
Participant's termination of employment).
(ii) Amendments to Vesting Schedule. If the vesting
schedule of this Plan is amended, the vested percentage of a
Participant's Forfeitable Account, determined as of the later
of the date on which the amendment to the Plan's vesting
schedule is adopted or becomes effective, shall not be reduced
by such amendment. Furthermore, any Participant who has at
least 3 Years of Vesting Service shall:
(A) automatically have his or her vesting
percentage computed without regard to the change in
the vesting schedule unless computing his or her
vested percentage under the new vesting schedule is
more favorable; or
(B) have the right to elect, within 60 days
of (1) the day the amendment is adopted, (2) the day
the amendment becomes effective, or (3) the day the
Participant is issued written notice of the
amendment, whichever is latest, to have the vesting
schedule in effect prior to the amendment apply in
computing his vested percentage;
whichever selected by the Plan Administrator applicable to all
affected Participants. For purposes of this paragraph (b), an
"amendment changing the vesting schedule" is any amendment
which directly or indirectly affects the computation of the
vested percentage of a Participant's Account balances as
described in Treas. Reg. ss.1.411(a)-8(c), and Years of
Vesting Service shall be determined without regard to Sections
5.4 and 5.5.
44
<PAGE> 54
(iii) Automatic Amendments to Vesting Schedule. The
rules of paragraph (ii) above shall apply to the automatic
change in the vesting schedule. Furthermore, the rules of
paragraph (ii) above shall apply to any automatic change in
the vesting schedule caused by operation of Article XIII of
this Plan.
(d) Years of Vesting Service. In determining the Years of
Vesting Service completed by an Employee for purposes of this Article,
Years of Vesting Service shall be determined pursuant to Sections 1.82,
5.4 and 5.5 of this Plan.
(e) Special Rule. In the event a Participant, prior to
incurring five consecutive One-Year Breaks in Service receives a
distribution of his vested Account balance and the Participant's
nonvested Account balance is not forfeited, then until the Participant
does incur such Breaks in Service, a separate Account shall be
established for the Participant's interest in the Plan, and at any
relevant time the Participant's vested portion of such Account shall
not be less than an amount "X" determined by the formula:
X = P (AB + (R x D)) - (R x D)
where P is the vested percentage at the relevant time, AB is the
Account balances at the relevant time, D is the amount of the
Distribution, R is the ratio of the Account balances as of the relevant
time to the Account balances after distribution, and the relevant time
is the time at which the vested percentage in the Account cannot
increase.
5.3 Forfeitures. Amounts in a Participant's Forfeitable
Accounts which are not vested pursuant to the provisions of this Article may be
forfeited by a Participant pursuant to the provisions of Sections 3.5(f), 3.8(c)
and 8.5(a) of this Plan.
5.4 Reemployed Former Employees.
(a) One Year Holdout. Any Employee who has a One-Year Break in
Service shall not receive credit for service prior to such break in
service unless and until such Employee has completed a Year of Vesting
Service after his return.
(b) Rule of Parity. Any former Employee (i) who does not have
any nonforfeitable right under the Plan to his Forfeitable Account, and
(ii) for whom the number of consecutive One-Year Breaks in Service
prior to such Employee's reemployment equals or exceeds the greater of
5 or the aggregate number of Years of Vesting Service before such
breaks in service shall not receive credit for service prior to such
breaks in service.
(c) Post Break Disregarded Service. Any Employee who has 5
consecutive One- Year Breaks in Service shall not receive credit for
service after such Breaks in Service for purposes of determining such
Employee's vested percentage of his or her Account balances which
accrued before such 5-year period.
45
<PAGE> 55
(d) Separate Accounting. Separate Accounts will be maintained
for a Participant's pre-break and post-break Forfeitable Accounts to
the extent that the Participant's vested percentage in such Accounts
could differ by application of the provisions of this Section, and both
such Accounts will share in earnings or losses pursuant to Article VII.
5.5 Years of Vesting Service Disregarded. Any Employee
on April 1, 1995, who becomes a Participant in the Plan on said date or
thereafter, shall receive credit for purposes of Section 5.2 of this Plan for
Years of Vesting Service rendered to his Employer or any other member of the
Controlled Group for such period of time during which said Employer (or other
employer) was a member of the Controlled Group, including periods of service
rendered prior to April 1, 1995. However, with respect to any person who becomes
an Employee after April 1, 1995, for purposes of Section 5.2 of this Plan and
notwithstanding the preceding sections of this Article, Years of Vesting Service
shall be disregarded during any period for which the Employer did not maintain
this Plan or a predecessor plan. For purposes of this Section 5.5, whether the
Employer maintained a "predecessor plan" shall be determined in accordance with
Treas. Reg. ss. 1.411(a)-5(b)(3).
5.6 Vesting Upon Termination. If, pursuant to Article XI
of this Plan, this Plan is wholly or partially terminated, the rights of each
"affected" Participant to his Forfeitable Account as of the date of such
termination or partial termination shall be fully vested to the extent funded
notwithstanding any other provision of this Article to the contrary. See Section
11.3(a) herein.
5.7 Family and Medical Leave Act. Any period while an
Employee is on a leave of absence under the Family and Medical Leave Act of 1993
will be treated as continued service for the purpose of computing Years of
Vesting Service.
46
<PAGE> 56
ARTICLE VI
ACCOUNTS AND INVESTMENTS
6.1 Separate Accounts. The Plan Administrator shall maintain
separate Accounts for each Participant to reflect each such Participant's
interest in the Plan attributable to each of the following:
(a) Elective Contributions, if any, as defined in Section 1.26
of this Plan.
(b) Matching Elective Contributions, if any, as defined in
Section 1.47 of this Plan.
(c) Qualified Matching Contributions, if any, as defined in
Section 1.61 of this Plan.
(d) Qualified Nonelective Contributions, if any, as defined in
Section 1.63 of this Plan.
(e) Company Basic Contributions, if any, as defined in Section
1.14 of this Plan.
(f) Rollover Contributions, if any, as defined in Section 1.68
of this Plan.
6.2 Investment of Trust Fund.
(a) General Rule. The Trust Fund, and all contributions
thereto made under this Plan, shall be invested by the Trustee who
shall have exclusive authority and discretion to manage and control the
Trust Fund pursuant to the terms of the Trust Agreement, subject to any
investment directions allowed by the Trustee under subsections (b) and
(c) below, and made by the appropriate party as indicated in such
subsections, as applicable.
(b) Investment Manager. The Trustee may appoint one or more
investment managers (as defined in ERISA ss.3(38)) to manage, acquire
or dispose of all or a portion of the Trust Fund. Any such appointment
shall be made in writing and shall be communicated to the Custodian, if
any. A designated investment manager may certify to the Trustee in
writing the name of any person, together with a specimen signature of
any such person, who is authorized to communicate and implement the
investment manager's respective instructions concerning the Trust Fund.
The investment manager shall promptly give written notice to the
Trustee of any change in any such person. The Trustee shall be subject
to the directions of such investment manager(s) which are made in
accordance with the terms of this Plan.
47
<PAGE> 57
(c) Investment Funds.
(i) Establishment of Funds. The Trustee shall
establish three or more funds for the investment of the assets
of the Trust Fund, each of which has materially different risk
and return characteristics.
(ii) Automatic Investment. All amounts in a
Participant's Matching Elective Contributions Account shall
automatically be invested in Company common stock. To the
extent that shares of said stock have been allocated to a
Participant's account, the Participant shall be entitled to
direct the Trustee as to the exercise of any voting rights
with respect to said shares, according to procedures adopted
by the Plan Administrator. In the absence of any such valid
instructions, the Trustee may vote said shares in its
discretion.
(iii) Investment Directions by Participants. Each
Participant (or, in the case of the Participant's death, his
Beneficiary) shall direct the investment of his Accounts
(other than his Matching Elective Contributions Account) among
the funds provided under paragraph (i) above. The Plan
Administrator shall establish, and may alter at any time,
rules and procedures which shall govern such Participant
direction of investments and the timing thereof, and shall
provide all necessary instructions and forms, if any, to
Participants (or Beneficiaries). Such rules and procedures may
restrict the frequency and timing of such Participant (or
Beneficiary) directions and may also limit the amount or
percentage of future contributions, and of the existing
Account balance, that may be invested in Company common stock
or in any other investment fund. Such rules and procedures
shall be communicated to Employees (or Beneficiaries). In the
absence of any valid investment direction by the Participant
(or Beneficiary), the Trustee shall invest the Participant's
(or Beneficiary's) Account in the discretion of the Trustee,
on a consistent basis applied at the time of investment.
(iv) Income or Loss. Any Account or portion thereof
of a Participant (or Beneficiary) which is invested pursuant
to the Participant's (or Beneficiary's) directions under
paragraph (iii) above in a certain fund, or pursuant to
paragraph (ii) above in Company common stock shall only share
in the gains or losses of such fund or stock, and shall not
share in the gains or losses of any other Trust Fund
investment.
(v) Expenses. Any Account or portion thereof of a
Participant (or Beneficiary) which is invested pursuant to the
Participant's (or Beneficiary's) directions under paragraph
(iii) above shall be charged for the reasonable expenses of
such directed investing.
6.3 Trustee's Reliance. The Trustee may rely and act upon any
certificate, notice or direction of the Employer, Plan Administrator, investment
manager, Participant or Beneficiary, or a person authorized to act on behalf of
such person, that the Trustee reasonably believes to be
48
<PAGE> 58
genuine and to have been signed by the person or persons duly authorized to sign
such certificate, notice or direction. The Trustee may continue to rely upon
such certificate, notice or direction until otherwise notified in writing.
49
<PAGE> 59
ARTICLE VII
ALLOCATION OF EARNINGS AND LOSSES TO ACCOUNTS OF PARTICIPANTS
7.1 Allocations of Trust Fund Earnings and Losses. As of each
Valuation Date, the Trustee shall determine the fair market value of the
investments of each of the funds, including the Company common stock fund,
created under the Trust Fund established under Section 6.2(a) of this Plan, and
shall determine the gain or loss experienced by such investments since the
immediately preceding Valuation Date. Each Participant's Account or portion
thereof which has been separately invested in a fund under Section 6.2(c) of
this Plan shall be credited with a percentage of such gain or debited with a
percentage of such loss by multiplying the aggregate gain or loss of the
investments of said separate fund by a fraction, the numerator of which for each
Participant is the value of the Participant's interest in the investments of
said fund as of the immediately preceding Valuation Date, increased by one-half
of any contributions by or on behalf of the Participant since the last Valuation
Date and reduced by (i) any distribution made to the Participant, (ii) any
charges for investment services, or (iii) any amounts transferred to a
Participant loan account, since the last Valuation Date, and the denominator of
which is the sum of the numerator amounts (as so adjusted) for all Participants,
determined separately with respect to each fund.
7.2 Allocations Regarding Specific Investments. Notwithstanding any
provisions of Section 7.1 of this Article to the contrary, if an Account or any
portion thereof is invested in a specific fund or investment pursuant to Section
6.2, such Account or portion thereof shall not share in gains or losses of other
Trust Fund investments, but shall be credited with gain or debited with loss in
accordance with the proportionate amount of gain or loss of such specified fund
or investment, determined in accordance with the valuation procedures described
in Section 7.1 of this Article as of each Valuation Date.
50
<PAGE> 60
ARTICLE VIII
PAYMENT OF BENEFITS
8.1 Time of Payment of Benefits. If a Participant's employment with
all members of the Controlled Group is terminated for any reason other than
death, including becoming Disabled, retiring, or otherwise, the Participant
shall receive or commence receiving the entire vested amount in his Plan
Accounts (his "Benefit Amount") determined pursuant to the provisions of Section
8.4 in accordance with the following:
(a) Termination Prior to Attainment of Normal Retirement Age.
If the Participant terminates employment with all members of the
Controlled Group prior to his attainment of his Normal Retirement Age,
then the following provisions shall apply:
(i) General Rule. Except as provided in paragraphs
(ii) through (iv) below, the Participant may elect that his
Benefit Amount shall be paid as soon as administratively
practicable following any Valuation Date following the date on
which the Participant has so terminated his employment, (but
not later than the Participant's Required Beginning Date) in a
lump sum payment valued in accordance with Section 8.4.
(ii) Automatic Cash-Outs. Notwithstanding paragraph
(i) above, if the value of the Participant's Benefit Amount
(A) does not exceed and has never exceeded $3,500, or (B)
effective as of January 1, 1998 does not exceed $5,000 on the
date of the Participant's termination of employment, the
Participant's Benefit Amount shall automatically be paid as
soon as administratively practicable following the
Participant's termination of employment with all members of
the Controlled Group, in the form of a single lump sum
distribution valued in accordance with Section 8.4. For
purposes of the preceding sentence, if the value of the
Participant's Benefit Amount is zero, the Participant shall be
deemed to receive a distribution of such benefit under this
paragraph (ii).
(b) Termination After Attainment of Normal Retirement Age. If
a Participant terminates employment with all members of the Controlled
Group on or after his attainment of his Normal Retirement Age or has
not terminated employment with all members of the Controlled Group as
of his Required Beginning Date, then the following provisions shall
apply:
(i) General Rule. Except as provided in paragraphs
(ii) and (iii) below, the Participant's Benefit Amount shall
be paid as soon as administratively practicable following the
Participant's termination of employment with all members of
the Controlled Group, or, if earlier, his Required Beginning
Date, in a lump sum payment valued in accordance with Section
8.4.
51
<PAGE> 61
(ii) Later Distribution. Notwithstanding paragraph
(i) above, the Participant may elect that his Benefit Amount
be paid as soon as administratively practicable following any
later Valuation Date elected by the Participant (but not later
than the Participant's Required Beginning Date), in a lump sum
payment valued in accordance with Section 8.4. The
Participant's election of a Valuation Date under this
paragraph (ii) must be made prior to the Valuation Date
selected by the Participant under this paragraph (ii).
Furthermore, a Participant's election of a Valuation Date
under this paragraph (ii) must be made prior to the Valuation
Date specified in paragraph (i) above.
(iii) Automatic Cash-Outs. Notwithstanding paragraphs
(i) and (ii) above, if the value of the Participant's Benefit
Amount (A) does not exceed and has never exceeded $3,500, or
(B) effective as of January 1, 1998 does not exceed $5,000 on
the date of the Participant's termination of employment, the
Participant's Benefit Amount shall automatically be paid as
soon as administratively practicable following the
Participant's termination of employment with all members of
the Controlled Group, in the form of a single lump sum
distribution valued in accordance with Section 8.4. For
purposes of the preceding sentence, if the value of the
Participant's Benefit Amount is zero, the Participant shall be
deemed to receive a distribution of such benefit under this
paragraph (iii).
(iv) Benefits Accrued After Required Beginning Date.
If a Participant has received his Benefit Amount under the
preceding provisions of this subsection because his Required
Beginning Date occurred prior to his termination of employment
with all members of the Controlled Group, then the Participant
shall receive any subsequent Account balances which he may
accrue under this Plan during any Plan Year as soon as
administratively practicable following the close of such Plan
Year, and such distribution shall be in the same form
applicable to the Participant's previous distribution.
(c) Required Distributions. Notwithstanding any provision of
this Plan to the contrary, the entire interest of a Participant must be
distributed no later than the Participant's Required Beginning Date.
All distributions required under this Section shall be determined and
made in accordance with Code ss.401(a)(9) and the regulations
promulgated thereunder, including the minimum distribution incidental
benefit requirement of Treas. Reg. ss.1.401(a)(9)-2.
8.2 Benefits Upon Death.
(a) Death Before Benefit Commencement Date. In the event of
the death of a Participant prior to his Benefit Commencement Date, the
Beneficiary of the Participant shall receive all or the applicable
portion of the entire amount in the Participant's Plan Accounts
designated for such Beneficiary under subsection (c) below (such
Beneficiary's "Benefit Amount") determined pursuant to the provisions
of Section 8.4 in accordance with the following:
52
<PAGE> 62
(i) General Rule. Except as provided in paragraphs
(ii) and (iii) below, the Beneficiary's Benefit Amount shall
be paid as soon as administratively practicable following the
date of the Participant's death and receipt by the Plan
Administrator of proof thereof, in a lump sum payment valued
in accordance with Section 8.4 herein.
(ii) Later Distribution. Notwithstanding paragraph
(i) above, the Beneficiary may elect that his Benefit Amount
be paid as soon as administratively practicable following any
later Valuation Date elected by the Beneficiary, in a lump sum
payment valued in accordance with Section 8.4; provided,
however that the Benefit Amount be paid by the date specified
in Section 8.2(d). A Beneficiary's election of a Valuation
Date under this paragraph (ii) must be made prior to the
Valuation Date selected by the Beneficiary under this
paragraph (ii). Furthermore, a Beneficiary's election of a
Valuation Date under this paragraph (ii) must be made prior to
the date specified in paragraph (i) above.
(iii) Automatic Cash-Outs. Notwithstanding paragraphs
(i) and (ii) above, if the value of such Benefit Amount (A)
does not exceed and has never exceeded $3,500, or (B)
effective as of January 1, 1998 does not exceed $5,000 on the
date of death, the Beneficiary's Benefit Amount shall
automatically be paid as soon as administratively practicable
following the date the Plan Administrator receives proof of
the Participant's death, in the form of a single lump sum
distribution valued in accordance with Section 8.4. For
purposes of the preceding sentence, if the value of the
Participant's Benefit Amount is zero, the Beneficiary shall be
deemed to receive a distribution of such benefit under this
paragraph (iii).
(b) Death On or After Benefit Commencement Date. In the event
of the death of a Participant on or after his Benefit Commencement
Date, there shall be no benefit payable to a Participant's Beneficiary.
(c) Designation of Beneficiary.
(i) General Rules. The Beneficiary of a Participant
with respect to the entire vested amount in the Participant's
Accounts remaining at the Participant's death shall be
determined in accordance with Section 1.9 of this Plan, unless
the Participant has designated a Beneficiary or Beneficiaries,
which the Participant may designate pursuant to the provisions
of Section 1.9 and this Section 8.2(c)(i) on a form provided
by or acceptable to the Plan Administrator. However, no
Beneficiary other than a Surviving Spouse designated by the
Participant shall be valid unless either (1) the Participant
has no Surviving Spouse (or such Spouse cannot be located), or
(2) the Surviving Spouse of the Participant has consented to
such designation pursuant to a Qualified Spousal Waiver.
(ii) Designation of Multiple Beneficiaries. A
Participant may, consistent with paragraph (i) above,
designate more than one Beneficiary and, for each such
53
<PAGE> 63
Beneficiary, may designate a percentage of the entire vested
amount in his Accounts to which such Beneficiary should become
entitled (such Beneficiary's "Benefit Amount") upon the
Participant's death. Each such Beneficiary shall be entitled
to receive his Benefit Amount determined pursuant to Section
8.4 in accordance with the provisions of subsections (a) and
(b) above. Unless otherwise specified by the Participant, any
designation by the Participant of multiple Beneficiaries shall
be interpreted as a designation by the Participant that each
such Beneficiary (if alive as of the Participant's date of
death, and if not, then the contingent Beneficiary under
paragraph (iii) below of such Beneficiary) should be entitled
to an equal percentage of the Participant's vested Account
balances upon the Participant's death.
(iii) Contingent Beneficiaries. A Participant may
designate contingent Beneficiaries to receive a Beneficiary's
Benefit Amount in the event such Beneficiary should predecease
the Participant; otherwise, in the event a Beneficiary
predeceases the Participant, the person or those persons
specified in Section 1.9 of the Plan shall be deemed to be the
Beneficiary with respect to such deceased Beneficiary's
Benefit Amount, and shall receive the Benefit Amount to which
such Beneficiary would have been entitled hereunder under this
Section 8.2.
(d) Required Distributions and Forms of Payment.
Notwithstanding any provision of this Plan to the contrary,
distribution of a Beneficiary's Benefit Amount shall be made by
December 31 of the calendar year containing the 5th anniversary of the
Participant's death.
8.3 Form of Payment of Benefits. Benefits under this Plan shall
generally be payable in the form of a single lump sum payment in cash.
However, to the extent that a Participant's Accounts are invested in Company
common stock, such Company common stock shall be distributed in-kind to the
Participant (or the Participant's Beneficiary in the case of the Participant's
Death) if requested by the Participant (or the Participant's Beneficiary in the
case of the Participant's Death). See also Appendices I, II, III, IV, V, and VI.
8.4 Valuation of Accounts for Payments. The amount distributed
to the Participant or Beneficiary shall be determined using the Participant's
or Beneficiary's Benefit Amount valued as of the Valuation Date chosen in
advance by said person in accordance with the foregoing provision of this
Article VIII. In the event of automatic cash-outs paid in accordance with
Section 8.1(a)(ii), 8.1(b)(iii) or 8.2(a)(iii), the relevant Valuation Date
shall be the last day of the month in which the distribution event occurs.
8.5 Forfeitures.
(a) Occurrence of Forfeitures. A forfeiture of the non-vested
portion of a Participant's Accounts shall occur upon the earlier of the
following:
(i) Payment of Benefits. In the event a Participant
terminates employment with the Controlled Group and receives
(or is deemed to receive) a distribution of his
54
<PAGE> 64
vested Accounts (other than a distribution under Section
8.10), the non-vested portion of his Accounts shall be
forfeited as of the date of the distribution (or deemed
distribution).
(ii) Termination, Breaks in Service. In the event
that a Participant terminates employment with all members of
the Controlled Group and incurs a period of 5 consecutive
One-Year Breaks in Service, the non-vested portion of his
Accounts shall then be forfeited.
(b) Application of Forfeited Amounts. Any forfeitures arising
under paragraphs (i) and (ii) of subsection (a) above shall be used to
reduce future contributions of Employers under Section 3.1
(c) Recrediting Certain Forfeitures Upon Return to Service. If
a Participant incurs a forfeiture prior to incurring 5 consecutive
One-Year Breaks in Service, the Participant shall have the previously
forfeited amount in his Accounts (unadjusted for any gains or losses)
restored if and when the Participant, after returning to service with
an Employer, repays to the Trustee the entire amount of the
distribution(s) he received from the Plan before the earlier of (A) 5
years after the first day on which the Participant is subsequently
reemployed by the Employer, or (B) the end of the first period of 5
consecutive One-Year Breaks in Service after the distribution(s). A
Participant who has been deemed to have received a distribution under
this Plan and who otherwise is described in the preceding sentence
shall be deemed to have repaid his deemed distribution upon his return
to service with a member of the Controlled Group. The permissible
sources for restoration of the Participant's previously forfeited
amount in his Accounts are earnings of the Trust Fund or forfeitures
arising under this Section (which shall be used for this purpose prior
to the application of subsection (b) above).
(d) Allocation of Forfeitures. Any forfeitures described above
shall be used to offset the contribution requirements (other than for
Elective Contributions) applicable to the Employer whose Participants'
accounts were the source of the forfeitures in question; provided,
however, that if a Participant has received contributions from more
than one Employer under the Plan, his most recent Employer at the time
of his severance shall be deemed to have made all such contributions
for purposes of this paragraph.
8.6 Benefit Payment Commencement. Unless a Participant consents to
later payment, the payment of benefits under the Plan to the Participant shall
begin not later than the 60th day after the close of the Plan Year in which the
latest of the following events occurs:
(a) The attainment by the Participant of age 65;
(b) The 10th anniversary of the date on which the Participant
commenced participation in the Plan; or
(c) The termination of the Participant's service with the
Controlled Group.
55
<PAGE> 65
The failure of a Participant to consent to a distribution when such consent is
required under Section 8.6 shall be deemed to be an election to defer
commencement of payment for purposes of this Section.
8.7 Notice and Consent Requirements.
(a) In General. Notwithstanding any provision of this Plan to
the contrary (including Section 8.6), unless one of the exceptions in
subsection (c) below is satisfied, no distribution may be made or
commence to a Participant unless the Participant has been provided the
notification required under subsection (b) below at the time and in the
manner indicated in such subsection, and has consented in writing to
the distribution after receiving such notification, with such consent
being given no less than 30 days and no more than 90 days prior to his
Benefit Commencement Date.
(b) Notification. The Plan Administrator shall notify the
Participant of the right, if any, to defer any distribution. Such
notification shall include a general description of the material
features under the Plan and shall inform the Participant of his right
to defer receipt of the distribution, and shall be provided (by mail,
posting or personal delivery) no less than 30 days and no more than 90
days prior to his Benefit Commencement Date; provided, however, that a
Participant may waive the right to receive the notice no less than 30
days prior to the Benefit Commencement Date; provided, further, that a
Participant shall have the opportunity to consider the decision of
whether or not to elect a distribution for at least 30 days after the
notice is provided; provided, further, that the Plan Administrator
shall provide information to the Participant clearly indicating that
the Participant has the right to the 30-day period for making the
decision.
(c) Exceptions. This Section 8.7 shall not be applicable to
the following distributions:
(i) Cash-Outs. If the value of a Participant's entire
vested Account balances (A) does not and has not ever exceeded
$3,500 or (B) effective as of January 1, 1998 does not exceed
$5,000 on the date of the Participant's termination of
employment, this Section shall not be applicable to a
distribution of such entire vested Account balances as a
single lump sum.
(ii) Immediately Distributable. If a distribution is
made on or after the Participant's attainment of the later of
age 62 or his Normal Retirement Age, this Section shall not be
applicable to such distribution.
(iii) Other Payees. If a distribution is made to an
alternate payee pursuant to a qualified domestic relations
order or to any other Beneficiary, this Section shall not be
applicable to such distribution.
56
<PAGE> 66
(iv) Code ss.ss.401(a)(9) and 415. If a distribution
is required to satisfy the provisions of Article IV, Section
8.1(c) or Section 8.2(d), this Section shall not be applicable
to such distribution.
(v) Plan Termination. If a distribution is made upon
termination of this Plan to the Participant and no member of
the Controlled Group maintains any other defined contribution
plan (other than an employee stock ownership plan as defined
in Code ss.4975(e)(7)), this Section shall not be applicable
to such distribution.
(d) Application to Plan Provisions. To the extent that a
distribution is required by the terms and provisions of this Plan, but
this Section is applicable to the distribution and the distribution
therefore cannot be made, such distribution shall, except as otherwise
provided, be made as soon as administratively practicable following the
Valuation Date coincident with the date that this Section is no longer
applicable to the distribution.
8.8 Restrictions on Elective Contribution Distributions.
Notwithstanding any provisions of this Plan to the contrary, a Participant's
Elective Contributions Accounts shall not be distributed prior to:
(a) the Participant's "separation from service" (as defined in
Rev. Ruls. 79-336 and 81-141, and any subsequent guidance issued by the
Internal Revenue Service), retirement, death or disability;
(b) the Participant's attainment of age 59 1/2;
(c) the Participant's incurrence of a "hardship" (within the
meaning of Treas. Reg. ss.1.401(k)-1(d)(2)(iv)) and which meets the
requirements of Section 8.10 of this Plan;
(d) the termination of the Plan without establishment or
maintenance by the Employer of a successor plan (within the meaning of
Treas. Reg. ss.1.401(k)-1(d)(3));
(e) if the Employer is a corporation, the date of the sale or
other disposition by the Employer of the Participant to an unrelated
corporation of substantially all the assets used by the Employer in a
trade or business (within the meaning of Treas. Reg.
ss.1.401(k)-1(d)(4)); or
(f) if the Employer is a subsidiary of a corporation, the date
of the sale or other disposition by such corporation of its interest in
the Employer of the Participant to an unrelated entity or individual
(within the meaning of Treas. Reg. ss.1.401(k)-1(d)(4)).
For purposes of subsections (e) and (f) above, the selling corporation must
maintain this Plan after the sale or other disposition and the Participant must
continue employment with the asset purchaser or subsidiary (as applicable). For
purposes of subsections (d), (e) and (f) above, the distribution must be a lump
sum distribution meeting the requirements of Treas. Reg. ss.1.401(k)-1(d)(5).
This Section 8.8 shall not be interpreted to allow distributions at a time or in
a form which is not otherwise
57
<PAGE> 67
provided for in this Article VIII. The provisions of this Section shall be
interpreted in accordance with the requirements of Code ss.401(k)(2)(B) and any
regulations promulgated thereunder.
8.9 Payments to Alternate Payees. See Section 12.6(b)(iii) for
special provisions which are applicable to payments to an alternate payee under
a qualified domestic relations order. A qualified domestic relations order may
not provide an alternate payee with a death benefit from this Plan except to the
extent consistent with Section 8.2 and, if applicable, except to the extent such
order requires that the alternate payee be treated as the Participant's
Surviving Spouse.
8.10 Hardship Distributions of Elective Contributions.
(a) General Rules. A Participant shall be entitled to apply to
the Plan Administrator for a hardship distribution of all or a portion
of such Participant's Elective Contributions Account balance, valued as
of the Valuation Date coincident with or next following the date on
which the Plan Administrator receives the Participant's application. A
hardship distribution will be made to the Participant (i) only if the
Plan Administrator or a person or entity designated by the Plan
Administrator determines that the Participant has an immediate and
heavy financial need under subsection (b) below, and (ii) only to the
extent the distribution is necessary to satisfy such need under
subsection (c) below.
(b) Immediate and Heavy Financial Need. A distribution will be
made on account of an immediate and heavy financial need of a
Participant if the distribution is on account of:
(i) Medical expenses described in Code
ss.213(d) previously incurred by the Participant, the
Participant's spouse, or any dependents of the
Participant (as defined in Code ss.152) or necessary
for such persons;
(ii) Costs directly related to the purchase
(excluding mortgage payments) of a principal
residence for the Participant;
(iii) Payment of tuition, related
educational fees, and room and board expenses for the
next 12 months of post-secondary education for the
Participant, his spouse, children or dependents; or
(iv) The need to prevent the eviction of the
Participant from his principal residence or
foreclosure on the mortgage of the Participant's
principal residence.
In determining the existence of an immediate and heavy
financial need, the provisions of Treas. Reg.
ss.1.401(k)-1(d)(2)(iv)(A) shall govern.
(c) Distribution Necessary to Satisfy Need. A distribution
will be deemed to be necessary to satisfy an immediate and heavy
financial need of a Participant if all of the following requirements
are satisfied:
58
<PAGE> 68
(i) The distribution is not in excess of the
amount of the immediate and heavy financial need of
the Participant, including any estimated taxes which
will be incurred because of said distribution;
(ii) The Participant has obtained all
distributions (other than hardship distributions) and
all nontaxable loans available under all plans
maintained by his or her Employer;
(iii) After receiving the hardship
distribution, the Participant shall be prohibited
from making Elective Contributions under this Plan
and elective contributions and employee contributions
under any other plan of his Employer or under an
otherwise legally enforceable agreement (including
all qualified and nonqualified deferred compensation,
stock option and stock purchase plans maintained by
such Employer, but not including health or welfare
benefit plans or the mandatory employee contribution
portion of any defined benefit plan) for at least 12
months following receipt of the hardship
distribution; and
(iv) Notwithstanding Section 3.5(e) of this
Plan, the maximum Elective Contributions pursuant to
Code ss.402(g) which may be otherwise made by the
Participant for the taxable year of the Participant
following the taxable year in which the Participant
receives the hardship distribution shall be reduced
by the amount of the Participant's Elective
Contributions for the taxable year in which the
Participant received the hardship distribution.
In determining the extent of a distribution necessary to
satisfy an immediate and heavy financial need, the provisions
of Treas. Reg. ss.1.401(k)-1(d)(2)(iv)(B) shall govern.
(d) Taxes. The Participant shall be responsible for any excise
taxes and/or any income taxes due on a hardship distribution under this
Section.
8.11 Loan of Account Balances to Participants.
(a) Conditions Applicable to Participant Loans. Upon the
application of any Authorized Borrower filed with the Plan
Administrator, the Plan Administrator shall in accordance with a
uniform and nondiscriminatory policy established by it, direct the
Trustee to make a loan to said Authorized Borrower. Any loans made
pursuant to this Section 8.11 shall satisfy the following conditions:
(i) Such loans shall be available to all
Authorized Borrowers. For purposes of this Section
"Authorized Borrower" shall mean any Participant or
Beneficiary who is a party-in-interest within the meaning of
ERISA ss. 3(14) and any Employee as defined in section 1.32
of this Plan who is not a Leased Employee or a Self-Employed
Individual.
59
<PAGE> 69
(ii) Such loans shall not be made available to
Authorized Borrowers who are Highly Compensated Employees in
an amount which is greater than that available to other
Authorized Borrowers in accordance with United States
Department of Labor Regulations ss. 2550.408b-1(c);
provided, however, that loans may be permitted in an amount
that bears a uniform relationship to vested Account
balances.
(iii) Each such loan shall bear a rate of interest
so as to provide the Plan with a return commensurate with
the interest rates charged by persons in the business of
lending money for loans which would be made under similar
circumstances in accordance with United States Department of
Labor Regulations ss. 2550.408b-1(e).
(A) The interest rate for a loan
from the Plan shall be the rate which shall be
selected by the Plan Administrator as of the first
day of the month during which the Authorized
Borrower applies for the loan.
(B) The Plan Administrator shall
have the responsibility on an ongoing basis to
assure that the rate of interest for Authorized
Borrower loans provides the plan with a rate of
return which is commensurate with the interest
rate charged under similar circumstances by
persons in the business of lending money. If the
rate described above fails to accomplish this
objective, the Plan Administrator has the duty to
specify in writing an alternative rate which shall
be deemed to be the rate of interest for loans
under this Section 8.11.
(iv) The amount of any such loan, when added to
the outstanding balance of all other loans, if any, from the
Plan (or from any other plan maintained by the Employer) to
such Authorized Borrower shall not exceed the lesser of:
(A) $50,000, reduced by the excess
(if any) of (1) the highest outstanding balance of
loans from the Plan to such Authorized Borrower
during the one-year period ending on the day
before the date on which the loan was made, over
(2) the outstanding balance of loans from the Plan
to such Authorized Borrower on the date a new loan
was made, or
(B) one-half (1/2) of the value of
the vested Accounts of such Authorized Borrower.
(v) Each such loan, by its terms, shall be repaid
within 5 years, unless such loan is used to acquire a
dwelling unit which, within a reasonable time, is to be used
as the principal residence of the Authorized Borrower, in
which event such loan shall be repaid within 15 years.
60
<PAGE> 70
(vi) Each loan, by its terms, shall require
repayment on a substantially level amortization basis with
loan repayments made not less frequently than quarterly over
the term of the loan.
(vii) Effective as of January 1, 1998, if a
Participant is married and has an Applicable Account under
Appendix I of the Plan, then prior to the making of a loan
under this Section of the Plan, the spouse of the Participant
must consent in writing to the use of the Account as security
for the loan. Such consent must be given during the 90-day
period ending on the date on which the loan is made. The
consent of the spouse must acknowledge the effect of the use
of the Participant's Account balance as security for a loan
and must be witnessed by a representative of the Plan
Administrator or a notary public. However, the consent of the
spouse will not be required if it is established to the
satisfaction of the Plan Administrator that such consent
cannot be obtained because there is no spouse, because the
spouse cannot be located, or because of such other
circumstances as the Secretary of the Treasury may prescribe
by regulations.
(viii) The principal amount of any Authorized
Borrower loan may not be less than $1,000.
(ix) All Authorized Borrower loans will be repaid by
Authorized Borrowers who are Employees or who subsequently
become Employees on a payroll deduction basis. All other
Authorized Borrower loans must be promptly repaid by tender of
cash or check for the proper installment payment amount. Loan
repayments made by an Authorized Borrower shall be allocated
solely to the account of the Authorized Borrower making the
repayment.
(x) Each such loan shall be evidenced by a promissory
note executed by such Authorized Borrower and payable to the
Trustee not later than the earliest of a fixed maturity date
meeting the requirements of paragraph (v) above, or the
following events of default: (A) the Authorized Borrower's
death, (B) the Authorized Borrower's failure to pay any amount
due within 30 days after the date due, (C) the Authorized
Borrower's insolvency, (D) a general assignment for the
benefit of the Authorized Borrower's creditors, (E) an
appointment of a receiver or trustee with respect to all or a
substantial part of the Authorized Borrower's real or personal
property, (F) any petition in bankruptcy by or against the
Authorized Borrower, (G) any judgment against the Authorized
Borrower, (H) the Authorized Borrower's retirement under the
Plan, (I) any failure by the Authorized Borrower to perform
any covenant, condition or agreement contained in the loan
documents, (J) the Authorized Borrower's disability, (K) the
termination of the Plan for any reason, or (L) the Authorized
Borrower's ceasing to be an Authorized Borrower. Such
promissory note shall evidence such terms as are required by
this Section.
(xi) For each Authorized Borrower for whom a loan is
authorized pursuant to this Section, the Plan Administrator
shall (1) direct the Trustee to
61
<PAGE> 71
liquidate the Authorized Borrower's interest in his or her
vested accounts to the extent necessary to provide funds for
the loan, (2) direct the Trustee to disburse funds to the
Authorized Borrower upon the Authorized Borrower's execution
of the promissory note referred to in paragraph (x) above, (3)
transmit to the Trustee such executed promissory note, and (4)
establish and maintain a separate recordkeeping account (A)
which initially shall be in the amount of the loan, (B) to
which the funds for the loan shall be deemed to have been
allocated and then disbursed to the Authorized Borrower, (C)
to which the promissory note shall be allocated and (D) which
shall show the unpaid principal of and interest on the note
from time to time. All payments of principal and interest by
an Authorized Borrower shall be credited initially to his or
her separate recordkeeping loan account and applied against
the Authorized Borrower's promissory note, and then invested
according to the Authorized Borrower's investment directions
applicable to his Elective Contributions allocated to the
Authorized Borrower's accounts.
(xii) Each such loan shall be adequately secured by a
pledge of such Authorized Borrower's loan account referred to
in paragraph (xi) above so that, in the event the Authorized
Borrower defaults on such loan or fails to repay such loan in
the time set forth in the promissory note, the Plan
Administrator may satisfy any amount of principal or interest
due and unpaid on the loan at the time of any default on the
loan, and any interest accruing thereafter by deduction from
the Authorized Borrower's loan account referred to in
paragraph (xi) above. Such amount of principal and interest
due and unpaid shall be deemed to have been deducted and
distributed to the Authorized Borrower immediately upon
default, unless such Authorized Borrower was not, at the time
of default, eligible to receive a distribution under the
provisions of this Plan, in which event such amount shall be
deemed to have been deducted and distributed at such time as
the Authorized Borrower first becomes eligible to receive a
distribution under the provisions of this Plan. In the event
that the amount so deducted and distributed is insufficient to
satisfy the remaining balance of such loan, the Authorized
Borrower shall be liable for, and must continue to make
payments on any such balance still due to the Trust Fund, in
accordance with applicable law, and interest at the rate
specified in the promissory note shall continue to accrue on
any outstanding amount until fully satisfied.
(xiii) In the event an Authorized Borrower receives a
loan from the Plan, to the extent that an amount is borrowed
by an Authorized Borrower from his Account, the Authorized
Borrower's Account will not share in the earnings or losses of
the Trust Fund, but will only share in earnings or losses
based upon the loan made to the Authorized Borrower. An
Authorized Borrower who elects to receive a loan from the Plan
also automatically elects to direct the investment of his or
her Accounts in said loan to the extent so borrowed in
accordance with the preceding sentence.
62
<PAGE> 72
(xiv) Notwithstanding any provision of this Plan to
the contrary, this Plan may distribute the promissory note of
an Authorized Borrower identified in paragraph (x) above or
may cancel all or a portion of the indebtedness evidenced by
such note in lieu of making a cash distribution required by
this Plan.
(xv) Any Authorized Borrower who takes out or renews
a loan from the Plan shall be restricted in the amount which
the Authorized Borrower can withdraw under the preceding
Sections of this Article VIII so that the Plan at all times
shall retain at least 20% of an Authorized Borrower's vested
Account balances.
(xvi) In the event of default, foreclosure on the
note and attachment of security will not occur until a
distributable event occurs in the Plan.
(xvii) No loans will be made to any
Shareholder-Employee or Owner-Employee. For purposes of this
requirement, a Shareholder-Employee means an employee or
officer of an electing small business (Subchapter S)
corporation who owns (or is considered as owning within the
meaning of Code ss. 318(a)(1)), on any day during the taxable
year of such corporation, more than 5% of the outstanding
stock of the corporation.
(xviii) The source of any loan shall be the
Authorized Borrower's Elective Contribution Account and/or the
Authorized Borrower's Rollover Contribution Account, as
designated by the Authorized Borrower, and the assets of said
account shall be reduced proportionately in each investment
account in which they are held.
(xix) Notwithstanding any other provision of the
Plan, loan repayment will be suspended under the Plan as
permitted under Code ss. 414(u)(4) for Participants on a leave
of absence for "qualified military service" (as defined in
Section 12.19 of the Plan).
(b) Additional Conditions that May be Established by the Plan
Administrator. The Plan Administrator shall have complete discretion to
establish administrative procedures that shall be applicable to
Authorized Borrower loans, without the necessity of amending the Plan,
including but not limited to the following:
(i) The Plan Administrator may establish an
alternative minimum dollar amount that may be borrowed,
provided that such amount may not exceed $1000.
(ii) The Plan Administrator may require all loans
to be effective only as of a Valuation Date.
63
<PAGE> 73
(iii) The Plan Administrator may require that all
Authorized Borrowers requesting a loan pay a reasonable loan
origination fee.
Any such administrative procedures shall be set forth in writing and
communicated to Authorized Borrowers.
(c) Special Effective Date. Loans shall not be permitted
under this Plan until January 1, 1998.
8.12 Rollover Distribution Election.
(a) General Rule. If a Participant or Surviving Spouse of a
Participant (or an alternate payee pursuant to a qualified domestic
relations order who is a Spouse or former Spouse of a Participant) who
is to receive a payment under this Article which equals or exceeds $200
and which is an eligible rollover distribution (as defined below)
elects (within the 90 day period ending on the Benefit Commencement
Date) to have such distribution (or a portion of such distribution if
the amount of such portion equals or exceeds $500) paid directly to an
eligible retirement plan (as defined below) and specifies the eligible
retirement plan to which such distribution is to be paid, such payment
to be made to the Participant or Surviving Spouse (or alternate payee)
of a Participant shall be made in the form of a direct lump sum
transfer of cash from the Trustee to the trustee of the eligible
retirement plan so specified in lieu of the payment otherwise required
by this Article. The preceding sentence shall only apply to the extent
that the eligible rollover distribution would be includible in the
Participant's or Surviving Spouse's (or alternate payee's) gross income
if not so transferred (determined without regard to Code ss.ss.402(c)
and 403(a)(4)). Rollover distributions may be directed to no more than
one eligible retirement plan for each distribution.
(b) Definitions. For purposes of this Section, the following
terms shall have the meanings indicated:
(i) Eligible retirement plan shall mean:
(A) with respect to a Participant
(or alternate payee), an individual retirement
account described in Code ss.408(a), an individual
retirement annuity described in Code ss.408(b)
(other than an endowment contract), a qualified
trust which is a defined contribution plan and the
terms of which permit the acceptance of rollover
distributions, or an annuity plan described in
Code ss.403(a); or
(B) with respect to a Surviving
Spouse of a Participant, an individual retirement
account described in Code ss.408(a) or an
individual retirement annuity described in Code
ss.408(b) (other than an endowment contract).
64
<PAGE> 74
(ii) Eligible rollover distribution shall mean any
distribution to a Participant or Surviving Spouse (or
alternate payee) of a Participant of all or any portion of
the balance to the credit of such individual in this Plan;
provided, however, such term shall not include:
(A) any distribution which is one of
a series of substantially equal periodic payments
(not less frequently than annually) made for the
life (or life expectancy) of the Participant or
his designated Beneficiary or the joint lives (or
joint life expectancies) of the Participant and
his designated Beneficiary, or for a specified
period of 10 years or more;
(B) any distribution to the extent
such distribution is required by Section 8.1(c) or
Section 8.2(d);
(C) the portion of any distribution
that is not includible in gross income;
(D) effective as of January 1, 1999,
any "hardship" distribution under Section 8.10;
and
(E) any other distribution or
portion of a distribution to the extent such
distribution is not considered an eligible
rollover distribution under Treasury regulations
or other guidance issued by the Internal Revenue
Service.
(c) Satisfaction of Requirements. For purposes of this
Section, the Participant or Surviving Spouse (or alternate payee) of
the Participant electing the transfer must present sufficient evidence
in a timely manner to the Plan Administrator that the transferee plan
satisfies the definition of an eligible retirement plan set forth
above. At a minimum, the Participant or Surviving Spouse (or alternate
payee) of the Participant must state the name of the transferee plan
and represent that the transferee plan is an eligible retirement plan
(as defined in paragraph (i) of subsection (b) above). The Participant
or Surviving Spouse (or alternate payee) of the Participant must also
present such additional documentation as the Plan Administrator may
require which shall be used to verify that the requirements of this
Section have been met. The Trustee, the Plan Administrator, or any Plan
fiduciary shall have no duty to verify the authenticity of any such
evidence or documentation, and shall be entitled to rely on any such
evidence submitted by a Participant or Surviving Spouse (or alternate
payee) of the Participant, without questioning the authenticity
thereof, unless it is unreasonable to so rely. Furthermore, in the
event that the Trustee, the Plan Administrator or any Plan fiduciary
shall have actual knowledge of an issue relating to the transferee
plan's ability to satisfy the definition of an eligible retirement
plan, such issue must be expressly resolved in favor of the
satisfaction of such definition by the transferee plan by a ruling from
the Internal Revenue Service or by an opinion of legal counsel (chosen
by the Participant or Surviving Spouse (or alternate payee) of the
Participant, but acceptable to the Plan
65
<PAGE> 75
Administrator) directed to the Trustee, the Plan, the Plan
Administrator and any fiduciary of the Plan, before the transfer can
occur.
(d) Determination in the Plan Administrator's Discretion.
The Plan Administrator shall have complete and absolute discretion to
determine whether the proposed transferee plan selected by the
distributee satisfies the requirements of this Section, and to
determine whether the requirements of this Section have otherwise been
satisfied by a proposed transfer.
(e) Interpretation. The provisions of this Section shall be
interpreted in accordance with Code ss.401(a)(31), as added by the
Unemployment Compensation Amendments of 1992, and any regulations or
other guidance promulgated by the Internal Revenue Service thereunder,
and shall not be construed or interpreted in a manner other than strict
compliance with such requirements.
(f) Application of Other Rules. For all purposes of this
Plan, the election by a Participant or Surviving Spouse (or alternate
payee) of a Participant of a transfer under this Section shall be
considered a payment or distribution under this Article as if the
amount transferred were paid directly to the Participant or Surviving
Spouse (or alternate payee).
8.13 Provision Pursuant to Code Section 401(a)(9).
(a) In General. Notwithstanding any other provision of the
Plan, to the extent required under Code ss. 401(a)(9) of the Code, the
entire vested Account balance of a Participant who is a 5% owner (as
defined in Code ss. 416) or who attains age 70 1/2 prior to July 1,
1999 (i) shall be distributed to him in a lump sum in cash not later
than April 1 of the calendar year following the calendar year in which
he attains age 70 1/2 and, with respect to such Participants who are
Employees, on December 31 of such year and each succeeding year or (ii)
shall commence to be distributed to him in one of the optional forms of
benefit under Appendix II, III, IV or V, not later than the time
specified in clause (i) of this paragraph. In addition, the vested
Account balance of any other Participant must be distributed or
commence to be distributed not later than the April 1 of the calendar
year following the later of (i) the calendar year in which he attains
age 70 1/2 or (ii) the calendar year in which he incurs a termination
of employment.
(b) Notwithstanding the foregoing, distributions under this
Section 8.13 shall be made in accordance with the provisions of Code
ss. 401(a)(9) and Treasury Regulations issued thereunder, including
Treas. Reg. ss. 1.401(a)(9)-2, which provisions are hereby incorporated
herein by reference, provided that such provisions shall override the
other distribution provisions of the Plan only to the extent that such
other Plan provisions provide for distribution that is less rapid than
required under such provisions of the Code and Regulations. Nothing
contained in this Section shall be construed as providing any optional
form of payment that is not available under the other distribution
provisions of the Plan.
66
<PAGE> 76
(c) A Participant who attained age 70 1/2 on or before
December 31, 1996 but did not retire from employment with the Employer
before January 1, 1997 and who began to receive the minimum required
distributions under Code ss. 401(a)(9) as in effect prior to January 1,
1997, may, in accordance with procedures to be established by the Plan
Administrator, elect to stop receiving such distributions until the
Participant retires from employment with the Employer.
67
<PAGE> 77
ARTICLE IX
THE TRUST FUND AND THE TRUSTEE
9.1 Existence of Trust. The Company has entered into the Trust
Agreement with the Trustee designated by the Company on the Trust Agreement to
hold the funds necessary to provide the benefits set forth in this Plan.
9.2 Exclusive Benefit Rule. The Trust Fund shall be received,
held in trust, and disbursed by the Trustee in accordance with the provisions of
the Trust Agreement and this Plan. No part of the Trust Fund shall be used for
or diverted to purposes other than for the exclusive benefit of Participants and
their Beneficiaries and the payment of reasonable expenses attributable to the
administration of the Plan in accordance with ERISA ss.404(a)(1)(A)(ii). For
purposes of the preceding sentence, the use of the Trust Fund to pay fees and
expenses incurred in connection with the provision of services is not a
reasonable expense of administering the Plan if the payments are made for the
Employer's benefit or involve services for which the Employer could reasonably
be expected to bear the cost in the normal course of such Employer's business or
operations. In this regard, services provided in conjunction with the
establishment, termination or design of plans relate to the business activities
of the Employer and generally would not be "reasonable expenses attributable to
the administration of the Plan." No person shall have any interest in, or right
to, the Trust Fund or any part thereof, except as specifically provided for in
this Plan or the Trust Agreement, except as provided in Section 3.4.
Notwithstanding the preceding provisions of this Section, this Section shall be
construed in accordance with the requirements of Code ss.401(a)(2) and ERISA
ss.403(c) and any regulations or other guidance promulgated thereunder, and
shall not be construed in a manner more restrictive than such requirements.
9.3 Removal or Resignation of Trustee. The Company may remove
the Trustee at any time or the Trustee may resign at any time upon the notice
required by the terms of the Trust Agreement, and upon such removal or upon the
resignation of a Trustee, the Company shall appoint a successor Trustee.
9.4 Powers of Trustee. The Trustee shall have the power to
hold, invest, reinvest, or to control and disburse the Trust Funds in accordance
with the provisions of the Trust Agreement and Article VI of this Plan. If more
than one person shall be designated as Trustee at any given time, any reference
herein to the Trustee shall refer to all of said persons, except that the
signature of only one of said persons shall be sufficient to represent the
signature of all of said persons and the action of any one of them shall be
deemed to be the action of the Trustee.
9.5 Integration of Trust Agreement. The Trust Agreement shall
be deemed to be a part of this Plan, and all rights of Participants or others
under this Plan shall be subject to the provisions of the Trust Agreement.
9.6 Records and Accounts. The Trustee shall maintain accurate
and detailed records and accounts of all transactions of the Plan, which shall
be available at all reasonable times for
68
<PAGE> 78
inspection or audit by any person designated by the Employer or Plan
Administrator and by any other person or entity to the extent required by law.
9.7 Annual Reports. As soon as practicable following the close of the
Plan Year, the Trustee shall file with the Plan Administrator and the Employer a
written report setting forth all transactions with respect to the Trust Fund
during such Plan Year and listing the assets of the Trust Fund and the market
value thereof at the close of the period covered by such report. The Trustee
shall also provide the Plan Administrator and the Employer with such other
information in its possession as may be necessary for the Plan Administrator or
Employer to conform with the requirements of ERISA ss.103.
69
<PAGE> 79
ARTICLE X
ADMINISTRATION
10.1 Allocation of Responsibility. The general administration
and day to day operations of the Plan and the responsibility for carrying out
the provisions thereof will be placed in the Plan Administrator who shall be
designated by the President of the Company or by resolution of the Executive
Committee of the Board of Directors of the Company. In the absence of such a
designation, the Company shall carry out the responsibilities of the Plan
Administrator.
10.2 Administrative Expenses. The Plan Administrator may
employ financial, legal, or other counsel and engage such clerical, financial,
or other services as the Plan Administrator may deem necessary for the effective
administration of the Plan and compliance with Federal and state regulations.
Said operating expenses and any other reasonable administrative expenses will be
paid out of the Trust Fund to the extent possible consistent with the exclusive
benefit rule set forth in Section 9.2, unless the Company elects (in its sole
discretion) to pay such expenses.
10.3 Plan Administrator Powers and Duties. The Plan
Administrator shall have the power to interpret and construe the Plan, to settle
all questions arising from the operation of the Plan, to determine all questions
of eligibility and the status and rights of Participants, Beneficiaries and
others, and to establish rules for the administration of the Plan and the
transaction of its business. Final determinations or actions of the Plan
Administrator with respect to any questions arising out of or in connection with
the administration of the Plan will be final and conclusive and binding upon all
persons having an interest in the Plan. The Plan Administrator may delegate to
other persons, all or such portion of their duties hereunder, other than those
granted to the Trustee under the Trust Agreement, as the Plan Administrator, in
his sole discretion, may decide.
10.4 Records and Reports. The Plan Administrator will keep
such accounts and records as he may deem necessary or proper in the performance
of his duties under the Plan.
10.5 Reporting and Disclosure. The Plan Administrator shall
file all reports and returns required to be filed by the Plan (other than those
which are the responsibility of the Trustee) with any governmental agency, shall
make all disclosures to Employees, Participants and Beneficiaries, and shall
make available for examination by said persons copies of all Plan documents,
descriptions, returns and reports as may be required by applicable law or as
specified herein.
10.6 Named Fiduciary. The Trustee and the Plan Administrator
shall be named fiduciaries under the Plan within the meaning of ERISA, with the
division of responsibilities between them as set forth in this Plan and the
Trust Agreement.
10.7 Administrator. The Plan Administrator shall be the
"administrator," as that term is defined in ERISA ss.3(16)(A) and Code
ss.414(g), of this Plan.
70
<PAGE> 80
10.8 Interpretation of the Plan and Findings of Facts. The Plan
Administrator shall have sole and absolute discretion to interpret the
provisions of the Plan (including, without limitation, by supplying omissions
from, correcting deficiencies in, or resolving inconsistencies or ambiguities
in, the language of the Plan), to make factual findings with respect to any
issue arising under the Plan, to determine the rights and status under the Plan
of Participants and other persons, to decide disputes arising under the Plan
and to make any determinations and findings (including factual findings) with
respect to the benefits payable thereunder and the persons entitled thereto as
may be required for the purposes of the Plan. In furtherance of, but without
limiting, the foregoing, the Plan Administrator is hereby granted the following
specific authorities, which he shall discharge in his sole and absolute
discretion in accordance with the terms of the Plan (as interpreted, to the
extent necessary, by the Plan Administrator):
(a) To resolve all questions (including factual questions)
arising under the provisions of the Plan as to any individual's
entitlement to become a Participant;
(b) To determine the amount of benefits, if any, payable to
any person under the Plan (including, to the extent necessary, making
any factual findings with respect thereto); and
(c) To conduct the review procedure specified in Section 12.5.
All decisions of the Plan Administrator as to the facts of the case, as to the
interpretation of any provision of the Plan or its application to any case, and
as to any other interpretative matter or other determination or question under
the Plan shall be final and binding on all parties affected thereby, subject to
the claims and review procedures under Section 12.5 of this Plan. The Plan
Administrator shall direct the Trustee relative to benefits to be paid under the
Plan and shall furnish the Trustee with any information reasonably required by
it for the purpose of paying benefits under the Plan.
10.9 Bonding, Insurance and Indemnity.
(a) Bonding. To the extent required under ERISA, the Company
will obtain, pay for and keep current a bond or bonds with respect to
the Plan Administrator, and any other Employee who receives, handles,
disburses, or otherwise exercises custody or control of, any of the
assets of the Plan.
(b) Insurance. The Company, in its discretion, may obtain, pay
for and keep current a policy or policies of insurance, insuring the
Plan Administrator, the members of the board of directors of the
Company and other Employees to whom any fiduciary responsibility with
respect to the administration of the Plan has been delegated against
any and all costs, expenses and liabilities (including attorneys' fees)
incurred by such persons as a result of any act, or omission to act, in
connection with the performance of their duties, responsibilities and
obligations under the Plan and any applicable law.
(c) Indemnity. If the Company does not obtain, pay for and
keep current the type of insurance policy or policies referred to in
subsection (b) above, or if such insurance
71
<PAGE> 81
is provided but any of the parties referred to in subsection (b) above
incur any costs or expenses which are not covered under such policies,
then the Company will indemnify and hold harmless, to the extent
permitted by law, such parties against any and all costs, expenses and
liabilities (including attorneys' fees) incurred by such parties in
performing their duties and responsibilities under this Plan, provided
that such party or parties were acting in good faith within what was
reasonably believed to have been the best interests of the Plan and its
Participants.
72
<PAGE> 82
ARTICLE XI
AMENDMENT, TERMINATION, MERGER, CONSOLIDATION AND ADOPTION
11.1 Permanency of Plan. It is contemplated by the Company that the
Plan and Trust shall be maintained permanently and that they shall constitute a
qualified plan under Code ss.401 and a tax-exempt trust under Code ss.501, or
any successor provisions. Nevertheless, the Company and the Employers must
necessarily reserve and do hereby reserve the rights of amendment, termination
and withdrawal as set forth in this Article.
11.2 Right to Amend Plan.
(a) Amendment by the Company. The Company reserves the
right, at any time, to modify or amend, in whole or in part, any or all
of the provisions of the Plan, including specifically the right to make
such amendments effective retroactively, if necessary or desirable, to
bring the Plan into conformity with Code, ERISA, and any applicable
regulations promulgated so that the Plan may continue to remain
qualified and the Trust may continue to remain tax-exempt, or for any
other purpose, subject to subsection (c) below. Any such amendment
shall be in writing and shall be executed by an authorized officer of
the Company.
(b) Amendment by Employer other than Company. An Employer
other than the Company cannot at any time modify or amend, in whole or
in part, any or all of the provisions of the Plan so long as such
Employer continues to participate in this Plan. Such an Employer may,
however, amend the provisions of any Exhibit to the Plan which refers
specifically to said Employer, with the written approval of the Plan
Administrator, or may cease to participate in this Plan at any time by
giving written notice to the Company indicating the effective date of
such termination of participation prior to such effective date unless
waived by the Company. See Section 11.4 of this Plan.
(c) Restrictions on Amendments.
(i) Exclusive Benefit Rule. No modification or
amendment shall make it possible for Trust assets to be used
for, or diverted to, purposes other than the exclusive benefit
of Participants and their Beneficiaries in accordance with the
exclusive benefit rule under Section 9.2 of the Plan herein,
except as provided in Section 3.4.
(ii) Code ss.411(d)(6) Restrictions. No amendment to
the Plan shall be permitted that would have the effect of
decreasing the Account balances of any Participant.
Furthermore, no amendment shall be permitted that would have
the effect of eliminating or reducing an early retirement
benefit or a retirement-type subsidy (as defined in Treasury
regulations under Code ss.411(d)(6)(B)(i)), if any,
73
<PAGE> 83
or, except as permitted under Treasury regulations,
eliminating an "optional form of benefit" as defined in Treas.
Reg. ss.1.411(d)-4(Q&A-1).
(iii) Code ss.411(a)(10) Vesting Restrictions. Any
amendment changing the vesting schedule of this Plan shall
comply with the provisions of Section 5.2(c). For purposes of
this paragraph (iii), an "amendment changing the vesting
schedule" is any amendment which directly or indirectly
affects the computation of the vested percentage of a
Participant's Account balances as described in Treas. Reg.
ss.1.411(a)-8(c).
11.3 Right to Terminate Plan.
(a) Termination by the Company. The Company reserves the
right, at any time, to wholly or partially terminate the Plan. If the
Plan is terminated by the Company, all Accounts of "affected"
Participants within the meaning of Code ss.411(d)(3) as of the date of
termination shall immediately become nonforfeitable and fully vested,
to the extent funded. If the Plan is partially terminated by the
Company or for whatever reason, all Accounts of those "affected"
Participants within the meaning of Code ss.411(d)(3) shall, as of the
date of partial termination, immediately become nonforfeitable and
fully vested, to the extent funded. Furthermore, a "complete
discontinuance of contributions" within the meaning of Treas. Reg.
ss.1.411(d)-2(d) under the Plan shall be treated as a termination of
the Plan for purposes of this subsection.
(b) Termination by Employer Other than Company. An Employer
other than the Company cannot at any time terminate this Plan. Such an
Employer may, however, cease to participate in this Plan at any time by
giving written notice to the Company indicating the effective date of
such termination of participation prior to such effective date unless
waived by the Company. See Section 11.4 of this Plan.
(c) Distributions Upon Termination. If the Plan is
terminated, the Account balances of affected Participants shall be
either held in the Trust pursuant to the provisions of the Plan,
transferred to another plan maintained by the Controlled Group which is
qualified under Code ss.401(a), or distributed as soon as
administratively feasible pursuant to Rev. Rul. 89-87, in the sole
discretion of the Company. However, notwithstanding the preceding
sentence, a distribution may not be made upon termination if the
Controlled Group establishes or maintains any other defined
contribution plan which is not an employee stock ownership plan. See
also Sections 8.7(c)(v) for a similar restriction, and 11.5 for
restrictions on transfers. Any distribution upon Plan termination must
not eliminate or reduce an early retirement benefit or retirement-type
subsidy, if any, (as defined in Treasury regulations under Code
ss.411(d)(6)(B)(i)), or except as permitted under Treasury regulations,
eliminate an optional form of benefit payment, unless the consent
requirements of Section 8.7 are satisfied.
(d) Consent to Distribution or Transfer. If the Plan is
terminated by the Company, then the Plan may distribute a Participant's
Account balances without the
74
<PAGE> 84
Participant's consent unless a member of the Controlled Group maintains
another defined contribution plan (other than an employee stock
ownership plan as defined in Code ss.4975(e)(7)), in which case, the
Participant's Account balances may be transferred without the
Participant's consent to such other defined contribution plan if the
Participant does not consent to an immediate distribution from the
Plan.
(e) Other Special Rules Upon Termination. See Treas. Reg.
ss.1.411(d)-4(Q&A-2)(b)(2)(iii) and (vi) for special rules regarding
amendments which may be made to this Plan upon termination.
11.4 Termination of Participation in Plan by Employer other than
Company. An Employer other than the Company may cease to participate in this
Plan at any time by giving written notice to the Company indicating the
effective date of such termination of participation prior to such effective date
unless waived by the Company, and, in such event, the Account balances of
Participants who are Employees of such Employer or who were Employees of such
Employer and who are no longer Employees of any Employer shall be either held in
the Trust for the benefit of such Participants and their Beneficiaries pursuant
to the provisions of the Plan, or transferred to another plan of such Employer
ceasing participation which is a qualified plan under Code ss.401(a) if the
Company approves of such transfer and if the requirements of Section 11.5 of
this Plan are, in the opinion of the Company in its sole discretion, satisfied.
Such other plan of such Employer ceasing participation may be amended or
terminated at any time and in any manner by such Employer, subject to the
restrictions of subsection (b) of Section 11.2 herein.
11.5 Merger, Consolidation, or Transfer of Assets.
(a) Code ss.401(a)(12) Restriction. The Plan shall not be
merged or consolidated with any other plan, and its assets and
liabilities may not be transferred to any other trust, unless each
Participant, immediately after the merger, consolidation or transfer
(if the Plan then is terminated), would receive a benefit which is
equal to or greater than the benefit he would have been entitled to
receive, and would be entitled to each benefit payment option to which
he would have been entitled, immediately before the merger,
consolidation or transfer (if the Plan is then terminated).
(b) Code ss.401(a)(11) Restriction. Subject to subsection
(c) below, this Plan may be the recipient of a transfer of assets from,
or may transfer assets to, another plan qualified under Code ss.401(a)
subject to the approval of the Company; provided, however, in no event
shall this Plan be the recipient of a direct or indirect transfer of
assets if such receipt would make this Plan a "transferee plan" within
the meaning of Treas. Reg. ss.1.401(a)-20(Q&A-5)(a), unless such assets
are separately accounted for (within the meaning of Treas. Reg.
ss.1.401(a)-20(Q&A-5)(b)) and are subject to the requirements of Code
ss.401(a)(11).
(c) Code ss.411(d)(6) Restriction. This Plan may be the
recipient of a transfer of assets from, or may transfer assets to,
another plan qualified under Code ss.401(a) in
75
<PAGE> 85
accordance with subsection (b) above only if such transfer satisfies
the provisions of Treas. Reg. ss.1.411(d)-4(Q&A-3).
(d) If another plan is merged into this Plan after the
effective date of a change in the plan qualification requirements of
the Code, then the provisions of this Plan that are intended to comply
with those changed plan qualification requirements shall be deemed to
relate back to, and to apply to, the plan that is merged into this Plan
during periods of time from the effective date of the change in the
plan qualification requirements of the Code through the date of the
plan merger.
11.6 Adoption of Plan by Controlled Group Members.
(a) Procedures for Adoption of Plan. This Plan may be
adopted by any member of the Controlled Group if the following
requirements are met:
(i) The member of the Controlled Group wishing to
become an Employer must adopt the Plan by the execution of a
formal resolution by such member's board of directors to
adopt this Plan, and such resolution or a merger amendment,
as appropriate, shall indicate the effective date of such
adoption; and
(ii) Such document(s) evidencing the adoption of
the Plan by the Controlled Group member must be delivered to
and accepted in writing by the Plan Administrator or
approved by resolution of the board of directors of the
Company.
The documents referred to in paragraphs (i) and (ii) of this Section
shall be attached hereto and made a part of the Plan. Such documents
may, in addition to specifying the effective date of the adoption,
specify other provisions including, but not limited to, credit for
service prior to the effective date for eligibility and vesting
purposes, and contributions for each adopting Employer. In addition,
Exhibit A hereto shall reflect any such special provisions with respect
to contributions. In the absence of any such provisions, the terms and
provisions of this Plan shall control.
(b) Procedures for Withdrawal from Plan. Any Employer may
voluntarily withdraw from participating in the Plan, provided that
notice of such intent to discontinue participation is furnished to the
Company prior to the effective date of the withdrawal, unless waived by
the Company. The Company unilaterally may terminate an adopting
Employer's participation in the Plan for:
(i) failure to timely provide requested information;
(ii) failure to timely make contributions;
(iii) failure to cooperate with the Company in
administering the Plan; or
76
<PAGE> 86
(iv) for any other reason that the Company deems
appropriate.
(c) Transfer of Assets. Upon the voluntary withdrawal or
involuntary termination of an Employer's participation in the Plan, the
Company shall determine the amount of assets and liabilities of the
Plan (if any) which shall be transferred to a qualified plan of the
withdrawing Employer. This determination shall be made based upon
principles set forth in Code ss.ss.401(a)(12) and 414(l) and the
regulations promulgated thereunder. Any transfer of assets and
liabilities under this subsection (c) shall comply with the provisions
of Section 11.5.
(d) Apportionment of Costs. The Company and all Employers
shall share in the costs of the Plan (other than those costs paid from
the Trust Fund in accordance with Section 10.2), including but not
limited to, the contributions to the Plan, the costs of the Plan
Administrator, the costs of the consultants (actuaries, accountants,
attorneys, etc.) and various other direct and indirect costs of
operating the Plan which may initially be borne by the Company or any
Employer but which are determined by the Plan Administrator to be costs
associated with the Plan. The Plan Administrator shall apportion these
costs to the Company and each Employer as it deems to be equitable.
(e) Cooperation. Each Employer shall cooperate fully with
the Company and the Plan Administrator with regard to all matters
pertaining to the Plan. Any failure to cooperate will be grounds for
the involuntary termination of that Employer's participation in the
Plan.
77
<PAGE> 87
ARTICLE XII
GENERAL PROVISIONS
12.1 Participant's Rights to Employment, Etc. Nothing contained in
the Plan or the establishment of the Trust, or any modification thereof, or the
creation of any fund or account, or the payment of any benefits, shall be
construed to give any Employee, whether or not a Participant, or any
Beneficiary, any rights to continued employment, any legal or equitable right
against an Employer, or any officer or employee thereof, or the Trustee, or its
agents or employees, except as herein provided.
12.2 No Guarantee of Interests. The Employer, the Plan
Administrator and the Trustee do not guarantee the Trust Fund from any loss or
depreciation, nor do they guarantee any payment to any person. The liability of
the Trustee, the Employer, and the Plan Administrator to make payments
hereunder is limited to the available assets of the Trust Fund.
12.3 Standard of Conduct. Any person who is a fiduciary with
respect to this Plan shall: (i) discharge his duties solely in the interest of
and for the exclusive purpose of providing benefits to Participants and their
Beneficiaries and defraying the reasonable administrative expenses of the Plan,
and shall conduct himself with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims; (ii) act at all times in accordance with the
documents governing the Plan and Trust as they may be amended from time to time;
(iii) not engage in nor allow the Plan or Trust to engage in any transaction
which is prohibited under ERISA ss.406 and which is not allowed by ERISA ss.408
or is prohibited under Code ss.4975; (iv) not knowingly participate in or
conceal an act of another fiduciary under the Plan which he knows to involve a
breach of fiduciary duty within the meaning ERISA; and (v) make reasonable
efforts under the circumstances to remedy a breach of duty described in
subsection (iv) discovered by him.
12.4 Allocation of Duties. All responsibilities for the operation
and administration of the Plan shall be allocated as follows:
(a) The Employer shall furnish to the Trustee information
with respect to service, eligibility, compensation, termination of
employment and other matters required or desirable for the purpose of
enabling the Trustee to carry out its duties and responsibilities under
this Plan and Trust, and the Trustee may rely upon such information as
conclusive proof of any fact or matter. The Employer shall also
transmit to the Trustee, all Employer and Employee contributions under
the Plan, and the Company shall determine the amount of all such
contributions.
(b) The Plan Administrator shall have those duties and
responsibilities set forth in Article X.
78
<PAGE> 88
(c) The Trustee shall have responsibility for managing and
administering the Trust Fund subject to the terms and provisions of
this Plan and the Trust Agreement. The Trustee shall have
responsibility for making benefit payments only upon the specific
written direction of the Plan Administrator.
12.5 Claims Procedure.
(a) Filing a Claim. All claims and requests for benefits
under the Plan shall be directed to the attention of the Plan
Administrator in writing. The writing must be reasonably calculated to
bring the claim to the attention of the Plan Administrator.
(b) Notification of Denial. If the Plan Administrator
determines that any individual who has claimed a right to receive
benefits under the Plan (the "claimant") is not entitled to receive all
or any part of the benefits claimed, the claimant shall be informed in
writing of the specific reason or reasons for the denial, with specific
reference to pertinent Plan provisions on which the denial is based, a
description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why said material
or information is necessary and a description of the review procedures
set forth in subsection (d) below.
(c) Timing of Notification. The claimant shall be so notified
of the Plan Administrator's decision within 90 days after the receipt
of the claim, unless special circumstances require an extension of time
for processing the claim. If such an extension of time for processing
is required, the Plan Administrator shall furnish the claimant written
notice of the extension prior to the termination of the initial 90-day
period. In no event shall said extension exceed a period of 90 days
from the end of said initial period. The extension notice shall
indicate the special circumstances requiring an extension of time and
the date by which the Plan Administrator expects to render a final
decision. If for any reason, the claimant is not notified within the
period described above, the claim shall be deemed denied and the
claimant may then request review of said denial, subject to the
provisions of subsection (d) below.
(d) Review Procedures. The claimant or his duly authorized
representative may, within 60 days after notice of the Plan
Administrator's decision, request a review of said decision, review
pertinent documents and submit to the Plan Administrator such further
information as will, in the claimant's opinion, establish his rights to
such benefits. If upon receipt of this further information, the Plan
Administrator determines that the claimant is not entitled to the
benefits claimed, the Plan Administrator shall afford the claimant or
his representative reasonable opportunity to submit issues and comments
in writing and to review pertinent documents. If the claimant wishes,
he may request in writing that the Plan Administrator hold a hearing.
The Plan Administrator may, in his discretion, schedule an opportunity
for a full and fair hearing on the issue as soon as is reasonably
possible under the circumstances. The Plan Administrator shall render
his final decision with the specific reasons therefor in writing and in
a manner calculated to be understood by the claimant.
79
<PAGE> 89
(e) Timing of Final Decision. The Plan Administrator's final
decision shall include specific references to the pertinent Plan
provisions on which the decision is based, and shall be transmitted to
the claimant by certified mail within 60 days of receipt of claimant's
request for such review, unless special circumstances require a further
extension of time for processing, in which case a decision shall be
rendered as soon as possible, but not later than 120 days after receipt
of a request for review. If such an extension of time for review is
required because of special circumstances, written notice of the
extension shall be furnished to the claimant prior to the commencement
of the extension.
12.6 Nonalienation or Assignment; QDRO's.
(a) Spendthrift Clause. Except as provided in Section 8.11
above and in subsection (b) below, (i) none of the benefits under the
Plan is subject to the claims of creditors of Participants or their
Beneficiaries, and will not be subject to attachment, garnishment, or
any other legal process whatsoever, and (ii) neither a Participant nor
his Beneficiaries may assign, sell, borrow on, or otherwise encumber
any of his beneficial interest in the Plan and Trust Fund, nor shall
any such benefits be in any manner liable for or subject to the deeds,
contracts, liabilities, engagements, or torts of any Participant or
Beneficiary. Notwithstanding any provision of the Plan to the contrary,
the Plan shall honor a judgment, order, decree or settlement providing
for the offset of all or a part of a Participant's benefit under the
Plan, to the extent permitted under Code ss. 401(a)(13)(C); provided
that the requirements of Code ss. 401(a)(13)(C)(iii) relating to the
protection of the Participant's spouse (if any) are satisfied.
(b) Qualified Domestic Relations Orders.
(i) General Rule. The provisions of subsection (a)
above shall not apply to a "qualified domestic relations
order," as defined in Code ss.414(p) and ERISA ss.206(d)(3),
or any other domestic relations order permitted to be
treated as a "qualified domestic relations order" by the
Plan Administrator under the provisions of the Retirement
Equity Act of 1984. The Plan Administrator shall establish a
written procedure to determine the qualified status of
domestic relations orders and to administer distributions
under such qualified orders. To the extent provided under a
"qualified domestic relations order," a former Spouse of a
Participant shall be treated as the Spouse or Surviving
Spouse for all purposes under the Plan.
(ii) QDRO Procedures.
(A) Procedure Upon Receipt. Upon
receiving a domestic relations order, the Plan
Administrator shall notify all affected
Participants and any alternate payees (Spouse,
former spouse, child or other dependent of the
Participant named in the order) that the order has
been received. The Plan Administrator shall also
notify the affected Participants and
80
<PAGE> 90
alternate payees of its procedure for determining
whether the domestic relations order is qualified.
(B) Procedure During Determination. During
the period the Plan Administrator is determining the
qualified status of the order, the Plan Administrator
shall separately account for the amount (if any) that
would be payable to an alternate payee under this
order (if it were a qualified domestic relations
order) during this period. If the Plan Administrator
determines the order is a qualified domestic
relations order during the 18-month period commencing
on the date the first payment would be required under
the qualified domestic relations order, then the
alternate payee shall receive payment from the
separate account. If the Plan Administrator cannot
make a determination of the order's qualified status
during this 18-month period (or determines the order
is not a qualified domestic relations order), then
the Trustee shall return the amounts in the separate
account to the account of the affected Participant as
if no court order had been received.
(iii) QDRO Payouts.
(A) Payment Upon Receipt of QDRO.
Notwithstanding any provision of this Plan to the
contrary, any amounts of a Participant's vested
Account balances which, due to the receipt of a
domestic relations order determined to be a qualified
domestic relations order under paragraph (ii) above,
become the vested Account balances of an alternate
payee under such order shall be distributed in the
form of a single lump-sum payment to the alternate
payee as of the earliest date on which such amounts
can be accurately determined and paid, subject to any
provisions of the qualified domestic relations order
to the contrary. No written consent of the alternate
payee shall be required for this distribution
pursuant to Treas. Reg. ss.1.411(a)-11(c)(6).
(B) Subsequent Additional Amounts. The
preceding subparagraph (A) shall apply to any amounts
of a Participant's vested Account balances which, due
to the receipt of a domestic relations order
determined to be a qualified domestic relations under
subsection (b) above, become the vested Account
balances of an alternate payee under such order after
a payment under subparagraph (A) above due to
additional vesting, allocation of contributions or
earnings, or any other reason.
(iv) Status of Alternate Payee. An alternate payee
under a qualified domestic relations order shall be
entitled to all rights of a Beneficiary hereunder except
as otherwise specified herein.
81
<PAGE> 91
12.7 Plan Continuance Voluntary. Although it is the intention of
the Employer that this Plan shall be continued and that contributions shall be
made regularly, this Plan is entirely voluntary on the part of the Employer, and
the continuance of the Plan and the payments hereunder are not assumed as a
contractual obligation of the Employer.
12.8 Payments to Minors and Others. In making any distribution to
or for the benefit of any minor or incompetent Participant or Beneficiary, or
any other Participant or Beneficiary who, in the opinion of the Plan
Administrator, is incapable of properly using, expending, investing, or
otherwise disposing of such distribution, the Plan Administrator, in the Plan
Administrator's sole and complete discretion may, but need not, order the
Trustee to make such distribution to a legal or natural guardian or other
relative of such minor or court appointed committee of any incompetent, or to
any adult with whom such person temporarily or permanently resides; and any such
guardian, committee, relative, or other person shall have full authority and
discretion to expend such distribution for the use and benefit of such person;
and the receipt of such guardian, committee, relative, or other person shall be
a complete discharge to the Trustee, the Plan Administrator, and this Plan,
without any responsibility on the part of the Plan Administrator or the Trustee
to see to the application of amounts so distributed.
12.9 Location of Payee; Unclaimed Benefits. In the event that all,
or any portion, of the distribution payable to a Participant or Beneficiary
hereunder shall, at the expiration of a reasonable time after it has become
payable, remain unpaid solely by reason of the inability of the Plan
Administrator, after sending a registered letter, return receipt requested, to
the last known address of such person, and after further diligent effort
(including requests to the Internal Revenue Service under Policy Statement
P-1-187), to ascertain the whereabouts of such person, the amount so
distributable shall be paid pursuant to the terms and provisions of the Plan as
if the Participant or Beneficiary is deceased. If, for any reason, no
Beneficiary or contingent Beneficiary can be found, the amount so distributable
shall be forfeited and shall be used to reduce the contributions to the Plan. In
the event a proper payee is located subsequent to the benefit being forfeited,
the benefit shall be restored, and the Employer shall make special contributions
to this Plan for such purpose.
12.10 Governing Law. This Plan shall be administered in the United
States of America, and its validity, construction, and all rights hereunder
shall be governed by the laws of the United States under ERISA. To the extent
that ERISA shall not be held to have preempted local law, the Plan shall be
administered under the laws of the State of Georgia. If any provision of the
Plan shall be held invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
12.11 Correction of Participants' Accounts. If an error or omission
is discovered in the Accounts of a Participant, or in the amount distributed to
a Participant, the Plan Administrator will make such equitable adjustments in
the records of the Plan as may be necessary or appropriate to correct such error
or omission as of the Plan Year in which such error or omission is discovered.
Further, the Employer may, in its discretion, make a special contribution to the
Plan which will be allocated by the Plan Administrator only to the Account of
one or more Participants to correct such error or omission.
82
<PAGE> 92
12.12 Action of Employer and Plan Administrator. Except as may be
specifically provided, any action required or permitted to be taken by the
Employer or the Plan Administrator may be taken on behalf of such person by any
entity or individual who has been delegated the proper authority.
12.13 Employer Records. Records of the Employer as to an Employee's
or Participant's period of employment, termination of employment and the reason
therefore, leaves of absence, reemployment, compensation, and elections or
designations under this Plan will be conclusive on all persons, unless
determined by the Plan Administrator to be incorrect.
12.14 Gender and Number. Wherever applicable, the masculine pronoun
shall include the feminine pronoun, and the singular shall include the plural.
12.15 Headings. The titles in this Plan are inserted for convenience
of reference; they constitute no part of the Plan, and are not to be considered
in the construction hereof.
12.16 Liability Limited. To the extent permitted by ERISA and other
applicable law, neither the Plan Administrator nor the Employer shall be liable
for any acts of omission or commission in administering the Plan, except for his
or its own individual, willful misconduct. The Employer and the Plan
Administrator shall be entitled to rely conclusively on all tables, valuations,
certificates, opinions and reports which shall be furnished by an actuary,
accountant, trustee, insurance company, counsel or other expert who shall be
employed or engaged by the Plan Administrator or the Employer.
12.17 Prohibited Discrimination. This Plan shall be operated and
administered in a uniform and consistent manner with respect to all Participants
and in a manner which does not discriminate in favor of Highly Compensated
Employees.
12.18 Legal References. Any references in this Plan to a provision
of law which is, subsequent to the Effective Date of this Plan, revised,
modified, finalized or redesignated, shall automatically be deemed a reference
to such revised, modified, finalized or redesignated provision of law.
12.19 Military Service. Notwithstanding any provision of this Plan
to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Code ss. 414(u).
"Qualified military service" means any service in the uniformed services (as
defined in chapter 43 of title 38 of the United States Code) by any individual
if such individual is entitled to reemployment rights under such chapter with
respect to such service.
12.20 Electronic Means of Communication. Whenever, under this Plan,
a Participant or Beneficiary is required or permitted to make an election,
provide a notice, give a consent, request a distribution, execute a promissory
note or security agreement, or otherwise communicate with the Employer, the Plan
Administrator, the Trustee or a delegate of any of them, to the extent permitted
by law, the election, notice, consent, distribution request, promissory note or
security agreement, or
83
<PAGE> 93
other communication may be transmitted by means of telephonic or other
electronic communication, if the administrative procedures under the Plan
provide for such means of communication.
12.21 Plan Conversions. Notwithstanding any provision of the Plan to
the contrary, during any conversion period, in accordance with procedures
established by the Plan Administrator, the Plan Administrator may temporarily
suspend, in whole or in part, certain provisions of the Plan, which may include,
but are not limited to, a Participant's right to change his contribution
election, a Participant's right to change his investment election and a
Participant's right to borrow or withdraw from his Account or obtain a
distribution from his Account.
84
<PAGE> 94
ARTICLE XIII
SPECIAL RULES APPLICABLE TO TOP HEAVY PLAN YEARS
13.1 Top-Heavy Provisions. If and only if, this Plan is a
Top-Heavy Plan, the following provisions shall apply for such Plan Year
notwithstanding any other provisions of this Plan to the contrary:
(a) Minimum Allocation.
(i) For any Plan Year in which this Plan is a
Top-Heavy Plan, except as otherwise provided in paragraph
(iii) below, the contributions and forfeitures of members of
the Controlled Group allocated on behalf of any Participant
(A) who is not a Key Employee and (B) who was employed by an
Employer on the last day of such Plan Year shall not be less
than the lesser of 3% of such Participant's Compensation or,
in the case where no member of the Controlled Group has a
defined benefit plan which designates this Plan to satisfy
Code ss.401, the largest percentage of contributions and
forfeitures of members of the Controlled Group, as a
percentage of the Key Employee's Compensation, allocated on
behalf of any Key Employee for that year. The minimum
allocation is determined without regard to any Social
Security contribution. This minimum allocation shall be made
even though, under other Plan provisions, the Participant
would not otherwise be entitled to receive an allocation, or
would have received a lesser allocation for the year because
of (i) the Participant's failure to complete 1,000 Hours of
Service (or any equivalent provided in the Plan), or (ii)
the Participant's failure to make Elective Contributions to
the Plan, or (iii) the Participant's Compensation is less
than a stated amount.
(ii) For purposes of computing the minimum
allocation, Compensation shall mean Compensation as defined
in Section 4.2(b) of the Plan, limited pursuant to Section
1.15(e).
(iii) The provision in paragraph (i) above shall
not apply to any Participant to the extent the Participant
is covered under any other plan or plans of a member of the
Controlled Group and the Employer has provided that the
minimum allocation or benefit requirement applicable to
Top-Heavy Plans under Code ss.416(c) will be met in the
other plan or plans.
(iv) For purposes of this subsection (a), Elective
Contributions of Key Employees shall be taken into account,
but Elective Contributions of Employees who are not Key
Employees shall not be taken into account.
85
<PAGE> 95
(v) For purposes of this subsection (a), any
Qualified Nonelective Contributions shall be taken into
account; however, Qualified Matching Contributions, and
Matching Elective Contributions shall not be taken into
account.
(vi) If an Employer also maintains a defined
benefit plan and both this Plan and the defined benefit plan
become Top-Heavy Plans, the minimum allocation provisions in
this Article will not be required to be made to both plans.
Thus, if both plans are Top-Heavy Plans, the requirements of
this Article will be satisfied by providing the minimum
required benefit under the Employer's defined benefit plan.
(b) Minimum Vesting. For any Plan Year in which this Plan is
a Top-Heavy Plan, the following minimum vesting schedule will
automatically apply in place of the vesting schedule contained in
Section 5.2(b) of the Plan:
<TABLE>
<CAPTION>
Years of Vesting Service Earned by Vested Percentage of the
the Participant Participant in Forfeitable Account
<S> <C>
-------------------------------------------------------------------------------------------------------
Less than 3 Years 0% vested
-------------------------------------------------------------------------------------------------------
3 or more Years 100% vested
-------------------------------------------------------------------------------------------------------
</TABLE>
The minimum vesting schedule applies to all accrued benefits within the meaning
of Code ss.411(a)(7), including benefits accrued before the Plan became
Top-Heavy, except those attributable to Rollover Contributions or Elective
Contributions or those forfeited before the Plan became Top-Heavy. Further, no
decrease in a Participant's nonforfeitable percentage may occur in the event the
Plan's status as Top-Heavy changes for any Plan Year. However, this subsection
(b) does not apply to the Account balances of any Employee who does not have an
Hour of Service after the Plan has initially become Top-Heavy and such
Employee's Account balance attributable to contributions and forfeitures of
members of the Controlled Group will be determined without regard to this
subsection (b).
13.2 Top-Heavy Special Definitions. For purposes of this Article,
the following terms shall have the following meanings:
(a) Top-Heavy Ratio.
(i) If a member of the Controlled Group maintains one
or more defined contribution plans (including any simplified
employee pension plan) and a member of the Controlled Group
has never maintained any defined benefit plan which during the
5 year period ending on the Determination Date(s) has or had
accrued benefits, the Top-Heavy Ratio for this Plan alone, or
for the Required or Permissive Aggregation Group as
appropriate, is a fraction, the numerator of which is the sum
of the account balances of all Key Employees under the
aggregated
86
<PAGE> 96
defined contribution plan or plans as of the Determination
Date(s) (including any part of any Account balance distributed
in the 5-year period ending on the Determination Date(s)), and
the denominator of which is the sum of all Account balances
(including any part of any Account balance distributed in the
5-year period ending on the Determination Date(s)) of all
Participants as of the Determination Date(s), both computed in
accordance with Code ss.416 and the regulations thereunder.
Both the numerator and the denominator of the Top-Heavy Ratio
are adjusted to reflect any contribution not actually made as
of the Determination Date but which is required to be taken
into account on that date under Code ss.416 and the
regulations thereunder.
(ii) If a member of the Controlled Group maintains
one or more defined contribution plans (including any
simplified employee pension plan) and a member of the
Controlled Group maintains or has maintained one or more
defined benefit plans which during the 5-year period ending on
the Determination Date(s) has or had any accrued benefits, the
Top-Heavy Ratio for any Required or Permissive Aggregation
Group, as appropriate, is a fraction, the numerator of which
is the sum of account balances under the aggregated defined
contribution plan or plans for all Key Employees, determined
in accordance with paragraph (i) above, and the Present Value
of accrued benefits under the aggregated defined benefit plans
for all Key Employees, as of the Determination Date(s), and
the denominator of which is the sum of the account balances
under the aggregated defined contribution plans for all
Participants, as determined in accordance with paragraph (i)
above, and the Present Value of accrued benefits under the
aggregated defined benefit plans for all Participants as of
the Determination Date(s), all determined in accordance with
Code ss.416 and the regulations thereunder. Both the numerator
and the denominator of the Top-Heavy Ratio are adjusted by
adding back the amount of any distribution of an account
balance or an accrued benefit made in the 5-year period ending
on the Determination Date and any contribution not actually
made but required to be taken into account under Code ss.416
as of the Determination Date.
(iii) For purposes of this subsection (a), the value
of account balances and the Present Value of accrued benefits
will be determined as of the most recent Valuation Date that
falls within or ends with the 12-month period ending on the
Determination Date, except as provided in Code ss.416 and the
regulations thereunder for the first and second plan years of
a defined benefit plan. The account balances and accrued
benefits of a Participant who is not a Key Employee but who
was a Key Employee in a prior year will be disregarded. If an
individual has not performed an Hour of Service for any
Employer maintaining the Plan at any time during the 5 year
period ending on the Determination Date, any accrued benefit
for such individual (and the account of such individual) shall
not be taken into account in determining the Top-Heavy Ratio.
The calculation of the Top-Heavy Ratio, and the extent to
which distributions, rollovers, and transfers are taken into
account will be made in accordance with Code ss.416 and the
regulations
87
<PAGE> 97
thereunder. When aggregating plans, the value of Account
balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same
calendar year.
(iv) The accrued benefit of any Employee (other than
a Key Employee) shall be determined (A) under the method which
is used for accrual purposes for all plans of the Controlled
Group, or (B) if there is no method described in clause (A),
as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under Code ss.411(b)(1)(C).
(b) Permissive Aggregation Group. The Required Aggregation
Group of plans plus any other plan or plans of the Controlled Group
which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code ss.ss.401(a)(4) and
410.
(c) Required Aggregation Group. (i) Each qualified plan of the
Controlled Group in which at least one Key Employee participates or
participated at any time during the determination period (as defined in
subsection (f) below) regardless of whether the plan has terminated,
and (ii) any other qualified plan of the Controlled Group which enables
a plan described in (i) to meet the requirements of Code
ss.ss.401(a)(4) and 410.
(d) Determination Date. For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first
Plan Year of the Plan, the last day of that year.
(e) Present Value. For purposes of establishing Present Value
to compute the Top-Heavy Ratio, any accrued benefit in a defined
benefit plan shall be discounted only for mortality and interest based
on the interest rate and mortality table used by the defined benefit
plan for determining the actuarial present value of actuarially
equivalent benefits unless the defined benefit plan specifically
defines alternative interest and mortality assumptions to be used in
determining the Top-Heavy Ratio. If more than one defined benefit plan
must be aggregated, the assumptions used will be the assumptions
applicable to the defined benefit plan that has the greatest value of
assets as of the Valuation Date coincident with the Determination Date.
(f) Key Employee. Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the
determination period was an officer of a member of the Controlled Group
if such individual's annual Compensation from members of the Controlled
Group exceeds 50% of the dollar limitation under Code ss.415(b)(1)(A),
an owner (or considered an owner under Code ss.318) of one of the 10
largest interests in the Employer if such individual's Compensation
from members of the Controlled Group exceeds 100% of the dollar
limitation under Code ss.415(c)(1)(A), a 5-percent owner of the
Employer, or a 1-percent owner of the Employer who has an annual
Compensation from members of the Controlled Group of more than
$150,000. Annual Compensation means Compensation as defined in Section
4.2(b) of this Plan, but including amounts contributed by a member of
88
<PAGE> 98
the Controlled Group pursuant to a salary reduction agreement which are
excludable from gross income under Code ss.ss.125, 402(a)(8), 402(h) or
403(b). The determination period is the Plan Year containing the
Determination Date and the 4 preceding Plan Years. The determination of
who is a Key Employee will be made in accordance with Code ss.416(i)(1)
and the regulations thereunder.
(g) Top-Heavy Plan. This Plan is a Top-Heavy Plan if any of
the following conditions exist:
(i) If the Top-Heavy Ratio for this Plan exceeds
60% and this Plan is not part of any Required Aggregation
Group or Permissive Aggregation Group of plans.
(ii) If this Plan is a part of a Required
Aggregation Group of plans but not part of a Permissive
Aggregation Group and the Top-Heavy Ratio for the group of
plans exceeds 60%.
(iii) If this Plan is a part of a Required
Aggregation Group and part of a Permissive Aggregation Group
of plans and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds 60%.
IN WITNESS WHEREOF, this Plan has been executed by the Company
this 11th day of May, 1999.
COMPANY:
FLOWERS INDUSTRIES, INC.
By:/s/ Jimmy M. Woodward
----------------------------------
Title: TREASURER
---------------------------
89
<PAGE> 99
APPENDIX I
SPECIAL PROVISIONS RELATING TO ANNUITY PAYMENTS
1.1 Forms of Benefit for Certain Accounts. As a consequence of
the merger of certain other plans into this Plan, applicable law requires that
particular distribution provisions apply to certain accounts of affected
Participants. Therefore, notwithstanding any provisions of this Plan to the
contrary, except as noted, the following automatic forms of benefits shall
apply with respect to those Accounts (but no other accounts) of Participants
held under this Plan which are expressly stated to be subject to the following
provisions of this Appendix (herein "Applicable Accounts"):
(a) Qualified Joint and Survivor Annuity.
(i) Definition. A Participant who is married as of
his Annuity Starting Date shall automatically have the vested
value of his Applicable Accounts applied to purchase a
Qualified Joint and Survivor Annuity, unless he properly
waives the Qualified Joint and Survivor Annuity. Such monthly
benefit must be of equivalent actuarial value to the amount of
monthly retirement benefit the Participant would receive on
his Annuity Starting Date in the form of a straight life
annuity with no certain period.
(ii) Written Explanation. With regard to a Qualified
Joint and Survivor Annuity as described above, the Plan
Administrator shall, no less than thirty (30) days and no more
than ninety (90) days prior to the Annuity Starting Date,
provide each Participant who has an Applicable Account, within
a reasonable period prior to the commencement of benefits, a
written explanation of: (i) the terms and conditions of a
Qualified Joint and Survivor Annuity; (ii) the Participant's
right to make, and the effect of, an election to waive the
Qualified Joint and Survivor Annuity form of benefit; (iii)
the rights of a Participant's Spouse; and (iv) the right to
make, and the effect of, a revocation of a previous election
to waive the Qualified Joint and Survivor Annuity.
(iii) Waiver of Automatic Form. A Participant's
election to waive the payment of his benefit in the form of a
Qualified Joint and Survivor Annuity shall be effective only
if all of the following requirements are met: (a) such waiver
is made during the 90-day period ending on the Participant's
Annuity Starting Date; (b) the election specifies a form of
benefit which may not be changed without spousal consent; (c)
the Participant's Spouse consents in writing to the form of
benefit; (d) such selection by the Participant may not be
changed without a consent of the Spouse; and (e) any such
spousal consent acknowledges the effect of such election and
is witnessed by a representative of the Plan Administrator or
a notary public. However, spousal consent will not be required
if it is established to the satisfaction of the Plan
Administrator that such spousal consent cannot be obtained (i)
because there is no Spouse, (ii) because the Spouse cannot be
located, or (iii)
90
<PAGE> 100
because of such other circumstances as the Secretary of the
Treasury may prescribe by regulations. Any election by the
Participant to waive the Qualified Joint and Survivor Annuity
may be revoked by the Participant during the 90-day period
ending on the Participant's Annuity Starting Date. A
Participant's election to waive the Qualified Joint and
Survivor Annuity and any revocation of such election may be
made solely by an instrument (in a form acceptable to the Plan
Administrator) signed by the Participant and filed with the
Plan Administrator during such election period. The
Participant or the Participant's Spouse must furnish evidence
satisfactory to the Plan Administrator of their marriage and
of their dates of birth. If a Participant's benefit commences
under the Qualified Joint and Survivor Annuity and the
Participant's Spouse dies on or after the Participant's
Annuity Starting Date and while the Participant is living, the
Participant's reduced benefit will not be increased thereby.
(b) Life Annuity. A Participant who is not married as of his
Annuity Starting Date shall automatically have the value of his vested
Applicable Accounts applied to purchase a straight life annuity with no
period certain, unless he elects an optional form under other
provisions of this Plan. A Participant electing to receive an optional
form must give written consent not more than 90 days before the
Participant's Annuity Starting Date.
(c) Qualified Preretirement Survivor Annuity. The Surviving
Spouse of a Participant (i) who is married at the time of his death,
(ii) who has a vested Applicable Account balance, and (iii) who dies
before his Annuity Starting Date, shall automatically receive a
Qualified Preretirement Survivor Annuity purchased with the value of
the Participant's vested Applicable Accounts. A Surviving Spouse may,
however, elect to receive the value of the Participant's vested
Applicable Accounts in any of the optional forms allowed under other
provisions of this Plan.
1.2 Annuities. If an annuity is one of the forms of payment
available to Participants or Beneficiaries under this Plan, the terms of any
annuity contract purchased or distributed by the Plan to a Participant or to
his Beneficiary shall comply with the requirements of this Plan. Any annuity
contract distributed from the Plan must be nontransferable.
1.3 Death On or After Benefit Commencement Date. In the event of
the death of a Participant on or after his Benefit Commencement Date, if the
Participant was receiving annuity payments, the benefit, if any, for a
Beneficiary shall be determined by the form of annuity which the Participant
was receiving, notwithstanding any provision of this Plan to the contrary.
1.4 Valuation of Accounts for Payments. If a Participant or
Beneficiary receives his benefit available under this Plan in the form of an
annuity contract under this Appendix, the amount used to purchase such contract
for the Participant or Beneficiary shall be determined using the Participant's
or Beneficiary's Benefit Amount valued as of the date of the distributable
event.
91
<PAGE> 101
1.5 Definitions.
(a) Annuity Starting Date shall mean, with respect to a payee,
(i) the first day of the first period for which an amount is payable as
an annuity, or (ii) in the case of a benefit not payable in the form of
an annuity, the first day on which all events have occurred which
entitle the payee to such benefit, in accordance with Treas. Reg.
ss.1.401(a)-20(Q&A-10)(b), Code ss.417(f)(2) and Notice 93-26, and
determined pursuant to the provisions of this Plan.
(b) Qualified Joint and Survivor Annuity shall mean an annuity
for the life of the Participant with a survivor annuity for the life of
the Participant's Spouse, under which the Spouse's monthly benefit is
not more than 100% and not less than 50% of the amount of the
Participant's monthly benefit, purchased with the Participant's entire
vested Applicable Accounts. In the case of a "Qualified Joint and 50%
Survivor Annuity," the Spouse's monthly benefit shall be 50% of the
amount of the Participant's monthly benefit, and in the case of a
"Qualified Joint and 100% Survivor Annuity," the Spouse's monthly
benefit shall be 100% of the amount of the Participant's monthly
benefit. The exact percentage of the survivor benefit shall be
specified under the Plan provisions expressly stating that this
Appendix is applicable.
(c) Qualified Preretirement Survivor Annuity shall mean, with
respect to a Participant, an annuity for the life of the Participant's
Surviving Spouse purchased with the Participant's entire vested
Applicable Account balances.
92
<PAGE> 102
APPENDIX II
SPECIAL PROVISIONS REGARDING MERGER OF THE
MRS. BOEHME'S HOLSUM BAKERY, INC. 401(k) RETIREMENT PLAN
WITH AND INTO THE PLAN
2.1 General Provisions. Effective as of April 1, 1995 ("Boehme's
Merger Effective Date"), the Mrs. Boehme's Holsum Bakery, Inc. 401(k)
Retirement Plan ("Boehme's Plan") is merged with and into the Plan. The Plan
shall, as of the Boehme's Merger Effective Date, assume all obligations of the
Boehme's Plan and be responsible for payment of all vested benefits accrued
under the terms and provisions of the Boehme's Plan for (i) participants
participating in the Boehme's Plan immediately prior to the Boehme's Merger
Effective Date, and (ii) former participants and beneficiaries with vested
benefits under the Boehme's Plan immediately prior to the Boehme's Merger
Effective Date. Such participants and beneficiaries shall, as of the Boehme's
Merger Effective Date, automatically become Participants in the Plan with
respect to such account balances. The Plan shall provide for said payment of
benefits with the assets transferred to the Trust accompanying this Plan as
set forth in Section 2.3 of this Appendix.
2.2 Separate Accounting. The account balances of each participant
in the Boehme's Plan shall be maintained in separate accounts as follows:
(a) Amounts transferred attributable to "Elective Deferral
Contributions" allocated to a participant under the Boehme's Plan shall
be held in a special segregated Boehme's Elective Deferral
Contributions Account.
(b) Amounts transferred attributable to "Matching
Contributions" allocated to a participant under the Boehme's Plan shall
be held in a special segregated Boehme's Matching Contributions
Account.
(c) Amounts transferred attributable to "Rollover
Contributions" allocated to a participant under the Boehme's Plan shall
be held in a special segregated Boehme's Rollover Account.
All such accounts shall be collectively referred to as "Boehme's Accounts."
2.3 Transfer of Plan Assets. Effective as of the Boehme's Merger
Effective Date, the assets of the Boehme's Plan which are held by the trustee
of the trust accompanying the Boehme's Plan shall become assets of the Plan,
and shall be held by the Trustee under the provisions of this Plan and its
accompanying Trust for the exclusive benefit of Participants and Beneficiaries
under the Plan, including the provisions of Appendix I and this Appendix.
2.4 Conditions for Merger and Transfer. The merger of plans and
transfer of assets as provided for in this Appendix is made on the condition
that subsection (a) of Section 11.5 of the Plan is satisfied.
93
<PAGE> 103
2.5 Forms of Benefits for Boehme's Accounts.
(a) In General. Notwithstanding any provisions of this Plan to
the contrary except as noted, the Boehme's Accounts of Participants
held under this Plan shall be "Applicable Accounts" for purposes of
Appendix I, and shall be subject to the terms and provisions of
Appendix I. For purposes of Appendix I, the Qualified Joint and
Survivor Annuity referred to in such Appendix shall be a Qualified
Joint and 50% Survivor annuity.
(b) Additional Optional Methods. Subject to the requirements
set forth in subsection (a) above, a Participant who has a vested
Boehme's Account balance may elect by written notice to the Plan
Administrator at least 31 days prior to his Annuity Starting Date that
the value of his Boehme's Accounts shall be distributed in the form of
a lump sum cash payment, or in the form of an annuity contract, or
partly in the form of a lump sum cash payment and partly in the form of
an annuity contract. The annuity contract shall provide a fixed or
variable annuity benefit, or a combination of a fixed and a variable
annuity benefit, as chosen by the Participant. The Plan Administrator
shall select the insurance company from which the annuity contract
shall be purchased. The following forms of annuity benefit are
available with respect to the Boehme's Accounts:
(i) Joint and 100% Survivor Annuity. An annuity
benefit under which the Participant will receive fixed monthly
payments for life, and upon his death monthly payments in the
same amount will continue to the spouse to whom the
Participant was married at the time the annuity contract was
purchased, for the life of that spouse.
(ii) Term Certain and Life Annuity. An annuity
benefit under which the Participant will receive monthly
payments for life, and upon his death prior to the receipt of
either 120 or 180 monthly payments (as elected in advance by
the Participant), monthly payments in the same amount will
continue to the designated beneficiary for the balance of the
120-month or 180-month period (as the case may be).
(iii) Contingent Annuitant - Ten Year Certain and
Life Annuity. An annuity benefit under which the Participant
will receive monthly payments for life. If the Participant
dies before receiving 120 monthly payments, payments will
continue in the same amount to a contingent annuitant until a
total of 120 monthly payments have been made to the
Participant and the contingent annuitant. Thereafter monthly
payments equal to 50% or 100% of the monthly payments during
the Participant's lifetime (as elected in advance by the
Participant) will continue to the contingent annuitant for the
life of the contingent annuitant. If both the Participant and
the contingent annuitant die before a total of 120 monthly
payments have been made, payments in the same amount that the
contingent annuitant was receiving will continue to a
designated beneficiary until a total of 120 monthly payments
have been made.
94
<PAGE> 104
(iv) Flexible Installment Refund Annuity. An annuity
benefit under which the balance in the Boehme's Accounts will
be distributed in monthly payments over the Participant's life
expectancy as determined in accordance with applicable
Internal Revenue Service tables. The life expectancy will be
redetermined annually. If the Participant dies, the remaining
balance will be distributed to a designated beneficiary in a
lump sum.
(v) Installment Refund Annuity. An annuity benefit
under which the balance in the Boehme's Accounts will be
distributed in monthly payments over a period certain of 5,
10, or 15 years, at the end of which time all payments will
stop. If the Participant dies before the end of the period
certain that the Participant has selected, payments will
continue to a designated beneficiary for the remainder of the
period certain and will then stop.
2.6 Benefits Upon Death. In the event of the death of a
Participant prior to his Benefit Commencement Date, then the Participant's
Boehme's Accounts will be paid to the Surviving Spouse in the form of a
Qualified Preretirement Survivor Annuity in accordance with Appendix I,
Sections 1.1(c) and 1.5(c).
2.7 Vesting. The portion of a Participant's Account attributable
to the Boehme's Accounts, determined as of April 1, 1995, shall at all times
be fully vested to such Participant. On and after April 1, 1995, the Account
of a Participant who was previously a participant in the Boehme's Plan
(excluding the portion of the Account attributable to the Boehme's Accounts)
shall be vested in accordance with either the following vesting schedule, or
the vesting provisions set forth in Section 5.2 of the Plan, whichever results
in the greater vested percentage for a Participant:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
Earned by the Participant of the Participant
------------------------- ------------------
<S> <C>
Less than 3 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years or more 100%
</TABLE>
2.8 In-Service Withdrawals. Amounts in the Boehme's Elective
Deferral Contributions Account (excluding investment earnings attributable to
periods after December 31, 1988) may be withdrawn by the Participant in
accordance with the provisions of Section 8.10 of this Plan. In addition, in
the case of a Participant who has a Boehme's Rollover Account, such a
Participant may elect to withdraw once during each Plan Year any amount up to
100% of the value of that portion of his Account attributable to the Boehme's
Rollover Account. The Participant shall notify the Plan Administrator in
writing of his election to make a withdrawal from the Boehme's Rollover
Account. Any such election shall be effective as of the date specified in such
notice, which date must be at least 15 days after the notice is filed.
95
<PAGE> 105
2.9 Hours of Service. Effective as of the Boehme's Merger Effective
Date, service with Mrs. Boehme's Holsum Bakery, Inc. shall be treated as service
with an Employer for all purposes under this Plan, even though said service may
have been rendered prior to the time when said company became a member of the
Controlled Group. This provision shall be effective for all employees of said
company who remained or became employed by any member of the Controlled Group as
of the date the company became a member of the Controlled Group. This provision
shall not, however, be construed to permit participation in the Plan prior to
the adoption thereof by the Employer in question.
96
<PAGE> 106
APPENDIX III
SPECIAL PROVISIONS REGARDING MERGER OF THE
HOLSUM BAKING COMPANY RETIREMENT PLAN
WITH AND INTO THE PLAN
3.1 General Provisions. Effective as of January 1, 1996 ("Holsum
Merger Effective Date"), the Holsum Baking Company Retirement Plan ("Holsum
Plan") is merged with and into the Plan. The Plan shall, as of the Holsum
Merger Effective Date, assume all obligations of the Holsum Plan and be
responsible for payment of all vested benefits accrued under the terms and
provisions of the Holsum Plan for (i) participants participating in the Holsum
Plan immediately prior to the Holsum Merger Effective Date, and (ii) former
participants and beneficiaries with vested benefits under the Holsum Plan
immediately prior to the Holsum Merger Effective Date. Such participants and
beneficiaries shall, as of the Holsum Merger Effective Date, automatically
become Participants in the Plan with respect to such account balances. The
Plan shall provide for said payment of benefits with the assets transferred to
the trust accompanying the Plan as set forth in Section 2.3 of this Appendix.
3.2 Separate Accounting. The account balances of each participant
in the Holsum Plan shall be maintained in separate accounts as follows:
(a) Amounts transferred attributable to "Deferral
Contributions" allocated to a participant under the Holsum Plan shall
be held in a special segregated Holsum Deferral Contributions Account.
(b) Amounts transferred attributable to "Matching
Contributions" allocated to a participant under the Holsum Plan shall
be held in a special segregated Holsum Matching Contributions Account.
(c) Amounts transferred attributable to "Qualified Nonelective
Contributions" allocated to a participant under the Holsum Plan shall
be held in a special segregated Holsum Qualified Nonelective
Contributions Account.
(d) Amounts transferred attributable to "Discretionary
Contributions" allocated to a participant under the Holsum Plan shall
be held in a special segregated Holsum Discretionary Contributions
Account.
(e) Amounts transferred attributable to "Rollover
Contributions" allocated to a participant under the Holsum Plan shall
be held in a special segregated Holsum Rollover Contributions Account.
All such accounts shall be collectively referred to in this Appendix III as
"Holsum Accounts."
3.3 Transfer of Plan Assets. Effective as of the Holsum Merger
Effective Date, the assets of the Holsum Plan which are held by the trustee of
the trust accompanying the Holsum Plan shall become assets of the Plan, and
shall be held by the Trustee under the provisions of the Plan and its
97
<PAGE> 107
accompanying Trust for the exclusive benefit of Participants and Beneficiaries
under the Plan, including the provisions of this Appendix.
3.4 Conditions for Merger and Transfer. The merger of plans and
transfer of assets as provided for in this Appendix is made on the condition
that subsection (a) of Section 11.5 of the Plan is satisfied.
3.5 Additional Forms of Benefit for Holsum Accounts. A
Participant who has a vested Holsum Account balance in excess of $3,500 or the
surviving Beneficiary of such a Participant may elect by written notice to the
Plan Administrator that the value of his Holsum Accounts shall be distributed
in the form of a lump sum cash payment, or in monthly, quarterly or annual
installments over a fixed period of time, not exceeding the life expectancy of
the Participant, or the joint life and last survivor expectancy of Participant
and his Beneficiary.
3.6 Vesting. The portion of a Participant's Account attributable
to the Holsum Accounts, determined as of January 1, 1996, shall at all times be
fully vested to such Participant. On and after January 1, 1996, the Account of
a Participant who was previously a participant in the Holsum Plan (excluding
the portion of the Account attributable to the Holsum Accounts) shall be
vested in accordance with the following vesting schedule:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
Earned by the Participant of the Participant
------------------------- ------------------
<S> <C>
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years or more 100%
</TABLE>
and in all events shall be fully vested upon the Participant's attainment of age
62 while still in the employ of an Employer.
3.7 In-Service Withdrawals. Amounts in the Holsum Deferral
Contributions Account and the Holsum Qualified Nonelective Contributions Account
may be withdrawn by the Participant on or after attaining age 62. Amounts in the
Holsum Matching Contributions Account and the Holsum Discretionary Contributions
Account may be withdrawn by the Participant on or after attaining age 62 or
completing 30 years of participation in the Holsum Plan and/or the Plan. In
addition, in the case of a Participant who has a Holsum Rollover Contributions
Account, such a Participant may elect to withdraw once during each Plan Year any
amount up to 100% of the value of that portion of his Account attributable to
the Holsum Rollover Contributions Account. The Participant shall notify the Plan
Administrator in writing in a form approved by the Plan Administrator of his
election to make a withdrawal from his Holsum Accounts. Distributions will be
made in accordance with such an election within 90 days (or as soon as
administratively practicable) after the receipt by the Plan Administrator of a
proper distribution request.
98
<PAGE> 108
3.8 Hours of Service. Effective as of the Holsum Merger
Effective Date, service with Holsum Baking Company shall be treated as service
with an Employer for all purposes under this Plan, even though said service
may have been rendered prior to the time when said company became a member of
the Controlled Group. This provision shall be effective for all employees of
said company who remained or became employed by any member of the Controlled
Group as of the date the company became a member of the Controlled Group. This
provision shall not, however, be construed to permit participation in the Plan
prior to the adoption thereof by the Employer in question.
99
<PAGE> 109
APPENDIX IV
SPECIAL PROVISIONS REGARDING MERGER OF THE
SHIPLEY BAKING COMPANY 401(k) RETIREMENT PLAN
AND TRUST WITH AND INTO THE PLAN
4.1 General Provisions. Effective as of June 1, 1998 ("Shipley
Merger Effective Date"), the Shipley Baking Company 401(k) Retirement Plan and
Trust ("Shipley Plan") is merged with and into the Plan. The Plan shall, as of
the Shipley Merger Effective Date, assume all obligations of the Shipley Plan
and be responsible for payment of all vested benefits accrued under the terms
and provisions of the Shipley Plan for (i) participants participating in the
Shipley Plan immediately prior to the Shipley Merger Effective Date, and (ii)
former participants and beneficiaries with vested benefits under the Shipley
Plan immediately prior to the Shipley Merger Effective Date. Such participants
and beneficiaries shall, as of the Shipley Merger Effective Date,
automatically become Participants in the Plan with respect to such account
balances. The Plan shall provide for said payment of benefits with the assets
transferred to the trust accompanying the Plan as set forth in Section 4.3 of
this Appendix.
4.2 Separate Accounting. The account balances of each participant
in the Shipley Plan shall be maintained in separate accounts as follows:
(a) Amounts transferred attributable to "Salary Deferral
Contributions" allocated to a participant under the Shipley Plan shall
be held in a special segregated Shipley Salary Deferral Contributions
Account.
(b) Amounts transferred attributable to "Employer
contributions" allocated to a participant under the Shipley Plan shall
be held in a special segregated Shipley Employer Contributions Account.
(c) Amounts transferred attributable to "Voluntary
Contributions" allocated to a participant under the Shipley Plan shall
be held in a special segregated Shipley Voluntary Contributions
Account.
(d) Amounts transferred attributable to "Rollover
Contributions" allocated to a participant under the Shipley Plan shall
be held in a special segregated Shipley Rollover Contributions Account.
All such accounts shall be collectively referred to in this Appendix IV as
"Shipley Accounts."
4.3 Transfer of Plan Assets. Effective as of the Shipley Merger
Effective Date, the assets of the Shipley Plan which are held by the trustee
of the trust accompanying the Shipley Plan shall become assets of the Plan,
and shall be held by the Trustee under the provisions of the Plan and its
accompanying Trust for the exclusive benefit of Participants and Beneficiaries
under the Plan, including the provisions of this Appendix.
100
<PAGE> 110
4.4 Conditions for Merger and Transfer. The merger of plans and
transfer of assets as provided for in this Appendix is made on the condition
that subsection (a) of Section 11.5 of the Plan is satisfied.
4.5 Additional Forms of Benefit for Shipley Accounts.
(a) In General. Notwithstanding any provisions of this Plan to
the contrary, except as noted, the Shipley Accounts (excluding the
Shipley Salary Deferral Contributions Accounts) of Participants held
under this Plan shall be "Applicable Accounts" for purposes of Appendix
I, and shall be subject to the terms and provisions of Appendix I. For
purposes of Appendix I, the Qualified Joint and Survivor Annuity
referred to in such Appendix shall be a Qualified Joint and 50%
Survivor Annuity.
(b) Additional Optional Methods. Subject to the requirements
set forth in subsection (a) above, a Participant who has a vested
Shipley Account balance (which includes amounts other than a Shipley
Salary Deferral Contributions Account) may elect by written notice to
the Plan Administrator at least 31 days prior to his Annuity Starting
Date that the value of his Shipley Accounts (excluding the Shipley
Salary Deferral Contributions Account) shall be distributed in the form
of a lump sum cash payment, or in the form of an annuity contract, or
partly in the form of a lump sum cash payment and partly in the form of
an annuity contract. The annuity contract shall provide a fixed or
variable annuity benefit, or a combination of a fixed and a variable
annuity benefit, as chosen by the Participant. The Plan Administrator
shall select the insurance company from which the annuity contract
shall be purchased. The following forms of annuity benefit are
available with respect to the Shipley Accounts (excluding the Shipley
Salary Deferral Contributions Accounts):
(i) Joint and Survivor Annuity. An annuity benefit
under which the Participant will receive fixed monthly
payments for life, and upon his death monthly payments in an
amount equal to a specified percentage of the monthly amount
in effect during the joint lives of the Participant and the
spouse will be made to the spouse to whom the Participant was
married at the time the annuity contract was purchased, for
the life of that spouse.
(ii) Term Certain and Life Annuity. An annuity
benefit under which the Participant will receive monthly
payments for life, and upon his death prior to the receipt of
a specified number of monthly payments (as elected in advance
by the Participant), monthly payments in the same amount will
continue to the designated beneficiary for the balance of the
specified period.
(iii) Contingent Annuitant - Term Certain and Life
Annuity. An annuity benefit under which the Participant will
receive monthly payments for life. If the Participant dies
before receiving a specified number of monthly payments,
payments will continue in the same amount to a contingent
annuitant until that specified number of monthly payments have
been made to the Participant and the contingent annuitant.
Thereafter monthly payments equal to a percentage of the
monthly
101
<PAGE> 111
payments during the Participant's lifetime (as elected in
advance by the Participant) will continue to the contingent
annuitant for the life of the contingent annuitant. If both
the Participant and the contingent annuitant die before the
specified number of monthly payments have been made, payments
in the same amount that the contingent annuitant was receiving
will continue to a designated beneficiary until the specified
number of monthly payments have been made.
(iv) in the form of periodic installments payable not
less often than annually for a period not to exceed the joint
life expectancy of the Participant and his designated
beneficiary.
(v) in any combination of the foregoing.
4.6 Benefits Upon Death. In the event of the death of a Participant
prior to his Benefit Commencement Date, then the Participant's Shipley Accounts
will be paid to the Surviving Spouse in the form of a Qualified Preretirement
Survivor Annuity in accordance with Appendix I, Sections 1.1(c) and 1.5(c).
4.7 Vesting. The portion of a Participant's Account attributable
to the Shipley Accounts, determined as of June 1, 1998, shall at all times be
fully vested to such Participant. On and after June 1, 1998, the Account of a
Participant who was previously a participant in the Shipley Plan (excluding the
portion of the Account attributable to the Shipley Accounts) shall be vested in
accordance with either the following vesting schedule, or the vesting provisions
set forth in Section 5.2 of the Plan, whichever results in the greater vested
percentage for a Participant:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
Earned by the Participant of the Participant
- ------------------------- ------------------
<S> <C>
Less than 3 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years or more 100%
</TABLE>
4.8 In-Service Withdrawals.
(a) Amounts in the Shipley Salary Deferral Contributions
Account (excluding investment earnings attributable to periods after
December 31, 1988) may be withdrawn by the Participant in accordance
with the provisions of Section 8.10 of this Plan.
(b) A Participant who has attained the age of 59 1/2 may
withdraw all or a portion of his Shipley Salary Deferral Contributions
Account, including earnings, if any.
102
<PAGE> 112
Distribution shall be made to the Participant as soon as
administratively practicable after the request is received.
(c) In addition, in the case of a Participant who has a
Shipley Rollover Contributions Account, such a Participant may elect to
withdraw any amount up to 100% of the value of that portion of his
Account attributable to the Shipley Rollover Contributions Account. The
Participant shall notify the Plan Administrator in writing of his
election to make a withdrawal from the Shipley Rollover Contributions
Account. Any such election shall be effective as of the date specified
in such notice, which date must be at least 30 days after the notice is
filed. Any such withdrawal shall be subject to Appendix I and Section
4.5 above.
(d) In addition, in the case of a Participant who has a
Shipley Voluntary Contributions Account, such a Participant may elect
to withdraw all or any part of the balance of his Shipley Voluntary
Contributions Account. The Participant shall notify the Plan
Administrator in writing of his election to make a withdrawal from the
Shipley Voluntary Contributions Account. Any such election shall be
effective as of the date specified in such notice, which date must be
at least 30 days after the notice is filed. Any such withdrawal shall
be subject to Appendix I and Section 4.5 above.
4.9 Hours of Service. Effective as of the Shipley Merger Effective
Date, service with Shipley Baking Company shall be treated as service with an
Employer for all purposes under this Plan, even though said service may have
been rendered prior to the time when said company became a member of the
Controlled Group. This provision shall be effective for all employees of said
company who remained or became employed by any member of the Controlled Group as
of the date the company became a member of the Controlled Group. This provision
shall not, however, be construed to permit participation in the Plan prior to
the adoption thereof by the Employer in question.
103
<PAGE> 113
APPENDIX V
SPECIAL PROVISIONS REGARDING MERGER OF THE
FRANKLIN BAKING COMPANY, INC. PROFIT SHARING PLAN AND
THE FRANKLIN BAKING COMPANY, INC.
401(k) RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN
5.1 General Provisions. Effective as of December 31, 1998
("Franklin Merger Effective Date"), the Franklin Baking Company, Inc. Profit
Sharing Plan ("Franklin Profit Sharing Plan") and the Franklin Baking Company,
Inc. 401(k) Retirement Savings Plan ("Franklin 401(k) Plan"; the Franklin Profit
Sharing Plan and the Franklin 401(k) Plan are sometimes referred to collectively
herein as the "Franklin Plans") are merged with and into the Plan. The Plan
shall, as of the Franklin Merger Effective Date, assume all obligations of the
Franklin Plans and be responsible for payment of all vested benefits accrued
under the terms and provisions of the Franklin Plans for (i) participants
participating in the Franklin Plans immediately prior to the Franklin Merger
Effective Date, and (ii) former participants and beneficiaries with vested
benefits under the Franklin Plans immediately prior to the Franklin Merger
Effective Date. Such participants and beneficiaries shall, as of the Franklin
Merger Effective Date, automatically become Participants in the Plan with
respect to such account balances. The Plan shall provide for said payment of
benefits with the assets transferred to the trust accompanying the Plan as set
forth in Section 5.3 of this Appendix.
5.2 Separate Accounting. The account balances of each participant
in the Franklin Plans shall be maintained in separate accounts as follows:
(a) Amounts transferred attributable to "Deferral
Contributions" allocated to a participant under the Franklin 401(k)
Plan shall be held in a special segregated Franklin Deferral
Contributions Account.
(b) Amounts transferred attributable to contributions
allocated to a participant under the Franklin Profit Sharing Plan shall
be held in a special segregated Franklin Profit Sharing Contributions
Account.
(c) Amounts transferred attributable to "Rollover
Contributions" allocated to a participant under the Franklin Plans
shall be held in a special segregated Franklin Rollover Contributions
Account.
All such accounts shall be collectively referred to in this Appendix V as
"Franklin Accounts."
5.3 Transfer of Plan Assets. Effective as of the Franklin Merger
Effective Date, the assets of the Franklin Plans which are held by the trustees
of the trusts accompanying the Franklin Plans shall become assets of the Plan,
and shall be held by the Trustee under the provisions of the Plan and its
accompanying Trust for the exclusive benefit of Participants and Beneficiaries
under the Plan, including the provisions of this Appendix.
104
<PAGE> 114
5.4 Conditions for Merger and Transfer. The merger of plans and
transfer of assets as provided for in this Appendix is made on the condition
that subsection (a) of Section 11.5 of the Plan is satisfied.
5.5 Additional Forms of Benefit for Franklin Accounts.
Notwithstanding any provisions of this Plan to the contrary, the Franklin
Accounts shall be distributable in the form of a single lump sum payment or in
installment payments over a period certain in monthly, quarterly, semiannual, or
annual cash payments. The period over which such payment is to be made shall not
extend beyond the Participant's life expectancy or the joint life and last
survivor expectancy of the Participant and his designated Beneficiary.
5.6 Vesting. On and after December 31, 1998, the Account of a
Participant who was previously a participant in the Franklin Plans (including
the portion of the Account attributable to the Franklin Accounts) shall be
vested in accordance with either the following vesting schedule, or the vesting
provisions set forth in Section 5.2 of the Plan, whichever results in the
greater vested percentage for a Participant:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
Earned by the Participant of the Participant
- ------------------------- ------------------
<S> <C>
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 100%
</TABLE>
5.7 In-Service Withdrawals. Amounts in the Franklin Deferral
Contributions Account (excluding investment earnings attributable to periods
after December 31, 1988) may be withdrawn by the Participant in accordance with
the provisions of Section 8.10 of this Plan.
5.8 Hours of Service. Effective as of the Franklin Merger
Effective Date, service with Franklin Baking Company shall be treated as service
with an Employer for all purposes under this Plan, even though said service may
have been rendered prior to the time when said company became a member of the
Controlled Group. This provision shall be effective for all employees of said
company who remained or became employed by any member of the Controlled Group as
of the date the company became a member of the Controlled Group. This provision
shall not, however, be construed to permit participation in the Plan prior to
the adoption thereof by the Employer in question.
105
<PAGE> 115
APPENDIX VI
SPECIAL PROVISIONS REGARDING MERGER OF THE
PIES, INC. RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN
6.1 General Provisions. Effective as of January 1, 1997 ("Pies
Merger Effective Date"), the Pies, Inc. Retirement Savings Plan ("Pies Plan") is
merged with and into the Plan. The Plan shall, as of the Pies Merger Effective
Date, assume all obligations of the Pies Plan and be responsible for payment of
all vested benefits accrued under the terms and provisions of the Pies Plan for
(i) participants participating in the Pies Plan immediately prior to the Pies
Merger Effective Date, and (ii) former participants and beneficiaries with
vested benefits under the Pies Plan immediately prior to the Pies Merger
Effective Date. Such participants and beneficiaries shall, as of the Pies Merger
Effective Date, automatically become Participants in the Plan with respect to
such account balances. The Plan shall provide for said payment of benefits with
the assets transferred to the trust accompanying the Plan as set forth in
Section 6.3 of this Appendix.
6.2 Separate Accounting. The account balances of each participant
in the Pies Plan shall be maintained in separate accounts as follows:
(a) Amounts transferred attributable to "Retirement Savings
Contributions" allocated to a participant under the Pies Plan shall be
held in a special segregated Pies Retirement Savings Contributions
Account.
(b) Amounts transferred attributable to Employer Discretionary
Profit Sharing Contributions allocated to a participant under the Pies
Plan shall be held in a special segregated Pies Employer Discretionary
Profit Sharing Contributions Account.
(c) Amounts transferred attributable to "Rollover
Contributions" allocated to a participant under the Pies Plan shall be
held in a special segregated Pies Rollover Contributions Account.
All such accounts shall be collectively referred to in this Appendix VI as "Pies
Accounts."
6.3 Transfer of Plan Assets. Effective as of the Pies Merger
Effective Date, the assets of the Pies Plan which are held by the trustee of the
trust accompanying the Pies Plan shall become assets of the Plan, and shall be
held by the Trustee under the provisions of the Plan and its accompanying Trust
for the exclusive benefit of Participants and Beneficiaries under the Plan,
including the provisions of this Appendix.
6.4 Conditions for Merger and Transfer. The merger of plans and
transfer of assets as provided for in this Appendix is made on the condition
that subsection (a) of Section 11.5 of the Plan is satisfied.
106
<PAGE> 116
6.5 Vesting. Participants who were hired by Pies, Inc. prior to
July 1, 1996 shall be fully vested at all times in their Pies Employer
Discretionary Profit Sharing Contributions Account.
6.6 In-Service Withdrawals. Amounts in the Pies Retirement Savings
Contributions Account (excluding investment earnings attributable to periods
after December 31, 1988) may be withdrawn by the Participant in accordance with
the provisions of Section 8.10 of this Plan.
6.7 Hours of Service. Effective as of the Pies Merger Effective
Date, service with Pies, Inc. shall be treated as service with an Employer for
all purposes under this Plan, even though said service may have been rendered
prior to the time when said company became a member of the Controlled Group.
This provision shall be effective for all employees of said company who remained
or became employed by any member of the Controlled Group as of the date the
company became a member of the Controlled Group. This provision shall not,
however, be construed to permit participation in the Plan prior to the adoption
thereof by the Employer in question.
107
<PAGE> 117
EXHIBIT A
TO
FLOWERS INDUSTRIES, INC. 401(K) RETIREMENT SAVINGS PLAN
(AS REVISED, EFFECTIVE AS OF MAY 1, 1999)
Pursuant to Article III and Section 11.6 of the Plan, the Adopting
Employers listed in the schedule below have elected to have the following
special provisions apply to their Employees, as indicated in the second column
of the schedule below.
A = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer
shall make Matching Elective Contributions equal to 25% of the Elective
Contribution subject to a maximum Matching Elective Contribution of
$100 per participant. Notwithstanding the foregoing, in the case of an
Employee who is excluded from active participation in the Flowers
Industries, Inc. Retirement Plan No. 1 by virtue of the Ninth Amendment
to that Plan, contributions in accordance with special provision B
shall be made with respect to such Employees (that is, the Adopting
Employer shall make Matching Elective Contributions equal to 25% of the
Elective Contribution subject to a maximum Matching Elective
Contribution of 1.5% of Compensation (as defined in Section 1.15 of the
Plan) per participant, with respect to such Employees; and the Adopting
Employer also shall make Company Basic Contributions equal to 2% of
each Participant's Compensation (as defined in Section 3.6(b)(iv) of
the Plan), with respect to such Employees).
B = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer
shall make Matching Elective Contributions equal to 25% of the Elective
Contribution subject to a maximum Matching Elective Contribution of
1.5% of Compensation (as defined in Section 1.15 of the Plan) per
participant.
Company Basic Contributions (Section 3.1(e)): The Adopting Employer
shall make Company Basic Contributions equal to 2% of each
Participant's Compensation (as defined in Section 3.6(b)(iv) of the
Plan).
C = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer
will not make any Matching Elective Contributions.
Company Basic Contributions (Section 3.1(e)): The Adopting Employer
shall make Company Basic Contributions equal to 2% of each
Participant's Compensation minus payments for overtime. For purposes of
this Item C of this Exhibit A, the term "Compensation" shall be defined
in accordance with Section 1.15 of the Plan; provided, however, that
there shall be included in Compensation the gain and income (including
dividend income) associated with restricted stock awards and equity
incentive awards under the Company's 1989 Executive Stock Incentive
Plan or any successor to that plan, to the extent that the gain or
income is required to be reported under Code ss.ss. 6041(d) or
6051(a)(3).
108
<PAGE> 118
D = Company Basic Contributions (Section 3.1(e)): The Adopting Employer
shall make Company Basic Contributions on behalf of each Participant
equal to 50 cents for each Hour of Service performed after such
Participant meets the Eligibility Requirements in Section 2.1(b).
<TABLE>
<CAPTION>
SPECIAL
ADOPTING EMPLOYERS PROVISIONS
- ------------------ ----------
<S> <C>
Flowers Industries, Inc. A
Flowers Baking Company of Miami, Inc. A
Flowers Baking Company of Jacksonville, Inc. A
Flowers Baking Company of Bradenton, Inc. A
European Bakers, Ltd. A
Dan-Co Bakery, Inc. A
Table Pride, Inc. A
Mrs. Smith's Sales Support Group, Inc. A
Flowers Baking Company of Thomasville, Inc. A
Flowers Baking Company of Opelika, Inc. A
Hardin's Bakery, Incorporated A
Flowers Specialty of Montgomery, Inc. A
Huval Bakery, Incorporated A
Bunny Bread, Inc. A
Flowers Baking Company of Baton Rouge, Inc. A
Flowers Baking Company of Jamestown, Inc. A
Daniel's Home Bakery of North Carolina, Inc. A
Flowers Baking Company of Lynchburg, Inc. A
</TABLE>
109
<PAGE> 119
<TABLE>
<S> <C>
Flowers Baking Company of South Carolina, Inc. A
Flowers Baking Company of Chattanooga, Inc. A
Flowers Baking Company of Morristown, Inc. A
Schott's Bakery, Inc. A
Flowers Baking Company of West Virginia, Inc. A
Flowers Baking Company of Tyler, Inc. A
El Paso Baking Company, Inc. A
Flowers Baking Company of Texarkana, Inc. A
Mrs. Smith's Bakeries of London, Inc. A
Stilwell Foods, Inc. A
Flowers Baking Company of Villa Rica, Inc. B
Aunt Fanny's Bakery, Inc. C
Mrs. Smith's Frozen Bakery Distributors, Inc. B
Holsum Baking Company B
Mrs. Smith's Bakeries, Inc. A
Mrs. Smith's Foil Company, Inc. A
Pies, Inc. D
Midtown Bakery, Inc. B
Flowers Bakeries, Inc. A
Franklin Baking Company B
</TABLE>
110
<PAGE> 120
<TABLE>
<S> <C>
ButterKrust Bakeries, Inc. B
Shipley Baking Company, Inc. B
</TABLE>
APPROVED: /s/ R. Steve Kinsey
---------------------------------
PLAN ADMINISTRATOR
DATE: 5/18/99
---------------------------------
111
<PAGE> 121
FIRST AMENDMENT
TO THE
FLOWERS INDUSTRIES, INC.
401(K) RETIREMENT SAVINGS PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1997
THIS AMENDMENT to the Flowers Industries, Inc. 401(k)
Retirement Savings Plan as amended and restated effective as of January 1, 1997
(the "Plan") made this 28th day of December, 1999, by Flowers Industries, Inc.
(hereinafter referred to as the "Company"), to be effective upon signing.
W I T N E S S E T H :
WHEREAS, the Company sponsors and maintains the Plan for the
exclusive benefit of its employees and their beneficiaries and pursuant to
Section 11.2(a) thereof, the Company has the right to amend the Plan at any
time; and
WHEREAS, the Company wishes to amend the Plan at this time
for the purpose of merging the Home Baking Company, Inc. Amended and Restated
401(k) Profit Sharing Plan and Trust with and into the Plan, and for other
purposes;
NOW, THEREFORE, the Plan is hereby amended as follows:
<PAGE> 122
I.
Effective as of December 31, 1999, Section 8.3 of the Plan
shall be amended by deleting the last sentence and inserting in its place the
following:
See also Appendices I, II, III, IV, V, 9VI, and VII.
II.
Effective as of April 1, 1995, Section 8.10(a) is amended by
deleting the first sentence and inserting in its place the following:
A Participant shall be entitled to apply to the Plan
Administrator for a hardship distribution of all or a portion
of such Participant's Elective Contributions Account balance
(excluding investment earnings attributable to periods after
December 31, 1998), valued as of the Valuation Date
coincident with or next following the date on which the Plan
Administrator receives the Participant's application.
III.
Effective as of December 31, 1999, the Plan shall be amended
by inserting the following Appendix VII at the end thereof:
APPENDIX VII
SPECIAL PROVISIONS REGARDING MERGER OF THE
HOME BAKING COMPANY, INC. AMENDED AND RESTATED
401(k) PROFIT SHARING PLAN AND TRUST WITH AND INTO THE PLAN
7.1 General Provisions. Effective as of December 31,
1999 ("Home Baking Merger Effective Date"), the Home Baking
Company, Inc. Amended and Restated 401(k) Profit Sharing Plan
and Trust ("Home Baking Plan") is merged with and into the
Plan. The Plan shall, as of the Home Baking Merger Effective
Date, assume all obligations of the Home Baking Plan and be
responsible for payment of all vested benefits accrued under
the terms and provisions of the Home Baking Plan for (i)
participants participating in the Home Baking Plan
immediately prior to the Home Baking Merger Effective Date,
and (ii) former participants and beneficiaries with vested
benefits under the Home Baking Plan immediately prior to the
Home Baking Merger Effective Date whose account balances have
not been fully distributed to them. Such participants and
2
<PAGE> 123
beneficiaries shall, as of the Home Baking Merger Effective
Date, automatically become Participants in the Plan with
respect to such account balances. The Plan shall provide for
said payment of benefits with the assets transferred to the
trust accompanying the Plan as set forth in Section 7.3 of
this Appendix.
7.2 Separate Accounting. The account balances of
each participant in the Home Baking Plan shall be maintained
in separate accounts as follows:
(a) Amounts transferred attributable to
"Deferral Contributions" allocated to a participant
under the Home Baking Plan shall be held in a
special segregated Home Baking Deferral
Contributions Account.
(b) Amounts transferred attributable to
nonelective contributions allocated to a participant
under the Home Baking Plan shall be held in a
special segregated Home Baking Profit Sharing
Contributions Account.
(c) Amounts transferred attributable to
employer matching contributions under the Home
Baking Plan shall be held in a special segregated
Home Baking Matching Contributions Account.
All such accounts shall be collectively referred to in this
Appendix VII as "Home Baking Accounts."
7.3 Transfer of Plan Assets. Effective as of the
Home Baking Merger Effective Date, the assets of the Home
Baking Plan which are held by the trustee of the trust
accompanying the Home Baking Plan shall become assets of the
Plan, and shall be held by the Trustee under the provisions
of the Plan and its accompanying Trust for the exclusive
benefit of Participants and Beneficiaries under the Plan,
including the provisions of this Appendix.
7.4 Conditions for Merger and Transfer. The
merger of plans and transfer of assets as provided for in this
Appendix is made on the condition that subsection (a) of
Section 11.5 of the Plan is satisfied.
7.5 Additional Forms of Benefit for Home Baking
Accounts.
(a) In General. Notwithstanding any
provisions of this Plan to the contrary, except as
otherwise provided in this Section 7.5, the Home
Baking Accounts of Participants held under this Plan
shall be "Applicable Accounts" for purposes of
Appendix I, and shall be subject to the terms and
provisions of Appendix I. For purposes of Appendix
I, the Qualified Joint and Survivor Annuity referred
to in such Appendix shall be a Qualified Joint and
50% Survivor Annuity.
(b) Additional Optional Methods. Subject to
the requirements set forth in subsection (a) above,
a Participant who has a vested Home Baking Account
balance may elect by written notice to the Plan
Administrator at least 31 days prior to his Annuity
Starting Date that the value of his Home Baking
Accounts shall be distributed in the form of a lump
sum cash payment, or in the form of an annuity
contract, or in the form of periodic installments
payable not less often than annually for a period
not to exceed the joint life expectancy of the
Participant and his designated Beneficiary. The Plan
Administrator shall select the insurance company
from which the annuity contract shall be purchased.
The following forms of annuity benefit are available
with respect to the Home Baking Accounts:
3
<PAGE> 124
(i) Joint and Survivor Annuity. An
annuity benefit under which the Participant
will receive fixed monthly payments for
life, and upon his death monthly payments
in an amount equal to 50% of the monthly
amount in effect during the joint lives of
the Participant and the spouse (or, if the
spouse consents to another joint annuitant,
during the joint lives of the Participant
and another joint annuitant) will be made
to the spouse to whom the Participant was
married at the time the annuity contract
was purchased (or, if the spouse consents
to another joint annuitant, to such other
joint annuitant), for the life of the
spouse or other joint annuitant.
(ii) Life Annuity. An annuity
benefit under which the Participant will
receive monthly payments for his life, and
upon his death payments will stop.
7.6 Vesting. On and after December 31, 1999, the
Matching Elective Contributions Account, Company Basic
Contributions Account, Other Contributions Account, Home
Baking Profit Sharing Contributions Account, and Home Baking
Matching Contributions Account of a Participant who was
previously a participant in the Home Baking Plan shall be
vested in accordance with either the following vesting
schedule, or the vesting provisions set forth in Section 5.2
of the Plan, whichever results in the greater vested
percentage for a Participant:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
Earned by the Participant of the Participant
------------------------- ------------------
<S> <C>
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 or more years 100%
</TABLE>
7.7 In-Service Withdrawals. Amounts in the Home
Baking Deferral Contributions Account (excluding investment
earnings attributable to periods after December 31, 1988) and
in the Home Baking Profit Sharing Contributions Account may
be withdrawn by the Participant in accordance with the
provisions of Section 8.10 of this Plan.
7.8 Hours of Service. Effective as of the Home
Baking Merger Effective Date, service with Home Baking
Company, Inc. shall be treated as service with an Employer
for all purposes under this Plan, even though said service
may have been rendered prior to the time when said company
became a member of the Controlled Group. This provision shall
be effective for all employees of said company who remained
or became employed by any member of the Controlled Group as
of the date the company became a member of the Controlled
Group. This provision shall not, however, be construed to
permit participation in the Plan prior to the adoption
thereof by the Employer in question.
4
<PAGE> 125
IV.
All other provisions of the Plan not inconsistent herewith
are hereby confirmed and ratified.
IN WITNESS WHEREOF, this First Amendment has been executed on
the day and year first above written.
COMPANY:
FLOWERS INDUSTRIES, INC.
By: /s/ Jimmy M. Woodward
------------------------------------------
Title: V. P. & Chief Administrative Officer
---------------------------------------
ATTEST:
By: /s/ R. Steve Kinsey
------------------------------------------
Title: Plan Administrator
---------------------------------------
5
<PAGE> 126
SECOND AMENDMENT
TO THE
FLOWERS INDUSTRIES, INC.
401(K) RETIREMENT SAVINGS PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1997
THIS AMENDMENT to the Flowers Industries, Inc. 401(k) Retirement
Savings Plan, as amended and restated effective as of January 1, 1997 (the
"Plan") made this 23rd day of December, 1999, by Flowers Industries, Inc.
(hereinafter referred to as the "Company"), to be effective upon signing.
W I T N E S S E T H :
WHEREAS, the Company sponsors and maintains the Plan for the exclusive
benefit of its employees and their beneficiaries and pursuant to Section 11.2
(a) thereof, the Company has the right to amend the Plan at any time; and
WHEREAS, the Company wishes to amend the Plan at this time for
the purpose of providing certain benefits to certain employees assigned to the
Company's Aviation Department who will no longer be eligible to participate in
the Flowers Industries, Inc. Retirement Plan No. 1, and for other purposes;
NOW, THEREFORE, the Plan is hereby amended as follows:
1
<PAGE> 127
I.
Exhibit A to the Plan is hereby amended to provide as
follows, effective as of January 1, 2000:
EXHIBIT A
TO
FLOWERS INDUSTRIES, INC. 401(K) RETIREMENT SAVINGS PLAN
(AS REVISED, EFFECTIVE AS OF JANUARY 1, 2000)
Pursuant to Article III and Section 11.6 of the Plan, the
Adopting Employers listed in the schedule below have elected to have
the following special provisions apply to their Employees, as
indicated in the second column of the schedule below.
A = Matching Elective Contributions (Section 3.1(b)): The Adopting
Employer shall make Matching Elective Contributions equal to
25% of the Elective Contribution subject to a maximum
Matching Elective Contribution of $100 per participant.
Notwithstanding the foregoing, in the case of an Employee who
is excluded from active participation in the Flowers
Industries, Inc. Retirement Plan No. 1 by virtue of the Ninth
Amendment to that Plan, contributions in accordance with
special provision B shall be made with respect to such
Employees (that is, the Adopting Employer shall make Matching
Elective Contributions equal to 25% of the Elective
Contribution subject to a maximum Matching Elective
Contribution of 1.5% of Compensation (as defined in Section
1.15 of the Plan) per participant, with respect to such
Employees; and the Adopting Employer also shall make Company
Basic Contributions equal to 2% of each Participant's
Compensation (as defined in Section 3.6(b)(iv) of the Plan),
with respect to such Employees).
B = Matching Elective Contributions (Section 3.1(b)): The
Adopting Employer shall make Matching Elective Contributions
equal to 25% of the Elective Contribution subject to a
maximum Matching Elective Contribution of 1.5% of
Compensation (as defined in Section 1.15 of the Plan) per
participant.
Company Basic Contributions (Section 3.1(e)): The Adopting
Employer shall make Company Basic Contributions equal to 2%
of each Participant's Compensation (as defined in Section
3.6(b)(iv) of the Plan).
2
<PAGE> 128
C = Matching Elective Contributions (Section 3.1(b)): The
Adopting Employer will not make any Matching Elective
Contributions.
Company Basic Contributions (Section 3.1(e)): The Adopting
Employer shall make Company Basic Contributions equal to 2%
of each Participant's Compensation minus payments for
overtime. For purposes of this Item C of this Exhibit A, the
term "Compensation" shall be defined in accordance with
Section 1.15 of the Plan; provided, however, that there shall
be included in Compensation the gain and income (including
dividend income) associated with restricted stock awards and
equity incentive awards under the Company's 1989 Executive
Stock Incentive Plan or any successor to that plan, to the
extent that the gain or income is required to be reported
under Code ss.ss. 6041(d) or 6051(a)(3).
D = Company Basic Contributions (Section 3.1(e)): The Adopting
Employer shall make Company Basic Contributions on behalf of
each Participant equal to 50 cents for each Hour of Service
performed after such Participant meets the Eligibility
Requirements in Section 2.1(b).
E = Matching Elective Contributions (Section 3.1(b)): The Adopting
Employer shall make Matching Elective Contributions equal to
25% of the Elective Contributions subject to a maximum
Matching Elective Contribution of 1.5% of Compensation (as
defined in Section 1.15 of the Plan) per Participant covered
by this special provision.
Company Basic Contributions (Section 3.1(e)): With respect to
each Participant covered by this special provision, the
Adopting Employer shall make Company Basic Contributions
equal to the percentage of each Participant's Compensation
(as defined in Section 3.6(b)(iv) of the Plan) determined in
accordance with the following table, based upon the
individual's Years of Vesting Service:
<TABLE>
<CAPTION>
Percentage of Compensation
(as defined in Section 3.6(b)(iv)
Years of Vesting Service of the Plan
------------------------ --------------------------------
<S> <C>
At least 1, but less than 6 3.00%
At least 6, but less than 11 4.00%
At least 11, but less than 16 5.00%
At least 16, but less than 21 6.00%
At least 21, but less than 26 7.00%
At least 26, but less than 31 8.00%
</TABLE>
3
<PAGE> 129
<TABLE>
<CAPTION>
SPECIAL
ADOPTING EMPLOYERS PROVISIONS
- ------------------ ----------
<S> <C>
Flowers Industries, Inc. (except for those Employees who
are excluded from active participation in the Flowers Industries,
Inc. Retirement Plan No. 1 by Section 2.01(h) of that Plan) A
Flowers Industries, Inc. (with respect to those Employees
who are excluded from active participation in the Flowers
Industries, Inc. Retirement Plan No. 1 by Section 2.01(h)
of that Plan) E
Flowers Baking Company of Miami, Inc. A
Flowers Baking Company of Jacksonville, Inc. A
Flowers Baking Company of Bradenton, Inc. A
European Bakers, Ltd. A
Dan-Co Bakery, Inc. A
Table Pride, Inc. A
Mrs. Smith's Sales Support Group, Inc. A
Flowers Baking Company of Thomasville, Inc. A
Flowers Baking Company of Opelika, Inc. A
Hardin's Bakery, Incorporated A
Flowers Specialty of Montgomery, Inc. A
Huval Bakery, Incorporated A
Bunny Bread, Inc. A
Flowers Baking Company of Baton Rouge, Inc. A
Flowers Baking Company of Jamestown, Inc. A
Daniel's Home Bakery of North Carolina, Inc. A
</TABLE>
4
<PAGE> 130
<TABLE>
<S> <C>
Flowers Baking Company of Lynchburg, Inc. A
Flowers Baking Company of South Carolina, Inc. A
Flowers Baking Company of Chattanooga, Inc. A
Flowers Baking Company of Morristown, Inc. A
Schott's Bakery, Inc. A
Flowers Baking Company of West Virginia, Inc. A
Flowers Baking Company of Tyler, Inc. A
El Paso Baking Company, Inc. A
Flowers Baking Company of Texarkana, Inc. A
Mrs. Smith's Bakeries of London, Inc. A
Stilwell Foods, Inc. A
Flowers Baking Company of Villa Rica, Inc. B
Aunt Fanny's Bakery, Inc. C
Mrs. Smith's Frozen Bakery Distributors, Inc. B
Holsum Baking Company B
Mrs. Smith's Bakeries, Inc. A
Mrs. Smith's Foil Company, Inc. A
Pies, Inc. D
Midtown Bakery, Inc. B
Flowers Bakeries, Inc. A
Franklin Baking Company B
</TABLE>
5
<PAGE> 131
<TABLE>
<S> <C>
ButterKrust Bakeries, Inc. B
Shipley Baking Company, Inc. B
Home Baking Company, Inc. B
Mrs. Smith's Bakery of Suwanee, Inc. B
</TABLE>
APPROVED: /s/ R. Steve Kinsey
--------------------------------
PLAN ADMINISTRATOR
DATE:
------------------------------------
II.
All other provisions of the Plan not inconsistent herewith are
hereby confirmed and ratified.
IN WITNESS WHEREOF, this Second Amendment has been executed on the
day and year first above written.
COMPANY:
FLOWERS INDUSTRIES, INC.
By: /s/ Jimmy M. Woodward
----------------------------------------
Title: V.P. & Chief Administrative Officer
-------------------------------------
ATTEST:
By: /s/ R. Steve Kinsey
----------------------------
Title: Director of Tax
-------------------------
6
<PAGE> 1
EXHIBIT 10.13
$500,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
March 30, 2000
among
FLOWERS INDUSTRIES, INC.
The Banks Listed Herein
WACHOVIA BANK, N.A.,
as Agent,
THE BANK OF NOVA SCOTIA,
as Documentation Agent
and
BANK OF AMERICA, N.A.,
as Syndications Agent
<PAGE> 2
TABLE OF CONTENTS
AMENDED AND RESTATED CREDIT AGREEMENT
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
ARTICLE I DEFINITIONS....................................................................................1
Section 1.01. Definitions......................................................................1
Section 1.02. Accounting Terms and Determinations.............................................16
Section 1.03. References......................................................................16
Section 1.04. Use of Defined Terms............................................................16
Section 1.05. Terminology.....................................................................16
ARTICLE II THE CREDITS..................................................................................17
Section 2.01. Commitments to Lend Syndicated Loans and Swing Loans............................17
Section 2.02. Method of Borrowing Syndicated Loans and Swing Loans............................18
Section 2.03. Money Market Loans..............................................................20
Section 2.04. Notes...........................................................................23
Section 2.05. Maturity of Loans...............................................................23
Section 2.06. Interest Rates..................................................................24
Section 2.07. Fees............................................................................25
Section 2.08. Optional Termination or Reduction of Commitments................................25
Section 2.09. Mandatory Reduction and Termination of Commitments..............................26
Section 2.10. Optional Prepayments............................................................26
Section 2.11. Mandatory Prepayments...........................................................27
Section 2.12. General Provisions as to Payments...............................................27
Section 2.13. Computation of Interest and Fees................................................28
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE III CONDITIONS TO BORROWINGS....................................................................29
Section 3.01. Conditions to First Borrowing...................................................29
Section 3.02. Conditions to All Borrowings....................................................30
ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................................31
Section 4.01. Corporate Existence and Power...................................................31
Section 4.02. Corporate and Governmental Authorization; No Contravention......................31
Section 4.03. Binding Effect..................................................................31
Section 4.04. Financial Information...........................................................32
Section 4.05. No Litigation...................................................................32
Section 4.06. Compliance with ERISA...........................................................32
Section 4.07. Compliance with Laws; Payment of Taxes..........................................32
Section 4.08. Subsidiaries....................................................................33
Section 4.09. Investment Company Act..........................................................33
Section 4.10. Public Utility Holding Company Act..............................................33
Section 4.11. Ownership of Property; Liens....................................................33
Section 4.12. No Default......................................................................33
Section 4.13. Full Disclosure.................................................................33
Section 4.14. Environmental Matters...........................................................34
Section 4.15. Capital Stock...................................................................34
Section 4.16. Margin Stock....................................................................34
Section 4.17. Insurance.......................................................................35
ARTICLE V COVENANTS.....................................................................................35
Section 5.01. Information.....................................................................35
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 5.02. Inspection of Property, Books and Records.......................................37
Section 5.03. Maintenance of Existence........................................................37
Section 5.04. Consolidations, Mergers and Sales of Assets.....................................37
Section 5.05. Use of Proceeds.................................................................38
Section 5.06. Compliance with Laws; Payment of Taxes..........................................38
Section 5.07. Insurance.......................................................................39
Section 5.08. Change in Fiscal Year...........................................................39
Section 5.09. Maintenance of Property.........................................................39
Section 5.10. Environmental Notices...........................................................39
Section 5.11. Environmental Matters...........................................................40
Section 5.12. Environmental Release...........................................................40
Section 5.13. Transactions with Affiliates....................................................40
Section 5.14. Loans or Advances...............................................................40
Section 5.15. Investments.....................................................................40
Section 5.16. Negative Pledge.................................................................41
Section 5.17. Adjusted Fixed Charges Coverage Ratio...........................................43
Section 5.18. Leverage Ratio..................................................................43
Section 5.19. Minimum Adjusted Consolidated Net Worth.........................................43
Section 5.20. Subsidiary Borrowings...........................................................43
Section 5.21. Separateness from Unrestricted Subsidiaries.....................................43
Section 5.22. Adjusted Consolidated EBITDA....................................................44
Section 5.23. Borrowing Base..................................................................45
Section 5.24. New Indebtedness for Money Borrowed and New Capitalized Leases..................45
Section 5.25. Capital Expenditures............................................................45
Section 5.26. Restricted Payments.............................................................46
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VI DEFAULTS.....................................................................................46
Section 6.01. Events of Default...............................................................46
Section 6.02. Notice of Default...............................................................49
ARTICLE VII THE AGENT...................................................................................49
Section 7.01. Appointment; Powers and Immunities..............................................49
Section 7.02. Reliance by Agent...............................................................50
Section 7.03. Defaults........................................................................50
Section 7.04. Rights of Agent and its Affiliates as a Bank....................................51
Section 7.05. Indemnification.................................................................51
Section 7.06. Consequential Damages...........................................................51
Section 7.07. Payee of Note Treated as Owner..................................................51
Section 7.08. Nonreliance on Agent and Other Banks............................................52
Section 7.09. Failure to Act..................................................................52
Section 7.10. Resignation or Removal of Agent.................................................52
ARTICLE VIII CHANGE IN CIRCUMSTANCES; COMPENSATION......................................................53
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................53
Section 8.02. Illegality......................................................................53
Section 8.03. Increased Cost and Reduced Return...............................................54
Section 8.04. Base Rate Loans Substituted for Euro-Dollar Loans...............................55
Section 8.05. Compensation....................................................................55
Section 8.06. Replacement of Bank.............................................................56
ARTICLE IX MISCELLANEOUS................................................................................56
Section 9.01. Notices.........................................................................56
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C> <C>
Section 9.02. No Waivers......................................................................57
Section 9.03. Expenses; Documentary Taxes.....................................................57
Section 9.04. Indemnification.................................................................57
Section 9.05. Setoff; Sharing of Setoffs......................................................57
Section 9.06. Amendments and Waivers..........................................................58
Section 9.07. Successors and Assigns..........................................................59
Section 9.08. Confidentiality.................................................................61
Section 9.09. Representation by Banks.........................................................61
Section 9.10. Obligations Several.............................................................61
Section 9.11. Georgia Law.....................................................................62
Section 9.12. Severability....................................................................62
Section 9.13. Interest........................................................................62
Section 9.14. Interpretation..................................................................63
Section 9.15. Waiver of Jury Trial; Consent to Jurisdiction...................................63
Section 9.16. Counterparts....................................................................63
Section 9.17. Source of Funds -- ERISA........................................................63
</TABLE>
EXHIBIT A-1 Form of Syndicated Loan Note
EXHIBIT A-2 Form of Money Market Loan Note
EXHIBIT A-3 Form of Swing Loan Note
EXHIBIT B Form of Opinion of Counsel for the Borrower
EXHIBIT C Form of Opinion of Special Counsel for the Agent
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Notice of Borrowing
EXHIBIT F Form of Compliance Certificate
EXHIBIT G Form of Closing Certificate
EXHIBIT H Form of Officer's Certificate
EXHIBIT I Form of Money Market Quote Request
EXHIBIT J Form of Money Market Quote
Schedule 4.08 Subsidiaries
(v)
<PAGE> 7
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of
March 30, 2000 among FLOWERS INDUSTRIES, INC., the BANKS listed on the
signature pages hereof, WACHOVIA BANK, N.A., as Agent, THE BANK OF NOVA SCOTIA,
as Documentation Agent, and BANK OF AMERICA, N.A., as Syndications Agent.
This Second Amended and Restated Credit Agreement is an
amendment and restatement of the Amended and Restated Credit Agreement by and
among the Borrower, the Banks parties thereto, Wachovia Bank, N.A., as Agent,
The Bank of Nova Scotia, as Documentation Agent and Bank of America, N.A.
(formerly Nationsbank, N.A.), as Syndications Agent, as amended by First
Amendment to Credit Agreement dated as of September 24, 1998, Second Amendment
to Credit Agreement dated as of July 16, 1999, Third Amendment to Credit
Agreement dated as of October 8, 1999 and Fourth Amendment to Credit Agreement
dated as of December 29, 1999 (as so amended, the "Original Agreement"), which
is replaced and superseded hereby.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The terms as defined in this
Section 1.01 shall, for all purposes of this Agreement and any amendment hereto
(except as herein otherwise expressly provided or unless the context otherwise
requires), have the meanings set forth herein:
"Adjusted Total Capitalization" means the sum of (i) Adjusted
Consolidated Total Debt and (ii) Adjusted Consolidated Net Worth.
"Adjusted Consolidated EBITDA" means at any time the sum of
the following, determined on a consolidated basis for the Borrower and its
Restricted Subsidiaries, at the end of each Fiscal Quarter: (i) Adjusted
Consolidated Net Income; plus (ii) Adjusted Consolidated Interest Expense; plus
(iii) taxes on income; plus (iv) depreciation; plus (v) amortization; plus (vi)
without duplication, other non-cash charges.
"Adjusted Consolidated Fixed Charges" means at any date the
sum of (i) Adjusted Consolidated Interest Expense for the Fiscal Year to date
or 4 Fiscal Quarter period (as applicable) used in the calculation of Adjusted
Consolidated Net Income for the determination of Adjusted EBILTDA, and (ii) all
payment obligations of the Borrower and its Restricted Subsidiaries for such
period under all operating leases and rental agreements.
"Adjusted Consolidated Interest Expense" for any period means
interest, whether expensed or capitalized, in respect of Indebtedness of the
Borrower or any of its Restricted Subsidiaries outstanding during such period.
1
<PAGE> 8
"Adjusted Consolidated Net Income" means, for any period, the
Net Income of the Borrower and its Restricted Subsidiaries determined on a
consolidated basis, including (without duplication) any cash dividends received
from Keebler or any other Investment, but excluding (i) extraordinary items,
(ii) any equity interests of the Borrower or any Restricted Subsidiary in the
unremitted earnings of any Person that is not a Subsidiary, (iii) mark to
market adjustments made in connection with the Borrower's commodities hedging
program in accordance with GAAP, and (iv) gains and losses from sales of assets
outside the ordinary course of business.
"Adjusted Consolidated Net Worth" means the Net Worth of the
Borrower and the Subsidiaries, with all Unrestricted Subsidiaries being
accounted for on an equity basis of accounting, and otherwise determined on a
consolidated basis in accordance with GAAP.
"Adjusted Consolidated Total Assets" means, at any time, the
total assets of the Borrower and its Restricted Subsidiaries, with any
investments in Unrestricted Subsidiaries included as assets as if all
Unrestricted Subsidiaries were being accounted for on an equity basis of
accounting, determined in all other respects on a consolidated basis in
accordance with GAAP.
"Adjusted Consolidated Total Debt" means the aggregate of all
Indebtedness (except that, for purposes of determining Adjusted Consolidated
Total Debt, letters of credit and similar instruments described in clause (e)
of the definition of Indebtedness shall be included only to the extent they
have maturities greater than 1 year) of the Borrower and its Restricted
Subsidiaries on a consolidated basis in accordance with GAAP, excluding,
however, any Convertible Redeemable Capital Stock or Convertible Subordinated
Debt if the current market value of an equity security into which such
Convertible Redeemable Capital Stock or Convertible Subordinated Debt is
convertible is greater than the conversion price for such security.
"Adjusted EBILTDA" means at any date the sum of (i) Adjusted
Consolidated Net Income for the Fiscal Year to date (when calculated as of the
end of the second and third Fiscal Quarters of the 2000 Fiscal Year) or the 4
Fiscal Quarters ending on or prior to the date of measurement (when calculated
as of the end of the fourth Fiscal Quarter of the 2000 Fiscal Year and
thereafter), plus (ii) the sum of Adjusted Consolidated Fixed Charges and taxes
on income (including deferred taxes), depreciation and amortization for the
same Fiscal Year to date or 4 Fiscal Quarters (as applicable).
"Adjusted London Interbank Offered Rate" has the meaning set
forth in Section 2.06(c).
"Affiliate" of any relevant Person means (i) any Person that
directly, or indirectly through one or more intermediaries, controls the
relevant Person (a "Controlling Person"), (ii) any Person (other than the
relevant Person or a Subsidiary of the relevant Person) which is controlled by
or is under common control with a Controlling Person, or (iii) any Person
(other than a Subsidiary of the relevant Person) of which the relevant Person
owns, directly or indirectly, 20% or more of the common stock or equivalent
equity interests. As used herein, the term "control" means possession, directly
or indirectly, of the power to direct or cause the
2
<PAGE> 9
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means Wachovia Bank, N.A., a national banking
association organized under the laws of the United States of America, in its
capacity as agent for the Banks hereunder, and its successors and permitted
assigns in such capacity.
"Agent's Letter Agreement" means that certain letter
agreement, dated as of December 18, 1997 between the Borrower and the Agent
relating to the structure of the Loans, and certain fees from time to time
payable by the Borrower to the Agent, together with all amendments and
supplements thereto.
"Agreement" means this Second Amended and Restated Credit
Agreement, together with all amendments and supplements hereto.
"Applicable Margin" has the meaning set forth in Section
2.06(a).
"Assignee" has the meaning set forth in Section 9.07(c).
"Assignment and Acceptance" means an Assignment and
Acceptance executed in accordance with Section 9.07(c) in the form attached
hereto as Exhibit D.
"Authority" has the meaning set forth in Section 8.02.
"Bank" means each bank listed on the signature pages hereof
as having a Commitment, and its successors and permitted assigns.
"Base Rate" means for any Base Rate Loan for any day, the
rate per annum equal to the higher as of such day of (i) the Prime Rate, or
(ii) one-half of one percent above the Federal Funds Rate. For purposes of
determining the Base Rate for any day, changes in the Prime Rate or the Federal
Funds Rate shall be effective on the date of each such change.
"Base Rate Borrowing" has the meaning set forth in the
definition of Borrowing.
"Base Rate Loan" means a Loan which bears or is to bear
interest at a rate based upon the Base Rate, and is to be made as a Base Rate
Loan pursuant to the applicable Notice of Borrowing, Section 2.02(f), or
Article VIII, as applicable.
"Borrower" means Flowers Industries, Inc. a Georgia
corporation, and its successors and its permitted assigns.
"Borrowing" means a borrowing hereunder consisting of Loans
made to the Borrower (i) at the same time by all of the Banks, in the case of a
Syndicated Borrowing, or (ii) separately by one or more Banks, in the case of a
Money Market Borrowing, in each case pursuant to Article II or (iii) by
Wachovia, for Swing Loans. A Borrowing is a "Money Market Borrowing" if such
Loans are made pursuant to Section 2.03 or a "Syndicated Borrowing" if such
Loans are made pursuant to Section 2.01(a), or a "Swing Loan Borrowing" if such
Loan is made pursuant to Section 2.01(b). A Borrowing is a "Base Rate
Borrowing" if such Loans are
3
<PAGE> 10
made as Base Rate Loans or a "Euro-Dollar Borrowing" if such Loans are made as
Euro-Dollar Loans.
"Borrowing Base" means the sum on the last day of any Fiscal
Period, as shown on the balance sheet of the Borrower for such date (except as
to clause (iv) below), of:
(i) 80% of the net book value of all accounts receivable
(net of all reserves) of the Borrower and its Restricted Subsidiaries,
calculated in accordance with GAAP;
(ii) 50% of the book value of all inventory of the
Borrower and its Restricted Subsidiaries, calculated in accordance
with GAAP;
(iii) 50% of the net book value of all tangible property,
plant and equipment of the Borrower and its Restricted Subsidiaries,
calculated in accordance with GAAP; and
(iv) 60% of the product of (a) the average per share
closing price of Keebler common stock during such Fiscal Period times
(b) the number of shares of such stock owned by the Borrower, as of
such date.
"Capital Expenditures" means for any period the sum of all
capital expenditures incurred during such period by the Borrower and its
Restricted Subsidiaries, as determined in accordance with GAAP.
"Capital Stock" means any nonredeemable capital stock of the
Borrower or any Consolidated Subsidiary (to the extent issued to a Person other
than the Borrower), whether common or preferred.
"Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee pursuant to GAAP but shall
exclude any lease which at the time of its incurrence was an operating lease
for purposes of GAAP as in effect at such time.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. ss.9601 et. seq. and its implementing
regulations and amendments.
"CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to CERCLA.
"Change of Law" shall have the meaning set forth in Section
8.02.
"Closing Certificate" has the meaning set forth in Section
3.01(e).
"Closing Date" means March 30, 2000.
"Code" means the Internal Revenue Code of 1986, as amended,
or any successor Federal tax code.
"Commitment" means, with respect to each Bank, (i) the amount
set forth opposite the name of such Bank on the signature pages hereof, and
(ii)as to any Bank which
4
<PAGE> 11
enters into any Assignment and Acceptance (whether as transferor Bank or as
Assignee thereunder), the amount of such Bank's Commitment after giving effect
to such Assignment and Acceptance, in each case as such amount may be reduced
from time to time pursuant to Sections 2.08 and 2.09.
"Compliance Certificate" has the meaning set forth in Section
5.01(c).
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which, in accordance with GAAP, would be
consolidated with those of the Borrower in its consolidated financial
statements as of such date.
"Consolidated Total Assets" means, at any time, the total
assets of the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis, as set forth or reflected on the most recent consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries, prepared in
accordance with GAAP.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Code.
"Convertible Redeemable Capital Stock" means any Capital
Stock that by its terms (or by the terms of any agreement by which or equity
security into which it is convertible or for which it is exchangeable or any
other agreement) or upon the happening of any event matures or is or will
become mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, or is exchangeable for or convertible into an equity security of the
Borrower.
"Convertible Subordinated Debt" means any Indebtedness of the
Borrower (i) which is and remains subordinated in right of payment to the
obligations of the Borrower on the Notes and (ii) which by its terms is
exchangeable for or convertible into an equity security of the Borrower.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Default Rate" means, with respect to any Loan, on any day,
the sum of 2% plus the then highest interest rate (including the Applicable
Margin) which may be applicable to any Loans hereunder (irrespective of whether
any such type of Loans are actually outstanding hereunder).
"Dollars" or "$" means dollars in lawful currency of the
United States of America.
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in Georgia are authorized by law
to close.
5
<PAGE> 12
"Environmental Authority" means any foreign, federal, state,
local or regional government that exercises any form of jurisdiction or
authority under any Environmental Requirement.
"Environmental Authorizations" means all licenses, permits,
orders, approvals, notices, registrations or other legal prerequisites for
conducting the business of the Borrower or any Restricted Subsidiary required
by any Environmental Requirement.
"Environmental Judgments and Orders" means all judgments,
decrees or orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent, or written agreements with
an Environmental Authority or other entity arising from or in any way
associated with any Environmental Requirement, whether or not incorporated in a
judgment, decree or order.
"Environmental Liabilities" means any liabilities, whether
accrued, contingent or otherwise, arising from and in any way associated with
any Environmental Requirements.
"Environmental Notices" means notice from any Environmental
Authority or by any other person or entity, of possible or alleged
noncompliance with or liability under any Environmental Requirement, including
without limitation any complaints, citations, demands or requests from any
Environmental Authority or from any other person or entity for correction of
any violation of any Environmental Requirement or any investigations concerning
any violation of any Environmental Requirement.
"Environmental Proceedings" means any judicial or
administrative proceedings arising from or in any way associated with any
Environmental Requirement.
"Environmental Releases" means releases as defined in CERCLA
or under any applicable state or local environmental law or regulation.
"Environmental Requirements" means any legal requirement
relating to health, safety or the environment and applicable to the Borrower,
any Restricted Subsidiary or the Properties, including but not limited to any
such requirement under CERCLA or similar state legislation and all federal,
state and local laws, ordinances, regulations, orders, writs, decrees and
common law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor law. Any reference to any
provision of ERISA shall also be deemed to be a reference to any successor
provision or provisions thereof.
"Euro-Dollar Borrowing" has the meaning set forth in the
definition of Borrowing.
"Euro-Dollar Business Day" means any Domestic Business Day on
which dealings in Dollar deposits are carried out in the London interbank
market.
6
<PAGE> 13
"Euro-Dollar Loan" means a Loan which bears or is to bear
interest at a rate based upon the Adjusted London Interbank Offered Rate, and
to be made as a Euro-Dollar Loan pursuant to the applicable Notice of
Borrowing.
"Euro-Dollar Reserve Percentage" has the meaning set forth in
Section 2.06(c).
"Event of Default" has the meaning set forth in Section 6.01.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if the day for which
such rate is to be determined is not a Domestic Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Domestic Business Day as so published on the next succeeding Domestic Business
Day, and (ii) if such rate is not so published for any day, the Federal Funds
Rate for such day shall be the average rate charged to Wachovia on such day on
such transactions, as determined by the Agent.
"Fiscal Period" means each fiscal period of the Borrower,
consisting of approximately four weeks, the Borrower having thirteen such
fiscal periods in each Fiscal Year.
"Fiscal Quarter" means any fiscal quarter of the Borrower.
"Fiscal Year" means any fiscal year of the Borrower.
"Fixed Rate Borrowing" means a Euro-Dollar Borrowing or a
Money Market Borrowing, or either of them, as the context shall require.
"Fixed Rate Loans" means Euro-Dollar Loans or Money Market
Loans, or either of them, as the context shall require.
"GAAP" means generally accepted accounting principles applied
on a basis consistent with those which, in accordance with Section 1.02, are to
be used in making the calculations for purposes of determining compliance with
the terms of this Agreement.
"Guaranty" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividends or other obligation of any other
Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefore;
(b) to advance or supply funds (i) for the purchase or
payment of such Indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet
7
<PAGE> 14
condition or any income statement condition of any other Person or
otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligations;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of any other Person to make
payment of the Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness
or obligations against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor
under any Guaranty, the Indebtedness or other obligations that are the subject
of such Guaranty shall be assumed to be direct obligations of such obligor.
"Hazardous Materials" includes, without limitation, (a) solid
or hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and
amendments, or in any applicable state or local law or regulation, (b)
"hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or
in any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof,
(d) toxic substances, as defined in the Toxic Substances Control Act of 1976,
or in any applicable state or local law or regulation and (e) insecticides,
fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide,
and Rodenticide Act of 1975, or in any applicable state or local law or
regulation, as each such Act, statute or regulation may be amended from time to
time.
"Indebtedness" with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money and its
redemption obligations in respect of mandatorily redeemable Preferred
Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising
in the ordinary course of business but including all liabilities
created or arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capitalized Leases;
(d) all liabilities for borrowed money secured by any
Lien with respect to any property owned by such Person (whether or not
it has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit
or instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
(f) Swaps of such Person; and
8
<PAGE> 15
(g) any Guaranty of such Person with respect to
liabilities of a type described in any clauses (a) through (f) hereof.
"Indebtedness for Borrowed Money" means Indebtedness of the
types described in clauses (a) and (d) of the definition of Indebtedness.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the first, second, third or sixth month
thereafter, as the Borrower may elect in the applicable Notice of Borrowing;
provided that:
(a) any Interest Period (subject to paragraph (c) below)
which would otherwise end on a day which is not a Euro-Dollar Business
Day shall be extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the appropriate
subsequent calendar month) shall, subject to paragraph (c) below, end
on the last Euro-Dollar Business Day of the appropriate subsequent
calendar month; and
(c) no Interest Period may be selected which begins
before the Termination Date and would otherwise end after the
Termination Date.
(2) with respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending 30 days thereafter (or, if sooner, on the
Termination Date); provided that:
(a) any Interest Period (subject to paragraph (b) below)
which would otherwise end on a day which is not a Domestic Business
Day shall be extended to the next succeeding Domestic Business Day;
and
(b) no Interest Period which begins before the
Termination Date and would otherwise end after the Termination Date
may be selected.
(3) with respect to each Money Market Borrowing, the period commencing on the
date of such Borrowing and ending on the Stated Maturity Date specified in the
applicable Money Market Quote; provided that:
(a) any Interest Period (subject to clause (b) below)
which would otherwise end on a day which is not a Domestic Business
Day shall be extended to the next succeeding Domestic Business Day;
and
(b) no Interest Period may be selected which begins
before the Termination Date and would otherwise end after the
Termination Date.
"Investment" means any investment in any Person, whether by
means of purchase or acquisition of obligations or securities of such Person,
capital contribution to such Person,
9
<PAGE> 16
loan or advance to such Person, making of a time deposit with such Person,
Guaranty or assumption of any obligation of such Person or otherwise.
"Keebler" means Keebler Foods Company, a Delaware corporation
with its principal place of business in Elmhurst, Illinois.
"Keebler Acquisition" means, collectively, the acquisition by
the Borrower (i) from Artal Luxembourg S.A., pursuant to a Stock Purchase
Agreement dated as of January 28, 1998, of an aggregate of 9,581,169 shares of
common capital stock in Keebler, and (ii) from Bermore Limited, pursuant to a
Stock Purchase and Stockholder's Agreement dated as of January 28, 1998, of an
aggregate of 1,616,691 shares of common capital stock in Keebler, as a result
of which, after giving effect to the Keebler Acquisition, the Borrower will own
approximately 51% of the common capital stock of Keebler, on a fully diluted
basis.
"Lending Office" means, as to each Bank, its office located
at its address set forth on the signature pages hereof (or identified on the
signature pages hereof as its Lending Office) or such other office as such Bank
may hereafter designate as its Lending Office by notice to the Borrower and the
Agent.
"Leverage Ratio" means the ratio of Adjusted Consolidated
Total Debt to Adjusted Total Capitalization.
"Lien" means, with respect to any asset, any mortgage, deed
to secure debt, deed of trust, lien, pledge, charge, security interest,
security title, preferential arrangement which has the practical effect of
constituting a security interest or encumbrance, or encumbrance or servitude of
any kind in respect of such asset to secure or assure payment of a Indebtedness
or a Guaranty, whether by consensual agreement or by operation of statute or
other law, or by any agreement, contingent or otherwise, to provide any of the
foregoing. For the purposes of this Agreement, the Borrower or any Subsidiary
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease or other title retention agreement relating to
such asset.
"Loan" means a Base Rate Loan, Euro-Dollar Loan, Syndicated
Loan, Money Market Loan or Swing Loan, and "Loans" means Base Rate Loans,
Euro-Dollar Loans, Syndicated Loans, Money Market Loans, or Swing Loans, or any
or all of them, as the context shall require.
"Loan Documents" means this Agreement, the Notes, any other
document evidencing, relating to or securing the Loans, and any other document
or instrument delivered from time to time in connection with this Agreement,
the Notes or the Loans, as such documents and instruments may be amended or
supplemented from time to time.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.06(c).
"Margin Stock" means "margin stock" as defined in Regulations
T, U or X.
"Material Adverse Effect" means, with respect to any event,
act, condition or occurrence of whatever nature (including any adverse
determination in any litigation,
10
<PAGE> 17
arbitration, or governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts, condition or
conditions, occurrence or occurrences, whether or not related, a material
adverse change in, or a material adverse effect upon, any of (a) the financial
condition, operations, business or properties of the Borrower and its
Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the
Agent or the Banks under the Loan Documents, or the ability of the Borrower to
perform its obligations under the Loan Documents to which it is a party, as
applicable, or (c) the legality, validity or enforceability of any Loan
Document.
"Material Subsidiary" means, as of each date of
determination, any Restricted Subsidiary that would at such time constitute a
"significant subsidiary" (as such term is defined in Regulation S-X of the
Securities and Exchange Commission as in effect on the Closing Date) of the
Borrower.
"Money Market Borrowing" has the meaning set forth in the
definition of Borrowing.
"Money Market Borrowing Date" has the meaning specified in
Section 2.03.
"Money Market Loan Notes" means the promissory notes of the
Borrower, substantially in the form of Exhibit A-2, evidencing the obligation
of the Borrower to repay the Money Market Loans, together with all amendments,
consolidations, modifications, renewals and supplements thereto.
"Money Market Quote" has the meaning specified in Section
2.03.
"Money Market Quote Request" has the meaning specified in
Section 2.03(b).
"Money Market Rate" has the meaning specified in Section
2.03(c)(ii)(C).
"Multiemployer Plan" shall have the meaning set forth in
Section 4001(a)(3) of ERISA.
"Net Income" means, as applied to any Person for any period,
the aggregate amount of net income of such Person, after taxes, for such
period, as determined in accordance with GAAP.
"Net Proceeds of Capital Stock" means any cash proceeds
received by the Borrower or a Restricted Subsidiary in respect of the issuance
of Capital Stock, after deducting therefrom all reasonable and customary costs
and expenses incurred by the Borrower or such Consolidated Subsidiary directly
in connection with the issuance of such Capital Stock.
"Net Worth" of any Person means the Total Assets of such
Person less all liabilities of such Person which would be shown as liabilities
on a balance sheet of such Person as of such time prepared in accordance with
GAAP.
"New Capitalized Leases" means Capitalized Leases which are
entered into on or after the Closing Date, other than Permitted Refinancing
Leases; provided, that any Synthetic
11
<PAGE> 18
Lease which is in existence on the Closing Date and is not a Permitted
Refinancing Lease shall not constitute a New Capitalized Lease, regardless of
any classification or reclassification thereof at any time for purposes of
GAAP.
"New Indebtedness for Borrowed Money" means Indebtedness for
Borrowed Money which is incurred on or after the Closing Date, other than
Permitted Refinancing Indebtedness.
"Notes" means each of the Syndicated Loan Notes, Money Market
Loan Notes, Swing Loan Note, or any or all of them, as the context shall
require.
"Notice of Borrowing" has the meaning set forth in Section
2.02.
"Officer's Certificate" has the meaning set forth in Section
3.01(f).
"Operating Profits" means, as applied to any Person for any
period, the operating income of such Person for such period, as determined in
accordance with GAAP.
"Original Agreement" has the meaning set forth in the
preamble hereto.
"Participant" has the meaning set forth in Section 9.07(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Keebler Investments" means: (i) the Keebler
Acquisition; and (ii) additional shares of common capital stock in Keebler
acquired from time to time (a) from third parties in the open market, (b) from
Bermore, Limited and Artal Luxembourg S.A. in private transactions, (c) from
management of Keebler in private transactions and/or (d) from Keebler as part
of an offering of stock by Keebler (whether public or private), but in the case
of this clause (d), only to the extent necessary for the Borrower to maintain
ownership of at least 51% of the common capital stock of Keebler, on a fully
diluted basis.
"Permitted Refinancing Indebtedness" means Indebtedness for
Borrowed Money which is incurred on or after the Closing Date solely to
refinance Indebtedness for Borrowed Money which existed prior to the Closing
Date, so long as the principal amount outstanding or available under the credit
or other agreement governing such Indebtedness for Borrowed Money is not
increased or the maturity shortened to a date prior to January 1, 2004, such
Indebtedness for Borrowed Money is not secured by a Lien on any assets of the
Borrower or any of its Subsidiaries, other than a Lien on assets, if any, which
as of the Closing Date secured the Indebtedness for Borrowed Money being
refinanced, and the credit or other agreement governing such Indebtedness for
Borrowed Money does not contain any financial, negative or affirmative covenants
(other than collateral related covenants, where collateral is permitted pursuant
to this definition) which are more restrictive in any material respect on the
Borrower or any of its Subsidiaries than those contained in this Agreement.
"Permitted Refinancing Leases" means Capitalized Leases which
are entered into on or after the Closing Date solely to refinance Capitalized
Leases or Synthetic Leases which existed prior to the Closing Date, so long as
the principal component of the base rent obligations
12
<PAGE> 19
thereunder are not increased or the maturity shortened to a date prior to
January 1, 2004, such Capitalized Leases are not secured by a Lien on any
assets of the Borrower or any of its Subsidiaries, other than a Lien on assets,
if any, which as of the Closing Date secured the obligations under the
Capitalized Lease or Synthetic Lease being refinanced, and lease agreement,
participation agreement, guaranty or other agreement governing such Capitalized
Lease does not contain any financial, negative or affirmative covenants (other
than collateral related covenants, where collateral is permitted pursuant to
this definition)which are more restrictive in any material respect on the
Borrower or any of its Subsidiaries than those contained in this Agreement.
"Person" means an individual, a corporation, a partnership,
an unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by a
member of the Controlled Group for employees of any member of the Controlled
Group or (ii) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which a member of the Controlled Group is then making or accruing an obligation
to make contributions or has within the preceding 5 plan years made
contributions.
"Preferred Stock" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"Prime Rate" refers to that interest rate so denominated and
set by Wachovia from time to time as an interest rate basis for borrowings. The
Prime Rate is but one of several interest rate bases used by Wachovia. Wachovia
lends at interest rates above and below the Prime Rate.
"Properties" means all real property owned, leased or
otherwise used or occupied by the Borrower or any Restricted Subsidiary,
wherever located.
"Refunding Loan" means a new Syndicated Loan made on the day
on which an outstanding Syndicated Loan is maturing or a Base Rate Borrowing is
being converted to a Fixed Rate Borrowing, if and to the extent that the
proceeds thereof are used entirely for the purpose of paying such maturing Loan
or Loan being converted, excluding any difference between the amount of such
maturing Loan or Loan being converted and any greater amount being borrowed on
such day and actually either being made available to the Borrower pursuant to
Section 2.02(c) or remitted to the Agent as provided in Section 2.12, in each
case as contemplated in Section 2.02(d).
"Regulation T" means Regulation T of the Board of Governors
of the Federal Reserve System, as in effect from time to time, together with
all official rulings and interpretations issued thereunder.
13
<PAGE> 20
"Regulation U" means Regulation U of the Board of Governors
of the Federal Reserve System, as in effect from time to time, together with
all official rulings and interpretations issued thereunder.
"Regulation X" means Regulation X of the Board of Governors
of the Federal Reserve System, as in effect from time to time, together with
all official rulings and interpretations issued thereunder.
"Required Banks" means at any time Banks having at least 66
2/3% of the aggregate amount of the Commitments or, if the Commitments are no
longer in effect, Banks holding at least 66 2/3% of the aggregate outstanding
principal amount of the sum of the (i) Syndicated Loans and (ii) Money Market
Loans.
"Responsible Officer" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Borrower, and any
other officer of the Borrower with responsibility for the administration of the
relevant portion of this Agreement.
"Restricted Payment" means (i) any dividend or other
distribution on any shares of the Borrower's Capital Stock (except dividends
payable solely in shares of its Capital Stock) or (ii) any payment on account
of the purchase, redemption, retirement or acquisition of (a) any shares of the
Borrower's Capital Stock (except shares acquired upon the conversion thereof
into other shares of its Capital Stock) or (b) any option, warrant or other
right to acquire shares of the Borrower's Capital Stock.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
"Stated Maturity Date" means, with respect to any Money
Market Loan, the Stated Maturity Date therefor specified by the Bank in the
applicable Money Market Quote.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Borrower.
"Swaps" means, with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether periodically or
upon the happening of a contingency. For the purposes of this Agreement, the
amount of the obligation under any Swap shall be the amount determined in
respect thereof as of the end of the then most recently ended Fiscal Quarter of
such Person, based on the assumption that such Swap had terminated at the end
of such Fiscal Quarter, and in making such determination, if any agreement
relating to such Swap provides for the netting of amounts payable by and to
such Person thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the amount of
such obligation shall be the net amount so determined.
14
<PAGE> 21
"Swing Loan" means a Loan made by Wachovia pursuant to
Section 2.01(b), which must be a Base Rate Loan.
"Swing Loan Note" means the promissory note of the Borrower,
substantially in the form of Exhibit A-3, evidencing the obligation of the
Borrower to repay the Swing Loans, together with all amendments,
consolidations, modifications, renewals, and supplements thereto.
"Syndicated Borrowing" has the meaning set forth in the
definition of Borrowing.
"Syndicated Loans" means Base Rate Loans or Euro-Dollar Loans
made pursuant to the terms and conditions set forth in Section 2.01.
"Syndicated Loan Notes" means the promissory notes of the
Borrower, substantially in the form of Exhibit A-1, evidencing the obligation
of the Borrower to repay Syndicated Loans, together with all amendments,
consolidations, modifications, renewals and supplements thereto.
"Synthetic Lease" means a lease of property which is intended
to be classified as an operating lease in accordance with GAAP, but with
respect to which it is intended that the lessee be treated as the owner of the
property subject thereto for purposes of federal income tax.
"Synthetic Lease Obligations" means the principal component
of the base rent obligations of a Person as lessee under a Synthetic Lease.
"Taxes" has the meaning set forth in Section 2.12(c).
"Termination Date" means whichever is applicable of (i)
January 29, 2003, (ii) the date the Commitments are terminated pursuant to
Section 6.01 following the occurrence of an Event of Default, or (iii) the date
the Borrower terminates the Commitments entirely pursuant to Section 2.08.
"Third Parties" means all lessees, sublessees, licensees and
other users of the Properties, excluding those users of the Properties in the
ordinary course of the Borrower's business and on a temporary basis.
"Total Assets" means, with respect to any Person at any time,
the total assets of such Person as set forth or reflected on the most recent
consolidated balance sheet of such Person, prepared in accordance with GAAP.
"Total Capitalization" means the sum of (i) Consolidated
Total Debt and (ii) Consolidated Net Worth.
"Transferee" has the meaning set forth in Section 9.07(d).
"Unfunded Vested Liabilities" means, with respect to any Plan
at any time, the amount (if any) by which (i) the present value of all vested
nonforfeitable benefits under such Plan exceeds (ii) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
15
<PAGE> 22
represents a potential liability of a member of the Controlled Group to the
PBGC or the Plan under Title IV of ERISA.
"Unrestricted Subsidiary" means, so long as Keebler is a
Subsidiary, Keebler, or any of its Subsidiaries, and "Unrestricted
Subsidiaries" means, collectively, Keebler and its Subsidiaries.
"Unused Commitment" means at any date, with respect to any
Bank, an amount equal to its Commitment less the aggregate outstanding
principal amount of its Syndicated Loans (but not its Money Market Loans and
not the Swing Loans).
"Wachovia" means Wachovia Bank, N.A., a national banking
association, and its successors.
"Wholly Owned Subsidiary" means any Subsidiary all of the
shares of capital stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly owned by
the Borrower.
SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all terms of an accounting character used herein
shall be interpreted, all accounting determinations hereunder shall be made,
and all financial statements required to be delivered hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent (except for
changes concurred in by the Borrower's independent public accountants or
otherwise required by a change in GAAP) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks unless with respect to any such change
concurred in by the Borrower's independent public accountants or required by
GAAP, in determining compliance with any of the provisions of this Agreement or
any of the other Loan Documents: (i) the Borrower shall have objected to
determining such compliance on such basis at the time of delivery of such
financial statements, or (ii) the Required Banks shall so object in writing
within 30 days after the delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to which such
objection shall not have been made (which, if objection is made in respect of
the first financial statements delivered under Section 5.01 hereof, shall mean
the financial statements referred to in Section 4.04).
SECTION 1.03. References. Unless otherwise indicated,
references in this Agreement to "Articles", "Exhibits", "Schedules", "Sections"
and other Subdivisions are references to articles, exhibits, schedules,
sections and other subdivisions hereof.
SECTION 1.04. Use of Defined Terms. All terms defined in
this Agreement shall have the same defined meanings when used in any of the
other Loan Documents, unless otherwise defined therein or unless the context
shall require otherwise.
SECTION 1.05. Terminology. All personal pronouns used in
this Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the
plural shall include the singular. Titles of Articles and Sections in this
Agreement are for convenience only, and neither limit nor amplify the
provisions of this Agreement.
16
<PAGE> 23
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend Syndicated Loans and
Swing Loans (a)Each Bank severally agrees, on the terms and conditions set
forth herein, to make Syndicated Loans to the Borrower from time to time before
the Termination Date; provided that,
(i) immediately after each such Syndicated Loan is made,
the aggregate outstanding principal amount of Syndicated Loans by such
Bank shall not exceed the amount of its Commitment, and
(ii) the aggregate outstanding principal amount of all
Syndicated Loans, Money Market Loans and Swing Loans shall not exceed
the aggregate amount of the Commitments.
Each Syndicated Borrowing under this Section shall be in an aggregate principal
amount of (i) for Euro-Dollar Loans, $10,000,000 or any larger integral
multiple of $5,000,000, and (ii) for Base Rate Loans, $5,000,000 or any larger
integral multiple of $1,000,000 (except in each case that any such Syndicated
Borrowing may be in the aggregate amount of the Unused Commitments), and shall
be made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow under this
Section, repay or, to the extent permitted by Section 2.10, prepay Syndicated
Loans and reborrow under this Section at any time before the Termination Date.
(b) Swing Loans. In addition to the foregoing, Wachovia
shall from time to time, upon the request of the Borrower, if the applicable
conditions precedent in Article III have been satisfied, make Swing Loans to
the Borrower in an aggregate principal amount at any time outstanding not
exceeding $15,000,000; provided that, immediately after such Swing Loan is
made, the condition set forth in clause (ii) of Section 2.01(a) shall have been
satisfied. Each Swing Loan Borrowing under this Section 2.01(b) shall be in an
aggregate principal amount of $500,000 or any larger multiple of $100,000.
Within the foregoing limits, the Borrower may borrow under this Section
2.01(b), prepay and reborrow under this Section 2.01(b) at any time before the
Termination Date. Swing Loans shall not be considered a utilization of the
Commitment of Wachovia or any other Bank hereunder. All Swing Loans shall be
made as Base Rate Loans. At any time, upon the request of Wachovia, each Bank
other than Wachovia shall, on the third Domestic Business Day after such
request is made, purchase a participating interest in Swing Loans in an amount
equal to its ratable share (based upon its respective Commitment) of such Swing
Loans. On such third Domestic Business Day, each Bank will immediately transfer
to Wachovia, in immediately available funds, the amount of its participation.
Whenever, at any time after Wachovia has received from any such Bank its
participating interest in a Swing Loan, the Agent receives any payment on
account thereof, the Agent will distribute to such Bank its participating
interest in such amount (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Bank's participating
interest was outstanding and funded); provided, however, that in the event that
such payment received by the Agent is required to be returned, such Bank will
return to the Agent any portion thereof previously distributed by the Agent to
it. Each Bank's obligation to purchase
17
<PAGE> 24
such participating interests shall be absolute and unconditional and shall not
be affected by any circumstance, including, without limitation: (i) any
set-off, counterclaim, recoupment, defense or other right which such Bank or
any other Person may have against Wachovia requesting such purchase or any
other Person for any reason whatsoever; (ii) the occurrence or continuance of a
Default or an Event of Default or the termination of the Commitments; (iii) any
adverse change in the condition (financial or otherwise) of the Borrower or any
other Person; (iv) any breach of this Agreement by the Borrower or any other
Bank; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.
SECTION 2.02. Method of Borrowing Syndicated Loans and
Swing Loans. (a) The Borrower shall give the Agent notice (a "Notice of
Borrowing"), which shall be substantially in the form of Exhibit E, prior to
11:00 A.M. (Atlanta, Georgia time) on the same Domestic Business Day as each
Base Rate Borrowing and at least 3 Euro-Dollar Business Days before each
Euro-Dollar Borrowing, specifying:
(i) the date of such Syndicated Borrowing or Swing Loan
Borrowing, which shall be a Domestic Business Day in the case of a
Base Rate Borrowing or a Euro-Dollar Business Day in the case of a
Euro-Dollar Borrowing,
(ii) the aggregate amount of such Syndicated Borrowing or
Swing Loan Borrowing,
(iii) whether the Syndicated Loans comprising such
Borrowing are to be Base Rate Loans or Euro-Dollar Loans, or stating
that such Borrowing is to be a Swing Loan Borrowing, and
(iv) in the case of a Euro-Dollar Borrowing, the duration
of the Interest Period applicable thereto, subject to the provisions
of the definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Agent
shall promptly notify each Bank of the contents thereof (unless such Borrowing
is a Swing Loan Borrowing) and of such Bank's ratable share of such Syndicated
Borrowing and such Notice of Borrowing, once received by the Agent, shall not
thereafter be revocable by the Borrower.
(c) Not later than (i) as to Base Rate Loans, 2:00 P.M.
(Atlanta, Georgia time), and (ii) as to Euro-Dollar Loans, 11:00 A.M.,
(Atlanta, Georgia time) on the date of each Syndicated Borrowing, each Bank
shall (except as provided in paragraph (d) of this Section) make available its
ratable share of such Syndicated Borrowing, in Federal or other funds
immediately available in Atlanta, Georgia, to the Agent at its address
determined pursuant to Section 9.01. Unless the Agent determines that any
applicable condition specified in Article III has not been satisfied, the Agent
will make the funds so received from the Banks available to the Borrower on
such date by depositing the same, in immediately available funds, not later
than 4:00 p.m. (Atlanta, Georgia time), in an account of the Borrower
maintained with Wachovia. Unless the Agent receives notice from a Bank, at the
Agent's address referred to in or specified pursuant to Section 9.01, no later
than 4:00 P.M. (local time at such address) on the Domestic Business Day before
the date of a Syndicated Borrowing stating that such Bank will not make a
Syndicated Loan in connection with such Syndicated Borrowing, the Agent shall
be entitled to
18
<PAGE> 25
assume that such Bank will make a Syndicated Loan in connection with such
Syndicated Borrowing and, in reliance on such assumption, the Agent may (but
shall not be obligated to) make available such Bank's ratable share of such
Syndicated Borrowing to the Borrower for the account of such Bank. If the Agent
makes such Bank's ratable share available to the Borrower and such Bank does
not in fact make its ratable share of such Syndicated Borrowing available on
such date, the Agent shall be entitled to recover such Bank's ratable share
from such Bank or the Borrower (and for such purpose shall be entitled to
charge such amount to any account of the Borrower maintained with the Agent),
together with interest thereon for each day during the period from the date of
such Syndicated Borrowing until such sum shall be paid in full at a rate per
annum equal to the rate at which the Agent determines that it obtained (or
could have obtained) overnight Federal funds to cover such amount for each such
day during such period, provided that (i) any such payment by the Borrower of
such Bank's ratable share and interest thereon shall be without prejudice to
any rights that the Borrower may have against such Bank and (ii) until such
Bank has paid its ratable share of such Syndicated Borrowing, together with
interest pursuant to the foregoing, it will have no interest in or rights with
respect to such Syndicated Borrowing for any purpose hereunder. If the Agent
does not exercise its option to advance funds for the account of such Bank, it
shall forthwith notify the Borrower of such decision. Wachovia will make
available to the Borrower at Wachovia's Lending Office the amount of any such
Borrowing which is a Swing Loan Borrowing not later than 2:00 P.M. (Atlanta,
Georgia time).
(d) If any Bank makes a new Syndicated Loan hereunder on
a day on which the Borrower is to repay all or any part of an outstanding
Syndicated Loan from such Bank, such Bank shall apply the proceeds of its new
Syndicated Loan to make such repayment as a Refunding Loan and only an amount
equal to the difference (if any) between the amount being borrowed and the
amount of such Refunding Loan shall be made available by such Bank to the Agent
as provided in paragraph (c) of this Section, or remitted by the Borrower to
the Agent as provided in Section 2.12, as the case may be.
(e) Notwithstanding anything to the contrary contained
in this Agreement, no Fixed Rate Borrowing may be made if there shall have
occurred a Default or an Event of Default, which Default or Event of Default
shall not have been cured or waived, and in such case all Refunding Loans shall
be made as Base Rate Loans (but shall bear interest at the Default Rate, if
applicable).
(f) In the event that a Notice of Borrowing fails to
specify whether the Syndicated Loans comprising such Syndicated Borrowing are
to be Base Rate Loans or Euro-Dollar Loans, such Syndicated Loans shall be made
as Base Rate Loans. If the Borrower is otherwise entitled under this Agreement
to repay any Syndicated Loans maturing at the end of an Interest Period
applicable thereto with the proceeds of a new Borrowing, and the Borrower fails
to repay such Syndicated Loans using its own moneys and fails to give a Notice
of Borrowing in connection with such new Syndicated Borrowing, a new Syndicated
Borrowing shall be deemed to be made on the date such Syndicated Loans mature
in an amount equal to the principal amount of the Syndicated Loans so maturing,
and the Syndicated Loans comprising such new Syndicated Borrowing shall be Base
Rate Loans.
19
<PAGE> 26
(g) Notwithstanding anything to the contrary contained
herein, there shall not be more than 10 Fixed Rate Borrowings outstanding at
any given time.
SECTION 2.03. Money Market Loans. (a) So long as, at the
end of the immediately preceding Fiscal Quarter, the Borrower had a ratio of
Adjusted EBILTDA to Adjusted Consolidated Fixed Charges of 3.50 to 1.0, in
addition to making Syndicated Borrowings, the Borrower may, as set forth in
this Section 2.03, request the Banks to make offers to make Money Market
Borrowings available to the Borrower. The Banks may, but shall have no
obligation to, make such offers and the Borrower may, but shall have no
obligation to, accept any such offers in the manner set forth in this Section
2.03, provided that:
(i) the number of Money Market Borrowings which may be
outstanding at any given time is subject to the provisions of Section
2.02(g);
(ii) the aggregate principal amount of all Money Market
Loans, together with the aggregate principal amount of all Syndicated
Loans and Swing Loans, at any one time outstanding shall not exceed
the aggregate amount of the Commitments of all of the Banks at such
time; and
(iii) the Money Market Loans of any Bank will be deemed to
be usage of the Commitments for the purpose of calculating
availability pursuant to Section 2.01(ii) and 2.03(a)(ii), but will
not reduce such Bank's obligation to lend its pro rata share of the
remaining Unused Commitment.
(b) When the Borrower wishes to request offers to make
Money Market Loans, it shall give the Agent (which shall promptly notify the
Banks) notice substantially in the form of Exhibit I hereto (a "Money Market
Quote Request") so as to be received no later than 11:00 A.M. (Atlanta, Georgia
time) at least 1 Domestic Business Day prior to the date of the Money Market
Borrowing proposed therein (or such other time and date as the Borrower and the
Agent, with the consent of the Required Banks, may agree), specifying:
(i) the proposed date of such Money Market Borrowing,
which shall be a Euro-Dollar Business Day (the "Money Market Borrowing
Date");
(ii) the maturity date (or dates) (each a "Stated
Maturity Date") for repayment of each Money Market Loan to be made as
part of such Money Market Borrowing (which Stated Maturity Date shall
be that date occurring not less than 7 days but not more than 180 days
from the date of such Money Market Borrowing); provided that the
Stated Maturity Date for any Money Market Loan may not extend beyond
the Termination Date (as in effect on the date of such Money Market
Quote Request); and
(iii) the aggregate amount of principal to be requested by
the Borrower as a result of such Money Market Borrowing, which shall
be at least $10,000,000 (and in larger integral multiples of
$5,000,000) but shall not cause the limits specified in Section
2.03(a) to be violated.
The Borrower may request offers to make Money Market Loans having up to 2
different Stated Maturity Dates in a single Money Market Quote Request;
provided that the request for each
20
<PAGE> 27
separate Stated Maturity Date shall be deemed to be a separate Money Market
Quote Request for a separate Money Market Borrowing. Except as otherwise
provided in the immediately preceding sentence, after the first Money Market
Quote Request has been given hereunder, no Money Market Quote Request shall be
given until at least 5 Domestic Business Days after all prior Money Market
Quote Requests have been fully processed ("fully processed" as used in this
sentence shall mean the later to occur of (i) the failure of all Banks timely
to offer a Money Market Quote, (ii) the failure of the Borrower timely to
accept any Money Market Quote, or (iii) the timely acceptance of any Money
Market Quotes) by the Agent, the Banks and the Borrower pursuant to this
Section 2.03.
(c)(i) Each Bank may, but shall have no obligation to,
submit a response containing an offer to make a Money Market Loan
substantially in the form of Exhibit J hereto (a "Money Market Quote")
in response to any Money Market Quote Request; provided that, if the
Borrower's request under Section 2.03(b) specified more than 1 Stated
Maturity Date, such Bank may, but shall have no obligation to, make a
single submission containing a separate offer for each such Stated
Maturity Date and each such separate offer shall be deemed to be a
separate Money Market Quote. Each Money Market Quote must be submitted
to the Agent not later than 10:00 A.M. (Atlanta, Georgia time) on the
Money Market Borrowing Date; provided that any Money Market Quote
submitted by Wachovia may be submitted, and may only be submitted, if
Wachovia notifies the Borrower of the terms of the offer contained
therein not later than 9:45 A.M. (Atlanta, Georgia time) on the Money
Market Borrowing Date (or 15 minutes prior to the time that the other
Banks are required to have submitted their respective Money Market
Quotes). Subject to Section 6.01, any Money Market Quote so made shall
be irrevocable except with the written consent of the Agent given on
the instructions of the Borrower.
(ii) Each Money Market Quote shall specify:
(A) the proposed Money Market
Borrowing Date and the Stated Maturity Date
therefor;
(B) the principal amounts of the Money
Market Loan which the quoting Bank is willing to
make for the applicable Money Market Quote, which
principal amounts (x) may be greater than or less
than the Commitment of the quoting Bank, (y) shall
be at least $5,000,000 or a larger integral multiple
of $500,000, and (z) may not exceed the principal
amount of the Money Market Borrowing for which
offers were requested;
(C) the rate of interest per annum
(rounded upwards, if necessary, to the nearest
1/100th of 1%) offered for each such Money Market
Loan (such amounts being hereinafter referred to as
the "Money Market Rate"); and
(D) the identity of the quoting Bank.
21
<PAGE> 28
Unless otherwise agreed by the Agent and the Borrower, no Money Market
Quote shall contain qualifying, conditional or similar language or
propose terms other than or in addition to those set forth in the
applicable Money Market Quote Request (other than setting forth the
principal amounts of the Money Market Loan which the quoting Bank is
willing to make for the applicable Interest Period) and, in
particular, no Money Market Quote may be conditioned upon acceptance
by the Borrower of all (or some specified minimum) of the principal
amount of the Money Market Loan for which such Money Market Quote is
being made.
(d) The Agent shall as promptly as practicable after the
Money Market Quote is submitted (but in any event not later than 10:30 A.M.
(Atlanta, Georgia time)) on the Money Market Borrowing Date, notify the
Borrower of the terms (i) of any Money Market Quote submitted by a Bank that is
in accordance with Section 2.03(c) and (ii) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Agent unless such subsequent Money Market Quote is submitted solely to correct
a manifest error in such former Money Market Quote. The Agent's notice to the
Borrower shall specify (A) the principal amounts of the Money Market Borrowing
for which offers have been received and (B) the respective principal amounts
and Money Market Rates so offered by each Bank (identifying the Bank that made
each Money Market Quote).
(e) Not later than 11:00 A.M. (Atlanta, Georgia time) on
the Money Market Borrowing Date, the Borrower shall notify the Agent of its
acceptance or nonacceptance of the offers so notified to it pursuant to Section
2.03(d) and the Agent shall promptly notify each Bank which submitted an offer.
In the case of acceptance, such notice shall specify the aggregate principal
amount of offers (for each Stated Maturity Date) that are accepted. The
Borrower may accept any Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the
related Money Market Quote Request;
(ii) the aggregate principal amount of each Money Market
Loan comprising a Money Market Borrowing shall be at least $10,000,000
(and in larger integral multiples of $5,000,000) but shall not cause
the limits specified in Section 2.03(a) to be violated;
(iii) acceptance of offers may only be made in ascending
order of Money Market Rates; and
(iv) the Borrower may not accept any offer where the
Agent has advised the Borrower that such offer fails to comply with
Section 2.03(c)(ii) or otherwise fails to comply with the requirements
of this Agreement (including without limitation, Section 2.03(a)).
If offers are made by 2 or more Banks with the same Money Market Rates for a
greater aggregate principal amount than the amount in respect of which offers
are accepted for the related Stated Maturity Date, the principal amount of
Money Market Loans in respect of which
22
<PAGE> 29
such offers are accepted shall be allocated by the Borrower among such Banks as
nearly as possible in proportion to the aggregate principal amount of such
offers. Determinations by the Borrower of the amounts of Money Market Loans
shall be conclusive in the absence of manifest error.
(f) Any Bank whose offer to make any Money Market Loan
has been accepted shall, not later than 12:00 P.M. (Atlanta, Georgia time) on
the Money Market Borrowing Date, make the amount of such Money Market Loan
allocated to it available to the Agent at its address referred to in Section
9.01 in immediately available funds. The amount so received by the Agent shall,
subject to the terms and conditions of this Agreement, be made available to the
Borrower on such date by depositing the same, in immediately available funds,
not later than 4:00 P.M. (Atlanta, Georgia time), in an account of the Borrower
maintained with Wachovia.
(g) After any Money Market Loan has been funded, the
Agent shall notify the Banks of the aggregate principal amount of the Money
Market Quotes received and the highest and lowest rates included in such Money
Market Quotes.
SECTION 2.04. Notes. (a) The Syndicated Loans of each
Bank shall be evidenced by a single Syndicated Loan Note payable to the order
of such Bank for the account of its Lending Office in an amount equal to the
original principal amount of such Bank's Commitment. The Swing Loans shall be
evidenced by a single Swing Loan Note payable to the order of Wachovia in the
original principal amount of $15,000,000.
(b) The Money Market Loans made by any Bank to the
Borrower shall be evidenced by a single Money Market Loan Note payable to the
order of such Bank for the account of its Lending Office in an amount equal to
the original principal amount of the aggregate Commitments.
(c) Upon receipt of each Bank's Notes pursuant to
Section 3.01, the Agent shall deliver such Notes to such Bank. Each Bank shall
record, and prior to any transfer of its Notes shall endorse on the schedules
forming a part thereof appropriate notations to evidence, the date, amount and
maturity of, and effective interest rate for, each Loan made by it, the date
and amount of each payment of principal made by the Borrower with respect
thereto, and such schedules of each such Bank's Notes shall constitute
rebuttable presumptive evidence of the respective principal amounts owing and
unpaid on such Bank's Notes; provided that the failure of any Bank to make, or
any error in making, any such recordation or endorsement shall not affect the
obligation of the Borrower hereunder or under the Notes or the ability of any
Bank to assign its Notes. Each Bank is hereby irrevocably authorized by the
Borrower so to endorse its Notes and to attach to and make a part of any Note a
continuation of any such schedule as and when required.
SECTION 2.05. Maturity of Loans. (a) Each Loan included in
any Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
23
<PAGE> 30
(b) Notwithstanding the foregoing, the outstanding
principal amount of the Loans, if any, together with all accrued but unpaid
interest thereon, if any, shall be due and payable on January 29, 2003.
SECTION 2.06. Interest Rates. (a) "Applicable Margin"
means:
(i) for the period commencing on the Closing Date to and
including June 30, 2001, (x) for any Base Rate Loan, 0%, and (y) for
any Euro-Dollar Loan, 2.00%; and
(ii) from and after June 30, 2001, (x) for any Base Rate
Loan, 0.50% and (y) for each Euro-Dollar Loan, 2.50.
(b) Each Base Rate Loan shall bear interest on the
outstanding principal amount thereof, for each day from the date such Loan is
made until it becomes due, at a rate per annum equal to the Base Rate for such
day plus the Applicable Margin. Such interest shall be payable for each
Interest Period on the last day thereof. Any overdue principal of and, to the
extent permitted by applicable law, overdue interest on any Base Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the Default Rate.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Applicable Margin plus the
applicable Adjusted London Interbank Offered Rate for such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than 3 months, at intervals of 3 months
after the first day thereof. Any overdue principal of and, to the extent
permitted by law, overdue interest on any Euro-Dollar Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
Default Rate.
The "Adjusted London Interbank Offered Rate" applicable to
any Interest Period means a rate per annum equal to the quotient obtained
(rounded upwards, if necessary, to the next higher 1/100th of 1%) by dividing
(i) the applicable London Interbank Offered Rate for such Interest Period by
(ii) 1.00 minus the Euro-Dollar Reserve Percentage.
The "London Interbank Offered Rate" applicable to any
Euro-Dollar Loan means for the Interest Period of such Euro-Dollar Loan, the
rate per annum determined on the basis of the offered rate for deposits in
Dollars of amounts equal or comparable to the principal amount of such
Euro-Dollar Loan offered for a term comparable to such Interest Period, which
rates appear on the Telerate Page 3750 effective as of 11:00 A.M., London time,
2 Euro-Dollar Business Days prior to the first day of such Interest Period,
provided that if no such offered rates appear on such page, the "London
Interbank Offered Rate" for such Interest Period will be the arithmetic average
(rounded upward, if necessary, to the next higher 1/100th of 1%) of rates
quoted by not less than 2 major banks in New York City, selected by the Agent,
at approximately 10:00 A.M., New York City time, 2 Euro-Dollar Business Days
prior to the first day of such Interest Period, for deposits in Dollars offered
by leading European banks for a period comparable to such Interest Period in an
amount comparable to the principal amount of such Euro-Dollar Loan.
24
<PAGE> 31
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which includes loans by a
non-United States office of any Bank to United States residents). The Adjusted
London Interbank Offered Rate shall be adjusted automatically on and as of the
effective date of any change in the Euro-Dollar Reserve Percentage.
(d) Each Money Market Loan shall bear interest on the
outstanding principal amount thereof, for each day from the date such Money
Market Loan is made until it becomes due, at a rate per annum equal to the
applicable Money Market Rate set forth in the relevant Money Market Quote. Such
interest shall be payable on the Stated Maturity Date thereof, and, if the
Stated Maturity Date occurs more than 90 days after the date of the relevant
Money Market Loan, at intervals of 90 days after the first day thereof. Any
overdue principal of and, to the extent permitted by law, overdue interest on
any Money Market Loan shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the Default Rate.
(e) The Agent shall, subject to the provisions of
Section 2.03 with respect to Money Market Loans, determine each interest rate
applicable to the Loans hereunder. The Agent shall give prompt notice to the
Borrower and the Banks by telecopier of each rate of interest so determined,
and its determination thereof shall be conclusive in the absence of manifest
error.
(f) After the occurrence and during the continuance of
an Event of Default, the principal amount of the Loans (and, to the extent
permitted by applicable law, all accrued interest thereon) shall bear interest
at the Default Rate and shall be payable on demand.
SECTION 2.07. Fees. (a) The Borrower shall pay to the
Agent, for the ratable account of each Bank, a facility fee, calculated in the
manner provided in the last paragraph of Section 2.06(a)(ii), on the aggregate
amount of such Bank's Commitment (without taking into account the amount of the
outstanding Loans made by such Bank), at a rate per annum equal to 0.50%
Such facility fees shall accrue from and including the Closing Date to but
excluding the Termination Date and shall be payable in arrears on each March 31,
June 30, September 30 and December 31 and on the Termination Date, commencing on
March 31, 2000.
(b) The Borrower shall pay to the Agent, for the account
and sole benefit of the Agent, such fees and other amounts at such times as set
forth in the Agent's Letter Agreement.
SECTION 2.08. Optional Termination or Reduction of
Commitments. The Borrower may, upon at least 3 Domestic Business Days' notice
to the Agent, terminate at any time, or proportionately reduce all or any part
of the Unused Commitments, after deducting therefrom the aggregate amount of
any outstanding Money Market Loans, from time to time by an aggregate amount of
at least $10,000,000 or any larger integral multiple of $5,000,000. If the
25
<PAGE> 32
Commitments are terminated in their entirety, all accrued fees (as provided
under Section 2.07) shall be due and payable on the effective date of such
termination.
SECTION 2.09. Mandatory Reduction and Termination of
Commitments. (a) If, upon a transfer of assets or the discontinuance or
elimination of a Restricted Subsidiary or a division thereof or of Keebler (in
a single transaction or in a series of related transactions), the aggregate
assets so transferred or utilized in a Restricted Subsidiary or division
thereof or of Keebler to be so discontinued, when combined with all other
assets transferred, and all other assets utilized in all other Restricted
Subsidiaries or divisions thereof and of Keebler discontinued since the Closing
Date, constitute more than 30% of Consolidated Total Assets (excluding from
such calculation assets of the types described in clause (ii) of the last
sentence of Section 5.04) measured as of February 3, 1998 (the amount of such
excess being the "Excess Proceeds"), then the Borrower shall promptly (and in
any event within 5 Domestic Business Days after such sale) notify in writing
the Agent and the Banks thereof, which notice shall include the amount of the
Excess Proceeds and the amount of such Excess Proceeds which the Borrower
intends to invest in operating assets of the Borrower or its Restricted
Subsidiaries within 90 days after such sale (the "Intended Reinvestment
Amount"), and the aggregate amount of the Commitments shall be permanently
reduced (i) on the date which is 5 Domestic Business Days after such sale, by
an amount equal to the difference between the Excess Proceeds and the Intended
Reinvestment Amount, and (ii) on the date which is 90 days after such sale, by
the amount of any Excess Proceeds which was included in the Intended
Reinvestment Amount but which have not been invested in operating assets of the
Borrower within such 90 day period (and the Borrower shall notify the Agent and
the Banks of such amount on such date), and in each case the Borrower shall
make any prepayments required by Section 2.11 as a result thereof.
(b) Without limiting the rights of the Banks under
Section 5.24, upon the incurrence of any New Indebtedness for Borrowed Money,
other than New Indebtedness for Borrowed Money permitted by clause (ii) of
Section 5.24, the aggregate amount of the Commitments shall be permanently
reduced by an amount equal to the net cash proceeds thereof (net of customary
fees and closing costs directly incurred in connection therewith), and the
Borrower shall make any prepayments required by Section 2.11 as a result
thereof.
(c) The Commitments shall terminate on the Termination
Date and any Loans then outstanding (together with accrued interest thereon)
shall be due and payable on such date.
SECTION 2.10. Optional Prepayments. (a) The Borrower may,
upon at least 1 Domestic Business Days' notice to the Agent, prepay any Base
Rate Borrowing in whole at any time, or from time to time in part in amounts
aggregating at least $5,000,000 or $500,000 as to Swing Loans, or any larger
integral multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Base Rate Loans of
the several Banks (or of Wachovia, in the case of Swing Loans) included in such
Base Rate Borrowing.
(b) Subject to any payments required pursuant to the
terms of Section 8.05(a) for such Fixed Rate Loan, upon 3 Domestic Business
Day's prior written notice, the Borrower may prepay in minimum amounts of
$10,000,000 with additional increments of $5,000,000 (or any
26
<PAGE> 33
lesser amount equal to the outstanding balance of such Loan) all or any portion
of the principal amount of any Fixed Rate Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to
this Section 2.10, the Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share of such prepayment and such notice,
once received by the Agent, shall not thereafter be revocable by the Borrower.
SECTION 2.11. Mandatory Prepayments. On each date on which
the Commitments are reduced pursuant to Section 2.08 or Section 2.09, the
Borrower shall repay or prepay such principal amount of the outstanding Loans,
if any (together with interest accrued thereon and any amount due under Section
8.05(a)), as may be necessary so that after such payment the aggregate unpaid
principal amount of the Loans does not exceed the aggregate amount of the
Commitments as then reduced. In addition, the Borrower shall make such
mandatory prepayments as may be necessary from time to time to be in compliance
with the provisions of Section 5.23. Each such payment or prepayment shall be
applied first to any Swing Loans outstanding, and then ratably to the Loans of
the Banks outstanding on the date of payment or prepayment in the following
order of priority:(i) first, to Base Rate Loans; (ii) secondly, to Euro-Dollar
Loans; and (iii) lastly, to Money Market Loans.
SECTION 2.12. General Provisions as to Payments. (a) The
Borrower shall make each payment of principal of, and interest on, the Loans
and of fees hereunder, not later than 11:00 A.M. (Atlanta, Georgia time) on the
date when due, in Federal or other funds immediately available in Atlanta,
Georgia, to the Agent at its address referred to in Section 9.01. The Agent
will promptly distribute to Wachovia each such payment received on account of
the Swing Loans and to each Bank its ratable share of each such payment
received by the Agent for the account of the Banks.
(b) Whenever any payment of principal of, or interest
on, the Base Rate Loans, Money Market Loans or of fees hereunder shall be due
on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of or interest on, the Euro-Dollar Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for payment thereof shall
be extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding Euro-Dollar Business Day.
(c) All payments of principal, interest and fees and all
other amounts to be made by the Borrower pursuant to this Agreement with
respect to any Loan or fee relating thereto shall be paid without setoff,
deduction or counterclaim of any kind, including, without limitation, any
deduction for, and free from, any tax, imposts, levies, duties, deductions, or
withholdings of any nature now or at anytime hereafter imposed by any
governmental authority or by any taxing authority thereof or therein excluding
in the case of the Agent and each Bank, taxes imposed on or measured by its net
income, and franchise taxes imposed on it, by the jurisdiction under the laws
of which the Agent or such Bank is organized or any political subdivision
thereof and, in the case of each Bank, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction of such Bank's applicable
Lending Office or any political subdivision thereof (all
27
<PAGE> 34
such non-excluded taxes, imposts, levies, duties, deductions or withholdings of
any nature being "Taxes"). In the event that the Borrower is required by
applicable law to make any such withholding or deduction of Taxes with respect
to any Loan or fee or other amount, the Borrower shall pay such deduction or
withholding to the applicable taxing authority, shall promptly furnish to any
Bank in respect of which such deduction or withholding is made all receipts and
other documents evidencing such payment and shall pay to such Bank additional
amounts as may be necessary in order that the amount received by such Bank
after the required withholding or other payment shall equal the amount such
Bank would have received had no such withholding or other payment been made. If
no withholding or deduction of Taxes are payable in respect to any Loan or fee
relating thereto, the Borrower shall furnish any Bank, at such Bank's request,
either (at the option of the Borrower) a certificate from each applicable
taxing authority or an opinion of counsel acceptable to such Bank, in either
case stating that such payments are exempt from or not subject to withholding
or deduction of Taxes. If the Borrower fails to provide such original or
certified copy of a receipt evidencing payment of Taxes or certificate(s) or
opinion of counsel of exemption, the Borrower hereby agrees to compensate such
Bank for, and indemnify them with respect to, the tax consequences of the
Borrower's failure to provide evidence of tax payments or tax exemption.
Each Bank which is not organized under the laws of the United
States or any state thereof agrees, as soon as practicable after receipt by it
of a request by the Borrower to do so, to file all appropriate forms and take
other appropriate action to obtain a certificate or other appropriate document
from the appropriate governmental authority in the jurisdiction imposing the
relevant Taxes, establishing that it is entitled to receive payments of
principal and interest under this Agreement and the Notes without deduction and
free from withholding of any Taxes imposed by such jurisdiction; provided that
if it is unable, for any reason, to establish such exemption, or to file such
forms and, in any event, during such period of time as such request for
exemption is pending, the Borrower shall nonetheless remain obligated under the
terms of the immediately preceding paragraph.
In the event any Bank receives a refund of any Taxes paid by
the Borrower pursuant to this Section 2.12(c), it will pay to the Borrower the
amount of such refund promptly upon receipt thereof; provided that if at any
time thereafter it is required to return such refund, the Borrower shall
promptly repay to it the amount of such refund.
Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower and the
Banks contained in this Section 2.12(c) shall be applicable with respect to any
Participant, Assignee or other Transferee, and any calculations required by
such provisions (i) shall be made based upon the circumstances of such
Participant, Assignee or other Transferee, and (ii) constitute a continuing
agreement and shall survive the termination of this Agreement and the payment
in full or cancellation of the Notes.
SECTION 2.13. Computation of Interest and Fees. Interest
on Base Rate Loans shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed (including the first day but
excluding the last day). Interest on Euro-Dollar Loans and Money Market Loans
shall be computed on the basis of a year of 360 days and paid for the actual
number of days elapsed, calculated as to each Interest Period from and
including the first
28
<PAGE> 35
day thereof to but excluding the last day thereof. Commitment fees and any
other fees payable hereunder shall be computed on the basis of a year of 360
days and paid for the actual number of days elapsed (including the first day
but excluding the last day).
ARTICLE III
CONDITIONS TO BORROWINGS
SECTION 3.01. Conditions to First Borrowing. The
obligation of each Bank to make a Loan on the occasion of the first Borrowing
is subject to the satisfaction of the conditions set forth in Section 3.02 and
receipt by the Agent of the following (as to the documents described in
paragraphs (a),(c), (d)and (e) below, in sufficient number of counterparts for
delivery of a counterpart to each Bank and retention of one counterpart by the
Agent); provided, however, that (i) this Agreement replaces and supersedes the
Original Agreement, and (ii) all of the following conditions set forth in (b)
through (d), inclusive, and (g) below shall be deemed to have been satisfied by
the satisfaction of the same at the time of the closing of the Original
Agreement (and the Notes currently held by the Banks shall continue to evidence
the Syndicated Loans and Money Market Loans hereunder):
(a) from the Borrower, the Agent and each of the
Required Banks of either (i) a duly executed counterpart of this
Agreement signed by such party or (ii) a facsimile transmission of
such executed counterpart, with the original to be sent to the Agent
by overnight courier);
(b) a duly executed Syndicated Loan Note and a duly
executed Money Market Loan Note for the account of each Bank complying
with the provisions of Section 2.04;
(c) an opinion letter of Stephen R. Avera, Assistant
General Counsel of the Borrower, dated as of the Closing Date,
substantially in the form of Exhibit B and covering such additional
matters relating to the transactions contemplated hereby as the Agent
or any Bank may reasonably request;
(d) an opinion of Jones, Day, Reavis & Pogue, special
counsel for the Agent, dated as of the Closing Date, substantially in
the form of Exhibit C and covering such additional matters relating to
the transactions contemplated hereby as the Agent may reasonably
request;
(e) a certificate (the "Closing Certificate")
substantially in the form of Exhibit G), dated as of the Closing Date,
signed by a principal financial officer of the Borrower, to the effect
that (i) no Default has occurred and is continuing on the date of the
first Borrowing and (ii) the representations and warranties of the
Borrower contained in Article IV are true on and as of the date of the
first Borrowing hereunder;
(f) a certificate of the Borrower substantially in the
form of Exhibit H (the "Officer's Certificate"), signed by the
Secretary or an Assistant Secretary of the Borrower, certifying as to
(i) the names, true signatures and incumbency of the officer or
officers of the Borrower authorized to execute and deliver this
Agreement and the Swing
29
<PAGE> 36
Loan Note, (ii) the Borrower's Certificate of Incorporation and (iii)
the Borrower's Bylaws;
(g) a Notice of Borrowing or notification pursuant to
Section 2.03(e) of acceptance of one or more Money Market Quotes, as
applicable;
(h) a duly executed Swing Loan Note for the account of
Wachovia complying with the provisions of Section 2.04;
(i) receipt by the Agent of (i) an amendment fee payable
to the Agent for the ratable account of each of the Banks which
executes this Agreement on or before the Closing Date in an amount
equal to 0.25% of the Commitments on the Closing Date, and (ii) all
fees payable on the Closing Date pursuant to the letter agreement
dated March 23, 2000 between the Borrower, the Agent and Wachovia
Securities, Inc.;
(j) receipt by the Agent of a certificate showing the
calculation of the Indebtedness, the Synthetic Lease Obligations and
the Borrowing Base pursuant to Section 5.23, as of the Fiscal Period
just ended;
(k) with respect to any indenture, agreement or other
instrument pertaining to Indebtedness which must be amended to prevent
the occurrence of an Event of Default under Section 6.01(e) or (f),
receipt by the Agent of a copy of the amendments executed in
connection therewith which prevent such occurrence, and the Agents'
reasonable satisfaction that such amendments do not include any
financial, negative or affirmative covenants which are more
restrictive in any material respect on the Borrower or any of its
Subsidiaries than those contained in this Agreement; and
(l) receipt by the Agent of a Federal Reserve Form FR
U-1 pertaining to this Agreement and the Loans hereunder in form and
substance satisfactory to the Agent, and executed by the Agent and the
Borrower.
SECTION 3.02. Conditions to All Borrowings. The obligation
of each Bank to make a Loan on the occasion of each Borrowing or of Wachovia to
make a Swing Loan is subject to the satisfaction of the following conditions
except as expressly provided in the last sentence of this Section 3.02:
(a) receipt by the Agent of a Notice of Borrowing or
notification pursuant to Section 2.03(e) of acceptance of one or more
Money Market Quotes, as applicable;
(b) the fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing;
(c) the fact that the representations and warranties of
the Borrower contained in Article IV of this Agreement shall be true
on and as of the date of such Borrowing, except to the extent such
representations and warranties relate to a prior date; and
(d) the fact that, immediately after such Borrowing, the
conditions set forth in clauses (i) and (ii) of Section 2.01(a) shall
have been satisfied.
30
<PAGE> 37
The acceptance by the Borrower of each Syndicated Borrowing and each Money
Market Borrowing hereunder shall be deemed to be a representation and warranty
by the Borrower on the date of such Borrowing as to the truth and accuracy of
the facts specified in paragraphs (b), (c) and (d) of this Section; provided
that: (i) if such Borrowing is a Syndicated Borrowing which consists solely of
a Refunding Loan, (x) such Borrowing shall not be deemed to be such a
representation and warranty as to the truth and accuracy of the fact specified
in paragraph (c) of this Section, and (y) if the facts specified in paragraph
(b) are not true and accurate, such Refunding Loan shall be made as a Base Rate
Loan; and (ii) any representation and warranty contained in Article IV which by
its terms is made as to matters as of a specified date shall when remade
pursuant to this Section in connection with such Borrowing be deemed to be made
as to matters as of such specified date and not any later date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Georgia. The Borrower is duly qualified to transact
business in every jurisdiction where, by the nature of its business, such
qualification is necessary, except for any failure to comply with the foregoing
which does not have and reasonably could not be expected to cause a Material
Adverse Effect, and has all corporate powers and all government authorizations,
licenses, consents and approvals required to engage in its business and
operations as now conducted, except for any failure to comply with the
foregoing which does not have and reasonably could not be expected to cause a
Material Adverse Effect.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement, the Notes and the other Loan Documents (i) are within the Borrower's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of or filing with, any
governmental body, agency or official, (iv) do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of the Borrower or of any material
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrower or any of its Restricted Subsidiaries, and (v) do not result in
the creation or imposition of any Lien on any asset of the Borrower or any of
its Restricted Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a
valid and binding agreement of the Borrower enforceable in accordance with its
terms, and the Notes and the other Loan Documents, when executed and delivered
in accordance with this Agreement, will constitute valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms, provided that the enforceability hereof and thereof is subject in each
case to general principles of equity and to bankruptcy, insolvency and similar
laws affecting the enforcement of creditors' rights generally.
31
<PAGE> 38
SECTION 4.04. Financial Information. (a) The consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of January
2, 1999 and the related consolidated statements of income, shareholders' equity
and cash flows for the Fiscal Year then ended, reported on by Price Waterhouse
LLP, copies of which have been delivered to each of the Banks, and the
unaudited consolidated financial statements of the Borrower for the interim
period ended October 9, 1999 copies of which have been delivered to each of the
Banks, fairly present, in conformity with GAAP, the consolidated financial
position of the Borrower and its Consolidated Subsidiaries as of such dates and
their consolidated results of operations and cash flows for such periods
stated.
(b) Since January 2, 1999, there has been no event, act,
condition or occurrence which has or reasonably could be expected to cause a
Material Adverse Effect.
SECTION 4.05. No Litigation. There is no action, suit or
proceeding pending, or to the knowledge of the Borrower threatened, against or
affecting the Borrower or any of its Restricted Subsidiaries before any court
or arbitrator or any governmental body, agency or official which has or
reasonably could be expected to have a Material Adverse Effect or which in any
manner draws into question the validity of this Agreement, the Notes or any of
the other Loan Documents.
SECTION 4.06. Compliance with ERISA. (a) The Borrower and
each member of the Controlled Group have fulfilled their obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and
are in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and have not incurred any liability to the
PBGC or a Plan under Title IV of ERISA.
(b) Neither the Borrower nor any member of the
Controlled Group has incurred any withdrawal liability with respect to any
Multiemployer Plan under Title IV of ERISA, and no such liability is expected
to be incurred.
SECTION 4.07. Compliance with Laws; Payment of Taxes. The
Borrower and, to the best of the Borrower's knowledge, its Material
Subsidiaries, are in compliance with all applicable laws, regulations and
similar requirements of governmental authorities, except where such compliance
is being contested in good faith through appropriate proceedings or which does
not have and reasonably could not be expected to cause a Material Adverse
Effect. There have been filed on behalf of the Borrower and its Material
Subsidiaries all Federal, state and local income, material excise, material
property and other material tax returns which are required to be filed by them
and all taxes due pursuant to such returns or pursuant to any assessment
received by or on behalf of the Borrower or any Material Subsidiary have been
paid, except where such payments are being contested in good faith through
appropriate proceedings or the failure to pay does not have and reasonably
could not be expected to cause a Material Adverse Effect. The charges, accruals
and reserves on the books of the Borrower and its Material Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of the
Borrower, adequate. As of the Closing Date, United States income tax returns of
the Borrower and its Material Subsidiaries have been examined and closed
through the 1995 Fiscal Year.
32
<PAGE> 39
SECTION 4.08. Subsidiaries. Each of the Borrower's
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, is duly qualified
to transact business in every jurisdiction where, by the nature of its
business, such qualification is necessary, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, except for any failure to comply with the
foregoing which does not have and reasonably could not be expected to cause a
Material Adverse Effect. As of the Closing Date, the Borrower has no
Subsidiaries except for those Subsidiaries listed on Schedule 4.08, which
assumes the consummation of the Keebler Acquisition and which accurately sets
forth each such Subsidiary's complete name and jurisdiction of incorporation.
None of such Subsidiaries, other than those listed as such on Schedule 4.08, is
a Material Subsidiary as of the Closing Date. Within 15 days after any
Subsidiary becomes a Material Subsidiary, or the creation or acquisition of any
Subsidiary which becomes a Material Subsidiary, the Borrower will send to the
Agent and each of the Banks either a supplement to or replacement of Schedule
4.08 (showing such Subsidiary and indicating that it is a Material Subsidiary),
or a copy of Form 8-K sent to the Securities and Exchange Commission, showing
such Subsidiary as a Material Subsidiary.
SECTION 4.09. Investment Company Act. Neither the Borrower
nor any of its Subsidiaries is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
SECTION 4.10. Public Utility Holding Company Act. Neither
the Borrower nor any of its Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
SECTION 4.11. Ownership of Property; Liens. Each of the
Borrower and its Material Subsidiaries has title to, or leasehold or other
interests in, its properties sufficient for the conduct of its business, and
none of such property is subject to any Lien except as permitted in Section
5.16.
SECTION 4.12. No Default. Neither the Borrower nor any of
its Material Subsidiaries is in default under or with respect to any agreement,
instrument or undertaking to which it is a party or by which it or any of its
property is bound which has or reasonably could be expected to cause a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
SECTION 4.13. Full Disclosure. The Borrower's annual
report on Form 10-K for the fiscal year ended at January 2, 1999, a copy of
which has been furnished by the Borrower to the Agent and the Banks, did not,
as of the date such Form 10-K was filed with the Securities and Exchange
Commission, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. From the date of
filing of the Borrower's quarterly report on Form 10-Q for the fiscal quarter
ended on October 9, 1999 through the date hereof, the Borrower has not filed a
current report on Form 8-K with the Securities and Exchange
33
<PAGE> 40
Commission and, as of the date hereof, no event or condition exists which would
require such filing by the Borrower pursuant to the Securities Exchange Act of
1934, as amended, except for any such event or condition which has heretofore
been disclosed in writing to the Agent and the Banks by delivery to the Agent
and the Banks of a Form 8-K.
SECTION 4.14. Environmental Matters. (a) Neither the
Borrower nor any Restricted Subsidiary is subject to any Environmental
Liability which has or reasonably could be expected to cause a Material Adverse
Effect and, to the best of the Borrower's knowledge, neither the Borrower nor
any Restricted Subsidiary has been designated as a potentially responsible
party under CERCLA or under any state statute similar to CERCLA. To the best of
the Borrower's knowledge, none of the Properties has been identified on any
current or proposed (i) National Priorities List under 40 C.F.R. ss. 300, (ii)
CERCLIS list or (iii) any list arising from a state statute similar to CERCLA.
(b) To the best of the Borrower's knowledge, no
Hazardous Materials have been or are being used, produced, manufactured,
processed, treated, recycled, generated, stored, disposed of, managed or
otherwise handled at, or shipped or transported to or from the Properties or
are otherwise present at, on, in or under the Properties, or, to the best of
the knowledge of the Borrower, at or from any adjacent site or facility, except
for Hazardous Materials, such as cleaning solvents, pesticides and other
materials used, produced, manufactured, processed, treated, recycled,
generated, stored, disposed of, managed, or otherwise handled in material
compliance with all applicable Environmental Requirements.
(c) To the best of the Borrower's knowledge, the
Borrower, and each of its Restricted Subsidiaries and Affiliates, has procured
all Environmental Authorizations necessary for the conduct of its business, and
is in compliance with all Environmental Requirements in connection with the
operation of the Properties and the Borrower's, and each of its Restricted
Subsidiary's and Affiliate's, respective businesses, except where failure to
comply does not have and reasonably could not be expected to cause a Material
Adverse Effect.
SECTION 4.15. Capital Stock. All Capital Stock,
debentures, bonds, notes and all other securities of the Borrower presently
issued and outstanding are validly and properly issued in accordance with all
applicable laws in all material respects, including but not limited to, the
"Blue Sky" laws of all applicable states and the federal securities laws,
except to the extent any failure with respect thereto would not have and
reasonably could not be expected to cause a Material Adverse Effect. The issued
shares of Capital Stock of the Borrower's Wholly Owned Subsidiaries are owned
by the Borrower free and clear of any Lien or adverse claim. At least a
majority of the issued shares of capital stock of each of the Borrower's other
Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrower
free and clear of any Lien or adverse claim.
SECTION 4.16. Margin Stock. Neither the Borrower nor any
of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of purchasing or carrying any Margin Stock (other
than its ownership of stock in Keebler), and no part of the proceeds of any
Loan will be used for any purpose in violation of the provisions of Regulation
T, U or X.
34
<PAGE> 41
SECTION 4.17. Insurance. The Borrower and each of its
Material Subsidiaries has (either in the name of the Borrower or in such
Material Subsidiary's own name), with financially sound and reputable insurance
companies, insurance in at least such amounts (including deductibles,
co-insurance and self-insurance with respect to which adequate reserves are
maintained) and against at least such risks (including on all its property, and
public liability and worker's compensation) as are usually insured against in
the same general area by companies of established repute engaged in the same or
similar business and similarly situated.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable hereunder or under any Note remains
unpaid (unless the Required Banks consent in writing):
SECTION 5.01. Information. The Borrower will deliver to
each of the Banks:
(a) as soon as available and in any event within 90 days
after the end of each Fiscal Year.
(i) a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such
Fiscal Year and the related consolidated statements of income,
shareholders' equity and cash flows for such Fiscal Year, setting
forth in each case in comparative form the figures for the previous
fiscal year, all certified by PricewaterhouseCoopers or other
independent public accountants of nationally recognized standing, with
such certification to be free of exceptions and qualifications not
acceptable to the Required Banks,
(ii) so long as there is an Unrestricted
Subsidiary, a consolidated balance sheet and statement of income for
such periods which accounts for the Unrestricted Subsidiaries using an
equity basis of accounting, in each case setting forth in each case in
comparative form the figures for the previous fiscal year, accompanied
by a restricted use report as to such balance sheet and income
statement from PricewaterhouseCoopers LLP or other nationally
recognized standing, which report may be qualified on the basis that
the use of the equity basis of accounting does not conform to GAAP and
qualified as to the absence of a statement of cash flows and as to the
absence of footnotes and otherwise to be free of exceptions and
qualifications not acceptable to the Required Banks; and
(iii) simultaneously with the delivery of each
set of financial statements referred to in clauses (i) and (ii) above,
a copy of the auditor's management letter furnished to the Borrower by
such independent public accountants.
(b) as soon as available and in any event within 45 days
after the end of each of the first 3 Fiscal Quarters of each Fiscal Year;
35
<PAGE> 42
(i) a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such
Fiscal Quarter and the related statement of income and statement of
cash flows for such Fiscal Quarter and for the portion of the Fiscal
Year ended at the end of such Fiscal Quarter, setting forth in each
case in comparative form the figures for the corresponding portion of
the previous Fiscal Year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, GAAP and consistency by
the chief financial officer or the chief accounting officer of the
Borrower;
(ii) so long as there is an Unrestricted
Subsidiary, a consolidated balance sheet and statement of income for
such periods which accounts for the Unrestricted Subsidiaries using an
equity basis of accounting, in each case setting forth in each case in
comparative form the figures for the corresponding Fiscal Quarter and
the corresponding portion of the previous Fiscal Year, all certified
(subject to normal year-end adjustments and to qualification based on
the use of the equity basis of accounting ) as to fairness of
presentation, GAAP and consistency by the chief financial officer or
the chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and (b) above, a
certificate, substantially in the form of Exhibit F (a "Compliance
Certificate"), of the chief financial officer or the chief accounting officer
of the Borrower (i) setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Sections 5.13 through 5.19, inclusive, and 5.22 and 5.25 on the
date of such financial statements and (ii) stating whether any Default exists
on the date of such certificate and, if any Default then exists, setting forth
the details thereof and the action which the Borrower is taking or proposes to
take with respect thereto;
(d) simultaneously with the delivery of each set of
annual financial statements referred to in paragraph (a) above, a statement of
the firm of independent public accountants which reported on such statements to
the effect that nothing has come to their attention to cause them to believe
that any Default under Sections 5.13 through 5.19, inclusive, and Section 5.22
existed on the date of such financial statements;
(e) within 5 Domestic Business Days after the Borrower
becomes aware of the occurrence of any Default, a certificate of a senior
financial officer or accounting officer or the chief financial officer or the
chief accounting officer or the Treasurer of the Borrower setting forth the
details thereof and the action which the Borrower is taking or proposes to take
with respect thereto;
(f) promptly upon the mailing thereof to the
shareholders of the Borrower generally, copies of all financial statements,
reports and proxy statements so mailed;
(g) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and annual or quarterly reports which
the Borrower shall have filed with the Securities and Exchange Commission;
36
<PAGE> 43
(h) if and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA, or
knows that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such reportable
event given or required to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA, a copy of
such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate or appoint a trustee to administer any Plan, a copy of
such notice;
(i) within 15 days after the receipt thereof, a copy of
the report of Arthur Andersen Consulting to the Borrower rendered pursuant to
engagement letter dated January 12, 2000; and
(j) from time to time such additional information
regarding the financial position or business of the Borrower and its
Subsidiaries (other than non-public information as to the Unrestricted
Subsidiaries) as the Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. Inspection of Property, Books and Records.
The Borrower will (i) keep, and cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries in conformity with
GAAP shall be made of all dealings and transactions in relation to its business
and activities; and (ii) permit, and cause each Restricted Subsidiary to
permit, representatives of any Bank (x) at such Bank's expense and upon
reasonable notice and at a time reasonably convenient to the Borrower (but in
any event within 10 days of such notice) prior to the occurrence and
continuance of a Default and (y) at the Borrower's expense and without prior
notice after the occurrence and continuance of a Default, to visit and inspect
any of their respective properties, to examine and make abstracts from any of
their respective books and records and to discuss their respective affairs,
finances and accounts with their respective officers, employees and independent
public accountants. The Borrower agrees to cooperate and assist in such visits
and inspections, in each case at such reasonable times and as often as may
reasonably be desired.
SECTION 5.03. Maintenance of Existence. The Borrower will
at all times preserve and keep in full force and effect its corporate
existence. Subject to Section 5.04, the Borrower will at all times preserve and
keep in full force and effect the corporate existence of each of its Restricted
Subsidiaries (unless merged into the Borrower or a Restricted Subsidiary) and
all rights and franchises of the Borrower and its Restricted Subsidiaries
unless, in the good faith judgment of the Borrower, the termination of or
failure to preserve and keep in full force and effect such corporate existence,
right or franchise would not, individually or in the aggregate, have and could
not reasonably be expected to cause a Material Adverse Effect. The Borrower
will, and will cause each Restricted Subsidiary (subject to Section 5.04), at
all times to carry on its business in the food or beverage business or any
related line of business.
SECTION 5.04. Consolidations, Mergers and Sales of Assets.
The Borrower will not, nor will it permit any Material Subsidiary to,
consolidate or merge with or into, or sell, lease or otherwise transfer all or
any substantial part of its assets to, any other Person, or discontinue or
eliminate any business line or segment, provided that (a) the Borrower
37
<PAGE> 44
may merge with another Person if (i) such Person was organized under the laws
of the United States of America or one of its states, (ii) the Borrower is the
corporation surviving such merger and (iii) immediately after giving effect to
such merger, no Default shall have occurred and be continuing, (b) Subsidiaries
of the Borrower may merge with one another, provided that in the case of a
merger of a Restricted Subsidiary with an Unrestricted Subsidiary, the
Restricted Subsidiary is the corporation surviving such merger, (c) other
Persons may merge into or with Subsidiaries to effect an acquisition permitted
by Section 5.15 and (d) the foregoing limitation on the sale, lease or other
transfer of assets and on the discontinuation or elimination of a Subsidiary or
division shall not prohibit (x) transfers of assets (including stock of a
Restricted Subsidiary) to or among Restricted Subsidiaries, (y) during any
Fiscal Year, a transfer of assets other than Margin Stock or the discontinuance
or elimination of a Subsidiary or division (in a single transaction or in a
series of related transactions) unless the aggregate assets to be so
transferred or utilized in a Restricted Subsidiary or division to be so
discontinued, when combined with all other assets transferred, and all other
assets utilized in all other Restricted Subsidiaries or divisions discontinued,
in any Fiscal Year, constituted more than 15% of Adjusted Consolidated Total
Assets measured as of the end of the immediately preceding Fiscal Year and (z)
transfers of (but not Liens on) Margin Stock. Nothing in this Section 5.04
shall be interpreted to (i) limit or abridge the provisions of Section 2.09(a)
or (ii) restrict the Borrower's ability to dispose of (1) vehicles, (2)
delivery routes, (3) assets obtained through acquisitions of businesses or
assets on or after the date hereof, provided that proceeds of any such
disposition shall be reinvested in the Borrower by reducing Indebtedness or by
investing in operating assets, and (4) obsolete, under-performing or non-core
assets, disposition of which, in management's judgment, would enhance the
Borrower's operations and profitability, and dispositions described in this
sentence shall not be subject to, or included in the computations under, clause
(d) above.
SECTION 5.05. Use of Proceeds. The proceeds of the Loans
shall be used for general corporate purposes, including the Keebler Acquisition
and other acquisitions permitted by Section 5.15, and the repayment of
Indebtedness; provided, that no portion of the proceeds of the Loans will be
used by the Borrower or any Subsidiary (i) in connection with, whether directly
or indirectly, any tender offer for, or other acquisition of, stock of any
corporation with a view towards obtaining control of such other corporation,
unless such tender offer or other acquisition is to be made on a negotiated
basis with the approval of the Board of Directors of the Person to be acquired,
and the provisions of Section 5.16 would not be violated, (ii) in violation of
Section 4.16, or (iii) for any purpose in violation of any applicable law or
regulation.
SECTION 5.06. Compliance with Laws; Payment of Taxes. (a)
The Borrower will, and will cause each of its Material Subsidiaries and each
member of the Controlled Group to, comply with applicable laws (including but
not limited to ERISA), regulations and similar requirements of governmental
authorities (including but not limited to PBGC), except where the necessity of
such compliance is being contested in good faith through appropriate
proceedings diligently pursued or if failure to comply does not have and
reasonably could not be expected to cause a Material Adverse Effect. The
Borrower will, and will cause each of its Material Subsidiaries to, pay
promptly when due all taxes, assessments, governmental charges, claims for
labor, supplies, rent and other obligations which, if unpaid, might become a
lien against the property of the Borrower or any Restricted Subsidiary, except
liabilities being contested in good faith and against which, if requested by
the Agent, the Borrower will set up
38
<PAGE> 45
reserves in accordance with GAAP and liabilities the nonpayment of which would
not have and reasonably could not be expected to cause a Material Adverse
Effect.
(b) The Borrower shall not permit the aggregate complete
or partial withdrawal liability under Title IV of ERISA with respect to
Multiemployer Plans incurred by the Borrower and members of the Controlled
Group to exceed $5,000,000 at any time. For purposes of this Section 5.06(b),
the amount of withdrawal liability of the Borrower and members of the
Controlled Group at any date shall be the aggregate present value of the amount
claimed to have been incurred less any portion thereof which the Borrower and
members of the Controlled Group have paid or as to which the Borrower
reasonably believes, after appropriate consideration of possible adjustments
arising under Sections 4219 and 4221 of ERISA, it and members of the Controlled
Group will have no liability, provided that the Borrower shall obtain prompt
written advice from independent actuarial consultants supporting such
determination. The Borrower agrees (i) once in each year, beginning with the
1998 Fiscal Year, to request a current statement of the withdrawal liability of
the Borrower and members of the Controlled Group from each Multiemployer Plan,
if any, and (ii) to transmit a copy of such statement to the Agent and the
Banks within 15 days after the Borrower receives the same.
SECTION 5.07. Insurance. The Borrower will maintain, and
will cause each of its Material Subsidiaries to maintain (either in the name of
the Borrower or in such Material Subsidiary's own name), with financially sound
and reputable insurance companies, insurance on all its property in at least
such amounts (including deductibles, co-insurance and self-insurance, if
adequate reserves are maintained with respect thereto) and against at least
such risks (including on all its property, and public liability and worker's
compensation) as are usually insured against in the same general area by
companies of established repute engaged in the same or similar business and
similarly situated.
SECTION 5.08. Change in Fiscal Year. The Borrower will not
change its Fiscal Year without the consent of the Required Banks, which shall
not be unreasonably withheld (taking into consideration for such purpose the
effect, if any, such change would have on the financial covenants contained in
this Agreement).
SECTION 5.09. Maintenance of Property. The Borrower shall,
and shall cause each Restricted Subsidiary to, maintain all of its properties
and assets in good condition, repair and working order, ordinary wear and tear
excepted, except where any failure would not have and could not reasonably be
expected to cause a Material Adverse Effect.
SECTION 5.10. Environmental Notices. The Borrower shall
furnish to the Banks and the Agent prompt written notice of all Environmental
Liabilities, pending, threatened or anticipated Environmental Proceedings,
Environmental Notices, Environmental Judgments and Orders, and Environmental
Releases of which the Borrower shall have received actual notice or have actual
knowledge at, on, in, under or in any way affecting the Properties, and all
facts, events, or conditions that could lead to any of the foregoing, if the
amount of liability or of remediation cost to the Borrower has or reasonably
could be expected to cause a Material Adverse Effect.
39
<PAGE> 46
SECTION 5.11. Environmental Matters. The Borrower and its
Material Subsidiaries will not, and will not knowingly permit any Third Party
to, use, produce, manufacture, process, treat, recycle, generate, store,
dispose of, manage at, or otherwise handle, or ship or transport to or from the
Properties any Hazardous Materials in violation of applicable Environmental
Requirements, except to the extent that failure to comply would not have and
reasonably could not be expected to cause a Material Adverse Effect.
SECTION 5.12. Environmental Release. The Borrower agrees
that upon its becoming aware of the occurrence of an Environmental Release,
except for any Environmental Release which occurred in substantial compliance
with all Environmental Requirements, at or on any of the Properties it will act
promptly to determine the extent of, and to take such remedial action to
eliminate, any such Environmental Release, whether or not ordered or otherwise
directed to do so by any Environmental Authority, except to the extent that
failure to take remedial action would not have and reasonably could not be
expected to cause a Material Adverse Effect.
SECTION 5.13. Transactions with Affiliates. Neither the
Borrower nor any of its Material Subsidiaries shall enter into, or be a party
to, any transaction with any Affiliate of the Borrower or such Material
Subsidiary (which Affiliate is not the Borrower or a Restricted Subsidiary,
other than a Person in which the Borrower or such Material Subsidiary owns less
than a majority interest and which, if it were a Restricted Subsidiary, would
not be a Material Subsidiary), except as permitted by law and in the ordinary
course of business and pursuant to reasonable terms which either (x) are no
less favorable to Borrower or such Material Subsidiary than would be obtained
in a comparable arm's length transaction with a Person which is not an
Affiliate or (y) have been approved by a majority of the Board of Directors of
the Borrower or such Material Subsidiary; provided, that the foregoing shall
not affect the ability of the Borrower or any Material Subsidiary to determine,
in its sole discretion, the amount or form of executive or director
compensation from time to time.
SECTION 5.14. Loans or Advances. Neither the Borrower nor
any of its Material Subsidiaries shall make loans or advances to any Person
except as permitted by Section 5.16 and except: (i) loans or advances to
employees not exceeding $10,000,000 in the aggregate principal amount
outstanding at any time, in each case made in the ordinary course of business
and consistent with practices existing on the Closing Date; (ii) deposits
required by government agencies or public utilities; (iii) loans or advances to
and among Borrower and its Wholly Owned Subsidiaries; and (iv) other loans or
advances, to Persons other than the Unrestricted Subsidiaries (loans and
advances to Unrestricted Subsidiaries not being permitted), in an aggregate
amount outstanding which do not exceed 15% of Adjusted Consolidated Total
Assets as of the last day of the immediately preceding Fiscal Quarter; provided
that after giving effect to the making of any loans, advances or deposits
permitted by this Section, no Default shall be in existence or be created
thereby.
SECTION 5.15. Investments. Neither the Borrower nor any of
its Restricted Subsidiaries shall make Investments in any Person except as
permitted by Section 5.14 and except Investments in (i) direct obligations of
the United States Government maturing within one year, (ii) certificates of
deposit issued by a commercial bank whose credit is satisfactory to the Agent,
(iii) commercial paper rated A1 or the equivalent thereof by Standard & Poor's
Ratings
40
<PAGE> 47
Group, a division of McGraw-Hill, Inc. or P1 or the equivalent thereof by
Moody's Investors Service, Inc. and in either case maturing within 6 months
after the date of acquisition; (iv) tender bonds the payment of the principal
of and interest on which is fully supported by a letter of credit issued by a
United States bank whose long-term certificates of deposit are rated at least
AA or the equivalent thereof by Standard & Poor's Corporation and Aa or the
equivalent thereof by Moody's Investors Service, Inc.; (v) Investments by the
Borrower or any Restricted Subsidiary in the stock (or other ownership
interests) of Persons which are Restricted Subsidiaries as of the Closing Date
and/or (vi) Permitted Keebler Investments; provided, however, immediately after
giving effect to the making of any Investment, no Default shall have occurred
and be continuing.
SECTION 5.16. Negative Pledge. Neither the Borrower nor
any Restricted Subsidiary will create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except:
(a)(i) Liens existing on the date of the Original Agreement
securing Indebtedness outstanding on the date of the Original Agreement in an
aggregate principal amount not exceeding $24,000,000 and (ii) Liens in favor of
the Agent, for the ratable benefit of the Banks, to secure the Loans and other
obligations under this Agreement and (if applicable) under any other agreement
pertaining to Indebtedness which is required to be equally and ratably secured
by any Lien securing the Loans;
(b) any Lien existing on any specific fixed asset of any
corporation at the time such corporation becomes a Restricted Subsidiary and
not created in contemplation of such event;
(c) any Lien on any specific fixed asset (real or
personal) securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring or constructing such asset,
provided that such Lien attaches to such asset concurrently with or within 18
months after the acquisition or completion of construction thereof;
(d) any Lien on any specific fixed asset of any
corporation existing at the time such corporation is merged or consolidated
with or into the Borrower or a Restricted Subsidiary and not created in
contemplation of such event;
(e) any Lien existing on any specific fixed asset prior
to the acquisition thereof by the Borrower or a Restricted Subsidiary and not
created in contemplation of such acquisition;
(f) Liens on assets of a Restricted Subsidiary securing
Indebtedness owing by any Restricted Subsidiary to the Borrower or by any
Restricted Subsidiary to another Restricted Subsidiary;
(g) any Lien arising out of the refinancing, extension,
renewal or refunding of any Indebtedness secured by any Lien permitted by any
of the foregoing paragraphs of this Section, provided that (i) such
Indebtedness is not secured by any additional assets, and (ii) the amount of
such Indebtedness secured by any such Lien is not increased;
41
<PAGE> 48
(h) Liens incidental to the conduct of its business or
the ownership of its assets which (i) do not secure Indebtedness and (ii) do
not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business;
(i) Liens imposed by any governmental authority for
taxes, assessments or charges not yet delinquent or which are being contested
in good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Borrower or any of its Subsidiaries,
as the case may be, in accordance with GAAP;
(j) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business (whether or not statutory) which are not overdue for a period of
more than 30 days or which are being contested in good faith and by appropriate
proceedings, for which a reserve or other appropriate provisions, if any, as
shall be required by GAAP shall have been made;
(k) Liens, pledges or deposits to secure non-delinquent
obligations under worker's compensation, unemployment insurance and other
social security legislation and Liens arising from the pledge by the Borrower
or any of its Subsidiaries of industrial revenue bonds or other instruments to
secure reimbursement obligations under letters of credit issued to support the
payment of such bonds or instruments;
(l) Liens on capital stock of or other ownership
interests in any Person not a Restricted Subsidiary of the Borrower securing
Indebtedness of such Person;
(m) Liens resulting from progress payments or partial
payments under United States government contracts or subcontracts;
(n) Liens arising from legal proceedings, so long as
such proceedings are being contested in good faith by appropriate proceedings
diligently conducted and so long as execution is stayed on all judgments
resulting from any such proceedings;
(o) grants of security and rights of setoff in deposit
or credit accounts, including demand, savings, passbook, share draft or like
accounts, certificates of deposit, money market accounts, items held for
collection or deposit, commercial paper, negotiable instruments and similar
accounts and instruments held at banks or financial institutions to secure the
payment or reimbursement under overdraft, acceptance and similar facilities and
rights of setoff, banker's liens and other similar rights arising solely by
operation of law; and
(p) Liens not otherwise permitted by the foregoing
paragraphs of this Section securing Indebtedness (other than indebtedness
represented by the Notes) in an aggregate principal amount at any time
outstanding which, together with the aggregate amount of Indebtedness of
Restricted Subsidiaries permitted by Section 5.20(iv), does not exceed 20% of
Adjusted Consolidated Net Worth as of the last day of the immediately preceding
Fiscal Quarter.
42
<PAGE> 49
SECTION 5.17. Adjusted Fixed Charges Coverage Ratio. At
the end of each Fiscal Quarter, commencing with the second Fiscal Quarter of
the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted Consolidated
Fixed Charges shall at all times be equal to or greater than the ratio set
forth below for such Fiscal Quarter of each Fiscal Year set forth below:
<TABLE>
<CAPTION>
Adjusted Fixed Charges
Fiscal Quarter Fiscal Year Coverage Ratio
-------------- ----------- --------------
<S> <C> <C>
Second 2000 1.10 to 1.0
Third 2000 1.15 to 1.0
Fourth 2000 1.20 to 1.0
First 2001 1.25 to 1.0
Second 2001 1.25 to 1.0
Third 2001 1.25 to 1.0
Fourth 2001
and thereafter 1.50 to 1.0
</TABLE>
SECTION 5.18. Leverage Ratio. The Leverage Ratio shall at
all times be equal to or less than 0.65 to 1.0.
SECTION 5.19. Minimum Adjusted Consolidated Net Worth.
Adjusted Consolidated Net Worth will at no time be less than $487,569,000, plus
the sum of (x) 50% of the cumulative Net Proceeds of Capital Stock received
during any period after April 27, 1998, plus (y) 50% of any equity resulting
from a conversion of Indebtedness of the Borrower during any period after April
27, 1998, less (z) any amount of equity of the Borrower repurchased during any
period after April 27, 1998, calculated quarterly at the end of each Fiscal
Quarter.
SECTION 5.20. Subsidiary Borrowings. The Borrower shall
not permit any Restricted Subsidiary to become liable for any Indebtedness,
whether secured or unsecured, except: (i) such of the foregoing as is owed to
the Borrower or another Wholly-Owned Subsidiary; (ii) Indebtedness or
obligations secured by Liens permitted by Section 5.16; (iii) Indebtedness or
obligations of a Subsidiary outstanding at the time such Subsidiary becomes a
Subsidiary, provided that (a) such Indebtedness shall not have been incurred in
contemplation of such Subsidiary becoming a Subsidiary, and (b) immediately
after such Subsidiary becomes a Subsidiary, no Default or Event of Default
shall exist, and provided, further, that such Indebtedness may not be extended,
renewed, or refunded except as otherwise permitted by this Agreement; and (iv)
subject to the provisions of Section 5.24 (and, if applicable, Sections 2.09(b)
and 2.11), other Indebtedness which, when combined with the total of the
Indebtedness secured by all Liens permitted by Section 5.16(p), without
duplication, does not exceed 20% of Adjusted Consolidated Net Worth as of the
last day of the immediately preceding Fiscal Quarter.
SECTION 5.21. Separateness from Unrestricted Subsidiaries.
The Borrower shall conduct its business and operations in accordance with the
following provisions:
(a) maintain books and records and bank accounts
separate from those of the Unrestricted Subsidiaries;
43
<PAGE> 50
(b) maintain its bank accounts and all its other assets
separate from those of the Unrestricted Subsidiaries;
(c) hold itself out to creditors and the public as a
legal entity separate and distinct from the Unrestricted Subsidiaries;
(d) prepare separate tax returns and financial
statements showing it as a separate member of a consolidated group of which the
Unrestricted Subsidiaries also are members;
(e) allocate and charge fairly and reasonably any common
employee or overhead shared with any of the Unrestricted Subsidiaries;
(f) transact all business with Unrestricted Subsidiaries
on an arm's length basis and enter into transactions with Unrestricted
Subsidiaries only on a commercially reasonable basis;
(g) conduct business in its own name and use separate
stationery, invoices and checks;
(h) not commingle its assets or funds with those of any
Unrestricted Subsidiary;
(i) not assume, Guarantee or pay the Indebtedness of any
Unrestricted Subsidiary;
(j) pay its own liabilities and expenses only out of its
own funds, and not pay any liabilities and expenses of any of the Unrestricted
Subsidiaries;
(k) pay salaries of its own employees from its own
funds, and not pay salaries of the employees of any Unrestricted Subsidiary;
(l) not hold out its credit as being available to
satisfy the obligations of any Unrestricted Subsidiary;
(m) not make loans to any Unrestricted Subsidiary or buy
or hold evidence of indebtedness issued by any Unrestricted Subsidiary;
(n) not pledge its assets for the benefit of any
Unrestricted Subsidiary; and
(o) correct any known misunderstanding regarding its
identity as being separate from the Unrestricted Subsidiaries.
SECTION 5.22. Adjusted Consolidated EBITDA. At the end of
each Fiscal Quarter, commencing with the first Fiscal Quarter of the 2000
Fiscal Year, Adjusted Consolidated EBITDA shall at all times equal to or
greater than the amount set forth below for each Fiscal Quarter of each Fiscal
Year set forth below, and shall be calculated (i) at the end of
44
<PAGE> 51
each Fiscal Quarter in the 2000 Fiscal Year, for such Fiscal Quarter only, and
(ii) at the end of each Fiscal Quarter thereafter, for the 4 Fiscal Quarter
period then ending.
<TABLE>
<CAPTION>
Adjusted
Fiscal Quarter Fiscal Year Consolidated EBITDA
-------------- ----------- -------------------
<S> <C> <C>
First 2000 $ 26,500,000
Second 2000 $ 18,500,000
Third 2000 $ 24,500,000
Fourth 2000 $ 25,000,000
First 2001 $105,000,000
Second 2001 $105,000,000
Third 2001 $115,000,000
Fourth 2001 $115,000,000
First and thereafter 2002 $125,000,000
</TABLE>
SECTION 5.23. Borrowing Base. At the end of each Fiscal
Period, the sum of (i) all Indebtedness (including the Loans) of the Borrower
and its Restricted Subsidiaries plus (ii) all Synthetic Lease Obligations of
the Borrower and its Restricted Subsidiaries shall not exceed the Borrowing
Base, and within 10 Domestic Business Days after the end of such Fiscal Period,
the Borrower shall furnish to the Agent and the Banks a certificate, in
reasonable detail, showing the calculations with respect thereto.
SECTION 5.24. New Indebtedness for Money Borrowed and New
Capitalized Leases. The Borrower shall not, and the Borrower shall not permit
its Restricted Subsidiaries to, incur any New Indebtedness for Money Borrowed or
New Capitalized Leases, provided, that, so long as no Default or Event of
Default is in existence or would be created thereby: (i) New Indebtedness for
Money Borrowed may be issued in any amount, subject to the provisions of Section
5.20 and, if applicable, Sections 2.09ba) and 2.11, so long as the indenture,
agreement, instrument or other agreement related thereto does not directly or
indirectly prohibit or restrain, or have the effect of prohibiting or
restraining, or imposing materially adverse conditions on, the ability of the
Borrower or its Restricted Subsidiaries to create any Lien on any of its assets
in favor of the Agent to secure the Loans and other obligations under this
Agreement and under any other agreement pertaining to Indebtedness which must be
equally and ratably secured by any Lien securing the Loans (the foregoing being
collectively referred to as a "Negative Pledge Clause"), or a clause which would
require that such New Indebtedness for Money Borrowed be equally and ratably
secured by any Lien on its assets in favor of the Agent to secure the Loans and
other obligations under this Agreement (except if and to the extent that such
New Indebtedness for Money Borrowed arises out of an agreement in existence on
the Closing Date which contains such a clause on the Closing Date); (ii) subject
to the provisions of Section 5.20 (but not Sections 2.09(b) or 2.11), New
Indebtedness for Money Borrowed may be incurred pursuant to a working capital
line up to $50,000,000 which does not contain a Negative Pledge Clause); and
(iii) New Capitalized Leases may be entered into up to an aggregate of
$25,000,000 which do not contain a Negative Pledge Clause (except as to the
assets being leased pursuant thereto).
SECTION 5.25. Capital Expenditures. The Borrower shall
not, and the Borrower shall not permit its Restricted Subsidiaries to, incur
Capital Expenditures in any Fiscal Year, except that Capital Expenditures may
be incurred up to an aggregate amount not exceeding
45
<PAGE> 52
(x) $40,000,000 in the 2000 Fiscal Year and (y) $37,500,000 in any Fiscal Year
thereafter, provided that after giving effect to the incurrence of any Capital
Expenditures permitted by this Section, no Default shall be in existence or be
created thereby.
SECTION 5.26. Restricted Payments. The Borrower will not declare any
Restricted Payment during any Fiscal Year unless, as of the date of such
declaration, no Default or Event of Default is in existence or would be created
by the making of such payment, and: (i) with respect to Restricted Payments
consisting of repurchases of stock in the Borrower from any employee of the
Borrower or any Restricted Subsidiary whose such employment is being or has
been terminated (whether voluntarily or involuntarily), repurchases for an
aggregate amount for all such employees not exceeding $2,500,000 in any Fiscal
Year; and (ii) with respect to all other Restricted Payments, on a proforma
basis, based upon the Borrower's good faith estimates (taking into account
circumstances then known to it), after giving effect to such declaration and
the payment thereof, and taking into account any additional Indebtedness
anticipated in good faith by the Borrower to be incurred in connection
therewith during the relevant period and other Indebtedness anticipated in good
faith by the Borrower to be incurred during the relevant period, together with
interest expense during the relevant period on all such anticipated
Indebtedness, both as of (x) the end of the current Fiscal Period and (y) the
end of the current Fiscal Quarter, (1) no Default or Event of Default would be
in existence or created thereby, (2) the sum of the Unused Commitments, less
any Swing Loans and Money Market Loans then outstanding, would be at least
$15,000,000 and (3) the amount by which the Borrowing Base would exceed the sum
of all Indebtedness (including the Loans) plus (without duplication) all
Synthetic Lease Obligations would be at least $15,000,000. Prior to declaring
any Restricted Payments pursuant hereto, the Borrower shall furnish to the
Agent and the Banks a certificate, in reasonable detail, showing the
calculations with respect to the foregoing.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any Loan
or shall fail to pay any interest on any Loan within 5 Domestic Business
Days after such interest shall become due, or shall fail to pay any fee or
other amount payable hereunder within 5 Domestic Business Days after such
fee or other amount becomes due; or
(b) the Borrower shall fail to observe or perform any covenant
contained in: (i) Sections 5.01(e), 5.02(ii), 5.03 through 5.05, inclusive,
Sections 5.17 through 5.19, inclusive, Section 5.22, Sections 5.24 through
5.26, inclusive; or (ii) Section 5.23, and, with respect to this clause
(ii) such failure shall not have been cured within 10 days after the
earlier to occur of (1) delivery to the Agent and the Banks of the
certificate required to be furnished pursuant to Section 5.23 and (2) the
date such certificate was required to be so delivered pursuant to Section
5.23; or (iii) Sections 5.14, 5.15 or 5.20, and with
46
<PAGE> 53
respect to this clause (iii) such failure shall not have been cured within
10 days after the earlier to occur of (1) written notice thereof has been
given to the Borrower by the Agent at the request of any Bank or (2) any
Responsible Officer of the Borrower otherwise becomes aware of any such
failure; or
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained or incorporated by reference in this Agreement (other
than those covered by paragraph (a) or (b) above) and such failure shall
not have been cured within 30 days after the earlier to occur of (i)
written notice thereof has been given to the Borrower by the Agent at the
request of any Bank or (ii) any Responsible Officer of the Borrower
otherwise becomes aware of any such failure; or
(d) any representation, warranty, certification or statement made by
the Borrower in Article IV of this Agreement or in any certificate,
financial statement or other document delivered pursuant to this Agreement
shall prove to have been incorrect or misleading in any material respect
when made (or deemed made); or
(e) the Borrower or any Material Subsidiary shall fail to make any
payment in respect of Indebtedness in an aggregate amount outstanding in
excess of $10,000,000 (other than the Notes) when due or within any
applicable grace period; or
(f) any event or condition shall occur which results in the
acceleration of the maturity of Indebtedness or, as a result of any event
of default, there is a requirement for the mandatory purchase or sale of
property subject to any "synthetic lease" (meaning a lease transaction
under which the obligations of the Borrower are treated as debt for tax
purposes but not under GAAP) and/or the payment of any final rent payment
or guaranteed residual amount with respect thereto (any such obligation to
purchase or sell property or pay a final rent payment or guaranteed
residual amount under a synthetic lease as a result of an event of default
thereunder being a "synthetic lease obligation") in an aggregate amount
outstanding in excess of $10,000,000 of the Borrower or any Material
Subsidiary (including, without limitation, any required mandatory
prepayment or "put" of such Indebtedness or, as a result of an event of
default, a synthetic lease obligation, to the Borrower or any Material
Subsidiary) or enables (or, with the giving of notice or lapse of time or
both, would enable) the holders of such Indebtedness or commitment therefor
or lessor under any such synthetic lease or any Person acting on such
holders' or lessor's behalf to accelerate the maturity thereof or terminate
any such commitment or to require, as a result of an event of default, the
purchase or sale of such property or the payment of any other synthetic
lease obligation (including, without limitation, any required mandatory
prepayment or "put" of such Indebtedness or synthetic lease obligation to
the Borrower or any Material Subsidiary); or
(g) the Borrower or any Material Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such official
in an involuntary
47
<PAGE> 54
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally, or shall
admit in writing its inability, to pay its debts as they become due, or
shall take any corporate action to authorize any of the foregoing; or
(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Material Subsidiary seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days; or an order for relief shall be entered against
the Borrower or any Material Subsidiary under the federal bankruptcy laws
as now or hereafter in effect; or
(i) the Borrower or any member of the Controlled Group shall fail to
pay when due any material amount which it shall have become liable to pay
to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to
terminate a Plan or Plans shall be filed under Title IV of ERISA by the
Borrower, any member of the Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any such Plan or Plans or a proceeding shall be instituted by a
fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of
ERISA and such proceeding shall not have been dismissed within 30 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must
be terminated, in each case if the amount of Unfunded Vested Liabilities is
in excess of $10,000,000; or
(j) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $20,000,000 shall be rendered against the
Borrower or any Material Subsidiary and such judgment or order shall
continue unbonded, undischarged, unsatisfied and unstayed for a period of
30 days; or
(k) a federal tax lien shall be filed against the Borrower or any
Material Subsidiary under Section 6323 of the Code, if the amount involved
is in excess of $20,000,000, or a lien of the PBGC shall be filed against
the Borrower or any Material Subsidiary under Section 4068 of ERISA and in
either case such lien shall remain undischarged for a period of 25 days
after the date of filing, if the amount involved is in excess of
$10,000,000; or
(l) in any 12 month period or less, (i) 50% or more of the members of
the full Board of Directors of the Borrower shall have resigned or been
removed or replaced, or (ii) any Person or "Group" (as defined in Section
2(d)(3) of the Securities Exchange Act of 1934, as amended) (other than an
employee benefit or stock ownership plan of the Borrower) shall have
acquired, during such period, directly or indirectly, more than 30% of the
capital stock (whether common or preferred or a combination thereof) of the
Borrower, provided that the Borrower's purchase of treasury shares of
shares of its capital stock outstanding on the date of the Original
Agreement which results in one or more of
48
<PAGE> 55
the Borrower's shareholders of record as of the date of the Original
Agreement owning 30% or more of the Borrower's Capital Stock shall not
constitute an acquisition for purposes of this Section 6.01 (l); or
(m) the occurrence of any event, act, occurrence, or condition which
either has or which reasonably could be expected to cause a Material
Adverse Effect.
then, and in every such event, (i) the Agent shall, if requested by the
Required Banks, by notice to the Borrower terminate the Commitments and they
shall thereupon terminate, (ii) any Bank may terminate its obligation to fund a
Money Market Loan in connection with any relevant Money Market Quote, and (iii)
the Agent shall, if requested by the Required Banks, by notice to the Borrower
declare the Notes (together with accrued interest thereon), and all other
amounts payable hereunder and under the other Loan Documents, to be, and the
Notes, including the Swing Loan Note (together with accrued interest thereon),
and all other amounts payable hereunder and under the other Loan Documents
shall thereupon become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower together with interest at the Default Rate accruing on the
principal amount thereof from and after the date of such Event of Default;
provided that if any Event of Default specified in paragraph (g) or (h) above
occurs with respect to the Borrower, without any notice to the Borrower or any
other act by the Agent or the Banks, the Commitments shall thereupon terminate
and the Notes (together with accrued interest thereon) and all other amounts
payable hereunder and under the other Loan Documents shall automatically and
without notice become immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower together with interest thereon at the Default Rate accruing on the
principal amount thereof from and after the date of such Event of Default.
Notwithstanding the foregoing, the Agent shall have available to it all other
remedies at law or equity, and shall exercise any one or all of them at the
request of the Required Banks.
SECTION 6.02. Notice of Default. The Agent shall give notice to the
Borrower of any Default under Section 6.01(b) or (c) promptly upon being
requested to do so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment; Powers and Immunities. (a) Each Bank
hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. The Agent: (a)
shall have no duties or responsibilities except as expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee for any Bank; (b) shall not be
responsible to the Banks for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by any
Bank under, this Agreement or any other Loan Document, or for the validity,
effectiveness,
49
<PAGE> 56
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or any other document referred to or provided for herein or therein or
for any failure by the Borrower to perform any of its obligations hereunder or
thereunder; (c) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder or under any other Loan Document except to the
extent requested by the Required Banks, and then only on terms and conditions
satisfactory to the Agent, and (d) shall not be responsible for any action taken
or omitted to be taken by it hereunder or under any other Loan Document or any
other document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or wilful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The provisions of this
Article VII are solely for the benefit of the Agent and the Banks, and the
Borrower shall not have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement
and under the other Loan Documents, the Agent shall act solely as agent of the
Banks and does not assume and shall not be deemed to have assumed any obligation
towards or relationship of agency or trust with or for the Borrower. The duties
of the Agent shall be ministerial and administrative in nature, and the Agent
shall not have by reason of this Agreement or any other Loan Document a
fiduciary relationship in respect of any Bank.
(b) Each Bank hereby designates The Bank of Nova Scotia as
Documentation Agent and Bank of America, N.A. as Syndications Agent. The
Documentation Agent and the Syndications Agent, in such capacity, shall have no
duties or obligations whatsoever under this Agreement or any other Loan Document
or any other document or any matter related hereto and thereto, but shall
nevertheless be entitled to all the indemnities and other protection afforded to
the Agent under this Article VII.
SECTION 7.02. Reliance by Agent. The Agent shall be entitled to
rely upon any certification, notice or other communication (including any
thereof by telephone, telecopier, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants or other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Loan Document,
the Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder and thereunder in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks in any action taken
or failure to act pursuant thereto shall be binding on all of the Banks.
SECTION 7.03. Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default or an Event of Default (other than the
nonpayment of principal of or interest on the Loans) unless the Agent has
received notice from a Bank or the Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent receives such a notice of the occurrence of a Default or an Event of
Default, the Agent shall give prompt notice thereof to the Banks. The Agent
shall give each Bank prompt notice of each nonpayment of principal of or
interest on the Loans whether or not it has received any notice of the
occurrence of such nonpayment. The Agent shall (subject to Section 9.06) take
such action hereunder with respect to such Default or Event of Default as shall
be directed by the Required Banks, provided that, unless and until the Agent
shall have received
50
<PAGE> 57
such directions, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Banks.
SECTION 7.04. Rights of Agent and its Affiliates as a Bank. With
respect to the Loans made by the Agent and any Affiliate of the Agent, Wachovia
in its capacity as a Bank hereunder and any Affiliate of the Agent or such
Affiliate in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though Wachovia
were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include Wachovia in its individual capacity and any
Affiliate of the Agent in its individual capacity. The Agent and any Affiliate
of the Agent may (without having to account therefor to any Bank) accept
deposits from, lend money to and generally engage in any kind of banking, trust
or other business with the Borrower (and any of the Borrower's Affiliates) as if
Wachovia were not acting as the Agent, and the Agent and any Affiliate of the
Agent may accept fees and other consideration from the Borrower (in addition to
any agency fees and arrangement fees heretofore agreed to between the Borrower
and the Agent) for services in connection with this Agreement or any other Loan
Document or otherwise without having to account for the same to the Banks.
SECTION 7.05. Indemnification. Each Bank severally agrees to indemnify
the Agent, to the extent the Agent shall not have been reimbursed by the
Borrower, ratably in accordance with its Commitment, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
out-of-pocket costs, expenses (including, without limitation, reasonable counsel
fees and disbursements actually incurred) or disbursements of any kind and
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any other documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby (excluding, unless an Event
of Default has occurred and is continuing, the normal administrative costs and
expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or any such other documents;
provided that no Bank shall be liable for any of the foregoing to the extent
they arise from the gross negligence or wilful misconduct of the Agent. If any
indemnity furnished to the Agent for any purpose shall, in the opinion of the
Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
SECTION 7.06. Consequential Damages. THE AGENT SHALL NOT BE
RESPONSIBLE OR LIABLE TO ANY BANK, THE BORROWER OR ANY OTHER PERSON OR ENTITY
FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
SECTION 7.07. Payee of Note Treated as Owner. The Agent may deem
and treat the payee of any Note as the owner thereof for all purposes hereof
unless and until a written notice of the assignment or transfer thereof shall
have been filed with the Agent and the provisions of Section 9.07(c) have been
satisfied. Any requests, authority or consent of any
51
<PAGE> 58
Person who at the time of making such request or giving such authority or
consent is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee or assignee of that Note or of any Note or Notes
issued in exchange therefor or replacement thereof.
SECTION 7.08. Nonreliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Agent shall not be required to keep itself (or any Bank) informed
as to the performance or observance by the Borrower of this Agreement or any of
the other Loan Documents or any other document referred to or provided for
herein or therein or to inspect the properties or books of the Borrower or any
other Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or under
the other Loan Documents, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Borrower or any other Person (or any of
their Affiliates) which may come into the possession of the Agent.
SECTION 7.09. Failure to Act. Except for action expressly required of
the Agent hereunder or under the other Loan Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction by the Banks of
their indemnification obligations under Section 7.05 against any and all
liability and expense which may be incurred by the Agent by reason of taking,
continuing to take, or failing to take any such action.
SECTION 7.10. Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving notice thereof to the Banks and the Borrower and
the Agent may be removed at any time with or without cause by the Required
Banks. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Agent, subject to the approval of the Borrower,
which shall not be unreasonably withheld or delayed; provided, that no approval
of the Borrower shall be required if a Default is in existence. If no successor
Agent shall have been so appointed by the Required Banks and shall have accepted
such appointment within 30 days after the retiring Agent's notice of resignation
or the Required Banks' removal of the retiring Agent, then the retiring Agent
may, on behalf of the Banks, appoint a successor Agent, subject to the approval
of the Borrower, which shall not be unreasonably withheld or delayed; provided,
that no approval of the Borrower shall be required if a Default is in existence.
Any successor Agent shall be a bank which has a combined capital and surplus of
at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article VII shall continue in effect for its benefit in
52
<PAGE> 59
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent hereunder.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period:
(a) the Agent determines that deposits in Dollars (in the applicable
amounts) are not being offered in the relevant market for such Interest
Period, or
(b) the Required Banks advise the Agent that the London Interbank
Offered Rate, as determined by the Agent will not adequately and fairly
reflect the cost to such Banks of funding Euro-Dollar Loans for such
Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make
the type of Fixed Rate Loans specified in such notice shall be suspended.
Unless the Borrower notifies the Agent at least 2 Domestic Business Days before
the date of any Borrowing of such type of Fixed Rate Loans for which a Notice
of Borrowing has previously been given that it elects not to borrow on such
date, such Borrowing shall instead be made as a Base Rate Borrowing.
SECTION 8.02. Illegality. If, after the date hereof, the adoption of
any applicable law, rule or regulation, or any change therein or any existing or
future law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof (any such
agency being referred to as an "Authority" and any such event being referred to
as a "Change of Law"), or compliance by any Bank (or its Lending Office) with
any request or directive (whether or not having the force of law) of any
Authority shall make it unlawful or impossible for any Bank (or its Lending
Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so
notify the Agent, the Agent shall forthwith give notice thereof to the other
Banks and the Borrower, whereupon until such Bank notifies the Borrower and the
Agent that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before
giving any notice to the Agent pursuant to this Section, such Bank shall
designate a different Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans
to maturity and shall so specify in such notice, the Borrower shall, on the
later of (i) the date such notice is received by the Borrower and (ii) the date
such Change of Law becomes effective, prepay in full the then outstanding
principal amount of each Euro-Dollar Loan of such Bank, together with accrued
interest thereon and any amount due such Bank pursuant to Section 8.05(a).
Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall
borrow a Base Rate Loan in an equal principal amount from such Bank (on which
interest and principal shall be payable
53
<PAGE> 60
contemporaneously with the related Euro-Dollar Loans of the other Banks), and
such Bank shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If after the date
hereof, a Change of Law or compliance by any Bank (or its Lending Office) with
any request or directive (whether or not having the force of law) of any
Authority:
(i) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement included in an applicable
Euro-Dollar Reserve Percentage) against assets of, deposits with or for the
account of, or credit extended by, any Bank (or its Lending Office); or
(ii) shall impose on any Bank (or its Lending Office) or on the London
interbank market any other condition affecting its Fixed Rate Loans or
Money Market Loans, its Notes or its obligation to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Loan, or to reduce the amount
of any sum received or receivable by such Bank (or its Lending Office) under
this Agreement or under its Notes with respect thereto, by an amount deemed by
such Bank to be material, then, within 15 days after demand by such Bank (with
a copy to the Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction; provided, however, that the Borrower shall not be responsible to
such Bank for any increased cost or reduced return under this Section 8.03(a)
which accrued at any time before that date which is 90 calendar days prior to
the date upon which the Borrower is notified of same.
(b) If any Bank shall have determined that after the date hereof the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any Authority, has or would have the effect of reducing the rate of return on
such Bank's capital as a consequence of its obligations hereunder to a level
below that which such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank, the Borrower shall pay
to such Bank such additional amount or amounts as will compensate such Bank for
such reduction; provided, however, that the Borrower shall not be responsible to
such Bank for any increased cost or reduced return under this Section 8.03(b)
which accrued at any time before that date which is 90 calendar days prior to
the date upon which the Borrower is notified of same.
(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. A certificate of any
54
<PAGE> 61
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error, provided such certificate shall set forth the basis of such
claim and shall be accompanied by a statement of an officer of such Bank
certifying that such claim for compensation is being made pursuant to a policy
adopted by such Bank to seek such compensation generally from customers with
similar types of loans. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
(d) The provisions of this Section 8.03 shall be applicable with
respect to any Participant, Assignee or other Transferee, and any calculations
required by such provisions shall be made based upon the circumstances of such
Participant, Assignee or other Transferee.
SECTION 8.04. Base Rate Loans Substituted for Euro-Dollar Loans. If (i)
the obligation of any Bank to make or maintain any Euro-Dollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03, and the Borrower shall, by at least 5 Euro-Dollar Business
Days' prior notice to such Bank through the Agent, have elected that the
provisions of this Section shall apply to such Bank, then, unless and until such
Bank notifies the Borrower that the circumstances giving rise to such suspension
or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Bank as
Euro-Dollar Loans shall be made instead as Base Rate Loans, and interest
and principal on such Loans shall be payable contemporaneously with the
related Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Euro-Dollar
Loans shall be applied to repay its Base Rate Loans instead.
SECTION 8.05. Compensation. Upon the request of any Bank, delivered to
the Borrower and the Agent, the Borrower shall pay to such Bank such amount or
amounts as shall compensate such Bank for any loss, cost or expense (but not
loss of margin or profit) incurred by such Bank as a result of:
(a) any payment or prepayment (pursuant to Section 2.10, 2.11, 6.01,
8.02 or otherwise) of a Fixed Rate Loan on a date other than the last day of an
Interest Period for such Loan; or
(b) any failure by the Borrower to borrow a Fixed Rate Loan on the date
for the Fixed Rate Borrowing of which such Fixed Rate Loan is a part specified
in the applicable Notice of Borrowing delivered pursuant to Section 2.02 or
notification of acceptance of Money Market Quotes pursuant to Section 2.03(e);
such compensation to include, without limitation, an amount equal to the
excess, if any, of (x) the amount of interest which would have accrued on the
amount so paid or prepaid or not prepaid or borrowed for the period from the
date of such payment, prepayment or failure to prepay or borrow to the last day
of the then current Interest Period for such Fixed Rate Loan (or, in the case
of a failure to prepay or borrow, the Interest Period for such Fixed Rate Loan
which would have
55
<PAGE> 62
commenced on the date of such failure to prepay or borrow) at the applicable
rate of interest for such Fixed Rate Loan provided for herein over (y) the
amount of interest (as reasonably determined by such Bank) such Bank would have
paid on deposits in Dollars of comparable amounts having terms comparable to
such period placed with it by leading banks in the London interbank market (if
such Fixed Rate Loan is a Euro-Dollar Loan); provided, that (i) the Borrower
shall be responsible to such Bank only for its actual costs incurred in
connection with same (i.e. not for any lost profits which were expected over the
course of such Interest Period), (ii) such Bank shall take reasonable efforts to
mitigate its damages in connection with same, and (iii) if such Fixed Rate Loan
is a Euro-Dollar Loan, the Borrower shall not be responsible to such Bank for
such losses in excess of those amounts as such Bank would have incurred had it
funded or maintained the Euro-Dollar Loan in the London interbank market
(regardless of whether it actually did so).
SECTION 8.06. Replacement of Bank. In the event that any Bank (a
"Subject Bank") gives any notice under Section 8.02 resulting in the suspension
of its obligation to make or maintain Euro-Dollar Loans, or requests
compensation pursuant to Section 8.05, or requests compensation with respect to
withholding Taxes pursuant to Section 2.12, or becomes insolvent or fails to
make any Syndicated Loan in response to a request for borrowing by the Borrower
where the Required Banks have made the Syndicated Loans to be made by them in
response to such request, then, so long as such condition exists, the Borrower
may designate another bank or financial institution (a "Replacement Bank")
acceptable to the Agent (which acceptance will not be unreasonably withheld) and
which is not an Affiliate of the Borrower, to assume the Subject Bank's
Commitment hereunder and to purchase the Loans of the Subject Bank and the
Subject Bank's rights under this Agreement and the Notes held by the Subject
Bank, all without recourse to or representation or warranty by, or expense to
the Subject Bank for a purchase price equal to the outstanding principal amount
of the Loans payable to the Subject Bank plus any accrued but unpaid interest on
such Loans and accrued but unpaid fees owing to the Subject Bank plus any
amounts payable to the Subject Bank under Sections 2.12 and 8.05, and upon such
assumption, purchase and substitution, and subject to the execution and delivery
to the Agent by the Subject Bank and the Replacement Bank of an Assignment and
Acceptance, the Replacement Bank shall succeed to the rights and obligations of
the Subject Bank hereunder. In the event that the Borrower exercises its rights
under the preceding sentence, the Subject Bank agrees to sell its Loans and
rights under this Agreement and its Notes pursuant to the foregoing, and upon
such sale, it shall no longer be a party hereto or have any rights or
obligations hereunder; provided that the obligations of the Borrower to the
Subject Bank under Article VIII and Section 9.03 with respect to events
occurring or obligations arising before or as a result of such replacement shall
survive such exercise.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address or telecopier number
set forth on the signature pages hereof or such other address or telecopier
number as such party may hereafter specify for the purpose by notice to each
other party. Each such notice, request or other communication shall be effective
56
<PAGE> 63
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in this Section and the confirmation is received, (ii) if given
by mail, 3 Business Days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (iii) if given by any
other means, when delivered at the address specified in this Section; provided
that notices to the Agent under Article II or Article VIII shall not be
effective until received.
SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note or other
Loan Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Documentary Taxes. The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Agent, including reasonable fees
and disbursements of special counsel for the Agent, in connection with the
preparation of this Agreement and the other Loan Documents, any waiver or
consent hereunder or thereunder or any amendment hereof or thereof or any
Default or alleged Default hereunder or thereunder and (ii) if a Default occurs,
all reasonable out-of-pocket expenses incurred by the Agent and the Banks,
including reasonable fees and disbursements of counsel, in connection with such
Default and collection and other enforcement proceedings resulting therefrom,
including reasonable out-of-pocket expenses incurred in enforcing this Agreement
and the other Loan Documents. The Borrower shall indemnify the Agent and each
Bank against any transfer taxes, documentary taxes, assessments or charges made
by any Authority by reason of the execution and delivery of this Agreement or
the other Loan Documents.
SECTION 9.04. Indemnification. The Borrower shall indemnify the Agent,
the Banks and each Affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims or damages to which any of them may become subject,
insofar as such losses, liabilities, claims or damages arise out of or result
from any actual or proposed use by the Borrower of the proceeds of any extension
of credit by any Bank hereunder or breach by the Borrower of this Agreement or
any other Loan Document or from any investigation, litigation (including,
without limitation, any actions taken by the Agent or any of the Banks to
enforce this Agreement or any of the other Loan Documents) or other proceeding
(including, without limitation, any threatened investigation or proceeding)
relating to the foregoing, and the Borrower shall reimburse the Agent and each
Bank, and each Affiliate thereof and their respective directors, officers,
employees and agents, upon demand for any reasonable expenses (including,
without limitation, legal fees) incurred in connection with any such
investigation or proceeding; but excluding any such losses, liabilities, claims,
damages or expenses incurred by reason of the gross negligence or wilful
misconduct of the Person to be indemnified.
SECTION 9.05. Setoff; Sharing of Setoffs. (a) The Borrower hereby
grants to the Agent and each Bank and to Wachovia as to the Swing Loan Note,
and, to the fullest extent permitted by law, each Affiliate of each Bank, the
right to setoff, against the obligations of the Borrower under this Agreement,
upon all deposits or deposit accounts, of any kind, or any
57
<PAGE> 64
interest in any deposits or deposit accounts thereof, now or hereafter pledged,
mortgaged, transferred or assigned to the Agent or any such Bank or Affiliate of
such Bank or otherwise in the possession or control of the Agent or any such
Bank or Affiliate of such Bank for any purpose for the account or benefit of the
Borrower and including any balance of any deposit account or of any credit of
the Borrower with the Agent or any such Bank or Affiliate of such Bank, whether
now existing or hereafter established, after the occurrence and during the
continuance of an Event of Default, hereby authorizing the Agent and each Bank
and each Affiliate of each Bank at any time or times with or without prior
notice to apply such balances or any part thereof to such of the indebtedness
and obligations owing by the Borrower hereunder to the Banks or their Affiliates
and/or the Agent then past due and in such amounts as they may elect, and
whether or not the collateral, if any, or the responsibility of other Persons
primarily, secondarily or otherwise liable may be deemed adequate. For the
purposes of this paragraph, all remittances and property shall be deemed to be
in the possession of the Agent or any such Bank or its Affiliate as soon as the
same may be put in transit to it by mail or carrier or by other bailee.
(b) Each Bank agrees that if it or any of its Affiliates shall, by
exercising any right of setoff or counterclaim or resort to collateral security
or otherwise, receive payment of a proportion of the aggregate amount of
principal and interest owing with respect to the Note held by it which is
greater than the proportion received by any other Bank or its Affiliate in
respect of the aggregate amount of all principal and interest owing with respect
to the Note held by such other Bank, the Bank receiving (directly or through its
Affiliate) such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks owing to such other Banks,
and such other adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Notes held by the Banks
owing to such other Banks shall be shared by the Banks pro rata; provided that
(i) nothing in this Section shall impair the right of any Bank or its Affiliates
to exercise any right of setoff or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of the Borrower
other than its indebtedness under the Notes, and (ii) if all or any portion of
such payment received by the purchasing Bank is thereafter recovered from such
purchasing Bank, such purchase from each other Bank or its Affiliate shall be
rescinded and such other Bank or Affiliate shall repay to the purchasing Bank
the purchase price of such participation to the extent of such recovery together
with an amount equal to such other Bank's ratable share (according to the
proportion of (x) the amount of such other Bank's required repayment to (y) the
total amount so recovered from the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in a Note, whether or
not acquired pursuant to the foregoing arrangements, may exercise rights of
setoff or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrower in the amount of such participation.
SECTION 9.06. Amendments and Waivers. (a) Any provision of this
Agreement, the Notes or any other Loan Documents may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed by the
Borrower and the Required Banks (and, if the rights or duties of the Agent are
affected thereby, by the Agent); provided that, no such amendment or waiver
shall, unless signed by all Banks, (i) increase the Commitment of any Bank or
subject any Bank to any additional obligation, (ii) reduce the principal of or
rate of interest on any Loan or any fees (other than fees payable to the Agent)
hereunder, (iii) postpone
58
<PAGE> 65
the date fixed for any payment of principal of or interest on any Loan or any
fees hereunder, (iv) reduce the amount of principal, interest or fees due on any
date fixed for the payment thereof, (v) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the percentage of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement, (vi) change the
manner of application of any payments made under this Agreement or the Notes,
(vii) release or substitute all or any substantial part of the collateral (if
any) held as security for the Loans, or (viii) release any Guaranty given to
support payment of the Loans.
The Borrower will not solicit, request or negotiate for or with respect to any
proposed waiver or amendment of any of the provisions of this Agreement from or
with any Bank, except on terms fully disclosed to the Agent (which terms the
Agent shall be authorized to disclose to the Banks). Executed or true and
correct copies of any waiver or consent effected pursuant to the provisions of
this Agreement shall be delivered by the Borrower to the Agent (for delivery to
each Bank) forthwith following the date on which the same shall have been
executed and delivered by the requisite percentage of Banks. The Borrower will
not, directly or indirectly, pay or cause to be paid any remuneration, whether
by way of supplemental or additional interest, fee or otherwise, to any Bank
(in its capacity as such) as consideration for or as an inducement to the
entering into by such Bank of any waiver or amendment of any of the terms and
provisions of this Agreement unless such remuneration is concurrently paid, on
the same terms, ratably to all such Banks.
SECTION 9.07. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement.
(b) Any Bank may at any time sell to one or more Persons (each a
"Participant") participating interests in any Loan owing to such Bank, any Note
held by such Bank, any Commitment hereunder or any other interest of such Bank
hereunder. In the event of any such sale by a Bank of a participating interest
to a Participant, such Bank's obligations under this Agreement shall remain
unchanged, such Bank shall remain solely responsible for the performance
thereof, such Bank shall remain the holder of any such Note for all purposes
under this Agreement, and the Borrower and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. In no event shall a Bank that sells a
participation be obligated to the Participant to take or refrain from taking any
action hereunder except that such Bank may agree that it will not (except as
provided below), without the consent of the Participant, agree to (i) the change
of any date fixed for the payment of principal of or interest on the related
Loan or Loans, (ii) the change of the amount of any principal, interest or fees
due on any date fixed for the payment thereof with respect to the related Loan
or Loans, (iii) the change of the principal of the related Loan or Loans, (iv)
any change in the rate at which either interest is payable thereon or (if the
Participant is entitled to any part thereof) fee is payable hereunder from the
rate at which the Participant is entitled to receive interest or fee (as the
case may be) in respect of such participation, or (v) the release of any
Guaranty given to support payment of the Loans. Each Bank selling to any Person
other than an Affiliate of such Bank a participating interest in any Loan, Note,
Commitment or other interest under this Agreement, other than a Money Market
Loan or Money Market Note or participating interest therein, shall, within 10
Domestic Business Days of such sale, provide the
59
<PAGE> 66
Borrower and the Agent with written notification stating that such sale has
occurred and identifying the Participant and the interest purchased by such
Participant. The Borrower agrees that each Participant shall be entitled to the
benefits of Article VIII with respect to its participation in Loans outstanding
from time to time, subject to the provisions of Section 9.07(e).
(c) Any Bank may at any time assign to one or more banks or financial
institutions (each an "Assignee") all or a proportionate part of its rights and
obligations under this Agreement, the Notes and the other Loan Documents, and
such Assignee shall assume all such rights and obligations, pursuant to an
Assignment and Acceptance, executed by such Assignee, such transferor Bank and
the Agent (and, in the case of an Assignee that is not then a Bank, subject to
clause (iii) below, by the Borrower); provided that (i) no interest may be sold
by a Bank pursuant to this paragraph (c) unless the Assignee shall agree to
assume ratably equivalent portions of the transferor Bank's Commitment, (ii) if
a Bank is assigning only a portion of its Commitment, then, the amount of the
Commitment being assigned (determined as of the effective date of the
assignment) shall be in an amount not less than $15,000,000, (iii) except during
the continuance of a Default, no interest may be sold by a Bank pursuant to this
paragraph (c) to any Assignee that is not then a Bank (or an Affiliate of a
Bank) without the consent of the Borrower and the Agent, which consent shall not
be unreasonably withheld (provided that it shall not constitute the unreasonable
withholding of consent if the Borrower shall decline to consent because (1) the
Borrower makes a reasonable determination that it is materially more likely that
the proposed Assignee will be entitled to compensation under Section 2.12 or
8.05, or to a greater amount of compensation thereunder than the transferor
Bank, or (2) the proposed Assignee has a combined capital and surplus of less
than $500,000,000), and (iv) a Bank may not have more than 2 Assignees that are
not then Banks at any one time. Upon (A) execution of the Assignment and
Acceptance by such transferor Bank, such Assignee, the Agent and (if applicable)
the Borrower, (B) delivery of an executed copy of the Assignment and Acceptance
to the Borrower and the Agent, (C) payment by such Assignee to such transferor
Bank of an amount equal to the purchase price agreed between such transferor
Bank and such Assignee, and (D) payment of a processing and recordation fee of
$2,500 to the Agent, such Assignee shall for all purposes be a Bank party to
this Agreement and shall have all the rights and obligations of a Bank under
this Agreement to the same extent as if it were an original party hereto with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by the Borrower, the Banks or the Agent shall
be required. Upon the consummation of any transfer to an Assignee pursuant to
this paragraph (c), the transferor Bank, the Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is issued to each of
such Assignee and such transferor Bank.
(d) Subject to the provisions of Section 9.08, the Borrower authorizes
each Bank to disclose to any Participant, Assignee or other transferee (each a
"Transferee") and any prospective Transferee any and all financial information
in such Bank's possession concerning the Borrower which has been delivered to
such Bank by the Borrower pursuant to this Agreement or which has been delivered
to such Bank by the Borrower in connection with such Bank's credit evaluation
prior to entering into this Agreement.
(e) No Transferee shall be entitled to receive any greater payment
under Section 2.12 or 8.03 than the transferor Bank would have been entitled to
receive with respect to the
60
<PAGE> 67
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02 or 8.03 requiring
such Bank to designate a different Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.
(f) Anything in this Section 9.07 to the contrary notwithstanding, any
Bank may assign and pledge all or any portion of the Loans and/or obligations
owing to it to any Federal Reserve Bank or the United States Treasury as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank, provided that any payment in respect of such assigned Loans and/or
obligations made by the Borrower to the assigning and/or pledging Bank in
accordance with the terms of this Agreement shall satisfy the Borrower's
obligations hereunder in respect of such assigned Loans and/or obligations to
the extent of such payment. No such assignment shall release the assigning
and/or pledging Bank from its obligations hereunder.
SECTION 9.08. Confidentiality. Each Bank agrees to exercise
commercially reasonable efforts to keep any information delivered or made
available by the Borrower to it which is clearly indicated (orally or in
writing) to be confidential information, confidential from anyone other than
persons employed or retained by such Bank who are or are expected to become
engaged in evaluating, approving, structuring or administering the Loans;
provided that nothing herein shall prevent any Bank from disclosing such
information (i) to any other Bank, (ii) upon the order of any court or
administrative agency, (iii) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Bank, (iv) which has been publicly
disclosed (unless a person responsible for administering this Agreement on
behalf of such Bank has actual knowledge that such disclosure is made by a
Person in violation of a confidentiality agreement with or confidentiality
obligation to the Borrower or any Subsidiary), (v) to the extent reasonably
required in connection with any litigation to which the Agent, any Bank or their
respective Affiliates may be a party, (vi) to the extent reasonably required in
connection with the exercise of any remedy hereunder, (vii) to such Bank's legal
counsel and independent auditors and (viii) to any actual or proposed
Participant, Assignee or other Transferee of all or part of its rights hereunder
which has agreed in writing to be bound by the provisions of this Section 9.08;
provided that should disclosure of any such confidential information be required
by virtue of clause (ii) of the immediately preceding sentence, any relevant
Bank shall promptly notify the Borrower of same so as to allow the Borrower to
seek a protective order or to take any other appropriate action, unless such
Bank is prohibited by law or any such order from giving such notice; provided,
further, that, no Bank shall be required to delay compliance with any directive
to disclose any such information so as to allow the Borrower to effect any such
action.
SECTION 9.09. Representation by Banks. Each Bank hereby represents that
it is a commercial lender or financial institution which makes loans in the
ordinary course of its business and that it will make its Loans hereunder for
its own account in the ordinary course of such business; provided that, subject
to Section 9.07, the disposition of the Note or Notes held by that Bank shall at
all times be within its exclusive control.
SECTION 9.10. Obligations Several. The obligations of each Bank
hereunder are several, and no Bank shall be responsible for the obligations or
commitment of any
61
<PAGE> 68
other Bank hereunder. Nothing contained in this Agreement and no action
taken by the Banks pursuant hereto shall be deemed to constitute the Banks to
be a partnership, an association, a joint venture or any other kind of entity.
The amounts payable at any time hereunder to each Bank shall be a separate and
independent debt, and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement or any other Loan Document and it shall
not be necessary for any other Bank to be joined as an additional party in any
proceeding for such purpose.
SECTION 9.11. Georgia Law. This Agreement and each Note shall be
construed in accordance with and governed by the law of the State of Georgia.
SECTION 9.12. Severability. In case any one or more of the provisions
contained in this Agreement, the Notes or any of the other Loan Documents should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby and shall be enforced to the
greatest extent permitted by law.
SECTION 9.13. Interest. In no event shall the amount of interest, and
all charges, amounts or fees contracted for, charged or collected pursuant to
this Agreement, the Notes or the other Loan Documents and deemed to be interest
under applicable law (collectively, "Interest") exceed the highest rate of
interest allowed by applicable law (the "Maximum Rate"), and in the event any
such payment is inadvertently received by any Bank, then the excess sum (the
"Excess") shall be credited as a payment of principal, unless the Borrower shall
notify such Bank in writing that it elects to have the Excess returned
forthwith. It is the express intent hereof that the Borrower not pay and the
Banks not receive, directly or indirectly in any manner whatsoever, interest in
excess of that which may legally be paid by the Borrower under applicable law.
The right to accelerate maturity of any of the Loans does not include the right
to accelerate any interest that has not otherwise accrued on the date of such
acceleration, and the Agent and the Banks do not intend to collect any unearned
interest in the event of any such acceleration. All monies paid to the Agent or
the Banks hereunder or under any of the Notes or the other Loan Documents,
whether at maturity or by prepayment, shall be subject to rebate of unearned
interest as and to the extent required by applicable law. By the execution of
this Agreement, the Borrower covenants, to the fullest extent permitted by law,
that (i) the credit or return of any Excess shall constitute the acceptance by
the Borrower of such Excess, and (ii) the Borrower shall not seek or pursue any
other remedy, legal or equitable , against the Agent or any Bank, based in whole
or in part upon contracting for charging or receiving any Interest in excess of
the Maximum Rate, other than the crediting of the Excess as set forth herein.
For the purpose of determining whether or not any Excess has been contracted
for, charged or received by the Agent or any Bank, all interest at any time
contracted for, charged or received from the Borrower in connection with this
Agreement, the Notes or any of the other Loan Documents shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of the Commitments. The Borrower, the Agent
and each Bank shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment as an expense, fee or premium rather than
as Interest and (ii) exclude voluntary prepayments and the effects thereof. The
provisions of this Section shall be deemed to be incorporated into each Note and
each of the other Loan Documents (whether or not any provision of this Section
is referred to therein). All such Loan Documents and communications relating to
any Interest
62
<PAGE> 69
owed by the Borrower and all figures set forth therein shall, for the sole
purpose of computing the extent of obligations hereunder and under the Notes and
the other Loan Documents be automatically recomputed by the Borrower, and by any
court considering the same, to give effect to the adjustments or credits
required by this Section.
SECTION 9.14. Interpretation. No provision of this Agreement or any of
the other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
SECTION 9.15. Waiver of Jury Trial; Consent to Jurisdiction. The
Borrower (a) and each of the Banks and the Agent irrevocably waives, to the
fullest extent permitted by law, any and all right to trial by jury in any legal
proceeding arising out of this Agreement, any of the other Loan Documents, or
any of the transactions contemplated hereby or thereby, (b) submits to the
nonexclusive personal jurisdiction in the State of Georgia, the courts thereof
and the United States District Courts sitting therein, for the enforcement of
this Agreement, the Notes and the other Loan Documents, (c) waives any and all
personal rights under the law of any jurisdiction to object on any basis
(including, without limitation, inconvenience of forum) to jurisdiction or venue
within the State of Georgia for the purpose of litigation to enforce this
Agreement, the Notes or the other Loan Documents, and (d) agrees that service of
process may be made upon it in the manner prescribed in Section 9.01 for the
giving of notice to the Borrower. Nothing herein contained, however, shall
prevent the Agent from bringing any action or exercising any rights against any
security and against the Borrower personally, and against any assets of the
Borrower, within any other state or jurisdiction.
SECTION 9.16. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 9.17. Source of Funds -- ERISA. Each of the Banks hereby
severally (and not jointly) represents to the Borrower that no part of the funds
to be used by such Bank to fund the Loans hereunder from time to time
constitutes (i) assets allocated to any separate account maintained by such Bank
in which any employee benefit plan (or its related trust) has any interest nor
(ii) any other assets of any employee benefit plan. As used in this Section, the
terms "employee benefit plan" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
[Signatures are contained on the following pages.]
63
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, by their respective authorized officers as of the day
and year first above written.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
------------------------
Name:
-------------------
Title:
------------------
Flowers Industries, Inc.
1919 Flowers Circle
Thomasville, Georgia 31757
Attention: Jimmy M. Woodward
Telecopier number: 912-225-3808
Confirmation number: 912-227-2266
64
<PAGE> 71
COMMITMENTS WACHOVIA BANK, N.A.,
$110,000,000 as Agent and as a Bank (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Kevin B. Harrison
Telecopier number: 404-332-6920
Confirmation number: 404-332-5269
$100,000,000 THE BANK OF NOVA SCOTIA, as
Documentation Agent and as
a Bank (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention: William Zarrett
Telecopier number: 404-888-8998
Confirmation number: 404-877-1504
65
<PAGE> 72
100,000,000 BANK OF AMERICA, N.A., as Syndications
Agent and as a Bank (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
Bank of America, N.A.
231 S. LaSalle Street
Suite 944
Chicago, Illinois 60697
Attention: Casey Cosgrove.
Telecopier number: 312-987-1276
Confirmation number: 312-828-3092
66
<PAGE> 73
$75,000,000 FIRST UNION NATIONAL BANK
as a Bank (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
First Union National Bank
999 Peachtree Street, N.E.
9th Floor
Atlanta, Georgia 30309
Attention: Michael Romanzo
Telecopier number: 404-827-7199
Confirmation number: 404-827-7140
67
<PAGE> 74
$45,000,000 BANK ONE, NA, as a Bank
Chicago Main Office
(f/k/a The First National Bank
of Chicago) (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
Bank One, NA
c/o Bank One Capital Markets, Inc.
1 Bank One Plaza, 10th Floor
Chicago, Illinois 60670
Attention: David McNeela
Telecopier number: 312-732-5296
Confirmation number: 312-732-5730
68
<PAGE> 75
$30,000,000 SUNTRUST BANK, as a Bank (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
SunTrust Bank
25 Park Place, 23rd Floor
Atlanta, Georgia 30303
Attention: Kim S. Martin
Telecopier number: 404-230-5305
Confirmation number: 404-588-7883
69
<PAGE> 76
$25,000,000 COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
as a Bank (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland", New York Branch
245 Park Avenue
New York, New York 10157
Attention: Brenda Llew
Telecopier number: 212-916-7930
Confirmation number: 212-916-7928
70
<PAGE> 77
$15,000,000 DG BANK, DEUTSCHE
GENOSSENSCHAFTSBANK, AG, CAYMAN
ISLANDS BRANCH, as a Bank (SEAL)
By:
-------------------------
Name:
------------------
Title:
-----------------
By:
-------------------------
Name:
------------------
Title:
-----------------
Lending Office
DG Bank, Deutsche Genossenschaftsbank, AG,
Cayman Islands Branch
c/o DG Bank
303 Peachtree Street, N.E.
Suite 2900
Atlanta, Georgia 30308
Attention: Kurt A. Morris
Telecopier number: 404-524-4006
Confirmation number: 404-524-3966
- ---------------
TOTAL COMMITMENTS:
$500,000,000
71
<PAGE> 78
EXHIBIT A-1
AMENDED AND RESTATED SYNDICATED LOAN NOTE
Atlanta, Georgia
January 30, 1998
For value received, FLOWERS INDUSTRIES, INC., a Georgia corporation
(the "Borrower"), promises to pay to the order of
_________________________________________, a ____________________ (the "Bank"),
for the account of its Lending Office, the principal sum of
___________________________________ AND NO/100 DOLLARS ($________ ), or such
lesser amount as shall equal the unpaid principal amount of each Syndicated Loan
made by the Bank to the Borrower pursuant to the Credit Agreement referred to
below, on the dates and in the amounts provided in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of this Amended
and Restated Syndicated Loan Note on the dates and at the rate or rates provided
for in the Credit Agreement. Interest on any overdue principal of and, to the
extent permitted by law, overdue interest on the principal amount hereof shall
bear interest at the Default Rate, as provided for in the Credit Agreement. All
such payments of principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at the office of
Wachovia Bank, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or
such other address as may be specified from time to time pursuant to the Credit
Agreement.
All Syndicated Loans made by the Bank, the respective maturities
thereof, the interest rates from time to time applicable thereto, and all
repayments of the principal thereof shall be recorded by the Bank and, prior to
any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on
a continuation of such schedule attached to and made a part hereof; provided
that the failure of the Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Credit
Agreement.
This Amended and Restated Syndicated Loan Note is one of the Syndicated
Loan Notes referred to in the Amended and Restated Credit Agreement dated as of
January 30, 1998 among the Borrower, the Banks listed on the signature pages
thereof, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as
Documentation Agent, and NationsBank, N.A., as Syndications Agent (as the same
may be amended and modified from time to time, the "Credit Agreement"). Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the optional and
mandatory prepayment and the repayment hereof and the acceleration of the
maturity hereof, as well as the obligation of the Borrower to pay all costs of
collection, including reasonable attorneys fees, in the event this Amended and
Restated Syndicated Loan Note is collected by law or through an attorney at law.
The Borrower hereby waives presentment, demand, protest, notice of
demand, protest and nonpayment and any other notice required by law relative
hereto, except to the extent as otherwise may be expressly provided for in the
Credit Agreement.
72
<PAGE> 79
IN WITNESS WHEREOF, the Borrower has caused this Amended and Restated
Syndicated Loan Note to be duly executed, under seal, by its duly authorized
officer as of the day and year first above written.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
---------------------
Title:
73
<PAGE> 80
Amended and Restated Syndicated Loan Note (cont'd)
SYNDICATED LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Base Rate Amount Amount of
or Euro- of Principal Maturity Notation
Date Dollar Loan Loan Repaid Date Made By
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE> 81
EXHIBIT A-2
AMENDED AND RESTATED MONEY MARKET LOAN NOTE
As of January 30, 1998
For value received, FLOWERS INDUSTRIES, INC., a Georgia corporation
(the "Borrower"), promises to pay to the order of ____________________________,
a _______________ (the "Bank"), for the account of its Lending Office, the
principal sum of FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000), or such
lesser amount as shall equal the unpaid principal amount of each Money Market
Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred
to below, on the dates and in the amounts provided in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of this Amended
and Restated Money Market Loan Note on the dates and at the rate or rates
provided for in the Credit Agreement referred to below. Interest on any overdue
principal of and, to the extent permitted by law, overdue interest on the
principal amount hereof shall bear interest at the Default Rate, as provided for
in the Credit Agreement. All such payments of principal and interest shall be
made in lawful money of the United States in Federal or other immediately
available funds at the office of Wachovia, N.A., 191 Peachtree Street, N.E.,
Atlanta, Georgia 30303-1757, or such other address as may be specified from time
to time pursuant to the Credit Agreement.
All Money Market Loans made by the Bank, the respective maturities
thereof, the interest rates from time to time applicable thereto, and all
repayments of the principal thereof shall be recorded by the Bank and, prior to
any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on
a continuation of such schedule attached to and made a part hereof; provided
that the failure of the Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Credit
Agreement.
This Amended and Restated Money Market Loan Note is one of the Money
Market Loan Notes referred to in the Amended and Restated Credit Agreement dated
as of January 30, 1998 among the Borrower, the Banks listed on the signature
pages thereof, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as
Documentation Agent, and NationsBank, N.A., as Syndications Agent (as the same
may be amended and modified from time to time, the "Credit Agreement"). Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the optional and
mandatory prepayment and the repayment hereof and the acceleration of the
maturity hereof, as well as the obligation of the Borrower to pay all costs of
collection, including reasonable attorneys fees, in the event this Amended and
Restated Money Market Loan Note is collected by law or through an attorney at
law.
The Borrower hereby waives presentment, demand, protest, notice of
demand, protest and nonpayment and any other notice required by law relative
hereto, except to the extent as otherwise may be expressly provided for in the
Credit Agreement.
75
<PAGE> 82
IN WITNESS WHEREOF, the Borrower has caused this Amended and Restated
Money Market Loan Note to be duly executed, under seal, by its duly authorized
officer as of the day and year first above written.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
---------------------
Title:
76
<PAGE> 83
Amended and Restated Money Market Loan Note (cont'd)
MONEY MARKET LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount Amount of Stated
Interest of Principal Maturity Notation
Date Rate Loan Repaid Date Made By
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE> 84
EXHIBIT A-3
SWING LOAN NOTE
Atlanta, Georgia
March 30, 2000
For value received, FLOWERS INDUSTRIES, a Georgia corporation (the
"Borrower"), promises to pay to the order of WACHOVIA BANK, N.A., a national
banking association (the "Bank"), for the account of its Lending Office, the
principal sum of Fifteen Million and No/100 Dollars ($15,000,000), or such
lesser amount as shall equal the unpaid principal amount of each Swing Loan made
by the Bank to the Borrower pursuant to the Credit Agreement referred to below,
on the dates and in the amounts provided in the Credit Agreement. The Borrower
promises to pay interest on the unpaid principal amount of this Swing Loan Note
at the rate provided for Base Rate Loans on the dates provided for in the Credit
Agreement. Interest on any overdue principal of and, to the extent permitted by
law, overdue interest on the principal amount hereof shall bear interest at the
Default Rate, as provided for in the Credit Agreement. All such payments of
principal and interest shall be made in lawful money of the United States in
Federal or other immediately available funds at the office of Wachovia Bank,
N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such other
address as may be specified from time to time pursuant to the Credit Agreement.
All Swing Loans made by the Bank, the respective maturities thereof, and
all repayments of the principal thereof shall be recorded by the Bank and, prior
to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or
on a continuation of such schedule attached to and made a part hereof; provided
that the failure of the Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Credit
Agreement.
This Swing Loan Note is the Swing Loan Note referred to in the Second
Amended and Restated Credit Agreement dated as of even date herewith among the
Borrower, the Banks listed on the signature pages thereof and Wachovia Bank,
N.A., as Agent (as the same may be amended and modified from time to time, the
"Credit Agreement"). Terms defined in the Credit Agreement are used herein with
the same meanings. Reference is made to the Credit Agreement for provisions for
the optional and mandatory prepayment and the repayment hereof and the
acceleration of the maturity hereof.
78
<PAGE> 85
IN WITNESS WHEREOF, the Borrower has caused this Swing Loan Note to be duly
executed, under seal, by its duly authorized officer as of the day and year
first above written.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
---------------------
Title:
79
<PAGE> 86
Swing Loan Note (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
LOANS AND PAYMENTS OF PRINCIPAL
AMOUNT OF
AMOUNT OF PRINCIPAL MATURITY NOTATION
DATE LOAN REPAID DATE MADE BY
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE> 87
EXHIBIT B
OPINION OF
COUNSEL FOR THE BORROWER
[Dated as provided in Section
3.01 of the Credit Agreement]
To the Banks and the Agent
Referred to Below
c/o Wachovia Bank, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn: Syndications Group
Dear Sirs:
I am Assistant General Counsel of Flowers Industries, Inc., a Georgia
corporation (the "Borrower") in connection with the Amended and Restated Credit
Agreement (the "Credit Agreement") dated as of January 30, 1998, among the
Borrower, the banks listed on the signature pages thereof, Wachovia Bank, N.A.,
as Agent, The Bank of Nova Scotia, as Documentation Agent, and NationsBank,
N.A., as Syndications Agent. Terms defined in the Credit Agreement are used
herein as therein defined.
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion. I have assumed for purposes of my opinions set forth below that the
execution and delivery of the Credit Agreement by each Bank and by the Agent
have been duly authorized by each Bank and by the Agent.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Georgia and has all corporate powers
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes (i) are within the Borrower's corporate powers,
(ii) have been duly authorized by all necessary corporate action, (iii) require
no action by or in respect of, or filing with, any governmental body, agency or
official, (iv) do not contravene, or constitute a default under, any provision
of applicable law or regulation or of the certificate of incorporation or
by-laws of the Borrower or of any agreement, judgment, injunction, order, decree
or other instrument which to our knowledge is binding upon the Borrower and (v)
except as provided in
81
<PAGE> 88
the Credit Agreement, do not result in the creation or imposition of any Lien on
any asset of the Borrower or any of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower, enforceable against the Borrower in accordance with its terms, and
the Notes constitute valid and binding obligations of the Borrower, enforceable
in accordance with their respective terms, except as such enforceability may be
limited by: (i) bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally and (ii) general principles of equity.
4. There is no action, suit or proceeding pending, or threatened,
against or affecting the Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could materially adversely
affect the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, or which in any manner questions the validity or enforceability of the
Credit Agreement or any Note.
5. Each of the Borrower's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
6. Neither the Borrower nor any of its Subsidiaries is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
7. Neither the Borrower nor any of its Subsidiaries is a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The opinion contained in Paragraph 2(iv) hereof is qualified to the
effect that no opinion is given thereunder as to Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
I am qualified to practice in the State of Georgia and do not purport
to be experts on any laws other than the laws of the United States and the State
of Georgia and this opinion is rendered only with respect to such laws. I have
made no independent investigation of the laws of any other jurisdiction.
This opinion is delivered to you in connection with the transaction
referenced above and may only be relied upon by you, any Assignee, Participant
or other Transferee under the Credit Agreement, and Jones, Day, Reavis & Pogue
without our prior written consent.
Very truly yours,
82
<PAGE> 89
EXHIBIT C
OPINION OF
JONES, DAY, REAVIS & POGUE, SPECIAL COUNSEL
FOR THE AGENT
[Dated as provided in Section
3.01 of the Credit Agreement]
To the Banks and the Agent
Referred to Below
c/o Wachovia Bank, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn: Syndications Group
Dear Sirs:
We have participated in the preparation of the Amended and Restated
Credit Agreement (the "Credit Agreement") dated as of January 30, 1998, among
Flowers Industries, Inc., a Georgia corporation (the "Borrower"), the banks
listed on the signature pages thereof (the "Banks"), Wachovia Bank, N.A., as
Agent (the "Agent"), The Bank of Nova Scotia, as Documentation Agent, and
NationsBank, N.A., as Syndications Agent, and have acted as special counsel for
the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d)
of the Credit Agreement. Terms defined in the Credit Agreement are used herein
as therein defined.
This opinion letter is limited by, and is in accordance with, the
January 1, 1992 edition of the Interpretive Standards applicable to Legal
Opinions to Third Parties in Corporate Transactions adopted by the Legal Opinion
Committee of the Corporate and Banking Law Section of the State Bar of Georgia
which Interpretive Standards are incorporated herein by this reference.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, and assuming the due authorization,
execution and delivery of the Credit Agreement and each of the Notes by or on
behalf of the Borrower, we are of the opinion that the Credit Agreement
constitutes a valid and binding agreement of the Borrower and each Note
constitutes valid and binding obligations of the Borrower, in each case
enforceable in accordance with its terms except as: (i) the enforceability
thereof may be affected by bankruptcy, insolvency, reorganization, fraudulent
conveyance, voidable preference, moratorium or similar laws applicable to
creditors' rights or the collection of debtors' obligations
83
<PAGE> 90
generally; (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability; and
(iii) the enforceability of certain of the remedial, waiver and other provisions
of the Credit Agreement and the Notes may be further limited by the laws of the
State of Georgia; provided that such additional laws do not, in our opinion,
substantially interfere with the practical realization of the benefits expressed
in the Credit Agreement and the Notes, except for the economic consequences of
any procedural delay which may result from such laws.
In giving the foregoing opinion, we express no opinion as to the effect
(if any) of any law of any jurisdiction except the State of Georgia. We express
no opinion as to the effect of the compliance or noncompliance of the Agent or
any of the Banks with any state or federal laws or regulations applicable to the
Agent or any of the Banks by reason of the legal or regulatory status or the
nature of the business of the Agent or any of the Banks.
This opinion is delivered to you in connection with the transaction
referenced above and may only be relied upon by you and any Assignee,
Participant or other Transferee under the Credit Agreement without our prior
written consent.
Very truly yours,
84
<PAGE> 91
EXHIBIT D
ASSIGNMENT AND ACCEPTANCE
Dated _______________ ____, ________
Reference is made to the Second Amended and Restated Credit Agreement
dated as of March 30, 2000 (together with all amendments and modifications
thereto, the "Credit Agreement") among Flowers Industries, Inc., a Georgia
corporation (the "Borrower"), the Banks (as defined in the Credit Agreement),
Wachovia Bank, N.A., as Agent (the "Agent"), The Bank of Nova Scotia, as
Documentation Agent, and Bank of America, N.A., as Syndications Agent. Terms
defined in the Credit Agreement are used herein with the same meaning.
____________________________________________ (the "Assignor") and
____________________________________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse to the Assignor, and the Assignee hereby purchases and assumes from the
Assignor, a _____% interest in and to all of the Assignor's rights and
obligations under the Credit Agreement as of the Effective Date (as defined
below) (including, without limitation, a _____% interest (which on the Effective
Date hereof is $__________) in the Assignor's Commitment and a _____% interest
(which on the Effective Date hereof is $_______________) in the Syndicated Loans
[and Money Market Loans] owing to the Assignor and a _____% interest in the
Note[s] held by the Assignor (which on the Effective Date hereof is
$__________).
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto, other
than that it is the legal and beneficial owner of the interest being assigned by
it hereunder, that such interest is free and clear of any adverse claim and that
as of the date hereof its Commitment (without giving effect to assignments
thereof which have not yet become effective) is $__________ and the aggregate
outstanding principal amount of Syndicated Loans [and Money Market Loans] owing
to it (without giving effect to assignments thereof which have not yet become
effective) is $ __________; (ii) makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iii) attaches the Note[s] referred to in paragraph 1 above and requests
that the Agent exchange such Note[s] for [a new Syndicated Loan Note
dated ________ , ______, in the principal amount of $__________ payable to the
order of the Assignee and a new Money Market Loan Note dated ___________, ____
in the principal amount of $______________ payable to the order of the Assignee]
[new Notes as follows: a (i) Syndicated Loan Note dated ___________ , ____ in
the principal amount of $ __________ payable to the order of the Assignor
(ii) Syndicated Loan Note dated __________ , _____ in the principal amount of
$ ________ payable to the order of the Assignee, and (iii) and a new Money
Market Loan Note dated ___________, ____ in the principal amount of
$______________ payable to the order of the Assignee].
85
<PAGE> 92
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.04(a) thereof (or any more recent financial statements of the Borrower
delivered pursuant to Section 5.01(a) or (b) thereof) and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement; (iii) confirms that it is a bank or financial
institution; (iv) appoints and authorizes the Agent to take such action as agent
on its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; (vi) specifies as its
Lending Office (and address for notices) the office set forth beneath its name
on the signature pages hereof, (vii) represents and warrants that the execution,
delivery and performance of this Assignment and Acceptance are within its
corporate powers and have been duly authorized by all necessary corporate
action, (viii) makes the representation and warranty contained in Section 9.17
of the Credit Agreement[, and (ix) attaches the forms prescribed by the Internal
Revenue Service of the United States certifying as to the Assignee's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to the Assignee under the Credit Agreement
and the Notes or such other documents as are necessary to indicate that all such
payments are subject to such taxes at a rate reduced by an applicable tax
treaty].
4. The Effective Date for this Assignment and Acceptance shall be
_______________, _____ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Agent for execution and
acceptance by the Agent and to the Borrower for execution by the Borrower.
5. Upon such execution and acceptance by the Agent [and execution by
the Borrower] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement and,
to the extent rights and obligations have been transferred to it by this
Assignment and Acceptance, have the rights and obligations of a Bank thereunder
and (ii) the Assignor shall, to the extent its rights and obligations have been
transferred to the Assignee by this Assignment and Acceptance, relinquish its
rights (other than under Sections 8.03, 9.03 and 9.04 of the Credit Agreement)
and be released from its obligations under the Credit Agreement.
6. Upon such execution and acceptance by the Agent [and execution by
the Borrower] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the
Effective Date, the Agent shall make all payments in respect of the interest
assigned hereby to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to such acceptance by the
Agent directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of Georgia.
86
<PAGE> 93
[NAME OF ASSIGNOR]
By:
------------------------------
Title:
[NAME OF ASSIGNEE]
By:
------------------------------
Title:
Lending Office:
[Address]
WACHOVIA BANK, N.A.,
As Agent
By:
------------------------------
Title:
FLOWERS INDUSTRIES, INC.
IF REQUIRED BY THE CREDIT AGREEMENT
By:
------------------------------
Title:
87
<PAGE> 94
EXHIBIT E
NOTICE OF BORROWING
________________, ___
Wachovia Bank, N.A., as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Syndications Group
Re: Second Amended and Restated Credit Agreement (as
amended and modified from time to time, the "Credit
Agreement") dated as of March 30, 2000, by and among
Flowers Industries, Inc., the Banks from time to
time parties thereto, Wachovia Bank, as Agent, The
Bank of Nova Scotia, as Documentation Agent, and
Bank of America, N.A., as Syndications Agent.
Gentlemen:
Unless otherwise defined herein, capitalized terms used herein shall have
the meanings attributable thereto in the Credit Agreement.
This Notice of Borrowing is delivered to you pursuant to Section 2.02 of
the Credit Agreement.
The Borrower hereby requests a [Syndicated Borrowing] [Swing Loan
Borrowing] [Euro-Dollar Borrowing] [Base Rate Borrowing] in the aggregate
principal amount of $_____ to be made on_____,___, and for interest to accrue
thereon at the rate established by the Credit Agreement for [Euro-Dollar Loans]
[Base Rate Loans]. The duration of the Interest Period with respect thereto
shall be [1 month] [2 months] [3 months] [6 months] [30 days].
The Borrower has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer this____ day of____,___.
FLOWERS INDUSTRIES, INC.
By:
----------------------
Title:
88
<PAGE> 95
EXHIBIT F
COMPLIANCE CERTIFICATE
Reference is made to the Second Amended and Restated Credit Agreement dated
as of March 30, 2000 (as modified and supplemented and in effect from time to
time, the "Credit Agreement") among Flowers Industries, Inc., the Banks from
time to time parties thereto, Wachovia Bank, N.A., as Agent, The Bank of Nova
Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications
Agent. Capitalized terms used herein shall have the meanings ascribed thereto in
the Credit Agreement.
Pursuant to Section 5.01(c) of the Credit Agreement,______, the duly authorized
________ of Flowers Industries, Inc., hereby (A) certifies to the Agent and the
Banks that the information contained in the Compliance Check List attached
hereto is true, accurate and complete as of______,___, (B) certifies to the
Agent and the Banks that no Default is in existence on and as of the date hereof
and (C) restates and reaffirms that the representations and warranties contained
in Article IV of the Credit Agreement are true on and as of the date hereof as
though restated on and as of this date.
FLOWERS INDUSTRIES, INC.
By:
------------------------------
Title:
89
<PAGE> 96
COMPLIANCE CHECK LIST
Flowers Industries, Inc.
________________________
______________, ______
1. Loans and Advances (Section 5.14)
Neither the Borrower nor any of its Material Subsidiaries shall make
loans or advances to any Person except as permitted by Section 5.16 and
except: (i) loans or advances to employees not exceeding $10,000,000 in
the aggregate principal amount outstanding at any time, in each case
made in the ordinary course of business and consistent with practices
existing on the Closing Date; (ii) deposits required by government
agencies or public utilities; (iii) loans or advances to and among
Borrower and its Wholly Owned Subsidiaries; and (iv) other loans or
advances, to Persons other than the Unrestricted Subsidiaries (loans
and advances to Unrestricted Subsidiaries not being permitted), in an
aggregate amount outstanding which do not exceed 15% of Adjusted
Consolidated Total Assets as of the last day of the immediately
preceding Fiscal Quarter; provided that after giving effect to the
making of any loans, advances or deposits permitted by this Section, no
Default shall be in existence or be created thereby.
(a) loans and advances to employees $
----------
(b) lesser of (a) and $10,000,000 $
----------
(c) other loans and advances not
permitted by clauses (i) through (iii),
inclusive (1) $
----------
(d) Adjusted Consolidated Total Assets $
----------
(e) 15% of (d) $
----------
Limitation (d) may not exceed (e)
2. Negative Pledge (Section 5.16)
(a) Amount of Indebtedness secured by Liens
permitted by Sections 5.1(a)
through 5.16(g), inclusive, and
(l) and (n) Schedule - 1 $
----------
(b) Amount of Debt secured by Liens not
- ---------------
(1) Loans and advances to the Unrestricted Subsidiaries are not permitted
and may not be included in this category.
90
<PAGE> 97
permitted by Section (q) Schedule - 1 $
----------
(c) Aggregate amount of Indebtedness of
Restricted Subsidiaries permitted
by Section 5.20(iv) $
----------
(d) Sum of (b) and (c) $
----------
(e) Adjusted Consolidated Net Worth $
----------
(f) 20% of (e) $
----------
Limitation (d) may not exceed (f)
3. Adjusted Fixed Charge Coverage Ratio (Section 5.17)
At the end of each Fiscal Quarter, commencing with the second Fiscal Quarter of
the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted Consolidated
Fixed Charges shall at all times be equal to or greater than the ratio set
forth below for such Fiscal Quarter of each Fiscal Year set forth below:
<TABLE>
<CAPTION>
Adjusted Fixed Charges
Fiscal Quarter Fiscal Year Coverage Ratio
-------------- ----------- --------------
<S> <C> <C>
Second 2000 1.10 to 1.0
Third 2000 1.15 to 1.0
Fourth 2000 1.20 to 1.0
First 2001 1.25 to 1.0
Second 2001 1.25 to 1.0
Third 2001 1.25 to 1.0
Fourth 2001
and thereafter 1.50 to 1.0
</TABLE>
(a) Adjusted Consolidated Net Income Schedule 2 $
----------
(b) Adjusted Consolidated Interest Expense - Schedule 2 $
----------
(c) payments on operating leases and rental agreements $
----------
(d) taxes - Schedule 2 $
----------
(e) depreciation - Schedule 2 $
----------
(f) amortization - Schedule 2 $
----------
91
<PAGE> 98
(g) sum of (a) plus (b) plus (c) plus (d) plus (e)
plus (f) $
----------
(h) sum of (b) plus (c) $
----------
Ratio of (g) to (h) $
----------
Requirement [>1.10 to 1.0]
-
[>1.15 to 1.0]
-
[>1.20 to 1.0]
-
[>1.25 to 1.0]
-
[>1.50 to 1.0]
-
4. Leverage Ratio (Section 5.18)
The Leverage Ratio shall at all times be equal to or less than 0.65 to
1.0.
(a) Adjusted Consolidated Total Debt Schedule - 4 $
----------
(b) Adjusted Consolidated Net Worth $
----------
(c) Sum of (a) plus (b) $
----------
Ratio of (a) to (c) $
----------
Requirement > 0.65 to 1.00
-
5. Minimum Adjusted Consolidated Net Worth (Section 5.19)
Adjusted Consolidated Net Worth will at no time be less than
$487,569,000, plus the sum of (x) 50% of the cumulative Net Proceeds
of Capital Stock received during any period after April 27, 1998, plus
(y) 50% of any equity resulting from a conversion of Indebtedness of
the Borrower during any period after April 27, 1998, less (z) any
amount of equity of the Borrower repurchased during any period after
April 27, 1998, calculated quarterly at the end of each Fiscal
Quarter.
(a) cumulative Net Capital Proceeds since April 27, 1998 $
----------
(b) 50% of (a) $
----------
(c) equity resulting from Indebtedness conversion
since April 27, 1998 $
----------
(d) amount of equity repurchased since April 27, 1998 $
----------
(e) (c) less (d) $
----------
92
<PAGE> 99
(f) 50% of (e) $
----------
(g) sum of $487,589,000, plus (b),
plus (f) $
----------
(h) Adjusted Consolidated Net Worth $
----------
Limitation (h) may not be less than (g)
6. Adjusted Consolidated EBITDA (Section 5.22)
At the end of each Fiscal Quarter, commencing with the first Fiscal Quarter of
the 2000 Fiscal Year, Adjusted Consolidated EBITDA shall at all times be equal
to or greater than the amount set forth below for each Fiscal Quarter of each
Fiscal Year set forth below, and shall be calculated (i) at the end of each
Fiscal Quarter in the 2000 Fiscal Year, for such Fiscal Quarter only, and (ii)
at the end of each Fiscal Quarter thereafter, for the 4 Fiscal Quarter period
then ending.
<TABLE>
<CAPTION>
Adjusted
Fiscal Quarter Fiscal Year Consolidated
- -------------- ----------- ------------
EBITDA
------
<S> <C> <C>
First 2000 $ 26,500,000
Second 2000 $ 18,500,000
Third 2000 $ 24,500,000
Fourth 2000 $ 25,000,000
First 2001 $105,000,000
Second 2001 $105,000,000
Third 2001 $115,000,000
Fourth 2001 $115,000,000
First and thereafter 2002 $125,000,000
Adjusted Consolidated EBITDA
Schedule - 5 $
</TABLE> ------------
7. Capital Expenditures (Section 5.25)
The Borrower shall not, and the Borrower shall not permit its
Restricted Subsidiaries to, incur Capital Expenditures in any Fiscal
Year, except that Capital Expenditures may be incurred up to an
aggregate amount not exceeding (x) $40,000,000 in the 2000 Fiscal Year
and (y) $37,500,000 in any Fiscal Year thereafter, provided that after
giving effect to the incurrence of any Capital Expenditures permitted
by this Section, no Default shall be in existence or be created
thereby.
(a) Capital Expenditures incurred in Fiscal Year $
to date: ----------
Limitation: (a) may not exceed $40,000,000 in the 2000 Fiscal
Year and $37,500,000 in any Fiscal Year thereafter
93
<PAGE> 100
Schedule - 1
(a) Liens Securing Debt In The Principal Amount of $50,000 or More which
are Not Permitted by Sections 5.1(a) through 5.16(g), inclusive, and
(l), (n) and (o)
<TABLE>
<CAPTION>
Relevant Provision of
Description of Lien Amount of Debt Secured Section 5.16 Permitting Same
- ------------------- ---------------------- ----------------------------
<S> <C> <C>
1. $
---------------- ---------------- ---------------
2. $
---------------- ---------------- ---------------
3. $
---------------- ---------------- ---------------
4. $
---------------- ---------------- ---------------
5. $
---------------- ---------------- ---------------
6. $
---------------- ---------------- ---------------
7. $
---------------- ---------------- ---------------
8. $
---------------- ---------------- ---------------
9. $
---------------- ---------------- ---------------
</TABLE>
(b) Aggregate Amount of Other Liens Securing Debt which are
Not Permitted by Sections 5.1(a) through 5.16(g), inclusive
and (l), (n) and (o) $
----------
(c) Aggregate Amount of All Debt Secured by Liens $
----------
94
<PAGE> 101
Schedule - 2
Adjusted Fixed Charge Coverage (2)
<TABLE>
<S> <C>
Adjusted Consolidated Net Income for:
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
Total $
----------
Adjusted Consolidated Interest Expense for:
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
Total $
----------
Operating Leases and Rentals for:
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
quarter $
- ----- ----- ----------
Total $
----------
Taxes for:
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
</TABLE>
Depreciation for:
- ---------------
(2) Include Restricted Subsidiaries Only, and include only Fiscal Year to
date for calculation at end of second and third Fiscal Quarter of 2000
Fiscal Year
95
<PAGE> 102
<TABLE>
<S> <C> <C> <C>
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
Amortization for:
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
</TABLE>
96
<PAGE> 103
Schedule - 4
Adjusted Consolidated Total Debt
<TABLE>
<CAPTION>
INTEREST
RATE MATURITY TOTAL
-------- -------- -----
<S> <C> <C> <C> <C>
(a) Unsecured Borrowed Money
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Unsecured Borrowed Money $
----------
(b) Deferred Purchase Price
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Deferred Purchase Price $
----------
(c) Capitalized Leases
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Capitalized Leases $
----------
(d) Secured Borrowed Money
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Secured Borrowed Money $
----------
(e) Letters of Credit and Similar Instruments(3)
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Letters of Credit and Similar Instruments $
----------
</TABLE>
- --------------
(3) Include only if have maturities of greater than 1 year
97
<PAGE> 104
<TABLE>
<S> <S> <C> <C> <C>
(f) Swaps
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Swaps $
----------
(g) Guaranties
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Guaranties $
----------
(h) Convertible Redeemable Capital Stock (4)
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Convertible Redeemable Capital Stock $
----------
(i) Convertible Subordinated Debt (2)
$
=================== ---------- ---------- ----------
$
=================== ---------- ---------- ----------
Total Convertible Subordinated Debt $
----------
ADJUSTED CONSOLIDATED TOTAL DEBT-sum of (a) plus (b)
plus (c) plus (d) plus (e) plus (f) plus (g) $
less (h) less (i) ----------
</TABLE>
- --------------
(4) Include only if current market value of an equity security into which it
is convertible is greater than the conversion price for such security.
98
<PAGE> 105
Schedule - 5
Adjusted Consolidated EBITDA (5)
<TABLE>
<S> <C>
Adjusted Consolidated Net Income for:
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
Adjusted Consolidated Interest Expense for:
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
Taxes for:
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
Depreciation for:
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
</TABLE>
Amortization for:
- ---------------
(5) Include Restricted Subsidiaries Only and for each Fiscal Quarter of the
2000 Fiscal Year, include only calculation for such Fiscal Quarter
99
<PAGE> 106
<TABLE>
<S> <C>
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
Other Non-cash Charges for:
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
$
- ----- quarter ----- ----------
Total $
----------
</TABLE>
100
<PAGE> 107
EXHIBIT G
FLOWERS INDUSTRIES, INC.
CLOSING CERTIFICATE
Reference is made to the Second Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of March 30, 2000, among Flowers Industries, Inc.,
the Banks listed therein, Wachovia Bank , N.A., as Agent, The Bank of Nova
Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications
Agent. Capitalized terms used herein have the meanings ascribed thereto in the
Credit Agreement.
Pursuant to Section 3.01(e) of the Credit Agreement,________________ , the
duly authorized____________ of Flowers Industries, Inc. hereby certifies to the
Agent and the Banks that (i) no Default has occurred and is continuing as of the
date hereof, and (ii) the representations and warranties contained in Article IV
of the Credit Agreement are true on and as of the date hereof.
Certified as of this March 30, 2000.
By:
----------------------------------
Printed Name:
---------------------
Title:
----------------------------
101
<PAGE> 108
EXHIBIT H
FLOWERS INDUSTRIES, INC.
SECRETARY'S CERTIFICATE
The undersigned,_________________,_______________, Secretary of Flowers
Industries, Inc., a Georgia corporation (the "Borrower"), hereby certifies that
he has been duly elected, qualified and is acting in such capacity and that, as
such, [s]he is familiar with the facts herein certified and is duly authorized
to certify the same, and hereby further certifies, in connection with the Second
Amended and Restated Credit Agreement dated as of March 30, 2000 among the
Borrower, Wachovia Bank, N.A. as Agent and as a Bank, The Bank of Nova Scotia,
as Documentation Agent, and Bank of America, N.A., as Syndications Agent, and
certain other Banks listed on the signature pages thereof (capitalized terms
used herein without definition have the meanings given them therein), that:
1. The Certificate of Incorporation of the Borrower delivered at the
closing of the Original Agreement is still in full force and effect on the date
hereof [EXCEPT THAT IT HAS BEEN AMENDED BY THE AMENDMENT ATTACHED HERETO AS
EXHIBIT A].
2. The Bylaws of the Borrower delivered at the closing of the Original
Agreement are still in full force and effect on the date hereof [EXCEPT THAT
THEY HAVE BEEN AMENDED BY THE AMENDMENT ATTACHED HERETO AS EXHIBIT B].
3. _____________________, who is _____________________ of the Borrower
signed the Credit Agreement and the Swing Loan Note on behalf of the Borrower,
was duly elected, qualified and acting as such at the time he signed the Credit
Agreement and the Swing Loan Note, and his signature appearing on the Credit
Agreement and the Swing Loan Note is his genuine signature.
IN WITNESS WHEREOF, the undersigned has hereunto set [his/her] hand as of
March 30, 2000.
-------------------------------
102
<PAGE> 109
EXHIBIT I
MONEY MARKET QUOTE REQUEST
Wachovia Bank, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Syndications Group
Re: Money Market Quote Request
This Money Market Quote Request is given in accordance with Section 2.03 of
the Second Amended and Restated Credit Agreement (as amended or modified from
time to time, the "Credit Agreement") dated as of March 30, 2000, among Flowers
Industries, Inc., the Banks from time to time parties thereto, Wachovia Bank,
N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and Bank of
America, N.A., as Syndications Agent. Terms defined in the Credit Agreement are
used herein as defined therein.
The Borrower hereby requests that the Agent obtain quotes for a Money
Market Borrowing based upon the following:
1. The proposed date of the Money Market Borrowing shall be
______________, _____ (the "Money Market Borrowing Date").1*
2. The aggregate amount of the Money Market Borrowing shall be $_____.2
3. The Stated Maturity Date(s) applicable to the Money Market Borrowing
shall be days. _____(3)
Very truly yours,
FLOWERS INDUSTRIES, INC.
By:
--------------------
Title:
- ---------------
(1) The date must be a Euro-Dollar Business Day.
(2) The amount of the Money Market Borrowing is subject to Section 2.03(a) and
(b).
(3) The Stated Maturity Dates are subject to Section 2.03(b)(iii). The Borrower
may request that up to 2 different Stated Maturity Dates be applicable to
any Money Market Borrowing, provided that (i) each such Stated Maturity
Date shall be deemed to be a
103
<PAGE> 110
separate Money Market Quote Request and (ii) the Borrower shall specify the
amounts of such Money Market Borrowing to be subject to each such different
Stated Maturity Date.
104
<PAGE> 111
EXHIBIT J
MONEY MARKET QUOTE
Wachovia Bank, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Syndications Group
Re: Money Market Quote to Flowers Industries, Inc.
This Money Market Quote is given in accordance with Section 2.03(c)(ii) of
the Second Amended and Restated Credit Agreement (as amended or modified from
time to time, the "Credit Agreement") dated as of March 30, 2000, among Flowers
Industries, Inc. (the "Borrower"), the Banks from time to time parties thereto,
Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent,
and Bank of America, N.A., as Syndications Agent. Terms defined in the Credit
Agreement are used herein as defined therein.
In response to the Borrower's Money Market Quote Request dated
_______________, _____, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. Date of Money Market Borrowing:1*
4. We hereby offer to make Money Market Loan(s) in the following maximum
principal amounts for the following Interest Periods and at the following rates:
<TABLE>
<CAPTION>
<S> <C> <C>
Maximum Stated
Principal Maturity
Amount (2) Date (3) Rate Per Annum (4)
</TABLE>
- ---------------
* All numbered footnotes appear on the last page of this Exhibit I
105
<PAGE> 112
We understand and agree that the offer(s) set forth above, subject to the
satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate(s) us to make the Money Market Loan(s) for which any
offer(s) [is] [are] accepted, in whole or in part (subject to the last sentence
of Section 2.03(c)(i) of the Credit Agreement).
Very truly yours,
[Name of Bank]
Dated: By:
-----------------------
- ------------------------ Authorized
Officer
- ------------------------
- -----------------
(1) As specified in the related Money Market Quote Request.
(2) The principal amount bid for each Stated Maturity Date may not exceed the
principal amount requested. Money Market Quotes must be made for at least
$10,000,000 or a larger integral multiple of $5,000,000.
(3) The Stated Maturity Dates are subject to Section 2.03(b)(iii).
(4) Subject to Section 2.03(c)(ii)(C).
106
<PAGE> 113
SCHEDULE 4.08
Updated February 1, 2000
DOMESTIC CORPORATE STRUCTURE
OF
FLOWERS INDUSTRIES, INC.
<TABLE>
<CAPTION>
F:\TAX\DATA\AMIFILES\STRUCTUR.DOC DATE AND STATE FEDERAL
OF INCORPORATION I.D.#
---------------- -----
<S> <C> <C> <C>
FLOWERS INDUSTRIES, INC. 11/03/87 (GA 58-0244940
S - Flowers Investments, Inc. 04/07/97 (GA) 58-2343711
S - Flowers Bakeries Brands, Inc. 05/26/98 (SC)
ss - Flowers Bakeries, Inc. 05/27/98 (GA) 59-3483283
sss - Flowers Baking Company of Florida, Inc.
ssss - Flowers Baking Company of Miami, Inc. 08/05/77 (FL) 59-1758784
p - Miami, Florida
ssss - Flowers Baking Company of Jacksonville, Inc. 01/03/77 (FL) 59-1718773
p - Jacksonville, Florida
ssss - Flowers Baking Co. of Bradenton, Inc. 10/30/84 (FL) 58-1723981
p - Bradenton, Florida
sss - Flowers Baking Company of Thomasville, Inc. 06/30/78 (GA) 58-1330782
p - Thomasville, Georgia
sss - Flowers Baking Co. of Villa Rica, Inc. 11/23/93 (GA) 58-2109227
p - Villa Rica, Georgia
sss - Flowers Baking Company of Opelika, Inc. 06/28/78 (AL) 63-0752595
p - Opelika, Alabama
sss - Hardin's Bakery, Incorporated 11/12/46 (AL) 63-0252356
p - Tuscaloosa, Alabama
sss - Midtown Bakery, Inc. 10/22/96 (AL) 58-2272791
p - Atlanta, Georgia
sss - Home Baking Company, Inc. 01/01/54 (AL) 63-0334970
p - Birmingham, Alabama
sss - Huval Bakery, Incorporated 02/12/76 (LA) 59-1686698
p - Lafayette, Louisiana
ssss - Bunny Bread, Inc. 09/28/65 (LA) 72-0500448
p - New Orleans, Louisiana
sssss - Flowers Baking Co. of Baton Rouge, Inc. 07/20/87 (LA) 58-1740889
p - Baton Rouge, Inc.
sss - Flowers Baking Company of Jamestown, Inc. 07/02/84 (NC) 58-1567728
p - Jamestown, North Carolina
</TABLE>
107
<PAGE> 114
<TABLE>
<S> <C> <C> <C>
sss - Franklin Baking Co. 1954 (NC) 56-0605051
p - Goldsboro, North Carolina
sss - Flowers Baking Company of Lynchburg, Inc. 12/13/77 (VA) 58-1309193
p - Lynchburg, Virginia
sss - Flowers Baking Company of Norfolk, Inc. 07/03/78 (VA) 58-1330779
p - Norfolk, Virginia
sss - Flowers Baking Company of Morristown, Inc. 07/15/80 (TN) 58-1403615
p - Morristown, Tennessee
sss - Flowers Baking Company of Memphis, Inc. 10/14/99 (TN) 62-1799669
p - Memphis, Tennessee
sss - Schott's Bakery, Inc. 03/07/24 (TX) 74-0886850
p - Houston, Texas
sss - Flowers Baking Company of West Virginia, Inc. 06/26/85 (WV) 55-0654747
p - Bluefield, West Virginia
ssss - The Donut House, Inc. 11/17/69 (WV) 55-0517749
p - Charleston, West Virginia
sss - Flowers Baking Company of Texas, Inc. (h) 11/05/81 (TX) 58-1453104
ssss - Flowers Baking Company of Tyler, Inc. 12/17/91 (GA) 75-1786865
p - Tyler, Texas
sssss - ButterKrust Bakery, Inc. 09/21/94 (TX) 74-2720708
p - San Antonio, Texas
ssss - El Paso Baking Co., Inc. 03/10/93 (TX) 74-2657988
(fna Flowers Distributing Co. of El Paso, Inc.)
p - El Paso, Texas
sssss - El Paso Baking Co. de Mexico, S.A. de C.V. 09/00/94 (Mexican Corp.)
ssss - San Antonio Baking Co., Inc. 01/06/97 (TX) 74-2830409
ssss - Austin Baking Co., Inc. 02/03/97 (TX) 74-2830410
ssss - Corpus Christi Baking Co., Inc. 02/18/97 (TX) 74-2830414
sss - Flowers Baking Company of Fresno, Inc. 11/10/86 (CA) 77-0130552
sss - Flowers Baking Company of Texarkana, Inc. 11/10/86 (AR) 71-0638493
p - Texarkana, Arkansas
sss - Holsum Baking Company 03/27/46 (AR) 71-0209537
p - Pine Bluff, Arkansas
sss - Shipley Baking Company 10/01/96 (AR) 71-0254043
p - Fort Smith, Arkansas
sss - Flowers Baking Co. of Ohio, Inc. 01/02/96 (OH) 55-0747366
sss - Storck Baking company f/n/a Flowers Acquisition Company 09/21/95 (WV) 55-0745937
p - Parkersburg, West Virginia
sss - Flowers Baking Company of Memphis, Inc. 10/14/99 (TN) 62-1799669
p - Memphis, Tennessee
S - Mrs. Smith's Bakeries, Inc. 04/28/98 (GA) 58-2392473
ss - Mrs. Smith's Bakery of Suwanee, Inc. 06/14/99 (GA) 8-2480300
ss - European Bakers, Ltd. 11/30/74 (GA) 58-0944858
p - Tucker, Georgia
</TABLE>
108
<PAGE> 115
<TABLE>
<S> <C> <C> <C>
sss - Aunt Fanny's Bakery, Inc. 03/28/95 (GA) 58-2168689
p - Atlanta, Georgia
ss - Dan-Co Bakery, Inc. 01/31/92 (GA) 58-1989098
p - Forest Park, Georgia
sss - Daniels Home Bakery of North Carolina, Inc. 04/13/93 (NC) 58-2023526
p - Lumberton, North Carolina
ss - Table Pride, Inc. 05/30/89 (GA) 58-1846861
p - Chamblee, Georgia
ss - Mrs. Smith's Sales Support Group, Inc.(d) 06/02/89 (GA) 58-1846859
sss - Mrs. Smith's Foil Co., Inc. 02/02/98 (GA) 23-2947803
p - Pottstown, PA
ss - Broad Street Bakeries, Inc. (d) 02/07/90 (GA) 58-1910488
ss - Special Touch Bakeries, Inc. (d) 02/10/90 (GA) 58-1910485
ss - Flowers Specialty of Suwanee, Inc. (d) 08/16/94 (GA) 58-2125051
ss - Mrs. Smith's Frozen Bakery Distributors, Inc. (d) 08/16/94 (GA) 58-2125054
p - Suwanee, Georgia
sss - Mrs. Smith's Bakeries of Pennsylvania, Inc. 04/30/96 (GA) 58-2236380
p - Pottstown, PA
sss - Allied Frozen Food Services, Inc. (d) 09/24/98 (NY) 13-3967930
ss - Flowers Specialty Foods of Montgomery, Inc. 03/31/89 (AL) 63-0998333
p - Montgomery, Alabama
ss - Flowers Baking Company of South Carolina, Inc. 08/21/69 (SC) 57-0518564
p - Spartanburg, South Carolina
ss - Flowers Baking Company of Fountain Inn, Inc. 12/17/76 (SC) 57-0641441
p - Fountain Inn, South Carolina
ss - Flowers Baking Company of Chattanooga, Inc. 12/30/77 (TN) 58-1333171
p - Crossville, Tennessee
ss - Flowers Fresh Bakery Distributors, Inc. (d) 08/01/94 (TN) 62-1574151
ss - Aunt Fanny's Bakery of Pennsylvania, Inc. 08/14/95 (PA) 25-1770720
p - North East, Pennsylvania
ss - Mrs. Smith's Bakeries of London, Inc. 05/31/83 (KY) 61-1027735
p - London, Kentucky
sss - Bluebird Brands, Inc. (d) 02/10/90 (GA) 31-1307421
ss - Pies, Inc., 07/30/91 (MN) 58-1953616
p - Chaska, Minnesota
sss - Mrs. Smith's Brands, Inc. (SC) 57-1069445
ss - Stilwell Foods, Inc. 04/01/74 (OK) 73-0962847
p - Stilwell, Oklahoma
sss - Stilwell Foods of Texas, Inc. (i) 12/18/91 (OK) 74-1791072
(f/k/a Rio Grande Foods, Inc.)
p - McAllen, Texas
sss - Stilwell Foods Manpower of Texas, Inc. 12/27/82 (TX) 73-1167155
(f/k/a Rio Grande Foods Manpower)
ss - Flowers Holding Co., Inc.
</TABLE>
109
<PAGE> 116
DOMESTIC CORPORATE STRUCTURE
OF
FLOWERS INDUSTRIES, INC.
S - subsidiary of Flowers Industries, Inc.
ss - subsidiary of a subsidiary
sss - subsidiary of a subsidiary of a sub subsidiary
ssss - subsidiary of a subsidiary of a subsidiary of a subsidiary
sssss - subsidiary of a subsidiary of a subsidiary of a subsidiary of a
subsidiary
p - location
(h) - holding company
(i) - inactive
(d) - distribution
110
<PAGE> 1
EXHIBIT 10.15
MASTER LEASE AGREEMENT
Dated as of October 20, 1995
Between
WACHOVIA LEASING CORPORATION,
as the Lessor,
and
FLOWERS INDUSTRIES, INC.,
as the Lessee
<PAGE> 2
ADDRESSES OF PARTIES:
Wachovia Leasing Corporation Flowers Industries, Inc.
301 North Main Street 200 U.S. Highway 10 South
P.O. Box 3099 P. O. Box 1338
Winston-Salem, NC 27150 Thomasville, GA 31799
ATTENTION: Jonathan E. Head ATTENTION: C. Martin Wood, III
THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED
CONSECUTIVELY FROM 1 TO 2. TO THE EXTENT, IF ANY, THAT THIS LEASE
CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO
SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR
POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN COUNTERPART
NUMBER 1.
This is Counterpart Number__________
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1. Certain Defined Terms................................................. 1
Section 2. Lease of Equipment.................................................... 1
Section 3. Payments.............................................................. 2
(a) Interim Rent.................................................. 2
(b) Basic Rent.................................................... 3
(c) Final Rent Payment............................................ 4
(d) Supplemental Rent............................................. 4
(e) Computations.................................................. 5
(f) Absolute Net Lease............................................ 5
Section 4. [ RESERVED ].......................................................... 6
Section 5. Agency Agreement...................................................... 6
Section 6. Title to Remain in the Lessor......................................... 7
Section 7. Maintenance of the Equipment; Operations.............................. 7
Section 8. Modifications......................................................... 9
Section 9. Further Assurances.................................................... 10
Section 10. Compliance with Governmental Requirements and
Insurance Requirements: Related Contracts..................... 10
Section 11. Condition and Use of Equipment; Quiet
Enjoyment............................................................. 10
Section 12. Liens................................................................. 12
Section 13. Permitted Contests.................................................... 13
Section 14. Insurance, etc........................................................ 13
Section 15. Termination; Cancellation; Purchase Option............................ 16
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Section 16. Transfer of Title on Removal of Equipment;
Expenses of Transfer.......................................... 19
Section 17. Events of Default and Remedies........................................ 21
Section 18. Change in the Lessee's Name or Structure.............................. 25
Section 19. Inspection; Right to Enter Premises of the
Lessee........................................................ 25
Section 20. Right to Perform the Lessee's Covenants............................... 25
Section 21. Participation by Co-Lessees or Sublessees;
Participations by Lessor...................................... 26
Section 22. Notices............................................................... 27
Section 23. Amendments and Waivers................................................ 28
Section 24. Severability.......................................................... 28
Section 25. Federal Income Tax Considerations..................................... 28
Section 26. Other Provisions...................................................... 28
Section 27. Yield Protection and Illegality....................................... 30
(a) Basis for Determining Interest Rate
Inadequate or Unfair.......................................... 30
(b) Illegality.................................................... 32
(c) Increased Cost and Reduced Return............................. 32
(d) Payments and Computations..................................... 34
(e) Compensation.................................................. 34
Section 28. Conditions Precedent.................................................. 35
(a) Closing; Conditions Precedent to
Effectiveness of this Lease................................... 35
(b) Conditions to Commencement of Lease for each
Phase......................................................... 36
(c) Conditions to addition of any Equipment in
each Phase.................................................... 36
Section 29. The Lessee's Representations and Warranties........................... 38
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
(a) Corporate Existence and Power.................................... 38
(b) Corporate and Governmental Authorization......................... 38
(c) Binding Effect................................................... 39
(d) No Litigation.................................................... 39
(e) Compliance with Laws............................................. 39
(f) Ownership of Property; Liens..................................... 39
(g) No Default....................................................... 39
(h) Full Disclosure.................................................. 39
(i) Capital Stock.................................................... 40
(j) Margin Stock..................................................... 40
(k) Annual Financial Statements...................................... 40
Section 30. Covenants............................................................. 40
(a) Information................................................... 40
(b) Maintenance and Inspection of Property,
Books and Records............................................. 42
(c) Maintenance of Existence...................................... 42
(d) Consolidations, Mergers and Sales of Assets................... 42
(e) Dissolution................................................... 43
(f) Use of Proceeds............................................... 43
(g) Compliance with Laws.......................................... 43
(h) Insurance..................................................... 43
(i) Change in Fiscal Year......................................... 44
(j) Maintenance of Property....................................... 44
(k) Environmental Notices......................................... 44
(l) Environmental Matters......................................... 44
(m) Environmental Release......................................... 44
(n) Transactions with Affiliates.................................. 45
(o) Further Assurances............................................ 45
(p) Liens, Etc.................................................... 45
(q) Negative Pledge............................................... 45
(r) Guarantees.................................................... 47
(s) ERISA......................................................... 47
Section 31. Miscellaneous......................................................... 47
(a) Entire Agreement.............................................. 47
(b) No Personal Liability......................................... 48
(c) Interpretation................................................ 48
(d) Governing Law................................................. 48
(e) No Third Party Beneficiaries.................................. 48
(f) Counterparts.................................................. 48
(g) Waiver of Jury Trial.......................................... 48
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C>
(h) Invalidity.................................................. 48
(i) Usury....................................................... 49
(j) Time of the Essence......................................... 50
(k) Indemnification............................................. 50
SCHEDULE 1(b) Defined Terms............................. 56
SCHEDULE 3(b) Scheduled Amounts......................... 76
SCHEDULE 14 Insurance Requirements.................... 77
EXHIBIT A ACQUISITION, AGENCY, INDEMNITY
AND SUPPORT AGREEMENT..................... 80
EXHIBIT B Certificate of Acceptance................. 102
EXHIBIT C Lease Supplement.......................... 106
EXHIBIT D FORM OF LEGAL OPINION OF
ASSISTANT GENERAL COUNSEL
OF LESSEE................................. 111
EXHIBIT E PROGRESS PAYMENT AGREEMENT................ 115
EXHIBIT F FORM OF APPROVED SUBLEASE................. 118
</TABLE>
iv
<PAGE> 7
This Master Lease Agreement dated as of October 20, 1995, (as the same
may be amended, modified or supplemented from time to time, this "Lease") is
between WACHOVIA LEASING CORPORATION, a North Carolina corporation (together
with its successors and permitted assigns, the "Lessor"), and FLOWERS
INDUSTRIES, INC., a Georgia corporation (together with its successors and
permitted assigns, the "Lessee").
RECITALS
WHEREAS, pursuant to the Agency Agreement, Lessor has agreed
to acquire Equipment for each Phase and
WHEREAS, subject to the terms and conditions of this Lease, the Lessee
desires to lease from the Lessor the Equipment for each Phase, to be located at
the Applicable Site therefor, as described in the Lease Supplements for such
Phase, beginning on the Phase Commencement Date therefor, for the purpose of
occupying and using the Equipment for each Phase at the Applicable Site
therefor in accordance with the terms and conditions set forth in this Lease.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Lessor and the Lessee agree as follows:
Section 1. Certain Defined Terms.
(a) In this lease, the terms "Lease," "Lessee," and
"Lessor," shall have the meanings indicated above.
(b) As used in this Lease, all other capitalized terms
shall have the meanings assigned such terms in Schedule 1(b) attached hereto
and by reference made a part hereof.
Section 2. Lease of Equipment.
(a) During the term of and subject to the terms and
conditions of this Lease, the Lessor hereby leases to the Lessee, and the
Lessee hereby leases from the Lessor, the Equipment for each Phase for the
Lease Term for such Phase to be used (i) as provided in the Agency Agreement
until the Phase Completion Date
<PAGE> 8
for such Phase and (ii) for and only for a Permitted Use with respect to the
portion of the Lease Term surviving the Phase Completion Date for such Phase.
(b) Unless earlier terminated in accordance with the other
provisions hereof, including without limitation, Sections 15 and 17, this Lease
shall terminate as to each Phase (i) on the Scheduled Lease Termination Date
for such Phase or (ii) on the occurrence of a Non-Completion Event as to such
Phase.
(c) Not less than twelve (12) months prior to the Scheduled
Lease Termination Date for each Phase, the Lessee shall notify the Lessor in
writing which of the options under Section 15(a)(ii) of this Lease the Lessee
intends to exercise for such Phase. In the event the Lessee fails to give
timely written notice to the Lessor on or before the date herein provided for
any Phase, the Lessee shall be deemed to have elected to purchase the Equipment
for such Phase on the Lease Termination Date for such Phase, for the
Termination Value for such Phase. Such election will be consummated upon the
Scheduled Lease Termination Date for such Phase unless the Lessee thereafter
elects to exercise its option under Section 15(c) of this Lease or a
Cancellation Event occurs.
(d) If the Lessor declares a Non-Designated Event of
Default, the Lessee shall give to the Lessor written notice within 2 Business
Days which of the options under Section 15(a)(ii) of this Lease the Lessee
intends to exercise for all Phases upon the Lease Termination Date. In the
event the Lessee fails to give timely written notice to the Lessor on or before
the date herein provided, the Lessee shall be deemed to have elected to
purchase the Equipment for all Phases on the Lease Termination Date for the
Termination Value for all Phases.
Section 3. Payments.
(a) Interim Rent. For each Phase, during the period
commencing on the Phase Commencement Date and ending on the Phase Completion
Date for such Phase, Interim Rent with respect to such Phase shall accrue on
Equipment Cost during each Interim Rental Period at a rate per annum equal to
the LIBO Rate prevailing on the first day of such Interim Rental Period plus 45
basis points; provided, that if there is less than one month remaining after
the end of any Interim Rental Period until the Phase Completion Date for such
Phase, Interim Rent for the final Interim Rental Period
2
<PAGE> 9
shall instead be determined on the basis of 80% of the Base Rate. Interim Rent
shall be paid in arrears on the last day of the Interim Rental Period with
respect thereto. In the event any Equipment Cost on which interest accrued
based on the LIBO Rate is prepaid other than on the last day of the Interim
Rental Period with respect thereto (including by reason of the occurrence of a
Lease Termination Date for any reason), the Lessee shall compensate the Lessor
for any funding losses incurred by it as a result of such prepayment. On the
Phase Completion Date for each Phase, all Soft Costs incurred during the period
from the Phase Commencement Date through the Phase Completion Date for such
Phase shall be capitalized and added to Equipment Cost for such Phase;
provided, that in no event shall the aggregate Equipment Cost for all Phases
exceed $50,000,000, and to the extent any such capitalization of Soft Costs
would cause the aggregate Equipment Cost for all Phases to exceed $50,000,000,
the amount of the excess shall be payable to the Lessor on the Phase Completion
Date on which such excess occurs. In the event any Vendor requires any advance
payments, progress payments or full payments prior to the Lease Addition Date
of the Equipment proposed to be added to the Lease for any Phase, the Lessee
shall execute and deliver to the Lessor a Progress Payment Agreement for such
Phase, and the Lessor will make available amounts pursuant thereto for such
purpose. For any Equipment which is the subject of any payments made by the
Lessor under a Progress Payment Agreement for any Phase, unpaid Additional Rent
under such Progress Payment Agreement with respect to such Equipment shall be
capitalized and, together with the amount of such payments made by the Lessor
with respect to such Equipment, shall be added to and constitute part of the
Equipment Cost for such Phase.
(b) Basic Rent.
(i) Floating Rate Payment Without Election; Election
and Election Period. For each Phase, if the Lessee has not made an
Election within the Election Period pursuant to the provisions and
requirements of this Section 3(b)(i), after the Phase Completion Date
for each Phase, the Lessee's Basic Rent during the Lease Term for such
Phase shall be payable for each Rental Period in arrears on the Rent
Payment Date for such Rental Period in an amount equal to the sum of
(A) the amount equal to the percentage set forth in Schedule 3(b) for
such Rental Period (as it may be modified pursuant hereto as a result
of an Approved Appraisal), times the Equipment Cost (the "Scheduled
Amount") as to such Phase (the "Scheduled Payment") plus (B) an amount
accruing on the
3
<PAGE> 10
Unrecovered Equipment Cost as to such Phase at the Floating Rate for
such Rental Period (the "Floating Rate Payment"). In the event any
Scheduled Amount or other amount of Equipment Cost based on the LIBO
Rate is prepaid other than on the last day of the Rental Period with
respect thereto (including by reason of the occurrence of a Lease
Termination Date for any reason) the Lessee shall compensate the
Lessor for any funding losses incurred by it as a result of such
prepayment. Schedule 3(b) also sets forth the Estimated Residual as to
each Phase as of the end of each Rental Period. The Lessee agrees that
the Lessor reserves the right to modify the Estimated Residual or the
percentage of Equipment Cost for determining the Scheduled Amount, or
both, as to any Rental Period for the Equipment for any Phase as a
result of the receipt of an Approved Appraisal pursuant to the Agency
Agreement. With respect to any Phase, the Lessee shall have the option
to convert the Basic Rent for such Phase within the Election Period
from a Floating Rate Payment basis to a Fixed Rate Payment basis (any
exercise of such option pursuant to the provisions and requirements of
this Section 3(b)(i) for any Phase being an "Election" for such
Phase). The "Election Period" with respect to each Phase shall
commence on the Phase Completion Date for such Phase and terminate on
the last day of the Acquisition Period. Each Election shall be made by
written notice received not less than 7 days prior to the effective
date of such Election (and not less than 7 days prior to the end of
the relevant Election Period).
(ii) Fixed Rate Payment With Election. For each
Phase, if the Lessee has made an Election within the Election Period
pursuant to the provisions and requirements of Section 3(b)(i), after
the Phase Completion Date for each Phase, the Lessee's Basic Rent
during the Lease Term for such Phase shall be payable for each Rental
Period in arrears on the Rent Payment Date for such Rental Period in
an amount equal to the sum of (A) the Scheduled Payment as to such
Phase for such Rental Period plus (B) an amount accruing on the
Unrecovered Equipment Cost as to such Phase at the Fixed Rate for such
Rental Period (the "Fixed Rate Payment"). On the first Rent Payment
Date after the Lessee makes an Election for a qualifying Phase, the
Lessee shall make, if applicable, a Basic Rent payment consisting of
the Scheduled Payment for such Phase plus a proportionate Floating
Rate Payment and Fixed Rate Payment for such Phase, and the Lessee
shall compensate the Lessor for any funding losses incurred by it as
4
<PAGE> 11
a result of such change from a Floating Rate Payment to a Fixed Rate
Payment prior to the end of the Rental Period.
(c) Final Rent Payment. In addition to Interim Rent Basic
Rent and Supplemental Rent, on the Lease Termination Date for each Phase
(whether on the Scheduled Lease Termination Date or due to the occurrence of a
Cancellation Event or a Termination Event or otherwise), the Lessee shall pay
to Lessor the Final Rent Payment for such Phase.
(d) Supplemental Rent. In addition to Interim Rent, Basic
Rent and the Final Rent Payment, the Lessee will also pay to the Lessor, from
time to time, upon demand by the Lessor, as additional rent ("Supplemental
Rent"), the following (but without duplication of any amounts included in the
calculation of Rent):
(i) all out-of-pocket costs and expenses reasonably
incurred by the Lessor in connection with the preparation,
negotiation, execution, delivery, performance and administration of
this Lease and the other Operative Documents, including, but not
limited to, the following: (A) fees and expenses of the Lessor,
including, without limitation, reasonable attorneys' fees and expenses
and the fees and expenses for the Approved Appraisal and the Related
Contracts for each Phase; (B) all other amounts, including, without
limitation, fees, indemnities, expenses, compensation in respect of
increased costs of any kind or description payable under this Lease or
any other Operative Document; (C) all yield maintenance, capital
adequacy and other costs contemplated under Section 27 of this Lease
and (D) all out-of-pocket costs and expenses incurred by the Lessor
after the date of this Lease (including, without limitation,
reasonable attorneys' fees and expenses and other expenses and
disbursements reasonably incurred) associated with (1) negotiating and
entering into, or the giving or withholding of, any future amendments,
supplements, waivers or consents with respect to this Lease; (2) any
Loss Event, Casualty Occurrence or termination of this Lease; and (3)
any Default or Event of Default and the enforcement and preservation
of the rights or remedies of the Lessor under this Lease and the other
Operative Documents and (4) all reasonable costs and expenses incurred
by the Lessor or any of its Affiliates in initially selling
participations in this Lease, including, without limitation, the
related reasonable fees and out-of-pocket expenses of counsel for the
Lessor or its Affiliates, travel expenses, duplication and printing
costs
5
<PAGE> 12
and courier and postage fees, and excluding any fees paid to
Participants purchasing such a participation; and
(ii) all other amounts that the Lessee agrees herein
to pay other than Interim Rent, Basic Rent, the Final Rent Payment and
amounts described in clause (i) above.
(e) Computations. All computations of Interim Rent and Basic
Rent shall be made by the Lessor on the basis of a year of 360 days (or, in the
case of computations based on the Prime Rate, 365/366 days), in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the Interim Rental Period or Rental Period for which such Interim
Rent or Basic Rent payments are payable. Whenever any payment hereunder shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or yield;
provided, however, that if such extension would cause payment of Interim Rent
or Basic Rent to be made in the next following calendar month, such payment
shall be made on the next preceding Business Day.
(f) Absolute Net Lease. This Lease is an absolute net lease,
and Rent and all other sums payable by the Lessee hereunder shall be paid
without notice except as otherwise expressly provided herein, and the Lessee
shall not be entitled to any abatement, reduction, setoff, counterclaim,
defense or deduction with respect to any Rent or other sums payable hereunder.
The obligations of the Lessee to pay Rent and all other sums payable hereunder
shall not be affected by reason of: (i) any damage to, or destruction of, the
Equipment or any part thereof by any cause whatsoever (including, without
limitation, fire, casualty or act of God or enemy or any other force majeure
event); (ii) any condemnation, including, without limitation, a temporary
condemnation of the Equipment or any portion thereof; (iii) any prohibition,
limitation, restriction or prevention of the Lessee's use, occupancy or
enjoyment of the Equipment or any part thereof by any Person (other than by the
Lessor in violation of this Lease); (iv) any matter affecting title to the
Equipment or any portion thereof (other than a defect in title caused by or
through the Lessor, other than by the Lessee as the agent of the Lessor); (v)
any loss of possession by the Lessee of the Equipment or any portion thereof,
by reason of title paramount or otherwise (other than by the Lessor in
violation of this Lease); (vi) any default by the Lessor hereunder or under any
other Operative Document; (vii) the invalidity or unenforceability of any
provision hereof or the
6
<PAGE> 13
impossibility or illegality of performance by the Lessor or the Lessee or both;
(viii) any action of any Governmental Authority; or (ix) any other Loss Event,
Casualty Occurrence or other cause or occurrence whatsoever, whether similar or
dissimilar to the foregoing. The Lessee shall remain obliged under this Lease
in accordance with its terms and shall not take any action to terminate,
rescind or avoid this Lease, except as expressly provided in Section 15
notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other proceeding affecting the Lessor or any action with respect
to this Lease which may be taken by any trustee, receiver or liquidator or by
any court. The Lessee waives all rights to terminate or surrender this Lease,
except as expressly provided in Section 15, or to any abatement or deferment of
Rent or other sums payable hereunder. The Lessee hereby waives any and all
rights now or hereafter conferred by law or otherwise to modify or to avoid
strict compliance with its obligations under this Lease. All payments made to
the Lessor hereunder as required hereby shall be final and irrevocable, and the
Lessee shall not seek to recover any such payment or any part thereof for any
reason whatsoever, absent manifest error.
(g) All payments by the Lessee pursuant to this Lease shall
be made by the Lessee to the Lessor. All such payments required to be made to
the Lessor shall be made not later than 12:00 noon, Atlanta, Georgia time, on
the date due, in immediately available funds, to such account with the Lessor
as it shall specify from time to time by notice to the Lessee. Whenever any
payment to be made shall otherwise be due on a day which is not a Business Day,
except as otherwise expressly provided herein, such payment shall be made on
the next succeeding Business Day and such extension shall be included in
computing Rent, interest, yield and fees, if any, in connection with such
payment.
(h) The Lessee shall pay on demand to the Lessor interest at
the Default Rate on all amounts payable by the Lessee to the Lessor hereunder
or any of the other Operative Documents, from the due date thereof until paid
in full.
Section 4. [ RESERVED ].
Section 5. Agency Agreement. The Lessee is entering into the
Agency Agreement with the Lessor pursuant to which the Lessee will act as the
Acquisition Agent for the Lessor in causing the acquisition and installation of
the Equipment and the performance of all of the Lessor's obligations to acquire
the Equipment,
7
<PAGE> 14
including negotiation and performance of all Related Contracts, obtaining all
Applicable Permits and complying with all Governmental Requirements (including
all Environmental Requirements) relating to the Equipment. Upon funding
pursuant to the Agency Agreement, title to all Equipment purchased with such
funding shall be and remain in the Lessor and, commencing with the Phase
Commencement Date for the Phase to which such Equipment relates, such Equipment
shall be subject to the terms and conditions of this Lease. The Equipment and
all components thereof shall be purchased, manufactured, constructed, improved,
renovated, assembled or installed, as applicable, in accordance with Related
Contracts entered into by the Lessee pursuant to the Agency Agreement.
Section 6. Title to Remain in the Lessor. The Lessor shall own
100% of the legal interest in the Equipment, including all accessions to and
replacements of the Equipment added or effected from time to time by the
Lessee, which shall be and become part of the Equipment, Property of the Lessor
and subject to the terms of this Lease; provided that the Lessor's interest in
any portion of the Equipment that is replaced by the Lessee pursuant to and as
permitted by the terms of this Lease shall be deemed released from this Lease
and thereupon become the Property of the Lessee automatically, without further
action by the Lessor, and the Lessor shall perform all acts and execute all
documents that the Lessee reasonably requests to give effect to the foregoing
at the expense of the Lessee, including the execution and delivery of bills of
sale and other documents of transfer. This Lease shall not give or grant to the
Lessee any right, title or interest in or to the Equipment, except the rights
expressly conferred by this Lease. The Equipment will remain personal property
and will not be installed in any manner that will prevent it from being readily
removed in a manner consistent with normal industry practices, it being the
intent of the parties that the Equipment is not to constitute or be deemed to
be fixtures or real property under applicable law or any lease governing the
Applicable Site. The Equipment for each Phase will be marked to disclose the
interest of the Lessor to the extent relevant under applicable law or to the
extent deemed appropriate by the Lessor.
Section 7. Maintenance of the Equipment; Operations.
(a) The Lessee shall, and it shall require and cause any and
all employees, contractors, subcontractors, agents, representatives,
affiliates, consultants and occupants at the
8
<PAGE> 15
Lessee's own cost and expense to: (i) cause the Equipment for each Phase to be
maintained in all material respects in good operating order, repair and
condition, in accordance with prudent industry practice and any applicable
manufacturer's or supplier's manuals or warranties, subject to normal wear and
tear, and take all action, and make all changes and repairs, structural and
non-structural, foreseen and unforeseen, ordinary and extraordinary, which are
required pursuant to any Governmental Requirement or Insurance Requirement at
any time in effect to assure full compliance therewith in all material
respects; and (ii) cause the Equipment for each Phase to continue to have at
all times, in all material respects, and in material compliance with all
applicable Governmental Requirements and Insurance Requirements, the capacity
and functional ability to perform, on a continuing basis (subject to normal
interruption in the ordinary course of business for maintenance, inspection,
service, repair and testing) and in commercial operation, the functions for
which it was designed and to be utilized commercially for the Permitted Use.
(b) The Lessee shall, and it shall require and cause any and
all employees, contractors, subcontractors, agents, representatives,
affiliates, consultants and occupants at the Lessee's own cost and expense to,
promptly replace, or cause to be replaced, the Equipment for each Phase or
parts thereof which may from time to time be added to or substituted as
replacements for parts of the Equipment for such Phase and which may from time
to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair, obsolete or permanently rendered unfit for use for any reason
whatsoever. All accessions and replacement parts shall be free and clear of all
Liens other than Permitted Liens, and, except for temporary replacement parts
utilized pending installation of permanent replacement parts, shall be of a
type customarily used in the industry at such time for such purpose, shall be
in as good operating condition as, and shall have a utility and useful life at
least equal to, the parts replaced (assuming such replaced parts were in the
condition and repair required to be maintained by the terms hereof) and shall
have a value at least equal to the parts replaced (assuming such replaced parts
were in the condition and repair required to be maintained by the terms
hereof).
(c) Notwithstanding the provisions of Section 8 and the
foregoing provisions of this Section 7, the Lessee shall not (except as may be
required by any Governmental Requirement) remove, replace or alter any portion
of the Equipment for any
9
<PAGE> 16
Phase or affix or place any accessory, equipment, part or device on any portion
of the Equipment if such removal, replacement, alteration or addition would
impair the originally intended function or use of the Equipment for such Phase
so as to materially reduce the value of the Equipment taken as a whole, or
materially decrease the estimated useful life of the Equipment for such Phase.
(d) The Lessor shall not be required in any way to maintain,
repair or rebuild the Equipment for any Phase or any portion thereof and the
Lessee waives any right it may now or hereafter have to make any repairs at the
expense of the Lessor pursuant to any Governmental Requirement at any time in
effect or otherwise.
(e) The Lessee shall, and it shall require and cause any and
all employees, contractors, subcontractors, agents, representatives,
affiliates, consultants and occupants at the Lessee's own cost and expense to:
(i) comply with all applicable Environmental Requirements with regard to the
Equipment for each Phase and all parts thereof, except where the failure to so
comply would not have or cause a Material Adverse Effect; and (ii) use, employ,
process, emit, generate, store, handle, transport, dispose of and/or arrange
for the disposal of, any and all Hazardous Materials in, on or, directly or
indirectly, related to or in connection with the Equipment for each Phase or
any part thereof in a manner consistent with prudent industry practice and in
compliance with any applicable Environmental Requirement, except where the
failure to so comply would not have or cause a Material Adverse Effect. The
Lessor and the Lessee hereby acknowledge and agree that the Lessee's
obligations hereunder with respect to Environmental Requirements are intended
to bind the Lessee with respect to matters and conditions involving the
Equipment for each Phase or any part thereof.
Section 8. Modifications.
(a) Subject to the terms of Section 8(b), the Lessee shall
have the right to make modifications, alterations, renovations or improvements
to the Equipment for any Phase so long as such modifications, alterations,
renovations or improvements do not (except as may be required by any
Governmental Requirement) (i) materially reduce the value of the Equipment for
such Phase as a whole; (ii) materially and adversely affect the capacity and
performance of the Equipment for such Phase on a continuing basis in commercial
operation of
10
<PAGE> 17
the function for which the Equipment for such Phase was designed; or (iii)
materially and adversely affect the estimated useful life of the Equipment for
such Phase. Within ten (10) Business Days of the end of each calendar quarter,
an Authorized Officer of the Lessee shall deliver to the Lessor a schedule
certifying to the Lessor's satisfaction: (x) the nature of the repairs,
replacements, modifications, alterations, renovations or improvements to the
Equipment for each Phase made during such quarter having a cost of at least
$25,000 at the time made, and (y) that the Equipment for each Phase continues
to have, in all material respects, the capacity and functional ability to
perform on a continuing basis (subject to normal interruption in the ordinary
course of business for maintenance, inspection, service, repair and testing)
and in commercial operation, the functions for which it was designed or, if
not, specifying the reason for any such deficiency, including, without
limitation, the existence and nature of any Loss Event or Casualty Occurrence
with respect to the such Equipment.
(b) If the Lessee determines that any part of the Equipment
for any Phase is no longer necessary for the performance of the Equipment for
such Phase on a continuing basis in commercial operation of the function for
which the Equipment was designed, then the Lessee (except when such action or
removal may be required by any applicable Governmental Requirement, in which
event, the Lessee shall promptly give the Lessor notice of such action or
removal) shall give the Lessor at least thirty (30) days' notice prior to
taking any action as the result of such determination and shall not remove any
such portion unless and until the Lessor has determined that (i) such portion
is no longer necessary for the performance of the Equipment for such Phase on a
continuing basis in commercial operation of the function for which such
Equipment was designed in all material respects, (ii) removal of such portion
does not materially reduce the value of the Equipment for such Phase as a
whole, and (iii) removal of such portion does not materially decrease the
estimated useful life of the Equipment for such Phase. This Section 8(b) shall
not apply to worn out or obsolete Equipment or damaged Equipment (to the extent
such damage does not constitute a Casualty Occurrence or Loss Event) removed
and replaced by the Lessee in accordance with Section 7(b).
Section 9. Further Assurances. The Lessee, at its expense,
shall execute, acknowledge and deliver from time to time such further
counterparts of this Lease or such affidavits, certificates, certificates of
title, bills of sale, financing and
11
<PAGE> 18
continuation statements, consents and other instruments as may be required by
applicable law or reasonably requested by the Lessor in order to evidence the
Lessor's title to the Equipment and the Lessor's interests in this Lease, and
shall, at the Lessee's expense, cause such documents to be recorded, filed or
registered in such places as the Lessor may request and to be re-recorded,
refiled or re-registered in such places as may be required by applicable law or
at such times as may be required by applicable law in order to maintain and
continue in effect the recordation, filing or registration thereof. The Lessor
shall not grant or create any Lien on the Equipment to any Person except
Permitted Liens, Liens in favor of the Lessor and Liens pursuant to this Lease
and the other Operative Documents.
Section 10. Compliance with Governmental Requirements and Insurance
Requirements: Related Contracts. The Lessee, at its expense, will comply with
all Governmental Requirements applicable to the Equipment any portion thereof
or the ownership, installation, operation, mortgaging, possession, use, non-use
or condition of the Equipment or any portion thereof, all Insurance
Requirements, and all instruments, contracts or agreements affecting title to
ownership of the Equipment or any portion thereof, except, in each case, where
the failure to so comply would not have or cause a Material Adverse Effect. In
addition, the Lessee, so long as no Event of Default has occurred and is
continuing, is hereby authorized by the Lessor to, and shall, fully and
promptly keep, observe, perform and satisfy on behalf of the Lessor any and all
obligations, conditions, covenants and restrictions of or on the Lessor or the
Lessee under any and all Related Contracts so that there will be no default
thereunder and so that the other parties thereunder shall be, and remain at all
times, obliged to perform their obligations thereunder, and the Lessee, to the
extent within its control, shall not permit to exist any condition, event or
fact that could allow or serve as a basis or justification for any such Person
to avoid such performance.
Section 11. Condition and Use of Equipment; Quiet Enjoyment.
(a) THE EQUIPMENT IS LEASED AS IS, WHERE IS, AND WITH ALL
FAULTS AND IN THE CONDITION THEREOF AND SUBJECT TO THE STATE OF THE TITLE
THERETO, AND THE RIGHTS OF OWNERSHIP THEREIN, IN EACH CASE AS IN EXISTENCE WHEN
THE SAME FIRST BECOMES SUBJECT TO THIS LEASE, WITHOUT REPRESENTATIONS AND
WARRANTIES OF ANY KIND AS TO TITLE BY THE LESSOR OR ANY PERSON ACTING ON ITS
BEHALF. THE LESSEE ACKNOWLEDGES AND AGREES THAT THE EQUIPMENT HAS NOT BEEN
SELECTED BY THE LESSOR,
12
<PAGE> 19
THAT THE LESSOR HAS NOT SUPPLIED ANY SPECIFICATIONS WITH RESPECT TO THE
EQUIPMENT AND THAT THE LESSOR (i) IS NOT A VENDOR OF, OR MERCHANT OR SUPPLIER
WITH RESPECT TO, ANY OF THE EQUIPMENT OR ANY PROPERTY OF SUCH KIND, (ii) HAS
NOT MADE ANY RECOMMENDATION, GIVEN ANY ADVICE OR TAKEN ANY OTHER ACTION WITH
RESPECT TO THE CHOICE OF ANY MANUFACTURER, SUPPLIER OR TRANSPORTER OF, OR ANY
VENDOR OF OR OTHER CONTRACTOR, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO
ANY OF THE EQUIPMENT, (iii) HAS NOT AT ANY TIME HAD PHYSICAL POSSESSION OF ANY
SUCH EQUIPMENT, (iv) HAS NOT MADE OR IS NOT MAKING ANY WARRANTY, EXPRESS OR
IMPLIED, RELATING TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION, WITH RESPECT
TO TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, THE
DESIGN, CONDITION, QUALITY OF MATERIAL OR WORKMANSHIP, CONFORMITY TO
SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, ABSENCE OF ANY
LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, WHETHER ARISING PURSUANT
TO THE UCC OR ANY OTHER PRESENT OR FUTURE LAW OR OTHERWISE, OR COMPLIANCE WITH
APPLICABLE PERMITS OR OTHER GOVERNMENTAL REQUIREMENTS, OR (v) SHALL NOT BE
LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT,
STRICT OR OTHERWISE). IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN
THE EQUIPMENT OR ANY PROPERTY OR OTHER ITEM CONSTITUTING A PORTION THEREOF,
WHETHER PATENT OR LATENT, OF THE LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION 11 HAVE BEEN
NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY AND
ALL WARRANTIES, EXPRESS OR IMPLIED, BY THE LESSOR WITH RESPECT TO THE EQUIPMENT
OR ANY PROPERTY OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING
PURSUANT TO THE UCC OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT.
(b) The Lessor hereby assigns to the Lessee, until the
Equipment is purchased or sold in accordance with the terms hereof, the
benefits in respect of any Vendor's warranties or undertakings, express or
implied, relating to the Equipment (including any labor, equipment or parts
supplied therewith), and, to the extent assignment of the same is prohibited or
precludes enforcement of any such warranty or undertaking, the Lessor hereby
subrogates the Lessee to its rights in respect thereof. The Lessor hereby
authorizes the Lessee, at the Lessee's expense, to assert any and all claims
and to prosecute any and all suits, actions and proceedings, in its own name or
in the name of the Lessor, in respect of any such warranty or undertaking and,
except during the continuance of an Event of Default, or after the occurrence
of a Cancellation Event or Termination Event hereunder, to retain the proceeds
received, and after the termination of this Lease or after the occurrence and
during the continuation of an Event of Default, or after the occurrence of a
Cancellation Event or Termination Event, to pay the same in the form received
(with any necessary endorsement) to the Lessor.
13
<PAGE> 20
(c) The Lessee may use the Equipment for any Phase for the
Permitted Use provided that the value of such Equipment is not materially
diminished by any such use other than as a result of normal wear and tear in
the ordinary course of business. During the term of this Lease, the Lessor
covenants that unless an Event of Default, a Cancellation Event or a
Termination Event has occurred and is continuing, the Lessor will not, and will
not permit any party claiming by, through or under the Lessor to, interfere
with the peaceful and quiet possession and enjoyment of the Equipment by the
Lessee; provided, however, that the Lessor and its successors, assigns,
representatives and agents may, upon reasonable notice to the Lessee, enter
upon and examine the Equipment or any part thereof at reasonable times, subject
to the provisions of Section 19. Any failure by the Lessor to comply with the
foregoing provisions of this Section 11(c) shall not give the Lessee any right
to cancel or terminate this Lease, or to abate, reduce or make reduction from
or offset against any Rent or other sum payable under this Lease or any other
Operative Document, or to fail to perform or observe any other covenant,
agreement or obligation hereunder or thereunder. The Lessee will not do, or
fail to do, or permit or suffer to exist any act or thing, which action or
thing or failure might impair the value, use or usefulness of the Equipment for
any Phase for the Permitted Use in accordance with the design of the Equipment
for such Phase, ordinary wear and tear excepted.
Section 12. Liens.
(a) The Lessor's interest in the Equipment is not subject to
any construction, materialman's or mechanics' lien (other than Permitted Liens)
for any improvements to the Equipment for any Phase or the Applicable Site
thereof undertaken by the Lessee or by agents of the Lessee, whether or not
such improvements are made with the consent of the Lessor.
(b) The Lessee will not directly or indirectly create, or
permit to be created or to remain, and at the Lessee's expense will discharge
within ten (10) days of notice of the filing or assertion thereof, by bond,
deposit or otherwise, any Lien upon the Lease or any of the Equipment except
(i) any Lien being contested as permitted by and in accordance with Section 13,
or (ii) Permitted Liens. The Lessor agrees that the Lessee shall have during
the term of this Lease the exclusive right (so long as no Default has occurred
and is continuing) to grant, create or suffer to exist Permitted Liens in the
ordinary course of business and in accordance with prudent industry practices,
14
<PAGE> 21
provided that the fair market value or use of the Equipment for any Phase or
the applicable portion thereof for the Permitted Use is not materially lessened
thereby. The Lessor agrees to execute such documents and take all other actions
as shall be reasonably necessary, and otherwise to cooperate with the Lessee in
connection with the matters described above, provided that all reasonable
out-of-pocket costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by the Lessor in connection therewith
shall be borne by the Lessee, and the Lessor shall not be required to execute
any document that would, in the opinion of the Lessor, materially and adversely
affect the value or use of the Equipment for any Phase or any portion thereof
for the Permitted Use or otherwise materially and adversely affect the
transactions contemplated by the Operative Documents or the interests of the
Lessor in the Equipment for any Phase or under the Operative Documents or
otherwise.
(c) The Lessor will not directly or indirectly sell,
transfer or otherwise dispose of, or create, or permit to be created or to
remain, and will discharge, any Lien of any nature whatsoever on, in or with
respect to, its interest in the Equipment arising by or through it or its
actions, except Permitted Liens.
(d) The Lessee will not directly or indirectly sell,
transfer, or otherwise dispose of, or create, or permit to be created or to
remain, and will discharge within ten (10) days of notice of the filing or
assertion thereof, by bond, deposit or otherwise, any Lien of any nature
whatsoever on, in or with respect to, its interest in any of the Equipment
except Permitted Liens.
Section 13. Permitted Contests. Notwithstanding any other provision
of this Lease to the contrary, after prior written notice to the Lessor and
provided there is no material risk of sale, forfeiture or loss of the Equipment
for any Phase or any material part thereof, the Lessee may at its expense
contest any Imposition which it is required to pay hereunder, by appropriate
proceedings conducted in good faith and with due diligence, so long as such
proceedings are effective to prevent the collection of such Imposition from the
Lessor or against the Equipment for any Phase or any portion thereof; provided,
however, that the actions of the Lessee, as authorized by this Section 13,
shall be subject to the express written consent of the Lessor if such actions
would subject the Lessor or the Equipment for any Phase or any portion thereof
to any liability
15
<PAGE> 22
or loss not indemnified in full by the Lessee hereunder or any sanction,
criminal or otherwise, for failure to pay any such Imposition. The Lessee will
pay, and save the Lessor harmless against, all losses, Judgments and reasonable
costs, including attorneys' fees and expenses, in connection with any such
contest and will, promptly after the final determination of such contest, pay
and discharge the amounts which shall be imposed or determined to be payable
therein, together with all penalties, costs and expenses incurred in connection
therewith. The Lessee shall prevent any foreclosure, judicial sale, taking,
loss or forfeiture of the Equipment for any Phase or any portion thereof, or
any interference with or deductions from any Rent or any other sum required to
be paid by the Lessee hereunder by reason of such nonpayment or nondischarge of
an Imposition. The Lessor shall cooperate with the Lessee in any contest and
shall allow the Lessee to conduct such contest (in the name of the Lessor, if
necessary) at the Lessee's sole cost and expense. The Lessee shall notify the
Lessor of each such proceeding within ten (10) days after the commencement
thereof, which notice shall describe such proceeding in reasonable detail.
Section 14. Insurance, etc.
(a) The Lessee will, at its own expense, purchase and
maintain, or cause to be purchased and maintained, throughout the term of this
Lease insurance with respect to its business and the Equipment in accordance
with the requirements of Schedule 14.
(b) The Lessee shall bear all risk of loss (including any
Loss Event or Casualty Occurrence) with respect to the Equipment for each
Phase, whether by casualty, theft, taking, confiscation or otherwise, with
respect to the Equipment for each Phase or any portion thereof, at all times
during the term of this Lease until possession of the Equipment has been
accepted by the Lessor pursuant to Section 17.
(c) So long as no Termination Event or Cancellation Event
shall have occurred and no Event of Default shall have occurred and be
continuing, any payments, whether constituting insurance proceeds, amounts paid
by any Governmental Authority or otherwise, received by the Lessee or the
Lessor upon the occurrence of any loss with respect to the Equipment for each
Phase or portion thereof (other than a Casualty Occurrence), whether as a
result of casualty, theft, taking or other confiscation, shall be applied in
payment for necessary repairs and replacement to the Equipment for such Phase
in accordance
16
<PAGE> 23
with Section 7 or, to the extent the costs of such repairs and replacement
shall have been paid by the Lessee, to reimburse the Lessee. The Lessee shall
be entitled to retain any excess funds remaining after necessary repairs and
replacements have been completed and all costs therefor paid in full. Upon the
occurrence of any Termination Event or Cancellation Event or upon the
occurrence and during the continuance of any Event of Default, the Lessor shall
be entitled to receive and retain any such payments for application to the
obligations of the Lessee hereunder.
(d) Upon a Casualty Occurrence with respect to any Phase,
the Lessee shall give prompt notice thereof to the Lessor and shall within
thirty (30) days of the date of such Casualty Occurrence either (i) offer to
purchase the whole of the Equipment for such Phase for the Termination Value
for such Phase as provided in Section 15(c) or (ii) provide the Lessor with a
replacement plan acceptable to the Lessor setting forth how the Lessee shall
replace, or cause to be replaced, at the Lessee's own cost and expense, within
six (6) months (but in no event later than the Scheduled Lease Termination Date
for such Phase) after the date of such Casualty Occurrence, such portion of the
Equipment for such Phase that is the subject of a Casualty Occurrence in
accordance with this Section 14(d) and Section 7. If the Lessee chooses the
option set forth in clause (ii) of the preceding sentence, within the later to
occur of (x) sixty (60) days after the date of the Casualty Occurrence and (y)
satisfaction of all applicable Governmental Requirements, and obtaining all
authorizations of Governmental Authorities, required therefor (but in no event
later than ninety (90) days after the date of the Casualty Occurrence), the
Lessee shall have commenced repairs or replacements as specified in the
replacement plan. After completion of the repairs and replacements, the Lessee
shall demonstrate to the satisfaction of the Lessor that operations, capacity
and production of the Equipment for such Phase have been restored to the
standards required for Completion.
(e) All replacement Equipment (other than temporary
replacement parts and equipment installed pending installation of permanent
replacement Equipment) installed pursuant to Section 14(d) shall be free and
clear of all Liens except Permitted Liens, and shall be in as good operating
condition as, and shall have a value and utility at least equal to, the
Equipment replaced immediately prior to the Casualty Occurrence to which such
Equipment was subject. For purposes of this Lease
17
<PAGE> 24
(including without limitation Section 14(d) and Section 7), the Funded Amount
and Book Value of the replacement Equipment shall be deemed to equal the Funded
Amount and Book Value of the part(s) replaced thereby. All Equipment for any
Phase at any time removed from this Lease pursuant to Section 14(d) and Section
7 shall remain the property of the Lessor, no matter where located, until such
time as insurance proceeds have been received by the Lessor at least equal to
the Book Value of such portion of the Equipment for such Phase or such portion
shall be replaced by suitable items that have been incorporated or installed on
or attached to the Equipment and that meet the requirements specified above.
Immediately upon any permanent replacement Equipment becoming incorporated or
installed on or attached to the Equipment for any Phase as provided above,
without further act, such permanent replacements shall become subject to this
Lease and be deemed part of the Equipment for such Phase for all purposes
hereof to the same extent as any other parts of the Equipment for such Phase.
All amounts of insurance proceeds for Equipment losses and all other proceeds
(whether resulting from damage or destruction or from condemnation,
confiscation or seizure) relating to the Equipment for any Phase shall be
deposited into the Restoration Account for such Phase and held and released,
together with accrued interest thereon, as hereinafter provided. So long as a
Cancellation Event or Termination Event shall not have occurred and an Event of
Default shall not have occurred and be continuing, and provided that the Lessor
shall have received a written application of the Lessee accompanied by a
certificate of an Authorized Officer of the Lessee showing in reasonable detail
the nature of any necessary repair, rebuilding and restoration, the actual cash
expenditures necessary for such repair, rebuilding and restoration, the
expected total expenditures required to complete such work and evidence that
sufficient funds are or will be available to complete such work on a timely
basis (such certificate to be acceptable to the Lessor in all respects), then
the amounts available in such Restoration Account, together with accrued
interest thereon, shall be released by the Lessor immediately upon receipt of
such certification or, if applicable, from time to time on the last Business
Day of each month during the period of repair, rebuilding and restoration in
payment therefor against presentation to the Lessor of a certificate executed
by an Authorized Officer of the Lessee to the effect that expenditures have
been made, or costs incurred, by or for the account of the Lessee or are
reasonably anticipated to be made during the immediately following one month
period in a specified amount for the purposes of making repairs, rebuilding
18
<PAGE> 25
and restoration in the amounts specified, that no Event of Default,
Cancellation Event or Termination Event exists and all conditions precedent
herein provided relating to such withdrawal and payment have been satisfied.
Upon the occurrence of any Event of Default, Termination Event or Cancellation
Event, the Lessor shall be entitled to retain all amounts in the Restoration
Account for each Phase for application to the obligations of the Lessee
hereunder.
(f) If any Loss Event or Casualty Occurrence shall occur,
the Lessee shall promptly notify the Lessor of such event in writing.
Section 15. Termination; Cancellation; Purchase Option.
(a) (i) The termination of this Lease (A) in accordance
with Section 2(b) as to a particular Phase or (B) as a result of the
declaration by the Lessor of a Non- Designated Event of Default, shall
be a "Termination Event," the effect of which shall be to cause this
Lease to terminate (x) if in accordance with Section 2(b), as to the
relevant Phase, and (y) if as a result of the declaration by the
Lessor of a Non-Designated Event of Default, as to all Phases, in each
case on the applicable Lease Termination Date.
(ii) If a Termination Event occurs, the Lessee, on
the Lease Termination Date, shall, in accordance with the terms of
Section 2(c) or (d), as applicable, without further notice or demand
to the Lessee, either
(A) purchase the Equipment for the relevant
Phase or for all Phases, as applicable, from the Lessor for
the Termination Value thereof; or
(B) so long as no Designated Event of Default has
occurred:
(1) pay to the Lessor the Final Rent Payment
for the relevant Phase or for all Phases, as applicable;
and
(2) attempt to sell (until such time as the
Lessor shall have terminated, in accordance with the
Agency Agreement, the Lessee's obligation to so attempt
to sell the Equipment) subject to
19
<PAGE> 26
the Lessor's prior written approval, the Equipment
for the relevant Phase or all Phases, as applicable,
as agent for the Lessor, without recourse or
warranty by the Lessor, and upon any such sale, pay
the net cash proceeds of such sale to the Lessor;
provided, that so long as Lessee has paid the Final
Rent Payment pursuant to Section 15(a)(ii)(B)(1),
then if the net cash proceeds of such sale for the
relevant Equipment are (x) less than the
Non-Recourse Amount for such Equipment, the Lessee
shall not be liable for any deficiency, or (y)
greater than the Non-Recourse Amount for such
Equipment, the Lessor shall remit the excess to the
Lessee. The Lessor shall also have the right (but
not the obligation) to sell the Equipment and/or
solicit bids, each in its sole and absolute
discretion.
(b) (i) Each of the following events shall be a
"Cancellation Event", the effect of which shall be to cause this Lease
to be terminated as to the relevant Phase or as to all Phases, as
specified below, in accordance with the following provisions on the
"Cancellation Date" specified:
(A) the existence of a Designated Event of
Default and the delivery by the Lessor to the Lessee of a
notice stating that the Lessor elects to terminate this Lease
by reason of the existence of such Designated Event of
Default, in which case the Cancellation Date will be the
fifth (5th) Business Day after the date of delivery of said
notice to the Lessee; or
(B) the occurrence of a Loss Event with respect
to any Phase, in which case the Cancellation Date for such
Phase shall be the fifth (5th) Business Day after such event
occurs; or
(C) the occurrence of a Casualty Occurrence in
respect of the Equipment for any Phase and the failure of the
Lessee to purchase the Equipment for such Phase or to replace
or repair the Equipment for such Phase or such portion
thereof in accordance with, and within the time required by,
Section 14 and the delivery by the Lessor to the Lessee of a
notice after the expiration of such time stating that the
Lessor
20
<PAGE> 27
elects to terminate this Lease for all Phases by reason of
the existence of such Casualty Occurrence, in which case the
Cancellation Date for all Phases shall be the fifth (5th)
Business Day after the date of delivery of said notice; or
(ii) If a Cancellation Event occurs, the Lessee, on
the Cancellation Date, shall, without further notice or demand to the
Lessee purchase the Equipment for the relevant Phase or for all
Phases, as the case may be, from the Lessor for the Termination Value
for the relevant Phase or for all Phases, as the case may be.
(c) The Lessee may, from time to time and at any time
following the third (3rd) anniversary of the Phase Commencement Date for any
Phase, deliver to the Lessor notice of its intent to terminate this Lease as to
such Phase, in which case the Lessee shall purchase the Equipment for such
Phase from the Lessor for the Termination Value for such Phase on any Business
Day that is not less than thirty (30) nor more than sixty (60) days after such
notice (the "Option Date"). Upon payment in full of the Termination Value for
such Phase, this Lease shall terminate as to such Phase.
(d) This Lease as to any Phase shall cease and terminate on
the Lease Termination Date for such Phase (or for all Phases, as applicable)
except with respect to (i) obligations and liabilities of the Lessee, actual or
contingent, which arose under this Lease, or by reason of events or
circumstances occurring or existing, on or prior to its termination, and which
have not been satisfied (which obligations shall continue until satisfied and
which include, but are not limited to, obligations for Rent accruing prior to
the Lease Termination Date, the Final Rent Payment, and the Termination Value
and amounts owing pursuant to Section 16 for all Phases), and (ii) obligations
of the Lessee which by the terms of this Lease expressly survive termination.
Promptly after either the Lessee or the Lessor shall learn of the happening of
any Termination Event or Cancellation Event as to any Phase, such party shall
give notice thereof to the other party hereto.
(e) In the event the Lessee elects to purchase the
Equipment for any Phase (or for all Phases, as applicable) upon the occurrence
of a Termination Event (other than the expiration of this Lease on a Scheduled
Lease Termination Date for such Phase) or a Cancellation Event therefor, the
Lessee in its sole
21
<PAGE> 28
discretion in order to ensure the orderly conveyance of the relevant Equipment
may postpone the closing date for such conveyance (whether or not extended, the
"Purchase Closing Date") to a reasonable date within sixty (60) days following
the Lease Termination Date; provided however, that notwithstanding any such
postponement the Lessee shall nonetheless be required to deposit on or before
the Lease Termination Date, the Termination Value for such Phase (or for all
Phases, as applicable) (estimated at the time of the deposit) with the Lessor
to be held in escrow pending consummation of the closing on or before the
extended Purchase Closing Date. The Lessee shall notify the Lessor of any such
postponement and the proposed extended Purchase Closing Date in writing on or
before the Lease Termination Date. Provided that the Lessee deposits the
estimated Termination Value on or before the applicable Lease Termination Date,
the Lessee shall be deemed to have been granted a temporary license by Lessor
entitling the Lessee to retain possession of the relevant Equipment through the
Purchase Closing Date, at no additional charge, provided that the Lessee
complies with all obligations of the Lessee under this Lease with respect
thereto as though this Lease were still in full force and effect (including
without limitation, compliance with permitted use, maintenance and insurance
coverage requirements, but excluding Basic Rent). In the event of an extension
of the Purchase Closing Date as herein contemplated, the Termination Value
(including the Final Rent Payment component thereof) will be calculated as of
such extended Purchase Closing Date. This Section 15(e) shall survive the
termination of this Lease as to any such Phase.
Section 16. Transfer of Title on Removal of Equipment;
Expenses of Transfer.
(a) Upon any sale or purchase of the Equipment for any Phase
permitted by Section 15, the Lessor will transfer to the Lessee or the
appropriate Third Party all of its title to and legal and beneficial ownership
interest in such Equipment to be transferred (i) free and clear of any Lien
created by, through or under the Lessor other than Permitted Liens (except any
created solely by or through the Lessor, other than by the Lessee as agent of
the Lessor) or Liens created at the request of or as a result of the actions of
the Lessee or anyone acting by, through or under the Lessee, or a result of the
failure of the Lessee to carry out any of its obligations under this Lease or
the other Operative Documents, and (ii) without recourse, representation or
warranty of any nature whatsoever (except as to the absence of such Liens as
aforesaid).
22
<PAGE> 29
(b) Whenever the Lessee has the right to purchase or
transfer to itself any of the Equipment pursuant to any provision of this
Lease, the Lessee may cause such purchase to be effected by, or such transfer
to be effected to, any other Person specified by the Lessee, but in no event
shall the Lessee be relieved from any of its obligations hereunder as a result
thereof.
(c) Upon any sale or transfer of any of the Equipment
pursuant to any provision of this Lease, the Lessee shall pay the expenses of
the Lessor, including, without limitation, reasonable attorneys' fees and
expenses, in connection with such sale or transfer.
(d) If, with respect to any Phase (or all Phases, if
applicable) on the Lease Termination Date, the Lessee or any of its Affiliates
has not elected to acquire the relevant Equipment, the Lessee shall surrender
the relevant Equipment to the Lessor free from all Liens except Permitted Liens
(other than those described in clause (ii)(b) of the definition of Permitted
Liens), in the same operating condition (except for ordinary wear and tear)
with the remaining original estimated useful life intact and having in all
material respects the same capacity and efficiency as such Equipment had on the
Lease Commencement Date with respect thereto, and in compliance in all material
respects with all Governmental Requirements and Insurance Requirements. To
evidence the foregoing and accomplish the surrender of such Equipment for any
Phase, the Lessee shall provide the following items (x) in the event of a
Termination Event under Section 15(a)(i)(A) within nine (9) months prior to the
then current Lease Termination Date for such Phase, with final confirmation of
the same at least thirty (30) days but not more than sixty (60) days prior
thereto and (y) in the event of a Termination Event under Section 15(a)(i)(B),
as soon as practicable but in any event at least three (3) Business Days prior
to the Lease Termination Date or Cancellation Date for such Phase, applicable:
(i) evidence satisfactory to the Lessor that all Applicable
Permits, Related Contracts, patents, trademarks and copyrights, and
all other rights and services and Property reasonably required to
operate the Equipment for such Phase from and after the Lease
Termination Date have been, or on or prior to the Lease Termination
Date therefor shall be, transferred to the Lessor (or the Lessor has
been, or on or prior to the Lease Termination Date or Cancellation
Date therefor, as applicable, shall be, given the right to
23
<PAGE> 30
use each such item) and can be transferred to (or used by) any
successor or assignee of the Lessor without further consent or
approval by any Person (subject only to normal Governmental
Requirements);
(ii) conveyancing, assignment, transfer, termination and
other documents that, in the sole discretion of the Lessor, are
sufficient to (A) vest in the Lessor good and marketable title to the
Equipment for such Phase, free and clear of all Liens except Permitted
Liens (other than those described in clause (ii)(b) of the definition
of Permitted Liens) and (B) terminate the rights of the Lessee and all
other Persons claiming through the Lessee in and to the Equipment;
(iii) evidence satisfactory to the Lessor that the Equipment
for such Phase has been operated and maintained in all material
respects in accordance with the requirements of the Operative
Documents, all Governmental Requirements, all Applicable Permits and
prudent industry practices;
(iv) evidence satisfactory to the Lessor that the Equipment
for such Phase is being used solely for the Permitted Use, meets or
exceeds the original design specifications and is capable of operating
and being used for the Permitted Use, and has the remaining original
estimated useful life contemplated by the Lessee;
(v) evidence satisfactory to the Lessor, in its sole
discretion, that (A) no default exists under the Agency Agreement, (B)
all agreements and arrangements to provide the services and rights
contemplated by the Agency Agreement are in place, executed by the
parties thereto, and are valid, enforceable and in full force and
effect on or before the Lease Termination Date or Cancellation Date
for such Phase, as applicable and (C) such agreements and arrangements
adequately provide for the services and other rights contemplated by
the Agency Agreement; and
(vi) such other documents, instruments and other items as the
Lessor may reasonably request to evidence to the satisfaction of the
Lessor, in its sole discretion) that no Designated Event of Default,
Loss Event or Casualty Occurrence then exists.
24
<PAGE> 31
To the extent the Equipment for any Phase is not in the condition
required by this Section 16(d), the Lessee will pay to the Lessor such
additional amounts as are reasonably required to place it in
compliance. The Lessee shall also pay all costs and expenses relating
to the surrender and clean-up in connection with the surrender of the
Equipment for such Phase as may be required by Governmental
Requirements or Insurance Requirements or which are otherwise
necessary to consummate the delivery of possession of the Equipment
for such Phase to the Lessor hereunder.
Section 17. Events of Default and Remedies.
(a) Each of the following acts or occurrences shall
constitute an "Event of Default" hereunder:
(i) default in the payment of the Termination Value for any
Phase on the relevant Option Date, or in the payment of the
Termination Value for any Phase on the relevant Cancellation Date or
Purchase Closing Date, as applicable, or in the payment of the
Termination Value or the Final Rent Payment for any Phase on the
relevant Lease Termination Date or Purchase Closing Date, as
applicable or in the payment when due of the Scheduled Payment
component of Basic Rent for any Phase; or in the payment when due of
any Interim Rent or the Floating Rate Payment or Fixed Rate Payment
component of Basic Rent for any Phase, and the continuance of such
default for 10 days thereafter; or the default in the payment when due
of any Supplemental Rent for any Phase, or the amount of any
Indemnified Risk or of any other amount due hereunder or under any
other Operative Document and the continuance of such default for
thirty (30) days thereafter; or
(ii) the Lessee shall fail to observe or perform any covenant
contained in Sections 30(a)(vi) or (vii), 30(b)(ii), 30(c) through
30(f), inclusive, and 30(o) through 30(u), inclusive; or
(iii) the Lessee shall fail to observe or perform any
covenant or agreement contained or incorporated by reference in this
Lease (other than those covered by any other paragraph of this Section
17(a)) and such failure shall not have been cured within thirty (30)
days after the earlier to occur of (i) written notice thereof has been
given to the
25
<PAGE> 32
Lessee by the Lessor or (ii) any officer of the Lessee otherwise
becomes aware of any such failure; or
(iv) any representation or warranty made or deemed made by
the Lessee herein, in any other Operative Document by the Lessee or
otherwise in writing in connection with or pursuant to this Lease or
any other Operative Document, shall be false or misleading in any
material respect on the date made or deemed made; or
(v) an event of default under the Agency Agreement, and
such failure shall not have been cured within thirty (30) days after
the earlier to occur of (i) written notice thereof has been given to
the Lessee by the Lessor or (ii) any officer of the Lessee otherwise
becomes aware of any such failure; or
(vi) (A) the Lessee shall (1) generally not pay its debts as
such debts become due; or (2) make a general assignment for the
benefit of creditors; or (B) any case or proceeding shall be
instituted or consented to by the Lessee seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part
of its property; or (C) any such case or proceeding shall have been
instituted against the Lessee and either such case or proceeding shall
not be stayed or dismissed for 60 consecutive days or any of the
actions sought in such case or proceeding (including, without
limitation, the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar
official for it or any substantial part of its property) shall occur;
or
(vii) the Lessee permits a judgment in the amount of
$1,000,000 or more to be obtained against it which is not promptly
paid or promptly appealed and stayed pending appeal; or
(viii) the Lessee breaches or defaults under the Existing
Term Loan Agreement or any Qualified Replacement Term Loan Agreement
or any other agreement involving the
26
<PAGE> 33
borrowing of money or the extension of credit (other than trade credit
incurred in the ordinary course of business) under which the Lessee
may be obligated as a borrower or guarantor, if such default consists
of the failure to pay any indebtedness in the aggregate principal
amount of $5,000,000 or more when due or if such default permits or
causes (or upon lapse of time or notice or both would permit or cause)
the acceleration of any indebtedness, or the termination of any
commitment to lend, in either case in the aggregate principal amount
of $5,000,000 or more; provided, however, that if the Existing Term
Loan Agreement is terminated and there is no Qualified Replacement
Term Loan Agreement, the occurrence of any event which would have been
a breach or default under the Existing Term Loan Agreement as in
effect immediately prior to its termination which, but for such
termination, would have permitted or caused (or upon lapse of time or
notice or both would have permitted or caused) the acceleration of any
indebtedness thereunder, shall constitute an Event of Default; or
(ix) in any 12 month period or less, (i) 50% or more of the
members of the full Board of Directors of the Lessee shall have
resigned or been removed or replaced, or (ii) any Person or "Group"
(as defined in Section 2(d)(3) of the Securities Exchange Act of 1934,
as amended) (other than an employee benefit or stock ownership plan of
the Borrower) shall have acquired, directly or indirectly, more than
50% of the capital stock (whether common or preferred or a combination
thereof) of the Lessee, provided that the Lessee's purchase of
treasury shares of shares of its capital stock outstanding on the date
hereof which results in one or more of the Lessee's shareholders of
record as of the date of this Lease owning 50% or more of the Lessee's
capital stock shall not constitute an acquisition for purposes of this
Section 17(a)(xi).
(b) Upon the occurrence and during the continuance of any
Event of Default, the Lessor may do any one or more of the following (without
prejudice to the obligations of the Lessee under Section 15(b)(ii)):
(i) proceed by appropriate judicial proceedings, either at
law, in equity or in bankruptcy, to enforce performance or observance
by the Lessee of the applicable provisions of this Lease, or to
recover damages for the breach of any such provisions, or any other
equitable or
27
<PAGE> 34
legal remedy, all as the Lessor shall deem necessary or advisable;
and/or
(ii) by notice to the Lessee, terminate this Lease for all
Phases in accordance with Section 15, whereupon the Lessee's interest
and all rights of the Lessee to the use of the Equipment for any Phase
shall forthwith terminate subject to the Lessee's rights under such
Section 15 to acquire such Equipment on the Purchase Closing Date as
provided herein, but the Lessee shall remain liable with respect to
its obligations and liabilities hereunder; and/or
(iii) exercise any and all other remedies available under
applicable law or at equity.
(c) After the occurrence and during the continuance of a
Cancellation Event or Termination Event, in the event the Lessor elects not to
terminate this Lease and the Lessee has not exercised its option under Section
15(c), this Lease shall continue in effect and the Lessor may enforce all of
the Lessor's rights and remedies under this Lease, including, without
limitation, the right to recover the Interim Rent, the Basic Rent and the
Supplemental Rent for each Phase, and all other yield protection payments and
other amounts with respect thereto, as it becomes due under this Lease. For the
purposes hereof, the following do not constitute a cancellation or termination
of this Lease as to any Phase: (i) acts of maintenance or preservation of the
Equipment for such Phase or any portion thereof, (ii) efforts by the Lessor to
relet the Equipment for such Phase or any portion thereof, including, without
limitation, termination of any sublease of the Equipment for such Phase and
removal of any tenant from the Applicable Site thereof, (iii) or the
appointment of a receiver upon the initiative of the Lessor to protect the
Lessor's interest under this Lease.
(d) If (i) on the Lease Termination Date or the Purchase
Closing Date, as the case may be, for any Phase, the Equipment for such Phase
is not acquired by the Lessee or its designee by payment of the Termination
Value thereof or (ii) on the Cancellation Date or Option Date for any Phase,
the Lessee or its designee has defaulted in its obligation to acquire the
Equipment for such Phase and pay the Termination Value for such Phase in
accordance with the Lessee's election under Section 15(b)(ii), then the Lessor
shall have the immediate right of possession of the Equipment for all Phases
and the right to enter onto any Applicable Sites, and remove the relevant
Equipment
28
<PAGE> 35
therefrom if it so elects, and the Lessor may thenceforth hold, possess and
enjoy such Equipment, free from any rights of the Lessee and any Person
claiming by, through or under the Lessee, except as required by applicable law.
The Lessor shall be under no liability by reason of any such repossession or
entry onto the premises of the Lessee.
(e) Should the Lessor elect to repossess the Equipment for
any Phase or any portion thereof upon cancellation or termination of this Lease
as to such Equipment or otherwise in the exercise of the Lessor's remedies, the
Lessee shall peaceably quit and surrender the Equipment for such Phase or any
such portion thereof to the Lessor and either (i) deliver possession of such
Equipment to the Lessor or (ii) allow Lessor or its agents or assigns to enter
onto the Applicable Site thereof to remove any and all of such Equipment at the
expense of the Lessee, and neither the Lessee nor any Person claiming through
or under the Lessee shall thereafter be entitled to possession or to remain in
possession of such Equipment or any portion thereof but shall forthwith
peaceably quit and surrender such Equipment to the Lessor.
(f) At any time after the repossession of the Equipment for
any Phase or any portion thereof, whether or not this Lease shall have been
cancelled or terminated as to such Equipment, the Lessor may (but shall be
under no obligation to) relet such Equipment or the applicable portion thereof
on not less than 10 days notice to the Lessee, for such term or terms and on
such conditions and for such usage as the Lessor in its sole and absolute
discretion may determine. The Lessor may collect and receive any rents payable
by reason of such reletting (subject to the provisions of Section 26(d)), and
the Lessor shall not be liable for any failure to relet the Equipment or for
any failure to collect any rent due upon any such reletting.
(g) The remedies herein provided in case of an Event of
Default are in addition to, and without prejudice to, the Lessee's continuing
obligations under Section 15(b)(ii), and shall not be deemed to be exclusive,
but shall be cumulative and shall be in addition to all other remedies existing
at law, in equity or in bankruptcy. Lessor may exercise any remedy without
waiving its right to exercise any other remedy hereunder or existing at law, in
equity or in bankruptcy.
(h) No waiver by the Lessor hereunder of any Default or
Event of Default shall constitute a waiver of any other or
29
<PAGE> 36
subsequent Default or Event of Default. To the extent permitted by applicable
law, the Lessee waives any right it may have at any time to require the Lessor
to mitigate the Lessor's damages upon the occurrence of a Default or Event of
Default by taking any action or exercising any remedy that may be available to
the Lessor, the exercise of remedies hereunder being at the discretion of the
Lessor.
Section 18. Change in the Lessee's Name or Structure. The Lessee
will not change its name, identity or corporate structure (including, without
limitation, by any merger, consolidation or sale of substantially all of its
assets) without notifying Lessor of such change in writing at least thirty (30)
days prior to the effective date of such change.
Section 19. Inspection; Right to Enter Premises of the Lessee. The
Lessor or its authorized representatives may (but without any obligation to do
so) (i) enter upon any Applicable Site or any premises of the Lessee at
reasonable times upon reasonable advance notice in order to inspect the
Equipment located thereon (subject to compliance with applicable safety
requirements of the Lessee and applicable Governmental Requirements) and to
inspect, audit and make copies of all documents and instruments in the
possession of the Lessee (including without limitation records relating to
Equipment Cost and Book Value of any of the Equipment) relating to any of the
Equipment that are reasonably necessary or appropriate for the Lessor or such
authorized representatives to determine the truth and accuracy of any schedule,
annex, exhibit or representation delivered or made hereunder or under any other
Operative Document, or compliance by the Lessee with any of the agreements
contained herein or in any other Operative Document, and (ii) discuss the
condition, compliance with Governmental Requirements, and performance of the
Equipment and the business of the Lessee with the Authorized Officers of the
Lessee.
Section 20. Right to Perform the Lessee's Covenants. Subject to
Section 13, if the Lessee shall fail to make any payment or perform any act
required to be made or performed by it hereunder, the Lessor, upon notice to or
demand upon the Lessee but without waiving or releasing any obligation or
Default or Event of Default, may (but shall be under no obligation to) at any
time thereafter make such payment or perform such act for the account and at
the expense of the Lessee as, at the Lessor's sole discretion, may be necessary
or appropriate therefor and, upon the occurrence and during the continuance of
a Cancellation Event
30
<PAGE> 37
or Termination Event with respect to any Phase, may enter upon the Applicable
Site thereof for such purpose and take all such action thereon as, at the
Lessor's sole discretion, may be necessary or appropriate therefor. No such
entry shall be deemed a repossession by the Lessor. All sums so paid by the
Lessor and all costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses so incurred) shall be paid by the Lessee to the
Lessor on demand as Supplemental Rent.
Section 21. Participation by Co-Lessees or Sublessees;
Participations by Lessor.
(a) Except as otherwise permitted in this Section 21, the
Lessee may not assign its rights or obligations under this Lease without the
prior consent of the Lessor.
(b) The Lessee may, so long as no Default, Event of Default,
Cancellation Event or Termination Event shall have occurred and be continuing,
enter into documentation assigning all or any part of this Lease and, as
necessary, the other Operative Documents, to another Person, so long as (i)
such documentation evidences the undertaking of such Person (a "Co-Lessee") to
be responsible for all or certain obligations of the Lessee and, if approval of
the Lessor is granted as contemplated in clause (iii) below, the attendant
reduction in the obligations of the Lessee hereunder, (ii) such documentation
expressly states that such assignment is subject and subordinate to the terms
of this Lease and the Liens created hereby and (iii) unless the Lessor has
granted its prior written approval, acting in its sole discretion, of such
assignment to said Co-Lessee and such documentation (it being understood that
the Lessor may for any reason whatsoever elect not to grant such approval), the
Lessee shall remain primarily liable for all obligations of the tenant of all
of the Equipment under this Lease. The Lessee will furnish promptly to the
Lessor copies of all such documentation entered into by the Lessee from time to
time. Any assignment made otherwise than as expressly permitted by this Section
21(b) shall be null and void and of no force and effect.
(c) The Lessee may, from time to time, (i) pursuant to a
sublease in substantially the form of Exhibit F, which hereby is approved by
the Lessee, and subject to the terms and conditions contained therein, or (ii)
otherwise so long as no Default, Event of Default, Cancellation Event or
Termination Event shall have occurred and be continuing, enter into a sublease
as to any Phase and such other documentation as may be
31
<PAGE> 38
necessary with one or more Persons (each a "Sublessee"). In any event, any
documentation executed by the Lessee in connection with the subletting of any
of the Equipment (A) shall expressly state that such sublease is subject and
subordinate to the terms of this Lease and the Liens created hereby and (B)
shall not provide for a sublease term ending after the then current Scheduled
Lease Termination Date for such Phase. The Lessee will furnish promptly to the
Lessor copies of all subleases and related documentation entered into by the
Lessee from time to time. No sublease permitted by the terms hereof will reduce
in any respect the obligations of the Lessee hereunder, it being the intent of
the Lessee and the Lessor that the Lessee be and remain directly and primarily
liable as a principal for its obligations hereunder. Any sublease not complying
with clauses (A) and (B) above shall be null and void and of no force or
effect.
(d) The Lessor may from time to time, without consent of or
notice to the Lessee, sell participations in the interests of the Lessor in
this Lease and the other Operative Documents to one or more Participants upon
such terms and conditions as it shall determine; provided, that: (i) no
Participant shall be entitled to receive any greater payment under Section
27(c) than the Lessor would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Lessee's prior
written consent or by reason of the provisions of Section 27(b) or (c)
requiring the Lessor to designate a different Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist; (ii) the Lessor shall include in the participation
agreement with each Participant the covenant of each Participant to take no
position in conflict with the statements of the intent of the Lessor and the
Lessee in Section 25 of this Lease or otherwise in conflict with the provisions
thereof; and (iii) in no event shall the Lessor be obligated to the Participant
under the participation agreement to take or refrain from taking any action
hereunder except that the Lessor may agree in the participation agreement that
it will not, without the consent of the Participant, agree to (A) the increase
or extension of the term of the Lease as to any Phase, (B) the extension of any
date fixed for the payment of Rent, (C) the reduction of any payment of Rent or
(D) the release of any Equipment, except as specifically provided by this
Lease.
Section 22. Notices. Except as otherwise provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telecopier and other
32
<PAGE> 39
readable communication) and mailed by certified mail, return receipt requested,
telecopied or otherwise transmitted or delivered, if to the Lessee, Flowers
Industries, Inc., 200 U.S. Highway 10 South, P. O. Box 1338, Thomasville, GA
31799, Attention: C. Martin Wood, III, Telecopier: (912) 225-3808; if to the
Lessor, at 301 North Main Street, P.O. Box 3099, Winston-Salem, NC 27150,
Attention: Jonathan E. Head, Vice President/Operations Manager, Telecopier:
(910) 770-6033; or, as to either party, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, if so mailed, telecopied or otherwise
transmitted, be effective when received, if mailed, or when the appropriate
answer back or other evidence of receipt is given, if telecopied or otherwise
transmitted, respectively. A notice received by the Lessor by telephone shall
be effective if the Lessor believes in good faith that it was given by an
authorized representative of the Lessee and acts pursuant thereto,
notwithstanding the absence of written confirmation or any contradictory
provision thereof.
Section 23. Amendments and Waivers. The provisions of this Lease
may from time to time be amended, modified or waived only if such amendment,
modification or waiver is in writing and consented to by the Lessee and the
Lessor and, if applicable, in accordance with Section 22.
Section 24. Severability. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 25. Federal Income Tax Considerations. It is the
understanding of the parties that for income tax purposes this transaction will
be treated as a financing and the Lessee will be treated as the owner of all of
the Equipment and the Lessee and the Lessor agree not to take any action
inconsistent with such treatment, subject to the following sentence.
Notwithstanding anything in this Section to the contrary, the Lessor retains
the right to assert that it is the owner of the Equipment subject to this Lease
for income tax purposes in the event that there is a determination (within the
meaning of Section 1313 of the Internal Revenue Code of 1986, as amended, or
with respect to state or local income tax, a comparable determination under
state or local
33
<PAGE> 40
law) that the Lessee is not to be treated as the owner of the Equipment.
Section 26. Other Provisions. In order to protect the rights and
remedies of the Lessor and the Lessee both during the term of this Lease and
following a Default, an Event of Default, a Termination Event or a Cancellation
Event, and for the purposes of Federal, state and local income and ad valorem
taxes, state and local sales taxes, documentary stamp and intangibles taxes and
other taxes relating to or assessable as a result of the execution, delivery or
recording of any of the Operational Documents and for purposes of Title 11 of
the United States Code (or any other applicable Federal, state or local
insolvency, reorganization, moratorium, fraudulent conveyance or similar law
now or hereafter in effect for the relief of debtors), the parties hereto
intend that (i) this Lease be treated as the repayment and security provisions
of a loan by the Lessor to the Lessee in the face amount of the Equipment Cost
for all Phases, (ii) all payments of Rent and the Termination Value for any
Phase be treated as payments of principal, interest and other amounts owing
with respect to such loan, respectively, (iii) the Lessee should be treated as
entitled to all benefits of ownership of the Equipment or any part thereof,
(iv) this Lease be treated as a security agreement or other similar instrument
(the "Security Agreement") from the Lessee, as debtor to the Lessor, as secured
party, encumbering the Equipment and all personal property comprising the
Equipment and that the Lessee, as debtor, hereby grants to the Lessor, as
secured party (the "Secured Party") a first and prior Lien on and security
interest in the Equipment and all proceeds therefrom, in each case being
effective as of the date of this Lease. In such event, the Lessor shall have
all of the rights, powers and remedies of a secured party available under
applicable law, including, without limitation, judicial or nonjudicial
foreclosure or power of sale, as and to the extent available under applicable
law, and the amounts secured by the Liens and security interests shall be the
Basic Rent, Supplemental Rent, Termination Value and Final Rent Payment, and
all indemnification and other amounts payable under this Lease or any of the
other Operative Documents. The filing of any financing statement in connection
with this Lease shall be deemed to constitute the filing of a financing
statement to perfect the security interests in the Equipment as aforesaid to
secure the payment of all amounts due from time to time from the Lessee to the
Lessor under this Lease and the other Operative Documents. To the fullest
extent permitted by applicable law, the Lessor and the Lessee intend that the
Equipment be and remain at all times
34
<PAGE> 41
personal property regardless of the manner or extent to which any of the
Equipment may be attached or affixed to any real property.
This Security Agreement secures and shall be security for any and all
future advances made by Secured Party to the Lessee with respect to this Lease
or any of the other Operative Documents or the Equipment. Nothing contained
herein shall be deemed an obligation on the part of the Lessor to make any
further advances.
In order to preserve the security interest provided for herein, each
of the Lessor and the Lessee agrees to abide by the following provisions with
regard to the Equipment (for purposes of this Section, hereinafter referred to
as "Collateral"):
(a) Change in Location of Collateral or the Lessee. The
Lessee will notify the Secured Party on or before the date of any change in
location of the Collateral and will, on or before the date of any change in
location of the Collateral, prepare and file new or amended financing
statements as necessary so that the Secured Party shall continue to have a
first and prior perfected Lien (subject only to Permitted Liens) in such
Collateral after such change in location. The Lessee will give the Secured
Party thirty (30) days' prior written notice of any change in the location of
the Lessee's chief executive office or address.
(b) Documents; Collateral in Possession of Third Parties. If
certificates of title or other documents evidencing ownership or possession of
the Collateral are issued or outstanding, the Lessee will cause the interest of
the Secured Party to be properly noted thereon and will, forthwith upon
receipt, deliver same to the Secured Party. If any Collateral is at any time in
the possession or control of any warehouseman, bailee, agent or independent
contractor, the Lessee shall notify such Person of the Secured Party's security
interest in such Collateral. Upon the Secured Party's request, the Lessee shall
instruct any such Person to hold all such Collateral for the Secured Party's
account subject to the Lessee's instructions, or, if an Event of Default shall
have occurred and be continuing, subject to the Secured Party's instructions.
(c) Sale, Disposition or Encumbrance of Collateral. Except
for Permitted Liens, as permitted by any of the Operative Documents or with the
Secured Party's prior written consent, the Lessee will not in any way encumber
any of the Collateral (or permit or suffer any of the Collateral to be
encumbered) except
35
<PAGE> 42
for Permitted Liens or sell, assign, lend, rent, lease or otherwise dispose of
or transfer any of the Collateral to or in favor of any Person other than the
Secured Party.
(d) Proceeds of Collateral. Except as permitted by any of
the Operative Documents, the Lessee will deliver to the Secured Party promptly
upon receipt all proceeds delivered to the Lessee from the sale or disposition
of any Collateral. Upon any such sale or disposition, the Lessee shall be
entitled to (i) in the circumstances described in Section 15 (a)(ii)(B)(2)(y),
the amount determined pursuant thereto or (ii) in any other circumstances, any
surplus remaining after the payment of the Termination Value and the payment of
all expenses pursuant to Section 16. This Section shall not be construed to
permit sales or dispositions of the Collateral except as may be elsewhere
expressly permitted by this Lease or the other Operative Documents.
(e) Further Assurances. Upon the request of the Secured
Party, the Lessee shall (at the Lessee's expense) execute and deliver all such
assignments, certificates, financing statements or other documents and give
further assurances and do all other acts and things as the Secured Party may
reasonably request to perfect the Secured Party's interest in the Collateral or
to protect, enforce or otherwise effect the Secured Party's rights and remedies
hereunder, all in form and substance satisfactory to the Secured Party.
(f) Lease. The Lease will not be amended, supplemented or
modified without the written consent of the Secured Party. All payments under
the Lease shall be made only to such account as specified by the Secured Party.
Section 27. Yield Protection and Illegality
(a) Basis for Determining Interest Rate Inadequate or
Unfair.
If on or prior to the first day of any Rental Period or Interim Rental Period
with respect to any Basic Rent or Interim Rent which is determined on the basis
of the LIBO Rate:
(i) the Lessor determines that deposits in Dollars
(in the applicable amounts), are not being offered in the relevant
market for such Rental Period or Interim Rental Period, or
36
<PAGE> 43
(ii) the Lessor determines and give notice to the
Lessee that, as a result of conditions in or generally affecting the
London interbank eurodollar market, the rates for Basic Rent or
Interim Rent, as applicable, determined on the basis of the LIBO Rate
for any Rental Period or Interim Rental Period will not adequately and
fairly reflect the cost to the Lessor of making, funding or
maintaining the Equipment Cost giving rise to such Basic Rent or
Interim Rent for any Equipment for such Rental Period or Interim
Rental Period, the Lessor shall forthwith so notify the Lessee,
whereupon,
(A) the Basic Rent or Interim Rent, as
applicable, for such Equipment for such Rental Period or
Interim Rental Period shall be determined on the basis of the
Base Rate,
(B) the obligation of the Lessor to fund any
Equipment Cost having Basic Rent or Interim Rent, as
applicable, or to continue to accrue Basic Rent or Interim
Rent, as applicable, based on the LIBO Rate shall be
suspended until the Lessor shall notify the Lessee that the
circumstances causing such suspension no longer exist, and
(C) unless the Lessee notifies the Lessor at least
two (2) Business Days before the date of funding of any
Equipment Cost for which notice has previously been given
that it elects not to cause the related Equipment to be
purchased on such date, Basic Rent or Interim Rent, as
applicable, relating to such Equipment Cost shall be
determined at a rate of interest equal to the Base Rate. Upon
the written request of the Lessee, the Lessor shall negotiate
with the Lessee for a reasonable period of time, as
determined in the Lessor's discretion, to develop a
substitute interest rate basis hereunder; provided, however,
(x) the Lessor and the Lessee make no representation,
warranty or covenant that any such agreement will be made,
and (y) any relevant Basic Rent or Interim Rent shall
continue to be determined based on the Base Rate during the
continuance of any such negotiations and thereafter should no
alternate interest rate be agreed to by the necessary
parties.
37
<PAGE> 44
(b) Illegality. If, after the date hereof, the adoption of
any applicable law, rule or regulation, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof (any such agency being referred to as a "Banking
Authority" and any such event being referred to as a "Change of Law"), or
compliance by the Lessor (or its Applicable Funding Office) with any request or
directive (whether or not having the force of law) of any Banking Authority
shall make it unlawful or impossible for the Lessor (or its Applicable Funding
Office) to determine Basic Rent or Interim Rent for the making, maintaining or
funding of the Equipment Cost for any Equipment based on the LIBO Rate, the
Lessor shall forthwith give notice thereof to the Lessee, whereupon until the
Lessor notifies the Lessee that the circumstances giving rise to such
suspension no longer exist, the obligation of the Lessor determine Basic Rent
or Interim Rent for the making, maintaining or funding of the Equipment Cost
for any Equipment based on LIBO Rate shall be suspended. Before giving any
notice to the Lessee pursuant to this Section, the Lessor shall designate a
different Applicable Funding Office if such designation will avoid the need for
giving such notice and will not, in the judgment of the Lessor, be otherwise
disadvantageous to the Lessor. If the Lessor shall determine that it may not
lawfully continue to determine Basic Rent or Interim Rent for the making,
maintaining or funding of any Equipment Cost for any Equipment based on the
LIBO Rate to the end of the Rental Period or Interim Rental Period and shall so
specify in such notice, the Basic Rent or Interim Rent for such Rental Period
or Interim Rental Period shall immediately be converted to and be determined
based on the Base Rate, and the Lessee shall immediately pay to the Lessor any
amounts payable pursuant to Section 27(c).
(c) Increased Cost and Reduced Return.
(i) If after the date hereof, a Change of Law or
compliance by the Lessor (or its Applicable Funding Office) with any
request or directive (whether or not having the force of law) of any
Banking Authority:
(A) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement
(including, without limitation, any such requirement imposed
by the Board of Governors of the Federal Reserve System
(including any Euro-Dollar Reserve Requirement) against
assets of, deposits with or for
38
<PAGE> 45
the account of, or credit extended by, the Lessor (or
its Applicable Funding Office); or
(B) shall impose on the Lessor (or its
Applicable Funding Office) or on the relevant interbank
market any other condition affecting the Basic Rent or
Interim Rent, to the extent it is determined based on the
LIBO Rate;
and the result of any of the foregoing is to increase the cost to the
Lessor (or its Applicable Funding Office) of determining Basic Rent or
Interim Rent based on the LIBO Rate, or to reduce the amount of any
sum received or receivable by the Lessor (or its Applicable Funding
Office) under this Lease or under any other Operative Document with
respect thereto, by an amount deemed by the Lessor to be material,
then, within 15 days after demand by the Lessor, the Lessee shall pay
to the Lessor such additional amount or amounts as will compensate the
Lessor for such increased cost or reduction; provided, however, that
the Lessee shall not be responsible to the Lessor for any increased
cost or reduced return under this Section 27(c)(i) which accrued at
any time before that date which is 90 calendar days prior to the date
upon which the Lessee is notified of same.
(ii) If the Lessor shall have determined that after
the date hereof the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof, or compliance by the
Lessor (or its Applicable Funding Office) with any request or
directive regarding capital adequacy (whether or not having the force
of law) of any Banking Authority, has or would have the effect of
reducing the rate of return on the Lessor's capital as a consequence
of its obligations hereunder to a level below that which the Lessor
could have achieved but for such adoption, change or compliance
(taking into consideration the Lessor's policies with respect to
capital adequacy) by an amount deemed by the Lessor to be material,
then from time to time, within 15 days after demand by the Lessor, the
Lessee shall pay to the Lessor such additional amount or amounts as
will compensate the Lessor for such reduction, subject to the proviso
at the end of Section 27(c)(i); provided, however, that the Lessee
shall not be responsible to the Lessor for any additional amount under
this Section 27(c)(ii) which accrued at any time before that
39
<PAGE> 46
date which is 90 calendar days prior to the date upon which the Lessee
is notified of same.
(iii) The Lessor will promptly notify the Lessee of
any event of which it has knowledge, occurring after the date hereof,
which will entitle the Lessor to compensation pursuant to and subject
to the limitations contained in this Section 27(c) and will designate
a different Applicable Funding Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not,
in the judgment of the Lessor be otherwise disadvantageous to the
Lessor. A certificate of the Lessor claiming compensation under this
Section 27(c) and setting forth the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest
error. In determining such amount, the Lessor may use any reasonable
averaging and attribution methods. Nothing in this Section 27(c) shall
require the Lessor to disclose any information about its tax affairs
or interfere with, limit or abridge the right of the Lessor to arrange
its tax affairs in any manner in which it desires.
(iv) The Lessor, in claiming increased costs or
other amounts under this Section 27(c), shall, at the time of making
any claim for such increased cost or other amount and as a condition
precedent to the obligation of the Lessee to reimburse the same,
certify to the Lessee in writing that the Lessor, as a matter of
policy, is seeking reimbursement of similar increased costs and other
amounts from its credit obligors generally for similar types of
credits.
(v) The provisions of this Section 27(c) shall (i)
subject to the provisions of Section 21(d)(i), be applicable with
respect to any Participant, assignee or other transferee, and any
calculations required by such provisions shall be made based upon the
circumstances of such Participant, assignee or other transferee and
(ii) constitute a continuing agreement and shall survive for a period
of one year after the termination of this Agreement and the payment in
full all Rent.
(d) Payments and Computations. Each determination by the
Lessor of an interest rate or yield with respect to Basic Rent or Interim Rent,
or an increased cost or increased capital or of illegality hereunder shall be
conclusive and binding for
40
<PAGE> 47
all purposes (absent manifest error) if made reasonably and in good faith.
(e) Compensation. Upon the request of the Lessor, delivered
to the Lessee, the Lessee shall pay to the Lessor such amount or amounts as
shall compensate the Lessor for any loss, cost or expense (but not loss of
margin or profit) incurred by the Lessor as a result of:
(i) any payment or prepayment (including by reason
of the occurrence of a Lease Termination Date) of a Scheduled Amount
or other Equipment Cost or Termination Value on a date other than the
last day of a Rental Period or Interim Rental Period, or any failure
to prepay a Scheduled Amount or other Equipment Cost on the date
specified for such prepayment by the Lessee in a notice to the Lessor;
or
(ii) any failure by the Lessee to cause the funding
of the purchase of Equipment pursuant to the Agency Agreement to occur
on the date for such funding as specified in the applicable notice
delivered pursuant to the Agency Agreement (other than by reason of a
default by the Lessor);
such compensation to include, without limitation, as applicable: an amount
equal to the excess, if any, of (x) the amount of Basic Rent or Interim Rent
which would have accrued on the amount so paid or prepaid or not prepaid or
with respect to which such funding did not occur for the period from the date
of such payment, prepayment or failure to prepay or fund to the last day of the
then current Rental Period or Interim Rental Period for such payment of Basic
Rent or Interim Rent, in the case of a failure to prepay or cause such funding,
the Rental Period or Interim Rental Period for such Basic Rent or Interim Rent
which would have commenced on the date of such failure to prepay or cause such
funding) determined based on the applicable rate for Basic Rent or Interim Rent
provided for herein over (y) the rate relating to such Basic Rent or Interim
Rent (as reasonably determined by the Lessor), the Lessor would have paid on
deposits in Dollars of comparable amounts having terms comparable to such
period placed with it by leading banks in the London interbank market;
provided, that (i) the Lessee shall be responsible to the Lessor only for its
actual costs incurred in connection with same (i.e. not for any lost profits
which were expected over the course of such Rental Period or Interim Rental
Period), (ii) the Lessor shall take reasonable efforts to mitigate its damages
in
41
<PAGE> 48
connection with same, and (iii) the Lessee shall not be responsible to the
Lessor for such losses in excess of those amounts as the Lessor would have
incurred had it funded or maintained the related Equipment Cost in the London
interbank market.
Section 28. Conditions Precedent
(a) Closing; Conditions Precedent to Effectiveness of this
Lease. On the Closing Date, at such place as the parties hereto shall agree,
this Lease and each of the Operative Documents shall be duly executed and
delivered by the parties to such documents. This Lease shall become effective
when (i) it shall have been executed by the Lessor and the Lessee, and (ii) the
Lessor shall, on or before October 20, 1995, have received the following, each
being in form and substance satisfactory to the Lessor; provided, that the
Lessee may deliver the insurance certification referred to in clause (iv) below
by October 27, 1995 (which must be reasonably satisfactory in form and
substance to the Lessor), and failure to deliver such certification on or
before October 20, 1995 shall not prevent this Lease from becoming effective:
(i) Certificates of the Lessee. A Certificate of the
Secretary or Assistant Secretary of the Lessee setting forth (i)
resolutions of its board of directors authorizing the execution,
delivery and performance of the obligations contained in this Lease
and the other Operative Documents to which it is a party, (ii) the
officers of the Lessee specified in such Secretary's Certificates that
are authorized to sign this Lease and the other Operative Documents to
which the Lessee is a party and, until replaced by another officer or
officers duly authorized for that purpose, to act as its respective
representative for the purposes of signing documents and giving
notices and other communications in connection with this Lease and the
Operative Documents to which it is a party and (iii) true and correct
copies of the articles or certificate of incorporation and the bylaws
of the Lessee. The Lessor may conclusively rely on such certificate
until the Lessor receives notice in writing from the Lessee to the
contrary.
(ii) Opinion of the Lessee's Counsel. A favorable
opinion or opinions of Assistant General Counsel to the Lessee, in
substantially the form of Exhibit D, and
42
<PAGE> 49
as to such other matters as the Lessor may reasonably request.
(iii) Execution and Delivery of Operative Documents.
Each of the other Operative Documents.
(iv) Insurance Certification. The Lessor shall have
received a certificate by a firm of independent insurance brokers or
consultants chosen by the Lessee setting forth the insurance obtained,
and to be obtained pursuant to this Lease, with respect to the
Equipment and the Lessee's operations with respect thereto.
(v) Annual Financial Statements. The Lessor shall
have received the financial statements described in Section
29(k).
(vi) Other. Such other documents as the Lessor or
special counsel to the Lessor may reasonably request.
(b) Conditions to Commencement of Lease for each Phase. The
commencement of this Lease as to each Phase is subject to (i) the occurrence of
the Acquisition Date as to the first item of Equipment in such Phase, (ii)
there being no more than 8 Phases under this Lease, (iii) the anticipated
actual Equipment Cost (not including Soft Costs) for any Phase not being less
than $2,000,000, and (iv) the satisfaction of the other conditions set forth in
Section 28(c) as to such first item of Equipment (such date being the "Phase
Commencement Date" as to such Phase.
(c) Conditions to addition of any Equipment in each Phase.
The addition of any Equipment to this Lease is subject to the satisfaction of
each of the following conditions as to such Equipment:
(i) Acquisition Date. The Acquisition Date shall
have occurred as to such Equipment. The term "Acquisition Date" with
respect to any item of Equipment shall mean the date on which each of
such conditions has been satisfied (A) the Lessor shall have paid the
Equipment Cost therefor and shall have received bills of sale or other
evidence of ownership thereof, taking good and marketable title
thereto, free and clear of all liens and encumbrances of third
parties, pursuant to the Agency Agreement, (B) the Lessor shall have
received copies of all Related Contracts, and all
43
<PAGE> 50
other contracts entered into in connection with the acquisition,
development and installation of the Equipment, pursuant to the Agency
Agreement (C) all Permits that are or will become Applicable Permits
with respect to such Phase and the Applicable Site shall have been
obtained, except Applicable Permits customarily obtained or which are
permitted by Governmental Requirements to be obtained after the
acquisition of the Equipment (in which case the Lessee, having
completed all appropriate due diligence in connection therewith
pursuant to the Agency Agreement, shall have no reason to believe that
such Permits will not be granted in the usual course of business prior
to the date that such Permits are required by Governmental
Requirements), and such obtained Permits shall be in proper form, in
full force and effect and not subject to any appeal or other
unsatisfied contest that may allow modification or revocation thereof,
(D) the Lessor shall have received evidence of perfection under local
law of its ownership of the Equipment subject to a Lease intended as
security and of filing of protective financing statements under
applicable local law, properly executed by the Lessee, evidencing a
first priority, perfected interest in the Equipment in favor of the
Lessor as security for payment by the Lessee of all amounts, and the
performance of all obligations, of the Lessee under the Lease, (E) the
Lessor shall have received a Certificate of Acceptance in
substantially the form of Exhibit B attached hereto and by reference
made a part hereof from the Lessee with respect to such Equipment and
(F) the Lessor shall have received a Lease Supplement in substantially
the form of Exhibit C attached hereto and by reference made a part
hereof from the Lessee with respect to such Equipment.
(ii) No Default. The fact that immediately before
and after the Acquisition Date for such Equipment, no Default or Event
of Default shall have occurred and be continuing.
(iii) Accuracy of Representations, etc. The
representations and warranties of the Lessee contained in this Lease
and the other Operative Documents to which it is a party, are true and
correct in all material respects on and as of the Acquisition Date for
such Equipment (except for any representations which were correct on
the date of this Lease but are not correct on such Acquisition Date
because of a change permitted by the terms of this Lease or the
Operative Documents).
44
<PAGE> 51
(iv) Casualties. Neither the Equipment in such Phase
nor the Applicable Site thereof shall have suffered (A) a Loss Event
or (B) a Casualty Occurrence other than a Casualty Occurrence for
which a plan acceptable to the Lessor for replacing, or causing to be
replaced, the portions of Equipment that are the subject of such
Casualty Occurrence has been provided to the Lessor.
(v) No Material Adverse Change or Effect. No
material adverse change shall have occurred in the financial condition
of the Lessee and its Subsidiaries on a consolidated basis since the
date of the most recent Fiscal Quarter for which a financial statement
of the Lessee was delivered to the Lessor and no event, act, condition
or occurrence shall exist or have occurred that has had, or would
reasonably be expected to have, a Material Adverse Effect.
(vi) Taxes, Filings, Recordings. All filings or
recordings reasonably considered necessary or desirable by the Lessor
have been completed and all taxes and fees in connection therewith,
and all Impositions with respect to the Equipment that are then due
and payable, shall have been paid by the Lessee.
Each presentation of a Lease Supplement hereunder shall be deemed to be a
representation and warranty by the Lessee on the Acquisition Date relating
thereto as to the facts specified in paragraphs (ii), (iii), (iv), (v), and
(vi) of this Section 28(b).
Section 29. The Lessee's Representations and Warranties
The Lessee represents and warrants to the Lessor that:
(a) Corporate Existence and Power. The Lessee is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Georgia. The Lessee is duly qualified to transact business
in every jurisdiction where, by the nature of its business, such qualification
is necessary, except for any failure to comply with the foregoing which does
not have a Material Adverse Effect, and has all corporate powers and all
government authorizations, licenses, consents and approvals required to engage
in its business and operations as now conducted, except for any failure to
comply with the foregoing which does not have a Material Adverse Effect.
45
<PAGE> 52
(b) Corporate and Governmental Authorization. The execution,
delivery and performance by the Lessee of this Lease and the other Operative
Documents to which it is a party (i) are within its corporate powers, (ii) have
been duly authorized by all necessary corporate action, (iii) require no action
by or respect of or filing with, any governmental body, agency or official,
(iv) do not contravene or constitute a default under, any material provision of
applicable law or regulation or of the certificate of incorporation or by-laws
of the Lessee or, to the best of the Lessee's knowledge, any material agreement
relating to Debt, judgment, injunction, order, decree or other instrument
relating to Debt binding upon the Lessee or any Subsidiary of the Lessee and
(v) do not result in the creation or imposition of any Lien on any asset of the
Lessee or any Subsidiary of the Lessee or on any of the Equipment, except in
favor of the Lessor.
(c) Binding Effect. This Lease and the Operative Documents
to which it is a party constitutes a valid and binding agreement of the Lessee,
enforceable in accordance with their respective terms, provided that the
enforceability hereof and thereof is subject in each case to general principles
of equity and to bankruptcy, insolvency and similar laws affecting the
enforcement of creditor's rights generally.
(d) No Litigation. Except as may be disclosed in any annual,
quarterly or monthly reports which the Lessee has filed with the Securities and
Exchange Commission, there is no action, suit or proceeding pending, or to the
knowledge of the Lessee, threatened, against or affecting the Lessee or any
Subsidiary of the Lessee before any court or arbitrator or any governmental
body, agency or official which could have a Material Adverse Effect or which in
any manner draws into question the validity of or could impair in any material
respect the ability of the Lessee to perform its obligations under this
Agreement or any of the Operative Documents executed by the Lessee.
(e) Compliance with Laws. The Lessee and, to the best of the
Lessee's knowledge, each Material Subsidiary, is in compliance with all
applicable laws, regulations and similar requirements of governmental
authorities, including, without limitation, ERISA, Environmental Requirements
and payments of taxes, except where such compliance is being contested in good
faith through appropriate proceedings or does not have a Material Adverse
Effect.
46
<PAGE> 53
(f) Ownership of Property; Liens. The Lessee has title to
or leasehold or other interests in its material properties sufficient for the
conduct of its business, and none of such property is subject to any Lien
except Permitted Liens.
(g) No Default. Neither the Lessee nor any of the Lessee's
Subsidiaries is in default under or with respect to any agreement, instrument
or undertaking to which it is a party or by which it or any of its property is
bound which could have or cause a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
(h) Full Disclosure. The Lessee's annual report on Form 10-K
for the fiscal year ended at June 30, 1995, a copy of which has been furnished
by the Lessee to the Lessor, did not, as of the date such Form 10-K was filed
with the Securities and Exchange Commission, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) from the date of filing of the Lessee's annual report on
Form 10-K for the fiscal year ended on June 30, 1995 through the date hereof,
the Lessee has not filed a current report on Form 8-K with the Securities and
Exchange Commission and, as of the date hereof, no event or condition exists
which would require such filing by the Lessee pursuant to the Securities
Exchange Act of 1934, as amended, except for any such event or condition which
has heretofore been disclosed in writing to the Lessor by delivery to the
Lessor of a Form 8-K.
(i) Capital Stock. All Capital Stock, debentures, bonds,
notes and all other securities of the Lessee presently issued and outstanding
are validly and properly issued in accordance with all applicable laws in all
material respects, including but not limited to, the "Blue Sky" laws of all
applicable states and the federal securities laws, except to the extent any
failure with respect thereto would not have or cause a Material Adverse Effect.
(j) Margin Stock. The Lessee is not engaged principally, or
as one of its important activities, in the business of purchasing or carrying
any Margin Stock.
(k) Annual Financial Statements. The audited consolidated
financial statements of the Lessee for its Fiscal Year ended July 1, 1995
fairly present, as of the date thereof,
47
<PAGE> 54
in conformity with GAAP, the consolidated financial position of the Lessee and
its Consolidated Subsidiaries as of such dates and their consolidated results
of operations and cash flows for such period stated.
Section 30. Covenants
The Lessee covenants and agrees with the Lessor to comply with the
following covenants until either (i) the Equipment for all Phases has been
purchased by the Lessee (or one of its Affiliates) for the Termination Value
therefor, (ii) this Lease has been terminated, the Equipment for all Phases has
been returned to the Lessor and the Termination Value or the Final Rent
Payment, as the case may be, and all other amounts payable under this Lease and
the other Operative Documents upon such occurrence have been paid in full:
(a) Information. The Lessee will deliver to the Lessor:
(i) as soon as available and in any event within 120 days
after the end of each Fiscal Year, a consolidated balance sheet of the
Lessee and its Consolidated Subsidiaries as of the end of such Fiscal
Year and the related consolidated statements of income, shareholders'
equity and cash flows for such Fiscal Year, setting forth in each case
in comparative form the figures for the previous fiscal year, all
certified by Price Waterhouse LLP or other independent public
accountants of nationally recognized standing, with such certification
to be free of exceptions and qualifications not acceptable to the
Lessor;
(ii) as soon as available and in any event within 60 days
after the end of each of the first 3 Fiscal Quarters of each Fiscal
Year, a consolidated balance sheet of the Lessee and its Consolidated
Subsidiaries as of the end of such Fiscal Quarter and the related
statement of income and statement of cash flows for such Fiscal
Quarter and for the portion of the Fiscal Year ended at the end of
such Fiscal Quarter, setting forth in each case in comparative form
the figures for the corresponding Fiscal Quarter and the corresponding
portion of the previous Fiscal Year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, GAAP and
consistency by the chief financial officer or the chief accounting
officer of the Lessee;
48
<PAGE> 55
(iii) promptly upon the mailing thereof to the shareholders
of the Lessee generally, copies of all financial statements, reports
and proxy statements so mailed;
(iv) promptly after request by the Lessor therefor, copies
of all registration statements (other than the exhibits thereto and
any registration statements on Form S-8 or its equivalent) filed with
the Securities and Exchange Commissions, and promptly upon the filing
thereof, annual or quarterly reports which the Lessee shall have filed
with the Securities and Exchange Commission;
(v) if and when any member of the Controlled Group (x)
gives or is required to give notice to the PBGC of any "reportable
event" (as defined in Section 4043 of ERISA) with respect to any Plan
which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event,
a copy of the notice of such reportable event given or required to be
given to the PBGC; (y) receives notice of complete or partial
withdrawal liability under Title IV of ERISA, a copy of such notice;
or (z) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to administer any Plan, a
copy of such notice;
(vi) promptly, and, in any event, within 15 Business Days
after any officer of the Lessee becomes aware of any Default or Event
of Default, a certificate of a senior financial or accounting officer
or the chief financial officer or the chief accounting officer or the
Treasurer of the Lessee setting forth the details thereof and the
action which the Lessee is taking or proposes to take with respect
thereto;
(vii) promptly upon becoming aware of the occurrence of
either a Loss Event or a Casualty Occurrence, or any other event or
condition requiring notice under either Section 7 or Section 8 of this
Lease, the Lessee shall give the Lessor written notice thereof, which
notice shall specify the damage or loss to the Equipment in reasonable
detail; and
(viii) from time to time such additional information
regarding the financial position or business of Lessor and
49
<PAGE> 56
the Subsidiaries of Lessor as the Lessor may reasonably request.
(b) Maintenance and Inspection of Property, Books and
Records. The Lessee will keep books of record and account regarding this Lease
and shall maintain, on a current basis, books of proper record and account in
conformity with GAAP, consistently applied (to the extent applicable, and the
rules of the Security and Exchange Commission and the Financial Accounting
Standards Board), and keep copies of all Related Contracts and any amendments
thereto and the Equipment Cost of the Equipment for each Phase and of each
material item of Property comprising or included in the Equipment for each
Phase, and shall provide copies of the foregoing to the Lessor from time to
time on request at the Lessee's expense. The Lessee will permit representatives
of the Lessor (x) at the Lessor's expense and upon reasonable notice and at a
time reasonably convenient to the Lessee (but in any event within 10 days of
such notice) prior to the occurrence of a Default and (y) at the Lessee's
expense after the occurrence of a Default, to visit and inspect the Equipment
for any Phase and any Applicable Site and any of its properties, to examine and
make abstracts from any of its books and records and to discuss its affairs,
finances and accounts with its officers, employees and independent public
accountants. The Lessee agrees to cooperate and assist in such visits and
inspections, in each case at such reasonable times and as often as may
reasonably be desired.
(c) Maintenance of Existence. The Lessee shall maintain its
existence and carry on the major part of its business in substantially the same
fields as such business is now carried on and maintained.
(d) Consolidations, Mergers and Sales of Assets. The
Lessee will not consolidate or merge with or into, or sell, lease or otherwise
transfer all or any substantial part of its Consolidated Total Assets to, any
other Person; provided that (a) the Lessee may merge with another Person if (i)
such Person was organized under the laws of the United States of America or one
of its states, (ii) the Lessee is the corporation surviving such merger and
(iii) immediately after giving effect to such merger, no Default shall have
occurred and be continuing, and (b) without limiting any other transfer of
assets which may not constitute a "substantial part" of the Consolidated Total
Assets of the Lessee, during any Fiscal Quarter, no transfer of assets of the
Lessee shall constitute a "substantial part" of the assets of the
50
<PAGE> 57
Lessee if, on the date of such transfer either (A) (1) the aggregate assets to
be so transferred, when combined with all other assets transferred during such
Fiscal Quarter and the immediately preceding 7 Fiscal Quarters (the "Sold
Assets"), less the aggregate assets of the Lessee acquired during the same
period (the "Purchased Assets") constituted more than 25% of Consolidated Total
Assets at the end of the eighth Fiscal Quarter immediately preceding such
Fiscal Quarter; or (2) the Consolidated operating Profits during the 8 Fiscal
Quarters immediately preceding such Fiscal Quarter (the "Calculation Period")
contributed by the Sold Assets less the Consolidated Operating Profits
contributed by the Purchased Assets during the Calculation Period (calculated
as if the Purchased Assets had been acquired on the first day of the
Calculation Period) did not represent more than 25% of the Consolidated
Operating Profits during the Calculation Period; or (B) giving effect to the
disposition of such assets, (1) the book value of the Consolidated Total Assets
of the Lessee is not less than seventy-five percent (75%) of the book value of
the Consolidated Total Assets of the Lessee on July 1, 1995 and (2) the
Consolidated Operating Profits of the Lessee for the four Fiscal Quarter period
most recently ended prior to the date of such transfer are not less than
seventy-five percent (75%) of the Consolidated Operating Profits of the Lessee
for its Fiscal Year ending July 1, 1995.
(e) Dissolution. The Lessee shall not be permitted to be
dissolved or liquidated, except through corporate reorganization to the extent
permitted by Section 30(d).
(f) Use of Proceeds. The proceeds of fundings of the
Equipment Cost by the Lessor will be used solely to finance the acquisition of
the Equipment by the Lessor pursuant to the Agency Agreement, including the
enhancements and improvements to be made thereto and the design, renovation,
construction and installation thereof.
(g) Compliance with Laws. The Lessee will comply in all
material respects with applicable laws (including but not limited to ERISA,
Environmental Requirements and payments of taxes), regulations and similar
requirements of governmental authorities (including but not limited to PBGC),
except where the necessity of such compliance is being contested in good faith
through appropriate proceedings or if failure to comply does not have a
Material Adverse Effect.
51
<PAGE> 58
(h) Insurance. The Lessee will maintain (either in the name
of the Lessor or the Lessee, as applicable), with financially sound and
reputable insurance companies, insurance on such of its property in at least
such amounts, and with such deductibles, and against at least such risks as are
usually insured against in the same general area by companies of established
repute engaged in the same or similar businesses. The Lessee will deliver or
cause to be delivered to the Lessor promptly upon request the Lessor, and in
any event on January 1st of each calendar year, commencing with July 1, 1996, a
certificate by a firm of independent insurance brokers or consultants chosen by
the Lessee and acceptable to the Lessor setting forth the insurance or
self-insurance obtained pursuant to Section 14, including, without limitation,
the amounts thereof, the names of the insurers and the property, hazards and
risks covered thereby, and certifying that all premiums then due and payable
thereon have been paid and that the same are in full force and effect, that the
Lessor has been named as additional insureds and loss payees, as their
interests may appear, under each such policy, and are not liable for payment of
premiums thereunder, that such policies may not be cancelled without at least
thirty (30) days prior notice to the Lessor with an opportunity to cure any
default thereunder.
(i) Change in Fiscal Year. The Lessee will not change its
Fiscal Year without the consent of the Lessor, which shall not be unreasonably
withheld.
(j) Maintenance of Property. The Lessee shall maintain and
preserve the Equipment in accordance with the requirements of this Lease. The
Lessee shall maintain and preserve all of its properties and assets, in good
operating condition, ordinary wear and tear excepted, except where any failure
would not have or cause a Material Adverse Effect.
(k) Environmental Notices. The Lessee shall furnish to the
Lessor prompt written notice of all Environmental Liabilities, pending or
overtly threatened Environmental Proceedings, Environmental Notices,
Environmental Judgments and Orders, and Environmental Releases of which the
Lessee shall have received actual notice or have actual knowledge at, on, in,
under or in any way affecting any of the Equipment or Applicable Sites, if the
amount of liability or of remediation cost to the Lessor or the Lessee is or
could reasonably be expected to have a Material Adverse Effect.
2
<PAGE> 59
(l) Environmental Matters. The Lessee shall, and shall not
knowingly permit any Third Party to, use, produce, manufacture, process, treat,
recycle, generate, store, dispose of, manage at, or otherwise handle, or ship
or transport to or from any of the Equipment or Applicable Sites any Hazardous
Materials except for Hazardous Materials used, produced, manufactured,
processed, treated, recycled, generated, stored, disposed of, managed, or
otherwise handled amounts in the ordinary course of business or of management
or maintenance of the Equipment or the Applicable Sites in compliance with all
applicable Environmental Requirements, except to the extent that failure to
comply would not have a Material Adverse Effect.
(m) Environmental Release. The Lessee agree that upon its
becoming aware of the occurrence of an Environmental Release, except for any
Environmental Release which occurred in substantial compliance with all
Environmental Requirements, at or on the Equipment for any Phase or any
Applicable Site, it will act promptly to determine the extent of, and to take
such remedial action to eliminate, any such Environmental Release, whether or
not ordered or otherwise directed to do so by any Environmental Authority,
except to the extent that failure to take remedial action would not have a
Material Adverse Effect.
(n) Transactions with Affiliates. The Lessee shall not enter
into, or be a party to, any transaction with any Affiliate of the Lessee (which
Affiliate is not a Subsidiary, other than a Person in which the Lessee or such
Subsidiary owns less than a majority interest and which, if it were a
Subsidiary, would not be a Material Subsidiary), except as permitted by law and
in the ordinary course of business and pursuant to reasonable terms which
either (x) are no less favorable to the Lessee than would be obtained in a
comparable arm's length transaction with a Person which is not an Affiliate or
(y) have been approved by a majority of the disinterested members of the Board
of Directors of the Lessee; provided, that the foregoing shall not affect the
ability of the Lessee to determine, in its sole discretion, the amount or form
of executive or directors compensation from time to time.
(o) Further Assurances. The Lessee will, upon request of the
Lessor, cure promptly any defects in the due execution and delivery by it of
the Operative Documents, including this Lease. The Lessee at its expense will
promptly execute and deliver to the Lessor upon request all such other and
further documents, agreements and instruments in compliance with or
accomplishment
53
<PAGE> 60
of the covenants and agreements of the Lessee in the Operative Documents,
including this Lease, or to further evidence and more fully describe the
Equipment, or to correct any item that the Lessee and the Lessor agree
constitutes an omission or error in the Operative Documents, or more fully to
state the existing security obligations set out herein or in any of the
Operative Documents, or to perfect, protect or preserve any Liens created
pursuant to any of the Operative Documents, or to make any recordings, to file
any notices, or obtain any consents, required by the terms of the Operative
Documents, all as may be reasonably necessary or appropriate in connection
therewith.
(p) Liens, Etc. The Lessee covenants and agrees that it
shall not create, assume or suffer to exist, any Liens upon the Equipment for
any Phase, other than Permitted Liens.
(q) Negative Pledge. Neither the Lessee nor any Consolidated
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(i) Liens existing on the date of this Lease securing
Debt outstanding on the date of this Lease;
(ii) any Lien existing on any asset of any corporation at the
time such corporation becomes a Consolidated Subsidiary and not
created in contemplation of such event;
(iii) any Lien on any asset securing Debt incurred or assumed
for the purpose of financing all or any part of the cost of acquiring
or constructing such asset, provided that such Lien attaches to such
asset concurrently with or within 18 months after the acquisition or
completion of construction thereof;
(iv) any Lien on any specific fixed asset of any corporation
existing at the time such corporation is merged or consolidated with
or into the Lessee or a Consolidated Subsidiary and not created in
contemplation of such event;
(v) any Lien existing on any specific fixed asset prior to
the acquisition thereof by the Lessee or a Consolidated Subsidiary and
not created in contemplation of such acquisition;
54
<PAGE> 61
(vi) Liens securing Debt owing by any Subsidiary to the
Lessee;
(vii) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing paragraphs of this Section 30(q), provided that (x)
such Debt is not secured by any additional assets, and (y) the amount
of such Debt secured by any such Lien is not increased;
(viii) Liens imposed by any governmental authority for
taxes, assessments or charges not yet delinquent or which are being
contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the
Lessee or any of its Subsidiaries, as the case may be, in accordance
with GAAP;
(ix) carriers', warehousemen's, mechanics', materialmen's
repairmen's or other like Liens arising in the ordinary course of
business (whether or not statutory) which are not overdue for a period
of more than 30 days or which are being contested in good faith and by
appropriate proceedings, for which a reserve or other appropriate
provisions, if any, as shall be require by GAAP shall have been made;
(x) pledges or deposits to secure non-delinquent
obligations under worker's compensation, unemployment insurance and
other social security legislation;
(xi) Liens on capital stock of or other ownership
interests in any Person not a Subsidiary of the Lessee securing
Indebtedness of such Person;
(xii) Liens resulting from progress payments or partial
payments under United States government contracts or subcontracts;
(xiii) Liens arising from legal proceedings, so long as
such proceedings are being contested in good faith by appropriate
proceedings diligently conducted and so long as execution is stayed on
all judgments resulting from any such proceedings;
(xiv) Liens on real Property;
55
<PAGE> 62
(xv) Liens incidental to the conduct of its business or
the ownership of its assets which (i) do not secure Debt and (ii) do
not in the aggregate materially detract from the value of its assets
or materially impair the use thereof in the operation of its business;
and
(xvi) Liens not otherwise permitted by the foregoing
paragraphs of this Section 30(q) securing Debt (other than
indebtedness under this Lease or the other Operative Documents) in an
aggregate principal amount at any time outstanding not to exceed 5% of
Tangible Net Worth.
Provided Liens permitted by the foregoing paragraphs (i) through (xvi) shall at
no time secure Debt in an aggregate amount greater than 25% of Tangible Net
Worth.
(r) Guarantees. The Lessee shall not, except for
Guarantees related to Debt Liens expressly permitted by Section 30(q), after
the Closing Date incur or become liable on (whether by Guarantee or otherwise)
any Debt of another Person in excess of $20,000,000 except for (i) any
Guarantee of any of its Subsidiaries' obligations, (ii) endorsement of
negotiable instruments payable at sight for deposit or collection or similar
banking transactions in the usual course of business, (iii) Guarantees,
endorsements or other similar arrangements made by the Lessee to facilitate the
sale of loans made by the Lessee or any of its Subsidiaries to independent
contractors for the sale of distribution rights to distribute the Lessee's or
any of its Subsidiaries' products.
(s) ERISA. The Lessee will comply with the requirements
of ERISA with respect to each Plan and promptly notify the Lessor (i) of the
occurrence of any event which could cause the termination, in whole or in part,
of any Plan; (ii) of any violation of ERISA with respect to any Plan; and (iii)
of the occurrence of any reportable event as defined by ERISA.
Section 31. Miscellaneous.
(a) Entire Agreement. THIS LEASE AND THE OTHER OPERATIVE
DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LESSEE AND
THE LESSOR AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF. THIS WRITTEN LEASE AND THE OTHER
OPERATIVE DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
56
<PAGE> 63
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
(b) No Personal Liability. Notwithstanding anything to the
contrary contained in this Lease, the execution of this Lease and any other
instrument or document executed in connection herewith shall not impose upon
any director, officer or employee of the Lessee or the Lessor personal
liability for the Lessee's and the Lessor's respective obligations under this
Lease or any other instrument or document executed in connection herewith;
provided the foregoing shall not relieve any such director, officer or employee
of personal liability for his or her fraud or intentional misconduct.
(c) Interpretation. Captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
(d) Governing Law. THIS LEASE AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO RELATING TO THE EQUIPMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, BUT EXCLUDING
ALL CONFLICT-OF-LAWS RULES; EXCEPT THAT, AS TO ANY PHASE, TO THE EXTENT
REQUIRED BY THE LAWS OF THE STATE IN WHICH THE APPLICABLE SITE FOR SUCH PHASE
IS LOCATED, THE LAWS OF THE STATE OF IN WHICH SUCH APPLICABLE SITE IS LOCATED
SHALL GOVERN (I) THE CREATION AND EXISTENCE OF THIS LEASE, (II) SECTION 26 OF
THIS LEASE, AND (III) THE ENFORCEMENT OF THE RIGHTS OF LESSOR TO REPOSSESS THE
EQUIPMENT FOR SUCH PHASE FROM THE LESSEE AFTER THE EARLIER OF THE TERMINATION
OF THIS LEASE OR THE TERMINATION OF THE LESSEE'S RIGHT TO POSSESSION OF THE
EQUIPMENT FOR SUCH PHASE.
(e) No Third Party Beneficiaries. Nothing in this Lease,
express or implied, shall give to any Person, other than the parties hereto and
the Participants and their respective successors and permitted assigns, any
benefit or any legal or equitable right, remedy or claim under this Lease
including, without limitation, under any provision of this Lease regarding the
priority or application of any amounts payable hereunder.
(f) Counterparts. This Lease may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
57
<PAGE> 64
(g) Waiver of Jury Trial. EACH OF THE PARTIES HERETO WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR TO DEFEND ANY RIGHTS UNDER THIS LEASE
OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING
FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS LEASE, AND AGREES THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.
(h) Invalidity. In the event that any one or more of the
provisions contained in this Lease shall, for any reason, be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Lease.
(i) Usury. Notwithstanding anything to the contrary
contained in this Lease or any of the Operative Documents, the amounts which
the Lessee is obliged to pay pursuant to this Lease and the other Operative
Documents, and the amounts which the Lessor is entitled to receive pursuant to
this Lease and the other Operative Documents, are subject to the following
limitations. It is the intention of the parties hereto that the Lessor shall
conform strictly to usury laws applicable to it. Accordingly, if the
transactions contemplated hereby would be usurious as to the Lessor under laws
applicable to it (including the laws of the United States of America and the
State of Georgia or any other jurisdiction whose laws may be mandatorily
applicable to the Lessor notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in
this Lease or in any other Operative Document, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under law applicable
to the Lessor that is contracted for, taken, reserved, charged or received by
the Lessor under this Lease or under any of the other aforesaid Operative
Documents or other agreements or otherwise in connec tion with this Lease shall
under no circumstances exceed the maximum amount allowed by such applicable
law, and any excess shall be cancelled automatically and if theretofore paid
shall be credited by the Lessor on the amounts paid by the Lessee, to the
extent that the obligations with respect thereto shall have been or would
thereby be paid in full, refunded by the Lessor to the Lessee and (ii) in the
event that any amounts hereunder become due and payable prior to the regularly
scheduled maturity (whether by reason of the occurrence of a Cancellation Event
or a Termination Event or otherwise, or in the event of any required
58
<PAGE> 65
or permitted prepayment, then such consideration that constitutes interest
under law applicable to the Lessor may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any, provided
for in this Lease or otherwise shall be cancelled automatically by the Lessor
as of the date of such prepayment and, if theretofore paid, shall be credited
by the Lessor on the amounts payable hereunder (or, to the extent that the
amounts payable hereunder shall have been or would thereby be paid in full,
refunded by the Lessor to the Lessee). All sums paid or agreed to be paid to
the Lessor for the use, forbearance or detention of sums due hereunder shall,
to the extent permitted by law applicable to the Lessor, be amortized,
prorated, allocated and spread in equal parts throughout the full term of this
Lease until payment in full so that the rate or amount of interest on account
of any amounts payable hereunder does not exceed the maximum amount allowed by
such applicable law. If at any time and from time to time (i) the amount of
interest or yield payable to the Lessor on any date shall be computed at the
Highest Lawful Rate applicable to the Lessor pursuant to this Section 31(i) and
(ii) in respect of any subse quent interest or yield computation period the
amount of interest or yield otherwise payable to the Lessor would be less than
the amount of interest or yield payable to the Lessor computed at the Highest
Lawful Rate applicable to the Lessor, then the amount of interest or yield
payable to the Lessor in respect of such subsequent interest or yield
computation period shall continue to be computed at the Highest Lawful Rate
applicable to the Lessor until the total amount of interest or yield payable to
Lessor shall equal the total amount of interest or yield which would have been
payable to the Lessor if the total amount of interest or yield had been
computed without giving effect to this Section.
(j) Time of the Essence. Time is of the essence in
connection with the payment of Rent and all other amounts payable hereunder and
the performance of the Lessee's other obligations hereunder.
(k) Indemnification. The Lessee agrees:
(i) in addition to any other indemnity obligations
set forth in any Operative Document, to indemnify and save harmless,
the Lessor and any of its successors and assigns, and their respective
officers, directors, incorporators, shareholders, employees, agents,
partners, attorneys, affiliates and servants (individually an
"Indemnified Party" and collectively the "Indemnified
59
<PAGE> 66
Parties") from and against all liabilities, Liens, losses,
obligations, claims, damages (including, without limitation,
penalties, fines, court costs and administrative service fees),
penalties, demands, causes of action, suits, proceedings (including
any investigations, litigation or inquiries), judgments, orders, sums
paid in settlement of claims, and costs and expenses of any kind or
nature whatsoever, including, without limitation, reasonable
attorneys' fees and expenses and all other expenses incurred in
connection with investigating, defending or preparing to defend any
cause of action, suit or proceeding (including any investigations,
litigation or inquiries) or claim which may be incurred by or asserted
against or involve any of them (whether or not any of them is named as
a party thereto) as a result of, arising directly or indirectly out of
or in any way related to (A) any actual or proposed use by the Lessee
of the amounts funded as Equipment Cost, (B) any other aspect of this
Lease and the other Operative Documents, (C) the operations of the
business of the Lessee, (D) the failure of the Lessee to comply with
any Governmental Requirement in connection with the purchase, design,
construction, manufacture, engineering, assembly, installation, use,
operation or ownership of the Equipment or any portion thereof, (E)
the breach of any representation or warranty set forth herein
regarding Environmental Laws, (F) the failure of the Lessee as agent
for the Lessor under the Agency Agreement to pay any amount required
to be paid hereunder, (G) the failure of the Lessee to perform any
obligation herein required to be performed pursuant to Environmental
Laws, or any act or omission which occurred or will occur at any prior
or subsequent time, or any condition or state of facts in existence at
any prior or subsequent time relating in any way to any of the
Equipment or any Applicable Site the failure of which gives rise to
any liability or obligation under any Environmental Requirement or
gives rise to any Environmental Damages, (H) the Lessee's ownership
and leasing of the Equipment pursuant to this Lease, (I) the sale of
any portion of the Equipment either to the Lessee or any other Person
pursuant to the provisions of this Lease, (J) all acts or omissions of
the Lessee or any Sublessee, (K) any Imposition, Lien, judgment,
order, tax, or other payment owing in respect of any of the Equipment
or which the Lessee is obligated to discharge or pay to any Person,
(L) any action or omission of the Lessee pursuant to the Agency
Agreement, (M) any injury to, or death of, any Person, or damage to or
loss of Property to
60
<PAGE> 67
the extent not reimbursed by insurance prior to the Indemnified Party
having to make any payment in respect thereof, or any other thing
occurring on or resulting from activities involving any of the
Equipment or on any Applicable Site or any portion thereof, (N) the
renovation, construction, leasing, subleasing, operation, occupancy,
possession, use or non-use by the Lessee (whether in its individual
capacity or as agent for the Lessor) of any of the Equipment or any
Applicable Site or any portion thereof, or the condition of the
Equipment or any portion thereof, (O) any Default or Event of Default
under this Lease, (P) any act or omission of the Lessee or its agents,
contractors, licensees, Sublessees, invitees, representatives or any
other Person on or relating to, or in connection with, the ownership,
renovation, construction, leasing, subleasing, operation, management,
maintenance, occupancy, possession, use, non-use or condition of any
of the Equipment or any Applicable Site or any portion thereof, (Q)
performance of any labor or services or furnishing of any materials or
other Property in respect of any of the Equipment or any Applicable
Site or any portion thereof, (R) any permitted contest referred to in
Section 13 hereof, (S) any claims for patent, trademark, trade name or
copyright infringement or (T) any violation by the Lessee of any
Operative Document or any Related Contracts or any other contract or
agreement to which the Lessee is a party, or of any Insurance
Requirement, in each case affecting any Indemnified Party, any of the
Equipment or any Applicable Site or any portion thereof or the
ownership, operation, occupancy, possession, use, non-use or condition
thereof, in each case regardless of the acts, omissions or negligence
of any Indemnified Party, it being the intent of the Lessee to
indemnify the Indemnified Parties for their own negligent acts or
omissions (other than gross negligence or wilful misconduct) in
connection with any of the foregoing (collectively, the "Indemnified
Risks"); provided, however, that no Indemnified Party shall be
entitled to indemnity (or any other payment or reimbursement) for any
Indemnified Risks to the extent such Indemnified Risks result from or
arise out of one or more of the following: (1) any representation or
warranty by such Indemnified Party in the Operative Documents being
incorrect; (2) the willful misconduct or gross negligence of such
Indemnified Party; and (3) any claim for economic losses based upon
the rate of return under this Lease.
61
<PAGE> 68
(ii) If any cause of action, suit, proceeding or
claim arising from any of the foregoing is brought against any
Indemnified Party, whether such action, proceeding, suit or claim
shall be actual or threatened, or in preparation therefor, the Lessee
will have the right, at its expense, to assume the resistance and
defense of such cause of action, suit, proceeding or claim or cause
the same to be resisted and defended; provided that such Indemnified
Party shall be entitled (but not obligated) to participate jointly in
such defense, in which case such Indemnified Party will be responsible
for its own legal fees or other expenses, if any, related to such
defense incurred subsequent to the joint participation by such party
in such defense. Notwithstanding the foregoing, if any Indemnified
Party shall have been advised by counsel chosen by it that there may
be one or more legal defenses available to such Indemnified Party that
are different from or additional to those available to the Lessee, the
Indemnified Party may assume the defense of such action and the Lessee
agrees to reimburse such Indemnified Party for the reasonable fees and
expenses of any counsel retained by the Indemnified Party. the Lessee
may settle any action which it defends hereunder on such terms as it
may deem advisable in its sole discretion, subject to its ability
promptly to perform in full the terms of such settlement. No
Indemnified Party may seek indemnification or other reimbursement or
payment, including attorneys' fees or expenses, from the Lessee for
any cause of action, suit, proceeding or claim settled, compromised or
in any way disposed of by the Indemnified Party without the Lessor's
prior written consent, which will not be unreasonably withheld.
(iii) The obligations of the Lessee under this
Section 31(k) shall survive the expiration or any termination of this
Lease (whether by operation of law or otherwise) and the payment of
amounts owed by the Lessee under this Lease and the other Operative
Documents.
(iv) Upon demand for payment by any Indemnified
Party of any Indemnified Risks incurred by it for which
indemnification is sought, the Lessee shall pay when due and payable
the full amount of such Indemnified Risks to the appropriate party,
unless and only so long as: (A) the Lessee shall have assumed the
defense of such action and is diligently prosecuting the same; (B) the
Lessee is financially able to pay all its obligations outstanding and
62
<PAGE> 69
asserted against the Lessee at that time, including the full amount of
the Indemnified Risks; and (C) the Lessee has taken all action as may
be reasonably necessary to prevent (1) the collection of such
Indemnified Risks from the Indemnified Party; (2) the sale, forfeiture
or loss of the Equipment or any portion thereof during such defense of
such action; and (3) the imposition of any civil or criminal liability
for failure to pay such Indemnified Risks when due and payable.
(v) The Lessee acknowledges and agrees that its
obligations under this Section 31(k) are intended to include and
extend to any and all liabilities, Liens, losses, obligations, claims,
damages (including, without limitation, penalties, fines, court costs
and administrative service fees), penalties, demands, causes of
action, suits, proceedings (including any investigations, litigation
or inquiries), judgments, orders, sums paid in settlement of claims,
costs and expenses (including, without limitation, response and
remediation costs, stabilization costs, encapsulation costs, and
treatment, storage or disposal costs), imposed upon or incurred by or
asserted at any time against any Indemnified Party (whether or not
indemnified against by any other party) as a result of, arising
directly or indirectly out of or in any way related to (1) the
treatment, storage, disposal, generation, use, transport, movement,
presence, release, threatened release, spill, installation, sale,
emission, injection, leaching, dumping, escaping or seeping of any
hazardous substance or material containing or alleged to contain
hazardous substance at or from any of the Equipment or any Applicable
Site or any part thereof; (2) the violation or alleged violation of
any Environmental Laws relating to or in connection with any of the
Equipment or any Applicable Site or any part thereof or any acts or
omissions thereon or relating thereto; (3) all other federal, state
and local laws designed to protect the environment or persons or
property therein, whether now existing or hereinafter enacted,
promulgated or issued by any governmental authority relating to or in
connection with any of the Equipment or any Applicable Site or any
part thereof or any acts or omissions thereon or relating thereto; (4)
the Lessee's failure to comply with its obligations under Section 7
hereof; and (5) any abandonment of any of the Equipment or any
Applicable Sites by the Lessee; provided, however that no Indemnified
Party shall be entitled to indemnity or any other payment or
reimbursement
63
<PAGE> 70
for any of the types of claims enumerated in this Section 31(k) to the
extent such claims result from or arise out of the willful misconduct
or gross negligence of such Indemnified Party; and (ii) the
indemnification provided for under this Section 31(k)(v) shall be
governed by the procedures set forth in Sections 31(k)(ii)-(iv) above.
(vi) Without limiting the generality of the
foregoing provisions of this Section 31(k), the Lessee agrees to pay
or reimburse, promptly upon demand, and protect, indemnify and save
harmless, the Lessor, following the occurrence of a Termination Event,
from any action by any Sublessee or other owner of an interest in the
Equipment (other than a Co-Lessee) which causes the Lessor any delay
in exercising its remedies, or results in the reduction of the
Lessor's remedies hereunder.
(vii) In case any action shall be brought against
any Indemnified Party in respect of which indemnity may be sought
against the Lessee, such Indemnified Party shall promptly notify the
Lessee in writing, but the failure to give such prompt notice shall
not relieve the Lessee from liability hereunder.
64
<PAGE> 71
IN WITNESS WHEREOF, the parties have caused this Lease to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
LESSOR:
WACHOVIA LEASING CORPORATION
By:
----------------------------
Title:
LESSEE:
FLOWERS INDUSTRIES, INC.
By:
----------------------------
Title:
65
<PAGE> 72
SCHEDULE 1(b)
Defined Terms
The following terms shall have the following meanings (all terms defined in the
singular to have the same meanings when used in the plural and vice versa):
"Acquisition Agent": Lessee, in its capacity as Acquisition
Agent for the Lessor under the Agency Agreement.
"Acquisition Date": as to each Phase, as defined in Section
28(c)(i) of the Lease.
"Acquisition Period": a period commencing on the Closing
Date and ending 12 months after the Closing Date.
"Additional Rent": as to any Phase as to which a Progress
Payment Agreement has been executed, as defined in such Progress Payment
Agreement.
"Affiliate": with respect to the Lessor, (i) any Person that,
directly or indirectly, through one or more intermediaries, controls the Lessor
(a "Controlling Person"), (ii) any Person (other than the Lessor or a
Subsidiary) which is controlled by or is under common control with a
Controlling Person, or (iii) any Person (other than a Subsidiary) of which the
Lessor owns, directly or indirectly, 20% of more of the common stock or
equivalent equity interests. As used herein, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agency Agreement": the Acquisition, Agency, Indemnity
and Support Agreement, of even date with the Lease, between the Lessor and the
Lessee, as Acquisition Agent, substantially in the form of Exhibit A to the
Lease, as amended, supplemented or otherwise modified from time to time.
"Applicable Funding Office": for each Participant, the
funding office of such Participant (or an affiliate of such Participant)
designated for any interest of such Participant in Interim Rent or Basic Rent
in the participation agreement with the Lessor or such other offices of such
Participant (or of an
66
<PAGE> 73
affiliate of such Participant) as such Participant may from time to time
specify to the Lessor as the office by which its interest in Interim Rent and
Basic Rent, as applicable, are to be made and maintained.
"Applicable Permit": for each Phase, any Permit that is or
may be necessary to own, renovate, install, start-up, test, maintain, operate,
lease or use all or any part of the Equipment for such Phase or any portion
thereof in accordance with the Operative Documents, and the failure to obtain
or maintain which would have a Material Adverse Effect.
"Applicable Site": with respect to any Phase, the
manufacturing site or facility on which the Equipment subject to this Lease for
such Phase is to be located, as identified in the Lease Supplements pertaining
to such Phase.
"Approved Appraisal": any appraisal, obtained on behalf of
the Lessor by the Acquisition Agent pursuant to the Agency Agreement, but at
the Lessee's cost, from an appraiser or appraisers reasonably acceptable to the
Lessor and the Lessee, which: (i) is performed by an equipment appraiser
experienced in the appraisal of manufacturing equipment similar in type to the
Equipment, (ii) reflects the fair market value of the Equipment for each Phase
as of the end of the Acquisition Period on an "as installed" basis, (iii)
forecasts the Estimated Residual of the Equipment for each Phase as of the end
of each Rental Period for such Phase and (iv) has been approved in all respects
by the Lessor.
"Authorized Officers": relative to the Lessee, the officers
whose signatures and incumbency shall have been certified to the Lessor in a
certificate certified by its Secretary in form and substance satisfactory to
the Lessor.
"Banking Authority": as defined in Section 27(b) of the
Lease.
"Base Rate": for any day, the rate per annum equal to the
higher as of such day of (i) the Prime Rate, and (ii) one-half of one percent
above the Federal Funds Rate. For purposes of determining the Base Rate for any
day, changes in the Prime Rate shall be effective on the date of each such
change.
"Basic Rent": for each Phase, with respect to any Rental
Period, the amounts payable for such Phase as Basic Rent
67
<PAGE> 74
for such Rental Period pursuant to Section 3(b) of the Lease, consisting of the
sum of the Scheduled Payment and either the Floating Rate Payment or, if the
Election has been made, the Fixed Rate Payment.
"Book Net Worth": the book value of the Lessee's and its
Subsidiaries' total assets (exclusive of any indebtedness owned to the Lessee
or its Consolidated Subsidiaries by any affiliates of the Lessee), plus
Convertible Subordinated Debt, minus the Lessee's and its Consolidated
Subsidiaries' total liabilities.
"Book Value": for each Phase, as at any date of determination
with respect to the Equipment for such Phase or any Property comprising or
included in the Equipment for such Phase, the aggregate Funded Amount through
such date of determination to purchase, manufacture, construct, assemble or
install the Equipment for such Phase or any portion thereof.
"Business Day": (a) for all purposes other than as covered by
clause (b) below, any day except Saturday, Sunday or other day on which
commercial banks in Atlanta, Georgia are authorized or required by law or other
government action to close, and (b) with respect to all notices and
determinations in connection with Interim Rental Periods and Rental Periods,
and payments of Interim Rent or Basic Rent, any day that is a Business Day
described in clause (a) above and that is also a day for trading by and between
banks in the London interbank eurodollar market.
"Cancellation Date": as defined in Section 15(b) of the
Lease.
"Cancellation Event": as defined in Section 15(b) of the
Lease, and shall include a Loss Event.
"Capital Stock": any nonredeemable capital stock of the
Lessee or any Consolidated Subsidiary (to the extent issued to a Person other
than the Lessee) whether common or preferred.
"Casualty Occurrence": for each Phase, any of the following
events in respect of the Equipment for such Phase (i) any material loss of the
Equipment for such Phase or material loss of use thereof which does not
constitute a Loss Event, or (ii) the condemnation, confiscation, condemnation
or seizure of, or requisition of title to or use of, any material part of the
68
<PAGE> 75
Equipment for such Phase which action does not constitute a Loss Event.
"CERCLIS": the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to CERCLA.
"Change of Law": as defined in Section 27(b) of the Lease.
"Closing Date": October 20, 1995.
"Code": the Internal Revenue Code of 1986, as amended, and
any successor Federal tax code.
"Collateral": as defined in Section 26 of the Lease.
"Co-Lessee": as defined in Section 21(b) of the Lease.
"Completion": for each Phase, the occurrence and satisfaction
of all of the events and conditions described on Schedule 1.3(b) to the Agency
Agreement on a single date to the reasonable satisfaction of the Lessor.
"Completion Certificate": for each Phase, a certificate of
the Acquisition Agent in substantially the form of Exhibit A to the Agency
Agreement, certifying that Completion of the Equipment for such Phase has
occurred.
"Consolidated Operating Profits": for any period, the
Operating Profits of the Lessee and its Consolidated Subsidiaries.
"Consolidated Subsidiary": a Subsidiary, the accounts of
which are customarily consolidated with those of the Lessee for the purpose of
reporting to stockholders of the Lessee or, in the case of a recently acquired
Subsidiary, the accounts of which would, in accordance with the Lessee's
regular practice, be so consolidated for that purpose.
"Consolidated Total Assets": at any time, the total assets
of the Lessee and its Consolidated Subsidiaries, determined on a consolidated
basis, as set forth or reflected on the most recent consolidated balance sheet
of the Lessee and its Consolidated Subsidiaries, prepared in accordance with
GAAP and
69
<PAGE> 76
delivered to the Lessor pursuant to Section 30(a)(i) or (ii) of the Lease.
"Controlled Group": all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Lessee, are treated as a single
employer under Section 414 of the Code.
"Debt": at any date, without duplication, (i) all obligations
of such Person for borrowed money, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee under capital leases,
(v) all obligations of such Person to reimburse any bank or other Person in
respect of amounts payable under a banker's acceptance, (vi) all Redeemable
Preferred Stock of such Person (in the event such Person is a corporation),
(vii) all obligations of such Person to reimburse any bank or other Person in
respect of amounts paid under a letter of credit or similar instrument, (viii)
all Debt of others secured by a Lien on any asset of such Person, even though
such Debt is not assumed by such Person, (ix) all Debt of others Guaranteed by
such Person, and (x) amounts of any reserves for doubtful accounts recorded on
the books of such Person for leases, receivables and other accounts sold,
factored or otherwise disposed of by such Person; provided, that in no event
shall "Debt" include any Factored Receivables Obligations.
"Default": any condition or event that constitutes an Event
of Default or that with the giving of notice or the lapse of time or both
would, unless cured or waived, become an Event of Default.
"Default Rate": with respect to any amount payable under the
Lease or under any of the other Operative Documents on any day, the sum of 2%
plus the greater of (i) the then highest rate (for determining Interim Rent, or
the Floating Rate or the Fixed Rate, as applicable) that may be applicable to
the amount payable or (ii) if no such rate exists, the Prime Rate in effect
from time to time.
"Designated Event of Default": any of the Events of Default
specified in Section 17(a) of the Lease, other than an
70
<PAGE> 77
Event of Default described in (x) clause (ii) thereof, insofar as it relates to
Section 30(d) of the Lease, and (y) clause (viii) thereof.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Election": for each Phase, as defined in Section 3(b)(i)
of the Lease.
"Election Period": for each Phase, as defined in Section
3(b)(i) of the Lease.
"Environmental Authority": any foreign, federal, state,
local or regional government that exercises any form of jurisdiction or
authority under any Environmental Requirement.
"Environmental Damages": any and all losses, costs, damages,
penalties and expenses which are incurred at any prior or subsequent time as a
result of the existence of Hazardous Materials upon, about or beneath the
Equipment for any Phase or any Applicable Site or migrating or threatening to
migrate to or from the Equipment for any Phase or any Applicable Site or the
existence of a violation of Environmental Requirements pertaining to the
Equipment for any Phase or any Applicable Site, regardless of whether the
existence of such Hazardous Materials or the violation of Environmental
Requirements arose prior to the present ownership or operation of the Equipment
for any Phase or any Applicable Site.
"Environmental Judgments and Orders": all judgments, decrees
or orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent or written agreements with an
Environmental Authority or other entity arising from or in any way associated
with any Environmental Requirement, whether or not incorporated in a judgment,
decree or order.
"Environmental Liabilities": any liabilities, whether
accrued, contingent or otherwise, arising from and in any way associated with
any Environmental Requirements.
"Environmental Notices": notice from any Environmental
Authority of possible or alleged noncompliance with or liability under any
Environmental Requirement, including without limitation any complaints,
citations, demands or requests from any
71
<PAGE> 78
Environmental Authority for correction of any violation of any Environmental
Requirement or any investigations concerning any violation of any Environmental
Requirement.
"Environmental Proceedings": any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases": any actual or threatened spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of a Hazardous Material into the
environment, including, but not limited to any releases defined in CERCLA or
under any state or local environmental law or regulation.
"Environmental Requirements": any and all federal, state,
local, and foreign laws, statutes, ordinances, orders, codes, rules,
regulations, policies, guidance documents, judgments, decrees, injunctions,
decisions, determinations, or agreements by any judicial, legislative or
executive body of any governmental or quasi-governmental entity, whether in the
past, the present or the future, with respect to: (1) the protection of the
environment; (2) the existence, handling, use, generation, treatment, storage,
packaging, labelling, removal or Environmental Release of Hazardous Materials
on, under, about and/or from the Equipment or Applicable Site for any Phase;
and (3) the effects on the environment of the Equipment or Applicable Site for
any Phase or of any activity now, previously, or hereinafter conducted on the
Equipment or Applicable Site for any Phase. The Environmental Requirements
shall include, but not be limited to, the following: the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.ss. 9601,
et seq.)("CERCLA"); the Superfund Amendments and Reauthorization Act, Public
Law 99-499, 100 Stat. 1613; the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. ss.ss.
2601, et seq.; the Federal Water Pollution Control Act, 33 U.S.C. ss.ss. 1251,
et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401, et seq.; the state and local
analogies thereto, all as amended or superseded from time to time; and any
common-law doctrine, including but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of the
presence, Environmental Release or exposure to a Hazardous Material.
"Equipment": individually, as to each Phase, the Equipment
described in each Lease Supplement pertaining to such
72
<PAGE> 79
Phase, together with all plans, specifications, warranties and related rights
and operating, maintenance and repair manuals related thereto and all
replacements of any of the foregoing, and collectively, all such Equipment.
"Equipment Cost": with respect to each Phase, an aggregate
amount equal to the sum of (i) all costs associated with the Lessor's
acquisition of title to the Equipment for such Phase, (ii) all of the Soft
Costs incurred in connection with such Phase and (iii) all Interim Rent accrued
prior to the Phase Completion Date for such Phase.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor law and the regulations
promulgated and rulings issued from time to time thereunder. Any reference to
any provision of ERISA shall also be deemed to be a reference to any successor
provision or provisions thereof.
"Estimated Residual": the estimated fair market value of the
Equipment for each Phase as of the end of each Rental Period for such Phase, as
set forth on Schedule 3(b) to the Lease, as it may be modified pursuant to
Section 3(b) of the Lease as a result of an Approved Appraisal.
"Eurocurrency Liabilities": as defined in Regulation D of the
Board of Governors of the Federal Reserve System, as in effect from time to
time.
"Eurodollar Reserve Requirement": any reserve requirement
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for a member bank of the Federal Reserve System in respect of
"Eurocurrency liabilities" (or in respect of any other category of liabilities
which includes deposits by reference to which the interest rate on loans made
at the LIBO Rate) is determined or any category of extensions of credit or
other assets.
"Event of Default": as defined in Section 17 of the Lease.
"Existing Term Loan Agreement" means the Term Loan Agreement
between Wachovia and the Lessee dated July 1, 1995.
"Factored Receivables Obligations": any recourse or
non-recourse obligation, guarantee or other contractual
73
<PAGE> 80
undertaking of the Lessee or any Subsidiary arising in connection with the
sale, factoring or other disposition of leases, receivables or other accounts,
if such sale, factoring or disposition, whether with or without recourse, is
for a fair price (on the basis of the face amount of the respective item, on
the basis of the present value or its income stream or on the basis of another
arms' length determination) together with the interests of the seller of such
lease, receivable or other account in the equipment or other property related
to such lease, receivable or other account, and not at a distress sale or other
"deep" discount.
"Federal Funds Rate": for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day, and
(ii) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Lessor on such day on such
transactions, as determined by the Lessor.
"Final Rent Payment": for each Phase, an amount determined as
of the date payment thereof is required equal to the sum of (i) the Recourse
Amount for such Phase, plus (ii) all other amounts owing by the Lessee under
the Operative Documents (including in any event all unpaid Impositions accrued,
arising or payable in connection with the Equipment for such Phase or otherwise
pursuant to the Lease through or as at the end of the Lease Term, and all
unpaid Supplemental Rent, but excluding in any event the Non-Recourse Amount).
"Fiscal Quarter": any fiscal quarter of the Lessee.
"Fiscal Year": any fiscal year of the Lessee.
"Fixed Rate": with respect to Basic Rent for each Phase, if
the Election has been made for such Phase, for each Rental Period, a rate per
annum equal to the sum of (i) the prevailing 5 year U.S. Treasury Rate as
defined on page 500 of the Telerate Screen at 11:00 A.M., Atlanta time, on the
date of the Election for such Phase, plus (ii) the lesser of (A) the
74
<PAGE> 81
corresponding ask side of the 5 year swap rate as defined on page 19901 of the
Telerate Screen at 11:00 A.M., Atlanta time, on such date, and (B) 0.55%, plus
(ii) 0.45%.
"Fixed Rate Payment": for each Phase, as defined in Section
3(b)(ii) of the Lease.
"Floating Rate": with respect to Basic Rent for each Phase,
if the Election has not been made or become effective for such Phase, for each
Rental Period, a rate per annum equal to the sum of (i) the LIBO Rate
prevailing on the first day of such Rental Period, plus (ii) 0.45%.
"Floating Rate Payment": for each Phase, as defined in
Section 3(b)(i) of the Lease.
"Funded Amount": for each Phase, the aggregate amount of
Equipment Cost for such Phase, accrued and unpaid Rent for such Phase and all
other amounts owed by the Lessee to the Lessor with respect to such Phase
pursuant to this Lease or any other Operative Document.
"GAAP": generally accepted accounting principles in the
United States of America as in effect from time to time; provided that for
purposes of determining compliance with the terms of the Lease, the Lessee and
the Lessor agree that in the event of any change in GAAP from that in effect on
the date of the financial statements referred to in Section 30(a) of the Lease
which has the effect of weakening the protection afforded the Lessor by the
Lessee's covenants in the Lease, the Lessee and the Lessor shall amend the
Lease and such covenants in order to provide the Lessor an equivalent level of
protection, in a manner satisfactory to the Lessor.
"Governmental Authority": to include the country, state,
county, city and political subdivisions in which any Person or any such
Person's property is located or that exercises valid jurisdiction over any such
Person or any such Person's property, and any court, agency, department,
commission, board, bureau or instrumentality of any of them including monetary
authorities that exercise valid jurisdiction over any such Person or any such
Person's property. Unless otherwise specified, all references to Governmental
Authority herein shall mean a Governmental Authority having jurisdiction over,
where applicable, the Lessee, any Applicable Site, the Equipment for
75
<PAGE> 82
any Phase, the Lessee, any Participant, any Applicable Funding Office or any
Operative Document.
"Governmental Requirement": any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other direction or
requirement (whether or not having the force of law), including, without
limitation, Environmental Requirements, and occupational, safety and health
standards or controls, of any Governmental Authority.
"Guarantee": with respect to any Person, any obligation,
contingent or otherwise, of such Person directly or indirectly guaranteeing any
Debt or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to secure, purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to provide collateral security,
to take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the obligee
of such Debt or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part), provided that
the term Guarantee shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hazardous Materials": to include, without limitation, (a)
solid or hazardous waste, as defined in the Resource Conservation and Recovery
Act of 1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and
amendments, or in any applicable state or local law or regulation, (b)
"hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or
in any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof,
(d) toxic substances, as defined in the Toxic Substances Control Act of 1976,
or in any applicable state or local law or regulation, (e) insecticides,
fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide,
and Rodenticide Act of 1975, or in any applicable state or local law or
regulation, as each such Act, statute or regulation may be amended from time to
time, or (f) any toxic or hazardous materials, wastes, polychlorinated
76
<PAGE> 83
biphenyls ("PCBs"), lead-containing materials, urea formaldehyde, radioactive
materials, pesticides, the discharge of sewage or effluent, or any other
materials or substances defined as or included in the definition of "hazardous
materials," "hazardous waste," "contaminants" or similar terms under any
Environmental Requirement.
"Highest Lawful Rate": with respect to the Lessor, the
maximum non-usurious interest rate or yield, as applicable, if any, that at any
time or from time to time may be contracted for, taken, reserved, charged or
received with respect to any amounts owing hereunder under laws applicable to
the Lessor which are presently in effect or, to the extent allowed by law,
under such applicable laws which may hereafter be in effect and which allow a
higher maximum non-usurious interest rate than applicable laws now allow.
"Impositions": without duplication, as to any Person, (i) all
taxes, assessments, levies, fees, inspection fees and other authorization fees
and all other governmental charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, of every character (including all
penalties and interest thereon) that, at any time prior or subsequent to the
Closing Date, are imposed or levied upon or assessed against or may be or
constitute a Lien upon such Person or such Person's Property, or that arise in
respect of the ownership, operation, possession, use, non-use, condition,
leasing or subleasing of such Person's Property; (ii) all charges, levies,
fees, rents or assessments for or in respect of utilities, communications and
other services rendered or used on or about such Person's Property; (iii)
payments required in lieu of any of the foregoing; but excluding any penalties
or fines imposed on the Lessor for violation by it of any banking laws or
securities law; and (iv) any and all taxes, recording fees and other charges
(including penalties and interest) relating to or arising out of the execution,
delivery or recording of any of the Operative Documents for the amounts
evidenced, secured or referred to be paid thereby, including without
limitation, documentary stamp taxes, intangible taxes, recording fees and
sales, rent and other Taxes.
"Indemnified Party": as defined in Section 31(k)(i) of the
Lease.
"Indemnified Risks": as defined in Section 31(k)(i) of the
Lease.
77
<PAGE> 84
"Insurance Requirements": all terms of any insurance policy
(including, without limitation, casualty and general liability) covering or
applicable to the Equipment for any Phase or any portion thereof maintained in
accordance with Section 14 of the Lease, and all requirements of the issuer of
any such policy.
"Interim Rent": for each Phase, with respect to any Interim
Rental Period, the amounts payable for such Phase as Interim Rent for such
Interim Rental Period pursuant to Section 3(a) of the Lease.
"Interim Rental Period": with respect to Interim Rent
pertaining to any Phase, the period beginning on the Phase Commencement Date
for such Phase and ending on the numerically corresponding date (or, if
applicable, last calendar date) which is either one, two or three months
thereafter, as selected by the Lessee upon at least 3 Business Days notice and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interim Rental Period and ending on the numerically
corresponding date (or, if applicable, last calendar date) which is either one,
two or three months thereafter, as selected by the Lessee upon at least 3
Business Days notice; provided, however, that:
(i) no Interim Rental Period may be selected which commences
before the Phase Completion Date and would otherwise end after the
Phase Completion Date;
(ii) if the last day of such Interim Rental Period would
otherwise occur on a day which is not a Business Day, such last day
shall be extended to the next succeeding Business Day, except if such
extension would cause such last day to occur in a new calendar month,
then such last day shall occur on the next preceding Business Day.
"Judgment": any judgement, decree, writ, order, rule or other
requirement of any arbitrator or any court, tribunal or other Governmental
Authority.
"Lease": the Master Lease Agreement to which this Schedule
1(b) is attached (as the same may be amended, modified or supplemented from
time to time, between the Lessee and the Lessor.
"Lease Commencement Date": the Closing Date.
78
<PAGE> 85
"Lease Addition Date": with respect to the Equipment for any
Phase, the date of satisfaction of the conditions set forth in Section 28(c) of
the Lease with respect thereto.
"Lease Supplement" with respect to each Phase, a Lease
Supplement in substantially the form of Exhibit C to the Lease, and containing
the information required thereby.
"Lease Term": for each Phase, the period of time commencing
on the Phase Commencement Date for such Phase and ending on the Lease
Termination Date for such Phase.
"Lease Termination Date": for each Phase, the earlier
to occur of (i) the Option Date for such Phase, (ii) the Cancellation Date
(iii) the date of termination for such Phase as a result of a Termination Event
and (iv) the Scheduled Lease Termination Date for such Phase.
"Lessee": Flowers Industries, Inc., a Georgia corporation,
together with its successors and permitted assigns.
"Lessor": Wachovia Leasing Corporation, a North Carolina
corporation, together with its successors and permitted assigns.
"LIBO Rate": with respect to any Interim Rent or Basic Rent
for the applicable Interim Rental Period or Rental Period therefor, the rate
per annum determined on the basis of the offered rate for deposits in Dollars
of amounts equal or comparable to the amount of such Interim Rent or Basic Rent
offered for a term comparable to such Interim Rental Period or Rental Period,
which rates appear on the Reuters Screen LIBO Page as of 11:00 A.M., London
time, two Business Days prior to the first day of such Interim Rental Period or
Rental Period, provided that (i) if more than one such offered rate appears on
the Reuters Screen LIBO Page, the "LIBO Rate" will be the arithmetic average of
such offered rates; (ii) if no such offered rates appear on such page, the
"LIBO Rate" for such Interim Rental Period or Rental Period will be the
arithmetic average (rounded upward, if necessary, to the next higher 1/100th of
1%) of rates quoted by not less than two major banks in New York City, selected
by the Lessee, at approximately 10:00 A.M., New York City time, two Business
Days prior to the first day of such Interim Rental Period or Rental Period, for
deposits in Dollars offered to leading European banks for a period comparable
to such
79
<PAGE> 86
Interim Rental Period or Rental Period in an amount comparable to the amount of
such Interim Rent or Basic Rent.
"Lien": with respect to any asset, any mortgage, deed to
secure debt, deed of trust, lien, pledge, charge, security interest, security
title, preferential arrangement which has the practical effect of constituting
a security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of a Debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law, or by
any agreement, contingent or otherwise, to provide any of the foregoing. For
the purposes of this definition, the Lessee or any Subsidiary shall be deemed
to own subject to a Lien any asset which it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
Notwithstanding the foregoing, in no event shall any of the following be deemed
to be a "Lien" on any assets or other properties of any Person: (1) filings of
financing statements in respect of operating leases of such Person, sales of
(and not merely security interests in) leases, receivables and other accounts
and of the equipment or other property related to such accounts, and other
similar filings of a precautionary nature, (2) the interest of a lessee in the
property subject to a lease under which such Person is the lessor, or (3) the
interest of the purchaser or factor of leases, receivables or other accounts of
such Person in the leases, receivables or accounts sold, factored or otherwise
disposed of, or in the related equipment or other property that is the subject
of such lease, receivable or account, even if described as a Lien in the
instrument pursuant to which such sale, factoring or other disposition is
effected.
"Loss Event": for each Phase, any of the following events in
respect of the Equipment for such Phase: (i) the total loss of the Equipment
for such Phase or the total loss of use thereof due to theft, disappearance,
destruction, damage beyond repair or rendition of the Equipment for such Phase
permanently unfit for normal use for any reason whatsoever; (ii) any damage to
the Equipment for such Phase which results in an insurance settlement with
respect to the Equipment for such Phase on the basis of a total loss; (iii) the
permanent condemnation, confiscation or seizure of, or requisition of title to
or use of, all or substantially all of the Equipment for such Phase including,
but not limited to, a permanent taking by eminent domain of such scope that the
untaken portion of the Equipment
80
<PAGE> 87
for such Phase is insufficient to permit the restoration of the Equipment for
such Phase for such Phase for continued use in the Lessee's business or that
causes the remaining portion of the Equipment for such Phase to be incapable of
being restored to a condition that would permit the remaining portion of the
Equipment for such Phase (without the portion of the Equipment for such Phase
taken by eminent domain) to continue to have the capacity and functional
ability to perform on a continuing basis (subject to normal interruptions in
the ordinary course of business for maintenance, inspection, service, repair
and testing) and in commercial operation, the function for which the Equipment
for such Phase (as a whole) was designed or a temporary taking of such nature
for a period exceeding 180 consecutive days; or (iv) the occurrence of any
event or the discovery of any condition in, on, beneath or involving the
Equipment for such Phase or any portion thereof (including, but not limited to
the presence of hazardous substances or the violation of any applicable
Environmental Requirement) that would have a material adverse effect on the
use, occupancy, possession, condition, value or operation of the Equipment for
such Phase or any portion thereof, which event or condition requires
remediation (A) the cost of which is anticipated, in the opinion of the Lessor,
in consultation with an independent environmental engineering firm, to exceed
16% of the Termination Value, and (B) that could not reasonably be expected to
be completed substantially in its entirety prior to the date that is 30 days
prior to the Scheduled Lease Termination Date for such Phase or is not actually
completed substantially in its entirety on or before the date that is 30 days
prior to the Scheduled Lease Termination Date for such Phase.
"Margin Stock": "margin stock" as defined in Regulations
U or G of the Board of Governors of the Federal Reserve System, as in effect
from time to time.
"Material Adverse Effect": with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
financial condition, operations, business, or properties which are central to
the business at such time, of the Lessee and its Consolidated Subsidiaries
taken as a whole, (b) the ability of the Lessee (in its capacity as such or
81
<PAGE> 88
in its capacity as Acquisition Agent) to perform its respective obligations
under the Operative Documents to which it is a party, as applicable, (c) the
legality, validity or enforceability of any Operative Document, or (d) the use,
possession, condition, value or operation of the Equipment for any Phase.
"Material Subsidiary": as of each date of determination, any
Consolidated Subsidiary (i) whose consolidated total assets exceed 5% of
Consolidated Total Assets or (ii) whose consolidated total revenues exceed 5%
of the consolidated revenues of the Lessee and its Consolidated Subsidiaries
determined in accordance with GAAP as of the last day of the Fiscal Quarter of
the Lessee most recently ended as of such date of determination and for which
financial statements have been delivered to the Lessor pursuant to Section
30(a)(i) and (ii) of the Lease.
"Non-Completion Event": as to any Phase, the failure of
Completion to occur on or before the earlier of (i) the date which is six
months after the Phase Commencement Date for such Phase and (ii) the last day
of the Acquisition Period.
"Non-Designated Event of Default": any Event of Default
other than a Designated Event of Default.
"Non-Recourse Amount": for each Phase, means at any time an
amount equal to 16.0% of the aggregate original Equipment Cost for such Phase,
as such amount may be modified pursuant to Section 3(b) of the Lease as a
result of an Approved Appraisal.
"Operative Documents": collectively, the Lease, the Agency
Agreement, each Progress Payment Agreement and any and all other agreements or
instruments now or hereafter executed and delivered, or required to be executed
and delivered, by the Lessor or the Lessee in connection with the Lease or the
Agency Agreement, as such agreements or instruments may be amended,
supplemented, renewed, extended, increased or otherwise modified from time to
time.
"Operating Profits": as applied to any Person for any period,
the operating income of such Person for such period, as determined in
accordance with GAAP.
"Option Date": as defined in Section 15(c) of the Lease.
82
<PAGE> 89
"Participant": as defined in Section 21(d) of the Lease,
collectively, as the context shall require, "Participants".
"PBGC": the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permit": any approval, consent, waiver, exemption, variance,
franchise, order, permit, authorization, right or license of or from any
Governmental Authority or other Person.
"Permitted Insurers": insurers with ratings of A or better
and Class VIII or better according to Best's Insurance Reports, or other
insurers acceptable to the Lessor.
"Permitted Liens": (i) with respect to any Property other
than the Equipment, any of the Liens permitted by the terms of Section 30(q),
and (ii) with respect to the Equipment or any Property included in or
comprising the Equipment or any portion thereof, any of the following:
(a) rights reserved to or vested in any Governmental
Authority by the terms of any right, power, franchise, grant, license,
permit or provision of law affecting the Equipment to (1) terminate,
or take any other action which has the effect of modifying, such
right, power, franchise, grant, license, permit or provision of law,
provided that such termination or other action, when taken, shall not
have resulted in a Loss Event and shall not have had a Material
Adverse Effect, or (2) purchase, condemn, appropriate or recapture, or
designate a purchaser of, the Equipment;
(b) any Liens thereon for Impositions and any Liens of
mechanics, materialmen and laborers for work or services performed or
materials furnished which (1) are not overdue, or (2) are being
contested in good faith in the manner described in Section 13 of the
Lease;
(c) rights reserved to or vested in any Governmental
Authority to control or regulate the use of such Property or
to use the Equipment in any manner;
(d) in the case of real property, encumbrances, easements,
and other similar rights existing on the Closing
83
<PAGE> 90
Date the exercise of which shall not have had a Material Adverse
Effect;
(e) any Liens created under the Operative Documents and any
financing statements filed in connection therewith
(f) pledges or deposits to secure non-delinquent obligations
under worker's compensation, unemployment insurance and other social
security legislation; and
(g) Liens arising from legal proceedings, so long as such
proceedings are being contested in good faith by appropriate
proceedings diligently conducted and so long as execution is stayed on
all judgments resulting from any such proceedings.
"Permitted Use": with respect to the Equipment as to any
Phase, the use of the Equipment in connection with its manufacturing operations
on the Applicable Site for such Phase in compliance with all applicable
Governmental Requirements and Insurance Requirements, the failure of which to
comply would have or cause a Material Adverse Effect.
"Person": an individual, a corporation, a partnership,an
unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or other
Governmental Authority.
"Phase": the acquisition and installation of any and all
Equipment that is to be subject to this Lease and located at a single Applicable
Site.
"Phase Commencement Date": as defined in Section 28(b)of the
Lease.
"Phase Completion Date": with respect to each Phase, the
earlier to occur of (i) Completion of such Phase, (ii) the date which is six
months after the Phase Commencement Date for such Phase, and (iii) the last day
of the Acquisition Period.
"Plan": at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or (ii)
maintained pursuant to
84
<PAGE> 91
a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which a member of the Controlled
Group is then making or accruing an obligation to make contributions or has
within the preceding 5 plan years made contributions but shall not include any
plan which is maintained under the laws of Puerto Rico, is covered by Section
4(b)(4) of ERISA, or is unfunded and maintained primarily for the purpose of
providing deferred compensation for a select group of management, key
executives or highly compensated employees.
"Prime Rate": that rate of interest so denominated and set by
Wachovia from time to time as an interest rate basis for borrowings. The Prime
Rate is but one of several interest rate bases used by Wachovia, and is set by
Wachovia as a general reference rate of interest, taking into account such
factors as Wachovia may deem appropriate, it being understood that many of
Wachovia's commercial or other loans are priced in relation to such rate, that
it is not necessarily the lowest or best rate actually charged to any customer
and that Wachovia may make various commercial or other loans at rates of
interest having no relationship to such rate.
"Progress Payment Agreement": an agreement substantially in
the form of Exhibit E, as amended, supplemented or otherwise modified from time
to time, which may be executed as to any one, more or all Phases pursuant to
Section 3(a) of the Lease.
"Property": any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, and any interest therein.
"Purchase Closing Date": as defined in Section 15(e) of the
Lease.
"Qualified Replacement Term Loan Agreement" means: (i)
either (x) any amendment, renewal or extension of the Existing Term Loan
Agreement or (y) any other term loan agreement between Wachovia and the Lessee,
the proceeds of which are used to refinance the Existing Term Loan Agreement;
and (ii) in either case, which has a final maturity no earlier than the latest
Scheduled Lease Termination Date for any Phase, as it may be amended, renewed
or extended from time to time (so long as the foregoing clause (ii) is
satisfied).
85
<PAGE> 92
"Recourse Amount": for each Phase, means at any time the
excess of (i) the Unrecovered Equipment Cost for such Phase over (ii) the
Non-Recourse Amount for such Phase.
"Redeemable Preferred Stock": of any Person means any
preferred stock issued by such Person which is at any time prior to the
Scheduled Lease Termination Date for the Phase having the latest Acquisition
Date during the Acquisition Period either (i) mandatorily redeemable (by
sinking fund or similar payments or otherwise) or (ii) redeemable at the option
of the holder thereof.
"Related Contract": for each Phase, any agreement for the
purchase, manufacture, assembly, or installation of the Equipment for such
Phase or any portion thereof or the provision of enhancements and improvements
to the Equipment for such Phase or any portion thereof or otherwise in
connection with the acquisition, ownership, use, operation or sale or other
disposition of the Equipment for such Phase or any portion thereof made
pursuant to the Agency Agreement by the Lessee as Acquisition Agent on behalf
of the Lessor, with one or more Vendors, including, without limitation, all
contracts, bills of sale, receipts and Vendor's warranties.
"Rent": Basic Rent, Interim Special Rent, Supplemental Rent
and the Final Rent Payment, collectively.
"Rental Period": with respect to Basic Rent pertaining to any
Phase, the period beginning on the Phase Completion Date for such Phase and
ending on the first Rent Payment Date occurring after the Phase Completion Date
and, thereafter, each subsequent period commencing on each Rent Payment Date
and ending on the next Rent Payment Date or on the Lease Termination Date for
such Phase.
"Rent Payment Date": with respect to Basic Rent pertaining to
any Phase, each March 31st, June 30th, September 30th and December 31st of each
year, commencing on the first such date occurring after the Phase Commencement
Date for such Phase, and the Lease Termination Date for such Phase.
"Restoration Account": for any Phase, the interest bearing
account maintained with the Lessor pursuant to Section 14(e) of the Lease and
styled the "Restoration Account" for such Phase.
86
<PAGE> 93
"Scheduled Amount": with respect to each Phase, as defined
in Section 3(b)(i) of the Lease.
"Scheduled Lease Termination Date": with respect to each
Phase, the date that is seven (7) years after the Phase Completion Date for
such Phase.
"Scheduled Payment": with respect to each Phase, as defined
in Section 3(b)(i) of the Lease.
"Secured Party": as defined in Section 26 of the Lease.
"Soft Costs": with respect to each Phase, all of the
capitalized costs and expenses of any kind or character incurred to design,
install, complete and implement the Equipment for such Phase, including,
without limitation, all professional fees and expenses, and other "soft costs"
of a nature ordinarily and reasonably incurred in connection with the
installation, completion and implementation of the Equipment for such Phase.
"Sublessee": as defined in Section 21(c) of the Lease.
"Subsidiary": any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Lessee.
"Supplemental Rent": as defined in Section 3(d) of the
Lease.
"Tangible Net Worth": Book Net Worth minus (i) the amount, if
any, of the Lessee's and its Subsidiaries' assets which would be treated as
intangible under GAAP, (ii) any write up in the book value of any fixed asset
resulting from re-evaluation thereof, and (iii) the amount, if any, at which
share of the Lessee appears on the asset side of the Lessee's balance sheet.
"Taxes": any taxes, imposts, levies, duties, deductions or
withholdings of any nature now or at any time hereafter imposed by any
Governmental Authority or by any taxing authority thereof or therein imposed or
levied upon, assessed against or measured by any Rent or other sums payable
hereunder.
87
<PAGE> 94
"Termination Event": as defined in Section 15(a) of the
Lease.
"Termination Value": as to any Phase, at any time of
determination, the sum of (i) the excess of (a) the aggregate Equipment Cost
for all Equipment allocable to such Phase over (b) the sum of all Scheduled
Payments for such Phase theretofore made to the Lessor, if any, plus (ii) all
accrued, unpaid Interim Rent Payments, Floating Rate Payments and, if
applicable, Fixed Rate Payments for such Phase, all accrued and unpaid
Supplemental Rent through the date of payment of the Termination Value, plus
(iii) all unpaid Impositions through the date of payment of the Termination
Value, plus, (iv) any amounts payable pursuant to Section 27(e)(i) hereof in
connection with the payment of Termination Value, plus (v) as to any Phase as
to which Completion has not occurred, the sum of (a) the aggregate amount of
costs (including acquisition costs and Soft Costs) which it will be necessary
to expend in order to achieve Completion for such Phase plus (b) all
Impositions thereon.
"Third Party": any Person other than (i) the Lessor, (ii)
the Lessee or (iii) any Affiliate of either of them.
"Unrecovered Equipment Cost": for each Phase, means at any
time the sum of (i) the aggregate original Equipment Cost for such Phase, less
(ii) the aggregate amount of Scheduled Payments for such Phase received by the
Lessor.
"UCC": the Uniform Commercial Code as enacted in the State
of Georgia and any other jurisdiction whose laws may be mandatorily applicable.
"Vendor": any designer, supplier, manufacturer or installer
of, or provider of Property or services with respect to, the Equipment or any
Property included therein or any part thereof.
"Wachovia": Wachovia Bank of Georgia, N.A., a national
banking association, in its individual capacity, and its successors.
88
<PAGE> 95
SCHEDULE 3(b)
Scheduled Amounts
<TABLE>
<CAPTION>
Rental Estimated Scheduled
Period Residual Amount as a
percentage
of Equipment
Cost
<S> <C> <C>
1 100.00% 0.00%
2 97.22% 2.28%
3 95.50% 2.22%
4 93.28% 2.22%
5 91.06% 2.22%
6 88.84% 2.22%
7 86.62% 2.22%
8 84.40% 2.22%
9 82.18% 2.22%
10 79.96% 2.22%
11 77.74% 2.22%
12 75.52% 2.22%
13 73.30% 2.22%
14 71.08% 2.22%
15 68.86% 2.22%
16 66.64% 2.22%
17 64.42% 2.22%
18 62.20% 2.22%
19 59.98% 2.22%
20 57.76% 2.22%
21 55.54% 2.22%
22 53.32% 2.22%
23 51.10% 2.22%
24 48.88% 2.22%
25 46.66% 2.22%
26 44.44% 2.22%
27 42.22% 2.22%
28 40.00% 2.22%
</TABLE>
89
<PAGE> 96
SCHEDULE 14
Insurance Requirements
The Lessee will provide, or cause to be provided, insurance in
accordance with the terms of this Schedule as to each Phase, which insurance
shall be placed and maintained with Permitted Insurers.
(a) Insurance Coverages and Limits
At all times subsequent to the Phase Commencement Date for such Phase,
the Lessee shall provide, or cause to be provided, the following property and
liability coverages with respect to the Equipment:
(i) all-risk property coverage, with limits of coverage at
least equal to the replacement cost (which limits shall be not less
than $_____________ for the Equipment, which insurance coverage may,
at the Lessee's option, be included under any "blanket" policy
maintained by Guarantor so long as such "blanket" policy provides for
all-risk property coverage with respect to the Equipment and any other
Property covered thereby, with limits of coverage at least equal to
the aggregate replacement cost of the Equipment (provided, however,
that such insurance, in either case, shall provide for replacement
cost coverage, provided that the insured property is replaced, and,
provided further, that the insurance shall not have the effect of
causing the Lessee or any of its Affiliates to be deemed a
co-insurer), with respect to the Lessee and any Affiliate of the
Lessee providing services with respect to the Equipment, or if the
Lessee elects to effect the coverage required by this Paragraph under
a "blanket" policy, the Lessee, Guarantor and its Affiliates insured
thereby, such insurance to include, coverage for (x) floods,
windstorms, hurricanes, tornados, earthquakes, collapse and other
perils (including debris removal and cleanup) and such insurance to
cover equipment separated from the Equipment, transit of equipment and
consumables to and from the Applicable Site, labor claims, in each
case with respect to the Equipment, and such insurance to include
coverage for all other risks and occurrences customarily included
under all-risk policies available with respect to Property similar in
installation, location and operation to the Equipment (or the
Equipment
90
<PAGE> 97
and all other Property insured thereby if all are covered under a
"blanket" policy), and (y) "boiler and machinery" property damage
insurance on a comprehensive basis with respect to damage to the
machinery, plants, equipment or similar apparatus (including
production machinery) included in the Equipment (or the Equipment and
all other Property insured thereby if all are covered under a
"blanket" policy), from risks and in amounts normally insured against
under machinery policies.
(ii)
(1) statutory workers' compensation and occupational
disease insurance in accordance with applicable state and
federal law, and employer's liability insurance with primary
and excess coverage limits of not less than $____________;
(2) commercial general liability insurance covering
operations of the Lessee, contractual liability coverage,
contingent liability coverage arising out of the operations
of the Equipment, cross-liabilities coverage, sudden and
accidental seepage and pollution coverage, and other coverage
for hazards customarily insured with respect to Property
similar in construction, location, occupancy and operation to
the Equipment, with limits complying with the underlying
requirements of the excess liability policy described in
Paragraph (a)(ii)(3);
(3) excess commercial liability insurance in excess
of the liability policies described in Paragraphs (a)(ii)(1)
and (2) to bring to limits of not less than $______________
for each occurrence and in the aggregate per year with
respect to the Lessee, Guarantor and its Affiliates.
(iii) The policy or policies providing the coverage required
by paragraphs (a)(i) and (a)(ii)(2) and (a)(ii)(3) may include
deductible amounts for the account of the Lessee or its Affiliates, as
the case may be, not to exceed $_____________ in the aggregate for all
such coverages.
(b) Insurance Endorsements - Any insurance carried in accordance
herewith shall, except as hereinafter permitted, provide or be endorsed to
provide that:
91
<PAGE> 98
(i) the Lessor, as its interests may appear, shall be
included as additional insureds or named as loss payees but only with
respects coverages required by Paragraphs (a)(i), with the
understanding that any obligation imposed upon the insured (including,
without limitation, the liability to pay premiums) under any policy
required by this Schedule shall be the obligation of the Lessee and
its Affiliates) and not that of the Lessor;
(ii) except with respect to the coverage required by
Paragraphs (a)(i) and (a)(ii), there shall be a cross-liability and
severability of interest endorsement providing that to the extent the
policy is written to cover more than one insured, all terms,
conditions, insuring agreements and endorsements, with the exception
of limits of liability and deductibles shall operate in the same
manner as if there were a separate policy covering each insured;
(iii) the insurer thereunder waives all rights of subrogation
against the Lessor;
(iv) such insurance shall be primary without right of
contribution of any other insurance carried by or on behalf of the
Lessor with respect to its interests in the Equipment; and
(v) if such insurance is cancelled for any reason whatsoever
(including, without limitation, nonpayment of premium) or any material
change is made in the coverage that affects the interests of the
Lessor, such cancellation or change shall not be effective as to the
Lessor for 10 days for nonpayment of premiums and otherwise for 45
days, in both cases after receipt by the Lessor (at the address
provided pursuant to Section 22 of the Lease) of written notice sent
by certified mail from such insurer of such cancellation or change.
(c) Adjustment of Property Losses - After the occurrence and during
the continuation of an Event of Default or after the occurrence of a
Cancellation Event or Termination Event, the loss, if any, under any property
insurance covering the Equipment required to be carried by this Schedule shall
be adjusted with the insurance companies or otherwise collected, including,
without limitation, the filing of appropriate proceedings, by the Lessee in
consultation with the Lessor.
92
<PAGE> 99
(d) Reinstatement of Limits - The Lessee shall, or shall cause its
insurance broker to, notify promptly the Lessor at any time when the limits of
the excess commercial liability insurance required by Paragraph (a)(ii)(3)
shall have been reduced, either by reason of payments of, or the establishment
of reserves for the ultimate payment of, claims which have been asserted during
the term of such insurance, by an aggregate amount in excess of $____________.
At such time, the Lessee shall, if so requested by the Lessor, use its best
efforts to reinstate such insurance so as to comply with the requisite limits
prescribed herein.
(e) Upon request, the Lessee will furnish the Lessor evidence of such
insurance relating to the Equipment.
(f) Additional Insurance by the Lessor or the Lessee Nothing in this
Schedule shall prohibit the Lessor or the Lessee, as their respective interests
may appear, from maintaining for its own account, at the expense of the Person
purchasing such insurance, additional insurance on or with respect to the
Equipment, or any part thereof, with coverage exceeding that otherwise required
under this Schedule, unless such insurance would conflict with or limit the
insurance otherwise required under this Schedule.
93
<PAGE> 100
EXHIBIT A
ACQUISITION, AGENCY, INDEMNITY AND
SUPPORT AGREEMENT
Between
FLOWERS INDUSTRIES, INC.
and
WACHOVIA LEASING CORPORATION
Dated as of October 20, 1995
94
<PAGE> 101
ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT dated as of
October 20, 1995 (as it may be amended or supplemented from time to time, this
"Agreement"), by and between FLOWERS INDUSTRIES, INC., a Georgia corporation
(the "Company"), and WACHOVIA LEASING CORPORATION, a North Carolina corporation
(the "Lessor"). All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in Schedule 1(b) to
that certain Master Lease Agreement dated of even date herewith (as amended,
supplemented or otherwise modified, the "Lease") by and between the Company, in
its capacity as the Lessee, and the Lessor, in its capacity as the Lessor.
RECITALS
A. Pursuant to the Lease, the Company, in its capacity as the
Lessee, has agreed to lease the Equipment for all Phases for the Permitted Use
in accordance with the terms and conditions set forth in the Lease.
B. To induce the Lessor to enter into the Lease and the other
Operative Documents, the Company has agreed to provide, or cause to be
provided, to the Lessor all the rights, services, and other matters as may be
necessary from time to time for the design, acquisition, installation,
assembly, maintenance and operation of the Equipment, and has agreed to
indemnify the Lessor for certain environmental and other risks relating to the
Equipment, all as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound by this Agreement, the Company and the Lessor hereby agree as
follows:
ARTICLE I.
Agency Appointment
Section A. Appointment of Acquisition Agent. The Lessor hereby
appoints the Acquisition Agent as its agent and attorney-in-fact with respect
to each Phase (the Company in such capacity is herein called the "Acquisition
Agent"), and the Acquisition Agent hereby agrees to act as the Lessor's agent
and attorney-in-fact, to perform certain of the obligations and
responsibilities of the Lessor under the Lease, to cause, and to be solely
responsible for causing, the Equipment for each Phase to be
95
<PAGE> 102
purchased and designed and to be installed and assembled substantially in
accordance with all Governmental Requirements and Insurance Requirements and to
undertake such other powers, duties and obligations as are set forth herein.
Section B. Term of Agency Relationship. The agency relationship
created herein between the Acquisition Agent and the Lessor shall commence as
of the date hereof and shall end on the sooner to occur of: (a) with respect to
any particular Phase, the date that the Lessor no longer owns any of the
Equipment for such Phase, (b) with respect to all Phases, the occurrence of a
default by the Lessee in the payment of the Final Rent Payment or the
Termination Value for all Phases in accordance with the terms of Section 15 of
the Lease, and (c) with respect to any particular Phase, the date the Lessee
gives the Lessor notice that it will not exercise the option to purchase any of
the Equipment for such Phase pursuant to the terms of the Lease, and on the
date any such event occurs the Lessor revokes the Company's right to act as
Acquisition Agent hereunder for such Phase or for all Phases, as applicable.
The Lessor may, but is not obligated to, revoke the Company's right and
obligation to act as Acquisition Agent hereunder (x) with respect to any Phase,
any time after a Lease Termination Date or Option Date for such Phase, and (y)
with respect to all Phases, any time after a Cancellation Event.
Section C. Powers, Duties and Obligations. The Acquisition Agent
shall have the following powers, duties and obligations with respect to each
Phase:
1. To take the following actions to cause the Acquisition
Date to occur with respect to each item of Equipment in each Phase:
(i) To furnish to the Lessor, as soon as available, a
detailed list of the Equipment to be acquired for and included in each
Phase, and to acquire the Equipment for such Phase in the name of the
Lessor, and obtain and furnish to the Lessor bills of sale or other
evidence of ownership thereof in the Lessor's name, taking good and
marketable title thereto, free and clear of all liens and encumbrances
of third parties, and to obtain and furnish to the Lessor full
releases of all seller's mechanic's and other similar liens (a) as of
each payment date for an item of the Equipment or service in respect
thereof, to the extent of
96
<PAGE> 103
such item or service and (b) as of the Acquisition Date therefor;
(ii) In the name and for the benefit of the Lessor, to
negotiate, enter into and perform, and furnish to the Lessor the
originals of, all Related Contracts and all other contracts which are
necessary or desirable in connection with the acquisition, development
and installation of the Equipment for such Phase, including contracts
with all Vendors and contractors for supplies, equipment, materials
and services, including, without limitation, necessary design work
affecting the Equipment and to cause all such Related Contracts and
other contracts to be assignable;
(iii) To obtain and furnish to the Lessor all Permits that
are or will become Applicable Permits with respect to such Phase and
the Applicable Site by the Acquisition Date for such Phase, except
Applicable Permits customarily obtained or which are permitted by
Governmental Requirements to be obtained after the acquisition of the
Equipment for such Phase (in which case the Acquisition Agent, having
completed all appropriate due diligence in connection therewith
pursuant hereto, shall certify to the Lessor that it has no reason to
believe that such Permits will not be granted in the usual course of
business prior to the date that such Permits are required by
Governmental Requirements), which such obtained Permits shall be in
proper form, in full force and effect and not subject to any appeal or
other unsatisfied contest that may allow modification or revocation
thereof;
(iv) To obtain and furnish to the Lessor evidence of
perfection under local law of the Lessor's ownership of the Equipment
for each Phase subject to a lease intended as security and file
protective financing statements under applicable local law, in each
case properly executed by the Lessee, evidencing a first priority,
perfected interest in the Equipment for such Phase in favor of the
Lessor as security for payment by the Lessee of all amounts, and the
performance of all obligations, of the Lessee under the Lease;
(v) To obtain and furnish to the Lessor a Certificate of
Acceptance in substantially the form of Exhibit B attached to the
Lease from the Lessee with respect to the Equipment for each Phase;
97
<PAGE> 104
(vi) To obtain and furnish to the Lessor a Lease Supplement
in substantially the form of Exhibit C attached to the Lease from the
Lessee with respect to such Equipment for each Phase; and
(vii) Upon completion of each of the foregoing with respect
to any item of Equipment, to notify the Lessor thereof and that the
Acquisition Date has occurred with respect to such item of Equipment;
(b) To perform all acts which the Acquisition Agent may deem
necessary on behalf of the Lessor, but only in the name of the Acquisition
Agent, in connection with Completion, including, without limitation,
(i) performing or arranging the purchasing, designing,
construction, engineering, assembling, installing and testing of the
Equipment for such Phase in accordance with the requirements for
Completion set forth on Schedule 1(3)(b) attached hereto and by
reference made a part hereof;
(ii) completing the installation and testing of all Equipment
in a manner necessary to meet Completion for such Phase on or before
the Phase Completion Date for such Phase;
(iii) performing or causing to be performed all work in
connection with Completion to be done in a good and workmanlike manner
and in compliance with all Governmental Requirements and Insurance
Requirements; and
(iv) paying, or causing to be paid, in accordance with
prudent industry practices in substantial compliance with applicable
Governmental Requirements all costs and expenses of Completion for
such Phase and performing all obligations of such Completion, and
performing or causing to be performed all contracts and other
agreements, including without limitation all Related Contracts,
entered into by or on behalf of the Lessor with respect to such Phase,
and for any Phase, advancing to any Vendor any advance payments,
progress payments and full payments required thereby, using funds
obtained from the Lessor pursuant to the Progress Payment Agreement
for such Phase;
(v) if and to the extent that the aggregate Equipment Costs
for all Phases exceeds $50,000,000, use the Acquisition Agent's own
funds to obtain Completion for all
98
<PAGE> 105
Phases, and assign all Property necessary for Completion of the
Equipment and purchased with the funds of the Acquisition Agent or its
Affiliates to the Lessor to be owned as part of the Equipment
provided, however, only such Property as is necessary to fulfill the
requirements of Completion shall be assigned to the Lessor; and
(vi) executing and delivering to the Lessor a Completion
Certificate for such Phase in the form of Exhibit A attached hereto
and by reference made a part hereof upon Completion of such Phase;
(c) To take all actions in operating and managing the
Equipment for each Phase as it would take as a reasonably prudent operator in
the management and operation of its own Properties consistent with applicable
Governmental Requirements, including, without limitation:
(i) marking the Equipment for each Phase to disclose the
interest of the Lessor to the extent relevant under applicable law or
to the extent deemed appropriate by the Lessor; and
(ii) preserving the Lessor's rights in the Equipment for such
Phase and under all Related Contracts pertaining to such Equipment;
(d) To keep the Equipment for each Phase free of all Liens
except Permitted Liens, provided that the Lessee shall have the right to
contest Impositions in accordance with Section 13 of the Lease;
(e) To transfer and hold all of the evidence of ownership
of the Equipment for each Phase in the name of the Lessor;
(f) To avoid purchasing Property from or entering into any
agreement with Affiliates of the Acquisition Agent in connection with the
Equipment (except as expressly permitted by the Lease) for any Phase unless
upon fair and reasonable terms that are not less favorable to the Lessor than
those which might be obtained in an arm's-length transaction between
unaffiliated Persons in the same business at the time such terms are agreed
upon;
99
<PAGE> 106
(g) Prior to the end of the Acquisition Period, to obtain
and submit to the Lessor for its approval an appraisal as to each Phase (which
may be a global appraisal as to all Phases) which, upon approval by the Lessor,
satisfies the requirements for and will constitute an Approved Appraisal.
(h) To attempt to sell the Equipment for each Phase for cash
on the Lease Termination Date for such Phase (unless such date also constitutes
the Option Date for such Phase), subject to the Lessor's prior written approval
of the terms of the sale, and to grant, bargain, sell, convey or contract for
the sale or conveyance of the Equipment for such Phase in connection with the
duties in this paragraph;
(i) To keep and maintain proper books and records relating
to the accounts of the Equipment for each Phase and the Book Value of the
Equipment for each Phase and the Property comprising the Equipment for each
Phase;
(j) To pay for, exchange or otherwise settle accounts for
the acquisition of supplies, equipment, materials or services affecting the
Equipment for each Phase;
(k) To ask for, demand, collect, recover, and receive all
moneys which may become due and owing by reason of conveyances, whether by
contract, bill of sale or other instruments or to pay for, exchange or
otherwise settle accounts for the acquisition of supplies, equipment, materials
or services affecting the Equipment for each Phase; provided however, the
Acquisition Agent shall have the right in its reasonable discretion to settle
or waive claims in an aggregate amounts less than $100,000.00 for any Phase.
(l) To ask for, demand, collect, and recover, each in the
name of the Lessee, any and all sums that may be due on account of any damage
to any of the Equipment for an Phase; and
(m) To manage correspondence and conduct communications with
all Governmental Authorities with regard to matters affecting the Equipment for
each Phase, including, but not limited to, the acquisition of all Permits and
satisfaction of all Governmental Requirements and Insurance Requirements and
with regard to rights of way and easements, if any, affecting the Equipment for
each Phase.
100
<PAGE> 107
Section D. Disclosure. The Acquisition Agent shall act in its sole
discretion in choosing materials for the Equipment for each Phase and hiring
any contractors and subcontractors to work on the Equipment for each Phase. The
Lessor has no liability for or in respect of the Equipment for any Phase as
provided in Section 11 of the Lease and shall be indemnified and held harmless
by the Acquisition Agent as provided herein, in the Lease and the other
Operative Documents.
ARTICLE II.
Basic Services, Contracts and Rights, Etc.
Section A. Plans and Design Specifications. As soon as available, the
Company, at no cost to the Lessor, shall deliver, or cause to be delivered, to
the Lessor a complete set of all "as-built" plans, drawings and specifications
for the Equipment for each Phase, including all design information, safety
systems, and associated improvements which comprise a portion of the Equipment,
which items and information to the best of the Company's knowledge shall be
true, correct and complete.
Section B. [RESERVED]
Section C. Utilities, Services and Contracts. Within 120 days prior to
the Scheduled Lease Termination Date for each Phase (or immediately if the
Lease terminates as to any Phase on any Cancellation Date or Lease Termination
Date which is not a Scheduled Lease Termination Date for such Phase), and
provided that the Company shall not have elected to purchase, or purchased, the
Equipment for such Phase pursuant to the terms of the Lease, at all times
thereafter until such Equipment is purchased by a Third Party, the Company, at
no cost to the Lessor (with the Company's costs to be reimbursed out of any
excess of the net proceeds of such sale over the Non-Recourse Amount for such
Equipment, pursuant to Section 15(a)(ii)(B)(2) of the Lease, provided that the
Final Rent Payment has been made, pursuant to Section 15(a)(ii)(B)(1) of the
Lease), shall provide, either directly or indirectly, to the Lessor, in
substantial compliance with all Governmental Requirements (including, without
limitation, all Environmental Requirements, Environmental Authorizations and
Environment Judgments and Orders and Insurance Requirements), as confirmed by
the Lessor, (a) access to Equipment for such Phase and the Applicable Site
therefor, and to storage, transportation and maintenance facilities (including
101
<PAGE> 108
maintenance equipment and supplies for the Equipment), storage, security,
licenses, rights, permits, reports and other general items that are identified
in due diligence, in each case necessary or appropriate for the continued
preservation and maintenance of the Equipment for such Phase pending such sale
and delivery of the Equipment to the purchaser thereof (or as directed by the
Lessor), (b) an inventory of supplies necessary for the full and efficient
operation of the Equipment for such Phase and (c) services (whether on or off
the Applicable Site, including any shared off-site facilities), including,
without limitation, water, electricity, heating, ventilation, air conditioning,
lighting, security, steam, waste water treatment and sanitation, receiving and
shipping facilities as such rights, licenses, easements, services and utilities
are or may be necessary for the full and efficient operation of the Equipment
for such Phase.
Section D. Equipment and Other Rights. Within 120 days prior to the
Scheduled Lease Termination Date for each Phase (or immediately if the Lease
terminates on any Cancellation Date or Lease Termination Date which is not a
Scheduled Lease Termination Date for such Phase), and provided that the Company
shall not have elected to purchase, or purchased, the Equipment for such Phase
pursuant to the Lease, at all times thereafter for the Term of this Agreement,
the Company shall provide to the Lessor, by rent-free lease or other similar
arrangement, any and all equipment and maintenance tools, and, for a price
equal to the Company's cost therefor if not included in Equipment Cost, all
spare parts (including, without limitation, rebuilt parts and major components)
and maintenance equipment not covered by the services provided, or caused to be
provided, pursuant to Section 3.2(a), as are or may be customarily maintained
on the Applicable Site for such Phase by the Company for the operation of the
Equipment for such Phase in the manner described in Article III. Within the
period set forth above (or immediately in the circumstance contemplated above)
the Company, in compliance with all Governmental Requirements, shall also
transfer, or cause to be transferred, to the Lessor any and all equipment
inspection reports and maintenance records and all licenses and Applicable
Permits required to operate the Equipment for such Phase and all such equipment
located on the Applicable Site as confirmed by the Lessor. Within the period
set forth above (or immediately in the circumstance contemplated above), the
Company shall provide, or cause to be provided, to the Lessor, by
non-exclusive, royalty free license or other similar arrangement, rights to all
patents, patent applications, proprietary computer software, operating and
102
<PAGE> 109
other manuals, "know-how," copyrights or other intellectual property (excluding
trade names and trademarks) as are or may be necessary for the operation of the
Equipment for such Phase in the manner described in Article III. The Company
represents and warrants to the Lessor that as of the Closing Date, and the
Phase Completion Date for such Phase, and at all times thereafter during the
term of this Agreement, the construction, assembly, installation, ownership,
use, maintenance and operation of the Equipment for each Phase and Property
included therein in accordance with the uses permitted by any necessary
licenses and Applicable Permits held by the Company does not and will not cause
a violation of any Governmental Requirements or Insurance Requirements.
Section E. Cost of Services and Rights.
1. Any and all services described in Section 2.3(c) and all
other rights existing or necessary for the full and efficient operation of the
Equipment for each Phase during the term of this Agreement shall be provided to
the Lessor at the cost specified in Section 3.2.
2. Unless otherwise provided herein, any and all supplies
provided by the Company pursuant to this Article II after the Lease Termination
Date for each Phase (or any earlier date on which the Lease terminates as
provided therein) and for so long as this Agreement remains in effect (i) which
are generally commercially available shall be priced at fair market value, and
on arms-length terms and conditions subject to applicable provisions of
agreements with producers, shippers and suppliers and Governmental
Requirements, or (ii) which are not generally commercially available shall be
priced at an amount equal to the Company's cost (excluding any profit margin).
3. At the Company's expense, after any Lease Termination
Date or Cancellation Date, as applicable, for any Phase, so long as this
Agreement then remains in effect, the Company and the Lessor shall select a
third party to review, on an annual basis, the books and records of the
Company's operation of the Equipment and the Company hereby agrees to permit
access to such books and records, in order to verify that the charges paid by
the Lessor for such supplies during the immediately preceding twelve (12) month
period reflect the costs incurred by the Company in supplying the same
(exclusive of any profit margin).
103
<PAGE> 110
ARTICLE III.
Operation and Management of the Equipment Following Lease
Termination.
Section A. Engagement. From the Lease Termination Date for each Phase
(or any earlier date on which the Lease terminates as provided therein) through
the date this Agreement terminates with respect to such Phase in accordance
with Section 8.4, the Company hereby agrees to (a) provide and perform, or
cause to be provided or performed, all services, labor, supervision,
management, maintenance, repairs, common facilities and consumables necessary
for the operation of the Equipment for such Phase for the Permitted Use, in
accordance with all Governmental Requirements and Insurance Requirements, and
(b) to perform the additional duties as set forth in this Agreement.
Section B. Duties and Responsibilities of the Company as Operator
of the Equipment.
During the period specified in Section 3.1:
1. Services. The Company shall (i) perform, or cause to be
performed on behalf of the Lessor, all operation and maintenance whatsoever of
the Equipment for each Phase, (ii) supply, or cause to be supplied, all
services, goods and materials required to operate and maintain the Equipment
for each Phase, including without limitation, those services, goods and
materials referenced in Article II, and (iii) provide such additional services
as may be reasonably requested by the Lessor for the full and efficient
operation of the Equipment for each Phase, all of the foregoing to be done or
performed in accordance with the terms and conditions set forth herein.
2. Standard of Care. The Company shall perform all of its
duties and obligations under Article II and this Article III in accordance with
the standards mandated under Section 7 of the Lease as if fully set forth
herein (which standards are hereby incorporated, mutatis mutandis, herein by
reference) and in a good, workmanlike and commercially reasonable manner. The
Company shall exercise such care and shall in the same manner as a prudent
Person engaged in the business of managing and operating Property similar to
the Equipment for each Phase and used in a similar location for the Permitted
Use would in the advancement and protection of such Person's own economic
interests and the maximization of such Person's profits
104
<PAGE> 111
therefrom. Maintenance shall be scheduled so as to minimize interference with
the use operation of the Equipment for each Phase and cost consistent with good
industry operating and safety standards and all Governmental Requirements and
Insurance Requirements.
3. Compliance with Governmental Requirements and Insurance
Requirements. The Company shall comply with, and cause the Equipment for each
Phase (including the maintenance, use and operation thereof) and all personnel
of the Company to comply with, the Insurance Requirements (which Insurance
Requirements are hereby incorporated, mutatis mutandis, herein by reference as
if fully set forth herein) and all Governmental Requirements in effect from
time to time.
4. Personnel. The Company shall at all times employ, or
cause to be employed, qualified and properly trained personnel to perform the
Company's obligations under this Agreement, and shall pay all wages and
benefits required by law or contract. The Company shall be responsible for all
matters relating to labor relations, working conditions, training, employee
benefits, safety programs and related matters pertaining to such employees. The
Lessor shall have the right to request the removal from the operation or
maintenance of the Equipment for any Phase of any personnel deemed unqualified
by the Lessor.
5. Warranties and Guarantees. The Company shall use its
best reasonable efforts consistent with good industry practices to obtain
warranties for the Lessor for parts, equipment, materials or services provided
by third-party suppliers in fulfilling the Company's obligations under this
Agreement. The Company shall comply with all applicable warranties and
guarantees presented by Vendors or contractors, and shall take no action that
in any way impairs any rights or claims of the Lessor under this Agreement or
any Vendor's or other Person's warranty. Without limiting the foregoing, the
Company shall use spare parts that will not adversely affect the Lessor's
protection or rights under such warranties or guarantees.
6. Consultations. Notwithstanding any other provision of
this Agreement, the Company will consult with the Lessor and any other
independent experts appointed by or on behalf of the Lessor to review any
matter pertaining directly or indirectly to the performance of the Company's
obligations under this Agreement and the Company shall provide them with
access,
105
<PAGE> 112
during normal business hours and upon no less than two (2) days' prior written
notice, to the Equipment for any Phase and the Applicable Site therefor and
shall make available to such experts, at the Company's expense, all
information, reports, logs and other documents, and shall make the Company's
personnel available for consultation with such experts, all as requested by the
Lessor.
7. Permits. The Company shall apply for and maintain in
full force and effect, at the cost and expense of the Company, any and all
Applicable Permits required to be obtained, maintained or held by either the
Company or the Lessor as and when required by law to be obtained and in proper
form therefor and maintain all such Applicable Permits in full force and
effect.
8. Compliance with Law; Certain Agreements.
a. The Company shall also comply with, and cause
the Equipment for each Phase (and its operation) to comply with, the various
requirements imposed on the Lessee set forth in Sections 7, 9, 10, 12, 13, 14,
16 and 20 of the Lease (which sections are hereby incorporated mutatis mutandis
herein by reference as if fully set forth herein).
b. The Company shall also not take or fail to take
any action which would result in the failure of the Equipment for any Phase to
be operated on a continuing basis for the Permitted Use in accordance with in
the design therefor.
9. Removal. The Lessor may at any time, upon five (5) days
written notice, terminate its engagement of the Company under this Agreement
without terminating this Agreement pursuant to Section 8.4; provided, however,
that the Lessor shall, upon two week's written notice to the Company, be
entitled to request the Company to resume its duties under this Agreement for
the duration of the term of this Agreement and the Company shall comply with
such request.
10. Independent Contractor Status. The Lessor acknowledges
that the Company, in performing its duties under this Article III to maintain
and operate the Equipment for each Phase, is acting as an independent
contractor and except as otherwise expressly provided by this Agreement, the
Lessor shall have no right to control the conduct of the Company or its
personnel in the proper performance of the obligations of the
106
<PAGE> 113
Company under this Agreement. The Company acknowledges that the Lessor is the
owner of the Equipment for each Phase and, as such, is entitled to control such
Equipment and its use, subject to the provisions of this Agreement and of the
Lease.
11. Payment of Costs. All reasonable and necessary costs
associated with the continued normal operation, preservation and maintenance of
the Equipment for each Phase during the period and in the manner specified by
this Article III ("Support Expenses") shall be timely advanced by the Company
on behalf of the Lessor subject to reimbursement as hereafter set forth. All
such Support Expenses advanced by the Company shall be accounted for by the
Company and reported to the Lessor pursuant to monthly written operating
reports certified by an authorized officer of the Company. The Lessor shall
reimburse the Company for support expenses actually advanced by the Company
with respect to any Phase, together with simple interest thereon at a rate per
annum equal to 80% of the Base Rate, on the earlier to occur of the date
following (i) the termination of this Agreement as to such Phase in accordance
with Section 8.4 hereof, or (ii) the date which is three (3) years following
the Lease Termination Date or Cancellation Date for such Phase giving rise to
the engagement established under Section 3.1. Reimbursement under subsection
(i) of this Section 3.2(l) with respect to any Phase shall be made by the
Lessor out of any excess of the net proceeds of the sale of the Equipment for
such Phase to a Third Party over the Non-Recourse Amount for such Equipment,
pursuant to Section 15(a)(ii)(B)(2) of the Lease, provided that the Final Rent
Payment has been made, pursuant to Section 15(a)(ii)(B)(1) of the Lease);
provided that should such proceeds be insufficient to cover the Lessor's
obligation hereunder to reimburse the Company for Support Expenses (plus
interest) in full, the balance of such Support Expenses (and interest) shall be
payable on the date set forth in subsection (ii) above. The Company's right to
reimbursement pursuant to (i) above shall at all times and in all respects be
subject and subordinate to the rights of the Lessor to receive full repayment
of the Final Rent Payment and all other amounts payable to the Lessor under the
Lease. Notwithstanding anything to the contrary contained herein, the Lessor
shall not be entitled to reimbursement for any costs expended or incurred from
the Lease Termination Date or Cancellation Date, as applicable, for any Phase
through the Purchase Closing Date for such Phase, if extended by the Lessor
under Section 15(e) of the Lease, in the event that the Company elects to
purchase the Equipment for such Phase and elects to remain in possession of
such Equipment pursuant to the license referenced in Section
107
<PAGE> 114
15(e) of the Lease. All such costs shall be the responsibility of the Company
and shall represent the license fee payable in consideration of the rights
afforded under such license.
ARTICLE IV.
Indemnification
Section A. Indemnities. The Company agrees, in addition to any other
indemnity obligations set forth in the Lease and any other Operative Document,
to indemnify and save harmless, the Lessor and any of its successors and
assigns, and its officers, directors, incorporators, shareholders, employees,
agents, partners, attorneys, affiliates and servants (individually an
"Indemnified Party" and collectively the "Indemnified Parties") from and
against all liabilities, Liens, Impositions, losses, obligations, claims,
damages (including, without limitation, penalties, fines, court costs and
administrative service fees), penalties, demands, causes of action, suits,
proceedings (including any investigations, litigation or inquiries), judgments,
orders, sums paid in settlement of claims, and costs and expenses of any kind
or nature whatsoever, including, without limitation, reasonable attorneys' fees
and expenses and all other expenses incurred in connection with investigating,
defending or preparing to defend any cause of action, suit or proceeding
(including any investigations, litigation or inquiries) or claim which may be
incurred by or asserted against or involve any of them (whether or not any of
them is named as a party thereto) as a result of, arising directly or
indirectly out of or in any way related to (a) the failure of the Company to
perform or caused to be performed, or the inadequacy of, the environmental due
diligence required under Article IV above, (b) the breach of any representation
or warranty set forth under the Lease or any of the other Operative Documents
regarding Environmental Requirements, (c) the failure of the Company to perform
any obligation required to be performed under the Lease or any other Operative
Documents pursuant to Environmental Requirements, and (d) all acts or omissions
by or on behalf of the Company (both in its individual capacity and in its
capacity as Acquisition Agent), its contractors, employees, agents, licensees,
representatives or any other Person for whose conduct the Company is
responsible in connection herewith under this Agreement (collectively, the
"Indemnified Risks"); provided, however, that no Indemnified Party shall be
entitled to indemnity (or any other payment or reimbursement) for any
Indemnified Risks to the extent
108
<PAGE> 115
such Indemnified Risks result from or arise out of the willful misconduct or
gross negligence of such Indemnified Party.
Section B. Defending Claims. If any cause of action, suit, proceeding
or claim arising from any of the foregoing is brought against any Indemnified
Party, whether such action, proceeding, suit or claim shall be actual or
threatened, or in preparation therefor, the Company will have the right, at its
expense, to assume the resistance and defense of such cause of action, suit,
proceeding or claim or cause the same to be resisted and defended; provided
that such Indemnified Party shall be entitled (but not obligated) to
participate jointly in such defense, in which case such Indemnified Party will
be responsible for its own legal fees or other expenses, if any, related to
such defense incurred subsequent to the joint participation by such party in
such defense. Notwithstanding the foregoing, if any Indemnified Party shall
have been advised by counsel chosen by it that there may be one or more legal
defenses available to such Indemnified Party that are different from or
additional to those available to the Company, the Indemnified Party may assume
the defense of such action and the Company agrees to reimburse such Indemnified
Party for the reasonable fees and expenses of any counsel retained by the
Indemnified Party. The Company may settle any action which it defends hereunder
on such terms as it may deem advisable in its sole discretion, subject to its
ability promptly to perform in full the terms of such settlement. No
Indemnified Party may seek indemnification or other reimbursement or payment,
including attorneys' fees or expenses, from the Company for any cause of
action, suit, proceeding or claim settled, compromised or in any way disposed
of by the Indemnified Party without the Company's prior written consent, which
will not be unreasonably withheld.
Section C. Survival. The obligations of the Company under this
Article V shall survive the expiration or any termination of this Agreement
(whether by operation of law or otherwise) and the payment of amounts owed by
the Lessor and the Company under this Agreement, the Lease and the other
Operative Documents.
Section D. Payment upon Demand. Upon demand for payment by any
Indemnified Party of any Indemnified Risks incurred by it for which
indemnification is sought, the Company shall pay when due and payable the full
amount of such Indemnified Risks to the
109
<PAGE> 116
appropriate party, unless and only so long as: (a) the Company shall have
assumed the defense of such action and is diligently prosecuting the same; (b)
the Company is financially able to pay all its obligations outstanding and
asserted against the Company at that time, including the full amount of the
Indemnified Risks; and (c) the Company has taken all action as may be necessary
to prevent (i) the collection of such Indemnified Risks from the Indemnified
Party; (ii) the sale, forfeiture or loss of the Equipment for any Phase to
which such Indemnified Risk relates or any portion thereof during such defense
of such action; and (iii) the imposition of any civil or criminal liability for
failure to pay such Indemnified Risks when due and payable.
Section E. Acknowledgement of Scope of Indemnity. The Company
acknowledges and agrees that (a) its obligations under this Article V are
intended to include and extend to any and all liabilities, Liens, Taxes,
losses, obligations, claims, damages (including, without limitation, penalties,
fines, court costs and administrative service fees), penalties, demands, causes
of action, suits, proceedings (including any investigations, litigation or
inquiries), judgments, orders, sums paid in settlement of claims, costs and
expenses (including, without limitation, response and mediation costs,
stabilization costs, encapsulation costs, and treatment, storage or disposal
costs), imposed upon or incurred by or asserted at any time against any
Indemnified Party (whether or not indemnified against by any other party) as a
result of, arising directly or indirectly out of or in any way related to (i)
the treatment, storage, disposal, generation, use, transport, movement,
presence, release, threatened release, spill, installation, sale, emission,
injection, leaching, dumping, escaping or seeping of any hazardous substance or
material containing or alleged to contain hazardous substance at or from the
Equipment for any Phase or the Applicable Site therefor or any part thereof;
(ii) the violation or alleged violation of any Environmental Requirements
relating to or in connection with the Equipment for any Phase or the Applicable
Site therefor or any part thereof or any acts or omissions thereon or relating
thereto; (iii) all other federal, state and local laws designed to protect the
environment or persons or property therein, whether now existing or hereinafter
enacted, promulgated or issued by any governmental authority relating to or in
connection with the Equipment for any Phase or the Applicable Site therefor or
any part thereof or any acts or omissions thereon or relating thereto; (iv) the
Company's failure
110
<PAGE> 117
to comply with its obligations under Section 7 of the Lease; and (v) any
abandonment of the Equipment for any Phase by the Company.
Section F. Best Efforts Notice. In case any action shall be brought
against any Indemnified Party in respect of which indemnity may be sought
against the Company, such Indemnified Party shall use best efforts to promptly
notify the Company in writing, but the failure to give such prompt notice shall
not relieve the Company from liability hereunder.
ARTICLE V.
Reversion of Rights and Contracts.
Upon payment of the Termination Value for any Phase (or for all
Phases, as applicable) on the Purchase Closing Date therefor as provided in
Section 15 of the Lease: (a) the various agreements, licenses, Applicable
Permits and contracts, including without limitation Related Contracts, to be
provided hereunder by Company to the Lessor shall revert to the Company (or be
transferred to the Company), (b) service contracts with the Company, property
rights and licenses granted by the Company to the Lessor shall terminate or be
transferred to the Company, and (c) Third Party service contracts shall be
assigned by the Lessor to the Company, without recourse and without any
representation or warranty whatsoever. Upon the termination of the Lease as to
any Phase and the failure of the Company or one of its Affiliates to purchase
the Equipment for such Phase as provided in Section 15 of the Lease, all such
agreements, Applicable Permits, contracts, property rights and licenses and
Third Party service contracts pertaining to such Phase, including without
limitation Related Contracts, shall remain in place unless terminated by the
Lessor.
ARTICLE VI.
Additional Support.
In the event that neither the Company nor any of its Affiliates
purchases the Equipment for any Phase from the Lessor pursuant to the Lease,
the parties hereto agree to negotiate in
111
<PAGE> 118
good faith to provide to the Lessor such support in addition to that provided
for in this Agreement as the Lessor may deem necessary to maintain, use and
operate the Equipment for such Phase for the Permitted Use or any other purpose
requested by the Lessor.
ARTICLE VII.
Miscellaneous.
Section A. Governing Law; Assignability, etc. THIS AGREEMENT
(INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, OTHER THAN
THE CONFLICT OF LAWS RULES THEREOF. This Agreement supersedes all prior
agreements among or between the parties with respect to the matters addressed
herein and shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto. After the
expiration or the termination of the Lease as to any Phase, and provided that
the Company (or an Affiliate thereof) shall not have purchased the Equipment
for such Phase in accordance with the terms of the Lease, the Lessor may, at
any time, assign its rights hereunder to any permitted assignee of the Lessor
under the Lease, without the prior written consent of the Company. The Company
may not delegate all or any part of its obligations or assign any of its rights
hereunder without the prior written consent of the Lessor.
Section B. [Reserved]
Section C. Amendments. No change, waiver, amendment or modification
of any of the provisions of this Agreement shall be valid unless set forth in a
written instrument signed by the parties hereto, in compliance with the
requirements set forth in the Lease.
Section D. Term; Option. Except as otherwise expressly provided
herein, this Agreement and the parties' obligations hereunder shall commence on
the date hereof and shall terminate as to each Phase upon the expiration or
other termination of the Lease as to such Phase and consummation of the
purchase by the Company (or an Affiliate thereof) of the Equipment for such
Phase for the Termination Value therefor in accordance with the Lease;
provided, however, that upon the termination of the Lease for any
112
<PAGE> 119
Phase, and provided that the Company (or an Affiliate thereof) shall not have
purchased the Equipment for such Phase and paid the Termination Value therefor
in accordance with the terms of the Lease, this Agreement shall continue in
full force and effect as to such Phase until the date the Equipment for such
Phase is sold to a Third Party or any earlier written notice from the Lessor of
its election to terminate this Agreement as to such Phase.
Section E. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all of which
together shall constitute but one and the same instrument. This Agreement may
be delivered by facsimile transmission of the relevant signature pages hereof.
Section F. Further Assurances. The Company shall take all appropriate
actions and shall execute any documents, instruments or conveyances of any kind
which may be necessary or advisable to carry out the provisions hereof,
including, without limitation, all documents required by Governmental
Authorities, and respond to all inquiries of Governmental Authorities
concerning the Equipment for any Phase.
113
<PAGE> 120
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
hereto to be entered into by one of its officers thereunto duly authorized.
LESSOR:
WACHOVIA LEASING CORPORATION
By:
----------------------------------
Title:
COMPANY:
FLOWERS INDUSTRIES, INC.
By:
----------------------------------
Title:
114
<PAGE> 121
Schedule 1.3(b)
Requirements for Completion for each Phase
Completion shall occur as to any Phase when each of the following requirements
has been satisfied:
1. The Acquisition Date shall have occurred for each item of Equipment in
such Phase, with all of the actions set forth in Section 1.3(a)(i) through
(vii), inclusive, of the Agency Agreement having been taken for all such items.
2. All installation and testing of all Equipment for such Phase shall have
been completed satisfactorily, and all of such Equipment shall be subject to
the Lease.
3. No Loss Event or Casualty Event shall have occurred with respect to such
Phase.
4. No Default or Event of Default shall have occurred.
5. The Acquisition Agent shall have furnished to the Lessor a Completion
Certificate with respect to such Phase.
115
<PAGE> 122
EXHIBIT A
Form of Completion Certificate
COMPLETION CERTIFICATE
[LOCATION OF APPLICABLE SITE]
The undersigned, the ___________________ of FLOWERS INDUSTRIES, INC.,
a Georgia corporation, in its capacity as Acquisition Agent (the "Acquisition
Agent") for WACHOVIA LEASING CORPORATION, a North Carolina corporation
("Lessor") under that certain Acquisition, Agency, Indemnity and Support
Agreement dated as of October 20, 1995 (the "Agency Agreement"), hereby
certifies to Lessor as follows:
1. Reference is hereby made to the Master Lease Agreement, dated as
of October 20, 1995 (the "Lease") by and among Flowers Industries, Inc. in its
individual capacity (the "Company"), as Lessee, and Lessor. Unless otherwise
defined herein, capitalized terms used herein have the respective meanings set
forth in the Lease.
2. The Acquisition Agent has acted as agent and attorney-in-fact
for the Lessor with respect to the purchase, design, installation and assembly
of the Equipment more particularly described on Schedule I attached hereto (the
"Added Equipment") for and on the manufacturing facility located at
__________________________ (the "Applicable Site"), and with respect to certain
other powers, duties and obligations as are more particularly set forth in the
Agency Agreement.
3. An acceptance of the Added Equipment by the Lessee has occurred,
and Lessee has issued its Certificate of Acceptance with respect to the Added
Equipment.
4. Upon delivery of this Certificate to Lessor, all of the events
and conditions precedent for Completion listed in Schedule 1.3(b) to the Agency
Agreement will have been satisfied as to the Applicable Site and the Phase
relating thereto.
116
<PAGE> 123
IN WITNESS WHEREOF, the undersigned has executed and delivered this
certificate the _____ day of ________, 19___.
-----------------------------------------
Name:
Title:
117
<PAGE> 124
SCHEDULE I
[LIST OF ADDED EQUIPMENT]
118
<PAGE> 125
EXHIBIT B
Certificate of Acceptance
[LOCATION OF APPLICABLE SITE]
FLOWERS INDUSTRIES, INC., a Georgia corporation ("Lessee") hereby
represents, acknowledges, warrants and agrees as follows (all terms used herein
without definition have the meanings ascribed thereto in the Master Lease
Agreement between WACHOVIA LEASING CORPORATION, a North Carolina corporation
("Lessor") and Lessee, dated as of October 20, 1995 (the "Lease")):
1. Lessee has received from Lessor as of the ____ day of__________, 199_,
at ________________ (the "Applicable Site") possession of that certain equipment
more particularly described on Schedule 1 hereto, together with all Vendor's
warranties and service contracts with respect thereto (the foregoing equipment
and other items being hereinafter collectively referred to as the "Equipment").
2. The Equipment was delivered to, and fully examined and accepted by,
Lessee at the Applicable Site pursuant to the terms and provisions of the
Lease. The Equipment was received in a condition fully satisfactory to the
Lessee and in full conformity with the Lease in every respect [except as set
forth in Schedule 2 hereto, and was accepted by Lessee subject to such
non-conformity].
4. The Lease is in full force and effect, Lessor has fully, duly and
timely performed all of its obligations of every kind or nature thereunder, and
Lessee has no claims, deductions, set-offs or defenses of any kind or nature in
connection with the Lease.
5. Lessee has obtained all Permits that are or will become Applicable
Permits with respect to the Equipment and the Applicable Site, except for such
Applicable Permits customarily obtained or which are permitted by Governmental
Requirements to be obtained after the acquisition of the Equipment and which
Lessee, having completed all appropriate due diligence in connection therewith
pursuant to the Agency Agreement, has no reason to believe will not be granted
in the usual course of business prior to the date that such Permits are
required by Governmental Requirements. All Applicable Permits heretofore
obtained are in proper form, in full
119
<PAGE> 126
force and effect and not subject to any appeal or other unsatisfied contest
that may allow modification or revocation thereof.
Dated as of the_____day of __________________, 199_.
FLOWERS INDUSTRIES, INC. (Lessee)
By:
------------------------------------
Name:
Title:
120
<PAGE> 127
SCHEDULE 1 TO CERTIFICATE OF ACCEPTANCE
[DESCRIPTION OF EQUIPMENT]
121
<PAGE> 128
SCHEDULE 2 TO CERTIFICATE OF ACCEPTANCE
[DISCREPANCIES]
122
<PAGE> 129
EXHIBIT C
Lease Supplement
[LOCATION OF APPLICABLE SITE]
THIS SUPPLEMENT is hereby added, as of the ___ day of ________, 199_,
to that certain Master Lease Agreement (the "Lease") dated as of October 20,
1995 by and between WACHOVIA LEASING CORPORATION, a North Carolina corporation,
as lessor ("Lessor") and FLOWERS INDUSTRIES, INC., as lessee ("Lessee") with
respect to the manufacturing site or facility located at __________________
(the "Applicable Site"). Upon execution hereof by Lessor and Lessee, this
Supplement shall be included in and shall be a part of the Lease for all
purposes. Terms used but not otherwise defined herein shall have the meanings
given to such terms in the Lease.
The parties hereto acknowledge and agree as follows:
1. The equipment (the "Added Equipment") more particularly
described on Schedule "A" attached hereto and located at the Applicable Site is
hereby added by this Supplement to the Lease and shall hereafter constitute a
part of the "Equipment" (as defined in the Lease) leased by Lessee pursuant to
the Lease.
2. The Equipment Cost for the Added Equipment is as reflected on
Schedule "B" attached hereto, and has been paid in full by Lessor. Lessor has
received bills of sale or other evidence of ownership of the Added Equipment,
free and clear of all liens and encumbrances of third parties. Such amounts
shall be used in the computation of Interim Rent, Basic Rent, the Final Rent
Payment or the Termination Value with respect to the Added Equipment.
3. By the addition of the Equipment Cost for the Added Equipment
hereby, the aggregate Equipment Cost for the Phase relating to the Applicable
Site under the Lease has been increased to $______ .
4. Lessee certifies that:
123
<PAGE> 130
(a) copies of all Related Contracts, and all other contracts
entered into in connection with the acquisition, development
and installation of the Added Equipment pursuant to the
Agency Agreement have been delivered to Lessor;
(b) all Permits that are or will become Applicable Permits
with respect to the Added Equipment and the Applicable Site
have been obtained, except Applicable Permits customarily
obtained or which are permitted by Governmental Requirements
to be obtained after the acquisition of the Added Equipment
(and Lessee, having completed all appropriate due diligence
in connection therewith pursuant to the Agency Agreement, has
no reason to believe that such Permits will not be granted in
the usual course of business prior to the date that such
Permits are required by Governmental Requirements), and such
obtained Permits are in proper form, in full force and effect
and not subject to any appeal or other unsatisfied contest
that may allow modification or revocation thereof; and
(c) Lessor's ownership interest in the Added Equipment,
subject to a Lease intended as security, has been perfected
under local law, and protective financing statements
evidencing a first priority, perfected interest in the Added
Equipment in favor of the Lessor as security for payment by
Lessee of all amounts and the performance of all obligations
of Lessee under the Lease have been duly filed.
4. The parties hereto represent and warrant as to the facts
specified in subparagraphs (ii), (iii), (iv), (v), and (vi) of Section 28(b) of
the Lease.
5. The parties hereto confirm, as of the date hereof, that all
representations and warranties made in the Lease with respect to the Equipment
heretofore covered by the Lease remain true and correct in all material
respects; that all representations and warranties made in the Lease with
respect to the Equipment are, as of the date hereof, true and correct as to the
Added Equipment as if such Added Equipment originally had been included within
the term "Equipment"; and that no Event of Default or even which
124
<PAGE> 131
with notice and/or the passage of time might ripen into an Event of Default
exists under the Lease.
6. Lessee acknowledges and confirms that as of the date hereof,
it has no defenses to the payment or performance of the parties' obligations
under the Lease and that no claims, counterclaims, affirmative defenses or
other such affirmation rights exist against Lessor with respect to the Lease
including, without limitation, any claims relating to the amounts charged as
Interim Rent, Basic Rent, the Final Rent Payment or Termination Value or
otherwise. Lessee has examined the Added Equipment and accepts and approves the
Added Equipment as suitable and satisfactory for inclusion in the Lease, and
has executed a Certificate of Acceptance dated as of even date herewith with
respect to the Added Equipment.
125
<PAGE> 132
EXECUTED as of the _____day of ____________, 199__.
LESSOR:
WACHOVIA LEASING CORPORATION
By:
-----------------------------------
Name:
Title:
LESSEE:
[CORPORATE SEAL] FLOWERS INDUSTRIES, INC.
By:
-----------------------------------
Name:
Title:
126
<PAGE> 133
SCHEDULE A TO LEASE SUPPLEMENT
[LIST OF ADDED EQUIPMENT]
127
<PAGE> 134
SCHEDULE B TO LEASE SUPPLEMENT
[EQUIPMENT COST FOR ADDED EQUIPMENT]
128
<PAGE> 135
EXHIBIT D
FORM OF LEGAL OPINION OF
ASSISTANT GENERAL COUNSEL OF LESSEE
[LESSEE LETTERHEAD]
October 20, 1995
Wachovia Leasing Corporation
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Dear Sirs:
I am the Assistant General Counsel for Flowers Industries,
Inc., a Georgia corporation ("Lessee"). This opinion is being delivered
pursuant to Section 28(a)(ii) of that certain Master Lease Agreement (the
"Lease") dated as of even date herewith between Lessee and Wachovia Leasing
Corporation, a North Carolina corporation ("Lessor"), and in connection with
the execution and delivery of the other "Operative Documents," as defined in
the Lease. Terms defined in the Lease or in Schedule 1(b) to the Lease are used
herein as therein defined, unless otherwise indicated.
I have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable
for purposes of this opinion.
129
<PAGE> 136
Upon the basis of the foregoing, I am of the opinion that:
1. Lessee is a corporation duly incorporated, and, based solely
on the Good Standing Certificate (as hereinafter defined), validly existing
under the laws of the State of Georgia and has all corporate powers required to
carry on its business as it is now conducted. The "Good Standing Certificate" is
the certificate of valid existence dated October 18, 1995 issued by the
Secretary of State of the State of Georgia with respect to Lessee.
2. The execution, delivery and performance by Lessee of the
Lease, the Agency Agreement, the Progress Payment Agreement and the other
Operative Documents to which Lessee is a party, (a) are within Lessee's
corporate powers, (b) have been duly authorized by all necessary corporate
action, (c) require no action by or in respect of, or filing with, any
governmental body, agency or official, except for filings as contemplated by
the Lease, (d) do not contravene, or constitute a default under, any provision
of applicable law or regulation or of the certificate of incorporation or
by-laws of Lessee or of any material agreement, judgment, injunction, order,
decree or other instrument relating to Debt which is binding upon Lessee, and
(e) do not result in the creation or imposition of any Lien on any asset of
Lessee (other than the security interest in the Equipment created by the Lease
in the event that the Lease is recharacterized as a financing transaction).
3. The Lease, the Agency Agreement, the Progress Payment
Agreement and the other Operative Documents to which Lessee is a party and the
obligations of Lessee with respect to the payment of Basic Rent, Interim Rent,
the Final Rent Payment and the Supplemental Rent and all other payment
obligations of Lessee under the Lease including without limitation the payment
of the Termination Value by Lessee or its designee pursuant to the exercise or
deemed exercise of Lessee's option under Section 15 of the Lease or pursuant to
any other provisions of the Lease, constitute the valid and binding obligations
of Lessee enforceable against Lessee in accordance with their respective terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors'
130
<PAGE> 137
rights generally and (b) general principles of equity (including, without
limitation, the availability or non-availability of equitable remedies),
whether considered in a proceeding at law or in equity; provided that the
foregoing shall not, in my opinion, substantially interfere with the practical
realization of the benefits expressed in the Lease and the other Operative
Documents, except for the economic consequences of any procedural delay which
may result therefrom.
4. There is no action, suit or proceeding pending for which
process has been served, or, to the best of my knowledge, threatened, against
or affecting Lessee or any of its Subsidiaries before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, consolidated financial position or consolidated results of operations
of Lessee and its Consolidated Subsidiaries, considered as a whole, or which in
any manner questions the validity or enforceability of any of the Operative
Documents.
5. Neither Lessee nor any of its Subsidiaries is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
6. Neither Lessee nor any of its respective Subsidiaries is a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Company Act of 1935,
as amended.
7. If a Georgia court held the Lease to be a financing
transaction instead of a true lease, (a) the Lease, and the obligations of
Lessee under the Lease with respect to the payment of Base Rent, Interim Rent,
the Final Rent Payment and Supplemental Rent and all other payment obligations
of Lessee under the Lease including without limitation the payment of the
Termination Value by Lessee or its designee pursuant to the exercise of
Lessee's option under Section 15 of the Lease or pursuant to any other
provision of the Lease, would constitute the valid and binding obligations of
Lessee and would be enforceable against Lessee in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency,
131
<PAGE> 138
reorganization or other similar laws affecting creditors' rights and general
principles of equity, (b) the "loan" to Lessee evidenced by the Lease would not
be contractually usurious under the laws of the State of Georgia provided that
any effective rate of interest (including, without limitation, any charge, fee,
premium or minimum balance requirement) deemed earned by Lessor under the Lease
and the other Operative Documents does not exceed 5.0% per month at any time,
and (c) the Lease would be enforceable as a security agreement under the laws
of the State of Georgia and Lessor would be entitled to foreclose the Liens
granted under the Lease following an Event of Default in accordance with the
power of sale therein granted.
8. The execution, delivery and performance by Lessee of the
Operative Documents do not conflict with or result in a violation of any law,
statute, rule or regulation of the State of Georgia (or any subdivision
thereof), or, except for the filing of appropriate financing statements,
require any consent of or filing or registration with an Governmental Authority
of the State of Georgia (or any subdivision thereof) or pursuant to the UCC
which has not been obtained or completed and which is necessary for the
validity and enforceability thereof.
I am qualified to practice in the State of Georgia and do not purport
to be expert on any laws other than the laws of the State of Georgia, the
federal laws of the United States, and the UCC, and this opinion is rendered
only with respect to such laws. I have made no independent investigation of the
laws of any other jurisdiction (except with respect to the UCC).
In rendering the opinions above, I have assumed, with your permission,
that each of the Operative Documents has been duly authorized, executed and
delivered by Lessor and, to the extent provided therein, constitutes the legal,
valid and binding obligation of Lessor enforceable in accordance with its
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (including, without limitation, the availability or
non-availability of equitable remedies), whether considered in a proceeding at
law or in equity.
132
<PAGE> 139
This opinion is delivered to you at the request of Lessee in
connection with the transaction referenced above and may not, without my prior
written consent, be communicated to or relied upon by anyone other than you,
your successors and assigns, except that it may be communicated to Jones, Day,
Reavis & Pogue, your special counsel.
This opinion speaks only as of the date hereof, and I do not undertake
any duty to advise you of any change herein.
Very truly yours,
-----------------------------------
Stephen R. Avera, Esq.
Assistant General Counsel
Flowers Industries, Inc.
133
<PAGE> 140
EXHIBIT E
PROGRESS PAYMENT AGREEMENT
This Progress Payment Agreement ("Agreement") is made this ____ day of
_______________, 1995 in conjunction with the Master Lease Agreement dated
October 20, 1995 (the "Lease"), between Wachovia Leasing Corporation (the
"Lessor") and Flowers Industries, Inc. (the "Lessee"). All capitalized terms
used in this Agreement and not otherwise defined herein shall have the meanings
assigned to them in Schedule 1(b) to the Lease.
Pursuant to the Master Lease Agreement, the Lessee intends to request
from time to time that the Lessor acquire and lease to the Lessee items of
Equipment for a Phase to be located at the following Applicable Site:
_______________ (the "Proposed Equipment"), and that the Lessor purchase the
Proposed Equipment from Vendors designated by the Lessee. The Vendors may
require advance payments, progress payments, or full payment for the Proposed
Equipment prior to delivery and acceptance of the Proposed Equipment by the
Lessee. To induce the Lessor to make such payments for the Proposed Equipment,
the Lessee agrees as follows:
1. All Proposed Equipment purchased by Lessor pursuant to this
Agreement will be the Lessor's property and on the Lease Addition Date will be
Equipment leased under the Lease.
2. The term of the Lease with respect to the Proposed Equipment
will not commence until the Lease Addition Date with respect thereto. Until the
Lease Addition Date as to the Proposed Equipment, a charge shall accrue on all
such advances, progress or other payments made by the Lessor equal to an amount
per annum which is the product of (i) advances or payment outstanding from the
date any such advances are outstanding, (ii) 80% of the Base Rate and (iii) the
actual number days in the period/360 (such amount being so determined being
"Additional Rent"). Such Additional Rent shall accrue until the Lease Addition
Date, whereupon it shall be capitalized and added to Equipment Cost for such
Phase pursuant to Section 3(a) of the Lease.
3. Lessee shall obtain and maintain insurance in form and
substance satisfactory Lessor insuring Lessor's interest in the
134
<PAGE> 141
Equipment to the extent of the advance or progress payments made by Lessor.
4. Upon delivery and acceptance of the Equipment by the Lessee,
the Lessee will execute and deliver to the Lessor the Lease Supplement, and
satisfy the other conditions set forth in Section 28(c), with respect to the
Proposed Equipment, commencing the Lease with respect thereto.
5. If for any reason whatsoever the Lessee fails to comply with
any of the terms hereof or of the Lease or if the Lease Addition Date has not
occurred as to any unit of Proposed Equipment by _________________, the Lessee
will reimburse the Lessor, on demand, and at the Lessor's option, for all
amounts advanced or paid by the Lessor with respect to such unit of Proposed
Equipment, plus the unpaid Additional Rent in accordance with Paragraph 2, and
the Lessor will assign to the Lessee all of the Lessor's right, title and
interest in and to the Proposed Equipment.
6. In the event a Vendor of Proposed Equipment covered hereunder
fails to perform all of the covenants, conditions, stipulations, and agreements
to manufacture, ship, or deliver (collectively referred to as the "Terms"), or
for any reason whatsoever does not perform the Terms, after advance payments,
progress payments, or full payments have been made by the Lessor with respect
to the Proposed Equipment, the Lessee will reimburse the Lessor on demand, for
all amounts advanced or paid by the Lessor with respect to the Proposed
Equipment, plus the unpaid Additional Rent in accordance with Paragraph 2, and
the Lessor will assign to the Lessee every right, title and interest the Lessor
may have in and to the Proposed Equipment.
7. A waiver of a specific default shall not be a waiver of
subsequent or any other default. No waiver of any provision of the Lease or
this Agreement shall be a waiver of any other provision or matter. No delay or
failure of the Lessor in exercising any right hereunder shall affect such
right, nor shall any single or partial exercise preclude any further exercise
thereof or the exercise of any other rights hereunder.
8. Except as herein and heretofore modified, the Lease shall
continue in full force and effect in accordance with its terms.
135
<PAGE> 142
9. No modifications to this Agreement shall be binding upon the
parties unless agreed to by each and every party in writing.
10. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one
136
<PAGE> 143
and the same instrument and any of the parties hereto may execute this
Agreement by signing any such counterpart.
LESSOR:
WACHOVIA LEASING CORPORATION
By:
-----------------------------------
Title:
LESSEE:
[CORPORATE SEAL] FLOWERS INDUSTRIES, INC.
By:
-----------------------------------
Title:
137
<PAGE> 144
EXHIBIT F
FORM OF APPROVED SUBLEASE
SUBLEASE
THIS SUBLEASE AGREEMENT is made as of the_____, day of
______________________, ______, by and between FLOWERS INDUSTRIES,
INC. a Georgia corporation ("Sublessor"), and ______________________
("Sublessee").
WITNESSETH:
WHEREAS, the Sublessor is a party to that certain Master
Lease Agreement, dated as October 20, 1995 (as from time to time amended,
modified or supplemented, the "Primary Lease") between Sublessor, as lessee,
and Wachovia Leasing Corporation ("Wachovia"), as lessor, pursuant to which
Sublessor leased from Wachovia certain equipment (the "Equipment"), including,
but not limited to, the Equipment described on Schedule 1 attached hereto and
incorporated herein by reference the "Subleased Equipment");
WHEREAS, the Sublessee wishes to lease the Subleased
Equipment from the Sublessor, subject to the terms and conditions of the Lease;
NOW THEREFORE, in consideration of the foregoing, and in
consideration of the mutual covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
1. Terms. The Sublessor hereby agrees to lease to the
Sublessee the Subleased Equipment for a lease term of this Sublease commencing
on ________________ and ending on the earlier to occur of (a) ________________
and (b) the Scheduled Lease Termination Date (as such term in defined in the
Primary Lease) application to the Subleased Equipment.
2. Rent. The Sublessee hereby agrees to pay rental for the
Equipment in the amounts and on the date set forth on Schedule 2 hereto.
3. Compliance with the Primary Lease. During the term of
this Sublease, the Sublessee shall comply with and perform all
138
<PAGE> 145
requirements, duties and obligations of the lessee under the Primary Lease in
respect of the Subleased Equipment.
4. Subordinate to the Primary Lease. This sublease subject
and subordinate to the terms of the Primary Lease and the liens created
thereby.
5. Events of Default. Any "Event of Default," as such term
is defined int he Primary Lease, in respect of the Subleased Equipment shall be
an Event of Default hereunder. Upon the occurrence of any such Event of
Default, the Sublessor shall have, in respect of the Sublessee and the
Subleased Equipment, all the rights and remedies which would be available to
Wachovia int he event of the occurrence of an Designated Event of Default
under, and as such term is defined in, the Primary Lease, which rights and
remedies are hereby incorporated herein by reference.
6. Governing Law. This Sublease shall be governed by the
laws of the State of Georgia, without regard to conflicts of law principles.
IN WITNESS THEREOF, the parties hereto have executed this
Sublease as of the date and year first above written.
"Sublessor"
FLOWERS INDUSTRIES
By:
--------------------------------------
Name:
Title:
"Sublessee"
[NAME OF SUBLESSEE]
By:
--------------------------------------
Name:
Title:
139
<PAGE> 146
FIRST AMENDMENT TO MASTER LEASE AGREEMENT
THIS FIRST AMENDMENT TO MASTER LEASE AGREEMENT (this "First
Amendment") is dated as of the 20th day of October, 1996 between FLOWERS
INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the
"Lessor").
WITNESSETH:
WHEREAS, the Lessee and the Lessor executed and delivered that certain
Master Lease Agreement, dated as of the 20th day of October, 1995 (the
"Lease");
WHEREAS, contemporaneously herewith, the Lessee has furnished the
Lessor a Completion Certificate with respect to the Phase for the Applicable
Site located in Jamestown, North Carolina, but has acknowledged that it was
unable to achieve Completion with respect to the Phases for the Applicable
Sites located in Miami, Florida (the "Miami Phase") and in San Antonio, Texas
(the "San Antonio Phase") by the date which is six months from the respective
Phase Commencement Dates for such Phases, and has requested that the Lessor
grant an appropriate extension of time and other amendments to the Lease and
the Lessor has agreed to such amendments to the Lease, subject to the terms and
conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby
covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Lease shall have the meaning
assigned to such term in the Lease. Each
<PAGE> 147
reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Lease shall from and after the date hereof refer to
the Lease as amended hereby.
2. Amendments to the Lease. The Lease hereby is amended by (A)
deleting the words "Scheduled Amount" in the second line of of Section
3(b)(i)(B) of the Lease and in the second line of Section 3(b)(ii)(B) of the
Lease, and substituting therefor the words "Unrecovered Equipment Cost"), and
(B) amending certain defined terms contained in Schedule 1(b) thereto:
(i) the term "Acquisition Period" hereby is amended by
deleting it in its entirety and substituting therefor the following:
"Acquisition Period": a period commencing on the
Closing Date and ending (x) as to the Phases for the
Applicable Sites located in Miami, Florida and San
Antonio, Texas, April 21, 1997, and (y) as to all
other Phases, 12 months after the Closing Date.
(ii) the term "Non-Completion Event" hereby is amended by
deleting clause (i) thereof and substituting therefor the following:
(i) (x) as to the Phases for the Applicable Sites
located in Miami, Florida and San Antonio, Texas, April
21, 1997, and (y) as to all other Phases, the date
which is six months after the Phase Commencement Date
for such Phase, and
(iii) the term "Phase Completion Date" hereby is amended by
deleting clause (ii) thereof and substituting therefor the following:
(ii) (x) as to the Phases for the Applicable Sites
located in Miami, Florida and San Antonio, Texas, April
21, 1997, and (y) as to all other Phases,
<PAGE> 148
the date which is six months after the Phase
Commencement Date for such Phase, and
3. Waiver by the Lessor. The Lessor hereby waives the right to
terminate the Lease as to the Miami Phase and the San Antonio Phase as a result
of the failure to achieve Completion by the date which is six months after the
respective Phase Commencement Date for such Phases (but does not waive such
right if Completion has not occurred by April 21, 1997).
4. Restatement of Representations and Warranties. The Lessor
hereby restates and renews each and every representation and warranty
heretofore made by it in the Lease and the other Operative Documents as fully
as if made on the date hereof (except for any representations which were
correct on the date of the Lease but are not correct on the date hereof because
of a change permitted by the Lease or the Operative Documents) and with
specific reference to this First Amendment and all other documents executed
and/or delivered in connection herewith.
5. Effect of Amendment. Except as set forth expressly
hereinabove, all terms of the Lease and the other Operative Documents shall be
and remain in full force and effect, and shall constitute the legal, valid,
binding and enforceable obligations of the Lessee.
6, Ratification. The Lessee hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth in the Lease
and the other Operative Documents effective as of the date hereof.
7. Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same instrument.
8. Section References. Section titles and references used in
this First Amendment shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
3
<PAGE> 149
9. No Default. To induce the Lessor to enter into this First
Amendment and to continue to make advances of Facility Cost for the Miami Phase
and the San Antonio Phase pursuant to the Lease, the Lessee hereby acknowledges
and agrees that, as of the date hereof, and after giving effect to the terms
hereof, there exists (i) no Default or Event of Default and (ii) no right of
offset, defense, counterclaim, claim or objection in favor of the Lessee
arising out of or with respect to the Lease or other Operative Documents.
10. Further Assurances. The Lessee agrees to take such further
actions as the Lessor shall reasonably request in connection herewith to
evidence the amendments herein contained to the Lessee.
11. Governing Law. This First Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of Georgia.
4
<PAGE> 150
IN WITNESS WHEREOF, the Lessee and the Lessor have caused this First
Amendment to be duly executed, under seal, by its duly authorized officer as of
the day and year first above written.
LESSEE:
FLOWERS INDUSTRIES, INC. (SEAL)
By:
-------------------------------------
Title:
LESSOR:
WACHOVIA LEASING CORPORATION (SEAL)
By:
-------------------------------------
Title:
5
<PAGE> 151
SECOND AMENDMENT TO MASTER LEASE AGREEMENT
THIS SECOND AMENDMENT TO MASTER LEASE AGREEMENT (this "Second
Amendment") is dated as of the 20th day of April, 1997 between FLOWERS
INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the
"Lessor").
WITNESSETH:
WHEREAS, the Lessee and the Lessor executed and delivered that certain
Master Lease Agreement, dated as of the 20th day of October, 1995, as amended
by First Amendment to Master Lease Agreement dated as of October 20, 1996 (as
so amended, the "Lease");
WHEREAS, the Lessee has furnished the Lessor a Completion Certificate
with respect to the Phase for the Applicable Site located in Jamestown, North
Carolina, but has acknowledged that it was unable to achieve Completion with
respect to the Phases for the Applicable Sites located in Miami, Florida (the
"Miami Phase") and in San Antonio, Texas (the "San Antonio Phase") by the date
required for such Phases, and has requested that the Lessor grant an
appropriate extension of time and other amendments to the Lease and the Lessor
has agreed to such amendments to the Lease, subject to the terms and conditions
hereof;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby
covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Lease shall
<PAGE> 152
have the meaning assigned to such term in the Lease. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Lease shall from and after the date hereof refer to the Lease
as amended hereby.
2. Amendments to the Lease. The Lease hereby is amended by
amending certain defined terms contained in Schedule 1(b) thereto:
(i) the term "Acquisition Period" hereby is amended by
deleting it in its entirety and substituting therefor the following:
"Acquisition Period": a period commencing on
the Closing Date and ending (x) as to the Phases for the
Applicable Sites located in Miami, Florida and San
Antonio, Texas, October 21, 1997, and (y) as to all
other Phases, 12 months after the Closing Date.
(ii) the term "Non-Completion Event" hereby is amended by
deleting clause (i) thereof and substituting therefor the following:
(i) (x) as to the Phases for the Applicable Sites
located in Miami, Florida and San Antonio, Texas,
October 21, 1997, and (y) as to all other Phases, the
date which is six months after the Phase Commencement
Date for such Phase, and
(iii) the term "Phase Completion Date" hereby is amended by
deleting clause (ii) thereof and substituting therefor the following:
(ii) (x) as to the Phases for the Applicable Sites
located in Miami, Florida and San Antonio, Texas,
October 21, 1997, and (y) as to all other Phases, the
date which is six months after the Phase Commencement
Date for such Phase, and
<PAGE> 153
3. Waiver by the Lessor. The Lessor hereby waives the right to
terminate the Lease as to the Miami Phase and the San Antonio Phase as a result
of the failure to achieve Completion by the date originally required by the
Lease (but does not waive such right if Completion has not occurred by October
21, 1997).
4. Restatement of Representations and Warranties. The Lessor
hereby restates and renews each and every representation and warranty
heretofore made by it in the Lease and the other Operative Documents as fully
as if made on the date hereof (except for any representations which were
correct on the date of the Lease but are not correct on the date hereof because
of a change permitted by the Lease or the Operative Documents) and with
specific reference to this Second Amendment and all other documents executed
and/or delivered in connection herewith.
5. Effect of Amendment. Except as set forth expressly
hereinabove, all terms of the Lease and the other Operative Documents shall be
and remain in full force and effect, and shall constitute the legal, valid,
binding and enforceable obligations of the Lessee.
6, Ratification. The Lessee hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth in the Lease
and the other Operative Documents effective as of the date hereof.
7. Counterparts. This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same instrument.
8. Section References. Section titles and references used in
this Second Amendment shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
9. No Default. To induce the Lessor to enter into this Second
Amendment and to continue to make advances of Facility Cost for the Miami Phase
and the San Antonio Phase pursuant to
3
<PAGE> 154
the Lease, the Lessee hereby acknowledges and agrees that, as of the date
hereof, and after giving effect to the terms hereof, there exists (i) no
Default or Event of Default and (ii) no right of offset, defense, counterclaim,
claim or objection in favor of the Lessee arising out of or with respect to the
Lease or other Operative Documents.
10. Further Assurances. The Lessee agrees to take such further
actions as the Lessor shall reasonably request in connection herewith to
evidence the amendments herein contained to the Lessee.
11. Governing Law. This Second Amendment shall be governed by
and construed and interpreted in accordance with, the laws of the State of
Georgia.
4
<PAGE> 155
IN WITNESS WHEREOF, the Lessee and the Lessor have caused this Second
Amendment to be duly executed, under seal, by its duly authorized officer as of
the day and year first above written.
LESSEE:
FLOWERS INDUSTRIES, INC. (SEAL)
By:
-------------------------------------
Title:
LESSOR:
WACHOVIA LEASING CORPORATION (SEAL)
By:
-------------------------------------
Title:
5
<PAGE> 156
THIRD AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO
ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT
THIS THIRD AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO
ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT(this "Amendment") is dated
as of June 10, 1998 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and
WACHOVIA LEASING CORPORATION (the "Lessor").
WITNESSETH:
WHEREAS, the Lessee and the Lessor executed and delivered that certain
Master Lease Agreement, dated as of the 20th day of October, 1995, as amended
by First Amendment to Master Lease Agreement dated as of October 20, 1996 and
by Second Amendment to Master Lease Agreement dated as of April 20, 1997 (as so
amended, the "Lease");
WHEREAS, Completion has been achieved, and the Phase Commencement Date
has occurred, with respect to the Applicable Sites located in Miami, Florida,
Jamestown, North Carolina and San Antonio, Texas, and the Lease provides for up
to 5 additional Phases, but the Acquisition Period has terminated under the
Lease; and
WHEREAS, The Lessee has requested that the Lease be amended to (i)
provide for a new Acquisition Period for 5 additional Phases (the "Subsequent
Phases"), including Phases in Spartanburg, South Carolina, Stilwell, Oklahoma
and Suwanee, Georgia, and 2 other Phases not yet identified, and (ii) increase
the maximum aggregate Equipment Cost from $50,000,000 to $80,000,000, and the
Lessor has agreed to such amendments to the Lease, as well as an amendment to
the Agency Agreement to reflect the increase described in clause (ii), subject
to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby
covenant and agree as follows:
<PAGE> 157
1. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Lease shall have the meaning
assigned to such term in the Lease. Each reference to "hereof", "hereunder",
"herein" and "hereby" and each other similar reference and each reference to
"this Agreement" and each other similar reference contained in the Lease shall
from and after the date hereof refer to the Lease as amended hereby.
2. Amendments to Section 3(a) of the Lease. Section 3(a) of the
Lease hereby is amended by deleting the figure "$50,000,000" in the 23rd and
25th lines thereof, and substituting therefor the figure "$80,000,000".
3. Amendment to Section 29 of the Lease. Section 29 of the Lease
hereby is amended by adding a new paragraph (l) thereto, as follows:
(l) Year 2000 Compliance. All computer systems used
by the Lessee and the Lessee's Subsidiaries will be, on or prior to
December 31, 1999, capable of the following:
(i) handling date information involving all
and any dates before, during and/or after January 1, 2000,
including accepting input, providing output and performing
date calculations in whole or in part;
(ii) operating, accurately without
interruption on and in respect of any and all dates before,
during and/or after January 1, 2000 and without any change in
performance;
(iii) responding to and processing two
digit year input without creating any ambiguity as to the
century; and
(iv) storing and providing date input information
without creating any ambiguity as to the century;
except where the failure to be so capable would not reasonably be
expected to have a Material Adverse Effect.
4. Amendments to Schedule 1(b) to the Lease. The Schedule 1(b)
of the Lease hereby is amended as follows:
(i) the term "Acquisition Period" hereby is amended by
deleting it in its entirety and substituting therefor the following:
"Acquisition Period": (i) as to the Initial
Phases, a period commencing on the Closing Date
2
<PAGE> 158
and ending (x) as to the Phases for the Applicable Sites
located in Miami, Florida and San Antonio, Texas,
October 21, 1997, and (y) as to the Phase for the
Applicable Site located in Jamestown, North Carolina,
12 months after the Closing Date; and (ii) as to each
of the Subsequent Phases, 15 months after the Third
Amendment Date.
(ii) the following new definitions hereby are added in
appropriate alphabetical sequence:
"Initial Phases" means the Phases for the
Applicable Sites located in Miami, Florida, Jamestown,
North Carolina and San Antonio, Texas, as to which
Completion and the Phase Commencement Date occurred
prior to the Third Amendment Date.
"Subsequent Phases" means the following
Phases, as to which Completion and the Phase
Commencement Date has not occurred prior to the Third
Amendment Date: (i) Phases for Applicable Sites to be
located in Spartanburg, South Carolina, Stilwell,
Oklahoma and Suwanee, Georgia; and (ii) 2 other Phases
for Applicable Sites not identified at the time of the
Third Amendment.
"Third Amendment Date" means June 10, 1998.
5. Amendment to Agency Agreement. Section C.1.(b)(v) of Article 1
of the Agency Agreement hereby is amended by deleting the figure "$50,000,000"
in the 2nd line thereof, and substituting therefor the figure "$80,000,000".
6. Restatement of Representations and Warranties. The Lessor
hereby restates and renews each and every representation and warranty
heretofore made by it in the Lease and the other Operative Documents as fully
as if made on the date hereof (except for any representations which were
correct on the date of the Lease but are not correct on the date hereof because
of a change permitted by the Lease or the Operative Documents) and with
specific reference to this Amendment and all other documents executed and/or
delivered in connection herewith.
7. Effect of Amendments. Except as set forth expressly
hereinabove, all terms of the Lease, the Agency Agreement and the other
Operative Documents shall be and remain in full force and effect, and shall
constitute the legal, valid, binding and enforceable obligations of the Lessee.
8. Ratification. The Lessee hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth
3
<PAGE> 159
in the Lease, the Agency Agreement and the other Operative Documents effective
as of the date hereof.
9. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
10. Section References. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
11. No Default. To induce the Lessor to enter into this Amendment
and to continue to make advances of Facility Cost for the Subsequent Phases
pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of
the date hereof, and after giving effect to the terms hereof, there exists (i)
no Default or Event of Default and (ii) no right of offset, defense,
counterclaim, claim or objection in favor of the Lessee arising out of or with
respect to the Lease or other Operative Documents.
12. Further Assurances. The Lessee agrees to take such further
actions as the Lessor shall reasonably request in connection herewith to
evidence the amendments herein contained to the Lessee.
13. Governing Law. This Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of Georgia.
14. Conditions Precedent. This Amendment shall become effective
only upon:
(i) execution and delivery of this Amendment by each of the
parties hereto;
(ii) receipt by the Lessor of a favorable opinion or opinions of
Assistant General Counsel to the Lessee, dated as of the date hereof,
substantially in the form of Exhibit A hereto;
(iii) receipt by the Lessor of a certificate substantially in the form
of Exhibit B hereto, dated as of the date hereof, signed by an authorized
officer of the Lessee to the effect that (i) no Default has occurred and is
continuing on the date hereof and (ii) the representations and warranties of
Lessee contained in the Lease and the other Operative Documents are true and
correct on the date hereof (except for any representations which were correct on
the date of the Lease but are not correct on the
4
<PAGE> 160
date hereof because of a change permitted by the Lease or the Operative
Documents);
(iv) receipt by the Lessor of a certificate of the Secretary or
Assistant Secretary of the Lessee substantially in the form of Exhibit C
hereto, dated as of the date hereof, setting forth (i) resolutions of its board
of directors authorizing the execution,delivery and performance of the
obligations contained in this Amendment, (ii) the officers of the Lessee
specified in such Secretary's Certificates that are authorized to sign this
Amendment and (iii) a statement that there have been no amendments to the
articles or certificate of incorporation and the bylaws of the Lessee since the
Closing Date or, if there have been any such amendments attaching such
amendments; and
(v) receipt by the Lessor of a structuring fee in the amount of
$40,000.
5
<PAGE> 161
IN WITNESS WHEREOF, the Lessee and the Lessor have caused this
Amendment to be duly executed, under seal, by its duly authorized officer as of
the day and year first above written.
LESSEE:
FLOWERS INDUSTRIES, INC. (SEAL)
By:
--------------------------------------
Title:
LESSOR:
WACHOVIA LEASING CORPORATION (SEAL)
By:
--------------------------------------
Title:
6
<PAGE> 162
EXHIBIT A
[NOTE: THE ENFORCEABILITY PORTION OF THIS OPINION MAY BE GIVEN BY
TROUTMAN SANDERS LLP]
FORM OF LEGAL OPINION OF
GENERAL COUNSEL OF LESSEE
[LESSEE LETTERHEAD]
June 10, 1998
Wachovia Leasing Corporation
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Dear Sirs:
I am the Assistant General Counsel for Flowers Industries,
Inc., a Georgia corporation ("Lessee"). This opinion is being delivered
pursuant to Section 12(ii) of that certain Third Amendment to Master Lease
Agreement and Amendment to Acquisition, Agency, Indemnity and Support Agreement
dated as of even date herewith between Lessee and Wachovia Leasing Corporation
(the "Amendment"). Capitalized terms used but not defined herein have the
meanings set forth in the Amendment or in the Lease referred to therein or in
Schedule 1(b) to the Lease.
I have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The execution, delivery and performance by Lessee of the
Amendment is within the Lessee's corporate powers, has been duly authorized by
all necessary corporate action, requires no action by or in respect of, or
filing with, any governmental body, agency or official, does not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of incorporation or by-laws of Lessee or of any material
agreement, judgment, injunction, order, decree or other instrument relating to
Debt which is binding upon Lessee, and does not result in the creation or
imposition of any Lien on any asset of Lessee (other than the
7
<PAGE> 163
security interest in the Equipment created by the Lease in the event that the
Lease is recharacterized as a financing transaction).
2. The Amendment constitutes the valid and binding obligations of
Lessee enforceable against Lessee in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general principles of equity (including,
without limitation, the availability or non-availability of equitable
remedies), whether considered in a proceeding at law or in equity; provided
that the foregoing shall not, in my opinion, substantially interfere with the
practical realization of the benefits expressed in the Amendment, except for
the economic consequences of any procedural delay which may result therefrom.
3. There is no action, suit or proceeding pending for which
process has been served, or, to the best of my knowledge, threatened, against
or affecting Lessee or any of its Subsidiaries before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, consolidated financial position or consolidated results of operations
of Lessee and its Consolidated Subsidiaries, considered as a whole, or which in
any manner questions the validity or enforceability of the Amendment.
4. The execution, delivery and performance by Lessee of the
Amendment does not conflict with or result in a violation of any law, statute,
rule or regulation of the State of Georgia (or any subdivision thereof), or
require any consent of or filing or registration with an Governmental Authority
of the State of Georgia (or any subdivision thereof) or pursuant to the UCC
which has not been obtained or completed and which is necessary for the
validity and enforceability thereof.
I am qualified to practice in the State of Georgia and do not
purport to be expert on any laws other than the laws of the State of Georgia,
the federal laws of the United States, and the UCC, and this opinion is
rendered only with respect to such laws. I have made no independent
investigation of the laws of any other jurisdiction (except with respect to the
UCC).
In rendering the opinions above, I have assumed, with your
permission, that Amendment has been duly authorized, executed and delivered by
Lessor and, to the extent provided therein, constitutes the legal, valid and
binding obligation of Lessor enforceable in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general principles of equity (including,
without limitation, the availability or non-availability of equitable
remedies), whether considered in a proceeding at law or in equity.
8
<PAGE> 164
This opinion is delivered to you at the request of Lessee in
connection with the transaction referenced above and may not, without my prior
written consent, be communicated to or relied upon by anyone other than you,
your successors and assigns, except that it may be communicated to Jones, Day,
Reavis & Pogue, your special counsel.
This opinion speaks only as of the date hereof, and I do not
undertake any duty to advise you of any change herein.
Very truly yours,
------------------------------------
Stephen R. Avera, Esq.
Assistant General Counsel
Flowers Industries, Inc.
9
<PAGE> 165
EXHIBIT B
CLOSING CERTIFICATE
Reference is made to the Third Amendment to Master Lease Agreement and
Amendment to Acquisition, Agency, Indemnity and Support Agreement as of even
date herewith between Lessee and Wachovia Leasing Corporation (the
"Amendment"). Capitalized terms used but not defined herein have the meanings
set forth in the Amendment or in the Lease referred to therein or in Schedule
1(b) to the Lease.
Pursuant to Section 12(iii) of the Amendment, ____________________,
the duly authorized ____________________ of the Lessee, hereby certifies to the
Lessor that (i) no Default has occurred and is continuing as of the date
hereof, and (ii) the representations and warranties of Lessee contained in the
Lease and the other Operative Documents are true and correct on the date hereof
(except for any representations which were correct on the date of the Lease but
are not correct on the date hereof because of a change permitted by the Lease
or the Operative Documents).
Certified as of June 10, 1998.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
------------------------------------
Title:
10
<PAGE> 166
EXHIBIT C
SECRETARY'S CERTIFICATE
The undersigned, ______________________, [Secretary/Assistant Secretary] of
Flowers Industries, Inc. (the "Lessee"), hereby certifies that he has been duly
elected, qualified and is acting in such capacity and that, as such, he is
familiar with the facts herein certified and is duly authorized to certify the
same, and hereby further certifies, in connection with the Third Amendment to
Master Lease Agreement and Amendment to Acquisition, Agency, Indemnity and
Support Agreement dated as of even date herewith between Lessee and Wachovia
Leasing Corporation (the "Amendment") that:
1. Attached hereto as Annex 1 is a complete and correct copy of
the resolutions duly adopted by the Board of Directors of the Lessee on
_________________, 1998 approving, and authorizing the execution and delivery
of, the Amendment. Such resolutions have not been repealed or amended and are
in full force and effect, and no other resolutions or consents have been
adopted by the Board of Directors of the Lessee in connection therewith.
2. _____________________, who is _________________ of the Lessee,
signed the Amendment, was duly elected, qualified and acting as such at the
time he signed the Amendment, and his signature appearing on the Amendment is
his genuine signature.
3. Since October 20, 1995, there have been no amendments to the
articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT ,
COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES] ].
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the day of
June, 1998.
--------------------------------------
Name:
Title: [Secretary/Assistant Secretary]
11
<PAGE> 167
FOURTH AMENDMENT TO MASTER LEASE AGREEMENT
THIS FOURTH AMENDMENT TO MASTER LEASE AGREEMENT(this "Amendment") is
dated as of January 15, 1999 between FLOWERS INDUSTRIES, INC. (the "Lessee"),
and WACHOVIA LEASING CORPORATION (the "Lessor").
W I T N E S S E T H:
WHEREAS, the Lessee and the Lessor executed and delivered that certain
Master Lease Agreement, dated as of the 20th day of October, 1995, as amended
by that certain First Amendment to Master Lease Agreement dated as of October
20, 1996, by that certain Second Amendment to Master Lease Agreement dated as
of April 20, 1997, and by that certain Third Amendment to Master Lease
Agreement dated as of June 10, 1998 (as so amended, the "Lease"); and
WHEREAS, the Lessee and the Lessor have agreed to amend certain
provisions of the Lease as set forth below;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby
covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Lease shall have the meaning
assigned to such term in the Lease. Each reference to "hereof", "hereunder",
"herein" and "hereby" and each other similar reference and each reference to
"this Agreement" and each other similar reference contained in the Lease shall
from and after the date hereof refer to the Lease as amended hereby.
<PAGE> 168
2. Amendments to Lease. (a) A new definition, "Designated
Sites," is hereby added to Schedule 1(b) of the Lease in proper alphabetical
order as follows:
"Designated Sites": Jamestown, North Carolina; Miami,
Florida; and San Antonio, Texas.
(b) The definition of "Basic Rent" set forth in Schedule 1(b) to
the Lease is amended and restated in its entirety as set forth below:
"Basic Rent": (a) after January 15, 1999, for each Phase at
the Designated Sites, with respect to any Rental Period, the amounts
payable for such Phase as Basic Rent for such Rental Period pursuant
to Section 3(b) of the Lease, consisting of the sum of the Scheduled
Payment therefor and 5.77% per annum.
(b) for each Phase at all Applicable Sites other than the
Designated Sites, with respect to any Rental Period, the amounts
payable for such Phase as Basic Rent for such Rental Period pursuant
to Section 3(b) of the Lease, consisting of the sum of the Scheduled
Payment therefor and either the Floating Rate Payment or, if the
Election has been made, the Fixed Rate Payment.
(c) Section 3(b) of the Lease is amended and restated in its
entirety as follows:
(b) Basic Rent
(i) Floating Rate Payment Without Election; Election
and Election Period.
Subject to clause (iii) below), for each Phase, if
the Lessee has not made an Election within the Election
Period pursuant to the provisions and requirements of this
Section 3(b)(i), after the Phase Completion Date for each
Phase, the Lessee's Basic Rent during the Lease Term for such
Phase shall be payable for each Rental Period in arrears on
the Rent Payment Date for such Rental Period in an amount
equal to the sum of (A) the amount equal to the percentage
set forth in
2
<PAGE> 169
Schedule 3(b) for such Rental Period (as it may be modified
pursuant hereto as a result of an Approval Appraisal), times
the Equipment Cost (the "Scheduled Amount") as to such Phase
(the "Scheduled Payment") plus (B) an amount accruing on the
Scheduled Amount as to such Phase at the Floating Rate for
such Rental Period (the "Floating Rate Payment"). In the
event any Scheduled Amount or other amount of Equipment Cost
based on the LIBO Rate is prepaid other than on the last day
of the Rental Period with respect thereto (including by
reason of the occurrence of a Lease Termination Date for any
reason) the Lessee shall compensate the Lessor for any
funding losses incurred by it as a result of such prepayment.
Schedule 3(b) also sets forth the Estimated Residual as to
each Phase as of the end of each Rental Period. The Lessee
agrees that the Lessor reserves the right to modify the
Estimated Residual or the percentage of Equipment Cost for
determining the Scheduled Amount, or both, as to any Rental
Period for the Equipment for any Phase as a result of the
receipt of an Approval Appraisal pursuant to the Agency
Agreement. With respect to any Phase, the Lessee shall have
the option to convert the Basic Rent for such Phase within
the Election Period from a Floating Rate Payment basis to a
Fixed Rate Payment basis (any exercise of such option
pursuant to the provisions and requirements of this Section
3(b)(i) for any Phase being an "Election" for such Phase).
The "Election Period" with respect to each Phase shall
commence on the Phase Completion Date for such Phase and
terminate on the last day of the Acquisition Period. Each
Election shall be made by written notice received not less
than 7 days prior to the effective date of such Election (and
not less than 7 days prior to the end of the relevant
Election Period).
(ii) Fixed Rate Payment With Election.
Subject to clause (iii) below, for each Phase, if the
Lessee has made an Election within the Election Period
pursuant to the provision and requirements of Section 3(b)(i),
after the Phase Completion Date for each Phase, the Lessee's
Basic Rent during the Lease
3
<PAGE> 170
Term for such Phase shall be payable for each Rental Period
in arrears on the Rent Payment Date for such Rental Period in
an amount equal to the sum of (A) the Scheduled Payment as to
such Phase for such Rental Period plus (B) an amount accruing
on the Scheduled Amount as to such Phase at the Fixed Rate
for such Rental Period (the "Fixed Rate Payment"). On the
first Rent Payment Date after the Lessee makes an Election
for a qualifying Phase, the Lessee shall make, if applicable,
a Basic Rent payment consisting of the Schedule Payment for
such Phase plus a proportionate Floating Rate Payment and
Fixed Rate Payment for such Phase, and the Lessee shall
compensate the Lessor for any funding losses incurred by it
as a result of such change from a Floating Rate Payment to a
Fixed Rate Payment prior to the end of the Rental Period.
(iii) Designated Sites.
For each Phase at a Designated Site, after January 15,
1999, for each Phase, the Lessee's Basic Rent during the
Lease Term for such Phase shall be payable for each Rental
Period in arrears on the Rent Payment Date for such Rental
Period in an amount equal to the sum of (A) the Scheduled
Payment as to such Phase for such Rental Period plus (B) an
amount accruing on the Scheduled Amount as to such Phase at
the rate of 5.77% per annum for such Rental Period. No
Election may be made with respect to a Designated Phase.
(d) Section 3(d) of the Lease is amended and restated in its
entirety as follows:
(d) Supplemental Rent. In addition to Interim Rent, Basic
Rent and the Final Rent Payment, the Lessee will also pay to the
Lessor, from time to time, upon demand by the Lessor, as additional
rent ("Supplemental Rent"), the following (but without duplication of
any amounts included in the calculation of Rent):
(i) all out-of-pocket costs and expenses reasonably
incurred by the Lessor in connection with the preparation,
negotiation, execution, delivery,
4
<PAGE> 171
performance and administration of this Lease and the other
Operative Documents, including, but not limited to, the
following: (A) fees and expenses of the Lessor, including,
without limitation, reasonable attorneys' fees and expenses
and the fees and expenses for the Approved Appraisal and the
Related Contracts for each Phase; (B) all other amounts,
including, without limitation, fees, indemnities, expenses,
compensation in respect of increased costs of any kind or
description payable under this Lease or any other Operative
Document; (C) all yield maintenance, capital adequacy and
other costs contemplated under Section 27 of this Lease and
(D) all out-of-pocket costs and expenses incurred by the
Lessor after the date of this Lease (including, without
limitation, reasonable attorneys' fees and expenses and other
expenses and disbursements reasonably incurred) associated
with (1) negotiating and entering into, or the giving or
withholding of, any future amendments, supplements, waivers
or consents with respect to this Lease; (2) any Loss Event,
Casualty Occurrence or termination of this Lease; and (3) any
Default or Event of Default and the enforcement and
preservation of the rights or remedies of the Lessor under
this Lease and the other Operative Documents and (4) all
reasonable costs and expenses incurred by the Lessor or any
of its Affiliates in initially selling participations in this
Lease, including, without limitation, the related reasonable
fees and out-of-pocket expenses of counsel for the Lessor or
its Affiliates, travel expenses, duplication and printing
costs and courier and postage fees, and excluding any fees
paid to Participants purchasing such a participation;
(ii) the amount that the Lessor determines, in the
exercise of its sole good faith discretion, to be its total
losses and costs incurred in connection with Basic Rent under
clause (a) of the definition of "Basic Rent" as a result of
the termination of this Lease prior to the end of the Basic
Term, such losses and costs to include, without limitation,
cost of funding, or, at the election of the Lessor (but
without duplication), losses or costs incurred as a result of
5
<PAGE> 172
the Lessor's terminating, liquidating, obtaining or
re-establishing any hedge, interest rate swap, or similar or
related trade position obtained by the Lessor with respect to
its costs to fund and refund Equipment Costs with respect to
the Designated Sites but excluding any loss of margin or
profit; and
(iii) all other amounts that the Lessee agrees
herein to pay other than Interim Rent, Basic Rent, the Final
Rent Payment and amounts described in clause (i) above.
6. Restatement of Representations and Warranties. The Lessor
hereby restates and renews each and every representation and warranty
heretofore made by it in the Lease and the other Operative Documents as fully
as if made on the date hereof (except for any representations which were
correct on the date of the Lease but are not correct on the date hereof because
of a change permitted by the Lease or the Operative Documents) and with
specific reference to this Amendment and all other documents executed and/or
delivered in connection herewith.
7. Effect of Amendments. Except as set forth expressly
hereinabove, all terms of the Lease and the other Operative Documents shall be
and remain in full force and effect, and shall constitute the legal, valid,
binding and enforceable obligations of the Lessee.
8. Ratification. The Lessee hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth in the Lease,
the Agency Agreement and the other Operative Documents effective as of the date
hereof.
9. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
10. Section References. Section titles and references used in this
Amendment shall be without substantive meaning or content
6
<PAGE> 173
of any kind whatsoever and are not a part of the agreements among the parties
hereto evidenced hereby.
11. No Default. To induce the Lessor to enter into this Amendment
and to continue to make advances of Facility Cost for the Subsequent Phases
pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of
the date hereof, and after giving effect to the terms hereof, there exists (i)
no Default or Event of Default and (ii) no right of offset, defense,
counterclaim, claim or objection in favor of the Lessee arising out of or with
respect to the Lease or other Operative Documents.
12. Further Assurances. The Lessee agrees to take such further
actions as the Lessor shall reasonably request in connection herewith to
evidence the amendments herein contained to the Lessee.
13. Governing Law. This Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the
State of Georgia.
14. Conditions Precedent. This Amendment shall become effective
only upon:
(i) execution and delivery of this Amendment by each of the
parties hereto;
(ii) receipt by the Lessor of a certificate substantially in the
form of Exhibit A hereto, dated as of the date hereof, signed by an authorized
officer of the Lessee to the effect that (i) no Default has occurred and is
continuing on the date hereof and (ii) the representations and warranties of
Lessee contained in the Lease and the other Operative Documents are true and
correct on the date hereof (except for any representations which were correct
on the date of the Lease but are not correct on the date hereof because of a
change permitted by the Lease or the Operative Documents); and
(iii) receipt by the Lessor of a certificate of the Secretary or
Assistant Secretary of the Lessee substantially in the form of Exhibit B
hereto, dated as of the date hereof, setting forth (i) resolutions of its board
of directors authorizing the execution, delivery and performance of the
7
<PAGE> 174
obligations contained in this Amendment, (ii) the officers of the Lessee
specified in such Secretary's Certificates that are authorized to sign this
Amendment and (iii) a statement that there have been no amendments to the
articles or certificate of incorporation and the bylaws of the Lessee since the
Closing Date or, if there have been any such amendments attaching such
amendments.
IN WITNESS WHEREOF, the Lessee and the Lessor have caused this
Amendment to be duly executed, under seal, by its duly authorized officer as of
the day and year first above written.
LESSEE:
FLOWERS INDUSTRIES, INC. (SEAL)
By:
----------------------------------
Title:
LESSOR:
WACHOVIA LEASING CORPORATION (SEAL)
By:
----------------------------------
Title:
8
<PAGE> 175
EXHIBIT A
CLOSING CERTIFICATE
Reference is made to the Fourth Amendment to Master Lease Agreement
and Amendment to Acquisition, Agency, Indemnity and Support Agreement as of
even date herewith between Lessee and Wachovia Leasing Corporation (the
"Amendment"). Capitalized terms used but not defined herein have the meanings
set forth in the Amendment or in the Lease referred to therein or in Schedule
1(b) to the Lease.
Pursuant to Section 12(iii) of the Amendment, _____________________
_______________, the duly authorized _________________________ of the Lessee,
hereby certifies to the Lessor that (i) no Default has occurred and is
continuing as of the date hereof, and (ii) the representations and warranties
of Lessee contained in the Lease and the other Operative Documents are true and
correct on the date hereof (except for any representations which were correct
on the date of the Lease but are not correct on the date hereof because of a
change permitted by the Lease or the Operative Documents).
Certified as of January 15, 1999.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
----------------------------------
Title:
9
<PAGE> 176
EXHIBIT B
SECRETARY'S CERTIFICATE
The undersigned, _________________, [Secretary/Assistant Secretary] of Flowers
Industries, Inc. (the "Lessee"), hereby certifies that he has been duly
elected, qualified and is acting in such capacity and that, as such, he is
familiar with the facts herein certified and is duly authorized to certify the
same, and hereby further certifies, in connection with the Fourth Amendment to
Master Lease Agreement and Amendment to Acquisition, Agency, Indemnity and
Support Agreement dated as of even date herewith between Lessee and Wachovia
Leasing Corporation (the "Amendment") that:
1. Attached hereto as Annex 1 is a complete and correct copy of
the resolutions duly adopted by the Board of Directors of the Lessee on
______________ ____, 199__ approving, and authorizing the execution and
delivery of, the Amendment. Such resolutions have not been repealed or amended
and are in full force and effect, and no other resolutions or consents have
been adopted by the Board of Directors of the Lessee in connection therewith.
2. ___________________, who is ____________ of the Lessee,
signed the Amendment, was duly elected, qualified and acting as such at the
time he signed the Amendment, and his signature appearing on the Amendment is
his genuine signature.
3. Since October 20, 1995, there have been no amendments to the
articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT
___________________, COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES]______].
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of
the 15th day of January, 1999.
------------------------------------------
Name:
Title: [Secretary/Assistant Secretary]
10
<PAGE> 177
FIFTH AMENDMENT TO MASTER LEASE AGREEMENT AND SECOND
AMENDMENT TO ACQUISITION, AGENCY, INDEMNITY
AND SUPPORT AGREEMENT
THIS FIFTH AMENDMENT TO MASTER LEASE AGREEMENT AND SECOND AMENDMENT TO
ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT(this "Amendment") is dated
as of May 20, 1999 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and
WACHOVIA LEASING CORPORATION (the "Lessor").
WITNESSETH:
WHEREAS, the Lessee and the Lessor executed and delivered that certain
Master Lease Agreement, dated as of the 20th day of October, 1995, as amended
by First Amendment to Master Lease Agreement dated as of October 20, 1996, by
Second Amendment to Master Lease Agreement dated as of April 20, 1997, by Third
Amendment to Master Lease Agreement dated as of June 10, 1998, and by Fourth
Amendment to Master Lease Agreement dated as of January 15, 1999 (as so
amended, the "Lease");
WHEREAS, the Lessee and the Lessor have agreed that the Lease and
Agency Agreement be amended, subject to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby
covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Lease shall have the meaning
assigned to such term in the Lease. Each reference to "hereof", "hereunder",
"herein" and "hereby" and each other similar reference and each reference to
"this
<PAGE> 178
Agreement" and each other similar reference contained in the Lease shall from
and after the date hereof refer to the Lease as amended hereby.
2. Amendments to the Lease.
(a) The following definitions set forth in Schedule 1(b) are
amended and restated in their entirety as follows in proper alphabetical order:
"Acquisition Period": (i) as to the Initial Phases, a period
commencing on the Closing Date and ending (x) as to the Phases for the
Applicable Sites located in Miami, Florida and San Antonio, Texas,
October 21, 1997, and (y) as to the Phase for the Applicable Site
located in Jamestown, North Carolina, 12 months after the Closing
Date; and (ii) as to each of the Subsequent Phases, January 31, 2000.
"Fixed Rate": with respect to Basic Rent for each Phase, if
the Election has been made for such Phase, for each Rental Period,
a rate per annum equal to either:
(a) with respect to any portion of the Equipment
Cost for any Phase funded before the aggregate funded
Equipment Cost equals $80,000,000, the sum of (i) the
prevailing 5 year U.S. Treasury Rate as defined on page 500
of the Telerate Screen at 11:00 A.M., Atlanta time, on the
date of the Election for such Phase, plus (ii) the lesser of
(A) the corresponding ask side of the 5 year swap rate as
defined on page 19901 of the Telerate Screen at 11:00 A.M.,
Atlanta time, on such date, and (B) 0.55%, plus (iii) 0.45%,
and
(b) with respect to any portion of the Equipment
Cost for any Phase funded after the aggregate funded
Equipment Cost equals or exceeds $80,000,000, the sum of (i)
the prevailing 5 year U.S. Treasury Rate as defined on page
500 of the Telerate Screen at 11:00 A.M., Atlanta time, on
the date of the Election for such Phase, plus (ii) the
corresponding ask side of the 5 year swap rate as defined on
page 19901 of the Telerate Screen at 11:00 A.M., Atlanta
time, on such date, plus (iii) 0.60%.
2
<PAGE> 179
"Floating Rate": with respect to Basic Rent for each
Phase, if the Election has not been made or become effective
for such Phase, for each Rental Period, a rate per annum
equal to either:
(a) with respect to any portion of the Equipment
Cost for any Phase funded before the aggregate funded
Equipment Cost equals $80,000,000, the sum of (i) the LIBO
Rate prevailing on the first day of such Rental Period, plus
(ii) 0.45%, and
(b) with respect to any portion of the Equipment
Cost for any Phase funded after the aggregate funded
Equipment Cost equals or exceeds $80,000,000, the sum of (i)
the LIBO Rate prevailing on the first day of such Rental
Period, plus (ii) 0.60%.
"Non-Completion Event": as to any Phase, the failure of
Completion to occur on or before the earlier of (i) (x) as to the
Initial Phases for the Applicable Sites located in Miami, Florida and
San Antonio, Texas, October 21, 1997, (y) as to all other Initial
Phases, the date which is six months after the Phase Commencement Date
for such Phase, and (z) as to all Subsequent Phases, January 21, 2000,
and (ii) the last day of the Acquisition Period.
"Phase Completion Date": with respect to each Phase, the
earlier to occur of (i) Completion of such Phase, (ii) (x) as to the
Initial Phases for the Applicable Sites located in Miami, Florida and
San Antonio, Texas, October 21, 1997, (y) as to all other Initial
Phases, the date which is six months after the Phase Commencement Date
for such Phase, and (z) as to all Subsequent Phases, January 21, 2000,
and (iii) the last day of the Acquisition Period.
(b) Section 3(a) of the Lease is amended and restated in its entirety
as follows:
Section 3. Payments.
(a) Interim Rent. For each Phase, during the period
commencing on the Phase Commencement Date and ending on the Phase
Completion Date for such Phase, Interim Rent with
3
<PAGE> 180
respect to such Phase shall accrue on Equipment Cost during each
Interim Rental Period at a rate per annum equal to the LIBO Rate
prevailing on the first day of such Interim Rental Period plus (a)
with respect to any portion of the Equipment Cost for any Phase funded
before the aggregate funded Equipment Cost equals $80,000,000, 45
basis points, and (b) with respect to any portion of the Equipment
Cost for any Phase funded after the aggregate funded Equipment Cost
equals or exceeds $80,000,000, 60 basis points; provided, that if
there is less than one month remaining after the end of any Interim
Rental Period until the Phase Completion Date for such Phase, Interim
Rent for the final Interim Rental Period shall instead be determined
on the basis of 80% of the Base Rate. Interim Rent shall be paid in
arrears on the last day of the Interim Rental Period with respect
thereto. In the event any Equipment Cost on which interest accrued
based on the LIBO Rate is prepaid other than on the last day of the
Interim Rental Period with respect thereto (including by reason of the
occurrence of a Lease Termination Date for any reason), the Lessee
shall compensate the Lessor for any funding losses incurred by it as a
result of such prepayment. On the Phase Completion Date for each
Phase, all Soft Costs incurred during the period from the Phase
Commencement Date through the Phase Completion Date for such Phase
shall be capitalized and added to Equipment Cost for such Phase;
provided, that in no event shall the aggregate Equipment Cost for all
Phases exceed $100,000,000, and to the extent any such capitalization
of Soft Costs would cause the aggregate Equipment Cost for all Phases
to exceed $100,000,000, the amount of the excess shall be payable to
the Lessor on the Phase Completion Date on which such excess occurs.
In the event any Vendor requires any advance payments, progress
payments or full payments prior to the Lease Addition Date of the
Equipment proposed to be added to the Lease for any Phase, the Lessee
shall execute and deliver to the Lessor a Progress Payment Agreement
for such Phase, and the Lessor will make available amounts pursuant
thereto for such purpose. For any Equipment which is the subject of
any payments made by the Lessor under a Progress Payment Agreement for
any Phase, unpaid Additional Rent under such Progress Payment
Agreement with respect to such Equipment shall be capitalized and,
together with the amount of such payments made by the Lessor with
respect to such
4
<PAGE> 181
Equipment, shall be added to and constitute part of the Equipment Cost
for such Phase.
3. Amendment to Agency Agreement. Section C.1.(b)(v) of Article
1 of the Agency Agreement hereby is amended by deleting the figure
"$80,000,000" in the 2nd line thereof, and substituting therefor the figure
"$100,000,000".
4. Restatement of Representations and Warranties. The Lessor
hereby restates and renews each and every representation and warranty
heretofore made by it in the Lease and the other Operative Documents as fully
as if made on the date hereof (except for any representations which were
correct on the date of the Lease but are not correct on the date hereof because
of a change permitted by the Lease or the Operative Documents) and with
specific reference to this Amendment and all other documents executed and/or
delivered in connection herewith.
5. Effect of Amendments. Except as set forth expressly
hereinabove, all terms of the Lease, the Agency Agreement and the other
Operative Documents shall be and remain in full force and effect, and shall
constitute the legal, valid, binding and enforceable obligations of the Lessee.
6. Ratification. The Lessee hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth in the Lease,
the Agency Agreement and the other Operative Documents effective as of the date
hereof.
7. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
8. Section References. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
9. No Default. To induce the Lessor to enter into this Amendment
and to continue to make advances of Facility Cost for
5
<PAGE> 182
the Subsequent Phases pursuant to the Lease, the Lessee hereby acknowledges and
agrees that, as of the date hereof, and after giving effect to the terms
hereof, there exists (i) no Default or Event of Default and (ii) no right of
offset, defense, counterclaim, claim or objection in favor of the Lessee
arising out of or with respect to the Lease or other Operative Documents.
10. Further Assurances. The Lessee agrees to take such further
actions as the Lessor shall reasonably request in connection herewith to
evidence the amendments herein contained to the Lessee.
11. Governing Law. This Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of Georgia.
12. Conditions Precedent. This Amendment shall become effective
only upon:
(i) execution and delivery of this Amendment by each of the
parties hereto;
(ii) receipt by the Lessor of a favorable opinion or opinions
of counsel to the Lessee, dated as of the date hereof, substantially
in the form of Exhibit A hereto;
(iii) receipt by the Lessor of a certificate substantially in
the form of Exhibit B hereto, dated as of the date hereof, signed by
an authorized officer of the Lessee to the effect that (i) no Default
has occurred and is continuing on the date hereof and (ii) the
representations and warranties of Lessee contained in the Lease and
the other Operative Documents are true and correct on the date hereof
(except for any representations which were correct on the date of the
Lease but are not correct on the date hereof because of a change
permitted by the Lease or the Operative Documents);
(iv) receipt by the Lessor of a certificate of the Secretary
or Assistant Secretary of the Lessee substantially in the form of
Exhibit C hereto, dated as of the date hereof, setting forth (i)
resolutions of its board of directors authorizing the execution,
delivery and
6
<PAGE> 183
performance of the obligations contained in this Amendment, (ii) the
officers of the Lessee specified in such Secretary's Certificates that
are authorized to sign this Amendment and (iii) a statement that there
have been no amendments to the articles or certificate of
incorporation and the bylaws of the Lessee since the Closing Date or,
if there have been any such amendments attaching such amendments; and
(v) receipt by the Lessor of a structuring fee in the amount
of $20,000.
IN WITNESS WHEREOF, the Lessee and the Lessor have caused this
Amendment to be duly executed, under seal, by its duly authorized officer as of
the day and year first above written.
LESSEE:
FLOWERS INDUSTRIES, INC. (SEAL)
By:
---------------------------------------
Title:
LESSOR:
WACHOVIA LEASING CORPORATION (SEAL)
By:
---------------------------------------
Title:
7
<PAGE> 184
EXHIBIT A
[NOTE: THE ENFORCEABILITY PORTION OF THIS OPINION MAY BE GIVEN BY
TROUTMAN SANDERS LLP]
FORM OF LEGAL OPINION OF
GENERAL COUNSEL OF LESSEE
[LESSEE LETTERHEAD]
[__________], 1999
Wachovia Leasing Corporation
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Dear Sirs:
I am the General Counsel for Flowers Industries, Inc., a
Georgia corporation ("Lessee"). This opinion is being delivered pursuant to
Section 12(ii) of that certain Fifth Amendment to Master Lease Agreement and
Second Amendment to Acquisition, Agency, Indemnity and Support Agreement dated
as of even date herewith between Lessee and Wachovia Leasing Corporation (the
"Amendment"). Capitalized terms used but not defined herein have the meanings
set forth in the Amendment or in the Lease referred to therein or in Schedule
1(b) to the Lease.
I have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The execution, delivery and performance by Lessee of the
Amendment is within the Lessee's corporate powers, has been duly
8
<PAGE> 185
authorized by all necessary corporate action, requires no action by or in
respect of, or filing with, any governmental body, agency or official, does not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of Lessee or of
any material agreement, judgment, injunction, order, decree or other instrument
relating to Debt which is binding upon Lessee, and does not result in the
creation or imposition of any Lien on any asset of Lessee (other than the
security interest in the Equipment created by the Lease in the event that the
Lease is recharacterized as a financing transaction).
2. The Amendment constitutes the valid and binding obligations of
Lessee enforceable against Lessee in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general principles of equity (including,
without limitation, the availability or non-availability of equitable
remedies), whether considered in a proceeding at law or in equity; provided
that the foregoing shall not, in my opinion, substantially interfere with the
practical realization of the benefits expressed in the Amendment, except for
the economic consequences of any procedural delay which may result therefrom.
3. There is no action, suit or proceeding pending for which
process has been served, or, to the best of my knowledge, threatened, against
or affecting Lessee or any of its Subsidiaries before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, consolidated financial position or consolidated results of operations
of Lessee and its Consolidated Subsidiaries, considered as a whole, or which in
any manner questions the validity or enforceability of the Amendment.
4. The execution, delivery and performance by Lessee of the
Amendment does not conflict with or result in a violation of any law, statute,
rule or regulation of the State of Georgia (or any subdivision thereof), or
require any consent of or filing or registration with an Governmental Authority
of the State of Georgia (or any subdivision thereof) or pursuant to the UCC
which has not been obtained or completed and which is necessary for the
validity and enforceability thereof.
9
<PAGE> 186
I am qualified to practice in the State of Georgia and do not
purport to be expert on any laws other than the laws of the State of Georgia,
the federal laws of the United States, and the UCC, and this opinion is
rendered only with respect to such laws. I have made no independent
investigation of the laws of any other jurisdiction (except with respect to the
UCC).
In rendering the opinions above, I have assumed, with your
permission, that Amendment has been duly authorized, executed and delivered by
Lessor and, to the extent provided therein, constitutes the legal, valid and
binding obligation of Lessor enforceable in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general principles of equity (including,
without limitation, the availability or non-availability of equitable
remedies), whether considered in a proceeding at law or in equity.
This opinion is delivered to you at the request of Lessee in
connection with the transaction referenced above and may not, without my prior
written consent, be communicated to or relied upon by anyone other than you,
your successors and assigns, except that it may be communicated to Jones, Day,
Reavis & Pogue, your special counsel.
This opinion speaks only as of the date hereof, and I do not
undertake any duty to advise you of any change herein.
Very truly yours,
-----------------------------------
Tony Campbell, Esq.
General Counsel
Flowers Industries, Inc.
10
<PAGE> 187
EXHIBIT B
CLOSING CERTIFICATE
Reference is made to the Fifth Amendment to Master Lease Agreement and
Second Amendment to Acquisition, Agency, Indemnity and Support Agreement as of
even date herewith between Lessee and Wachovia Leasing Corporation (the
"Amendment"). Capitalized terms used but not defined herein have the meanings
set forth in the Amendment or in the Lease referred to therein or in Schedule
1(b) to the Lease.
Pursuant to Section 14(iii) of the Amendment, _________________
_________________, the duly authorized __________________ of the Lessee, hereby
certifies to the Lessor that (i) no Default has occurred and is continuing as
of the date hereof, and (ii) the representations and warranties of Lessee
contained in the Lease and the other Operative Documents are true and correct
on the date hereof (except for any representations which were correct on the
date of the Lease but are not correct on the date hereof because of a change
permitted by the Lease or the Operative Documents).
Certified as of [__________], 1999.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
----------------------------------
Title:
11
<PAGE> 188
EXHIBIT C
SECRETARY'S CERTIFICATE
The undersigned, ________________, [Secretary/Assistant Secretary] of Flowers
Industries, Inc. (the "Lessee"), hereby certifies that he has been duly
elected, qualified and is acting in such capacity and that, as such, he is
familiar with the facts herein certified and is duly authorized to certify the
same, and hereby further certifies, in connection with the Fifth Amendment to
Master Lease Agreement and Second Amendment to Acquisition, Agency, Indemnity
and Support Agreement dated as of even date herewith between Lessee and
Wachovia Leasing Corporation (the "Amendment") that:
1. Attached hereto as Annex 1 is a complete and correct copy of
the resolutions duly adopted by the Board of Directors of the Lessee on
____________, _____, 1999 approving, and authorizing the execution and delivery
of, the Amendment. Such resolutions have not been repealed or amended and are
in full force and effect, and no other resolutions or consents have been
adopted by the Board of Directors of the Lessee in connection therewith.
2. _____________, who is ______________ of the Lessee, signed
the Amendment, was duly elected, qualified and acting as such at the time he
signed the Amendment, and his signature appearing on the Amendment is his
genuine signature.
3. Since October 20, 1995, there have been no amendments to the
articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT
___________________, COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES] ].
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of
[____________], 1999.
------------------------------------------
Name:
Title: [Secretary/Assistant Secretary]
12
<PAGE> 189
SIXTH AMENDMENT TO MASTER LEASE AGREEMENT
AND AMENDMENT TO OTHER OPERATIVE DOCUMENTS
THIS SIXTH AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO OTHER
OPERATIVE DOCUMENTS (this "Amendment") is dated as of January 21, 2000 between
FLOWERS INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the
"Lessor").
WITNESSETH:
WHEREAS, the Lessee and the Lessor executed and delivered that certain
Master Lease Agreement, dated as of the 20th day of October, 1995, as amended
by First Amendment to Master Lease Agreement dated as of October 20, 1996, by
Second Amendment to Master Lease Agreement dated as of April 20, 1997, by Third
Amendment to Master Lease Agreement dated as of June 10, 1998, by Fourth
Amendment to Master Lease Agreement dated as of January 15, 1999, and by Fifth
Amendment to Master Lease Agreement dated as of May 20, 1999 (as so amended,
the "Lease");
WHEREAS, the Lessee and the Lessor have agreed that the Lease and
certain other Operative Documents be amended, subject to the terms and
conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby
covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Lease shall have the meaning
assigned to such term in the Lease. Each reference to "hereof", "hereunder",
"herein" and "hereby" and each other similar reference and each reference to
"this Agreement" and each other similar reference contained in the Lease shall
from and after the date hereof refer to the Lease as amended hereby.
2. Amendments to the Lease.
(a) The following new definitions are hereby added to Schedule
1(b) as follows in proper alphabetical order:
<PAGE> 190
"Applicable Margin": (i) for the period commencing on January
21, 2000, to and including the first Performance Pricing Determination
Date following December 30, 2000, 1.75%, unless during such period the
Debt Rating is BB and Ba2 or lower, in which case the Applicable
Margin shall be based upon the table set forth below; and
(ii) from and after the first Performance Pricing
Determination Date after December 30, 2000, the percentage determined
on each Performance Pricing Determination Date by reference to the
table set forth below and the Debt Rating on such Performance Pricing
Determination Date; provided, that if there is no Debt Rating, the
Applicable Margin shall be based upon Level V of the table below.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Level Level Level Level Level
I II III IV V
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<BBB <BBB- <BB+
and and and
Baa2 Baa3 Ba1
Debt Rating >BBB <BB-
- -
and But but but and
Baa2 Ba3
>BBB- >BB+ >BB
- - -
and and and
Baa3 Ba1 Ba2
--------------------------------------------------------------------------------
Applicable Margin 1.00% 1.25% 1.50% 2.00% 2.50%
--------------------------------------------------------------------------------
</TABLE>
In determining the Applicable Margin, the Lessor shall refer
to the Lessee's Debt Rating from time to time. For purposes hereof,
"Performance Pricing Determination Date" shall mean each date on which
the Debt Rating changes. Each change in the Applicable Margin as a
result of a change in Debt Rating shall be effective on or after the
relevant Performance Pricing Determination Date. All determinations
hereunder shall be made by Lessor. The Lessee shall promptly notify
the Lessor of any change in the Debt Rating.
"Credit Agreement": that certain $500,000,000 Amended and
Restated Credit Agreement (the "Facility") dated as of January 30,
1998, as amended or otherwise modified from time to time (except as
otherwise set forth in the Lease), with Wachovia Securities, Inc. as
Lead Arranger, Wachovia as Administrative Agent and as a Bank, and
certain other Banks, in favor of the Lessee.
"Debt Rating": at any time whichever is the higher of the
rating of the Lessee's senior unsecured, unenhanced debt (or, if no
such debt exists, its issuer credit rating for debt of such type) by
Moody's and S&P (as such rating may change from time to time)
(provided, that in the event of a double or greater split rating, the
rating immediately above the lowest rating shall apply), or if only
one of them rates the Borrower's senior unsecured, unenhanced debt,
such rating.
2
<PAGE> 191
"Moody's": Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
(b) The following definitions set forth in Schedule 1(b) are
amended and restated in their entirety as follows in proper alphabetical order:
"Acquisition Period": (i) as to the Initial Phases, a period
commencing on the Closing Date and ending (x) as to the Phases for the
Applicable Sites located in Miami, Florida and San Antonio, Texas,
October 21, 1997, and (y) as to the Phase for the Applicable Site
located in Jamestown, North Carolina, 12 months after the Closing
Date; and (ii) as to each of the Subsequent Phases, June 30, 2000.
"Basic Rent": (a) after January 21, 2000, for each Phase at
the Designated Sites, with respect to any Rental Period, the amounts
payable for such Phase as Basic Rent for such Rental Period pursuant
to Section 3(b) of the Lease, consisting of the sum of the Scheduled
Payment therefor and the sum of (i) 5.77%, plus (ii) the Applicable
Margin minus 0.45%.
(b) for each Phase at all Applicable Sites other than the
Designated Sites, with respect to any Rental Period, the amounts
payable for such Phase as Basic Rent for such Rental Period pursuant
to Section 3(b) of the Lease, consisting of the sum of the Scheduled
Payment therefor and either the Floating Rate Payment or, if the
Election has been made, the Fixed Rate Payment.
"Fixed Rate": with respect to Basic Rent for each Phase, if
the Lessee's Election request has been approved by the Lessor in
writing for such Phase, for each Rental Period, a rate per annum equal
to either:
(a) with respect to each Phase at each Designated
Site, the sum of (i) 5.77%, plus (ii) the Applicable Margin
minus 0.45%, and
(b) with respect to each Phase other than at a
Designated Site, an amount equal to (i) a market rate mutually
agreed to by the Lessee and Lessor in writing, plus (ii)
the Applicable Margin.
"Floating Rate": with respect to Basic Rent for each Phase,
if the Election has not been made or become effective for such Phase,
for each Rental Period, a rate per annum equal to the sum of (i) the
LIBO Rate prevailing on the first day of such Rental Period, plus (ii)
the Applicable Margin.
"Interim Rental Period": with respect to Interim Rent
pertaining to any Phase, the period beginning on the Phase
Commencement Date for such Phase and ending on the numerically
corresponding date (or, if applicable, last calendar date) which is
either one, two or three months thereafter, as selected by the Lessee
upon at least 3 Business Days notice and, thereafter, each subsequent
period commencing on the last day of the immediately preceding Interim
Rental Period and ending on the numerically
3
<PAGE> 192
corresponding date (or, if applicable, last calendar date) which is
three months thereafter, as selected by the Lessee upon at least 3
Business Days notice; provided, however, that:
(i) no Interim Rental Period may be selected which
commences before the Phase Completion Date and would otherwise end
after the Phase Completion Date;
(ii) if the last day of such Interim Rental Period would
otherwise occur on a day which is not a Business Day, such last day
shall be extended to the next succeeding Business Day, except if such
extension would cause such last day to occur in a new calendar month,
then such last day shall occur on the next preceding Business Day.
"Non-Completion Event": as to any Phase, the failure of
Completion to occur on or before the earlier of (i) (x) as to the
Initial Phases for the Applicable Sites located in Miami, Florida and
San Antonio, Texas, October 21, 1997, (y) as to all other Initial
Phases, the date which is six months after the Phase Commencement Date
for such Phase, and (z) as to all Subsequent Phases, June 30, 2000,
and (ii) the last day of the Acquisition Period.
"Non-Recourse Amount": as to any Phase, at any time an amount
equal to a percentage of the aggregate original Equipment Cost for
such Phase which shall be not less than 16% nor more than 23%, which
percentage shall be determined by the Lessor in its sole discretion
(after consultation with the Company) and notified to the Company on
or promptly after the relevant Phase Completion Date, after
identification of the aggregate amount of the Equipment Cost for such
Phase as of such time.
"Phase Completion Date": with respect to each Phase, the
earlier to occur of (i) Completion of such Phase, (ii) (x) as to the
Initial Phases for the Applicable Sites located in Miami, Florida and
San Antonio, Texas, October 21, 1997, (y) as to all other Initial
Phases, the date which is six months after the Phase Commencement Date
for such Phase, and (z) as to all Subsequent Phases, June 30, 2000,
and (iii) the last day of the Acquisition Period.
(c) Section 3(a) of the Lease is amended and restated in its
entirety as follows:
Section 3. Payments.
(a) Interim Rent. For each Phase, during the period commencing on
the Phase Commencement Date and ending on the Phase Completion Date
for such Phase, Interim Rent with respect to such Phase shall accrue
on Equipment Cost during each Interim Rental Period at a rate per
annum equal to the LIBO Rate prevailing on the first day of such
Interim Rental Period plus the Applicable Margin; provided, that if
there is less than one month remaining after the end of any Interim
Rental Period until the Phase Completion Date for such Phase, Interim
Rent for the final Interim Rental Period shall instead be the Base
Rate. Interim Rent shall be paid in arrears on the last day of the
Interim Rental Period with respect thereto. In the event any Equipment
Cost on which interest accrued based on the LIBO Rate is prepaid other
than on the last day of the Interim Rental Period with respect thereto
(including by reason of the occurrence of a
4
<PAGE> 193
Lease Termination Date for any reason), the Lessee shall compensate
the Lessor for any funding losses incurred by it as a result of such
prepayment. On the Phase Completion Date for each Phase, all Soft
Costs incurred during the period from the Phase Commencement Date
through the Phase Completion Date for such Phase shall be capitalized
and added to Equipment Cost for such Phase; provided, that in no event
shall the aggregate Equipment Cost for all Phases exceed $103,000,000,
and to the extent any such capitalization of Soft Costs would cause
the aggregate Equipment Cost for all Phases to exceed $103,000,000,
the amount of the excess shall be payable to the Lessor on the Phase
Completion Date on which such excess occurs. In the event any Vendor
requires any advance payments, progress payments or full payments
prior to the Lease Addition Date of the Equipment proposed to be added
to the Lease for any Phase, the Lessee shall execute and deliver to
the Lessor a Progress Payment Agreement for such Phase, and the Lessor
will make available amounts pursuant thereto for such purpose. For any
Equipment which is the subject of any payments made by the Lessor
under a Progress Payment Agreement for any Phase, unpaid Additional
Rent under such Progress Payment Agreement with respect to such
Equipment shall be capitalized and, together with the amount of such
payments made by the Lessor with respect to such Equipment, shall be
added to and constitute part of the Equipment Cost for such Phase.
(d) Section 3(b) of the Lease is amended and restated in its entirety
as follows:
(b) Basic Rent
(i) Floating Rate Payment Without Election; Election and
Election Period.
Subject to clause (iii) below), for each Phase, if the
Lessee has not been granted an Election by the Lessor within
the Election Period pursuant to the provisions and
requirements of this Section 3(b)(i), after the Phase
Completion Date for each Phase, the Lessee's Basic Rent
during the Lease Term for such Phase shall be payable for
each Rental Period in arrears on the Rent Payment Date for
such Rental Period in an amount equal to the sum of (A) the
amount equal to the percentage set forth in Schedule 3(b) for
such Rental Period (as it may be modified pursuant hereto as
a result of an Approval Appraisal), times the Equipment Cost
(the "Scheduled Amount") as to such Phase (the "Scheduled
Payment") plus (B) an amount accruing on the Scheduled Amount
as to such Phase at the Floating Rate for such Rental Period
(the "Floating Rate Payment"). In the event any Scheduled
Amount or other amount of Equipment Cost based on the LIBO
Rate is prepaid other than on the last day of the Rental
Period with respect thereto (including by reason of the
occurrence of a Lease Termination Date for any reason) the
Lessee shall compensate the Lessor for any funding losses
incurred by it as a result of such prepayment. Schedule 3(b)
also sets forth the Estimated Residual as to each Phase as of
the end of each Rental Period. The Lessee agrees that the
Lessor reserves the right to modify the Estimated Residual or
the percentage of Equipment Cost for determining the
Scheduled Amount, or both, as to any Rental Period for the
Equipment for any Phase as a result of the receipt of an
Approval Appraisal pursuant to the Agency Agreement. With
5
<PAGE> 194
respect to any Phase, the Lessee shall have the right to
request that the Lessor agree, in the exercise of its sole
discretion, to convert the Basic Rent for such Phase within
the Election Period from a Floating Rate Payment basis to a
Fixed Rate Payment basis (any such request by the Lessee that
is approved by the Lessor in writing pursuant to the
provisions and requirements of this Section 3(b)(i) for any
Phase being an "Election" for such Phase). The "Election
Period" with respect to each Phase shall commence on the
Phase Completion Date for such Phase and terminate on the
last day of the Acquisition Period. Each Election shall be
requested by the Lessee by written notice received not less
than 7 days prior to the effective date of such Election (and
not less than 7 days prior to the end of the relevant
Election Period). Lessor shall be deemed to have disapproved
such Election request unless the Lessee receives a written
approval of such request from the Lessor within 14 days after
such notice requesting such Election has been sent by the
Lessee.
(ii) Fixed Rate Payment With Election.
Subject to clause (iii) below, for each Phase, if the
Lessee has requested an Election within the Election Period
pursuant to the provision and requirements of Section 3(b)(i)
and Lessor shall have approved such Election request in
writing, after the Phase Completion Date for each Phase, the
Lessee's Basic Rent during the Lease Term for such Phase
shall be payable for each Rental Period in arrears on the
Rent Payment Date for such Rental Period in an amount equal
to the sum of (A) the Scheduled Payment as to such Phase for
such Rental Period plus (B) an amount accruing on the
Scheduled Amount as to such Phase at the Fixed Rate for such
Rental Period (the "Fixed Rate Payment"). On the first Rent
Payment Date after the Lessee obtains from the Lessor an
approved Election for a qualifying Phase, the Lessee shall
make, if applicable, a Basic Rent payment consisting of the
Schedule Payment for such Phase plus a proportionate Floating
Rate Payment and Fixed Rate Payment for such Phase, and the
Lessee shall compensate the Lessor for any funding losses
incurred by it as a result of such change from a Floating
Rate Payment to a Fixed Rate Payment prior to the end of the
Rental Period.
(e) Section 4 of the Lease is amended and restated in its
entirety as follows:
Section 4. Incorporation of Credit Agreement Representations,
Warranties and Covenants; Other Restrictive Agreements.
(a) The Lessee's representations, warranties and covenants
contained in the Credit Agreement (excluding therefrom, however,
Section 5.05 of the Credit Agreement), as the same are amended or
otherwise modified from time to time (except as provided in Section
4(b) below), along with all necessary definitions and other provisions
from the Credit Agreement necessary in order to effect the same
(collectively, the "Credit Agreement Provisions"), are incorporated by
reference into this Section 4 as if fully set forth herein and the
Lessee makes, undertakes, and agrees Lessee is obligated hereunder
with respect to, such representations, warranties and covenants in
favor of the Lessor. A
6
<PAGE> 195
Default or Event of Default by the Lessee with respect to the Credit
Agreement Provisions (other than under Section 5.04 of the Credit
Agreement Provisions) shall be a Designated Event of Default, and a
Default or Event of Default by the Lessee with respect to Section 5.04
of the Credit Agreement Provisions shall be a Non-Designated Event of
Default. With respect to cure periods set forth in Section 17(a)(iii)
of the Lease and the Credit Agreement Provisions, the Lessee shall
have a 10 day cure period with respect to Sections 5.01(e), 5.02(ii),
5.03 through 5.05, inclusive, Sections 5.17 through 5.19, inclusive,
and Section 5.21 of the Credit Agreement Provisions, and with respect
to all other Credit Agreement Provisions, a 30 day cure period.
References in the Credit Agreement Provisions to (i) the "Agent", the
"Banks" or the "Required Banks" shall mean the Lessor hereunder, (ii)
the "Loans" shall mean Rent hereunder, (iii) this "Agreement" shall
mean this Agreement, and (iv) the "Loan Documents" shall mean the
Operative Documents.
(b) In the event that either (i) Wachovia is no longer a
party to the Credit Agreement, or (ii) the Credit Agreement has
terminated, or (iii) Wachovia is a party to the Credit Agreement and
the Credit Agreement has been amended or modified, or any provision
thereof has been waived and Wachovia has not consented to (ie.,
executed and delivered) such amendment or modification or waiver,
then, in any such event, the Credit Agreement Provisions as
incorporated in Section 4(a) of this Agreement shall be the Credit
Agreement Provisions as in effect on the date prior to and shall at
all times thereafter so remain as in effect on such date prior to
(unless amended in writing as mutually agreed between the Lessor and
the Lessee), respectively, (x) Wachovia no longer being a party to the
Credit Agreement, or (y) the termination of the Credit Agreement, or
(z) the execution and delivery of any such amendment, modification or
waiver to which Wachovia has not so consented, as the case may be.
(c) The Lessee will not permit any amendment or modification
of the Credit Agreement, or become a party to any other credit
facility or other agreement relating to the incurrence of
indebtedness, which provides for representations, warranties,
covenants, events of default or other provisions which are more
restrictive against the Lessee than the representations, warranties,
covenants, events of default and other provisions contained in this
Agreement without (i) the Lessor's prior written consent, or (ii) if
requested by the Lessor, executing and delivering an amendment to this
Agreement and, if necessary, to the other Operative Documents, in
order to provide the same more restrictive representations,
warranties, covenants or events of default and other provisions
against the Lessee in favor of the Lessor, as may be requested.
(f) In the event that any provision of the Lease conflicts with
the Credit Agreement Provisions, then, in such event, the provisions of the
Credit Agreement Provisions shall supercede any such conflicting provision of
the Lease.
(g) Paragraph 2 of the form of Progress Payment Agreement set
forth on Exhibit E to the Lease is amended and restated in its entirety as
follows:
2. The term of the Lease with respect to the Proposed
Equipment will not commence until the Lease Addition
7
<PAGE> 196
Date with respect thereto. Until the Lease Addition Date as to the
Proposed Equipment, a charge shall accrue on all such advances,
progress or other payments made by the Lessor equal to an amount per
annum which is the product of (i) advances or payment outstanding from
the date any such advances are outstanding, (ii) the LIBO Rate plus
the Applicable Margin, and (iii) the actual number days in the
period/360 (such amount being so determined being "Additional Rent").
Such Additional Rent shall accrue until the Lease Addition Date,
whereupon it shall be capitalized and added to Equipment Cost for such
Phase pursuant to Section 3(a) of the Lease.
3. Amendment to Agency Agreement. Section C.1.(b)(v) of Article
1 of the Agency Agreement hereby is amended by deleting the figure
"$100,000,000" in the 2nd line thereof, and substituting therefor the figure
"$103,000,000".
4. Amendment to Progress Payment Agreements. Paragraph 2 of each
Progress Payment Agreement is amended and restated in its entirety as follows:
2. The term of the Lease with respect to the Proposed
Equipment will not commence until the Lease Addition Date with respect
thereto. Until the Lease Addition Date as to the Proposed Equipment, a
charge shall accrue on all such advances, progress or other payments
made by the Lessor equal to an amount per annum which is the product
of (i) advances or payment outstanding from the date any such advances
are outstanding, (ii) the LIBO Rate plus the Applicable Margin, and
(iii) the actual number days in the period/360 (such amount being so
determined being "Additional Rent"). Such Additional Rent shall accrue
until the Lease Addition Date, whereupon it shall be capitalized and
added to Equipment Cost for such Phase pursuant to Section 3(a) of the
Lease.
5. Restatement of Representations and Warranties. The Lessor
hereby restates and renews each and every representation and warranty
heretofore made by it in the Lease and the other Operative Documents (as the
same are amended by this Amendment) as fully as if made on the date hereof
(except for any representations which were correct on the date of the Lease but
are not correct on the date hereof because of a change permitted by the Lease
or the Operative Documents) and with specific reference to this Amendment and
all other documents executed and/or delivered in connection herewith.
6. Effect of Amendments; Default Under this Amendment. Except as
set forth expressly hereinabove, all terms of the Lease, the Agency Agreement
and the other Operative Documents shall be and remain in full force and effect,
and shall constitute the legal, valid, binding and enforceable obligations of
the Lessee. A default by the Lessee under this Amendment shall be an Event of
Default under the Lease.
7. Ratification. The Lessee hereby restates, ratifies and
reaffirms each and every term, covenant and condition set forth in the Lease,
the Agency Agreement and the other Operative Documents effective as of the date
hereof.
8. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and
8
<PAGE> 197
delivered shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same instrument.
9. Section References. Section titles and references used in
this Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
10. No Default. To induce the Lessor to enter into this Amendment
and to continue to make advances of Facility Cost for the Subsequent Phases
pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of
the date hereof, and after giving effect to the terms hereof, there exists (i)
no Default or Event of Default and (ii) no right of offset, defense,
counterclaim, claim or objection in favor of the Lessee arising out of or with
respect to the Lease or other Operative Documents.
11. Further Assurances. The Lessee agrees to take such further
actions as the Lessor shall reasonably request in connection herewith to
evidence the amendments herein contained to the Lessee.
12. Governing Law. This Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of Georgia.
13. Conditions Precedent. This Amendment shall become effective
only upon:
(i) execution and delivery of this Amendment by each of the
parties hereto;
(ii) receipt by the Lessor of a certificate substantially in
the form of Exhibit A hereto, dated as of the date hereof, signed by
an authorized officer of the Lessee to the effect that (i) no Default
has occurred and is continuing on the date hereof and (ii) the
representations and warranties of Lessee contained in the Lease and
the other Operative Documents are true and correct on the date hereof
(except for any representations which were correct on the date of the
Lease but are not correct on the date hereof because of a change
permitted by the Lease or the Operative Documents); and
(iii) receipt by the Lessor of a certificate of the Secretary
or Assistant Secretary of the Lessee substantially in the form of
Exhibit B hereto, dated as of the date hereof, setting forth (i)
resolutions of its board of directors authorizing the execution,
delivery and performance of the obligations contained in this
Amendment, (ii) the officers of the Lessee specified in such
Secretary's Certificates that are authorized to sign this Amendment
and (iii) a statement that there have been no amendments to the
articles or certificate of incorporation and the bylaws of the Lessee
since the Closing Date or, if there have been any such amendments
attaching such amendments.
9
<PAGE> 198
IN WITNESS WHEREOF, the Lessee and the Lessor have caused this
Amendment to be duly executed, under seal, by its duly authorized officer as of
the day and year first above written.
LESSEE:
FLOWERS INDUSTRIES, INC. (SEAL)
By:
---------------------------------------
Title:
LESSOR:
WACHOVIA LEASING CORPORATION
(SEAL)
By:
---------------------------------------
Title:
10
<PAGE> 199
EXHIBIT A
CLOSING CERTIFICATE
Reference is made to the Sixth Amendment to Master Lease Agreement and
Amendment to Other Operative Documents as of even date herewith between Lessee
and Wachovia Leasing Corporation (the "Amendment"). Capitalized terms used but
not defined herein have the meanings set forth in the Amendment or in the Lease
referred to therein or in Schedule 1(b) to the Lease.
Pursuant to Section 13(ii) of the Amendment, _______________ , the
duly authorized of ___________________ the Lessee, hereby certifies to the
Lessor that (i) no Default has occurred and is continuing as of the date
hereof, and (ii) the representations and warranties of Lessee contained in the
Lease and the other Operative Documents are true and correct on the date hereof
(except for any representations which were correct on the date of the Lease but
are not correct on the date hereof because of a change permitted by the Lease
or the Operative Documents).
Certified as of January ___, 2000.
FLOWERS INDUSTRIES, INC. (SEAL)
By:
---------------------------------------
Title:
11
<PAGE> 200
EXHIBIT B
SECRETARY'S CERTIFICATE
The undersigned,_____________ , [Secretary/Assistant Secretary] of Flowers
Industries, Inc. (the "Lessee"), hereby certifies that he has been duly
elected, qualified and is acting in such capacity and that, as such, he is
familiar with the facts herein certified and is duly authorized to certify the
same, and hereby further certifies, in connection with the Sixth Amendment to
Master Lease Agreement and Amendment to Other Operative Documents dated as of
even date herewith between Lessee and Wachovia Leasing Corporation (the
"Amendment") that:
1. Attached hereto as Annex 1 is a complete and correct copy of
the resolutions duly adopted by the Board of Directors of the Lessee on ,
2000, approving, and authorizing the execution and delivery of, the Amendment.
Such resolutions have not been repealed or amended and are in full force and
effect, and no other resolutions or consents have been adopted by the Board of
Directors of the Lessee in connection therewith.
2. ______________, who is ____________ of the Lessee, signed the
Amendment, was duly elected, qualified and acting as such at the time he signed
the Amendment, and his signature appearing on the Amendment is his genuine
signature.
3. Since October 20, 1995, there have been no amendments to the
articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT
__________, COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES]___].
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of
January ___, 2000.
---------------------------------------
Name:
Title: [Secretary/Assistant Secretary]
12
<PAGE> 1
EXHIBIT 10.16
LOAN FACILITY AGREEMENT
BY AND AMONG
FLOWERS INDUSTRIES, INC.,
SUNTRUST BANK, ATLANTA
AND
EACH OF THE PARTICIPANTS PARTY HERETO
DATED AS OF NOVEMBER 5, 1999
<PAGE> 2
AMENDED AND RESTATED
LOAN FACILITY AGREEMENT
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I. DEFINITIONS.................................................................................2
SECTION 1.01. Definitions...............................................................................2
SECTION 1.02. Accounting Terms.........................................................................18
ARTICLE II. LOAN FACILITY; COMMITMENT TO MAKE LOANS....................................................18
SECTION 2.01. Loan Facility............................................................................18
SECTION 2.02. Conveyance of Participant's Interest.....................................................19
SECTION 2.03. Funding of Loans; Swing Line; Funding of Participant's Interest in Loans.................20
SECTION 2.04. Fees ....................................................................................22
SECTION 2.05. Interest on Funded Participant's Interest................................................22
SECTION 2.06. Payments and Computations, Etc...........................................................23
SECTION 2.07. Voluntary Reduction of the Unutilized Commitment.........................................24
SECTION 2.08. Extension of Commitment..................................................................24
SECTION 2.09. Pro Rata Treatment.......................................................................25
SECTION 2.10. Sharing of Setoffs.......................................................................25
ARTICLE III DISTRIBUTION OF PAYMENTS...................................................................26
SECTION 3.01. Flowers' Servicing Obligations with Respect to Loans; Collateral; Non-Recourse...........26
SECTION 3.02. Bank's Obligations with Respect to Loans and Collateral..................................27
SECTION 3.03. Application of Payments..................................................................27
SECTION 3.04. Servicing Report and Distributor Status Report...........................................28
ARTICLE IV. REQUIREMENTS OF NOTES......................................................................28
SECTION 4.01. Notes....................................................................................28
SECTION 4.02. Repurchase of Ineligible Notes...........................................................30
ARTICLE V. REPURCHASE OBLIGATION OF FLOWERS WITH RESPECT TO DEFAULTED LOANS...........................31
SECTION 5.01. Repurchase Obligation of Flowers.........................................................31
SECTION 5.02. Transfer of Notes........................................................................31
SECTION 5.03. Reliance on Repurchase Obligation........................................................32
SECTION 5.04. Certain Waivers..........................................................................32
SECTION 5.05. Bankruptcy Rescission....................................................................33
ARTICLE VI. CONDITIONS OF LOANS........................................................................33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VII. REPRESENTATIONS AND WARRANTIES.............................................................34
SECTION 7.01. Corporate Existence and Power............................................................34
SECTION 7.02. Corporate and Governmental Authorization; No Contravention...............................34
SECTION 7.03. Binding Effect...........................................................................35
SECTION 7.04. Financial Information....................................................................35
SECTION 7.05. No Litigation............................................................................35
SECTION 7.06. Compliance with ERISA....................................................................35
SECTION 7.07. Compliance with Laws; Payment of Taxes...................................................35
SECTION 7.08. Subsidiaries.............................................................................36
SECTION 7.09. Investment Company Act...................................................................36
SECTION 7.10. Public Utility Holding Company Act.......................................................36
SECTION 7.11. Ownership of Property; Liens.............................................................37
SECTION 7.12. No Default...............................................................................37
SECTION 7.13. Full Disclosure..........................................................................37
SECTION 7.14. Environmental Matters....................................................................37
SECTION 7.15. Capital Stock............................................................................38
SECTION 7.16. Margin Stock.............................................................................38
SECTION 7.17. Insurance................................................................................38
SECTION 7.18. Notes; Books and Records.................................................................38
SECTION 7.19. Y2K Plan.................................................................................39
ARTICLE VIII. COVENANTS..................................................................................39
SECTION 8.01. Information..............................................................................39
SECTION 8.02. Inspection of Property, Books and Records................................................41
SECTION 8.03. Maintenance of Existence.................................................................42
SECTION 8.04. Consolidations, Mergers and Sales of Assets..............................................42
SECTION 8.05. Use of Proceeds..........................................................................43
SECTION 8.06. Compliance with Laws; Payment of Taxes...................................................43
SECTION 8.07. Insurance................................................................................44
SECTION 8.08. Change in Fiscal Year....................................................................44
SECTION 8.09. Maintenance of Property..................................................................44
SECTION 8.10. Environmental Notices....................................................................44
SECTION 8.11. Environmental Matters....................................................................44
SECTION 8.12. Environmental Release....................................................................45
SECTION 8.13. Transactions with Affiliates.............................................................45
SECTION 8.14. Loans or Advances........................................................................45
SECTION 8.15. Investments..............................................................................46
SECTION 8.16. Negative Pledge..........................................................................46
SECTION 8.17. Adjusted Fixed Charges Coverage Ratio....................................................48
SECTION 8.18. Leverage Ratio...........................................................................48
SECTION 8.19. Minimum Consolidated Net Worth...........................................................49
SECTION 8.20. Minimum Adjusted Consolidated EBDITA.....................................................49
SECTION 8.21. Subsidiary Borrowings....................................................................49
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8.22. Collateral Protection Covenants..........................................................49
SECTION 8.23. Separateness from Unrestricted Subsidiaries..............................................50
SECTION 8.24. Year 2000 Compliance.....................................................................51
ARTICLE IX. EVENTS OF DEFAULT AND ESCROW FUNDING OBLIGATION............................................52
SECTION 9.01. Events of Default........................................................................52
SECTION 9.02. Remedies on Default......................................................................54
ARTICLE X. ESCROW FUNDING OBLIGATION AND ESCROW.......................................................56
SECTION 10.01 Appointment of Escrow Agent..............................................................56
SECTION 10.02 Deposit of Escrow Funds..................................................................56
SECTION 10.03 The Escrow Account.......................................................................56
SECTION 10.04 Payments of Repurchase Price for Defaulted Loans.........................................56
SECTION 10.05 Reduction of Amount in Escrow............................................................56
SECTION 10.06 Fees and Expenses of Escrow Agent........................................................57
SECTION 10.07 Liability of Escrow Agent................................................................57
ARTICLE XI. THE BANK...................................................................................58
SECTION 11.01. Appointment of the Bank as Agent.........................................................58
SECTION 11.02. Nature of Duties of the Bank.............................................................58
SECTION 11.03. Lack of Reliance on the Bank.............................................................59
SECTION 11.04. Certain Rights of the Bank...............................................................59
SECTION 11.05. Reliance by the Bank.....................................................................59
SECTION 11.06. Indemnification of the Bank..............................................................60
SECTION 11.07. The Bank in its Individual Capacity......................................................60
SECTION 11.08. Holders of Participation Certificates....................................................60
ARTICLE XII. MISCELLANEOUS..............................................................................60
SECTION 12.01. No Waiver................................................................................60
SECTION 12.02. Notices..................................................................................61
SECTION 12.03. Governing Law............................................................................61
SECTION 12.04. Survival of Representations and Warranties...............................................62
SECTION 12.05. Descriptive Headings.....................................................................62
SECTION 12.06. Severability.............................................................................62
SECTION 12.07. Time is of the Essence...................................................................62
SECTION 12.08. Counterparts.............................................................................62
SECTION 12.09. Payment of Costs.........................................................................62
SECTION 12.10. Benefit of Agreement; Assignments; Participations........................................63
SECTION 12.11. Third Party Beneficiaries................................................................64
SECTION 12.12. Cumulative Remedies; No Waiver...........................................................64
SECTION 12.13. Amendments; Consents.....................................................................64
SECTION 12.14. Set-Off..................................................................................65
SECTION 12.15. Indemnity................................................................................65
SECTION 12.16. Jurisdiction and Venue...................................................................65
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 12.17. Waiver of Jury Trial.....................................................................66
SECTION 12.18. Effect on Existing Loan Facility Agreement; Execution of New Loan Documents..............66
SECTION 12.19. Termination of Agreement.................................................................66
</TABLE>
Exhibits:
Exhibit "A" - Form of Bank Note
Exhibit "B" - Form of Distributor's Agreement
Exhibit "C" - Form of Funding Approval Notice
Exhibit "D" - Form of Participation Certificate
Exhibit "E" - Form of Weekly Statement
Exhibit "F" - Form of Weekly Servicing Report to Participants
Exhibit "G" - Form of Opinion
Exhibit "H" - Form of Compliance Certificate
Schedules:
Schedule 5.01 - Quarterly Threshold Amount and Non-Guaranteed Amount
Schedule 7.08 - Subsidiaries
v
<PAGE> 6
LOAN FACILITY AGREEMENT
THIS LOAN FACILITY AGREEMENT ("Agreement") is entered into as of the
5th day of November, 1999, by and among FLOWERS INDUSTRIES, INC. ("Flowers"), a
Georgia corporation having its principal office at 1919 Flowers Circle,
Thomasville, Georgia 31757, SUNTRUST BANK, ATLANTA a Georgia banking corporation
(the "Bank"), and SunTrust Bank, Atlanta and each of the other lending
institutions listed on the signature pages hereto (SunTrust Bank, Atlanta and
such lenders, together with any assignees thereof becoming "Participants"
pursuant to the terms of this Agreement, the "Participants").
WITNESSETH:
WHEREAS, Flowers has established a loan program with the Bank pursuant
to that certain Note Purchase, Loan Commitment and Servicing Agreement dated as
of September 20, 1996, as amended by that First Amendment to Note Purchase, Loan
Commitment and Servicing Agreement, dated as of January 2, 1997, as amended by
the Second Amendment to Note Purchase, Loan Commitment and Servicing Agreement,
dated as of January 15, 1997, as amended by the Third Amendment to Note
Purchase, Loan Commitment and Servicing Agreement, dated as of August 17, 1998,
as amended by the Fourth Amendment to Note Purchase, Loan Commitment and
Servicing Agreement, dated as of September 25, 1998, by the Bank and as amended
by the Fifth Amendment to Note Purchase, Loan Commitment and Servicing
Agreement, dated as of July 16, 1999, by and among Flowers and the Bank, and as
amended by the Sixth Amendment to Note Purchase Loan Commitment and Servicing
Agreement, dated as of October 8, 1999, by and among Flowers and the Bank (the
"Existing Loan Facility Agreement") to provide loans to certain distributors of
Flowers and its Subsidiaries;
WHEREAS, Flowers has requested that the Bank increase its Commitment
(as defined under the Existing Loan Facility Agreement) and make certain other
changes to the Existing Loan Facility Agreement, and the Bank is willing to do
so subject to the replacement of the Existing Loan Facility Agreement with this
Agreement, pursuant to which the Participants shall purchase participations in
the Commitment and the loans to distributors of Flowers and its Subsidiaries
outstanding thereunder, and subject to the other terms and conditions hereof;
WHEREAS, the Participants and the Bank desire Flowers to service all
such loans upon the terms and conditions set forth in the Servicing Agreement,
dated as of the date hereof, by and between Flowers and the Bank, as the same
may be amended, restated, supplemented or otherwise modified from time to time
(the "Servicing Agreement"); and
WHEREAS, Flowers is willing, subject to the limitations set forth
herein, to repurchase such loans upon the occurrence of certain events, and is
willing to escrow funds for such repurchase, all as more fully set forth below;
NOW, THEREFORE, upon the terms and conditions hereinafter stated, and
in consideration of the mutual premises set forth above and other adequate
consideration, the receipt
<PAGE> 7
and sufficiency of which is hereby acknowledged, Flowers and the Bank agree that
the Existing Loan Facility Agreement is hereby replaced in its entirety by this
Agreement, and Flowers, the Bank and the Participants, intending to be legally
bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Definitions. In addition to the other terms defined
herein, the following terms used herein shall have the meanings herein specified
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Adjusted Consolidated EBITDA" means at any time the sum of the
following, determined on a consolidated basis for Flowers and its Restricted
Subsidiaries, at the end of each Fiscal Quarter: (i) Adjusted Consolidated Net
Income; plus (ii) Adjusted Consolidated Interest Expense; plus (iii) taxes on
income; plus (iv) depreciation; plus (v) amortization; plus (vi) without
duplication, other non-cash charges.
"Adjusted Consolidated Fixed Charges" means at any date the sum of (i)
Adjusted Consolidated Interest Expense for the 4 Fiscal Quarter period used in
the calculation of Adjusted Consolidated Net Income for the determination of
Adjusted EBILT, and (ii) all payment obligations of Flowers and the Restricted
Subsidiaries for such period under all operating leases and rental agreements.
"Adjusted Consolidated Interest Expense" for any period means interest,
whether expensed or capitalized, in respect of Indebtedness of Flowers or any of
the Restricted Subsidiaries outstanding during such period.
"Adjusted Consolidated Net Income" means, for any period, the Net
Income of Flowers and its Restricted Subsidiaries determined on a consolidated
basis, but excluding (i) extraordinary items, (ii) any equity interests of
Flowers or any Restricted Subsidiary in the unremitted earnings of any Person
that is not a Subsidiary, (iii) mark to market adjustments made in connection
with Flowers' commodities hedging program in accordance with GAAP and (iv)
non-recurring charges of $64,461,000 incurred in the 4th Fiscal Quarter of the
1998 Fiscal Year.
"Adjusted Consolidated Net Worth" means the Net Worth of Flowers and
the Subsidiaries, with all Unrestricted Subsidiaries being accounted for on an
equity basis of accounting, and otherwise determined on a consolidated basis in
accordance with GAAP.
"Adjusted Consolidated Total Assets" means, at any time, the total
assets of Flowers and its Restricted Subsidiaries, with any investments in
Unrestricted Subsidiaries included as assets as
2
<PAGE> 8
if all Unrestricted Subsidiaries were being accounted for on an equity basis of
accounting, determined in all other respects on a consolidated basis in
accordance with GAAP.
"Adjusted Consolidated Total Debt" means the aggregate of all
Indebtedness (except that, for purposes of determining Adjusted Consolidated
Total Debt, letters of credit and similar instruments described in clause (e) of
the definition of Indebtedness shall be included only to the extent they have
maturities greater than 1 year) of Flowers and the Restricted Subsidiaries on a
consolidated basis in accordance with GAAP, excluding, however, any Convertible
Redeemable Capital Stock or Convertible Subordinated Debt if the current market
value of an equity security into which such Convertible Redeemable Capital Stock
or Convertible Subordinated Debt is convertible is greater than the conversion
price for such security.
"Adjusted EBILT" means at any date the sum of (i) Adjusted Consolidated
Net Income for any 4 of the last 6 Fiscal Quarters ending prior to the date of
measurement, such 4 Fiscal Quarters to be selected by Flowers, plus (ii) the sum
of Adjusted Consolidated Fixed Charges and taxes on income (including deferred
taxes) for the same 4 Fiscal Quarters.
"Adjusted Total Capitalization" means the sum of (i) Adjusted
Consolidated Total Debt and (ii) Adjusted Consolidated Net Worth.
"Affiliate" of any relevant Person means (i) any Person that directly,
or indirectly through one or more intermediaries, controls the relevant Person
(a "Controlling Person"), (ii) any Person (other than the relevant Person or a
Subsidiary of the relevant Person) which is controlled by or is under common
control with a Controlling Person, or (iii) any Person (other than a Subsidiary
of the relevant Person) of which the relevant Person owns, directly or
indirectly, 20% or more of the common stock or equivalent equity interests. As
used herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Loan Facility Agreement, either as originally
executed or as it may be from time to time supplemented, amended, renewed,
extended or otherwise modified.
"Authorized Signatory" means an officer of Flowers named in the most
recent Certificate Regarding Authorized Signatories delivered to the Bank.
"Business Day" means a day of the year on which commercial banks are
not required or authorized to close in Atlanta, Georgia.
"Capital Stock" means any nonredeemable capital stock of Flowers or any
Consolidated Subsidiary (to the extent issued to a Person other than Flowers),
whether common or preferred.
3
<PAGE> 9
"Capitalized Lease" means any lease which is required to be capitalized
on the balance sheet of the lessee pursuant to GAAP but shall exclude any lease
which at the time of its incurrence was an operating lease for purposes of GAAP
as in effect at such time.
"CERCLA" means the Comprehensive Environmental Response compensation
and Liability Act, 42 U.S.C.ss.9601 et. seq. and its implementing regulations
and amendments.
"CERCLIS" means the Comprehensive Environmental Response Compensation
and Liability Inventory System established pursuant to CERCLA.
"Closing Certificate" means a certificate of an officer of Flowers
delivered pursuant to Section 6(g).
"Closing Date" means November 5, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code.
"Collateral" means the property of a Distributor subject to a security
interest or lien which secures a Loan, which shall include all accounts
receivable, inventory and other business assets of the Distributor, and all
property and assets of any guarantor subject to such a security interest or lien
in favor of the Bank as security for obligations incurred pursuant to its
guaranty.
"Collections" means, with respect to any Loan, all cash collections and
other cash proceeds received in connection therewith, including without
limitation, all Payments, Insurance Proceeds and Liquidation Proceeds.
"Commitment" has the meaning set forth in Section 2.01(b).
"Commitment Fee" has the meaning set forth in Section 2.04.
"Commitment Termination Date" has the meaning set forth in Section
2.01(b).
"Compliance Certificate" has the meaning set forth in Section 8.01(c).
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of Flowers in its consolidated financial statements as of such date.
"Consolidated Total Assets" means, at any time, the total assets of
Flowers and its Consolidated Subsidiaries, determined on a consolidated basis,
as set forth or reflected on the most recent consolidated balance sheet of
Flowers and its Consolidated Subsidiaries, prepared in accordance with GAAP.
4
<PAGE> 10
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Flowers, are treated as a single employer
under Section 414 of the Code.
"Convertible Redeemable Capital Stock" means any Capital Stock that by
its terms (or by the terms of any agreement by which, or equity security into
which, it is convertible or for which it is exchangeable or any other agreement)
or upon the happening of any event matures or is or will become mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, or is exchangeable for
or convertible into an equity security of Flowers.
"Convertible Subordinated Debt" means any Indebtedness of Flowers (i)
which is and remains subordinated in right of payment to the obligations of
Flowers hereunder and (ii) which by its terms is exchangeable for or convertible
into an equity security of Flowers.
"Customary Practices" means Flowers' or any of the Selling
Subsidiaries' normal and customary practices with respect to the approval,
servicing and administration of the Loans, as in effect from time to time, which
practices shall be consistent with the standard approval, servicing and
administration policies employed by Flowers with respect to all Loans held by it
in its own portfolio as of the Closing Date, including without limitation, the
policies and procedures set forth in the Policies and Procedures Manual
delivered to the Bank on the Closing Date.
"Cut-Off Date" means (i) as of the Closing Date, November 5, 1999 and
(ii) with respect to each Statement delivered after the Closing Date, the second
preceding Saturday to the relevant Payment Date.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Interest" has the meaning set forth in Section 2.06(b).
"Defaulted Loan" has the meaning set forth in Section 5.01.
"Distributor" means a Person or Persons obligated on an outstanding
Loan, whether the Person that originally executed and delivered the Note and the
Distributor's Agreement underlying such Loan, or any Person or Persons that
assumes such Loan.
"Distributor Loan Documents" means (i) with respect to each Purchased
Loan, a loan application, a Note duly endorsed to the order of the Bank, a
recorded UCC-1 financing statement, a guaranty, if any, and a Distributor's
Agreement containing a security interest securing the Note, assigned to the
Bank, (ii) with respect to each Existing Loan, other than a Purchased Loan, a
loan application, a Note in favor of the Bank, a security agreement, a recorded
UCC-1 financing statement, a guaranty, if any, and a disbursement and set-off
authorization and (iii) with respect to
5
<PAGE> 11
each Loan made on or after the Closing Date, a Note in favor of the Bank, and a
recorded UCC-1 financing statement.
"Distributor Loan File" means the files maintained by Flowers, which
shall include true and correct copies of the Distributor Loan Documents
pertaining to a particular Loan and any additional documents required to be
added to the Distributor Loan File pursuant to this Agreement.
"Distributor Loan Interest Rate" means the annual rate at which
interest accrues on any Loan, which rate shall be, in the case of any Purchased
Loan, the rate set forth in the Purchased Note and, in the case of any other
Loan, twelve percent (12.0%) per annum, calculated on the basis of a 360-day
year for the actual number of days elapsed (or 12.1667% per annum calculated on
the basis of a 365-day year for the actual number of days elapsed).
"Distributor Route" means, in respect of a Distributor for whom a Loan
is outstanding, the contractual right of such Distributor to distribute products
of Flowers or its Subsidiaries in a specified geographic location set forth in a
Distributor's Agreement, together with all "Distributor's Rights" (as such term
is defined therein) and the related accounts receivable, inventory and equipment
securing a Loan.
"Distributor's Agreement" means the contractual arrangement between
Flowers or one of the Selling Subsidiaries with a Distributor for whom a Loan is
outstanding whereby such Distributor agrees to distribute Flowers' product in a
specified geographic location and Flowers or one of its Subsidiaries agrees to
provide the Distributor with product and other services, including its
Proprietary Administrative Services, such agreement to be substantially in the
form of Exhibit "B" attached hereto.
"Dollars" or "$" means dollars in lawful currency of the United States
of America.
"Eligible Assignee" shall mean (i) a commercial bank organized under
the laws of the United States or any state thereof having total assets in excess
of $1,000,000,000.00 or any commercial finance or asset-based lending Affiliate
of any such commercial bank and (ii) any Participant.
"Environmental Authority" means any foreign, federal, state, local or
regional government that exercises any form of jurisdiction or authority under
any Environmental Requirement.
"Environmental Authorizations" means all licenses, permits, orders,
approvals, notices, registrations or other legal prerequisites for conducting
the business of Flowers or any Restricted Subsidiary required by any
Environmental Requirement.
"Environmental Judgments and Orders" means all judgments, decrees or
orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent, or written agreements with an
Environmental Agency or other entity arising from or in
6
<PAGE> 12
any way associated with any Environmental Requirement, whether or not
incorporated in a judgment, decree or order.
"Environmental Liabilities" means any liabilities, whether accrued,
contingent or otherwise, arising from and in any way associated with any
Environmental Requirements.
"Environmental Notices" means notice from any Environmental Authority
or by any other person or entity, of possible or alleged noncompliance with or
liability under any Environmental Requirement, including without limitation any
complaints, citations, demands or requests from any Environmental Authority or
from any other person or entity for correction of any violation of any
Environmental Requirement or any investigations concerning any violation of any
Environmental Requirement.
"Environmental Proceedings" means any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases" means releases as defined in CERCLA or under
any applicable state or local environmental law or regulation.
"Environmental Requirements" means any legal requirement relating to
health, safety or the environment and applicable to Flowers, any Restricted
Subsidiary or the Properties, including but not limited to any such requirement
under CERCLA or similar state legislation and all federal, state and local laws,
ordinances, regulations, orders, writs, decrees and common law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor law. Any reference to any provision
of ERISA shall also be deemed to be a reference to any successor provision or
provisions thereof.
"Escrow Account" shall have the meaning set forth in Section 10.02.
"Escrow Agent" shall have the meaning set forth in Section 10.01.
"Escrow Funding Obligation" shall mean Flowers' obligation to put
immediately available funds in escrow described in Article X in the amount of
the Maximum Recourse Amount at the time such escrow is required to be funded,
and the ongoing obligation of Flowers to increase such funds on the first day of
each Fiscal Quarter as set forth in Section 10.02.
"Event of Default" has the meaning set forth in Section 9.01.
"Existing Loan Facility Agreement" has the meaning set forth in the
Recital paragraphs to this Agreement.
"Existing Loan" means any of the Purchased Loans and the loans to
Distributors made by the Bank pursuant to the Existing Loan Facility Agreement
as in effect from time to time.
7
<PAGE> 13
"Existing Note" means any of the Purchased Notes or the promissory
notes from the Distributors to the Bank substantially in the form attached to
the Existing Loan Facility Agreement as in effect from time to time.
"Federal Funds Rate" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of Atlanta, or, if such rate
is not so published for any day that is a Business Day, the average quotations
for the day of such transactions received by the Bank from three federal funds
brokers of recognized standing selected by it.
"Fiscal Quarter" means any fiscal quarter of Flowers.
"Fiscal Year" means any fiscal year of Flowers.
"Flower's Credit Agreement" means that certain $500,000,000 Amended and
Restated Credit Agreement, dated as of January 30, 1998, among Flowers, the
Banks listed therein, Wachovia Bank, N.A., as Bank, Bank of Nova Scotia, as
Documentation Bank and NationsBank, N.A., as Syndications Bank, as from time to
time in effect.
"Flowers Security Agreement" means the Security Agreement, dated as of
September 20, 1996, executed by Flowers and certain of its Subsidiaries in favor
of the Bank, as amended by that certain First Amendment to Security Agreement,
dated as of the date hereof, by and among Flowers, such Subsidiaries and the
Bank.
"Funded Participant's Interest" means the aggregate outstanding amount
of Participant Fundings made by a Participant hereunder with respect to the
Loans, and shall include, with respect to the Bank, the aggregate outstanding
amount of Swing Line Loans made with respect to Loans.
"Funding Approval Notice" means a written notice from Flowers or a
Selling Subsidiary to the Bank setting forth an authorization for a Loan,
containing such information required by, and in substantially the form of,
Exhibit "C" attached hereto, appropriately completed.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with those which, in accordance with Section 1.02, are to be
used in making the calculations for purposes of determining compliance with the
terms of this Agreement.
"General Assignment" shall mean, collectively, each assignment from
each of Flowers and the Selling Subsidiaries, dated as of the Note Purchase
Date, assigning and transferring to the Bank each of the Purchased Loans and
collateral therefor owned by such Person.
8
<PAGE> 14
"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividends or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefore;
(b) to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligations;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligations against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Hazardous Materials" includes, without limitation, (a) solid or
hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and
amendments, or in any applicable state or local law or regulation, (b)
"hazardous substance", pollutant", or "contaminant" as defined in CERCLA, or in
any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof,
(d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or
in any applicable state or local law or regulation and (e) insecticides,
fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide,
and Rodenticide Act of 1975, or in any applicable state or local law or
regulation, as each such Act, statute or regulation may be amended from time to
time.
"Indebtedness" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but
9
<PAGE> 15
including all liabilities created or arising under any conditional sale
or other title retention agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capitalized Leases;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of
a type described in any clauses (a) through (f) hereof.
"Ineligible Note" has the meaning set forth in Section 4.02.
"Insurance Proceeds" means proceeds of any insurance payable to Flowers
or a Selling Subsidiary in connection with a Distribution Route securing a Loan
unless such proceeds are released to the Distributor in accordance with
Customary Practices or are paid to Flowers or a Selling Subsidiary pursuant to a
liability policy.
"Interest Period" means, with respect to the calculation of LIBOR
hereunder, a period of one month, initially commencing on July 20, 1999;
provided that, (i) the first day of any Interest Period must be a Business Day,
(ii) any Interest Period that would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case the Interest Period
shall end on the next preceding Business Day, and (iii) the first day of each
succeeding Interest Period shall be the last day of the preceding Interest
Period.
"Investment" means any investment in any Person, whether by means of
purchase or acquisition of obligations or securities of such Person, capital
contribution to such Person, loan or advance to such Person, making of a time
deposit with such Person, Guaranty or assumption of any obligation of such
Person or otherwise.
"Keebler" means Keebler Foods Company, a Delaware corporation with its
principal place of business in Elmhurst, Illinois.
"Keebler Acquisition" means, collectively, the acquisition by Flowers
(i) from Artal Luxemburg S.A., pursuant to a Stock Purchase Agreement dated as
of January 28, 1998, of an
10
<PAGE> 16
aggregate of 9,581,169 shares of common capital stock in Keebler, and (ii) from
Bermore Limited, pursuant to a Stock Purchase and Stockholder's Agreement dated
as of January 28, 1998, of an aggregate of 1,616,691 shares of common capital
stock in Keebler, as a result of which, after giving effect to the Keebler
Accession, Flowers will own approximately 51% of the common capital stock of
Keebler, on a fully-diluted basis.
"Leverage Ratio" means the ratio of Adjusted Consolidated Total Debt to
Adjusted Total Capitalization.
"LIBOR" means, for each Interest Period, the offered rate for deposits
in Dollars determined by the Bank for the Interest Period appearing on Telerate
Page 3750 as of 11:00 a.m. (London, England time) on the day that is two
Business Days prior to the first day of such Interest Period. If the foregoing
rate is unavailable from the Telerate for any reason, then such rate shall be
determined by the Bank from the Reuters Screen LIBO Page as of 11:00 a.m.
(London, England time) on the day that is two Business Days prior to the first
day of such Interest Period; if two or more of such rates appear on the Reuters
Screen LIBO Page, the rate shall be the arithmetic mean of such rates. If the
foregoing rate is also unavailable from the Reuters Screen for any reason, then
such rate shall be determined by the Bank on any other interest rate reporting
service of recognized standing designated in writing by the Bank to Flowers, in
any such case rounded, if necessary, to the next higher 1/16 of 1.0%, if the
rate is not such a multiple. If a Reserve Percentage becomes applicable, LIBOR
shall be appropriately adjusted.
"Lien" means, with respect to any asset, any mortgage, deed to secure
debt, deed of trust, lien, pledge, charge, security interest, security title,
preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of a Indebtedness or a
Guaranty, whether by consensual agreement or by operation of statute or other
law, or by any agreement, contingent or otherwise, to provide any of the
foregoing. For the purposes of this Agreement, Flowers or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease or other title retention agreement relating to such
asset.
"Liquidation Proceeds" means all amounts collected by Flowers or a
Selling Subsidiary, individually or as agent for the Bank, with respect to a
Defaulted Loan (other than Insurance Proceeds).
"Loan" means any of the Existing Loans or the New Loans.
"Loan Closing Date" means, with respect to any Loan, the date on which
the documents governing such Loan are executed and delivered and such Loan is
funded.
"Loan Default" means an occurrence with respect to a Loan which is
defined by the applicable Distributor Loan Documents to be an event of default.
11
<PAGE> 17
"Loan Indebtedness" means all amounts due and payable by a Distributor
under the terms of the Distributor Loan Documents for a given Loan, including,
without limitation, outstanding principal, accrued interest, any commitment
fees, and all reasonable costs and expenses of any legal proceeding brought by
the Bank to collect any of the foregoing (including without limitation,
reasonable attorneys' fees actually incurred).
"Loan Payment Default" means the failure of a Distributor to make a
payment of principal, accrued interest thereon or any other amounts, within the
cure period following the due date therefor, as provided under the applicable
Loan Documents.
"Margin Stock" means "margin stock" as defined in Regulations T, U or X
of the Board of Governors of the Federal Reserve System, as in effect from time
to time, together with all official rulings and interpretations issued
thereunder.
"Material Adverse Effect" means, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
financial condition, operations, business or properties of Flowers and its
Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the
Bank under the Distributor Loan Documents generally, this Agreement, the
Servicing Agreement or the Flowers Security Agreement or the ability of Flowers
or any Selling Subsidiary to perform its obligations under the Distributor Loan
Documents generally, this Agreement, the Servicing Agreement or the Flowers
Security Agreement, as applicable, or (c) the legality, validity or
enforceability of the Distributor Loan Documents generally, this Agreement, the
Servicing Agreement or the Flowers Security Agreement.
"Material Subsidiary" means, as of each date of determination, any
Restricted Subsidiary that would at such time constitute a "significant
subsidiary" (as such term is defined in Regulation S-X of the Securities and
Exchange Commission as in effect on the Closing Date) of the Company.
"Maximum Commitment Amount" means $80,000,000, as such amount may be
reduced pursuant to Section 2.07.
"Maximum Recourse Amount" means, as of any date of determination, the
greater of (i) the Quarterly Threshold Amount in effect as of such date, and
(ii) (x) the aggregate Principal Balance of the Loans outstanding hereunder on
such date minus (y) the applicable Non-Guaranteed Amount as of such date.
"Mission Critical Systems and Equipment" means Flowers and its
Subsidiaries' hardware and software systems, and equipment relating to the
operation of its business and its general business plan, including, without
limitation, equipment in addition to computers, and with respect to which, the
failure to properly function would have a Material Adverse Effect.
12
<PAGE> 18
"Multiemployer Plan" has the meaning set forth in Section 4001(a) (3)
of ERISA.
"Net Income" means, as applied to any Person for any Period the
aggregate amount of net income of such Person, after taxes, for such period, as
determined in accordance with GAAP.
"Net Proceeds of Capital Stock" means any proceeds received by Flowers
or a Consolidated Subsidiary in respect of the issuance of Capital Stock, after
deducting therefrom all reasonable and customary costs and expenses incurred by
Flowers or such Consolidated Subsidiary directly in connection with the issuance
of such Capital Stock.
"Net Worth" of any Person means the Total Assets of such Person less
all liabilities of such Person which would be shown as liabilities on a balance
sheet of such Person as of such time prepared in accordance with GAAP.
"New Loan" means any loan made by the Bank to a Distributor pursuant to
the terms hereof and of the Servicing Agreement, on or after the Closing Date.
"New Note" means a promissory note from a Distributor to the Bank
substantially in the form of Exhibit "A" attached hereto, evidencing a New Loan.
"Non-Guaranteed Amount" means, for any period, the amount set forth on
Schedule 5.01 for such period.
"Note Purchase Date" means September 20, 1996, the date on which the
Bank purchased the Purchased Notes from Flowers and the Selling Subsidiaries.
"Notes" means, collectively, the Existing Notes and the New Notes.
"Operating Profits" means, as applied to any Person for any period, the
operating income of such Person for such period, as determined in accordance
with GAAP.
"Participating Commitment" means the amount set forth opposite each
Participant's name on the signature pages hereof, as such amount may be modified
by assignment pursuant to the terms hereof; provided that, following the
termination of the Commitment, each Participant's Participating Commitment shall
be deemed to be its Pro Rata Share of the aggregate Loans.
"Participant Funding" means a funding by the Participants of their Pro
Rata Share of Loans.
"Participant Funding Request" has the meaning set forth in Section
2.03(b).
"Participant's Interest" has the meaning set forth in Section 2.02.
13
<PAGE> 19
"Participant's Unused Commitment" means, with respect to any
Participant, the difference between such Participant's Participating Commitment
and such Participant's Funded Participant's Interest.
"Participation Certificate" means, a certificate issued by the Bank to
a Participant, substantially in the form of Exhibit "D" attached hereto,
evidencing such Participant's ownership interest conveyed hereunder.
"Payment" means any Scheduled Payment or Prepayment of a Loan.
"Payment Date" means the first Business Day of each calendar week.
"Payment Period" means (i) initially, the period commencing on the
Closing Date and ending on the date immediately prior to the next Payment Date
and (ii) thereafter, the period commencing on each Payment Date and ending on
the next Payment Date.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" means commercial paper, certificates of deposit
or repurchase agreements of banks organized under the laws of the United States
with a long term debt rating of A+ or better by Standard & Poor's, a division of
McGraw-Hill, Inc. or Moody's Investors Services, Inc., United States Treasury
bills and other obligations of the United States government, each with a term of
one year or less.
"Permitted Keebler Investments" means: (i) the Keebler Acquisition; and
(ii) additional shares of common capital stock in Keebler acquired from time to
time (a) from third parties in the open market, (b) from Bermore Limited and
Artal Luxemburg S.A. in private transactions, (c) from management of Keebler in
private transactions and/or (d) from Keebler as part of an offering of stock by
Keebler (whether public or private), but in the case of this clause (d), only to
the extent necessary for Flowers to maintain ownership of at least 51% of the
common capital stock of Keebler, on a fully-diluted basis.
"Person" means an individual, a corporation, a partnership, an
unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions.
14
<PAGE> 20
"Preferred Stock" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the Payment of any amount upon liquidation or
dissolution of such corporation.
"Prepayment" means any full or partial prepayment of principal together
with accrued and unpaid interest thereon any Loan.
"Principal Balance" means, with respect to any Loan, the outstanding
principal balance of such Loan after application of any Payment, Insurance
Proceeds or Liquidation Proceeds received as of such date.
"Program Documents" means and include, as the context requires, this
Agreement, the Servicing Agreement, the Flowers Security Agreement, the General
Assignment, the Distributor Loan Documents and any and all other instruments,
agreements, documents and writings contemplated hereby or executed in connection
herewith or the Notes.
"Properties" means all real property owned, leased or otherwise used or
occupied by Flowers or any Restricted Subsidiary, wherever located.
"Proprietary Administrative Services" means all right, title and
interest of the Flowers and its Subsidiaries in and to all books, records,
computer software, customer lists, computer equipment and other personal
property used in connection with the proprietary administrative services
provided to the Distributors.
"Pro Rata Share" means, with respect to each of the Participants, the
percentage designated as such Participant's Pro Rata Share on the signature
pages hereof, as such percentage may change from time to time as a result of
assignments or amendments pursuant to this Agreement.
"Purchased Loans" shall mean all loans made by Flowers or any Selling
Subsidiary to their Distributors to finance the purchase of Distributor Routes
secured by a first priority lien on such Distributor Routes, and conveyed,
assigned and sold to Bank pursuant to the Existing Loan Facility Agreement.
"Purchased Notes" shall mean all promissory notes of Distributors
initially owned and held by Flowers and the Selling Subsidiaries evidencing
Purchased Loans.
"Quarterly Payment Date" means the last day of each calendar quarter.
"Quarterly Threshold Amount" means, for any period, the amount set
forth on Schedule 5.01 for such period.
"Repurchase Price" has the meaning set forth in Section 5.01.
15
<PAGE> 21
"Required Participants" means, at any time, the Participants holding at
least 66 2/3% of the sum of (x) aggregate Funded Participant's Interests, plus
(y) the Participant's Unused Commitments, or, following the termination of the
Commitment, the Participants holding at least 66 2/3% of the aggregate
outstanding Funded Participant's Interests at such time.
"Reserve Percentage" means, for any day, the stated maximum rate
(expressed as a decimal) of all reserves required to be maintained with respect
to liabilities or assets consisting of or including "Eurocurrency liabilities,"
as prescribed by Regulation D of the Board of Governors of the Federal Reserve
System (or by any other governmental body having jurisdiction with respect
thereto), including, without limitation, any basic, marginal, emergency,
supplemental, special, transitional or other reserves, the rate so determined to
be rounded upward to the nearest whole multiple of 1/100 of 1%.
"Responsible Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of Flowers, and any other officer
of Flowers with responsibility for the administration of the relevant portion of
this Agreement or the Distributor Loan Documents.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referenced Person that is not an Unrestricted Subsidiary.
"Reuters Screen" means, when used in connection with any designated
page and LIBOR, the display page so designated on the Reuter Monitor Money Rates
Service (or such other page as may replace that page on that service for the
purpose of displaying rates comparable to LIBOR).
"Scheduled Payment" means the weekly payment of principal and interest
which is payable by a Distributor from time to time with respect to a Loan.
"Selling Subsidiary" means, on any date, each Subsidiary of Flowers in
respect of which there is outstanding on such date a Loan to one or more
Distributors of such Selling Subsidiary.
"Servicer" means Flowers unless and until Flowers is removed as
Servicer pursuant to the Servicing Agreement.
"Servicer Advance" has the meaning set forth in the Servicing Agreement
"Servicing Agreement" means that certain Servicing Agreement, dated as
of the date hereof, by and between Flowers and the Bank, as amended, restated,
supplemented or otherwise modified from time to time.
"Statement" means the weekly report prepared for the Bank by the
Servicer, substantially in the form of Exhibit "E" attached hereto.
16
<PAGE> 22
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by Flowers.
"Swaps" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended Fiscal Quarter of such Person,
based on the assumption that such Swap had terminated at the end of such Fiscal
Quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"Swing Line Loan" has the meaning set forth in Section 2.03(a).
"Telerate" means, when used in connection with any designated page and
LIBOR, the display page so designated on the Telerate, Inc. Service (or such
other page as may replace that page on that service for the purpose of
displaying rates comparable to LIBOR).
"Third Parties" means all lessees, sublessees, licensees and other
users of the Properties, excluding those users of the Properties in the ordinary
course of Flowers' business and on a temporary basis.
"Total Assets" means, with respect to any Person at any time, the total
assets of such Person as set forth or reflected on the most recent consolidated
balance sheet of such Person, prepared in accordance with GAAP.
"Total Capitalization" means the sum of (i) Consolidated Total Debt and
(ii) Consolidated Net Worth.
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable benefits under such Plan exceeds (ii) the fair market value of
all Plan assets applicable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of a member of the Controlled Group to the PBGC
or the Plan under Title IV of ERISA.
"Unrestricted Subsidiary" means, so long as Keebler is a Subsidiary,
Keebler, or any of its Subsidiaries, and "Unrestricted Subsidiaries" means,
collectively, Keebler and its Subsidiaries.
"Upfront Fee" has the meaning set forth in Section 2.4(a).
17
<PAGE> 23
"Wholly Owned Subsidiary" means any Subsidiary all of the shares of
capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by Flowers.
"Y2K Plan" has the meaning set forth in Section 7.19.
"Year 2000 Compliant and Ready" means that (a) Flowers and its
Subsidiaries hardware and software systems with respect to the operation of its
business will, in all material respects: (i) handle date information involving
any and all dates before, during and after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or in part;
(ii) operate, accurately without unscheduled interruption on and in respect of
any and all dates before, during and after January 1, 2000 and without any
change in performance; and (iii) store and provide date input information
without creating any ambiguity as to the century; and (b) Flowers has developed
alternative plans to ensure business continuity in the event of the failure of
any or all of items (i) through (iii) in clause (a) above in this definition.
SECTION 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed as having the respective meanings customary
under GAAP consistently applied from and after the date of this Agreement.
ARTICLE II.
LOAN FACILITY; COMMITMENT TO MAKE LOANS
SECTION 2.01. Loan Facility
(a) Subject to this Agreement becoming effective, all Existing Loans
are hereby deemed to be outstanding as Loans under the Commitment and this
Agreement.
(b) Subject to and upon the terms and conditions set forth in this
Agreement, the Bank hereby agrees to make Loans to such Distributors as may be
named by Flowers or any Selling Subsidiary in its Funding Approval Notices
received during the period on or after the Closing Date but prior to November 3,
2000 (as such period may be extended pursuant to Section 2.08 hereto, the
"Commitment Termination Date"), in an aggregate principal amount at any one time
outstanding not to exceed an amount equal to the Maximum Commitment Amount (the
"Commitment").
(c) Within the limits of the Commitment and in accordance with the
procedures set forth in the Servicing Agreement, Flowers may authorize the Bank
to make Loans under the terms of this Agreement for its Distributors in
accordance with its Customary Practices. Each Loan shall be for a term of not
more than ten (10) years, to be amortized in equal weekly payments of principal
and interest. Each Loan shall bear interest at a fixed rate per annum equal to
the
18
<PAGE> 24
Distributor Loan Interest Rate. Each Loan may be prepaid at any time by the
Distributor without penalty or premium, but with interest accrued thereon on the
amount prepaid.
(d) The Bank's obligation to make a Loan under the Distributor Loan
Documents is subject to the fulfillment of the following conditions as of the
Loan Closing Date of such Loan:
(i) this Agreement and each of the other Program Documents
shall be in full force and effect;
(ii) the representations and warranties of Flowers contained
in Article VII hereof shall be true and correct in all material
respects with the same effect as though such representations and
warranties had been made on the Loan Closing Date of such Loan;
(iii) the Bank shall have received a Funding Approval Notice
executed by Flowers or the appropriate Selling Subsidiary authorizing
such Loan, the original Note evidencing such Loan executed by the
Distributor and a copy of the UCC-1 Financing Statement executed by the
Distributor;
(iv) all precedents and conditions to the Loan specified in
the Servicing Agreement shall have been satisfied or waived by the
Bank; and
(v) no Event of Default or Default exists or would result
therefrom.
In addition, if the Subsidiary of Flowers which is party to the
Distributor's Agreement is not a Selling Subsidiary, Flowers shall cause such
Subsidiary to become a party to the Flowers Security Agreement and to execute
such UCC-1 financing statements as the Bank shall reasonably require in
connection therewith.
SECTION 2.02. Conveyance of Participant's Interest.
(a) The Bank hereby sells, assigns, transfers and conveys to the
Participants, without recourse or warranty, and each Participant hereby
purchases from the Bank, an undivided percentage ownership interest (which
percentage shall be equal to each Participant's Pro Rata Share) in (i) the
Commitment, (ii) the Loans, including, without limitation, the Existing Loans,
(iii) the benefit of the Collateral, (iv) all rights against any guarantor of
any Loan, including Flowers, (v) the Distributor Loan Documents, (vi) all rights
pursuant to any guaranty of the obligations of Flowers hereunder and (viii) all
right, title and interest to any payment or right to receive payment with
respect to the foregoing (collectively, the "Participant's Interest").
Notwithstanding the foregoing, each Participant's right to receive payments of
interest, commitment fees or other fees with respect to the Commitment and the
Loans shall not exceed the amounts which such Participant is entitled to receive
pursuant to the terms of this Agreement.
(b) In consideration of the entry by each Participant into this
Agreement and the obligation of each Participant hereunder, the Bank shall issue
a Participation Certificate to each
19
<PAGE> 25
Participant on the Closing Date. Each Participation Certificate shall evidence
such Participant's Participating Commitment, and the Funded Participant's
Interest outstanding thereunder shall bear interest as hereinafter set forth and
shall be payable as hereinafter set forth.
(c) In accordance with the terms and conditions hereof, and in
consideration of the sale of the Participant's Interest to such Participant,
each Participant severally agrees from time to time, during the period
commencing on the Closing Date and ending on the Commitment Termination Date to
fund its Pro Rata Share of outstanding Loans made by the Bank to the
Distributors in an aggregate amount at any one time outstanding not to exceed
such Participant's Participating Commitment (subject to each Participant's
obligations pursuant to Section 2.03(d) hereof).
(d) The Bank (i) represents and warrants to each Participant that it is
the legal and beneficial owner of the Participant's Interest being conveyed to
such Participant, and that such Participant's Interest is free and clear of any
lien or other encumbrance; (ii) makes no representation or warranty to any
Participant, and assumes no responsibility with respect to, any statements,
warranties or representations made by Flowers or any of its Subsidiaries in or
in connection with this Agreement and the other Program Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other instrument or document furnished pursuant hereto;
and (iii) makes no representation or warranty to any Participant, and assumes no
responsibility, with respect to the financial condition of the Flowers, any of
its Subsidiaries or any of the Distributors, or the performance or observance by
the Flowers, any of its Subsidiaries or any of the Distributors of any of their
obligations under this Agreement, any other Program Documents, any of the
Distributor Loan Documents or any other instrument or document furnished
pursuant hereto or thereto.
(e) Each Participant (i) confirms that it has received a copy of this
Agreement and the other Program Documents, together with copies of the financial
statements referred to in Section 7.04 of this Agreement and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Agreement; and (ii) agrees that it
will, independently and without reliance upon the Bank or any other Participant
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Program Documents.
SECTION 2.03. Funding of Loans; Swing Line; Funding of Participant's
Interest in Loans.
(a) The Bank shall fund Loans requested by Flowers in accordance with
the terms of the Funding Approval Notice, the applicable Distributor Loan
Documents and the Servicing Agreement. On the date of any such funding, the Bank
shall elect whether or not to require the Participants to fund their respective
Pro Rata Share of such Loan or Loans to be made on such date. In the event that
the Bank elects not to require the Participants to fund their Pro Rata Share of
the Loans on such date, the Bank shall make such Loans (each, a "Swing Line
Loan") to the
20
<PAGE> 26
Distributors for the account of the Bank; provided that, the aggregate amount of
Swing Line Loans outstanding on any date shall not exceed $10,000,000 and
further provided that the sum of (x) the aggregate outstanding Swing Line Loans
plus (y) the aggregate outstanding Funded Participant's Interests (exclusive of
the Swing Line Loans) shall not exceed the Maximum Commitment Amount. If (i) any
Event of Default shall have occurred, (ii) after giving effect to any requested
Loan, the aggregate Swing Line Loans outstanding hereunder would exceed
$10,000,000, or (iii) the Bank otherwise determines in its sole discretion to
request a Participant Funding hereunder, then the Bank shall notify the
Participants pursuant to subsection (b) requesting a Participant Funding.
(b) In the event that the Bank desires that the Participants fund their
respective Pro Rata Shares of Loans made or outstanding pursuant to the
Distributor Loan Documents, the Bank shall deliver written or telecopy notice to
the Participants (or telephonic notice promptly confirmed in writing or by
telecopy) (a "Participant Funding Request") by no later than 10:00 a.m.
(Atlanta, Georgia time) on the date which is the requested date of the
Participant Funding which shall specify (x) the date of the Participant Funding,
which shall be a Business Day, and (y) each Participant's Pro Rata Share of the
Loans outstanding to be funded in connection with such Participant Funding.
(c) Each Participant shall make its Participant Funding in the amount
of its Pro Rata Share on the proposed date thereof by wire transfer of
immediately available funds to the Bank in Atlanta, Georgia by not later than
2:00 P.M. (Atlanta, Georgia time). Unless the Bank shall have received notice
from a Participant prior to the date of any Participant Funding that such
Participant will not make available to the Bank such Participant's Pro Rata
Share of such Participant Funding, the Bank may assume that the Participant has
made such portion available to the Bank on the date of such Participant Funding
in accordance with this subsection (c) and the Bank may, in reliance on such
assumption, make available to the Distributors a corresponding amount. If and to
the extent that such Participant shall not have made such portion available to
the Bank, such Participant and Flowers shall severally agree to repay the Bank
forthwith (on demand in the case of the Participant and within three (3) days of
such demand in the case of Flowers), without duplication, such amount with
interest at the Federal Funds Rate plus 2% per annum and, until such time as
such Participant has repaid to the Bank such amount, such Participant shall (i)
have no right to vote regarding any issue on which voting is required or
advisable under this Agreement or the other Program Documents, and (ii) shall
not be entitled to receive any payments of interest, fees or repayment of the
principal amount of such Loans which the Participant has failed to pay to the
Bank. If such Participant repays such amount to the Bank, then such amount shall
constitute part of such Participant's Funded Participant's Interest. If Flowers
repays such amount to the Bank, the Bank shall assign Notes back to Flowers in
accordance with Section 5.02 hereof in an aggregate principal amount as close
to, but not exceeding, the amount of such payment, and Flowers will be deemed to
have purchased a participation in the Funded Participant's Interest of the
non-paying Participant to the extent of the excess.
(d) Each Participant's obligations to fund its Pro Rata Share of any
requested Participant Funding shall be absolute and unconditional and shall not
be affected by any
21
<PAGE> 27
circumstance, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense, or other right which such Participant may have against the
Bank, Flowers or any Distributor or any other Person for any reason whatsoever,
(ii) the occurrence of any Default or Event of Default, (iii) the occurrence of
any Loan Default, (iv) the occurrence of any Repurchase Obligation pursuant to
Section 5.01 hereof, (v) any adverse change in the condition (financial or
otherwise) of Flowers or any other Subsidiary or any Distributor, (vi) the
acceleration or maturity of any Loan or Flowers' obligations hereunder or the
termination of the Commitment or the Participating Commitments after the making
of any Swing Line Loans, (vii) any breach of this Agreement by Flowers or any
other Participant, or (viii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
(e) Notwithstanding the foregoing provisions of this Section 2.03, no
Participant shall be required to fund its Pro Rata Share of any requested
Participant Funding for purposes of refunding a Swing Line Loan pursuant to
subsection (d) above if a Loan Default with respect to the relevant Loan has
occurred and is continuing and, prior to the making by the Bank of such Swing
Line Loan, the Bank had received written notice from Flowers, the relevant
Distributor or any Participant specifying that such Loan Default had occurred
and was continuing (and identifying the same as a Loan Default, as the case may
be) which has not been cured or waived; provided that, in the case of a Loan
Default arising from a Default or Event of Default where the Participants are
not pursuing remedies, the Participants will be obligated to fund their
respective Pro Rata Shares of Swing Line Loans as long as the aggregate amount
of such Swing Line Loans does not exceed $5,000,000.
SECTION 2.04. Fees.
(a) Flowers shall pay to the Bank, for the ratable benefit of the
Participants, on the Closing Date, an upfront fee (the "Upfront Fee") in an
amount equal to $400,000. Promptly upon the Bank's receipt thereof, the Bank
shall promptly pay the Upfront Fee to the Participants, pro rata based on their
respective Pro Rata Shares.
(b) Flowers shall pay to the Bank, for the ratable benefit of the
Participants, quarterly in arrears on each Quarterly Payment Date, commencing on
September 30, 1999 and continuing thereafter, a commitment fee (the "Commitment
Fee") in an amount equal to one eighth of one percent per annum (0.125%) per
annum multiplied by the average daily amount of the Participant's Unused
Commitments during the calendar quarter ending on such Quarterly Payment Date,
for the period commencing on the Closing Date and ending on the Commitment
Termination Date, or such earlier date as the Participating Commitments shall
expire or terminate. Promptly upon the Bank's receipt thereof, the Bank shall
promptly pay the Commitment Fee to the Participants, pro rata based on their
respective Pro Rata Shares.
SECTION 2.05. Interest on Funded Participant's Interest.
(a) Subject to Section 2.06, the Bank shall pay to the Participants,
pro rata based upon their respective Pro Rata Shares, weekly in arrears on each
Payment Date, interest on the
22
<PAGE> 28
Participant's Funded Participant's Interests in an amount equal to the sum of
(a) with respect to the average daily Maximum Recourse Amount for the week
ending on such Payment Date, the amount of interest which would have accrued
thereon during such week at a rate of interest equal to LIBOR plus one and
one-eighth of one percent (1.125%) per annum and (b) with respect to the
remaining aggregate Principal Balance of the Loans, the amount of interest which
would have accrued thereon during such week at a rate of interest equal to LIBOR
plus one and five-eighths of one percent (1.625%) per annum.
(b) Interest on the Participant's Funded Participant's Interests shall
be payable in arrears by the Bank to the Participants on each Payment Date,
commencing on November 8, 1999 and continuing thereafter, from and to the extent
of the sum of (x) interest payments received by the Bank on the Loans during the
week ending on such Payment Date and (y) other amounts received by the Bank
hereunder.
(c) In the event that the interest and other amounts received by the
Bank from Flowers and the Distributors during any week are insufficient to pay
the interest to the Participants required to be paid on any Payment Date
pursuant hereto and all other amounts required to be paid to the Bank and the
Participants during such week, Flowers shall, upon demand of the Bank,
immediately fund such difference to the Bank (with such payment allocated to
specific Loan Payment Defaults as agreed by Flowers and Bank) and if such
shortfall results from Loan Payment Defaults rather than interest rate
variances, either, at the election of the Flowers, (x) Flowers shall be
reimbursed by the Bank upon receipt of such amount from the applicable
Distributor, (y) the Loan Indebtedness of such Distributor shall be deemed to be
reduced by such amount for purposes of a repayment or purchase of such Defaulted
Loan by Flowers in accordance with the terms of this Agreement or (z) if elected
by Flowers and if such amount is sufficient to cure any Loan Payment Default,
such amount shall be deemed to have satisfied Flower's obligation to cure such
Loan Payment Default hereunder.
SECTION 2.06. Payments and Computations, Etc.
(a) All amounts to be paid by Flowers hereunder shall be paid no later
than 2:00 P.M. (Atlanta, Georgia time) on the day when due in same day funds to
office of the Bank located in Atlanta, Georgia.
(b) Flowers shall, to the extent permitted by law, pay to the Bank on
demand from time to time interest on any amount not paid by Flowers when due
hereunder (including its Escrow Funding Obligation) at an interest rate per
annum equal to two percent (2%) per annum above the otherwise applicable rate of
interest per annum (the "Default Interest").
(c) All computations of interest and other amounts due hereunder shall
be made on the basis of a year of 360 days and the actual number of days
elapsed. Whenever a payment which is to be made hereunder shall be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day.
23
<PAGE> 29
SECTION 2.07. Voluntary Reduction of the Unutilized Commitment .
Upon at least three (3) Business Days' prior telephonic notice (promptly
confirmed in writing) to the Bank, Flowers shall have the right, without premium
or penalty, to terminate the Commitment, in part or in whole, provided that (i)
any such termination shall apply to permanently reduce the Commitment, (ii) any
such termination shall apply to proportionately and permanently reduce the
Participating Commitments of each of the Participants, (ii) any partial
termination pursuant to this Section 2.07 shall be in an amount of at least
$5,000,000 and integral multiples of $1,000,000, and (iii) the Commitment may
not be reduced if, as a result thereof, the amount of the Commitment would be
less than the aggregate sum of all outstanding Loans pursuant to such the
Commitment.
SECTION 2.08. Extension of Commitment.
(a) Flowers may, by written notice to the Bank (which shall promptly
deliver a copy to each Participant), given not more than sixty (60) days prior
to any anniversary to the date of this Agreement while the Commitment is in
effect, request that the Participants extend the then scheduled Commitment
Termination Date (the "Existing Date") for an additional 364-day period. Each
Participant shall, by notice to the Bank given within 15 days after receipt of
such request, advise Flowers and the Bank whether or not such Participant
consents to the extension request (and any Participant which does not respond
during such 15-day period shall be deemed to have advised Flowers and the Bank
that it will not agree to such extension.)
(b) In the event that on the 15th Business Day after receipt of the
notice delivered pursuant to subsection (a) above, all of the Participants shall
have agreed to extend their respective Participating Commitments, the Commitment
Termination Date shall be deemed to have been extended, effective as of the
Existing Date, to the date which is 364 days thereafter.
(c) In the event that, on the 15th Business Day after receipt of the
notice delivered pursuant to subsection (a) above, all of the Participants shall
not have agreed to extend their respective Participating Commitments, Flowers
and the Bank shall notify the consenting Participants ("Consenting
Participants") of the amount of the Participating Commitments of the
non-extending Participants ("Non-Consenting Participants") and such Consenting
Participants shall, by notice to Flowers and the Bank given within ten (10)
Business Days after receipt of such notice, advise Flowers and Bank whether or
not such Participant wishes to purchase all or a portion of the Participating
Commitments of the Non-Consenting Participants (and any Participant which does
not respond during such 10-Business Day period shall be deemed to have rejected
such offer). In the event that more than one Consenting Participant agrees to
purchase all or a portion of such Participating Commitments, Flowers and the
Bank shall allocate such Participating Commitments among such Consenting
Participants so as to preserve, to the extent possible, the relative pro rata
shares of the Consenting Participants of the Participating Commitments prior to
such extension request. If Consenting Participants do not elect to assume all of
the Participating Commitments of the Non-Consenting Participants, Flowers shall
have the right, subject to the terms and conditions of Section 12.10, to arrange
for one or more banks (any such bank being called a "New Participant"), to
purchase the Participating Commitment of any Non-Consenting
24
<PAGE> 30
Participant. Each Non-Consenting Participant shall assign its Participating
Commitment and its Participant's Interest outstanding hereunder to the
Consenting Participant or New Participant purchasing such Participating
Commitment in accordance with Section 12.10, in return for payment in full of
all principal, interest and other amounts owing to such Non-Consenting
Participant hereunder, on or before the Existing Date and, as of the effective
date of such assignment, shall no longer be a party hereto, provided that each
New Participant shall be subject to the approval of the Bank (which approval
shall not be unreasonably withheld). If (and only if) Participants (including
New Participants) holding Participating Commitments representing at least an
amount equal to the greater of (x) the sum of all outstanding Loans and (y) 85%
of the aggregate Participating Commitments on the date of such extension request
shall have agreed to such extension by the Existing Date (the "Continuing
Participants"), then (i) the Commitment Termination Date shall be extended for
an additional 364-day period and (ii) the Participating Commitment of any
Non-Consenting Participant which has not been assigned to a Consenting
Participant or a New Participant shall terminate (with the result that the
amount of the Commitments shall be decreased proportionately by the amount of
such Participating Commitment), and all amounts owing to such Non-Consenting
Participant shall become due and payable, together with all interest accrued
thereon and all other amounts owed to such Non-Consenting Participant hereunder,
on the Existing Date applicable to such Participant without giving effect to any
extension of the Commitment Termination Date.
SECTION 2.09. Pro Rata Treatment.
Subject to the application of payments pursuant to Article III and except as
specifically provided therein, each payment of principal of any Funded
Participant's Interest, each payment of interest with respect to the Funded
Participant's Interest, each payment of the Commitment Fee and each reduction of
the Commitment shall be allocated pro rata among the Participants in accordance
with their respective applicable Pro Rata Share of the Commitment. Each
Participant agrees that in computing such Participant's portion of any Funded
Participant's Interest to be made hereunder, the Bank may, in its discretion,
round each Participant's percentage of such Participant Funding Request to the
next higher or lower whole dollar amount.
SECTION 2.10. Sharing of Setoffs.
Each Participant agrees that if it shall, in accordance with applicable law,
through the exercise of a right of banker's lien, setoff or counterclaim against
Flowers or any Distributor, or pursuant to a secured claim under Section 506 or
Title 11 of the United States Code or other security or interest arising from,
or in lieu of, such secured claim, received by the Participant under any
applicable bankruptcy, insolvency or other similar law or otherwise, or by any
other means, obtain payment (voluntary or involuntary) in respect of any Funded
Participant's Interest under this Agreement as a result of which the unpaid
principal portion of its Funded Participant's Interest shall be proportionately
less than the unpaid principal portion of the Funded Participant's Interest of
any other Participant, it shall be deemed simultaneously to have purchased from
such other Participant at face value, and shall promptly pay to such other
Participant the purchase price for, a participation in the Funded Participant's
Interest of such other Participant, so that the aggregate
25
<PAGE> 31
unpaid principal amount of the Funded Participant's Interest and participations
in Funded Participant's Interests held by each Participant shall be in the same
proportion to the aggregate unpaid principal amount of all Funded Participant's
Interests then outstanding as the principal amount of its Purchases prior to
such exercise of banker's lien, setoff or counterclaim or other event was to the
principal amount of all Funded Participant's Interests outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
however, that, if any such purchase or purchases or adjustments shall be made
pursuant to this Section and the payment giving rise thereto shall thereafter be
recovered, such purchase or purchases or adjustments shall be rescinded to the
extent of such recovery and the purchase price or prices or adjustment restored
without interest. Flowers expressly consents to the foregoing arrangements and
agrees, to the extent permitted by applicable law, that any Participant holding
a Funded Participant's Interest or a participation in a Funded Participant's
Interest deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by Flowers to such Participant by reason thereof.
ARTICLE III.
FLOWERS' SERVICING OBLIGATIONS; BANK'S OBLIGATIONS;
DISTRIBUTION OF PAYMENTS
SECTION 3.01. Flowers' Servicing Obligations with Respect to Loans;
Collateral; Non-Recourse.
(a) Each of the Bank and the Participants acknowledges and agrees that
Flowers shall, for itself and for the benefit of the Bank and all Participants,
(i) document, close, manage, service, administer and collect the Loans in
accordance with the terms of this Agreement, the Servicing Agreement and its
Customary Practices, and shall have full power and authority to do or cause to
be done any and all things in connection with such management, servicing,
administration and collection which it may deem necessary or desirable and (ii)
distribute all funds collected with respect to the Loans.
(b) Notwithstanding anything in this Agreement to the contrary, each of
the Bank and the Participants acknowledges and agrees that Flowers shall have no
obligation to the Bank or the Participants with respect to (i) the creation,
perfection, priority or continuation of any Lien on any Collateral obtained by
the Bank with respect to the Loans at the request of Flowers or (ii) the
obtaining or retention of any guaranties of the Loans (other than to distribute
any proceeds therefrom in accordance with the terms of this Article III). Each
of the Bank and the Participants acknowledges and agrees that Flowers has the
right to release or modify the terms of, any Collateral or any guaranty of any
Loan.
(c) Each of the Bank and the Participants acknowledges and agrees that
Flowers, in accordance with its Customary Practices, is authorized to permit the
assumption of any Distributor Loan by a transferee of the Distributor's interest
in the related Distributor Route, pursuant to which such transferee becomes
liable under such Distributor Loan and reaffirms and assumes all
26
<PAGE> 32
of the obligations of the Distributor under all of the Distributor Loan
Documents. In connection with any such assumption, none of the payment terms of
such Distributor Loan may be changed.
SECTION 3.02. Bank's Obligations with Respect to Loans and Collateral.
(a) Each of the Participants acknowledges and agrees that all payments
made to the Participants pursuant to this Agreement by the Bank shall be made
solely from amounts received by the Bank from Flowers, the Distributors and
other obligors or Collateral under the applicable Loan Documents, and the Bank
shall have no personal liability for any amounts payable to the Participants
hereunder.
(b) Each of the Participants acknowledges and agrees that the Bank
shall be relying solely upon Flowers for purposes of documenting, closing,
managing, servicing, administering and collecting the Loans in accordance with
the terms of this Agreement and the Servicing Agreement and exercising all
discretionary powers involved in such management, servicing, administration and
collection, and that the Bank shall have no personal liability for any of such
activities. Each of the Participants further acknowledges and agrees that the
Bank has no obligation to the Participants with respect to the creation,
perfection, priority or continuation of any Lien on any Collateral or with
respect to any guaranties requested by Flowers (other than to distribute the
proceeds received by the Bank therefrom to the Participants).
(c) Each of the Participants acknowledges and agrees that any payments
of delinquent payment fees received from the Distributors pursuant to the
Distributor Loan Agreements shall be for the sole account of the Bank and that
the Participants shall have no right to receive such payments unless an Event of
Default has occurred and is continuing; provided that, with respect to any
payments received from a Distributor, such payments shall be first applied to
pay all accrued but unpaid interest and principal and other fees due and owing
from such Distributor before application of such payment to any delinquent
payment fees.
(d) Each of the Participants acknowledges and agrees that all Liens
granted under the Distributor Loan Documents are granted to the Bank and that
only the Bank, with the consent of the Required Participants, has the right to
foreclose on any collateral for, or exercise any remedies under, the Distributor
Loan Documents.
SECTION 3.03. Application of Payments.
(a) Flowers shall collect all payments directly from the Distributors
and shall forward such payments to the Bank on each Payment Date, net of the
servicing fee owed under the terms of the Servicing Agreement. Each of the
Participants acknowledges and agrees that amounts received by the Bank are not
capable of being allocated to any specific Loan, and that the Bank shall apply
the amounts it receives as follows: (i) first, to the payment of accrued
interest on the Funded Participant's Interests hereunder, (ii) second, to the
payment of the fees owing to the Bank under the Servicing Agreement, (iii)
third, to the repayment of the Funded Participant's Interests
27
<PAGE> 33
outstanding hereunder, and (iv) fourth, to the payment of all other amounts
owing to the Bank or any Participant hereunder.
(b) On each Quarterly Payment Date, Flowers shall pay the Commitment
Fee to the Bank, and the Bank shall distribute such amount to the Participants
pro rata in accordance with Section 2.04 hereof, with any remainder to be
applied as set forth in the Servicing Agreement.
(c) If not sooner repaid, all amounts due and payable to the Bank and
the Participants under the Program Documents shall be due and payable in full on
the Commitment Termination Date.
SECTION 3.04. Servicing Report and Distributor Status Report.
On each Payment Date, the Bank shall telecopy to the Participants, a
servicing report in the form of Exhibit "F" attached hereto (the "Servicing
Report").
ARTICLE IV.
REQUIREMENTS OF NOTES
SECTION 4.01. Notes. Each of the Purchased Notes purchased by the Bank
on the Note Purchase Date, each Note tendered by Flowers or a Selling Subsidiary
to the Bank as a condition precedent to an Existing Loan and each Note tendered
by Flowers or a Selling Subsidiary to the Bank hereunder as a condition
precedent to a Loan to be made on or after the Closing Date, shall meet on the
date of such tender each of the following applicable requirements:
(a) Each Purchased Note was originated by Flowers or the applicable
Selling Subsidiary in the ordinary course of business and in accordance with all
applicable laws;
(b) Each Note other than a Purchased Note was approved by Flowers or
the applicable Selling Subsidiary in accordance with its Customary Practices;
(c) Each Note provides for payment of interest at the Distributor Loan
Interest Rate;
(d) Each Note, by its terms, matures not more than ten years after the
date thereof;
(e) Each Note provides for weekly even amortization of principal and
interest;
(f) Each Loan and each of the related Distributor Loan Documents is a
legal, valid and binding obligation of the Distributor thereunder and is
enforceable in accordance with its terms by the holder thereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights in general and
28
<PAGE> 34
by general principles of equity, whether such enforcement is considered in a
proceeding at equity or in law;
(g) As to each Distributor Route underlying a Purchased Note,
immediately prior to assignment to the Bank, Flowers or the applicable Selling
Subsidiary had a first priority perfected security interest therein and had
legal title to and was the sole beneficial owner of the related Distributor Loan
Documents and the assignment to the Bank of the Purchased Loan and the
Distributor Loan Documents validly transferred the Purchased Loan, Distributor
Loan Documents and the first priority lien and security interest thereunder to
the Bank, free and clear of any Lien and it is not necessary under the laws of
the applicable jurisdiction to file notice of assignment of such Lien to the
Bank in the UCC records in order to maintain the perfection or priority thereof;
(h) Each Note is secured by a fully perfected, first priority security
interest in favor of the Bank in the Distributor Route of the Distributor;
(i) No Note or other Distributor Loan Document is subject to any right
of rescission, set-off, counterclaim or defense, including the defense of usury;
the operation of the terms of the Distributor Loan Documents or the exercise of
any right thereunder will not render such Note unenforceable in whole or in part
or subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto;
(j) Each Note and related Distributor Loan Documents are the only
contracts evidencing the transaction described therein and constitute the entire
agreement of the parties thereto with respect to such transaction and the
original of the Note, all Distributor Loan Documents, and other collateral
documents have been, or will be, upon request of the Bank, delivered to the
Bank, properly assigned, in the case of a Purchased Note;
(k) Each Note and related Distributor Loan Documents are genuine and
all signatures, names, descriptions of collateral, amounts and other facts and
statements therein and thereon are true and correct (including the applicable
Distributor Route number set forth on the Note);
(l) In the case of each Purchased Note, Flowers or the applicable
Selling Subsidiary has full power and authority to sell each Purchased Note and
the accompanying security therefor to the Bank and is not prohibited by
applicable law from making such a valid sale and assignment;
(m) No party is in default under any Note or any related Distributor
Loan Document;
(n) All disclosures required to be made under applicable federal and
state law have been properly and completely made with respect to each Note and
each Note is in full compliance with all applicable federal and state laws,
including without limitation, applicable state usury laws;
(o) Flowers has not consented to a sale, lease, transfer or encumbrance
of the collateral securing any Note or to any material adverse alteration in the
Distributor Route securing the same;
29
<PAGE> 35
(p) Each Purchased Note has been endorsed to the order of the Bank, and
each Purchased Note allows for assignment thereof and accompanying security
therefor without notice to or consent from the Distributor;
(q) The proceeds of each Note has been used for commercial purposes and
not for the purchase of consumer and household goods;
(r) The Principal Balance of each Note does not exceed the "first
original purchase price" as such term is used in Section 3.01 of the
Distributor's Agreements; and
(s) In the case of each Note evidencing an Existing Loan, Flowers
maintains a Distributor Loan File containing one of each of the Distributor Loan
Documents, duly executed by the Distributor and each other party thereto,
substantially in the form of the Distributor Loan Documents attached as an
Exhibit to the Existing Loan Facility Agreement as in effect immediately prior
to the replacement thereof by this Agreement, and in the case of each Note
evidencing a Loan to be made on or after the Closing Date, Flowers maintains a
Distributor Loan File containing one of each of the Distributor Loan Documents,
duly executed by the Distributor and each other party thereto, substantially in
the form attached hereto as Exhibits.
SECTION 4.02. Repurchase of Ineligible Notes.
Flowers hereby acknowledges and agrees that the representation and warranty that
each of the Notes satisfies the applicable requirements of Section 4.01 shall
survive the purchase of the Purchased Notes by the Bank on the Note Purchase
Date and the making of any other Loan by the Bank either under the Existing Loan
Facility Agreement or hereunder and, in the case of the Purchased Notes, shall
inure to the benefit of the Bank regardless of any restrictive endorsement or
assignment. Flowers shall promptly give the Bank notice of any discovery that a
Note failed on the date of tender to the Bank (whether or not Flowers knew or
could have known of such failure at such date) to meet the applicable
requirements set forth above and if such failure is not remedied within thirty
(30) days after discovery thereof, Flowers shall, on the next Payment Date,
repurchase such Note (an "Ineligible Note") for the Repurchase Price thereof and
the Bank shall assign such Note to Flowers in accordance with Section 5.02
hereof. The Bank acknowledges and agrees that a misrepresentation by Flowers
pursuant to Section 7.18(a) or (b) shall not be a Default or Event of Default
under Section 9.01(d) hereof but shall only trigger Flowers' repurchase
obligation under this Section 4.02 (with the understanding that any
misrepresentation as to the Principal Balance of a Purchased Note pursuant to
Section 7.18(a) or (b) shall obligate Flowers to repurchase such Note at such
Principal Balance less any Payments received by the Bank with respect thereto).
Notwithstanding the foregoing, the obligation of Flowers set forth in this
Section 4.02 is separate and independent of the obligation of Flowers to
purchase Defaulted Loans pursuant to Article V and is not subject to the
limitations set forth therein. Moreover, any Repurchase Price paid by Flowers
pursuant hereto with respect to an Ineligible Loan (whether or not such
Ineligible Loan also constitutes a Defaulted Loan) shall not be included for
purposes of determining whether or not Flowers has paid the Maximum Recourse
Amount. Furthermore,
30
<PAGE> 36
nothing in this Section 4.02 shall be deemed to limit Flowers' obligations
pursuant to any indemnity set forth herein.
ARTICLE V.
REPURCHASE OBLIGATION OF FLOWERS WITH RESPECT TO DEFAULTED LOANS
SECTION 5.01. Repurchase Obligation of Flowers.
Subject to the limitation set forth below, in the event that (a) any installment
of principal or interest on any Loan is not paid by the Distributor within sixty
(60) days after its due date (regardless of whether Flowers makes any Servicer
Advance with respect to such defaulted payment), or (b) any other event of
default as defined in any Note shall occur, then upon demand by the Bank,
Flowers shall repurchase said Loan (herein called a "Defaulted Loan" provided
that, if an Event of Default exists or Flowers has no current obligation to
repurchase Defaulted Loans hereunder, the term "Defaulted Loan" shall include
any Loan for which a payment event of default has occurred) for an amount equal
to the Principal Balance of such Defaulted Loan, plus accrued but unpaid
interest thereon (the "Repurchase Price") within three (3) Business Days after
demand by the Bank.
Notwithstanding the foregoing, the payments made by Flowers pursuant hereto to
repurchase Defaulted Loans pursuant to this Section 5.01 shall not at any time
exceed the Maximum Recourse Amount.
The parties expressly acknowledge and agree that the Maximum Recourse Amount
shall equal an increasing percentage of the aggregate Principal Balance of the
Loans during the term of this Agreement and that the parties shall recalculate
the Maximum Recourse Amount as of the first day of each Fiscal Quarter and
Flowers shall, (i) in the event that the Escrow Funding Obligation is in effect,
deposit any increased amount of the Maximum Recourse Amount into the Escrow
Account, or (ii) in the event that any Defaulted Loan has not been repurchased
hereunder due to Flowers having paid in full the Maximum Recourse Amount as of
an earlier date, repurchase any such Defaulted Loan up to such increased Maximum
Recourse Amount; provided that, Flowers shall not have any obligation to
purchase any such previously Defaulted Loan unless such Loan became a Defaulted
Loan within 180 days prior to such increase in the Maximum Recourse Amount and
was scheduled as a Defaulted Loan to the Bank in compliance with the Servicing
Agreement.
SECTION 5.02. Transfer of Notes.
Upon payment to the Bank of the Repurchase Price for each of the Notes
to be repurchased pursuant to Section 5.01, the Bank shall endorse the
repurchased Notes to Flowers without recourse or warranty of any nature, express
or implied and shall reassign to Flowers any Security Agreement, Uniform
Commercial Code Financing Statement or other collateral for such Note
31
<PAGE> 37
being repurchased. The obligation of Flowers (as provided below) to repurchase a
Defaulted Loan or to fund the Escrow Account in the amount of all of the Notes
upon an Escrow Funding Obligation shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of any Note to be
repurchased hereunder, or any other agreement or instrument relating thereto
(including, but not limited to, any guaranty thereof or any Security Agreement),
(b) any bankruptcy or insolvency of the Distributor or other obligor;
(c) any change in the time, manner or place of payment of, or in any
other term of, such Note, or any other amendment or waiver of, a consent to
departure from, such Defaulted Loan,
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, Flowers, in respect of its obligations
hereunder,
(e) the particular manner in which the Bank deals with the Distributor
or other endorsers or guarantors of the Notes, or
(f) any action taken by the Bank with respect to the security for the
Notes.
The parties hereby expressly agree that any action taken by the Bank in
violation of the Servicing Agreement will not limit, vitiate or otherwise affect
Flowers' obligations hereunder but the waivers set forth above shall not affect
Flowers' ability to bring a separate action at law to recover any actual damages
suffered by Flowers as a result of such breach by the Bank.
SECTION 5.03. Reliance on Repurchase Obligation.
Flowers expressly acknowledges and agrees that the Bank, in making its credit
decision with regard to the purchase of the Notes on the Note Purchase Date and
the establishment of the Commitment, and the Participants in making their
respective credit decisions with regard to the purchase of participations in the
Commitment and the Loans, have relied solely upon the repurchase obligation of
Flowers set forth above and the other obligations of Flowers hereunder and that
neither the Bank nor any Participant is under any obligation or duty to perform
any credit analysis or investigation with regard to the creditworthiness of any
Distributor.
SECTION 5.04. Certain Waivers.
Flowers hereby expressly waives, with respect to each of the Notes:
(a) presentment, protest, and notice of dishonor,
(b) promptness, diligence, notice of acceptance and any other notice,
32
<PAGE> 38
(c) any defense to recovery by the Bank of deficiency after nonjudicial
sale of any Note, and
(d) any requirement that the Bank proceed against the Distributor, any
other obligor with respect to a Defaulted Loan or any collateral therefor prior
to making a repurchase demand hereunder.
SECTION 5.05. Bankruptcy Rescission.
If claim is ever made upon the Bank for repayment or recovery of any amount or
amounts received in payment or on account of any of the amounts paid by any
Distributor or Flowers hereunder, and the Bank repays all or part of said amount
by reason of any judgment, decree or order of any court or administrative body
having jurisdiction over the Bank or any of its property, then and in such event
Flowers shall be and remain liable to the Bank for the amounts so repaid or
recovered to the same extent as if such amount had never originally been paid to
the Bank.
ARTICLE VI.
CONDITIONS OF LOANS
The obligation of the Bank to establish the Commitment pursuant to this
Agreement is subject to the Bank having received the following, each dated as of
the Closing Date, in form and substance satisfactory to the Bank and (except as
to the Servicing Agreement) the Participants:
(a) A duly executed counterpart of this Agreement;
(b) A duly executed amendment to the Flowers Security Agreement;
(c) Duly executed amendments to the UCC-1 financing statements with
respect to Flowers and each of the Selling Subsidiaries, as appropriate;
(d) Copies of the organizational papers of Flowers and each of the
Selling Subsidiaries certified as true and correct by the Secretary of State of
the State of its incorporation (in the case of Flowers) or its Secretary or
Assistant Secretary (in the case of a Selling Subsidiary) and a certificate of
good standing from the Secretary of State of the State of its incorporation;
(e) A certificate of the Secretary or Assistant Secretary of Flowers
and each of the Selling Subsidiaries certifying (i) the names and true
signatures of the officers of Flowers, and each of the Selling Subsidiaries
authorized to execute this Agreement and the other documents to be delivered
hereunder, (ii) the bylaws of such Person, and (iii) the resolutions of the
Boards of Directors of such Person approving this Agreement and the transactions
contemplated hereby;
33
<PAGE> 39
(f) A favorable written opinion of each of G. Anthony Campbell, Esquire
and Troutman Sanders LLP, counsel for Flowers and the Selling Subsidiaries,
substantially in the form of Exhibit "G" hereto, addressing the transactions
contemplated hereby and such other matters as the Bank may reasonably request;
(g) A duly executed Closing Certificate of Flowers;
(h) A duly executed certificate of Flowers identifying the Authorized
Signatories for each such Person, in form and substance satisfactory to the
Bank; and
(i) All corporate and other proceedings taken or to be taken in
connection with the transactions contemplated hereby and all documents incident
hereto or delivered in connection therewith shall be satisfactory in form and
substance to the Bank.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
Flowers represents and warrants to the Bank and each Participant that:
SECTION 7.01. Corporate Existence and Power.
Flowers is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Georgia. Flowers is duly qualified to
transact business in every jurisdiction where, by the nature of its business,
such qualification is necessary, except for any failure to comply with the
foregoing which does not have and reasonably could not be expected to cause a
Material Adverse Effect, and has all corporate powers and all government
authorizations, licenses, consents and approvals required to engage in its
business and operations as now conducted, except for any failure to comply with
the foregoing which does not have and reasonably could not be expected to cause
a Material Adverse Effect.
SECTION 7.02. Corporate and Governmental Authorization; No
Contravention.
The execution, delivery and performance by Flowers and each of the Selling
Subsidiaries of this Agreement and the other Program Documents (i) are within
such entity's corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) require no action by or in respect of or filing with,
any governmental body, agency or official, (iv) do not contravene, or constitute
a default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of such entity or of any material
agreement, judgment, injunction, order, decree or other instrument binding upon
Flowers, any Selling Subsidiary or any other Restricted Subsidiaries, and (v) do
not result in the creation or imposition of any Lien on any asset of Flowers,
any Selling Subsidiary or any other Restricted Subsidiaries (other than a Lien
in favor of the Bank).
34
<PAGE> 40
SECTION 7.03. Binding Effect.
This Agreement constitutes a valid and binding agreement of Flowers enforceable
in accordance with its terms, and the Flowers Security Agreement and the other
Program Documents, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of Flowers and each of
the Selling Subsidiaries party thereto, enforceable in accordance with their
respective terms, provided that the enforceability hereof and thereof is subject
in each case to general principles of equity and to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights generally.
SECTION 7.04. Financial Information.
(a) The consolidated balance sheet of Flowers and its Consolidated
Subsidiaries as of January 2, 1999 and the related consolidated statements of
income, shareholders' equity and cash flows for the Fiscal Year then ended,
reported on by PricewaterhouseCoopers LLP, copies of which have been delivered
to the Bank fairly present, in conformity with GAAP, the consolidated financial
position of Flowers and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such period stated.
(b) Since January 2, 1999, there has been no event, act, condition or
occurrence which has or reasonably could be expected to cause a Material Adverse
Effect.
SECTION 7.05. No Litigation.
There is no action, suit or proceeding pending, or to the knowledge of Flowers
threatened, against or affecting Flowers or any of its Restricted Subsidiaries
before any court or arbitrator or any governmental body, agency or official
which has or reasonably could be expected to have a Material Adverse Effect or
which in any manner draws into question the validity of this Agreement or the
Flowers Security Agreement or which in any manners draws into question the
validity of Distributor Loan Documents generally, whether directly, or by a
cause of action which could potentially be asserted against a significant
portion of the Distributor Loan Documents.
SECTION 7.06. Compliance with ERISA.
(a) Flowers and each member of the Controlled Group have fulfilled
their obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and are in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and have not incurred any
liability to the PBGC or a Plan under Title IV of ERISA.
(b) Neither Flowers nor any member of the Controlled Group has incurred
any withdrawal liability with respect to any Multiemployer Plan under Title IV
of ERISA, and no such liability is expected to be incurred.
SECTION 7.07. Compliance with Laws; Payment of Taxes.
35
<PAGE> 41
Flowers and, to the best of Flowers' knowledge, its Material Subsidiaries, are
in compliance with all applicable laws, regulations and similar requirements of
governmental authorities, except where such compliance is being contested in
good faith through appropriate proceedings or which does not have and reasonably
could not be expected to cause a Material Adverse Effect. There have been filed
on behalf of Flowers and its Material Subsidiaries all Federal, state and local
income, material excise, material property and other material tax returns which
are required to be filed by them and all taxes due pursuant to such returns or
pursuant to any assessment received by or on behalf of Flowers or any Material
Subsidiary have been paid, except where such payments are being contested in
good faith through appropriate proceedings or the failure to pay does not have
and reasonably could not be expected to cause a Material Adverse Effect. The
charges, accruals and reserves on the books of Flowers and its Material
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of Flowers, adequate. As of the Closing Date, United States income tax
returns of Flowers and its Material Subsidiaries have been examined and closed
through the 1996 Fiscal Year.
SECTION 7.08. Subsidiaries.
Each of Flowers' Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, is
duly qualified to transact business in every jurisdiction where, by the nature
of its business, such qualification is necessary, and has all corporate powers
and all governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, except for any failure to comply with
the foregoing which does not have and reasonably could not be expected to cause
a Material Adverse Effect. As of the Closing Date, Flowers has no Subsidiaries
except for those Subsidiaries listed on Schedule 7.08, which accurately sets
forth each such Subsidiary's complete name and jurisdiction of incorporation.
None of such Subsidiaries, other than those listed as such on Schedule 7.08, is
a Material Subsidiary as of the Closing Date. Within (15) fifteen days after any
Subsidiary becomes a Material Subsidiary, or the creation or acquisition of any
Subsidiary which becomes a Material Subsidiary, Flowers will send to the Bank
either a supplement to or replacement of Schedule 7.08 (showing such Subsidiary
and indicating that it is a Material Subsidiary), or a copy of Form 8-K sent to
the Securities and Exchange Commission, showing such Subsidiary as a Material
Subsidiary.
SECTION 7.09. Investment Company Act.
Neither Flowers nor any of its Subsidiaries is an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
SECTION 7.10. Public Utility Holding Company Act.
Neither Flowers nor any of its Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a
36
<PAGE> 42
"holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
SECTION 7.11. Ownership of Property; Liens.
Each of Flowers and its Material Subsidiaries has title to, or leasehold or
other interests in, its properties sufficient for the conduct of its business,
and none of such property is subject to any Lien except as permitted in Section
8.16.
SECTION 7.12. No Default.
Neither Flowers nor any of its Material Subsidiaries is in default under or with
respect to any agreement, instrument or undertaking to which it is a party or by
which it or any of its property is bound which has or reasonably could be
expected to cause a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
SECTION 7.13. Full Disclosure.
Flowers' annual report on Form 10-K for the fiscal year ended at January 2, 1999
and quarterly report on Form 10-Q for the fiscal quarter ended at April 24,
1999, copies of which have been furnished by Flowers to the Bank, did not, as of
the dates such Form 10-K and Form 10-Q were filed with the Securities and
Exchange Commission, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. From the date of
filing of such quarterly report through the date hereof, except for the Form 8-K
filed on July 29, 1999 with the Securities and Exchange Commission, Flowers has
not filed a current report on Form 8-K with the Securities and Exchange
Commission and, as of the date hereof, no event or condition exists which would
require such filing by Flowers pursuant to the Securities Exchange Act of 1934,
as amended, except for any such event or condition which has heretofore been
disclosed in writing to the Bank by delivery to the Bank of a Form 8-K.
SECTION 7.14. Environmental Matters.
(a) Neither Flowers nor any Restricted Subsidiary is subject to any
Environmental Liability which has or reasonably could be expected to cause a
Material Adverse Effect and, to the best of Flowers' knowledge, neither Flowers
nor any Restricted Subsidiary has been designated as a potentially responsible
party under CERCLA or under any state statute similar to CERCLA. To the best of
Flowers' knowledge, none of the Properties has been identified on any current or
proposed (i) National Priorities List under 40 C.F.R. 300, (ii) CERCLIS list or
(iii) any list arising from a state statute similar to CERCLA.
(b) To the best of Flowers' knowledge, no Hazardous Materials have been
or are being used, produced, manufactured, processed, treated, recycled,
generated, stored, disposed of, managed or otherwise handled at, or shipped or
transported to or from the Properties or are
37
<PAGE> 43
otherwise present at, on, in or under the Properties, or, to the best of the
knowledge of Flowers, at or from any adjacent site or facility, except for
Hazardous Materials, such as cleaning solvents, pesticides and other materials
used, produced, manufactured, processed, treated, recycled, generated, stored,
disposed of, managed, or otherwise handled in material compliance with all
applicable Environmental Requirements.
(c) To the best of Flowers' knowledge, Flowers, and each of its
Restricted Subsidiaries and Affiliates, has procured all Environmental
Authorizations necessary for the conduct of its business, and is in compliance
with all Environmental Requirements in connection with the operation of the
Properties and Flowers', and each of its Restricted Subsidiary's and
Affiliate's, respective businesses, except where failure to comply does not have
and reasonably could not be expected to cause a Material Adverse Effect.
SECTION 7.15. Capital Stock.
All Capital Stock, debentures, bonds, notes and all other securities of Flowers
presently issued and outstanding are validly and properly issued in accordance
with all applicable laws in all material respects, including but not limited to,
the "Blue Sky" laws of all applicable states and the federal securities laws,
except to the extent any failure with respect thereto would not have and
reasonably could not be expected to cause a Material Adverse Effect. The issued
shares of Capital Stock of Flowers' Wholly Owned Subsidiaries are owned by
Flowers free and clear of any Lien or adverse claim. At least a majority of the
issued shares of capital stock of each of Flowers' other Subsidiaries (other
than Wholly Owned Subsidiaries) is owned by Flowers free and clear of any Lien
or adverse claim.
SECTION 7.16. Margin Stock.
Neither Flowers nor any of its Subsidiaries is engaged principally, or as one of
its important activities, in the business of purchasing or carrying any Margin
Stock, and no part of the proceeds of any Loan made hereunder will be used to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock, or be used for any purpose which
violates, or which is inconsistent with, the provisions of Regulation T, U or X.
SECTION 7.17. Insurance.
Flowers and each of its Material Subsidiaries has (either in the name of Flowers
or in such Material Subsidiary's own name), with financially sound and reputable
insurance companies, insurance in at least such amounts (including deductibles,
co-insurance and self-insurance with respect to which adequate reserves are
maintained) and against at least such risks (including on all its property, and
public liability and worker's compensation) as are usually insured against in
the same general area by companies of established repute engaged in the same or
similar business and similarly situated.
SECTION 7.18. Notes; Books and Records.
38
<PAGE> 44
(a) Each Purchased Note purchased by the Bank on September 20, 1996
and each other Note tendered by Flowers under the Existing Loan Facility
Agreement or this Agreement as a condition precedent for a Loan satisfies all of
the applicable requirements of Article IX of this Agreement.
(b) The information set forth on the "Distributor Loan Schedule"
delivered in connection with the Existing Loan Facility Agreement with respect
to the Principal Balance of each Purchased Note, all other such information was
true and correct in all material respects as of September 20, 1996.
(c) Flowers has marked, and has caused each of the Selling Subsidiaries
to mark, their respective books and records to evidence that the Purchased Loans
were sold to the Bank as of September 20, 1996.
SECTION 7.19. Y2K Plan.
Flowers has developed its plan (the "Y2K Plan") for making the Mission Critical
Systems and Equipment Year 2000 Compliant and Ready. Flowers and its
Subsidiaries' have met the Y2K Plan milestones in all material respects such
that Flowers reasonably believes, after due diligence, that all Mission Critical
Systems and Equipment will be Year 2000 Compliant and Ready in accordance with
the Y2K Plan.
ARTICLE VIII.
COVENANTS
Until such time as the Commitment has been terminated or is no longer
in effect and the Bank no longer owns any Notes, Flowers will, unless the
Required Participants shall otherwise consent in writing:
SECTION 8.01. Information.
Deliver to the Bank:
(a) as soon as available and in any event within 90 days after the end
of each Fiscal Year,
(i) a consolidated balance sheet of Flowers and its
Consolidated Subsidiaries as of the end of such Fiscal Year and the
related consolidated statements of income, shareholders' equity and
cash flows for such Fiscal Year, setting forth in each case in
comparative form the figures for the previous fiscal year, all
certified by PricewaterhouseCoopers LLP or other independent public
accountants of nationally
39
<PAGE> 45
recognized standing, with such certification to be free of exceptions
and qualifications not acceptable to the Participants; and
(ii) so long as there is an Unrestricted Subsidiary, a
consolidated balance sheet and statement of income for such periods
which accounts for the Unrestricted Subsidiaries using an equity basis
of accounting, in each case setting forth in each case in comparative
form the figures for the previous fiscal year, accompanied by a
restricted use report as to such balance sheet and income statement
from PricewaterhouseCoopers LLP or other independent public accountants
of nationally recognized standing, which report may be qualified on the
basis that the use of the equity basis of accounting does not conform
to GAAP and qualified as to the absence of a statement of cash flows
and as to the absence of footnotes and otherwise to be free of
exceptions and qualifications not acceptable to the Required Banks;
(b) as soon as available and in any event within 45 days after the end
of each of the first 3 Fiscal Quarters of each Fiscal Year:
(i) a consolidated balance sheet of the Flowers and its
Consolidated Subsidiaries as of the end of such Fiscal Quarter and the
related statement of income and statement of cash flows for such Fiscal
Quarter and for the portion of the Fiscal Year ended at the end of such
Fiscal Quarter, setting forth in each case in comparative form the
figures for the corresponding Fiscal Quarter and the corresponding
portion of the previous Fiscal Year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, GAAP and
consistency by the chief financial officer or the chief accounting
officer of the Flowers;
(ii) so long as there is an Unrestricted Subsidiary, a
consolidated balance sheet and statement of income for such periods
which accounts for the Unrestricted Subsidiaries using an equity basis
of accounting, in each case setting forth in each case in comparative
form the figures for the corresponding Fiscal Quarter and the
corresponding portion of the previous Fiscal Year, all certified
(subject to normal year-end adjustments and to qualification based on
the use of the equity basis of accounting) as to fairness of
presentation, GAAP and consistency by the chief financial officer or
the chief accounting officer of the Flowers;
(c) simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a certificate,
substantially in the form of Exhibit H (a "Compliance Certificate"), of the
chief financial officer or the chief accounting officer of Flowers (i) setting
forth in reasonable detail the calculations required to establish whether
Flowers was in compliance with the requirements of Sections 8.13 through 8.20,
inclusive, on the date of such financial statements and (ii) stating whether any
Default exists on the date of such certificate and, if any Default then exists,
setting forth the details thereof and the action which Flowers is taking or
proposes to take with respect thereto;
40
<PAGE> 46
(d) simultaneously with the delivery of each set of annual financial
statements referred to in paragraph (a) above, a statement of the firm of
independent public accountants which reported on such statements to the effect
that nothing has come to their attention to cause them to believe that any
Default under Sections 8.13 through 8.20, inclusive, existed on the date of such
financial statements;
(e) within five (5) Business Days after Flowers becomes aware of the
occurrence of any Default, a certificate of a senior financial officer or
accounting officer or the chief financial officer or the chief accounting
officer or the Treasurer of Flowers setting forth the details thereof and the
action which Flowers is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of Flowers
generally, copies of all financial statements, reports and proxy statements so
mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and annual or quarterly reports which Flowers shall
have filed with the Securities and Exchange Commission;
(h) if and when any member of the Controlled Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii)
receives notice from the PBGC under Title IV of ERISA of an intent to terminate
or appoint a trustee to administer any Plan, a copy of such notice; and
(i) at any time prior to January 1, 2000, within 5 Domestic Business
Days after Flowers becomes aware of any deviations from the Y2K Plan which would
cause compliance with the Y2K Plan to be delayed or not achieved, which delay or
failure to achieve would have or could reasonably be expected to cause a
Material Adverse Effect, a statement of the Chief Executive Officer, Chief
Financial Officer, or Chief Technology Officer setting forth the details thereof
and the action which Flowers is taking or proposes to take with respect thereto;
(j) promptly upon the receipt thereof at any time prior to January 1,
2000, a copy of any third party assessments of Flowers Y2K Plan together with
any recommendations made by such third party with respect to Year 2000
compliance; and
(k) from time to time such additional information regarding the
financial position or business of Flowers and its Subsidiaries (other than
non-public information as to the Unrestricted Subsidiaries) as the Bank, at the
request of any Participant, may reasonably request.
SECTION 8.02. Inspection of Property, Books and Records.
41
<PAGE> 47
Flowers will (i) keep, and cause each Subsidiary to keep, proper books of record
and account in which full, true and correct entries in conformity with GAAP
shall be made of all dealings and transactions in relation to its business and
activities; and (ii) permit, and cause each Restricted Subsidiary to permit,
representatives of the Bank (x) at the Bank's expense and upon reasonable notice
and at a time reasonably convenient to Flowers (but in any event within 10 days
of such notice) prior to the occurrence and continuance of a Default and (y) at
Flowers' expense and without prior notice after the occurrence and continuance
of a Default, to visit and inspect any of their respective properties, to
examine and make abstracts from any of their respective books and records and to
discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants. Flowers agrees to
cooperate and assist in such visits and inspections, in each case.
SECTION 8.03. Maintenance of Existence.
Flowers will at all times preserve and keep in full force and effect its
corporate existence. Subject to Section 8.04, Flowers will at all times preserve
and keep in full force and effect the corporate existence of each of its
Restricted Subsidiaries (unless merged into Flowers or a Restricted Subsidiary)
and all rights and franchises of Flowers and its Restricted Subsidiaries unless,
in the good faith judgment of Flowers, the termination of or failure to preserve
and keep in full force and effect such corporate existence, right or franchise
would not, individually or in the aggregate, have and could not reasonably be
expected to cause a Material Adverse Effect. Flowers will, and will cause each
Restricted Subsidiary (subject to Section 8.04), at all times to carry on its
business in the food or beverage business or any related line of business.
SECTION 8.04. Consolidations, Mergers and Sales of Assets.
Flowers will not, nor will it permit any Material Subsidiary to, consolidate or
merge with or into, or sell, lease or otherwise transfer all or any substantial
part of its assets to, any other Person, or discontinue or eliminate any
business line or segment, provided that (a) Flowers may merge with another
Person if (i) such Person was organized under the laws of the United States of
America or one of its states, (ii) Flowers is the corporation surviving such
merger and (iii) immediately after giving effect to such merger, no Default
shall have occurred and be continuing, (b) Subsidiaries of Flowers may merge
with one another, provided that in the case of a merger of a Restricted
Subsidiary with an Unrestricted Subsidiary, the Restricted Subsidiary is the
corporation surviving such merger, (c) other Persons may merge into or with
Subsidiaries to effect an acquisition permitted by Section 8.15 and (d) the
foregoing limitation on the sale, lease or other transfer of assets and on the
discontinuation or elimination of a Subsidiary or division shall not prohibit
(x) transfers of assets (including stock of a Restricted Subsidiary) to or among
Restricted Subsidiaries, (y) during any Fiscal Year, a transfer of assets other
than Margin Stock or the discontinuance or elimination of a Subsidiary or
division (in a single transaction or in a series of related transactions) unless
the aggregate assets to be so transferred or utilized in a Restricted Subsidiary
or division to be so discontinued, when combined with all other assets
transferred, and all other assets utilized in all other Restricted Subsidiaries
or divisions discontinued, in any Fiscal Year, constituted more than 15% of
Adjusted Consolidated Total Assets measured as of the end of the immediately
42
<PAGE> 48
preceding Fiscal Year and (z) transfers of Margin Stock. Nothing in this Section
8.04 shall be interpreted to (i) limit or abridge the provisions of Section
2.09(a) of the Flowers Credit Agreement or (ii) restrict Flowers' ability to
dispose of (1) vehicles, (2) delivery routes, (3) assets obtained through
acquisitions of businesses or assets on or after the date hereof, provided that
proceeds of any such disposition shall be reinvested in Flowers by reducing
Indebtedness or by investing in operating assets, and (4) obsolete,
under-performing or non-core assets, disposition of which, in management's
judgment, would enhance the Flowers' operations and profitability, and
dispositions described in this sentence shall not be subject to, or included in
the computations under, clause (d) above.
SECTION 8.05. Use of Proceeds.
In the event that the transactions hereunder should be recharacterized as a
secured loan, the proceeds of the Purchase Price shall be used for general
corporate purposes, provided, that no portion of the proceeds of the Loans will
be used by Flowers or any Subsidiary (i) in connection with, whether directly or
indirectly, any tender offer for, or other acquisition of, stock of any
corporation with a view towards obtaining control of such other corporation,
unless such tender offer or other acquisition is to be made on a negotiated
basis with the approval of the Board of Directors of the Person to be acquired,
and the provisions of Section 8.16 would not be violated, (ii) directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any Margin Stock (other than the repurchase by Flowers of
its own Capital Stock), or (iii) for any purpose in violation of any applicable
law or regulation.
SECTION 8.06. Compliance with Laws; Payment of Taxes.
(a) Flowers will, and will cause each of its Material Subsidiaries and
each member of the Controlled Group to, comply with applicable laws (including
but not limited to ERISA), regulations and similar requirements of governmental
authorities (including but not limited to PBGC), except where the necessity of
such compliance is being contested in good faith through appropriate proceedings
diligently pursued or if failure to comply does not have and reasonably could
not be expected to cause a Material Adverse Effect. Flowers will, and will cause
each of its Material Subsidiaries to, pay promptly when due all taxes,
assessments, governmental charges, claims for labor, supplies, rent and other
obligations which, if unpaid, might become a lien against the property of
Flowers or any Restricted Subsidiary, except liabilities being contested in good
faith and against which, if requested by the Bank, Flowers will set up reserves
in accordance with GAAP and liabilities the nonpayment of which would not have
and reasonably could not be expected to cause a Material Adverse Effect.
(b) Flowers shall not permit the aggregate complete or partial
withdrawal liability under Title IV of ERISA with respect to Multiemployer Plans
incurred by Flowers and members of the Controlled Group to exceed $5,000,000 at
any time. For purposes of this Section 8.06(b), the amount of withdrawal
liability of Flowers and members of the Controlled Group at any date shall be
the aggregate present value of the amount claimed to have been incurred less any
portion thereof which Flowers and members of the Controlled Group have paid or
as to which Flowers
43
<PAGE> 49
reasonably believes, after appropriate consideration of possible adjustments
arising under Sections 4219 and 4221 of ERISA, it and members of the Controlled
Group will have no liability, provided that Flowers shall obtain prompt written
advice from independent actuarial consultants supporting such determination.
Flowers agrees (i) once in each year, beginning with the 1999 Fiscal Year, to
request a current statement of the withdrawal liability of Flowers and members
of the Controlled Group from each Multiemployer Plan, if any, and (ii) to
transmit a copy of such statement to the Bank within fifteen (15) days after
Flowers receives the same.
SECTION 8.07. Insurance.
Flowers will maintain, and will cause each of its Material Subsidiaries to
maintain (either in the name of Flowers or in such Material Subsidiary's own
name), with financially sound and reputable insurance companies, insurance on
all its property in at least such amounts (including deductibles, co-insurance
and self-insurance, if adequate reserves are maintained with respect thereto)
and against at least such risks (including on all its property, and public
liability and worker's compensation) as are usually insured against in the same
general area by companies of established repute engaged in the same or similar
business and similarly situated.
SECTION 8.08. Change in Fiscal Year.
Flowers will not change its Fiscal Year without the consent of the Bank, which
shall not be unreasonably withheld (taking into consideration for such purpose
the effect, if any, such change would have on the financial covenants contained
in this Agreement).
SECTION 8.09. Maintenance of Property.
Flowers shall, and shall cause each Restricted Subsidiary to, maintain all of
its properties and assets in good condition, repair and working order, ordinary
wear and tear excepted, except where any failure would not have and could not
reasonably be expected to cause a Material Adverse Effect.
SECTION 8.10. Environmental Notices.
Flowers shall furnish to the Bank prompt written notice of all Environmental
Liabilities, pending, threatened or anticipated Environmental Proceedings,
Environmental Notices, Environmental Judgments and Orders, and Environmental
Releases of which Flowers shall have received actual notice or have actual
knowledge at, on, in, under or in any way affecting the Properties, and all
facts, events, or conditions that could lead to any of the foregoing, if the
amount of liability or of remediation cost to Flowers has or reasonably could be
expected to cause a Material Adverse Effect.
SECTION 8.11. Environmental Matters.
44
<PAGE> 50
Flowers and its Material Subsidiaries will not, and will not knowingly permit
any Third Party to, use, produce, manufacture, process, treat, recycle,
generate, store, dispose of, manage at, or otherwise handle, or ship or
transport to or from the Properties any Hazardous Materials in violation of
applicable Environmental Requirements, except to the extent that failure to
comply would not have and reasonably could not be expected to cause a Material
Adverse Effect.
SECTION 8.12. Environmental Release.
Flowers agrees that upon its becoming aware of the occurrence of an
Environmental Release, except for any Environmental Release which occurred in
substantial compliance with all Environmental Requirements, at or on any of the
Properties it will act promptly to determine the extent of, and to take such
remedial action to eliminate, any such Environmental Release, whether or not
ordered or otherwise directed to do so by any Environmental Authority, except to
the extent that failure to take remedial action would not have and reasonably
could not be expected to cause a Material Adverse Effect.
SECTION 8.13. Transactions with Affiliates.
Neither Flowers nor any of its Material Subsidiaries shall enter into, or be a
party to, any transaction with any Affiliate of Flowers or such Material
Subsidiary (which Affiliate is not Flowers or a Restricted Subsidiary, other
than a Person in which Flowers or such Material Subsidiary owns less than a
majority interest and which, if it were a Restricted Subsidiary, would not be a
Material Subsidiary), except as permitted by law and in the ordinary course of
business and pursuant to reasonable terms which either (x) are no less favorable
to Flowers or such Material Subsidiary than would be obtained in a comparable
arm's length transaction with a Person which is not an Affiliate or (y) have
been approved by a majority of the Board of Directors of Flowers or such
Material Subsidiary; provided, that the foregoing shall not affect the ability
of Flowers or any Material Subsidiary to determine, in its sole discretion, the
amount or form of executive or director compensation from time to time.
SECTION 8.14. Loans or Advances.
Neither Flowers nor any of its Material Subsidiaries shall make loans or
advances to any Person except as permitted by Section 8.16 and except: (i) loans
or advances to employees not exceeding $10,000,000 in the aggregate principal
amount outstanding at any time, in each case made in the ordinary course of
business and consistent with practices existing on the Closing Date; (ii)
deposits required by government agencies or public utilities; (iii) loans or
advances to and among Flowers and its Wholly Owned Subsidiaries; and (iv) other
loans or advances in an aggregate amount outstanding which, together with
Investments permitted by clause (vi) other loans or advances, to Persons other
than the Unrestricted Subsidiaries (loans and advances to Unrestricted
Subsidiaries not being permitted), in an aggregate amount outstanding which,
together with Investments permitted by clause (vi) of Section 8.15 do not exceed
15% of Adjusted Consolidated Total Assets as of the last day of the immediately
preceding Fiscal Quarter; provided that after
45
<PAGE> 51
giving effect to the making of any loans, advances, or deposits permitted by
this Section, no Default shall be in existence or be created thereby.
SECTION 8.15. Investments.
Neither Flowers nor any of its Restricted Subsidiaries shall make Investments in
any Person except as permitted by Section 8.14 and except Investments in (i)
direct obligations of the United States Government maturing within one year,
(ii) certificates of deposit issued by a commercial bank whose credit is
satisfactory to the Bank, (iii) commercial paper rated A1 or the equivalent
thereof by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. or
P1 or the equivalent thereof by Moody's Investors Service, Inc. and in either
case maturing within 6 months after the date of acquisition; (iv) tender bonds
the payment of the principal of and interest on which is fully supported by a
letter of credit issued by a United States bank whose long-term certificates of
deposit are rated at least AA or the equivalent thereof by Standard & Poor's
Corporation and Aa or the equivalent thereof by Moody's Investors Service, Inc.;
(v) Investments by Flowers or any Restricted Subsidiary in the stock (or other
ownership interests) or assets of any Person in the food or beverage business or
any related line of business and/or (vi) other Investments in an aggregate
amount outstanding which, together with loans and advances permitted by clause
(iv) of Section 8.14, do not exceed 15% of Adjusted Consolidated Total Assets as
of the last day of the immediately preceding Fiscal Quarter, and which, as to
Investments in Keebler, constitute Permitted Keebler Investments; provided,
however, immediately after giving effect to the making of any Investment, no
Default shall have occurred and be continuing.
SECTION 8.16. Negative Pledge.
Neither Flowers nor any Restricted Subsidiary will create, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired by it, except:
(a) Liens existing on January 30, 1998, securing Indebtedness
outstanding on such date in an aggregate principal amount not exceeding
$24,000,000;
(b) any Lien existing on any specific fixed asset of any corporation at
the time such corporation becomes a Restricted Subsidiary and not created in
contemplation of such event;
(c) any Lien on any specific fixed asset (real or personal) securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring or constructing such asset, provided that such Lien
attaches to such asset concurrently with or within 18 months after the
acquisition or completion of construction thereof;
(d) any Lien on any specific fixed asset of any corporation existing at
the time such corporation is merged or consolidated with or into Flowers or a
Restricted Subsidiary and not created in contemplation of such event;
46
<PAGE> 52
(e) any Lien existing on any specific fixed asset prior to the
acquisition thereof by Flowers or a Restricted Subsidiary and not created in
contemplation of such acquisition;
(f) Liens on assets of a Restricted Subsidiary securing Indebtedness
owing by any Restricted Subsidiary to Flowers or by any Restricted Subsidiary to
another Restricted Subsidiary;
(g) any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing paragraphs of this Section, provided that (i) such Indebtedness is not
secured by any additional assets, and (ii) the amount of such Indebtedness
secured by any such Lien is not increased;
(h) Liens incidental to the conduct of its business or the ownership of
its assets which (i) do not secure Indebtedness and (ii) do not in the aggregate
materially detract from the value of its assets or materially impair the use
thereof in the operation of its business;
(i) Liens imposed by any governmental authority for taxes, assessments
or charges not yet delinquent or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of Flowers or any of its Subsidiaries, as the case may be, in
accordance with GAAP;
(j) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business (whether or not
statutory) which are not overdue for a period of more than 30 days or which are
being contested in good faith and by appropriate proceedings, for which a
reserve or other appropriate provisions, if any, as shall be required by GAAP
shall have been made;
(k) Liens, pledges or deposits to secure non-delinquent obligations
under worker's compensation, unemployment insurance and other social security
legislation and Liens arising from the pledge by Flowers or any of its
Subsidiaries of industrial revenue bonds or other instruments to secure
reimbursement obligations under letters of credit issued to support the payment
of such bonds or instruments;
(1) Liens on capital stock of or other ownership interests in any
Person not a Restricted Subsidiary of Flowers securing Indebtedness of such
Person;
(m) Liens resulting from progress payments or partial payments under
United States government contracts or subcontracts;
(n) Liens arising from legal proceedings, so long as such proceedings
are being contested in good faith by appropriate proceedings diligently
conducted and so long as execution is stayed on all judgments resulting from any
such proceedings;
(o) any Lien on Margin Stock;
47
<PAGE> 53
(p) grants of security and rights of setoff in deposit or credit
accounts, including demand, savings, passbook, share draft or like accounts,
certificates of deposit, money market accounts, items held for collection or
deposit, commercial paper, negotiable instruments and similar accounts and
instruments held at banks or financial institutions to secure the payment or
reimbursement under overdraft, acceptance and similar facilities and rights of
setoff, banker's liens and other similar rights arising solely by operation of
law;
(q) Liens arising from the pledge by Flowers or any of its Subsidiaries
of industrial revenue bonds or similar instruments to secure reimbursement
obligations under letters of credit issued to support the payment of such bonds;
and
(r) Liens not otherwise permitted by the foregoing paragraphs of this
Section securing Indebtedness (other than indebtedness represented by the Notes)
in an aggregate principal amount at any time outstanding which, together with
the aggregate amount of Indebtedness of Restricted Subsidiaries permitted by
Section 8.20(iv), does not exceed 20% of Adjusted Consolidated Net Worth as of
the last day of the immediately preceding Fiscal Quarter.
SECTION 8.17. Adjusted Fixed Charges Coverage Ratio.
At the end of each Fiscal Quarter, commencing with the third Fiscal
Quarter of the 1999 Fiscal Year, the ratio of Adjusted EBILT to Adjusted
Consolidated Fixed Charges shall at all times be greater than ratio set forth
below for each Fiscal Quarter of each Fiscal Year set forth below:
<TABLE>
<CAPTION>
Adjusted Fixed Charges
Fiscal Quarter Fiscal Year Coverage Ratio
<S> <C> <C>
Third 1999 1.50 to 1.0
Fourth 1999 1.45 to 1.0
First 2000 1.20 to 1.0
Second 2000 1.10 to 1.0
Third 2000 1.20 to 1.0
Fourth 2000 1.50 to 1.0
First 2001 1.65 to 1.0
Second 2001 1.65 to 1.0
Third 2001 1.75 to 1.0
Fourth 2001
and thereafter 2.00 to 1.0
</TABLE>
SECTION 8.18. Leverage Ratio.
The Leverage Ratio shall at all times be less than (i) through and
including the third Fiscal Quarter of Fiscal Year 2000, 0.65 to 1.0 and (ii)
during and after the fourth Fiscal Quarter of Fiscal Year 2000, 0.60 to 1.0.
48
<PAGE> 54
SECTION 8.19. Minimum Consolidated Net Worth.
Adjusted Consolidated Net Worth will at no time be less than $487,569,000, plus
the sum of (x) 50% of the cumulative Net Proceeds of Capital Stock received
during any period after April 27, 1998, plus (y) 50% of any equity resulting
from a conversion of Indebtedness of Flowers during any period after April 27,
1998, less (z) any amount of equity of Flowers repurchased during any period
after April 27, 1998, calculated quarterly at the end of each Fiscal Quarter.
SECTION 8.20. Minimum Adjusted Consolidated EBIDTA.
At the end of each Fiscal Quarter, commencing with the Fourth Fiscal
Quarter of Fiscal Year 1999, Adjusted Consolidated EBITDA shall at all times be
greater than amount set forth below for each Fiscal Quarter of each Fiscal Year
set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Year Adjusted Consolidated EBITDA
<S> <C> <C>
Fourth 1999 $32,000,000
First 2000 $32,000,000
Second 2000 $29,000,000
Third 2000 $44,000,000
Fourth 2000 $63,000,000
</TABLE>
SECTION 8.21. Subsidiary Borrowings.
Flowers shall not permit any Restricted Subsidiary to become liable for any
Indebtedness, whether secured or unsecured, except: (i) such of the foregoing as
is owed to Flowers or another Wholly-Owned Subsidiary; (ii) Indebtedness or
obligations secured by Liens permitted by Section 8.16; (iii) Indebtedness or
obligations of a Subsidiary outstanding at the time such Subsidiary becomes a
Subsidiary, provided that (a) such Indebtedness shall not have been incurred in
contemplation of such Subsidiary becoming a Subsidiary, and (b) immediately
after such Subsidiary becomes a Subsidiary, no Default or Event of Default shall
exist, and provided, further, that such Indebtedness may not be extended,
renewed, or refunded except as otherwise permitted by this Agreement; and (iv)
other Indebtedness which, when combined with the total of the Indebtedness
secured by all Liens permitted by Section 8.16(r), without duplication, does not
exceed 20% of Adjusted Consolidated Net Worth as of the last day of the
immediately preceding Fiscal Quarter.
SECTION 8.22. Collateral Protection Covenants.
In addition to the covenants set forth above, and notwithstanding whether or not
any of the following would be otherwise permitted thereby, Flowers, in express
acknowledgment that the Bank and each Participant has entered into this
Agreement and the transactions contemplated hereby in express reliance upon
Flowers covenants set forth herein to continue to administer and
49
<PAGE> 55
operate the Distributor Routes in accordance with its Customary Practices,
Flowers hereby covenants and agrees that it shall, and shall cause each of its
Subsidiaries to:
(a) Not in any Fiscal Year, terminate or discontinue more than
one-third of the Distributor Routes for which there is an outstanding Loan
hereunder;
(b) Comply in all material respects with the terms of the Distributor's
Agreement and administer the terms thereof in good faith and in accordance with
Flowers' Customary Practices;
(c) Not amend or materially modify the terms of the Distributor's
Agreements or any other Distributor Loan Document without the prior written
consent of the Bank; provided that, unless an Event of Default has occurred and
is continuing or Flowers has no current liability under the repurchase
obligation set forth in Section 4.01, Flowers may terminate any Distributor
Route in accordance with its Customary Practices as long as Flowers provides the
Bank written notice thereof within sixty (60) days thereafter and Flowers
otherwise acts in good faith to sell the Distributor Route in accordance with
its Customary Practices; if an Event of Default has occurred and is continuing
or Flowers has no repurchase obligation pursuant to Section 4.01, Flowers shall
not terminate any Distributor Route without the prior written consent of the
Bank;
(d) Not sell, transfer, lease or otherwise dispose of any of its right,
title and interest in and to the Distributor's Agreements or other Distributor
Loan Documents, the Proprietary Administrative Services, the trademarks used in
connection with the Distributor's Agreements, or the stock of any Selling
Subsidiary who is party to a Distribution Agreement pledged to the Bank pursuant
to the Program Documents;
(e) Not offer, directly or indirectly, any competing loan facility for
the purposes of refinancing the Loans hereunder unless such refinancing
opportunity is offered to all Distributors on an equal basis;
(f) With respect to a Defaulted Loan, where an Event of Default has
occurred and is continuing or Flowers has no current repurchase obligation
pursuant to Section 4.01, waive any right of first refusal with respect to a
sale of the Distributor Route by the Bank in a public foreclosure sale (provided
Flowers is provided notice and an opportunity to appear at the sale) or any
right to approve or otherwise block a sale of the Distributor Route by the Bank.
Without otherwise limiting the remedies of the Bank upon an Event of Default,
including, without limitation, the right to bring a breach of contract action
for failure of Flowers to comply with any other provision of this Section 8.21,
the Bank acknowledges and agrees that any breach by Flowers of the covenant set
forth in Section 8.21(a) above shall not provide the Bank with any claim for
damages against Flowers or any Selling Subsidiary in respect of any Loan once
Flowers no longer has the obligation hereunder to repurchase Defaulted Loans.
SECTION 8.23. Separateness from Unrestricted Subsidiaries.
50
<PAGE> 56
Flowers shall conduct its business and operations in accordance with the
following provisions:
(a) maintain books and records and bank accounts separate from those of
the Unrestricted Subsidiaries;
(b) maintain its bank accounts and all its other assets separate from
those of the Unrestricted Subsidiaries;
(c) hold itself out to creditors and the public as a legal entity
separate and distinct from the Unrestricted Subsidiaries;
(d) prepare separate tax returns and financial statements showing it as
a separate member of a consolidated group of which the Unrestricted Subsidiaries
also are members;
(e) allocate and charge fairly and reasonably any common employee or
overhead shared with any of the Unrestricted Subsidiaries;
(f) transact all business with Unrestricted Subsidiaries on an arm's
length basis and enter into transactions with Unrestricted Subsidiaries only on
a commercially reasonable basis;
(g) conduct business in its own name and use separate stationery,
invoices and checks;
(h) not commingle its assets or funds with those of any Unrestricted
Subsidiary;
(i) not assume, Guarantee or pay the Indebtedness of any Unrestricted
Subsidiary;
(j) pay its own liabilities and expenses only out of its own funds, and
not pay any liabilities and expenses of any of the Unrestricted Subsidiaries;
(k) pay salaries of its own employees from its own funds, and not pay
salaries of the employees of any Unrestricted Subsidiary;
(l) not hold out its credit as being available to satisfy the
obligations of any Unrestricted Subsidiary;
(m) not make loans to any Unrestricted Subsidiary or buy or hold
evidence of indebtedness issued by any Unrestricted Subsidiary;
(n) not pledge its assets for the benefit of any Unrestricted
Subsidiary; and
(o) correct any known misunderstanding regarding its identity as being
separate from the Unrestricted Subsidiaries.
SECTION 8.24. Year 2000 Compliance.
51
<PAGE> 57
Flowers will meet the milestones as to all Mission Critical Systems and
Equipment contained in the Y2K Plan (other than testing) on or before October
15, 1999, and will have all Mission Critical Systems and Equipment Year 2000
Compliant and Ready (including all internal and external testing), on or before
November 1, 1999, except where failure to meet the milestones would not have or
could not reasonably be expected to cause a Material Adverse Effect.
ARTICLE IX.
EVENTS OF DEFAULT AND ESCROW FUNDING OBLIGATION
SECTION 9.01. Events of Default.
Any one or more of the following shall constitute an Event of Default hereunder:
(a) Flowers fails to pay when due any repurchase obligation, Servicer
Advance, or its Escrow Funding Obligation, or other payment due and payable
hereunder within five (5) days of its due date; or
(b) Flowers shall fail to observe or perform any covenant contained in:
(i) Sections 8.01(e), 8.01(i), 8.01(j), 8.02(ii), 8.03 through 8.05, inclusive,
Sections 8.17 through 8.19, inclusive, and Sections 8.20 or 8.24; or (ii)
Sections 8.14, 8.15 or 8.21, and with respect to this clause (ii) such failure
shall not have been cured within 10 days after the earlier to occur of (1)
written notice thereof has been given to Flowers by the Bank at the request of
any Participant or (2) any Responsible Officer of Flowers otherwise becomes
aware of any such failure; or
(c) Flowers shall fail to observe or perform any covenant or agreement
contained or incorporated by reference in this Agreement (other than those
covered by paragraph (a) or (b) above) or the Servicing Agreement and such
failure shall not have been cured within 30 days after the earlier to occur of
(i) written notice thereof has been given to Flowers by the Bank or (ii) any
Responsible Officer of Flowers otherwise becomes aware of any such failure; or
(d) any representation, warranty, certification or statement made by
Flowers or any Selling Subsidiary in Article VII of this Agreement, in the
Servicing Agreement or in any certificate, financial statement or other document
delivered pursuant to this Agreement (other than any representation, warranty,
certification or statement set forth in Section 7.18(a) or (b) hereof or which
relates, and to the extent it relates, to a Distributor or the Distributor Loan
Documents of a Distributor, the breach of which shall be governed by Section
4.02 hereof) shall prove to have been incorrect or misleading in any material
respect when made (or deemed made); or
(e) Flowers or any Material Subsidiary shall fail to make any payment
in respect of Indebtedness in an aggregate amount outstanding in excess of
$10,000,000 (other than hereunder) when due or within any applicable grace
period; or
52
<PAGE> 58
(f) any event or condition shall occur which results in the
acceleration of the maturity of Indebtedness or, as a result of any event of
default, there is a requirement for the mandatory purchase or sale of property
subject to any "synthetic lease" (meaning a lease transaction under which the
obligations of Flowers are treated as debt for tax purposes but not under GAAP)
and/or the payment of any final rent payment or guaranteed residual amount with
respect thereto (any such obligation to purchase or sell property or pay a final
rent payment or guaranteed residual amount under a synthetic lease as a result
of an event of default thereunder being a "synthetic lease obligation") in an
aggregate amount outstanding in excess of $10,000,000 of Flowers or any Material
Subsidiary (including, without limitation, any required mandatory prepayment or
"put" of such Indebtedness or, as a result of an event of default, a synthetic
lease obligation, to Flowers or any Material Subsidiary) or enables (or, with
the giving of notice or lapse of time or both, would enable) the holders of such
Indebtedness or commitment therefor or lessor under any such synthetic lease or
any Person acting on such holders' or lessor's behalf to accelerate the maturity
thereof or terminate any such commitment or to require, as a result of an event
of default, the purchase or sale of such property or the payment of any other
synthetic lease obligation (including, without limitation, any required
mandatory prepayment or "put" of such Indebtedness or synthetic lease obligation
to Flowers or any Material Subsidiary); or
(g) Flowers or any Material Subsidiary shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally, or shall admit in writing its
inability, to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; or
(h) an involuntary case or other proceeding shall be commenced against
Flowers or any Material Subsidiary seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against Flowers or any Material Subsidiary under the
federal bankruptcy laws as now or hereafter in effect; or
(i) Flowers or any member of the Controlled Group shall fail to pay
when due any amount of $2,000,000 or greater which it shall have become liable
to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to
terminate a Plan or Plans shall be filed under Title IV of ERISA by Flowers, any
member of the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such Plan or
Plans to enforce Section 515 or
53
<PAGE> 59
4219 (c) (5) of ERISA and such proceeding shall not have been dismissed within
30 days thereafter; or a condition shall exist by reason of which the PBGC would
be entitled to obtain a decree adjudicating that any such Plan or Plans must be
terminated, in each case if the amount of Unfunded Vested Liabilities is in
excess of $10,000,000; or
(j) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $20,000,000 shall be rendered against Flowers or
any Material Subsidiary and such judgment or order shall continue unbonded,
undischarged, unsatisfied and unstayed for a period of 30 days; or
(k) a federal tax lien shall be filed against Flowers or any Material
Subsidiary under Section 6323 of the Code, if the amount involved is in excess
of $20,000,000, or a lien of the PBGC shall be filed against Flowers or any
Material Subsidiary under Section 4068 of ERISA and in either case such lien
shall remain undischarged for a period of 25 days after the date of filing, if
the amount involved is in excess of $10,000,000; or
(1) in any 12 month period or less, (i) 50% or more of the members of
the full Board of Directors of Flowers shall have resigned or been removed or
replaced, or (ii) any Person or "Group" (as defined in Section 2(d) (3) of the
Securities Exchange Act of 1934, as amended) (other than an employee benefit or
stock ownership plan of Flowers) shall have acquired, during such period,
directly or indirectly, more than 30% of the capital stock (whether common or
preferred or a combination thereof) of Flowers, provided that Flowers' purchase
of treasury shares of shares of its capital stock outstanding on the date hereof
which results in one or more of Flowers' shareholders of record as of the date
of this Agreement owning 30% or more of Flowers' Capital Stock shall not
constitute an acquisition for purposes of this Section 9.01(l); or
(m) the occurrence of any event, act, occurrence, or condition which
either has or which reasonably could be expected to cause a Material Adverse
Effect; or
(n) in the event that this Agreement is deemed to constitute a security
agreement, any security interest granted to the Bank herein or therein is
invalid or unenforceable; or
(o) the Flowers Security Agreement shall fail to grant a valid,
enforceable first priority security interest in the collateral described herein.
SECTION 9.02. Remedies on Default.
(a) Upon the occurrence and during the continuation of an Event of
Default (other than an Event of Default described in Section 9.01(g) or (h)),
the Bank may, with the consent of the Required Participants, and upon the
written request of the Required Participants, shall, take any or all of the
following actions, without prejudice to the rights of the Servicer or any
Participant to enforce its claims against Flowers, any other Credit Party, any
Distributor or other obligor with respect to any Loan: (i) declare the
Commitment terminated, whereupon the Commitment shall terminate immediately and
any unpaid Commitment Fee shall forthwith become due and payable
54
<PAGE> 60
without any other notice of any kind (with the express understanding that such
termination of the Commitment shall not result in a termination of the
Participating Commitments of each Participant), (ii) demand that Flowers honor
its Escrow Funding Obligation, by placing in escrow with the Bank the Repurchase
Price for each of the Notes then held by the Bank (subject to the limitations of
the Maximum Recourse Amount), without presentment, demand, protest or any other
notice of any kind, all of which are expressly waived, (iii) replace Flowers as
the Servicer of the Notes under the Servicing Agreement with the Bank or any of
its agents, representatives or appointees and (iv) take any other action and
exercise any other remedy available by contract or at law, all of which shall be
cumulative.
(b) Upon the occurrence of an Event of Default under Section 9.01(g) or
(h), (i) all obligations of the Bank to Flowers, including, without limitation,
the Commitment shall automatically terminate and any unpaid Commitment Fee shall
forthwith become due and payable without any other notice of any kind with the
express understanding that such termination of the Commitment shall not result
in a termination of the Participating Commitments of each Participant), (ii) the
obligation of Flowers to honor its Escrow Funding Obligation, by placing in
escrow with the Bank the Repurchase Price for each of the Notes then held by the
Bank (subject to the limitations of the Maximum Recourse Amount) hereof, shall
be immediately due and payable, without presentment, demand, protest, or any
other notice of any kind, all of which are expressly waived, (iii) the Bank
shall automatically replace Flowers as the Servicer with respect to the Notes
under the Servicing Agreement and (iv) the Bank may take any other action and
exercise any other remedy available by contract or at law, all of which shall be
cumulative.
(c) Upon the occurrence of an Event of Default and acceleration of the
Escrow Funding Obligation as provided in (a) or (b) above, the Bank may pursue
any remedy available under this Agreement or any other Program Document, or
available at law or in equity, all of which shall be cumulative.
(d) All payments with respect to this Agreement received by the Bank or
any after the occurrence of an Event of Default and acceleration of the
repurchase obligation, shall be applied (i) first to the costs and expenses
(including attorneys' fees and disbursements) incurred by the Bank as a result
of the Event of Default and to the payment of any fees owing to the Bank as
Servicer under the Servicing Agreement, (ii) second, to the payment of
Commitment Fee, if any, owing to the Participants hereunder, (iii) third, to the
payment of accrued interest on the Funded Participant's Interests hereunder,
(iv) fourth, to the payment of the fees owing to the Bank under the Servicing
Agreement, (v) fifth, to the payment of the fees owing to the Servicer under the
Servicing Agreement, (vi) sixth to the repayment of the Funded Participant's
Interests outstanding hereunder, (vii) seventh, to the payment of all other
amounts owing to the Bank or any Participant hereunder, and (viii) eighth, to
such Persons as may be legally entitled thereto.
55
<PAGE> 61
ARTICLE X.
ESCROW FUNDING OBLIGATION AND ESCROW
SECTION 10.01 Appointment of Escrow Agent. Flowers hereby appoints,
authorizes and directs the Bank, as Escrow Agent (in such capacity herein called
the "Escrow Agent,") to act as escrow agent to receive, hold, invest and
distribute the escrow funds deposited with the Escrow Agent pursuant to the
terms and conditions hereof.
SECTION 10.02 Deposit of Escrow Funds. In the event
Flowers has an obligation to comply with its Escrow Funding Obligation, Flowers
will deposit immediately available funds, in an amount not to exceed the Maximum
Recourse Amount, with the Escrow Agent in an escrow account established by the
Escrow Agent for the purposes of this Agreement (the "Escrow Account").
On the first day of each Fiscal Quarter, Flowers shall recalculate the
Maximum Recourse Amount in accordance with Section 5.01 and deposit any
increased amount of the Maximum Recourse Amount resulting from such calculation
with the Escrow Agent on such date, together with any amounts used by the Bank
to satisfy the repurchase obligation of Flowers with respect to any Ineligible
Note.
SECTION 10.03 The Escrow Account. All escrow funds delivered to the
Escrow Agent pursuant hereto shall be held by the Escrow Agent in the Escrow
Account, and the Escrow Agent shall invest any cash held by it in Permitted
Investments for the benefit of Flowers.
SECTION 10.04 Payments of Repurchase Price for Defaulted Loans. The
Escrow Agent is authorized to pay the Bank from the escrowed funds all amounts
due on Defaulted Loans and, to the extent not paid by Flowers in accordance with
Section 4.02, Ineligible Notes.
SECTION 10.05 Reduction of Amount in Escrow. (a) Quarterly, beginning
90 days after Flowers complies with its Escrow Funding Obligation, the Escrow
Agent will pay to Flowers all amounts in the Escrow Account in excess of the
then outstanding Maximum Recourse Amount.
(b) After all the Notes have been paid in full and this Agreement
terminated, the Escrow Agent shall pay all amounts contained in the Escrow
Account to Flowers, after deducting any fees payable for its escrow services.
56
<PAGE> 62
SECTION 10.06 Fees and Expenses of Escrow Agent. The customary fees and
expenses of the Escrow Agent shall be paid by Flowers, and the Escrow Agent is
authorized to deduct such fees and expenses from the funds in the Escrow Account
prior to making any other payments permitted hereunder.
SECTION 10.07 Liability of Escrow Agent.
(a) Liability Limitations. In performing any of its duties
under this Agreement, or upon the claimed failure to perform its duties
hereunder, Escrow Agent shall not be liable to anyone for any damages, losses,
or expenses which any of them may incur as a result of the Escrow Agent so
acting, or failing to act; provided, however, Escrow Agent shall be liable for
damages arising out of its willful default or gross negligence under this
Agreement. Accordingly, Escrow Agent shall not incur any such liability with
respect to (i) any action taken or omitted to be taken in good faith upon advice
of its counsel given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent hereunder or (ii) to any action taken or
omitted to be taken in reliance upon any document; including any written notice
or instructions provided for in this Agreement, not only as to its due execution
and to the validity and effectiveness of its provisions but also as to the truth
and accuracy of any information contained therein, which the Escrow Agent shall
in good faith believe to be genuine, to have been signed or presented by the
purported proper person or persons and to conform with the provisions of this
Agreement. Written instructions provided to Escrow Agent hereunder by the Bank
shall be signed by an authorized representative(s) of the Bank. The Escrow Agent
makes no representations and shall not be liable for any deficiencies in any
deposit made under the Agreement. The Escrow Agent shall make no disbursement,
investment or other use of funds until and unless it has collected funds. The
Escrow Agent shall not be liable for collection items until the proceeds of the
same in actual cash have been received or the Federal Reserve has given the
Escrow Agent credit for the funds.
(b) Indemnification. Flowers hereby agrees to indemnify and
hold harmless the Escrow Agent from and against any and all losses, claims,
damages, liabilities and expenses, including without limitations, reasonable
costs of investigation and counsel fees and disbursements (both at the trial and
appellate levels) which may be imposed on the Escrow Agent or incurred by it in
connection with its acceptance of its appointment as Escrow Agent hereunder or
the performance of its duties hereunder, including, without limitation, any
litigation arising from this Agreement or involving the subject matter thereof.
The indemnity provisions of this paragraph (b) shall survive the termination of
this Agreement and the resignation or removal of the Escrow Agent.
(c) Disputes. In the event of a dispute between any of the
parties hereto as to the proper disposition of funds or other property held by
the Escrow Agent, the Escrow Agent shall continue to hold the same undisbursed
until such time as the disputing parties agree in writing as to a proper
disposition of such funds or the property. If such arrangement is not
forthcoming, the Escrow Agent shall be entitled to tender into the registry or
custody of any court
57
<PAGE> 63
of competent jurisdiction all money or property in its hands under the terms of
this agreement, whereupon the parties hereto agree the Escrow Agent shall be
discharged from all further duties under this Agreement. The filing of any such
legal proceedings shall not deprive the Escrow Agent of its compensation earned
prior to such filing.
(d) Duties and Responsibilities. The duties and
responsibilities of the Escrow Agent hereunder shall be limited to those
expressly set forth in this Agreement, and the Escrow Agent shall not be bound
in any way by any other contract or agreement by or among the Bank, the
Participants and Flowers whether or not the Escrow Agent has knowledge of any
such contract or agreement or the terms and conditions thereof.
(e) Attachment. If all or any part of the escrowed funds is
attached, garnished or levied upon, pursuant to any court order, or if the
delivery thereof shall be stayed or enjoined by a court order, or any other
order, judgment or decree shall be made or entered by any court of competent
jurisdiction effecting the escrowed funds or any part thereof or any act of the
Escrow Agent, then the Escrow Agent is hereby authorized to obey and comply with
such writ, order, judgment or decree so entered or issued; and if the Escrow
Agent obeys or complies with any such writ, order, judgment or decree, then it
shall not be liable to any other party hereto or any other person by reason of
such compliance.
ARTICLE XI.
THE BANK
SECTION 11.01. Appointment of the Bank as Agent.
To the extent of its ownership interest in the Loans, each Participant hereby
designates Bank as its agent to administer all matters concerning the Loans and
to act as herein specified. Each Participant hereby irrevocably authorizes the
Bank to take such actions on its behalf under the provisions of this Agreement,
the other Program Documents, and all other instruments and agreements referred
to herein or therein, and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of the
Bank by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. The Bank may perform any of its duties hereunder by or
through its agents or employees.
SECTION 11.02. Nature of Duties of the Bank.
The Bank shall have no duties or responsibilities except those expressly set
forth in this Agreement and the other Program Documents. None of the Bank nor
any of its respective officers, directors, employees or agents shall be liable
for any action taken or omitted by it as such hereunder or in connection
herewith, unless caused by its or their gross negligence or willful misconduct.
The Bank shall not have by reason of this Agreement a fiduciary relationship in
respect of any Participant; and nothing in this Agreement, express or implied,
is intended to or
58
<PAGE> 64
shall be so construed as to impose upon the Bank any obligations in respect of
this Agreement or the other Program Documents except as expressly set forth
herein.
SECTION 11.03. Lack of Reliance on the Bank
(a) Independently and without reliance upon the Bank, each Participant,
to the extent it deems appropriate, has made and shall continue to make (i) its
own independent investigation of the financial condition and affairs of Flowers
and its Subsidiaries in connection with the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
Flowers and its Subsidiaries, and, except as expressly provided in this
Agreement, the Bank shall have no duty or responsibility, either initially or on
a continuing basis, to provide any Participant with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter.
(b) The Bank shall not be responsible to any Participant for any
recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
collectibility, priority or sufficiency of this Agreement, any Program Document,
any Distributor Loan Document or any other documents contemplated hereby or
thereby, or the financial condition of Flowers, any of its Subsidiaries or any
Distributor, or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or the other documents contemplated hereby or thereby, or the
financial condition of Flowers, any of its Subsidiaries or any Distributor, or
the existence or possible existence of any Default or Event of Default.
SECTION 11.04. Certain Rights of the Bank.
If the Bank shall request instructions from the Required Participants with
respect to any action or actions (including the failure to act) in connection
with this Agreement, the Bank shall be entitled to refrain from such act or
taking such act, unless and until the Bank shall have received instructions from
the Required Participants; and the Bank shall not incur liability in any Person
by reason of so refraining. Without limiting the foregoing, no Participant shall
have any right of action whatsoever against the Bank as a result of the Bank
acting or refraining from acting hereunder in accordance with the instructions
of the Required Participants.
SECTION 11.05. Reliance by the Bank.
The Bank shall be entitled to rely, and shall be fully protected in relying,
upon any note, writing, resolution, notice, statement, certificate, telex,
teletype or telecopier message, cable gram, radiogram, order or other
documentary, teletransmission or telephone message believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person. The Bank
may consult with legal counsel (including counsel for any Credit Party),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted
59
<PAGE> 65
to be taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
SECTION 11.06. Indemnification of the Bank.
To the extent the Bank is not reimbursed and indemnified by Flowers, each
Participant will reimburse and indemnify the Bank, ratably according to the
respective Pro Rata Shares, in either case, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Bank in performing its duties hereunder, in any way relating to or
arising out of this Agreement or the other Program Documents; provided that no
Participant shall be liable to the Bank for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Bank's gross negligence or willful
misconduct.
SECTION 11.07. The Bank in its Individual Capacity.
With respect to its obligations under this Agreement and the amounts advanced by
it, the Bank shall have the same rights and powers hereunder as any other
Participant and may exercise the same as though it were not performing the
duties specified herein; and the terms "Participants", "Required Participants",
or any similar terms shall, unless the context clearly otherwise indicates,
include the Bank in its individual capacity. The Bank may accept deposits from,
lend money to, and generally engage in any kind of banking, trust, financial
advisory or other business with Flowers or its Subsidiaries or any affiliate of
Flowers and its Subsidiaries as if it were not performing the duties specified
herein, and may accept fees and other consideration from Flowers and its
Subsidiaries for services in connection with this Agreement and otherwise
without having to account for the same to the Participants.
SECTION 11.08. Holders of Participation Certificates.
The Bank may deem and treat the payee of any Participation Certificate as the
owner thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof shall have been filed with the Bank. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Participation Certificate
shall be conclusive and binding on any subsequent holder, transferee or assignee
of such Participation Certificate or of any Participation Certificate or
Certificates issued in exchange therefor.
ARTICLE XII.
MISCELLANEOUS
SECTION 12.01. No Waiver.
60
<PAGE> 66
No delay or failure on the part of the Bank in the exercise of any right, power
or privilege granted under this Agreement, under any other Program Document, or
available at law or in equity, shall impair any such right, power or privilege
or be construed as a waiver of any Event of Default or any acquiescence therein.
No single or partial exercise of any such right, power or privilege shall
preclude the further exercise of such right, power or privilege. No waiver shall
be valid against the Bank unless made in writing and signed by the Bank, and
then only to the extent expressly specified therein.
SECTION 12.02. Notices.
Unless otherwise provided herein, all notices, requests and other communications
provided for hereunder shall be in writing (including bank wire, telex, telecopy
or similar teletransmission or writing) and shall be given at the following
addresses:
(1) If to the Bank, SunTrust Bank, Atlanta
303 Peachtree St. NE, 2nd Floor
Atlanta, Georgia 30308
Attention: Strategic Partner Programs
Center Code 1923
Telephone: (404) 724-3320
Telecopy: (404) 724-3716
(2) If to Flowers, Flowers Industries, Inc.
11796 U.S. Highway 19 South
1919 Flowers Circle
Thomasville, Georgia 31757
Attention: Mr. Kirk Tolbert
Telephone: (912) 227-2278
Telecopy: (912) 225-5435
Any such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
above and the appropriate answerback is received, (ii) if given by mail, upon
the earlier of receipt or the third Business Day after such communication is
deposited in the United States mails, registered or certified, with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means
(including, without limitation, by air courier), when delivered at the address
specified herein. Flowers or the Bank may change its address for notice purposes
by notice to the other parties in the manner provided herein.
SECTION 12.03. Governing Law.
61
<PAGE> 67
This Agreement and all other Loan Documents shall be governed by and interpreted
in accordance with the laws of the State of Georgia.
SECTION 12.04. Survival of Representations and Warranties.
All representations and warranties contained herein or made by or furnished on
behalf of Flowers or the Selling Subsidiaries in connection herewith shall
survive the execution and delivery of this Agreement and all other Program
Documents.
SECTION 12.05. Descriptive Headings.
The descriptive headings of the several sections of this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
SECTION 12.06. Severability.
If any part of any provision contained in this Agreement or in any other Loan
Document shall be invalid or unenforceable under applicable law, said part shall
be ineffective to the extent of such invalidity only, without in any way
affecting the remaining parts of said provision or the remaining provisions.
SECTION 12.07. Time is of the Essence.
Time is of the essence in interpreting and performing this Agreement and all
other Loan Documents.
SECTION 12.08. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which, taken together, shall
constitute one and the same instrument.
SECTION 12.09. Payment of Costs.
Flowers shall pay all costs, expenses, taxes and fees (i) incurred by the Bank
in connection with the preparation, execution and delivery of this Agreement and
all other Program Documents including, without limitation, the costs and
professional fees of counsel for the Bank, Messrs. King & Spalding, whether or
not the transaction contemplated hereby shall be consummated, and any and all
stamp, intangible or other taxes that may be payable or determined in the future
to be payable in connection therewith; (ii) incurred by the Bank in connection
with the preparation, execution and delivery of any waiver, amendment or consent
by the Bank relating to the Program Documents, including, without limitation,
the costs and professional fees of counsel for the Bank; and (iii) incurred by
the Bank and the Participants in enforcing the Program Documents at any time
that an Event of Default has occurred and is continuing, including, without
limitation, attorneys' fees and expenses of counsel for the Bank and the
Participants.
62
<PAGE> 68
SECTION 12.10. Benefit of Agreement; Assignments; Participations.
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto, provided that Flowers may not assign or transfer any of its interest
hereunder without the prior written consent of the Participants.
(b) Any Participant may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an Affiliate of such
Participant.
(c) Each Participant may assign all of its interests, rights and
obligations under this Agreement (including all of its Participating Commitments
and the Funded Participant's Interest at the time owing to it and the
Participation Certificates held by it) to any Eligible Assignee; provided,
however, that (i) the Flowers and the Bank shall each have given its prior
written consent to such assignment (which consent shall not be unreasonably
withheld or delayed) unless such assignment is an Affiliate of the assigning
Participant or, in the case of the Flowers, unless an Event of Default has
occurred and is continuing hereunder, (ii) unless the Participant is assigning
its entire Participating Commitment, the amount of the Participating Commitment
of the assigning Participant subject to each assignment (determined as of the
date the assignment and acceptance with respect to such assignment is delivered
to the Bank) shall not be less than the lesser of (x) 50% of its original
Participating Commitment or (y) $5,000,000 and (iii) the parties to each such
assignment shall execute and deliver to the Bank an Assignment and Acceptance,
together with the Participation Certificate subject to such assignment and,
unless such assignment is to an Affiliate of such Participant, a processing and
recordation fee of $3,000. Within ten (10) Business Days after receipt of the
notice and the Assignment and Acceptance, Bank shall execute and deliver, in
exchange for the surrendered Participation Certificate, a new Participation
Certificate to the order of the assignor and such assignee in a principal amount
equal to the applicable Participating Commitment retained and assumed by it,
respectively, pursuant to such Assignment and Acceptance. Such new Participation
Certificate shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Participation Certificate, shall be dated
the date of the surrendered Participation Certificate which it replaces, and
shall otherwise be in substantially the form attached hereto.
(d) Each Participant may, without the consent of Flowers or the Bank,
sell sub-participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Participating Commitment and the Funded Participant's Interest
owing to it), provided, however, that (i) no Participant may sell a
sub-participation in its Participating Commitment (after giving effect to any
permitted assignment hereof) unless it retains an aggregate exposure of 25% of
its original Participating Commitment; provided, however, sales of
sub-participations to an Affiliate of such Participant shall not be included in
such calculation; provided, further, however, no such maximum amount shall be
applicable to any such sub-participation sold at any time there exists an Event
of Default hereunder, (ii) such Participant's obligations under this Agreement
shall remain unchanged, (iii)
63
<PAGE> 69
such Participant shall remain solely responsible to the other parties hereto for
the performance of such obligations, and (iv) the sub-participating bank or
other entity shall not be entitled to the benefit (except through its selling
Participant) of the cost protection provisions contained in Article II of this
Agreement, (v) Flowers, Bank and the other Participants shall continue to deal
solely and directly with each Participant in connection with such Participant's
rights and obligations under this Agreement and the other Program Documents, and
(vi) in no event shall a selling Participant be obligated to the sub-participant
to take or refrain from taking any action hereunder except that such Participant
may agree that it will not (except as provided below), without the consent of
the sub-participant, agree to (A) the extension of any date fixed for the
payment of principal of or interest on the Funded Participant's Interests, (B)
the decrease of the amount of any principal, interest or fees due on any date
fixed for the payment thereof with respect to the Funded Participant's
Interests; (C) the increase in the committed amount of the Funded Participant's
Interests; (D) any decrease in the rate at which either interest is payable
thereon or (if the Participant is entitled to any part thereof) fee is payable
hereunder from the rate at which the Participant is entitled to receive interest
or fee (as the case may be) in respect of such participation, or (E) the release
of any guaranty given to support payment of Funded Participant's Interests (but
excluding any guaranty which is a Distributor Loan Document). Each Participant
shall promptly notify in writing the Bank and the Flowers of any sale of a
sub-participation hereunder and shall certify to Flowers and Bank its compliance
with the terms hereof.
SECTION 12.11. Third Party Beneficiaries.
No persons shall be deemed to be third party beneficiaries of this Agreement.
Except as otherwise expressly provided for in this Agreement, this Agreement is
solely for the benefit of Flowers and the Bank and their respective successors
and assigns, and no other person shall have any right, benefit, priority or
interest under, or because of the existence of, this Agreement.
SECTION 12.12. Cumulative Remedies; No Waiver.
The rights, powers, and remedies of the Bank provided herein or in any other
Program Document are cumulative and not exclusive of any right, power, or remedy
provided by law or equity.
SECTION 12.13. Amendments; Consents.
No amendment, modification, supplement, termination, or waiver of any provision
of this Agreement or any other Program Document, and no consent to any departure
by Flowers or any of their respective Subsidiaries therefrom, may in any event
be effective unless in writing signed by the Required Participants, and then
only in the specific instance and for the specific purpose given; provided that
no amendment, waiver or consent shall, unless in writing and signed by all the
Participants do any of the following: (i) waive any of the conditions specified
in Section 2.1 or Article IV, (ii) increase the Participating Commitments or
contractual obligations of the Participants to the Bank or Flowers under this
Agreement, (iii) reduce the principal of, or interest on, the Participation
Certificates or any fees hereunder, (iv) postpone any date fixed for the payment
in respect of principal of, or interest on, the Participation Certificates or
any fees
64
<PAGE> 70
hereunder, (v) agree to release Flowers from its Escrow Funding Obligation, (vi)
modify the definition of "Required Participants," or (vii) modify this Section
12.13. Notwithstanding the foregoing, no amendment, waiver or consent shall,
unless in writing and signed by the Bank in addition to the Participants
required hereinabove to take such action, affect the rights or duties of the
Bank under this Agreement or under any other Program Document or Distributor
Loan Document. In addition, notwithstanding the foregoing, the Bank and Flowers
may, without the consent of or notice to the Participants, enter into
amendments, modifications or waivers with respect to the Servicing Agreement as
long as such amendments or modifications do not conflict with the terms of this
Agreement.
SECTION 12.14. Set-Off.
Upon the occurrence and during the continuation of an Event of Default, Flowers
authorizes each Participant, without notice or demand, to apply any indebtedness
due or to become due to Flowers from such Participant in satisfaction of any of
the indebtedness, liabilities or obligations of Flowers under this Agreement or
under any other Program Document, including, without limitation, the right to
set-off against any deposits or other cash collateral of Flowers held by
Participant.
SECTION 12.15. Indemnity.
Flowers agrees to protect, indemnify and save harmless the Bank and each
Participant (but not any sub-participants purchasing sub-participations pursuant
to Section 12.10(d) hereof) and all directors, officers, employees and agents of
the Bank and each Participant ( the "Indemnified Parties"), from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to or in connection with the execution and delivery of
this Agreement, the purchase or the making of the Loans or any of them or the
purchase of the Participant's Interests or any of them, the enforcement,
performance and administration of this Agreement or any powers granted to the
Bank or any Participant hereunder or under any Program Documents, any failure of
any representation and warranty of Flowers hereunder, any failure of Flowers or
any Selling Subsidiary to comply with the covenants set forth herein or the
terms of the Distributor Loan Documents, arising out of the relationship between
Flowers and its Subsidiaries and the Distributors or otherwise unless arising
solely from the gross negligence or willful or intentional misconduct of such
Indemnified Party as determined by a court of competent jurisdiction. The
indemnity contained in this section shall survive the termination of this
Agreement.
SECTION 12.16. Jurisdiction and Venue.
Flowers agrees, without power of revocation, that any civil suit or action
brought against it as a result of any of its obligations under this Agreement or
under any other Program Document may be brought against it either in the
Superior Court of Fulton County, Georgia, or in the United States District Court
for the Northern District of Georgia, and Flowers hereby irrevocably submits to
the jurisdiction of such courts and irrevocably waives, to the fullest extent
permitted by law,
65
<PAGE> 71
any objections that it may now or hereafter have to the laying of the venue of
such civil suit or action and any claim that such civil suit or action has been
brought in an inconvenient forum, and Flowers agrees that final judgment in any
such civil suit or action shall be conclusive and binding upon it and shall be
enforceable against it by suit upon such judgment in any court of competent
jurisdiction.
SECTION 12.17. Waiver of Jury Trial.
To the extent permitted by applicable law, Flowers hereby waives the right to
trial by jury.
SECTION 12.18. Effect on Existing Loan Facility Agreement; Execution of
New Loan Documents.
Upon the Closing Date, all "Loans" (as defined under the Existing Loan Facility
Agreement) outstanding pursuant to the Existing Loan Facility Agreement shall be
deemed to be Loans outstanding hereunder, and the Existing Loan Facility
Agreement shall be of no further force and effect, except to the extent that all
indemnities set forth therein are deemed to expressly survive the termination
thereof.
SECTION 12.19. Termination of Agreement.
This Agreement shall terminate, except as otherwise provided herein, upon the
indefeasible payment in full of all amounts owing to the Bank pursuant to the
Program Documents and the termination of the Commitment.
66
<PAGE> 72
WITNESS the hand and seal of the parties hereto through their duly
authorized officers, as of the date first above written.
FLOWERS INDUSTRIES, INC.
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Attest:
-------------------------------------
[Corporate Seal] Name:
--------------------------------
Title:
-------------------------------
<PAGE> 73
Address for Notices: SUNTRUST BANK, ATLANTA, as the
Bank and as a Participant
303 Peachtree St., N.E., 3rd Floor
Atlanta, GA 30303
Attention: Ms. Kim Martin By:
Telecopy No.: (404) 230-5305 --------------------------------
Name:
---------------------------
Title:
-------------------------
Participating Commitment: $60,000,000
Pro Rata Share: 75%
[SIGNATURE PAGE TO LOAN FACILITY AGREEMENT]
<PAGE> 74
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
Rabobank Nederland "RABOBANK NEDERLAND,"
245 Park Avenue NEW YORK BRANCH, as a Participant
New York, New York 10167
Attention: Corporate Services Department
Telecopy No.: (212) 818-0233 By:
-----------------------------
with a copy to: Name:
------------------------
Title:
-----------------------
Rabobank Nederland
One Atlantic Center, Suite 3450 By:
1201 W. Peachtree Street -----------------------------
Atlanta, Georgia 30309-3400 Name:
Attention: Mr. Theodore Cox ------------------------
Telecopy No.: (404) 877-9150 Title:
-----------------------
Participating Commitment: $20,000,000
Pro Rata Share: 25%
[SIGNATURE PAGE TO LOAN FACILITY AGREEMENT]
<PAGE> 75
SCHEDULE 5.01
Quarterly Threshold Amount and Non-Guaranteed Amount
<TABLE>
<CAPTION>
QUARTERLY QUARTERLY NON-
STEP UP THRESHOLD GUARANTEED
QUARTER, YEAR & DATE AMOUNT AMOUNT AMOUNT
<S> <C> <C> <C>
4th FY 1999 (1/1/00) $ 36,620,000 $ 43,380,000
Total FY 1999 5,520,000 $ 36,620,000 $ 43,380,000
1st FY 2000 (4/22/00) 1,520,000 $ 38,140,000 $ 41,860,000
2nd FY 2000 (7/15/00) 1,520,000 $ 39,660,000 $ 40,340,000
3rd FY 2000 (10/7/00) 1,520,000 $ 41,180,000 $ 38,820,000
4th FY 2000 (12/30/00) 1,520,000 $ 42,700,000 $ 37,300,000
Total FY 2000 6,080,000 $ 42,700,000 $ 37,300,000
1st FY 2001 (4/21/01) 1,620,000 $ 44,320,000 $ 35,680,000
2nd FY 2001 (7/14/01) 1,620,000 $ 45,940,000 $ 34,060,000
3rd FY 2001 (10/6/01) 1,620,000 $ 47,560,000 $ 32,440,000
4th FY 2001 (12/29/01) 1,620,000 $ 49,180,000 $ 30,820,000
Total FY 2001 6,480,000 $ 49,180,000 $ 30,820,000
1st FY 2002 (4/20/02) 1,720,000 $ 50,900,000 $ 29,100,000
2nd FY 2002 (7/13/02) 1,720,000 $ 52,620,000 $ 27,380,000
3rd FY 2002 (10/5/02) 1,720,000 $ 54,340,000 $ 25,660,000
4th FY 2002 (12/28/02) 1,720,000 $ 56,060,000 $ 23,940,000
Total FY 2002 6,880,000 $ 56,060,000 $ 23,940,000
1st FY 2003 (4/19/03) 1,820,000 $ 57,880,000 $ 22,120,000
2nd FY 2003 (7/12/03) 1,820,000 $ 59,700,000 $ 20,300,000
3rd FY 2003 (10/4/03) 1,820,000 $ 61,520,000 $ 18,480,000
4th FY 2003 (1/3/04) 1,820,000 $ 63,340,000 $ 16,660,000
Total FY 2003 7,280,000 $ 63,340,000 $ 16,660,000
</TABLE>
<PAGE> 76
<TABLE>
<S> <C> <C> <C>
1st FY 2004 (4/24/04) 1,820,000 $ 65,160,000 $ 14,840,000
2nd FY 2004 (7/17/04) 1,820,000 $ 66,980,000 $ 13,020,000
3rd FY 2004 (10/9/04) 1,820,000 $ 68,800,000 $ 11,200,000
4th FY 2004 (1/1/05) 1,820,000 $ 70,620,000 $ 9,380,000
Total FY 2004 7,280,000 $ 70,620,000 $ 9,380,000
1st FY 2005 (4/23/05) 845,000 $ 71,465,000 $ 8,535,000
2nd FY 2005 (7/16/05) 845,000 $ 72,310,000 $ 7,690,000
3rd FY 2005 (10/8/05) 845,000 $ 73,155,000 $ 6,845,000
4th FY 2005 (12/31/05) 845,000 $ 74,000,000 $ 6,000,000
Total FY 2005 3,380,000 $ 74,000,000 $ 6,000,000
Total 74,000,000
</TABLE>
<PAGE> 77
SCHEDULE 7.08
Subsidiaries
[To be provided by Flowers]
<PAGE> 78
FIRST AMENDMENT TO LOAN FACILITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN FACILITY AGREEMENT ("Amendment") made as
of this 29th day of December, 1999, by and between FLOWERS INDUSTRIES, INC., a
Georgia corporation having its principal office in Thomasville, Georgia
("Flowers"), and SUNTRUST BANK, ATLANTA, a Georgia banking corporation, having
its principal office in Atlanta, Georgia ("SunTrust") and COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," New York Branch
("Rabobank") (SunTrust and Rabobank, together with any assignees thereof
becoming "Participants" pursuant to the terms of the Loan Facility Agreement,
the "Participants").
W I T N E S S E T H :
WHEREAS, Flowers and the Participants are parties to that certain Loan
Facility Agreement dated as of November 5, 1999 (as heretofore amended or
modified, the "Agreement"; all terms used herein without definition shall have
the meanings set forth in the Agreement); and
WHEREAS, Flowers has requested that the Participants amend the
Agreement as set forth herein, and the Participants are willing to so agree,
subject to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the foregoing premises, the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which hereby is acknowledged, the
parties hereby agree that the Agreement is hereby amended as follows:
1. Unless otherwise specifically defined herein, each term used
herein which is defined in the Agreement shall have the meaning assigned to such
term in the Agreement. Each reference to "hereof", "hereunder", "herein" and
"hereby" and each other similar reference and each reference to "this Agreement"
and each other similar reference contained in the Agreement shall from and after
the date hereof refer to the Agreement as amended hereby.
2. Section 8.01 (a)of the Agreement is hereby amended by adding
the following new clause (iii) to the end thereof;
(iii) simultaneously with the delivery of each set of
financial statements referred to in clauses (i) and (ii) above, a copy
of the auditor's management letter furnished to Flowers by such
independent public accountants; and
3. Section 8.17 of the Agreement hereby is deleted in its
entirety and the following is substituted therefor:
SECTION 8.17. Adjusted Fixed Charges Coverage Ratio
<PAGE> 79
At the end of each Fiscal Quarter, commencing with the third
Fiscal Quarter of the 1999 Fiscal Year, the ratio of Adjusted EBILT to
Adjusted Consolidated Fixed Charges shall at all times be greater than
the ratio set forth below for each Fiscal Quarter of each Fiscal Year
set forth below:
<TABLE>
<CAPTION>
Adjusted Fixed Charges
Fiscal Quarter Fiscal Year Coverage Ratio
-------------- ----------- --------------
<S> <C> <C>
Third 1999 1.50 to 1.0
Fourth 1999 1.30 to 1.0
First 2000 1.20 to 1.0
Second 2000 1.10 to 1.0
Third 2000 1.20 to 1.0
Fourth 2000 1.50 to 1.0
First 2001 1.65 to 1.0
Second 2001 1.65 to 1.0
Third 2001 1.75 to 1.0
Fourth 2001
and thereafter 2.00 to 1.0
</TABLE>
4. Section 8.20 of the Agreement hereby is deleted in its
entirety and the following is substituted therefor:
SECTION 8.20. Minimum Adjusted Consolidated EBIDTA.
At the end of each Fiscal Quarter, commencing with the Fourth
Fiscal Quarter of Fiscal Year 1999, Adjusted Consolidated EBITDA shall
at all times be greater than the amount set forth below for each Fiscal
Quarter of each Fiscal Year set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Year Adjusted Consolidated EBITDA
-------------- ----------- ----------------------------
<S> <C> <C>
Fourth 1999 $15,000,000
First 2000 $32,000,000
Second 2000 $29,000,000
Third 2000 $44,000,000
Fourth 2000 $63,000,000
</TABLE>
5. Except for the amendments and agreements expressly set forth
above, the Agreement shall remain unchanged and in full force and effect.
Flowers acknowledges and expressly agrees that the Participants reserve the
right to, and do in fact, require strict compliance with the terms and
provisions of the Agreement, as amended by this Amendment.
6. Flowers hereby affirms and restates as of the date hereof all
covenants set forth in
<PAGE> 80
the Agreement, as amended hereby, and such covenants are incorporated by
reference herein as if set forth herein directly.
7. Except as expressly amended herein, all terms, covenants and
conditions of the Agreement and all other Loan Documents shall remain in full
force and effect. The parties hereto do expressly ratify and confirm the
Agreement as amended herein.
8. Flowers hereby agrees that nothing herein shall constitute a
waiver by the Participants of any Default or Event of Default, whether known or
unknown, which may exist under the Agreement. Flowers hereby further agrees that
no action, inaction or agreement by the Participants, including without
limitation, any indulgence, waiver, consent or agreement altering the provisions
of the Agreement which may have occurred with respect to the non-payment of any
obligation during the terms of the Agreement or any portion thereof, or any
other matter relating to the Agreement, shall require or imply any future
indulgence, waiver, or agreement by the Participants. In addition, Flowers
acknowledges and agrees that it has no knowledge of any defenses, counterclaims,
offsets or objections in its favor against the Participants with regard to any
of the obligations due under the terms of the Agreement or any other Program
Document as of the date of this Amendment.
9. This Amendment shall be binding upon and inure to the benefit
of the parties hereto, their respective successors, successors-in-titles, and
assigns.
10. This Amendment sets forth the entire understanding of the
parties with respect to the matters set forth herein, and shall supersede any
prior negotiations or agreements, whether written or oral, with respect thereto.
11. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
12. This Amendment may be executed by one or more of the parties
hereto in any number of separate counterparts, each of which shall be deemed an
original and all of which, taken together, shall be deemed to constitute one and
the same instrument. Delivery of an executed counterpart of this Amendment by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have executed this Amendment through
their authorized officers as of the date first above written.
FLOWERS INDUSTRIES, INC.
By:
Name:
--------------------------
Title:
-------------------------
Attest:
Name:
--------------------------
Title:
-------------------------
[CORPORATE SEAL]
<PAGE> 82
Address for Notices: SUNTRUST BANK, ATLANTA, as the
Bank and as a Participant
303 Peachtree St., N.E., 3rd Floor
Atlanta, GA 30303
Attention: Ms. Kim Martin By:
Telecopy No.: (404) 230-5305 -----------------------------
Name:
Title:
Participating Commitment: $60,000,000
Pro Rata Share: 75%
<PAGE> 83
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
Rabobank Nederland "RABOBANK NEDERLAND,"
245 Park Avenue NEW YORK BRANCH, as a Participant
New York, New York 10167
Attention: Corporate Services Department
Telecopy No.: (212) 818-0233 By:
------------------------------
Name:
with a copy to: Title:
Rabobank Nederland
One Atlantic Center, Suite 3450 By:
1201 W. Peachtree Street -----------------------------
Atlanta, Georgia 30309-3400 Name:
Attention: Mr. Theodore Cox Title:
Telecopy No.: (404) 877-9150
Participating Commitment: $20,000,000
Pro Rata Share: 25%
L-6
<PAGE> 84
SECOND AMENDMENT TO LOAN FACILITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN FACILITY AGREEMENT ("Amendment") made as of
this 30th day of March, 2000, by and among FLOWERS INDUSTRIES, INC., a Georgia
corporation having its principal office in Thomasville, Georgia ("Flowers"),
SUNTRUST BANK, formerly known as SunTrust Bank, Atlanta, a Georgia banking
corporation, having its principal office in Atlanta, Georgia ("SunTrust") and
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," New
York Branch ("Rabobank", together with SunTrust, the "Participants").
W I T N E S S E T H :
WHEREAS, Flowers and the Participants are parties to that certain Loan
Facility Agreement dated as of November 5, 1999, as amended by that certain
First Amendment to Loan Facility Agreement dated as of December 29, 1999 (as so
amended, the "Agreement"; all terms used herein without definition shall have
the meanings set forth in the Agreement); and
WHEREAS, Flowers has requested that the Participants amend the Agreement as
set forth herein, and the Participants are willing to so agree, subject to the
terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the foregoing premises, the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which hereby is acknowledged, the
parties hereby agree that the Agreement is hereby amended as follows:
1. Unless otherwise specifically defined herein, each term used herein
which is defined in the Agreement shall have the meaning assigned to such term
in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby"
and each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Agreement shall from and after the date
hereof refer to the Agreement as amended hereby.
2. Section 1.01 of the Agreement hereby is amended by deleting the
definitions of "Adjusted Consolidated Fixed Charges", "Adjusted Consolidated Net
Income", "Adjusted EBILT", "Flower's Credit Agreement", and "Net Proceeds of
Capital Stock" in their entirety and replacing such definitions in Section 1.01
with the following definitions in the appropriate alphabetical order:
"Adjusted Consolidated Fixed Charges" means at any date the sum of (i)
Adjusted Consolidated Interest Expense for the Fiscal Year to date or 4
Fiscal Quarter period (as applicable) used in the calculation of Adjusted
Consolidated Net Income for the determination of Adjusted EBILTDA, and (ii)
all payment obligations of Flowers and its Restricted Subsidiaries for such
period under all operating leases and rental agreements.
<PAGE> 85
"Adjusted Consolidated Net Income" means, for any period, the Net
Income of Flowers and its Restricted Subsidiaries determined on a
consolidated basis, including (without duplication) any cash dividends
received from Keebler or any other Investment, but excluding (i)
extraordinary items, (ii) any equity interests of Flowers or any Restricted
Subsidiary in the unremitted earnings of any Person that is not a
Subsidiary, (iii) mark-to-market adjustments made in connection with
Flowers' commodities hedging program in accordance with GAAP, and (iv)
gains and losses from sales of assets outside the ordinary course of
business.
"Adjusted EBILTDA" means at any date the sum of (i) Adjusted
Consolidated Net Income for the Fiscal Year to date (when calculated as of
the end of the second and third Fiscal Quarters of the 2000 Fiscal Year) or
the 4 Fiscal Quarters ending on or prior to the date of measurement (when
calculated as of the end of the fourth Fiscal Quarter of the 2000 Fiscal
Year and thereafter), plus (ii) the sum of Adjusted Consolidated Fixed
Charges and taxes on income (including deferred taxes), depreciation and
amortization for the same Fiscal Year to date or 4 Fiscal Quarters (as
applicable).
"Flowers Credit Agreement" means that certain $500,000,000 Second
Amended and Restated Credit Agreement, dated as of March 30, 2000, among
Flowers, the banks listed therein, Wachovia Bank, N.A., as Agent, The Bank
of Nova Scotia, as Documentation Bank and Bank of America, N.A., as
Syndications Agent, as from time to time in effect.
"Net Proceeds of Capital Stock" means any cash proceeds received by
Flowers or a Restricted Subsidiary in respect of the issuance of Capital
Stock, after deducting therefrom all reasonable and customary costs and
expenses incurred by Flowers or such Consolidated Subsidiary directly in
connection with the issuance of such Capital Stock.
3. Section 1.01 of the Credit Agreement hereby is amended by adding the
following new definitions of "Borrowing Base", "Capital Expenditures", "Fiscal
Period", "Indebtedness for Borrowed Money", "New Capitalized Lease Obligations",
"New Indebtedness for Borrowed Money", "Permitted Refinancing Indebtedness",
"Permitted Refinancing Leases", "Restricted Payments", "Second Amendment
Effective Date", "Synthetic Lease" and "Synthetic Lease Obligations" in
appropriate alphabetical order:
"Borrowing Base" means the sum on the last day of any Fiscal Period,
as shown on the balance sheet of Flowers for such date (except as to clause
(iv) below), of:
(i) 80% of the net book value of all accounts receivable (net of
all reserves) of Flowers and its Restricted Subsidiaries, calculated
in accordance with GAAP;
-2-
<PAGE> 86
(ii) 50% of the book value of all inventory of Flowers and its
Restricted Subsidiaries, calculated in accordance with GAAP;
(iii) 50% of the net book value of all tangible property, plant
and equipment of Flowers and its Restricted Subsidiaries,
calculated in accordance with GAAP; and
(iv) 60% of the product of (a) the average per share closing
price of Keebler common stock during such Fiscal Period times (b)
the number of shares of such stock owned by Flowers, as of such
date.
"Capital Expenditures" means for any period the sum of all capital
expenditures incurred during such period by Flowers and its Restricted
Subsidiaries, as determined in accordance with GAAP.
"Fiscal Period" means each fiscal period of Flowers, consisting of
approximately four weeks, Flowers having thirteen such fiscal periods in
each Fiscal Year.
"Indebtedness for Borrowed Money" means Indebtedness of the types
described in clauses (a) and (d) of the definition of Indebtedness.
"New Capitalized Leases" means Capitalized Leases which are entered
into on or after the Second Amendment Effective Date, other than Permitted
Refinancing Leases; provided, that any Synthetic Lease which is in
existence on the Second Amendment Effective Date and is not a Permitted
Refinancing Lease shall not constitute a New Capitalized Lease, regardless
of any classification or reclassification thereof at any time for purposes
of GAAP.
"New Indebtedness for Borrowed Money" means Indebtedness for Borrowed
Money which is incurred on or after the Second Amendment Effective Date,
other than Permitted Refinancing Indebtedness.
"Permitted Refinancing Indebtedness" means Indebtedness for Borrowed
Money which is incurred on or after the Second Amendment Effective Date
solely to refinance Indebtedness for Borrowed Money which existed prior to
the Second Amendment Effective Date, so long as the principal amount is not
increased or the maturity shortened to a date prior to January 1, 2004,
such Indebtedness for Borrowed Money is not secured by a Lien on any assets
of Flowers or any of its Subsidiaries, other than a Lien on assets, if any,
which as of the Second Amendment Effective Date secured the Indebtedness
for Borrowed Money being refinanced, and the credit or other agreement
governing such Indebtedness for Borrowed Money does not contain any
financial, negative or affirmative covenants (other than collateral related
covenants, where collateral is permitted
-3-
<PAGE> 87
pursuant to this definition) which are more restrictive in any material
respect on Flowers or any of its Subsidiaries than those contained in this
Agreement.
"Permitted Refinancing Leases" means Capitalized Leases which are
entered into on or after the Second Amendment Effective Date solely to
refinance Capitalized Leases or Synthetic Leases which existed prior to the
Second Amendment Effective Date, so long as the principal component of the
base rent obligations thereunder are not increased or the maturity
shortened to a date prior to January 1, 2004, such Capitalized Leases are
not secured by a Lien on any assets of Flowers or any of its Subsidiaries,
other than a Lien on assets, if any, which as of the Second Amendment
Effective Date secured the obligations under the Capitalized Lease or
Synthetic Lease being refinanced, and lease agreement, participation
agreement, guaranty or other agreement governing such Capitalized Lease
does not contain any financial, negative or affirmative covenants (other
than collateral related covenants, where collateral is permitted pursuant
to this definition) which are more restrictive in any material respect on
Flowers or any of its Subsidiaries than those contained in this Agreement.
"Restricted Payment" means (i) any dividend or other distribution on
any shares of Flowers' Capital Stock (except dividends payable solely in
shares of its Capital Stock) or (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of
Flowers' Capital Stock (except shares acquired upon the conversion thereof
into other shares of its Capital Stock) or (b) any option, warrant or other
right to acquire shares of Flowers Capital Stock.
"Second Amendment Effective Date" means March 30, 2000.
"Synthetic Lease" means a lease of property which is intended to be
classified as an operating lease in accordance with GAAP, but with respect
to which it is intended that the lessee be treated as the owner of the
property subject thereto for purposes of federal income tax.
"Synthetic Lease Obligations" means the principal component of the
base rent obligations of a Person as lessee under a Synthetic Lease.
4. Section 1.01 of the Agreement is further amended by deleting the
definitions of "Mission Critical Systems and Equipment," "Y2K Plan" and "Year
2000 Compliant and Ready."
5. Section 7.16 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 7.16 Margin Stock.
-4-
<PAGE> 88
Neither Flowers nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of purchasing or
carrying any Margin Stock (other than its ownership stock in Keebler), and
no part of the proceeds of any Loan made hereunder will be used for any
purpose which violates, or which is inconsistent with, the provisions of
Regulation T, U or X.
6. Section 7.19 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 7.19 INTENTIONALLY OMITTED
7. Section 8.01(c) of the Agreement hereby is deleted in its entirety and
the following is substituted therefor:
(c) simultaneously with the delivery of each set of financial statements
referred to in paragraphs (a) and (b) above, a certificate, substantially
in the form of Exhibit H (a "Compliance Certificate"), of the chief
financial officer or the chief accounting officer of Flowers (i) setting
forth in reasonable detail the calculations required to establish whether
Flowers was in compliance with the requirements of Sections 8.13 through
8.20, inclusive, and Section 8.26 on the date of such financial statements
and (ii) stating whether any Default exists on the date of such certificate
and, if any Default then exists, setting forth the details thereof and the
action which Flowers is taking or proposes to take with respect thereto;
8. Section 8.01(i) of the Agreement hereby is deleted in its entirety and
the following is substituted therefor:
(i) INTENTIONALLY OMITTED.
-5-
<PAGE> 89
9. Section 8.01(j) of the Agreement hereby is deleted in its entirety and
the following is substituted therefor:
(j) within 15 days after the receipt thereof, a copy of the report of
Arthur Andersen Consulting to Flowers rendered pursuant to engagement
letter dated January 12, 2000; and
10. Section 8.04 of the Agreement is hereby amended by deleting subsection
8.04(d)(z) in its entirety and replacing said subsection with the following:
(z) transfers of (but not Liens on) Margin Stock.
11. Section 8.14 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 8.14 Loans or Advances.
Neither Flowers nor any of its Material Subsidiaries shall make loans
or advances to any Person except as permitted by Section 8.16 and except:
(i) loans or advances to employees not exceeding $10,000,000 in the
aggregate principal amount outstanding at any time, in each case made in
the ordinary course of business and consistent with practices existing on
the Second Amendment Effective Date; (ii) deposits required by government
agencies or public utilities; (iii) loans or advances to and among Flowers
and its Wholly Owned Subsidiaries; and (iv) other loans or advances, to
Persons other than the Unrestricted Subsidiaries (loans and advances to
Unrestricted Subsidiaries not being permitted), in an aggregate amount
outstanding which do not exceed 15% of Adjusted Consolidated Total Assets
as of the last day of the immediately preceding Fiscal Quarter; provided
that after giving effect to the making of any loans, advances or deposits
permitted by this Section, no Default shall be in existence or be created
thereby.
12. Section 8.15 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 8.15 Investments.
Neither Flowers nor any of its Restricted Subsidiaries shall make
Investments in any Person except as permitted by Section 8.14 and except
Investments in (i) direct obligations of the United States Government
maturing within one year, (ii) certificates of deposit issued by a
commercial bank whose credit is satisfactory to the Agent, (iii) commercial
paper rated A1 or the equivalent thereof by Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. or P1 or the equivalent thereof by
Moody's Investors Service, Inc. and in either case maturing within 6 months
after the date of acquisition; (iv) tender
-6-
<PAGE> 90
bonds the payment of the principal of and interest on which is fully
supported by a letter of credit issued by a United States bank whose
long-term certificates of deposit are rated at least AA or the equivalent
thereof by Standard & Poor's Corporation and Aa or the equivalent thereof
by Moody's Investors Service, Inc.; (v) Investments by Flowers or any
Restricted Subsidiary in the stock (or other ownership interests) of
Persons which are Restricted Subsidiaries as of the Second Amendment
Effective Date and/or (vi) Permitted Keebler Investments; provided,
however, immediately after giving effect to the making of any Investment,
no Default shall have occurred and be continuing.
13. Section 8.16(o) of the Agreement hereby is deleted in its entirety and
the following is substituted therefor:
(o) Liens in favor of the Participants to secure the Escrow Funding
Obligation and other obligations of Flowers under this Agreement and (if
applicable) under any other agreement pertaining to Indebtedness which is
required to be equally and ratably secured by any Lien securing the Escrow
Funding Obligation and such other obligations;
14. Section 8.17 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 8.17. Adjusted Fixed Charges Coverage Ratio
At the end of each Fiscal Quarter, commencing with the second Fiscal
Quarter of the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted
Consolidated Fixed Charges shall at all times be equal to or greater than
the ratio set forth below for such Fiscal Quarter of each Fiscal Year set
forth below:
<TABLE>
<CAPTION>
Adjusted Fixed Charges
Fiscal Quarter Fiscal Year Coverage Ratio
-------------- ----------- --------------
<S> <C> <C> <C>
Second 2000 1.10 to 1.0
Third 2000 1.15 to 1.0
Fourth 2000 1.20 to 1.0
First 2001 1.25 to 1.0
Second 2001 1.25 to 1.0
Third 2001 1.25 to 1.0
Fourth 2001
and thereafter 1.50 to 1.0
</TABLE>
15. Section 8.18 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 8.18 Leverage Ratio. The Leverage Ratio shall at all times be
equal to or less than 0.65 to 1.0.
-7-
<PAGE> 91
16. Section 8.20 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 8.20 Adjusted Consolidated EBITDA. At the end of each Fiscal
Quarter, commencing with the first Fiscal Quarter of the 2000 Fiscal Year,
Adjusted Consolidated EBITDA shall at all times be equal to or greater than
the amount set forth below for each Fiscal Quarter of each Fiscal Year set
forth below, and shall be calculated (i) at the end of each Fiscal Quarter
in the 2000 Fiscal Year, for such Fiscal Quarter only, and (ii) at the end
of each Fiscal Quarter thereafter, for the 4 Fiscal Quarter period then
ending.
<TABLE>
<CAPTION>
Adjusted
Fiscal Quarter Fiscal Year Consolidated EBITDA
-------------- ----------- -------------------
<S> <C> <C>
First 2000 $ 26,500,000
Second 2000 $ 18,500,000
Third 2000 $ 24,500,000
Fourth 2000 $ 25,000,000
First 2001 $105,000,000
Second 2001 $105,000,000
Third 2001 $115,000,000
Fourth 2001 $115,000,000
First and thereafter 2002 $125,000,000
</TABLE>
17. Section 8.21 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 8.21 Subsidiary Borrowings.
Flowers shall not permit any Restricted Subsidiary to become liable
for any Indebtedness, whether secured or unsecured, except: (i) such of the
foregoing as is owed to Flowers or another Wholly-Owned Subsidiary; (ii)
Indebtedness or obligations secured by Liens permitted by Section 8.16;
(iii) Indebtedness or obligations of a Subsidiary outstanding at the time
such Subsidiary becomes a Subsidiary, provided that (a) such Indebtedness
shall not have been incurred in contemplation of such Subsidiary becoming a
Subsidiary, and (b) immediately after such Subsidiary becomes a Subsidiary,
no Default or Event of Default shall exist, and provided, further, that
such Indebtedness may not be extended, renewed, or refunded except as
otherwise permitted by this Agreement; and (iv) subject to the provisions
of Section 8.25, other Indebtedness which, when combined with the total of
the Indebtedness secured by all Liens permitted by Section 8.16(r), without
duplication, does not exceed 20% of Adjusted
-8-
<PAGE> 92
Consolidated Net Worth as of the last day of the immediately preceding
Fiscal Quarter.
18. Section 8.24 of the Agreement hereby is deleted in its entirety and the
following is substituted therefor:
SECTION 8.24 Borrowing Base.
At the end of each Fiscal Period, the sum of (i) all Indebtedness
(including the Loans under the Flowers Credit Agreement and the obligations
of Flowers under this Agreement in an amount equal to the Maximum Recourse
Amount) of Flowers and its Restricted Subsidiaries plus (ii) all Synthetic
Lease Obligations of Flowers and its Restricted Subsidiaries shall not
exceed the Borrowing Base, and within 10 Domestic Business Days after the
end of such Fiscal Period, Flowers shall furnish to the Bank a certificate,
in reasonable detail, showing the calculations with respect thereto.
19. A new Section 8.25 hereby is added, as follows:
SECTION 8.25 New Indebtedness for Money Borrowed and New Capitalized
Leases.
Flowers shall not, and Flowers shall not permit its Restricted
Subsidiaries to, incur any New Indebtedness for Money Borrowed or New
Capitalized Leases, provided, that, so long as no Default or Event of
Default is in existence or would be created thereby: (i) New Indebtedness
for Money Borrowed may be issued in any amount, subject to the provisions
of Section 8.21, so long as the indenture, agreement, instrument or other
agreement related thereto does not directly or indirectly prohibit or
restrain, or have the effect of prohibiting or restraining, or imposing
materially adverse conditions on, the ability of Flowers or its Restricted
Subsidiaries to create any Lien on any of its assets in favor of the
Participants to secure the Escrow Funding Obligation and other obligations
owed by Flowers to the Participants under this Agreement and under any
other agreement pertaining to Indebtedness which must be equally and
ratably secured by any Lien securing the Escrow Funding Obligation and such
other obligations (the foregoing being collectively referred to as a
"Negative Pledge Clause"); (ii) subject to the provisions of Section 8.21,
New Indebtedness for Money Borrowed may be incurred pursuant to a working
capital line up to $50,000,000 (which does not contain a Negative Pledge
Clause); and (iii) New Capitalized Leases may be entered into up to an
aggregate of $25,000,000 which do not contain a Negative Pledge Clause
(except as to the assets being leased pursuant thereto).
20. A new Section 8.26 hereby is added, as follows:
SECTION 8.26 Capital Expenditures.
-9-
<PAGE> 93
Flowers shall not, and Flowers shall not permit its Restricted
Subsidiaries to, incur Capital Expenditures in any Fiscal Year, except that
Capital Expenditures may be incurred up to an aggregate amount not
exceeding (x) $40,000,000 in the 2000 Fiscal Year and (y) $37,500,000 in
any Fiscal Year thereafter, provided that after giving effect to the
incurrence of any Capital Expenditures permitted by this Section, no
Default shall be in existence or be created thereby.
21. A new Section 8.27 hereby is added, as follows:
SECTION 8.27 Restricted Payments. Flowers will not declare any
Restricted Payment during any Fiscal Year unless, as of the date of such
declaration, no Default or Event of Default is in existence or would be
created thereby by the making of such payment, and: (i) with respect to
Restricted Payments consisting of repurchases of stock in Flowers from any
employee of Flowers or any Restricted Subsidiary whose such employment is
being or has been terminated (whether voluntarily or involuntarily),
repurchases for an aggregate amount for all such employees not exceeding
$2,500,000 in any Fiscal Year; and (ii) with respect to all other
Restricted Payments, on a pro forma basis, based upon Flowers' good faith
estimates (taking into account circumstances then known to it), after
giving effect to such declaration and the payment thereof, and taking into
account any additional Indebtedness anticipated in good faith by Flowers to
be incurred in connection therewith during the relevant period and other
Indebtedness anticipated in good faith by Flowers to be incurred during the
relevant period, together with interest expense during the relevant period
on all such anticipated Indebtedness, both as of (x) the end of the current
Fiscal Period and (y) the end of the current Fiscal Quarter, (1) no Default
or Event of Default would be in existence or created thereby, (2) the sum
of the Unused Commitments less any Swing Loans and Money Market Loans then
outstanding, (as such terms are defined in the Flowers Credit Agreement)
would be at least $15,000,000 and (3) the amount by which the Borrowing
Base would exceed the sum of all Indebtedness plus (without duplication)
all Synthetic Lease Obligations would be at least $15,000,000. Prior to
declaring any Restricted Payments pursuant hereto, Flowers shall furnish to
the Bank a certificate, in reasonable detail, showing the calculations with
respect to the foregoing.
22. Section 9.01(b) of the Agreement hereby is deleted in its entirety and
the following is substituted therefor:
(b) Flowers shall fail to observe or perform any covenant contained in: (i)
Sections 8.01(e), 8.02(ii), 8.03 through 8.05, inclusive, Sections 8.17
through 8.19, inclusive, Sections 8.20 or 8.25 through 8.27, inclusive; or
(ii) Section 8.24, and, with respect to this clause (ii) such failure shall
not have been cured within 10 days after the earlier to occur of (1)
delivery to the Bank of the certificate
-10-
<PAGE> 94
required to be furnished pursuant to Section 8.24 and (2)
the date such certificate was required to be so delivered pursuant to
Section 8.24; or (ii) Sections 8.14, 8.15 or 8.21, and with respect to
this clause (ii) such failure shall not have been cured within 10 days
after the earlier to occur of (1) written notice thereof has been
given to Flowers by the Bank at the request of any Participant or (2)
any Responsible Officer of Flowers otherwise becomes aware of any such
failure; or
23. Exhibit H, Compliance Certificate to the Agreement, is hereby
deleted in its entirety and Exhibit H attached hereto is substituted therefor.
24. Upon SunTrust's receipt of (i) executed signature pages from all
parties to this Amendment, and (ii) an amendment fee in the amount of $420,000,
all amendments to the Participation Agreement made herein shall become
effective as of the Second Amendment Effective Date, unless expressly stated to
become effective as of any other date. Such amendment fee shall be distributed
to all Participants that execute this Amendment pro rata based on their
respective interests.
25. Except for the amendments and agreements expressly set forth above,
the Agreement shall remain unchanged and in full force and effect. Flowers
acknowledges and expressly agrees that the Participants reserve the right to,
and do in fact, require strict compliance with the terms and provisions of the
Agreement, as amended by this Amendment.
26. Flowers hereby affirms and restates as of the date hereof all
covenants set forth in the Agreement, as amended hereby, and such covenants are
incorporated by reference herein as if set forth herein directly.
27. Except as expressly amended herein, all terms, covenants and
conditions of the Agreement and all other Loan Documents shall remain in full
force and effect. The parties hereto do expressly ratify and confirm the
Agreement as amended herein.
28. Flowers hereby agrees that nothing herein shall constitute a
waiver by the Participants of any Default or Event of Default, whether known or
unknown, which may exist under the Agreement. Flowers hereby further agrees
that no action, inaction or agreement by the Participants, including without
limitation, any indulgence, waiver, consent or agreement altering the
provisions of the Agreement which may have occurred with respect to the
non-payment of any obligation during the terms of the Agreement or any portion
thereof, or any other matter relating to the Agreement, shall require or imply
any future indulgence, waiver, or agreement by the Participants. In addition,
Flowers acknowledges and agrees that it has no knowledge of any defenses,
counterclaims, offsets or objections in its favor against the Participants with
regard to any of the obligations due under the terms of the Agreement or any
other Program Document as of the date of this Amendment.
29. This Amendment shall be binding upon and inure to the benefit of
the parties hereto, their respective successors, successors-in-titles, and
assigns.
-11-
<PAGE> 95
30. This Amendment sets forth the entire understanding of the parties
with respect to the matters set forth herein, and shall supersede any prior
negotiations or agreements, whether written or oral, with respect thereto.
31. This Amendment shall be governed by and construed in accordance
with the laws of the State of Georgia.
32. This Amendment may be executed by one or more of the parties
hereto in any number of separate counterparts, each of which shall be deemed an
original and all of which, taken together, shall be deemed to constitute one
and the same instrument. Delivery of an executed counterpart of this Amendment
by facsimile transmission shall be as effective as delivery of a manually
executed counterpart hereof.
-12-
<PAGE> 96
IN WITNESS WHEREOF, the parties hereto have executed this Amendment through
their authorized officers as of the date first above written.
FLOWERS INDUSTRIES, INC.
By:
--------------------------------
Name:
---------------------------
Title:
---------------------------
Attest:
-----------------------------
Name:
-------------------------
Title:
-------------------------
[CORPORATE SEAL]
<PAGE> 97
Address for Notices: SUNTRUST BANK, formerly known as
SunTrust Bank, Atlanta, as the Bank
and as a Participant
303 Peachtree St., N.E., 3rd Floor
Atlanta, GA 30308
Attention: Ms. Kim Martin By:
Telecopy No.: (404) 230-5305 -------------------------------
Name:
Participating Commitment: $60,000,000 Title:
Pro Rata Share: 75%
<PAGE> 98
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
Rabobank Nederland "RABOBANK NEDERLAND,"
245 Park Avenue NEW YORK BRANCH, as a Participant
New York, New York 10167
Attention: Corporate Services Department
Telecopy No.: (212) 818-0233 By:
----------------------------
with a copy to: Name:
Title:
Rabobank Nederland
One Atlantic Center, Suite 3450 By:
1201 W. Peachtree Street ----------------------------
Atlanta, Georgia 30309-3400 Name:
Attention: Mr. Theodore Cox Title:
Telecopy No.: (404) 877-9150
Participating Commitment: $20,000,000
Pro Rata Share: 25%
<PAGE> 99
EXHIBIT H
COMPLIANCE CERTIFICATE
Reference is made to the Loan Facility Agreement dated as of November
5, 1999, and as amended by that certain First Amendment to Loan Facility
Agreement dated as of December 29, 1999 (among Flowers Industries, Inc.,
SunTrust Bank, formerly known as SunTrust Bank, Atlanta a Georgia banking
corporation (the "Bank"), and SunTrust Bank and each of the other lending
institutions listed on the signature pages thereto (SunTrust Bank, Atlanta and
such lenders, together with any assignees thereof becoming "Participants"
pursuant to the terms of the Loan Facility Agreement, the "Participants").
Capitalized terms used herein shall have the meanings ascribed thereto in the
Loan Facility Agreement.
Pursuant to Section 8.01(c) of the Loan Facility Agreement, , the duly
authorized of Flowers Industries, Inc., hereby (A) certifies to the Agent and
the Banks that the information contained in the Compliance Check List attached
hereto is true, accurate and complete as of , , (B) certifies to the Bank that
no Default is in existence on and as of the date hereof and (C) restates and
reaffirms that the representations and warranties contained in Article VII of
the Loan Facility Agreement are true on and as of the date hereof as though
restated on and as of this date.
FLOWERS INDUSTRIES, INC.
By:
----------------------------------------
Title:
<PAGE> 100
COMPLIANCE CHECK LIST
Flowers Industries, Inc.
-------------------------
--------------, -----
1. Loans and Advances (Section 8.14)
Neither Flowers nor any of its Material Subsidiaries shall make loans
or advances to any Person except as permitted by Section 5.16 and
except: (i) loans or advances to employees not exceeding $10,000,000
in the aggregate principal amount outstanding at any time, in each
case made in the ordinary course of business and consistent with
practices existing on the Closing Date; (ii) deposits required by
government agencies or public utilities; (iii) loans or advances to
and among Flowers and its Wholly Owned Subsidiaries; and (iv) other
loans or advances, to Persons other than the Unrestricted Subsidiaries
(loans and advances to Unrestricted Subsidiaries not being permitted),
in an aggregate amount outstanding which do not exceed 15% of Adjusted
Consolidated Total Assets as of the last day of the immediately
preceding Fiscal Quarter; provided that after giving effect to the
making of any loans, advances or deposits permitted by this Section,
no Default shall be in existence or be created thereby.
(a) loans and advances to employees $
--------------
(b) lesser of (a) and $10,000,000 $
--------------
(c) other loans and advances not
permitted by clauses (i) through (iii),
inclusive(1) $
--------------
(d) Adjusted Consolidated Total Assets $
--------------
(e) 15% of (d) $
--------------
Limitation (d) may not exceed (e)
- --------
(1) Loans and advances to the Unrestricted Subsidiaries are not permitted
and may not be included in this category.
<PAGE> 101
2. Negative Pledge (Section 8.16)
(a) Amount of Indebtedness secured by Liens
permitted by Sections 8.16(a)
through 8.16(g), inclusive, and
(l) and (n) Schedule - 1 $
-----------
(b) Amount of Debt secured by Liens not
permitted by Section (q) Schedule - 1 $
-----------
(c) Aggregate amount of Indebtedness of
Restricted Subsidiaries permitted
by Section 8.20(iv) $
-----------
(d) Sum of (b) and (c) $
-----------
(e) Adjusted Consolidated Net Worth $
-----------
(f) 20% of (e) $
-----------
Limitation (d) may not exceed (f)
<PAGE> 102
3. Adjusted Fixed Charge Coverage Ratio (Section 8.17)
At the end of each Fiscal Quarter, commencing with the second Fiscal Quarter of
the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted Consolidated
Fixed Charges shall at all times be equal to or greater than the ratio set
forth below for such Fiscal Quarter of each Fiscal Year set forth below:
<TABLE>
<CAPTION>
Adjusted Fixed Charges
Fiscal Quarter Fiscal Year Coverage Ratio
- -------------- ----------- --------------
<S> <C> <C>
Second 2000 1.10 to 1.0
Third 2000 1.15 to 1.0
Fourth 2000 1.20 to 1.0
First 2001 1.25 to 1.0
Second 2001 1.25 to 1.0
Third 2001 1.25 to 1.0
Fourth 2001
and thereafter 1.50 to 1.0
</TABLE>
(a) Adjusted Consolidated Net Income
Schedule 2 $
--------------
(b) Adjusted Consolidated Interest
Expense - Schedule 2 $
--------------
(c) payments on operating leases
and rental agreements $
--------------
(d) taxes - Schedule 2 $
--------------
(e) depreciation - Schedule 2 $
--------------
(f) amortization - Schedule 2 $
--------------
(g) sum of (a) plus (b) plus (c)
plus (d) plus (e) plus (f) $
--------------
$
(h) sum of (b) plus (c) --------------
Ratio of (g) to (h) --------------
Requirement [> 1.10 to 1.0]
[> 1.15 to 1.0]
[> 1.20 to 1.0]
[> 1.25 to 1.0]
[> 1.50 to 1.0]
<PAGE> 103
4. Leverage Ratio (Section 8.18)
The Leverage Ratio shall at all times be equal to or less than 0.65 to
1.0.
(a) Adjusted Consolidated Total Debt
Schedule - 4 $
--------------
(b) Adjusted Consolidated Net Worth $
--------------
(c) Sum of (a) plus (b) $
--------------
Ratio of (a) to (c)
--------------
Requirement 0.65 to 1.00
<PAGE> 104
5. Minimum Adjusted Consolidated Net Worth (Section 8.19)
Adjusted Consolidated Net Worth will at no time be less than
$487,569,000, plus the sum of (x) 50% of the cumulative Net Proceeds of
Capital Stock received during any period after April 27, 1998, plus (y)
50% of any equity resulting from a conversion of Indebtedness of
Flowers during any period after April 27, 1998, less (z) any amount of
equity of Flowers repurchased during any period after April 27, 1998,
calculated quarterly at the end of each Fiscal Quarter.
(a) cumulative Net Capital Proceeds since
April 27, 1998 $__________
(b) 50% of (a) $__________
(c) equity resulting from Indebtedness
conversion since April 27, 1998 $__________
(d) amount of equity repurchased
since April 27, 1998 $__________
(e) (c) less (d) $__________
(f) 50% of (e) $__________
(g) sum of $487,589,000, plus (b),
plus (f) $__________
(h) Adjusted Consolidated Net Worth $__________
Limitation (h) may not be less than (g)
<PAGE> 105
6. Adjusted Consolidated EBITDA (Section 8.20)
At the end of each Fiscal Quarter, commencing with the first Fiscal
Quarter of the 2000 Fiscal Year, Adjusted Consolidated EBITDA shall at
all times be equal to or greater than the amount set forth below for
each Fiscal Quarter of each Fiscal Year set forth below, and shall be
calculated (i) at the end of each Fiscal Quarter in the 2000 Fiscal
Year, for such Fiscal Quarter only, and (ii) at the end of each Fiscal
Quarter thereafter, for the 4 Fiscal Quarter period then ending.
<TABLE>
<CAPTION>
<S> <C> <C>
Adjusted
Fiscal Quarter Fiscal Year Consolidated
- -------------- ----------- ------------
EBITDA
------
First 2000 $ 26,500,000
Second 2000 $ 18,500,000
Third 2000 $ 24,500,000
Fourth 2000 $ 25,000,000
First 2001 $105,000,000
Second 2001 $105,000,000
Third 2001 $115,000,000
Fourth 2001 $115,000,000
First and thereafter 2002 $125,000,000
Adjusted Consolidated EBITDA
Schedule - 5 $__________
</TABLE>
7. Capital Expenditures (Section 8.26)
Flowers shall not, and Flowers shall not permit its Restricted
Subsidiaries to, incur Capital Expenditures in any Fiscal Year, except
that Capital Expenditures may be incurred up to an aggregate amount not
exceeding (x) $40,000,000 in the 2000 Fiscal Year and (y) $37,500,000
in any Fiscal Year thereafter, provided that after giving effect to the
incurrence of any Capital Expenditures permitted by this Section, no
Default shall be in existence or be created thereby.
(a) Capital Expenditures incurred in Fiscal Year to date: $_______
Limitation: (a) may not exceed $25,000,000 in the 2000 Fiscal
Year and $37,500,000 in any Fiscal Year thereafter
<PAGE> 106
Schedule - 1
(a)
Liens Securing Debt In The Principal
Amount of $50,000 or More which are
Not Permitted by Sections 8.16(a)
through 8.16(g), inclusive, and
(l), (n) and (p)
<TABLE>
<CAPTION>
Relevant Provision of
Description of Lien Amount of Debt Secured Section 8.16 Permitting Same
- ------------------- ---------------------- ----------------------------
<S> <C> <C>
1. $
---------------- -------------------- ---------------------
2. $
---------------- -------------------- ---------------------
3. $
---------------- -------------------- ---------------------
4. $
---------------- -------------------- ---------------------
5. $
---------------- -------------------- ---------------------
6. $
---------------- -------------------- ---------------------
7. $
---------------- -------------------- ---------------------
8. $
---------------- -------------------- ---------------------
9. $
---------------- -------------------- ---------------------
</TABLE>
(b) Aggregate Amount of Other Liens Securing Debt which are Not Permitted
by Sections 8.16(a) through 8.16(g), inclusive
and (l), (n) and (p) $__________
(c) Aggregate Amount of All Debt Secured
by Liens $__________
<PAGE> 107
Schedule - 2
Adjusted Fixed Charge Coverage(2)
Adjusted Consolidated Net Income for:
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
Total $__________
Adjusted Consolidated Interest Expense for:
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
Total $__________
Operating Leases and Rentals for:
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
Total $__________
Taxes for:
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
Total $__________
Depreciation for:
- --------------------
2 Include Restricted Subsidiaries Only, and include only Fiscal Year to
date for calculation at end of second and third Fiscal Quarter of 2000
Fiscal Year
<PAGE> 108
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
Total $__________
Amortization for:
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
_____ quarter _____ $__________
Total $__________
<PAGE> 109
Schedule - 4
Adjusted Consolidated Total Debt
<TABLE>
<CAPTION>
INTEREST
RATE MATURITY TOTAL
-------- -------- -----
<S> <C> <C> <C> <C>
(a) Unsecured Borrowed Money
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Unsecured Borrowed Money $__________
(b) Deferred Purchase Price
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Deferred Purchase Price $__________
(c) Capitalized Leases
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Capitalized Leases $__________
(d) Secured Borrowed Money
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Secured Borrowed Money $__________
(e) Letters of Credit and Similar Instruments(3)
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Letters of Credit and Similar Instruments $__________
(f) Swaps
</TABLE>
- ----------------
(3) Include only if have maturities of greater than 1 year
<PAGE> 110
<TABLE>
<S> <C> <C> <C> <C>
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Swaps $__________
(g) Guaranties
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Guaranties $__________
(h) Convertible Redeemable Capital Stock(4)
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Convertible Redeemable Capital Stock $__________
(i) Convertible Subordinated Debt(2)
==================== ---------- ---------- $__________
==================== ---------- ---------- $__________
Total Convertible Subordinated Debt $__________
ADJUSTED CONSOLIDATED TOTAL DEBT-sum of (a) plus (b) plus (c) plus (d) plus (e)
plus (f) plus (g) less (h) less (i) $__________
</TABLE>
- ----------------
(4) Include only if current market value of an equity security into which it is
convertible is greater than the conversion price for such security.
<PAGE> 111
Schedule - 5
Adjusted Consolidated EBITDA (5)
Adjusted Consolidated Net Income for:
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
Total $__________
Adjusted Consolidated Interest Expense for:
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
Total $__________
Taxes for:
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
Total $__________
Depreciation for:
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
Total $__________
Amortization for:
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
Total $__________
Other Non-cash Charges for:
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
__________ quarter __________ $__________
Total
(5) Include Restricted Subsidiaries Only and for each Fiscal Quarter of the
2000 Fiscal Year, include only calculation for such Fiscal Quarter
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52
--------------------------------- WEEKS ENDED WEEKS ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 28, 1997
-------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary loss and
cumulative effect of changes in
accounting principles............... $ 7,294 $ 45,968 $33,448 $62,324
Extraordinary loss due to early
extinguishment of debt, net of tax
benefit and minority interest....... (938)
Cumulative effect of changes in
accounting principles, net of tax
benefit............................. (3,131) (9,888)
-------- ------- ------- -------
Net income............................. $ 7,294 $41,899 $23,560 $62,324
======== ======= ======= =======
Denominator:
Basic weighted average shares.......... 100,112 96,393 88,368 88,000
Effect of dilutive securities:
Stock options....................... 308 408 405 401
-------- ------- ------- -------
Diluted weighted average shares........ 100,420 96,801 88,773 88,401
======== ======= ======= =======
Net Income Per Common Share:
Basic --
Income before extraordinary loss and
cumulative effect of changes in
accounting principles............. $ .07 $ .47 $ .38 $ .71
Extraordinary loss due to early
extinguishment of debt, net of
tax benefit and minority interest. (.01)
Cumulative effect of changes in
accounting principles, net of tax
benefit........................... (.03) (.11)
-------- ------- ------- -------
Net income per common share......... $ .07 $ .43 $ .27 $ .71
======== ======= ======= =======
Diluted --
Income before extraordinary loss and
cumulative effect of changes in
accounting principles............... $ .07 $ .47 $ .38 $ .71
Extraordinary loss due to early
extinguishment of debt, net of tax
benefit and minority interest....... (.01)
Cumulative effect of changes in
accounting principles, net of tax
benefit............................. (.03) (.11)
-------- ------- ------- -------
Net income per common share............ $ .07 $ .43 $ .27 $ .71
======== ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
There is no parent of the Registrant. The Registrant owns 100% of the
voting securities of each subsidiary listed below, with the exception of Keebler
Foods Company, of which the Registrant owns 55%, except that each subsidiary
marked with an asterisk owns 100% of the voting securities of the subsidiary or
subsidiaries indented immediately below such marked subsidiary. All subsidiaries
listed below are included in the consolidated financial statements of the
Registrant.
Flowers Industries, Inc...................................... Georgia
Flowers Investments, Inc.................................... Georgia
*Flowers Bakeries Brands, Inc............................... South Carolina
*Flowers Bakeries, Inc..................................... Georgia
*Flowers Baking Company of Florida, Inc.................. Florida
Flowers Baking Company of Miami, Inc................... Florida
Flowers Baking Company of Jacksonville, Inc............ Florida
Flowers Baking Company of Bradenton, Inc............... Florida
Flowers Baking Company of Thomasville, Inc.............. Georgia
Flowers Baking Company of Villa Rica, Inc............... Georgia
Flowers Baking Company of Opelika, Inc.................. Alabama
Hardin's Bakery, Inc.................................... Alabama
Midtown Bakery, Inc..................................... Alabama
Home Baking Company, Inc................................ Alabama
*Huval Bakery, Inc...................................... Louisiana
*Bunny Bread, Inc...................................... Louisiana
Flowers Baking Company of Baton Rouge, Inc........... Louisiana
Flowers Baking Company of Jamestown, Inc................ North Carolina
Franklin Baking Co...................................... North Carolina
Flowers Baking Company of Lynchburg, Inc................ Virginia
Flowers Baking Company of Norfolk, Inc.................. Virginia
Flowers Baking Company of Morristown, Inc............... Tennessee
Schott's Bakery, Inc.................................... Texas
*Flowers Baking Company of West Virginia, Inc........... West Virginia
The Donut House, Inc................................. West Virginia
*Flowers Baking Company of Texas, Inc................... Texas
*Flowers Baking Company of Tyler...................... Georgia
Butterkrust Bakery, Inc............................. Texas
El Paso Baking Company, Inc........................... Texas
El Paso Baking Co. de Mexico, S.A. de C.V........... Mexico
San Angelo Distributing Co., Inc...................... Texas
San Antonio Baking Co., Inc........................... Texas
Austin Baking Co., Inc................................ Texas
Corpus Christi Baking Co., Inc........................ Texas
Flowers Holding Co. of Texas, Inc..................... Texas
Flowers Baking Company of Fresno, Inc................. California
Flowers Baking Company of Texarkana..................... Arkansas
Holsum Baking Company................................... Arkansas
Shipley Baking Company.................................. Arkansas
Flowers Baking Company of Ohio, Inc..................... Ohio
Storck Baking Company................................... West Virginia
*Mrs. Smith's Bakeries, Inc.................................. Georgia
Mrs. Smith's Bakery of Suwanee, Inc..................... Georgia
*European Bakers, Ltd................................... Georgia
Aunt Fanny's Bakery, Inc............................. Georgia
*Dan-co Bakery, Inc.................................... Georgia
Daniels Home Bakery of North Carolina, Inc........... North Carolina
Table Pride, Inc........................................ Georgia
*Mrs. Smith's Sales Support Group, Inc.................. Georgia
Mrs. Smith's Foil Company, Inc......................... Georgia
Broad Street Bakeries, Inc.............................. Georgia
Special Touch Bakeries, Inc............................. Georgia
Flowers Specialty of Suwanee, Inc....................... Georgia
Mrs. Smith's Frozen Bakery Distributors, Inc............. Georgia
Mrs. Smith's Bakeries of Pennsylvania, Inc............. Georgia
Allied Frozen Food Services, Inc....................... New York
Flowers Specialty Foods of Montgomery, Inc.............. Alabama
Flowers Baking Company of South Carolina, Inc........... South Carolina
Flowers Baking Company of Fountain Inn, Inc............. South Carolina
Flowers Baking Company of Chattanooga, Inc.............. Tennessee
Flowers Fresh Bakery Distributors, Inc.................. Tennessee
Aunt Fanny's Bakery of Pennsylvania, Inc................ Pennsylvania
*Mrs. Smith's Bakeries of London, Inc................... Kentucky
Bluebird Brands, Inc.................................. Georgia
*Pies, Inc.............................................. Minnesota
Mrs. Smith's Brands, Inc............................... South Carolina
*Stilwell Foods, Inc................................... Oklahoma
Stilwell Foods of Texas, Inc......................... Oklahoma
Stilwell Foods Manpower of Texas, Inc................ Texas
Flowers Holding Company................................ Delaware
*Keebler Foods Company....................................... Delaware
*Keebler Company........................................... Delaware
Steamboat Corporation................................ Georgia
Illinois Baking Corporation.......................... Delaware
Keebler Cookie & Cracker Company..................... Nevada
Hollow Tree Company, L.L.C........................... Delaware
Keebler Co./Puerto Rico, Inc......................... Delaware
Keebler H.C., Inc.................................... Illinois
Keebler-Georgia, Inc................................. Georgia
Keebler Foreign Sales Corporation.................... Virgin Islands
Hollow Tree Financial Company, L.L.C................. Delaware
Godfrey Transport, Inc............................... Delaware
Bishop Baking Company, Inc........................... Delaware
Famous Amos Chocolate Chip Cookie Company, L.L.C..... Delaware
Mother's Cookie Company, L.L.C....................... Delaware
Murray Biscuit Company, L.L.C........................ Delaware
Barbara Dee Cookie Company, L.L.C.................... Delaware
Little Brownie Bakers, L.L.C......................... Delaware
President Baking Company, L.L.C...................... Delaware
Sunny Cookie Company, L.L.C.......................... Delaware
Sunshine Biscuits, L.L.C............................. Delaware
Elfin Equity Co., L.L.C.(1).......................... Delaware
Keebler Assets Company(2)............................ Delaware
Keebler Funding Corp....................................... Delaware
Keebler Leasing Corp....................................... Delaware
Shaffer, Clarke & Co., Inc................................. Delaware
Johnston's Ready-Crust Company............................. Delaware
Bake-Line Products, Inc.................................... Illinois
- -------------------
(1) 64.6% owned by Keebler Company and 35.4% owned by Sunshine Biscuits, Inc.
(2) 34% owned by Keebler Company, 33% owned Keebler-Georgia, Inc. and 33% owned
by Keebler Leasing Corp.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-34855, No. 33-91198 and No. 333-23351) and in the
Prospectus constituting part of the Registration Statement on Form S-3
(No.33-34855) of our report dated February 3, 2000 on page F-2 of this Form
10-K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
March 30, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 of Flowers Industries, Inc.(No. 33-34855, No. 33-91198
and No. 333-23351) and in the Prospectus constituting part of the Registration
Statement on Form S-3 of Flowers Industries, Inc.(No.33-34855) of our report
dated February 1, 2000 on page F-2 of the Keebler Foods Company Form 10-K
included as Exhibit 99 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FLOWERS
INDUSTRIES, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE FIFTY-TWO WEEKS ENDED
JANUARY 1, 2000, AND THE FLOWERS INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET AT
JANUARY 1, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> DEC-31-1999
<CASH> 39,382
<SECURITIES> 0
<RECEIVABLES> 207,900
<ALLOWANCES> 21,981
<INVENTORY> 280,925
<CURRENT-ASSETS> 690,538
<PP&E> 1,670,095
<DEPRECIATION> 520,456
<TOTAL-ASSETS> 2,900,478
<CURRENT-LIABILITIES> 655,797
<BONDS> 0
0
0
<COMMON> 63,040
<OTHER-SE> 475,714
<TOTAL-LIABILITY-AND-EQUITY> 2,900,478
<SALES> 4,236,010
<TOTAL-REVENUES> 4,236,010
<CGS> 2,001,956
<TOTAL-COSTS> 4,052,031
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,865
<INCOME-PRETAX> 103,114
<INCOME-TAX> 56,260
<INCOME-CONTINUING> 7,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,294
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
<PAGE> 1
EXHIBIT 99.2
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Keebler Foods Company and Subsidiaries
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: PAGE
----
<S> <C>
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets at January 1, 2000 and January 2, 1999...... F-3
Consolidated Statements of Operations for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998.................. F-5
Consolidated Statements of Shareholders' Equity for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998.................. F-6
Consolidated Statements of Cash Flows for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998.................. F-7
Notes to Consolidated Financial Statements.............................. F-8
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Accountants....................................... S-1
Schedule II - Valuation and Qualifying Accounts......................... S-2
</TABLE>
F-1
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KEEBLER FOODS COMPANY:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Keebler
Foods Company and Subsidiaries at January 1, 2000 and January 2, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended January 1, 2000, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 1, 2000, except note 18, as to
which the date is March 6, 2000
F-2
<PAGE> 3
KEEBLER FOODS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,717 $ 23,515
Trade accounts and notes receivable, net 65,052 141,077
Inventories, net:
Raw materials 34,243 31,722
Package materials 13,907 13,081
Finished goods 126,954 120,550
Other 1,176 1,024
---------- ----------
176,280 166,377
Deferred income taxes 46,252 57,713
Other 27,278 26,636
---------- ----------
Total current assets 335,579 415,318
PROPERTY, PLANT AND EQUIPMENT, NET 553,031 564,524
GOODWILL, NET 370,188 391,449
TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES, NET 211,790 226,084
PREPAID PENSION 33,240 38,205
ASSETS HELD FOR SALE 6,662 2,972
OTHER ASSETS 17,693 17,228
---------- ----------
Total assets $1,528,183 $1,655,780
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE> 4
KEEBLER FOODS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 37,283 $ 112,730
Trade accounts payable 147,862 143,572
Other liabilities and accruals 237,447 232,087
Income taxes payable 23,603 10,779
Plant and facility closing costs and severance 11,290 11,018
----------- -----------
Total current liabilities 457,485 510,186
LONG-TERM DEBT 419,160 541,765
OTHER LIABILITIES:
Deferred income taxes 124,389 147,098
Postretirement/postemployment obligations 64,383 63,754
Plant and facility closing costs and severance 12,062 15,563
Deferred compensation 24,581 19,368
Other 16,808 28,745
----------- -----------
Total other liabilities 242,223 274,528
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value; 100,000,000 shares authorized and
none issued) -- --
Common stock ($.01 par value; 500,000,000 shares authorized and
84,655,874 and 84,125,164 shares issued, respectively) 846 841
Additional paid-in capital 182,686 169,532
Retained earnings 255,813 167,608
Treasury stock (30,030) (8,680)
----------- -----------
Total shareholders' equity 409,315 329,301
----------- -----------
Total liabilities and shareholders' equity $ 1,528,183 $ 1,655,780
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 5
KEEBLER FOODS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
NET SALES $ 2,667,771 $ 2,226,480 $ 2,065,184
COSTS AND EXPENSES:
Cost of sales 1,150,553 938,896 888,031
Selling, marketing and administrative expenses 1,227,481 1,080,044 1,026,245
Other 25,834 11,501 9,511
Restructuring and impairment charge 66,349 -- --
----------- ----------- -----------
INCOME FROM OPERATIONS 197,554 196,039 141,397
Interest (income) (1,700) (3,763) (1,191)
Interest expense 37,874 30,263 35,038
----------- ----------- -----------
INTEREST EXPENSE, NET 36,174 26,500 33,847
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 161,380 169,539 107,550
Income tax expense 73,175 72,962 45,169
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 88,205 96,577 62,381
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of tax -- 1,706 5,396
----------- ----------- -----------
NET INCOME $ 88,205 $ 94,871 $ 56,985
=========== =========== ===========
BASIC NET INCOME PER SHARE:
Income before extraordinary item $ 1.05 $ 1.16 $ 0.80
Extraordinary item -- 0.02 0.07
----------- ----------- -----------
Net income $ 1.05 $ 1.14 $ 0.73
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 83,759 83,254 77,604
=========== =========== ===========
DILUTED NET INCOME PER SHARE:
Income before extraordinary item $ 1.01 $ 1.10 $ 0.77
Extraordinary item -- 0.02 0.07
----------- ----------- -----------
Net income $ 1.01 $ 1.08 $ 0.70
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 87,645 87,486 80,562
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE> 6
KEEBLER FOODS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
----------------- PAID-IN EARNINGS -------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
------ ------ ---------- --------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996 77,638 $776 $148,613 $ 15,752 -- $ -- $165,141
Purchase of treasury shares -- -- -- -- (43) (75) (75)
Net income -- -- -- 56,985 -- -- 56,985
------ ---- -------- -------- ---- -------- --------
BALANCE AT JANUARY 3, 1998 77,638 776 148,613 72,737 (43) (75) 222,051
Exercise of Bermore warrant 6,136 61 19,740 -- -- -- 19,801
Purchase of treasury shares -- -- -- -- (292) (8,605) (8,605)
Exercise of employee stock options 351 4 1,179 -- -- -- 1,183
Net income -- -- -- 94,871 -- -- 94,871
------ ---- -------- -------- ---- -------- --------
BALANCE AT JANUARY 2, 1999 84,125 841 169,532 167,608 (335) (8,680) 329,301
Purchase of treasury shares -- -- -- -- (646) (21,350) (21,350)
Exercise of employee stock options 531 5 13,154 -- -- -- 13,159
Net income -- -- -- 88,205 -- -- 88,205
------ ---- -------- -------- ---- -------- --------
BALANCE AT JANUARY 1, 2000 84,656 $846 $182,686 $255,813 (981) $(30,030) $409,315
====== ==== ======== ======== ==== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE> 7
KEEBLER FOODS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
Net income $ 88,205 $ 94,871 $ 56,985
Adjustments to reconcile net income to cash from
operating activities:
Depreciation and amortization 84,125 69,125 60,708
Deferred income taxes (11,248) 10,075 18,548
Accretion on Seller Note -- -- 2,376
Loss on early extinguishment of debt, net of tax -- 1,706 3,761
Loss (gain) on sale of property, plant and equipment 1,799 424 (358)
Restructuring and impairment charge 46,071 -- --
Other -- 1,460 --
Changes in assets and liabilities:
Trade accounts and notes receivable, net (26,975) (5,082) 38,187
Inventories, net (9,903) (13,830) 203
Income taxes payable 12,824 (4,556) 16,113
Other current assets (642) (2,845) (966)
Trade accounts payable and other current liabilities 9,840 869 36,806
Plant and facility closing costs and severance (3,641) (5,373) (13,715)
Other, net 6,771 (2,319) 1,044
--------- --------- ---------
Cash provided from operating activities 197,226 144,525 219,692
CASH FLOWS USED BY INVESTING ACTIVITIES
Capital expenditures (100,685) (66,798) (48,429)
Proceeds from property disposals 3,904 917 6,950
Purchase of President International, Inc., net of cash acquired -- (444,818) --
--------- --------- ---------
Cash used by investing activities (96,781) (510,699) (41,479)
CASH FLOWS (USED BY) PROVIDED FROM FINANCING ACTIVITIES
Purchase of treasury stock (21,350) (8,605) (75)
Exercise of options and warrant 3,203 20,577 --
Proceeds from receivables securitization 103,000 -- --
Deferred debt issue costs -- (1,845) (1,344)
Long-term debt borrowings -- 425,000 109,750
Long-term debt repayments (113,052) (157,626) (271,310)
Revolving facility, net (85,000) 85,000 --
Income tax benefit related to stock options exercised 9,956 -- --
--------- --------- ---------
Cash (used by) provided from financing activities (103,243) 362,501 (162,979)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (2,798) (3,673) 15,234
Cash and cash equivalents at beginning of period 23,515 27,188 11,954
--------- --------- ---------
Cash and cash equivalents at end of period $ 20,717 $ 23,515 $ 27,188
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE> 8
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
BUSINESS AND OWNERSHIP
Keebler Foods Company ("the Company" or "Keebler"), a manufacturer and
distributor of food products, was acquired by INFLO Holdings Corporation
("INFLO") on January 26, 1996. INFLO was owned by Artal Luxembourg S. A.
("Artal"), a private investment company, Flowers Industries, Inc. ("Flowers"), a
New York Stock Exchange-listed company, Bermore, Limited ("Bermore"), a
privately held corporation and the parent of G.F. Industries, Inc. ("GFI") and
certain members of Keebler's current management. On November 20, 1997, INFLO was
merged into Keebler Corporation (the "Merger"), and subsequently changed its
name to Keebler Foods Company. The financial statements as of and for all
periods subsequent to January 26, 1996 have been restated to reflect the Merger
as if it had been effective January 26, 1996. On January 29, 1998, Keebler made
an initial public offering of 13,386,661 shares of common stock ("the
Offering"). As part of the transaction, Flowers acquired additional shares of
common stock from Artal and Bermore so that its ownership of outstanding stock
increased to approximately 55%. Concurrent with the Offering, Bermore exercised
a warrant to purchase 6,135,781 shares of common stock that had been issued in
conjunction with the acquisition of Sunshine Biscuits, Inc. ("Sunshine"). The
exercise of the warrant resulted in Keebler receiving $19.8 million of cash
proceeds. Artal and Bermore sold all of the shares in the Offering, with none of
the proceeds going to Keebler. In addition, during 1998, Bermore, through a
series of transactions, transferred its shares held to Claremont Enterprises,
Limited ("Claremont"), a privately held Bahamian limited company. On January 21,
1999, Keebler made a secondary public offering of 16,200,000 shares of common
stock. Artal and Claremont sold all of the shares, with no proceeds going to
Keebler. As a result, Artal's ownership percentage decreased from approximately
21% to 2% and Claremont's ownership percentage was reduced from approximately 6%
to 5% of the outstanding common stock. Management's ownership remained at
approximately 2% and Flowers' ownership remained at approximately 55%. During
1999, all remaining shares owned by both Artal and Claremont were sold in the
open market. Keebler is comprised of primarily the following wholly-owned
subsidiaries: Keebler Company, Bake-Line Products, Inc. ("Bake-Line"), Sunshine,
President International, Inc. ("President"), Keebler Leasing Corp., Keebler
Funding Corporation and Johnston's Ready Crust Company. On January 4, 1999,
Keebler engaged in a series of corporate-entity transactions that resulted in
Sunshine and President being merged into Keebler Company. Consequently, these
former subsidiaries of Keebler Foods Company are currently wholly-owned
subsidiaries of Keebler Company. Additional operating subsidiaries of Keebler
Company include Elfin Equity Company, L.L.C., Hollow Tree Company, L.L.C.,
Hollow Tree Financial Company, L.L.C. and Godfrey Transport, Inc.
FISCAL YEAR
Keebler's fiscal year consists of thirteen four week periods (fifty-two
or fifty-three weeks) and ends on the Saturday nearest December 31. The 1999 and
1998 fiscal years consisted of fifty-two weeks and the 1997 fiscal year
consisted of fifty-three weeks.
PRINCIPLES OF CONSOLIDATION
All subsidiaries are wholly-owned and included in the consolidated
financial statements of Keebler. Intercompany accounts and transactions have
been eliminated.
GUARANTEES OF NOTES
The subsidiaries of Keebler that are not Guarantors of the Senior
Subordinated Notes are inconsequential (which means that the total assets,
revenues, income or equity of such non-guarantors, both individually and on a
combined basis, is less than 3% of Keebler's consolidated assets, revenues,
income or equity), individually and in the aggregate, to the consolidated
financial statements of Keebler. The guarantees are full, unconditional and
joint and several. Separate financial statements of the Guarantors are not
presented because management has determined that they would not be material to
investors in the Senior Subordinated Notes.
F-8
<PAGE> 9
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications of prior years' data have been made to
conform with the current year reporting.
2. ACQUISITION OF PRESIDENT INTERNATIONAL, INC.
On September 28, 1998, Keebler acquired President International, Inc.
from President International Trade and Investment Corporation, a company limited
by shares under the International Business Companies Ordinance of the British
Virgin Islands, for an aggregate purchase price of $446.1 million, excluding
related fees and expenses paid of $4.5 million. The acquisition of President was
a cash transaction funded with approximately $75.0 million from existing
resources and the remainder from borrowings under the $700.0 million Senior
Credit Facility Agreement ("Credit Facility") and a $125.0 million Bridge
Facility, both dated as of September 28, 1998.
The acquisition of President by Keebler has been accounted for as a
purchase. The total purchase price and the fair value of liabilities assumed
have been allocated to the tangible and intangible assets of President based on
respective fair values. The acquisition has resulted in an unallocated excess
purchase price over fair value of net assets acquired of $329.2 million, which
is being amortized on a straight-line basis over a forty year period.
Results of operations for President from September 28, 1998, have been
included in the consolidated statements of operations. The following unaudited
pro forma information has been prepared assuming the acquisition had taken place
at the beginning of fiscal year 1997. The unaudited pro forma information
includes adjustments for interest expense that would have been incurred related
to financing the purchase, additional depreciation of the property, plant and
equipment acquired and amortization of the trademarks, trade names, other
intangibles and goodwill arising from the acquisition. The unaudited pro forma
consolidated results of operations are not necessarily indicative of the results
that would have been reported had the President acquisition been effected on the
assumed date.
<TABLE>
<CAPTION>
Unaudited
(IN THOUSANDS, EXCEPT PER SHARE DATA) For the Years Ended
------------------------------------
January 2, 1999 January 3, 1998
----------------- -----------------
<S> <C> <C>
Net sales.............................. $2,583.5 $2,501.5
Income before extraordinary item....... $ 104.7 $ 56.7
Net income............................. $ 102.7 $ 49.3
Diluted net income per share:
Income before extraordinary item... $ 1.20 $ 0.70
Net income......................... $ 1.18 $ 0.61
</TABLE>
3. RESTRUCTURING AND IMPAIRMENT CHARGE
As part of the continuing process of integrating the business of
President into the Company's operations, on May 14, 1999, Keebler announced the
decision to close its manufacturing facility in Sayreville, New Jersey due to
excess capacity within the Company's 15-plant manufacturing network. As a
result, a pre-tax restructuring and impairment charge to operating income of
$66.3 million was recorded in 1999. The restructuring and impairment charge
included $20.2 million for cash costs related to severance and other exit costs
from the Sayreville facility. The remaining $46.1 million was non-cash charges
for asset impairments related to the Sayreville closing, including write-downs
of property, plant and equipment at Sayreville and equipment at other locations,
and a proportionate reduction of goodwill acquired in the acquisition of
Sunshine in June 1996. The impairment charge for equipment at other locations
resulted from a combination of factors. The acquisition of President brought a
new capability to Keebler's production network. The President baking process is
principally based on shorter, more flexible ovens compared to the larger ovens
common to Keebler and Sunshine bakeries. This new capability resulted in a
comprehensive analysis of system-wide production needs. The acquisition and
resulting exit plans of Keebler, Sunshine and President, when considered
together, resulted in redundant productive equipment, which ultimately became
idle.
F-9
<PAGE> 10
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RESTRUCTURING AND IMPAIRMENT CHARGE (CONTINUED)
The original $69.2 million charge recorded in the second quarter of
1999 was reduced by a fourth quarter adjustment of $2.9 million. The adjustment
was for costs related to severance and other exit costs from the facility due to
lower-than-expected severance costs and an earlier-than-expected disposal of the
facility. Of the total $66.3 million charge, approximately $65.6 million was
recorded as plant and facility closing costs and severance, with the remaining
$0.7 million recorded as other liabilities and accruals. Approximately 650
employees were expected to be terminated as a result of the closing of the
Sayreville facility, of which approximately 600 employees were represented by
unions. At January 1, 2000, approximately 595 employees under union contract and
approximately 45 employees not under union contract had been terminated.
The following table sets forth the activity related to the liabilities
accrued in conjunction with the restructuring and impairment charge:
<TABLE>
<CAPTION>
January 2, JANUARY 1,
(IN THOUSANDS) 1999 Provision Spending Adjustment 2000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Severance............... $ - $ 15,564 $ (12,442) $ (1,085) $ 2,037
Facility closure........ - 4,570 (438) (1,565) 2,567
Fixed asset impairment.. - 37,824 (37,824) - -
Goodwill impairment..... - 7,600 (7,600) - -
Other................... - 3,650 (1,724) (209) 1,717
----------- ------------ ----------- ----------- -----------
Total............... $ - $ 69,208 $ (60,028) $ (2,859) $ 6,321
=========== ============ =========== =========== ===========
</TABLE>
At January 1, 2000, $6.0 million remained for plant and facility
closing costs and severance accruals and $0.3 million for other liabilities and
accruals. Substantially all of the remaining severance liability is expected to
be spent in 2000, as nearly all employees have been terminated. Production at
the Sayreville, New Jersey manufacturing facility ceased on September 3, 1999.
Spending for exit costs associated with the closure of the facility will
continue into the year 2000 as the facility is prepared for sale. Spending for
exit costs related to the facility closure is expected to continue for eighteen
months or until the facility is disposed of, whichever occurs earlier. The
majority of the remaining reserves are cash costs.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
All highly liquid instruments purchased with an original maturity of
three months or less are classified as cash equivalents. The carrying amount of
cash equivalents approximates fair value due to the relatively short maturity of
these investments.
TRADE ACCOUNTS RECEIVABLE
Substantially all of Keebler's trade accounts receivable are from
retail dealers and wholesale distributors. Keebler performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Trade accounts receivable, as shown on the consolidated balance
sheets, were net of allowances of $8.6 million as of January 1, 2000 and $7.8
million as of January 2, 1999.
INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined principally by the last-in, first-out ("LIFO") method. Inventories
stated under the LIFO method represent approximately 94% of total inventories at
both January 1, 2000 and at January 2, 1999. Because Keebler has adopted a
natural business unit single pool approach to determining LIFO inventory cost,
classification of the LIFO reserve by inventory component is impractical. There
was no reserve required at January 1, 2000 or January 2, 1999 to state the
inventory on a LIFO basis.
F-10
<PAGE> 11
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At January 1, 2000 and January 2, 1999, inventories are shown net of an
allowance for slow-moving and aged inventory of $6.7 million and $9.6 million,
respectively.
Keebler often enters into exchange traded commodity futures and options
contracts to protect or hedge against adverse raw material price movements
related to anticipated inventory purchases. Realized gains or losses on
contracts are determined based on the stated market value at the time the
contracts are liquidated or expire and are deferred in inventory until the
underlying raw material is purchased. Gains or losses realized from the
liquidation or expiration of the contracts are recognized as part of the cost of
raw materials. Cost of sales was increased by losses on futures and options
transactions of $9.2 million, $7.1 million and $3.8 million in the years ended
January 1, 2000, January 2, 1999 and January 3, 1998, respectively. The notional
amount of open futures and options contracts at January 1, 2000 and January 2,
1999 was $48.7 million and $61.7 million, respectively. The fair values of the
open futures and options contracts at January 1, 2000 and January 2, 1999, based
on the stated market value at those dates, were $44.1 million and $57.9 million,
respectively. The open contracts at January 1, 2000, will expire between March
2000 and December 2000.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation expense
is computed using the straight-line method based on the estimated useful lives
of the depreciable assets. Certain facilities and equipment held under capital
leases are classified as property, plant and equipment and amortized using the
straight-line method over the lease terms, and the related obligations are
recorded as liabilities. Lease amortization is included in depreciation expense.
TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES
Trademarks, trade names and other intangibles are stated at cost and
are amortized on a straight-line basis over a period of twenty to forty years.
Accumulated amortization of trademarks, trade names and other intangibles was
$18.9 million and $11.8 million at January 1, 2000 and January 2, 1999,
respectively.
GOODWILL
Goodwill represents the excess cost over the fair value of the tangible
and identifiable intangible net assets of acquired businesses. Goodwill is
amortized on a straight-line basis over a period of forty years. Accumulated
amortization of goodwill was $14.7 million and $4.9 million at January 1, 2000
and January 2, 1999, respectively.
REVENUE RECOGNITION
Revenue from the sale of products is recognized at the time of the
shipment to customers.
RESEARCH AND DEVELOPMENT
Activities related to new product development and major improvements to
existing products and processes are expensed as incurred and were $13.1 million
for the year ended January 1, 2000, and $10.2 million for the years ended
January 2, 1999 and January 3, 1998, respectively.
ADVERTISING AND CONSUMER PROMOTION
Advertising and consumer promotion costs are generally expensed when
incurred or no later than when the advertisement appears or the event is run.
Advertising and consumer promotion expense was $87.3 million, $87.2 million and
$67.6 million for the years ended January 1, 2000, January 2, 1999 and January
3, 1998, respectively. There were no deferred advertising costs at January 1,
2000 or January 2, 1999.
F-11
<PAGE> 12
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
Keebler uses derivative financial instruments as part of an overall
strategy to manage market risk. Keebler uses forward commodity futures and
options contracts to hedge existing or future exposures to changes in commodity
prices. Interest rate swap agreements are used to reduce the impact of changes
in interest rates. Keebler does not enter into these derivative financial
instruments for trading or speculative purposes (See Note 8).
INCOME TAXES
The consolidated financial statements reflect the application of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting For
Income Taxes." Keebler files a consolidated federal income tax return.
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
determination as to whether there has been an impairment of long-lived assets
and the related unamortized goodwill, is based on whether certain indicators of
impairment are present. In the event that facts and circumstances indicate that
the cost of any long-lived assets and the related unamortized goodwill may be
impaired, an evaluation of recoverability would be performed. If an evaluation
were required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The new statement establishes accounting and reporting standards for
derivative instruments and hedging activities and requires that all derivatives
be recognized as either assets or liabilities in the statement of financial
position and that the instruments be measured at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. However, in June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities
Deferral of the Effective Date of FASB Statement No. 133 - an amendment to FASB
Statement No. 133." Citing concerns about companies' ability to both modify
their information systems for year 2000 readiness and become educated with the
new derivatives and hedging standard, the FASB has delayed the effective date on
SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. We
have not yet determined the impact SFAS No. 133 may have on the consolidated
financial statements.
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 the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
F-12
<PAGE> 13
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment, including related
accumulated depreciation follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
----------------- -----------------
<S> <C> <C>
Land................................ $ 16,290 $ 18,374
Buildings........................... 138,288 140,907
Machinery and equipment............. 437,032 424,574
Office furniture and fixtures....... 90,266 76,447
Delivery equipment.................. 6,689 7,208
Construction in progress............ 68,156 51,717
------------ ------------
756,721 719,227
Accumulated depreciation............ (203,690) (154,703)
------------ ------------
Total.......................... $ 553,031 $ 564,524
============ ============
</TABLE>
Property, plant and equipment is depreciated on a straight-line basis
over the estimated useful lives of the depreciable assets. Buildings are
depreciated over a useful life of ten to forty years. Machinery and equipment is
depreciated over a useful life of three to twenty-five years. Office furniture
and fixtures are depreciated over a useful life of three to fifteen years.
Delivery equipment is depreciated over a useful life of two to twelve years.
6. ASSETS HELD FOR SALE
On May 14, 1999, management announced the closure of the Sayreville,
New Jersey manufacturing facility in order to eliminate excess capacity within
Keebler's manufacturing network. As part of the total restructuring and
impairment charge, the Sayreville facility was placed for sale together with
other idle machinery and equipment held at various Keebler facilities.
Disposition of the remaining assets held for sale is expected to occur within
the next eighteen months without a significant gain or loss.
Also in 1999, land in Fort Worth, Texas, which had been acquired in
conjunction with the President acquisition in 1998, was placed for sale. This
land, along with a warehouse in Houston, Texas and a distribution center in
Kensington, Connecticut, which had both been held for sale during 1998, were
disposed of in the current year without a significant gain or loss.
Additionally, in June 1999, the Atlanta, Georgia manufacturing facility, which
had been held for sale, was sold for $1.2 million with a realized loss of
approximately $0.6 million. During 1998, Keebler had recognized an impairment
charge of $0.9 million in order to reflect the Atlanta, Georgia manufacturing
facility at fair value.
7. OTHER CURRENT LIABILITIES AND ACCRUALS
Other current liabilities and accruals consisted of the following at
January 1, 2000 and January 2, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
----------------- -----------------
<S> <C> <C>
Self insurance reserves............. $ 52,266 $ 52,202
Employee compensation............... 72,527 73,017
Marketing and consumer promotions... 60,954 53,027
Other............................... 51,700 53,841
------------ ------------
Total.......................... $ 237,447 $ 232,087
============ ============
</TABLE>
F-13
<PAGE> 14
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER CURRENT LIABILITIES AND ACCRUALS (CONTINUED)
Keebler obtains insurance to manage potential losses and liabilities
related to workers' compensation, health and welfare claims and general, product
and vehicle liability. Keebler has elected to retain a significant portion of
the expected losses through the use of deductibles and stop-loss limitations.
Provisions for losses expected under these programs are recorded based on
Keebler's estimates of aggregate liability for claims incurred. These estimates
utilize Keebler's prior experience and actuarial assumptions provided by the
Company's insurance carrier. The total estimated liability for these losses at
January 1, 2000 and January 2, 1999 was $52.3 million and $52.2 million,
respectively, and is included in other current liabilities and accruals. Keebler
has collateralized its liability for potential self-insurance losses in several
states by obtaining standby letters of credit which aggregate to approximately
$18.6 million.
8. DEBT AND LEASE COMMITMENTS
DEBT
Long-term debt consisted of the following at January 1, 2000 and
January 2, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS) Interest Rate Final Maturity JANUARY 1, 2000 January 2, 1999
--------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Bridge Facility................ 6.263% September 26, 1999 $ - $ 75,000
Revolving Facility............. 5.843% September 28, 2004 - 85,000
Term Facility.................. 5.814% September 28, 2004 314,000 350,000
Senior Subordinated Notes...... 10.750% July 1, 2006 124,400 124,400
Other Senior Debt.............. Various 2001-2005 10,455 11,805
Capital Lease Obligations...... Various 2002-2042 7,588 8,290
------------- -------------
456,443 654,495
Less: Current maturities....... 37,283 112,730
------------- -------------
Total..................... $ 419,160 $ 541,765
============= =============
</TABLE>
At January 1, 2000 and January 2, 1999, Keebler's primary credit
financing was provided by a $700.0 million Credit Facility, consisting of $350.0
million under the Revolving Facility and $350.0 million under the Term Facility.
At January 2, 1999, financing was also provided under a $125.0 million Bridge
Facility.
The current outstanding balance on the Term Facility at January 1,
2000, was $314.0 million, with quarterly scheduled principal payments through
the final maturity of September 2004. The Revolving Facility, with no
outstanding balance and an available balance of $350.0 million at January 1,
2000, also has a final maturity of September 2004, but with no scheduled
principal payments. Certain letters of credit totaling $28.7 million reduce the
available balance on the Revolving Facility. Any unused borrowings under the
Revolving Facility are subject to a commitment fee. The current commitment fee
will vary from 0.125% - 0.30% based on the relationship of debt to adjusted
earnings. At January 1, 2000, the commitment fee was 0.125%.
At January 2, 1999, the outstanding balance on the Term Facility was
$350.0 million and the Revolving Facility had an outstanding balance of $85.0
million and an available balance of $265.0 million. Certain letters of credit
totaling $42.2 million reduced the available balance on the Revolving Facility
and any unused borrowings under the Revolving Facility were subject to a
commitment fee. The commitment fee varied from 0.125% - 0.30% based on the
relationship of debt to adjusted earnings with a minimum commitment fee of 0.20%
required through March 28, 1999. The outstanding balance on the Bridge Facility
at January 2, 1999, was $75.0 million, with an additional $50.0 million in
available borrowings.
Interest on the Credit Facility is calculated based on a base rate plus
applicable margin. The base rate can, at Keebler's option, be: i) the higher of
the base domestic lending rate as established by the administrative agent for
the lender of the Credit Facility, or the Federal Funds Rate plus one-half of
one percent or ii) a reserve percentage adjusted LIBO Rate as offered by the
administrative agent. The Credit Facility requires Keebler to meet certain
financial covenants including debt to earnings before interest, taxes,
depreciation and amortization ratio and cash flow coverage ratios. Interest on
the Bridge Facility was calculated in the same manner as the Credit Facility and
also was restricted by the same financial covenants.
F-14
<PAGE> 15
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT AND LEASE COMMITMENTS (CONTINUED)
The $75.0 million Bridge Facility outstanding at January 2, 1999, that
had a final maturity of September 1999, with no scheduled principal payments,
was refinanced on January 29, 1999. Keebler entered into a Receivables Purchase
Agreement ("Agreement") to replace the $75.0 million of debt held under the
Bridge Facility, allowing funds to be borrowed at a lower cost to the Company.
The accounting for this Agreement is governed by SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
Under the guidelines of SFAS No. 125, a special-purpose entity was created,
Keebler Funding Corporation, as a subsidiary of Keebler Foods Company. All
transactions under this Agreement occur through Keebler Funding Corporation and
are treated as a sale of accounts receivable and not as a debt instrument. At
January 1, 2000, a net $103.0 million of accounts receivable had been sold at
fair value, which is below the maximum amount currently available under the
Agreement.
In conjunction with the President acquisition on September 28, 1998,
Term Loan A was extinguished by using $145.0 million of borrowings under the new
Credit Facility. Keebler recorded a before-tax extraordinary charge of $2.8
million related primarily to expensing certain bank fees which were being
amortized and which were incurred at the time Term Loan A was issued. The
related after-tax charge was $1.7 million.
At January 3, 1998, Keebler's primary credit financing was provided by
a $380.0 million Second Amended and Restated Credit Agreement ("Credit
Agreement") consisting of a $140.0 million Revolving Loan facility and a $240.0
million Term Loan of which the outstanding balance at January 3, 1998 was $156.0
million. The amendment to the Credit Agreement was entered into on April 8,
1997, to obtain more favorable terms, fees and interest rates. The interest
expense, including commitment fee, on the Credit Agreement was calculated in
substantially the same manner as is done under the current Credit Facility.
During the fourth quarter of 1997, using existing cash resources,
Keebler pre-paid $70.0 million of principal on Term Loan A; $30.0 million on
December 8, 1997 and $40.0 million on November 10, 1997. The pre-payments
resulted in the recognition of a $1.1 million after-tax extraordinary charge
related to the expensing of certain unamortized bank fees which were incurred at
the time Term Loan A was issued.
On November 21, 1997, Keebler settled a Seller Note with a payment of
$31.7 million funded through working capital. Keebler assumed the $32.5 million
Seller Note, previously held by INFLO, as a result of the Merger. The Seller
Note did not bear interest until January 26, 1999 and was recorded at a
discounted value of $24.4 million on January 26, 1996. The discount was being
amortized over three years at an effective interest rate of 10.0%. Keebler
recorded a before-tax extraordinary charge of $2.6 million on the early
extinguishment of debt. The related after-tax charge was $1.6 million.
In conjunction with the amendment to the Credit Agreement on April 8,
1997, Term Loans B and C were extinguished using $40.0 million of borrowings
under the Revolving Loan facility, $109.8 million of increased borrowings
against Term Loan A and $3.8 million from cash resources. Keebler recorded a
before-tax extraordinary charge of $4.6 million related primarily to expensing
certain unamortized bank fees which were incurred at the time Term Loans B and C
were issued. The related after-tax charge was $2.7 million.
Interest of $37.5 million, $24.0 million and $39.0 million was paid on
debt for the years ended January 1, 2000, January 2, 1999 and January 3, 1998,
respectively.
Aggregate scheduled annual maturities of long-term debt as of January
1, 2000 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000....................................... $ 37,283
2001....................................... 42,162
2002....................................... 68,647
2003....................................... 105,596
2004....................................... 75,769
2005 and thereafter........................ 126,986
-----------
Total................................. $ 456,443
===========
</TABLE>
F-15
<PAGE> 16
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT AND LEASE COMMITMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments, which includes short-
and long-term borrowings, was estimated using discounted cash flow analyses
based on current interest rates which would be obtained for similar financial
instruments. The carrying value of cash and cash equivalents and short-term debt
approximates fair value because of the short-term maturity of the instruments.
The fair value of long-term debt was $417.2 million and $536.6 million at
January 1, 2000 and January 2, 1999, respectively, which was based on current
rates offered to Keebler for similar debt with the same maturities.
Keebler uses interest-rate swap agreements to effectively convert
certain fixed rate debt to a floating rate instrument and certain floating rate
debt to a fixed rate instrument. The interest rate swap agreements result in
Keebler paying or receiving the difference between the fixed and floating rates
at specified intervals calculated based on the notional amounts. The interest
rate differential to be paid or received is accrued as interest rates change and
is recorded as interest expense. The fair values of the swap agreements were
obtained from the Bank of Nova Scotia and were estimated using market prices at
each respective year end. The fair values of the swap agreements are typically
not recognized in the financial statements as Keebler accounts for the
agreements as hedges. In 1998, Keebler had entered into four swap transactions
expiring between 2001 and 2004. There were no new swap transactions entered into
during 1999.
On July 1, 1998, Keebler entered into a swap transaction with the Bank
of Nova Scotia, who also serves as the administrative agent for the lenders
under the Credit Facility, which matures on July 1, 2001. The swap transaction
had the effect of converting the fixed rate of 10.75% on $124.0 million of the
Notes to a rate of 11.33% through July 3, 2000. In addition, on September 30,
1998 and October 5, 1998, Keebler entered into two swap transactions with the
Bank of Nova Scotia both maturing on September 30, 2004. Each swap transaction
converts the base rate on $105.0 million of the Credit Facility to fixed rate
debt of 5.084% and 4.89%, respectively. The estimated fair values of the hedged
swap agreements at January 1, 2000 and January 2, 1999, were a net receivable of
$7.9 million and $1.1 million, respectively.
In 1999, Keebler also maintained an interest rate swap that no longer
served as a hedge with the Bank of Nova Scotia, which has a notional amount of
$170.0 million and a fixed rate obligation of 5.0185% through February 1, 2001.
During the year, $2.8 million was recognized in income from operations in order
to mark-to-market the interest rate swap. The receivable resulting from this
transaction was recorded as a $0.5 million current receivable in other current
assets and a $2.3 million long-term receivable in other assets in the
consolidated balance sheet.
LEASE COMMITMENTS
Assets recorded under capitalized lease agreements included in
property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
Land.......................... $ 980 $ 980
Buildings..................... 2,894 2,894
Machinery and equipment....... 2,842 2,853
Other leased assets........... 1 1
------------- -------------
6,717 6,728
Accumulated depreciation...... (417) (242)
------------- -------------
Total.................... $ 6,300 $ 6,486
============= =============
</TABLE>
F-16
<PAGE> 17
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT AND LEASE COMMITMENTS (CONTINUED)
Future minimum lease payments under scheduled capital and operating
leases that have initial or remaining noncancelable terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
Capital Operating
(IN THOUSANDS) Leases Leases
----------- -----------
<S> <C> <C>
2000.......................................... $ 1,046 $ 32,230
2001.......................................... 1,063 26,690
2002.......................................... 1,390 21,375
2003.......................................... 449 18,725
2004.......................................... 4,827 11,152
2005 and thereafter........................... 1,324 24,312
----------- -----------
Total minimum payments........................ 10,099 $ 134,484
===========
Amount representing interest.................. (2,511)
-----------
Obligations under capital lease............... 7,588
Obligations due within one year............... (670)
-----------
Long-term obligations under capital leases.... $ 6,918
===========
</TABLE>
Rent expense for all operating leases was $50.1 million, $38.7 million
and $36.1 million for the years ended January 1, 2000, January 2, 1999 and
January 3, 1998, respectively.
9. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE
During 1998, as part of accounting for the acquisition of President,
Keebler recognized costs pursuant to a plan to exit certain activities and
operations of the acquired company. These exit costs, for which there is no
future economic benefit, were provided for in the allocation of the purchase
price and totaled $12.8 million. Staff reductions were estimated at $6.7
million, with the balance of the reserves allocated to costs associated with
manufacturing, sales and distribution facility closings, which principally
include lease termination and carrying costs. Initially, it was estimated that
410 employees were to be terminated as a result of this plan, of which
approximately 175 employees were represented by a union. At January 1, 2000,
approximately 40 employees not under union contract had been terminated. In
addition, during the year management reviewed its exit plan and made a
determination that approximately 110 employees not under union contract, would
not be terminated. During the year ended January 1, 2000, Keebler adjusted
accruals previously established in the accounting for the President acquisition
by reducing goodwill and other intangibles by $4.5 million to recognize exit
costs that are now expected to be less than initially anticipated. The remainder
of management's exit plan is expected to be substantially complete before the
end of 2000, with only noncancelable lease obligations to be paid over the next
six years concluding in 2006.
During 1996, as part of acquiring Keebler and Sunshine, management
adopted and began executing a plan to reduce costs and inefficiencies. Certain
exit costs totaling $77.4 million were provided for in the allocation of the
purchase price of both the Keebler and Sunshine acquisitions. Management's plan
included company-wide staff reductions, the closure of manufacturing,
distribution and sales force facilities and information system exit costs.
Severance, outplacement and other related costs associated with staff reductions
were initially estimated at $30.7 million. Costs incurred related to the closing
of manufacturing, distribution and sales force facilities, which include
primarily severance and lease termination and carrying costs, were expected to
total $39.9 million. Approximately 1,420 employees were terminated as a result
of this plan. An additional $6.8 million was anticipated for lease costs related
to exiting legacy information systems. During the year ended January 1, 2000,
Keebler adjusted accruals previously established in the accounting for the
Keebler acquisition by reducing goodwill and other intangibles by $0.5 million
and reversing $1.3 million into income from operations to recognize exit costs
that are now expected to be less than initially anticipated. The $1.3 million
was credited to operating income as it had originally been charged to income
from operations in the year ended January 3, 1998, January 2, 1999 or January 1,
2000. During the year ended January 2, 1999, Keebler also adjusted accruals
previously established in the accounting for the Keebler and Sunshine
acquisitions by reducing goodwill and other intangibles by $3.7 million to
recognize exit costs that are now expected to be less than initially
anticipated. Only noncancelable lease obligations are anticipated to extend
beyond 2000, to be paid over the next six years concluding in 2006.
F-17
<PAGE> 18
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED)
In addition, during the years ended January 1, 2000, January 2, 1999
and January 3, 1998, Keebler expensed an additional $0.8 million, $2.8 million
and $2.7 million, respectively. These charges were principally for costs related
to the closure of distribution facilities not included in the original plan
adopted by management for the acquisition of Keebler Company.
The following table sets forth the activity in Keebler's plant and
facility closing costs and severance liabilities exclusive of the liabilities
resulting from the restructuring and impairment charge recorded in 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS) December 28, 1996 Provision Spending Adjustment January 3, 1998
----------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
KEEBLER COMPANY
- ---------------
Severance .................. $ 3,293 $ 85 $(3,147) $ -- $ 231
Facility closure ........... 13,933 2,482 (3,910) -- 12,505
Other ...................... 3,771 100 (1,976) -- 1,895
------- ------ ------- --------- -------
Subtotal ................. 20,997 2,667 (9,033) -- 14,631
------- ------ ------- --------- -------
SUNSHINE BISCUITS, INC.
- -----------------------
Severance .................. $ 3,114 $ -- $(3,002) $ -- $ 112
Facility closure ........... 11,873 -- (4,138) -- 7,735
Other ...................... -- -- -- -- --
------- ------ ------- --------- -------
Subtotal ................. 14,987 -- (7,140) -- 7,847
------- ------ ------- --------- -------
TOTAL .................. $35,984 $2,667 $(16,173) $ -- $22,478
======= ====== ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS) January 3, 1998 Provision Spending Adjustment January 2, 1999
--------------- --------- -------- ---------- ---------------
KEEBLER COMPANY
- ---------------
<S> <C> <C> <C> <C> <C>
Severance .................. $ 231 $ 139 $ (293) $ (28) $ 49
Facility closure ........... 12,505 2,662 (3,265) (418) 11,484
Other ...................... 1,895 -- (1,689) (182) 24
------- ------ ------- --------- -------
Subtotal ................. 14,631 2,801 (5,247) (628) 11,557
------- ------ ------- --------- -------
SUNSHINE BISCUITS, INC.
- -----------------------
Severance .................. $ 112 $ -- $ (26) $ -- $ 86
Facility closure ........... 7,735 -- (2,388) (3,120) 2,227
Other ...................... -- -- -- -- --
------- ------ ------- --------- -------
Subtotal ................. 7,847 -- (2,414) (3,120) 2,313
------- ------ ------- --------- -------
PRESIDENT INTERNATIONAL, INC.
- -----------------------------
Severance .................. $ -- $ 6,653 $ (59) $ -- $ 6,594
Facility closure ........... -- 5,670 -- -- 5,670
Other ...................... -- 447 -- -- 447
------- ------- ------- ------- -------
Subtotal ................. -- 12,770 (59) -- 12,711
------- ------- ------- ------- -------
TOTAL .................. $22,478 $15,571 $(7,720) $(3,748) $26,581
======= ======= ======= ======= =======
</TABLE>
F-18
<PAGE> 19
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS) January 2, 1999 Provision Spending Adjustment JANUARY 1, 2000
--------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
KEEBLER COMPANY
- ---------------
Severance .......... $ 49 $ 25 $ (50) $ -- $ 24
Facility closure ... 11,484 751 (2,646) (1,760) 7,829
Other .............. 24 -- (14) (10) --
-------------- -------------- -------------- -------------- --------------
Subtotal ....... 11,557 776 (2,710) (1,770) 7,853
-------------- -------------- -------------- -------------- --------------
SUNSHINE BISCUITS, INC.
- -----------------------
Severance .......... $ 86 $ -- $ (23) $ -- $ 63
Facility closure ... 2,227 -- (265) -- 1,962
Other .............. -- -- -- -- --
-------------- -------------- -------------- --------------
Subtotal ....... 2,313 -- (288) -- 2,025
-------------- -------------- -------------- --------------
PRESIDENT INTERNATIONAL, INC.
- -----------------------------
Severance ....... $ 6,594 $ -- $ (576) $ (3,189) $ 2,829
Facility closure 5,670 -- (83) (991) 4,596
Other ........... 447 -- (118) (319) 10
-------------- -------------- -------------- --------------
Subtotal .... 12,711 -- (777) (4,499) 7,435
-------------- -------------- -------------- --------------
TOTAL ..... $ 26,581 $ 776 $ (3,775) $ (6,269) $ 17,313
============== ============== ============== ============== ==============
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Retirement Plan for Salaried and Certain Hourly--Paid Employees of
Keebler Company (the "pension plan") is a trusteed, noncontributory,
defined--benefit, pension plan. The pension plan covers certain salaried and
hourly--paid employees. Assets held by the pension plan consist primarily of
common stocks, government securities, bonds, mortgages and money market funds.
Benefits provided under the pension plan are primarily based on years of
service and the employee's final level of compensation. Keebler's funding
policy is to contribute annually not less than the ERISA minimum funding
requirements. Effective December 31, 1998, the pension plans of President were
merged with Keebler's pension plan.
Pension expense included the following components:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998
---------------- --------------- ---------------
<S> <C> <C> <C>
Service cost .................................................... $ 13,364 $ 9,040 $ 8,560
Interest cost ................................................... 32,841 31,080 29,673
Expected return on plan assets .................................. (41,887) (39,352) (37,935)
Amortization of prior service cost .............................. 689 689 --
Amortization of net loss ........................................ 43 -- --
-------------- -------------- --------------
Pension expense ................................................. $ 5,050 $ 1,457 $ 298
============== ============== ==============
</TABLE>
The expected long--term rate of return on plan assets was 8.7% for the year
ended January 1, 2000 and 9.0% for the years ended January 2, 1999 and January
3, 1998, respectively.
F-19
<PAGE> 20
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of Keebler's pension plan and amounts recognized in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
Change in projected benefit obligation:
Benefit obligation at beginning of year ....................... $ (520,312) $ (437,334)
Service cost .................................................. (13,364) (9,040)
Interest cost ................................................. (32,841) (31,080)
Amendments .................................................... -- (4,874
Actuarial gain (loss) ......................................... 60,261 (45,871)
Acquisition ................................................... -- (22,805
Benefits and expenses paid .................................... 30,009 30,692
Curtailment gain .............................................. 897 --
-------------- --------------
Benefit obligation at year end ................................ (475,350) (520,312)
-------------- --------------
Change in plan assets:
Fair value of plan assets at beginning of year ................ 565,710 499,379
Actual return on plan assets .................................. 2,253 77,731
Employer contributions ........................................ 115 --
Acquisition ................................................... -- 19,292
Benefits and expenses paid .................................... (30,009) (30,692)
-------------- --------------
Fair value of plan assets at year end ......................... 538,069 565,710
-------------- --------------
Funded status ................................................. 62,719 45,398
Unrecognized actuarial gain ................................... (37,209) (16,538)
Unrecognized prior service cost ............................... 7,730 9,230
Contributions subsequent to measurement date .................. -- 115
-------------- --------------
Prepaid pension ............................................... $ 33,240 $ 38,205
============== ==============
</TABLE>
The pension plan uses the September 30 preceding the fiscal year end as the
measurement date. Assumptions used in accounting for the pension plan at each
of the respective year ends are as follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
JANUARY 1, 2000 January 2, 1999 January 3, 1998
-------------------------------------------------------
<S> <C> <C> <C>
Discount rate......................................... 7.5% 6.5% 7.3%
Rate of compensation level increases.................. 4.5 4.0 4.0
</TABLE>
As a result of the closure of the Sayreville, New Jersey manufacturing
facility in 1999, the plan recognized a net curtailment gain of $0.1 million
resulting from a liability gain of $0.9 million offset by the recognition of
$0.8 million of unrecognized prior service cost.
The plan assets, as of January 1, 2000 and January 2, 1999, include a real
estate investment of $3.1 million in a distribution center which is under an
operating lease to Keebler.
In addition to the pension plan, Keebler also maintains an unfunded
supplemental retirement plan for certain highly compensated former executives
and an unfunded plan for certain highly compensated current and former
executives ("the excess retirement plan"). Benefits provided are based on years
of service.
F-20
<PAGE> 21
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The supplemental retirement plan expense includes the following components:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------------------------------------------------
<S> <C> <C> <C>
Interest cost ................................................... $ 698 $ 722 $ 732
-------------- --------------
Plan expense .................................................... $ 698 $ 722 $ 732
============== ============== ==============
</TABLE>
The unfunded status of the supplemental retirement plan and the amounts
recognized in the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
Change in projected benefit obligation:
Benefit obligation at beginning of year ....................... $ (11,119) $ (10,303)
Interest cost ................................................. (698) (722)
Actuarial gain (loss) ......................................... 944 (844)
Benefits and expenses paid .................................... 640 750
-------------- --------------
Benefit obligation at year end ................................ (10,233) (11,119)
Fair value of plan assets ..................................... -- --
-------------- --------------
Funded status ................................................. (10,233) (11,119)
Unrecognized actuarial loss (gain) ............................ (558) 387
Benefit payments subsequent to measurement date ............... 168 109
-------------- --------------
Accrued obligation ............................................ $ (10,623) $ (10,623)
============== ==============
</TABLE>
The excess retirement plan expense includes the following components:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost .................................................... $ 431 $ 173 $ 306
Interest cost ................................................... 155 78 43
Amortization of net loss (gain) ................................. 8 (47) (84)
-------------- -------------- --------------
Pension expense ................................................. $ 594 $ 204 $ 265
============== ============== ==============
</TABLE>
The unfunded status of the excess retirement plan and the amounts
recognized in the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
Change in projected benefit obligation:
Benefit obligation at beginning of year ....................... $ (2,395) $ (1,085)
Service cost .................................................. (431) (173)
Interest cost ................................................. (155) (78)
Actuarial loss ................................................ (158) (1,076)
Benefits and expenses paid .................................... 31 17
-------------- --------------
Benefit obligation at year end ................................ (3,108) (2,395)
Fair value of plan assets ..................................... -- --
-------------- --------------
Funded status ................................................. (3,108) (2,395)
Unrecognized actuarial loss ................................... 501 351
Benefit payments subsequent to measurement date ............... 17 --
-------------- --------------
Accrued obligation ............................................ $ (2,590) $ (2,044)
============== ==============
</TABLE>
F-21
<PAGE> 22
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The supplemental and excess retirement plans use the September 30 preceding
the fiscal year end as the measurement date. Assumptions used in accounting for
the supplemental and excess retirement plans for each of the respective year
ends are as follows:
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------------
JANUARY 1, 2000 January 2, 1999 January 3, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Discount rate......................................... 7.5% 6.5% 7.3%
Rate of compensation level increase................... 4.5 4.0 4.0
</TABLE>
Contributions are also made by Keebler to a retirement program for Grand
Rapids union employees. Benefits provided under the plan are based on a flat
monthly amount for each year of service and are unrelated to compensation.
Contributions are made based on a negotiated hourly rate. For the years ended
January 1, 2000, January 2, 1999 and January 3, 1998, Keebler expensed
contributions of $2.5 million, $2.3 million and $2.6 million, respectively.
Keebler contributes to various multiemployer union administered
defined--benefit and defined--contribution pension plans. Benefits provided
under the multiemployer pension plans are generally based on years of service
and employee age. Expense under these plans was $6.8 million, $8.9 million and
$10.5 million for the years ended January 1, 2000, January 2, 1999 and January
3, 1998, respectively.
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Keebler provides certain medical and life insurance benefits for eligible
retired employees. The medical plan, which covers nonunion and certain union
employees with ten or more years of service, is a comprehensive indemnity--type
plan. The plan incorporates an up--front deductible, coinsurance payments and
employee contributions which are based on length of service. The life insurance
plan offers a small amount of coverage versus the amount the employees had
while employed. Keebler does not fund the plan.
The net periodic postretirement benefit expense includes the following
components:
<TABLE>
<CAPTION>
(IN THOUSANDS) Years Ended
-------------------------------------------------------
JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost .................................................... $ 2,178 $ 2,045 $ 2,242
Interest cost ................................................... 3,424 3,961 3,888
Amortization of prior service cost .............................. (115) (115) --
Amortization of net gain ........................................ (375) -- --
-------------- -------------- --------------
Net periodic postretirement benefit cost ........................ $ 5,112 $ 5,891 $ 6,130
============== ============== ==============
</TABLE>
F-22
<PAGE> 23
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
The unfunded status of the plan reconciled to the postretirement obligation
in Keebler's consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
----------------- ---------------
<S> <C> <C>
Change in accumulated postretirement benefit obligation:
Benefit obligation at beginning of year ....................... $ (56,269) $ (56,690)
Service cost .................................................. (2,178) (2,045)
Interest cost ................................................. (3,424) (3,961)
Amendments .................................................... 8,531 --
Actuarial gain ................................................ 717 3,641
Acquisition ................................................... -- (1,598)
Curtailment gain .............................................. 108 --
Benefits and expenses paid .................................... 4,411 4,384
-------------- --------------
Benefit obligation at year end ................................ (48,104) (56,269)
Fair value of plan assets ..................................... -- --
-------------- --------------
Funded status ................................................. (48,104) (56,269)
Unrecognized actuarial gain ................................... (8,187) (7,856)
Unrecognized prior service cost ............................... (8,897) (574)
Benefit payments subsequent to measurement date ............... 880 978
-------------- --------------
Postretirement obligation ..................................... $ (64,308) $ (63,721)
============== ==============
</TABLE>
The plan was amended in 1999 for a change in the calculation of retiree
contribution rates that resulted in an $8.5 million reduction to the benefit
obligation and a corresponding decrease in unrecognized prior service cost. In
addition, as a result of the closure of the Sayreville, New Jersey
manufacturing facility in 1999, the plan also recognized a net curtailment gain
of $0.2 million resulting in a liability reduction of $0.1 million plus the
recognition of $0.1 million of unrecognized prior service credit.
The accumulated postretirement benefit obligation was determined using a
weighted average discount rate of 7.5%, 6.5% and 7.3% for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998, respectively. The plan
uses the September 30 preceding the fiscal year end as the measurement date.
The weighted average annual assumed rate of increase in the cost of covered
benefits was 8.0% for 1999 declining to an ultimate trend rate of 5.0% in 2002.
A 1% increase in the trend rate for health care costs would have increased the
accumulated benefit obligation for the year ended January 1, 2000 by $1.9
million and the net periodic benefit cost by $0.3 million. A 1% decrease in the
trend rate for health care costs would have decreased the accumulated benefit
obligation and net periodic benefit cost by $1.8 million and $0.3 million,
respectively, for the year ended January 1, 2000.
Keebler also provides postemployment medical benefits to employees on
long--term disability. The plan is a comprehensive indemnity--type plan which
covers nonunion employees on long--term disability. There is no length of
service requirement. The plan incorporates coinsurance payments and
deductibles. Keebler does not fund the plan. The postemployment obligation
included in the consolidated balance sheets at January 1, 2000 and January 2,
1999 was $5.5 million and $4.7 million, respectively.
F-23
<PAGE> 24
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
The components of income tax expense were as shown below:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal ....................................................... $ 71,794 $ 58,269 $ 22,172
State ......................................................... 6,739 4,618 3,840
-------------- -------------- --------------
Current provision for income taxes .............................. 78,533 62,887 26,012
Deferred:
Federal ....................................................... (4,837) 8,494 17,203
State ......................................................... (521) 1,581 1,954
-------------- -------------- --------------
Deferred provision for income taxes ............................. (5,358) 10,075 19,157
-------------- -------------- --------------
$ 73,175 $ 72,962 $ 45,169
============== ============== ==============
</TABLE>
The differences between the income tax expense calculated at the federal
statutory income tax rate and Keebler's consolidated income tax expense are as
follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
State income taxes (net of federal benefit) ..................... 5,849 5,813 3,766
Intangible amortization ......................................... 6,306 3,160 1,836
All others ...................................................... 4,537 4,650 1,924
-------------- -------------- --------------
$ 73,175 $ 72,962 $ 45,169
============== ============== ==============
</TABLE>
The deferred tax assets and deferred tax (liabilities) recorded on the
consolidated balance sheets consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
Depreciation .................................................... $ (57,604) $ (108,866)
Trademarks, trade names and intangibles ......................... (64,887) (49,348)
Prepaid pension ................................................. (13,327) (14,283)
Inventory valuation ............................................. (559) (6,779)
Other ........................................................... (10,503) --
-------------- --------------
(146,880) (179,276)
-------------- --------------
Net operating loss carryforwards ................................ -- 80,195
Postretirement/postemployment benefits .......................... 26,778 26,171
Plant and facility closing costs and severance .................. 17,469 23,728
Workers' compensation ........................................... 5,695 14,769
Incentives and deferred compensation ............................ 7,801 12,063
Employee benefits ............................................... 11,000 10,879
Other ........................................................... -- 6,436
-------------- --------------
68,743 174,241
Valuation allowance ............................................. -- (84,350)
-------------- --------------
$ (78,137) $ (89,385)
============== ==============
</TABLE>
F-24
<PAGE> 25
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
In 1998, net operating loss carryforwards were approximately $207.1
million. All net operating loss carryforwards were used in 1999 to offset gains
incurred through the Section 338 income tax election, which adjusted the tax
basis of all assets and liabilities that resulted from the Keebler acquisition.
The intangible asset related to the Keebler acquisition was reduced by $11.8
million as a result of resolving the preacquisition tax basis of acquired assets
and liabilities. In 1999, the previously established valuation allowance on
deferred tax assets of $84.4 million was eliminated due to the resolution of
the uncertainty regarding the availability of preacquisition net operating
losses.
Income taxes paid, net of refunds, were approximately $49.6 million, $67.1
million and $9.9 million for the years ended January 1, 2000, January 2, 1999
and January 3, 1998, respectively.
13. SHAREHOLDERS' EQUITY
COMMON STOCK
There were no cash dividends declared for the years ended January 1, 2000,
January 2, 1999 or January 3, 1998. Keebler's ability to pay cash dividends is
limited by the Credit Facility and the Senior Subordinated Notes. The most
limiting dividend restriction exists under the Senior Subordinated Notes, which
limits dividend payments to the sum of: (i) 50% of consolidated cumulative net
income, (ii) net cash proceeds received from the issuance of capital stock,
(iii) net cash proceeds received from the exercise of stock options and
warrants, (iv) net cash proceeds received from the conversion of indebtedness
into capital stock and (v) the net reduction in investments made by Keebler.
TREASURY STOCK
In March 1998, Keebler's Board of Directors authorized the repurchase, at
management's discretion, of up to $30.0 million of shares of the Company's
common stock. Keebler repurchased the remaining authorized shares in 1999,
which fulfilled the treasury stock plan. The share repurchase program was
primarily instituted to offset dilution, which may result from the exercise and
sale of shares related to employee stock options. The repurchases of shares of
common stock are recorded as treasury stock using the cost method and result in
a reduction of shareholders' equity. Should the treasury shares be reissued,
Keebler intends to use a first-in, first-out method of reissuance.
14. STOCK OPTION PLAN
Keebler has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for employee stock options. Under APB 25, no
compensation expense is recognized when the exercise price of options equals
the fair value (market value) of the underlying stock options at the date of
grant. Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock--Based Compensation," and has
been determined as if Keebler had accounted for its employee stock options
under the fair value method of that Statement. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. The following table summarizes the pro forma
disclosures regarding net income and earnings per share for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998:
F-25
<PAGE> 26
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) YEARS ENDED
- ------------------------------------ --------------------------------------------------------------
JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income:
As reported ...................................... $ 88,205 $ 94,871 $ 56,985
Pro forma ........................................ $ 86,890 $ 91,032 $ 55,032
Basic net income per share:
As reported ...................................... $ 1.05 $ 1.14 $ 0.73
Pro forma ........................................ $ 1.04 $ 1.09 $ 0.71
Diluted net income per share:
As reported ...................................... $ 1.01 $ 1.08 $ 0.70
Pro forma ........................................ $ 0.99 $ 1.04 $ 0.68
Weighted average grant date fair value of options
granted during the year .......................... $ 11.88 $ 8.53 $ 8.09
</TABLE>
These pro forma amounts may not be representative of future
disclosures because the estimated fair value of stock options is amortized to
expense over the vesting period, which is variable, and additional options may
be granted in future years. In 1999 and 1998, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes option-pricing
model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective input assumptions including the expected stock price
volatility. Because Keebler's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. For purposes of
the pro forma disclosures for 1997, the fair value for the options was
estimated at the date of grant using a present value approach as Keebler was
not a public company.
For options granted, the following weighted average assumptions were
used to determine the fair value:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------
JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- -----------------
<S> <C> <C> <C>
Dividend yield........................................ 0.0% 0.0% 0.0%
Expected volatility................................... 24.8% 27.2% 0.0%
Risk-free interest rate............................... 5.76% 5.04% 6.00%
Expected option life (years).......................... 5 5 5
</TABLE>
Under Keebler's 1996 Stock Option Plan, 9,673,594 shares of Keebler's
stock were authorized for future grant. All options granted have ten year terms
and, due to acceleration resulting from the achievement of certain performance
measures, vest by 2001.
The following table summarizes the 1996 Stock Option Plan activity:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1998
-------------------------------
Weighted
Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at the beginning of the period .... 6,802,471 $ 1.98
Granted ....................................... 49,873 5.23
Exercised ..................................... -- --
Forfeited ..................................... -- --
Expired ....................................... -- --
---------
Outstanding at the end of the period .......... 6,852,344 $ 2.01
=========
Exercisable at the period end ................. 1,587,243 $ 1.98
=========
- -----------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 27
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 2, 1999
-------------------------------
Weighted
Average
Options Exercise Price
------------ --------------
<S> <C> <C>
Outstanding at the beginning of the period .... 6,852,344 $ 2.01
Granted ....................................... -- --
Exercised ..................................... 351,177 2.21
Forfeited ..................................... 44,887 3.23
Expired ....................................... -- --
---------
Outstanding at the end of the period .......... 6,456,280 $ 1.99
=========
Exercisable at the period end ................. 4,433,774 $ 1.98
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 2000
-------------------------------
Weighted
Average
Options Exercise Price
------------ --------------
<S> <C> <C>
Outstanding at the beginning of the period .... 6,456,280 $ 1.99
Granted ....................................... -- --
Exercised ..................................... 491,570 2.23
Forfeited ..................................... 45,081 1.93
Expired ....................................... -- --
---------
Outstanding at the end of the period .......... 5,919,629 $ 1.97
=========
Exercisable at the period end ................. 4,493,801 $ 1.96
- -----------------------------------------------------------------------------------
</TABLE>
Exercise prices as of January 1, 2000, for options outstanding under
the 1996 Stock Option Plan ranged from $1.74 to $5.23. The weighted average
remaining contractual life of these options is approximately six and one-half
years.
Under Keebler's 1998 Omnibus Stock Incentive Plan, 6,500,000 shares of
Keebler's stock were authorized for future grant. All options granted generally
have ten year terms and vest at the end of five years. Vesting can be
accelerated if certain stock price performance measures are met.
The following table summarizes the 1998 Omnibus Stock Incentive Plan
activity:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 2, 1999
-------------------------------
Weighted
Average
Options Exercise Price
------------ --------------
<S> <C> <C>
Outstanding at the beginning of the period .... -- $ --
Granted ....................................... 2,737,836 25.03
Exercised ..................................... -- --
Forfeited ..................................... 22,200 27.31
Expired ....................................... -- --
---------
Outstanding at the end of the period .......... 2,715,636 $ 25.01
=========
Exercisable at the period end ................. -- --
- -----------------------------------------------------------------------------------
</TABLE>
F-27
<PAGE> 28
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 2000
-------------------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at the beginning of the period .... 2,715,636 $ 25.01
Granted ....................................... 270,234 34.98
Exercised ..................................... 39,140 24.82
Forfeited ..................................... 123,634 25.27
Expired ....................................... 5,494 27.31
---------
Outstanding at the end of the period .......... 2,817,602 $ 25.96
=========
Exercisable at the period end ................. 899,699 $ 25.74
- -----------------------------------------------------------------------------------
</TABLE>
Exercise prices as of January 1, 2000, for options outstanding under
the 1998 Omnibus Stock Incentive Plan ranged from $24.00 to $39.25. The
weighted average remaining contractual life of these options is approximately
five years.
Under Keebler's Non-Employee Director Stock Plan, 300,000 shares of
Keebler's stock were authorized for future grant. All options granted have ten
year terms and vest automatically upon grant.
The following table summarizes the Non-Employee Director Stock Plan
activity:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 2, 1999
-------------------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------------ --------------
<S> <C> <C>
Outstanding at the beginning of the period .... -- $ --
Granted ....................................... 22,500 27.44
Exercised ..................................... -- --
Forfeited ..................................... -- --
Expired ....................................... -- --
---------
Outstanding at the end of the period .......... 22,500 $ 27.44
=========
Exercisable at the period end ................. 22,500 $ 27.44
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 2000
-------------------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------------ --------------
<S> <C> <C>
Outstanding at the beginning of the period .... 22,500 $ 27.44
Granted ....................................... 7,500 30.75
Exercised ..................................... -- --
Forfeited ..................................... -- --
Expired ....................................... -- --
---------
Outstanding at the end of the period .......... 30,000 $ 28.27
=========
Exercisable at the period end ................. 30,000 $ 28.27
- -----------------------------------------------------------------------------------
</TABLE>
Exercise prices as of January 1, 2000 for options outstanding under
the Non-Employee Director Stock Plan ranged from $27.44 to $30.75. The weighted
average remaining contractual life of these options is approximately eight and
one-half years.
F-28
<PAGE> 29
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. NET INCOME PER SHARE
Basic net income per share is calculated using the weighted average number
of common shares outstanding during each period. Diluted net income per share is
calculated using the weighted average number of common and potentially dilutive
common shares outstanding during each period. The common equivalent shares arise
from the 1996 Stock Option Plan, the 1998 Omnibus Stock Incentive Plan, the
Non-Employee Director Stock Plan and the warrant issued in connection with the
Sunshine acquisition and are calculated using the treasury stock method.
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
NUMERATOR:
Income before extraordinary item...................................... $ 88,205 $ 96,577 $ 62,381
Extraordinary item, net of tax........................................ -- 1,706 5,396
---------- ---------- ----------
Net income............................................................ $ 88,205 $ 94,871 $ 56,985
========== ========== ==========
DENOMINATOR:
Denominator for Basic Net Income Per Share
Weighted Average Shares.......................................... 83,759 83,254 77,604
Effect of Dilutive Securities:
Stock options.................................................... 3,886 3,992 2,168
Warrants......................................................... -- 240 790
---------- ---------- ----------
Diluted potential common shares.................................. 3,886 4,232 2,958
---------- ---------- ----------
Denominator for Diluted Net Income Per Share.......................... 87,645 87,486 80,562
========== ========== ==========
</TABLE>
For the year ended January 1, 2000, there were weighted average options to
purchase 143,122 shares of common stock at an exercise price ranging from $32.13
to $39.25, which were excluded from the computation of diluted net income per
share as the exercise price of the options exceeded the average market price of
common shares; and therefore, the effect would have been antidilutive. For the
year ended January 2, 1999, there were weighted average options to purchase
96,478 shares of common stock at an exercise price ranging from $28.88 to
$32.13, which were excluded from the computation of diluted net income per share
as the exercise price of the options exceeded the average market price of common
shares; and therefore, the effect would have been antidilutive. There were no
antidilutive securities for the year ended January 3, 1998.
16. SEGMENT INFORMATION
In 1998, Keebler adopted SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information." Keebler's reportable segments are Branded
and Specialty. The reportable segments were determined using Keebler's method of
internal reporting, which divides and analyzes the business by sales channel.
The nature of the customers, products and method of distribution can vary by
sales channel. The reportable segments represent an aggregation of similar sales
channels. The Branded segment is comprised of sales channels that principally
market brand name cookie, cracker and brownie products to retail outlets, as
well as private label biscuit products. Either a Keebler sales employee or a
distributor sells products in the Branded segment. The sales channels in the
Specialty segment primarily sell cookie and cracker products that are
manufactured on a made-to-order basis or that are produced in individual packs
to be used in various institutions (i.e., restaurants, hospitals, etc.), as well
as cookies manufactured for the Girl Scouts of the U.S.A. Many of the products
sold by the Specialty segment are done so through the use of brokers.
Keebler evaluates the performance of the reportable segments and allocates
resources based on the segment's profit contribution, defined as earnings before
certain functional support costs, amortization, interest and income taxes. The
accounting policies for each reportable segment are the same as those described
for the total company in Note 4 "Summary of Significant Accounting Policies."
The cost of sales, however, used to determine a segment's profit contribution is
calculated using standard costs for each product, whereas actual cost of sales
is used to determine consolidated income from operations.
F-29
<PAGE> 30
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION (CONTINUED)
There are no intersegment transactions that result in revenue or profit
(loss). Asset information by reportable segment is not presented, as Keebler
does not report or generate such information internally. However, depreciation
expense included in the determination of a segment's profit contribution has
been presented. The depreciation expense for each reportable segment reflects
the amount absorbed in the standard cost of products sold, as well as the
depreciation that relates to assets used entirely by the respective segment. The
following table presents certain information included in the profit contribution
of each segment for the years ended January 1, 2000, January 2, 1999 and January
3, 1998. Prior year numbers have been restated for reclassifications between
reportable segments.
<TABLE>
<CAPTION>
Branded Specialty
(IN THOUSANDS) Segment Segment Other (1) Total
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 1, 2000:
- ---------------------------
NET SALES TO EXTERNAL CUSTOMERS............................... $2,099,257 $568,514 $ -- $2,667,771
DEPRECIATION EXPENSE.......................................... 22,820 6,700 35,014 64,534
PROFIT CONTRIBUTION........................................... 339,847 119,705 -- 459,552
Year Ended January 2, 1999:
- ---------------------------
Net sales to external customers............................... $1,798,347 $428,133 $ -- $2,226,480
Depreciation expense.......................................... 24,457 6,563 28,383 59,403
Profit contribution........................................... 277,791 90,746 -- 368,537
Year Ended January 3, 1998:
- ---------------------------
Net sales to external customers............................... $1,646,627 $418,557 $ -- $2,065,184
Depreciation expense.......................................... 20,798 5,602 27,331 53,731
Profit contribution........................................... 223,437 83,795 -- 307,232
</TABLE>
(1) Represents expenses incurred by the functional support departments that are
not allocated to the reportable segments.
The net sales to external customers from the reportable segments equal the
consolidated net sales of Keebler. A reconciliation of segment profit
contribution to total consolidated income from continuing operations before
income tax expense for the years ended January 1, 2000, January 2, 1999 and
January 3, 1998 is as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX EXPENSE:
Reportable segment's profit contribution................. $ 459,552 $ 368,537 $ 307,232
Unallocated functional support costs (1)................. 195,649 172,498 165,835
Restructuring and impairment charge...................... 66,349 -- --
Interest expense, net.................................... 36,174 26,500 33,847
---------- ---------- ----------
Income before Income Tax Expense...................... $ 161,380 $ 169,539 $ 107,550
========== ========== ==========
</TABLE>
(1) Includes support costs such as distribution, research and development,
corporate administration and other (income) expense, which are not
allocated internally to reportable segments.
Net sales to external customers consist of cookies, crackers and other baked
goods for all periods presented. All long-lived assets at January 1, 2000 and
January 2, 1999 are located in the United States. Net sales to external
customers made outside the United States, as well as to any single customer, are
not material to consolidated net sales for the years ended January 1, 2000,
January 2, 1999 and January 3, 1998.
F-30
<PAGE> 31
KEEBLER FOODS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. UNAUDITED QUARTERLY FINANCIAL DATA
Results of operations for each of the four quarters of the fiscal years
ended January 1, 2000 and January 2, 1999 follow. Each quarter represents a
period of twelve weeks except the first quarter which includes sixteen weeks.
<TABLE>
<CAPTION>
Quarter 1 Quarter 2 Quarter 3 Quarter 4
------------------ ------------------ ------------------ ------------------
(IN MILLIONS EXCEPT PER SHARE DATA) 1999 1998 1999 1998 1999 1998 1999 1998*
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $852.0 $636.8 $587.9 $490.0 $615.8 $499.9 $612.1 $599.8
Gross profit............................ 471.3 372.7 330.5 281.3 354.6 294.4 360.8 339.2
Restructuring and impairment charge..... - - 69.2 - - - (2.9) -
Income before extraordinary item........ 32.7 14.1 (21.4) 19.4 32.1 29.0 44.8 34.1
Extraordinary item...................... - - - - - 1.7 - -
Net income (loss)....................... 32.7 14.1 (21.4) 19.4 32.1 27.3 44.8 34.1
Basic net income per share:
Income before extraordinary item..... $0.39 $0.17 $(0.25) $0.23 $0.38 $0.35 $0.53 $0.41
Extraordinary item................... - - - - - 0.02 - -
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $0.39 $0.17 $(0.25) $0.23 $0.38 $0.33 $0.53 $0.41
======== ======== ======== ======== ======== ======== ======== ========
Diluted net income per share:
Income before extraordinary item..... $0.37 $0.16 $(0.24) $0.22 $0.37 $0.33 $0.51 $0.39
Extraordinary item................... - - - - - 0.02 - -
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $0.37 $0.16 $(0.24) $0.22 $0.37 $0.31 $0.51 $0.39
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ----------
* Quarter 4, 1998 includes the operating results of President from the
acquisition date of September 28, 1998 through January 2, 1999.
18. SUBSEQUENT EVENTS
On March 6, 2000, Keebler acquired Austin Quality Foods, Inc. ("Austin"),
for $252.4 million, in a business combination that will be accounted for as a
purchase. Austin is a leading producer and marketer of single serve baked
snacks, including cracker sandwiches and bite-sized crackers and cookies.
Keebler will finance the acquisition with borrowings under its existing credit
facilities.
On February 23, 2000, the Board of Directors declared an initial quarterly
cash dividend of $0.1125 per common share payable on March 22, 2000, to
stockholders of record on March 8, 2000.
On February 2, 2000, Keebler's Board of Directors authorized the
repurchase, at management's discretion, of up to an additional $30.0 million in
shares of Keebler common stock. Purchases will be made through the open market
or through private transactions. The share repurchase program was approved
primarily to offset future dilution, which may result from the exercise and sale
of shares related to employee stock options.
On January 4, 2000, Keebler sold its Birmingham, Alabama and North Little
Rock, Arkansas bakeries and the SUNNY and GREGS brands to Consolidated Biscuit
Company ("Consolidated"). Keebler received $17.0 million from Consolidated,
which is estimated to result in an after-tax gain of approximately $3.5 million
that will be included in income from operations during the first quarter of
fiscal 2000.
F-31
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KEEBLER FOODS COMPANY
Our report on the consolidated financial statements of Keebler Foods Company and
Subsidiaries is included on page F-2 of the Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index on page F-1 of the Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 1, 2000
S-1
<PAGE> 33
ITEM 14 (D). FINANCIAL STATEMENT SCHEDULE SCHEDULE II
KEEBLER FOODS COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS/ OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Those valuation and qualifying accounts
which are deducted in the balance sheet
from the assets to which they apply:
YEAR ENDED JANUARY 1, 2000
For discounts and doubtful accounts $ 7,782 $ 22,474 $ - $(21,688)(2) $ 8,568
========== ========== ========== ========== ==========
For deferred taxes $ 84,350 $ - $(84,350)(4) $ - $ -
========== ========== ========== ========== ==========
For inventory reserves $ 9,614 $ 4,026 $ - $ (6,965)(3) $ 6,675
========== ========== ========== ========== ==========
YEAR ENDED JANUARY 2, 1999
For discounts and doubtful accounts $ 4,965 $ 20,148 $ 2,879 (1) $(20,210)(2) $ 7,782
========== ========== ========== ========== ==========
For deferred taxes $ 84,350 $ - $ - $ - $ 84,350
========== ========== ========== ========== ==========
For inventory reserves $ 6,782 $ 7,484 $ 1,807 (1) $ (6,459)(3) $ 9,614
========== ========== ========== ========== ==========
YEAR ENDED JANUARY 3, 1998
For discounts and doubtful accounts $ 5,390 $ 18,970 $ - $(19,395)(2) $ 4,965
========== ========== ========== ========== ==========
For deferred taxes $ 84,350 $ - $ - $ - $ 84,350
========== ========== ========== ========== ==========
For inventory reserves $ 5,508 $ 9,716 $ - $ (8,442)(3) $ 6,782
========== ========== ========== ========== ==========
</TABLE>
(1) Amount acquired in the acquisition of President International, Inc.
(2) Primarily charges against reserves, net of recoveries.
(3) Inventory write-offs, net.
(4) Amount eliminated due to the resolution of a pre-acquisition
contingency.
S-2
