<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
</TABLE>
FLOWERS INDUSTRIES, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.625 par value per share, of Flowers Industries, Inc.
and rights to purchase
------------------------------------------------------------------------
Series A Junior Participating Preferred Stock
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
100,527,893 shares of common stock and outstanding options to acquire
shares of Common Stock
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$12.50 per share (the proposed cash payment per share of Flowers
Industries stock --
------------------------------------------------------------------------
based on the per share merger consideration payable in cash to Keebler
Foods Company
------------------------------------------------------------------------
stockholders less certain indebtedness of Flowers Industries)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$1,256,598,663 (based on the $12.50 per share in merger consideration
expected to be paid
------------------------------------------------------------------------
per Flowers Industries share multiplied by the 100,527,893 shares of
common stock
------------------------------------------------------------------------
and options to acquire shares of common stock of Flowers Industries)
------------------------------------------------------------------------
(5) Total fee paid:
$251,320
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY PROXY SOLICITATION MATERIALS, DATED DECEMBER 1, 2000
SUBJECT TO COMPLETION
FLOWERS INDUSTRIES, INC.
1919 FLOWERS CIRCLE
THOMASVILLE, GEORGIA 31757
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of Flowers Industries, Inc., to be held on , 2001 at :
.M. Eastern Time at .
Flowers Industries, Inc. and Kellogg Company have agreed on a cash merger
transaction involving the two companies. In connection with the merger, Flowers
Industries' traditional bakery operations will be spun off to Flowers Industries
shareholders. We believe that the transaction will benefit Flowers Industries
shareholders and ask for your support in voting in favor of the merger agreement
and, therefore, the merger.
At the special meeting, you will be asked to consider and approve an
agreement and plan of restructuring and merger among Flowers Industries, Kellogg
Company and a wholly-owned subsidiary of Kellogg. As a result of the merger,
Flowers Industries will become a wholly-owned subsidiary of Kellogg and you will
receive a cash payment of approximately $12.50 per share of Flowers Industries
common stock that you own, subject to some adjustments in the actual amount paid
by Kellogg at the closing. The merger is conditioned, among other things, upon
the spin-off to Flowers Industries shareholders of Flowers Foods, Inc., a newly
created holding company for our traditional bakery businesses. The spin-off and
our merger will occur in two, effectively simultaneous, steps and will each
occur only if the other occurs. If the spin-off and merger are completed,
current shareholders of Flowers Industries will have no further ownership
interest in Flowers Industries or our majority-owned subsidiary Keebler Foods
Company, but will maintain their proportionate ownership interest in our
traditional bakery operations. We anticipate that the shares of common stock of
Flowers Foods will be traded on the New York Stock Exchange.
Generally, the receipt of cash and Flowers Foods common stock in connection
with the merger and the spin-off will be a taxable transaction. You should read
the tax disclosure included in this proxy statement carefully.
Only holders of record of issued and outstanding shares of Flowers
Industries common stock at the close of business on , 2001 are
entitled to notice of, and to vote at, the special meeting. The number of
outstanding shares of common stock entitled to vote on that date was
. Each shareholder is entitled to one vote for each share of
common stock held on the record date.
Kellogg seeks to acquire 100% of the outstanding common stock of Keebler
and, to accomplish this, Kellogg has also entered into a merger agreement with
Keebler. As required by Kellogg to proceed with this transaction and to accept
the tax-efficient transaction structure we proposed for the acquisition of
Keebler -- involving the mergers with both Flowers Industries and Keebler and
the spin-off of Flowers Foods -- Flowers
<PAGE> 3
Industries, as the majority stockholder of Keebler, has agreed to vote its
shares of Keebler stock in favor of the Kellogg/Keebler merger. Under the
Kellogg/Keebler merger agreement, all of the stockholders of Keebler, other than
Flowers Industries, will exchange their shares of Keebler stock for a cash
payment of $42.00 per share.
Kellogg's obligation to complete the Kellogg/Keebler merger is conditioned
on the effectively simultaneous completion of our merger with Kellogg, unless
our shareholders do not approve our merger with Kellogg or we materially breach
our merger agreement with Kellogg. In those circumstances, it is possible that
the spin-off and our merger with Kellogg will not occur, but that the
Kellogg/Keebler merger will occur, with the result that Flowers Industries will
be required to exchange its shares of Keebler stock for the same consideration
to be received by the other Keebler stockholders. This would result in the
consideration for Flowers Industries' shares of Keebler stock being paid
directly to Flowers Industries, leading to a taxable gain to Flowers Industries
of approximately $1.5 billion and a tax liability to be paid by us of
approximately $600 million. If this occurs, the cash consideration for Flowers
Industries' shares of Keebler stock would be paid directly to Flowers
Industries, and you would not receive any cash or other consideration in that
merger.
Our Board of Directors has carefully considered the proposed transaction
and determined that our merger with Kellogg is in the best interests of Flowers
Industries and our shareholders and recommends that you vote FOR the approval
and adoption of the merger agreement and, therefore, the merger. The merger
agreement, our merger with Kellogg and the related transactions are more fully
described in the accompanying proxy statement, which we urge you to read
carefully.
Your vote is very important to us. Whether or not you plan to attend the
special meeting, we urge you to complete, sign, date and return the enclosed
proxy card, or submit your proxy by telephone or the Internet, to ensure that
your shares are represented at the special meeting.
If you have any questions about the merger agreement or the merger, please
call , our proxy solicitors, at .
Very truly yours,
[SIGNATURE TO COME]
Amos R. McMullian
Chairman of the Board and
Chief Executive Officer
This proxy statement is dated , 2001, and is first
being given or sent to shareholders on or about , 2001.
<PAGE> 4
FLOWERS INDUSTRIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
To the Shareholders of Flowers Industries, Inc:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Flowers
Industries, Inc. will be held on , 2001 at :
.M. Eastern Time at for the following purposes:
(1) To consider and act upon a proposal to approve and adopt an
agreement and plan of restructuring and merger among Flowers Industries,
Kellogg Company and Kansas Merger Subsidiary, Inc., a wholly-owned
subsidiary of Kellogg, and, therefore, the merger; and
(2) To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof;
all as set forth in the proxy statement accompanying this notice.
Holders of record of issued and outstanding shares of common stock of
Flowers Industries at the close of business on , 2001 are entitled to
notice of, and to vote at, the meeting or any adjournment or postponement
thereof. A list of those shareholders will be open for examination by any
shareholder at the special meeting.
By order of the Board of Directors
[SIGNATURE TO COME]
G. Anthony Campbell
Secretary
1919 Flowers Circle
Thomasville, Georgia 31757
, 2001
THE BOARD OF DIRECTORS OF FLOWERS INDUSTRIES HAS DETERMINED THAT THE
TRANSACTIONS CONTEMPLATED BY THE AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER,
INCLUDING THE MERGER, ARE IN THE BEST INTERESTS OF FLOWERS INDUSTRIES AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
AND, THEREFORE, THE MERGER.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF FLOWERS
INDUSTRIES COMMON STOCK IS REQUIRED TO APPROVE AND ADOPT THE AGREEMENT AND PLAN
OF RESTRUCTURING AND MERGER. YOUR VOTE IS VERY IMPORTANT TO US. A PROXY CARD IS
CONTAINED IN THE ENVELOPE IN WHICH THIS PROXY STATEMENT WAS MAILED. WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE ENCOURAGED TO VOTE ON THE
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING AND COMPLETE, SIGN AND DATE THE
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY ALSO
VOTE YOUR PROXY BY TELEPHONE, BY CALLING TOLL-FREE OR, IF OUTSIDE
THE UNITED STATES, CALLING , OR THROUGH THE INTERNET
(WWW. ), BY FOLLOWING THE INSTRUCTIONS INCLUDED WITH YOUR PROXY
CARD.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 5
The Parties............................................... 5
The Special Meeting....................................... 5
The Merger................................................ 6
INFORMATION CONCERNING THE SPECIAL MEETING.................. 13
Date, Time and Place of the Special Meeting............... 13
Purpose of the Special Meeting............................ 14
Record Date; Quorum; Outstanding Common Stock Entitled to
Vote................................................... 14
Voting Rights; Vote Required.............................. 14
Voting and Revocation of Proxies.......................... 14
Solicitation of Proxies................................... 15
Other Matters............................................. 15
THE MERGER.................................................. 16
Background................................................ 16
Purpose and Certain Effects of the Merger and Spin-Off.... 22
Recommendation of the Board of Directors.................. 23
Reasons for the Merger.................................... 24
Opinion of Morgan Stanley & Co. Incorporated.............. 26
Opinion of UBS Warburg LLC................................ 33
Financial Advisor Fee Arrangements........................ 40
Interests of Certain Persons in the Merger................ 40
Principal United States Federal Income Tax Consequences... 44
Dissenters' Rights........................................ 47
THE MERGER AGREEMENT........................................ 49
Structure of the Transaction.............................. 49
The Merger................................................ 50
Representations and Warranties............................ 52
Certain Covenants......................................... 53
Significant Restrictions on Flowers Industries' Ability to
Sell the Company to any other Third Party.............. 56
Covenants of Kellogg...................................... 58
Mutual Covenants.......................................... 58
Conditions to the Merger.................................. 60
Termination of the Merger Agreement....................... 61
Termination Fees.......................................... 63
Amendment and Waiver...................................... 64
OTHER MATTERS............................................... 64
The Spin-Off.............................................. 64
Kellogg Merger with Keebler; Voting Agreement............. 66
Financing of the Merger................................... 67
Antitrust Considerations.................................. 67
Other Regulatory Matters.................................. 67
Certain Litigation........................................ 68
SECURITY OWNERSHIP OF FLOWERS INDUSTRIES' COMMON STOCK...... 68
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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<S> <C>
OTHER INFORMATION........................................... 70
Forward-Looking Statements................................ 70
Shareholders' Proposals................................... 71
Where You Can Find More Information....................... 71
Appendix A: Agreement and Plan of Restructuring and
Merger.................................................... A-1
Appendix B: Distribution Agreement.......................... B-1
Appendix C: Opinion of Morgan Stanley & Co. Incorporated.... C-1
Appendix D: Opinion of UBS Warburg LLC...................... D-1
Appendix E: Article 13 of the Georgia Business Corporation
Code (Dissenters' Rights)................................. E-1
</TABLE>
ii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS HAPPENING IN THE PROPOSED TRANSACTION?
A: This transaction is comprised of three integrated components to be effected
virtually simultaneously: 1) the spin-off to Flowers Industries, Inc.
shareholders of Flowers Foods, Inc., which will own the traditional bakery
businesses of Flowers Industries, 2) the merger of a wholly-owned
subsidiary of Kellogg Company with Flowers Industries, which will then have
as its primary asset the majority interest in Keebler, and 3) the merger of
a wholly-owned subsidiary of Kellogg with Keebler Foods Company. These
components together provide for Kellogg to acquire all of the outstanding
shares of Keebler stock, for the shareholders of Flowers Industries to
receive a combination of cash and all of the outstanding shares of Flowers
Foods, and for the stockholders of Keebler, other than Flowers Industries,
to receive cash.
For a more detailed discussion of Flowers Foods and the spin-off, including
applicable financial information, you should refer to the Information
Statement relating to Flowers Foods which accompanies this proxy statement.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to vote to approve and adopt the merger agreement among
Flowers Industries, Kellogg and a wholly-owned subsidiary of Kellogg and,
therefore, the merger. This agreement is referred to in this proxy
statement as the Merger Agreement.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will take place at on ,
2001 at : .M. Eastern Time. Shareholders of record at the close
of business on , 2001 are entitled to notice of, and to vote
at, the meeting.
Q: AM I ALSO VOTING ON THE KELLOGG/KEEBLER MERGER?
A: No. Only stockholders of Keebler would normally be entitled to vote on that
merger. However, because Flowers Industries is the majority stockholder of
Keebler and has agreed to vote in favor of the merger between Kellogg and
Keebler, stockholder approval of that merger is assured without the vote of
any other stockholder. Therefore, other Keebler stockholders are not being
asked to vote on that merger.
Q: WHAT WILL I RECEIVE IF THE MERGER BETWEEN FLOWERS INDUSTRIES AND A
SUBSIDIARY OF KELLOGG IS COMPLETED?
A: If the merger is completed, you will receive cash. Each share of Flowers
Industries common stock, other than shares held by shareholders who
exercise their dissenters' rights, will be converted into the right to
receive a cash payment, currently estimated to be approximately $12.50.
Because the merger is conditioned on the spin-off to Flowers Industries
shareholders of Flowers Foods, which will own our Flowers Bakeries and Mrs.
Smith's Bakeries businesses, you will also receive, through a taxable
spin-off, one share of Flowers Foods stock for each shares of Flowers
Industries common stock that you own. Flowers Foods will be a separate,
publicly-traded, company and neither it nor its shareholders will have any
further ownership interest in Keebler.
1
<PAGE> 8
Q: IF THE MERGER IS APPROVED, HOW EXACTLY WILL THIS TRANSACTION OCCUR?
A: We will first contribute our Flowers Bakeries and Mrs. Smith's Bakeries
businesses to Flowers Foods. Then, the following steps will happen
effectively simultaneously:
- Flowers Industries' shareholders will receive shares of Flowers Foods in
proportion to their ownership interest in Flowers Industries;
- Flowers Industries, which will then have as its primary asset the
majority interest in Keebler, will merge with a wholly-owned subsidiary
of Kellogg, becoming itself a wholly-owned subsidiary of Kellogg, and our
shareholders will be entitled to receive approximately $12.50 in cash in
exchange for each share of Flowers Industries common stock that they own;
and
- a wholly-owned subsidiary of Kellogg will merge with Keebler, with
Keebler becoming a wholly-owned subsidiary of Kellogg, and Keebler
stockholders, other than Flowers Industries, will be entitled to receive
$42.00 in cash in exchange for each share of Keebler stock they own.
Q: WHAT WILL HAPPEN IF THE MERGER IS NOT APPROVED?
A: We are a party to a voting agreement with Kellogg under which, as required
by Kellogg to proceed with this transaction and to accept the tax-efficient
transaction structure we proposed, we have agreed to vote our shares of
Keebler stock in favor of the Kellogg/Keebler merger even if our merger
with Kellogg is not completed. Therefore, if the Merger Agreement is not
approved by the holders of a majority of our outstanding shares or is
otherwise not completed, the Kellogg/Keebler merger may still occur, in
which case we and the other stockholders of Keebler would exchange our
respective shares of Keebler stock for $42.00 in cash per share. This would
result in a taxable gain to us of approximately $1.5 billion and a tax
liability to be paid by us of approximately $600 million. If this occurs,
the cash consideration to be paid for Flowers Industries' shares of Keebler
stock would be paid directly to Flowers Industries, and you would not
receive any cash or other consideration in that merger.
Q: WHEN WILL THE PROPOSED SPIN-OFF OF FLOWERS FOODS SHARES OCCUR?
A: If our shareholders vote to approve and adopt the Merger Agreement, and the
other conditions to the merger are satisfied or waived, the spin-off will
occur immediately prior to the completion of the merger. If our
shareholders do not vote to approve and adopt the Merger Agreement, or the
merger is otherwise abandoned, the proposed spin-off will not occur.
Q: WHAT EFFECT WILL THE SPIN-OFF AND THE MERGER HAVE ON FLOWERS INDUSTRIES AND
ITS SHAREHOLDERS?
A: After the merger is completed, you will be entitled to receive
approximately $12.50 in cash for each share of Flowers Industries common
stock that you own on the date of completion of the merger. Flowers
Industries will become a wholly-owned subsidiary of Kellogg and you will
have no further ownership interest in Flowers Industries or its shares of
Keebler stock. After the spin-off and the merger have been completed,
Flowers Foods will be owned by Flowers Industries shareholders. Flowers
Foods shares are expected to be traded on the New York Stock Exchange.
2
<PAGE> 9
Q: HOW DOES THE BOARD RECOMMEND I VOTE?
A: The Board of Directors of Flowers Industries recommends that you vote FOR
the approval and adoption of the Merger Agreement and, therefore, the
merger.
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully, including its
Appendices, consider how the merger would affect you as a shareholder, and
vote. After you read this proxy statement, you should complete, sign and
date your proxy card and mail it in the enclosed return envelope or vote by
telephone or over the Internet, as soon as possible, even if you plan to
attend the special meeting in person, so that your shares may be
represented at the special meeting. If you sign, date and send in your
proxy without indicating how you want to vote, all of your shares will be
voted FOR the approval and adoption of the Merger Agreement and, therefore,
the merger.
Q: HOW DO I VOTE BY TELEPHONE OR OVER THE INTERNET?
A: Telephone and Internet voting are available as follows:
- by telephone, call toll free on a touchtone telephone in the
United States or outside the United States; or
- by Internet, visit the website http://www. , which will be
available until 12:00 midnight, Eastern Time, on , 2001.
When you vote by telephone or the Internet, simply follow the instructions
provided. You will need to provide your personal identification number from
your proxy card in order to vote by either of these methods. If your shares
are held in the name of a bank or broker, follow the voting instructions
you receive on your proxy card.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will only be permitted to vote your shares if you provide
instructions to your broker on how to vote. You should follow the
procedures provided by your broker regarding the voting of your shares and
be sure to provide your broker with instructions on how to vote your
shares. If you do not give voting instructions to your broker, you will, in
effect, be voting against the Merger Agreement.
Q: WHAT IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD
OR VOTED BY TELEPHONE OR THE INTERNET?
A: You can change your vote by sending in a later-dated, signed proxy card or
a written revocation to our secretary at 1919 Flowers Circle, Thomasville,
Georgia 31757 on or before the business day prior to the special meeting.
Or you can vote again by telephone or the Internet before the special
meeting, or attend the special meeting in person and vote. Your attendance
at the special meeting will not, by itself, revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the directions
received from your broker to change those voting instructions.
3
<PAGE> 10
Q: WHAT HAPPENS IF I DO NOT VOTE MY PROXY BY MAIL, TELEPHONE OR THE INTERNET,
IF I DO NOT INSTRUCT MY BROKER TO VOTE MY SHARES OR IF I ABSTAIN FROM
VOTING?
A: If you do not vote your proxy by mail, telephone or the Internet, or do not
instruct your broker to vote your shares, or if you abstain from voting, it
will have the same effect as a vote against the Merger Agreement and,
therefore, the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If we complete the merger, you will receive written instructions for
exchanging your Flowers Industries stock certificates for your cash
payment.
Q: WHAT REGULATORY CLEARANCES ARE NEEDED TO COMPLETE THE MERGER?
A: The merger is subject to customary approvals, including the expiration or
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act.
Q: WHEN WILL THE TRANSACTION BE COMPLETED?
A: Assuming the Merger Agreement is approved and adopted by holders of a
majority of our outstanding common stock and that all of the other
conditions are met or waived, we expect that the transaction will be
completed promptly following the special meeting.
Q: WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
TRANSACTION?
A: The spin-off and merger should be treated as a single taxable transaction
to you for United States federal income tax purposes. A brief summary of
United States federal income tax consequences of the spin-off and merger
appears on page 44 of this proxy statement. We urge you to consult your tax
advisor as to the tax consequences to you of the spin-off and the merger in
your particular circumstances.
Q: DO I HAVE DISSENTERS' RIGHTS?
A: If you so choose, you may exercise dissenters' rights in connection with
our merger with Kellogg, so long as you do not vote in favor of the
approval and adoption of the Merger Agreement. Further, this right is only
available if you comply with all the requirements of Georgia law, which are
summarized beginning on page 47 of this proxy statement. Dissenters' rights
only relate to the amount of consideration you would otherwise receive in
the merger, and not to the shares of Flowers Foods you will receive in the
spin-off.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have additional questions about the Merger Agreement or the merger
or would like additional copies of this proxy statement, or the proxy card,
you should contact our investor relations department at (229) 226-9110 or
our proxy solicitor: .
4
<PAGE> 11
SUMMARY
This summary, together with the question and answer section, highlights
some of the information discussed in greater detail elsewhere in this proxy
statement. This summary may not contain all of the information that is important
to you, and we urge you to carefully read the entire proxy statement, and the
other documents we refer you to, in order to fully understand the merger and the
related transaction. You can also refer to "Where You Can Find More Information"
on page 71 for additional information about Flowers Industries.
THE PARTIES
FLOWERS INDUSTRIES, INC.
1919 Flowers Circle
Thomasville, Georgia 31757
Flowers Industries is one of the largest producers and marketers of frozen
and non-frozen bakery and dessert products in the United States. Flowers
Industries' products are currently offered through three strategic business
units, including Flowers Bakeries' fresh breads and rolls, Mrs. Smith's
Bakeries' fresh and frozen baked desserts, snacks, breads and rolls, and
Keebler's cookies and crackers.
If the transaction contemplated by the Merger Agreement is completed,
Flowers Industries' operations, other than its Keebler cookies and crackers
business, will be spun off to shareholders through a distribution of the stock
of Flowers Foods, a newly created holding company for our traditional bakery
businesses.
KELLOGG COMPANY
One Kellogg Square
Battle Creek, Michigan 49016
Kellogg is the world's leading producer of ready-to-eat cereal and a
leading producer of grain-based convenience foods, including toaster pastries,
frozen waffles, cereal bars and meat alternatives. Its products are manufactured
in 20 countries and marketed in more than 160 countries around the world. Its
icons, such as Tony the Tiger(R) and Snap(R), Crackle(R) and Pop(R), are among
the most recognized in advertising.
KANSAS MERGER SUBSIDIARY, INC.
One Kellogg Square
Battle Creek, Michigan 49016
Kansas Merger Subsidiary is a wholly-owned subsidiary of Kellogg formed
solely for the purpose of completing this transaction. It has not engaged in any
business other than in connection with this transaction. Kansas Merger
Subsidiary is often referred to in this proxy statement as Merger Sub.
THE SPECIAL MEETING (PAGE 13)
DATE, TIME AND PLACE OF THE SPECIAL MEETING (PAGE 13)
The special meeting will take place on , 2001 at
at : .M. Eastern Time.
5
<PAGE> 12
VOTE REQUIRED (PAGE 14)
In order for the Merger Agreement to be approved and adopted, the holders
of a majority of our outstanding common stock must vote FOR it. Each share of
common stock is entitled to one vote.
RECORD DATE (PAGE 14)
The record date for determining the holders of shares of our outstanding
common stock entitled to vote at the special meeting is , 2001. On
the record date, shares of our common stock were outstanding.
THE MERGER (PAGE 16)
The agreement and plan of restructuring and merger, or the Merger
Agreement, that we entered into with Kellogg and Merger Sub is attached to this
proxy statement as Appendix A. We urge you to read the Merger Agreement
carefully, as it is the legal document that governs the merger.
REASONS FOR THE MERGER (PAGE 23)
The Board of Directors of Flowers Industries, or the Board, after
consulting with our financial advisors, Morgan Stanley & Co. Incorporated, or
Morgan Stanley, and UBS Warburg LLC, or UBS Warburg, determined that in order to
allow Flowers Industries shareholders to maximize the value of their investment,
it should explore alternatives to capitalize on the consolidation trend in the
food industry, eliminate any potential negative consequences of our majority
ownership in Keebler on Keebler's stock price, reduce our financial leverage and
maximize the value of our Keebler investment in a tax-efficient manner. The
Board determined that shareholder value could be maximized by spinning off our
traditional bakery operations, which we operate through our Flowers Bakeries and
Mrs. Smith's Bakeries businesses, to our shareholders and selling the cookie and
cracker business, which is derived from our majority ownership in Keebler, based
on the following primary reasons:
- Opportunity to Realize a Return the Increased Value of our Keebler
Investment. Although our investment in Keebler has appreciated
substantially since our initial investment, the Board believed that our
54% ownership interest in Keebler negatively impacted the market price of
Keebler's stock. As a result, the Board decided that it was in the best
interests of our shareholders to pursue a spin-off and merger that would
allow our shareholders to realize a cash return on our investment in
Keebler while retaining their interests in the traditional Flowers
Bakeries and Mrs. Smith's Bakeries operating units as part of a new,
publicly-traded company.
- Tax-Efficient Structure of the Sale. After extensive consultation with
our financial and legal advisors, the Board determined that a direct sale
of our shares of Keebler stock was not the optimal tax structure for
Flowers Industries or our shareholders. The structure provided for in the
Merger Agreement offers shareholders the opportunity to maximize value,
both through the cash you will receive as a result of the merger and
through the distribution of shares of Flowers Foods in the spin-off,
while minimizing the tax liability of Flowers Industries.
6
<PAGE> 13
- Broad Scope of the Auction Process. After Morgan Stanley and UBS Warburg
reviewed our businesses and strategic alternatives, the Board directed
them to solicit offers to purchase Keebler. Following the auction
process, the Board determined that Kellogg's offer, which accepted the
tax-efficient transaction structure we proposed, was the most attractive
alternative available to our shareholders.
- Market Potential for a Stand-alone Bakery Business. The spin-off and
merger allow us to operate our traditional bakery businesses with less
debt and without the distractions and, we believe, adverse impact, of a
majority ownership interest in a separate public company.
STRUCTURE OF THE TRANSACTION (PAGE 49)
We will first contribute our Flowers Bakeries and Mrs. Smith's Bakeries
businesses to Flowers Foods. Then, if the Merger Agreement is approved by our
shareholders and if the other conditions to the merger are either satisfied or
waived, the following steps will happen effectively simultaneously:
- Flowers Industries shareholders will receive shares of Flowers Foods in
proportion to their ownership in Flowers Industries through a taxable
spin-off;
- Flowers Industries, which will then have as its primary asset the
majority interest in Keebler, will merge with a wholly-owned subsidiary
of Kellogg, becoming itself a wholly-owned subsidiary of Kellogg, and our
shareholders will be entitled to receive approximately $12.50 in cash,
subject to certain adjustments at the closing of the merger, in exchange
for each share of Flowers Industries common stock that they own; and
- a wholly-owned subsidiary of Kellogg will merge with Keebler, resulting
in Keebler becoming a wholly-owned subsidiary of Kellogg, and Keebler
stockholders, other than Flowers Industries, will be entitled to receive
$42.00 in cash in exchange for each share of Keebler stock they own.
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The following diagrams illustrate the elements of this transaction:
1. SPIN-OFF -- Flowers Industries spins off its traditional bakery businesses to
its shareholders as Flowers Foods.
There are boxes indicating Flowers Industries, Flowers Foods and Keebler.
Flowers Industries' 54% ownership interest in Keebler is indicated by a solid
line from the Flowers Industries box to the Keebler box (and "54%" is written
next to the line), with a dotted line to the word public indicating the public's
ownership of the remaining 46% (and "46%" is written next to the dotted line).
The transfer of Flowers Industries' bakery businesses to Flowers Foods is
indicated by an arrow pointing from the Flowers Industries box to the Flowers
Foods box. There is a dotted line indicating the shareholders of Flowers
Industries are the public, and a similar dotted line indicating that those
shareholders will become the shareholders of Flowers Foods in the spin-off.
2. FLOWERS INDUSTRIES MERGER -- Kellogg creates Merger Sub 1, which merges with
Flowers Industries. As a result, Kellogg owns
100% of Flowers Industries.
There are boxes indicating Flowers Industries, Kellogg, Keebler and Merger
Sub 1. Kellogg's creation of its wholly-owned Merger Sub 1 is indicated by its
box's location over the Merger Sub 1 box and an arrow pointing from the Kellogg
box to the Merger Sub 1 box. Merger Sub 1's merger with Flowers Industries is
indicated by an arrow pointing from the Merger Sub 1 box to the Flowers
Industries box and the word "Merge" is above that line. Flowers Industries' 54%
ownership interest in Keebler is indicated by a solid line from the Flowers
Industries box to the Keebler box (and "54%" is written next to the line), with
a dotted line to the word public indicating the public's ownership of the
remaining 46% (and "46%" is written next to the dotted line).
3. KEEBLER MERGER -- Either Kellogg or Flowers Industries creates Merger Sub 2,
which merges with Keebler. As a result, Kellogg owns 100%
of Keebler.
There are boxes indicating Flowers Industries, Kellogg, Keebler and Merger
Sub 2. Kellogg's ownership of 100% of Flowers Industries and Merger Sub 2, which
either Kellogg or Flowers Industries will create, and which is indicated by
dotted lines, is indicated by the Kellogg box's position in the diagram above
both the Flowers Industries box and the Merger Sub 2 box. Flowers Industries'
54% ownership interest in Keebler is indicated by a solid line from the Flowers
Industries box to the Keebler box (and "54%" is written next to the line), with
a dotted line to the word public indicating the public's ownership of the
remaining 46% (and "46%" is written next to the dotted line). Merger Sub 2's
merger with Keebler is shown by an arrow pointing from the Merger Sub 2 box to
the Keebler box, with the word "Merge" next to the line.
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WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 50)
At the effective time of the merger, Flowers Industries shareholders, other
than shareholders who exercise their dissenters' rights, will be entitled to
receive approximately $12.50 in cash for each share of Flowers Industries common
stock that they own, subject to some adjustments in the actual amount paid by
Kellogg at the closing. The pricing formula in the Merger Agreement calculates
the per share price to be paid to Flowers Industries' shareholders by first
multiplying $42.00, the same price which Kellogg is paying in the
Kellogg/Keebler merger to the other Keebler stockholders, by 46,197,466, the
number of shares of Keebler stock that we own. That total is then reduced by
specified Flowers Industries' debt and other liabilities and expenses that are
not being assumed by Flowers Foods, or that are being paid at the closing of the
merger. The resulting amount will then be divided by the number of shares of
Flowers Industries common stock that are outstanding immediately prior to the
merger, in order to derive the price to be paid for each Flowers Industries
share in the merger.
DISTRIBUTION OF SHARES OF FLOWERS FOODS (PAGE 64)
As part of the same transaction, but conditioned on the effectiveness of
the merger, Flowers Industries intends to distribute all of the outstanding
shares of Flowers Foods on a pro rata basis to its shareholders. We expect that
Flowers Foods' assets will consist primarily of the following:
- Flowers Bakeries, a market leader in baked food products; and
- Mrs. Smith's Bakeries, a market leader in frozen dessert products.
Flowers Foods' liabilities will consist primarily of Flowers Industries'
liabilities which are not being paid at the closing of the merger, including
approximately $250 million in debt, and the indemnification obligations to
Flowers Industries and Kellogg under the Merger Agreement and under the
distribution agreement between Flowers Industries and Flowers Foods. A copy of
the distribution agreement is attached to this proxy statement as Appendix B.
HOW MANY SHARES OF FLOWERS FOODS YOU WILL RECEIVE (PAGE 64)
You will receive one share of Flowers Foods stock for each shares
of Flowers Industries common stock that you own. Fractional shares of Flowers
Foods will not be distributed, but our distribution agent will aggregate all
fractional shares and sell them on the open market, aggregate the proceeds, and
distribute any net proceeds on a pro rata basis to Flowers Industries
shareholders entitled to fractional interests.
OPINIONS OF MORGAN STANLEY & CO. INCORPORATED AND UBS WARBURG LLC (PAGE 25)
On October 26, 2000, Morgan Stanley and UBS Warburg delivered oral
opinions, subsequently confirmed in writing, to the Board that, as of that date
and subject to the matters set forth in their opinions, the consideration to be
received by our shareholders pursuant to the Merger Agreement is fair, from a
financial point of view, to those holders. A copy of each of these opinions is
attached to this proxy statement as Appendix C and Appendix D, respectively.
These opinions are addressed to the Board, do not address any
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other aspect of the merger and do not constitute a recommendation as to how you
should vote at the special meeting.
BOARD RECOMMENDATION (PAGE 23)
Our Board has voted FOR, and recommended that the shareholders vote FOR,
the approval and adoption of the Merger Agreement and, therefore, the merger.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF FLOWERS INDUSTRIES IN THE
MERGER (PAGE 40)
In considering the recommendation of our Board, you should consider that
some of our executive officers and directors may have interests that are
different from, or in addition to, those of our shareholders. If we complete the
merger, these will include:
- change of control provisions in our equity and other compensation plans
that give rise to accelerated vesting of outstanding stock options to
acquire our stock;
- restricted stock awards granted to our executive officers which vest and
become nonforfeitable at the effective time of the merger;
- separation agreements with some of our executive officers which have
change of control provisions that require us to make payments to those
officers in the event that their employment is terminated, as currently
expected, within specified periods after the effective time of the
merger;
- our executive officers' participation in a supplemental executive
retirement plan, under which amounts will become immediately payable in a
lump sum to those officers as a result of the effectiveness of the
merger;
- Kellogg agreeing to cause our executive officers and directors to be
provided with insurance relating to actions or omissions occurring before
the effective time of the merger and also agreeing to certain
indemnification rights for the benefit of those officers and directors;
and
- the fact that the management of Flowers Industries will become the
management of Flowers Foods following the spin-off and merger.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS (PAGE 44)
It is generally anticipated that each shareholder will recognize capital
gain or loss, equal, in each case, to the difference between (a) the fair market
value of the Flowers Foods shares distributed in the spin-off plus the cash
proceeds received pursuant to the merger and (b) the shareholder's adjusted tax
basis in the Flowers Industries common stock surrendered in exchange therefor.
However, if the receipt of the Flowers Foods common stock is treated as a
separate transaction for tax purposes, it would be deemed to be a distribution
taxable as an ordinary income dividend to the extent of our current or
accumulated earnings and profits.
BECAUSE THE TAX CONSEQUENCES OF THE SPIN-OFF AND THE MERGER ARE COMPLEX AND
MAY VARY DEPENDING ON YOUR PARTICULAR CIRCUMSTANCES, WE RECOMMEND THAT YOU
CONSULT YOUR TAX ADVISOR CONCERNING THE FEDERAL (AND ANY STATE OR LOCAL) TAX
CONSEQUENCES OF THE SPIN-OFF AND THE MERGER.
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CONDITIONS TO COMPLETION OF THE MERGER (PAGE 60)
Each party's obligation to complete the merger is dependent upon a number
of conditions being met (or waived by the appropriate party), including the
following:
- the approval and adoption of the Merger Agreement by our shareholders;
- the absence of any legal prohibition against the merger;
- the expiration or termination of the Hart-Scott-Rodino Act's waiting
period;
- the completion of the spin-off of Flowers Foods;
- the performance by the other party of its obligations under the Merger
Agreement; and
- the accuracy of the other party's representations and warranties in the
Merger Agreement.
Kellogg's obligation to complete the merger is also subject to the
following conditions:
- receipt of all governmental consents and approvals, except those that
would not be expected to have a material adverse effect on us or Kellogg,
or result in criminal liability or material fines;
- the holders of not more than 10% of our stock having taken actions to
assert their dissenters' rights; and
- all conditions to Kellogg's merger with Keebler (other than consummation
of the Kellogg/Flowers Industries merger) having been satisfied or
waived.
TERMINATION OF THE MERGER AGREEMENT (PAGE 61)
The Merger Agreement may be terminated, either before or after receiving
shareholder approval, under the following circumstances:
- by mutual written agreement of the parties;
- by us or Kellogg if:
- the merger has not been completed by June 30, 2001,
- there is a law or final and nonappealable court order which
prohibits the completion of the merger, or
- we do not obtain the approval of our shareholders at the special
meeting;
- by Kellogg if:
- our Board fails to recommend or withdraws or modifies its approval
or recommendation of the Merger Agreement or the merger in a manner
adverse to Kellogg, or approves or recommends an acquisition
proposal from a third party, or resolves to do any of these,
- we are in breach of any obligation, representation or warranty in
the Merger Agreement such that we cannot satisfy the conditions for
the benefit of Kellogg under that agreement, or
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- the agreement in which we agreed to vote our Keebler shares in favor
of the merger between Kellogg and Keebler, referred to in this proxy
statement as the voting agreement, or the Kellogg/Keebler merger
agreement, is terminated for any reason, or we are in breach or fail
to perform our obligations under the voting agreement or the
Kellogg/Keebler merger agreement, or that merger agreement is
completed under the circumstances discussed below; or
- by us if Kellogg is in breach of any obligation, representation or
warranty in the Merger Agreement such that it cannot satisfy the
conditions for the benefit of Flowers Industries under that agreement.
Additionally, although the Kellogg/Keebler merger is generally conditioned
on the completion of our merger with Kellogg, under any of the following
circumstances that merger may be completed even if our merger with Kellogg is
not completed:
- shareholder approval of our merger with Kellogg has not been obtained by
June 15, 2001; or
- our special meeting has occurred and we did not have a majority of our
shares voted in favor of our merger with Kellogg; or
- we have materially failed to perform or comply with any obligation,
agreement or covenant under our Merger Agreement in a way that we cannot
satisfy the conditions for the benefit of Kellogg under that agreement.
If the Kellogg/Keebler merger is completed under any of these
circumstances, the Merger Agreement would be terminable by Kellogg and, if
terminated, our merger with Kellogg, and the spin-off, would not occur. In this
event, as required by the voting agreement, we would vote our shares of Keebler
stock, which represents a the majority interest in Keebler, in favor of the
Kellogg/Keebler merger, which would be sufficient to ensure shareholder approval
of the Kellogg/Keebler merger agreement. Then, we and the other stockholders of
Keebler, assuming the other conditions to the Kellogg/Keebler merger had been
satisfied or waived, would exchange our respective shares of Keebler stock for
$42.00 per share in cash. This would result in a taxable gain to us of
approximately $1.5 billion and a tax liability to be paid by us of approximately
$600 million. If this occurs, the cash consideration to be paid for our shares
of Keebler stock would be paid directly to Flowers Industries, and you would not
receive any cash or other consideration in that merger.
TERMINATION FEE (PAGE 63)
We have agreed to pay Kellogg $58.2 million in cash if the Merger Agreement
is terminated under any of the circumstances described on page 63 of this proxy
statement. However, if any of those circumstances occur but the Kellogg/Keebler
merger is completed, we would not be required to pay that fee.
DISSENTERS' RIGHTS (PAGE 47)
Under Article 13 of the Georgia Business Corporation Code, you are entitled
to exercise dissenters' rights with respect to the amount of cash consideration
you would otherwise receive in our merger with Kellogg, if you comply with the
requirements under that Article. We have included a copy of Article 13 as
Appendix E to this proxy statement.
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It is a condition to Kellogg and Merger Sub having to complete the merger
that the holders of not more than 10% of our outstanding shares take actions to
assert their dissenters' rights. If more than 10% do so, Kellogg has the right
not to complete the merger.
SPIN-OFF (PAGE 64)
Effectively simultaneously with the completion of the merger, we will
distribute all of the outstanding shares of Flowers Foods to holders of our
common stock. You will receive one share of Flowers Foods stock for each
shares of Flowers Industries common stock that you hold on the record date for
the spin-off. The record date for the spin-off will be the same date as the
effective date of the merger. The spin-off and the merger will each occur only
if the other occurs effectively at the same time.
KELLOGG MERGER AGREEMENT WITH KEEBLER; VOTING AGREEMENT (PAGE 65)
Kellogg has also entered into a merger agreement with Keebler which
provides for Keebler to become a wholly-owned subsidiary of Kellogg and for the
public holders of Keebler's stock to receive $42.00 per share in cash. Under the
Merger Agreement, the shares of Keebler stock owned by us are also valued at the
$42.00 per share cash price. However, under the pricing formula set forth in the
Merger Agreement, the amount of cash paid to shareholders of Flowers Industries
is being reduced by specified Flowers Industries' debt and other liabilities and
expenses that are not being assumed by Flowers Foods' or that are being paid at
the closing of our merger.
We are the majority stockholder of Keebler and, as required by Kellogg to
proceed with the transaction and to accept the tax-efficient transaction
structure we proposed for the acquisition of Keebler, we entered into the voting
agreement. In the voting agreement, we agreed to vote our shares of Keebler
stock in favor of the Kellogg/Keebler merger even if our merger with Kellogg is
not completed. Although the Kellogg/Keebler merger is generally conditioned on
the completion of our merger with Kellogg, under the circumstances described
above under "Termination of the Merger Agreement," the Kellogg/Keebler merger
may be completed even if our merger with Kellogg is not completed. In those
circumstances, the spin-off would not occur, and we and the other stockholders
of Keebler would exchange our respective shares of Keebler stock for $42.00 per
share in cash, which would result in a taxable gain to us of approximately $1.5
billion and a tax liability to be paid by us of approximately $600 million. If
this occurs, the cash consideration to be paid for Flowers Industries' shares of
Keebler stock would be paid directly to Flowers Industries, and you would not
receive any cash or other consideration in that merger.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This proxy statement is being furnished to you in connection with the
solicitation of proxies by our Board for the special meeting of shareholders to
be held at : .M., Eastern Time, on , 2001, at
, or any adjournment or postponement of the special meeting. This
proxy statement, the notice of special meeting
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and the accompanying proxy card are first being sent or given to shareholders on
or about , 2001.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement and, therefore, the merger.
RECORD DATE; QUORUM; OUTSTANDING COMMON STOCK ENTITLED TO VOTE
All shareholders of record at the close of business on , 2001
are entitled to notice of, and to vote at, the special meeting. The presence, in
person or by proxy, of holders of a majority of our outstanding common stock is
required to constitute a quorum for the transaction of business. If you sign,
date and return your proxy card without indicating how you want to vote, your
proxy will be counted as a vote FOR the Merger Agreement. If you do not return
your card, or if you do not instruct your broker how to vote any shares held for
you in "street name," it will have the effect of a vote against the Merger
Agreement. A list of shareholders of record will be available for examination at
the time and place of the special meeting. As of , 2001, there were
shares of common stock outstanding and entitled to vote at the
special meeting.
VOTING RIGHTS; VOTE REQUIRED
You are entitled to one vote for each share of common stock that you hold
as of the record date. The affirmative vote of the holders of a majority of our
outstanding shares is required to approve and adopt the Merger Agreement. In
determining whether the approval and adoption of the Merger Agreement has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as votes against the Merger Agreement.
VOTING AND REVOCATION OF PROXIES
A proxy card for you to use in voting accompanies this proxy statement.
Subject to the following sentence, all properly executed proxies that are
received prior to, or at, the special meeting and not revoked will be voted in
the manner specified. If you execute and return a proxy card, and do not specify
otherwise, the shares represented by your proxy will be voted FOR the approval
and adoption of the Merger Agreement in accordance with the recommendation of
the Board.
If you have given a proxy pursuant to this solicitation, you may
nonetheless revoke it by attending the special meeting and voting in person. In
addition, you may revoke any proxy you give at any time before the special
meeting by delivering to our secretary at our executive offices at 1919 Flowers
Circle, Thomasville, Georgia 31757, on or before the business day prior to the
special meeting, or at the special meeting itself, a written statement revoking
it or a duly executed proxy bearing a later date. You can also revoke your proxy
by voting again by telephone or over the Internet. If you have executed and
delivered a proxy to us, your attendance at the special meeting will not, by
itself, constitute a revocation of your proxy. If you vote in favor of the
Merger Agreement, you will not be entitled to exercise your dissenters' rights.
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Your vote is important to us. Please return your marked proxy card promptly
or submit your proxy by telephone or the Internet so that we can ensure that
your shares will be represented at the special meeting, even if you plan to
attend the special meeting in person.
SOLICITATION OF PROXIES
We will bear the cost of the solicitation of proxies. We will solicit
proxies initially by mail. Further solicitation may be made by our directors,
officers and employees personally, by telephone, facsimile, e-mail or otherwise,
but they will not be specifically compensated for these services. Upon request,
we will reimburse brokers, dealers, banks or similar entities acting as nominees
for their reasonable expenses incurred in forwarding copies of the proxy
materials to the beneficial owners of the shares of common stock they hold of
record. We have retained to assist us in the solicitation of
proxies for a fee of $ , plus their reasonable out-of-pocket expenses.
OTHER MATTERS
Except for the vote on the Merger Agreement, no other matter is expected to
come before the special meeting.
You should not send any certificates representing common stock with your
proxy card. If we complete the merger, a transmittal letter with instructions
for the surrender of your certificates will be mailed to you shortly thereafter.
For more information on exchanging your certificates, see "THE MERGER AGREEMENT
-- Exchange of Certificates."
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THE MERGER
BACKGROUND
During the second half of 1999 and the first four months of 2000,
management and the Board of Flowers Industries, with the assistance of our
financial and legal advisors, considered and evaluated a wide range of strategic
alternatives to restructure Flowers Industries with a view toward maximizing
value to our shareholders. These discussions arose primarily as a result of the
following:
- adverse operating performance due primarily to a mechanical breakdown of
newly constructed production facilities at Mrs. Smith's Bakeries, which
significantly impaired Flowers Industries' earnings for the last three
quarters of 1999 and continued to do so in 2000;
- Mrs. Smith's Bakeries' operational problems resulted in significantly
increased financial leverage and overshadowed continued good results from
Flowers Bakeries and Keebler;
- the belief that Flowers Industries' 54% ownership position in Keebler
negatively impacted the market price of Keebler's stock;
- Flowers Industries' financial flexibility was limited due to its
practical inability to access Keebler's cash flows; and
- commencing in the first half of 2000, the food industry was experiencing
a surge of consolidation, as evidenced by The Philip Morris Companies
Inc.'s acquisition of Nabisco Holdings Corp., Unilever N.V.'s acquisition
of Bestfoods and ConAgra Foods, Inc.'s acquisition of International Home
Foods, Inc.
Beginning in May 2000, Flowers Industries, with its financial, legal and
accounting advisors, explored a number of alternatives that could capitalize on
the industry consolidation trend, eliminate any potential negative consequences
of Flowers Industries' majority ownership of Keebler, reduce Flowers Industries'
financial leverage and maximize the value of the Keebler investment in a
tax-efficient manner. These alternatives included:
- a reverse merger of Flowers Industries into Keebler;
- a sale of Flowers Industries; and
- a direct sale of Flowers Industries' Keebler shares.
The reverse merger or the sale of our entire company, which would have
included our traditional bakery businesses, were both viewed as unattractive
because the Board believed that those structures did not present the opportunity
to maximize shareholder value inasmuch as the Board believed it was not an
optimal time to sell our traditional bakery operations. The direct sale of our
shares of Keebler stock was viewed as unattractive because of the significant
corporate tax burden on Flowers Industries that such a sale would create. As a
result of these factors, Flowers Industries determined to explore a transaction
in which Flowers Industries' operating divisions (Flowers Bakeries and Mrs.
Smith's Bakeries) would be spun off to Flowers Industries' shareholders in a
taxable distribution and, as part of the same transaction, Flowers Industries,
whose primary asset would then be its shares of Keebler stock, would be sold in
a transaction structured as a merger. This was viewed as a transaction that
would maximize the return for Flowers
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Industries' shareholders on its investment in Keebler while also reducing the
financial leverage burden for the spun-off bakery businesses. Flowers
Industries' management, with the assistance of its advisors, analyzed and
developed this structure during May and June 2000.
On June 28, 2000, the Board met with representatives of Morgan Stanley and
UBS Warburg, and with Jones, Day, Reavis & Pogue, our legal counsel. After a
lengthy discussion of all of the alternatives available to Flowers Industries to
maximize shareholder value, the Board authorized further exploration of the
combined spin-off and merger transaction and the formal engagement of Morgan
Stanley and UBS Warburg, and determined to inform senior management and the
independent directors of Keebler of the proposed course of action.
On July 6, 2000, Robert P. Crozer, vice chairman of the Board of Flowers
Industries and chairman of Keebler's board of directors, met with Sam K. Reed,
president and chief executive officer of Keebler, along with other members of
Keebler's senior management, and outlined the proposed transaction and addressed
questions regarding Flowers Industries' plans.
On July 10, 2000, Keebler requested that Merrill Lynch, Pierce, Fenner &
Smith Incorporated, or Merrill Lynch, provide Keebler's board of directors with
an independent assessment of food industry valuations and consolidation.
On July 12, 2000, Keebler's board of directors held a meeting at which
Morgan Stanley and UBS Warburg met with Keebler's board of directors and
discussed substantially the same subject matter as was discussed with Flowers
Industries' Board on June 28. At that same meeting, Merrill Lynch discussed the
food industry and recent consolidations and gave a preliminary overview of
valuation and potential buyers. Keebler management also made a presentation to
the Keebler board of directors in which management concluded that it was the
appropriate time for a sale of Keebler to occur.
On July 18, 2000, the boards of directors of both Flowers Industries and
Keebler met separately and each authorized its management teams and advisors to
proceed with the exploration of alternatives, including the possible sale of
Keebler, and our Board authorized the further consideration of the related
spin-off of Flowers Industries' bakery businesses to Flowers Industries'
shareholders. Keebler's board of directors engaged Davis Polk & Wardwell to
counsel them with respect to the exploration of strategic alternatives and a
potential sale of Keebler. On that date, Flowers Industries and Keebler jointly
issued a press release announcing that each of their respective boards of
directors had directed their management to explore strategic alternatives to
maximize shareholder value. Flowers Industries also announced that it had
engaged Morgan Stanley and UBS Warburg as its financial advisors.
On July 19, 2000 Keebler formally engaged Merrill Lynch as its financial
advisor in connection with any proposed business combination involving Keebler.
In the second half of July 2000, Flowers Industries' management, assisted
by its financial and legal advisors, and in conjunction with Keebler, began to
prepare for and to conduct an auction process for the sale of Flowers Industries
and Keebler, with the assumption that the proposed spin-off would be completed
in connection with such a sale. At Flowers Industries' instruction, Flowers
Industries' financial advisors contacted numerous potential bidders.
Confidentiality agreements were sent to a number of these parties, and six
confidentiality agreements were signed by prospective bidders over the
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following weeks. In particular, a confidentiality agreement was signed by
Kellogg on July 24, 2000. After the confidentiality agreements were signed,
informational packages were sent to potential bidders.
By August 28, 2000, preliminary indications of interest were received from
Kellogg and one other bidder. Those two parties, as well as an additional
potential bidder who had not submitted a preliminary indication of interest,
were invited to pursue further due diligence investigations, including
presentations by Keebler management and more in-depth access to due diligence
materials. The due diligence investigations for these three parties began in
early September and continued for several weeks.
During August and September, our legal, financial and accounting advisors
participated in due diligence, corporate structuring and tax and accounting
analyses to refine a transaction structure in which, following the proposed
spin-off of its bakery businesses, Flowers Industries would consist primarily of
its 54% stake in Keebler and a portion of its currently existing debt.
Beginning on September 27, 2000, draft transaction agreements were sent to
the three potential bidders, consisting of forms of merger agreements for the
mergers of Flowers Industries and Keebler into separate subsidiaries of a
bidder, a voting agreement committing Flowers Industries to vote its shares of
Keebler stock in favor of a Keebler merger if the shareholders of Flowers
Industries approved a Flowers Industries merger agreement and a distribution
agreement relating to the spin-off. Flowers Industries did not enter into
negotiations with any of the three potential bidders at that time.
During the week of October 9, 2000, Flowers Industries' financial advisors
informed Kellogg that it should be prepared to submit its final bid on October
18, and that Kellogg would be informed of the actual deadline on such date. In
addition, Flowers Industries' financial advisors informed the other two
potential bidders that they should be prepared to submit a final bid towards the
end of the week of October 15.
On October 10, 2000, the Board held a brief meeting at which management
reported on the status and prospects of the auction process. On October 12,
2000, separate meetings of the boards of directors of Flowers Industries and
Keebler were held at which each board of directors was updated by its legal and
financial advisors on the status of the auction and related matters. In
addition, at its October 12 meeting, the Keebler board of directors formed a
special committee, comprised of Melvin Stith, Wayne H. Pace and Johnston C.
Adams, for the purpose of evaluating any transaction involving Keebler.
On October 12, 2000, at a meeting of the Keebler special committee, the
special committee appointed Melvin Stith as chairman and engaged Davis Polk &
Wardwell as legal counsel to the Keebler special committee. At this meeting,
Davis Polk & Wardwell advised the Keebler special committee on its legal duties
and responsibilities in connection with the proposed transaction. The Keebler
special committee also considered the selection of Merrill Lynch as financial
advisor to the Keebler special committee but deferred a decision on this matter
pending further investigation and review.
During the week of October 16, informal updating conferences were held with
the Flowers Industries Board and the financial advisors continued their
discussions with Kellogg and the other two potential bidders.
On October 18, Kellogg submitted an offer to purchase all of the capital
stock of Keebler. The offer reflected Kellogg's acceptance of the spin-off and
merger structure
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proposed by Flowers Industries, stated that it was fully financed and provided a
price of $41.00 per share in cash to the public stockholders of Keebler and a
pricing formula for the Flowers Industries' shareholders which valued the
Keebler shares owned by Flowers Industries at the same $41.00 per share cash
price. The pricing formula proposed by Kellogg reduced the aggregate
consideration to be paid to all shareholders of Flowers Industries (which was
based on the 46,197,466 shares of Keebler stock owned by Flowers Industries
multiplied by $41.00 per share) by all indebtedness, liabilities, costs and
expenses which would remain the responsibility of Flowers Industries at the
effective time of the merger, as well as estimated tax on the gain to be
recognized by Flowers Industries as a result of the spin-off and all costs and
expenses (including interest, prepayment penalties and premium) which would be
incurred to retire any indebtedness retained by Flowers Industries. At that
time, Kellogg also proposed a form of voting agreement that required Flowers
Industries to agree to vote its shares of Keebler stock in favor of the
Kellogg/Keebler merger, whether or not the shareholders of Flowers Industries
approved and adopted the Flowers Industries/Kellogg merger and irrespective of
whether that merger was completed. The Kellogg offer set a deadline of October
25 for entering into definitive agreements.
On October 18, 2000, Flowers Industries' financial advisers informed the
two other potential bidders that the deadline for submission of bids, including
definitive forms of transaction agreements and evidence of any financing
commitments, if financing was required, was October 20. On October 20, 2000, a
written preliminary indication of interest was submitted by one of the two
potential bidders. The indication was not a firm offer and referenced financial
terms that were lower than those offered in Kellogg's firm offer. In a telephone
call to one of Flowers Industries' financial advisors, the potential bidder that
submitted the preliminary indication then indicated that it was considering
forming a strategic partnership for purposes of making a bid. Flowers
Industries' financial advisers indicated that any such bid should be in
compliance with the bid instructions previously given by the financial advisors
and should be submitted as soon as possible.
On Saturday, October 21, at a meeting of the Keebler special committee, the
special committee formally engaged Merrill Lynch as financial advisor to the
Keebler special committee and received an update from Merrill Lynch on the
status of the auction and an overview of the terms of the Kellogg offer and the
preliminary indication of interest received from one of the potential bidders.
Also on October 21, Flowers Industries' financial advisors commenced discussions
with representatives of Kellogg regarding the terms of the Kellogg proposal.
On Sunday, October 22, the potential bidder that had submitted the
preliminary indication of interest on October 20 delivered another written
preliminary indication of interest to Flowers Industries' financial advisors
which stated that the potential bidder was in the process of putting together a
joint bid with the other potential bidder. The preliminary indication of
interest referenced a potential valuation for Keebler of $44.00 a share. This
indication was not a firm offer, did not provide confirmation that financing for
the potential bid had been committed and did not contain any suggested forms of
transaction agreements, as specifically instructed by our financial advisors.
The indication was further subject to legal and accounting due diligence,
satisfactory meetings with Keebler management, finalization of agreements among
the joint bidders, and approval of the bidders' respective boards. Flowers
Industries' financial advisors responded by advising the potential bidder that
this preliminary indication of interest was deficient and stating that, in view
of the late stage of the auction process, any bid should be submitted
19
<PAGE> 26
immediately and should include definitive forms of transaction agreements and
evidence of financing sources, as previously specifically instructed. No joint
or individual bid was submitted by either of these potential bidders.
Also on October 22, Flowers Industries' Board met with its financial and
legal advisors. Representatives of UBS Warburg and Morgan Stanley discussed the
potential alternatives available to Flowers Industries, details of the auction
process, the Kellogg offer and the preliminary indications of interest received
on October 22, and Jones Day advised the Board with respect to its legal duties
in considering the results of the auction process and legal aspects of the
Kellogg proposal and its strategic alternatives. After extensive questioning and
discussion, the Board instructed management, along with the financial and legal
advisors, to proceed with negotiations with Kellogg for the acquisition of
Keebler and Flowers Industries, after it spun off its traditional bakery
businesses, subject to final approval by the Board.
On the same day, the Keebler special committee met with its financial and
legal advisors to receive an update on the auction process and an overview of
the terms of the Kellogg offer and the joint preliminary indication of interest
received on October 22.
During the afternoon and evening of Sunday, October 22 and the morning of
Monday, October 23, Flowers Industries' financial advisors met with
representatives of Kellogg to negotiate an improved bid. As a result of those
negotiations, the Kellogg representatives stated that Kellogg would be prepared
to increase its bid to $42.00 per share if the parties could come to agreement
quickly on the other terms outlined in Kellogg's October 18 proposal and if
Flowers Industries would commit to a period of exclusive negotiations with
Kellogg. Further, Kellogg representatives advised Flowers Industries that
Kellogg would not be interested in pursuing a transaction unless definitive
agreements could be reached by Thursday, October 26. After considering this
proposal in light of the fact that no other firm offers had been submitted in
the auction process, Flowers Industries agreed to execute a letter to Kellogg
committing not to negotiate with another party for the sale of itself or Keebler
until Monday, October 30, and to report any unsolicited inquiry or proposal
immediately to Kellogg. One contact from each of the two potential bidders was
made and promptly reported to Kellogg, one on October 23 and one on October 24.
No financial terms were proposed and no bid was ever submitted by either
potential bidder after making those contacts.
On Monday, October 23, the Keebler special committee met with its financial
and legal advisors to receive a further update on the revised terms of the
Kellogg offer, the status of the auction process and the joint preliminary
indication of interest received on October 22.
On Tuesday, October 24, Kellogg and Flowers Industries continued
negotiating the terms of the definitive agreements, with particular emphasis on
the provisions relating to Flowers Industries' commitment to vote its shares of
Keebler stock in favor of a Kellogg/Keebler merger and the formula which would
determine the amount of cash payable to each Flowers Industries shareholder.
Representatives and advisors of Keebler, the Keebler special committee and
Kellogg were simultaneously negotiating the terms of the definitive agreement
for the merger of Keebler and Kellogg. In addition, Sam K. Reed, president and
chief executive officer of Keebler, met with Carlos Gutierrez, chairman and
chief executive officer of Kellogg, for the purpose of discussing the terms of
employment agreements to be offered to some members of Keebler's management
following the transaction, inasmuch as Kellogg was requiring that key executive
officers of Keebler enter
20
<PAGE> 27
into employment agreements with Kellogg as a condition of Kellogg's willingness
to proceed with the transaction. Flowers Industries' Board and the Keebler
special committee each met and received updates from their financial and legal
advisors during the day.
On Wednesday, October 25, negotiations continued among representatives of
Flowers Industries, the Keebler special committee and Kellogg, and their
respective legal advisors on the terms of the transaction documents, and among
the financial advisors on business and financial terms of the transaction. In
particular, management and the legal advisors for the parties (including for the
Keebler special committee) negotiated the final terms of the definitive
agreements, including the provisions of the voting agreement, covenants,
conditions to closing and termination fees. In addition, the law firm of Vedder,
Price, Kaufman and Kammholtz, legal counsel to Keebler's management, and
representatives of Kellogg management negotiated the terms of the employment
arrangements to be offered to some members of Keebler's management in connection
with the transaction.
During the morning of October 25, 2000, the Keebler special committee
received an update from its financial and legal advisors. During the evening of
October 25, the Board again received a report from its advisors on the status of
negotiations. Also during that evening, the Keebler special committee met in
person with its financial and legal advisors. Davis Polk & Wardwell again
advised the Keebler special committee on its legal duties and responsibilities
and then made presentations regarding the structure of the transaction and the
key terms and conditions of the Keebler merger agreement, the Flowers Industries
Merger Agreement, the voting agreement and the distribution agreement. Merrill
Lynch then reviewed the auction process and the structure and key terms of the
transaction from a financial point of view. Upon completion of this meeting, a
meeting of the entire Keebler board of directors was held. At the Keebler board
of directors meeting, Davis Polk & Wardwell and Merrill Lynch made presentations
similar to those made at the prior Keebler special committee meeting and
presentations were also made by the management of Keebler. In addition,
presentations were made by UBS Warburg and Morgan Stanley on the conduct and
results of the auction process. Following the Keebler board of directors
meeting, the Keebler special committee again met with its legal and financial
advisors to discuss the proposed transaction with Kellogg.
Following the meetings of Flowers Industries' and Keebler's boards of
directors and Keebler's special committee, negotiations continued among
representatives of Flowers Industries, the Keebler special committee and
Kellogg, and their respective legal advisors, on the terms of the transaction
documents, and among the financial advisors on the business and financial terms
of the documents. During the evening of October 25 and early morning of October
26, the parties finalized the remaining financial terms. Agreement was reached
on the pricing formula for Flowers Industries' Merger Agreement, including
Kellogg's agreement that the first $16 million of transaction-related expenses
for which Flowers Industries would be responsible would not reduce the
consideration payable to the Flowers Industries shareholders. The parties also
agreed that Keebler would declare and pay a $16 million special cash dividend to
its stockholders, including Flowers Industries, immediately prior to the
Kellogg/Keebler merger.
On Thursday, October 26, the Board met to give final consideration to the
transaction. Jones Day and Flowers Industries' general counsel, G. Anthony
Campbell, made presentations regarding the terms and conditions of the Flowers
Industries' Merger Agreement, the voting agreement, the distribution agreement
and the Kellogg/Keebler merger agreement. Each of UBS Warburg and Morgan Stanley
delivered its oral opinion to the Board, each of which was confirmed in writing,
that as of that date and based upon
21
<PAGE> 28
and subject to the matters in each opinion, the consideration to be received by
our shareholders in the Flowers Industries merger is fair, from a financial
point of view, to Flowers Industries' shareholders. By the unanimous vote of all
directors present (one non-employee director was not available to participate),
the Board then concluded that the Merger Agreement and the merger were fair to,
and in the best interests of, Flowers Industries' shareholders and approved the
Merger Agreement, the voting agreement and the distribution agreement and
approved the other matters that were necessary to authorize the transaction.
Later that morning after the Board met, the Keebler special committee met
with its financial and legal advisors and received a similar update on the
negotiations that had taken place since the prior special committee meeting and
an oral opinion from Merrill Lynch, their financial advisor, that was later
confirmed in writing, to the effect that, as of that date, subject to the
assumptions and qualifications set forth in the opinion, the cash consideration
to be received by Keebler's stockholders pursuant to the Kellogg/Keebler merger
is fair from a financial point of view to such Keebler stockholders other than
Flowers Industries, Kellogg and their respective affiliates. The special
committee then unanimously adopted a resolution concluding that the
Kellogg/Keebler merger and the Kellogg/Keebler merger agreement are fair to, and
in the best interests of, the Keebler stockholders (other than Flowers
Industries). Upon completion of the Keebler special committee meeting, a meeting
of the entire Keebler board of directors was held. At the Keebler board of
directors meeting, an update similar to the one provided to the Keebler special
committee was provided by Davis Polk & Wardwell and Merrill Lynch reviewed with
the Keebler board of directors the opinion it had delivered to the Keebler
special committee. The Keebler board of directors then unanimously determined
that the Kellogg/Keebler merger agreement and the transactions contemplated by
it are fair to, and in the best interests of, Keebler's stockholders, and
recommended that Keebler's stockholders approve and adopt the Kellogg/Keebler
merger agreement and that merger.
Definitive agreements were executed on the morning of October 26, and press
releases announcing the transaction were issued by Kellogg, Keebler and Flowers
Industries later that day.
PURPOSE AND CERTAIN EFFECTS OF THE MERGER AND SPIN-OFF
The purpose of the merger is to maximize the value to the shareholders of
Flowers Industries by having them exchange their indirect interest in Keebler
for cash and retain their interest in our Flowers Bakeries and Mrs. Smith's
Bakeries businesses. Flowers Industries' investment in Keebler has appreciated
substantially, so much so that a direct sale of our shares of Keebler stock
would not be the optimal tax structure for Flowers Industries or its
shareholders. After extensive consultation with financial and legal advisers,
our Board concluded that the structure we proposed in the auction presented the
maximum value to shareholders, both currently, through the cash to be paid to
our shareholders pursuant to the Merger Agreement, and over the long term,
through their investment in Flowers Foods. The spin-off and merger are intended
to enable our shareholders to recognize the full value of the Keebler business
and to preserve the opportunity to maximize the value of the Flowers Bakeries
and Mrs. Smith's Bakeries businesses, which we believe are not being recognized
appropriately under the current structure of Flowers Industries.
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<PAGE> 29
The spin-off will be accomplished by contributing all of our assets, and
some of our liabilities, associated with the operations of Flowers Bakeries and
Mrs. Smith's Bakeries to Flowers Foods. Our shareholders, through a taxable
spin-off effective virtually simultaneously with the merger, will receive all of
the outstanding shares of Flowers Foods common stock in an amount equal to their
proportionate ownership interest in Flowers Industries.
The merger will be accomplished by Kansas Merger Subsidiary, Inc., referred
to as Merger Sub, a wholly-owned subsidiary of Kellogg formed solely for the
purpose of this transaction, merging with and into Flowers Industries
effectively simultaneously with the spin-off, so that the primary asset of
Flowers Industries at that time will be its shares of Keebler stock. Flowers
Industries will be the surviving corporation, Kellogg will then own 100% of
Flowers Industries (it is expected that Flowers Industries will be renamed
Keebler Holding Corp.) and you will have no further ownership interest in
Flowers Industries or its Keebler subsidiary. We expect to delist our shares
from the New York Stock Exchange, although we expect that shares of Flowers
Foods will be registered under the Securities Exchange Act of 1934, and will be
traded on that exchange under the symbol "FLO" after the spin-off is completed.
As a result of the completion of these two integrated portions of this
transaction, Flowers Industries' shareholders will receive a cash payment
for each Flowers Industries share that they own, which we estimate to be
approximately $12.50 per share, plus one share of Flowers Foods stock for
each shares of Flowers Industries common stock that they own. As required
by the voting agreement, we have agreed to vote our shares of Keebler stock,
which represents a majority interest in Keebler, in favor of the Kellogg/Keebler
merger, which would be sufficient to ensure shareholder approval of the
Kellogg/Keebler merger agreement. Accordingly, if our Merger Agreement is not
approved by the holders of a majority of our shares or our merger with Kellogg
is otherwise not completed the Kellogg/Keebler merger may still occur if the
other conditions to the Kellogg/Keebler merger are satisfied or waived. In that
event, we and the other Keebler stockholders would exchange our respective
shares of Keebler stock for $42.00 per share in cash. This would result in a
taxable gain to us of approximately $1.5 billion and a tax liability to be paid
by us of approximately $600 million. If this occurs, the cash consideration to
be paid for Flowers Industries' shares of Keebler stock would be paid directly
to Flowers Industries, and you would not receive any cash or other consideration
in that merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS
At its meeting on October 26, 2000, the members of our Board who were
present unanimously determined that the terms and conditions of the Merger
Agreement were fair to, and in the best interests of, Flowers Industries and our
shareholders and approved the Merger Agreement and, therefore, the merger.
Accordingly, the Board unanimously recommends that Flowers Industries'
shareholders vote FOR the approval and adoption of the Merger Agreement.
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<PAGE> 30
REASONS FOR THE MERGER
In reaching their determination to approve and adopt the Merger Agreement
and that the Merger Agreement is fair to, and in the best interests of, Flowers
Industries and our shareholders, the Board consulted extensively with our
executive officers and legal and financial advisors and considered the following
factors:
- the financial condition, results of operations, businesses and prospects
of our traditional bakery businesses, both before and after giving effect
to the merger and the spin-off;
- our future prospects as a public company, with and without the merger and
spin-off;
- current market conditions and historical market prices, volatility and
trading information relating to our common stock and Keebler's common
stock;
- that the transaction allows Flowers Industries' shareholders to receive a
significant amount of cash in exchange for our interest in Keebler while
retaining their interests in our Flowers Bakeries and Mrs. Smith's
Bakeries businesses;
- the tax-efficient structure of the transaction provided for in the Merger
Agreement; in this regard, the Board considered that Flowers Industries
would incur a corporate tax liability of approximately $600 million if we
sold our shares of Keebler stock directly to a third party;
- the Board's belief that the preliminary indication of interest received
from the other potential bidder -- which was expressed in general terms,
was subject to additional due diligence, negotiation of joint
arrangements between the two potential bidders and approval of their
respective boards of directors and which did not provide confirmation
that financing had been committed or contain suggested forms of
definitive agreements as had been requested by our financial
advisors -- was too uncertain and undefined to risk losing the
specificity and greater certainty of the firm offers from Kellogg, which
by its terms required that definitive agreements be entered into by
October 26;
- the belief that the terms and conditions of the Merger Agreement,
including the parties' representations, warranties and covenants, and
other terms contained in the Merger Agreement, were reasonable and
necessary to accomplish the transaction with Kellogg;
- the possibility that we would be obligated to pay $58.2 million in
termination fees to Kellogg in the event our Merger Agreement is
terminated in certain circumstances;
- the terms of the Merger Agreement relating to other potential bids and
termination fees, including the provision that if the Merger Agreement is
terminated but the Keebler merger is completed, we are not required to
pay a termination fee;
- the fact that the merger agreements did not include a financing condition
and the Board's conclusion, based on consultation with its legal and
financial advisors and information provided by Kellogg, that Kellogg
could reasonably finance the purchase price for the mergers;
- the lack of any required approval by Kellogg stockholders to complete the
mergers;
24
<PAGE> 31
- the ability of each of Flowers Industries and Keebler to continue to
declare and pay normal quarterly dividends;
- Kellogg's insistence on assurance from Flowers Industries that the
Kellogg/Keebler merger would be approved by Keebler's stockholders even
if our merger is not completed under certain circumstances, and the risk
that our shareholders would not approve the merger with Kellogg but that
the Kellogg/Keebler merger would be completed with stockholder approval
obtained as a result of our voting agreement with Kellogg, in which event
we and the other stockholders of Keebler would exchange our respective
shares of Keebler stock for the $42.00 per share cash price to be paid
pursuant to the Kellogg/Keebler merger, resulting in a tax liability to
us of approximately $600 million;
- the risk that other potential bidders will not make more attractive bids
for Keebler because stockholder approval of the Keebler merger is assured
as a result of our voting agreement with Kellogg;
- the risk that Kellogg would abandon the transaction in the event that
definitive agreements were not reached prior to the deadline of Thursday,
October 26, 2000 set by Kellogg;
- the fact that the merger consideration of $42.00 per share of Keebler
stock represented a premium of approximately 73% over the closing price
of Keebler stock on March 13, 2000, the day that Nabisco Group Holdings
adopted a rights agreement in response to actions taken by Carl Icahn,
which coincided with the commencement of trading price increases due to
expectations of food industry consolidation;
- the financial analyses presented by the Board's financial advisors and
the opinions of Morgan Stanley and UBS Warburg that, as of October 26,
2000, and based upon and subject to the matters in their opinions, the
consideration to be received by our shareholders in our merger is fair,
from a financial point of view, to such shareholders;
- the broad scope of the auction for Flowers Industries and Keebler
conducted by management and our advisors in conjunction with Keebler and
its advisors, which over a three month period, involved contacting all
parties that were believed likely to have a potential interest and
providing substantial due diligence information to bidders;
- the interests of our directors and executive officers that may be
different from, or in addition to, the interests of our shareholders; and
- that the spin-off and merger would reduce significantly our financial
leverage compared to prior to the transactions.
Due to the varying nature and complexity of all of the factors considered
in connection with its evaluation of the Merger Agreement, the Board did not
quantify or otherwise attempt to rank or assign a relative weight to each of the
different factors. In addition, individual members of the Board may have given
different weight to different factors, and no particular factor was deemed to be
essential to the Board's ultimate determination.
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<PAGE> 32
OPINION OF MORGAN STANLEY & CO. INCORPORATED
Under a letter agreement dated as of July 7, 2000, referred to as the
engagement letter, Morgan Stanley was engaged to provide financial advisory
services and a financial fairness opinion in connection with our merger with
Kellogg. Morgan Stanley was selected by the Board to act as one of our financial
advisors based on Morgan Stanley's qualifications, expertise, reputation and its
knowledge of the business and affairs of Flowers Industries. At the meeting of
the Board on October 26, 2000, Morgan Stanley rendered its oral opinion,
confirmed in writing on that date, that based upon and subject to the various
considerations in the opinion, the consideration to be received by the holders
of Flowers Industries' common stock under the Merger Agreement is fair, from a
financial point of view, to those holders.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED OCTOBER 26,
2000, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX C
TO THIS PROXY STATEMENT. FLOWERS INDUSTRIES' SHAREHOLDERS ARE URGED TO, AND
SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION
IS DIRECTED TO THE BOARD OF DIRECTORS OF FLOWERS INDUSTRIES AND ADDRESSES ONLY
THE FAIRNESS OF THE CONSIDERATION PURSUANT TO THE MERGER AGREEMENT IN CONNECTION
WITH THE FLOWERS INDUSTRIES MERGER FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS
OF SHARES OF FLOWERS INDUSTRIES COMMON STOCK AS OF THE DATE OF THE OPINION, DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTIONS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF FLOWERS INDUSTRIES AS TO
HOW TO VOTE ON THE MERGER AGREEMENT. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THAT OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Flowers Industries and Keebler;
- reviewed certain internal financial statements and other financial and
operating data concerning Flowers Industries and Keebler prepared by the
management of those companies;
- reviewed certain financial projections concerning Flowers Industries and
Keebler prepared by the management of those companies, including the
assessment by the management of Flowers Industries of certain liabilities
of Flowers Industries;
- discussed the past and current operations and financial condition and the
prospects of Flowers Industries and Keebler, including information
relating to strategic, financial and operational benefits anticipated
from our merger with Kellogg, with senior executives of Flowers
Industries and Keebler;
26
<PAGE> 33
- reviewed the reported prices and trading activity for Flowers Industries
and Keebler common stock;
- compared Keebler's financial performance and the prices and trading
activity of Keebler's common stock with that of certain other comparable
publicly-traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions comparable to Kellogg's acquisition of
Keebler;
- participated in discussions and negotiations among representatives of
Flowers Industries, Keebler and Kellogg and their financial and legal
advisors;
- reviewed the Merger Agreement, the voting agreement, the distribution
agreement and the Keebler merger agreement, each in the form of the
drafts dated October 26, 2000, and certain related documents; and
- performed other analyses and considered other factors as Morgan Stanley
deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. Morgan Stanley assumed that the
financial projections, including information relating to strategic, financial
and operational benefits anticipated from Flowers Industries' merger with
Kellogg and certain liabilities of Flowers Industries, were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Flowers Industries, Keebler and Flowers Foods.
In addition, Morgan Stanley assumed that Flowers Industries' merger with
Kellogg, the spin-off and the Keebler merger would be completed in accordance
with the terms set forth in the drafts of the Merger Agreement, the distribution
agreement and the Keebler merger agreement and that the final executed forms of
those documents did not differ in any material respects. Morgan Stanley did not
make any independent valuation or appraisal of the assets or liabilities of
Flowers Industries, Keebler and Flowers Foods, nor was it furnished with any
appraisals. Morgan Stanley's opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to it, as of October 26, 2000.
In rendering its opinion, Morgan Stanley was not asked to, and did not,
address the spin-off, the value of Flowers Foods or the prices at which Flowers
Foods' common stock would trade after the spin-off. In addition and with the
consent of the Board, Morgan Stanley did not address the Kellogg/Keebler merger,
and in particular, Morgan Stanley did not consider the impact of any implied
control premium based on Flowers Industries' ownership of Keebler shares, which
represent a majority of the outstanding shares. Morgan Stanley's opinion did not
address Flowers Industries' underlying business decision to enter into the
Merger Agreement and the methods and means considered to effect the merger and
the other transaction contemplated by the Merger Agreement.
The following is a brief summary of analyses performed by Morgan Stanley in
connection with its oral opinion and the preparation of its written opinion
letter dated October 26, 2000. Some of these summaries of financial analyses
include information presented in tabular format. In order to fully understand
the financial analyses used by
27
<PAGE> 34
Morgan Stanley, the tables must be read together with the text of each summary.
The tables alone do not constitute a complete description of the financial
analyses.
MERGER CONSIDERATION ANALYSIS. Morgan Stanley reviewed the estimated cash
consideration to be received by holders of Flowers Industries' common stock
based on the formula set forth in the Merger Agreement and based on the
completion of the spin-off. As a result of the spin-off, Flowers Industries'
primary asset and liabilities were expected to be its ownership stake in Keebler
and certain expenses and indebtedness of Flowers Industries. Based on the cash
consideration to be received of $42.00 per share of Keebler stock owned by
Flowers Industries less certain liabilities of Flowers Industries estimated by
the management of Flowers Industries, Morgan Stanley calculated the implied
value of the cash consideration to be approximately $12.53 per Flowers
Industries share. The estimated value of the cash consideration was derived
based on:
- Flowers Industries' ownership of approximately 46.2 million shares of
Keebler stock;
- the cash consideration based on $42.00 per share of Keebler stock owned
by Flowers Industries;
- an assumption that the debt of Flowers Industries not assumed by Flowers
Foods will equal approximately $623 million at the closing of the merger;
- an assumption that there will be no corporate taxable gain at Flowers
Industries resulting from the spin-off; and
- transaction costs estimated to be approximately $75 million.
HISTORICAL SHARE PRICE PERFORMANCE. Morgan Stanley reviewed the stock
performance of Flowers Industries and Keebler and compared that performance with
the stock performance of the companies comprising a packaged food company index,
referred to as the packaged food index, and a baking company index, referred to
as the baking index. The packaged food index consisted of the following
companies:
- Campbell Soup Company;
- ConAgra;
- General Mills, Inc.;
- H.J. Heinz Company;
- Hershey Foods Corporation;
- Kellogg;
- The Quaker Oats Company;
- Ralston Purina Company;
- Sara Lee Corporation; and
- Unilever N.V.
The baking index consisted of the following companies:
- The Earthgrains Company; and
- Interstate Bakeries Corporation.
Morgan Stanley observed that during the period from March 13, 2000 (the
date of the announcement of Carl C. Icahn's intention to initiate a proxy fight
for control of Nabisco Group Holdings Corp.) to October 24, 2000, Flowers
Industries' common stock price increased 53.6% and Keebler's common stock price
increased 61.1%. Flowers Industries' common stock closed at $12.13 per share on
March 13, 2000, referred to as the
28
<PAGE> 35
Flowers Industries unaffected stock price, and at $18.63 on October 24, 2000.
Keebler common stock closed at $24.25 per share on March 13, 2000, referred to
as the Keebler unaffected stock price, and at $39.06 per share on October 24,
2000. In comparison, the packaged food index, the baking index and the S&P 500
increased 22.9%, 20.7% and 1.1%, respectively, during that period. Morgan
Stanley noted that from January 1, 2000 to March 13, 2000, the price per share
for Flowers Industries and Keebler declined by 23.9% and 13.8%, respectively,
while the packaged food index, the baking index and the S&P 500 declined by
25.2%, 22.1% and 5.8%, respectively. Morgan Stanley also noted the implied
premia of the consideration in the Keebler Merger of $42.00 per share to various
Keebler stock prices for the period from January 1, 2000 to October 24, 2000 as
follows:
<TABLE>
<CAPTION>
KEEBLER MERGER
PREMIA
----------------
STOCK
UNAFFECTED STOCK PRICES PRICE PREMIA
----------------------- ------ ------
<S> <C> <C>
March 13, 2000.............................................. $24.25 73.2%
High from January 1, 2000 to March 13, 2000................. 28.69 46.4
Low from January 1, 2000 to March 13, 2000.................. 21.88 92.0
</TABLE>
<TABLE>
<CAPTION>
KEEBLER MERGER
PREMIA
----------------
STOCK
AFFECTED STOCK PRICES PRICE PREMIA
--------------------- ------ ------
<S> <C> <C>
July 18, 2000(1)............................................ 35.38 18.7%
October 24, 2000............................................ 39.06 7.5
</TABLE>
-------------------------
(1) The final day of trading prior to Flowers Industries and Keebler's joint
announcement that their boards of directors had authorized each of the
companies to explore alternatives for the maximization of shareholder value,
including the potential sale of Keebler.
PEER GROUP COMPARISON. Morgan Stanley compared certain financial
information of Keebler with publicly-available information for the following
large-capitalization packaged food companies:
- Campbell Soup;
- ConAgra;
- General Mills;
- H.J. Heinz;
- Hershey Foods;
- Kellogg;
- Quaker Oats;
- Ralston Purina; and
- Sara Lee.
Morgan Stanley also compared certain financial information of Keebler with
publicly-available information for the following mid-capitalization packaged
food companies:
- Dean Foods Company;
- Earthgrains;
- Hormel Foods Corporation;
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<PAGE> 36
- Interstate Bakeries;
- Lancaster Colony Corporation;
- McCormick & Company, Incorporated;
- Smithfield Foods, Inc.;
- Suiza Foods Corporation; and
- Tyson Foods, Inc.
For this analysis, Morgan Stanley examined a range of estimates based on
securities research analysis. The following table presents, as of October 24,
2000, the large-capitalization packaged food companies' low, high and median of:
(i) the ratio of aggregate value, defined as market capitalization plus total
debt less cash and cash equivalents, to estimated calendar year 2000 earnings
before interest, taxes, depreciation and amortization, or EBITDA, (ii) the ratio
of aggregate value to estimated calendar year 2001 EBITDA, (iii) the ratio of
share price to estimated calendar year 2000 earnings per share, or EPS, and (iv)
the ratio of share price to estimated calendar year 2001 EPS. Morgan Stanley
then compared this information for the large-capitalization packaged food
companies to similar information for Keebler based on the consideration in the
Kellogg/Keebler merger of $42.00 per share.
<TABLE>
<CAPTION>
KEEBLER MERGER LOW MEDIAN HIGH
-------------- ----- ------ -----
<S> <C> <C> <C> <C>
Aggregate Value/Calendar Year 2000 EBITDA... 10.1x 7.9x 9.5x 13.8x
Aggregate Value/Calendar Year 2001 EBITDA... 9.1x 7.4x 9.3x 12.9x
Calendar Year 2000 P/E Multiple............. 23.1x 11.3x 16.2x 22.9x
Calendar Year 2001 P/E Multiple............. 20.0x 10.2x 14.9x 20.8x
</TABLE>
The following table presents, as of October 24, 2000, the
mid-capitalization packaged food companies' low, high and median of: (i) the
ratio of aggregate value to estimated calendar year 2000 EBITDA, (ii) the ratio
of aggregate value to estimated calendar year 2001 EBITDA, (iii) the ratio of
share price to estimated calendar year 2000 EPS, and (iv) the ratio of share
price to estimated calendar year 2001 EPS. Morgan Stanley then compared this
information for the mid-capitalization packaged food companies to similar
information for Keebler based on the consideration in the Kellogg/Keebler merger
of $42.00 per share.
<TABLE>
<CAPTION>
KEEBLER MERGER LOW MEDIAN HIGH
-------------- ---- ------ -----
<S> <C> <C> <C> <C>
Aggregate Value/Calendar Year 2000 EBITDA.... 10.1x 4.2x 6.1x 8.5x
Aggregate Value/Calendar Year 2001 EBITDA.... 9.1x 3.8x 5.3x 7.6x
Calendar Year 2000 P/E Multiple.............. 23.1x 9.1x 12.1x 17.3x
Calendar Year 2001 P/E Multiple.............. 20.0x 7.1x 10.8x 14.1x
</TABLE>
No company utilized in the peer group comparison analysis is identical to
Keebler. In evaluating the peer group, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Keebler, such as the impact of competition on the business of Keebler
or the industry generally, industry growth and the absence of any material
adverse change in the financial condition and prospects of Keebler or the
industry or in the financial markets in general. Mathematical analysis, such as
determining the average or median, is not in itself a meaningful method of using
peer group data.
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<PAGE> 37
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Morgan Stanley compared
statistics based on publicly-available information for selected precedent
transactions to the relevant financial statistics for Keebler. Morgan Stanley
reviewed the following four food industry transactions:
- the acquisition of Diageo Plc's Pillsbury unit by General Mills;
- the acquisition of IHF by ConAgra;
- the acquisition of Nabisco Holdings Corp. by Philip Morris; and
- the acquisition of Bestfoods by Unilever PLC and Unilever N.V.
The following table presents the high, low and median of: (i) the ratio of
aggregate value to last twelve months, or LTM, EBITDA, (ii) the ratio of
aggregate value to calendar year 2000 EBITDA, (iii) the ratio of merger
consideration per share to LTM EPS, and (iv) the ratio of merger consideration
per share to estimated calendar year 2000 EPS, in each case for the selected
precedent transactions. Morgan Stanley then compared this information to similar
information for Keebler based on the consideration in the Keebler merger of
$42.00 per share.
<TABLE>
<CAPTION>
KEEBLER MERGER LOW MEDIAN HIGH
-------------- ----- ------ -----
<S> <C> <C> <C> <C>
Aggregate Value to LTM EBITDA............... 10.9x 8.7x 12.5x 15.1x
Aggregate Value to Calendar Year 2000
EBITDA.................................... 10.1x 8.3x 11.1x 13.7x
LTM P/E Multiple............................ 25.4x 15.6x 27.1x 27.8x
Calendar Year 2000 P/E Multiple............. 23.1x 12.8x 25.7x 26.5x
</TABLE>
No transaction utilized as a comparison in the selected precedent
transactions analysis is identical to the Kellogg/Keebler merger. In evaluating
the transactions listed above, Morgan Stanley made judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Keebler, such as the impact of competition on the business of Keebler or the
industry generally, industry growth and the absence of any material adverse
change in the financial condition and prospects of Keebler or the industry or in
the financial markets in general. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using comparable
transaction data.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis, which is an analysis of the present value of projected unlevered
free cash flows using terminal year EBITDA multiples and discount rates (each,
as indicated below) of Keebler. Morgan Stanley analyzed Keebler's business using
publicly-available information, discussions with Keebler's management and
certain financial forecasts prepared by Keebler's management for the projected
fiscal years 2001 through 2005. The terminal value was calculated using terminal
multiples of estimated 2005 EBITDA ranging from 7.0x to 8.0x. For purposes of
this analysis, Morgan Stanley estimated Keebler's discounted unlevered free cash
flow value using discount rates ranging from 7.5% to 10.5%. The discounted cash
flow analysis implied a range of values for Keebler common stock of $35 to $44
per share.
In connection with the review of the merger by the Board of Flowers
Industries, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The
preparation of a fairness opinion is a
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<PAGE> 38
complex process and is not necessarily susceptible to partial analysis or
summary description. In arriving at its opinion, Morgan Stanley considered the
results of all of its analyses as a whole and did not attribute any particular
weight to any analysis or factor considered by it. Furthermore, Morgan Stanley
believes that selecting any portion of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of Keebler or of Flowers
Industries.
In performing its analyses, Morgan Stanley made numerous assumptions
relating to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Flowers Industries or
Keebler.
Any estimates contained in Morgan Stanley's analyses are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses performed
were prepared solely as part of Morgan Stanley's analysis of the fairness of the
consideration to be received by the holders of Flowers Industries' common stock
under a formula in the Merger Agreement and were conducted in connection with
the delivery of the Morgan Stanley opinion to the Board. The analyses do not
purport to be appraisals or to reflect the prices at which Flowers Industries or
Keebler stock might actually trade. The terms of the Merger Agreement, including
the consideration to be received by the holders of the Flowers Industries'
common stock under the Merger Agreement, was determined through arm's-length
negotiations between Flowers Industries, Keebler and Kellogg and was approved by
the Board. Morgan Stanley provided advice to Flowers Industries during these
negotiations; however, Morgan Stanley did not recommend any specific
consideration to Flowers or that any specific consideration constituted the only
appropriate consideration for the merger. In addition, as described above,
Morgan Stanley's opinion and presentation to the Board was one of a number of
factors taken into consideration by the Board in making their decision to
approve the merger. Consequently, the Morgan Stanley analyses as described above
should not be viewed as determinative of the opinion of the Board with respect
to the value of Flowers Industries or of whether the Board would have been
willing to agree to a different consideration.
The Board retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking and financial advisory business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the past, Morgan Stanley has
provided financial advisory and financing services for Flowers Industries,
Keebler and Kellogg and has received fees for the rendering of these services.
In the ordinary course of business, Morgan Stanley may from time to time trade
in the securities or indebtedness of Flowers Industries, Keebler or Kellogg for
its own account, the accounts of investment funds and other clients under the
management of Morgan Stanley and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities or
indebtedness.
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<PAGE> 39
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion to Flowers Industries in connection
with its merger with Kellogg, and Flowers Industries agreed to pay Morgan
Stanley a customary fee, all of which is conditional upon consummation of the
merger and spin-off. We have also agreed to reimburse Morgan Stanley for its
expenses incurred in performing its services. In addition, we have agreed to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against some liabilities and expenses,
including liabilities under the federal securities laws, related to or arising
out of Morgan Stanley's engagement and any related transactions.
OPINION OF UBS WARBURG LLC
Under the terms of an engagement letter dated July 19, 2000, we retained
UBS Warburg to provide financial advisory services and a financial fairness
opinion in connection with our merger with Kellogg. At the meeting of the Board
held on October 26, 2000, UBS Warburg delivered its oral opinion to the effect
that, as of the date of the opinion and based on and subject to the matters
described in the opinion, including a review of the definitive agreements for
the transaction, the consideration to be received by the holders of Flowers
Industries common stock in the merger between Flowers Industries and Kellogg is
fair, from a financial point of view, to the holders of Flowers Industries
common stock. The opinion was confirmed by delivery of a written opinion dated
October 26, 2000, the date of execution of the Merger Agreement.
THE FOLLOWING SUMMARY OF THE UBS WARBURG OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE FULL TEXT OF THE UBS
WARBURG OPINION SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN AND IS ATTACHED
AS APPENDIX D TO THIS PROXY STATEMENT AND INCORPORATED HEREIN BY REFERENCE. WE
ENCOURAGE YOU TO READ CAREFULLY THE UBS WARBURG OPINION IN ITS ENTIRETY.
UBS Warburg's opinion:
- is directed to the Board;
- relates only to the fairness, from a financial point of view, to the
holders of Flowers Industries common stock of the consideration to be
received by those holders in the merger of Flowers Industries and
Kellogg;
- does not constitute a recommendation to holders of Flowers Industries
common stock about how to vote on the transaction;
- does not address Flowers Industries' underlying business decision to
effect the merger, Keebler's merger with Kellogg or the spin-off, the
form of those transactions or the after-tax consequences to Flowers
Industries or to any holder of Flowers Industries common stock of the
merger or the spin-off; and
- is necessarily based upon economic, monetary, market and other conditions
as they existed as of the date of the opinion and should be evaluated
based upon those conditions.
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<PAGE> 40
In arriving at its opinion, UBS Warburg, among other things:
- reviewed specified publicly available business and historical financial
information relating to Keebler and Flowers Industries;
- reviewed the reported prices and trading activity for Flowers Industries
and Keebler common stock;
- reviewed specified internal financial information and other data
concerning the business and financial prospects of Keebler, including
estimates and financial forecasts prepared by the management of Keebler,
which were provided to UBS Warburg by Keebler and Flowers Industries and
not publicly available;
- reviewed specified internal financial information relating to estimated
liabilities of Flowers Industries which are not being assumed by Flowers
Foods in connection with the spin-off, which estimates were prepared by
the management of Flowers Industries and not publicly available;
- held discussions with members of the senior managements of Keebler and
Flowers Industries regarding the business and prospects of Keebler, as
well as other matters it believed relevant to its inquiry;
- reviewed publicly available financial and stock market data with respect
to selected companies in lines of business UBS Warburg believed to be
generally comparable to those of Keebler;
- compared the financial terms of the merger of Kellogg and Keebler with
the publicly available financial terms of selected other transactions
that UBS Warburg believed to be generally relevant;
- reviewed drafts of the Merger Agreement, the Keebler merger agreement,
the distribution agreement and the voting agreement; and
- conducted and considered other financial studies, analyses,
investigations and information that it considered necessary or
appropriate.
In connection with its review, at Flowers Industries' direction, UBS
Warburg:
- did not independently verify any of the information referred to above and
relied on it as being complete and accurate in all material respects;
- assumed that the financial forecasts and estimates relating to Keebler
referred to above were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Keebler
as to the future performance of Keebler;
- assumed that the estimated liabilities of Flowers Industries referred to
above were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of Flowers
Industries;
- did not make any independent evaluation or appraisal of any of the assets
or liabilities of Keebler, Flowers Industries or Flowers Foods, nor was
UBS Warburg furnished with any similar evaluation or appraisal;
- did not consider, and offered no opinion as to, the impact of any implied
control premium based upon Flowers Industries' ownership of Keebler
shares representing a
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<PAGE> 41
majority of the outstanding voting power of Keebler on its financial and
comparative analyses in connection with the rendering of its opinion;
- did not express any opinion as to the spin-off, the value of Flowers
Foods or the prices at which the Flowers Foods' common stock would trade
subsequent to the spin-off; and
- assumed that Flowers Industries, Keebler, Flowers Foods, Kellogg, Merger
Sub and the subsidiary that will merge into Keebler would comply with all
material terms of the Merger Agreement, the Keebler merger agreement, the
distribution agreement and the voting agreement, as applicable, and that
Flowers Industries' merger with Kellogg, Keebler's merger with Kellogg
and the spin-off will be completed in accordance with the terms of those
agreements.
UBS Warburg was not asked to and did not recommend the specific
consideration payable in the merger of Flowers Industries and Kellogg, which was
determined through negotiation between Flowers Industries, Keebler and the
special committee of the board of directors of Keebler, on the one hand, and
Kellogg, on the other hand. At Flowers Industries' direction, UBS Warburg
contacted third parties to solicit indications of interest in possible business
combination transactions with Flowers Industries and Keebler. UBS Warburg held
discussions with a number of these parties before the date of its opinion.
Except to the extent set forth above, Flowers Industries did not limit UBS
Warburg regarding the procedures to be followed or factors to be considered in
rendering its opinion.
In preparing its opinion, UBS Warburg performed a variety of financial and
comparative analyses. The material analyses are summarized below. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not susceptible to partial analysis or summary
descriptions. In arriving at its opinion, UBS Warburg made qualitative judgments
as to the significance and relevance of each analysis and factor considered by
it. UBS Warburg believes that its analyses must be considered as a whole and
that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the processes underlying the analyses set forth in its opinion.
In performing its analyses, UBS Warburg made numerous assumptions relating
to industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of Flowers
Industries or Keebler. No company, transaction or business used in those
analyses as a comparison is identical to Keebler or its businesses or the
Flowers Industries merger, nor is an evaluation of the results entirely
mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed.
The estimates contained in the analyses performed by UBS Warburg and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than suggested by these analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which a
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<PAGE> 42
business might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future.
Flowers Industries selected UBS Warburg based on its experience, expertise
and reputation. UBS Warburg is an internationally recognized investment banking
firm that regularly engages in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. In
the past, UBS Warburg and its predecessors have provided investment banking
services to Flowers Industries, Keebler and Kellogg and received customary
compensation for the rendering of these services. In the ordinary course of its
business, UBS Warburg, its successors and affiliates may trade or have traded
securities of Flowers Industries, Keebler and Kellogg for their own accounts and
may at any time hold a long or short position in any of these securities. UBS
Warburg and its affiliates, including UBS AG, may have other business
relationships with Flowers Industries, Keebler, Kellogg and their affiliates.
The following is a summary of the material financial analyses used by UBS
Warburg in rendering its opinion. The financial analyses summarized below
include information presented in tabular format. In order to understand the
financial analyses fully, the tables must be read together with the text of each
summary. Considering the data set forth below without considering the full
narrative description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of the financial analyses.
MERGER CONSIDERATION ANALYSIS. UBS Warburg reviewed the estimated cash
consideration to be received by holders of Flowers Industries common stock in
the merger based on the formula in the Merger Agreement and based on the
completion of the spin-off. As a result of the spin-off, Flowers Industries'
primary asset and liabilities were expected to be Flowers Industries' ownership
stake in Keebler and some expenses and indebtedness of Flowers Industries. Based
on the cash consideration to be received in respect of each Keebler share of
$42.00 less specified liabilities of Flowers Industries estimated by the
management of Flowers Industries, UBS Warburg calculated the implied value of
the cash consideration to be approximately $12.51 per Flowers Industries' share.
The estimated value of the cash consideration was derived based upon the
following:
- Flowers Industries' ownership of approximately 46.2 million shares of
Keebler stock;
- the cash consideration based on $42.00 per share of Keebler stock owned
by Flowers Industries;
- an assumption that the debt balance of Flowers Industries not assumed by
Flowers Foods will equal approximately $623 million at the closing of the
merger;
- an assumption that there will be no corporate taxable gain at Flowers
Industries resulting from the spin-off; and
- that transaction costs will be approximately $77 million.
HISTORICAL STOCK PRICE ANALYSIS. UBS Warburg reviewed the historical
trading prices for Keebler stock for the period from September 29, 1999 through
October 24, 2000, and compared the movements in those prices to the movements of
an index of publicly-traded branded foods companies for the same period. The
branded food company index consists of:
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<PAGE> 43
- Campbell Soup;
- ConAgra;
- General Mills;
- H.J. Heinz;
- Hershey Foods;
- Kellogg;
- Quaker Oats; and
- Sara Lee.
UBS Warburg observed that (i) during the period from September 29, 1999 to
March 28, 2000 (two days prior to the date that Carl Icahn announced his
intention to commence a tender offer to acquire Nabisco Group Holdings stock),
Keebler's stock traded at a low of $21.88 and a high of $32.13, and (ii) during
the period from March 29, 2000 to October 24, 2000 (two days prior to the
announcement of the Keebler merger with Kellogg), Keebler's stock traded at a
low of $27.25 and a high of $45.94 and Keebler's stock price increased 43.3%
from $27.25 to $39.06 as compared to a 13.3% increase in the branded food
company index during the same period.
SELECTED PUBLIC COMPANIES TRADING ANALYSIS. UBS Warburg reviewed and
analyzed selected financial information, ratios and public market multiples for
the following eight publicly-traded branded food companies with relatively large
stock market capitalizations and the following seven publicly-traded branded
food companies with midsize stock market capitalizations:
LARGE CAPITALIZATION
- Campbell Soup;
- ConAgra;
- General Mills;
- H.J. Heinz;
- Hershey Foods;
- Kellogg;
- Quaker Oats; and
- Sara Lee.
MIDSIZE CAPITALIZATION
- Aurora Foods Inc.;
- Del Monte Foods Company;
- Dole Food Company, Inc.;
- Earthgrains;
- Hormel Foods;
- Interstate Bakeries; and
- The J.M. Smucker Company.
UBS Warburg chose the selected companies because they were publicly-traded
companies that, for purposes of the analysis, UBS Warburg considered reasonably
similar to Keebler in that these companies operate in the branded foods
industry. The selected public companies may significantly differ from Keebler
based on, among other things, the size of the companies, the geographic coverage
of the companies' operations and the particular segments of the branded foods
industry in which the companies focus.
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<PAGE> 44
UBS Warburg reviewed, among other things, the following:
- enterprise values, calculated as the market value of fully diluted equity
securities plus indebtedness and minority interests less cash, as of
October 24, 2000, as a multiple of actual trailing 12 months sales,
EBITDA and EBIT and estimated calendar 2000 EBITDA;
- equity values, calculated as per share closing stock prices on October
24, 2000, as a multiple of estimated calendar 2000 EPS and estimated
calendar 2001 EPS; and
- the ratio of 2000 estimated price/earnings ratio to five-year growth
rates provided by I/B/E/S International Inc., or IBES.
This analysis indicated the following implied multiples for the selected
public companies:
<TABLE>
<CAPTION>
IMPLIED RANGE OF MULTIPLES OF
SELECTED PUBLIC COMPANIES:
------------------------------
LOW HIGH MEAN MEDIAN
LARGE CAPITALIZATION COMPANIES ----- ----- ----- ------
<S> <C> <C> <C> <C>
ENTERPRISE VALUE TO:
Actual Trailing 12 Months Sales.................... 0.8x 2.4x 1.8x 2.0x
Actual Trailing 12 Months EBITDA................... 8.1x 13.1x 10.2x 9.5x
Actual Trailing 12 Months EBIT..................... 9.6x 15.7x 12.5x 12.0x
Estimated Calendar 2000 EBITDA..................... 7.8x 12.3x 9.5x 9.0x
EQUITY VALUE TO:
Estimated Calendar 2000 EPS........................ 11.3x 23.2x 17.0x 15.5x
Estimated Calendar 2001 EPS........................ 10.0x 21.0x 15.7x 14.8x
2000 P/E TO:
IBES Five-Year Growth Rate......................... 1.1x 2.3x 1.7x 1.6x
</TABLE>
<TABLE>
<CAPTION>
IMPLIED RANGE OF MULTIPLES OF
SELECTED PUBLIC COMPANIES:
-----------------------------
LOW HIGH MEAN MEDIAN
MIDSIZE CAPITALIZATION COMPANIES ---- ----- ----- ------
<S> <C> <C> <C> <C>
ENTERPRISE VALUE TO:
Actual Trailing 12 Months Sales..................... 0.4x 1.0x 0.7x 0.6x
Actual Trailing 12 Months EBITDA.................... 4.6x 7.6x 6.4x 7.0x
Actual Trailing 12 Months EBIT...................... 6.0x 15.2x 10.5x 10.6x
Estimated Calendar 2000 EBITDA...................... 4.1x 6.9x 5.6x 6.1x
EQUITY VALUE TO:
Estimated Calendar 2000 EPS......................... 6.0x 17.0x 11.2x 10.6x
Estimated Calendar 2001 EPS......................... 5.7x 15.0x 10.3x 11.5x
2000 P/E TO:
IBES Five-Year Growth Rate.......................... 0.4x 1.4x 1.0x 1.0x
</TABLE>
UBS Warburg then compared the implied multiples derived for the selected
public companies with the relevant implied multiples for Keebler based on the
$42.00 per Keebler share offered by Kellogg. Based on the $42.00 per Keebler
share offered by Kellogg, the implied multiples for Keebler are as follows: 1.6x
enterprise value to actual trailing 12 months sales, 11.1x enterprise value to
actual trailing 12 months EBITDA, 14.4x enterprise value to actual trailing 12
months EBIT, 10.3x enterprise value to estimated
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<PAGE> 45
calendar 2000 EBITDA, 22.7x equity value to estimated calendar 2000 EPS, 20.2x
equity value to estimated calendar 2001 EPS and 1.7x 2000 P/E to IBES five-year
growth rate. Actual trailing 12 months data for Keebler and the selected
companies were based on the respective companies' Forms 10-K and 10-Q. Estimated
financial data for the selected companies were based on publicly available
research analysts' estimates. Estimated financial data for Keebler were based on
internal estimates provided by Keebler and Flowers Industries.
SELECTED TRANSACTIONS ANALYSIS. UBS Warburg reviewed and compared publicly
available information relating to the following selected transactions in the
branded foods industry announced since May 2000:
<TABLE>
<CAPTION>
ANNOUNCEMENT
TARGET ACQUIROR DATE
------ -------- ------------
<S> <C> <C>
Pillsbury General Mills 7/17/00
IHF ConAgra 6/22/00
Nabisco Holdings Corp. Philip Morris 6/20/00
Bestfoods Unilever N.V. and Unilever PLC 5/25/00
</TABLE>
UBS Warburg chose the selected transactions because they were business
combinations that, for the purposes of the analysis, UBS Warburg considered to
be reasonably similar to the Keebler merger with Kellogg in that these
transactions involved companies in the branded foods industry. The selected
transactions may significantly differ from the Flowers Industries and Keebler
mergers based on, among other things, the size of the transactions, the
structure of the transactions and the date the transactions were consummated.
UBS Warburg reviewed, among other things, the enterprise values implied in
the relevant transactions as a multiple of actual trailing 12 months sales,
EBITDA and EBIT and of estimated calendar 2000 EBITDA.
This analysis indicated the following implied multiples for the selected
transactions:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF SELECTED
TRANSACTIONS:
------------------------------
LOW HIGH MEAN MEDIAN
---- ----- ----- -------
<S> <C> <C> <C> <C>
ENTERPRISE VALUE TO:
Actual Trailing 12 Months Sales....................... 1.3x 2.8x 2.0x 2.0x
Actual Trailing 12 Months EBITDA...................... 8.6x 15.1x 12.0x 12.1x
Actual Trailing 12 Months EBIT........................ 9.8x 20.9x 15.4x 15.4x
Estimated Calendar 2000 EBITDA........................ 8.3x 13.7x 11.2x 11.4x
</TABLE>
UBS Warburg then compared the implied multiples derived for the selected
transactions with the relevant implied multiples for Keebler in the Keebler
merger based on the $42.00 per share of Keebler stock offered by Kellogg. Based
on the $42.00 per share of Keebler stock offered by Kellogg, the implied
multiples for Keebler in the Keebler merger are as follows: 1.6x transaction
value to actual trailing 12 months sales, 11.1x transaction value to actual
trailing 12 months EBITDA, 14.4x transaction value to actual trailing 12 months
EBIT and 10.3x transaction value to estimated calendar 2000 EBITDA. All
multiples for the selected transactions were based on publicly-available
information at the time of the announcement of the particular transaction.
Actual trailing 12-months data
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<PAGE> 46
for Keebler was based on its applicable Forms 10-K and 10-Q. Estimated financial
data for Keebler were based on internal estimates provided by Keebler and
Flowers Industries.
DISCOUNTED CASH FLOW ANALYSIS. UBS Warburg performed a discounted cash
flow analysis, using internal estimates of the management of Keebler, in order
to derive an implied equity value reference range for Keebler. This analysis was
based on:
- the present value of the estimated unlevered, after-tax free cash flows
that Keebler could generate over the five-year period 2001 through 2005;
and
- the present value of the 2005 terminal value of Keebler based on a range
of multiples applied to its estimated future 2005 EBITDA.
For purposes of this analysis, UBS Warburg used discount rates of 9.5% to
10.0%, which were based on Keebler's estimated weighted average cost of capital,
and terminal 2005 EBITDA multiples of 7.0x to 9.0x, which were derived by
reference to the selected public companies trading analysis. UBS Warburg also
performed the discounted cash flow analysis by determining the present value of
the estimated unlevered, after-tax free cash flows that Keebler could generate
in perpetuity by taking the estimated cash flows for 2005 and increasing it
annually in perpetuity at growth rates of 2% to 4%. This analysis implied a per
share equity value reference range for Keebler of approximately $37.00 to $47.00
using the 2005 terminal value and approximately $33.00 to $47.00 using
perpetuity growth rates.
FINANCIAL ADVISOR FEE ARRANGEMENTS
Pursuant to the engagement letter between Flowers Industries and Morgan
Stanley, and the engagement letter between Flowers Industries and UBS Warburg,
each of Morgan Stanley and UBS Warburg provided financial advisory services in
connection with the Flowers Industries merger and spin-off and a fairness
opinion relating to the merger. Pursuant to these engagement letters, Flowers
Industries has agreed to pay Morgan Stanley and UBS Warburg in the aggregate as
compensation for their services the following amounts: (i) spin-off fees of $6.0
million and (ii) merger fees of $26.0 million, in each case, upon the completion
of an acquisition transaction involving Flowers Industries.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of our Board relating to the merger,
shareholders should be aware that our executive officers and directors may have
interests that are different from, or in addition to, their interests as
shareholders of Flowers Industries. The Board was aware of these interests, and
considered them, among other matters, in its recommendation to approve the
Merger Agreement and, therefore, the merger.
STOCK OPTIONS
Flowers Industries' 1989 executive stock incentive plan, as amended, called
the ESIP, and our directors' equity plan, contain change of control provisions
that will give rise to accelerated vesting of outstanding options to acquire our
stock as a result of the completion of the merger. Any Flowers Industries stock
option held by a current or former employee or director that was issued under
the ESIP and is not exercised before the completion of the merger will be
cancelled in exchange for a cash payment equal to the
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<PAGE> 47
difference between the option exercise price and the highest per share trading
price of Flowers Industries' stock in the 60-day period preceding the effective
time of the merger, called the option spread.
The following table shows the number of unvested options held by Flowers
Industries executive officers and directors whose vesting will accelerate as a
result of the merger, the number of already vested options and the estimated
value of all Flowers Industries options held by each person.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO UNVESTED NUMBER OF
FLOWERS INDUSTRIES' SHARES SUBJECT
OPTIONS THAT ACCELERATE TO AGGREGATE OPTION
AS A RESULT OF THE ALREADY VESTED SPREAD(1) OF ALL FLOWERS
NAME TRANSACTION(#) OPTIONS(#) INDUSTRIES' OPTIONS($)
---- ----------------------- -------------- ------------------------
<S> <C> <C> <C>
Edward L. Baker.......... -- 25,417 $ 10,096
Director
Joe E. Beverly........... -- 10,353 3,461
Director
Franklin L. Burke........ -- 23,276 8,654
Director
G. Anthony Campbell...... 56,000 -- --(2)
General Counsel,
Secretary and Director
Robert P. Crozer......... 292,000 135,000 1,138,050
Vice Chairman of the
Board
George E. Deese.......... 95,000 90,000 758,700
President and Chief
Operating Officer,
Flowers
Bakeries
L. S. Flowers............ -- 10,432 --
Director
Gary L. Harrison......... 95,000 90,000 758,700
President and Chief
Operating Officer, Mrs.
Smiths Bakeries
Joseph L. Lanier, Jr..... -- 25,417 10,096
Director
Amos R. McMullian........ 396,000 -- --(2)
Chief Executive Officer
and Chairman of the
Board
J. V. Shields, Jr........ -- 23,276 8,654
Director
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO UNVESTED NUMBER OF
FLOWERS INDUSTRIES' SHARES SUBJECT
OPTIONS THAT ACCELERATE TO AGGREGATE OPTION
AS A RESULT OF THE ALREADY VESTED SPREAD(1) OF ALL FLOWERS
NAME TRANSACTION(#) OPTIONS(#) INDUSTRIES' OPTIONS($)
---- ----------------------- -------------- ------------------------
<S> <C> <C> <C>
Marta J. Turner.......... 11,000 -- --(2)
Vice President of
Communications and
Investor Relations
Jackie M. Ward........... -- 6,923 8,654
Director
C. Martin Wood III....... 28,000 -- --(2)
Director
Jimmy M. Woodward........ 56,000 -- --(2)
Vice President and
Chief
Financial Officer
</TABLE>
-------------------------
(1) The option spread is calculated based on an assumed Flowers Industries
common stock price of $16.6875 per share, which is the highest trading price
since October 26, 2000, the date the execution of the Merger Agreement was
announced. The actual option spread will be based on the difference between
the exercise price and the actual highest trading price in the sixty days
prior to the closing of the merger.
(2) Due to the current trading price of Flowers Industries' common stock, the
option spread is negative, and no payments are expected to be made.
RESTRICTED STOCK
Shares of restricted stock outstanding under the ESIP will also be subject
to accelerated vesting at the effective time of the merger. The following table
shows the number of shares of Flowers Industries restricted stock held by
Flowers Industries' executive officers and directors and the estimated value of
those shares. The estimated value is based on an assumed Flowers Industries
stock price of $16.6875 per share, which is the highest trading price since
October 26, 2000, the date the execution of the Merger Agreement was announced.
The actual value will be based on the actual highest trading price in the sixty
days prior to the closing of the merger. Upon completion of the merger, the
shares of Flowers Industries restricted stock will vest in full and will be
cancelled in exchange for a cash payment equal to the difference between the
restricted stock award exercise price and that highest per share trading price.
<TABLE>
<CAPTION>
NUMBER OF SHARES/VALUE OF
FLOWERS INDUSTRIES'
NAME RESTRICTED STOCK
---- -------------------------
<S> <C>
Edward L. Baker........................................ --
Joe E. Beverly......................................... --
Franklin L. Burke...................................... --
G. Anthony Campbell.................................... 32,517/$243,937
Robert P. Crozer....................................... 119,794/$886,228
</TABLE>
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<PAGE> 49
<TABLE>
<CAPTION>
NUMBER OF SHARES/VALUE OF
FLOWERS INDUSTRIES'
NAME RESTRICTED STOCK
---- -------------------------
<S> <C>
George E. Deese........................................ 153,196/$879,767
L. S. Flowers.......................................... --
Gary L. Harrison....................................... 153,196/$879,767
Joseph L. Lanier, Jr................................... --
Amos R. McMullian...................................... 224,582/$1,675,774
J. V. Shields, Jr...................................... --
Marta J. Turner........................................ 5,052/$32,270
Jackie M. Ward......................................... --
C. Martin Wood III..................................... 8,818/$67,178
Jimmy M. Woodward...................................... 25,857/$189,825
All executive officers as a group...................... 723,012/$4,854,746
Non-employee directors as a group...................... --
</TABLE>
SEPARATION AGREEMENTS
Each of Messrs. McMullian, Crozer, Woodward, Deese and Harrison, as well as
two other executive officers, is a party to a separation agreement with Flowers
Industries, implemented in March 1999, which provides that if the executive's
employment is involuntarily terminated other than for cause by Flowers
Industries, if the executive terminates his employment for good reason and if
the termination occurs within two years after the occurrence of a change in
control, then the executive will be entitled to receive two or three times his
salary and bonus (as specified in that executive officer's separation
agreement), payment of vested compensation previously deferred and not yet paid
by us, benefit continuation for one year and other benefits, including
reimbursement of relocation costs and, if necessary, a related excise tax
gross-up payment. The 2000 base salary and annual target bonus opportunity (as a
percentage of base salary) for Messrs. McMullian, Crozer, Woodward, Deese and
Harrison is: $850,000 and 75%; $725,000 and 70%; $265,200 and 40%; $363,500 and
50%; and $363,500 and 50%, respectively.
If, as expected, Messrs. McMullian, Crozer, Woodward, Deese and Harrison
are terminated without cause, or have good reason to terminate their employment,
immediately after the completion of the merger, which constitutes a change in
control (although they will become executives of Flowers Foods, or a subsidiary,
upon the spin-off), they will be entitled to cash severance payments of
approximately $4,593,269, $3,809,038, $783,360, $1,115,200 and $1,115,200,
respectively. Two other executive officers will be entitled to similar payments.
In the event that, as a result of the merger, a parachute excise tax is imposed
on any payment to any of the seven executive officers (including relating to the
accelerated vesting of options), those officers will also be entitled to excise
tax reimbursement payments.
The total amount of all severance and other termination payments to be made
to the seven executive officers as a result of the merger is expected to be
$26,018,667. Under the pricing formula in the Merger Agreement, the severance
costs and termination payments for our executive officers will be deducted from
the total merger consideration to be paid by Kellogg as described in "THE MERGER
AGREEMENT -- The Merger -- Conversion of Shares."
Under the deferred compensation plans of Flowers Industries, the
participants' accounts will be paid immediately upon a change in control.
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<PAGE> 50
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Our executive officers, including Messrs. McMullian, Crozer, Woodward,
Deese and Harrison, participate in a supplemental executive retirement plan, or
SERP, that provides retirement benefits in addition to those provided under our
pension plan. The SERP is designed to provide eligible employees with benefits
in excess of those that can be provided under the pension plan because of
Internal Revenue Code limits. The change of control resulting from the
completion of the merger causes these supplemental benefits to become payable in
a lump sum to each executive officer. The estimated total value of the amounts
that will become payable under the SERP to Flowers Industries executive officers
following the closing of the merger is approximately $5,967,744. Under the
pricing formula in the Merger Agreement, these amounts will be deducted from the
total merger consideration to be paid by Kellogg, as described under "THE MERGER
AGREEMENT -- The Merger -- Conversion of Shares."
INDEMNIFICATION; DIRECTORS AND OFFICERS' INSURANCE
For a discussion of the obligations of Kellogg with respect to directors'
and officers' liability insurance that is to be provided to the directors and
officers of Flowers Industries after the merger and the indemnification
obligations in the Merger Agreement, please see "THE MERGER AGREEMENT -- Certain
Covenants." In addition, the Keebler merger agreement sets forth certain
indemnification and insurance obligations to the directors and officers of
Keebler. Some of the Keebler directors are also directors or officers of Flowers
Industries.
PRINCIPAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the distribution to Flowers Industries shareholders
of Flowers Foods common stock in the spin-off concurrent with the exchange of
shares of Flowers Industries common stock for cash in the merger. We will refer
to the spin-off and merger, collectively, as the "transaction." This discussion
is based on currently operative provisions of the Internal Revenue Code of 1986,
Treasury regulations under the Code and administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to Flowers Industries,
Flowers Foods or the Flowers Industries shareholders as described herein.
Flowers Industries shareholders should be aware that this discussion does
not address all federal income tax considerations that may be relevant to
particular shareholders of Flowers Industries in light of their particular
circumstances, such as shareholders who are banks, insurance companies, pension
funds, tax-exempt organizations, dealers in securities or foreign currencies,
shareholders who are not United States persons, as defined in the Code,
shareholders who acquired their shares in connection with stock option or stock
purchase plans or in other compensatory transactions, shareholders who hold
Flowers Industries common stock as part of an integrated investment (including a
"straddle") comprised of shares of Flowers Industries common stock and one or
more other positions, or shareholders who have previously entered into a
constructive sale of Flowers Industries common stock. In addition, the following
discussion does not address the tax consequences of the transaction under
foreign, state or local tax laws or the tax consequences of transactions
effectuated prior or subsequent to or concurrently with the transaction (whether
or not such transactions are in connection with the transaction), including,
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<PAGE> 51
without limitation, transactions in which Flowers Industries common stock is
acquired or Flowers Foods common stock is disposed of.
ACCORDINGLY, FLOWERS INDUSTRIES SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE SPECIFIC TAX CONSEQUENCES, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES, TO THEM OF THE TRANSACTION
IN THEIR PARTICULAR CIRCUMSTANCES.
For United States federal income tax purposes, the transaction is intended
to constitute a single integrated transaction with respect to Flowers Industries
and its shareholders in which the spin-off will be treated as a distribution in
redemption of outstanding common stock of Flowers Industries in connection with
the complete termination of the Flowers Industries shareholders' interest in
Flowers Industries. Although Flowers Industries believes that the foregoing
description correctly characterizes the transaction for United States federal
income tax purposes and, therefore, that the spin-off should qualify under
Section 302(b) of the Code, either because the integrated combination of the
spin-off and the merger results in a complete termination of the Flowers
Industries shareholders' interests in Flowers Industries or because the
spin-off, in conjunction with the merger, is not essentially equivalent to a
dividend, there is no specific authority on this point and the issue is not free
from doubt.
Assuming the spin-off qualifies as an exchange within the meaning of
Section 302(b) of the Code and that the shares of Flowers Industries common
stock surrendered in the transaction were held as capital assets, then, subject
to the assumptions, limitations and qualifications referred to in this section,
the transaction would result in the following federal income tax consequences:
- Each holder of Flowers Industries common stock will generally recognize
gain, if any, only to the extent of the excess of the (i) sum of the fair
market value, on the date of the spin-off, of the Flowers Foods common
stock distributed in the spin-off plus the cash proceeds received
pursuant to the merger over (ii) the holder's adjusted basis immediately
prior to the transaction in the Flowers Industries common stock
surrendered. Such gain generally should be capital gain, and generally
should be long-term capital gain if the Flowers Industries common stock
exchanged in the transaction has been held for more than one year. In the
event that a holder's adjusted basis in the Flowers Industries common
stock exceeds the sum of the fair market value of the Flowers Foods stock
and the amount of cash received by the holder in the transaction, the
holder will recognize a loss. Such loss generally should be capital loss,
and generally should be long-term capital loss if the Flowers Industries
common stock exchanged in the transaction has been held for more than one
year.
- The tax basis of the Flowers Foods common stock received by Flowers
Industries shareholders in the transaction will be equal to the fair
market value of such stock on the date of the spin-off. One reasonable
method of determining this would be to use the weighted average trading
price of Flowers Foods common stock on the first full day of trading
ending after the spin-off; however, please consult with your own tax
advisor with respect to your particular circumstances.
- The holding period of the Flowers Foods common stock received in the
spin-off will commence on the day after the spinoff.
No ruling has been or will be obtained from the Internal Revenue Service in
connection with the transaction, and the Internal Revenue Service could
challenge the
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<PAGE> 52
status of the transaction as a single integrated transaction for United States
federal income tax purposes. Such a challenge, if successful, could result in
Flowers Industries shareholders being treated as receiving a "dividend"
distribution of Flowers Foods common stock in respect of their Flowers
Industries common stock in the spin-off and as selling, in a separate
transaction, their Flowers Industries common stock to Kellogg immediately after
the spin-off. The amount treated as distributed in the spin-off would be equal
to the fair market value of the Flowers Foods common stock on the date of the
spin-off and generally (1) would be treated as a dividend taxable as ordinary
income to the Flowers Industries shareholders to the extent of Flowers
Industries current or accumulated earnings and profits, (2) to the extent such
amount exceeded Flowers Industries' earnings and profits, it would be applied to
reduce, but not below zero, each Flowers Industries shareholder's adjusted basis
in such shareholder's Flowers Industries stock, and (3) would be taxable as
capital gain to each Flowers Industries shareholder to the extent the amount
treated as received by such shareholder in the spin-off exceeded the amount
described in (1) and (2) hereof. Flowers Industries shareholders would have a
basis in the Flowers Foods common stock equal to its fair market value on the
date of the spin-off, and the holding period of such stock would commence on the
day after the spin-off. Flowers Industries shareholders generally would
recognize gain on the sale of their Flowers Industries common stock to Kellogg
in the merger in an amount equal to the excess, if any, of the amount of cash
received from Kellogg in the merger over their adjusted basis in the Flowers
Industries common stock immediately prior to the merger, taking into account the
effect of the spin-off of Flowers Foods common stock on such adjusted basis as
described above. Such gain generally would be capital gain and generally would
be long-term capital gain if the Flowers Industries common stock exchanged in
the merger had been held for more than one year. In the event that a holder's
adjusted basis in the Flowers Industries common stock, taking into account the
effect of the spin-off of Flowers Foods common stock on such adjusted basis as
described above, exceeded the amount of cash received from Kellogg in the
merger, the holder would recognize a loss. Such loss generally would be a
capital loss and generally would be a long-term capital loss if the Flowers
Industries common stock exchanged in the merger had been held for more than one
year.
You may be subject to "backup withholding" at a rate of 31% on payments
(including the distribution of Flowers Foods common stock) received in
connection with the transaction unless you (1) provide a correct taxpayer
identification number (which, if you are an individual, is your social security
number) and any other required information to the exchange agent, or (2) are a
corporation or otherwise qualify under certain exempt categories and, when
required, demonstrate this fact, all in accordance with the requirements of the
backup withholding rules. If you do not provide a correct taxpayer
identification number, you may be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding does not constitute an
additional tax and will be creditable against your United States federal income
tax liability. You should consult with your own tax advisor as to your
qualification for exemption from backup withholding and the procedure for
obtaining such exemption. You may prevent backup withholding by completing a W-9
or substitute W-9 and submitting it to the exchange agent for the merger when
you submit your stock certificate(s) following the effective time of the merger.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT
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<PAGE> 53
THERETO. THUS, FLOWERS INDUSTRIES SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
TRANSACTION, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABLE TAX
LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
DISSENTERS' RIGHTS
Shareholders who comply with the requirements of Article 13 of the Georgia
Business Corporation Code are entitled to exercise their right to dissent from,
and obtain payment for, the fair value of their shares in the circumstances
described below. A copy of Article 13 of the Georgia Business Corporation Code
is attached hereto as Appendix E. You should read Appendix E carefully for a
complete understanding of its terms.
Dissenters' rights allow you, instead of accepting the merger consideration
to be issued in the merger, to demand the fair value of your shares. You should
be aware that the fair value of your shares:
- will be initially determined by Flowers Industries;
- will be determined as of the time immediately prior to the closing of the
merger, exclusive of any receipt or expectation of value in connection
with the merger; and
- may be more or less than the amount of cash that would be paid to you
under the Merger Agreement.
Dissenters' rights only relate to the amount of consideration to be
received by you in the merger and not to the shares of Flowers Foods you will
receive in the spin-off, which you will receive regardless of whether you
exercise your dissenters' rights. To exercise your dissenters' rights, you
should be aware of, among other things, the following:
- in order to assert your dissenters' rights, you must deliver to us, prior
to the vote being taken at the special meeting, written notice of your
intent to demand payment if the merger is completed. This notice must be
sent to:
Flowers Industries, Inc.
1919 Flowers Circle
Thomasville, Georgia 31757
Attention: Secretary
- you must not vote in favor of the Merger Agreement. Please be aware,
however, that simply not voting in favor of the Merger Agreement is not
sufficient to exercise your dissenters' rights;
- if the merger is approved by our shareholders, within ten days after the
special meeting, Flowers Industries, as the entity that survives the
merger, which we sometimes refer to as the surviving corporation, will
deliver a dissenters' notice to those shareholders who have exercised
their dissenters' rights, which shall identify the following:
- where the payment demand must be sent and when and where share
certificates must be deposited, and
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<PAGE> 54
- the date by which the surviving corporation must receive a demand for
payment, which must not be less than 30 nor more than 60 days from the
date of the dissenters' notice;
- if you wish to pursue your dissenters' rights, you must make your payment
demand and deposit your shares in accordance with the dissenters' notice,
referred to as a payment demand;
- within 10 days of the later of the effective date of the merger or
receipt of a proper payment demand, the surviving corporation will offer
to pay each shareholder who makes a payment demand the amount the
corporation estimates to be the fair value of his shares, with interest,
if any, which is referred to as the payment notice;
- if a shareholder is dissatisfied with the surviving corporation's
estimate of fair value, then within 30 days after receiving the payment
notice, that dissenting shareholder may notify the surviving corporation
in writing of his own estimate of fair value and the amount of interest
due (by failing to do so, such shareholder will be deemed to have
accepted the surviving corporation's payment offer) if:
- that person believes that the amount offered in the payment notice is
less than fair value or the interest calculated in that notice is
incorrect, or
- we do not complete the merger and do not return properly deposited
certificates within 60 days after the date set for dissenting
shareholders to demand payment;
- if the surviving corporation does not offer payment within the prescribed
period of time, then the dissenting shareholder may:
- demand specified financial and other information from the surviving
corporation to determine the fair value of his shares, and
- notify the surviving corporation of his own estimate of fair value and
the amount of interest due, and demand payment of those amounts; and
- if a payment demand remains unsettled, the surviving corporation shall
commence a court proceeding within 60 days after receiving the payment
demand to determine the fair value of the shares and the amount of
interest due.
It is a condition to Kellogg and Merger Sub completing the merger that the
holders of not more than 10% of our outstanding shares take action to exercise
their dissenters' rights. If they do, Kellogg has the right to not complete the
merger.
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<PAGE> 55
THE MERGER AGREEMENT
The following is a summary of the material terms and conditions of the
Merger Agreement. This summary is qualified in its entirety by reference to the
Merger Agreement, which is attached as Appendix A and is incorporated by
reference into this proxy statement. You should read the entire Merger Agreement
carefully to fully understand its terms.
STRUCTURE OF THE TRANSACTION
The transaction is comprised of three integrated components to be effected
virtually simultaneously:
- The spin-off by Flowers Industries of Flowers Foods;
- The merger of Flowers Industries with a wholly-owned subsidiary of
Kellogg; and
- The merger of Keebler with a wholly-owned subsidiary of Kellogg.
We currently have three operating divisions: Mrs. Smith's Bakeries, which
contains our frozen dessert products, Flowers Bakeries, which contains our baked
foods products, and Keebler, which contains our cookie and snack cracker
products. We have created a subsidiary, Flowers Foods, Inc., to which we will
contribute our Mrs. Smith's Bakeries and Flowers Bakeries operations prior to
the merger. Effective virtually simultaneously with the completion of the
merger, we will distribute all of the outstanding shares of Flowers Foods to our
shareholders through a taxable spin-off. You will receive shares of Flowers
Foods in an amount equal to your proportionate interest in Flowers Industries on
the record date for the spin-off. For example, if you own 1% of the stock of
Flowers Industries, you will receive that number of Flowers Foods shares
representing 1% of the total shares issued by Flowers Foods. Flowers Foods will
then become a publicly-traded company, the common stock of which we expect will
be listed on the New York Stock Exchange.
If the Merger Agreement is approved, Kellogg will acquire us, including our
interest in Keebler, by merging Merger Sub with and into us, and you will
receive approximately $12.50 in cash for each share of Flowers Industries common
stock that you own on the record date for the merger. The final cash amount you
will receive will depend upon the total amount of transaction expenses and the
amount of our liabilities not assumed by Flowers Foods or that are being paid at
the closing of the merger. Flowers Industries will then become a wholly-owned
subsidiary of Kellogg.
Kellogg has also entered into a merger agreement with Keebler. As the
majority stockholder of Keebler, Flowers Industries has agreed to vote its
shares of Keebler in favor of the merger between Kellogg and Keebler. Under the
terms of that merger agreement, a wholly-owned subsidiary of Kellogg will merge
with Keebler and the holders of shares of Keebler stock, other than Flowers
Industries (if our merger with Kellogg is consummated) will receive $42.00 per
share in cash. As a result of this merger, Keebler will become a wholly-owned
subsidiary of Kellogg.
As required by Kellogg to proceed with this transaction and to accept the
tax-efficient transaction structure we proposed, we have agreed to vote our
shares of Keebler stock in favor of the merger between Kellogg and Keebler, even
if our shareholders do not approve our merger with Kellogg or our merger is
otherwise not completed. If the Kellogg/Keebler merger is completed but our
merger with Kellogg is not, we and all of the other
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<PAGE> 56
stockholders of Keebler would exchange our respective shares of Keebler stock
for $42.00 per share in cash. This would result in a taxable gain to Flowers
Industries of approximately $1.5 billion and a tax liability to be paid by us of
approximately $600 million. If this occurs, the cash consideration to be paid
for Flowers Industries' shares of Keebler stock would be paid directly to us,
and you would not receive any cash or other consideration in the Kellogg/Keebler
merger.
Assuming all three components of the transaction are completed, Flowers
Foods will be a separate, publicly-traded company, and will operate the
traditional bakery businesses of Flowers Industries. Following the transaction,
Kellogg will own 100% of Keebler and of Flowers Industries, and Flowers
Industries is expected to be renamed Keebler Holding Corp. You will not have any
further ownership interest in either Flowers Industries or Keebler.
For a more detailed discussion of Flowers Foods and the spin-off, you
should refer to the Information Statement relating to Flowers Foods accompanying
this proxy statement.
THE MERGER
The Merger Agreement contains the conditions that must be met in order for
the merger to be completed. After the satisfaction or waiver of those
conditions, the merger will be effective at the time Merger Sub and Flowers
Industries file certificates of merger with the Secretaries of State of Georgia
and Delaware, or a later time that is set forth in those certificates.
CONVERSION OF SHARES
At the effective time, each share of Flowers Industries common stock, and
the associated rights under our rights agreement, will be converted into the
right to receive cash from Kellogg, except for:
- shares of Flowers Industries common stock held by Flowers Industries as
treasury stock or any shares owned by Kellogg or any of its subsidiaries,
all of which will be cancelled immediately prior to the effective time of
the merger; and
- shares held by shareholders exercising their dissenters' rights.
The pricing formula in the Merger Agreement calculates the per share price
to be paid to Flowers Industries' shareholders by first multiplying $42.00, the
same price which Kellogg is paying in the Kellogg/Keebler merger to the other
Keebler stockholders for each share of Keebler stock, by 46,197,466, the number
of shares of Keebler stock which we own. That total is then reduced by the
following liabilities and expenses:
- our fees and expenses related to this transaction in excess of $16
million;
- liabilities under our equity-based and other compensation plans which
become payable as a result of this transaction;
- the principal amount of all of our indebtedness and other liabilities
that Flowers Foods is not assuming or that is being repaid at the closing
of the merger, including our senior notes and our Loan Facility Agreement
with SunTrust Bank, plus accrued interest and all costs and expenses
related to the retirement of that debt, including any prepayment
penalties, gross up provisions or make-whole amounts;
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<PAGE> 57
- the taxes we are required to pay as a result of the merger, the spin-off
and the related transactions contemplated by the Merger Agreement and
related agreements; and
- liabilities we incur under separation agreements we have with some of our
executive officers as a result of our completing the merger.
The resulting amount will then be divided by the numbers of shares of
Flowers Industries' common stock which are outstanding immediately prior to the
merger, in order to derive the price to be paid in the merger for each share of
Flowers Industries common stock. We expect that the actual cash amount per share
you will be entitled to receive will be determined and announced on or about the
effective date of the merger.
EXCHANGE OF CERTIFICATES
Promptly after the effective time, Kellogg will deposit the cash merger
consideration with its exchange agent and will cause the exchange agent to send
a letter of transmittal and instructions for exchanging shares of Flowers
Industries common stock for the merger consideration to all holders of Flowers
Industries common stock. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL
YOU RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. The letter of
transmittal will explain what you need to do to exchange your certificates.
After the effective time, your Flowers Industries stock certificates will
represent only the right to receive the merger consideration. Your certificates
will have no voting or other rights, and you will not be entitled to receive any
interest on the merger consideration to be paid. If the merger consideration is
to be paid to a person other than the person in whose name the certificate is
registered, then the certificate must be properly endorsed for transfer and the
person requesting the transfer must pay the exchange agent any applicable taxes.
If you have not exchanged your certificates for the merger consideration six
months after the effective date, you must look only to Kellogg for that payment.
Kellogg will not be liable to any person for any amount paid to a public
official under applicable abandoned property, escheat or similar laws. In
addition, any amounts unclaimed after three years from the effective date will
become the property of Kellogg free and clear of any claims or interest of any
person previously entitled to them, to the extent allowed by law.
TREATMENT OF STOCK OPTIONS AND OTHER RIGHTS TO ACQUIRE FLOWERS COMMON STOCK
At or immediately prior to the effective date of the merger, any
outstanding options or any other rights to acquire Flowers Industries common
stock, whether or not vested or exercisable, will be cancelled. We will pay each
holder of an option or right granted under the ESIP the excess, if any, of the
per share of the change in control price indicated in that plan over the
exercise price per share of that option or other right, multiplied by the number
of shares that the holder would have been entitled to receive if all of the
holder's options or other rights had vested and been exercised immediately prior
to the effective time of the merger.
We will obtain any consents from holders of options or other rights under
our stock option or equity plans, or amend these plans, if we deem it necessary,
in order to make those distributions. We do not have to make any payments to our
option or other rights
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holders until the necessary consents are obtained, and we will withhold any
applicable payments for taxes or otherwise.
WITHHOLDING
Each of Flowers Industries and Kellogg will be entitled to deduct and
withhold any amount of merger consideration otherwise payable to Flowers
Industries shareholders required to satisfy any applicable federal, state, local
or foreign tax law. Any amounts so withheld will be treated as paid to Flowers
Industries shareholders for purposes of the Merger Agreement.
LOST CERTIFICATES
If any certificate representing Flowers Industries common stock is lost,
stolen or destroyed, then, upon that shareholder providing an affidavit of that
fact, and posting a reasonable bond as indemnity against any claim that may be
made, if required by the surviving corporation, the exchange agent will pay the
merger consideration represented by that certificate.
THE SURVIVING CORPORATION
At the effective time of the merger, Flowers Industries will merge with
Merger Sub and Flowers Industries will be the surviving corporation. The
articles of incorporation of Flowers Industries and the bylaws of Merger Sub,
both as in effect immediately prior to the effective time of the merger, will be
the articles of incorporation and bylaws of the surviving corporation until the
time that they are amended as provided by applicable law, except that it is
expected that the surviving corporation will be renamed Keebler Holding Corp.
Until successors are elected or appointed in accordance with applicable law, the
directors and officers of Merger Sub at the effective time of the merger will be
the directors and officers of the surviving corporation.
REPRESENTATIONS AND WARRANTIES
Flowers Industries has made representations and warranties about it and its
business, as well as its subsidiaries and their business, customary for a
transaction of this nature. These representations and warranties relate to:
- corporate existence and power, and qualifications to do business of us
and Flowers Foods;
- our obtaining the necessary corporate authorizations and governmental
approvals;
- the absence of a breach of charter documents, bylaws, laws or material
agreements as a result of entering into the merger;
- our capital structure;
- SEC filings made by us;
- our financial statements;
- the truth and accuracy of our disclosure documents;
- the absence of certain changes in our business since January 1, 2000;
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- the absence of any undisclosed liabilities;
- our compliance with laws, court orders and governmental permits;
- outstanding or threatened litigation;
- fees of investment bankers, finders or brokers;
- our receipt of fairness opinions from our financial advisers;
- taxes and tax returns;
- employee benefit plans;
- environmental matters;
- the inapplicability to the transaction of antitakeover laws and our
rights agreement;
- insurance; and
- certain contracts.
Our representations and warranties generally will survive for two years
from the effective date of the merger, except for those relating to taxes, which
will survive for the applicable statute of limitations period. Flowers Foods has
agreed to indemnify Kellogg and its affiliates, including Flowers Industries,
after the merger, from any losses they may suffer as a result of our
representations and warranties failing to be true and correct when made or as of
the effective time of the merger.
Kellogg has also made customary representations and warranties, none of
which survive the effective time of the merger, including as to:
- Kellogg's and Merger Sub's corporate existence and power and
qualifications to do business;
- Kellogg's and Merger Sub's corporate authorization;
- governmental authorization;
- non-contravention;
- the truth and accuracy of the information relating to Kellogg and its
subsidiaries furnished to us by Kellogg specifically for use in this
proxy statement;
- fees of investment bankers, finders or brokers; and
- its having adequate funds at the effective time of the merger to pay the
merger consideration.
CERTAIN COVENANTS
From the date of the Merger Agreement until the effective time of the
merger, we have agreed to conduct our business in the ordinary course consistent
with our past practices, to use our reasonable best efforts to preserve our
business organizations and relationships with third parties and to keep
available the services of our present officers and
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employees. Specifically, we have covenanted that we will not, without the prior
written consent of Kellogg, which consent will not be unreasonably withheld:
- declare, set aside or pay any dividend or other distribution relating to
our capital stock, other than our customary quarterly cash dividends on
customary record and payment dates in amounts not to exceed $0.1325 per
share;
- repurchase, redeem or otherwise acquire or offer to acquire any shares of
our stock;
- issue, deliver, pledge, encumber or sell any of our stock, or any
securities convertible into, or rights to acquire, our stock, other than
issuances pursuant to stock options or other rights to acquire our stock
that are outstanding on the date of the Merger Agreement;
- amend our articles of incorporation or bylaws or any material terms of
any of our outstanding securities;
- merge or consolidate with any other party or make any investment in any
other party, including any joint venture, or acquire the stock, assets or
rights of any other party, other than (i) under existing contracts or
commitments previously disclosed to Kellogg, (ii) in the ordinary course
of business consistent with our past practices, purchases of raw
materials, services and items used or consumed in the manufacturing
process, or (iii) capital expenditures made consistent with our capital
expenditure program, not exceeding $40 million in the aggregate for 2000
and $38.5 million in the aggregate for 2001;
- incur any indebtedness, including guaranteeing any indebtedness or
entering into new, or amending any existing, credit facilities, or issue
or sell any debt securities except in the ordinary course of business
consistent with our past practices under our revolving credit agreement;
- except as required by law, the Merger Agreement or mutually agreed upon
by Kellogg and us, enter into or adopt any new, or amend any of our
existing, employee benefit plans or arrangements or materially change any
assumptions used to calculate funding obligations under any of these
plans or arrangements, or change the manner of or basis for any
contribution to any of our pension plans, except for non-substantive
amendments in the ordinary course of business consistent with our past
practices that do not increase our liability;
- except as required by agreements in existence on the date of the Merger
Agreement, increase the compensation payable to our directors, officers
or employees, except for increases in employee compensation in the
ordinary course of business consistent with our past practices, or pay
any amounts not required by any benefit plan or arrangement in effect at
the time of the Merger Agreement;
- sell, lease, license, mortgage or otherwise encumber or subject to any
lien or otherwise dispose of any of our properties or assets, except for
transactions involving immaterial properties or assets in the ordinary
course of business consistent with our past practices, or under Kellogg's
merger agreement with Keebler;
- make any tax election that has, or fail to make any tax election which
failure would have, a material adverse effect on our tax liability or tax
attributes, or settle or compromise any material income tax liability of
ours or file any tax return other
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than consistent with our past practices, or change any method of our tax
accounting;
- cause Keebler to pay any dividend or make any distribution to its
shareholders other than its customary quarterly cash dividend not to
exceed $0.1125 per share or the special dividend under Keebler's merger
agreement with Kellogg, which is $16 million payable pro rata to
Keebler's stockholders (including Flowers Industries) prior to the
effective time of the merger;
- adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization,
or enter into any material agreement or exercise any discretion providing
for acceleration of any material payment or performance as a result of a
change of control, or take any action which would result in a liability
or obligation after the effective time of the merger for which Flowers
Industries (after the merger) would not be indemnified by Flowers Foods;
- engage in or allow any transfer of assets or liabilities or other
transactions between us and Flowers Foods, except for payments in the
ordinary course of business consistent with our past practices or as
expressly contemplated by the Merger Agreement and related documents, to
occur prior to the effective time of the merger;
- sell, assign, encumber, pledge, hypothecate or otherwise dispose of any
of our Keebler shares, or enter into a voting agreement or grant any
proxy or consent relating to them, except the voting agreement we entered
into with Kellogg;
- renew or enter into a new collective bargaining agreement;
- renew or enter into a non-compete, exclusivity or similar agreement that
would restrict our operations or, after the effective time, Kellogg's
operations;
- renew, enter into, amend or waive any right under any of our material
contracts or loans with any of our affiliates, except as provided in the
Merger Agreement and related documents;
- make a loan, advance, capital contribution or investment in or to any
person, other than immaterial amounts in the ordinary course of business
consistent with our past practices;
- enter into, modify, amend in a material way, or terminate any of our
contracts that we have filed, or are required to file, with the SEC;
- settle or compromise any material litigation, or waive, release or assign
any material claims; or
- adopt or change, unless required by GAAP or the SEC, any of our
accounting policies, practices or procedures.
We have agreed that the provisions concerning our interim operations will
apply to Flowers Foods and its subsidiaries. However, Kellogg has agreed to
approve any of these actions involving solely Flowers Foods or its subsidiaries
so long as the action would not:
- give rise to any obligation or liability of Flowers Industries after the
effective time of the merger; or
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- adversely affect the credit quality or financial strength of any party
indemnifying Flowers Industries after the effective time of the merger;
or
- interfere with the timely completion of the merger.
We have also covenanted to hold the special meeting as soon as practicable
and prepare and file, and have declared effective by the SEC, the documents
required to be filed to effect this transaction, as well as use our reasonable
best efforts to obtain shareholder approval for the Merger Agreement and the
transaction contemplated by it.
Additional covenants we have made include our agreement to provide Kellogg
and its representatives updates relating to any material event which could
affect the completion of the merger, reasonable access to information about our
business, premises, personnel and advisors, not to terminate, amend, modify or
waive any provision of any confidentiality or standstill agreement relating to
takeover proposals and to exempt all of the transactions contemplated by the
Merger Agreement from, but otherwise not to amend or take any action under any
of, the provisions of our rights agreement without Kellogg's prior written
consent. We have also covenanted to use our best efforts to effect the spin-off,
and keep Kellogg informed of any developments in the spin-off.
SIGNIFICANT RESTRICTIONS ON FLOWERS INDUSTRIES' ABILITY TO SELL THE COMPANY TO
ANY OTHER THIRD PARTY
In addition, Flowers Industries has agreed that it will not, that its
subsidiaries will not, and that it will not authorize or permit any of its or
its subsidiaries' directors, officers or employees, or any of its or its
subsidiaries' investment bankers, attorneys, accountants or other advisors or
representatives to:
- solicit, initiate, negotiate or encourage, or take any other action
knowingly to facilitate any inquiry, proposal or offer relating to or
that could be reasonably likely to lead to, a takeover proposal (which,
for these purposes, involves the acquisition of assets or businesses
constituting 20% or more of our consolidated revenues, operating income
or assets, or of 20% or more of our common stock or the stock of any of
our subsidiaries directly or indirectly holding such assets or
businesses, or of any of our Keebler shares) other than a takeover
proposal made by Kellogg; or
- enter into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish any person any information relating
to, or otherwise cooperate with, any takeover proposal other than a
takeover proposal made by Kellogg. We have also agreed to immediately
cease any existing activities, discussions and negotiations with any
third party conducted prior to entering into the Merger Agreement with
respect to any takeover proposal, and request the return of all
confidential information we may have provided to such third party
regarding us or Keebler.
However, we may comply with Rule 14e-2(a) of the Securities Exchange Act
with regard to a takeover proposal, and we may make any disclosure to our
shareholders if our outside legal counsel advises us that the failure to make
such disclosure would be inconsistent with applicable law, subject to the
following. Our Board may, prior to our obtaining shareholder approval of the
Merger Agreement:
- furnish information about us or our subsidiaries to the person making the
takeover proposal if we enter into a confidentiality agreement with that
person with terms no
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more favorable to that person than those of the confidentiality agreement
we signed with Kellogg, so long as any information given to that third
party has previously been, or is given at the same time to Kellogg; and
- participate in discussions or negotiations with the person making the
takeover proposal if we have given Kellogg prior written notice of our
intent to do so,
only in the following circumstances:
- in response to an unsolicited bona fide written takeover proposal that
did not result from a breach of the Board's obligations with respect to
takeover proposals and that the Board reasonably determines in good faith
is reasonably likely to lead it to (or to announce publicly that it will)
withdraw or modify its recommendation or declaration of the advisability
of the Merger Agreement or the merger in a manner adverse to Kellogg or
Merger Sub under the circumstances described below; or
- in response to an unsolicited bona fide written takeover proposal that
did not result from a breach of the Board's obligations with respect to
takeover proposals and that the Board reasonably determines in good
faith, after consulting with our financial advisors, constitutes a
superior proposal (that is, an unsolicited, bona fide and binding written
offer from a third party that, if consummated, would result in such third
party or its shareholders acquiring, directly or indirectly, more than
50% of our voting power, or substantially all of our consolidated assets,
or substantially all of our Keebler shares, for consideration that our
Board determines in good faith, after consultation with our financial
advisors, to be superior from a financial point of view to our
shareholders, taking into account also any changes Kellogg may propose to
the Merger Agreement in response to such proposal or otherwise).
We have agreed that the Board will not:
- withdraw or modify in any way adverse to Kellogg or Merger Sub, or
propose publicly to do either of these, its recommendation or declaration
of advisability of the Merger Agreement or the merger, although, prior to
our obtaining shareholder approval of the Merger Agreement, our Board may
effect such an adverse recommendation change, if it receives an
unsolicited superior proposal (that was not in breach of the Board's
obligations with respect to takeover proposals described above) and
believes in good faith and after consultation with outside legal counsel
that such action is required by Georgia law to avoid a breach of its
fiduciary duties;
- change, adopt or approve a takeover proposal, or recommend or publicly
propose to do so, or withdraw or publicly propose to withdraw its
approval of the merger;
- cause or permit us to enter into any letter of intent, memorandum of
understanding, agreement in principle, acquisition, merger, option, joint
venture or partnership or other agreement related to, intended to or
reasonably likely to lead to a takeover proposal, other than a
confidentiality agreement with a third party described above; or
- agree or resolve to agree to take any of these actions.
We have also agreed that we will not make an adverse recommendation change
before five business days after receipt by Kellogg of our written notice that
our Board has received a superior proposal. This notice must include the terms
and conditions of the superior proposal and the name of the person making the
superior proposal, and will be
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repeated for all material amendments. Further, we have agreed that if there is
an adverse recommendation change, it will not change the approval by our Board
of this transaction under Georgia law or for the purposes of making any state
laws or takeover statutes inapplicable to the transaction, including the merger.
Even if the Board makes an adverse recommendation change, we have agreed to
submit the Merger Agreement to a vote of our shareholders.
Additionally, we have agreed to promptly advise Kellogg:
- of any request for information that we reasonably believe could lead to,
or contemplates, a takeover proposal;
- of any takeover proposal we receive, along with a copy of that proposal;
or
- any inquiry we receive which we reasonably believe could lead to a
takeover proposal.
As discussed above, if our merger with Kellogg is terminated or otherwise
not completed, the Kellogg/Keebler merger may still occur, in which case we and
the other Keebler stockholders will exchange our respective shares of Keebler
stock for $42.00 in cash per share. This would result in a taxable gain to us of
approximately $1.5 billion and a corporate tax liability to be paid by us of
approximately $600 million. If this occurs, the cash consideration to be paid
for Flowers Industries' shares of Keebler stock would be paid directly to
Flowers Industries, and you would not receive any cash or other consideration in
that merger.
COVENANTS OF KELLOGG
Kellogg has covenanted that it will take all action necessary to cause
Merger Sub to perform its obligations under the Merger Agreement.
Kellogg will also cause the surviving corporation to, and the surviving
corporation has agreed that it will, indemnify and hold harmless each present
and former officer and director of Flowers Industries for a period of six years,
to the fullest extent provided under our articles or bylaws as in effect on the
date of the Merger Agreement, or permitted under Georgia laws or other
applicable laws, relating to the Board's decision to vote in favor of the merger
between Kellogg and Keebler and the implementation of that decision. Further,
the surviving corporation has agreed to provide directors' and officers'
liability insurance for each individual who is now provided that coverage by
Flowers Industries, relating to acts or omissions occurring prior to the
effective time of the merger, on terms with respect to coverage and amount no
less favorable than those in effect on the date of the Merger Agreement. If
these rates increase, the surviving corporation will be responsible only for
providing coverage then available at an annual premium of up to 200% of the
current rate.
MUTUAL COVENANTS
The parties to the Merger Agreement have mutually covenanted:
- to use their reasonable efforts to take, or cause to be taken, all
actions and do, or cause to be done, all things to consummate the
transactions contemplated by the Merger Agreement, including making all
filings and supplying all information required under the
Hart-Scott-Rodino Act and taking all actions necessary to cause
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the expiration or termination of any waiting periods under the
Hart-Scott-Rodino Act (and any foreign laws) as soon as practicable.
However, Kellogg is not required to, and Flowers Industries will not,
without Kellogg's consent, waive any rights or accept any limitation on
its operations or dispose of any of its assets as a result of any such
filings. If Kellogg so requests, we will agree to any of these waivers,
limitations or disposals, conditioned on the merger becoming effective;
- to promptly notify each other of any communication from a governmental
entity and, subject to applicable law, permit the other party to review
in advance any proposed written communications to any governmental
entity;
- not to agree to participate in any substantive meetings or discussions
with a governmental entity relating to this transaction unless the other
party has been consulted with in advance, and (to the extent permitted by
the governmental entity) given the opportunity to participate in, and
attend, the meetings or discussions;
- to provide to each others' counsel, subject to appropriate
confidentiality procedures, copies of all correspondence, filings and
communications between them and a governmental entity;
- that, in connection with obtaining financing for this transaction:
- we will, if reasonably requested by Kellogg, enter into such
agreements and use our reasonable best efforts to deliver such
certificates or opinions as are customary in a financing, and pledge,
grant a security interest in, or grant liens on, our assets pursuant
to such agreements, provided that any such pledge, security interest
or lien will not be effective until the merger is effective,
- any liabilities or expenses we incur in doing any of these will be the
responsibility of Kellogg and any of our obligations under this
provision of the merger agreement will be terminated with no liability
to us if the Merger Agreement is terminated in accordance with its
terms,
- with reasonable assurance of confidentiality, we will furnish any
lenders specified by Kellogg financial or other information in our
possession relating to us, Flowers Foods, this merger or the entire
transaction, and
- we will make our senior officers and financial and accounting
personnel available to assist, and otherwise cooperate with, any
lender;
- to cooperate and use our reasonable best efforts to prepare any required
filings with the SEC, to determine whether any actions are required to be
taken with respect to any other governmental entity or any consents,
waivers or approvals are required to be obtained from parties to any
material contracts in connection with the consummation of the
transactions contemplated by the merger agreement and related agreements,
and in taking any of these actions and obtaining any required consents,
waivers or approvals;
- to consult with each other prior to issuing any press release or making
any public statement related to the Merger Agreement;
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- that at and after the effective time of the merger, the officers and
directors of the surviving corporation will be authorized to execute and
deliver any deeds, bills of sale, assignments or assurances, and to take
and do any and all actions on behalf of Flowers Industries or Merger Sub
to vest, perfect or confirm in the surviving corporation any and all
right, title and interest in any rights, properties or assets of Flowers
Industries acquired or to be acquired by the surviving corporation as a
result of the merger; and
- to notify each other of:
- any notice or other communication from any person alleging that the
person's consent is required in connection with the transactions
contemplated by the Merger Agreement,
- any communication from any governmental entity relating to the
transactions contemplated by the Merger Agreement, or
- any action, suit, claim, investigation or proceeding commenced or
threatened against or relating to any of the parties to the Merger
Agreement or any of their respective subsidiaries in connection with
the consummation of any of the transactions contemplated by the Merger
Agreement or related documents.
CONDITIONS TO THE MERGER
Each party's obligation to complete the merger is subject to satisfaction
of the following conditions:
- the approval and adoption of the Merger Agreement and the transactions
contemplated by it by our shareholders as required by Georgia law;
- there not being any law, rule, regulation, order, decree or injunction,
rendering the merger or the other transactions contemplated by the Merger
Agreement illegal or otherwise prohibiting completion of the merger or
such other transactions;
- the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Act; and
- the completion of the spin-off of Flowers Foods.
The obligations of Kellogg and Merger Sub to complete the merger are
subject to satisfaction of the following additional conditions:
- we have performed in all material respects all of our obligations under
the Merger Agreement at or prior to the effective time of the merger;
- our representations and warranties contained in the Merger Agreement and
in any certificate or other writing delivered by us thereunder,
disregarding qualifications and exceptions relating to materiality or a
material adverse effect or any similar standard or qualification (except
with respect to representations and warranties relating to our
capitalization, subject only to de minimis inaccuracies), are true when
made and as of the effective time of the merger, or, if given as of a
specific date, at and as of that date, with only those exceptions as
would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on us;
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- Kellogg's receipt of a certificate signed by an executive officer of ours
to the foregoing effect;
- all consents and approvals of any governmental entity required in
connection with the consummation of the merger and related transactions
have been obtained, except those consents or approvals which, if not
obtained, would not, individually or in the aggregate, have a material
adverse effect on us or Kellogg or result in criminal liability or fines;
- the holders of not more than 10% of our outstanding stock have taken
actions under Georgia law to exercise their dissenters' rights; and
- Kellogg's merger with Keebler has been approved and adopted by the
holders of a majority of Keebler's outstanding stock, and all other
conditions to that merger have been satisfied or waived.
Our obligations to complete the merger are subject to the satisfaction or
waiver of the following further conditions:
- each of Kellogg and Merger Sub has performed in all material respects all
of its obligations under the Merger Agreement at or prior to the
effective time of the merger;
- the representations and warranties of Kellogg and Merger Sub contained in
the Merger Agreement and in any certificate or other writing delivered by
either of them thereunder, disregarding all qualifications and exceptions
relating to materiality or material adverse effect or any similar
standard or qualification, are true when made and as of the effective
time of the merger, or, if given as of a specific date, at and as of that
date, with only those exceptions as would not reasonably be expected to
materially impair, delay or prevent the ability of Kellogg and Merger Sub
to complete the transaction contemplated by the Merger Agreement; and
- our receipt of a certificate, signed by an executive officer of each of
Kellogg and Merger Sub, to the foregoing effect.
TERMINATION OF THE MERGER AGREEMENT
Prior to the effective time, whether or not we have obtained shareholder
approval of the Merger Agreement, the Merger Agreement may be terminated under
any of the following circumstances:
- by mutual agreement of Flowers Industries and Kellogg;
- by either Flowers Industries or Kellogg if:
- the merger is not completed by June 30, 2001. However, the right to
terminate the Merger Agreement for this reason is not available to a
party whose breach of the Merger Agreement results in the failure of
the merger to be completed by this date,
- any law or regulation makes the consummation of the merger illegal or
otherwise prohibited, or there is any final and nonappealable
judgment, injunction, order or decree of any governmental entity
having competent jurisdiction enjoining either us or Kellogg from
consummating the merger, or
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- the Merger Agreement is not approved and adopted by the holders of a
majority of our common stock at the special meeting in accordance with
Georgia law;
- by Kellogg, if:
- our Board fails to make, or withdraws, or modifies in a manner adverse
to Kellogg, its approval or recommendation of the Merger Agreement or
the merger, approves or recommends a superior proposal or resolves to
do any of these,
- we have (i) failed to perform in a material respect any obligation or
to comply in any material respect with any agreement or covenant of
ours under the Merger Agreement, or (ii) breached any of our
representations or warranties contained in the Merger Agreement in any
way that prevents us from satisfying Kellogg's conditions relating to
our obligations, agreements and covenants or representations and
warranties, as applicable, or delivering to Kellogg the certificate
relating to them as required under the Merger Agreement, and such
failure or breach is not cured within 15 business days' notice from
Kellogg (or a longer period during which we exercise our reasonable
best efforts to, and reasonably expect to, cure), or
- the voting agreement, or Keebler's merger agreement with Kellogg, is
terminated, or we breach or fail to perform any of our obligations
under either of those agreements, or the merger between Kellogg and
Keebler is completed as a result of the condition relating to the
completion of our merger with Kellogg being deemed satisfied (by
reason of the failure to receive shareholder approval for that merger
by June 15, 2001, our shareholders failing to approve that merger at
the special meeting, or Flowers Industries having materially failed to
perform with any of its obligations, covenants or agreements under the
Merger Agreement such that, at closing, Kellogg's condition related
thereto cannot be satisfied or an officer's certificate related
thereto cannot be delivered to Kellogg);
- by us, if:
- Kellogg or Merger Sub has (i) failed to perform or comply with, in a
material respect, any of its obligations, agreements or covenants
under the Merger Agreement, or (ii) breached any of its
representations or warranties contained in the Merger Agreement, in
any way that prevents Kellogg or Merger Sub from satisfying our
conditions relating to each of their obligations, covenants and
agreements or representations and warranties, as applicable, or
delivering to us an officer's certificate relating to them as required
under the Merger Agreement, and such failure or breach is not cured
within 15 business days' notice from us (or a longer period during
which Kellogg exercises reasonable best efforts to, and reasonably
expects to, cure).
If the Merger Agreement is terminated in any of these ways, it shall become
void and of no effect with no liability on the part of any party (or any
shareholder, director, officer, employee, agent, consultant or representative of
such party) to the other party unless the termination is due to the willful
failure by a party to fulfill a condition to the performance of the other party
or to perform a covenant, in which case that party shall be fully liable for all
liabilities incurred and damages suffered by the other party as a result of such
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failure. Additionally, the provision relating to termination fees, and certain
other provisions, will continue in effect.
Additionally, even if the Merger Agreement is terminated or otherwise not
consummated, as required by the voting agreement, we would vote our shares of
Keebler stock, which represents a majority interest in Keebler, in favor of the
Kellogg/Keebler merger which would be sufficient to ensure shareholder approval
of the Kellogg/Keebler merger agreement. In which case, we and the other Keebler
stockholders, assuming the other conditions to the Kellogg/Keebler merger had
been satisfied or waived, would exchange our respective shares of Keebler stock
pursuant to the Kellogg/Keebler merger agreement, and receive the same $42.00
per share cash price as the other stockholders of Keebler would receive under
any of the following circumstances:
- shareholder approval of our merger with Kellogg has not been obtained by
June 15, 2001;
- our special meeting has concluded without the approval of our merger with
Kellogg; or
- we have materially failed to perform or comply with any obligation,
agreement or covenant under the Merger Agreement in a way that we cannot
satisfy the conditions in such agreement (or deliver a closing
certificate) relating to such obligation, agreement or covenant.
Under these circumstances, there would be no spin-off or merger between us and
Kellogg, but we would still be required to exchange our Keebler shares for
$42.00 per share in cash as part of the merger between Kellogg and Keebler,
which would result in a taxable gain to Flowers Industries of approximately $1.5
billion and a resulting corporate tax liability which we would pay of
approximately $600 million. If this occurs, the proceeds would be paid directly
to Flowers Industries, and you would not receive any cash or other consideration
in the merger.
TERMINATION FEES
Except as described below, the parties to the Merger Agreement will bear
their own fees and expenses.
We have agreed to pay Kellogg a termination fee of $58.2 million if the
Merger Agreement is terminated under any of the following circumstances:
- Kellogg terminates the Merger Agreement because our Board has failed to
recommend, has withdrawn, or has modified in a manner adverse to Kellogg,
its approval or recommendation of the Merger Agreement or the merger, has
approved or recommended a superior proposal, or resolved to do any of
these;
- either we or Kellogg terminate the Merger Agreement as a result of the
failure to obtain the required shareholder approval at the special
meeting, AND prior to the special meeting either we or a third party
(other than Kellogg) have announced publicly, or we have been made aware
of, a takeover proposal;
- either we or Kellogg terminate the Merger Agreement because the merger
has not been completed on or before June 30, 2001, AND prior to that date
either we or a third party (other than Kellogg) have announced publicly,
or we have been made aware of, a takeover proposal; or
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- Kellogg becomes entitled to receive the $57.8 million termination payment
under its merger agreement with Keebler, AND:
- we have satisfied all of our conditions to the Merger Agreement,
- Kellogg has not failed to materially perform or comply with any
agreement or covenant to be performed or complied with by it under the
Merger Agreement or breached any of its representations or warranties
so that we may terminate the Merger Agreement, and
- Keebler has not failed to materially perform or comply with any
agreement or covenant to be performed or complied with by it under the
Kellogg/Keebler merger agreement or breached any of its
representations or warranties so that Kellogg may terminate its merger
agreement with Keebler.
However, even if any of these events occurs and we would otherwise be
required to pay the termination fee, no fee would be required to be paid if the
merger between Kellogg and Keebler is completed.
AMENDMENT AND WAIVER
Any provision of the Merger Agreement may be amended or waived by the
parties at any time prior to the effective time, provided that a waiver need
only be signed by the party against whom it would be effective. After
shareholder approval is obtained, no amendment or waiver may reduce the amount
or kind of consideration to be received by our shareholders.
OTHER MATTERS
THE SPIN-OFF
As a way to maximize the value of Flowers Industries, we began exploring
alternatives available to us and our shareholders that would allow them to
capitalize on the appreciation of our investment in Keebler as well as maintain
their ownership interest in our traditional bakery businesses. The Merger
Agreement and the spin-off allow our shareholders to exchange their indirect
interest in Keebler for cash and retain their interest in the Flowers Bakeries
and Mrs. Smith's Bakeries businesses in a tax-efficient transaction. The
spin-off will effectively occur simultaneously with the merger, but will not
occur unless the Merger Agreement is approved and all of the conditions to it
have been satisfied or waived.
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Flowers Industries has created a wholly-owned subsidiary, Flowers Foods,
Inc., and will transfer its Flowers Bakeries and Mrs. Smith's Bakeries
businesses, along with some other assets and liabilities, to Flowers Foods prior
to the spin-off.
Except for the liabilities retained by Flowers Industries, Flowers Foods
will be generally responsible for, and has agreed to indemnify Flowers
Industries, its affiliates (including Kellogg) and their respective officers,
directors, employees, successors and assigns from and against, all liabilities
whether arising before, at or after the spin-off, of or relating to Flowers
Industries, Flowers Foods or any subsidiary of Flowers Foods, whether arising
from the conduct of or relating to the business of Flowers Foods, discontinued
or divested businesses or operations of Flowers Industries or Flowers Foods or
otherwise. Included in these liabilities are the following:
- liabilities (including tax liabilities) of Flowers Industries or any
subsidiary to the extent arising from the conduct of, in connection with
or relating to, any Flowers Foods' assets or bakery businesses or the
ownership or use thereof or any business or operations which Flowers
Industries or Flowers Foods has discontinued or divested prior to the
spin-off;
- any environmental liabilities of or relating to Flowers Industries,
Flowers Foods or any business or operations which Flowers Industries or
Flowers Foods has discontinued or divested prior to the spin-off;
- the debt to be assumed by Flowers Foods, which is anticipated to total
approximately $250 million;
- advisory fees payable in connection with the merger and spin-off in
excess of $16 million;
- litigation matters in which Flowers Industries or its officers, directors
or employees are defendants;
- taxes, as discussed below; and
- employee benefits related liabilities allocated to Flowers Foods in the
employee benefits agreement between Flowers Industries and Flowers Foods.
Following the spin-off, Flowers Industries (which will then be a
wholly-owned subsidiary of Kellogg) will be generally responsible for, and has
agreed to indemnify Flowers Foods, its affiliates and their respective officers,
directors, employees, successors and assigns from and against, the following
liabilities whether arising before or after the spin-off:
- any debt retained by Flowers Industries; and
- certain advisory fees payable in connection with the merger and spin-off
not to exceed $16 million.
In general and in addition to the above, Flowers Foods will also indemnify
Flowers Industries against:
- any tax liabilities attributable to Flowers Industries for periods ending
on or prior to the spin-off;
- any tax liabilities relating to or resulting from the spin-off; and
- any tax liabilities resulting from a breach by Flowers Foods of its
obligations under the distribution agreement.
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Assuming all of the other conditions to the closing of the merger have been
satisfied or waived, then, immediately before the effective time of the merger,
Flowers Industries will distribute to its shareholders one share of Flowers
Foods common stock for each shares of Flowers Industries common stock
held by each person on the record date for the spin-off.
After the distribution, we will not own any shares of Flowers Foods. We
expect Flowers Foods' shares to be traded on the New York Stock Exchange.
For a more detailed discussion of Flowers Foods and the spin-off, including
applicable financial information, you should refer to the Information Statement
accompanying this proxy statement.
KELLOGG MERGER WITH KEEBLER; VOTING AGREEMENT
KELLOGG MERGER WITH KEEBLER
Kellogg has also entered into a merger agreement with Keebler. That merger
agreement provides that Keebler will merge with a wholly-owned subsidiary of
Kellogg, and each share of Keebler common stock, other than the shares held by
Flowers Industries (if our merger with Kellogg is consummated), will be
exchanged for the right to receive $42.00 in cash. Kellogg's merger with Keebler
is subject to the satisfaction or waiver of certain closing conditions,
including the closing of our merger with Kellogg. The condition relating to the
closing of our merger will be deemed to be satisfied if:
- our shareholders have not approved and adopted the Merger Agreement by
June 15, 2001;
- the special meeting shall have concluded without the shareholders having
approved the Merger Agreement; or
- we materially failed to perform any of our obligations under our Merger
Agreement such that at closing, Kellogg's condition related thereto
cannot be satisfied or an officer's certificate related thereto cannot be
delivered to Kellogg.
In this event, the spin-off would not occur but, because of our agreement
to vote all of our Keebler stock in favor of the adoption of the Kellogg/Keebler
merger agreement, the Keebler/Kellogg merger could be completed, assuming all
other conditions to the Kellogg/Keebler merger were satisfied or waived, and all
of the outstanding shares of Keebler's common stock, including the Keebler
shares held by Flowers Industries, would be converted into the right to receive
$42.00 in cash. As a result, Flowers Industries would recognize a taxable gain
at the corporate level of approximately $1.5 billion, and a resulting corporate
tax liability of approximately $600 million. Further, the proceeds from the sale
of our shares of Keebler stock would be paid directly to Flowers Industries, and
you would not receive any of the cash or other consideration in the merger.
VOTING AGREEMENT
In connection with the merger agreements between us and Kellogg and Kellogg
and Keebler, we and Kellogg entered into the voting agreement, in which we
agreed to execute a written consent with respect to all of our shares of Keebler
stock to vote in favor of the approval of the merger between Kellogg and Keebler
and that merger agreement and against any competing proposal or transaction,
even in the event that our Board withdraws
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its recommendation of our merger with Kellogg or modifies it in a manner adverse
to Kellogg. We also granted an irrevocable proxy to Kellogg in support of our
agreements in the voting agreement. We also agreed not to transfer any of our
shares of Keebler stock prior to the earlier of the closing of the Kellogg
merger with Keebler or the termination of that merger agreement. Because we own
more than 50% of the outstanding shares of Keebler, the written consent to be
delivered by us will be sufficient to assure approval and adoption of the
Kellogg merger with Keebler by the Keebler stockholders without the vote of any
other stockholders of Keebler.
Even if our merger with Kellogg is not completed, we will still be required
to vote our Keebler shares in favor of Keebler's merger with Kellogg. If the
Kellogg/Keebler merger is completed but our merger with Kellogg is not, we will
exchange our Keebler shares for $42.00 per share in cash, which would result in
a taxable gain of approximately $1.5 billion, and a resulting corporate tax
liability of approximately $600 million. In this event, the proceeds from the
exchange of our shares of Keebler stock would be paid directly to Flowers
Industries and you would not receive any cash or other consideration in the
merger.
FINANCING OF THE MERGER
Kellogg has informed us that it has obtained commitment letters in
customary form from nationally-recognized lending institutions to provide
financing to Kellogg in an amount sufficient, together with Kellogg's existing
credit facilities, cash on hand and other liquid securities, to pay all required
amounts under the merger agreements and to pay all related fees and expenses.
There is no financing condition to the closing of the mergers.
ANTITRUST CONSIDERATIONS
The Hart-Scott-Rodino Act provides that transactions such as the merger may
not be completed until specified information has been submitted to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and the
specified waiting period has expired or terminated. All necessary merger filings
under that Act have been made and the waiting period will expire on December 17,
2000, unless earlier terminated.
The expiration or termination of the waiting period under the
Hart-Scott-Rodino Act would not preclude the Antitrust Division, the Federal
Trade Commission, state authorities or private parties from challenging the
merger on antitrust grounds. We believe that the merger, after giving effect to
the transactions contemplated by the Merger Agreement, will not violate
antitrust laws.
Keebler and Kellogg conduct operations in a number of jurisdictions where
other regulatory filings or approvals may be required or advisable in connection
with the completion of the merger. A filing has been made in Brazil. Keebler and
Kellogg are currently in the process of reviewing whether filings or approvals
may be required or desirable in other jurisdictions.
OTHER REGULATORY MATTERS
We and our subsidiaries have obtained from various regulatory authorities
franchises, permits and licenses which may need to be renewed, replaced or
transferred as a result of the merger. Approvals, consents or notifications may
be required in connection with these renewals, replacements or transfers.
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We are not aware of any material governmental or regulatory approvals or
actions that may be required for completion of the merger other than as
described above. If any other governmental or regulatory approval or action is
or becomes required, we currently contemplate that we would seek that additional
approval or action.
CERTAIN LITIGATION
On July 19, 2000 and July 25, 2000, substantially identical purported class
action lawsuits (C.A. Nos. 18159NC (Behrens) and 18175NC (Lewis)) challenging
the proposed sale of Keebler by Flowers Industries were filed in the Delaware
Court of Chancery by purported shareholders of Keebler against Flowers
Industries, Keebler and the directors of Keebler, including the following who
are also officers or directors of Flowers Industries: Robert P. Crozer, Amos R.
McMullian, G. Anthony Campbell, C. Martin Wood and Franklin L. Burke. The
complaints allege, among other things, that Flowers Industries intends to
appropriate for itself a premium for its control stake in Keebler to the
exclusion of Keebler's public stockholders, that Flowers Industries intends to
effect a transaction that would enable it to capture a disproportionate share of
Keebler's value at the expense of Keebler's public stockholders, that Flowers
Industries intends to insulate itself from liability by causing the Keebler
board of directors to form a special committee of independent directors to
approve the transactions and that, by reason of Flowers Industries' majority
stake in Keebler and its ability to elect all of Keebler's directors, none of
the directors can protect the interests of Keebler's minority stockholders. The
complaints seek, among other things, that any sale of Keebler be enjoined or
rescinded and that the defendants pay unspecified monetary damages as well as
unspecified costs and attorneys' fees. Both Keebler and Flowers Industries
believe that these lawsuits are without merit and intend to defend these matters
vigorously.
SECURITY OWNERSHIP OF
FLOWERS INDUSTRIES' COMMON STOCK
The following table contains information concerning the amount of our
common stock owned by:
- our directors;
- our executive officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated in the footnotes below, this information is
provided as of October 7, 2000. The number of shares owned by a person includes
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of October 7, 2000. No person is known
to us to beneficially own more than 5% of our outstanding common stock.
The shares issuable under options exercisable within 60 days of October 7,
2000 are treated as if outstanding for computing the percentage ownership of the
person holding those options but are not treated as if outstanding for the
purposes of computing the percentage ownership of any other person.
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Except as noted, the business address of the named beneficial owner is c/o
Flowers Industries, Inc., 1919 Flowers Circle, Thomasville, Georgia 31757.
Except as noted, each beneficial owner has sole voting and investment power over
the shares shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ ----------- ---------
<S> <C> <C>
Edward L. Baker.......................................... 73,302(1) *
Joe E. Beverly........................................... 52,584(2) *
Franklin L. Burke........................................ 28,807(3) *
G. Anthony Campbell...................................... 392,692(4) *
Robert P. Crozer......................................... 1,669,741(5) 1.66%
George E. Deese.......................................... 393,496(6) *
L. S. Flowers............................................ 356,146(7) *
Gary L. Harrison......................................... 454,018(8) *
Joseph L. Lanier, Jr. ................................... 73,115(9) *
Amos R. McMullian........................................ 943,878(10) *
J. V. Shields, Jr. ...................................... 1,512,958(11) 1.51%
Marta J. Turner.......................................... 12,781(12) *
Jackie M. Ward........................................... 6,250 *
C. Martin Wood III....................................... 568,761(13) *
Jimmy M. Woodward........................................ 27,870(14) *
All directors and executive officers as a group (15
persons)...............................................
</TABLE>
-------------------------
* Represents beneficial ownership of less than 1% of our common stock.
(1) Includes unexercised stock options for 17,340 shares and 23,300 shares
owned by a family trust for which Mr. Baker is a co-trustee.
(2) Includes unexercised stock options for 7,584 shares. Does not include
45,982 shares owned by the spouse of Mr. Beverly and 11,164 shares owned by
a trust for which his spouse is co-trustee, as to which shares Mr. Beverly
disclaims any beneficial ownership.
(3) Includes unexercised stock options for 16,353 shares and 8,750 shares owned
by the spouse of Mr. Burke, over which shares Mr. Burke has investment
authority.
(4) Includes restricted stock awards of 21,117 shares, all of which are subject
to forfeiture.
(5) Includes: (i) restricted stock awards of 70,794 shares, all of which are
subject to forfeiture; (ii) unexercised stock options for 135,000 shares;
and (iii) 982,780 shares held by limited partnerships in which Mr. Crozer
and his spouse are the general partners. Does not include the following
shares as to which Mr. Crozer disclaims any beneficial ownership: (i) 7,593
shares held by Mr. Crozer and his spouse as custodians for their minor son;
(ii) 209,038 shares held by trusts for the benefit of Mr. Crozer's minor
children; and (iii) 1,965,936 shares owned by the spouse of Mr. Crozer.
(6) Includes restricted stock awards of 134,096 shares, all of which are
subject to forfeiture, and unexercised stock options for 90,000 shares.
Does not include the following shares as to which Mr. Deese disclaims any
beneficial ownership: 22,080
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shares owned by the spouse of Mr. Deese; and 1,194 shares held by Mr. Deese
as custodian for his minor grandchildren.
(7) Includes unexercised stock options for 10,432 shares. Does not include
355,598 shares owned by the spouse of Mr. Flowers, as to which shares Mr.
Flowers disclaims any beneficial ownership.
(8) Includes: (i) restricted stock awards of 134,096 shares, all of which are
subject to forfeiture; (ii) unexercised stock options for 145,544 shares;
and (iii) 30,000 shares held by a limited partnership in which Mr. Harrison
is a general partner. Does not include 40,000 shares owned by the spouse of
Mr. Harrison, as to which shares Mr. Harrison disclaims any beneficial
ownership.
(9) Includes unexercised stock options for 17,340 shares. Does not include
23,890 shares owned by the spouse of Mr. Lanier, as to which shares Mr.
Lanier disclaims any beneficial ownership.
(10) Includes restricted stock awards of 140,782 shares, all of which shares are
subject to forfeiture.
(11) Includes: (i) unexercised stock options for 16,353 shares; and (ii)
1,476,605 shares held by investment advisory clients of Capital Management
Associates, Inc., of which Mr. Shields is Chairman of the Board of
Directors and Chief Executive Officer. Does not include 3,241,503 shares
owned by the spouse of Mr. Shields, as to which shares Mr. Shields
disclaims beneficial ownership.
(12) Includes restricted stock awards of 2,962 shares, all of which are subject
to forfeiture.
(13) Includes: (i) restricted stock awards of 8,818 shares, all of which shares
are subject to forfeiture; (ii) unexercised stock options for 28,000
shares; (iii) 51,300 shares held by a trust of which Mr. Wood is
co-trustee; and (iv) 5,591 shares owned by a trust for which Mr. Wood
serves as a trustee. Does not include the following shares, as to which Mr.
Wood disclaims beneficial ownership: (i) 2,880,633 shares owned by the
spouse of Mr. Wood and (ii) 25,650 shares held by Mr. Wood as custodian for
his nephew.
(14) Includes restricted stock awards of 14,457 shares, all of which are subject
to forfeiture.
(15) Includes restricted stock awards of 527,112 shares, all of which are
subject to forfeiture, and unexercised stock options for 483,946 shares.
Does not include the shares with respect to which beneficial ownership is
disclaimed as indicated in the preceding footnotes.
OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
Certain statements in, or incorporated by reference in, this proxy
statement are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to the
safe harbor provisions of the Reform Act and include, without limitation,
statements regarding the amount of cash per
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share that Flowers Industries shareholders are expected to receive from the
transaction, the taxable status of the transaction and Flowers Industries'
expectation as to the closing date of the merger. Information in this proxy
statement concerning Flowers Industries' business may also be forward-looking,
including the future business prospects for Flowers Industries and Flowers Foods
and Flowers Industries' expectation as to the future impact of specified actions
and plans each of Flowers Industries and Flowers Foods intend to implement in
its business. Forward-looking information is based on management's estimates,
assumptions and projections, and is subject to significant uncertainties, many
of which are beyond Flowers Industries' and Flowers Foods' control. Important
risk factors may cause the actual future results to differ materially from those
currently estimated by management. Risk factors that could materially affect
statements made concerning the merger include, but are not limited to: the
capitalization of Flowers Industries on the closing date, including the number
of shares outstanding at that time; the timely receipt of necessary shareholder,
regulatory and other consents and approvals needed to complete the transaction,
which could be delayed for a variety of reasons related or not related to the
transaction itself; and the fulfillment of all of the closing conditions
specified in the transaction documents. For further discussion of important risk
factors that may materially affect management's estimates, Flowers Industries'
results and the forward-looking statements herein, please see the risk factors
contained in Flowers Industries' SEC filings. You also should read those
filings, particularly Flowers Industries' Annual Report on Form 10-K for the
fiscal year ended January 1, 2000 and its Report on Form 10-Q for the period
ended October 7, 2000 filed with the SEC, for a discussion of Flowers
Industries' results of operations and financial condition. We do not have any
intention or obligation to update forward-looking statements after we distribute
this proxy statement.
SHAREHOLDERS' PROPOSALS
If the proposed merger is completed, Flowers Industries will not be a
publicly-traded company and there will not be any public participation in any
future meetings of Flowers Industries. If the proposed merger is not completed,
Flowers Industries intends to hold its next annual meeting of shareholders in
May 2001. If you are still a shareholder of Flowers Industries, you would be
entitled to attend and participate in the meeting. Any shareholder of Flowers
Industries who wishes to present a proposal to be considered at the 2001 annual
meeting of shareholders must deliver such proposal in writing to the Secretary
of Flowers Industries by December 22, 2000 in order for it to be included in the
proxy materials for the 2001 annual meeting of shareholders. Pursuant to the
rules of the Securities Exchange Act of 1934, as amended, Flowers Industries may
use discretionary authority to vote proxies with respect to shareholder
proposals to be presented in person at the 2001 annual meeting of shareholders
if the shareholder making the proposal has not given notice to Flowers
Industries by March 7, 2001.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, we file reports, proxy statements and other information
with the SEC. You may read and copy this information at the following offices of
the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
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For further information concerning the SEC's public reference rooms, you
may call the SEC at 1-800-SEC-0330. You may obtain copies of this information by
mail from the public reference section of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. You may also access some of
this information via the World Wide Web through the SEC's Internet address at
http://www.sec.gov.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE PROPOSALS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED
, 2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THE PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND THE
MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION
TO THE CONTRARY.
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APPENDIX A
AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
DATED AS OF OCTOBER 26, 2000
AMONG
FLOWERS INDUSTRIES, INC.,
KELLOGG COMPANY
AND
KANSAS MERGER SUBSIDIARY, INC.
<PAGE> 80
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 1 DEFINITIONS............................................... A-2
Section 1.01. Definitions............................... A-2
ARTICLE 2 THE TRANSACTION........................................... A-6
Section 2.01. The Spin-Off.............................. A-6
Section 2.02. The Merger................................ A-6
Section 2.03. Conversion of Shares...................... A-7
Section 2.04. Surrender and Payment..................... A-7
Section 2.05. Dissenting Shares......................... A-8
Section 2.06. Equity Compensation Arrangements; Share
Equivalents............................. A-8
Section 2.07. Adjustments............................... A-9
Section 2.08. Withholding Rights........................ A-9
Section 2.09. Lost Certificates......................... A-9
Section 2.10. Associated Rights......................... A-9
Section 2.11. Calculation of Adjustment Amount.......... A-10
ARTICLE 3 THE SURVIVING CORPORATION................................. A-10
Section 3.01. Articles of Incorporation................. A-10
Section 3.02. Bylaws.................................... A-10
Section 3.03. Directors and Officers.................... A-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............
A-10
Section 4.01. Corporate Existence and Power............. A-10
Section 4.02. Corporate Authorization................... A-11
Section 4.03. Governmental Authorization................ A-11
Section 4.04. Non-Contravention......................... A-12
Section 4.05. Capitalization............................ A-12
Section 4.06. SEC Filings............................... A-13
Section 4.07. Financial Statements...................... A-13
Section 4.08. Disclosure Documents...................... A-15
Section 4.09. Absence of Certain Changes................ A-15
Section 4.10. No Undisclosed Material Liabilities....... A-17
Section 4.11. Compliance with Laws and Court Orders..... A-17
Section 4.12. Litigation................................ A-17
Section 4.13. Finders' Fees............................. A-17
Section 4.14. Opinion of Financial Advisers............. A-17
Section 4.15. Taxes..................................... A-18
Section 4.16. Employee Benefit Plans.................... A-19
Section 4.17. Environmental Matters..................... A-22
Section 4.18. Antitakeover Statute and Rights
Agreement............................... A-23
Section 4.19. Insurance................................. A-23
Section 4.20. Certain Contracts; Indemnities;
Indebtedness............................ A-23
</TABLE>
A-i
<PAGE> 81
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT.................. A-24
Section 5.01. Corporate Existence and Power............. A-24
Section 5.02. Corporate Authorization................... A-24
Section 5.03. Governmental Authorization................ A-24
Section 5.04. Non-Contravention......................... A-24
Section 5.05. Disclosure Documents...................... A-25
Section 5.06. Finders' Fees............................. A-25
Section 5.07. Adequate Funds............................ A-25
ARTICLE 6 COVENANTS OF THE COMPANY.................................. A-25
Section 6.01. Conduct of the Company.................... A-25
Section 6.02. Shareholder Meeting; SEC Filings.......... A-28
Section 6.03. Access to Information..................... A-28
Section 6.04. No Solicitation........................... A-29
Section 6.05. Third Party Standstill Agreements......... A-31
Section 6.06. Rights Agreement.......................... A-31
Section 6.07. Spin-Off.................................. A-32
ARTICLE 7 COVENANTS OF PARENT....................................... A-32
Section 7.01. Obligations of Merger Subsidiary.......... A-32
Section 7.02. Director and Officer Liability............ A-32
ARTICLE 8 COVENANTS OF PARENT AND THE COMPANY....................... A-33
Section 8.01. Reasonable Efforts........................ A-33
Section 8.02. Certain Filings........................... A-34
Section 8.03. Public Announcement....................... A-35
Section 8.04. Further Assurances........................ A-35
Section 8.05. Notices of Certain Events................. A-35
ARTICLE 9 CONDITIONS TO THE MERGER.................................. A-35
Section 9.01. Conditions to Obligations of Each Party... A-35
Section 9.02. Conditions to the Obligations of Parent
and Merger Subsidiary................... A-36
Section 9.03. Conditions to the Obligations of the
Company................................. A-36
ARTICLE 10 TERMINATION............................................... A-37
Section 10.01. Termination............................... A-37
Section 10.02. Effect of Termination..................... A-38
ARTICLE 11 MISCELLANEOUS............................................. A-38
Section 11.01. Notices................................... A-38
Section 11.02. Survival of Representations and
Warranties; Indemnification............. A-39
Section 11.03. Amendments; No Waivers.................... A-40
Section 11.04. Expenses.................................. A-40
Section 11.05. Successors and Assigns.................... A-41
Section 11.06. Governing Law............................. A-41
Section 11.07. Jurisdiction.............................. A-41
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 11.08. Waiver of Jury Trial...................... A-41
Section 11.09. Counterparts; Effectiveness; Benefit...... A-42
Section 11.10. Entire Agreement.......................... A-42
Section 11.11. Captions.................................. A-42
Section 11.12. Severability.............................. A-42
Section 11.13. Specific Performance...................... A-42
ANNEX A Distribution Agreement
SCHEDULE I Per Share Adjustment Amount
</TABLE>
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AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER dated as of October 26,
2000, (this "Agreement") among Flowers Industries, Inc., a Georgia corporation
(the "Company"), Kellogg Company, a Delaware corporation ("Parent"), and Kansas
Merger Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Subsidiary").
WHEREAS, prior to the Effective Time (as defined below), the assets of the
Company will consist of (i) 100% of the shares of Common Stock of Flowers Foods,
Inc., a Georgia corporation ("Spinco") and (ii) 46,197,466 shares of common
stock, $0.01 par value of Keebler Foods Company, a Delaware corporation ("ELF"),
representing a majority of the outstanding voting power of ELF on a fully
diluted basis (the "ELF Shares") and the liabilities of the Company will consist
of certain of the Company's debt;
WHEREAS, the Company and Spinco are simultaneously herewith entering into a
Distribution Agreement (the "Distribution Agreement") in the form of Annex A
hereto pursuant to which all of the outstanding shares of Spinco common stock
will be distributed to the Company's shareholders (the "Distribution"), and to
effect the various transactions contemplated thereby and, with the exception of
this Agreement, by the other Transaction Agreements (as defined below) provided
that all conditions precedent to the Distribution set forth in the Distribution
Agreement have been satisfied, immediately prior to the Effective Time (all such
transactions being referred to collectively as the "Spin-Off");
WHEREAS, (i) Parent, FK Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Newco") and ELF have entered into an
Agreement and Plan of Merger dated the date hereof (the "ELF Merger Agreement")
pursuant to which Newco will merge with and into ELF (the "ELF Merger") on the
terms and conditions set forth therein; (ii) Parent and the Company have entered
into a Voting Agreement (the "ELF Voting Agreement") pursuant to which the
Company has agreed to execute a written consent with respect to the ELF Shares
in favor of the approval of the ELF Merger and adoption of the ELF Merger
Agreement; and (iii) in the ELF Merger, each share of Common Stock of ELF, other
than the ELF Shares and any Common Stock of ELF held by ELF or Parent, will be
converted into the right to receive $42.00 in cash;
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary
and the Company have approved this Agreement, and deem it advisable and in the
best interests of their respective shareholders to consummate the merger of
Merger Subsidiary with and into the Company on the terms and conditions set
forth herein (the "Merger;" the Spin-Off, the Merger and the other transactions
contemplated by the Transaction Agreements sometimes being hereinafter
collectively referred to as the "Transaction");
WHEREAS, the Company, Parent and Merger Subsidiary desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement and the Distribution Agreement (this Agreement, the Distribution
Agreement and the other agreements attached hereto or thereto sometimes being
hereinafter collectively referred to as the "Transaction Agreements");
WHEREAS, the Merger will occur only after and conditioned upon the
Spin-Off; and
WHEREAS, for federal income Tax (as defined below) purposes, it is intended
that the Transaction will be treated at the Company's shareholder level as an
integrated transaction in redemption and disposition of the Company's
outstanding capital stock.
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NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions.
(a) The following terms, as used herein, have the following meanings:
"Adjustment Amount" has the meaning ascribed to that term in
Schedule I.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common
control with such Person except that ELF shall not be considered an
Affiliate of the Company for purposes of Section 4.16.
"Antitrust Division" means the Antitrust Division of the United
States Department of Justice.
"Benefit Arrangement" means any employment, severance or similar
contract or arrangement (oral or written) providing for compensation,
bonus, profit-sharing, stock option, or other stock-related rights or
other forms of incentive or deferred compensation, perquisites, vacation
benefits, insurance coverage (including any self-insured arrangements),
health or medical benefits, disability benefits, worker's compensation,
supplemental unemployment benefits, severance benefits and
post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance or other benefits) that on or after
January 1, 1994 (i) is not and was not an Employee Plan, (ii) is or was
entered into, maintained, administered or contributed to, as the case
may be, by the Company or any of its Affiliates and (iii) is not an
Employee Arrangement (as defined in the ELF Merger Agreement).
"Business Day" means a day other than Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or
required by law to close.
"Code" means the Internal Revenue Code of 1986.
"Company Balance Sheet" means the consolidated balance sheet of the
Company as of January 1, 2000 and the footnotes thereto set forth in the
Company 10-K.
"Company 10-K" means the Company's annual report on Form 10-K for
the fiscal year ended January 1, 2000.
"Controlled Group Liability" means any and all liabilities (i)
under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under
Sections 412 and 4971 of the Code, (iv) as a result of a failure to
comply with the continuation coverage requirements of Section 601 et
seq. of ERISA and Section 4980B of the Code and (v) under corresponding
or similar provisions of foreign laws or regulations, other than such
liabilities that arise solely out of, or relate solely to, the Employee
Arrangements listed in the Company Disclosure Schedule.
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"Delaware Law" means the General Corporation Law of the State of
Delaware.
"Employee Arrangement" means any Benefit Arrangement or Employee
Plan.
"Employee Plan" means any "employee benefit plan," as defined in
Section 3(3) of ERISA, that on or after January 1, 1994 (i) is or was
subject to any provision of ERISA, (ii) is or was maintained,
administered or contributed to by the Company or any of its Affiliates
and (iii) is not an Employee Arrangement (as defined in the ELF Merger
Agreement).
"Environmental Claims" means any written, or to the Company's
knowledge, threatened claim, demand, or notice to or other suit, action,
proceeding, investigation of the Company or any of its Subsidiaries by
any person alleging any potential liability (including potential
liability for investigatory costs, cleanup costs, governmental response
costs, natural resource damages, or penalties) arising out of, based on,
or resulting from the presence, or Release into the environment, of any
Hazardous Substance at any location, whether or not owned, leased,
operated or used by the Company or any of its Subsidiaries.
"Environmental Laws" means in each case as in effect on the date
hereof all Laws of any Governmental Entity or agreements with any
Governmental Authority or other third party relating to human health,
safety or the environment, including relating to emissions, discharges,
Releases or threatened Releases of Hazardous Substances, or otherwise
relating to the manufacture, generation, processing, distribution, use,
sale, treatment, receipt, storage, disposal, transport or handling of
Hazardous Substances, including the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and
Recovery Act and the Occupational Safety and Health Act.
"Environmental Permits" means all permits, licenses, certificates
or approvals necessary for the operation of the Company as currently
conducted to comply with all applicable Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" of any entity means any other entity that,
together with such entity, would be treated as a single employer under
Section 414 of the Code.
"FTC" means the United States Federal Trade Commission.
"Georgia Law" means the Georgia Business Corporation Code.
"Governmental Entity" means any federal, state, local or foreign
government or any court, tribunal, administrative agency or commission
or other governmental or other regulatory authority or agency, domestic,
foreign or supranational.
"Hazardous Substance" means (i) chemicals, pollutants,
contaminants, hazardous wastes, toxic substances, and oil and petroleum
products, (ii) any substance that is or contains friable asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls, petroleum or
petroleum-derived substances or wastes, radon gas or related materials,
(iii) any substance that requires removal or
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remediation under any Environmental Law, or is defined, listed or
identified as a "hazardous waste" or "hazardous substance" thereunder,
or (iv) any substance that is toxic, explosive, corrosive, flammable,
radioactive, or otherwise hazardous.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Law" means any applicable federal, state, local or foreign law,
statute, common law, ordinance, directive, rule, regulation, judgment,
order, injunction, decree, arbitration award, agency requirement,
license or permit of any Governmental Entity.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse
claim of any kind in respect of such property or asset. For purposes of
this Agreement, a Person shall be deemed to own subject to a Lien, any
property or asset that 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 property or
asset.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, business, assets, or
results of operations of such Person and its Subsidiaries, taken as a
whole.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 3(37) of ERISA.
"1933 Act" means the Securities Act of 1933.
"1934 Act" means the Securities Exchange Act of 1934.
"Per Share Adjustment Amount" has the meaning ascribed to that term
in Schedule I.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Releases" means any releasing, disposing, discharging, injecting,
spilling, leaking, pumping, dumping, emitting, escaping, emptying,
migration, transporting, placing, including into or upon, any land,
soil, surface water, ground water or air, or otherwise entering into the
environment, that is not in compliance with Environmental Laws.
"Rights" means the preferred stock purchase rights issued pursuant
to the terms of the Rights Agreement.
"Rights Agreement" means the agreement dated as of April 2, 1999
between the Company and First Union National Bank, as Rights Agent.
"SEC" means the Securities and Exchange Commission.
"Share Equivalent" means any stock option, warrant, performance
share or right of conversion issued pursuant to a stock option,
compensatory plan, or similar arrangements.
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"Shares" means the shares of common stock, $0.625 par value, of the
Company.
"Subsidiary" means, with respect to any Person, any 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 any time directly or indirectly owned by such
Person. For purposes of this Agreement, except in the context of
references in Sections 4.07(a), and 4.07(b) to the Company and its
Subsidiaries, ELF shall not be deemed to be a Subsidiary of the Company.
"Title IV Plan" means a plan subject to Title IV of ERISA, other
than any Multiemployer Plan.
"Withdrawal Liability" means liability to or with respect to a
Multiemployer Plan as a result of a complete or partial withdrawal from
such Multiemployer Plan, as those terms are defined in Part I of
Subtitle E of Title IV of ERISA.
Any reference in this Agreement to a statute shall be to such
statute, as amended from time to time, and to the rules and regulations
promulgated thereunder.
Any reference to "including" or "include" means "including, without
limitation" or "include, without limitation."
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
---- ---------
<S> <C>
Acquisition Agreement....................................... 6.04
Adverse Recommendation Change............................... 6.04
Arbitrator.................................................. 2.11
Certificates................................................ 2.04
Company Disclosure Schedule................................. Article 4
Company Proxy Statement..................................... 4.08
Company SEC Documents....................................... 4.06
Company Securities.......................................... 4.05
Company Shareholder Meeting................................. 6.02
Confidentiality Agreement................................... 6.03
Distribution................................................ Recitals
Distribution Agreement...................................... Recitals
Effective Time.............................................. 2.02
ELF......................................................... Recitals
ELF Merger.................................................. Recitals
ELF Merger Agreement........................................ Recitals
ELF Shares.................................................. Recitals
ELF Voting Agreement........................................ Recitals
Exchange Agent.............................................. 2.04
Excluded Employee........................................... 4.09
GAAP........................................................ 4.07
Indemnified Person.......................................... 7.03
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- ---------
<S> <C>
IRS......................................................... 4.15
Merger...................................................... Recitals
Merger Consideration........................................ 2.03
Newco....................................................... Recitals
Notice of Superior Proposal................................. 6.04
Parent...................................................... Recitals
Preferred Shares............................................ 4.05
Registration Statement...................................... 4.08
Series A Preferred Stock.................................... 4.05
Spinco...................................................... Recitals
Superior Proposal........................................... 6.04
Surviving Corporation....................................... 2.02
Takeover Proposal........................................... 6.04
Tax or Taxes................................................ 4.15
Tax Return.................................................. 4.15
Taxing Authority............................................ 4.15
Transaction................................................. Recitals
Transaction Agreements...................................... Recitals
</TABLE>
ARTICLE 2
THE TRANSACTION
Section 2.01. The Spin-Off. Provided that all conditions precedent to the
Spin-Off set forth in the Distribution Agreement have been satisfied, prior to
the Effective Time, the Company will cause each Person that is intended to be a
party to any Transaction Agreement (other than the Merger Agreement) to enter
into each such Transaction Agreement, and, on the terms and subject to the
conditions of the Transaction Agreements, immediately prior to the Effective
Time, the Company shall effect, and cause Spinco to effect, the Spin-Off.
Section 2.02. The Merger.
(a) At the Effective Time, Merger Subsidiary shall be merged with and
into the Company in accordance with Delaware Law and Georgia Law, whereupon
the separate existence of Merger Subsidiary shall cease, and the Company
shall be the surviving corporation (the "Surviving Corporation").
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Company
and Merger Subsidiary will file a certificate of merger with each of the
Delaware Secretary of State and the Georgia Secretary of State and make all
other filings or recordings required by Delaware Law and Georgia Law in
connection with the Merger. The Merger shall become effective at such time
(the "Effective Time") as the certificates of merger are duly filed with
the Georgia Secretary of State and Delaware Secretary of State or at such
later time as is specified in the certificates of merger provided that the
Effective Time shall not occur unless and until the Spin-Off shall have
occurred.
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to
all of the obligations,
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liabilities, restrictions and disabilities of the Company and Merger
Subsidiary, all as provided under Georgia Law.
Section 2.03. Conversion of Shares.
(a) At the Effective Time:
(i) except as otherwise provided in Section 2.03(a)(ii) or Section
2.05, each Share outstanding immediately prior to the Effective Time
other than any Shares that are Share Equivalents, together with the
associated Right, shall be converted into the right to receive an amount
equal to (1) $42.00 multiplied by 46,197,466, divided by (2) the number
of Shares issued and outstanding immediately prior to the Effective
Time, less (3) the Per Share Adjustment Amount, in cash per share,
without interest (the "Merger Consideration");
(ii) each Share held by the Company as treasury stock or owned by
Parent or any of its Subsidiaries immediately prior to the Effective
Time shall be canceled, and no payment shall be made with respect
thereto; and
(iii) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and
become one share of common stock of the Surviving Corporation with the
same rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
(b) The Merger and the Spin-Off shall be effected such that the shares
of Spinco to be distributed in the Spin-Off and the Merger Consideration
are distributed or paid, as the case may be, only to the same holders of
Shares provided that the Spin-Off shall occur prior to the Merger.
Section 2.04. Surrender and Payment.
(a) Prior to the Effective Time, Parent shall appoint an agent (the
"Exchange Agent") reasonably acceptable to the Company for the purpose of
exchanging certificates representing Shares (the "Certificates") for the
Merger Consideration. Promptly after the Effective Time, Parent will cause
to be deposited with the Exchange Agent the Merger Consideration to be paid
in respect of the Shares converted pursuant to Section 2.03(a)(i). Promptly
after the Effective Time, Parent will send, or will cause the Exchange
Agent to send, to each holder of record of Shares at the Effective Time a
letter of transmittal and instructions (which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only
upon proper delivery of the Certificates to the Exchange Agent) for use in
such exchange.
(b) Each holder of Shares that have been converted into the right to
receive the Merger Consideration pursuant to Section 2.03(a)(i) will be
entitled to receive, upon surrender to the Exchange Agent of a Certificate,
together with a properly completed letter of transmittal, and all other
documents the Exchange Agent may reasonably require, the Merger
Consideration payable for each Share represented by such Certificate. Until
so surrendered, each such Certificate shall represent after the Effective
Time for all purposes only the right to receive such Merger Consideration.
No interest shall be paid or will accrue on the Merger Consideration
payable pursuant to the provisions of this Article 2.
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(c) If any portion of the Merger Consideration is to be paid to a
Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition to such payment that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such Certificate or
establish to the satisfaction of Parent that such tax has been paid or is
not payable.
(d) At the Effective Time, the stock transfer books of the Company
will be closed and there shall be no further registration or transfers of
Shares. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration provided for, and in accordance with the procedures set
forth, in this Article 2.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.04(a) (and any interest or other
income earned thereon) that remains unclaimed by the holders of Shares six
months after the Effective Time shall be returned to Parent, upon demand,
and any such holder who has not exchanged Shares for the Merger
Consideration in accordance with this Section 2.04 prior to that time shall
thereafter look only to Parent for payment of the Merger Consideration in
respect of such Shares without any interest thereon. Notwithstanding the
foregoing, Parent shall not be liable to any holder of Shares for any
amount paid to a public official pursuant to applicable abandoned property,
escheat or similar Laws. Any amounts remaining unclaimed by holders of
Shares three years after the Effective Time (or such earlier date
immediately prior to such time when the amounts would otherwise escheat to
or become property of any Governmental Entity) shall become, to the extent
permitted by applicable Law, the property of Parent free and clear of any
claims or interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.04(a) to pay for Shares for which
appraisal rights have been requested shall be returned to Parent, upon
demand.
Section 2.05. Dissenting Shares. Notwithstanding Section 2.03, Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Shares in accordance with Georgia Law shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect, withdraws or otherwise loses its right to appraisal. If, after
the Effective Time, such holder fails to perfect, withdraws or loses its right
to appraisal, such Shares shall be treated as if they had been converted as of
the Effective Time into a right to receive the Merger Consideration. The Company
shall give Parent prompt notice of any demands received by the Company for
appraisal of Shares. Except as required by applicable Law or with the prior
written consent of Parent, the Company shall not make any payment with respect
to, or settle or offer to settle, any such demands. The exercise of appraisal
rights under Georgia Law whether or not perfected shall not affect any holder's
right to receive a pro-rata share of the Spin-Off.
Section 2.06. Equity Compensation Arrangements; Share Equivalents.
(a) At or immediately prior to the Effective Time, each Share
Equivalent outstanding under any stock option or equity compensation plan
or arrangement of the
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Company, whether or not vested or exercisable, shall be canceled, and the
Company shall pay each holder of any such Share Equivalent which shall have
been granted or issued under the 1989 Executive Stock Incentive Plan at or
promptly after the Effective Time for each such Share Equivalent an amount
in cash determined by multiplying (i) the excess, if any, of the Change in
Control Price (as defined in the 1989 Executive Stock Incentive Plan) per
Share over the applicable exercise price of such Share Equivalent, if any,
by (ii) the number of Shares such holder could have purchased (assuming
full vesting of all Share Equivalents) had such holder exercised or
converted such Share Equivalent into Shares immediately prior to the
Effective Time.
(b) Prior to the Effective Time, the Company shall (i) obtain any
consents from holders of Share Equivalents granted under the Company's
stock option or equity compensation plans or arrangements and (ii) make any
amendments to the terms of such stock option or compensation plans or
arrangements that, in the case of either clauses (i) or (ii), the Company
deems reasonably necessary to give effect to the transactions contemplated
by Section 2.06(a). Notwithstanding any other provision of this Section,
payment may be withheld in respect of any such plans or arrangements until
such necessary consents are obtained, and the Company shall withhold from
such payments all amounts required by applicable Law or regulation to be
withheld for taxes or otherwise.
Section 2.07. Adjustments. If, during the period between the date of this
Agreement and the Effective Time, any change in the outstanding Shares shall
occur, including by reason of any reclassification, recapitalization, stock
split or combination, exchange or readjustment of Shares, or stock dividend
thereon (but excluding the Spin-Off) with a record date during such period, the
Merger Consideration and any other amounts payable pursuant to Section 2.06
shall be appropriately adjusted to provide to the holders of Shares the same
economic effect as contemplated by this Agreement prior to such event.
Section 2.08. Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Article 2 such amounts as it is required
to deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign tax Law. If the Surviving
Corporation or Parent, as the case may be, so withholds amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which the Surviving Corporation or Parent, as
the case may be, made such deduction and withholding.
Section 2.09. Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will pay, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the Shares
represented by such Certificate, as contemplated by this Article.
Section 2.10. Associated Rights. References in this Agreement to Shares
shall include, unless the context requires otherwise, the associated Rights.
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Section 2.11. Calculation of Adjustment Amount. At least 15 Business Days
prior to the Effective Time, the Company shall prepare in good faith and deliver
to Parent an estimate of the Adjustment Amount, calculated in accordance with
Schedule I. The Company and Parent agree to negotiate in good faith and to use
reasonable best efforts to agree on the Adjustment Amount at least 10 Business
Days prior to the Effective Time. If the Company and Parent agree on the amount
of the Adjustment Amount, then the Adjustment Amount shall equal such agreed
amount. In the event that the Company and Parent do not agree on the Adjustment
Amount at least 10 Business Days prior to the Effective Time, the parties may
jointly engage Morgan Stanley Dean Witter, or the parties may mutually agree to
engage another nationally recognized investment banking firm or accounting firm
(the "Arbitrator"), to calculate the Adjustment Amount. If the Adjustment Amount
is not mutually agreed by the Company and Parent, at least two Business Days
prior to the Effective Time, the Arbitrator shall calculate the Adjustment
Amount in accordance with Schedule I and shall deliver such amount to the
Company and Parent, and the Adjustment Amount shall equal the amount so
calculated and delivered. The fees and expenses of the Arbitrator shall be
shared equally between Spinco and Parent.
ARTICLE 3
THE SURVIVING CORPORATION
Section 3.01. Articles of Incorporation. The articles of incorporation of
the Company in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until amended in accordance with
applicable Law, provided that, at the Effective Time, Article First of such
articles of incorporation shall be amended to read as follows: "The name of the
Corporation is Keebler Holding Corp."
Section 3.02. Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable Law.
Section 3.03. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable Law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation and (ii) the officers of
Merger Subsidiary at the Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections or subsections of the
disclosure schedule delivered by the Company to Parent on or prior to the date
hereof (the "Company Disclosure Schedule") the Company represents and warrants
to Parent that:
Section 4.01. Corporate Existence and Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Georgia and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except for those licenses, authorizations,
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permits, consents and approvals the absence of which would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to
be so qualified would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company. The Company has
heretofore made available to Parent true and complete copies of the
articles of incorporation and bylaws of the Company as currently in effect.
(b) Spinco is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Georgia and has all corporate
powers and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted, except for
those licenses, authorizations, permits, consents and approvals the absence
of which would not materially impair, delay or prevent the ability of
Spinco to consummate the transactions contemplated by the Transaction
Agreements. Spinco is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to
be so qualified would not materially impair, delay or prevent the ability
of Spinco to consummate the transactions contemplated by the Transaction
Agreements. Spinco has heretofore made available to Parent true and
complete copies of the articles of incorporation and bylaws of Spinco as
currently in effect.
Section 4.02. Corporate Authorization.
(a) The execution, delivery and performance by the Company and Spinco
of the Transaction Agreements and the consummation by the Company and
Spinco of the transactions contemplated by such Transaction Agreements are
within the Company's and Spinco's corporate powers and, except for the
affirmative vote of the holders of a majority of the outstanding Shares in
connection with the consummation of the Merger, have been duly authorized
by all necessary corporate action on the part of the Company and will be
duly authorized by all necessary corporate action on the part of Spinco
prior to the Effective Time. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any
of the Company's capital stock necessary in connection with the
consummation of the Merger. Each Transaction Agreement to which the Company
or Spinco is or will be a party is or when executed by such party, will
constitute, a valid and binding agreement of such party, each enforceable
in accordance with its terms.
(b) The Company's Board of Directors has (i) determined that the
Transaction Agreements, including this Agreement and the transactions
contemplated hereby, taken as a whole, are fair to and in the best
interests of the Company's shareholders, (ii) declared advisable and
approved the Transaction Agreements and the transactions contemplated
hereby and thereby and (iii) resolved (subject to Section 6.04(c)) to
recommend approval and adoption of this Agreement and the Merger by its
shareholders. Prior to the Effective Time, Spinco's Board of Directors will
have approved the Transaction Agreements and the transactions contemplated
hereby and thereby.
Section 4.03. Governmental Authorization. The execution, delivery and
performance by the Company and Spinco of the Transaction Agreements and the
consummation
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by the Company and Spinco of the transactions contemplated hereby and thereby
require no action by or in respect of, or filing with, any Governmental Entity,
other than (i) the filing of certificates of merger with respect to the Merger
with the Delaware Secretary of State and the Georgia Secretary of State, (ii)
compliance with any applicable requirements of the HSR Act, (iii) compliance
with any applicable requirements of the 1933 Act, the 1934 Act and any other
applicable securities or takeover laws, (iv) the filing of listing applications
with respect to the Spinco shares to be distributed in the Spin-Off, and (v) any
actions or filings the absence of which would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the Company
or materially impair, delay or prevent the ability of the Company or Spinco to
consummate the transactions contemplated by the Transaction Agreements.
Section 4.04. Non-Contravention. The execution, delivery and performance
by each of the Company and Spinco of the Transaction Agreements to which each is
a party and the consummation of the transactions contemplated hereby and thereby
do not and will not (i) contravene, conflict with, or result in any violation or
breach of any provision of the articles of incorporation or bylaws of the
Company or Spinco, (ii) contravene, conflict with, or result in a violation or
breach of any provision of any Law, (iii) require any consent or other action by
any Person under, constitute (with or without notice or lapse of time or both) a
default under, or cause or permit the termination, cancellation, acceleration or
other change of any right or obligation or the loss of any benefit to which the
Company or Spinco is entitled under, any provision of any agreement or other
instrument binding upon the Company or Spinco or their respective properties, or
any license, franchise, permit, certificate, approval or other similar
authorization affecting, or relating in any way to, the assets or business of
the Company or Spinco or (iv) result in the creation or imposition of any Lien
on any asset of the Company or Spinco, except, in the case of clauses (ii),
(iii) and (iv), for such matters as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company or
materially impair, delay or prevent the consummation of the transactions
contemplated by the Transaction Agreements by the Company or Spinco.
Section 4.05. Capitalization.
(a) The authorized capital stock of the Company consists of
350,000,000 Shares, par value $0.625 per share and 249,523 shares of
preferred stock, par value $100.00 per share (the "Preferred Shares"), of
which 100,000 shares are designated Series A Junior Participating
Cumulative Preferred Stock ("Series A Preferred Stock"). As of October 25,
2000, there were: 100,085,442 Shares (excluding 2,728,794 Share Equivalents
payable in cash or Shares) outstanding and 442,451 Shares held in the
Company's treasury. The Company has no shares of Series A Preferred Stock
outstanding nor any Shares or Series A Preferred Stock reserved for or
otherwise subject to issuance, except that as of October 25, 2000 there
were (i) 12,350,000 Shares reserved for issuance pursuant to those Employee
Plans and Benefit Arrangements listed in Section 4.16 of the Company's
Disclosure Schedule and (ii) 10,467 shares of Series A Preferred Stock
reserved for issuance pursuant to the Rights Agreement. All shares of
capital stock of the Company outstanding have been duly authorized and
validly issued and are fully paid and nonassessable. Section 4.05 of the
Company Disclosure Schedule sets forth a complete and accurate list of all
outstanding Share Equivalents by grantee (together with the exercise prices
therefor). All Shares issuable upon exercise of Share Equivalents have been
duly authorized
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and, when issued in accordance with the terms thereof, will be validly
issued and will be fully paid and nonassessable.
(b) Except as set forth in this Section 4.05 and for changes since
October 25, 2000 resulting from the exercise of Share Equivalents
outstanding on such date, there are no outstanding (i) shares of capital
stock or equity, debt or other securities of the Company, (ii) securities
of the Company or any other issuer convertible into or exchangeable for
shares of capital stock, equity, debt or other securities of the Company or
(iii) options or other rights to acquire from the Company or any of its
Affiliates or other obligation of the Company or any of its Affiliates to
issue any capital stock, equity, debt or other securities or securities
convertible into or exchangeable for capital stock or voting equity, debt
or other securities of the Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). There
are no outstanding obligations of the Company to (i) repurchase, redeem or
otherwise acquire any of the Company Securities, (ii) to register any
Company Securities under the 1933 Act or any state securities law, (iii) to
grant preemptive or antidilutive rights with respect to any Company
Securities or (iv) to grant any stock options (either upon the exercise of
any option or otherwise).
(c) Immediately following the Effective Time, the Company will not own
any equity, debt or other securities of any Person other than ELF.
Section 4.06. SEC Filings.
(a) The Company has made available to Parent (i) the Company's annual
reports on Form 10-K for its fiscal years ended January 1, 2000, January 2,
1999, and January 3, 1998, (ii) its quarterly reports on Form 10-Q for its
fiscal quarters ended April 22, 2000 and July 15, 2000, (iii) its proxy
statements relating to meetings of the shareholders of the Company held
since January 3, 1998 and (iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since January 3,
1998 (the documents referred to in this Section 4.06(a), collectively, the
"Company SEC Documents").
(b) As of its filing date, each Company SEC Document complied as to
form in all material respects with the applicable requirements of the 1933
Act and the 1934 Act, as the case may be.
(c) As of its filing date each Company SEC Document, including each
amendment or supplement thereto, filed pursuant to the 1934 Act did not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
(d) Each Company SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act, as
of the date such statement or amendment became effective, did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading.
Section 4.07. Financial Statements.
(a) The audited consolidated financial statements and unaudited
consolidated interim financial statements (including the related notes) of
the Company included in
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the Company SEC Documents fairly present in all material respects, in
conformity with United States generally accepted accounting principles
("GAAP") applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments, that are not expected to be material in amount
in the case of any unaudited interim financial statements except for any
non-recurring non-cash changes, which may be required relating to impaired
assets).
(b) Section 4.07(b) of the Company Disclosure Schedule contains the
unaudited pro forma consolidated balance sheet of Spinco and its
Subsidiaries as of July 15, 2000, together with the related unaudited pro
forma consolidated statement of income for the six-month period then ended,
and the unaudited pro forma consolidated statement of income of Spinco and
its Subsidiaries for the year ended January 1, 2000. Such statements
present information as if the Spin-Off had occurred (on the terms and
subject to the conditions set forth in the Transaction Agreements) as of
July 15, 2000 or, with respect to the income statements, as if the Spin-Off
had occurred (on the terms and subject to the conditions set forth in the
Transaction Agreements) as of the beginning of the period presented. Such
statements are based on, and should be read in conjunction with, the
historical consolidated financial statements included in the Company SEC
Documents. Such balance sheet fairly presents in all material respects the
consolidated financial position of Spinco and its Subsidiaries as of its
date, as if the Spin-Off had occurred (on the terms and subject to the
conditions set forth in the Transaction Agreements) on such date, and each
such consolidated statement of income, fairly presents in all material
respects the results of operations of Spinco and its Subsidiaries for the
periods set forth therein, as if the Spin-Off had occurred (on the terms
and subject to the conditions set forth in the Transaction Agreements) as
of the beginning of such period (subject to notes and normal year-end
adjustments that are not expected to be material in amount). The accounts
reflected in the unaudited pro forma consolidated financial statements
referred to in this subsection have been prepared in accordance with GAAP
on a basis consistent with the historical audited consolidated financial
statements of the Company and its Subsidiaries (including Spinco and its
Subsidiaries) and were prepared in accordance with the requirements of SEC
Regulation S-X as it relates to pro forma financial statements.
(c) Section 4.07(c)(i) of the Company Disclosure Schedule contains the
unaudited pro forma consolidated balance sheet of the Company and ELF as of
July 15, 2000, together with the related unaudited pro forma consolidated
statement of income, for the six-month period then ended, and the unaudited
pro forma consolidated statement of income of the Company and ELF for the
year ended January 1, 2000. Such statements present information as if the
Spin-Off had occurred (on the terms and subject to the conditions set forth
in the Transaction Agreements) as of July 15, 2000 or, with respect to the
income statements, as if the Spin-Off had occurred (on the terms and
subject to the conditions set forth in the Transaction Agreements) as of
the beginning of the period presented. Such statements are based on, and
should be read in conjunction with, the historical consolidated financial
statements included in the Company SEC Documents. Such balance sheet fairly
presents in all material respects the consolidated financial position of
the Company and ELF as of its date, as if the Spin-Off had occurred (on the
terms and subject to the conditions set forth in the Transaction
Agreements) on such date, and each such
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consolidated statement of income fairly presents in all material respects
the results of operations of the Company and ELF for the periods set forth
therein, as if the Spin-Off had occurred (on the terms and subject to the
conditions set forth in the Transaction Agreements) as of the beginning of
such period (subject to notes and normal year-end adjustments that are not
expected to be material in amount). The accounts reflected in the unaudited
pro forma financial statements referred to in this subsection have been
prepared in accordance with GAAP on a basis consistent with the historical
audited consolidated financial statements of the Company and its
Subsidiaries (including Spinco and its Subsidiaries) and were prepared in
accordance with the requirements of SEC Regulation S-X as it relates to pro
forma financial statements. Except for liabilities or obligations of the
Company under the Transaction Agreements as set forth in Section
4.07(c)(ii) of the Company Disclosure Schedule, the balance sheet referred
to in this subsection does not reflect any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) of the
Company and immediately following the Effective Time, the Company and its
Subsidiaries will not have any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise).
Section 4.08. Disclosure Documents. The proxy statement of the Company to
be filed with the SEC in connection with the Merger (the "Company Proxy
Statement"), the registration statement on Form 10, Form S-1 or Form S-4
relating to the Spin-Off (the "Registration Statement") and any amendments or
supplements thereto will, when filed, comply as to form in all material respects
with the applicable requirements of the 1934 Act and the 1933 Act. At the time
the Company Proxy Statement or any amendment or supplement thereto is first
mailed to shareholders of the Company, and at the time such shareholders vote on
adoption of this Agreement, the Company Proxy Statement, as supplemented or
amended, if applicable, and the Registration Statement at the time it becomes
effective and at the time the Registration Statement is mailed to stockholders
of the Company, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 4.08
will not apply to statements or omissions included in the Company Proxy
Statement or the Registration Statement based upon information furnished to the
Company by Parent specifically for use therein.
Section 4.09. Absence of Certain Changes. Except (i) as disclosed in the
Company SEC Documents filed after January 1, 2000 and prior to the date hereof,
or (ii) as expressly contemplated by the Transaction Agreements or (iii) as
disclosed in Section 4.09 of the Company Disclosure Schedule, since January 1,
2000, the business of the Company has been conducted in the ordinary course
consistent with past practices and there has not been:
(a) any event, occurrence, development or state of circumstances or
facts that, either individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect on the Company;
(b) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company that
has had or would reasonably be expected to have a Material Adverse Effect
on the Company;
(c) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company
(other than
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quarterly cash dividends on the Shares on customary record and payment
dates in an amount not greater than $0.1325 per Share per quarter), or any
repurchase, redemption or other acquisition by the Company of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company;
(d) any amendment of any material term of any outstanding security of
the Company or any amendment of the Company's Articles of Incorporation or
By-Laws;
(e) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money other than borrowings made in the ordinary
course of business and in amounts and on terms consistent with past
practices under the Company's revolving credit agreement;
(f) any creation or other incurrence by the Company of any Lien on any
material asset other than in the ordinary course of business consistent
with past practices and other than those that would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company;
(g) any making of any material loan, advance or capital contributions
to or investment in any Person not wholly-owned, directly or indirectly, by
the Company, other than immaterial amounts in the ordinary course of
business consistent with past practices;
(h) any change in any method of accounting, method of tax accounting
or accounting principles or practice by the Company, except for any such
change which is required by reason of a concurrent change in GAAP or
Regulation S-X under the 1934 Act;
(i) any (i) grant of any bonus, severance or termination pay or award
under a long term incentive plan to (or amendment to any existing
arrangement with) any director, officer or (to the extent material in the
aggregate) employees of the Company, (ii) establishment, adoption or
amendment (except as required by applicable law) of any collective
bargaining, bonus, profit-sharing, thrift, pension, retirement or other
benefit plan or arrangement covering any director, officer or employee of
the Company, (iii) increase in compensation, bonus or other benefits
payable to any director, or executive officer of the Company (other than
changes made applicable to Company employees generally); or (iv) other than
in the ordinary course of business, consistent with past practices,
increase in compensation bonus or other benefits payable to any employee of
the Company not described in clause (iii);
(j) any material labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company, or any
material lockouts, strikes, slowdowns, work stoppages or threats thereof by
or with respect to such employees;
(k) any agreement to do any of the foregoing;
provided, however, that the limitations of this Section 4.09 shall not
apply to any actions taken in respect of (i) any individual who, after
giving effect to the Spin-Off, will be an executive officer, director or
employee of Spinco or any of its Subsidiaries (an "Excluded Employee") or
(ii) any other individual so long as, in any such instance, any liabilities
resulting from such actions are the responsibility of Spinco or any of its
Subsidiaries, do not result in any direct or indirect obligations or
liabilities on the part of the Company and such actions do not and would
not have a Material
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Adverse Effect on the Company or materially impair, delay or prevent the
consummation of the transactions contemplated by the Transaction
Agreements.
Section 4.10. No Undisclosed Material Liabilities. There are no
liabilities or obligations of the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities or obligations disclosed in the Company Balance Sheet
or in the notes thereto or in the Company SEC Documents filed prior to the
date hereof;
(b) liabilities or obligations incurred in the ordinary course of
business consistent with past practice that would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company;
(c) liabilities or obligations under the Transaction Agreements, or in
connection with the transactions contemplated hereby or thereby; and
(d) liabilities or obligations disclosed in the Company Disclosure
Schedule.
Section 4.11. Compliance with Laws and Court Orders. Neither the Company
nor Spinco or any of their respective Subsidiaries nor any of their respective
properties is in violation of, or has since January 1, 2000 violated, any
applicable Law, except for violations that have not had and would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company or materially impair, delay or prevent the consummation of the
transactions contemplated by the Transaction Agreements. The Company and Spinco
are in compliance with the terms of all required governmental licenses,
authorizations, permits, consents and approvals, except where the failure to so
comply would not, individually or in the aggregate, have a Material Adverse
Effect on the Company or materially impair, delay or prevent the consummation of
the transactions contemplated by the Transaction Agreements.
Section 4.12. Litigation. Except as disclosed in Section 4.12 of the
Company Disclosure Schedule, there is no action, suit, investigation or
proceeding pending, or, to the knowledge of the Company, threatened, against the
Company, or against Spinco or any of its their respective Subsidiaries before
any court or arbitrator or before or by any Governmental Entity, that, if
determined or resolved adversely, would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company or
materially impair, delay or prevent the consummation of the transactions
contemplated by the Transaction Agreements. Neither the Company nor Spinco is
subject to any outstanding order, writ, injunction or decree that, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect on the Company or materially impair, delay or prevent the consummation of
the transactions contemplated by the Transaction Agreements.
Section 4.13. Finders' Fees. Except for UBS Warburg LLC and Morgan
Stanley & Co. Incorporated, copies of whose engagement agreements have been
provided to Parent, there is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of the
Company in connection with the transactions contemplated by the Transaction
Agreements.
Section 4.14. Opinion of Financial Advisers. The Company has received an
opinion of each of UBS Warburg LLC and Morgan Stanley & Co. Incorporated each
dated as of the date of this Agreement and each to the effect that, as of the
date of such opinion, the Merger Consideration to be received by the Company's
shareholders is fair from a financial
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point of view. Complete and correct signed copies of such opinions will be
delivered to Parent as soon as practicable after the date of this Agreement.
Section 4.15. Taxes. Except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company:
(a) The Company and each of its Subsidiaries has timely filed (or has
had timely filed on its behalf) or will timely file or cause to be timely
filed all Tax Returns required by applicable Law to be filed by it prior to
or as of the Effective Time, and all such Tax Returns are, or will be at
the time of filing, true and complete in all respects.
(b) The Company and each of its Subsidiaries has timely paid (or has
had timely paid on its behalf), or, where payment is not yet due, has
established (or has had established on its behalf and for its sole benefit
and recourse) or (with respect to new Taxes for periods, or portions
thereof, beginning after the date hereof) will establish or cause to be
established in accordance with GAAP on or before the Effective Time, an
adequate accrual for the payment of, all Taxes and interest due with
respect to any period or portion thereof ending prior to or as of the
Effective Time.
(c) The federal income Tax Returns filed with respect to the Company
have been examined and settled with the Internal Revenue Service (the
"IRS") (or the applicable statutes of limitation for the assessment of
federal income Taxes for such periods have expired) for all years through
fiscal year 1995.
(d) There are no Liens or encumbrances for Taxes on any of the assets
of the Company, other than those for taxes not yet due and payable. Neither
the Company nor any of its Subsidiaries is a party to any Tax sharing or
indemnification agreement.
(e) The Company and each of its Subsidiaries has complied with all
applicable Laws, rules and regulations relating to the reporting, payment
and withholding of Taxes.
(f) Except as set forth in Section 4.15 of the Company Disclosure
Schedule, no federal, state, local or foreign audits or administrative
proceedings are pending with regard to any Taxes or Tax Return of the
Company and the Company has not received a written notice of any proposed
audit or proceeding regarding any pending audit or proceeding.
(g) Neither the Company nor any of its Subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" within
the meaning of Section 355(a)(1)(A) of the Code in a distribution of stock
intended to qualify for tax-free treatment under Section 355 of the Code
(A) in the two years prior to the date of this Agreement (nor will it
constitute such a corporation in the two years prior to the date of the
Effective Time) or (B) in a distribution which otherwise constitutes part
of a "plan" or "series of related transactions" within the meaning of
Section 355(e) of the Code in conjunction with the Merger.
(h) "Tax" or "Taxes" shall mean (i) any and all taxes, charges, fees,
levies or other assessments, including income, gross receipts, excise, real
or personal property, sales, withholding, social security, retirement,
unemployment, occupation, use, goods and services, service use, license,
value added, capital, net worth, payroll, profits, withholding, franchise,
transfer and recording taxes, fees and charges, and any other
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taxes, assessment or similar charges imposed by the IRS or any taxing
authority (whether domestic or foreign including any state, county, local
or foreign government or any subdivision or taxing agency thereof
(including a United States possession)) (a "Taxing Authority"), whether
computed on a separate, consolidated, unitary, combined or any other basis;
and such term shall include any interest whether paid or received, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments,
(ii) any liability for the payment of any amount of the type described in
clause (i) as a result of being or having been, before the Effective Time,
a member of an affiliated, consolidated, combined or unitary group, or a
party to any agreement or arrangement, as a result of which liability of
the Company and each of its subsidiaries to a Taxing Authority is
determined or taken into account with reference to the liability of any
other Person (including, e.g., liability under Treasury Regulation 1.1502-6
or similar liability under any other Law), and (iii) any liability with
respect to the payment of any amount of the type described in (i) or (ii)
as a result of any existing express or implied obligation (including, but
not limited to, an indemnification obligation). "Tax Return" shall mean any
report, return, document, declaration or other information or filing
required to be supplied to any Taxing Authority or jurisdiction (foreign or
domestic) with respect to Taxes, including information returns, any
documents with respect to or accompanying payments of estimated Taxes, or
with respect to or accompanying requests for the extension of time in which
to file any such report, return, document, declaration or other
information.
Section 4.16. Employee Benefit Plans. Except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company:
(a) Section 4.16 of the Company Disclosure Schedule includes the name
of, and the Company has made available to Parent copies of each material
Employee Plan (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto) and actuarial valuation report prepared in connection with any
such Employee Plan. Section 4.16 of the Company Disclosure Schedule
identifies each such Employee Plan that is (i) a Multiemployer Plan, (ii) a
Title IV Plan or (iii) maintained in connection with any trust described in
Section 501(c)(9) of the Code.
(b) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has received from the IRS a favorable determination
letter stating that the Employee Plan is so qualified; the Company is not
aware of any facts or circumstances which would jeopardize the qualified
status of the Employee Plan if not cured; each trust created under any
Employee Plan has been determined by the IRS to be exempt from tax under
Section 501(a) of the Code as of and since its creation. The Company has
made available to Parent the most recent determination letter of the
Internal Revenue Service relating to each such Employee Plan. Each Employee
Plan has been maintained in substantial compliance with its terms and with
the requirements prescribed by any and all applicable statutes, orders,
rules and regulations, including ERISA and the Code.
(c) Section 4.16 of the Company Disclosure Schedule includes the name
of, and the Company has made available to Parent copies or descriptions of,
each Benefit Arrangement (and, if applicable, related trust agreements) and
all amendments thereto and summary plan descriptions thereof, if
applicable. Each such Benefit
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Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations and has been maintained in good standing with
applicable regulatory authorities.
(d) There has been no failure of a group health plan (as defined in
Section 5000(b)(1) of the Code) to meet the requirements of Code Sections
4980B(f), 9801 or 9802 with respect to a qualified beneficiary (as defined
in Section 4980B(g)) or other individual. Neither the Company nor any of
its ERISA Affiliates has contributed to a nonconforming group health plan
(as defined in Section 5000(c)) and neither the Company nor any ERISA
Affiliate of the Company has incurred a tax under Section 5000(a) that is
or could become a liability of the Company.
(e) No Title IV Plan has or has incurred an accumulated funding
deficiency within the meaning of Section 302 of ERISA or Section 412 of the
Code, nor has any waiver of the minimum funding standards of Section 302 of
ERISA and Section 412 of the Code been requested of or granted by the IRS
with respect to any Title IV Plan, nor has any lien in favor of any Title
IV Plan arisen under Section 412(n) of the Code or Section 302(f) of ERISA.
(f) There does not now exist, nor, to the Company's knowledge, do any
circumstances exist that could result in, any Controlled Group Liability
that would be a liability of the Company or any of its ERISA Affiliates
following the Effective Time. None of the Company and its ERISA Affiliates
has incurred any Withdrawal Liability that has not been satisfied in full.
With respect to each Employee Plan that is a Multiemployer Plan, none of
the Company and its ERISA Affiliates has received any notification, nor has
reasonable cause to believe, that any such Employee Plan is in
reorganization, has been terminated, is insolvent, or may reasonably be
expected to be in reorganization, to be insolvent, or to be terminated. If
the Company and its ERISA Affiliates were to experience a complete
withdrawal from all such Multiemployer Plans, the total withdrawal
liability would not exceed the amount set forth in Section 4.16(f) of the
Company Disclosure Schedule. The transactions contemplated by this
Agreement, including the Transaction, will not result in partial or
complete withdrawal from any such Multiemployer Plan.
(g) All material contributions required to be made to any Employee
Arrangement or any trust or other arrangement funding any Employee
Arrangement by applicable Law or regulation or by any plan document or
other contractual undertaking, and all material premiums due or payable
with respect to insurance policies funding any Employee Arrangement, for
any period have been timely made or paid in full.
(h) With respect to each Employee Plan that is a Title IV Plan: (i) no
reportable event within the meaning of Section 4043(c) of ERISA for which
the 30-day notice requirement has not been waived and for which a prior
notice requirement exists has occurred, and the consummation of the
transactions contemplated by this Agreement, including the Transaction,
will not result in the occurrence of any such reportable event; (ii) all
premiums to the Pension Benefit Guaranty Corporation ("PBGC") have been
timely paid in full; (iii) no material liability (other than for premiums
to the PBGC) under Title IV of ERISA has been or is expected to be incurred
by the Company or any of its ERISA Affiliates; (iv) the unfunded
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current liability of each such Employee Plan does not exceed the amount set
forth in Section 4.16(h) of the Company Disclosure Schedule for such Plan,
based on the assumptions used for the most recent actuarial valuation of
such Plans, a copy of which has been made available to Parent; and (v) the
PBGC has not instituted proceedings to terminate any such Employee Plan
and, to the Company's knowledge, no condition exists that presents a risk
that such proceedings will be instituted or which would constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any such Employee Plan.
(i) The Company Disclosure Schedule sets forth: (i) an accurate and
complete list of each material Employee Arrangement under which the
execution and delivery of this Agreement or the Transaction Agreements or
the consummation of the transactions contemplated hereby, including the
Transaction, could (either alone or in conjunction with any other event
such as termination of employment) result in, cause the accelerated
vesting, funding or delivery of, or increase the amount or value of, any
payment or benefit to any employee, officer or director of the Company or
any of its Subsidiaries, or for which the Company or any of its
Subsidiaries could be liable, or would limit the right of the Company or
any of its Subsidiaries to amend, merge, terminate or receive a reversion
of assets from any material Employee Arrangement or related trust; (ii) the
aggregate liabilities of the Company and its Subsidiaries with respect to
bonuses and other incentive compensation in connection with or as a result
of the consummation of the transactions contemplated hereby, including the
Transaction, (iii) the aggregate liabilities of the Company and its ERISA
Affiliates, together with any corresponding assets held in any grantor
trust of the Company and its ERISA Affiliates, pursuant to each Employee
Arrangement (other than Employee Plans that are qualified under Section
401(a) of the Code) providing any supplemental or excess retirement
benefits or other deferred compensation (whether elective or non-elective),
in each case determined as of the date set forth in the Company Disclosure
Schedule, and (iv) the estimated maximum amount of the "excess parachute
payments" within the meaning of Section 280G of the Code that could become
payable by the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the Transaction Agreements and
the consummation of the transactions contemplated hereby, including the
Transaction. No outstanding options to purchase Shares granted to any
current or former employee or director of the Company or any of its ERISA
Affiliates contain any provision that would entitle the holder to receive
any cash payment with respect thereto in connection with the consummation
of the transactions contemplated hereby except as provided for in Section
2.06 hereof.
(j) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), investigations, lawsuits or arbitrations
which have been asserted or instituted, and, to the Company's knowledge, no
set of circumstances exists which may give rise to a claim or lawsuits,
against the Employee Arrangements, any fiduciaries thereof with respect to
their duties to such Employee Arrangements or the assets of any of the
trusts under any of such Employee Arrangements which could result in any
liability of the Company or any of its ERISA Affiliates to the PBGC, the
Department of Treasury, the Department of Labor, or any other U.S. or
foreign governmental authority, or to any of such Employee Arrangements,
any participant in any such Employee Arrangement, or any other party.
Without limiting the generality of the foregoing, neither the Company nor
any of its ERISA Affiliates has any actual or contingent liability under
any such Employee Arrangement or under any applicable
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Law or regulation for pay or benefits incurred as a result of corporate
restructuring, downsizing, layoffs or similar events that has not been
fully satisfied or adequately reserved for in the audited consolidated
financial statements (including the related notes) and unaudited
consolidated financial statements (including the related notes) of the
Company included in the Company SEC Documents.
Section 4.17. Environmental Matters.
(a) Except as disclosed in the Company SEC Documents or as set forth
in Section 4.17 of the Company Disclosure Schedule, except where
noncompliance, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Company, the Company is
in compliance with all applicable Environmental Laws and Environmental
Permits.
(b) Except as disclosed in the Company SEC Documents or as disclosed
in Section 4.17 of the Company Disclosure Schedule, there are no written
(or, to the knowledge of the Company, other) Environmental Claims pending
or, to the knowledge; of the Company threatened, against the Company that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company.
(c) The Company has made available to Parent all material information,
including such studies, analyses and test results, in the possession,
custody or control of or otherwise known and available to the Company or
its Subsidiaries relating to the environmental conditions on, under or
about any of the properties or assets owned, leased, or operated by the
Company at any time or for which the Company is responsible under any
Environmental Law.
(d) Except as disclosed in the Company SEC Documents or as disclosed
in Section 4.17 of the Company Disclosure Schedule, prior to and during the
period of ownership or operation by the Company, in each case to the
knowledge of the Company, no Hazardous Substance was generated, treated,
stored, disposed of, used, handled or manufactured at, or transported,
shipped or disposed of from, currently or previously owned or leased
properties that could result in Liability for the Company or its
Subsidiaries that would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company and there were no
conditions or Releases of Hazardous Substance in, on, under or affecting
any currently or previously owned or leased properties that would
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.
(e) Except as disclosed in the Company SEC Documents, or as set forth
in Section 4.17 of the Company Disclosure Schedule, none of the Company or
its Subsidiaries in each case has received from any Governmental Entity or
other third party any written (or, to the knowledge of the Company, other)
notice that the Company or its predecessors is or may be a potentially
responsible party in respect of or may otherwise bear liability for any
actual or threatened Release of Hazardous Substance at any site or facility
that is, has been or would be listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar or analogous federal, state, provincial,
territorial, municipal, county, local or other domestic or foreign list,
schedule, inventory or database of Hazardous Substance sites or facilities,
except where such
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notice or the circumstances referred to therein would not, individually or
in aggregate, reasonably be expected to have a Material Adverse Effect on
the Company.
Section 4.18. Antitakeover Statute and Rights Agreement.
(a) No "fair price," "interested shareholder," "business combination,"
or similar antitakeover statute or regulation enacted under Georgia or
other Law applicable to the Company is applicable to the transactions
contemplated by the Merger and the Transaction Agreements.
(b) The Board of Directors of the Company has approved an amendment to
the Rights Agreement which is, and at the Effective Time shall be,
effective, and has taken all other action necessary to render the Rights
inapplicable to the Merger, this Agreement and the transactions
contemplated hereby. The Company has delivered to Parent a true and correct
copy of the Rights Agreement in effect as of the execution and delivery of
this Agreement, including a copy of such amendment.
Section 4.19. Insurance. Section 4.19 of the Company Disclosure Schedule
contains a complete and accurate list in all material respects of all policies
of directors' and officers' liability insurance and fiduciary insurance owned or
held by, or the premiums and the brokerage fees of which are paid by, the
Company. The Company, Spinco and Spinco's Subsidiaries are covered by valid and
currently effective insurance policies issued in favor of the Company or Spinco
or Spinco's Subsidiaries, respectively, that are customary and appropriate under
the circumstances. All such policies are in full force and effect, all premiums
due thereon have been paid, and the Company has complied with the provisions of
such policies.
Section 4.20. Certain Contracts; Indemnities; Indebtedness.
(a) Except for assets or properties to be transferred to Spinco or its
Subsidiaries pursuant to the Transaction Agreements, none of Spinco or any
of its Subsidiaries presently uses in the conduct of its business any
assets or properties, whether tangible, intangible or mixed, which are also
utilized by the Company (after giving pro-forma effect to the Spin-Off),
and, other than the contracts, arrangements or understandings which are set
forth in Section 4.20(a) of the Company Disclosure Schedule, which in each
instance are ordinary course commercial arrangements on arms-length terms,
none of Spinco or any of its Subsidiaries is presently directly or
indirectly a party to any contract, arrangement or understanding with the
Company (other than the Transaction Agreements). After giving effect to the
Spin-Off, the Company will include all of the Company's direct or indirect
right, title and interest in and to (i) the ELF Shares, and (ii) all assets
reflected on the unaudited pro forma consolidated balance sheet of the
Company and ELF as of July 15, 2000 referred to in Section 4.07(c) of this
Agreement. The termination of all contracts, arrangements and
understandings between the Company on the one hand and Spinco and its
Subsidiaries on the other hand, to the extent contemplated by the
Distribution Agreement would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The unaudited pro forma
consolidated balance sheet of the Company and ELF as of July 15, 2000
referred to in Section 4.07(c) of this Agreement reflects all assets of the
Company principally used in the business of the Company as of July 15,
2000, other than assets or properties of the Company that will be
transferred to Spinco or its Subsidiaries.
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(b) Except as set forth in Section 4.20(b) of the Company Disclosure
Schedule, there are no outstanding claims for indemnification against the
Company or any of its Subsidiaries under any written contract, agreement or
understanding or, to the knowledge of the Company, under any oral contract,
agreement or understanding.
(c) Except (i) as set forth in Section 4.20(c) of the Company
Disclosure Schedule and (ii) as expressly contemplated by the Transaction
Agreements immediately following the Effective Time, the Company will not
be party to any oral or written contract, agreement or understanding.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company that:
Section 5.01. Corporate Existence and Power. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except for those licenses, authorizations, permits, consents and approvals the
absence of which would not reasonably be expected to materially impair, delay or
prevent the ability of Parent and Merger Subsidiary to consummate the
transactions contemplated by the Transaction Agreements. Since the date of its
incorporation, Merger Subsidiary has not engaged in any activities other than in
connection with or as contemplated by this Agreement or in connection with
arranging any financing required to consummate the transactions contemplated by
the Merger or the Transaction Agreements.
Section 5.02. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action. This Agreement has been
duly executed and delivered by Parent and Merger Subsidiary and constitutes a
valid and binding agreement of each of Parent and Merger Subsidiary, enforceable
against it in accordance with its terms.
Section 5.03. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any Governmental
Entity, other than (i) the filing of certificates of merger with respect to the
Merger with the Delaware Secretary of State and the Georgia Secretary of State,
(ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the 1933 Act, the 1934 Act and
any other applicable securities or takeover laws, whether state or foreign and
(iv) any actions or filings the absence of which would not reasonably be
expected to materially impair, delay or prevent the ability of Parent and Merger
Subsidiary to consummate the transactions contemplated by the Transaction
Agreements.
Section 5.04. Non-Contravention. The execution, delivery and performance
by Parent and Merger Subsidiary of this Agreement and the consummation by Parent
and Merger Subsidiary of the transactions contemplated hereby do not and will
not (i) contravene, conflict with, or result in any violation or breach of any
provision of the
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certificate of incorporation or bylaws of Parent or Merger Subsidiary, (ii)
contravene, conflict with, or result in any violation or breach of any provision
of any Law or (iii) require any consent or other action by any Person under,
constitute (with or without notice or lapse of time or both) a default under, or
cause or permit the termination, cancellation, acceleration or other change of
any right or obligation or the loss of any benefit to which Parent or Merger
Subsidiary is entitled under, any provision of any agreement or other instrument
binding upon Parent or Merger Subsidiary, except, in the case of clauses (ii)
and (iii), for such matters as would not reasonably be expected to materially
impair, delay or prevent the consummation of the transactions contemplated by
the Transaction Agreements.
Section 5.05. Disclosure Documents. The information with respect to
Parent and any of its Subsidiaries that Parent furnishes to the Company
specifically for use in the Company Proxy Statement will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading at the time such Company Proxy
Statement, or any amendment or supplement thereto, is first mailed to
shareholders of the Company and the time such shareholders vote on adoption of
this Agreement.
Section 5.06. Finders' Fees. There is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of Parent which might be entitled to any fee or commission from the
Company upon consummation of the transactions contemplated by this Agreement.
Section 5.07. Adequate Funds. Parent has commitment letters in customary
form from nationally-recognized lending institutions for and will have at the
Effective Time sufficient funds for the payment of the aggregate Merger
Consideration and to perform its obligations under the Transaction Agreements
and under the ELF Merger Agreement.
ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees that:
Section 6.01. Conduct of the Company. From the date hereof until the
Effective Time, the Company shall conduct its business in the ordinary course
consistent with past practices and shall use its reasonable best efforts to
preserve intact its business organizations and relationships with third parties
and to keep available the services of its present officers and employees.
Without limiting the generality of the foregoing, except with the prior written
consent of Parent (which shall not be unreasonably withheld) as provided by this
Agreement, the Transaction Agreements, or as set forth in Section 6.01 the
Company Disclosure Schedule, from the date hereof until the Effective Time, the
Company shall not:
(a) declare, set aside or pay any dividend or other distribution with
respect to any share of its capital stock, other than quarterly cash
dividends on customary record and payment dates on the Shares not to exceed
$0.1325 per Share per quarter;
(b) repurchase, redeem or otherwise acquire or offer to acquire any
shares of capital stock or other securities of, or other ownership
interests in, the Company;
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(c) issue, deliver, pledge, encumber or sell any Shares, or any
securities convertible into Shares, or any Share Equivalents or other
rights, warrants or options to acquire any Shares, other than issuances of
shares pursuant to Share Equivalents that are outstanding on the date
hereof;
(d) amend its Articles of Incorporation or By-Laws or other comparable
organizational documents or amend any material terms of the outstanding
securities of the Company;
(e) merge or consolidate with any other Person, make any investment in
any other Person, including any joint venture, or acquire the stock or
assets or rights of any other Person other than (i) pursuant to existing
contracts or commitments as set forth in the Company Disclosure Schedule,
(ii) in each case in the ordinary course of business consistent with past
practices, purchases of raw materials, services and items used or consumed
in the manufacturing process, or (iii) capital expenditures made consistent
with the Company's capital expenditure program, in an amount not to exceed
$40 million in the aggregate for 2000 and $38.5 million in the aggregate
for 2001;
(f) incur any indebtedness (whether or not reflected on the Company
Balance Sheet) for borrowed money, guarantee any such indebtedness, enter
into any new or amend existing facilities relating to indebtedness, issue
or sell any debt securities or warrants or other rights to acquire any debt
securities or guarantee any debt securities, other than any indebtedness
incurred in the ordinary course of business consistent with past practices
under the Company's revolving credit agreement;
(g) except as required under Section 2.06 or by applicable Law, or as
may be mutually agreed upon between Parent and the Company, enter into or
adopt any new, or amend any existing, Employee Plan or Benefit Arrangement,
or materially change any actuarial or other assumption used to calculate
funding obligations with respect to any Employee Plan or Benefit
Arrangement, or change the manner in which contributions to any pension
plan are made or the basis on which such contributions are determined,
except for amendments or changes in the ordinary course of business
consistent with past practices solely to reflect any administrative or
other non-substantive changes to any Benefit Plan or Employee Arrangement
and which do not increase the liability of the Company therefor;
(h) except to the extent required by written employment agreements
existing on the date of this Agreement, or by applicable Law, increase the
compensation payable or to become payable to its directors, officers or
employees (excluding (i) raises for hourly employees of the Company in the
ordinary course consistent with past practice and (ii) raises in the
ordinary course consistent with past practice for salaried employees
scheduled to be effective January 1, 2000) or pay any benefit or amount to
any such person that is not otherwise required by an Employee Plan or
Benefit Arrangement as in effect on the date of this Agreement;
(i) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets (including
securitizations) except pursuant to the ELF Merger and except for
transactions involving immaterial properties or assets that are in the
ordinary course of business consistent with past practices;
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(j) make any tax election that has, or fail to make any tax election
which failure would have, individually or in the aggregate, a material
effect on the tax liability or tax attributes of the Company or settle or
compromise any material income tax liability of the Company or file any Tax
Return (other than in a manner consistent with past practice) or change any
method of Tax accounting;
(k) take any action to cause ELF to pay any dividend or make any
distribution to its stockholders other than the payment of quarterly cash
dividends on customary record and payment dates not to exceed $0.1125 per
share of ELF Common Stock per quarter and the special dividend as permitted
by Section 6.06 of the ELF Merger Agreement;
(l) (i) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization for the Company or (ii) enter into any material agreement or
exercise any discretion providing for acceleration of any material payment
or performance as a result of a change of control of the Company or take
any action which would give rise to any liability or obligation of the
Company following the Effective Time for which the Company will not be
indemnified by Spinco under the Distribution Agreement;
(m) engage in or allow any transfer of assets or liabilities or other
transactions between the Company, on the one hand, and Spinco and any of
its Subsidiaries, on the other hand, except (i) payments in the ordinary
course of its business consistent with past practice or (ii) as expressly
contemplated by the Transaction Agreements to occur prior to the Effective
Time;
(n) sell, assign, encumber, pledge, hypothecate or otherwise dispose
of any of the ELF Shares or any interest therein or enter into any voting
agreement or grant any proxy or consent with respect thereto, except for
the ELF Voting Agreement;
(o) renew any collective bargaining agreement or enter into any new
collective bargaining agreement;
(p) renew or enter into any non-compete, exclusivity or similar
material agreement that would restrict or limit the operations of the
Company, or, after the Effective Time, of Parent;
(q) renew, enter into, amend or waive any right under any material
contract with or loan to any Affiliate of the Company, other than as
expressly contemplated by the Transaction Agreements;
(r) make any loan, advance or capital contributions to or investment
in any Person, other than immaterial amounts in the ordinary course of
business consistent with past practices;
(s) enter into, modify or amend in any material respect, or terminate
any contract filed as an exhibit to any Company SEC Document or any other
contract to which the Company is a party which is or would be required to
be filed as an exhibit to the Company SEC Documents;
(t) settle or compromise any material litigation, or waive, release or
assign any material claims;
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(u) adopt any change, other than as required by the SEC or by GAAP, in
its accounting policies, procedures or practices; or
(v) agree or commit to do any of the foregoing.
The parties agree that the provisions of Section 6.01, shall apply to
Spinco and its Subsidiaries as well as to the Company; provided, however, that
Parent agrees to grant its approval to any of the foregoing actions involving
solely Spinco or its Subsidiaries so long as such action would not (x) give rise
to any liability or obligation on the part of the Company following the
Effective Time, (y) adversely affect the credit quality or financial strength of
the parties which will indemnify the Company after the Effective Time pursuant
to the Distribution Agreement or (z) interfere with the timely consummation of
the Merger. Subject to the foregoing, the Company agrees to use its best efforts
to operate the business of Spinco and its Subsidiaries in a manner that
minimizes the liabilities incurred within the Company.
Section 6.02. Shareholder Meeting; SEC Filings. The Company shall cause a
meeting of its shareholders (the "Company Shareholder Meeting") to be duly
called and held as soon as reasonably practicable for the purpose of voting on
the approval and adoption of this Agreement and the Merger. In connection with
such meeting and the transactions contemplated by the Transaction Agreements,
the Company will (i) promptly prepare and file with the SEC, use its best
efforts to have cleared or declared effective by the SEC, as the case may be,
and thereafter mail to its shareholders as promptly as practicable the Company
Proxy Statement and the Registration Statement and any amendments or supplements
thereto and all other proxy materials for such meeting, (ii) use its reasonable
best efforts (including postponing or adjourning the Company Shareholder Meeting
to solicit additional proxies) to obtain the necessary approvals by its
shareholders of this Agreement and the transactions contemplated hereby and
(iii) otherwise comply with all legal requirements applicable to such meeting.
The Company shall provide Parent and its legal counsel with sufficient
opportunity to comment upon the form and substance of the Company Proxy
Statement (including any amendments or supplements thereto) prior to filing such
with the SEC and the Company shall use its reasonable efforts to incorporate
Parent's reasonable comments into the Company Proxy Statement (including any
amendments or supplements thereto). The Company shall provide to Parent copies
of any comments received from the SEC in connection therewith and shall consult
with Parent in responding to the SEC. Subject to Section 6.04, the Company Proxy
Statement shall contain the unqualified recommendation of the Board of Directors
of the Company that its shareholders vote in favor of the approval and adoption
of this Agreement and the Merger.
Section 6.03. Access to Information. From the date hereof until the
Effective Time and subject to applicable Law and the Confidentiality Agreement
dated as of July 24, 2000 between the Company and Parent (the "Confidentiality
Agreement"), the Company shall (i) give Parent, its counsel, financial advisors,
auditors, lenders and other authorized representatives reasonable access to the
offices, properties, books and records of the Company, (ii) furnish to Parent,
its counsel, financial advisors, auditors and other authorized representatives
such financial, operating data and other information as such Persons may
reasonably request, (iii) instruct its employees, counsel, financial advisors,
auditors and other authorized representatives of the Company to cooperate with
Parent in its investigation of the Company and (iv) promptly advise Parent
orally and in writing of any fact or circumstances reasonably likely to have a
Material Adverse Effect on the Company or to cause a condition contained in
Article 9 not to be satisfied. Any
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investigation pursuant to this Section shall be conducted in such manner as not
to interfere unreasonably with the conduct of the business of the Company and
Spinco and its Subsidiaries. No information or knowledge obtained by Parent in
any investigation pursuant to this Section shall affect or be deemed to modify
any representation or warranty made by the Company hereunder.
Without limiting the generality of the foregoing, as soon as reasonably
practicable after the date hereof, the Company shall provide to Parent a copy of
the most recent statement of withdrawal liability that it or any of its
Affiliates has obtained from each Employee Plan that is a Multiemployer Plan
and, to the extent that such a statement has not yet been obtained for any such
Employee Plan, or to the extent such a statement has been obtained but reflects
withdrawal liability as of a date earlier than July 1, 2000 with respect to any
such Employee Plan, the Company shall use, and shall cause its Affiliates to
use, its reasonable best efforts to obtain a current withdrawal liability
statement from such Employee Plan and provide it to Parent.
Section 6.04. No Solicitation.
(a) The Company shall not, nor shall it permit any of its Subsidiaries
to, or authorize or permit any director, officer or employee of the Company
or any of its Subsidiaries or any investment banker, attorney, accountant
or other advisor or representative of the Company or any of its
Subsidiaries to, directly or indirectly, (i) solicit, initiate, negotiate
or encourage, or take any other action knowingly to facilitate, any
Takeover Proposal (as defined below) or (ii) enter into, continue or
otherwise participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or otherwise
cooperate in any way with, any Takeover Proposal, in each case other than a
Takeover Proposal made by Parent; provided, however, that at any time prior
to obtaining approval of the Company's shareholders as contemplated by
Section 6.02 hereof, the Board of Directors of the Company may, in response
to a bona fide written Takeover Proposal that such Board of Directors
reasonably determines in good faith is reasonably likely to result in an
Adverse Recommendation Change (as defined below) or, after consultation
with its independent financial advisors, constitutes a Superior Proposal
(as defined below), and which Takeover Proposal was unsolicited and did not
otherwise result from a breach of this Section 6.04, (x) furnish
information with respect to the Company and its Subsidiaries to the person
making such Takeover Proposal (and its representatives) pursuant to a
confidentiality agreement with terms not more favorable to such person than
the Confidentiality Agreement, provided that all such information is
provided on a prior or substantially concurrent basis to Parent, and (y)
participate in discussions or negotiations with the person making such
Takeover Proposal (and its representatives) regarding such Takeover
Proposal, provided that the Company shall have delivered to Parent prior
written notice advising Parent that it intends to participate in such
discussions or negotiations. The Company will immediately cease all
existing activities, discussions and negotiations with any parties
conducted heretofore with respect to any Takeover Proposal and request the
return of all confidential information regarding the Company and ELF
provided to any such parties prior to the date hereof pursuant to the terms
of any confidentiality agreements or otherwise.
The term "Takeover Proposal" means any inquiry, proposal or offer from
any person relating to, or that is reasonably likely to lead to, any direct
or indirect acquisition, in one transaction or a series of transactions,
including any merger, consolidation, tender offer, exchange offer, binding
share exchange, business combina-
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tion, recapitalization, liquidation, dissolution, joint venture, purchase
or similar transaction, of (A) assets or businesses that constitute or
represent 20% or more of the total revenue, operating income or assets of
the Company and its Subsidiaries, taken as a whole, (B) 20% or more of the
outstanding shares of the Company's common stock or capital stock of, or
other equity or voting interests in, any of the Company's Subsidiaries
directly or indirectly holding the assets or businesses referred to in
clause (A) above or (C) any or all of the ELF Shares.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw (or modify in a manner adverse to Parent or
Merger Subsidiary) or propose publicly to withdraw (or modify in a manner
adverse to Parent or Merger Subsidiary) the recommendation or declaration
of advisability by such Board of Directors or any such committee of this
Agreement or the Merger, provided, that in the event that prior to the
approval of the Merger by the shareholders of the Company, the Board of
Directors of the Company receives a Superior Proposal (as determined in
accordance with Section 6.04(b)) that is unsolicited and did not result
from a breach of Section 6.04(a), the Board of Directors of the Company
may, if it believes in good faith such action is required under Georgia law
to avoid a breach of its fiduciary duties, after receipt of advice from its
outside legal counsel, withdraw or modify in a manner adverse to Parent or
Merger Subsidiary the recommendation or declaration of advisability of this
Agreement or the Merger (each such action being referred to herein as an
"Adverse Recommendation Change"), (ii) adopt or approve, or recommend or
propose publicly to adopt or approve, or recommend any Takeover Proposal,
or withdraw its approval of the Merger, or propose publicly to withdraw its
approval of the Merger, (iii) cause or permit the Company to enter into any
letter of intent, memorandum of understanding, agreement in principle,
acquisition agreement, merger agreement, option agreement, joint venture
agreement, partnership agreement or other agreement (each, an "Acquisition
Agreement") constituting or related to, or which is intended to or is
reasonably likely to lead to, any Takeover Proposal (other than a
confidentiality agreement referred to in Section 6.04(a)) or (iv) agree or
resolve to take any of the actions prohibited by clauses (i), (ii) or (iii)
of this sentence; and provided, however, that the Company shall not
exercise its right to make an Adverse Recommendation Change until after the
fifth Business Day following Parent's receipt of written notice (a "Notice
of Superior Proposal") from the Company advising Parent that the Board of
Directors of the Company has received a Superior Proposal and specifying
the terms and conditions of the Superior Proposal and identifying the
Person making such Superior Proposal (it being understood and agreed that
any amendment to the price or any other material term of a Superior
Proposal shall require a new Notice of Superior Proposal and a new five
Business Day period). Any such Adverse Recommendation Change shall not
change the approval by the Board of Directors of the Company of the Merger
and this Agreement under Georgia law or for purposes of causing any state
takeover statute or other state law to be inapplicable to the transactions
contemplated hereby, including the Merger. The Company shall submit this
Agreement to its shareholders at a duly held meeting of shareholders even
if the Board of Directors of the Company shall have made an Adverse
Recommendation Change. Nothing in this Section 6.04 shall (x) permit the
Company to terminate this Agreement, (y) permit the Company to enter into
any agreement with respect to any Takeover Proposal or (z) affect any other
obligation of the Company under this Agreement.
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The term "Superior Proposal" means any bona fide binding written offer
not solicited by or on behalf of the Company or any of its Subsidiaries
made by a third party that, if consummated, would result in such third
party (or in the case of a direct merger between such third party and the
Company, the shareholders of such third party) acquiring, directly or
indirectly, (i) more than 50% of the voting power of the Company's common
stock, (ii) all or substantially all the assets of the Company and its
Subsidiaries or (iii) all or substantially all of the ELF Shares, taken as
a whole, for consideration consisting of cash and/or securities that the
Board of Directors of the Company determines in its reasonable good faith
judgment (after consultation with a financial advisor of nationally
recognized reputation) to be superior from a financial point of view to the
shareholders of the Company, taking into account, among other things, any
changes to the terms of this Agreement proposed by Parent in response to
such Superior Proposal or otherwise.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.04, the Company promptly shall
advise Parent in writing of any request for information that the Company
reasonably believes could lead to or contemplates a Takeover Proposal or of
any Takeover Proposal together with a copy of such Takeover Proposal, or
any inquiry the Company reasonably believes could lead to any Takeover
Proposal.
(d) Nothing contained in this Section 6.04 or elsewhere in this
Agreement shall prohibit the Company from (i) taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) promulgated under the
1934 Act or (ii) making a disclosure to the Company's shareholders if
outside legal counsel advises that failure so to disclose would be
inconsistent with applicable Law; provided, however, that in no event shall
the Company or its Board of Directors or any committee thereof take, agree
or resolve to take any action prohibited by Section 6.04(b)(i) or
6.04(b)(ii).
Section 6.05. Third Party Standstill Agreements. During the period from
the date of this Agreement until the Effective Time or earlier termination of
this Agreement, the Company shall not terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement relating to the making
of a Takeover Proposal to which it is a party (other than any involving Parent
or its Subsidiaries). During such period, the Company agrees to use all
reasonable efforts to enforce, to the fullest extent permitted under applicable
Law, the provisions of any such agreements, including seeking injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of the United States or any state thereof
having jurisdiction.
Section 6.06. Rights Agreement. The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section
4.18(b)) reasonably requested in writing by Parent in order to render the Rights
inapplicable to the transactions contemplated by this Agreement. Except as
provided with respect to the transactions contemplated by this Agreement and the
Transaction Agreements, the Board of Directors of the Company shall not, without
the prior written consent of Parent, (a) amend the Rights Agreement or (b) take
any action with respect to, or make any determinations under, the Rights
Agreement, including a redemption of the Rights or any action to facilitate a
Takeover Proposal.
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Section 6.07 Spin-Off.
(a) The Company shall use its best efforts to satisfy the conditions
to the Spin-Off set forth in Section 3.02 of the Distribution Agreement and
shall effect the Spin-Off if such conditions have been satisfied. The
Company shall cause Spinco to comply with its obligations under the
Distribution Agreement. Notwithstanding anything in this Section 6.07 to
the contrary, the parties acknowledge and agree that this Section 6.07
shall not require the Company or Spinco, to waive any condition to the
Spin-Off set forth in Section 3.02 of the Distribution Agreement. At or
prior to the Spin-Off, the Company shall take those actions required by
Section 3.02 of the Distribution Agreement to be taken at or prior to the
Spin-Off.
(b) The Company shall keep Parent informed on a regular basis
concerning the developments in the transactions contemplated by the
Transaction Agreements and the means by which such transactions are
effected and, subject to any existing agreements as to the means of
effecting the transactions that are reflected in the Distribution
Agreement, the Company shall give reasonable consideration to Parent's
views on the means by which such transactions are effected.
ARTICLE 7
COVENANTS OF PARENT
Parent agrees that:
Section 7.01. Obligations of Merger Subsidiary. Parent will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement.
Section 7.02. Director and Officer Liability. Parent shall cause the
Surviving Corporation, and the Surviving Corporation hereby agrees, to do the
following:
(a) For six years after the Effective Time, the Surviving Corporation
shall indemnify and hold harmless each present officer and director of the
Company (each an "Indemnified Person") to the fullest extent permitted by
Georgia Law or any other applicable laws or provided under the Company's
articles of incorporation and bylaws in effect on the date hereof in
respect of its decision to vote for the approval of the ELF Merger and the
implementation of such decision, provided that such indemnification shall
be subject to any limitation imposed from time to time under applicable
law.
(b) The Surviving Corporation shall be entitled to control the defense
of any action, suit, investigation or proceeding with counsel of its own
choosing reasonably acceptable to the Indemnified Person and the
Indemnified Person shall cooperate in the defense thereof. The Surviving
Corporation shall not be liable for the fees, costs or expenses of any
other counsel for an Indemnified Person, other than local counsel, unless a
conflict of interest shall be caused thereby in which case the Surviving
Corporation shall pay the fees, costs and expenses of one additional
counsel of the Indemnified Person's choosing but reasonably acceptable to
the Surviving Corporation, provided that the Surviving Corporation shall
not be liable for (i) the fees of more than one counsel for all Indemnified
Persons or (ii) any settlement effected without its written consent (which
consent shall not be unreasonably withheld).
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(c) For six years after the Effective Time, the Surviving Corporation
shall provide officers' and directors' liability insurance in respect of
acts or omissions occurring prior to the Effective Time covering each such
Indemnified Person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date
hereof; provided if the aggregate annual premiums for such insurance at any
time during such period shall exceed 200% of the per annum rate of premium
and brokerage costs paid by the Company as of the date hereof for such
insurance, then the Surviving Corporation shall provide only such coverage
as shall then be available at an annual premium equal to 200% of such rate.
(d) If Parent, the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Parent or the Surviving Corporation, as the case may be, shall
assume the obligations set forth in this Section 7.02.
(e) The rights of each Indemnified Person under this Section 7.02
shall be in addition to any rights such Person may have under the articles
of incorporation or bylaws of the Company or any of its Subsidiaries, under
Georgia Law or any other applicable laws or under any agreement of any
Indemnified Person with the Company. These rights shall survive
consummation of the Merger and are intended to benefit, and shall be
enforceable by, each Indemnified Person.
(f) Notwithstanding any provision of this Section 7.02 to the
contrary, to the extent any obligation is also a Spinco Group Liability (as
defined in the Distribution Agreement) such matter shall be addressed as a
Spinco Group Liability pursuant to the Distribution Agreement rather than
this Section 7.02. In the event of a conflict between the Distribution
Agreement and this Section 7.02 with respect to the subject matter of
Section 7.02(a), this Section 7.02 shall govern.
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
Section 8.01. Reasonable Efforts.
(a) Subject to the terms and conditions of this Agreement, the Company
and Parent will use their reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, and to assist and cooperate
with the other parties in doing all things necessary, proper or advisable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. In furtherance and not in limitation of the
foregoing, each of Parent and the Company agrees (i) to make an appropriate
filing of a Notification and Report Form pursuant to the HSR Act with
respect to the transactions contemplated hereby as promptly as reasonably
practicable after the date hereof and to supply as promptly as reasonably
practicable any additional information and documentary material that may be
requested by the FTC or the Antitrust Division or any other Governmental
Entity pursuant to the HSR Act
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and (ii) to use reasonable efforts to cause the expiration or termination
of the applicable waiting periods under the HSR Act (and to obtain the
necessary approvals under any foreign laws, rules or regulations) as soon
as reasonably practicable; provided, that Parent shall not be required to
agree, and the Company shall not agree without Parent's consent, to waive
any rights or to accept any limitation on its operations or to dispose of
any assets in connection with obtaining any such consent or authorization,
but at Parent's written request the Company shall agree to any such waiver,
limitation or disposal, which agreement may, at the Company's option, be
conditioned upon and effective only as of the Effective Time. Each party
shall: (1) promptly notify the other party of any communication from the
FTC, the Antitrust Division or any State Attorney General or any other
Governmental Entity, and subject to applicable Law, permit the other party
to review in advance any proposed written communication to any of the
foregoing and to accept all reasonable additions, deletions or changes
suggested in connection therewith; (2) with respect to this Transaction not
agree to participate in any substantive meetings or discussions with any
Governmental Entity in respect of any filings, investigations, or inquiry
concerning the transactions contemplated by this Agreement unless it
consults with the other party in advance and, to the extent permitted by
such Governmental Entity, gives the other party the opportunity to attend
and participate thereat; and (3) with respect to this Transaction furnish
the other party's counsel, subject to appropriate confidentiality
procedures, with copies of all correspondence, filings, and communications
(and memoranda setting forth the substance thereof) between them and their
respective representatives and any Governmental Entity or their respective
staffs.
(b) In connection with obtaining financing in connection with the
transactions contemplated by this Agreement, at the reasonable request of
Parent, the Company (i) agrees to enter into such agreements, agrees to use
reasonable best efforts to deliver such officers certificates and opinions
as are customary in a financing and as are, in the good faith determination
of the persons executing such officers' certificates or opinions, accurate,
and agrees to pledge, grant security interests in, and otherwise grant
liens on, its assets pursuant to such agreements as may be reasonably
requested, provided that no obligation of the Company under any such
agreement, pledge, or grant shall be effective until the Effective Time;
provided, that, all expenses, liabilities or costs of the Company incurred
in connection herewith shall be the responsibility of Parent and any
obligations entered into in connection herewith are terminated in the event
this Agreement is terminated in accordance with its terms and (ii) with
reasonable assurances of confidentiality acceptable to the Company will
provide to the lenders specified by Parent financial and other information
in the Company's possession with respect to the Company, Spinco, the Merger
and the Transaction, will make the Company's senior officers and financial
and accounting personnel reasonably available to assist such lenders, and
otherwise will cooperate in connection with the consummation of such
financing.
Section 8.02. Certain Filings. The Company and Parent shall cooperate
with one another and use their reasonable best efforts (i) in connection with
the preparation of the Company Proxy Statement and the Registration Statement,
(ii) in determining whether any action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by the Merger
and the Transaction Agreements and (iii) in taking such actions or making any
such filings, furnishing information required in connection therewith or with
the
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Company Proxy Statement and Registration Statement and seeking timely to obtain
any such actions, consents, approvals or waivers.
Section 8.03. Public Announcement. The initial press release concerning
this Agreement and the Transaction shall be a joint release. Thereafter Parent
and the Company will consult with each other before issuing any press release or
making any public statement with respect to this Agreement or the transactions
contemplated hereby and, except as may be required by applicable Law or any
listing agreement with any national securities exchange, will not issue any such
press release or make any such public statement prior to such consultation.
Section 8.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
Section 8.05. Notices of Certain Events. Each of the Company and Parent
shall promptly notify the other of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental Entity in
connection with the transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting the Company, Parent, Spinco or any of
their respective Subsidiaries that relate to the consummation of the
transactions contemplated by the Merger or the Transaction Agreements.
ARTICLE 9
CONDITIONS TO THE MERGER
Section 9.01. Conditions to Obligations of Each Party. The obligations of
the Company, Parent and Merger Subsidiary to consummate the Merger are subject
to the satisfaction of the following conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved and adopted by the shareholders of the Company in accordance
with Georgia Law;
(b) no federal, state or foreign statute, rule, regulation, executive
order, decree or injunction shall have been enacted, entered, promulgated
or enforced by any Governmental Entity which has the effect of making the
Merger or the transactions contemplated hereby illegal or otherwise
prohibiting the consummation of the Merger or the transactions contemplated
hereby;
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(c) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated; and
(d) the Distribution (as defined in the Distribution Agreement) shall
have been consummated in accordance with the terms and subject to the
conditions set forth in the Distribution Agreement.
Section 9.02. Conditions to the Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time;
(b) the representations and warranties of the Company contained in
Section 4.05 shall be true in all respects (except for any de minimis
inaccuracy) both when made and as of the Effective Time as though made at
and as of the Effective Time, and all other representations and warranties
of the Company contained in this Agreement and in any certificate or other
writing delivered by the Company pursuant hereto, disregarding all
qualifications and exceptions contained therein relating to materiality or
Material Adverse Effect or any similar standard or qualification, shall be
true when made and at and as of the Effective Time as if made at and as of
such time (or, if given as of a specific date, at and as of such date) with
only such exceptions as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company;
(c) Parent shall have received a certificate signed by an executive
officer of the Company to the foregoing effect;
(d) all consents and approvals of any Governmental Entity required in
connection with the consummation of the transactions contemplated by the
Transaction Agreements shall have been obtained, except for such consents
or approvals which, if not obtained, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company or a Material Adverse Effect on Parent or result in criminal
liability or material fines;
(e) as of immediately prior to the Effective Time, holders of no more
than 10% of the outstanding Shares shall have taken actions to assert
appraisal rights under Georgia Law; and
(f) the ELF Merger Agreement shall have been approved and adopted by
the stockholders of ELF in accordance with Delaware Law whether by consent
or otherwise and all other conditions to consummation of the ELF Merger
(other than the consummation of the Merger), shall have been satisfied or,
to the extent permitted, waived.
Section 9.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) each of Parent and Merger Subsidiary shall have performed in all
material respects all of its obligations hereunder required to be performed
by it at or prior to the Effective Time;
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(b) the representations and warranties of Parent and Merger Subsidiary
contained in this Agreement and in any certificate or other writing
delivered by Parent or Merger Subsidiary pursuant hereto, disregarding all
qualifications and exceptions contained therein relating to materiality or
Material Adverse Effect or any similar standard or qualification, shall be
true when made and at and as of the Effective Time as if made at and as of
such time (or, if given as of a specific date, at and as of such date) with
only such exceptions as would not reasonably be expected to materially
impair, delay or prevent the ability of Parent and Merger Subsidiary to
consummate the transactions contemplated by this Agreement; and
(c) the Company shall have received a certificate signed by an
executive officer of Parent and Merger Subsidiary to the foregoing effect.
ARTICLE 10
TERMINATION
Section 10.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the shareholders of the Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Merger has not been consummated on or before June 30, 2001,
provided that the right to terminate this Agreement pursuant to this
Section 10.01(b)(i) shall not be available to any party whose breach of
any provision of this Agreement results in the failure of the Merger to
be consummated by such time;
(ii) there shall be any Law or regulation that makes consummation
of the Merger illegal or otherwise prohibited or any judgment,
injunction, order or decree of any Governmental Entity having competent
jurisdiction enjoining Company or Parent from consummating the Merger is
entered and such judgment, injunction, order or decree shall have become
final and nonappealable; or
(iii) this Agreement shall not have been approved and adopted in
accordance with Georgia Law by the Company's shareholders by reason of
the failure to obtain the required vote at a duly held meeting of
shareholders (including any adjournment thereto);
(c) by Parent, if
(i) the Board of Directors of the Company shall have failed to
recommend or shall have withdrawn, or modified in a manner adverse to
Parent, its approval or recommendation of this Agreement or the Merger,
shall have approved or recommended a Superior Proposal, or shall have
resolved to do any of the foregoing;
(ii) the Company shall have (1) failed to perform in any material
respect any obligation or to comply in any material respect with any
agreement or covenant of the Company to be performed or complied with by
it under this
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Agreement, such that the conditions set forth in Sections 9.02(a) or
9.02(c) cannot be satisfied or (2) breached any of its representations
or warranties such that the conditions set forth in Sections 9.02(b) or
9.02(c) cannot be satisfied, which failure under clause (1) or (2) shall
not be cured within 15 Business Days of notice from Parent (or such
longer period during which the Company exercises reasonable best efforts
to cure and reasonably expects to accomplish such cure); or
(iii) the ELF Voting Agreement or the ELF Merger Agreement is
terminated for any reason, or the Company is in breach of or fails to
perform its obligations thereunder, or the ELF Merger Agreement is
consummated pursuant to the proviso to Section 9.01(d) of such
Agreement;
(d) by the Company, if Parent or Merger Subsidiary shall have (i)
failed to perform in any material respect any obligation or to comply in
any material respect with any agreement or covenant of Parent or Merger
Subsidiary to be performed or complied with by it under this Agreement such
that the condition set forth in Section 9.03(a) cannot be satisfied or (ii)
breached any of such party's representations or warranties contained in
this Agreement such that the condition set forth in Section 9.03(b) cannot
be satisfied, which failure or breach described in such clause (i) or (ii)
shall not be cured within 15 Business Days of notice from the Company (or
such longer period during which Parent exercises reasonable best efforts to
cure and reasonably expects to accomplish such cure).
The party desiring to terminate this Agreement pursuant to this
Section 10.01 (other than pursuant to Section 10.01(a)) shall give notice
of such termination to the other party.
Section 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01, this Agreement shall become void and of no effect
with no liability on the part of any party (or any shareholder, director,
officer, employee, agent, consultant or representative of such party) to the
other party hereto, provided that, if such termination shall result from the
willful (i) failure of either party to fulfill a condition to the performance of
the obligations of the other party or (ii) failure of either party to perform a
covenant hereof, such party shall be fully liable for any and all liabilities
and damages incurred or suffered by the other party as a result of such failure.
The provisions of Sections 11.04, 11.06, 11.07, 11.08 and this Section 10.02
shall survive any termination hereof pursuant to Section 10.01.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
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if to Parent or Merger Subsidiary, to:
Kellogg Company
One Kellogg Square
Battle Creek, Michigan 49016
Attention: Janet L. Kelly
Fax: (616) 961-6598
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Daniel A. Neff
Fax: (212) 403-2000
if to the Company, to:
Flowers Industries, Inc.
1919 Flowers Circle
Thomasville, Georgia 31757
Attention: G. Anthony Campbell
Fax: (912) 225-5433
with a copy to:
Jones, Day, Reavis & Pogue
3500 SunTrust Plaza
303 Peachtree Street
Atlanta, Georgia 30308-3242
Attention: Robert W. Smith
Lizanne Thomas
Fax: (404) 581-8330
or such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the other parties hereto. All such
notices, requests and other communications shall be deemed received on the
date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a Business Day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding Business Day in the place of
receipt.
Section 11.02. Survival of Representations and Warranties;
Indemnification. The representations and warranties contained in Article 4 and
in any certificate or other writing delivered pursuant to Section 9.02(c) shall
survive the Effective Time for a period of two years (or, in the case of the
representations and warranties contained in Section 4.15, until the expiration
of the applicable statutes of limitations), and Spinco shall indemnify and hold
harmless Parent, its Affiliates (including the Company) and their respective
directors, officers, employees, controlling persons, agents and representatives
and their successors and assigns (collectively, the "Parent Indemnitees") from
and against all Damages (as defined in the Distribution Agreement) asserted
against or incurred or suffered by any Parent Indemnitee in any way, directly or
indirectly arising out of, relating to or resulting from the
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failure of any representation or warranty of the Company contained in this
Agreement to have been true and correct when made or as of the Effective Time
(or at and as of such different date or period specified for such representation
and warranty) as though such representation and warranty were made at and as of
the Effective Time (or such different date or period) without giving effect to
any materiality or Material Adverse Effect or knowledge qualification. The
procedures set forth in Sections 4.05 and 4.06 of the Distribution Agreement
shall apply to any claims made by any Parent Indemnitee under this Section
11.02.
Section 11.03. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to
the Effective Time if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement
or, in the case of a waiver, by each party against whom the waiver is to be
effective, provided that, after the adoption of this Agreement by the
shareholders of the Company and without their further approval, no such
amendment or waiver shall reduce the amount or change the kind of
consideration to be received in exchange for the Shares.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder 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 11.04. Expenses.
(a) Except as otherwise provided in this Section, all costs and
expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense.
(b) If:
(i) Parent shall terminate this Agreement pursuant to Section
10.01(c)(i);
(ii) either the Company or Parent shall terminate this Agreement
pursuant to Section 10.01(b)(iii) and prior to the Company Shareholder
Meeting a third party or the Company shall have publicly announced a
Takeover Proposal or a Takeover Proposal shall have been made known to
the Company (other than a Takeover Proposal by Parent);
(iii) either Parent or the Company shall terminate this Agreement
pursuant to Section 10.01(b)(i) and prior to June 30, 2001 a third party
or the Company shall have publicly announced a Takeover Proposal, or a
Takeover Proposal shall have been made known to the Company (other than
a Takeover Proposal by Parent); or
(iv) Parent is entitled to receive, or has received, a payment from
ELF pursuant to Section 11.04(b) of the ELF Merger Agreement and (A) the
conditions set forth in Section 9.02 of this Agreement have been
satisfied, (B) Parent has not (1) failed to perform in any material
respect any obligation or to comply in any material respect with any
agreement or covenant of Parent to be performed or complied with by it
under this Agreement or (2) breached any of its representations or
warranties contained in this Agreement such that this
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Agreement may be terminated by the Company pursuant to Section 10.01(d)
hereof and (C) ELF has not (1) failed to perform in any material respect
any obligation or to comply in any material respect with any agreement
or covenant of ELF to be performed or complied with by it under the ELF
Merger Agreement or (2) breached any of its representations or
warranties such that the ELF Merger Agreement has been or may be
terminated pursuant to Section 10.01(d) thereof;
then, in the case of a termination by the Company pursuant to clause
(ii) or (iii), the Company shall pay to Parent (by wire transfer of
immediately available funds not later than the date of termination or,
in the case of termination by Parent pursuant to clause (i), (ii) or
(iii), one Business Day after such termination of this Agreement or, in
the case of clause (iv), on the date such payment is, or was, due from
ELF) an amount equal to $58.2 million. Notwithstanding the preceding
provisions of this Section 11.04(b), such amount shall not be paid to
Parent if the ELF Merger shall have been consummated. The Company shall
be entitled to deduct and withhold from any payments made to Parent
under this Section 11.04(b) such amounts as may be required to be
deducted or withheld therefrom under the Code or under any applicable
provisions of state or local tax Law. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for purposes of this
Section 11.04(b) as having been paid to Parent.
Section 11.05. Successors and Assigns. 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 no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Parent or Merger
Subsidiary may transfer or assign, in whole or from time to time in part, to one
or more of its Affiliates and the corresponding obligations, the right to enter
into the transactions contemplated by this Agreement, but no such transfer or
assignment will relieve Parent or Merger Subsidiary of its obligations
hereunder.
Section 11.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard to
the conflicts of law rules of such state.
Section 11.07. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought in
any federal court located in the State of Delaware or any Delaware state court,
and each of the parties hereby consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 11.01 shall be deemed effective service of
process on such party.
Section 11.08. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
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IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 11.09. Counterparts; Effectiveness; Benefit. 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. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
Except as provided in Sections 2.03, 2.06, 7.02 and 11.02, no provision of this
Agreement is intended to confer any rights, benefits, remedies, obligations, or
liabilities hereunder upon any Person other than the parties hereto and their
respective successors and assigns.
Section 11.10. Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement.
Section 11.11. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
Section 11.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
Section 11.13. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled (without posting a bond or similar indemnity) to an injunction or
injunctions to prevent breaches of this Agreement or to enforce specifically the
performance of the terms and provisions hereof in any federal court located in
the State of Delaware or any Delaware state court, in addition to any other
remedy to which they are entitled at law or in equity.
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<PAGE> 125
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
FLOWERS INDUSTRIES, INC.
By: /s/ G. A. CAMPBELL
-----------------------------------
Name:
Title:
KELLOGG COMPANY
By: /s/ CARLOS GUTIERREZ
-----------------------------------
Name:
Title:
KANSAS MERGER SUBSIDIARY, INC.
By: /s/ JANET LANGFORD KELLY
-----------------------------------
Name:
Title:
FLOWERS FOODS, INC.
(for purposes of Section 11.02 only)
By: /s/ G. A. CAMPBELL
-----------------------------------
Name:
Title:
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<PAGE> 126
SCHEDULE I TO THE AGREEMENT AND PLAN OF MERGER AND RESTRUCTURING
SCHEDULE I
Capitalized terms used but not defined in paragraphs (a) or (c) of this
Schedule I shall have the meanings ascribed to them in the Agreement and Plan of
Restructuring and Merger to which this Schedule I is attached (the "Agreement").
(a) "Per Share Adjustment Amount" shall mean an amount equal to the
Adjustment Amount divided by the Outstanding Shares (as defined below).
"Adjustment Amount" shall mean an amount, reasonably estimated, equal to the sum
of the following items (each, an "Item"):
1. All advisory fees and expenses payable by the Company in connection with
the transactions contemplated by the Agreement or the other Transaction
Agreements, to the extent such fees and expenses exceed $16 million;
2. All Liabilities (as defined in the Distribution Agreement) payable by
the Company under the Company's 1989 Executive Stock Incentive Plan,
1982 Incentive Stock Option Plan, Non-Employee Director Stock Option
Plan or any other compensation plan, program or arrangement of the
Company, including as set forth on Section 4.16(i) of the Company
Disclosure Schedule as a result of the transactions contemplated by the
Agreement or the Distribution Agreement;
3. The principal amount of all Company Debt (as defined in the Distribution
Agreement) plus the principal amount of any other debt or similar
obligations of the Company immediately prior to the Distribution (as
defined in the Distribution Agreement) to the extent such debt is not
expressly assumed by Spinco in accordance with the terms of such debt or
similar obligations or otherwise refinanced, prepaid or satisfied by
Spinco, including, without limitation, if applicable, the Company's
7.15% Debentures due 2028 and the Loan Facility Agreement by and among
the Company, SunTrust Bank, Atlanta and each of the participants party
thereto, dated as of November 5, 1999, and all other agreements
referenced in Section 4.04(1) of the Company Disclosure Schedule;
4. Accrued interest on all amounts referred to in Item 3, in each case, as
of the Effective Time;
5. All costs and expenses related to the immediate retirement of any amount
referred to in Item 3 (other than, to the extent not assumed by Spinco
and to the extent not declared due and payable, the Company's 7.15%
Debentures due 2028), including, without limitation, prepayment
penalties, and make-whole and gross-up provisions;
6. The Tax Amount (as defined below); and
7. The aggregate amount necessary to satisfy all Liabilities (as defined in
the Distribution Agreement) of the Company and its Affiliates pursuant
to the Agreements listed as items (a) through (l) of Section 4.04(2) of
the Company Disclosure Schedule.
(b) The parties acknowledge and agree that the Adjustment Amount
constitutes a Spinco Group Liability (as defined in the Distribution Agreement).
In the event that an
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Item, that has been conclusively determined in accordance with the procedure set
forth in Article 4 of the Distribution Agreement, exceeds or is less than the
amount reflected in the Adjustment Amount for such Item, the Company or Spinco,
as the case may be, shall be entitled to indemnification from the other for such
excess amount or deficiency, as applicable, pursuant to such Article 4.
(c) For purposes of this Schedule I, the following terms shall have the
following meanings:
"Estimated Gain" shall mean the excess, if any, of (I) the sum of (a)
the Estimated 311(b) Gain, (b) the amount of any deferred intercompany
income or gain within the meaning of Treasury Regulation Section 1.1502-13
that is Reasonably Expected By The Accountants to be required to be taken
into account as a result of the Transaction (or any transaction undertaken
in anticipation thereof) and the amount of any excess loss account
Reasonably Expected By The Accountants to be required to be taken into
income under Treasury Regulation Section 1.1502-19 as a result of the
Transaction (or any transaction undertaken in anticipation thereof) and (c)
the amount of any other income or gain of the Company or any its
Subsidiaries that is Reasonably Expected By The Accountants to be required
to be recognized for federal income Tax purposes (including pursuant to
Code Section 355(e) and (f)) as a result of the Transaction (or any
transaction undertaken in anticipation thereof) over (II) the amount of any
net operating loss (in excess of the amount of any income or gain of the
Company or any of its Subsidiaries for the Pre-Closing Period, other than
the income or gain set forth in clause (I) above) of the Company or any of
its Subsidiaries arising in the Pre-Closing Period that is Reasonably
Expected By The Accountants to be allowable (without restriction or
limitation) under federal income Tax law to offset the income or gain set
forth in clause (I) above for the taxable period of the Company ending on
the date of the Merger.
"Estimated 311(b) Gain" shall mean the excess, if any, of (a) the sum
of (i) the product of the number of shares of Spinco stock outstanding on
the Distribution Date after the Distribution and the Spinco Stock Price and
(ii) the product of (A) the number of Share Equivalents or other
equity-based derivatives in Spinco outstanding on the date of the
Distribution after the Distribution and (B) the excess, if any, of the
Spinco Stock Price over the exercise price of such Share Equivalents or
derivatives over (b) the federal income Tax basis (other than any basis in
respect of which loss is Reasonably Expected By The Accountants to be
disallowed under Treasury Regulation Section 1.1502-20, as Reasonably
Expected By The Accountants, of the Company in the stock of Spinco
(provided that such basis shall have been reduced by the amount, as
Reasonably Expected By The Accountants, of any liability for federal income
Tax purposes (or any capital lease obligation) of the Company that is
assumed by Spinco or any Subsidiary of Spinco, or to which assets received
by Spinco or any Subsidiary of Spinco are taken subject to).
"Exchange" shall mean the New York Stock Exchange or such other
national securities exchange or automated quotation system of a registered
association as the Spinco stock is to be traded on.
"Outstanding Shares" shall mean the number of Shares issued and
outstanding immediately prior to the Effective Time, excluding all Shares
constituting Restricted Stock Awards pursuant to the 1989 Executive Stock
Incentive Plan.
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<PAGE> 128
"Pre-Closing Period" shall mean the taxable periods (or portions
thereof) ending, with respect to the Company, on or prior to the date of
the Distribution.
"Rate" shall mean the sum of the highest federal income Tax rate
applicable to corporations under the Code on the date of the Distribution
and four percent.
"Reasonably Expected By The Accountants" shall mean that the
taxpayer's position is "more likely than not" to prevail under the Code, as
mutually agreed by (a) accountants designated by the Company and (b) at the
election of the Company, either PricewaterhouseCoopers, LLP, Detroit, or a
Big Five accounting firm mutually selected by the Company and Parent.
"Relevant Date" shall mean the date of the Distribution, or if Spinco
stock is not traded on the Exchange on such date, then the first date
following the date of the Distribution on which the Spinco stock is so
traded.
"Spinco Stock Price" shall mean the average of the high and the low
trading prices on the Relevant Date of Spinco stock on the Exchange, as
reported in The Wall Street Journal.
"Tax Amount" shall mean the product of the Rate and the Estimated
Gain.
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<PAGE> 129
APPENDIX B
DISTRIBUTION AGREEMENT
BETWEEN
FLOWERS INDUSTRIES, INC.
AND
FLOWERS FOODS, INC.
DATED AS OF OCTOBER 26, 2000
<PAGE> 130
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.......................................... B-5
ARTICLE 2
CONTRIBUTIONS AND ASSUMPTION OF LIABILITIES
SECTION 2.01. Contribution of Contributed Subsidiaries............. B-16
SECTION 2.02. Transfers of Certain Assets to Spinco Group.......... B-16
SECTION 2.03. Assumption of Certain Liabilities.................... B-16
SECTION 2.04. Agreement Relating to Consents Necessary to Transfer
Assets............................................... B-16
ARTICLE 3
THE DISTRIBUTION
SECTION 3.01. Cooperation Prior to the Distribution................ B-17
SECTION 3.02. Tulip Board Action; Conditions Precedent to the
Distribution......................................... B-17
SECTION 3.03. The Distribution..................................... B-17
SECTION 3.04. Stock Dividend....................................... B-18
SECTION 3.05. Fractional Shares.................................... B-18
SECTION 3.06. Representations of Spinco; Release................... B-18
ARTICLE 4
INDEMNIFICATION AND OTHER MATTERS
SECTION 4.01. Spinco Indemnification of Tulip...................... B-18
SECTION 4.02. Tulip Indemnification of Spinco Group................ B-19
SECTION 4.03. Insurance and Third Party Obligations; Limitation on
Liability............................................ B-19
SECTION 4.04. Notice and Payment of Claims......................... B-20
SECTION 4.05. Notice and Defense of Third-Party Claims............. B-20
SECTION 4.06. Adjustment in Indemnity Payment for Tax
Consequences......................................... B-23
SECTION 4.07. Non-Exclusivity of Remedies.......................... B-23
ARTICLE 5
EMPLOYEE MATTERS
SECTION 5.01. Employee Matters Generally........................... B-23
ARTICLE 6
ACCESS TO INFORMATION
SECTION 6.01. Provision of Corporate Records....................... B-23
SECTION 6.02. Access to Information................................ B-23
SECTION 6.03. Litigation Cooperation............................... B-24
</TABLE>
B-2
<PAGE> 131
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.04. Reimbursement........................................ B-24
SECTION 6.05. Retention of Records................................. B-24
SECTION 6.06. Confidentiality...................................... B-25
SECTION 6.07. Right of Inquiry..................................... B-25
ARTICLE 7
CERTAIN OTHER AGREEMENTS
SECTION 7.01. Intercompany Accounts; Services; Guaranties.......... B-26
SECTION 7.02. Trademarks; Trade Names.............................. B-27
SECTION 7.03. Further Assurances and Consents...................... B-27
SECTION 7.04. Non-Solicitation..................................... B-28
SECTION 7.05. Third Party Beneficiaries............................ B-28
SECTION 7.06. Intellectual Property Rights and Licenses............ B-28
SECTION 7.07. Insurance............................................ B-28
ARTICLE 8
TAXES
SECTION 8.01. Liability for Taxes.................................. B-30
SECTION 8.02. Tax Returns.......................................... B-31
SECTION 8.03. Distribution......................................... B-32
SECTION 8.04. Tax Refunds and Benefits............................. B-32
SECTION 8.05. Tax Sharing Arrangements............................. B-34
SECTION 8.06. Contest Provisions................................... B-34
SECTION 8.07. Cooperation on Tax Matters; Other Tax Matters........ B-35
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices.............................................. B-36
SECTION 9.02. Amendments; No Waivers............................... B-36
SECTION 9.03. Expenses............................................. B-37
SECTION 9.04. Successors and Assigns............................... B-37
SECTION 9.05. Governing Law........................................ B-37
SECTION 9.06. Counterparts; Effectiveness.......................... B-37
SECTION 9.07. Entire Agreement..................................... B-37
SECTION 9.08. Certain Transfer Taxes............................... B-38
SECTION 9.09. Jurisdiction......................................... B-38
SECTION 9.10. Pre-Litigation Dispute Resolution.................... B-38
SECTION 9.11. Severability......................................... B-38
SECTION 9.12. Survival............................................. B-38
SECTION 9.13. Captions............................................. B-39
SECTION 9.14. Specific Performance................................. B-39
</TABLE>
B-3
<PAGE> 132
<TABLE>
<S> <C> <C>
SCHEDULE A -- Spinco Assets -- Contracts
SCHEDULE B -- Spinco Assets -- Other Assets, Properties and Business
SCHEDULE C -- Spinco Group Liabilities
SCHEDULE D -- Spinco Intellectual Property Rights
SCHEDULE E -- Spinco Litigation
SCHEDULE F -- Assumed Debt
SCHEDULE G -- Company Debt
SCHEDULE H -- Restated Spinco Charter
SCHEDULE 2.01 -- Contribution of Contributed Subsidiaries
SCHEDULE 7.01 -- Existing Arrangements
SCHEDULE 7.07 -- Group Policies
EXHIBIT A -- Employee Benefits Agreement
</TABLE>
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<PAGE> 133
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT dated as of October 26, 2000 (this "AGREEMENT")
between Flowers Industries, Inc., a Georgia corporation ("TULIP"), and Flowers
Foods, Inc., a Georgia corporation ("SPINCO").
W I T N E S S E T H:
WHEREAS, Spinco is presently a wholly-owned subsidiary of Tulip;
WHEREAS, the Board of Directors of Tulip has determined that it is in the
best interests of Tulip, its shareholders and Spinco that all outstanding shares
of Spinco Common Stock (as defined below) be distributed pro rata to Tulip's
shareholders (provided that all conditions precedent to the Distribution have
been satisfied) and that, pursuant to an Agreement and Plan of Restructuring and
Merger dated as of October 26, 2000 ("MERGER AGREEMENT") among Tulip, Kellogg
Company, a Delaware corporation ("PARENT"), and Kansas Merger Subsidiary, Inc.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER
SUBSIDIARY"), immediately after the Distribution Merger Subsidiary be merged
with and into Tulip, as a result of which Tulip will become a wholly-owned
subsidiary of Parent (the "MERGER");
WHEREAS, for United States federal income Tax (as defined below) purposes,
it is intended that the holders of Tulip Common Stock be treated as having
received cash consideration from Parent and the Spinco Common Stock in
redemption and disposition of the outstanding Tulip Common Stock (as defined
below);
WHEREAS, Tulip is concurrently herewith entering into, or proposes to enter
into prior to the Distribution Date (as defined below), the Ancillary Agreements
(as defined below); and
WHEREAS, the parties hereto desire to set forth herein the principal
corporate transactions to be effected in connection with the Distribution and
certain other matters relating to the relationship and the respective rights and
obligations of the parties following the Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding of any nature (whether criminal, civil,
legislative, administrative, regulatory, prosecutorial or otherwise) by or
before any arbitrator or Governmental Entity or similar Person or body.
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the Exchange Act (as defined herein) as of the date hereof.
"Agreement" has the meaning set forth in the recitals.
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<PAGE> 134
"Ancillary agreements" means the Employee Benefits Agreement and any
additional agreement entered into between Tulip and Spinco, which shall not
be entered into without the prior written consent of Parent (which shall
not be unreasonably withheld to the extent any such agreement does not
adversely affect Tulip or any of its Affiliates, including Parent, or the
financial strength or creditworthiness of Spinco, in each case, following
the Distribution Time).
"Assumed Debt" means all debt and similar obligations of Tulip
immediately prior to the Distribution, all of which shall be assumed by
Spinco pursuant to this Agreement (except for the Company Debt which shall
remain an obligation of Tulip following the Distribution) including as set
forth on Schedule F.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York are authorized or
required by law to close.
"Commission" means the Securities and Exchange Commission.
"Company Debt" means the debt of Tulip as set forth on Schedule G,
including without limitation any other debt or similar obligations of Tulip
immediately prior to the Distribution to the extent such debt is not
expressly assumed by Spinco in accordance with the terms of such debt or
similar obligations or otherwise refinanced, repaid or satisfied by Spinco,
including, without limitation, if applicable, Tulip's 7.15% Debentures due
2028 and the Loan Facility Agreement by and among Tulip, Suntrust Bank,
Atlanta and each of the participants party thereto, dated as of November 5,
1999, and all other agreements referenced in Section 4.04(1) of the Company
Disclosure Schedule (as defined in the Merger Agreement).
"Confidential Information" has the meaning set forth in Section 6.06.
"Confidentiality Agreement" means the Confidentiality Agreement dated
as of July 24, 2000 between Parent and Tulip.
"Contracts" means any agreement, lease, license, contract, treaty,
note, mortgage, indenture, franchise, permit, concession, arrangement or
other obligation.
"Contributed Subsidiaries" means (i) Flowers Bakeries Brands, Inc., a
Georgia corporation, Mrs. Smith's Bakeries, Inc., a Georgia corporation,
and Flowers Investments, Inc., a Georgia corporation, (ii) any subsidiaries
formed for the purpose of effecting the Restructuring, and (iii) the
respective direct and indirect Subsidiaries of the Persons referred to in
clauses (i) and (ii).
"Contribution" has the meaning set forth in Section 2.01.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "Controlling" and "Controlled" have meanings
correlative to the foregoing.
"Controlling Party" has the meaning set forth in Section 8.06(b).
"Current Period" means, in the case of a Straddle Period, that portion
of the Straddle Period that ends, with respect to Tulip, on and includes
the Distribution Date.
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"Damages" means, with respect to any Person, any and all damages
(including punitive and consequential damages), losses, Liabilities and
expenses incurred or suffered by such Person (including all expenses of
investigation, all attorneys' and expert witnesses' fees and all other
out-of-pocket expenses incurred in connection with any Action or threatened
Action).
"Discontinued Business" means any assets, business or operations of
Tulip, Spinco, their respective Subsidiaries or the Contributed
Subsidiaries that are or have been discontinued, sold or otherwise divested
prior to or on the Distribution Date.
"Distribution" means the distribution by Tulip, pursuant to the terms
and subject to the conditions hereof, of all of the outstanding shares of
Spinco Common Stock to the Tulip Shareholders of record as of the Record
Date.
"Distribution Agent" means First Union National Bank, or such other
nationally recognized banking institution as mutually agreed upon by Parent
and Spinco.
"Distribution Date" means the Business Day on which the Distribution
is effected.
"Distribution Documents" means this Agreement and the Ancillary
Agreements and any other agreements or documents entered into, with
Parent's prior written consent (which shall not be unreasonably withheld to
the extent such other agreements or documents do not adversely affect Tulip
or any of its Affiliates, including Parent, or the financial strength or
creditworthiness of Spinco, in each case, following the Distribution Time)
to effect the transactions contemplated hereby or by the Ancillary
Agreements (but excluding the Confidentiality Agreement and the Merger
Agreement).
"Distribution Time" means the time immediately before the Merger
Effective Time (as defined below).
"Draft Return" has the meaning set forth in Section 8.02(b).
"ELF" means Keebler Foods Company, a Delaware corporation.
"ELF Intellectual Property Rights" means all Intellectual Property
Rights (i) owned by ELF or (ii) owned by a third party and licensed or
sublicensed to ELF.
"ELF Merger" means the merger provided for in the Agreement and Plan
of Merger, dated as of October 26, 2000, among ELF, Flowers Industries,
Inc. and FK Acquisition Corp. (the "ELF Merger Agreement").
"ELF Merger Date" means the date as of which the Effective Time (as
defined in the ELF Merger Agreement) of the ELF Merger occurs.
"Employee Benefits Agreement" means the Employee Benefits Agreement in
the form attached as Exhibit A hereto to be entered into before the
Distribution Date between Tulip and Spinco, with only those amendments or
modifications made with Parent's prior written consent (which shall not be
unreasonably withheld to the extent such amendments or modifications do not
adversely affect Tulip or any of its Affiliates, including Parent, or the
financial strength or creditworthiness of Spinco in each case following the
Distribution Time).
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<PAGE> 136
"Environmental Laws" means all Laws or any agreements with any
Governmental Entity or other third party relating to human health, safety
or the environment, including laws and agreements relating to emissions,
discharges, Releases or threatened Releases of Hazardous Substances, or
otherwise relating to the manufacture, generation, processing,
distribution, use, sale, treatment, receipt, storage, disposal, transport
or handling of Hazardous Substances, including the Comprehensive
Environmental Response, Compensation and Liability Act and the Resource
Conservation and Recovery Act, and the Occupational Safety and Health Act.
"Exchange Act" means the Securities Exchange Act of 1934, and the
rules and regulations promulgated thereunder.
"Finally Determined" means, with respect to any Action, threatened
Action or other matter, that the outcome or resolution of that Action,
threatened Action or other matter either (i) has been decided through
binding arbitration or by a Governmental Entity of competent jurisdiction
by judgment, order, award, or other ruling or (ii) has been settled or
voluntarily dismissed by the parties pursuant to the dispute resolution
procedure set forth in Section 9.10 or otherwise and, in the case of each
of clauses (i) and (ii), the claimants' rights to maintain that Action,
threatened Action or other matter have been finally adjudicated, waived,
discharged or extinguished, and that judgment, order, ruling, award,
settlement or dismissal (whether mandatory or voluntary, but if voluntary
that dismissal must be final, binding and with prejudice as to all claims
specifically pleaded in that Action, threatened Action or other matter) is
subject to no further appeal, vacatur proceeding or discretionary review.
"Finally Settled" has the meaning set forth in Section 8.04(c).
"Governmental Entity" means any federal, state, local or foreign
government or any court, tribunal, administrative agency or commission or
other governmental or other regulatory authority or agency, domestic,
foreign or supranational.
"Group" means, as the context requires, the Spinco Group (as defined
below) or Tulip.
"Group Policies" means all Policies, current or past, which prior to
the Distribution Time are or at any time were maintained by or on behalf of
or for the benefit or protection of Tulip or any Affiliate (or any of their
predecessors) and/or one or more of the current or past directors,
officers, employees or agents of any of the foregoing including, without
limitation, the Policies identified on Schedule 7.07 hereto.
"Hazardous Substance" means (i) chemicals, pollutants, contaminants,
hazardous wastes, toxic substances, and oil and petroleum products, (ii)
any substance that is or contains friable asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum or petroleum-derived
substances or wastes, radon gas or related materials, (iii) any substance
that requires removal or remediation under any Environmental Law, or is
defined, listed or identified as a "hazardous waste" or "hazardous
substance" thereunder, or (iv) any substance that is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous.
"Indemnified Party" has the meaning set forth in Section 4.04.
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"Indemnifying Party" has the meaning set forth in Section 4.04.
"Information Statement" means the information statement to be sent to
each Tulip Shareholder of record as of the Record Date in connection with
the Distribution.
"Insurance Proceeds" shall mean those monies (i) received by an
insured from an insurance carrier or (ii) paid by an insurance carrier on
behalf of an insured, in either case net of any applicable premium
adjustment, retrospectively-rated premium, deductible, retention, or cost
of reserve paid or held by or for the benefit of such insured.
"Insured Claims" shall mean those Liabilities that, individually or in
the aggregate, are covered within the terms and conditions of any of the
Group Policies, whether or not subject to premium adjustments, deductibles,
retentions, co-insurance, cost of reserve paid or held by or for the
benefit of the applicable insured(s), uncollectability or
retrospectively-rated premiums, but only to the extent that such
Liabilities (i) are within applicable Group Policy limits, including
aggregates and (ii) are actually paid.
"Intellectual Property Rights" means (i) inventions, whether or not
patentable, reduced to practice or made the subject of one or more pending
patent applications, (ii) national and multinational statutory invention
registrations, patents and patent applications (including all reissues,
divisions, continuations, continuations-in-part, extensions and
reexaminations thereof) registered or applied for in the United States and
all other nations throughout the world, and all improvements to the
inventions disclosed in each such registration, patent or patent
application, (iii) trademarks, service marks, trade dress, logos, domain
names, trade names and corporate names (whether or not registered) in the
United States and all other nations throughout the world, including all
variations, derivations, combinations, registrations and applications for
registration of the foregoing and all goodwill associated therewith, (iv)
copyrights (whether or not registered) and registrations and applications
for registration thereof in the United States and all other nations
throughout the world, including all derivative works, moral rights,
renewals, extensions, reversions or restorations associated with such
copyrights, now or hereafter provided by law, regardless of the medium of
fixation or means of expression, (v) computer software (including source
code, object code, firmware, operating systems and specifications), (vi)
trade secrets and, whether or not confidential, business information
(including pricing and cost information, business and marketing plans and
customer and supplier lists) and know-how (including manufacturing and
production processes and techniques and research and development
information), (vii) industrial designs (whether or not registered), (viii)
databases and data collections, (ix) copies and tangible embodiments of any
of the foregoing, in whatever form or medium, (x) all rights to obtain and
rights to apply for patents, and to register trademarks and copyrights,
(xi) all rights in all of the foregoing provided by treaties, conventions
and common law and (xii) all rights to sue or recover and retain damages
and costs and attorneys' fees for past, present and future infringement or
misappropriation of any of the foregoing.
"IRS" means the Internal Revenue Service.
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"Law" means any applicable federal, state, local or foreign law,
statute, common law, ordinance, directive, rule, regulation, judgment,
order, injunction, decree, arbitration award, agency requirement, license
or permit of any Governmental Entity.
"Liability" or "Liabilities" means any and all claims, debts,
liabilities, assessments, costs (including, with respect to matters under
Environmental Laws, removal costs, remediation costs, closure costs and
expenses of investigation and ongoing monitoring), deficiencies, charges,
demands, fines, penalties, damages, losses, Taxes, disgorgements and
obligations, of any kind, character or description (whether absolute,
contingent, matured, not matured, liquidated, unliquidated, accrued, known,
unknown, direct, indirect, derivative or otherwise) whenever arising,
including, but not limited to, all costs, interest and expenses relating
thereto (including, but not limited to, all expenses of investigation, all
attorneys' and expert witnesses' fees and all other out-of-pocket expenses
in connection with any Action or threatened Action) and expressly including
those relating to an Indemnified Party's own negligence or other
misconduct.
"Merger" has the meaning set forth in the recitals.
"Merger Agreement" has the meaning set forth in the recitals.
"Merger Effective Time" shall have the meaning assigned to the term
Effective Time in the Merger Agreement.
"Merger Subsidiary" has the meaning set forth in the recitals.
"Noncontrolling Party" has the meaning set forth in Section 8.06(b).
"NYSE" has the meaning set forth in Section 3.01(d).
"Offset Amount" has the meaning set forth in Section 8.04(c).
"Offset Date" has the meaning set forth in Section 8.04(c).
"Parent" has the meaning set forth in the recitals.
"Parent-Directed Transactions" means any transactions that occur at
the direction of Parent on the Distribution Date after the consummation of
the Merger (other than any transaction contemplated by this Agreement, any
restructuring undertaken in anticipation thereof and any transactions which
occur in the ordinary course of business). For the absence of doubt,
neither the Distribution, the Restructuring, the Merger, the ELF Merger or
any transaction undertaken in anticipation thereof shall be considered a
Parent-Directed Transaction.
"Person" means any individual, corporation (including not-for-profit
corporations), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, Governmental
Entity or other entity of any kind or nature.
"Policies" means insurance policies and insurance contracts of any
kind, including, without limitation, primary, excess and umbrella policies,
directors and officers', errors and omissions, commercial general liability
policies, life and benefits policies and contracts, fiduciary liability,
automobile, aircraft, property and casualty, workers' compensation and
employee dishonesty insurance policies, bonds and ELF-insurance together
with the rights, benefits and privileges thereunder.
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"Proxy Statement" means the proxy statement of Tulip to be filed with
the Commission pursuant to the Exchange Act in connection with the Merger.
"Record Date" means the date determined by Tulip's Board of Directors
(or by a committee of that board or any other Person acting under authority
duly delegated to that committee or Person by Tulip's Board of Directors or
a committee of that Board) as the record date for determining the Tulip
Shareholders of record entitled to receive the Distribution.
"Registration Statement" means the registration statement on Form 10,
Form S-1, or Form S-4 to be filed by Spinco with the Commission to effect
the registration of Spinco Common Stock (as defined below) pursuant to the
Exchange Act or the Securities Act in connection with the Distribution, as
such registration statement may be amended or supplemented from time to
time.
"Releases" means any releasing, disposing, discharging, injecting,
spilling, leaking, pumping, dumping, emitting, escaping, emptying,
migrating, transporting, placing, including into or upon, any land, soil,
surface water, ground water or air, or otherwise entering into the
environment, that is not authorized by a Governmental Entity.
"Representatives" has the meaning set forth in Section 6.06.
"Request" has the meaning set forth in Section 6.03.
"Restated Spinco Charter" means the restated articles of incorporation
of Spinco, which shall be in the form attached hereto as Schedule H, with
such changes as the Board of Directors of Spinco reasonably determines,
subject to the prior written approval of Parent (such approval not to be
unreasonably withheld).
"Restructuring" means the contributions pursuant to Section 2.01
hereof, the settlement of intercompany accounts prior to or as of the
Distribution Time, the Distribution and the other transactions contemplated
by this Agreement and the Ancillary Agreements (other than the Merger).
"Securities Act" means the Securities Act of 1933, and the rules and
regulations promulgated thereunder.
"Services" has the meaning set forth in Section 7.01(c).
"Spinco" has the meaning set forth in the recitals.
"Spinco Affiliated Group" has the meaning set forth in Section
8.01(a).
"Spinco Assets" means all assets, leases, properties and businesses,
of every kind and description, wherever located, real, personal or mixed,
tangible or intangible, owned, held or used by Tulip or any member of the
Spinco Group, excluding the Tulip Assets. Without limitation and for the
avoidance of doubt, the following items are, and shall be, "Spinco Assets"
(and are not, and shall not be, Tulip Assets):
(a) all right, title and interest in the real property situated at
1919 Flowers Circle, Thomasville, Georgia 31757, together with all
buildings, fixtures, and improvements erected thereon;
(b) all rights of the Spinco Group (but excluding any and all
rights of Tulip) under the Distribution Documents;
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(c) to the extent relating to the business, assets or employees of
any member of the Spinco Group, all rights of Tulip under the
Confidentiality Agreement and the confidentiality agreements entered
into by Tulip with potential purchasers of Tulip or certain of Tulip's
businesses prior to the date hereof;
(d) all cash and cash equivalents, including all bank account
balances and petty cash, of Tulip (provided, however, that the cash
positions of Tulip cannot be increased or decreased in a manner that
violates the Merger Agreement);
(e) all Spinco Intellectual Property Rights;
(f) all the rights to the contracts listed on Schedule A hereto to
the extent such contracts have not been entered into by or for the
benefit of ELF;
(g) the other assets, properties and businesses listed on Schedule
B hereto;
(h) all goodwill associated with the Spinco Group, Tulip or the
Spinco Assets prior to the Distribution Time (excluding goodwill
associated with the Tulip Assets), together with the right to represent
to third parties that the Spinco Group is the successor to all
businesses and operations of the Spinco Group and Tulip (other than
ELF).
"Spinco Business" means the businesses and operations of Spinco, its
Subsidiaries and the Contributed Subsidiaries, as conducted on the date
hereof, but taking into account the Restructuring.
"Spinco Common Stock" means the common stock, par value $.01 per
share, of Spinco.
"Spinco Environmental Liabilities" means any and all Liabilities of or
relating to (i) Tulip (including any Discontinued Business) or any member
of the Spinco Group or (ii) the Spinco Business or the Spinco Assets,
which, in either case, arise under or relate to Environmental Laws.
"Spinco Group" means Spinco, its direct and indirect Subsidiaries and
the Contributed Subsidiaries (including all successors to each of those
Persons).
"Spinco Group Liabilities" means, except as otherwise specifically
provided in the Merger Agreement or any Distribution Document, all
Liabilities (including Liabilities arising out of any litigation), whether
arising before, at or after the Distribution Time, of or relating to Tulip
or any member of the Spinco Group whether arising from the conduct of, in
connection with or relating to the Spinco Assets or the Spinco Business or
the ownership or use thereof or the Discontinued Business or otherwise; in
each case excluding the Tulip Liabilities. Without limiting the generality
of the foregoing, "Spinco Group Liabilities" shall include the following
Liabilities (a) whether arising before, at or after the Distribution Time:
(i) any Liabilities arising out of, in connection with or related to the
Spinco Assets, the Spinco Business or the Discontinued Business, (ii) the
Spinco Environmental Liabilities, (iii) the Assumed Debt, (iv) the Spinco
Litigation, (v) the Liabilities set forth on Schedule C hereto, (vi) the
contracts set forth on Schedule A, (vii) all other Liabilities of the
Spinco Group under any Distribution Document, (viii) except to the extent
otherwise expressly provided in this Agreement or the Merger Agreement, all
Liabilities of the Spinco Group or Tulip arising out of, or in connection
with or related to the
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Distribution and any of the other transactions contemplated by this
Agreement or any of the Ancillary Agreements, including any advisory fees
for the Merger and the Distribution to the extent such fees exceed $16
million, (ix) (1) any Taxes imposed upon or relating to Spinco, the Spinco
Assets, the Spinco Business, the Discontinued Business or the Contributed
Subsidiaries and (2) any Taxes for which Spinco is liable pursuant to
Article 8 hereof, or (x) any and all Liabilities (A) arising out of, in
connection with or relating to any of the Benefit Arrangements and Employee
Plans (as defined in the Tulip Merger Agreement), or (B) otherwise arising
out of, in connection with or relating to the employment of any individual
by Tulip, Spinco or any of their respective Affiliates (whether relating to
periods before, including or after the Distribution Time), including
without limitation Liabilities for compensation and benefits, other than
employment of Elf Employees (as defined in the Elf Merger Agreement) by ELF
and its Subsidiaries after the Distribution Time, and (b) to the extent
arising prior to or at the Distribution Date, any Liabilities for any
accounts payable of Tulip or the Spinco Group, unless expressly a Tulip
Liability. Nothing in this Agreement shall be interpreted to mean that the
obligations of Surviving Corporation (as defined in the Merger Agreement)
under Section 7.02 of the Merger Agreement constitute Spinco Group
Liabilities.
"Spinco Indemnitee" has the meaning set forth in Section 4.02(a).
"Spinco Intellectual Property Rights" means all Intellectual Property
Rights (i) owned by a member of the Spinco Group or Tulip or (ii) owned by
a third party and licensed or sublicensed to a member of the Spinco Group
or Tulip, including without limitation:
(i) all Tulip Name Rights, other than ELF Intellectual Property
Rights; and
(ii) the Intellectual Property Rights listed on Schedule D hereto,
it being expressly understood that no Intellectual Property Rights owned
by, licensed to, sublicensed to, used by or related to ELF or any of its
Subsidiaries constitute Spinco Intellectual Property Rights.
"Spinco Litigation" means (i) any litigation in which Tulip or one or
more of its officers, directors or employees is named a defendant (x)
relating to, involving or arising out of the Spinco Assets, the Spinco
Business or Tulip, including any Discontinued Business, (y) alleging
violations of federal or state securities laws by Tulip or (z) alleging
breaches of fiduciary duties of the Tulip directors under state law (in the
case of clauses (y) and (z), including the cases set forth on Schedule E);
and (ii) any litigation in which Tulip (or one or more of its officers,
directors or employees) is named a defendant on or after the date hereof
alleging violations of federal or state securities laws or breaches of
fiduciary duties of the Tulip directors at or prior to the Merger Effective
Time under state law, in each case described in this clause (ii) (x)
relating to or arising out of the Merger or the Restructuring or (y)
arising out of matters occurring before the Merger Effective Time.
"Straddle Period" means any taxable year or period beginning on or
before and ending after, with respect to Tulip, the Distribution Date.
"Straddle Period Tax Proceeding" has the meaning set forth in Section
8.06(b).
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"Subsidiary" means, with respect to any Person, any entity of which at
least a majority of the securities or other ownership interests having by
their terms 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 or controlled by such Person or by one or more
of its respective Subsidiaries or by such Person and any one or more of its
respective Subsidiaries.
"Tax" or "Taxes" means (i) any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or
personal property, sales, withholding, social security, retirement,
unemployment, occupation, use, goods and services, service use, license,
value added, capital, net worth, payroll, profits, withholding, franchise,
transfer and recording taxes, fees and charges, and any other taxes,
assessment or similar charges imposed by the IRS or any taxing authority
(whether domestic or foreign including any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)) (a "Taxing Authority"), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall
include any interest whether paid or received, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to,
any such taxes, charges, fees, levies or other assessments, (ii) any
liability for the payment of any amount of the type described in clause (i)
as a result of being or having been a member of an affiliated,
consolidated, combined or unitary group, or a party to any agreement or
arrangement, as a result of which liability to a Taxing Authority is
determined or taken into account with reference to the liability of any
other Person (including, e.g., liability under Treasury Regulation 1.1502-6
or similar liability under any other Law), and (iii) any liability with
respect to the payment of any amount of the type described in (i) or (ii)
as a result of any existing express or implied obligation (including, but
not limited to, an indemnification obligation).
"Tax Amount" has the meaning set forth in the Merger Agreement.
"Tax Proceeding" has the meaning set forth in Section 8.06(a).
"Tax Reporting Standard" has the meaning set forth in Section 8.02(b).
"Tax Return" shall mean any report, return, document, declaration or
other information or filing required to be supplied to any Taxing Authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying payments
of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
"Taxing Authority" has the meaning set forth in the definition of
"Tax".
"Third-Party Claim" has the meaning set forth in Section 4.05.
"Transfer" has the meaning set forth in Section 2.02.
"Tulip" has the meaning set forth in the recitals.
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"Tulip Assets" means all assets as reflected in the unaudited pro
forma consolidated balance sheet as of July 15, 2000 of Tulip set forth in
Section 4.08 of the Company Disclosure Schedule accompanying the Merger
Agreement and the after-tax proceeds of the special dividend contemplated
by Section 6.06 of the ELF Merger Agreement to be received by Tulip.
Without limitation and for the avoidance of doubt, the following items are,
and shall be, "Tulip Assets" (and are not, and shall not be, Spinco
Assets):
(a) all rights of Tulip (but excluding any and all rights of the
Spinco Group) under the Merger Agreement, the Confidentiality Agreement
and the Distribution Documents; and
(b) all capital stock of ELF owned by Tulip and any rights related
to its ownership interest in ELF.
"Tulip Common Stock" means the common stock, par value $0.625 per
share, of Tulip.
"Tulip Indemnitee" has the meaning set forth in Section 4.01(a).
"Tulip Liabilities" means only the following Liabilities, whether
arising before, at or after the Distribution Time: (i) the Company Debt but
not any claim, action or litigation arising from the decision to pursue the
transactions contemplated by this Agreement, the Merger Agreement, the
Ancillary Agreements or the treatment in the transactions contemplated
hereby of any third party debt and (ii) any advisory fees relating to the
Merger and/or Distribution not to exceed $16 million, it being agreed that
notwithstanding the structuring of the transaction as a merger between
Tulip and Merger Subsidiary, it is the intention of the parties to place
Parent and, after the Merger, Tulip, in the same position, with respect to
assumption of or responsibility for Liabilities, as would occur if, instead
of consummating the Merger, Parent were only to purchase the capital stock
Tulip owns in ELF directly from Tulip (subject to clauses (i) and (ii)
above of this definition). For the avoidance of doubt, "Tulip Liabilities"
shall exclude among other matters (i) any and all Liabilities to the extent
specifically retained or assumed by the Spinco Group under this Agreement
or otherwise, (ii) any Taxes imposed upon or relating to Spinco, the Spinco
Assets, the Spinco Business, the Discontinued Business or the Contributed
Subsidiaries and (iii) any Taxes for which Spinco is liable pursuant to
Article 8 hereof.
"Tulip Name Rights" means all right, title and interest in and use of
the "Tulip" name and any derivative thereof including, without limitation,
all trademarks, service marks, trade dress, logos, domain names, trade
names and corporate names (whether or not registered) in the United States
and all other nations throughout the world, including all variations,
derivations, combinations, registrations and applications for registration
of the foregoing and all goodwill associated therewith.
"Tulip Shareholders" means the holders of the Tulip Common Stock.
Any reference in this Agreement to a statute shall be to such statute, as
amended from time to time, and to the rules and regulations promulgated
thereunder.
Any reference to "including" or "include" means "including, without
limitation" or "include, without limitation," respectively.
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ARTICLE 2
CONTRIBUTIONS AND ASSUMPTION OF LIABILITIES
Section 2.01. Contribution of Contributed Subsidiaries. Upon the terms
and subject to the conditions set forth in the Merger Agreement and the
Distribution Documents, effective prior to the Distribution Time, Tulip shall
contribute to Spinco all of the outstanding shares of capital stock of, or other
ownership interests in, each of the Subsidiaries in clause (i) and clause (ii)
of the definition of Contributed Subsidiaries in the manner described in
Schedule 2.01, subject to receipt of any necessary consents or approvals of
third parties or of Governmental Entities and subject to Section 7.03.
Section 2.02. Transfers of Certain Assets to Spinco Group. Upon the terms
and subject to the conditions set forth in the Merger Agreement or any
Distribution Document, except as otherwise expressly set forth therein,
effective prior to or as of the Distribution Time, subject to receipt of any
necessary consents or approvals of third parties or of Governmental Entities,
Tulip shall assign, contribute, convey, transfer and deliver ("Transfer") to
Spinco or to one or more of Spinco's wholly-owned Subsidiaries all of the right,
title and interest of Tulip in and to all Spinco Assets that are not owned, held
or used by a Contributed Subsidiary, if any, as the same shall exist on the
Distribution Date immediately prior to the Distribution Time.
Section 2.03. Assumption of Certain Liabilities. Upon the terms and
subject to the conditions set forth in the Merger Agreement or any Distribution
Document, effective as of the Distribution Time (or of the time of Transfer, if
earlier, of the assets to which such Liabilities are attributable), Spinco
hereby unconditionally (i) assumes all Spinco Group Liabilities to the extent
not then an existing obligation of the Spinco Group and (ii) undertakes to pay,
satisfy and discharge when due in accordance with their terms all Spinco Group
Liabilities.
Section 2.04. Agreement Relating to Consents Necessary to Transfer Assets.
Notwithstanding anything in this Agreement to the contrary, this Agreement shall
not constitute an agreement to transfer or assign any asset or any claim or
right or any benefit arising thereunder or resulting therefrom if an attempted
assignment thereof, without the necessary consent of a third party, would
constitute a breach or other contravention thereof or in any way adversely
affect the rights of Spinco, or any member of the Spinco Group, or Tulip
thereunder. Spinco and Tulip shall cooperate with each other, keep each other
informed and will, subject to Section 7.03, use their reasonable best efforts to
obtain the consent of any third party or any Governmental Entity, if any,
required in connection with the transfer or assignment pursuant to Sections
2.02, 2.03 or 2.04 of any such asset or any claim or right or any benefit
arising thereunder. Until such required consent is obtained, or if such consent
cannot be obtained or an attempted assignment thereof would be ineffective or
would adversely affect the rights of the transferor thereunder so that the
intended transferee would not in fact receive substantially all such rights,
Spinco and Tulip will use reasonable efforts to cooperate in a mutually
agreeable arrangement under which the intended transferee would obtain (at the
transferee's expense and at no cost to the transferor) the benefits and assume
the obligations thereunder in accordance with this Agreement, including (but not
limited to) sub-contracting, sub-licensing or sub-leasing to such transferee, or
under which the transferor would enforce for the benefit of the transferee and
(except as otherwise provided herein or in any Ancillary Agreement) at the
transferee's expense any and all rights of the transferor against, with the
transferee assuming the transferor's obligations to, each third party thereto.
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ARTICLE 3
THE DISTRIBUTION
Section 3.01. Cooperation Prior to the Distribution.
(a) As promptly as practicable after the date of this Agreement,
Parent, Tulip and Spinco shall prepare, and Spinco shall file with the
Commission, the Registration Statement, which shall include or incorporate
by reference the Information Statement. Parent, Tulip and Spinco shall use
their reasonable best efforts to cause the Registration Statement to become
effective under the Exchange Act or Securities Act as soon as practicable.
After the Registration Statement has become effective, Tulip shall mail the
Information Statement as promptly as practicable to the Tulip Shareholders
of record as of the Record Date.
(b) Parent, Tulip and Spinco shall cooperate in preparing, filing with
the Commission and causing to become effective any registration statements
or amendments or supplements thereto that are appropriate to reflect the
establishment of or amendments to any employee benefit and other plans
contemplated by the Ancillary Agreements.
(c) Tulip and Spinco shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in connection with the
transactions contemplated hereby or by the Ancillary Agreements.
(d) Spinco shall prepare, file and pursue an application to permit the
listing of the Spinco Common Stock on the New York Stock Exchange ("NYSE").
Section 3.02. Tulip Board Action; Conditions Precedent to the
Distribution. Tulip's Board of Directors shall establish (or delegate authority
to establish) the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall have been satisfied or,
to the extent permitted, waived:
(a) the Registration Statement shall have become effective with the
Commission under the Exchange Act or Securities Act and shall have been
mailed to all Tulip shareholders of record on the Record Date;
(b) the Spinco Common Stock to be delivered in the Distribution shall
have been approved for listing on the NYSE, subject to official notice of
issuance;
(c) the Restated Spinco Charter shall be in effect;
(d) the contributions referred to in Section 2.01, the transfers
referred to in Section 2.02, and the assumptions of Liabilities referred to
in Section 2.03 of this Agreement shall have been effected;
(e) the Employee Benefits Agreement shall have been duly executed and
delivered by the parties thereto; and
(f) each condition to the Merger set forth in Sections 9.01, 9.02 and
9.03 of the Merger Agreement shall have been satisfied or waived.
Section 3.03. The Distribution. Subject to the terms and conditions set
forth in this Agreement, (i) immediately prior to the Distribution Time, Tulip
shall deliver to the
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Distribution Agent, for the benefit of the Tulip Shareholders of record on the
Record Date, a stock certificate or certificates, endorsed by Tulip in blank,
representing all of the then-outstanding shares of Spinco Common Stock owned by
Tulip, (ii) the Distribution shall be effective as of the Distribution Time and
(iii) Tulip shall instruct the Distribution Agent to distribute, on or as soon
as practicable after the Distribution Date, to each Tulip Shareholder of record
as of the Record Date one share of Spinco Common Stock (together with the
associated preferred share purchase rights), for that certain number of shares
(as determined by the Tulip Board of Directors) of Tulip Common Stock so held.
Spinco agrees to provide all certificates for shares of Spinco Common Stock that
Tulip shall require (after giving effect to Sections 3.04 and 3.05) in order to
effect the Distribution. The Merger and Distribution shall be effected such that
the Merger Consideration (as defined in the Merger Agreement) and the shares of
Spinco Common Stock to be distributed in the Distribution are payable and
distributable, as applicable, only to the same Tulip Shareholders, it being
understood that the Distribution shall be effective immediately before the
Merger Effective Time.
Section 3.04. Stock Dividend. On or before the Distribution Date, Spinco
shall issue to Tulip as a stock dividend the number of shares of Spinco Common
Stock (together with the associated preferred share purchase rights) that are
required to effect the Distribution, as certified by the Distribution Agent. In
connection with the Distribution, Tulip shall deliver to Spinco for cancellation
all of the share certificates currently held by it representing Spinco Common
Stock.
Section 3.05. Fractional Shares. No certificates representing fractional
shares of Spinco Common Stock will be distributed in the Distribution. The
Distribution Agent will be directed to determine the number of whole shares and
fractional shares of Spinco Common Stock allocable to each Tulip Shareholder of
record as of the Record Date. Upon the determination by the Distribution Agent
of such number of fractional shares, as soon as practicable after the
Distribution Date, the Distribution Agent, acting on behalf of the holders
thereof, shall sell such fractional shares for cash on the open market in each
case at the then prevailing market prices and shall disburse to each holder
entitled thereto, in lieu of any fractional share, without interest, that
holder's ratable share of the proceeds of that sale, after making appropriate
deductions of the amount required, if any, to be withheld for United States
federal income Tax purposes.
Section 3.06. Representations of Spinco; Release. Spinco represents and
warrants to Tulip that at and following the Distribution Time Tulip has no
Liabilities other than the Tulip Liabilities. Tulip is hereby unconditionally
released, from and after the Distribution Time, from all Spinco Group
Liabilities.
ARTICLE 4
INDEMNIFICATION AND OTHER MATTERS
Section 4.01. Spinco Indemnification of Tulip.
(a) Subject to Section 4.03, from and after the Distribution Date,
Spinco shall indemnify, defend and hold harmless each of Tulip, its
Affiliates (including, for the avoidance of doubt, Parent) and their
respective officers, directors, employees, successors and assigns (each, a
"Tulip Indemnitee") from and against any and all Damages incurred or
suffered by any Tulip Indemnitee arising out of, in connection with or
relating to (i) any and all Spinco Group Liabilities, and (ii) the breach
by
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any member of the Spinco Group of any obligation under any Distribution
Document (subject to any limitation set forth therein), including Damages
reasonably incurred, arising out of the enforcement of this Section 4.01.
(b) Subject to Section 4.03, from and after the Distribution Date,
Spinco shall indemnify, defend and hold harmless each Tulip Indemnitee and
each Person, if any, who controls any Tulip Indemnitee within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all Damages caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof or the Information Statement (in each
case as amended or supplemented if Spinco shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except to the extent that those Damages are caused by any such
untrue statement or omission or alleged untrue statement or omission based
upon information that is furnished to Spinco by Parent or any of its
Affiliates (other than Tulip) in writing specifically for use therein.
Section 4.02. Tulip Indemnification of Spinco Group.
(a) Subject to Section 4.03, from and after the Distribution Date,
Tulip shall indemnify, defend and hold harmless each member of the Spinco
Group, their Affiliates and their respective officers, directors,
employees, successors and assigns (each, a "Spinco Indemnitee") from and
against any and all Damages incurred or suffered by any Spinco Indemnitee
arising out of, in connection with or relating to (i) any and all Tulip
Liabilities and (ii) the breach by Tulip after the Distribution Date of any
obligation of Tulip under any Distribution Document (subject to any
limitation set forth therein), including Damages reasonably incurred,
arising out of the enforcement of this Section 4.02.
(b) Subject to Section 4.03, from and after the Distribution Date,
Tulip shall indemnify, defend and hold harmless each Spinco Indemnitee and
each Person, if any, who controls any Spinco Indemnitee within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all Damages caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof or the Information Statement (in each
case as amended or supplemented if Spinco shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that those
Damages are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information that is furnished by
Parent in writing to Spinco or Tulip or any of their Affiliates
specifically for use therein.
Section 4.03. Insurance and Third Party Obligations; Limitation on
Liability. If an Indemnified Party shall receive any amount of Insurance
Proceeds or any other amount from a third party in compensation for a specific
Liability giving rise to indemnification hereunder (i) at any time subsequent to
the actual receipt of a payment in full of indemnification of such Liability
hereunder, then such Indemnified Party shall reimburse the Indemnifying Party
for any such indemnification payment made up to the amount of
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such Insurance Proceeds or other amounts actually received or (ii) at any time
prior to the receipt of any indemnification payment in respect of such Liability
hereunder, then the indemnification to be paid under Section 4.01 or 4.02 shall
be paid net of the amount of any such Insurance Proceeds or other amounts
actually received. Notwithstanding this Section 4.03, (x) in no event shall any
Indemnified Party be required (i) to take any action, or forebear from
exercising any right, under the Merger Agreement or any Distribution Document or
(ii) to take any action with respect to, make any demand under or claim any
coverage in connection with, any Policy, and (y) nothing herein shall permit any
Indemnifying Party to delay or refrain from making any payment to any
Indemnified Party because of the availability or alleged availability of any
Policy or Insurance Proceeds.
Section 4.04. Notice and Payment of Claims. If any Tulip Indemnitee or
Spinco Indemnitee (the "Indemnified Party") determines that it is or may be
entitled to indemnification by any party (the "Indemnifying Party") under this
Article 4 (other than in connection with any Action subject to Section 4.05),
the Indemnified Party shall deliver to the Indemnifying Party a written notice
specifying, to the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. Within 30 calendar days after receipt
of such notice, the Indemnifying Party shall pay the Indemnified Party such
amount in cash or other immediately available funds unless the Indemnifying
Party objects in writing to the claim for indemnification or the amount thereof.
In the event of such an objection or failure to pay by the Indemnifying Party,
the amount, if any, that is Finally Determined to be required to be paid by the
Indemnifying Party in respect of such indemnity claim shall be paid by the
Indemnifying Party to the Indemnified Party in cash within 15 calendar days
after such indemnity claim has been so Finally Determined, with interest thereon
at the prime rate of SunTrust Bank, Atlanta in effect from time to time for the
period commencing on the 30th day following receipt of the initial notice of the
claim from the Indemnified Party until the date of actual payment (inclusive).
Section 4.05. Notice and Defense of Third-Party Claims.
(a) Promptly (and in any event within 10 Business Days) following the
earlier of (i) receipt of notice, whether by service of process or
otherwise, of the commencement by a third party of any Action against or
otherwise involving any Indemnified Party or (ii) receipt of information
from a third party alleging the existence of a claim against an Indemnified
Party, in either case, with respect to which indemnification may be sought
pursuant to this Agreement (a "Third-Party Claim"), the Indemnified Party
shall give the Indemnifying Party written notice thereof. The failure of
the Indemnified Party to give notice as provided in this Section 4.05 shall
not relieve the Indemnifying Party of its obligations under this Agreement,
except to the extent that the Indemnifying Party is actually and materially
prejudiced by such failure to give notice.
(b) Within 30 calendar days after receipt of notice from the
Indemnified Party pursuant to Section 4.05(a), the Indemnifying Party may
(by giving written notice thereof to the Indemnified Party) elect at its
option to, and shall at the request of the Indemnified Party, assume the
defense of such Third-Party Claim at the Indemnifying Party's sole cost and
expense unless the Indemnifying Party objects in writing to such
indemnification claim (in which case the Indemnified Party may not require
the Indemnifying Party to assume the defense and the Indemnifying Party
shall only assume the defense with the consent of the Indemnified Party).
During such 30-calendar day period, unless and until the Indemnifying Party
assumes the defense of a
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Third-Party Claim or objects in writing, the Indemnified Party shall take
such action as it deems appropriate, acting in good faith, in connection
with the Third-Party Claim; provided, however, that the Indemnified Party
shall not settle or compromise, or make any offer to settle or compromise,
the Third-Party Claim without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld).
(c) If the Indemnifying Party assumes the defense of a Third-Party
Claim, (w) it shall keep the Indemnified Party timely informed of all
significant developments in connection therewith, (x) the defense shall be
conducted by counsel retained by the Indemnifying Party, provided that the
Indemnified Party shall have the right to participate in such proceedings
and to be represented by counsel of its own choosing at the Indemnified
Party's sole cost and expense, unless a conflict of interest is reasonably
likely to exist if the Indemnifying Party's counsel represents the
interests of the Indemnified Party in which case the Indemnified Party's
counsel's fees shall be at the Indemnifying Party's sole cost and expense;
and (y) the Indemnifying Party may settle or compromise the Third-Party
Claim without the prior written consent of the Indemnified Party so long as
such settlement or compromise includes an unconditional release of the
Indemnified Party from all claims that are or could be the subject of such
Third-Party Claim, provided that the Indemnifying Party may not agree to
any such settlement or compromise pursuant to which there is any finding or
admission of any violation of Law or pursuant to which any remedy or relief
(including but not limited to the imposition of a consent order, injunction
or decree which would restrict the future activity or conduct of the
Indemnified Party or any Subsidiary or Affiliate thereof), other than
monetary damages for which the Indemnifying Party shall be fully
responsible hereunder, shall be applied to or against the Indemnified
Party, without the prior written consent of the Indemnified Party (which
shall not be unreasonably withheld).
(d) If the Indemnifying Party has not objected in writing to such
indemnification claim, and, if at the end of the 30-calendar day period
referred to in Section 4.05(b) the Indemnifying Party has not assumed the
defense of such claim, or, if earlier, beginning at such time as the
Indemnifying Party has declined in writing to assume the defense of a
Third-Party Claim, (x) the Indemnified Party will take such steps as it
deems appropriate to defend that Third-Party Claim and the defense shall be
conducted by counsel retained by the Indemnified Party, provided that the
Indemnifying Party shall have the right to participate in such proceedings
and to be represented by counsel of its own choosing at the Indemnifying
Party's sole cost and expense; and (y) the Indemnifying Party shall
reimburse the Indemnified Party on a current basis (and in any event within
30-calendar days after the submission of invoices and bills by an
Indemnified Party) for its expenses of investigation, attorneys' and expert
witnesses' fees and other out-of-pocket expenses incurred in defending
against such Third-Party Claim and the Indemnifying Party shall be bound by
the result obtained with respect thereto by the Indemnified Party; provided
further, that the Indemnified Party shall not settle or compromise, or make
any offer to settle or compromise, the Third-Party Claim unless such
settlement or compromise includes an unconditional release of the
Indemnifying Party from all claims that are or could be the subject of such
Third-Party Claim, provided that the Indemnified Party may not agree to any
such settlement or compromise pursuant to which there is any finding or
admission of any violation of Law or pursuant to which any remedy or relief
(including but not limited to the imposition of a consent order, injunction
or decree
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which would restrict the future activity or conduct of the Indemnifying
Party or any Subsidiary or Affiliate thereof), other than monetary damages
for which the Indemnifying Party shall be fully responsible hereunder,
shall be applied to or against the Indemnifying Party without the prior
written consent of the Indemnifying Party (which shall not be unreasonably
withheld).
(e) The Indemnifying Party shall pay to (or at the direction of) the
Indemnified Party in cash the amount, if any, for which the Indemnified
Party is entitled to be indemnified hereunder within 15 calendar days after
such Third Party Claim has been Finally Determined, in the case of an
indemnity claim as to which the Indemnifying Party has acknowledged
liability or, in the case of any indemnity claim as to which the
Indemnifying Party has not acknowledged liability, within 15 calendar days
after such Indemnifying Party's liability, if any, hereunder has been
Finally Determined.
(f) Notwithstanding any other provision of this Agreement, Tulip
acknowledges and agrees that Spinco shall (solely at its own cost and
expense) assume and continue the defense of all the Spinco Litigation and
that, as long as such settlement or compromise includes an unconditional
release of all Tulip Indemnitees, Spinco shall be permitted to settle or
compromise such Actions without the consent of Tulip or any of its
Affiliates (including, after the Merger Effective Time, Parent) provided
that Spinco may not agree to any such settlement or compromise pursuant to
which there is any finding or admission of any violation of Law or pursuant
to which any remedy or relief (including but not limited to the imposition
of a consent order, injunction or decree which would restrict the future
activity or conduct of the Tulip Indemnitees), other than monetary damages
for which Spinco shall be responsible hereunder, shall be applied to or
against such Tulip Indemnitee, and which shall not jeopardize Spinco's
ability to pay, perform or indemnify against other Spinco Group Liabilities
without the prior written consent of such Tulip Indemnitee (which shall not
be unreasonably withheld); provided, further, that Spinco shall use its
reasonable best efforts to defend any Tulip Indemnitee and to cause any
Tulip Indemnitee to be dismissed with prejudice as a party to any pending
or future Spinco Litigation and, to the extent any Tulip Indemnitee
believes, in its reasonable judgment, that Spinco has failed to diligently
pursue such defense or dismissal, the Tulip Indemnitee shall be entitled
(at its own cost and expense) to independently move for or otherwise pursue
such defense or dismissal and to take such related actions as it may deem
necessary or appropriate in connection therewith. Spinco shall keep Tulip
timely informed of all significant developments with respect to the Spinco
Litigation to which any Tulip Indemnitee is a party and Tulip may, at any
time, at its option and expense, participate in the defense of all the
Spinco Litigation with representatives of its own choosing.
(g) Subject to Article 6, each party shall cooperate, and cause their
respective Representatives to cooperate, in the defense or prosecution of
any Third-Party Claim and shall furnish or cause to be furnished such
records, information and testimony, and attend such conferences, discovery
proceedings, hearings, trials or appeals, as may be reasonably requested in
connection therewith.
(h) Notwithstanding anything to the contrary in this Section 4.05, the
above provisions of this Section 4.05 shall not apply to Tax Proceedings,
which matters shall instead be governed by Section 8.06.
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Section 4.06. Adjustment in Indemnity Payment for Tax
Consequences. Notwithstanding any other provision, any indemnity payment
hereunder shall be increased or decreased at the time such indemnity payment is
made (and at any relevant later date) by such amount as is necessary to make the
Indemnified Party whole, but not greater than whole, for any Tax consequences to
such party or its Affiliates (including, with respect to Tulip, Parent after the
Merger Effective Time) arising in connection with such indemnity payment.
Section 4.07. Non-Exclusivity of Remedies. The remedies provided for in
this Article 4 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any Indemnified Party at law or in equity.
ARTICLE 5
EMPLOYEE MATTERS
Section 5.01. Employee Matters Generally. With respect to employee
matters and employee benefits arrangements, the parties hereto agree as set
forth herein and in the Employee Benefits Agreement. The parties hereto agree to
execute and deliver the Employee Benefits Agreement prior to the Distribution
Date.
ARTICLE 6
ACCESS TO INFORMATION
Section 6.01. Provision of Corporate Records. Except as otherwise
specifically set forth in this Agreement or any Ancillary Agreement, immediately
prior to or as soon as practicable following the Distribution Date, each Group
shall provide to the other Group all documents, Contracts, books, records and
data (including but not limited to minute books, stock registers, stock
certificates and documents of title) in its possession relating primarily to the
other Group or its business, assets and affairs (after giving effect to the
transactions contemplated hereby); provided that if any such documents,
Contracts, books, records or data relate to both Groups or the business and
operations of both Groups, each such Group shall provide to the other Group true
and complete copies of such documents, Contracts, books, records or data. Data
stored in electronic form shall be provided in the format in which it existed at
the Distribution Date, except as otherwise specifically set forth in this
Agreement or any Ancillary Agreement.
Section 6.02. Access to Information. From and after the Distribution
Date, each Group shall, for a reasonable period of time, afford promptly to the
other Group and its accountants, counsel and other designated representatives
reasonable access during normal business hours to all documents, Contracts,
books, records, computer data and other data in such Group's possession relating
to such other Group or the business and affairs of such other Group (after
giving effect to the transactions contemplated hereby) (other than data and
information subject to in the case of access provisions in any joint defense
arrangements between a member or members of one Group and a member or members of
the other Group, the terms of the relevant joint defense agreement), insofar as
such access is reasonably required by such other Group, including, without
limitation, for audit, accounting, litigation, regulatory compliance and
disclosure and reporting purposes.
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Section 6.03. Litigation Cooperation. From and after the Distribution
Date:
(a) Each Group shall use all reasonable best efforts to make available
to the other Group and its accountants, counsel, and other designated
representatives, upon written request, its current and former directors,
officers, employees and representatives as witnesses, and shall otherwise
cooperate with the other Group, to the extent reasonably required in
connection with any Action or threatened Action arising out of either
Group's business and operations in which the requesting party may from time
to time be involved.
(b) Each Group shall promptly notify the other Group hereto, upon its
receipt or the receipt by any of its members, of a request or requirement
(by oral questions, interrogatories, requests for information or documents,
subpoenas, civil investigative demands or other similar processes) which
relates to the business and operations of the other party (a "Request")
reasonably regarded as calling for the inspection or production of any
documents or other information in its possession, custody or control, as
received from any Person that is a party in any Action, or, in the event
the Person delivering the Request is not a party to such Action, as
received from such Person. In addition to complying with the applicable
provisions of Section 6.06, each Group shall assert and maintain, or cause
its members to assert and maintain, any applicable claim to privilege,
immunity, confidentiality or protection in order to protect such documents
and other information from disclosure, and shall seek to condition any
disclosure which may be required on such protective terms as may be
appropriate. No Group may waive, undermine or fail to take any action
necessary to preserve an applicable privilege without the prior written
consent of the affected party hereto (or any affected Group member or
Affiliates of any such party) except, in the opinion of such party's
counsel, as required by law.
(c) Tulip hereby waives any conflict which might preclude counsel
currently representing Tulip, Spinco or any of their respective Affiliates
from representing Spinco and/or any of its Affiliates following the
Distribution Date in connection with the Spinco Litigation existing at the
Merger Effective Time.
(d) Tulip and Spinco shall enter into such joint defense agreements,
in customary form, as Tulip and Spinco shall determine are advisable.
Section 6.04. Reimbursement. Except to the extent that any member of one
Group is obligated to indemnify any member of the other Group under Article 4,
each Group providing information or witnesses to the other Group, or otherwise
incurring any expense in connection with cooperating, under Sections 6.01, 6.02
or 6.03, shall be entitled to receive from the recipient thereof, upon the
presentation of invoices therefor, payment for all out-of-pocket costs and
expenses that may reasonably be incurred in providing such information,
witnesses or cooperation.
Section 6.05. Retention of Records. From and after the Distribution Date,
except as otherwise required by law or agreed to in writing, each party shall,
and shall cause the members of its respective Group to, retain all information
relating to the other Group's business and operations in accordance with the
then general practice of such party with respect to information relating to its
own business and operations. Notwithstanding the foregoing, any party may
destroy or otherwise dispose of any such information at any time, provided that,
prior to such destruction or disposal, (i) such party shall provide not less
than 90 or more than 120 calendar days' prior written notice to the other party,
specifying
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the information proposed to be destroyed or disposed of and the scheduled date
for such destruction or disposal, and (ii) if the recipient of such notice shall
request in writing prior to the scheduled date for such destruction or disposal
that any of the information proposed to be destroyed or disposed of be delivered
to such requesting party, the party proposing the destruction or disposal shall
promptly arrange for the delivery of such of the information as was requested at
the expense of the requesting party.
Section 6.06. Confidentiality. From and after the Distribution Date, each
party shall hold and shall cause its Affiliates and their respective directors,
officers, employees, counsel, accountants, agents, consultants, advisors and
other authorized representatives ("Representatives") to hold in strict
confidence all documents and other information (other than any such documents
and other information relating solely to the business or affairs of such party)
concerning the other party and/or its Affiliates ("Confidential Information")
unless such party is compelled to disclose such documents and/or other
information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law or the rules of any applicable stock
exchange. Confidential Information shall not include such documents and/or other
information which can be shown to have been (A) in the public domain through no
fault of such party, (B) lawfully acquired after the Distribution Date on a
non-confidential basis from other sources or (C) acquired or developed
independently by such party without violating this Section 6.06 or the
Confidentiality Agreement. Notwithstanding the foregoing, such party may
disclose such Confidential Information to its Representatives so long as such
Persons are informed by such party of the confidential nature of such
Confidential Information and are directed by such party to treat such documents
and/or other information confidentially. In the event that such party or any of
its Representatives is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or other similar processes) to disclose any of the
Confidential Information, such party will promptly notify the other party so
that the other party may seek a protective order or other remedy or waive such
party's compliance with this Section 6.06. Such party shall exercise reasonable
efforts to preserve the confidentiality of the Confidential Information,
including, but not limited to, by cooperating with the other party to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information. If, in the absence of a
protective order or other remedy or the absence of receipt of a waiver of the
other party, such party or any of its Representatives is nonetheless legally
compelled to disclose any of the Confidential Information, such party or such
Representative may disclose only that portion of the Confidential Information
which is legally required to be disclosed. Such party agrees to be responsible
for any breach of this Section 6.06 by it and/or its Representatives.
Section 6.07. Right of Inquiry.
(a) In the event of a material adverse change after the Distribution
Date in the financial condition of Spinco, which change creates a
substantial risk that Spinco will not be able to satisfy or otherwise
settle, when due, its indemnification obligations to the Tulip Indemnitees
under this Agreement and the Ancillary Agreements. Parent shall have the
right, at its own expense, subject to entering into an agreement with
Spinco to preserve confidentiality and any applicable privilege for the
benefit of Spinco, upon consultation with Spinco, to have limited access on
reasonable prior notice to Spinco's senior management in order to monitor
the status of pending and anticipated litigation and governmental
investigations or proceedings for which Parent would reasonably be expected
to have contingent liability. Such right of inquiry shall
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terminate at such time as there is no longer a substantial risk that Spinco
will not be able to satisfy its indemnification obligations under this
Agreement and the Ancillary Agreements.
(b) In addition to the provisions of paragraph (a) above, Parent shall
have the right on an annual basis and subject to reasonable prior notice to
meet with the General Counsel of Spinco (or such corporate officer or
employee who performs the responsibilities and duties of a general counsel)
and receive an oral report, in a forum in which Parent may ask questions
regarding the status of pending and threatened litigation and governmental
investigations or proceedings for which Parent may reasonably be expected
to have contingent liability. For the avoidance of doubt, no such right
shall require Spinco to (i) provide confidential information, or (ii)
jeopardize the benefit of any applicable privilege. In addition, Parent
shall have the further right to request one additional meeting per year in
connection with the public disclosure by Spinco during such year of a
material adverse development in any pending or threatened litigation or
governmental investigation or proceeding for which Parent may reasonably be
expected to have contingent liability. Such meeting will be on the same
terms as set forth in this Section 6.07(b).
ARTICLE 7
CERTAIN OTHER AGREEMENTS
Section 7.01. Intercompany Accounts; Services; Guaranties.
(a) Except as otherwise specifically set forth herein or in any of the
Ancillary Agreements or in the Merger Agreement, (i) all intercompany loan
balances in existence as of the Distribution Time between Tulip and any
member of the Spinco Group will be settled or paid in cash or other
immediately available funds prior to or as of the Distribution Time and
(ii) all intercompany accounts receivable and accounts payable between
Tulip and any member of the Spinco Group in existence at the Distribution
Time shall be paid in full, in cash or other immediately available funds,
by the party or parties owing such obligations prior to Distribution Time.
(b) Except as otherwise contemplated hereby or as set forth on
Schedule 7.01 or in any Ancillary Agreements or in the Merger Agreement,
all prior agreements and arrangements, including those relating to goods,
rights or services provided or licensed, between any member of the Spinco
Group and Tulip shall be terminated effective as of the Distribution Time,
if not previously terminated. No such agreements or arrangements shall be
in effect after the Distribution Time unless embodied in this Agreement,
the Ancillary Agreements or set forth on Schedule 7.01.
(c) In addition to any services contemplated to be provided following
the Distribution Date pursuant to any Ancillary Agreement, each party, upon
written request of the other party, shall make available to the other
party, during normal business hours and in a manner that will not
unreasonably interfere with such party's business, its financial, tax,
accounting, legal, employee benefits and similar staff and services
(collectively "Services") whenever and to the extent that they may be
reasonably required in connection with the preparation of tax returns,
audits, claims, litigation or administration of employee benefit plans, and
otherwise to assist in effecting an orderly transition following the
Distribution Date.
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(d) Spinco shall use its reasonable best efforts to cause itself or
one or more of its Affiliates to be substituted in all respects for Tulip
or any of its Affiliates, effective as of the Distribution Date, in respect
of all obligations of Tulip or any of its Affiliates under any guaranties,
letters of credit or letters of comfort obtained by Tulip or any such
Affiliates for the benefit of the Spinco Group, any of its Affiliates or
the Spinco Business (the "Guaranties"). If Spinco is unable to effect such
a substitution with respect to any such Guaranty after using its reasonable
best efforts to do so, Spinco shall obtain letters of credit, on terms and
from financial institutions reasonably satisfactory to Parent, with respect
to the obligations covered by each of the Guaranties for which Spinco does
not effect such substitution. Subsequent to the Distribution Date, with
respect to any uncancelled Guaranty for which no substitution is effected
or letter of credit is provided, Spinco shall, pursuant to Section 4.01,
indemnify each Tulip Indemnitee against any Liability under any such
Guaranty.
Section 7.02. Trademarks; Trade Names.
(a) From and after the Distribution Date, Tulip will not, and will not
permit any of its Affiliates to, use any of the Spinco Intellectual
Property Rights.
(b) As promptly as practicable following the Distribution Time, and as
contemplated by the Merger Agreement, Tulip will file with the applicable
Governmental Entity amendments to its articles of incorporation or
otherwise take all action necessary to delete from their name the word
"Tulip" or any marks and names derived therefrom and shall do or cause to
be done all other acts, including the payment of any fees required in
connection therewith, to cause such amendments or other actions to become
effective.
(c) Tulip acknowledges that from and after the Distribution Date, the
Tulip Name Rights will remain an asset of the Spinco Group and shall
include any goodwill associated with the use of the "Tulip" name, and any
derivative thereof.
Section 7.03. Further Assurances and Consents. In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto shall use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations and agreements or
otherwise to consummate and make effective the transactions contemplated by this
Agreement, including, using its reasonable best efforts to obtain any consents
and approvals and to make any filings and applications necessary or desirable in
order to consummate the transactions contemplated by this Agreement; provided
that no party hereto shall be obligated to take any action or omit to take any
action if the taking of or the omission to take such action would be
unreasonably burdensome to the party, its Group or its Group's business. The
parties agree to enter into and execute such additional Distribution Documents
as may be reasonably necessary, proper or advisable to effect the transactions
contemplated by this Agreement or the Ancillary Agreements, provided, however
that such additional Distribution Documents shall not diminish any of the rights
granted or increase any of the Liabilities assumed under this Agreement or the
Ancillary Agreements, or otherwise adversely affect Tulip or any of its
Affiliates following the Distribution Time, and shall not be entered into
without the prior written consent of Parent, which shall not be unreasonably
withheld.
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Section 7.04. Non-Solicitation.
(a) Except as otherwise permitted by any Ancillary Agreement, for a
period of two years from the Merger Effective Time, neither Group nor any
of its Affiliates shall, directly or indirectly, solicit any employee of
the other Group. Notwithstanding the foregoing, the restriction set forth
in the immediately preceding sentence shall not apply to (i) Person who
contacts such Group or any of its Affiliates in response to general
advertisements or searches or other broad-based hiring methods or (ii)
individuals who choose to leave for Good Reason the employment of, or are
terminated by, a Group without the other Group having taken any action
otherwise prohibited by this Section 7.04(a). "GOOD REASON" for the
purposes of this Section 7.04(a) shall mean reduction in compensation, a
relocation of more than 25 miles from the employee's current place of
employment or a diminution of the employee's duties and responsibilities.
(b) If any provision contained in this Section 7.04 shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provisions of this Section, but this Section shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein. It is the intention of the parties that if any of the restrictions
or covenants contained herein is held to cover a geographic area or to be
for a length of time which is not permitted by applicable law, or in any
way construed to be too broad or to any extent invalid, such provision
shall not be construed to be null, void and of no effect, but to the extent
such provision would be valid or enforceable under applicable law, a court
of competent jurisdiction shall construe and interpret or reform this
Section to provide for a covenant having the maximum enforceable geographic
area, time period and other provisions (not greater than those contained
herein) as shall be valid and enforceable under such applicable law. In
addition to and not in limitation of the parties' obligations under Section
9.14, each of the parties hereto acknowledges that the other party would be
irreparably harmed by any breach of this Section and that there would be no
adequate remedy at law or in damages to compensate such party for any such
breach. Each of the parties hereto agrees that the other party shall be
entitled to injunctive relief requiring specific performance by such party
of this Section, and consents to the entry thereof.
Section 7.05. Third Party Beneficiaries. Parent shall be a third party
beneficiary of this Agreement. Except as contemplated in the preceding sentence,
nothing contained in this Agreement is intended to confer upon any Person or
entity other than the parties hereto and their respective successors and
permitted assigns and Parent, any benefit, right or remedies under or by reason
of this Agreement, except that the provisions of Article 4 shall inure to the
benefit of the Spinco Indemnitees and the Tulip Indemnitees.
Section 7.06. Intellectual Property Rights and Licenses. Except as
otherwise specifically set forth in this Agreement or in any Ancillary
Agreements, neither Group shall have any right or license in or to any
technology, software, Intellectual Property Right or other proprietary right
owned, licensed or held for use by the other Group.
Section 7.07. Insurance.
(a) The Spinco Assets shall include any and all rights of an insured
party under each of the Group Policies, subject to the terms of such Group
Policies and any limitations or obligations of Spinco contemplated by this
Section 7.07, specifically
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including rights of indemnity and the right to be defended by or at the
expense of the insurer, with respect to all Actions and Liabilities
incurred or claimed to have been incurred prior to the Distribution Date by
any party in or in connection with the conduct of any of the Spinco Group
or Tulip or their respective businesses and operations, and which Actions
and Liabilities may arise out of an insured or insurable occurrence under
one or more of such Group Policies. With respect to all of the applicable
Group Policies, Spinco shall use its reasonable best efforts, at its
option, either (x) to cause Tulip and its Affiliates to be named or
maintained as additional insured parties thereunder to the extent of, or
(y) to obtain (at Spinco's expense at no cost to Tulip or any of its
Affiliates) a run-off or tail coverage policy with respect to, in each
case, their respective insurable interests in respect of Tulip Liabilities
incurred or claimed to have been incurred prior to the Distribution Date
and insured thereunder, and the Tulip Assets shall include such rights, to
the extent they relate to Tulip Liabilities, of an additional insured party
under each such Group Policy or under such run-off or tail policy, as
applicable, subject to the terms of such policy which shall include a term
of no less than six years.
(b) Spinco shall administer all Group Policies. In the event Tulip
Liabilities are covered under the Group Policies for periods prior to the
Distribution Date, or under any Group Policy covering claims made after the
Distribution Date with respect to an action, error, omission or occurrence
prior to the Distribution Date, then from and after the Distribution Date,
upon request from Tulip, Spinco shall claim coverage for Insured Claims
under such Group Policy as and to the extent that such insurance is
available (subject to Section 7.07(c)) up to the full extent of the
applicable limits of liability of such Group Policy.
(c) Spinco shall use its reasonable best efforts to cause Insurance
Proceeds received with respect to claims, costs and expenses under the
Group Policies (i) relating to Tulip Liabilities, to be paid directly to
Tulip and (ii) relating to the Spinco Group Liabilities to be paid directly
to Spinco (or the applicable member of the Spinco Group). In the event
Spinco has been unable to cause Insurance Proceeds to be paid directly to
Tulip in accordance with the preceding sentence, or to cause Tulip and its
Affiliates to be named or maintained as additional insureds or to obtain
run-off or tail policies in accordance with the last sentence of Section
7.07(a), Spinco shall inform Tulip of the reasons therefor and Tulip shall
be entitled, at Spinco's cost and expense, to take such actions as may be
necessary to (A) achieve such payment or (B) achieve such additional
insured status or (C) obtain such run-off or tail policy, so long as the
actions referenced in (B) and (C) are not materially adverse to Spinco.
Payment of the allocable portions of indemnity costs out of Insurance
Proceeds resulting from such Group Policies will be made by Spinco to the
appropriate party upon receipt from the insurance carrier (to the extent
not paid directly to Tulip pursuant to the first sentence of this Section
7.07(c)). In the event that the aggregate limits on any Group Policies are
exceeded by the aggregate of outstanding Insured Claims by the parties
hereto, the parties shall agree on an equitable allocation of Insurance
Proceeds based upon their respective bona fide claims. Each party agrees to
use reasonable best efforts to maximize available coverage under those
Group Policies applicable to such party, and to take all reasonable steps
to recover from all other responsible parties in respect of an Insured
Claim to the extent coverage limits under a Group Policy have been exceeded
or would be exceeded as a result of such Insured Claim. Notwithstanding any
other provision of this Agreement, Spinco shall not be required to renew,
extend or expand the coverage available under any of the Group
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Policies provided, that prior to any termination (or failure to reinstate)
such Group Policies with respect to coverage of any Tulip Liabilities
insured thereunder, Spinco shall afford Tulip the opportunity of taking
such commercially reasonable steps as may be necessary to maintain such
coverage in place.
(d) Spinco shall maintain insurance policies issued in favor of Spinco
or its Subsidiaries that are customary and appropriate for a company in its
industry for a period of not less than six years from and after the
Distribution Time.
ARTICLE 8
TAXES
Section 8.01. Liability for Taxes.
(a) Spinco shall be liable for and Spinco shall indemnify Tulip and
its Affiliates for, all Taxes (A) imposed on or with respect to Tulip (or
any consolidated, combined or unitary group of which Tulip was a member
prior to the Distribution (each a "Spinco Affiliated Group")) (i) for any
taxable year or period that ends, with respect to Tulip, on or before the
Distribution Date; (ii) for the Current Period; (iii) resulting solely from
Tulip's inclusion in any Spinco Affiliated Group pursuant to Treasury
Regulation Section 1.1502-6 (or comparable provision of state, local or
foreign law); or (iv) resulting from any adjustment pursuant to Section
481(a) of the Code (or comparable provision of state, local or foreign law)
by reason of a change in the method of accounting or other change with
respect to any taxable year or period that ends with respect to Tulip on or
before the Distribution Date or with respect to the Current Period or (B)
resulting from a breach of the representation set forth in Section 8.07(b);
provided, however, that Spinco shall not be liable and shall not indemnify
Tulip for any Taxes imposed on Tulip as a result of any Parent-Directed
Transaction. Notwithstanding any other provision, Spinco shall be liable
for any Tax imposed on Tulip, any Spinco Affiliated Group, any member of
the Spinco Group or any Tulip Affiliate as a result of the Merger or the
ELF Merger. Any reference in this Section 8.01(a) to Tulip shall include a
reference to any Tulip predecessor entity or any entity as to which Tulip
is the successor.
(b) Tulip shall be liable for, and Tulip shall indemnify Spinco and
its Affiliates for, all Taxes (other than any Taxes relating to Spinco, the
Spinco Assets, the Spinco Business, the Discontinued Business or the
Contributed Subsidiaries or otherwise the responsibility of Spinco under
Section 4.01, 8.01(a) or 8.03) imposed on or with respect to Tulip (i) for
any taxable year or period that begins, with respect to Tulip, after the
Distribution Date and (ii) with respect to the Straddle Period, for the
portion of such Straddle Period beginning, with respect to Tulip after the
Distribution Date.
(c) For purposes of Sections 8.01(a) and 8.01(b), whenever it is
necessary to determine the liability for Taxes of Tulip for the Current
Period or for the portion of the Straddle Period beginning on the day
following the Distribution Date, such Taxes shall be determined on the
basis of a closing of the books of Tulip at the close of the Distribution
Date except that any such Tax imposed annually based on the ownership of
assets on a particular date shall be determined by prorating such Taxes, on
a daily basis, to the period to and including the Distribution Date and the
period thereafter; provided, however,that (i) Taxes imposed on Tulip as a
result of any Parent-Directed
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Transactions shall be allocated to the taxable year or period that is
deemed to begin at the beginning of the day following the Distribution
Date, and (ii) Taxes imposed on Tulip that relate to Spinco, the Spinco
Assets, the Spinco Business, the Discontinued Business or the Contributed
Subsidiaries shall be allocated to the Current Period.
Section 8.02. Tax Returns.
(a) Spinco shall cause to be prepared and timely filed all Tax Returns
that are required to be filed by or with respect to Tulip for taxable years
or periods ending on or before the Distribution Date for which the Tax
Return is due on or before the Distribution Date and shall timely pay in
full any Taxes due in respect of such Tax Returns. All such Tax Returns
shall be prepared and filed in accordance with the Tax Reporting Standard.
(b) Spinco shall cause to be prepared all Tax Returns that are
required to be filed by or with respect to Tulip (i) for the Current Period
and (ii) for any taxable years or periods ending, with respect to Tulip, on
or before the Distribution Date for which the Tax Return is due after the
Distribution Date. At least 45 days before the due date of any such Tax
Return, Spinco agrees to provide Tulip a draft copy (the "Draft Return") of
such Tax Return. Each such Tax Return shall not report any item in a manner
that is inconsistent with the manner in which any corresponding item has
been previously reported in any such Tax Return already filed, unless such
inconsistent treatment is (w) required by law or due to a change in
circumstances, or (x) is permitted by law, either Tulip or Spinco elects to
make such change in treatment and such change would not be prejudicial to
Spinco or Tulip (the "Tax Reporting Standard"). In the case of Tax Returns
described in clause (i) or (ii) of this Section 8.02(b), (y) unless (A)
Tulip believes that the proposed Tax Return does not comply with the Tax
Reporting Standard or (B) Tulip disagrees with the manner in which the
matters set forth in Section 8.03(a), (b), (c), (d) or (e) or the matters
set forth in the definition of "Tax Amount" (as defined in the Merger
Agreement) (or items affecting any Tax resulting from such matters) are
treated on such Draft Return on the basis that such matters or items are
calculated inconsistently with the definition of the Tax Amount, the Tax
Return shall be filed as set forth in the Draft Return and (z) to the
extent necessary for such Tax Return to be duly filed, Tulip shall cause an
officer or other authorized person to execute such Tax Returns and Tulip
agrees to cause such Tax Returns to be filed. In the event that Tulip
believes that the proposed Tax Return does not comply with the Tax
Reporting Standard or Tulip disagrees with such Draft Return as set forth
in clause (B) above, the parties shall endeavor to resolve their
disagreement over this matter, and failing that a neutral accountant
mutually acceptable to Tulip and Spinco shall resolve the disagreement
(consistent with the definition of Tax Amount, including the Reasonably
Expected By The Accountants standard set forth therein) prior to the date
the Tax Return is due. Tulip shall cause an officer or other authorized
person to execute such Tax Return reflecting the resolution by the neutral
accountants and Tulip agrees to cause such Tax Return to be filed. Spinco
shall determine (subject to any audit adjustment and subject to the consent
of Tulip (which consent shall not be unreasonably withheld)) the allocation
and apportionment of any unused net operating losses and credits of Tulip
or the Spinco Affiliated Group and Spinco and Tulip shall report
consistently with such determination.
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(c) Tulip shall prepare and timely file or shall cause to be prepared
and timely filed all Tax Returns that are required to be filed by it for
taxable years or periods beginning, with respect to Tulip, after the
Distribution Date and shall timely pay in full any Taxes due in respect of
such Tax Returns.
(d) Spinco shall pay Tulip, no later than two Business Days prior to
the date such Taxes are due to the applicable Taxing Authority, the amount
of any Taxes that (i) Tulip or any Tulip Affiliate is required to pay to
the applicable Taxing Authority and (ii) are either Taxes for which Spinco
is liable pursuant to Section 8.01(a) or 8.03 or are Spinco Group
Liabilities. Spinco shall pay, or cause to be paid, directly to the
applicable Taxing Authority any other Taxes that are Spinco Group
Liabilities.
Section 8.03. Distribution. Notwithstanding any other provision, Spinco
shall be liable for any Taxes that are imposed on Tulip, any Spinco Affiliated
Group, any member of the Spinco Group, any Tulip Affiliate or any other Person
as a result (in whole or in part) of (a) the Distribution, (b) the
Restructuring, (c) any transaction undertaken in anticipation of the
Distribution or the Restructuring, (d) any reduction in Tulip's basis in Spinco
by reason of an indemnity payment or otherwise, or (e) any election made in
connection with any of the above (it being understood that, to the extent
required to avoid double-counting, the dollar amount of the reduction in the
Merger Consideration (as defined in the Merger Agreement) by reason of paragraph
(a) (6) of Schedule I to the Merger Agreement shall reduce such indemnification
obligation (except to the extent that Spinco receives a refund, credit or other
recovery of, or relating to, such amount)).
Section 8.04. Tax Refunds and Benefits.
(a) Spinco shall be entitled to any refund of any Taxes of Tulip,
which Taxes are for taxable years or periods (or portions thereof) ending,
with respect to Tulip, on or before the Distribution Date, including any
interest paid by the applicable Governmental Entity thereon (net of any Tax
on such interest), received by Tulip, Parent, or any of their respective
Affiliates, and any amounts credited against Taxes of Tulip, which Taxes
are for taxable years or periods (or portions thereof) ending, with respect
to Tulip, on or before the Distribution Date, to which Tulip, Parent, or
any of their respective Affiliates becomes entitled. Spinco shall have the
right to determine whether any claim for refund of such Taxes to which
Spinco is entitled shall be made on behalf of Spinco by Tulip, Parent or
any of their respective Affiliates. If Spinco elects to make a claim for
refund of such Taxes to which Spinco is entitled, Tulip and Parent shall
cooperate fully in connection therewith. Without the prior written consent
of Spinco, neither Tulip, Parent nor any of their respective Affiliates
shall (i) make any election or (ii) file any amended Tax Return or propose
or agree to any adjustment of any item with the IRS or any other taxing
authority with respect to any taxable year or period of Tulip ending, with
respect to Tulip, on or before the Distribution Date that would have the
effect of increasing the Taxes of Tulip for any taxable year or period
ending, with respect to Tulip, on or before the Distribution Date.
Notwithstanding any other provision: Spinco shall not (and Tulip shall) be
entitled to any refunds (and interest thereon) or credits (A) that result
from a carryback of any Tax item (other than a Tax item relating to the
Spinco Assets, the Spinco Business or the Discontinued Business), (B) of or
against Taxes resulting from a Parent-Directed Transaction or (C) of or
against Taxes (to the extent such refunds and credits do not exceed the Tax
Amount) imposed as a result of any of the matters set forth in Section
8.03(a), (b), (c), (d) or (e), in the case of this clause (C), prior to the
date on which all relevant Tax years have been Finally Settled.
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(b) Tulip shall be entitled to any refund of any Taxes of Tulip, which
Taxes are for taxable years or periods (or portions thereof) beginning,
with respect to Tulip, after the Distribution Date, including any interest
paid thereon, received by Tulip, Parent, or any of their respective
Affiliates or any member of the Spinco Group, and any amounts credited
against Taxes of Tulip, which Taxes are for taxable years or periods (or
portions thereof) beginning, with respect to Tulip, after the Distribution
Date, to which Tulip, Parent, or any of their respective Affiliates or any
member of the Spinco Group becomes entitled. Tulip shall have the right to
determine whether any claim for refund of Taxes of Tulip for taxable years
or periods (or portions thereof) beginning, with respect to Tulip, after
the Distribution Date (and any other claim for refund of Taxes to which
Tulip is entitled) shall be made.
(c) Spinco and Tulip agree to determine (subject to any audit
adjustment) the unused net operating losses of Tulip (or any consolidated,
combined or unitary group of which Tulip was a member prior to the Closing
Date) as of the close of the Distribution Date in a manner consistent with
the closing of the books methodology described in Section 8.01(c) and
applicable Tax law; provided, however, that any deductions or losses
allowed under the Code that would not have arisen but for any obligations
listed in paragraph (a) (1), (2), (4), (5) or (7) of Schedule I to the
Merger Agreement for which Spinco or the shareholders of Tulip, immediately
prior to the Distribution, are directly or indirectly responsible shall be
allocated (subject to any audit adjustment) to the Current Period. Spinco
and Tulip agree that, to the extent that under applicable Tax rules, such
unused net operating loss is apportioned to Tulip, Spinco shall be
entitled, from and after the Offset Date, to offset its indemnity
obligations hereunder by an aggregate amount equal to the Offset Amount.
The "Offset Amount" shall mean the dollar amount of any tax benefit (that
is a reduction in taxes payable or is a refund, but not any deemed or
actual interest on any amount) that Tulip (or any consolidated, combined or
unitary group of which Tulip is a member after the Distribution Date)
actually derives after the Distribution Date (taking into account all facts
and circumstances as of the Offset Date) in cash from (but not in excess of
the amount of any such tax benefit that Spinco and its Subsidiaries would
have derived on or prior to the Offset Date if the net operating loss had
been apportioned to Spinco), and would not have derived but for, the
utilization of such losses. The "Offset Date" shall mean the latest of (i)
the date on which the taxable year of Tulip in which such utilization
occurs is Finally Settled, (ii) the date on which the taxable year of Tulip
ending on the Distribution Date is Finally Settled and (iii) the date on
which Spinco or its Subsidiaries would have derived such tax benefit if the
net operating loss had been apportioned to Spinco. "Finally Settled" shall
mean, with respect to a taxable year or period, finally and conclusively
settled with the Internal Revenue Service or, if such year or period is not
audited by the Internal Revenue Service, the date on which all applicable
statutes of limitations with respect to such year or period have expired.
For purposes of determining utilization and the benefit derived from
utilization, such net operating losses shall be the last item to be taken
into account for any taxable year or period. In the event that facts or
circumstances arise or come to light after the Offset Date which would
reduce the Offset Amount (treating references in the definition of Offset
Amount to such later date), then the Offset Amount shall be reduced to such
revised amount, and Spinco shall immediately remit to Tulip in cash the
amount by which the reduction in the Offset Amount has reduced any
indemnification obligation of Spinco hereunder.
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Section 8.05. Tax Sharing Arrangements. Any Tax allocation or sharing
agreement or arrangement, whether or not written, that may have been entered
into by Spinco, Tulip or any of their respective Affiliates shall be terminated
as to Tulip and its Affiliates as of the Distribution Date, and no payments
which are owed by or to Tulip or any of its Affiliates pursuant thereto shall be
made thereunder.
Section 8.06. Contest Provisions.
(a) Spinco shall have the sole right to represent Tulip's interests in
any Tax audit or administrative or court proceeding (a "Tax Proceeding") of
Tulip (or any consolidated, combined or unitary group of which Tulip is the
common parent) for taxable periods ending, with respect to Tulip, on or
before the Distribution Date, and to employ counsel of its choice at its
expense; provided, however, that (i) Spinco shall provide Tulip with a
timely and reasonably detailed account of each stage of such Tax Proceeding
and a copy of all documents relating to such Tax Proceeding, (ii) Spinco
shall consult with Tulip before taking any significant action in connection
with such Tax Proceeding, (iii) Spinco shall consult with Tulip and offer
Tulip an opportunity to comment before submitting any written materials
prepared or furnished in connection with such Tax Proceeding, (iv) Spinco
shall defend such Tax Proceeding diligently and in good faith as if it were
the only party in interest in connection with such Tax Proceeding and (v)
Spinco shall not settle, compromise or abandon any such Tax Proceeding
without obtaining the prior written consent, which consent shall not be
unreasonably withheld, of Tulip if such settlement, compromise or
abandonment could reasonably be expected to adversely affect Tulip.
(b) In the case of a Tax Proceeding for a Straddle Period of Tulip (a
"Straddle Period Tax Proceeding") (i) Spinco shall control such proceeding
if the claims for which Spinco is responsible exceed the claims for which
Tulip is responsible, and Tulip shall control such Tax Proceeding if the
claims for which Tulip is responsible exceed the claims for which Spinco is
responsible (Spinco or Tulip respectively, the "Controlling Party," and
Tulip or Spinco, respectively, the "Noncontrolling Party"), (ii) the
Controlling Party shall provide the Noncontrolling Party with a timely and
reasonably detailed account of each stage of such Straddle Period Tax
Proceeding and a copy of all documents (or portions thereof) relating to
such Straddle Period Tax Proceeding, (iii) the Controlling Party shall
consult with the Noncontrolling Party before taking any significant action
in connection with such Straddle Period Tax Proceeding and shall consult
with the Noncontrolling Party and offer the Noncontrolling Party an
opportunity to comment before submitting any written materials prepared or
furnished in connection with such Straddle Period Tax Proceeding, (iv) the
Controlling Party shall defend such Straddle Period Tax Proceeding
diligently and in good faith as if the taxpayer whose Tax Return is at
issue were the only party in interest in connection with such Straddle
Period Tax Proceeding, (v) the Noncontrolling Party shall have the right to
participate in any conference with any Tax authority regarding any Tax for
which the Noncontrolling Party may be required to indemnify the Controlling
Party or any Affiliate of the Controlling Party or may otherwise be liable,
and (vi) the Controlling Party shall not settle, compromise or abandon any
such Straddle Period Tax Proceeding without obtaining the prior written
consent, which consent shall not be unreasonably withheld, of the
Noncontrolling Party. In the event that the Noncontrolling Party reasonably
withholds consent pursuant to clause (vi) above, the Noncontrolling Party
shall be entitled to assume the defense of the Straddle Period Tax
Proceeding; provided that the Controlling
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Party's liability in connection with the Straddle Period Tax Proceeding
shall be limited to the amount such liability would have been under the
proposed settlement.
(c) Tulip shall have the sole right to control (including as to
settlement) any other Tax Proceeding of Tulip.
(d) Except to the extent set forth in Section 8.06(a), (b) or (c),
Spinco shall have the sole right to control (including as to settlement)
any Tax Proceeding of Spinco or any of the Contributed Subsidiaries.
(e) Tulip (or its Affiliate) shall have the sole right to control
(including as to settlement) any Tax Proceeding of ELF or any of its
Subsidiaries.
(f) Notwithstanding any other provision of this Agreement, Tulip and
its Affiliates shall be entitled to (i) control (including as to
settlement), and Spinco and its Affiliates shall not be entitled to
participate in, any Tax Proceeding with respect to any consolidated,
combined or unitary Tax Return that includes ELF, Parent or any of their
respective Subsidiaries for any taxable period, or Tulip for any taxable
period (or portion thereof) beginning, with respect to Tulip, after the
Distribution Date and (ii) file in such manner as it chooses in its sole
discretion any Tax Return described in clause (i) above (and neither Spinco
nor any of its Affiliates shall be entitled to any copy of or information
from any Tax Return described in clause (i) above (other than information
relating solely to ELF, its Subsidiaries or Tulip)).
(g) Notwithstanding any other provision of this Agreement, Spinco and
its Affiliates shall be entitled to (i) control (including as to
settlement), and Tulip and its Affiliates shall not be entitled to
participate in, any Tax Proceeding with respect to any consolidated,
combined or unitary Tax Return that includes Spinco for any taxable period
(or portion thereof) beginning, with respect to Spinco, after the
Distribution Date, and (ii) file in such manner as it chooses in its sole
discretion any Tax Return described in clause (i) above (and neither Tulip
nor any of its Affiliates shall be entitled to any copy of or information
from any Tax Return described in clause (i) above).
Section 8.07. Cooperation on Tax Matters; Other Tax Matters.
(a) Each of Tulip, Spinco or any of their respective Affiliates shall
provide the others with such assistance as may reasonably be requested by
each of them in connection with the preparation of any Tax Return, any
audit or other examination by any taxing authority, or any judicial or
administrative proceedings relating to liability for Taxes, and each shall
provide the others with any records or information which may be relevant to
such Tax Return, audit or examination, proceedings or determination.
(b) Spinco hereby represents and warrants to Tulip and its Affiliates
that there is no agreement or transaction pursuant to which ELF or any of
its Subsidiaries will pay or will become obligated to pay Taxes of Tulip or
any Person owned directly or indirectly by Tulip at any time (other than
Taxes imposed directly (and not by reason of any such agreement or
transaction) by the applicable Governmental Entity on ELF or any Person
owned directly or indirectly by ELF at any time). Such representation shall
survive until the end of the applicable statute of limitations (or such
later time as all claims in respect thereof are resolved).
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(c) In the event that the Distribution occurs on a different date from
the date of the ELF Merger, references above in this Article 8 (or any
definition used in this Article 8 for purposes of this Article 8) to
"Distribution Date" shall instead refer to the ELF Merger Date.
ARTICLE 9
MISCELLANEOUS
Section 9.01. Notices. All notices and other communications to any party
hereunder shall be in writing (including telecopy or similar writing) and shall
be deemed given when received addressed as follows:
If to Tulip to:
Keebler Holding Corp.
c/o Kellogg Company
One Kellogg Square
Battle Creek, Michigan 49016
Telecopy: (616) 961-6598
Attention: Janet L. Kelly
With copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy: (212) 403-2000
Attention: Daniel A. Neff
If to Spinco, to:
Flowers Foods, Inc.
1919 Flowers Circle
Thomasville, Georgia 31757
Telecopy: (912) 225-5433
Attention: G. Anthony Campbell
With a copy to:
Jones, Day, Reavis & Pogue
3500 SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Telecopy: (404) 581-8330
Attention: Robert W. Smith
Lizanne Thomas
Any party may, by written notice so delivered to the other parties, change
the address to which delivery of any notice shall thereafter be made.
Section 9.02. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by
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Tulip and Spinco, or in the case of a waiver, by the party against whom the
waiver that is materially adverse is to be effective. In addition, unless
the Merger Agreement shall have been terminated in accordance with its
terms, any such amendment or waiver shall be subject to the prior written
consent of Parent.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder 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. All costs and expenses incurred by Tulip or
Spinco in connection with the preparation, execution and delivery of the
Ancillary Agreements and the consummation of the Merger, the Distribution and
the other transactions contemplated hereby and therein (including the fees
(other than up to $16 million in advisory fees) and expenses of all counsel,
accountants and financial and other advisors of both Groups in connection
therewith, and all expenses in connection with preparation, filing and printing
of the Registration Statement) shall be paid by Spinco; provided that Parent and
its Affiliates shall pay their own expenses, if any, incurred in connection with
the Distribution, and Spinco shall pay all other expenses of Tulip or Spinco or
any of their respective Subsidiaries, in connection with the Transaction
Agreements (as defined in the Merger Agreement), in each case except as
specifically provided otherwise herein, in the Merger Agreement or any Ancillary
Agreement.
Section 9.04. Successors and Assigns. 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 neither party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of Parent and the other party
hereto. If any party or any of its successors or assigns (i) shall consolidate
with or merge into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) shall transfer all
or substantially all of its properties and assets to any Person, then, and in
each such case, proper provisions shall be made so that the successors and
assigns of such party shall assume all of the obligations of such party under
the Distribution Documents.
Section 9.05. Governing Law. Subject to the provisions of the Georgia
Business Corporation Code applicable to the Distribution, this Agreement shall
be construed in accordance with and governed by the law of the State of
Delaware, without regard to the conflict of laws rules thereof.
Section 9.06. Counterparts; Effectiveness. 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.
This Agreement shall become effective when each party hereto shall have received
a counterpart hereof signed by the other party hereto.
Section 9.07. Entire Agreement. This Agreement, the Merger Agreement, the
Confidentiality Agreement, the Ancillary Agreements and the other Distribution
Documents constitute the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to the subject matter hereof and thereof. No representation, inducement,
promise, understanding, condition or warranty not
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set forth herein or in the Confidentiality Agreement, the Merger Agreement, the
Ancillary Agreements or the other Distribution Documents has been made or relied
upon by any party hereto. To the extent that the provisions of this Agreement
are inconsistent with the provisions of any Ancillary Agreement, the provisions
of such Ancillary Agreement shall prevail.
Section 9.08. Certain Transfer Taxes. Except as otherwise provided in the
Ancillary Agreements, all transfer, documentary, sales, use, stamp and
registration taxes and fees (including any penalties and interest) incurred in
connection with any of the transactions described in Article 2 or 3 of this
Agreement shall be borne and paid by Spinco. Subject to the following sentence,
the party that is required by applicable law to file any return or make any
payment with respect to any of those Taxes shall do so, and the other party
shall cooperate with respect to that filing or payment as necessary. To the
extent that Tulip is required to pay such Taxes to the applicable Governmental
Entity, Spinco shall pay Tulip the amount of such Taxes in accordance with this
Section 9.08, no later than two Business Days prior to the date such Taxes are
due.
Section 9.09. Jurisdiction. Except as otherwise expressly provided in
this Agreement, any Action seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby may be brought in any federal court located in the State of
Delaware or any Delaware State court, and each of the parties hereby consents to
the jurisdiction of such court (and of the appropriate appellate courts
therefrom) in any such Action and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of the venue of any such Action in any such court or that any such Action
brought in any such court has been brought in an inconvenient forum. Process in
any such Action may be served on any party anywhere in the world, whether within
or without the jurisdiction of any such court. Without limiting the foregoing,
each party agrees that service of process on such party as provided in Section
9.01 shall be deemed effective service of process on such party.
Section 9.10. Pre-Litigation Dispute Resolution. Prior to the bringing of
any Action against the other, senior officers of Tulip and Spinco shall confer,
consult and in good faith attempt for a period of 30 calendar days to resolve
any dispute between such parties relating to this Agreement or any of the
Ancillary Agreements without resort to legal remedies.
Section 9.11. Severability. If any one or more of the provisions
contained in this Agreement should be declared invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not in any way be affected or
impaired thereby so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such a declaration, the parties shall modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner so
that the transactions contemplated hereby are consummated as originally
contemplated to the fullest extent possible.
Section 9.12. Survival. All covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date indefinitely,
unless a specific survival or other applicable period is expressly set forth
therein.
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Section 9.13. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
Section 9.14. Specific Performance. Each party to this Agreement
acknowledges and agrees that damages for a breach or threatened breach of any of
the provisions of this Agreement would be inadequate and irreparable harm would
occur. In recognition of this fact, each party agrees that, if there is a breach
or threatened breach, in addition to any damages, the other non-breaching party
to this Agreement, without posting any bond, shall be entitled to seek and
obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction, attachment, or any other
equitable remedy which may then be available to obligate the breaching party (i)
to perform its obligations under this Agreement or (ii) if the breaching party
is unable, for whatever reason, to perform those obligations, to take any other
actions as are necessary, advisable or appropriate to give the other party to
this Agreement the economic effect which comes as close as possible to the
performance of those obligations (including, but not limited to, transferring,
or granting liens on the assets of the breaching party to secure the performance
by the breaching party of those obligations).
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IN WITNESS WHEREOF, the parties hereto have caused this Distribution
Agreement to be duly executed by their respective authorized officers as of the
date first above written.
FLOWERS INDUSTRIES, INC.
By: /s/ G.A. CAMPBELL
-----------------------------------
Name:
Title:
FLOWERS FOODS, INC.
By: /s/ G.A. CAMPBELL
-----------------------------------
Name:
Title:
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APPENDIX C
October 26, 2000
Board of Directors
Flowers Industries, Inc.
1919 Flowers Circle
Thomasville, GA 31757
Members of the Board of Directors:
We understand that Flowers Industries, Inc. ("Flowers" or the "Company"),
Kellogg Company ("Kellogg") and Kansas Merger Subsidiary, Inc., a wholly owned
subsidiary of Kellogg ("Acquisition Sub"), propose to enter into an Agreement
and Plan of Restructuring and Merger, substantially in the form of the draft
dated October 26, 2000 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Acquisition Sub with and into Flowers.
Pursuant to the Merger, Flowers will become a wholly owned subsidiary of Kellogg
and each outstanding share of common stock, par value $0.625 per share, of
Flowers (the "Common Stock"), other than shares held in treasury or held by
Kellogg or any affiliate of Kellogg or as to which dissenters' rights have been
perfected, will be converted into the right to receive a certain amount of cash
per share as determined pursuant to a certain formula set forth in the Merger
Agreement (the "Consideration"). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
We also note that the completion of the Merger is conditioned upon, among
other things, the consummation of a distribution (the "Distribution") of the
shares of Flowers Foods, Inc., a newly formed subsidiary of the Company
("Spinco"), to the shareholders of the Company, pursuant to a Distribution
Agreement, substantially in the form of the draft dated October 26, 2000 (the
"Distribution Agreement"), between the Company and Spinco. The terms and
conditions of the Distribution are more fully set forth in the Distribution
Agreement.
Furthermore, we also understand that the completion of the Merger is
conditioned upon the shareholder approval of and satisfaction of the conditions
of an Agreement and Plan of Merger substantially in the form of the draft dated
October 26, 2000 (the "Keebler Merger Agreement"), among Keebler Foods Company
("Keebler"), Kellogg and FK Acquisition Corp., a wholly owned subsidiary of
Kellogg ("Keebler Acquisition Sub"), which provides, among other things, for the
merger (the "Keebler Merger") of Keebler Acquisition Sub with and into Keebler.
The consummation of the Keebler Merger is conditional upon, among other things,
the consummation of the Merger in accordance with the terms of the Keebler
Merger Agreement. The terms and conditions of the Keebler Merger are more fully
set forth in the Keebler Merger Agreement.
You have asked for our opinion as to whether the Consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement in connection with the Merger is fair from a financial point of view
to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Flowers and Keebler;
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(ii) reviewed certain internal financial statements and other
financial and operating data concerning Flowers, Keebler and Spinco
prepared by the managements of Flowers, Keebler and Spinco;
(iii) reviewed certain financial projections concerning Flowers,
Keebler and Spinco prepared by the managements of Flowers, Keebler and
Spinco including, among other things, the assessment by the management of
Flowers of certain liabilities of Flowers;
(iv) discussed the past and current operations and financial condition
and the prospects of Flowers and Keebler, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Flowers and Keebler;
(v) reviewed the reported prices and trading activity for the common
stock of Flowers and Keebler;
(vi) compared the financial performance of Keebler and the prices and
trading activity of the common stock of Keebler with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions with respect to Keebler;
(viii) participated in discussions and negotiations among
representatives of Flowers, Keebler and Kellogg and their financial and
legal advisors;
(ix) reviewed the Merger Agreement, the Distribution Agreement, the
Keebler Merger Agreement and the Voting Agreement between Flowers and
Kellogg, each substantially in the form of the drafts dated October 26,
2000, and certain related documents; and
(x) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger and certain liabilities of Flowers, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Flowers, Keebler
and Spinco. In addition, we have assumed that the Merger, the Distribution and
the Keebler Merger will be consummated in accordance with the terms set forth in
the drafts of the Merger Agreement, the Distribution Agreement and the Keebler
Merger Agreement and that the final executed forms of such documents do not
differ in any material respects. We have not made any independent valuation or
appraisal of the assets or liabilities of Flowers, Keebler and Spinco, nor have
we been furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Flowers in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services
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for the Company, Keebler and Kellogg and have received fees for the rendering of
these services.
In rendering our opinion, we have not been asked to, and have not,
addressed the Distribution, the value of Spinco or the prices at which Spinco's
common stock will trade after the Distribution. In addition and with your
consent, we have not addressed the Keebler Merger, and in particular, we have
not considered the impact of any implied control premium based on Flowers'
ownership interest of Keebler shares, which represent a majority of such
outstanding shares. Our opinion does not address Flowers' underlying business
decision to enter into the Merger Agreement and the methods and means
contemplated to effect the Merger and the other transactions contemplated
therein.
It is understood that this letter is for the information of the Board of
Directors of Flowers only and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the Merger with the Securities
and Exchange Commission. In addition, Morgan Stanley & Co. Incorporated
expresses no opinion or recommendation as to how the shareholders of the Company
should vote at the shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement in connection with the Merger is fair
from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ JAMES B. STYNES
-----------------------------------
James B. Stynes
Managing Director
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APPENDIX D
October 26, 2000
Board of Directors
Flowers Industries, Inc.
1919 Flowers Circle
Thomasville, GA 31757
Members of the Board of Directors:
We understand that Flowers Industries, Inc., a Georgia corporation
("Flowers"), is considering a transaction (the "Transaction") whereby Kellogg
Company, a Delaware corporation ("Parent"), will acquire Flowers. Pursuant to
the terms of an Agreement and Plan of Restructuring and Merger, dated as of
October 26, 2000 (the "Flowers Merger Agreement"), among Parent, Kansas Merger
Subsidiary, Inc., a Delaware corporation ("Flowers Merger Sub") and a wholly
owned subsidiary of Parent, and Flowers, among other things, (i) Flowers Merger
Sub will be merged with and into Flowers (the "Flowers Merger"), and (ii) in
connection with the Flowers Merger, each issued and outstanding share of common
stock, par value $0.625 per share, together with the associated Right (as
defined in the Flowers Merger Agreement) ("Flowers Common Stock"), of Flowers
(other than shares held by Flowers as treasury stock or owned by Parent or any
of its subsidiaries and dissenting shares under Section 2.05 of the Flowers
Merger Agreement) will be converted into the right to receive a certain amount
of cash per share, without interest, as determined pursuant to a certain formula
set forth in the Flowers Merger Agreement (the "Flowers Merger Consideration").
The obligations of each of Parent, Flowers Merger Sub and Flowers to consummate
the Flowers Merger is subject to, among other things, the consummation of the
various transactions contemplated by a Distribution Agreement, substantially in
the form of Annex A to the Flowers Merger Agreement (the "Distribution
Agreement"), to be entered into by Flowers and Flowers Foods, Inc., a Georgia
corporation ("Spinco") and a wholly owned subsidiary of Flowers, including,
without limitation, the distribution of all of the outstanding shares of Spinco
common stock to Flowers stockholders (all such transactions contemplated by the
Distribution Agreement are referred to collectively as the "Spin-Off"). In
addition, in connection with the Flowers Merger Agreement, pursuant to the terms
of an Agreement and Plan of Merger, dated as of October 26, 2000 (the "Keebler
Merger Agreement"), among Parent, FK Acquisition Corp., a Delaware corporation
("Keebler Merger Sub") and a wholly owned subsidiary of Parent, and Keebler
Foods Company, a Delaware corporation ("Keebler") and a majority owned
subsidiary of Flowers, among other things, (i) Keebler Merger Sub will be merged
with and into Keebler (the "Keebler Merger"), and (ii) in connection with the
Keebler Merger, each issued and outstanding share of common stock, par value
$.01 per share ("Keebler Common Stock"), of Keebler (other than shares held by
Keebler as treasury stock or owned by Parent, Flowers or any of their
subsidiaries and dissenting shares under Section 2.04 of the Keebler Merger
Agreement) will be converted into the right to receive $42.00 in cash, without
interest. The terms and conditions of the Transaction, which consists of the
Flowers Merger, the Keebler Merger and the Spin-Off, are more fully set forth in
the Flowers Merger Agreement, the Keebler Merger Agreement, the Distribution
Agreement and the Voting Agreement, dated as of October 26, 2000 (the "Voting
Agreement"), between Flowers and Parent.
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You have requested our opinion as to the fairness to the holders of Flowers
Common Stock from a financial point of view of the Flowers Merger Consideration.
UBS Warburg LLC ("UBSW") has acted as financial advisor to the Board of
Directors of Flowers in connection with the Transaction. UBSW will receive a fee
from Flowers the majority of which is payable upon the consummation of the
Transaction. In the past, UBSW and its predecessors have provided investment
banking services to Flowers, Keebler and Parent and received customary
compensation for the rendering of such services. In the ordinary course of
business, UBSW, its successors and affiliates may trade or have traded
securities of Flowers, Keebler and Parent for their own accounts and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion does not address Flowers' underlying business decision to
effect the Transaction or constitute a recommendation to any stockholder of
Flowers as to how such stockholder should vote with respect to the Transaction
or any other matter. At your direction, we have not been asked to, nor do we,
offer any opinion as to the material terms of the Flowers Merger Agreement, the
Keebler Merger Agreement, the Distribution Agreement or the Voting Agreement,
the form of the Transaction or the after-tax consequences to Flowers or any
holder of Flowers Common Stock of the Flowers Merger and the Spin-Off. In
addition, at your direction, in performing the financial and comparative
analyses in connection with the rendering of this opinion, we have not
considered, and offer no opinion as to, the impact of any implied control
premium based upon Flowers' ownership of Keebler shares representing a majority
of the outstanding voting power of Keebler on such analyses. Furthermore, at
your direction, UBSW is not expressing any opinion as to the Spin-Off, the value
of Spinco or the prices at which the Spinco common stock will trade subsequent
to the Spin-Off. In rendering this opinion, we have assumed, with your consent,
that the final executed forms of the Flowers Merger Agreement, the Keebler
Merger Agreement, the Distribution Agreement and the Voting Agreement do not
differ in any material respect from the drafts that we have examined, that
Flowers, Keebler, Spinco, Parent, Flowers Merger Sub and Keebler Merger Sub will
comply with all the material terms of the Flowers Merger Agreement, the Keebler
Merger Agreement, the Distribution Agreement and the Voting Agreement, as
applicable, and that the Flowers Merger, the Keebler Merger, and the Spin-Off
will be consummated in accordance with the terms of such agreements. At your
request, we have contacted third parties to solicit indications of interest in a
possible business combination transaction with Flowers and Keebler.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to Keebler and Flowers, (ii) reviewed the reported prices and trading
activity for the Keebler Common Stock, (iii) reviewed certain internal financial
information and other data relating to the business and financial prospects of
Keebler, including estimates and financial forecasts prepared by the management
of Keebler, that were provided to us by Keebler and Flowers and not publicly
available, (iv) reviewed certain internal financial information relating to
estimated liabilities of Flowers which are not being assumed by Spinco in
connection with the Spin-Off, which estimates were prepared by the management of
Flowers and were provided to us by Flowers and not publicly available, (v)
conducted discussions with members of the senior managements of Keebler and
Flowers, (vi) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business we believe to be
generally comparable to those of Keebler, (vii) compared the financial terms of
the Keebler Merger with the publicly available financial terms of certain other
transactions
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which we believe to be generally relevant, (viii) reviewed drafts of the Flowers
Merger Agreement, the Keebler Merger Agreement, the Distribution Agreement and
the Voting Agreement, and (ix) conducted such other financial studies, analyses,
and investigations, and considered such other information as we deemed necessary
or appropriate.
In connection, with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied on its
being complete and accurate in all material respects. In addition, at your
direction, we have not made any independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of Keebler, Flowers or
Spinco, nor have we been furnished with any such evaluation or appraisal. With
respect to the financial forecasts and estimates relating to Keebler referred to
above, we have assumed, at your direction, that they have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of Keebler as to the future performance of Keebler.
With respect to the estimated liabilities of Flowers referred to above, we have
assumed, at your direction, that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Flowers. Our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Flowers Merger Consideration to be received by the holders of
Flowers Common Stock in the Flowers Merger is fair, from a financial point of
view, to the holders of Flowers Common Stock.
Very truly yours,
UBS WARBURG LLC
/s/ UBS Warburg LLC
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APPENDIX E
TITLE 14. CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS
CHAPTER 2. BUSINESS CORPORATIONS
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SEC. 14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or 14-2-1104 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
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(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept
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for their shares anything except shares of the surviving corporation or
another publicly held corporation which at the effective date of the merger
or share exchange are either listed on a national securities exchange or
held of record by more than 2,000 shareholders, except for scrip or cash
payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
SEC. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SEC. 14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
SEC. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
SEC. 14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a
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written dissenters' notice to all shareholders who satisfied the requirements of
Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
SEC. 14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
SEC. 14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SEC. 14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year,
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a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
SEC. 14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
SEC. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to
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the shareholder within ten days after receipt of a written demand for the
information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.
PART 3. JUDICIAL APPRAISAL OF SHARES
SEC. 14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or statutory
overnight delivery or by publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
SEC. 14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the
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corporation, except that the court may assess the costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
SEC. 14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
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FLOWERS INDUSTRIES, INC.
1919 FLOWERS CIRCLE
THOMASVILLE, GEORGIA 31757
FORM OF PROXY CARD
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned
hereby appoints and , and each of them, with power of
substitution in each, as proxies to appear and vote, as designated below, all
shares of Common Stock of Flowers Industries, Inc. held of record on , 2001
by the undersigned, at the Special Meeting of Shareholders to be held
on , 2001, and at any and all adjournments or postponements thereof (the
"Meeting"). Management recommends a vote in favor of all nominees listed in
Item 1 and in favor of Proposal 1.
1. PROPOSAL TO APPROVE AND ADOPT AN AGREEMENT AND PLAN OF RESTRUCTURING AND
MERGER BETWEEN FLOWERS INDUSTRIES, INC., KELLOGG COMPANY AND A WHOLLY-OWNED
SUBSIDIARY OF KELLOGG COMPANY, KANSAS MERGER SUBSIDIARY, INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be dated and signed on reverse side)
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED. IF NO
INDICATION IS MADE, IT WILL BE VOTED IN FAVOR OF PROPOSAL 1.
Dated: -----------------, 2001
------------------------------
------------------------------
Signature(s)
(Please sign exactly as name
appears on this proxy. When
shares are held by joint
tenants, both should sign.
When signing in a fiduciary or
representative capacity, give
full title as such.)
