-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CLpjGn7Eht9EpHJX9agAHnkVEvunGGOq8P1vS8499L4WJhlpYXHt+3mZNC+qsqUm 3PMX1woKhjTcn0qa1IFkiQ== 0000912057-01-517803.txt : 20010530 0000912057-01-517803.hdr.sgml : 20010530 ACCESSION NUMBER: 0000912057-01-517803 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010303 FILED AS OF DATE: 20010529 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL MULTIFOODS CORP CENTRAL INDEX KEY: 0000051410 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 410871880 STATE OF INCORPORATION: DE FISCAL YEAR END: 0303 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06699 FILM NUMBER: 1649432 BUSINESS ADDRESS: STREET 1: 200 EAST LAKE STREET CITY: WAYZATA STATE: MN ZIP: 55391 BUSINESS PHONE: 6123403300 MAIL ADDRESS: STREET 1: 200 EAST LAKE STREET CITY: WAYZATA STATE: MN ZIP: 55391 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL MILLING CO INC DATE OF NAME CHANGE: 19700217 10-K 1 a2050336z10-k.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 3, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________ COMMISSION FILE NUMBER 1-6699 ------------------------------ INTERNATIONAL MULTIFOODS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 41-0871880 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 110 CHESHIRE LANE, SUITE 300, 55305 MINNETONKA, MINNESOTA (Zip Code) (Address of principal executive offices)
(952) 594-3300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------------------------------ ------------------------------------------ Common Stock (par value $.10 per share) New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of Common Stock, par value $.10 per share, held by non-affiliates of the registrant (see Item 12 hereof) as of May 10, 2001 (based on the closing sale price of $19.44 per share as reported in the consolidated transaction reporting system on such date) was $361,040,555. The number of shares outstanding of the registrant's Common Stock, par value $.10 per share, as of May 10, 2001 was 18,784,871. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Stockholders for the fiscal year ended March 3, 2001 are incorporated by reference into Parts I and II. Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held July 2, 2001 are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL International Multifoods Corporation, incorporated in Delaware in 1969 as the successor to a business founded in 1892, operates a foodservice distribution business in the United States and food manufacturing businesses in the United States and Canada. Our business segments are Multifoods Distribution Group and North America Foods. Financial information for the last three fiscal years for each of our business segments, which is included in Note 17 to the Company's Consolidated Financial Statements on pages 43 and 44 of our Annual Report to Stockholders for the fiscal year ended March 3, 2001 ("2001 Annual Report to Stockholders"), is incorporated herein by reference. MULTIFOODS DISTRIBUTION GROUP Our Multifoods Distribution Group segment is a distributor of food and related products to the foodservice industry in the United States. Our Multifoods Distribution Group segment leases or owns a fleet of approximately 450 tractors, 550 trailers and 50 straight trucks, most of which are equipped with an on board computer system from which drivers and managers obtain delivery performance and route information. We operate 28 distribution centers located nationwide. We also operate 11 cash and carry locations from which customers can make purchases. No single customer accounts for a significant portion of the segment's sales. Deliveries are made directly to customers, generally once a week, from distribution centers located nationwide. Our Multifoods Distribution Group segment is a distributor of food and related products in the United States to independent pizza restaurants and other casual-dining, limited-menu operators, including sandwich shops, Mexican and Italian restaurants, movie theaters, fund-raising groups, commissaries and stadium and recreational concession stands. We distribute a broad selection of cheeses, meats, snacks, paper goods, cleaning supplies and other products, including pizza ingredients sold under our ULTIMO! brand as well as major national brands. Our Multifoods Distribution Group segment is also the only nationwide U.S. vending distributor, serving approximately 13,000 vending and office coffee service operators and other concessionaires. We distribute and sell more than 5,000 food products consisting primarily of candy, snacks, frozen and refrigerated products, pastries, hot beverages and juices. Most of these products are nationally advertised brand products. We also sell certain products, such as premium ground and whole-bean coffee, hot cocoa, creamer and sugar, under our own private labels, VENDOR'S SELECT and GRINDSTONE CAFE. Through our Better Brands, Inc. subsidiary, our Multifoods Distribution Group segment also operates a broadline distribution business in the northeastern United States. Based in Windsor, Connecticut, this subsidiary distributes a broad selection of food and related products to restaurants and other foodservice operators such as universities and schools, health care institutions and casinos. The distribution business is highly competitive. We compete with several national and regional broadline distributors and numerous regional specialty foodservice distributors and local independent distributors. While we are the only nationwide vending distributor, we encounter significant competition from regional and local distributors as well as warehouse clubs. We compete on the basis of competitive pricing, the availability of a wide variety of products, a national distribution network and prompt and accurate delivery of orders. We believe that our pizza expertise, our vending expertise and the value-added services we provide our customers (such as merchandising support, special incentive programs and sponsoring customer trade shows) differentiate us in part from our competitors. 2 On February 5, 2001, we announced that, as part of our continuing effort to simplify our business and sharpen our focus, we are exploring strategic alternatives for our Multifoods Distribution Group segment. NORTH AMERICA FOODS The North America Foods segment consists of two units, U.S. Foodservice Products and Robin Hood Multifoods. No single customer accounts for a significant portion of the segment's sales. U.S. FOODSERVICE PRODUCTS. The U.S. Foodservice Products unit produces approximately 1,300 products for retail, wholesale and in-store bakeries and foodservice customers in the United States. We produce baking mix products, including mixes for breads, rolls, bagels, donuts, muffins, Danishes, cakes, cookies, brownies, bars and pizza crusts, as well as fillings and icings. Baking mix products are marketed under our MULTIFOODS and JAMCO brands. In addition, we manufacture and market frozen batters, doughs and desserts under our MULTIFOODS, GOURMET BAKER and FANTASIA brands. Our products are marketed through our own direct sales force of sales and technical support personnel, as well as through a network of brokers and bakery distributors, which in turn sell our products to retail bakers. Our U.S. Foodservice Products unit encounters significant competition in the bakery products market. We are a leading supplier of baking mixes to foodservice operators and retail and in-store bakeries in the United States and we compete with several large corporations and regional producers of baking mixes. With respect to frozen bakery products, we compete primarily in the foodservice and in-store bakery markets with several large corporations and numerous regional suppliers that have select product offerings. We compete on the basis of product quality and uniqueness, product convenience, brand loyalty, timely delivery and customer service, as well as price. ROBIN HOOD MULTIFOODS. Our Robin Hood Multifoods unit consists of our Canada consumer and commercial foods businesses. The consumer foods business is the leading marketer in Canada of flour and specialty baking mixes sold to consumers. More than 40 consumer baking mixes are sold in Canada under our ROBIN HOOD brand, while consumer flour is sold under our ROBIN HOOD, GOLDEN TEMPLE, BRODIE, CREAM OF THE WEST and MONARCH brands. We also sell hot cereals under our ROBIN HOOD, OLD MILL, RED RIVER and PURITY brands. In addition, we manufacture and market pickles, relishes and other condiments to consumers in Canada, where our BICK'S brand is the leading brand. We also sell condiments under the HABITANT, GATTUSO, WOODMAN'S, ROSE and MCLARENS labels. The commercial foods business of Robin Hood Multifoods produces condiments, baking mix products, wheat flour and oat products for retail, in-store and wholesale bakeries and foodservice customers in Canada and the United States. Such products are sold primarily under our ROBIN HOOD and BICK'S brands. We also manufacture and market frozen batters, doughs and desserts in Canada under our GOURMET BAKER brand. The products of Robin Hood Multifoods are marketed primarily through our own sales organization, supported by advertising and other promotional activities. Our competitors in Canada include both large corporations and regional producers. We compete on the basis of product quality, product convenience, the ability to identify and satisfy emerging consumer preferences, brand loyalty, timely delivery and customer service, as well as price. PENDING ACQUISITION ASSET PURCHASE AND SALE AGREEMENT. On February 4, 2001, we entered into an asset purchase and sale agreement with The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts and specialty products business, Pillsbury's non-custom foodservice baking mix business and General Mills' 3 Robin Hood business for approximately $304.6 million in cash. The assets we are acquiring include equipment and inventory of the Pillsbury businesses, inventory of the General Mills' Robin Hood business and certain trademarks and trademark licenses. The acquisition is subject to a number of conditions, including the receipt of proceeds from new financing arrangements, the provisional approval by the Federal Trade Commission of the acquisition and completion of the merger of General Mills and Pillsbury. We expect to close the acquisition in the first half of fiscal year 2002. The asset purchase and sale agreement further provides that we and General Mills will enter into several ancillary agreements at the closing of the Acquisition. The following is a summary of such ancillary agreements. The terms of the asset purchase and sale agreement and each of the ancillary agreements could be amended pending the approval of the Federal Trade Commission, and we expect any such modifications to be generally favorable to us. CONVERSION PLAN AGREEMENT AND LEASE. Under a conversion plan agreement, General Mills will move certain equipment from Pillsbury's Murfreesboro, Tennessee and Martel, Ohio plants to General Mills' Toledo, Ohio plant and convert a portion of the Toledo plant for our use as a leased production facility. We currently anticipate that this conversion will be completed in June 2002. The conversion will be considered complete only if and when a supervisory panel consisting of three members (one appointed by each of us, General Mills and the FTC) determines that the production lines installed by General Mills in our leased portion of the Toledo plant meet certain product quality, cost and efficiency standards when they are operated under normal conditions. We will lease our portion of the Toledo plant from General Mills under a lease agreement for ten years starting on the date that the conversion is completed. We will have options to renew the lease for up to 25 years after the initial ten year term has expired. CO-PACK AGREEMENT. Under a co-pack agreement, General Mills will manufacture and package for us certain products of the businesses that we are acquiring until the conversion of the Toledo plant is completed or, in the case of Robin Hood products, for up to six months after the date that we take over the Robin Hood business. The co-pack agreement generally requires us to purchase all of our requirements for products covered by the agreement from General Mills unless General Mills is unable to fill our orders or we desire to produce the products ourselves. TRANSITION SERVICES AGREEMENT. Under a transition services agreement, General Mills will provide various transition services to us for the Pillsbury businesses after we acquire them, including services relating to information systems, accounting, marketing and advertising, raw material procurement and warehousing. General Mills will provide these services to us for varying time periods ranging from 30 days after the closing for certain services to the date that the conversion is completed for others. TRADEMARK LICENSE AGREEMENTS. Under a retail trademark license agreement, General Mills will license to us the exclusive right to use certain PILLSBURY trademarks on a royalty-free basis for an initial term of 20 years after the closing on certain Pillsbury dessert and baking mix and flour products in retail channels (other than sales to warehouse club stores, which will be on a non-exclusive basis) in the United States and its territories (excluding Puerto Rico). We will also have the right to sell products bearing these trademarks to stores of United States-based mass merchandisers and club store customers in Mexico and Canada. This license will be renewable by us after the initial 20 year term for a $1 million annual royalty. We will be entitled to use these trademarks for manufacturing and packaging in Canada as well as in the United States. We will also receive a license for two years to transition out of using the Pillsbury "doughboy" related trademarks on such products in such channels and territories. We will enter into a foodservice trademark license agreement with General Mills under which we will have the exclusive right to use certain PILLSBURY trademarks on a royalty-free basis for five years after closing on certain non-custom dry mix products in packages of seven pounds or less in foodservice channels in the United States and its territories (excluding Puerto Rico). We will also have the right to 4 sell products bearing these trademarks to stores of United States-based mass merchandisers and club store customers in Mexico and Canada. We will be entitled to use these trademarks for manufacturing and packaging in Canada as well as in the United States. This license will be non-renewable and we will have one year to transition out of the "doughboy" related trademarks on such products in such channels and territories. Under separate "grant back" trademark license agreements, we will license back to General Mills, on a royalty-free basis for a two-year period, the MARTHA WHITE trademark, the HUNGRY JACK trademark and other related trademarks that we are acquiring, in order to permit General Mills to transition out of the use of these trademarks in businesses that it and Pillsbury are retaining. These licenses will be exclusive for certain products, territories and channels and non-exclusive for others. The two year license period will be followed by a three year "quiet period," during which we cannot use the HUNGRY JACK trademark with respect to those products, territories and channels for which General Mills will be granted an exclusive license for the HUNGRY JACK trademark. PATENT AND TECHNOLOGY LICENSE AGREEMENTS. Under a retail patent and technology license agreement, General Mills will grant to us a perpetual license to certain patents and know-how that are not being assigned to us, but which are used in the Pillsbury retail business and shared with businesses that Pillsbury and General Mills are retaining. Our license will be exclusive with respect to, but limited to, the products, channels and territories in which we are permitted to use the PILLSBURY trademarks under the retail trademark license agreement. We will be entitled to use these licensed patents and know-how for manufacturing and packaging in Canada as well as in the United States. General Mills will also grant to us a perpetual, worldwide, non-exclusive license to use certain technology and know-how that is used in the Robin Hood business. We will also enter into a foodservice patent and technology license agreement that is substantially similar to the retail patent and technology license agreement, except that it will cover products of the Pillsbury foodservice business rather than the Pillsbury retail business. Under a separate "grant back" patent and technology license agreement, we will grant a perpetual license to General Mills to use patents and know-how being assigned to us under the asset purchase and sale agreement that General Mills uses in businesses that it is retaining. OTHER INFORMATION RELATING TO THE BUSINESS OF THE COMPANY SOURCES OF SUPPLY AND RAW MATERIALS. Our Multifoods Distribution Group segment purchases products directly from numerous manufacturers, processors and independent suppliers. Several of these sources are large corporations from which we purchase significant quantities of brand name candy and snacks for our vending business and cheese for our foodservice business. Our distribution business is not dependent upon any single supplier and alternative sources of supply are generally available. With respect to our North America Foods segment, raw materials generally are available from numerous sources and we believe that we will continue to be able to obtain adequate supplies. In Canada, we minimize risks associated with wheat market price fluctuations by hedging our wheat and flour inventories, open wheat purchase contracts and open flour sales contracts with wheat futures contracts. In the United States, we also enter into futures contracts to reduce the risk of price fluctuations on certain anticipated raw material purchases. See Note 9 to the Consolidated Financial Statements which are incorporated by reference in Part II, Item 8, hereof. TRADEMARKS AND OTHER INTELLECTUAL PROPERTY. We own numerous trademarks, service marks and product formulae which are important to our business. The most significant trademarks and service marks are identified by appearing in all capitalized letters above. Most of our trademarks and service marks are registered. 5 SEASONALITY. Our North America Foods segment experiences some seasonality of its business due to increased demand for its products during the fall and holiday baking seasons. As a result, sales volumes of the North America Foods segment are generally higher during our fiscal third quarter. Our Multifoods Distribution Group segment does not experience material seasonal variations in its sales volumes. ENVIRONMENTAL REGULATION. Our facilities in the United States are subject to federal, state and local environmental laws and regulations. Compliance with these provisions has not had, and we do not expect such compliance to have, any material adverse effect upon our capital expenditures, net earnings or competitive position. On January 15, 1998, VIP's Industries, Inc. ("VIP's") filed a third-party complaint against us in the Circuit Court of Linn County, Oregon. The third-party complaint alleges that we, through our former subsidiary Crown Industries, Inc. ("Crown"), caused the environmental contamination of certain real property, and the groundwater beneath the real property, located in Albany, Oregon. At the time of the Company's acquisition of Crown in 1976, Crown owned the subject real property and leased it to an operator of a retail gasoline service station. We sold the subject real property in 1981. We recently settled the claims asserted by VIP's and the original plaintiffs in the lawsuit. However, crossclaims made by Ultramar, Inc., another defendant in the lawsuit, are continuing. Ultramar has alleged that we are strictly liable under Oregon law for costs of removal of contamination and remediation of real property adjacent to the VIP's real property. The Ultramar real property was also owned by Crown at the time of our acquisition of Crown and was sold by us in 1981 at the same time we sold the VIP's real property. Ultramar is seeking damages for the cost of remedial action related to the contamination of its real property and the groundwater beneath the real property. The parties to the lawsuit are in the discovery stage and we intend to vigorously defend this lawsuit. We have also tendered defense of the lawsuit to our primary general liability insurance carrier during the period of time at issue in the lawsuit. EMPLOYEES. As of March 3, 2001, we and our subsidiaries had 4,654 employees. CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may from time to time make written and oral forward-looking statements. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning our operations and financial performance and condition. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others, the closing of the pending acquisition and the timing of the close; actions in the financial markets; regulatory approval related to the pending acquisition; integration problems associated with the pending acquisition; the results of our review of strategic alternatives for our Multifoods Distribution Group; the impact of competitive products and pricing; market or weather conditions that may affect the costs of grain, cheese, other raw materials, fuel and labor; changes in laws and regulations; fluctuations in interest rates; the inability to collect on a $6 million insurance claim related to the theft of product in St. Petersburg, Russia; fluctuations in foreign exchange rates; risks commonly encountered in international trade; and other factors as may be discussed in our reports filed with the Securities and Exchange Commission. ITEM 2. PROPERTIES. Our principal executive offices are located in Minnetonka, Minnesota in leased office space. Several of our subsidiaries also own or lease office space. We operate numerous processing and 6 distribution facilities throughout the United States and Canada. We believe that our facilities are suitable and adequate for current production or distribution volumes. The following is a description of our properties as of March 3, 2001. MULTIFOODS DISTRIBUTION GROUP We own 12 and lease 16 distribution centers aggregating approximately 2.8 million square feet for our Multifoods Distribution Group segment. These distribution centers are located in Tempe, Arizona; Anaheim, Fremont, Livermore, Modesto and Ontario, California; Denver, Colorado; Windsor, Connecticut; Kissimmee, Florida; Austell, Georgia; Woodridge, Illinois; Indianapolis, Indiana; Shawnee, Kansas; Louisville, Kentucky; Belleville, Michigan; Maple Grove and Rice, Minnesota; Springfield, Missouri; Parsippany and Swedesboro, New Jersey; Greensboro, North Carolina; Twinsburg, Ohio; Portland, Oregon; Memphis, Tennessee; Dallas(2) and Houston, Texas; and Kent, Washington. Our distribution business also operates 11 cash-and-carry distribution locations, which are separate from our other distribution centers. NORTH AMERICA FOODS We own 14 and lease four processing facilities across the United States and Canada, as described in the following table:
LOCATION PRIMARY PRODUCTS SIZE OWNED/LEASED - -------- ------------------------------------- ------------ ------------ Bonner Springs, Kansas.............. Bakery Mix/Frozen Bakery 100,000 s.f. Owned Burlington, Ontario................. Bakery Mix 65,000 s.f. Owned Burnaby, British Columbia........... Frozen Bakery 15,000 s.f. Leased Burnaby, British Columbia........... Frozen Bakery 32,800 s.f. Leased Delhi Township, Ontario............. Pickle Tank Farm 15 acres Owned Dunnville, Ontario.................. Pickles and Relish Condiments 98,300 s.f. Owned Elyria, Ohio........................ Bakery Mix 56,400 s.f. Owned La Mirada, California............... Bakery Mix 100,860 s.f. Leased Lockport, New York.................. Bakery Mix 89,300 s.f. Owned Malden, Massachusetts............... Bakery Fillings 12,000 s.f. Leased Montreal, Quebec.................... Flour Mill 203,000 s.f. Owned Montreal, Quebec.................... Bakery Mix 48,500 s.f. Owned Pt. Colborne, Ontario............... Flour Mill 330,000 s.f. Owned Saskatoon, Saskatchewan............. Flour & Oat Mill/ Bakery Mix 230,000 s.f. Owned Scarborough, Ontario................ Pickles and Relish Condiments 166,300 s.f. Owned Sedalia, Missouri................... Frozen Bakery 48,500 s.f. Owned Simcoe, Ontario..................... Frozen Bakery 65,000 s.f. Owned Winnipeg, Manitoba.................. Frozen Bakery 72,000 s.f. Owned
Our North America Foods segment also operates two research and development laboratories. ITEM 3. LEGAL PROCEEDINGS. Neither the Company nor any of its subsidiaries is a party to any legal proceeding that is material to the business or financial condition of the Company. See the information under the heading "Other Information Relating to the Business of the Company--Environmental Regulation" in Item 1 above for a description of environmental matters in which the Company is involved. 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year ended March 3, 2001. EXECUTIVE OFFICERS OF THE COMPANY. The information contained in Item 10 in Part III hereof under the heading "Executive Officers of the Company" is incorporated by reference in Part I of this Report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our Common Stock is listed on the New York Stock Exchange. The high and low sales prices for our Common Stock as reported in the consolidated transaction reporting system and the amount of the cash dividends paid on our Common Stock for each quarterly period within the two most recent fiscal years, shown in Note 18 to our Consolidated Financial Statements on pages 45 and 46 of the 2001 Annual Report to Stockholders, are incorporated herein by reference. As of May 10, 2001, there were 4,142 holders of record of our Common Stock. ITEM 6. SELECTED FINANCIAL DATA. The information for fiscal years 1997 through 2001 in the "Five-Year Comparative Summary" on page 21 of the 2001 Annual Report to Stockholders under the headings "Consolidated Summary of Operations," "Year-End Financial Position" and "Dividends Paid" is incorporated herein by reference. The information contained in Note 3 ("Business Acquired"), Note 4 ("Discontinued Operations") and Note 6 ("Unusual Items") to the Company's Consolidated Financial Statements on pages 35 through 37 of the 2001 Annual Report to Stockholders is also incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information under the heading "Management's Discussion and Analysis" on pages 22 through 28 of the 2001 Annual Report to Stockholders is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The section under the heading "Management's Discussion and Analysis" entitled "Market Risk Management" on page 28 of the 2001 Annual Report to Stockholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Independent Auditors' Report, the Company's Consolidated Financial Statements as of March 3, 2001 and February 29, 2000, and for each of the fiscal years in the three-year period ended March 3, 2001, and the Notes to the Company's Consolidated Financial Statements on pages 29 through 46 of the 2001 Annual Report to Stockholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 8 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The section under the heading "Election of Directors" on pages 5 through 10 and the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" on page 22 of the Proxy Statement of International Multifoods Corporation dated May 29, 2001 ("2001 Proxy Statement") are incorporated herein by reference. EXECUTIVE OFFICERS OF THE COMPANY The following sets forth the name, age and business experience for at least the past five years of each of our executive officers as of May 10, 2001. Unless otherwise noted, the positions described are positions with Multifoods or its subsidiaries.
NAME AGE POSITIONS HELD PERIOD - ---- -------- ---------------------------------- ------------------------------- Gary E. Costley................ 57 Chairman of the Board, President January 1997 to present And Chief Executive Officer Dean of the Babcock Graduate 1995 to 1996 School of Management at Wake Forest University Executive Vice President of 1992 to 1994 Kellogg Company and President, Kellogg North America (cereal manufacturer) Frank W. Bonvino............... 59 Vice President, General Counsel 1992 to present And Secretary John E. Byom................... 47 Vice President--Finance and Chief March 2000 to present Financial Officer President, U.S. Foods 1999 to 2000 Vice President--Finance, North 1995 to 1999 America Foods Ralph P. Hargrow............... 49 Vice President, Human Resources June 2000 to present and Administration Vice President, Human Resources 1999 to 2000 Senior Vice President--Human 1994 to 1998 Resources & Administration of Rollerblade, Inc. (in-line skate manufacturer) Dennis R. Johnson.............. 49 Vice President and Controller, and June 2000 to present Vice President--Finance and Chief Financial Officer, Multifoods Distribution Group Vice President and Controller 1995 to 2000 Gregory J. Keup................ 42 Vice President and Treasurer March 2000 to present Assistant Treasurer 1996 to 2000 Director--Treasury Operations 1991 to 1996
9
NAME AGE POSITIONS HELD PERIOD - ---- -------- ---------------------------------- ------------------------------- Jill W. Schmidt................ 42 Vice President, Communications and March 2000 to present Investor Relations Vice President, Communications 1997 to 2000 Vice President of Tunheim 1995 to 1997 Santrizos Co. (public relations consultant) Donald H. Twiner............... 60 Vice President and President, June 1999 to present Robin Hood Multifoods Inc. President, Robin Hood Multifoods 1997 to 1999 Inc. President--Consumer Foods Division 1989 to 1997 of Robin Hood Multifoods Inc. Robert S. Wright............... 54 Senior Vice President and August 2000 to present President, U.S. Foodservice Operations and Multifoods Distribution Group Senior Vice President and 1999 to 2000 President, U.S. Foodservice Operations Vice President and President, 1995 to 1999 North America Foods
The executive officers of Multifoods are elected annually by the Board of Directors with the exception of the Presidents of our business units, who hold appointed offices. ITEM 11. EXECUTIVE COMPENSATION. The section under the heading "Election of Directors" entitled "Compensation of Directors" on pages 9 and 10 and the section entitled "Executive Compensation" on pages 14 through 20 of the 2001 Proxy Statement are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The section entitled "Security Ownership of Certain Beneficial Owners and Management" on pages 3 through 5 of the 2001 Proxy Statement is incorporated herein by reference. For purposes of computing the market value of our Common Stock held by non-affiliates of Multifoods on the cover page of this Report, all executive officers and directors of Multifoods are considered to be affiliates of Multifoods. This does not represent an admission by us or any such person as to the affiliate status of such person. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not applicable. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents Filed as a Part of this Report 1. FINANCIAL STATEMENTS The following consolidated financial statements of International Multifoods Corporation and subsidiaries and the Independent Auditors' Report thereon, included in the 2001 Annual Report to Stockholders, are incorporated by reference in Part II, Item 8, hereof: Independent Auditors' Report Consolidated Statements of Operations--Years ended March 3, 2001, February 29, 2000 and February 28, 1999 Consolidated Balance Sheets--March 3, 2001 and February 29, 2000 Consolidated Statements of Cash Flows--Years ended March 3, 2001, February 29, 2000 and February 28, 1999 Consolidated Statements of Shareholders' Equity--Years ended March 3, 2001, February 29, 2000 and February 28, 1999 Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES The consolidated financial statement schedule of International Multifoods Corporation and subsidiaries and the Independent Auditors' Report thereon required to be filed as part of this Report are listed below and are included at the end of this Report. Independent Auditors' Report Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 3. EXHIBITS 2.1 Asset Purchase and Sale Agreement by and among General Mills, Inc., The Pillsbury Company (together, the Sellers) and International Multifoods Corporation (the Buyer) dated as of February 4, 2001. The Company hereby agrees to furnish to the Securities and Exchange Commission upon request copies of all Exhibits and Schedules to the Asset Purchase and Sale Agreement. 2.2 First Amendment to Asset Purchase and Sale Agreement by and among General Mills, Inc., The Pillsbury Company (together, the Sellers) and International Multifoods Corporation (the Buyer) dated as of April 26, 2001. 3.1 Restated Certificate of Incorporation of International Multifoods Corporation, as amended to date (incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 3.2 Bylaws of International Multifoods Corporation, as amended to date (incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 2000).
11 4.1 Indenture, dated as of January 1, 1990, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 4.2 First Supplemental Indenture, dated as of May 29, 1992, supplementing the Indenture, dated as of January 1, 1990, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 4.3 Officers' Certificate, with exhibits thereto, relating to the Company's Medium-Term Notes, Series A, issued under the Indenture, dated as of January 1, 1990, as supplemented by the First Supplemental Indenture, dated as of May 29, 1992, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 4.4 Officers' Certificate and Authentication Order dated February 1, 1996, relating to the Company's Medium-Term Notes, Series B, including the forms of Notes, issuable under the Indenture, dated as of January 1, 1990, as supplemented by the First Supplemental Indenture, dated as of May 29, 1992, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 1, 1996). 4.5 Credit Agreement dated as of October 24, 2000 among International Multifoods Corporation, various financial institutions, SunTrust Bank, as Syndication Agent, U.S. Bank National Association, as Documentation Agent, and Bank of America, N.A., as Administrative Agent and Letter of Credit Issuing Lender (incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 2000). 4.6 Amended and Restated Credit Agreement dated as of November 17, 2000 among Robin Hood Multifoods Inc., various financial institutions and Canadian Imperial Bank of Commerce, as Agent (incorporated herein by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 2000). 4.7 Certificate of Designations of Series A Junior Participating Preferred Capital Stock of International Multifoods Corporation. The Company hereby agrees to furnish to the Securities and Exchange Commission upon request copies of all other instruments defining the rights of holders of long-term debt of International Multifoods Corporation and its consolidated subsidiaries. 10.1 Share Rights Agreement, dated as of September 15, 2000, between International Multifoods Corporation and Wells Fargo Bank Minnesota, N.A., as Rights Agent (incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A dated September 22, 2000). 10.2 1997 Stock-Based Incentive Plan of International Multifoods Corporation, as amended (incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997 and Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1998).* 10.3 Second Amendment to the 1997 Stock-Based Incentive Plan of International Multifoods Corporation.*
12 10.4 Amended and Restated 1989 Stock-Based Incentive Plan of International Multifoods Corporation (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1993).* 10.5 1986 Stock Option Incentive Plan of International Multifoods Corporation (incorporated herein by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (Registration No. 33-6223)).* 10.6 Management Incentive Plan of International Multifoods Corporation, Amended and Restated as of March 1, 1998 (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on From 10-K for the fiscal year ended February 28, 1998).* 10.7 Management Benefit Plan of International Multifoods Corporation, Restated Effective January 1, 1997, as further amended (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997 and Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1998).* 10.8 Trust Agreement, dated July 30, 1987, between International Multifoods Corporation and Norwest Bank Minnesota, National Association, as successor trustee to Bank of America NT and SA, relating to the Management Benefit Plan of International Multifoods Corporation (incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993).* 10.9 Compensation Deferral Plan for Executives of International Multifoods Corporation, Amended and Restated as of September 17, 1993, as further amended (incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993 and Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997).* 10.10 Supplemental Deferred Compensation Plan of International Multifoods Corporation, Adopted Effective April 1, 1997 (incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997).* 10.11 Deferred Income Capital Accumulation Plan for Executives of International Multifoods Corporation, Amended and Restated as of September 17, 1993 (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993).* 10.12 Employment Agreement, dated as of November 1, 1996, between International Multifoods Corporation and Gary E. Costley, as amended (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1996 and Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1998).* 10.13 Form of Revised and Restated Severance Agreement between International Multifoods Corporation and each of the Company's executive officers, other than Gary E. Costley (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993).* 10.14 Letter Agreement, dated July 10, 1995, between International Multifoods Corporation and Robert S. Wright regarding benefits and severance arrangements (incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1996).*
13 10.15 Memorandum of understanding, dated March 29, 1996, between International Multifoods Corporation and Robert S. Wright regarding supplemental retirement benefits (incorporated herein by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1996).* 10.16 Memorandum of understanding, dated September 20, 1996, between Frank W. Bonvino and International Multifoods Corporation regarding supplemental retirement benefits (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999).* 10.17 Amendment to Supplemental Retirement Agreement, dated March 23, 2000, between Frank W. Bonvino and International Multifoods Corporation (incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 2000).* 10.18 Form of Indemnity Agreement between International Multifoods Corporation and each of the Company's executive officers (incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993).* 10.19 Fee Deferral Plan for Non-Employee Directors of International Multifoods Corporation, Amended and Restated as of September 17, 1993, as further amended (incorporated herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993 and Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997).* 10.20 Deferred Income Capital Accumulation Plan for Directors of International Multifoods Corporation, Amended and Restated as of September 17, 1993 (incorporated herein by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993).* 10.21 Form of Indemnity Agreement between International Multifoods Corporation and each non-employee director of the Company (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993).* 10.22 Stock Purchase Agreement, dated as of August 6, 1999, by and between International Multifoods Corporation and Gruma S.A. de C.V., including Note Purchase Agreement attached as Exhibit A thereto (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated August 18, 1999). 11 Computation of Earnings (Loss) Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 2001 Annual Report to Stockholders (only those portions expressly incorporated by reference herein shall be deemed filed with the Securities and Exchange Commission). 21 List of significant subsidiaries of the Company. 23 Consent of KPMG LLP.
- ------------------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K pursuant to Item 14(c) of this Report. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 3, 2001. (c) See Exhibit Index and Exhibits attached to this Report. (d) See Financial Statement Schedules included at the end of this Report. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL MULTIFOODS CORPORATION Dated: May 29, 2001 By /s/ GARY E. COSTLEY ----------------------------------------- Gary E. Costley, Ph.D. CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Chairman of the Board, President /s/ GARY E. COSTLEY and Chief Executive Officer ------------------------------------------- (Principal Executive Officer) May 29, 2001 Gary E. Costley, Ph.D. and Director /s/ JOHN E. BYOM Vice President--Finance, and ------------------------------------------- Chief Financial Officer May 29, 2001 John E. Byom (Principal Financial Officer) /s/ DENNIS R. JOHNSON ------------------------------------------- Vice President and Controller May 29, 2001 Dennis R. Johnson (Principal Accounting Officer) /s/ CLAIRE L. ARNOLD ------------------------------------------- Director May 29, 2001 Claire L. Arnold /s/ ROBERT M. PRICE ------------------------------------------- Director May 29, 2001 Robert M. Price /s/ NICHOLAS L. REDING ------------------------------------------- Director May 29, 2001 Nicholas L. Reding /s/ JACK D. REHM ------------------------------------------- Director May 29, 2001 Jack D. Rehm /s/ LOIS D. RICE ------------------------------------------- Director May 29, 2001 Lois D. Rice /s/ RICHARD K. SMUCKER ------------------------------------------- Director May 29, 2001 Richard K. Smucker /s/ DOLPH W. VON ARX ------------------------------------------- Director May 29, 2001 Dolph W. von Arx
15 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of International Multifoods Corporation: Under date of March 27, 2001, we reported on the consolidated balance sheets of International Multifoods Corporation and subsidiaries as of March 3, 2001 and February 29, 2000, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended March 3, 2001, as contained in the 2001 Annual Report to Stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the fiscal year ended March 3, 2001. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule listed in Item 14. The consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statement schedule based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Minneapolis, Minnesota March 27, 2001 SCHEDULE II INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED MARCH 3, 2001 (IN THOUSANDS)
ADDITIONS ------------ BALANCE AT NET CHARGES BALANCE BEGINNING TO COSTS AND (ADDITIONS)/ AT END DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR - ----------- ---------- ------------ ------------ -------- Allowance deducted from assets for doubtful receivables: Year ended March 3, 2001........................... $4,938 $2,345 $3,072 (a) $4,211 ====== ====== ====== ====== Year ended February 29, 2000....................... $3,034 $1,847 $ (57)(a) $4,938 ====== ====== ====== ====== Year ended February 28, 1999....................... $4,317 $ 713 $1,996 (a) $3,034 ====== ====== ====== ======
- ------------------------ Note: (a) (Additions)/Deductions include accounts charged off, net of recoveries, and foreign currency translation adjustments which arise from changes in current rates of exchange. INDEX TO EXHIBITS TO ANNUAL REPORT ON FORM 10-K OF INTERNATIONAL MULTIFOODS CORPORATION FOR THE FISCAL YEAR ENDED MARCH 3, 2001 2.1 Asset Purchase and Sale Agreement by and among General Mills, Inc., The Pillsbury Company (together, the Sellers) and International Multifoods Corporation (the Buyer) dated as of February 4, 2001. The Company hereby agrees to furnish to the Securities and Exchange Commission upon request copies of all Exhibits and Schedules to the Asset Purchase and Sale Agreement. 2.2 First Amendment to Asset Purchase and Sale Agreement by and among General Mills, Inc., The Pillsbury Company (together, the Sellers) and International Multifoods Corporation (the Buyer) dated as of April 26, 2001. 3.1 Restated Certificate of Incorporation of International Multifoods Corporation, as amended to date (incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 3.2 Bylaws of International Multifoods Corporation, as amended to date (incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 2000). 4.1 Indenture, dated as of January 1, 1990, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 4.2 First Supplemental Indenture, dated as of May 29, 1992, supplementing the Indenture, dated as of January 1, 1990, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 4.3 Officers' Certificate, with exhibits thereto, relating to the Company's Medium-Term Notes, Series A, issued under the Indenture, dated as of January 1, 1990, as supplemented by the First Supplemental Indenture, dated as of May 29, 1992, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993). 4.4 Officers' Certificate and Authentication Order dated February 1, 1996, relating to the Company's Medium-Term Notes, Series B, including the forms of Notes, issuable under the Indenture, dated as of January 1, 1990, as supplemented by the First Supplemental Indenture, dated as of May 29, 1992, between International Multifoods Corporation and First Trust of New York, National Association, successor to Morgan Guaranty Trust Company of New York (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 1, 1996). 4.5 Credit Agreement dated as of October 24, 2000 among International Multifoods Corporation, various financial institutions, SunTrust Bank, as Syndication Agent, U.S. Bank National Association, as Documentation Agent, and Bank of America, N.A., as Administrative Agent and Letter of Credit Issuing Lender (incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 2000). 4.6 Amended and Restated Credit Agreement dated as of November 17, 2000 among Robin Hood Multifoods Inc., various financial institutions and Canadian Imperial Bank of Commerce, as Agent (incorporated herein by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 2000).
4.7 Certificate of Designations of Series A Junior Participating Preferred Capital Stock of International Multifoods Corporation. The Company hereby agrees to furnish to the Securities and Exchange Commission upon request copies of all other instruments defining the rights of holders of long-term debt of International Multifoods Corporation and its consolidated subsidiaries. 10.1 Share Rights Agreement, dated as of September 15, 2000, between International Multifoods Corporation and Wells Fargo Bank Minnesota, N.A., as Rights Agent (incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A dated September 22, 2000). 10.2 1997 Stock-Based Incentive Plan of International Multifoods Corporation, as amended (incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997 and Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1998).* 10.3 Second Amendment to the 1997 Stock-Based Incentive Plan of International Multifoods Corporation.* 10.4 Amended and Restated 1989 Stock-Based Incentive Plan of International Multifoods Corporation (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1993).* 10.5 1986 Stock Option Incentive Plan of International Multifoods Corporation (incorporated herein by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (Registration No. 33-6223)).* 10.6 Management Incentive Plan of International Multifoods Corporation, Amended and Restated as of March 1, 1998 (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on From 10-K for the fiscal year ended February 28, 1998).* 10.7 Management Benefit Plan of International Multifoods Corporation, Restated Effective January 1, 1997, as further amended (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997 and Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1998).* 10.8 Trust Agreement, dated July 30, 1987, between International Multifoods Corporation and Norwest Bank Minnesota, National Association, as successor trustee to Bank of America NT and SA, relating to the Management Benefit Plan of International Multifoods Corporation (incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993).* 10.9 Compensation Deferral Plan for Executives of International Multifoods Corporation, Amended and Restated as of September 17, 1993, as further amended (incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993 and Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997).* 10.10 Supplemental Deferred Compensation Plan of International Multifoods Corporation, Adopted Effective April 1, 1997 (incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997).* 10.11 Deferred Income Capital Accumulation Plan for Executives of International Multifoods Corporation, Amended and Restated as of September 17, 1993 (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993).*
2 10.12 Employment Agreement, dated as of November 1, 1996, between International Multifoods Corporation and Gary E. Costley, as amended (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1996 and Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1998).* 10.13 Form of Revised and Restated Severance Agreement between International Multifoods Corporation and each of the Company's executive officers, other than Gary E. Costley (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993).* 10.14 Letter Agreement, dated July 10, 1995, between International Multifoods Corporation and Robert S. Wright regarding benefits and severance arrangements (incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1996).* 10.15 Memorandum of understanding, dated March 29, 1996, between International Multifoods Corporation and Robert S. Wright regarding supplemental retirement benefits (incorporated herein by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1996).* 10.16 Memorandum of understanding, dated September 20, 1996, between Frank W. Bonvino and International Multifoods Corporation regarding supplemental retirement benefits (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999).* 10.17 Amendment to Supplemental Retirement Agreement, dated March 23, 2000, between Frank W. Bonvino and International Multifoods Corporation (incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 2000).* 10.18 Form of Indemnity Agreement between International Multifoods Corporation and each of the Company's executive officers (incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993).* 10.19 Fee Deferral Plan for Non-Employee Directors of International Multifoods Corporation, Amended and Restated as of September 17, 1993, as further amended (incorporated herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993 and Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997).* 10.20 Deferred Income Capital Accumulation Plan for Directors of International Multifoods Corporation, Amended and Restated as of September 17, 1993 (incorporated herein by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993).* 10.21 Form of Indemnity Agreement between International Multifoods Corporation and each non-employee director of the Company (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993).* 10.22 Stock Purchase Agreement, dated as of August 6, 1999, by and between International Multifoods Corporation and Gruma S.A. de C.V., including Note Purchase Agreement attached as Exhibit A thereto (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated August 18, 1999). 11 Computation of Earnings (Loss) Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges.
3 13 2001 Annual Report to Stockholders (only those portions expressly incorporated by reference herein shall be deemed filed with the Securities and Exchange Commission). 21 List of significant subsidiaries of the Company. 23 Consent of KPMG LLP.
- ------------------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K pursuant to Item 14(c) of this Report. 4 EX-2.1 2 a2050336zex-2_1.txt EXHIBIT 2.1 Exhibit 2.1 ASSET PURCHASE AND SALE AGREEMENT BY AND AMONG GENERAL MILLS, INC., THE PILLSBURY COMPANY AND INTERNATIONAL MULTIFOODS CORPORATION DATED AS OF FEBRUARY 4, 2001 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS.................................................................................2 1.1 Certain Definitions.......................................................2 ARTICLE 2 PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES.....................................12 2.1 Purchase and Sale of Assets..............................................12 2.2 Allocation of Purchase Price.............................................12 2.3 Assets...................................................................13 2.4 Excluded Assets..........................................................14 2.5 Assumption of Liabilities................................................15 2.6 Excluded Liabilities.....................................................16 2.7 Modification.............................................................18 2.8 Rescission...............................................................18 2.9 Closing Inventory Statement..............................................19 2.10 Conversion Date Inventory................................................20 2.11 Contract Performance.....................................................22 2.12 Nonassignability of Contracts............................................22 2.13 Dividable Contracts......................................................24 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EACH SELLER..............................................25 3.1 Seller's Authority; No Conflicts; Governmental Consents..................25 3.2 Title to Tangible Assets.................................................26 3.3 Intellectual Property....................................................27 3.4 Actions and Proceedings..................................................29 3.5 Contracts................................................................29 3.6 Compliance with Applicable Laws..........................................30 3.7 Brokers..................................................................30 3.8 Inventory................................................................30 3.9 Recent Events............................................................31 3.10 Liabilities..............................................................31 3.11 Financial Information....................................................31 3.12 Labor Matters............................................................32 3.13 Suppliers and Customers..................................................32 3.14 Universal Product Codes..................................................32 3.15 Recalls..................................................................32 3.16 Affiliate Transactions and Shared Services...............................33 3.17 Equipment................................................................33 3.18 Trade Programs; Prepayments..............................................33 3.19 Toledo Plant.............................................................33 3.20 Warranties...............................................................34 3.21 Slotting Allowances......................................................34 3.22 Windmill.................................................................34 3.23 No Other Representations or Warranties...................................34 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER....................................................35 4.1 Authority; No Conflicts; Governmental Consents...........................35 4.2 Actions and Proceedings..................................................35 4.3 Availability of Funds....................................................36 4.4 Brokers..................................................................36 4.5 Qualified Plan Status....................................................36 ARTICLE 5 COVENANTS OF EACH SELLER...................................................................36 5.1 Access...................................................................36 5.2 Ordinary Conduct of the Business.........................................37 5.3 Delivery.................................................................38 5.4 Accounts Receivable......................................................38 5.5 Payments.................................................................38 5.6 Confidential Information.................................................38 5.7 Notices..................................................................39 5.8 Employees................................................................39 5.9 Transfer of Equipment to and Conversion of Toledo Plant..................41 5.10 Non-Use of Name..........................................................41 5.11 Non-Interference.........................................................41 5.12 Financial Statements.....................................................41 5.13 No Shopping..............................................................42 ARTICLE 6 COVENANTS OF BUYER.........................................................................42 6.1 Confidentiality..........................................................42 6.2 Accounts Receivable......................................................43 6.3 Employees................................................................43 ARTICLE 7 MUTUAL COVENANTS OF THE PARTIES............................................................46 7.1 Cooperation and Transition Services......................................46 7.2 Publicity................................................................47 7.3 Tax Matters..............................................................47 7.4 Access to Information....................................................49 7.5 Bulk Sales Waiver........................................................50 7.6 Expenses.................................................................50 -ii- 7.7 Further Assurances.......................................................50 7.8 Collateral Agreements....................................................50 7.9 Shared Services..........................................................50 7.10 Employee Welfare Benefits................................................50 7.11 Toledo Defined Benefit Plan Transfer of Assets and Liabilities...........51 7.12 Robin Hood...............................................................52 7.13 Robin Hood Inventory.....................................................53 7.14 Manufacturer Codes.......................................................55 ARTICLE 8 CLOSING....................................................................................55 8.1 Closing..................................................................55 8.2 Buyer's Conditions to Closing............................................56 8.3 Sellers' Conditions to Closing...........................................58 ARTICLE 9 INDEMNIFICATION............................................................................59 9.1 Survival.................................................................59 9.2 Indemnification by Sellers...............................................59 9.3 Indemnification by Buyer.................................................60 9.4 Exclusive Remedy.........................................................60 9.5 Losses Net of Insurance..................................................61 9.6 Procedures Relating to Indemnification...................................61 9.7 Indemnification Amounts..................................................63 ARTICLE 10 TERMINATION................................................................................64 10.1 Bases for Termination....................................................64 10.2 Notice of Termination; Return of Documents; Continuing Confidentiality Obligation ..............................................................64 10.3 Effect of Termination....................................................64 ARTICLE 11 GENERAL PROVISIONS.........................................................................65 11.1 Assignment; Successors and Assigns.......................................65 11.2 No Third-Party Beneficiaries.............................................65 11.3 Amendments...............................................................65 11.4 Waiver of Compliance.....................................................65 11.5 Notices..................................................................65 11.6 Interpretation...........................................................67 11.7 Counterparts.............................................................67 11.8 Severability.............................................................67 11.9 Governing Law............................................................67 11.10 Actions and Proceedings..................................................67 -iii- 11.11 Exhibits and Schedules...................................................68 11.12 Specific Performance.....................................................68 11.13 Entire Agreement.........................................................68
-iv- EXHIBITS Exhibit A-1 Retail Trademark License Agreement Exhibit A-2 Food Service Trademark License Agreement Exhibit B-1 Omnibus Patent Assignment Exhibit B-2 Omnibus Trademark Assignment Exhibit C Transition Services Agreement Exhibit D Co-Pack Agreement Exhibit E-1 Retail Patent and Technology License Agreement Exhibit E-2 Food Service Patent and Technology License Agreement Exhibit F Toledo Plant Lease Agreement Exhibit G Martha White Trademark License Agreement Exhibit H Hungry Jack Trademark License Agreement Exhibit I Grant Back Patent and Technology License Agreement SCHEDULES Schedule 1.1(a)(i) Products Schedule 1.1(a)(ii) Robin Hood Products Schedule 1.1(b) General Mills' Knowledge Schedule 1.1(c) Pillsbury's Knowledge Schedule 1.1(d) Windmill Intellectual Property Schedule 2.2 Fair Market Value of the Stock Schedule 2.3(c)(i) Registered Trademarks and Patents and Universal Product Codes Schedule 2.3(c)(ii) Robin Hood Schedule 2.3(f) Assigned Contracts Schedule 2.3(g) Equipment Schedule 2.5(e) Trade Promotions Schedule 2.5(g) Customer Deductions Schedule 2.9(a) Inventory Standards Schedule 2.13 Dividable Contracts Schedule 3.3(a) Intellectual Property Schedule 3.3(b) Intellectual Property Litigation and Third-Party Rights Schedule 3.4 Litigation Schedule 3.5 Contracts Schedule 3.6 Compliance with Applicable Laws Schedule 3.9 Recent Events Schedule 3.11 Financial Information Schedule 3.12 Labor Matters Schedule 3.13 Suppliers and Customers Schedule 3.15 Recalls Schedule 3.16 Affiliate Transactions Schedule 3.17 Exceptions to Equipment Representation Schedule 3.18 Trade Coupons, Programs, Prepayments Schedule 3.20 Warranties Schedule 4.1(b) Buyer Conflicts Schedule 5.8(a)(i) Toledo Employees Schedule 5.8(a)(ii) Closing Date Employees Schedule 5.8(e) Defined Contribution Plans -v- Schedule 5.8(f) Defined Benefit Plans Schedule 5.10 Non-Use Schedule 8.1(a) Wire Instructions Schedule 8.2(j) Third Party Consents
-vi- THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of February 4, 2001, is by and among General Mills, Inc., a Delaware corporation ("General Mills"), The Pillsbury Company, a Delaware corporation ("Pillsbury" and, together with General Mills, the "Sellers" and each, a "Seller"), and International Multifoods Corporation, a Delaware corporation ("Buyer"). W I T N E S S E T H: -------------------- WHEREAS, Pillsbury, a subsidiary of Diageo plc ("Diageo"), is engaged in, among other businesses, the business of manufacturing, marketing, selling and distributing (1) dessert and baking mix products and flour products through retail channels primarily under the brand names Pillsbury (along with the Barrelhead logo) and Martha White ("Pillsbury Dessert and Baking Mix Retail Business"), (2) potato products, dry breakfast mix products and syrup products through retail channels primarily under the brand name Hungry Jack (the "Hungry Jack Business" and along with the Pillsbury Dessert and Baking Mix Retail Business, the "Pillsbury Retail Business"), and (3) non-custom dry mix food service products in boxes of seven pounds and less primarily under the brand name Pillsbury (along with the Barrelhead logo) (the "Pillsbury Food Service Business"); WHEREAS, General Mills is engaged in, among other businesses, the business of manufacturing, marketing, selling and distributing flour products in the United States through retail and food service channels under the brand name Robin Hood (the "Robin Hood Business"); WHEREAS, General Mills, Diageo and Pillsbury have entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 16, 2000, by and among General Mills, General Mills North American Businesses, Inc. ("Merger Sub"), Diageo and Pillsbury, pursuant to which General Mills will acquire certain food businesses of Diageo through (i) the merger (the "Merger") of Merger Sub with and into Pillsbury, with Pillsbury surviving as a wholly owned subsidiary of General Mills, and (ii) the purchase by certain subsidiaries of General Mills of the stock of Diageo subsidiaries (and the equity interests owned by Diageo subsidiaries in other related entities) that conduct certain non-United States food business of Diageo (the "Subsidiary Purchases" and collectively with the Merger, the "Acquisition"); WHEREAS, in connection with and subject to obtaining regulatory approvals of the Acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), General Mills and Diageo will enter into a provisional consent decree (the "Provisional Consent Decree") with the U.S. Federal Trade Commission (the "FTC") providing for, among other things, the sale of certain assets in accordance with, and in the manner contemplated by, this Agreement; WHEREAS, Sellers desire to sell, transfer and assign to Buyer, and Buyer desires to purchase from Sellers, all of Sellers' right, title and interest in and to certain assets of the Business (as defined herein) and the Robin Hood Business (as defined herein), and Buyer is willing to assume certain liabilities of the Business and the Robin Hood Business, all as more specifically provided herein; and WHEREAS, by entering into this Agreement, neither Sellers nor Diageo nor any of them concede or acknowledge that the Merger would tend to restrain competition in any relevant market or otherwise contravene any provision of any antitrust or competition law of any jurisdiction; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE 1 DEFINITIONS 1.1 CERTAIN DEFINITIONS. For all purposes of this Agreement, except as expressly provided or unless the context otherwise requires, the following definitions shall apply: "Accrued Paid Time Off" shall have the meaning assigned thereto in Section 2.5(j). "Acquisition" shall have the meaning assigned thereto in the recitals. "Acquisition Proposal" shall have the meaning assigned thereto in Section 5.13. "Adjustment Payment" shall have the meaning assigned thereto in Section 2.9(e). "Affiliate" shall mean, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with, such other Person at any time during the period for which the determination of affiliation is being made. For purposes of this definition, the term "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Agreement" shall have the meaning assigned thereto in the preamble. "Allocation" shall have the meaning assigned thereto in Section 2.2. "Assets" shall have the meaning assigned thereto in Section 2.3. "Assigned Contracts" shall have the meaning assigned thereto in Section 2.3(f). "Assigned Patents" shall have the meaning assigned thereto in Section 2.3(c). "Assigned Trademarks" shall have the meaning assigned thereto in Section 2.3(c). "Assumed Liabilities" shall have the meaning assigned thereto in Section 2.5. -2- "Basket" shall have the meaning assigned thereto in Section 9.7. "Books and Records" shall have the meaning assigned thereto in Section 2.3(d). "Business" shall mean the manufacture, marketing, sale and distribution of the Products in the Territory. "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banks in New York or Minnesota are authorized or obligated by law or executive order to close. "Business Employees" shall mean Closing Date Employees and Toledo Employees. "Buyer" shall have the meaning assigned thereto in the preamble. "Buyer DC Plan" shall have the meaning assigned thereto in Section 6.3(g)(ii). "Buyer's Conversion Date Objection" shall have the meaning assigned thereto in Section 2.10(b). "Buyer's Objection" shall have the meaning assigned thereto in Section 2.9(b). "Buyer's Robin Hood Transfer Date Objection" shall have the meaning assigned thereto in Section 7.13(b). "Closing" shall have the meaning assigned thereto in Section 8.1. "Closing Date" shall have the meaning assigned thereto in Section 8.1. "Closing Date Employees" shall mean (i) employees of Pillsbury or its Subsidiaries who primarily provide services to the Business at the Minneapolis headquarters and are listed on SCHEDULE 5.8(a)(ii), and, (ii) field sales employees of Sellers or their Subsidiaries who are listed on SCHEDULE 5.8(a)(ii), in each case to the extent the employment of such employees is not terminated prior to the Closing Date. To the extent any new employees are hired for the Business at the Minneapolis headquarters between the date hereof and the Closing Date, Sellers shall make additions to SCHEDULE 5.8(a)(ii) to reflect such employees. "Closing Date Interest Rate" shall mean the rate per annum equal to the prime commercial lending rate quoted as of the Closing Date by Morgan Guaranty Trust Company of New York. "Closing Inventory Statement" shall have the meaning assigned thereto in Section 2.9(a). "COBRA" shall mean Section 601 ET SEQ. of ERISA and Section 4980B of the Code and any similar applicable state laws. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. "Collateral Agreements" shall have the meaning assigned thereto in Section 7.8. -3- "Confidential Information" shall have the meaning assigned thereto in Section 5.6. "Confidentiality Agreement" shall have the meaning assigned thereto in Section 6.1. "Contracts" shall mean the contracts and agreements set forth on SCHEDULE 3.5 hereto, each, a "Contract." "Controlling Party" shall have the meaning assigned thereto in Section 9.6(c). "Conversion Date" shall mean the date on which the conversion of the Toledo Plant is certified as complete pursuant to the Conversion Plan Agreement (as defined herein). "Conversion Date Interest Rate" shall mean the rate per annum equal to the prime commercial lending rate quoted as of the Conversion Date by Morgan Guaranty Trust Company of New York. "Conversion Date Inventory" shall have the meaning assigned thereto in Section 2.10(a). "Conversion Date Inventory Statement" shall have the meaning assigned thereto in Section 2.10(a). "Conversion Date Payment" shall have the meaning assigned thereto in Section 2.10(e). "Conversion Plan Agreement" shall mean the plan for the conversion of the Toledo Plant attached as Exhibit C to the Toledo Plant Lease Agreement. "Co-Pack Agreement" shall mean the agreement, to be entered into at Closing, in the form attached hereto as EXHIBIT D, pursuant to which General Mills shall provide (or cause to be provided) certain co-pack services to Buyer for a period from the Closing through the Conversion Date. "CPA Firm" shall have the meaning assigned thereto in Section 2.9(c). "DB Transfer" shall have the meaning assigned thereto in Section 7.11. "Diageo" shall have the meaning assigned thereto in the recitals. "Dividable Contracts" shall mean the contracts and agreements referred to in SCHEDULE 2.13 and other contracts, if any, that are material to the Business and that do not relate to the services and arrangements that are referenced in or will otherwise be addressed by this Agreement or any of the Collateral Agreements, including the Transition Services Agreement (as defined herein), the Toledo Plant Lease Agreement (as defined herein), the Conversion Plan Agreement and the Co-Pack Agreement. "Equipment" shall have the meaning assigned thereto in Section 2.3(g) and shall also include, without additional charge to Buyer, such other equipment, if any, as is reasonably necessary to complete the conversion of the Toledo Plant in accordance with the standards and specifications set forth in the Conversion Plan. -4- "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "Excluded Assets" shall have the meaning assigned thereto in Section 2.4. "Excluded Liabilities" shall have the meaning assigned thereto in Section 2.6. "Excluded Taxes" shall mean (1) any Taxes attributable to the Business, the Assets, or of Windmill (other than Property Taxes attributable to the Equipment), for any Pre-Closing Tax Periods (including any Tax liability of Windmill for such period arising as a result of the application of Treasury Regulation section 1.1502-6 or any similar provision of any applicable state or local Tax law or attributable to settlement of intercompany indebtedness of Windmill to Sellers), (2) (A) any Taxes of Sellers that are not attributable to the Business, the Assets, the Robin Hood Business, the Special Inventory, the Robin Hood Assets, Windmill, or any other assets, property, franchise, service or business to be, directly or indirectly, acquired by, or provided to, Buyer or any of its Affiliates under this Agreement or any of the Collateral Agreements, and (B) any Taxes of Sellers attributable to any assets, property, franchise or business (other than the Assets, the Business, the Robin Hood Business, the Special Inventory, the Robin Hood Assets, Windmill, or any other assets, property, franchise, service or business to be, directly or indirectly, acquired by, or provided to, Buyer or any of its Affiliates under this Agreement or any of the Collateral Agreements), (3) any Property Taxes of Sellers that are not attributable to the Equipment, (4) any Taxes attributable to the Conversion Date Inventory or Property Taxes attributable to the Equipment, in each case, for any Tax period (or portion thereof) ending on or before the Conversion Date and (5) any Taxes attributable to the Robin Hood Business, the Robin Hood Transfer Date Inventory or the Robin Hood Assets for any Tax period (or portion thereof) ending on or before the Robin Hood Transfer Date; PROVIDED, HOWEVER, that Excluded Taxes shall not include, and Sellers shall not be responsible for, (A) any Taxes which are passed through to Buyer or any of its Affiliates (or for which Buyer or any of its Affiliates are otherwise responsible) under the Co-Pack Agreement or any of the Collateral Agreements or any lease or any similar agreement between or among Buyer, any of the Sellers or any of their respective Affiliates, (B) any Taxes attributable to actions, other than in the ordinary course of business, taken by Buyer on the Closing Date after the Closing to the extent such actions cause the amount of Taxes for the Pre-Closing Tax Period to exceed the amount of Taxes that would otherwise be payable for such Pre-Closing Tax Period in the absence of such actions by Buyer and (C) Transfer Taxes. For purposes of this Agreement, in the case of any Straddle Period with respect to Taxes attributable to the Business, the Assets, the Robin Hood Business, the Special Inventory or the Robin Hood Assets, or of Windmill, the portion of such Taxes that shall be allocable to the portion of the Tax period ending on the Relevant Date (or in the case of Property Taxes attributable to the Equipment, ending on the Conversion Date) shall (i) in the case of income Taxes and other Taxes based on or related to receipts, be computed as if such Tax period ended as of the close of business on the Relevant Date, (ii) in the case of Taxes (other than Property Taxes attributable to the Equipment, income Taxes and Taxes based on or related to receipts), be equal to the amount of such Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of calendar days in the Straddle Period up to and including the Relevant Date and the denominator of which is the number of calendar days in the entire Straddle Period, and (iii) in the case of Property Taxes attributable to the Equipment, be equal to the amount of such Property Taxes for the entire Straddle Period that are attributable to -5- the Equipment multiplied by a fraction, the numerator of which is the number of calendar days in the Straddle Period up to and including the Conversion Date and the denominator of which is the number of calendar days in the entire Straddle Period. Clause (ii) of the preceding sentence shall be applied with respect to Taxes of Windmill, if any, for such Tax period relating to capital (including net worth or long-term debt) or intangibles by reference to the level of such items on the Closing Date. "Expiration Date" shall have the meaning assigned thereto in Section 9.1. "Final Closing Inventory Statement" shall have the meaning assigned thereto in Section 2.9(d). "Final Conversion Date Inventory Statement" shall have the meaning assigned thereto in Section 2.10(d). "Final Robin Hood Transfer Date Inventory Statement" shall have the meaning assigned thereto in Section 7.13(d). "Financial Statements" shall have the meaning assigned thereto in Section 3.11. "Financing Commitment" shall have the meaning assigned thereto in Section 4.3. "Food, Drug and Cosmetics Act" shall mean the Federal Food, Drug and Cosmetics Act, as amended, and the rules and regulations promulgated thereunder. "Food Service Patent and Technology License Agreement" shall have the meaning assigned thereto in the definition of Patent and Technology License Agreements. "Food Service Trademark License Agreement" shall have the meaning assigned thereto in the definition of Trademark License Agreements. "Formulations" shall mean (i) the formulations, recipes, trade secrets and know-how for each Product (including those that are not in use as of the Closing Date but are contained within the Pillsbury REX database for the Products) and each Robin Hood Product, as applicable, and (ii) all formulations in process as of the date of this Agreement or the Closing Date under research and development projects related primarily to the Business or the Robin Hood Business. "FTC" shall have the meaning assigned thereto in the recitals. "GAAP" shall mean generally accepted accounting principles in the United States, consistently applied. "General Mills" shall have the meaning assigned thereto in the preamble. "General Mills Toledo Plan" shall have the meaning assigned thereto in Section 3.6(b). "Governmental Entity" shall mean any federal, state, political subdivision or other governmental agency, court or instrumentality, foreign or domestic. -6- "Grant Back Patent and Technology License Agreement" shall mean the agreement providing for the license to General Mills to use certain patents, Formulations, Processing Instructions and Specifications assigned to Buyer pursuant to the provisions of Section 2.3(c), on the terms set forth therein, to be entered into at Closing, in the form attached hereto as EXHIBIT I. "HSR Act" shall have the meaning assigned thereto in the recitals. "Hungry Jack Business" shall have the meaning assigned thereto in the recitals. "Hungry Jack Trademark License Agreement" shall mean the agreement providing for the license to General Mills to use the "Hungry Jack" trademark on the terms set forth therein, to be entered into at Closing, in the form attached hereto as EXHIBIT H. "Intellectual Property" shall have the meaning assigned thereto in Section 2.3(c). "Inventory" shall have the meaning assigned thereto in Section 2.3(a). "Inventory Standards" shall have the meaning assigned thereto in Section 2.9(a). "IRS" shall mean the Internal Revenue Service. "Lemelson Patents" shall mean all patents owned or claimed by Lemelson Medical, Education & Research Foundation, Limited Partnership. "Licensed Trademarks and Patents" shall mean those trademarks, patents, patent applications, trade secrets, "know-how" and other rights licensed to Buyer under the Trademark License Agreements and the Patent and Technology License Agreements. "Liens" shall have the meaning assigned thereto in Section 3.2. "Loss" shall have the meaning assigned thereto in Section 9.2. "Martel Plant" shall mean the facility located at 4136 Main Street, Martel, Ohio, and all improvements, facilities and fixtures located thereon, owned by Pillsbury and located in Martel, Ohio (it being understood that Buyer will have no rights in any thereof except as expressly set forth herein or in the Collateral Agreements). "Martha White Trademark License Agreement" shall mean the agreement providing for the license to General Mills to use the "Martha White" trademark on the terms set forth therein, to be entered into at Closing, in the form attached hereto as EXHIBIT G. "Material Adverse Effect" shall mean a material adverse effect on the financial condition of the Business or the operation or results of operation of the Business taken as a whole. "Materiality Qualifiers" shall have the meaning assigned thereto in Section 9.7. "Merger" shall have the meaning assigned thereto in the recitals. "Merger Agreement" shall have the meaning assigned thereto in the recitals. -7- "Merger Sub" shall have the meaning assigned thereto in the recitals. "Multifoods Plan" shall have the meaning assigned thereto in Section 4.5. "Non-Controlling Party" shall have the meaning assigned thereto in Section 9.6(c). "Omnibus Patent Assignment" shall mean the agreements entered into between Buyer and Sellers (or Subsidiaries of Sellers) pursuant to which Sellers (or Subsidiaries of Sellers) assign, transfer and convey to Buyer all right, title and interest in and to the Assigned Patents (as such term is defined in Section 2.3(c) hereof), along with certain related rights, to be entered into at Closing, in the form attached hereto as EXHIBIT B-1. "Omnibus Trademark Assignment" shall mean the agreements entered into between Buyer and Sellers (or Subsidiaries of Sellers) pursuant to which Sellers (or Subsidiaries of Sellers) assign, transfer and convey to Buyer all right, title and interest in and to the Assigned Trademarks (as such term is defined in Section 2.3(c) hereof), along with the accompanying goodwill associated therewith and certain related rights, to be entered into at Closing, in the form attached hereto as EXHIBIT B-2. "Patent and Technology License Agreements" shall mean the agreements (the "Retail Patent and Technology License Agreement" and the "Food Service Patent and Technology License Agreement") providing for the use of certain patents, "know-how" and trade secrets, as more fully set forth therein, to be entered into at Closing, in the forms attached hereto as EXHIBIT E-1 and EXHIBIT E-2, respectively. "Permitted Liens" shall have the meaning assigned thereto in Section 3.2. "Person" shall mean an individual, corporation, partnership, limited liability company, association, trust or unincorporated organization, a government or any agency or political subdivision thereof or any other entity or organization. "Pillsbury" shall have the meaning assigned thereto in the preamble. "Pillsbury Dessert and Baking Mix Retail Business" shall have the meaning assigned thereto in the recitals. "Pillsbury Food Service Business" shall have the meaning assigned thereto in the recitals. "Pillsbury Retail Business" shall have the meaning assigned thereto in the recitals. "Pre-Closing Tax Period" shall mean any Tax period (or portion thereof) ending on or before the Closing Date. "Processing Instructions" shall mean (i) the processing instructions (including manufacturing methodologies and engineering data and designs) for each Product (including those that are not in use as of the Closing Date but are contained within the Pillsbury REX database for the Products) and each Robin Hood Product, as applicable, and (ii) all processing -8- instructions in process as of the date of this Agreement or the Closing Date under research and development projects related primarily to the Business or the Robin Hood Business. "Products" shall mean the products manufactured in the Territory or Canada and sold in the Territory and listed or described on SCHEDULE 1.1(a)(i) hereto, each a "Product." "Property Taxes" shall mean personal property Taxes. "Provisional Consent Decree" shall have the meaning assigned thereto in the recitals. "PTO" means the U.S. Patent and Trademark Office. "Purchase Orders" shall have the meaning assigned thereto in Section 2.3(b). "Purchase Price" shall have the meaning assigned thereto in Section 2.1. "Relevant Date" shall mean the Closing Date, except that (a) in the case of the Conversion Date Inventory and Property Taxes on the Equipment, "Relevant Date" shall mean the Conversion Date and (b) in the case of the Robin Hood Business, the Robin Hood Transfer Date Inventory, and the Robin Hood Assets, "Relevant Date" shall mean the Robin Hood Transfer Date. "Research Resources Patent" means patent Re 36335, which patent is claimed by Research Resources, Inc. "Retail Patent and Technology License Agreement" shall have the meaning assigned thereto in the definition of Patent and Technology License Agreements. "Retail Trademark License Agreement" shall have the meaning assigned thereto in the definition of Trademark License Agreements. "Return" shall mean any return, statement, report or form, including in each case any amendments thereto, required to be filed with any Taxing Authority by or with respect to Taxes or any claim for refund. "Robin Hood Assets" shall have the meaning assigned thereto in Section 7.12(a). "Robin Hood Business" shall have the meaning assigned thereto in the recitals. "Robin Hood Products" shall mean the products manufactured in the Territory or Canada and sold in the Territory and listed or described on SCHEDULE 1.1(a)(ii) hereto, each a "Robin Hood Product." "Robin Hood Transfer Date" shall mean the date on which Buyer takes over the Robin Hood Business. "Robin Hood Transfer Date Inventory" shall have the meaning assigned thereto in Section 7.13(a). -9- "Robin Hood Transfer Date Inventory Statement" shall have the meaning assigned thereto in Section 7.13(a). "Robin Hood Transfer Date Payment" shall have the meaning assigned thereto in Section 7.13(e). "Seller's Knowledge" shall mean, as to General Mills, the actual knowledge of the individuals listed on SCHEDULE 1.1(b) and, as to Pillsbury, the actual knowledge of the individuals listed on SCHEDULE 1.1(c). "Sellers" shall have the meaning assigned thereto in the preamble. "Special Inventory" shall mean the Conversion Date Inventory and the Robin Hood Transfer Date Inventory. "Specifications" shall mean (i) the raw materials, manufacturing, packaging, labeling and quality assurance specifications for each Product (including those that are not in use as of the Closing Date but are contained within the Pillsbury REX database for the Products) and each Robin Hood Product, as applicable, and (ii) all specifications in process as of the date of this Agreement or the Closing Date under research and development projects related primarily to the Business or the Robin Hood Business. "Stock" shall mean all of the issued and outstanding shares of Series A Common Stock and Series B Common Stock, in each case, par value $0.01 per share, of Windmill. "Straddle Period" shall mean (1) in the case of Taxes attributable to the Conversion Date Inventory or any Property Taxes attributable to the Equipment, any complete Tax period that includes but does not end on the Conversion Date, (2) in the case of Taxes of Windmill, any complete Tax period of Windmill that includes but does not end on the Closing Date, (3) in the case of the Robin Hood Business, the Robin Hood Transfer Date Inventory, or the Robin Hood Assets, any complete Tax period that includes but does not end on the Robin Hood Transfer Date, and (4) otherwise, any complete Tax period that includes but does not end on the Closing Date. "Subsidiary" shall mean, when used with respect to any Person, any corporation, partnership, limited liability company, or other organization, whether incorporated or unincorporated, of which such Person owns or controls, directly or indirectly, 50% or more of the voting power of the outstanding equity securities (or equivalent voting interests) or has the power to appoint 50% or more of the members of the board of directors or other governing body. "Subsidiary Purchases" shall have the meaning assigned thereto in the recitals. "Tax" shall mean all income, profits, franchise, gross receipts, capital, net worth, sales, use, withholding, turnover, value added, ad valorem, registration, general business, employment, social security, disability, occupation, real property, personal property (tangible and intangible), stamp, transfer (including real property transfer or gains), conveyance, severance, production, excise and other taxes, withholdings, duties, levies, imposts, license and registration fees and other similar charges and assessments (including any and all fines, penalties and additions -10- attributable to or otherwise imposed on or with respect to any such taxes, charges, fees, levies or other assessments, and interest thereon and any liability arising pursuant to the application of Treasury Regulation section 1.1502-6 or any similar provision of any applicable state or local Tax law) imposed by or on behalf of any Governmental Entity. "Tax Claim" shall have the meaning assigned thereto in Section 9.6(c). "Taxing Authority" shall mean any governmental or regulatory authority, body or instrumentality exercising any authority to impose, regulate or administer the imposition of Taxes. "Tennessee Plant" shall mean the facility located at 200 Butler Drive, Murfreesboro, Tennessee, and all improvements, facilities and fixtures located thereon, owned by Pillsbury and located in Murfreesboro, Tennessee (it being understood that Buyer will have no rights in any thereof except as expressly set forth herein or in the Collateral Agreements). "Territory" shall mean the United States of America, including its territories, possessions, commonwealths, trusteeships, and retail outlets in non-domestic United States government installations and facilities, but excluding Puerto Rico, PROVIDED that to the extent that Buyer sells to U.S.-based mass merchandisers and club store customers who at Closing or thereafter have stores in Mexico or Canada, Buyer may grant to such mass merchandisers and club store customers the right to ship Branded Products (as defined in the Trademark License Agreements) to such stores and to sell such Branded Products in such stores located in Mexico and Canada. To the extent that Buyer grants such rights to such customers, Buyer also shall have the right to ship Branded Products directly to such stores. "Third-Party Claim" shall have the meaning assigned thereto in Section 9.6(a). "Toledo Employees" shall mean employees of General Mills or its Subsidiaries at the Toledo Plant who would primarily provide services to the Business if the Business were conducted on the date hereof at the Toledo Plant as contemplated by the Toledo Plant Lease Agreement, which employees are listed on SCHEDULE 5.8(a)(i), to the extent the employment of such employees is not terminated prior to the Conversion Date. The Toledo Employees consist solely of the Toledo Salaried Employees and the Toledo Wage Employees. To the extent any new employees are hired for the Toledo Plant prior to the Conversion Date who would have been listed on SCHEDULE 5.8(a)(i) had such employee been employed at the Toledo Plant on the date hereof, Sellers shall make additions to SCHEDULE 5.8(a)(i) to reflect such employees. "Toledo Plant" shall mean the facility located at 1250 Laskey Road, Toledo, Ohio, and all improvements, facilities and fixtures located thereon, owned by General Mills, directly or indirectly, and located in Toledo, Ohio. "Toledo Plant Lease Agreement" shall mean the lease agreement providing for the leasing of certain portions of the Toledo Plant by Buyer from General Mills Operations, Inc. as more fully set forth therein, to be entered into and effective at Closing, in the form attached hereto as EXHIBIT F. -11- "Toledo Salaried Employees" shall mean those Toledo Employees so identified on SCHEDULE 5.8(a)(i). "Toledo Wage Employees" shall mean those Toledo Employees so identified on SCHEDULE 5.8(a)(i). "Trademark License Agreements" shall mean, collectively, a retail trademark license agreement (the "Retail Trademark License Agreement") and a food service trademark license agreement (the "Food Service Trademark License Agreement"), each providing for the license to use certain trademarks in the Territory, to be entered into at Closing, in the forms attached hereto as EXHIBIT A-1 and EXHIBIT A-2, respectively. "Transfer Taxes" shall have the meaning assigned thereto in Section 7.3(a). "Transition Services Agreement" shall mean the agreement, to be entered into at Closing, in the form attached hereto as EXHIBIT C, pursuant to which General Mills shall provide (or cause to be provided) certain transition services to Buyer for the periods set forth therein. "Treasury Regulation" shall mean the U.S. treasury regulations pursuant to the Code. "WARN Act" shall mean the Worker Adjustment and Retraining Notification Act, as amended, and the rules and regulations promulgated thereunder. "Welfare Benefits" shall have the meaning assigned thereto in Section 7.10. "Windmill" shall mean Windmill Holdings Corp., a California corporation, and a direct wholly owned subsidiary of Pillsbury. "Windmill Intellectual Property" shall mean, subject to the Martha White Trademark License Agreement, all the intellectual property held, directly or indirectly, by Windmill, including that referred to in SCHEDULE 1.1(d). ARTICLE 2 PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES 2.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the conditions of this Agreement, including the provisions of Section 7.12(b), on the Closing Date, Sellers will sell, convey, transfer and assign, or cause to be sold, conveyed, transferred and assigned, to Buyer, and Buyer will purchase, the Assets (as defined in Section 2.3) for an aggregate cash purchase price of three-hundred four million five hundred eighty-nine thousand United States Dollars ($304,589,000), as adjusted pursuant to Section 5.8(c) and, to the extent applicable, Section 2.9(e) (the "Purchase Price"), payable as set forth in Article 8. 2.2 ALLOCATION OF PURCHASE PRICE. Within one hundred eighty (180) days after the Closing, Buyer shall obtain an appraisal of the fair market values of the Assets (exclusive of the Stock) from a nationally recognized appraisal firm for purposes of allocating the purchase price among the Assets (exclusive of the Stock), and shall prepare an allocation (the "Allocation") -12- based on such appraisal and consistent with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder. Neither Buyer nor Sellers, nor any of their respective Affiliates, shall take any position on any Return or audit inconsistent with such Allocation unless required to do so by applicable law. Sellers and Buyer shall each provide to the other for review a copy of its report with respect to this transaction pursuant to Section 1060 of the Code at least ten (10) Business Days prior to its submission to the IRS. Such reports shall be consistent with the Allocation. Notwithstanding the foregoing, Buyer and Sellers agree that the fair market value of the Stock is the amount set forth on SCHEDULE 2.2 and that neither Buyer nor Sellers nor any of their respective Affiliates shall take any position on any Return or audit inconsistent with such agreement, unless required to do so by a "determination" within the meaning of Section 1313 of the Code. 2.3 ASSETS. The capitalized term "Assets" shall mean all right, title and interest of each Seller in and to the following enumerated assets: (a) except as otherwise expressly provided herein, all inventory of the Business that (i) are finished goods held for sale by such Seller or any of its Affiliates in the ordinary course of operating the Business as of the Closing Date, or (ii) are finished goods, raw materials, packaging, work-in-process or other inventory held by third parties under co-pack agreements for producing Products for sale by the Business and to which Pillsbury or its Affiliates holds title as of the Closing Date (collectively, the "Inventory"); (b) all commitments and orders (subject to the terms and conditions of such commitments and orders) made by the Business for the purchase of Products from such Seller and its Affiliates for Products that have not been shipped as of the Closing Date and under purchase orders by such Seller and its Affiliates made on behalf of the Business (collectively, the "Purchase Orders"); (c) (i) the trademarks, trade names, logos, trade dress and service marks listed on SCHEDULE 2.3(c)(i) and SCHEDULE 2.3(c)(ii) for the products and/or services and territories set forth on SCHEDULE 2.3(c)(i) and SCHEDULE 2.3(c)(ii) (subject, in the case of the trademark "Hungry Jack," to the Hungry Jack Trademark License Agreement), together with the goodwill, applications, registrations, renewals and other rights associated therewith, and remedies against infringements, violations and dilutions thereof (the "Assigned Trademarks"), (ii) the patents listed on SCHEDULE 2.3(c)(i) together with all reissues associated therewith, and all remedies against infringement and pre-issuance royalties thereof, subject to the Grant Back Patent and Technology License Agreement (the "Assigned Patents"), (iii) registered copyrights and applications therefor listed on SCHEDULE 2.3(c)(i), (iv) the domain names, URLs and web sites listed on SCHEDULE 2.3(c)(i), (v) except as provided in the Trademark License Agreements and Patent and Technology License Agreements, all Formulations, Specifications and Processing Instructions of the Pillsbury Retail Business, and remedies against infringements or violations thereof, subject to the Grant Back Patent and Technology License Agreement, (vi) except as provided in the Trademark License Agreements, the Hungry Jack Trademark License Agreement, the Martha White Trademark License Agreement and Patent and Technology License Agreements, all package designs, unregistered copyrights, universal product codes and 1-800 telephone numbers for customer use, in each case that are exclusively related to the Business, and remedies against infringements or violations thereof, and (vii) the rights of Buyer -13- provided in the Trademark License Agreements and Patent and Technology License Agreements (collectively, the "Intellectual Property"); (d) all existing product literature, advertising materials, promotional materials, studies, ledgers, files (including customer files) and reports (including test reports), manufacturing and engineering drawings, process controls, material standards and other books and records (except each Seller's corporate records) in each case that are primarily related to the Business, including all customer lists and customer data and databases (including correspondence and records of 1-800 quality calls), supplier lists and supplier data (including correspondence), price lists, records relating to the Intellectual Property, accounting records and records of past sales and inventory data in each case that are primarily related to the Business (collectively, the "Books and Records"), except that a Seller may retain copies of such Books and Records to the extent relating to Intellectual Property with respect to which a Seller has any rights (including licensing rights) after Closing (but only so long as such Seller retains such rights), to the extent a Seller is required by law to retain the same or to the extent such information is necessary for Seller to prepare Tax Returns, financial statements or other legally required filings; (e) all governmental licenses, permits, approvals, registrations and similar rights issued to Sellers or either of them that are primarily related to the Business to the extent their transfer is permitted by law; (f) the contracts listed on SCHEDULE 2.3(f), as well as the contracts and agreements not listed on SCHEDULE 2.3(f) but nevertheless primarily related to the Business (such contracts and agreements, together with the contracts listed on SCHEDULE 2.3(f), the "Assigned Contracts") but excluding from the Assigned Contracts any contract or agreement that is an Excluded Asset; (g) the equipment listed on SCHEDULE 2.3(g) (the "Equipment"), which Schedule also sets forth the location of such Equipment; (h) each warranty or guaranty primarily related to the Assets made or issued by any manufacturer, grower, supplier or other predecessor transferor of any of the Assets, to the extent that such assignment is not prohibited by the terms of such warranty or guaranty; and (i) the Stock. 2.4 EXCLUDED ASSETS. The Assets shall not include any assets other than the assets specifically listed or described in Section 2.3, and, without limiting the generality of the foregoing, shall expressly exclude (1) all real property, improvements and fixtures, including the Tennessee Plant, the Martel Plant and the Toledo Plant, together with any manufacturing, warehouse, research and development, office, distribution and other facilities owned, leased or subleased or otherwise used or occupied by either Seller, and any equipment, fixtures, furnishings, machinery, vehicles and other real or personal property used in the operation of the Business (other than pursuant to Sections 2.3(g), the Conversion Plan Agreement and the Toledo Plant Lease Agreement and as otherwise expressly included in the definition of "Assets" set forth in Section 2.3); (2) subject to the Trademark License Agreements and Omnibus Trademark -14- Assignment, any trademarks, trade names and trade designations previously or currently used by either Seller in its businesses, and, subject to the Patent and Technology License Agreements and Omnibus Patent Assignment, any patents, trade secrets, technology or "know-how" previously or currently used by either Seller in its businesses, in each case unless listed or described in Section 2.3 (including the Schedules thereto); and (3) all accounts receivable, cash and cash equivalents relating to Products shipped on or prior to the Closing Date and Robin Hood Products shipped on or prior to the Robin Hood Transfer Date (collectively, the "Excluded Assets"). 2.5 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the conditions of this Agreement, Buyer shall assume on the Closing Date and shall pay, perform and discharge when due the following obligations, liabilities and commitments of each Seller (collectively, the "Assumed Liabilities"): (a) all obligations, liabilities and commitments of each Seller in respect of any and all Products shipped by Buyer or in respect of the operation of the Business at any time after the Closing Date except where such Products constituted finished products as of the Closing Date and such liabilities, obligations or commitments of Sellers constituted product liabilities or recall liabilities, unless (and to the extent that) the liabilities, obligations or commitments were caused by Buyer's negligence in the storage or transportation of such Products after the Closing or Buyer's failure after the Closing to employ quality control standards of at least the standards employed by Sellers prior to the Closing; (b) except as otherwise expressly provided in Section 7.12, all liabilities and obligations for manufacturer's coupons relating to Products, which coupons are received by the clearinghouse for reimbursement for all periods beginning sixty (60) days after the Closing Date, regardless of when such coupons were issued; (c) all obligations, liabilities and commitments of each Seller and its Affiliates to the extent accruing, in accordance with the terms thereof, after the Closing Date, under Purchase Orders; (d) all liabilities, obligations and commitments of each Seller and its Affiliates to the extent accruing, in accordance with the terms thereof, after the Closing Date, under the Assigned Contracts; (e) all liabilities and obligations for trade promotions arising from (i) trade promotion activities or events primarily related to the Business that are committed to after the Closing Date and occur at any time following the Closing Date or (ii) trade promotion activities or events primarily related to the Business that occur following the Closing Date and that were committed to before the Closing Date, except to the extent any such single activity or promotion was not disclosed, on SCHEDULE 2.5(e) or otherwise, to Buyer by Sellers and the liability and obligation per customer buying group related to such activity or promotion exceeds $100,000 unless such activity or promotion was committed to by Sellers in the ordinary course consistent with past practice; -15- (f) all refund and replacement obligations relating to Products shipped prior to Closing and returned after the date that is thirty (30) days after the Closing Date and for retail unsaleables in all periods beginning thirty (30) days after the Closing Date; (g) all liabilities and obligations for customer deductions (which shall not include liabilities and obligations for coupons, trade promotions or refund and replacement obligations or retail unsaleables, which are addressed by paragraphs (b), (e) and (f) of this Section 2.5) attributable to invoices with respect to Products shipped after the Closing Date; PROVIDED that, for those customer deductions relating to Products for which it cannot be specifically determined whether the sale was after the Closing Date, Sellers and Buyer shall be responsible for liabilities and obligations for such customer deductions in accordance with the prorated percentages for the applicable time periods set forth in SCHEDULE 2.5(g); (h) all liabilities for Taxes attributable to the Business, the Assets, the Robin Hood Business, the Special Inventory or the Robin Hood Assets (provided that Buyer shall not assume liability for any Excluded Taxes); (i) all liabilities, obligations and commitments of each Seller for Inventory ordered by each Seller in the ordinary course of business prior to the Closing Date and delivered to Buyer after the Closing Date, PROVIDED that such Inventory has not been included in the Closing Inventory Statement or the Conversion Date Inventory Statement and been given effect in any adjustment to the Purchase Price or credit under the Co-Pack Agreement under Section 2.9 or resulted in a Conversion Date Payment pursuant to Section 2.10; and (j) liabilities for vacation and paid time off for Business Employees employed by Buyer to the extent accrued by Sellers to the date of hire by Buyer ("Accrued Paid Time Off"), PROVIDED that Buyer is reimbursed or credited by Sellers pursuant to Section 5.8(c) for such Accrued Paid Time Off. Without limiting any rights provided to Buyer in Article 9, Buyer's obligations under this Section 2.5 shall not be subject to offset or reduction by reason of any actual or alleged breach of any representation, warranty or covenant contained in this Agreement or any document delivered in connection herewith or any right or alleged right to indemnification hereunder arising from such actual or alleged breach. 2.6 EXCLUDED LIABILITIES. Notwithstanding any other provision of this Agreement, Buyer shall not assume, or in any way be liable for the payment, performance or discharge of, any liabilities, obligations or commitments of Sellers or any of their Affiliates that do not constitute Assumed Liabilities, whether or not related to the Business or the Robin Hood Business and of whatever kind and nature, whether primary or secondary, direct or indirect, absolute or contingent, known or unknown, or accrued or unaccrued (collectively, the "Excluded Liabilities"). Except for the Assumed Liabilities, Sellers shall be solely liable for all liabilities, obligations or commitments of Sellers or any of their Affiliates resulting from or arising from the ownership or condition of the Assets on or prior to Closing, the operation of the Business on or prior to Closing, and incidents, occurrences or events relating to the Business or the Assets to the extent occurring or in existence on or prior to Closing, whether or not reflected in the books and records of Sellers, or on the Closing Date to the extent not occurring or in existence as a result of -16- any act or omission by Buyer. Without limiting the generality of the immediately preceding sentences, Buyer shall not assume any of the following liabilities or obligations: (a) the accounts payable relating to the Business accrued on or prior to the Closing Date or relating to the Robin Hood Business accrued on or prior to the Robin Hood Transfer Date; (b) any product or recall liability relating to Products or Robin Hood Products shipped by Sellers; (c) any liabilities, obligations or commitments for manufacturer's coupons issued prior to, or by either Seller on, the Closing Date and relating to Products, which coupons are received by the clearinghouse for reimbursement prior to the date that is sixty (60) days after the Closing Date; (d) any refund or replacement obligations relating to Products shipped on or prior to the Closing Date and returned prior to the date that is thirty (30) days after the Closing Date or relating to Robin Hood Products shipped on or prior to the Robin Hood Transfer Date; (e) except as otherwise expressly provided in Section 2.5, all obligations relating to Products shipped on or prior to the Closing Date or, except as otherwise expressly provided in Sections 7.12 and 7.13, all obligations relating to Robin Hood Products shipped on or prior to the Robin Hood Transfer Date; (f) any liabilities for Excluded Taxes; (g) any liabilities or obligations arising out of or relating to the Excluded Assets; (h) any debts, liabilities, obligations or commitments, whenever arising, to the extent not related to the Business or the Robin Hood Business and to the extent not otherwise related to the Assets; (i) any liabilities, obligations or commitments (including obligations in default) of Sellers and their Affiliates, to the extent accrued in accordance with the terms thereof on or prior to the Closing Date, under any contract or agreement (including Assigned Contracts and Purchase Orders); (j) any indebtedness of Sellers for money borrowed or purchase money indebtedness; (k) any liability, obligation or commitment of Sellers for costs and expenses incurred in connection with the preparation and execution of this Agreement and the Collateral Agreements or the consummation of the transactions contemplated hereby and thereby; (l) any liability, obligation or commitment of, or undertaken by, Sellers pursuant to this Agreement or any other Collateral Agreement; -17- (m) except as otherwise provided in this Agreement, any liability, obligation or commitment to employees of Sellers (including any liability for wages, salaries, bonuses, benefits or severance or under the WARN Act) based upon their employment by either Seller prior to the Closing Date (in the case of Closing Date Employees) or prior to the Conversion Date (in the case of Toledo Employees), including with respect to employment termination in connection with the consummation of this Agreement or the Conversion Plan Agreement, other than Accrued Paid Time Off for Business Employees employed by Buyer to the extent Buyer is reimbursed or credited by Sellers hereunder for such Accrued Paid Time Off; (n) except as otherwise expressly provided herein or in any Collateral Agreement, any liability or obligation of Sellers arising from any cause of action, litigation, suit, arbitration, proceeding or investigation to the extent based upon any action or omission or alleged action or omission occurring prior to the Closing, including any infringement or alleged infringement of intellectual property rights of other Persons or any violation or alleged violation of any law, rule, regulation or code (including those relating to protection of the environment and food and drug regulation), in each case, to the extent such action or omission or alleged action or omission occurs prior to the Closing; (o) except as otherwise expressly provided herein or in any Collateral Agreement, any liability or obligation of Sellers with respect to the Tennessee Plant or the Martel Plant, including those relating to or arising from any pre-Closing or post-Closing operations of such plants or any pre-Closing operation of the Equipment or any shutdown or conversion of such plants or the removal of Equipment therefrom; and (p) except as otherwise expressly provided herein or in any Collateral Agreement, any liability or obligation with respect to the Toledo Plant prior to the Conversion Date, including those relating to or arising from any operations of, or the shut down or conversion of, the Toledo Plant prior to the Conversion Date. 2.7 MODIFICATION. In the event that the FTC conditions its approval of the Provisional Consent Decree on, or otherwise requires, modification of this Agreement or any Collateral Agreement, Buyer and Sellers agree to use their reasonable best efforts to make or cause to be made such required modifications, subject to Section 2.8; PROVIDED, HOWEVER, that Buyer shall not be required to make or cause to be made any such required modifications if such required modifications would reasonably be expected to have a material adverse effect on Buyer or a Material Adverse Effect, and Sellers shall not be required to make or cause to be made any such required modifications if such required modifications would reasonably be expected to have a material adverse effect on either Seller. 2.8 RESCISSION. In the event that the FTC withdraws or conditions its final approval of the Provisional Consent Decree in a manner, or otherwise requires changes to this Agreement or any Collateral Agreements, that taken as a whole are or would reasonably be expected to be materially adverse to any party hereto, such party shall have the right to require that the transactions consummated pursuant to this Agreement be rescinded and this Agreement and the Collateral Agreements be terminated. If such party elects to rescind the transactions, Sellers shall refund to Buyer the Purchase Price plus interest from the Closing Date to the date of -18- rescission at the Closing Date Interest Rate, and Buyer shall promptly take all necessary steps to return title to and possession of the Assets to Sellers. 2.9 CLOSING INVENTORY STATEMENT. (a) The target inventory of Sellers for purposes of this Agreement is $51,500,000. Within thirty (30) days following the Closing Date, Sellers shall prepare and deliver to Buyer a statement (the "Closing Inventory Statement") setting forth the type and value, as of the Closing Date, of the Inventory transferred to Buyer on the Closing Date pursuant to Sections 2.1 and 2.3(a), which statement shall be derived from a physical taking of such Inventory as of the Closing Date and shall be prepared in a manner consistent with the standards (the "Inventory Standards") set forth on SCHEDULE 2.9(a). Buyer and its representatives shall have such opportunity as Buyer reasonably deems appropriate to observe the taking and reconciliation of such Inventory (which may begin prior to the Closing Date) in connection with the preparation of the Closing Inventory Statement. Buyer shall provide Sellers and their accountants full access to the books and records, to any other information, including working papers of its accountants, and to any employees of Buyer, in each case as may be reasonably necessary for Sellers to prepare the Closing Inventory Statement, to respond to the Buyer's Objection (as defined herein) and to prepare materials for presentation to the CPA Firm (as defined herein) in connection with the matters contemplated by Section 2.9(c). (b) Buyer shall, within thirty (30) days after the delivery by Sellers of the Closing Inventory Statement, complete its review thereof. After delivery of the Closing Inventory Statement, Sellers shall provide Buyer and its accountants full access to all books and records, to any other information, including working papers of its accountants, and to any employees of Seller, in each case used in the preparation of the Closing Inventory Statement or as may otherwise be reasonably necessary for Buyer to prepare the Buyer's Objection and to prepare materials for presentation to the CPA Firm in connection with the matters contemplated by Section 2.9(c). The Closing Inventory Statement shall be binding and conclusive upon, and deemed accepted by, Buyer unless Buyer shall have notified Sellers in writing within thirty (30) days after delivery of the Closing Inventory Statement of any objection thereto (the "Buyer's Objection"). The Buyer's Objection shall set forth a description of the basis of the Buyer's Objection and the adjustments to the value of Inventory reflected on the Closing Inventory Statement that Buyer believes should be made. Any items not disputed during the foregoing thirty (30) day period shall be deemed to have been accepted by Buyer. (c) If Sellers and Buyer are unable to resolve all of their disputes with respect to the Closing Inventory Statement within thirty (30) days following Sellers' receipt of the Buyer's Objection to such Closing Inventory Statement pursuant to Section 2.9(b), they shall refer their remaining differences to Ernst & Young or, if such firm declines to act or at such time has a significant ongoing relationship with either Seller, Buyer or any of their respective Affiliates, an internationally recognized firm of independent public accountants as to which Sellers and Buyer mutually agree (the "CPA Firm") for decision, which decision shall be made consistent with the Inventory Standards within forty-five (45) days and shall be final and binding on the parties, PROVIDED that the CPA Firm's determination as to any item set forth in Buyer's Objection shall not be more beneficial to Sellers than the determination of that item by Sellers in the Closing Inventory Statement or more beneficial to Buyer than the determination of that item -19- in Buyer's Objection. Any expenses relating to the engagement of the CPA Firm shall be shared equally by Sellers, on one hand, and Buyer, on the other hand. Sellers and Buyer shall each bear the fees of their respective auditors incurred in connection with the determination and review of the Closing Inventory Statement. (d) The Closing Inventory Statement shall become final and binding on the parties upon the earliest of (i) if no Buyer's Objection has been given, the expiration of the period within which Buyer must make its objection pursuant to Section 2.9(b) hereof, (ii) agreement in writing by Sellers and Buyer that the Closing Inventory Statement, together with any modifications thereto agreed to by Sellers and Buyer, shall be final and binding and (iii) the date on which the CPA Firm shall issue its written determination with respect to any dispute relating to such Closing Inventory Statement. The Closing Inventory Statement, as submitted by Sellers if no timely Buyer's Objection has been given or as adjusted pursuant to any agreement between the parties or as determined pursuant to the decision of the CPA Firm, when final and binding on all parties, is herein referred to as the "Final Closing Inventory Statement." (e) Within ten (10) Business Days following issuance of the Final Closing Inventory Statement, the net adjustment payment payable pursuant to this Section 2.9(e) (the "Adjustment Payment") and interest thereon shall be paid by wire transfer of immediately available funds to a bank account or bank accounts designated in writing by Sellers or Buyer, as the case may be; PROVIDED, HOWEVER, that if the Adjustment Payment shall be payable by Sellers to Buyer, in lieu of payment, Sellers may elect to credit the Adjustment Payment against the initial payments required to be made by Buyer under the Co-Pack Agreement; and PROVIDED, FURTHER, that if the Adjustment Payment shall be payable by Buyer to Sellers, in lieu of payment, Buyer may elect to add such payment to the payments due to Seller under the Co-Pack Agreement as if an amount of Inventory equal to the Adjustment Payment were sold pursuant to the Co-Pack Agreement. The Adjustment Payment shall be the difference, if any, between (x) the value of Inventory, as reflected on the Final Closing Inventory Statement, minus (y) $51,500,000. The Adjustment Payment shall be payable by Buyer to Sellers, if positive, and by Sellers (who shall be jointly and severally so obligated) to Buyer, if negative. The Adjustment Payment shall bear interest from the Closing Date to the date of payment at the Closing Date Interest Rate, which interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed and such interest shall be paid on the same date and in the same manner as such Adjustment Payment, PROVIDED that such interest shall not be imposed on Sellers if they elect to credit the Adjustment Payment against the Co-Pack Agreement and shall not be imposed on Buyer if it elects to add the Adjustment Payment to the Payments due under the Co-Pack Agreement. 2.10 CONVERSION DATE INVENTORY. (a) On the Conversion Date, General Mills shall sell, convey, transfer and assign to Buyer, or cause its Affiliates to sell, convey, transfer and assign to Buyer, all inventory (including raw materials, packaging and work-in-process) held by General Mills at the Toledo Plant for use of the Business (the "Conversion Date Inventory"). Within thirty (30) days following the Conversion Date, General Mills, on behalf of Sellers, shall prepare and deliver to Buyer a statement setting forth the type and value of such Conversion Date Inventory, as of the -20- Conversion Date, to be transferred and assigned to Buyer on the Conversion Date, which statement shall be derived from a physical taking of such Conversion Date Inventory as of the Conversion Date and shall be prepared in a manner consistent with the Inventory Standards (the "Conversion Date Inventory Statement"). Buyer and its representatives shall have such opportunity as Buyer reasonably deems appropriate to observe the taking and reconciliation of such Conversion Date Inventory (which may begin prior to the Conversion Date) in connection with the preparation of the Conversion Date Inventory Statement. Buyer shall provide General Mills and its accountants full access to the books and records, to any other information, including work papers of its accountants, and to any employees of Buyer, in each case as may be reasonably necessary for General Mills to prepare the Conversion Date Inventory Statement, to respond to the Buyer's Conversion Date Objection (as defined herein) and to prepare materials for presentation to the CPA Firm in connection with the matters contemplated by Section 2.10(c). (b) Buyer shall, within thirty (30) days after the delivery by General Mills of the Conversion Date Inventory Statement, complete its review thereof. After delivery of the Conversion Date Inventory Statement, General Mills shall provide Buyer and its accountants full access to all books and records, to any other information, including working papers of its accountants, and to any employees of Sellers, in each case used in the preparation of the Conversion Date Inventory Statement or as may otherwise be reasonably necessary for Buyer to prepare the Buyer's Conversion Date Objection and to prepare materials for presentation to the CPA Firm in connection with the matters contemplated by Section 2.10(c). The Conversion Date Inventory Statement shall be binding and conclusive upon, and deemed accepted by, Buyer unless Buyer shall have notified General Mills in writing within thirty (30) days after delivery of the Conversion Date Inventory Statement of any objection thereto (the "Buyer's Conversion Date Objection"). The Buyer's Conversion Date Objection shall set forth a description of the basis of the Buyer's Conversion Date Objection and the adjustments to the value of such Conversion Date Inventory reflected on the Conversion Date Inventory Statement that Buyer believes should be made. Any items not disputed during the foregoing thirty (30) day period shall be deemed to have been accepted by Buyer. (c) If General Mills and Buyer are unable to resolve all of their disputes with respect to the Conversion Date Inventory Statement within thirty (30) days following General Mills' receipt of the Buyer's Conversion Date Objection to such Conversion Date Inventory Statement pursuant to Section 2.10(b), they shall refer their remaining differences to the CPA Firm for decision, which decision shall be made consistent with the Inventory Standards within forty-five (45) days and shall be final and binding on the parties, PROVIDED that the CPA Firm's determination as to any item set forth in Buyer's Conversion Date Objection shall not be more beneficial to General Mills than the determination of that item by General Mills in the Conversion Date Inventory Statement or more beneficial to Buyer than the determination of that item in Buyer's Conversion Date Objection. Any expenses relating to the engagement of the CPA Firm shall be shared equally by General Mills, on the one hand, and Buyer, on the other hand. General Mills and Buyer shall each bear the fees of their respective auditors incurred in connection with the determination and review of the Conversion Date Inventory Statement. (d) The Conversion Date Inventory Statement shall become final and binding on the parties upon the earliest of (i) if no Buyer's Conversion Date Objection has been given, -21- the expiration of the period within which Buyer must make its objection pursuant to Section 2.10(b) hereof, (ii) agreement in writing by General Mills and Buyer that the Conversion Date Inventory Statement, together with any modifications thereto agreed to by General Mills and Buyer, shall be final and binding and (iii) the date on which the CPA Firm shall issue its written determination with respect to any dispute relating to such Conversion Date Inventory Statement. The Conversion Date Inventory Statement, as submitted by General Mills if no timely Buyer's Conversion Date Objection has been given or as adjusted pursuant to any agreement between the parties or as determined pursuant to the decision of the CPA Firm, when final and binding on all parties, is herein referred to as the "Final Conversion Date Inventory Statement." (e) Within ten (10) Business Days following issuance of the Final Conversion Date Inventory Statement, the payment payable pursuant to this Section 2.10(e) (the "Conversion Date Payment") and interest thereon shall be paid by Buyer to General Mills by wire transfer of immediately available funds to a bank account or bank accounts designated in writing by General Mills. The Conversion Date Payment shall be equal to the value of the Conversion Date Inventory as reflected on the Final Conversion Date Inventory Statement. The Conversion Date Payment shall bear interest from the Conversion Date to the date of payment at the Conversion Date Interest Rate, which interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed and such interest shall be paid on the same date and in the same manner as such Conversion Date Payment. 2.11 CONTRACT PERFORMANCE. With respect to any Assigned Contracts providing for payments based upon performance over a time period that includes but does not end on the Closing Date, such payments shall be prorated as between Sellers, on the one hand, and Buyer, on the other hand, based on the number of days in such period occurring on or prior to the Closing Date and the number of days occurring after the Closing Date; PROVIDED, HOWEVER, that in the event that performance under any such Assigned Contracts is to be effected disproportionately over the period including but not ending on the Closing Date, payments with respect to such Assigned Contracts shall be prorated as between Sellers, on the one hand, and Buyer, on the other hand, based on the expected portion of performance to be effected by Sellers, on the one hand, and Buyer, on the other hand; PROVIDED, FURTHER, HOWEVER, that Sellers shall be responsible for any payments for performance required to be performed as of the Closing with respect to which Sellers shall have underperformed as of Closing. 2.12 NONASSIGNABILITY OF CONTRACTS. (a) Notwithstanding anything to the contrary contained in this Agreement, to the extent that the sale, assignment, transfer, conveyance or delivery to Buyer of any Assigned Contract or any claim or right or any benefit arising thereunder or resulting therefrom is prohibited by applicable law or would require any governmental or third-party authorizations, approvals, consents or waivers, and such authorizations, approvals, consents or waivers shall not have been obtained prior to the Closing, the Closing shall (subject to the satisfaction or waiver of the conditions set forth in Article 8) proceed without the sale, assignment, sublease, transfer, conveyance or delivery of such Assigned Contract and this Agreement shall not constitute a sale, assignment, sublease, transfer, conveyance or delivery of such Assigned Contract or an attempt thereof. In the event that the Closing proceeds without the transfer, sublease or assignment of such Assigned Contract, then following the Closing, the parties shall use their reasonable best -22- efforts, and cooperate with each other, to obtain promptly such authorizations, approvals, consents or waivers; PROVIDED, HOWEVER, that neither Sellers nor Buyer shall be required to pay any consideration for any such authorization, approval, consent or waiver. Pending such authorization, approval, consent or waiver, the parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements (to the extent any such arrangements are feasible) designed to provide to Buyer the benefits of such Assigned Contract and to Sellers the benefits that they would have obtained had the Assigned Contract been conveyed to Buyer at the Closing. To the extent that Buyer is provided the benefits pursuant to this Section 2.12(a) of any Assigned Contract, Buyer shall perform for the benefit of the other Persons that are parties thereto the obligations of Sellers thereunder and any related liabilities that, but for the lack of an authorization, approval, consent or waiver to assign such liabilities to Buyer, would be Assumed Liabilities. Once authorization, approval, consent or waiver for the sale, assignment, sublease, transfer, conveyance or delivery of any such Assigned Contract not sold, assigned, subleased, transferred, conveyed or delivered at the Closing is obtained, Sellers shall assign, transfer, convey and deliver such Assigned Contract to Buyer at no additional cost to Buyer. To the extent that any such Assigned Contract cannot be transferred following the Closing pursuant to this Section 2.12(a), then Buyer and Sellers shall cooperate reasonably in an effort to find and enter into mutually agreeable arrangements (including subleasing, sublicensing or subcontracting), if feasible, to provide the parties the economic (taking into account Tax costs and benefits) and operational equivalent, to the extent permitted, of obtaining such authorization, approval, consent or waiver and the performance by Buyer of the obligations thereunder. Sellers shall hold in trust for and pay to Buyer promptly upon receipt thereof, all income, proceeds and other monies received by Sellers in respect of Buyer's performance of any such Assigned Contract (net of any Taxes and any other costs imposed upon Sellers) in connection with the arrangements under this Section 2.12(a). Nothing stated in Section 2.12 shall modify in any respect the conditions set forth in Article 8. (b) If any such Assigned Contract is sold, assigned, transferred, conveyed to Buyer at or after the Closing, Buyer shall use its reasonable best efforts thereafter to assist (including providing to Sellers access to any applicable information and records) in the transfer to Sellers of such portion, if any, of any such Assigned Contract or of the benefits thereof, that does not relate to the Business on terms that, taken as a whole, for all such transfers are not materially less advantageous to Sellers than would exist if such transferred portions were stand alone contracts. Upon any such transfer, Sellers shall assume any liabilities and obligations related to the transferred portion of such Assigned Contract. (c) To the extent the transfer to Sellers of such portion of any such Assigned Contract that does not relate to the Business pursuant to Section 2.12(b) is prohibited by applicable law or would require any governmental or third-party authorizations, approvals, consents or waivers, the parties shall use their reasonable best efforts, and cooperate with each other, to obtain promptly such authorizations, approvals, consents or waivers; PROVIDED, HOWEVER, that neither Sellers nor Buyer shall be required to pay any consideration for any such authorization, approval, consent or waiver. Pending such authorization, approval, consent or waiver, the parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements (to the extent any such arrangements are feasible) designed to provide to Sellers the benefits of such portion of any such Assigned Contract that does not relate to the Business. To the extent that Sellers are provided the benefits pursuant to this Section 2.12(c) of -23- any portion of any such Assigned Contract, Sellers shall perform for the benefit of the other Persons that are parties thereto the obligations of Buyer thereunder and any related liabilities that, but for the lack of an authorization, approval, consent or waiver to assign such liabilities to Sellers, would have become liabilities of Sellers by virtue of the transfer of such portion of such Assigned Contract. Once authorization, approval, consent or waiver for the transfer of any such portion of any such Assigned Contract is obtained, Buyer shall transfer such portion of any such Assigned Contract to Sellers at no additional cost to Sellers. To the extent that any such portion of any such Assigned Contract cannot be transferred pursuant to this Section 2.12(c) to Sellers, then Buyer and Sellers shall cooperate reasonably in an effort to find and enter into mutually agreeable arrangements (including subleasing, sublicensing or subcontracting), if feasible, to provide the parties the economic (taking into account Tax costs and benefits) and operational equivalent, to the extent permitted, of obtaining such authorization, approval, consent or waiver and the performance by Sellers of the obligations thereunder. Buyer shall hold in trust for and pay to Sellers promptly upon receipt thereof, all income, proceeds and other monies received by Buyer in respect of Sellers' performance of any such portion of any such Assigned Contract (net of any Taxes and any other costs imposed upon Buyer) in connection with the arrangements under this Section 2.12(c). 2.13 DIVIDABLE CONTRACTS. (a) Sellers shall use their reasonable best efforts to assist in the transfer to Buyer of such portion of each Dividable Contract or the benefits thereof that relates to the Business on terms that, taken as a whole, for all such transfers are not materially less advantageous to Buyer than would exist if such transferred portions were stand alone contracts. Upon such transfer, Buyer shall assume any liabilities and obligations related to the transferred portion of such Dividable Contract. Reasonable best efforts shall include a written reasoned recommendation in favor of such transfer to the customer or supplier that is the other party to such Dividable Contract, the provision to Buyer of all information and records available to Sellers relating to customers or suppliers, as the case may be, with respect to such portion of such Dividable Contract, the provision to Buyer of available customer or supplier contact data and information on the customer or supplier decision maker(s) with respect to such portion of such Dividable Contract and, if Buyer so requests in accordance with reasonable commercial practice, the organization of joint visits with Buyer and Sellers to such customers or suppliers, subject, in each case, to any applicable confidentiality agreements or obligations of Sellers or any of their Affiliates. (b) Notwithstanding anything to the contrary contained in this Agreement, to the extent that the transfer to Buyer of the portion of any Dividable Contract that relates to the Business or any claim or right or any benefit arising thereunder or resulting therefrom, is prohibited by applicable law or would require any governmental or third-party authorizations, approvals, consents or waivers, and such authorizations, approvals, consents or waivers shall not have been obtained prior to the Closing, the Closing shall (subject to the satisfaction or waiver of the conditions set forth in Article 8) proceed without the transfer of any such portion of any such Dividable Contract and this Agreement shall not constitute a transfer of such portion of any such Dividable Contract or an attempt thereof. In the event that the Closing proceeds without the transfer of any such portion of any such Dividable Contract, then following the Closing, the parties shall use their reasonable best efforts, and cooperate with each other, to obtain promptly -24- such authorizations, approvals, consents or waivers; PROVIDED, HOWEVER, that neither Sellers nor Buyer shall be required to pay any consideration for any such authorization, approval, consent or waiver. Pending such authorization, approval, consent or waiver, the parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements (to the extent any such arrangements are feasible) designed to provide to Buyer the benefits of such portion of any such Dividable Contract, with respect to the portion of such Dividable Contract applicable to the Business, and to Sellers the benefits that they would have obtained had such portion of such Dividable Contract been transferred to Buyer at the Closing. To the extent that Buyer is provided the benefits pursuant to this Section 2.13 of any portion of any such Dividable Contract, Buyer shall perform for the benefit of the other Persons that are parties thereto the obligations of Sellers thereunder and any related liabilities that, but for the lack of an authorization, approval, consent or waiver to assign such liabilities to Buyer, would have become liabilities of Buyer by virtue of the transfer of such portion of such Dividable Contract. Once authorization, approval, consent or waiver for the transfer of any such portion of any such Dividable Contract not transferred at the Closing is obtained, Sellers shall transfer such portion of any such Dividable Contract to Buyer at no additional cost to Buyer. To the extent that any such portion of any such Dividable Contract cannot be transferred following the Closing pursuant to this Section 2.13, then Buyer and Sellers shall cooperate reasonably in an effort to find and enter into mutually agreeable arrangements (including subleasing, sublicensing or subcontracting), if feasible, to provide the parties the economic (taking into account Tax costs and benefits) and operational equivalent, to the extent permitted, of obtaining such authorization, approval, consent or waiver and the performance by Buyer of the obligations thereunder. Sellers shall hold in trust for and pay to Buyer promptly upon receipt thereof, all income, proceeds and other monies received by Sellers in respect of Buyer's performance of any such portion of any such Dividable Contract (net of any Taxes and any other costs imposed upon Sellers) in connection with the arrangements under this Section 2.13. Nothing stated in Section 2.13 shall modify in any respect the conditions set forth in Article 8. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EACH SELLER Each Seller, severally, for itself hereby represents and warrants to Buyer as follows: 3.1 SELLER'S AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS. (a) Such Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and such Seller further represents and warrants that Windmill is a corporation duly organized, validly existing and in good standing under the laws of California. Such Seller (and, to the extent applicable, each of such Seller's Subsidiaries) has all requisite corporate power and authority to enter into this Agreement and the Collateral Agreements, as applicable, to consummate the transactions contemplated hereby and thereby, to own the Assets or the Robin Hood Assets owned by it and to carry on the portion of the Business and the Robin Hood Business presently conducted by it, and such Seller further represents and warrants that Windmill has all requisite corporate power and authority to own the assets owned by Windmill. Each Seller (or Seller's applicable Subsidiaries) is duly qualified or licensed to do business and is in good standing in each jurisdiction in which Assets or Robin Hood Assets -25- owned by it or the Business and the Robin Hood Business otherwise conducted by it (and such Seller further represents and warrants that Windmill is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its ownership of assets or conduct of business) would legally require such qualification or license, except where the failure to be so qualified or licensed or in good standing, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All corporate acts and other proceedings required to be taken by such Seller (or Seller's applicable Subsidiaries) to authorize the execution, delivery and performance of this Agreement and the Collateral Agreements and the consummation of the transactions contemplated hereby and thereby have been (or, in the case of the applicable Subsidiaries, will be) duly and properly taken. This Agreement has been (and the Collateral Agreements, as applicable, at the Closing will be) duly executed and delivered by such Seller (or Seller's applicable Subsidiaries) and, assuming the due execution hereof (and thereof) by Buyer, this Agreement constitutes (and each of the Collateral Agreements, as applicable, when executed and delivered, will constitute) the valid and binding obligation of such Seller (or Seller's applicable Subsidiaries) enforceable against such Seller (or Seller's applicable Subsidiaries) in accordance with its terms, except as enforcement hereof or thereof may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors' rights generally and by general equitable principles. Such Seller further represents and warrants that such Seller has delivered to Buyer true and correct copies of the charter, bylaws, minutes of all shareholder, board of director and committee meetings and written actions in lieu thereof, and stock records of Windmill, together with a list of all current directors and officers thereof. (b) The execution, delivery and performance by such Seller (or Seller's applicable Subsidiaries) of this Agreement and the Collateral Agreements, as applicable, will not (i) violate or conflict with any provision of such Seller's (or such Subsidiary's) certificate of incorporation or bylaws; (ii) violate or conflict with any provision of, or be an event that is (or with the passage of time will result in) a violation of, or require any notice, consent or increase in payments under, or result in the acceleration, termination, modification or cancellation of or entitle any party to accelerate, terminate, modify or cancel (whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of a security interest in any of the Assets or the Robin Hood Assets pursuant to, any Assigned Contract, Purchase Order, Lien, lease, agreement, instrument, order, arbitration award, judgment, injunction, order or decree or any governmental approval, license or permit to which such Seller (or Seller's applicable Subsidiaries) is a party or to or by which it or any Assets or the Robin Hood Assets owned by it is subject or bound; or (iii) violate or conflict with any statute, rule or regulation of any Governmental Entity applicable to such Seller or any of its properties or assets or any other material restriction of any kind or character to which such Seller (or Seller's applicable Subsidiaries) or any Assets or the Robin Hood Assets owned by it is subject, except, in the case of clauses (ii) and (iii), for violations, accelerations, terminations, modifications, cancellations, notices, consents, impositions, conflicts, restrictions or breaches that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect or prohibit or materially impair the ability of such Seller (or Seller's applicable Subsidiaries) to consummate the transactions hereunder. 3.2 TITLE TO TANGIBLE ASSETS. Such Seller (or Seller's applicable Subsidiaries) has good and marketable title to the tangible Assets and Robin Hood Assets purported to be owned by such Seller (or Seller's applicable Subsidiaries), free and clear of all mortgages, liens, security -26- interests or encumbrances of any nature whatsoever ("Liens"), except inchoate mechanics', carriers', workmen's, repairmen's or other like Liens that are not delinquent arising or incurred in the ordinary course of business or liens for Taxes that are not due and payable or that are due but not delinquent (collectively, the "Permitted Liens"). All of the Stock is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights. There is a total of 8,000 shares of Series A Common Stock and Series B Common Stock of Windmill outstanding, constituting the only outstanding capital stock of Windmill. No options, warrants or other rights to purchase capital stock of Windmill or of any securities convertible into or exchangeable for capital stock of Windmill, and no securities convertible for or exchangeable into capital stock of Windmill, are outstanding. There are no outstanding rights to purchase outstanding stock of Windmill other than this Agreement and such Seller (and any applicable Subsidiary of Seller) has not granted any voting rights with respect to the Stock. As of the Closing Date, all of the Stock shall be owned, directly or indirectly, by such Seller (or Seller's applicable Subsidiaries), free and clear of any Liens except Permitted Liens. 3.3 INTELLECTUAL PROPERTY. (a) Except as disclosed on SCHEDULE 3.3(a), such Seller (or Seller's applicable Subsidiaries), directly or indirectly, is the registered owner of the Assigned Trademarks, Assigned Patents, other Intellectual Property and Licensed Trademarks and Patents and Windmill Intellectual Property and that are purported to be owned by such Seller (or Seller's applicable Subsidiaries), and has good and marketable title to such Assigned Trademarks, Assigned Patents, other Intellectual Property and Licensed Trademarks and Patents and Windmill Intellectual Property. Except as disclosed on SCHEDULE 3.3(a), the Licensed Trademarks and Patents and Intellectual Property and Windmill Intellectual Property purported to be owned by such Seller (or Seller's applicable Subsidiaries) are free and clear of all material restrictions, security interests, court orders, injunctions, decrees, writs or other Liens, whether by written agreement or otherwise. Except as disclosed on SCHEDULE 3.3(a), no Person other than such Seller (or Seller's applicable Subsidiaries) owns or has been granted any material right in the Intellectual Property and Windmill Intellectual Property purported to be owned by such Seller (or Seller's applicable Subsidiaries) or, to the extent it would interfere with Sellers' license thereof to Buyer under the Trademark License Agreements or the Patent and Technology License Agreements or adversely affect the value of such license, the Licensed Trademarks and Patents. Except as to infirmities arising from non-use as disclosed on SCHEDULE 3.3(a), all Assigned Trademarks, Assigned Patents, other Intellectual Property and Licensed Trademarks and Patents and Windmill Intellectual Property purported to be owned by such Seller (or Seller's applicable Subsidiaries) are subsisting and such Seller (or Seller's applicable Subsidiary) has taken all action reasonably necessary to maintain and protect the Intellectual Property and the Licensed Trademarks and Patents and Windmill Intellectual Property purported to be owned by such Seller (or Seller's applicable Subsidiaries). Except as disclosed on SCHEDULE 3.3(a), the "Pillsbury," "Hungry Jack," and "Martha White" trademarks, and the "Barrelhead" logo, and trade secrets included within the Intellectual Property and Windmill Intellectual Property, in each case purported to be owned by such Seller (or Seller's applicable Subsidiaries), are valid, and all other Assigned Trademarks, Assigned Patents, other Intellectual Property and Licensed Trademarks and Patents and Windmill Intellectual Property purported to be owned by such Seller (or Seller's applicable Subsidiaries) are, to such Seller's Knowledge, valid. Except as disclosed on SCHEDULE 3.3(a), there are no actions that must be taken within one hundred fifty -27- (150) days after the date hereof, including the payment of any registration, maintenance, annuity, or renewal fees or the filing of any responses to PTO actions, in order to register, maintain or renew any of the Assigned Trademarks, Assigned Patents or Windmill Intellectual Property. Except as disclosed on SCHEDULE 3.3(a), the use of the "Pillsbury," "Hungry Jack," and "Martha White" trademarks, and the "Barrelhead" logo, and trade secrets included within the Intellectual Property, in each case purported to be owned by such Seller (or Seller's applicable Subsidiaries), and, to such Seller's Knowledge, the use of all other Intellectual Property and the Licensed Trademarks and Patents and Windmill Intellectual Property, in each case purported to be owned by such Seller (or Seller's applicable Subsidiaries), in the Business and the Robin Hood Business and the conduct of the Business and the Robin Hood Business as presently conducted by such Seller do not infringe on or violate the rights of any other party in a manner that would have a Material Adverse Effect. Except as disclosed on SCHEDULE 3.3(a), such Seller has not received any written claim or notice alleging any such infringement or violation during the past 24 months (including any written claim that such Seller must license or refrain from using the intellectual property rights of any third party) nor, to such Seller's Knowledge, is there any threatened claim or any reasonable basis for any such claim. The Assigned Trademarks, Assigned Patents, other Intellectual Property and Licensed Trademarks and Patents and Windmill Intellectual Property are all of the intellectual property necessary to conduct the Business immediately after the Closing as it is currently conducted by Sellers, subject to any limits on Territory or distribution channels contemplated by the Trademark License Agreements and the Patent and Technology License Agreements; provided, however, that any intellectual property provided to Buyer pursuant to the Transition Services Agreement or Co-Pack Agreement is being provided to Buyer only for the applicable term of the Transition Services Agreement or Co-Pack Agreement, as the case may be. (b) Except as specified on SCHEDULE 3.3(b), there is no litigation or proceeding (judicial or administrative) pending, or, to such Seller's Knowledge, threatened by or against such Seller or any of its applicable Subsidiaries challenging the registration, grant, validity, enforceability or use of the Intellectual Property or Windmill Intellectual Property, or, to the extent it would in any way interfere with such Seller's or any of its applicable Subsidiaries' license of the Licensed Trademarks and Patents to Buyer under the Trademark License Agreements or the Patent and Technology License Agreements or adversely affect the value of the license thereof to Buyer, challenging the registration, grant, validity, enforceability or use of the Licensed Trademarks and Patents; and no litigation or proceeding is otherwise pending by or against such Seller or any of its applicable Subsidiaries alleging infringement or violation with respect to the use, or challenging the validity or enforceability, of any of the Intellectual Property or Windmill Intellectual Property or, to the extent it would interfere with such Seller's or any of its applicable Subsidiaries' license thereof to Buyer or adversely affect the value of that license, the Licensed Trademarks and Patents, or with regard to the infringement of or violation by the Business or the Robin Hood Business of any rights of third parties, nor, to such Seller's Knowledge, is there any such litigation or proceeding threatened or any reasonable basis for any such litigation or proceeding. To such Seller's Knowledge, no Person is infringing upon or violating the Intellectual Property or Windmill Intellectual Property or infringing upon or violating the Licensed Trademarks and Patents in a manner that would adversely affect the value of the license to Buyer of the Licensed Trademarks and Patents. Except in connection with co-manufacturing or other agreements relating to the manufacture of the Products, and except as specified on SCHEDULE 3.3(b), no Person has been granted any license or other right or interest by -28- such Seller to any of the Intellectual Property or Windmill Intellectual Property or to the Licensed Trademarks and Patents that would be materially inconsistent with or in any way materially interfere with or impair Buyer's use thereof or the transactions contemplated by this Agreement and no Person has been granted any license to or other right or interest by such Seller or any of its applicable Subsidiaries in any Assigned Trademarks, Assigned Patents or Windmill Intellectual Property. 3.4 ACTIONS AND PROCEEDINGS. Except as set forth on SCHEDULE 3.4, there are no (a) outstanding judgments, orders, writs, injunctions or decrees of any court, other Governmental Entity or arbitration tribunal relating to the Business, the Robin Hood Business, the Assets, the Robin Hood Assets, any Product or any Robin Hood Product that has had or would reasonably be expected to have a Material Adverse Effect, or to prohibit or materially impair the ability of such Seller to consummate the transactions hereunder or (b) actions, suits, claims or legal, administrative or arbitration proceedings or investigations pending or, to such Seller's Knowledge, threatened against such Seller (or its applicable Subsidiaries) which relate to the Business, the Robin Hood Business, the Assets, the Robin Hood Assets, any Product or any Robin Hood Product or which seek any injunctive relief that would reasonably be expected to have a Material Adverse Effect or prohibit or materially impair the ability of such Seller to consummate the transactions hereunder. To such Seller's Knowledge, there are no investigations by any Governmental Entity pending or threatened which relate to the Business, the Robin Hood Business, the Assets, the Robin Hood Assets, any Product or any Robin Hood Product. 3.5 CONTRACTS. Such Seller has delivered to Buyer current and complete copies of the documents constituting all Contracts to which such Seller (or its applicable Subsidiaries) is subject (and summaries of oral Contracts). Except for such Contracts, there are no contracts or agreements (written or verbal) exclusively or primarily relating to the Business: (a) involving annual payments in excess of $100,000, (b) with a term in excess of one year, (c) that constitute a joint venture or partnership, (d) which are terminable by, or result in materially increased payments or obligations to, the other party upon assignment to Buyer, (e) that are a lease or sublease of any real property or material personal property, (f) with any officer, director or employee of such Seller or any Affiliate of such Seller, (g) that are a private label, supply, co-pack, broker, advertising, promotional or marketing agreement, (h) that are requirements contracts, sole source contracts or otherwise provide for exclusivity, (i) that grant a license by or to Seller (or its applicable Subsidiaries), (j) with any Governmental Entity or contractor or subcontractor to a Governmental Entity, or (k) that are otherwise material to the Business and entered into not in the ordinary course. Except as otherwise specified on SCHEDULE 3.5, each Contract and each Purchase Order, whether or not constituting a Contract, is a valid and binding obligation of such Seller (or its applicable Subsidiaries), to the extent such Seller (or its applicable Subsidiaries) is a party thereto, and, to such Seller's Knowledge, of each other party thereto in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. Such Seller or one of its Subsidiaries has performed all obligations required to be performed by it to date under such Contracts or Purchase Orders, and neither such Seller or any of its Subsidiaries, nor, to such Seller's Knowledge, any other party to such Contracts or Purchase Orders is (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder, except for failures to perform or breaches and defaults that, individually or in the aggregate, would not reasonably be -29- expected to have a Material Adverse Effect or prohibit or materially impair the ability of such Seller to consummate the transactions hereunder. Except as set forth in SCHEDULE 3.5, neither such Seller nor any of its applicable Subsidiaries is prohibited or limited by any contract or other agreement from using, manufacturing, producing, packaging or selling the Inventory, Conversion Date Inventory or any Product and is restricted by agreement or otherwise as to competition with respect to the Business, including as to the geographical area in which it may sell Inventory, Conversion Date Inventory or Products or the type of products relating to the Business that it may sell, except for restrictions that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, nor is such Seller or any of its applicable Subsidiaries subject to any such agreement with respect to the Robin Hood Business, Robin Hood Transfer Date Inventory or the Robin Hood Products that would be binding on Buyer as a result of the transactions contemplated hereby, except for restrictions that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 3.6 COMPLIANCE WITH APPLICABLE LAWS. (a) Except as disclosed on SCHEDULE 3.6, since January 1, 1999, the Business has been conducted in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of all Governmental Entities (including the Food, Drug and Cosmetics Act and those relating to environmental protection and occupational safety and health), except for any such noncompliance as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or prohibit or materially impair the ability of such Seller to consummate the transactions hereunder. Except as set forth in SCHEDULE 3.6, all governmental approvals, permits and licenses required to conduct the Business have been obtained and are in full force and effect and are being complied with in all respects except for such failures to have approvals, permits and licenses or such non-compliance which, individually or in the aggregate, would not have a Material Adverse Effect. (b) The Internal Revenue Service has issued a favorable determination letter with respect to the Retirement Plan of General Mills, Inc. and the Bakery, Confectionary, Tobacco and Grain Millers (BCTGM) (the "General Mills Toledo Plan") and the related trust that has not been revoked, and to such Seller's Knowledge, there are no existing circumstances, and no events have occurred, that could adversely affect the qualified status of the plan or the related trust under Section 401(a) of the Code. 3.7 BROKERS. There is no broker or other Person who would have any valid claim against Buyer for a finder's fee or broker's fee or commission in connection with this Agreement or the transactions contemplated hereby as a result of any agreement, understanding or action by or on behalf of such Seller. Such Seller shall be solely responsible for all fees and expenses of Greenhill & Co. LLC and any other broker, finder or other Person engaged by or on behalf of it or otherwise claiming through it in connection with the transactions contemplated by this Agreement. 3.8 INVENTORY. At the Closing, the Conversion Date or the Robin Hood Transfer Date, as applicable, the Inventory, the Conversion Date Inventory and the Robin Hood Transfer Date Inventory, respectively, will (A) be current, non-obsolete, neither damaged nor defective, saleable in the ordinary course and merchantable and fit for the purpose for which it was -30- procured or manufactured, and (B) meet applicable manufacturing specifications and be suitable for use in the Business or the Robin Hood Business, as applicable. Without limiting the foregoing, at such dates, none of the Inventory, the Conversion Date Inventory or the Robin Hood Transfer Date Inventory will be defective, infested, adulterated or otherwise misbranded (within the meaning of the Food, Drug and Cosmetics Act or within the meaning of any other applicable food and drug law), improperly packed or stored or physically damaged, bear product expiration code dates on or prior to the Closing Date, the Conversion Date or the Robin Hood Transfer Date, as applicable, or on or prior to the date such Inventory, Conversion Date Inventory or Robin Hood Transfer Date Inventory is expected to be sold or used in the ordinary course of business or constitute articles which may not, under the provisions of the Food, Drug and Cosmetics Act, be introduced into interstate commerce. At the Closing, the Inventory will be at levels sufficient for Buyer to conduct the Business in the ordinary course consistent with past practice, taking into account the arrangements under this Agreement and the Collateral Agreements, including the Co-Pack Agreement. Since January 1, 1999, such Seller has purchased Inventory in the ordinary course and in all material respects consistent with such Seller's past practices. 3.9 RECENT EVENTS. Except as disclosed in SCHEDULE 3.9, from June 30, 2000 to the date hereof, such Seller (and each applicable Subsidiary of Seller) has conducted the Business conducted by it in the ordinary and usual course and has not, with respect to the Business or the Robin Hood Business: (a) sold, assigned, pledged, granted a security interest in, or otherwise transferred or disposed of any of the assets used in the Business or the Robin Hood Business that, but for any disposition, would constitute Assets or Robin Hood Assets, other than sales in the ordinary course of business of finished goods inventory, dispositions of equipment that is obsolete and Permitted Liens; (b) terminated or materially amended any contract or agreement that is material to the Business, taken as a whole; (c) suffered any material damage, destruction or other casualty loss (whether or not covered by insurance), and there has been no other condition, circumstance, event or occurrence which would be reasonably likely to have a Material Adverse Effect; (d) made any change in its accounting methods or principles applicable to the Business; (e) made any material change in its practices with respect to the manner and timing of payment of trade payables relating to the Business or the collection of receivables relating to the Business; (f) entered into any agreement or arrangement relating to the Business, other than with respect to the Excluded Assets, with any Affiliate of such Seller; (g) made any material change in the selling, pricing, advertising or promotional practices of the Business inconsistent with prior practice; (h) increased or decreased in any material respects the total number of Business Employees or increased the compensation, bonuses or benefits payable or to become payable to the Business Employees except for such increases in the ordinary course of business consistent with past practice; (i) sold, assigned, pledged, granted a security interest in, or otherwise transferred or disposed of any of the Windmill Intellectual Property or assets that, but for such disposition, would constitute Windmill Intellectual Property; or (j) entered into any agreement to do any of the foregoing. 3.10 LIABILITIES. To such Seller's Knowledge, such Seller has no liabilities with respect to which Buyer will become liable hereunder, except for the Assumed Liabilities. 3.11 FINANCIAL INFORMATION. SCHEDULE 3.11 sets forth the audited schedules of direct product contribution of each of the Pillsbury Food Service Business and the Pillsbury Retail -31- Business for the fiscal years ended June 30, 1998, 1999 and 2000, and the unaudited schedules of direct product contribution of each of the Pillsbury Food Service Business and Pillsbury Retail Business for the six months ended December 31, 2000 (the "Financial Statements"). The Financial Statements fairly present in all material respects the results of operations of such portions of the Business for the periods set forth therein. The Financial Statements have been prepared in accordance with GAAP consistently applied during the periods involved, except the unaudited schedules of direct product contribution of each of the Pillsbury Food Service Business and Pillsbury Retail Business for the six months ended December 31, 2000 or as may be noted therein. The Financial Statements do not include any direct product contribution attributable to sales of Products outside of the Territory or distribution channels of the Business. 3.12 LABOR MATTERS. SCHEDULE 3.12 hereto sets forth, as of the date hereof, all agreements by such Seller with labor unions or associations representing Business Employees. As of the date hereof, no strike, walkout or other work stoppage or unionizing effort by or respecting the Business Employees of such Seller is pending or, to such Seller's Knowledge, threatened. Except as disclosed on SCHEDULE 3.12, such Seller is not involved in or, to such Seller's Knowledge, threatened with any labor dispute, arbitration, unfair labor practice claim, lawsuit or administrative proceeding relating to labor matters involving Business Employees of such Seller that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or prohibit or materially impair the ability of such Seller to consummate the transactions hereunder. 3.13 SUPPLIERS AND CUSTOMERS. Except as disclosed in SCHEDULE 3.13, to such Seller's Knowledge, none of the ten largest suppliers or customers of the Business (by dollar volume) for the two most recent fiscal years, and no other material supplier or customer of the portion of the Business conducted by such Seller during such time period, has cancelled, or otherwise modified in any manner which is materially adverse to such Seller, its business or relationship with such Seller with respect to the Business or notified such Seller of any intent to cancel or materially reduce its business with the Business or otherwise materially change its relationship with the Business. Such Seller has delivered to Buyer true, correct and complete copies of reports prepared by Nielsen reflecting such Seller's percent of all nationwide commodity volume for all general retail stores and mass merchandisers selling over $2 million per year by product by month for the last two fiscal years and will deliver such reports for each month end prior to Closing. 3.14 UNIVERSAL PRODUCT CODES. SCHEDULE 2.3(c)(i) and SCHEDULE 2.3(c)(ii) contain universal product codes of such Seller currently used in the Business or the Robin Hood Business. Such Seller is not using any such ten-digit universal product code, taken as a whole, in any other business other than the Business or the Robin Hood Business; provided, however, that to the extent such Seller is using any such ten-digit universal product code, taken as a whole, in any other business other than the Business or the Robin Hood Business, then such Seller will cease such usage within 90 days after the Closing. 3.15 RECALLS. Except as disclosed on SCHEDULE 3.15, since January 1, 1999, no products related to the Business or the Robin Hood Business conducted by such Seller have been recalled voluntarily or involuntarily or have been "adulterated" or "misbranded" within the meaning of the Food, Drug and Cosmetics Act, and no recall of any of such products is currently -32- being considered by such Seller or, to such Seller's Knowledge, has been requested, ordered or threatened by any Governmental Entity or other authority or consumer group, and, to such Seller's Knowledge, there is no reasonable basis therefor. 3.16 AFFILIATE TRANSACTIONS AND SHARED SERVICES. Except as disclosed in SCHEDULE 3.16 and except with respect to services and arrangements that are referenced in or will otherwise be addressed by this Agreement or any of the Collateral Agreements, including the Transition Services Agreement, the Toledo Plant Lease Agreement, the Conversion Plan Agreement and the Co-Pack Agreement, (i) no Affiliate of such Seller or officer or director of either such Seller or any Affiliate of such Seller provides or causes to be provided to the Business any material assets, services or facilities or owns any Assets and (ii) the Business does not provide or cause to be provided to any such Affiliate, officer or director any material assets, services or facilities. Except as disclosed in SCHEDULE 3.16 and except with respect to services and arrangements that are referenced in or will otherwise be addressed by this Agreement or any of the Collateral Agreements, including the Transition Services Agreement, Toledo Plant Lease Agreement, the Conversion Plan Agreement and the Co-Pack Agreement, the Business does not share any material facilities or equipment with any other businesses of such Seller or any Affiliate of such Seller and neither such Seller nor any Affiliate of such Seller purchases material assets or services for, or provides material products or services from, both the Business and any other business conducted by such Seller or any Affiliate of such Seller pursuant to any contract, agreement or otherwise. 3.17 EQUIPMENT. Except as disclosed in SCHEDULE 3.17 and except for equipment with respect to the Robin Hood Business, the Equipment, including the Equipment to be transferred from the Tennessee Plant and the Martel Plant to the Toledo Plant, constitutes all of the Equipment necessary to convert raw materials into Products currently manufactured at the Tennessee Plant and the Martel Plant in the manner in which the Business is currently conducted and as contemplated under the Toledo Plant Lease Agreement and the Conversion Plan Agreement. The Equipment is in good condition and repair (ordinary wear and tear excepted), and none of the Equipment contains any substances or materials defined as "hazardous" or "toxic" under any federal, state or local law regulating or dealing with the protection of human health or the environment. 3.18 TRADE PROGRAMS; PREPAYMENTS. Except as set forth in SCHEDULE 3.18, since January 1, 1999, such Seller has not, other than in the ordinary course consistent with past practices, instituted or agreed to institute, or been affected by, any coupon redemption, trade allowance, billback, award, discount or other promotional incentive, rebate, volume guaranty, non-employee performance bonus or other program with respect to the Business for which such Seller has any actual or contingent unpaid liability. Except as disclosed on SCHEDULE 3.18, neither such Seller nor any of its applicable Subsidiaries has received any prepayments under any Contract, Purchase Order or other contract or agreement relating to the Business with respect to Products or services to be shipped or performed after the Closing. 3.19 TOLEDO PLANT. To such Seller's knowledge (i) since January 1, 1999, the Toledo Plant, and the business conducted thereat, has not received any form of governmental assistance from the State of Ohio or any political subdivision thereof, and there are no development or other agreements in place with the State of Ohio or any political subdivision thereof, that would -33- subject the occupant of the Toledo Plant to minimum Taxes or limit such occupant's ability to protest Taxes, or subject such occupant to affirmative action, living wage or other requirements or restrictions that Buyer would not be subject to but for such assistance or agreements and (ii) there is no circumstance or condition that would reasonably be expected to prevent the transfer of Equipment from the Tennessee Plant and the Martel Plant and the timely conversion of the Toledo Plant, including any required governmental permits, authorizations or zoning waivers. 3.20 WARRANTIES. Except as set forth in SCHEDULE 3.20, such Seller has not provided any form of express warranty to any customer with respect to any of the Products or Robin Hood Products since January 1, 1999. 3.21 SLOTTING ALLOWANCES. Since January 1, 1999, such Seller has not paid any additional slotting allowances (generally defined in the grocery industry as lump sum payments made by manufacturers to retailers in connection with product introductions), or made payments pursuant to the Pillsbury Introductory Merchandising Funds Policy, for placement of seasonal cake mix and ready-to-spread frosting products packaged and sold for retail placement of limited duration (I.E., products packaged and sold in connection with holidays). To such Seller's Knowledge, no customers have notified Seller of plans to change their policies with respect to slotting allowances. To such Seller's Knowledge, the transactions contemplated hereby will not result in any new or increased charges for slotting allowances for the Products after the Closing Date or for the Robin Hood Products after the Robin Hood Transfer Date. Subject to Section 7.14, Buyer shall be permitted to use such Seller's existing universal product codes following the Closing with respect to all Products, and following the Robin Hood Transfer Date, with respect to all Robin Hood Products. 3.22 WINDMILL. Windmill has no employees, Subsidiaries or investments in any other Person. Windmill owns no material assets other than the Windmill Intellectual Property and conducts no business that is unrelated to the Windmill Intellectual Property. For purposes of this Article 3 only, all assets of Windmill shall be deemed to constitute Assets, notwithstanding that the Stock, and not the assets of Windmill, will be transferred directly to Buyer at Closing. As of the Closing Date, Windmill will have no material liabilities, no indebtedness for borrowed money and no purchase money indebtedness and will not be a party to any agreements or contracts of any nature. 3.23 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Agreement (including the Schedules and Exhibits hereto), neither such Seller nor any of its agents, Affiliates or representatives, nor any other Person, makes or shall be deemed to make any representation or warranty to Buyer, express or implied, at law or in equity, on behalf of such Seller, and such Seller hereby disclaims any such representation or warranty whether by such Seller or any of its or the Business' respective officers, directors, employees, agents or representatives or any other Person, with respect to the Business or the execution and delivery of any of this Agreement or the transactions contemplated hereby, notwithstanding the delivery or disclosure to Buyer or any of its officers, directors, employees, agents or representatives or any other Person of any documentation or other information by such Seller or any of their or the Business' respective officers, directors, employees, agents or representatives or any other Person with respect to any one or more of the foregoing. Buyer hereby acknowledges and agrees that, except to the extent specifically set forth in this -34- Agreement (including the Schedules and Exhibits hereto), Buyer is purchasing the Assets on an "as is, where is" basis. Without limiting the generality of the foregoing, such Seller makes no representation or warranty regarding any assets other than the Assets and any liabilities other than the Assumed Liabilities, and none shall be implied at law or in equity. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Sellers as follows: 4.1 AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS. (a) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has all requisite corporate power and authority to enter into this Agreement and the Collateral Agreements and to consummate the transactions contemplated hereby and thereby. All corporate acts and other proceedings required to be taken by Buyer to authorize the execution, delivery and performance of this Agreement and the Collateral Agreements and the consummation of the transactions contemplated hereby and thereby have been duly and properly taken. This Agreement has been (and the Collateral Agreements at the Closing will be) duly executed and delivered by Buyer and, assuming the due execution hereof (and thereof) by the other parties thereto, this Agreement constitutes (and each of the Collateral Agreements, when executed and delivered, will constitute) the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforcement hereof or thereof may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors' rights generally and by general equitable principles. (b) The execution, delivery and performance by Buyer of this Agreement and the Collateral Agreements will not (i) violate or conflict with any provision of the certificate of incorporation or by-laws of Buyer; (ii) except as disclosed in SCHEDULE 4.1(b), violate, conflict with any provision of, or be an event that is (or with the passage of time will result in) a violation of, or result in the acceleration of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of a security interest in any of Buyer's assets or properties pursuant to, any mortgage, Lien, lease, agreement, instrument, order, arbitration award, judgment, injunction or decree to which Buyer is a party or by which Buyer is bound; or (iii) violate or conflict with any statute, rule or regulation of any Governmental Entity applicable to Buyer or any of its properties or assets or any other material restriction of any kind or character to which Buyer is subject, except, in the case of clauses (ii) and (iii), for violations, accelerations, impositions, conflicts, restrictions or breaches that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the financial condition of Buyer or the ability of Buyer to consummate the transactions hereunder. 4.2 ACTIONS AND PROCEEDINGS. There are no (a) outstanding judgments, orders, writs, injunctions or decrees of any court, other Governmental Entity or arbitration tribunal against Buyer that would reasonably be expected to have a material adverse effect on the financial condition of Buyer or the ability of Buyer to consummate the transactions contemplated hereby; -35- or (b) actions, suits or claims or legal, administrative or arbitration proceedings or investigations pending or, to the knowledge of Buyer, threatened against Buyer, that would reasonably be expected to have a material adverse effect on the financial condition of Buyer or prohibit or materially impair the ability of Buyer to consummate the transactions contemplated hereunder. 4.3 AVAILABILITY OF FUNDS. Buyer has delivered to Sellers commitment letters from Canadian Imperial Bank of Commerce and CIBC World Markets Corp. for the aggregate amount of $650 million (the "Financing Commitment"), which amount is sufficient to enable Buyer to consummate the transactions contemplated by this Agreement. Buyer, based on conditions that are now prevailing and that have been brought to Buyer's attention, knows of no circumstance or condition that would prevent the availability at the Closing of the requisite financing to consummate the transactions contemplated by this Agreement on the terms set forth herein, as provided in the Financing Commitment. 4.4 BROKERS. There is no broker or other Person who would have any valid claim against Sellers for a finder's fee or broker's fee or commission in connection with this Agreement or the transactions contemplated hereby as a result of any agreement, understanding or action by or on behalf of Buyer. Buyer shall be solely responsible for all fees and expenses of U.S. Bancorp Piper Jaffray Inc. and any other broker, finder or other Person engaged by or on behalf of it or otherwise claiming through it in connection with the transactions contemplated by this Agreement. 4.5 QUALIFIED PLAN STATUS. The Internal Revenue Service has issued a favorable determination letter with respect to the Retirement Plan of International Multifoods Corporation for Specified Union-Represented Employees (the "Multifoods Plan") and the related trust that has not been revoked, and Buyer knows of no existing circumstances, and no events have occurred, that could adversely affect the qualified status of the plan or the related trust under Section 401(a) of the Code. ARTICLE 5 COVENANTS OF EACH SELLER Each Seller, severally, for itself, covenants and agrees as follows: 5.1 ACCESS. From the date of this Agreement and through the Closing, such Seller will grant to, or cause to be granted to, Buyer and its representatives, employees, counsel, accountants and prospective lenders reasonable access, during normal business hours and upon reasonable notice, to the personnel, properties, books and records of such Seller relating primarily to the Business and the Assets and the transition of the Business and the Assets to Buyer; PROVIDED that such access does not unreasonably interfere with the normal operations of such Seller or the Business and Buyer complies with any policies of the Business with respect to plant visits, and PROVIDED FURTHER, that all requests for access through the Closing shall be directed to Martin Eltrich at Greenhill & Co., LLC, 300 Park Avenue, 23rd Floor, New York, NY 10022, or such other Person as such Seller shall designate from time to time. Following the Closing, Buyer shall have similar reasonable access, for legitimate business purposes (including the preparation of financial statements and Tax returns), to the books and records relating to the -36- Business or the Toledo Plant that are retained by such Seller, but each Seller may excise from such books and records made available to Buyer any information that does not relate to the Business or the conversion of the Toledo Plant under the Toledo Plant Lease Agreement (except to the extent Buyer shall be entitled to such information under the Toledo Plant Lease Agreement). 5.2 ORDINARY CONDUCT OF THE BUSINESS. Except as expressly contemplated by the terms of this Agreement, from the date hereof to the Closing, such Seller will cause the portion of the Business owned by such Seller or any Subsidiary of such Seller to be conducted in the ordinary and usual course and use reasonable best efforts to preserve the properties, business and relationships of the Business with suppliers and customers of the Business. Except as provided in this Agreement and without limiting the foregoing, such Seller shall not, and shall not permit any Subsidiary of such Seller to, without the prior written consent of Buyer: (a) sell, assign or otherwise transfer or dispose of or abandon any of the assets used in the Business or the Robin Hood Business that, but for any disposition, would constitute Assets or Robin Hood Assets (except for sales of finished goods inventory), or any assets that, but for any disposition, would constitute Windmill Intellectual Property; (b) pledge or grant any security interest in any of the Assets or Robin Hood Assets, or any of the Windmill Intellectual Property, in connection with the borrowing of money or for the deferred purchase of any property, or otherwise permit the imposition of a Lien on any of the Assets or Robin Hood Assets, or any of the Windmill Intellectual Property, other than Permitted Liens; (c) make any material changes in any coupon programs, trade promotion activities, discount, rebate, incentive, volume guaranty, non-employee performance policies or programs or similar programs, policies or activities related to the Business, institute any new coupon programs, trade promotion activities or discount, rebate, incentive, volume guaranty, non-employee performance policies or programs or similar programs, policies or activities pertaining to the Business, or otherwise make any material change in the selling, pricing, advertising or promotional practices of the Business, in each case, inconsistent with prior practice; (d) make any material change in its practices with respect to the manner and timing of payment of trade payables relating to the Business; (e) make any material change in its practices with respect to the collection of receivables relating to the Business; (f) enter into any contracts or agreements relating to the Business except in the ordinary course of business consistent with past practice or any lease of any real property applicable to the Business; terminate or materially amend any Contract; or enter into any agreement or arrangement relating to the Business, other than with respect to the Excluded Assets, with any Affiliate of such Seller; (g) except as disclosed in SCHEDULE 3.9, increase in any manner the compensation, bonuses or benefits payable or to become payable by such Seller to any of the -37- Business Employees other than in the ordinary course of business consistent with past practice or enter into any employment or severance agreement with or grant any severance or termination pay to any Business Employee other than in accordance with existing policies; (h) enter into agreements or arrangements for purchases of Inventory not in the ordinary course or materially inconsistent with Seller's past practices; (i) make any material change in its accounting methods or principles applicable to the Business, except as required by GAAP or applicable law; (j) make any material changes in any, or institute any new, coupon programs or trade promotion activities related to the Robin Hood Business; (k) make any new (or change any current) Tax election that is specific and unique to Windmill with respect to Taxes affecting Windmill (PROVIDED that nothing in this Section 5.2(k) shall prevent Sellers from making (or changing) any Tax election generally applicable to members of a consolidated, combined or unitary group of which Windmill is a member); or (l) agree or commit to do any of the foregoing. 5.3 DELIVERY. Notwithstanding anything contained in this Agreement to the contrary, at the Closing such Seller shall transfer to Buyer, and shall cause its applicable Subsidiaries to transfer to Buyer, in each case subject to any rights provided in any Collateral Agreement, the Formulations, Specifications and Processing Instructions of the Pillsbury Retail Business, and will license to Buyer, pursuant to the Food Service Patent and Technology License Agreement, the Formulations, Specifications and Processing Instructions of the Pillsbury Food Service Business and the Robin Hood Business. 5.4 ACCOUNTS RECEIVABLE. Such Seller shall promptly forward or cause to be forwarded to Buyer any and all proceeds from accounts receivable relating to the Products that are received by such Seller or its Subsidiaries after the Closing Date with respect to receivables that arose from sales made after the Closing Date and relating to the Robin Hood Products that arose from sales by Buyer after the Robin Hood Transfer Date. 5.5 PAYMENTS. In the event that this Agreement is terminated (or rescinded pursuant to Section 2.8) for any reason other than as a result of any breach or failure to perform a covenant or other agreement hereof by Buyer, then the Sellers shall pay Buyer an amount equal to the actual documented out-of-pocket fees and expenses incurred by Buyer in connection with this Agreement and the transactions contemplated hereby (including commitment fees and expense reimbursement obligations incurred by Buyer in connection with the Financing Commitment and the proposed financing described therein) up to, in the event of termination of this Agreement prior to Closing, a maximum of $7,000,000 or, in the event of rescission pursuant to Section 2.8, a maximum of $23,000,000. Any such amounts shall be shared equally by General Mills, on the one hand, and Pillsbury, on the other hand. 5.6 CONFIDENTIAL INFORMATION. Except as otherwise provided herein or in the Collateral Agreements, after the Closing Date, such Seller (i) shall, and shall cause its -38- Subsidiaries to, keep secret and retain in strictest confidence, and shall not, and shall cause its Subsidiaries not to, use for the benefit of others, and (ii) shall, and shall cause its Subsidiaries to, use reasonable best efforts to not use for the benefit of such Seller or its Subsidiaries, in each case, all confidential information to the extent relating to the Business (or provided to it by Buyer pursuant to the Collateral Agreements), except to the extent of the rights retained by such Seller or its Subsidiaries pursuant to other provisions of this Agreement and the Collateral Agreements and except that such Seller and its Subsidiaries shall be permitted to use such confidential information for the benefit of such Seller or its Subsidiaries in connection with other businesses currently conducted by such Seller or its Subsidiaries in which such confidential information is presently used (the "Confidential Information"), including Formulations, Specifications and Processing Instructions, "know-how" (including manufacturing methodologies, engineering data and designs, historic and in-progress research and development), trade secrets, customer lists, details of client or consultant contracts and other Assigned Contracts and Purchase Orders, pricing policies, marketing plans or strategies, product development techniques or plans, business acquisition plans, designs and design projects, inventions and research projects, in each case to the extent relating to the Business, the Assets or the Assumed Liabilities, and shall not disclose such Confidential Information to anyone outside of Buyer except with Buyer's express written consent. After the Closing Date, such Seller shall also use all reasonable best efforts to keep secret and retain in strictest confidence all trade secrets and other applicable information provided to it by Buyer and its Affiliates as provided in the Collateral Agreements, and shall not use for the benefit of others, and shall not disclose, such information to anyone outside of Buyer except with Buyer's express written consent. The parties agree that Sellers and their Subsidiaries shall be deemed in compliance with this Section 5.6 so long as they treat such Confidential Information in accordance with the applicable policies and procedures for the maintenance of their own confidential and proprietary information of the same type as in effect on the date hereof. 5.7 NOTICES. Subject to Section 7.1, such Seller will give all notices to third parties, and will use its reasonable best efforts to obtain any required third-party consents that Buyer reasonably may request in connection with the transactions contemplated by this Agreement; PROVIDED that neither Seller shall be obligated to incur any expenses (other than incidental expenses) with respect to such notices and efforts. 5.8 EMPLOYEES. (a) OFFERS OF EMPLOYMENT. Such Seller shall permit Buyer to make offers of employment to the Closing Date Employees, effective as of the Closing Date, and, except as otherwise provided in this Section 5.8(a), to make offers of employment to the Toledo Employees, effective as of the Conversion Date. Such Seller will take such steps as are reasonably necessary to facilitate such offers of employment and the transition of Business Employees who accept employment with Buyer, including providing Buyer with reasonable access to Business Employees employed by such Seller or its Affiliates for purposes of interviewing, offering employment, completing pre-employment documents, explaining Buyer's employment-related rules and benefits and other similar purposes. Closing Date Employees who accept offers of employment from Buyer shall become employees of Buyer as of the Closing Date. Toledo Employees who accept offers of employment from Buyer shall become employees of Buyer as of the Conversion Date. Such Seller shall not interfere with Business Employees' -39- accepting employment with Buyer or seek to induce any Business Employee to decline employment with Buyer. (b) CONDUCT PRIOR TO CONVERSION DATE. Between the Closing Date and the Conversion Date, General Mills will use commercially reasonable efforts to maintain the services and goodwill of Toledo Employees, including continuing to employ such Toledo Employees, without layoffs or reductions in compensation or benefits (other than any reductions applicable to the similarly situated employees of Buyer), PROVIDED that nothing herein shall limit the right of General Mills to terminate Toledo Employees for performance reasons or for cause in the ordinary course of business consistent with past practice. (c) ACCRUED PAID TIME OFF. At the Conversion Date, General Mills will provide Buyer with a schedule of Accrued Paid Time Off for Toledo Employees who become employed by Buyer as of such date and will wire transfer the dollar value of such Accrued Paid Time Off to the bank account designated by Buyer. At the Closing Date, General Mills will provide Buyer with a schedule of Accrued Paid Time Off for Closing Date Employees who become employed by Buyer as of such date and will provide for a credit against the Purchase Price payable by Buyer equal to the dollar value of such Accrued Paid Time Off. (d) NO-HIRE PERIOD. Such Seller agrees that for a two-year period after the Closing Date, with respect to Closing Date Employees, and the Conversion Date, with respect to Toledo Employees, neither such Seller nor any of its Affiliates shall hire any Business Employee who has become an employee of Buyer or any of its Affiliates. Notwithstanding the foregoing, the no-hire provision of this Section 5.8 shall not apply to any employee of Buyer who is involuntarily terminated or laid off by Buyer or any of its Affiliates. (e) DEFINED CONTRIBUTION PLANS. Such Seller agrees that effective as of the Conversion Date, all Toledo Employees who become employed by Buyer as of such date shall be fully vested in their account balances in the General Mills VIP 401(k) Plan, and effective as of the Closing Date, all Closing Date Employees who become employed by Buyer as of such date shall be fully vested in their account balances in the defined contribution plan(s) listed on SCHEDULE 5.8(e). (f) DEFINED BENEFIT PLANS. Such Seller agrees that effective as of the Conversion Date, all Toledo Employees who become employed by Buyer as of such date shall be fully vested in their accrued benefits in the defined benefit plan(s) listed on SCHEDULE 5.8(f), and effective as of the Closing Date, all Closing Date Employees who become employed by Buyer as of such date shall be fully vested in their accrued benefits in the defined benefit plan(s) listed on SCHEDULE 5.8(f). (g) COBRA. Such Seller understands that Sellers will be responsible, to the extent applicable, for satisfying obligations under COBRA, to provide continuation coverage to or with respect to any Business Employee (employed by such Seller) in accordance with law with respect to any "qualifying event" that occurs before such employee becomes an employee of Buyer. -40- (h) FLEXIBLE SPENDING PLANS. Such Seller understands that Sellers shall maintain in effect any flexible spending plans in which Business Employees maintain accounts until the close of the calendar year in which such Business Employees are hired by Buyer. Each Business Employee shall continue to seek reimbursement under the flexible spending plan of Pillsbury or General Mills, as applicable, throughout the close of the calendar year in which the Business Employee is hired by Buyer. 5.9 TRANSFER OF EQUIPMENT TO AND CONVERSION OF TOLEDO PLANT. Each Seller agrees to convert, at its sole responsibility and expense, all portions of the Toledo Plant that are to be leased to Buyer under the Toledo Plant Lease Agreement in accordance with the conversion plans and specifications set forth in the Conversion Plan Agreement. Without limiting the foregoing, each Seller, at its sole cost and expense, shall be responsible for transferring to the Toledo Plant any Equipment purchased pursuant hereto by Buyer from the Tennessee Plant and the Martel Plant and for installing and making operational such Equipment in accordance with the Conversion Plan Agreement. The parties agree that, while title to the Equipment will pass to Buyer at the Closing Date, each Seller shall continue to insure in accordance with its standard practices all Equipment that remains in such Seller's possession until the Conversion Date as if such Seller continued to own the Equipment. Sellers jointly and severally agree to indemnify and hold Buyer harmless from any loss, damage or destruction to such Equipment prior to the Conversion Date. Each Seller further agrees to consult with Buyer regarding the conversion and to take such steps as Buyer may reasonably request to implement the Conversion Plan (as defined in the Conversion Plan Agreement) in accordance with its terms. 5.10 NON-USE OF NAME. From and after the Closing or, with respect to the brand name "Robin Hood," the Robin Hood Transfer Date, neither Seller shall use or permit any Affiliate of such Seller to use the brand names set forth on SCHEDULE 5.10 or any derivative form thereof, in any business conducted by either Seller or any of its Affiliates, except pursuant to the Martha White Trademark License Agreement or the Hungry Jack Trademark License Agreement; PROVIDED, HOWEVER, that with respect to the brand name "Robin Hood," such Seller and its Affiliates may use such brand name or any derivative form thereof with respect to inventory with respect to the Robin Hood Business necessary for General Mills to fill purchase orders as set forth more fully in Section 7.13(a). 5.11 NON-INTERFERENCE. Except as otherwise expressly contemplated by this Agreement or the Collateral Agreements, prior to the Closing, neither Seller will take, and each Seller will use its reasonable best efforts to cause its Subsidiaries not to take, any action that is intended to discourage any customer, supplier or other business associate of such Seller (or any of its applicable Subsidiaries) with respect to the Business from maintaining substantially the same business relationships with Buyer with respect to the Business after the Closing as it maintained with such Seller (or any of its applicable Subsidiaries) prior to the Closing. 5.12 FINANCIAL STATEMENTS. Twenty days after the date hereof, Sellers shall deliver to Buyer (1) the audited balance sheets of each of the Pillsbury Food Service Business and Pillsbury Retail Business as of each of June 30, 1999 and 2000, (2) the unaudited balance sheet of each of the Pillsbury Food Service Business and Pillsbury Retail Business as of December 31, 2000, (3) the unaudited statements of income of each of the Pillsbury Food Service Business and Pillsbury Retail Business for the twelve months ended March 31, 2000, (4) the unaudited -41- statements of income of each of the Pillsbury Food Service Business and the Pillsbury Retail Business for the six months ended December 31, 1999 and 2000, and the nine months and twelve months ended December 31, 2000, and (5) the audited statements of income of each of the Pillsbury Food Service Business and Pillsbury Retail Business for the fiscal years ended June 30, 1998, 1999 and 2000, each of which statements Pillsbury represents and warrants to Buyer shall (i) fairly present in all material respects the financial position of such portions of the Business as of their dates and the results of operations of such portions of the Business for the periods set forth therein (subject to normal year-end audit adjustments that will not be material in amount or effect), (ii) have been prepared in accordance with GAAP consistently applied during the periods involved and (iii) not deviate in any material respects from the information of the same nature in the financial statements delivered to Buyer heretofore to the extent such financial statements delivered heretofore cover the same periods and material covered in the financial statements being delivered. 5.13 NO SHOPPING. Prior to the Closing or any termination of this Agreement in accordance with Article 10, neither Seller will, and each Seller will cause its Affiliates not to, directly or indirectly, solicit, encourage, facilitate, participate or engage in (including by way of furnishing any nonpublic information concerning the business, properties, assets or books or records of the Business or providing access to facilities at which Products are produced), any Acquisition Proposal (as defined below). Each Seller agrees to notify Buyer promptly if any Acquisition Proposal is received by such Seller or any Affiliate of such Seller (including the identity of the Person making such Acquisition Proposal and the terms of the Acquisition Proposal). As used in this Agreement, "Acquisition Proposal" shall mean any proposal (or inquiry relating to a possible proposal) received by such Seller or any Affiliate of such Seller from a Person, other than Buyer or an Affiliate of Buyer, for the acquisition, directly or indirectly, of a substantial portion of the Business or the Assets (other than for the acquisition of finished goods Inventory in the ordinary course of business of such Seller consistent with past practice). ARTICLE 6 COVENANTS OF BUYER 6.1 CONFIDENTIALITY. Buyer acknowledges that all information provided to it by either Seller and its Affiliates, agents and representatives is subject to the terms of a confidentiality agreement between Buyer and Pillsbury (the "Confidentiality Agreement"), the terms of which are incorporated herein by reference. Effective upon, and only upon, the Closing, the Confidentiality Agreement will terminate only with respect to information provided to Buyer or its Affiliates to the extent related to the Business or the Robin Hood Business, the Assets, the Robin Hood Assets and the Assumed Liabilities; and Buyer acknowledges that any and all information provided to it by either Seller concerning either Seller (other than information to the extent primarily related to the Business or the Robin Hood Business, the Assets, the Robin Hood Assets and the Assumed Liabilities) shall remain subject to the terms and conditions of the Confidentiality Agreement after the date of the Closing. After the Closing Date, Buyer shall also use all reasonable best efforts to keep secret and retain in strictest confidence all trade secrets and other applicable information provided to it by either Seller and its Affiliates as provided in the -42- Collateral Agreements, and shall not use for the benefit of others, and shall not disclose, such information to anyone outside of Sellers except with Sellers' express written consent. The parties agree that Buyer shall be deemed in compliance with this Section 6.1 so long as it treats such Confidential Information in accordance with the applicable policies and procedures for the maintenance of its own confidential and proprietary information of the same type as in effect on the date hereof. 6.2 ACCOUNTS RECEIVABLE. Buyer shall promptly forward or cause to be forwarded to General Mills any and all proceeds from accounts receivable relating to the Products sold on or prior to the Closing Date that are received by Buyer after the Closing Date and that were outstanding as of the Closing Date. Buyer shall promptly forward or cause to be forwarded to General Mills any and all proceeds from accounts receivable relating to the Robin Hood Products sold on or prior to the Robin Hood Transfer Date that are received by Buyer after the Robin Hood Transfer Date and that were outstanding as of the Robin Hood Transfer Date or relating to Robin Hood Products sold after the Robin Hood Transfer Date in connection with purchase orders with respect to the Robin Hood Business existing as of the Robin Hood Transfer Date, which purchase orders were filled by Sellers. 6.3 EMPLOYEES. (a) OFFERS OF EMPLOYMENT TO CLOSING DATE EMPLOYEES. Buyer shall offer employment, as of the Closing Date, to each Closing Date Employee to whom Buyer wishes to offer employment, and will take such steps as are reasonably necessary to facilitate the transition of each Closing Date Employee who accepts employment with Buyer. (b) OFFERS OF EMPLOYMENT TO TOLEDO EMPLOYEES. Buyer shall offer employment, as of the Conversion Date, to each Toledo Employee to whom Buyer wishes to offer employment, and will take such steps as are reasonably necessary to facilitate the transition of each Toledo Employee who accepts employment with Buyer. (c) COLLECTIVE BARGAINING AGREEMENTS. Buyer agrees to negotiate in good faith to provide Toledo Wage Employees (who are employed by Buyer) with a collective bargaining or other labor agreement, effective as of the Conversion Date, or as soon as reasonably practicable thereafter, that contains terms and conditions no less favorable, in the aggregate, than those applicable to such Toledo Wage Employees immediately prior to their employment by Buyer pursuant to the agreements set forth at SCHEDULE 3.12. If a collective bargaining agreement or other labor agreement described in the immediately preceding sentence is not effective on the Conversion Date, the initial terms and conditions of employment established by Buyer shall be no less favorable, in the aggregate, than those applicable to the Toledo Wage Employees immediately prior to their employment by Buyer pursuant to the agreements set forth at SCHEDULE 3.12. (d) CREDITING OF SERVICE FOR CLOSING DATE EMPLOYEES. From and after the Closing Date, Buyer shall treat all service by Closing Date Employees with Sellers and their respective predecessors prior to the Closing Date for all purposes (including determination of seniority) as service with Buyer (except for purposes of benefit accrual under defined benefit pension plans or to the extent such treatment would result in duplicative accrual on or after the -43- Closing Date of benefits for the same period of service), and, with respect to any medical or dental plan in which the Closing Date Employees participate after the Closing Date, Buyer shall waive or cause to be waived any pre-existing condition exclusions and actively-at-work requirements (PROVIDED, HOWEVER, that no such waiver shall apply to a pre-existing condition of any Closing Date Employee who was, as of the Closing Date, excluded from participation in a comparable employee benefit plan of either Seller due to a pre-existing condition), and shall provide that any covered expenses incurred on or before the Closing Date during the plan year of the applicable Seller plan in which the Closing Date occurs by a Closing Date Employee or a Closing Date Employee's covered dependent shall be taken into account after the Closing Date for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions, as well as such employee's annual benefit limits, if any (until the first anniversary of the commencement of the plan year of the applicable Seller plan in which the Closing Date occurs), in each case to the same extent that such expenses are taken into account with respect to similarly situated employees of Buyer and subsidiaries of Buyer. (e) CREDITING OF SERVICE FOR TOLEDO EMPLOYEES. Except (with respect solely to Toledo Wage Employees) to the extent otherwise agreed by the union representing the Toledo Wage Employees, consistent with applicable law , from and after the Conversion Date, Buyer shall treat all service by Toledo Wage Employees and Toledo Salaried Employees with Sellers and their respective predecessors prior to the Conversion Date for all purposes (including determination of seniority) as service with Buyer (except, with respect solely to the Toledo Salaried Employees, for purposes of benefit accrual under defined benefit pension plans or to the extent such treatment would result in duplicative accrual on or after the Conversion Date of benefits for the same period of service), and, with respect to any medical or dental plan in which the Toledo Employees participate after the Conversion Date, Buyer shall waive or cause to be waived any pre-existing condition exclusions and actively-at-work requirements (PROVIDED, HOWEVER, that no such waiver shall apply to a pre-existing condition of any Toledo Employee who was, as of the Conversion Date, excluded from participation in a comparable employee benefit plan of either Seller due to a pre-existing condition), and shall provide that any covered expenses incurred on or before the Conversion Date during the plan year of the applicable Seller plan in which the Conversion Date occurs by a Toledo Employee or a Toledo Employee's covered dependent shall be taken into account after the Conversion Date for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions, as well as such employee's annual benefit limits, if any (until the first anniversary of the commencement of the plan year of the applicable Seller plan in which the Conversion Date occurs), to the same extent that such expenses are taken into account for the benefit of similarly situated employees of Buyer and subsidiaries of Buyer. (f) LIABILITY IN RESPECT OF OFFERS OF EMPLOYMENT. Buyer shall be liable for and shall indemnify Seller for any claims made by Business Employees in connection with any actions taken by Buyer pursuant to the first sentence of Section 5.8(a) that (i) relate to claims of unlawful interviewing or information gathering practices with respect to Business Employees, or unlawful discrimination with respect to the Business Employees offered employment (or denied offers of employment) with Buyer, or (ii) result in any liability under the WARN Act (unless such WARN Act liability arises solely as a result of Buyer's failure to extend any offer of employment to 50 or more Toledo Employees). -44- (g) DEFINED CONTRIBUTION PLANS. (i) Except (with respect solely to Toledo Wage Employees) to the extent otherwise agreed by the union representing the Toledo Wage Employees consistent with applicable law, as of the Conversion Date, Buyer shall have established or designated a defined contribution plan for the benefit of Toledo Wage Employees and Toledo Salaried Employees who become employed by Buyer as of the Conversion Date or thereafter, and Buyer shall take all necessary action, if any, to qualify such plan under the applicable provisions of the Code, and to make any and all filings and submissions to the appropriate Governmental Entities required to be made by it in connection with such establishment or designation. As soon as practicable following the Closing Date, Buyer shall establish or designate a defined contribution plan for the benefit of the Closing Date Employees who become employed by Buyer as of the Closing Date or thereafter, and Buyer shall take all necessary action, if any, to qualify such plan under the applicable provisions of the Code, and to make any and all filings and submissions to the appropriate Governmental Entities required to be made by it in connection with such establishment or designation. (ii) Except (with respect solely to Toledo Wage Employees) to the extent otherwise agreed by the union representing the Toledo Wage Employees consistent with applicable law, Buyer shall cause the appropriate defined contribution plan described in Section 6.3(g)(i) (the "Buyer DC Plan") to accept, as of the Closing Date (for Closing Date Employees) and as of the Conversion Date (for Toledo Employees), all direct or indirect rollovers by Closing Date Employees employed by Buyer as of the Closing Date and all direct or indirect rollovers by Toledo Employees employed by Buyer as of the Conversion Date, of such employees' eligible rollover distributions from Sellers' defined contribution plans; PROVIDED, that such employees have elected to make such rollovers and meet all requirements of Sellers and the Code with respect to such rollovers. In the event that a Business Employee with an outstanding loan from a Seller defined contribution plan elects a direct rollover (within the meaning of Section 401(a)(31) of the Code) of his or her eligible rollover distribution to the Buyer DC Plan, the portion of the Business Employee's eligible rollover distribution represented by the outstanding loan shall be rolled over to the Buyer DC Plan; PROVIDED, HOWEVER, that in the event that Buyer does not offer the Buyer DC Plan to the Toledo Wage Employees it employs after the Conversion Date, Buyer shall enable any Toledo Wage Employee in its employ to make payments with respect to any outstanding loan such employee retains under a Seller defined contribution plan through the use of regular payroll deductions that would be transferred to the appropriate Seller. -45- Buyer and each Seller shall each bear their own expenses in connection with such rollovers. (h) DEFINED BENEFIT PLANS. As of the Conversion Date, Buyer shall have established or designated a defined benefit plan for the benefit of Toledo Salaried Employees who become employed by Buyer as of the Conversion Date or thereafter, and Buyer shall take all necessary action, if any, to qualify such plan under the applicable provisions of the Code, and to make any and all filings and submissions to the appropriate Governmental Entities required to be made by it in connection with such establishment or designation. As soon as practicable following the Closing Date, Buyer shall establish or designate a defined benefit plan for the benefit of the Closing Date Employees who become employed by Buyer as of the Closing Date or thereafter, and Buyer shall take all necessary action, if any, to qualify such plan under the applicable provisions of the Code, and to make any and all filings and submissions to the appropriate Governmental Entities required to be made by it in connection with such establishment or designation. (i) ACCRUED PAID TIME OFF. Buyer shall use any funds wire transferred to it in respect of Accrued Paid Time Off for Toledo Employees pursuant to Section 5.8(c) to cover expenses relating to Accrued Paid Time Off for Toledo Employees who become employed by Buyer as of the Conversion Date. Buyer shall use any credit against the Purchase Price provided to Buyer in respect of Accrued Paid Time Off for Closing Date Employees pursuant to Section 5.8(c) to cover expenses relating to Accrued Paid Time Off for Closing Date Employees who become employed by Buyer as of the Closing Date. ARTICLE 7 MUTUAL COVENANTS OF THE PARTIES Each Seller and Buyer covenants and agrees as follows: 7.1 COOPERATION AND TRANSITION SERVICES. (a) Each of the parties will give any notices to, make any filings with, and use its respective reasonable best efforts to obtain any authorizations, consents and approvals of Government Entities in connection with the transactions contemplated by this Agreement. Buyer and Sellers shall reasonably cooperate with one another and shall use their reasonable best efforts to obtain FTC approval of Buyer as an acceptable purchaser of the Assets and to assist in causing the Provisional Consent Decree to become final without adverse modification. (b) In addition to the specific obligations created by the Collateral Agreements, to the extent consistent with applicable law, Buyer and Sellers shall reasonably cooperate with each other and shall cause their officers, employees, agents and representatives to reasonably cooperate with each other for the periods contemplated by the Co-Pack Agreement and the Transition Services Agreement to ensure the orderly transition of the Business, the Assets and the Assumed Liabilities to Buyer, to minimize the disruption to the respective businesses of the parties hereto (including the parties' relationships with customers and suppliers) resulting from the transactions contemplated hereby and, in connection with Buyer's -46- efforts to obtain the financing contemplated by the Financing Commitment, to reasonably cooperate with each other, and to cause their officers, employees, agents and representatives to reasonably cooperate with each other, and to make disclosures required by law related thereto. Except as otherwise provided in this Agreement, Buyer, on the one hand, and Sellers, on the other hand, shall reimburse the other for reasonable out-of-pocket costs and expenses incurred at the request of the other party in assisting the other pursuant to this Section 7.1(b). 7.2 PUBLICITY. Sellers and Buyer agree that, from the date hereof through the Closing Date, no public release or announcement concerning the transactions contemplated hereby shall be issued by a party without the prior written consent of the other parties (which consent shall not be unreasonably withheld), except as such release or announcement may be required by law or the rules or regulations of any Governmental Entity or any United States or foreign securities exchange, in which case advance notice and an opportunity to comment on the proposed release or other announcement shall be given to the other party, to the extent reasonably practicable. Sellers and Buyer agree to keep the terms of this Agreement and the Collateral Agreements confidential, except to the extent required by applicable law, rules or regulations and except that the parties may disclose such terms to their respective accountants and other representatives as necessary in connection with the ordinary conduct of their respective businesses (so long as such Persons agree to keep the terms of this Agreement and the Collateral Agreements confidential) and to the FTC and other antitrust regulatory agencies. 7.3 TAX MATTERS. (a) TRANSFER TAXES. Buyer shall pay all sales, use, value-added, business, goods and services, transfer, documentary, conveyancing or similar Taxes or expenses and all recording fees that may be imposed as a result of the sale and transfer of the Assets, Robin Hood Assets or the Special Inventory, or any other assets, property, franchise, service or business to be, directly or indirectly, acquired by, or provided to, Buyer or any of its Affiliates under this Agreement or any of the Collateral Agreements (including any stamp duty or other Tax chargeable in respect of any instrument transferring property and any Taxes (other than income Taxes) payable in connection with the sale and transfer of the Intellectual Property), together with any and all penalties, interest and additions to Tax with respect thereto ("Transfer Taxes"), and Sellers and Buyer shall cooperate in timely making all filings, returns, reports and forms as may be required to comply with the provisions of such Tax laws. (b) COOPERATION. Buyer and Sellers shall, and shall cause their respective subsidiaries and Affiliates to, cooperate with respect to Tax matters. Buyer and Sellers shall provide one another with such information as is reasonably requested in order to enable the requesting party to complete and file all Returns which it may be required to file with respect to the Business, the Assets, the Robin Hood Business, the Special Inventory, the Robin Hood Assets, and Windmill or to respond to audits, inquiries or other proceedings by any Taxing Authority and otherwise to satisfy Tax requirements. Such cooperation shall further include (i) provision of powers of attorney to Sellers (or their designees) relating to Tax matters to satisfy Sellers' obligations under Section 7.3 and Article 9 of this Agreement, (ii) promptly forwarding copies of appropriate notices, forms or other communications received from or sent to any Taxing Authority, and (iii) promptly providing reasonably requested copies of all relevant Returns together with accompanying schedules and related workpapers, documents relating to -47- rulings, audits or other determinations by any Taxing Authority and records concerning the ownership and tax basis of property, in each case only to the extent such materials relate to the Business, the Assets, the Robin Hood Business, the Special Inventory, the Robin Hood Assets, or Windmill. (c) FILING RESPONSIBILITY. Sellers shall prepare and file or shall cause Windmill, as the case may be, to prepare and file, all Returns with respect to Taxes attributable to the Assets, the Business, the Robin Hood Business, the Special Inventory or the Robin Hood Assets, or of Windmill, required to be filed (taking into account extensions therefor) prior to the Closing Date. Sellers shall prepare and file, or shall cause to be prepared and filed, any consolidated, combined or unitary Return that includes Sellers or any of their Affiliates (and any Return that relates in whole or in part to Taxes (or Tax items) described in clause (2) or (3) of the definition of Excluded Taxes). To the extent that any such Tax Returns filed by Sellers after the Closing Date pertain to Windmill, they shall be prepared in accordance with past practice (unless contrary position is required by law). Buyer shall file or cause to be filed all Returns attributable to the Assets, the Business, the Robin Hood Business, the Special Inventory or the Robin Hood Assets, or of Windmill, for which Sellers do not have filing responsibility pursuant to this Section 7.3(c); PROVIDED, HOWEVER, that in the case of any Returns required to be filed after the Closing Date for which Buyer has filing responsibility pursuant to this Section 7.3(c) and for which Sellers could have liability under this Agreement (including any Return for Property Taxes attributable to the Equipment for any Tax period or portion thereof ending on or prior to the Conversion Date and any Straddle Period Tax Return of Windmill, in each case, for which Buyer has filing responsibility pursuant to this Section 7.3(c)), Buyer (i) shall prepare all such Returns in accordance with past practice (unless contrary position is required by law), (ii) shall provide Sellers with a draft of Buyer's proposed Return at least 30 days prior to the due date (including extensions) for Sellers' review, and (iii) shall revise such Return prior to filing (and file the Return as so revised) to reflect any good faith comments of Sellers given to Buyer within 15 days of Sellers' receipt of the draft Return (PROVIDED, HOWEVER, that to the extent that Buyer does not agree with Sellers' comments, the parties shall endeavor in good faith to resolve such disagreement and, failing that, a neutral CPA firm mutually selected by Sellers and Buyer shall resolve the disagreement prior to the due date, including extensions, and the Return shall be filed in the manner determined by such CPA firm). Buyer shall discharge all Tax liabilities shown on Returns that Buyer is required to file pursuant to this Section 7.3(c); PROVIDED, HOWEVER, that no later than one (1) Business Day prior to the filing of any such Return, the Sellers shall pay to the Buyer an amount equal to the amount of Taxes shown due on such Return for which Sellers are responsible with respect to such Return less any estimated Taxes paid for such Taxes prior to the Closing Date. (d) TIMING DIFFERENCES. If as the result of any adjustment to an Excluded Tax made in an audit or other Tax proceeding, the Sellers are required to make an additional Tax payment (either directly to a Taxing Authority or as an indemnity payment under Section 9.2 of this Agreement), or suffer a reduction in any refund or credit, and, due to such Tax payment (or reduction in refund or credit, or adjustment giving rise to such payment or reduction in such refund or credit), the Buyer or Windmill or any of their Affiliates obtains a Tax benefit, the Buyer shall pay to the Sellers an amount equal to the actual Tax benefit so derived. The amount of any such Tax benefit shall be equal to the amount of the actual reduction in Taxes (or increase in refund or credit) reflected on any Return of the Buyer or Windmill or any of their Affiliates -48- (net of any resulting increases in Taxes borne by Buyer on any such other filed Return) for such period (or any earlier period) as compared to the amount that would have been reflected on such Return in the absence of the additional Tax payment by (or reduction in refund or credit of) Sellers. Any adjustment not resulting in a Tax benefit to the period to which it relates or any earlier period shall be carried forward to succeeding taxable years until used to the extent permitted by law. All payments to Sellers pursuant to this Section 7.3(d) shall be made within 15 days after the filing of the applicable Return for the period in which the Tax benefit is realized by Buyer or Windmill and shall be accompanied by supporting calculations in a form reasonably acceptable to the Sellers documenting the Tax benefit to which the payment relates. If the Buyer or Windmill makes a payment to Sellers pursuant to this Section 7.3(d) and the actual Tax benefit (or portion thereof) is eventually not realized (or another Tax benefit of Buyer is not utilized because of the prior use of a Tax benefit for which payment has been made under this Section 7.3(d)), the Buyer shall promptly notify the Sellers (with documents reasonably acceptable to Sellers supporting the loss of Tax benefit) and, upon receipt of such notice, the Sellers shall promptly refund such payment (or allocable portion thereof) to the Buyer or Windmill (PROVIDED that in no case shall Sellers, in respect of any payment a refund of which is sought under this sentence, be required to refund an amount in excess of such payment previously received by Sellers from Buyer). (e) REFUNDS. (i) Sellers shall be entitled to any refunds or credits of or against any Excluded Taxes (plus any interest received with respect thereto) and Buyer shall file, or cause to be filed, any claims for such refunds or credits reasonably requested by Sellers; (ii) except to the extent set forth in Section 7.3(d) or 7.3(e)(i) above, Buyer shall be entitled to any refunds or credits of Taxes attributable to the Business, the Assets, the Robin Hood Business, the Special Inventory, the Robin Hood Assets, or of Windmill (plus any interest received with respect thereto); (iii) Buyer shall promptly forward to Sellers or reimburse Sellers for any refund or credits due Sellers (pursuant to the terms of this Article 7) after receipt thereof, and Sellers shall promptly forward to Buyer or reimburse Buyer for any refunds or credits due Buyer (pursuant to the terms of this Article 7) after receipt thereof; (iv) refunds or credits for a Straddle Period shall be allocated in the manner set forth in the definition of "Excluded Taxes"; (v) the Buyer and Windmill shall prepare and timely file an irrevocable election under Treasury Regulation section 1.1502-21(b)(3)(ii)(B) for Buyer's consolidated group to relinquish all consolidated net operating losses allocable to Windmill for that portion of the loss carryback period during which Windmill was a member of a Seller's consolidated group; and (vi) Buyer shall not elect to carry back any item of loss, deduction or credit of Buyer, Windmill or any of their Affiliates which arises in any Tax period or portion thereof ending after the Closing Date into any Tax period or portion thereof ending on or before the Closing Date. (f) TAX-SHARING AGREEMENTS. Any tax-sharing agreement or similar arrangement between Sellers, on the one hand, and Windmill, on the other hand, shall be terminated with respect to Windmill prior to the Closing. 7.4 ACCESS TO INFORMATION. After the Closing, upon reasonable notice, and subject to Sections 5.6 and 6.1, Buyer and Sellers agree to furnish or cause to be furnished to each other and their representatives, employees, counsel and accountants access, during normal business hours, to such information (including records pertinent to the Business) and assistance relating to the Business as are reasonably necessary for financial reporting and accounting matters or -49- verifying such party's obligations hereunder, the preparation and filing of any Tax returns, reports or forms or the defense of any Tax Claim or assessment or other claim; PROVIDED, HOWEVER, that such access and assistance do not unreasonably disrupt the normal operations of Buyer or Sellers. 7.5 BULK SALES WAIVER. Buyer and Sellers hereby waive compliance with the terms and conditions of any applicable bulk sales law or similar laws that may be applicable to the sale or transfer of the Assets or the Robin Hood Assets. 7.6 EXPENSES. Except as contemplated by that certain letter agreement dated December 17, 2000 by and among Sellers and Buyer, or as otherwise expressly provided herein, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such costs and expenses, whether or not the transactions contemplated hereby are consummated. 7.7 FURTHER ASSURANCES. Subject to the terms and conditions of this Agreement, each of the parties hereto will use all reasonable best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to satisfy all conditions to, and to consummate, the transactions contemplated by this Agreement and the Collateral Agreements and to carry out the purposes hereof, including causing any Subsidiaries of such party to execute the Collateral Agreements, as applicable, and to carry out the purposes thereof; PROVIDED that notwithstanding anything to the contrary stated in this Agreement, no party hereto shall be required to pay any consideration for any third-party consent or waiver. Buyer agrees to use its reasonable best efforts to satisfy, or cause to be satisfied, all conditions set forth in the Financing Commitment and to consummate the financing thereunder. 7.8 COLLATERAL AGREEMENTS. At the Closing, each Seller, as applicable, and Buyer shall execute and deliver (i) the Trademark License Agreements, (ii) the Omnibus Patent Assignment and the Omnibus Trademark Assignment, (iii) the Patent and Technology License Agreements, (iv) the Transition Services Agreement, (v) the Co-Pack Agreement, (vi) the Toledo Plant Lease Agreement, (vii) the Martha White Trademark License Agreement and the Hungry Jack Trademark License Agreement and the Grant Back Patent and Technology License Agreement, and (viii) the Conversion Plan Agreement (collectively, the "Collateral Agreements"). 7.9 SHARED SERVICES. Buyer and Sellers shall cooperate reasonably with respect to the services and arrangements contemplated by the Transition Services Agreement, the Co-Pack Agreement and the other Collateral Agreements and other shared services and arrangements with the intent of ensuring that, as of the Closing Date, and taking into account all such services and arrangements together with the purchase and sale of the Assets hereunder, Buyer will have the ability to continue to operate the Business on terms that are not, taken as a whole, materially less advantageous to Buyer than the terms on which the Business is presently conducted. 7.10 EMPLOYEE WELFARE BENEFITS. Sellers shall be solely responsible for: (a) claims for the type of benefits described in Section 3(1) of ERISA (whether or not covered by ERISA) ("Welfare Benefits") and for workers' compensation, in each case that are incurred by or with respect to any Business Employee prior to the date such employee becomes employed by the -50- Buyer, PROVIDED, in the case of a disability or workers compensation claim, the Buyer shall have the right to enforce this provision against the Sellers only with respect to such a claim that is actually filed on or before (x) with respect to Closing Date Employees, the first anniversary of the Closing Date, and (y) with respect to Toledo Employees, the first anniversary of the Conversion Date (or, in the case of a claim for a disability benefits under the General Mills Toledo Plan, the date of the DB Transfer); (b) claims relating to COBRA Coverage attributable to "qualifying events" with respect to any Business Employee and his or her beneficiaries and dependents that occur before the date such Business Employee becomes employed by Buyer; and (c) claims for Welfare Benefits and for workers' compensation, in each case that are incurred by or with respect to any Business Employee who does not become employed by Buyer, whether incurred before, on or after the Closing Date (in the case of the Closing Date Employees) or the Conversion Date (in the case of the Toledo Employees). Buyer shall be solely responsible for: (a) claims for Welfare Benefits and for workers' compensation, in each case that are incurred by or with respect to Business Employees from and after the date they become employees of Buyer; and (b) claims relating to COBRA Coverage attributable to "qualifying events" with respect to Business Employees who become employees of Buyer, and their beneficiaries and dependents, that occur after such employees become employees of Buyer. For purposes of the foregoing, a disability or workers' compensation claim shall be considered incurred at the time the injury or condition giving rise to the claim occurs, and a medical/dental claim shall be considered incurred when the services are rendered or the supplies are provided, and not when the condition arose; PROVIDED that claims relating to a hospital confinement that begins before the date a Business Employee becomes employed by Buyer shall be deemed to have occurred before such employee became employed by Buyer. 7.11 TOLEDO DEFINED BENEFIT PLAN TRANSFER OF ASSETS AND LIABILITIES. With respect to Toledo Wage Employees who become employees of Buyer as of the Conversion Date, General Mills shall cause a transfer of assets and liabilities (the "DB Transfer") to be made from the trust under the General Mills Toledo Plan to the trust under the Multifoods Plan, as soon as reasonably practicable after the Conversion Date and following the later of (a) the earlier of delivery to General Mills of a favorable determination letter from the Internal Revenue Service, or an opinion of counsel or indemnity, reasonably satisfactory to General Mills relating to the qualified status of the Multifoods Plan (as amended to the date of transfer), or (b) the delivery to Buyer of a favorable determination letter from the Internal Revenue Service, or an opinion of counsel or indemnity, reasonably satisfactory to Buyer relating to the qualified status of the General Mills Toledo Plan (as amended to the date of transfer). Subject to section 414(l) of the Code, the fair market value of the assets to be transferred in the DB Transfer shall equal the present value as of the Conversion Date of the accumulated benefit obligations of the Toledo Wage Employees who become employees of Buyer as of the Conversion Date, less the amount of any payments made from the General Mills Toledo Plan with respect to such employees following the Conversion Date and prior to the date of transfer, with such present value to be determined using assumptions consistent with those used to determine the pension expense for the current year, except for the discount rate. The discount rate will be determined using the Merrill Lynch 10 year plus high quality corporate bond index on the Conversion Date. Buyer shall cause the Multifoods Plan to accept the assets transferred in the DB Transfer and to assume the liability for all benefits accrued by such Toledo Wage Employees under the General Mills Toledo Plan as of the Conversion Date. The calculations shall be performed by the actuary for the General Mills Toledo Plan with review by the actuary for the Multifoods Plan. If the -51- actuaries disagree, a third independent actuary shall be engaged (with the costs shared equally by the Sellers and Buyer), and the determination of such third independent actuary shall be binding. The DB Transfer shall not take place prior to the 31st day following the filing of all Internal Revenue Service Forms 5310 required in connection therewith. General Mills and Buyer shall use best efforts to expedite the DB Transfer, including promptly providing or filing any documents, forms, or other information necessary to effectuate the DB Transfer, and communicating and cooperating as necessary to expedite the DB Transfer. Notwithstanding anything to the contrary in this Section 7.11, in the event that the union representing the Toledo Wage Employees agrees, pursuant to Section 6.3(e), that such employees shall not participate in a defined benefit plan of Buyer following the Conversion Date, the DB Transfer shall not occur. 7.12 ROBIN HOOD. (a) Sellers shall not be under any obligation to provide any transition services following the Closing to Buyer with respect to the Robin Hood Business. Instead, Buyer and Sellers agree that after the Closing, General Mills will be entitled to continue to conduct the Robin Hood Business, for its own account and as presently conducted in the ordinary course consistent with past practice, until such time as Buyer provides written notice to General Mills of Buyer's intention to take over the Robin Hood Business (and, at the same time, if Buyer desires, to activate its rights under the Co-Pack Agreement with respect to the Robin Hood Business). (b) On the Robin Hood Transfer Date, General Mills shall sell, convey, transfer and assign to Buyer, or cause its applicable Subsidiaries to sell, convey, transfer and assign to Buyer, (i) Intellectual Property to the extent specified in Section 2.3(c) and customer lists, packaging supplier lists and price lists, universal product codes, package designs and copyrights, in each case exclusively related to the Robin Hood Business (the "Robin Hood Assets") and (ii) the "Robin Hood Transfer Date Inventory" as contemplated by Section 7.13. Following the Robin Hood Transfer Date, Buyer shall assume all responsibility for the its operation of the Robin Hood Business except as otherwise expressly provided herein. Notwithstanding anything to the contrary herein, it is agreed and understood that any Robin Hood Asset, Robin Hood Transfer Date Inventory or any other asset relating to the Robin Hood Business that, pursuant to this Agreement will be transferred to Buyer, shall be transferred on the Robin Hood Transfer Date. (c) Prior to, on or after the Robin Hood Transfer Date, Buyer shall not assume, or in any way be liable for the payment, performance or discharge of, any liabilities, obligations or commitments of Sellers or any of their Affiliates for manufacturer's coupons issued prior to, or by either Seller on, the Robin Hood Transfer Date and relating to Robin Hood Products with respect to the Robin Hood Business. (d) On the Robin Hood Transfer Date, Buyer shall assume and shall pay, perform and discharge when due all liabilities and obligations for trade promotions arising from (i) trade promotion activities or events primarily related to the Robin Hood Business that are committed to after the Robin Hood Transfer Date and occur at any time following the Robin Hood Transfer Date or (ii) trade promotion activities or events primarily related to the Robin Hood Business that occur following the Robin Hood Transfer Date and that were committed to -52- before the Robin Hood Transfer Date, except to the extent any such single activity or promotion was not disclosed to Buyer by Sellers and the liability and obligation per customer buying group related to such activity or promotion exceeds $100,000 unless such activity or promotion was committed to by Sellers in the ordinary course consistent with past practice. (e) After the Robin Hood Transfer Date, Buyer shall pay, perform and discharge when due (i) all obligations, liabilities and commitments of each Seller in respect of any and all Robin Hood Products shipped by Buyer or in respect of the operation of the Robin Hood Business by Buyer at any time after the Robin Hood Transfer Date except where such Robin Hood Products constituted finished products as of the Robin Hood Transfer Date and such liabilities, obligations or commitments of Sellers constituted product liabilities or recall liabilities, unless (and to the extent that) the liabilities, obligations or commitments were caused by Buyer's negligence in the storage or transportation of such Robin Hood Products after the Robin Hood Transfer Date or Buyer's failure after the Robin Hood Transfer Date to employ quality control standards of at least the standards employed by Sellers prior to the Robin Hood Transfer Date, (ii) all refund and replacement obligations relating to Robin Hood Products shipped after the Robin Hood Transfer Date, and (iii) all liabilities and obligations for customer deductions attributable to invoices issued by Buyer with respect to Robin Hood Products shipped after the Robin Hood Transfer Date. 7.13 ROBIN HOOD INVENTORY. (a) On the Robin Hood Transfer Date, General Mills shall sell, convey, transfer and assign to Buyer, or cause its Affiliates to sell, convey, transfer and assign to Buyer, all dedicated finished goods inventory and packaging held by General Mills for use of the Robin Hood Business (the "Robin Hood Transfer Date Inventory"), except for an amount of such inventory with respect to the Robin Hood Business necessary for General Mills to fill purchase orders with respect to the Robin Hood Business existing as of the Robin Hood Transfer Date, which inventory Buyer hereby permits General Mills to retain in order to fill such orders and which inventory shall not be deemed to be Robin Hood Transfer Date Inventory for purposes of this Agreement. Within thirty (30) days following the Robin Hood Transfer Date, General Mills shall prepare and deliver to Buyer a statement setting forth the type and value of such Robin Hood Transfer Date Inventory, as of the Robin Hood Transfer Date, to be transferred and assigned to Buyer on the Robin Hood Transfer Date, which statement shall be derived from a physical taking of such Robin Hood Transfer Date Inventory as of the Robin Hood Transfer Date and shall be prepared in a manner consistent with the Inventory Standards (the "Robin Hood Transfer Date Inventory Statement"). Buyer and its representatives shall have such opportunity as Buyer reasonably deems appropriate to observe the taking and reconciliation of such Robin Hood Transfer Date Inventory (which may begin prior to the Robin Hood Transfer Date) in connection with the preparation of the Robin Hood Transfer Date Inventory Statement. Buyer shall provide General Mills and its accountants full access to the books and records, to any other information, including work papers of its accountants, and to any employees of Buyer, in each case as may be reasonably necessary for General Mills to prepare the Robin Hood Transfer Date Inventory Statement, to respond to the Buyer's Robin Hood Transfer Date Objection (as defined herein) and to prepare materials for presentation to the CPA Firm in connection with the matters contemplated by Section 7.13(c). -53- (b) Buyer shall, within thirty (30) days after the delivery by General Mills of the Robin Hood Transfer Date Inventory Statement, complete its review thereof. After delivery of the Robin Hood Transfer Date Inventory Statement, General Mills shall provide Buyer and its accountants full access to all books and records, to any other information, including working papers of its accountants, and to any employees of Sellers, in each case used in the preparation of the Robin Hood Transfer Date Inventory Statement or as may otherwise be reasonably necessary for Buyer to prepare the Buyer's Robin Hood Transfer Date Objection and to prepare materials for presentation to the CPA Firm in connection with the matters contemplated by Section 7.13(c). The Robin Hood Transfer Date Inventory Statement shall be binding and conclusive upon, and deemed accepted by, Buyer unless Buyer shall have notified General Mills in writing within thirty (30) days after delivery of the Robin Hood Transfer Date Inventory Statement of any objection thereto (the "Buyer's Robin Hood Transfer Date Objection"). The Buyer's Robin Hood Transfer Date Objection shall set forth a description of the basis of the Buyer's Robin Hood Transfer Date Objection and the adjustments to the value of such Robin Hood Transfer Date Inventory reflected on the Robin Hood Transfer Date Inventory Statement that Buyer believes should be made. Any items not disputed during the foregoing thirty (30) day period shall be deemed to have been accepted by Buyer. (c) If General Mills and Buyer are unable to resolve all of their disputes with respect to the Robin Hood Transfer Date Inventory Statement within thirty (30) days following General Mills' receipt of the Buyer's Robin Hood Transfer Date Objection to such Robin Hood Transfer Date Inventory Statement pursuant to Section 7.13(b), they shall refer their remaining differences to the CPA Firm for decision, which decision shall be made consistent with the Inventory Standards within forty-five (45) days and shall be final and binding on the parties, PROVIDED that the CPA Firm's determination as to any item set forth in Buyer's Robin Hood Transfer Date Objection shall not be more beneficial to General Mills than the determination of that item by General Mills in the Robin Hood Transfer Date Inventory Statement or more beneficial to Buyer than the determination of that item in Buyer's Robin Hood Transfer Date Objection. Any expenses relating to the engagement of the CPA Firm shall be shared equally by General Mills, on the one hand, and Buyer, on the other hand. General Mills and Buyer shall each bear the fees of their respective auditors incurred in connection with the determination and review of the Robin Hood Transfer Date Inventory Statement. (d) The Robin Hood Transfer Date Inventory Statement shall become final and binding on the parties upon the earliest of (i) if no Buyer's Robin Hood Transfer Date Objection has been given, the expiration of the period within which Buyer must make its objection pursuant to Section 7.13(b) hereof, (ii) agreement in writing by General Mills and Buyer that the Robin Hood Transfer Date Inventory Statement, together with any modifications thereto agreed to by General Mills and Buyer, shall be final and binding and (iii) the date on which the CPA Firm shall issue its written determination with respect to any dispute relating to such Robin Hood Transfer Date Inventory Statement. The Robin Hood Transfer Date Inventory Statement, as submitted by General Mills if no timely Buyer's Robin Hood Transfer Date Objection has been given or as adjusted pursuant to any agreement between the parties or as determined pursuant to the decision of the CPA Firm, when final and binding on all parties, is herein referred to as the "Final Robin Hood Transfer Date Inventory Statement." -54- (e) Within ten (10) Business Days following issuance of the Final Robin Hood Transfer Date Inventory Statement, the payment payable pursuant to this Section 7.13(e) (the "Robin Hood Transfer Date Payment") and interest thereon shall be paid by Buyer to General Mills by wire transfer of immediately available funds to a bank account or bank accounts designated in writing by General Mills. The Robin Hood Transfer Date Payment shall be equal to the value of the Robin Hood Transfer Date Inventory as reflected on the Final Robin Hood Transfer Date Inventory Statement. The Robin Hood Transfer Date Payment shall bear interest from the Robin Hood Transfer Date to the date of payment at the Robin Hood Transfer Date Interest Rate, which interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed and such interest shall be paid on the same date and in the same manner as such Robin Hood Transfer Date Payment. 7.14 MANUFACTURER CODES. If after the Closing Date or the Robin Hood Transfer Date, as applicable, General Mills requests in writing that Buyer use reasonable best efforts to change the portion of universal product codes constituting manufacturer codes with respect to the Business and the Robin Hood Business, Buyer shall use such reasonable best efforts to change such manufacturer codes. To the extent Buyer incurs any direct, reasonable documented out-of-pocket costs as a result of the change in such manufacturer codes (including new or additional slotting allowances or similar charges), Buyer shall be liable for the first $300,000 of such costs and General Mills shall be liable for any amount in excess thereof. ARTICLE 8 CLOSING 8.1 CLOSING. The closing (the "Closing") of the purchase and sale of the Assets and of the transactions contemplated by this Agreement shall be held at the offices of Faegre & Benson LLP, 2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota, as promptly as practicable following the satisfaction or waiver of the conditions to Closing set forth in Sections 8.2 and 8.3 (except for those conditions to be satisfied on the Closing Date), but in any event no later than the fifth Business Day following such satisfaction or waiver, or on such other date, time and place as may be mutually agreed in writing by Sellers and Buyer. The date on which the Closing shall occur is hereinafter referred to as the "Closing Date." Buyer and Sellers shall also deliver, or cause to be delivered, as applicable, the following: (a) At the Closing, Buyer shall deliver to Sellers (i) by wire transfer to the bank account or bank accounts per the wire transfer instructions on SCHEDULE 8.1(a) hereto, immediately available funds in an aggregate amount equal to the Purchase Price (before giving effect to any adjustments pursuant to Sections 2.9(e) and 5.8(c)); (ii) appropriately executed instruments of assumption in form and substance reasonably satisfactory to Sellers and their counsel evidencing and effecting the assumption by Buyer of the Assumed Liabilities and such other documents as are specifically required by this Agreement (it being understood that such instruments shall not require Buyer or any other Person to make any additional representations, warranties or covenants, express or implied, not contained in this Agreement); and (iii) the certificate required pursuant to Section 8.3(a)(iii). -55- (b) At the Closing, each Seller, as applicable, shall deliver and cause its applicable Subsidiaries to deliver to Buyer (i) appropriately executed instruments of sale, assignment, transfer and conveyance in form and substance reasonably satisfactory to Buyer and its counsel evidencing and effecting the sale and transfer to Buyer of the Assets and such other documents as are specifically required by this Agreement (it being understood that such instruments shall not require either Seller, their Subsidiaries or any other Person to make any additional representations, warranties or covenants, express or implied, not contained in this Agreement); (ii) the certificate required pursuant to Section 8.2(a)(iii); (iii) a Schedule of Accrued Paid Time Off for Business Employees who have been employed by Buyer at the Closing Date, to the extent practicable; and (iv) stock certificates representing the Stock, with appropriate properly signed stock powers suitable to transfer the Stock to Buyer, with stamps attached, if any. (c) At the Closing, the Buyer and each Seller, as applicable shall deliver, and Sellers shall cause their applicable Subsidiaries to deliver, the executed Collateral Agreements to which they are parties. (d) At the Closing, (i) each Seller shall deliver certificates of the Secretary or an Assistant Secretary of such Seller, dated the Closing Date, (A) as to the incumbency and signatures of the officers or representatives of such Seller executing this Agreement and the Collateral Agreements, as applicable, together with evidence of incumbency of such Secretary or Assistant Secretary, and (B) certifying attached resolutions of the Board of Directors of such Seller that authorize the execution, delivery and performance of this Agreement and the Collateral Agreements, and (ii) each Seller shall deliver a good standing certificate, dated no more than two (2) Business Days prior to the Closing, of such Seller. (e) At the Closing, (i) Buyer shall deliver certificates of the Secretary or an Assistant Secretary of Buyer, dated the Closing Date, (A) as to the incumbency and signatures of the officers or representatives of Buyer executing this Agreement and the Collateral Agreements, together with evidence of incumbency of such Secretary or Assistant Secretary, and (B) certifying attached resolutions of the Board of Directors of Buyer that authorize the execution, delivery and performance of this Agreement and the Collateral Agreements, and (ii) Buyer shall deliver a good standing certificate, dated no more than two (2) Business Days prior to the Closing, of Buyer. (f) General Mills on behalf of itself, and Pillsbury on behalf of itself, shall deliver to Buyer a duly executed and acknowledged affidavit dated the Closing Date in form and substance reasonably acceptable to Buyer, certifying facts that would exempt the transactions contemplated hereby from the provisions of the Foreign Investors Real Property Tax Act. 8.2 BUYER'S CONDITIONS TO CLOSING. The obligation of Buyer to purchase and pay for the Assets and assume the Assumed Liabilities, and to consummate the other transactions contemplated hereby, is subject to the satisfaction (or waiver by Buyer) as of the Closing of the following conditions: (a) (i) each of the representations and warranties of Sellers contained in this Agreement shall be true and correct except for such failures to be true and correct (without -56- giving effect to any Materiality Qualifiers) that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect or prohibit or materially impair the ability of each Seller to consummate the transactions hereunder, in each case on and as of the Closing Date, as though made on and as of the Closing Date (unless and to the extent any such representation or warranty speaks specifically as of an earlier date, in which case, as of such earlier date); (ii) each Seller shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by such Seller by the time of the Closing; and (iii) Sellers shall have delivered to Buyer a certificate dated the Closing Date and signed by a duly authorized officer of each Seller confirming the foregoing; (b) no injunction or order, writ, decree or judgment of any Governmental Entity of competent jurisdiction shall be in effect as of the Closing that makes illegal, restrains or prohibits the purchase and sale of the Assets or the consummation of the other material transactions contemplated by this Agreement; (c) the Provisional Consent Decree shall have been accepted for public comment by the FTC; (d) the Provisional Consent Decree that shall have been accepted for public comment by the FTC shall name Buyer as an acceptable purchaser of the Business or Buyer's acquisition of the Business otherwise shall been approved by the FTC; (e) each Seller or its Affiliates, as applicable, shall have executed and delivered to Buyer each of the Collateral Agreements and all other documents and instruments required to be delivered by such Seller to Buyer hereunder; (f) since the date of this Agreement, there shall not have been any condition, circumstance, event or occurrence occurring or existing that, individually or in the aggregate, has resulted or would reasonably be expected to result in a Material Adverse Effect; (g) the provisions of Section 7.9 shall have been implemented in such a manner that Buyer shall have the ability to continue to operate the Business on terms that are, taken as a whole, not materially less advantageous to Buyer than the terms on which the Business is presently conducted; (h) the proceeds of the financing contemplated by the Financing Commitment, or such lesser amount as may be necessary to consummate the transactions contemplated by this Agreement on the terms set forth herein and to provide Buyer with at least $75,000,000 of working capital and other post-Closing financing, shall be available to Buyer; (i) Buyer shall have received all consents, licenses, authorizations, certificates and permits required by Governmental Entities to consummate the transactions contemplated by this Agreement, except for failures to receive such consents, licenses, authorizations, certificates and permits that, individually or in the aggregate, and taking into account the availability of the arrangements contemplated by the Transition Services Agreement, the Co-Pack Agreement and the other Collateral Agreements, would not reasonably be expected -57- to have a Material Adverse Effect or prohibit or materially impair the ability of Buyer to consummate the transactions hereunder; (j) Buyer shall have received consents from, or modifications to or new agreements or arrangements with, the Persons identified in SCHEDULE 8.2(j) in such a manner that Buyer shall have the ability to continue to operate the Business on terms that are, taken as a whole, not materially less advantageous to Buyer than the terms on which the Business is presently conducted, which modifications or new agreements, to the extent SCHEDULE 8.2(j) contemplates specific terms, shall be on substantially the terms contemplated by such Schedule; and (k) the Acquisition shall have been consummated. 8.3 SELLERS' CONDITIONS TO CLOSING. The obligation of each Seller to sell and deliver or cause to be sold and delivered the Assets to Buyer, and to consummate the other transactions contemplated hereby, is subject to the satisfaction (or waiver by such Seller) as of the Closing of the following conditions: (a) (i) each of the representations and warranties of Buyer contained in this Agreement shall be true and correct except for such failures to be true and correct (without giving effect to any Materiality Qualifiers) that, individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on the financial condition of Buyer or the ability of Buyer to consummate the transactions hereunder, in each case on and as of the Closing Date, as though made on and as of the Closing Date (unless and to the extent any such representation or warranty speaks specifically as of an earlier date, in which case, as of such earlier date); (ii) Buyer shall have performed or complied in all material respects with the obligations and covenants required by this Agreement to be performed or complied with by Buyer by the time of the Closing; and (iii) Buyer shall have delivered to Sellers a certificate dated the Closing Date and signed by a duly authorized officer of Buyer confirming the foregoing; (b) no injunction or order, writ, decree or judgment of any Governmental Entity of competent jurisdiction shall be in effect as of the Closing that makes illegal or restrains or prohibits the purchase and sale of the Assets or the consummation of the other transactions contemplated by this Agreement; (c) the Provisional Consent Decree shall have been accepted for public comment by the FTC; (d) the Provisional Consent Decree that shall have been accepted for public comment by the FTC shall name Buyer as an acceptable purchaser of the Business or Buyer's acquisition of the Business otherwise shall have been approved by the FTC; (e) Buyer shall have executed and delivered to Sellers each of the Collateral Agreements and all other documents and instruments required to be delivered by Buyer to such Seller hereunder; -58- (f) Buyer shall have delivered to Sellers properly executed resale exemption certificates containing the requisite tax registration numbers for the Inventory being transferred by Sellers pursuant to this Agreement; and (g) the Acquisition shall have been consummated. ARTICLE 9 INDEMNIFICATION 9.1 SURVIVAL. The representations and warranties of the parties hereto in this Agreement shall survive the execution and delivery hereof and the delivery of all of the documents executed in connection herewith and shall continue in full force and effect after the date hereof and after the Closing Date for a period of eighteen (18) months after the Closing Date, except that the representations and warranties of Sellers pursuant to Sections 3.1(a), 3.2, 3.3(a), the last sentence of Section 3.3(b) and Section 3.7 and of Buyer pursuant to Sections 4.1(a) and 4.4 and claims based upon any party's fraudulent misrepresentations shall survive until the expiration of the relevant statute of limitations (including any extensions thereto) (the "Expiration Date"). No action or proceeding may be brought with respect to any of the representations and warranties unless written notice thereof, setting forth in reasonable detail the claimed misrepresentation or breach of warranty, shall have been delivered to the party alleged to have breached such representation or warranty prior to the applicable Expiration Date. 9.2 INDEMNIFICATION BY SELLERS. From and after the Closing Date, subject to the provisions of this Article 9, Sellers shall jointly and severally indemnify Buyer, its Affiliates and each of their respective officers, directors, employees, agents and representatives, against and hold them harmless from any loss, claim, damage, liability, cost or expense (including reasonable fees and expenses of lawyers, accountants, investigators, experts and other professionals) (collectively, a "Loss") suffered or incurred by any such indemnified party to the extent arising from (i) any breach of any representation or warranty of either Seller contained in this Agreement or in any certificate delivered pursuant to Sections 8.1 and 8.2, (ii) any nonfulfillment of or failure to comply with any covenant or agreement of Sellers or any of them contained in this Agreement or any Collateral Agreement, (iii) the Excluded Liabilities, (iv) without limiting the generality of the foregoing, any liability, obligation or commitment resulting or arising from the ownership, operation or condition of the Business or the Assets on or prior to the Closing Date (except to the extent arising from Buyer's operation on the Closing Date), or from the ownership, operation or condition of the Robin Hood Business on or prior to the Robin Hood Transfer Date (except to the extent arising from Buyer's operation on the Robin Hood Transfer Date), in each case other than Assumed Liabilities or other obligations which Buyer has expressly agreed to pay pursuant to this Agreement or the Collateral Agreements, (v) any liability or obligation resulting from any failure of Sellers or Buyer to comply fully with any applicable bulk transfer laws or any Tax laws relating to the obligations of a buyer of assets in bulk transfer, except to the extent they constitute Assumed Liabilities, Transfer Taxes or other obligations which Buyer has expressly agreed to pay pursuant to this Agreement or the Collateral Agreements; (vi) the failure of Sellers to have the right prior to Closing (or of Buyer to have the right after Closing if Buyer conducts the applicable operations of the Business in substantially the same manner as Sellers conducted such applicable operations prior to Closing) to use the -59- Lemelson Patents or the Research Resources Patent or any of them or any intellectual property subject thereto in connection with the Business or the Robin Hood Business; PROVIDED, HOWEVER, that Buyer shall use its reasonable best efforts promptly following the Closing to settle any claim related to the Lemelson Patents or the Research Resources Patent with respect to the Business with Sellers' consent (which consent shall not be unreasonably withheld or delayed); (vii) any additional Taxes (calculated as set forth in Section 9.6(e)) of the Buyer or Windmill (or successors thereto) for Tax periods (or portions thereof) beginning after the Closing Date that would not have arisen but for an increase in the fair market value of the Stock above the amount set forth on SCHEDULE 2.2 as a result of any adjustment by a Taxing Authority made in an audit or other Tax proceeding; and (viii) any liability, obligation or commitment of Windmill or Buyer arising out of Windmill's existence, operations or ownership of assets on or prior to the Closing Date (except to the extent arising from Buyer's operation on the Closing Date) or the ownership of the Stock prior to Closing (provided that Tax liabilities and obligations shall not be governed by the above provisions of this clause (viii) and shall instead be governed by Section 2.6(f), the definition of "Excluded Taxes" and clause (vii) of this Section 9.2). 9.3 INDEMNIFICATION BY BUYER. From and after the Closing Date, Buyer shall indemnify Sellers, their Affiliates and each of their respective officers, directors, employees, agents and representatives against and hold them harmless from any Loss suffered or incurred by any such indemnified party to the extent arising from (i) any breach of any representation or warranty of Buyer contained in this Agreement or in any certificate delivered pursuant to Sections 8.1 and 8.3; (ii) any non-fulfillment of or failure to comply with any covenant or agreement of Buyer contained in this Agreement or any Collateral Agreement; (iii) the Assumed Liabilities; (iv) any Taxes of Windmill (other than Excluded Taxes); and (v) without limiting the generality of the foregoing, any liability, obligation or commitment resulting from the ownership, operation or condition of the Business, the Assets, Conversion Date Inventory, or Windmill following the Closing, or of the Robin Hood Business, the Robin Hood Transfer Date Inventory or the Robin Hood Assets following the Robin Hood Transfer Date, in each case other than Excluded Liabilities or other obligations which Sellers have expressly agreed to pay pursuant to this Agreement or the Collateral Agreements; PROVIDED, HOWEVER, that with respect to any such liability, obligation or commitment that would not have resulted but for a breach of either Seller's representations, warranties, covenants or agreements contained herein that is covered by Sellers' indemnification obligations under Section 9.2, Buyer's indemnification obligations under this clause (v) shall not apply to the extent of (but only to the extent of) the indemnification obligations of Sellers for such breach pursuant to Section 9.2. 9.4 EXCLUSIVE REMEDY. Buyer and Sellers each acknowledge and agree that, from and after the Closing, their sole and exclusive remedy, with respect to any and all claims relating to breaches of representations and warranties (but, for the avoidance of doubt, not covenants or fraud) in this Agreement, shall be pursuant to the indemnification provisions set forth in this Article 9. In furtherance of the foregoing, Buyer and Sellers hereby waive, from and after the Closing, to the fullest extent permitted under applicable law, any and all rights, claims and causes of action they may have against each other relating to breaches of representations and warranties (but, for the avoidance of doubt, not covenants or fraud) in this Agreement arising under or based upon any federal, state or local statute, law (including common law), ordinance, rule or regulation or otherwise. -60- 9.5 LOSSES NET OF INSURANCE. The amount of any Loss for which indemnification is provided under this Article 9 shall be net of any amounts recovered by the indemnified party under its insurance policies with respect to such Loss after giving effect to any impact of such claims on the indemnifying party's premiums and other costs of insurance. Each party hereby waives, to the extent permitted under its applicable insurance policies, any subrogation rights that its insurer may have with respect to any indemnified Loss. Any payments made pursuant to this Article 9 shall be treated as an adjustment to the Purchase Price for Tax purposes, unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the indemnified party causes such payment not to constitute an adjustment to the Purchase Price for federal income Tax purposes. 9.6 PROCEDURES RELATING TO INDEMNIFICATION. (a) In order for an indemnified party to be entitled to any indemnification provided for under this Article 9 in respect of, arising out of or involving a claim or demand made by any person, firm, Governmental Entity or corporation against the indemnified party (a "Third-Party Claim"), such indemnified party must notify the indemnifying party in writing, and in reasonable detail, of the Third-Party Claim as promptly as reasonably possible after receipt by such indemnified party of written notice of the Third-Party Claim; PROVIDED, HOWEVER, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure. Thereafter, the indemnified party shall deliver to the indemnifying party, within five (5) Business Days after the indemnified party's receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third-Party Claim; PROVIDED, HOWEVER, that failure to make such deliveries shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure. (b) If a Third-Party Claim is made against an indemnified party, the indemnifying party will be entitled to participate in the defense thereof and, if it so elects in writing within ten (10) days of receipt of written notice from the indemnified party and acknowledges its obligation to indemnify the indemnified party therefor, to assume the defense thereof with counsel, accountants or other designee selected by the indemnifying party and reasonably satisfactory to the indemnified party, PROVIDED that the indemnifying party conducts the defense actively and diligently thereafter. Should the indemnifying party so elect to assume the defense of a Third-Party Claim, the indemnifying party will not be liable to the indemnified party for legal or accounting expenses subsequently incurred by the indemnified party in connection with the defense thereof, absent any conflict of interest between such parties. If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, unless a conflict of interest would arise if counsel to the indemnifying party also represented the indemnified party, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense, except to the extent of any such conflict of interest between such parties. The indemnifying party shall be liable for the fees and expenses of counsel employed by the indemnified party for any period during which the indemnifying party has not assumed the defense thereof or in the event of any conflict of interest between the indemnified party and the indemnifying party. All the parties hereto shall cooperate in the -61- defense or prosecution of any Third-Party Claim. Such cooperation shall include the retention and (upon the other party's request) the provision to the other party of records and information that are reasonably relevant to such Third-Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder, at the reasonable expense of the indemnifying party. Whether or not the indemnifying party shall have assumed the defense of a Third-Party Claim, the indemnified party shall not admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the indemnifying party's prior written consent (which consent shall not be unreasonably withheld). The indemnifying party shall not, without the prior written consent of the indemnified party, enter into any settlement of any Third-Party Claim that would result in the imposition of a consent order, injunction or decree which would materially restrict or otherwise materially adversely affect the future activity or conduct of the indemnified party or any Affiliate thereof, or without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld) that does not include, as an unconditional term thereof, the release of the indemnified party from all liability in respect of such Third-Party Claim except the liability satisfied by the indemnifying party. (c) Notwithstanding the foregoing in this Section 9.6, if a Third-Party Claim for a Straddle Period includes or could reasonably be expected to include both a claim for Taxes that are Excluded Taxes and a claim for Taxes that are Assumed Liabilities, and such claim for Taxes that are Excluded Taxes is not separable from such claim for Taxes that are Assumed Liabilities, the Sellers (if the claim for Taxes that are Excluded Taxes exceeds or reasonably could be expected to exceed in amount the claim for Taxes that are Assumed Liabilities) or otherwise Buyer (Sellers, on the one hand, or Buyer, on the other hand, as the case may be, the "Controlling Party") shall be entitled to control the defense of such Third-Party Claim (such Third-Party Claim, a "Tax Claim"). In such case, the other party (the "Non-Controlling Party") shall be entitled to participate fully (at the Non-Controlling Party's sole expense) in the conduct of such Tax Claim and the Controlling Party shall not settle such Tax Claim without the consent of such Non-Controlling Party (which consent shall not be unreasonably withheld). The costs and expenses of conducting the defense of such Tax Claim shall be reasonably apportioned based on the relative amounts of the claim for Taxes that are Excluded Taxes and the claim for Taxes that are Assumed Liabilities. For purposes of this Section 9.6(c), the term "Assumed Liabilities" shall include any Taxes of Windmill (other than Excluded Taxes). (d) Notwithstanding any other provision, (a) Sellers shall be entitled to control in all respects, and neither Buyer nor any of its Affiliates shall be entitled to participate in, any Tax audit or other proceeding with respect to any consolidated, combined or unitary Return that includes any of the Sellers or any of their Affiliates; PROVIDED, HOWEVER, that Sellers may not settle or otherwise resolve the portion, if any, of any such Tax audit or other proceeding that pertains to income, gain, loss, deduction or credit of Windmill (other than any such portion that could impact an indemnification by the Sellers under clause (vii) of Section 9.2 of this Agreement) without the consent of Buyer, which consent shall not be unreasonably withheld, (b) except as set forth in clause (c) below, Buyer shall be entitled to control in all respects, and neither Sellers nor any of their Affiliates shall be entitled to participate in, any Tax audit or other proceeding with respect to any consolidated, combined or unitary Return that includes the Buyer or any of its Affiliates, (c) if a Tax audit or other proceeding (including but not limited to a Tax audit or other proceeding relating to a consolidated, combined or unitary Return) could give rise -62- to an indemnification by the Sellers under clause (vii) of Section 9.2 of this Agreement, Sellers shall have the right to control in all respects, including as to settlement, at Sellers' expense, the conduct of the portion of such Tax audit or other proceeding which could give rise to such an indemnification, and with respect to such portion, Buyer (A) shall promptly notify Sellers upon receipt of notice of the Tax audit or other proceeding or any proposed assessment, (B) shall thereafter promptly forward to Sellers copies of any communications received from or sent to any Taxing Authority by Buyer, Windmill or any of their Affiliates and (C) shall facilitate to the extent reasonably required by the Sellers, and shall not impede, Seller's control over, such Tax audit or proceeding, and (d) none of the Sellers shall have any obligation whatsoever pursuant to clause (vii) of Section 9.2 or pursuant to Section 9.6(e) of this Agreement if Buyer fails to comply with any of the covenants set forth in clauses (A), (B) and (C) of clause (c) above and Sellers are actually prejudiced as a result of such failure. (e) If and to the extent that Sellers are required to indemnify Buyer pursuant to clause (vii) of Section 9.2 of this Agreement, within thirty (30) days of receipt from Buyer of notification (together with supporting documentation reasonably acceptable to Sellers) of a "determination" within the meaning of Section 1313 of the Code or other final agreement negotiated by Sellers with the relevant Taxing Authority, but in no case sooner than one (1) Business Day prior to the date on which Buyer is obligated to pay the applicable Taxing Authority, Sellers shall pay to Buyer an amount equal to the sum of (1) the net present value (assuming a nine and one-half percent (9.5%) discount rate) of forty percent (40%) of the excess of (x) the amount allocated to the Stock pursuant to the determination over (y) the amount set forth in SCHEDULE 2.2 hereto, amortized over fifteen (15) years, and (2) any interest and penalties incurred by Buyer that would not have been incurred but for such determination. 9.7 INDEMNIFICATION AMOUNTS. Notwithstanding anything to the contrary stated in this Article 9, no indemnifying party shall have liability under Section 9.2(i) or 9.3(i), as the case may be, for breaches of representations and warranties (other than those set forth in Section 3.1(a), 3.2, 3.3(a), the last sentence of Section 3.3(b), and Sections 3.7, 4.1(a) or 4.4 or fraudulent misrepresentations) (a) for any individual Loss less than $20,000 or until the aggregate amount of Losses (excluding any Loss less than $20,000) that the indemnifying party would, but for this Section 9.7, be liable exceeds on a cumulative basis an amount equal to three million dollars ($3,000,000) (the "Basket"), and then only to the extent that the aggregate of all Losses exceeds the Basket or (b) for Losses in excess of fifteen (15) percent of the Purchase Price. Buyer and Sellers agree that certain representations and warranties contained in this Agreement are qualified by materiality references or by matters having or not having a Material Adverse Effect (collectively, the "Materiality Qualifiers"). Buyer and Sellers agree that for purposes of Sections 9.2 and 9.3 hereof and for purposes of calculating the Basket and the amount of Losses, the Materiality Qualifiers shall be ignored and the representations and warranties shall be construed without regard to any Materiality Qualifiers therein contained. -63- ARTICLE 10 TERMINATION 10.1 BASES FOR TERMINATION. Anything contained herein to the contrary notwithstanding, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing Date: (a) by mutual written consent of Sellers and Buyer; (b) by Buyer if any of the conditions set forth in Section 8.2 shall have become incapable of fulfillment and shall not have been waived by Buyer; (c) by either Seller if any of the conditions set forth in Section 8.3 shall have become incapable of fulfillment and shall not have been waived by such Seller; (d) by any party hereto, if the FTC shall have determined not to approve of Buyer as an acceptable purchaser of the Assets or if the FTC otherwise conditions its approval of this Agreement and the Collateral Agreements in a manner that would reasonably be expected to be materially adverse to such party; (e) by either Seller or Buyer if the Closing does not occur on or prior to April 30, 2001; or (f) by either Seller if the Merger Agreement is terminated. PROVIDED, HOWEVER, that the party seeking termination pursuant to clause (b), (c), or (e) is not in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement. 10.2 NOTICE OF TERMINATION; RETURN OF DOCUMENTS; CONTINUING CONFIDENTIALITY OBLIGATION. In the event of termination by either Seller or by Buyer pursuant to this Article 10, written notice thereof shall forthwith be given to the other parties and the transactions contemplated by this Agreement shall be terminated, without further action by any party. If the transactions contemplated by this Agreement are terminated or rescinded as provided herein: (a) Buyer shall return all documents and copies and other material received from Sellers relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to Sellers; and (b) all confidential information received by Buyer with respect to the Business shall be treated in accordance with the Confidentiality Agreement, which shall remain in full force and effect notwithstanding the termination of this Agreement. 10.3 EFFECT OF TERMINATION. If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this Article 10, this Agreement shall become void and of no further force and effect, except for the provisions of (a) Section 5.5 relating to reimbursement of expenses, (b) Section 6.1 relating to the obligation of Buyer to keep -64- confidential certain information and data obtained by it, (c) Section 7.6 relating generally to expenses, (d) Section 7.2 relating to publicity, (e) Sections 3.7 and 4.4 relating to finders' fees and brokers' fees or commissions, and (f) Section 10.2 and this Section 10.3. Nothing in this Article 10 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of any party to compel specific performance by another party of its obligations under this Agreement. ARTICLE 11 GENERAL PROVISIONS 11.1 ASSIGNMENT; SUCCESSORS AND ASSIGNS. Except as set forth below, this Agreement and the rights and obligations hereunder shall not be assignable or transferable by Buyer or Sellers (including by operation of law in connection with a merger or sale of substantially all the assets of Buyer or Sellers) without the prior written consent of each of the other parties hereto. Buyer may assign or delegate its rights, obligations or liabilities under this Agreement in whole or in part to one or more subsidiaries of Buyer or to the lender or lenders providing to it the financing to consummate the transactions contemplated hereby, in each case without the consent of Sellers (provided that a pledge of Buyer's rights, obligations or liabilities under this Agreement to such lender or lenders shall not constitute an assignment hereunder until such time as any such lender exercises its rights under the pledge agreement or other applicable agreement or document); PROVIDED, HOWEVER, that in any such event, Buyer shall remain fully liable for the fulfillment of all its obligations hereunder. Any attempted assignment or delegation in contravention hereof shall be null and void. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. 11.2 NO THIRD-PARTY BENEFICIARIES. Except for Persons entitled to indemnification under Article 9 hereof, this Agreement is for the sole benefit of the parties hereto, and nothing herein express or implied shall give or be construed to give to any Person or entity, other than the parties hereto, any legal or equitable rights hereunder. 11.3 AMENDMENTS. No amendment to this Agreement shall be effective unless it shall be in writing and signed by each party hereto. 11.4 WAIVER OF COMPLIANCE. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party, granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Any consent given by any party pursuant to this Agreement shall be valid only if contained in a written consent signed by such party. 11.5 NOTICES. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by telecopy, or by postage prepaid, registered, certified or express mail or by reputable overnight courier service and shall be deemed given when delivered by hand or telecopied, three days after mailing (one (1) -65- Business Day in the case of guaranteed overnight express mail or guaranteed overnight courier service), as follows (or at such other address or to such other fax for a party as shall be specified by like notice): (i) If to General Mills or if to Pillsbury after the Acquisition: General Mills, Inc. Number One General Mills Blvd. Minneapolis, Minnesota 55426 Attn.: General Counsel Fax: (763) 764-3302 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn.: Steven A. Rosenblum, Esq. Fax: (212) 403-2000 (ii) If to Pillsbury before the Acquisition: Diageo plc 8 Henrietta Place London England W1M9AG Attn.: Group General Counsel Fax: 011-44207-927-4864 with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attn.: Francis J. Aquila, Esq. Fax: (212) 558-3588 (iii)If to Buyer: International Multifoods Corporation 110 Cheshire Lane, Suite 300 Minnetonka, Minnesota 55305-1060 Attn: General Counsel Fax: (952) 594-3367 -66- with a copy to: Faegre & Benson LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attn.: Philip S. Garon, Esq. Fax: (612) 336-3026 11.6 INTERPRETATION. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement, are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The phrases "the date of this Agreement," "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth in the first paragraph of this Agreement. The words "hereof," "hereby," "herein," "hereunder" and similar terms in this Agreement shall refer to this Agreement as a whole and not to any particular Section or Article in which such words appear. All references to dollar amounts shall be deemed to be references to U.S. Dollars. 11.7 COUNTERPARTS. This Agreement and any amendments hereto may be executed by facsimile and in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. 11.8 SEVERABILITY. If any provision of this Agreement or the application of any such provision to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. 11.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota applicable to agreements made and to be performed entirely within such State, without regard to the choice of law principles of such State. 11.10 ACTIONS AND PROCEEDINGS. Sellers and Buyer hereby irrevocably consent to the exclusive jurisdiction and venue of the Courts of the State of Minnesota and the United States District Court for the District of Minnesota, in connection with any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. Buyer hereby irrevocably appoints Buyer's General Counsel as its authorized agent upon whom process may be served in any such action or proceeding instituted in any such court and waives any objections to personal jurisdiction with respect thereto. Sellers hereby irrevocably appoint General Mills' General Counsel as their authorized agent (PROVIDED that until the Acquisition is consummated, -67- Pillsbury appoints its General Counsel as its authorized agent) upon whom process may be served in any such action or proceeding instituted in any such court and waives any objections to personal jurisdiction with respect thereto. 11.11 EXHIBITS AND SCHEDULES. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. If a matter is disclosed in any Schedule to this Agreement, it shall be deemed to have been disclosed with respect to all Schedules to this Agreement for which its relevance is evident from the disclosure made, PROVIDED that the disclosure in such Schedule is sufficient to reasonably inform the non-disclosing party of the information required to be disclosed in another Schedule to avoid a misrepresentation under the counterpart section or paragraph of this Agreement. For the avoidance of doubt, the mere listing in any Schedule to this Agreement of a document or other item shall be deemed adequate to disclose an exception to a representation or warranty made herein only if such listing of the document or item in the Schedule is sufficient to reasonably inform Buyer of such exception to such representation or warranty. Inclusion of any matter in any Schedule does not imply that such matter would, under the provisions of this Agreement, have to be included in such Schedule. 11.12 SPECIFIC PERFORMANCE. Buyer and each Seller hereby acknowledge, recognize and agree that (a) the Business, the Robin Hood Business, the Assets and the Robin Hood Assets are unique property that cannot be duplicated and (b) irreparable injury may result to the non-breaching party and its business if the other party or parties breach any provision of this Agreement such that money damages alone would not be sufficient remedy for any such breach. Each party hereto therefore agrees that if it should engage, or cause or permit any other Person to engage, in any act in violation of any provision hereof, the other party or parties shall be entitled, in addition to such other remedies, damages and relief as may be available under this Agreement or applicable law, to an injunction prohibiting the breaching party from engaging in any such act or specifically enforcing this Agreement, as the case may be. 11.13 ENTIRE AGREEMENT. Except to the extent otherwise contemplated herein, this Agreement (including the Schedules and Exhibits attached hereto and the Collateral Agreements) contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and, except to the extent specifically set forth herein, supersedes all prior agreements and understandings relating to such subject matter. -68- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. GENERAL MILLS, INC. By: /s/ Stephen W. Sanger ----------------------------------------------- Name: Stephen W. Sanger Title: Chairman of the Board and Chief Executive Officer THE PILLSBURY COMPANY By: /s/ John O. Stewart ----------------------------------------------- Name: John O. Stewart Title: Senior Vice President Strategy and Business Development INTERNATIONAL MULTIFOODS CORPORATION By: /s/ Gary E. Costley --------------------------------------------- Name: Gary E. Costley Title: Chairman of the Board, President and Chief Executive Officer EX-2.2 3 a2050336zex-2_2.txt EXHIBIT 2.2 Exhibit 2.2 FIRST AMENDMENT TO ASSET PURCHASE AND SALE AGREEMENT THIS FIRST AMENDMENT TO THE ASSET PURCHASE AND SALE AGREEMENT (this "Amendment") is made as of April 26, 2001 by and among General Mills, Inc., a Delaware corporation ("General Mills"), The Pillsbury Company, a Delaware corporation ("Pillsbury" and, together with General Mills, the "Sellers" and each, a "Seller"), and International Multifoods Corporation, a Delaware corporation ("Buyer"). Unless otherwise specified, capitalized terms herein shall have the meaning ascribed to them in the Asset Purchase and Sale Agreement (as herein defined). WITNESSETH: WHEREAS, Sellers and Buyer are the parties to that certain Asset Purchase and Sale Agreement, dated as of February 4, 2001 (the "Asset Sale Agreement"). WHEREAS, the parties to the Asset Sale Agreement desire to amend the Asset Sale Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Amendment, and intending to be legally bound hereby, the parties hereto agree as follows: 1. AMENDMENT OF TERMINATION PROVISIONS. Section 10.1(e) of the Asset Sale Agreement is hereby replaced in its entirety with the following: "(e) by either Seller or Buyer if the Closing does not occur on or prior to July 31, 2001;" 2. COUNTERPARTS; EFFECTIVENESS. This Amendment and any amendments hereto may be executed by facsimile and in one or more counterparts, all of which shall be considered one and the same agreement. Except as expressly amended hereby, the terms and conditions of the Asset Sale Agreement shall remain in full force and effect. The Asset Sale Agreement, as amended by this Amendment, shall be binding upon the parties hereto and their successors and permitted assigns. This Amendment shall be effective as of the date first written above. 3. GOVERNING LAW; JURISDICTION AND FORUM; WAIVER OF JURY TRIAL. (a) This Amendment shall be governed by and construed in accordance with the laws of the State of Minnesota applicable to agreements made and to be performed entirely within such State, without regard to the choice of law principles thereof. (b) Sellers and Buyer hereby irrevocably consent to the exclusive jurisdiction and venue of the Courts of the State of Minnesota and the United States District Court for the District of Minnesota, in connection with any action or proceeding arising out of or relating to this Amendment. Buyer hereby irrevocably appoints Buyer's General Counsel as its authorized agent upon whom process may be served in any such action or proceeding instituted in any such court and waives any objections to personal jurisdiction with respect thereto. Sellers hereby irrevocably appoint General Mills' General Counsel as their authorized agent (PROVIDED that until the Acquisition is consummated, Pillsbury appoints its General Counsel as its authorized agent) upon whom process may be served in any such action or proceeding instituted in any such court and waives any objections to personal jurisdiction with respect thereto. 4. HEADINGS; DEFINITIONS. The section and article headings contained in this Amendment are inserted for convenience of reference only and will not affect the meaning or interpretation of this Amendment. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. GENERAL MILLS, INC. By: /s/ Stephen W. Sanger --------------------------------------- Name: Stephen W. Sanger Title: Chairman of the Board and Chief Executive Officer THE PILLSBURY COMPANY By: /s/ John O. Stewart --------------------------------------- Name: John O. Stewart Title: Senior Vice President Strategy and Business Development INTERNATIONAL MULTIFOODS CORPORATION By: /s/ Gary E. Costley ------------------------------------- Name: Gary E. Costley Title: Chairman of the Board, President and Chief Executive Officer -3- EX-4.7 4 a2050336zex-4_7.txt EXHIBIT 4.7 Exhibit 4.7 CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PARTICIPATING PREFERRED CAPITAL STOCK OF INTERNATIONAL MULTIFOODS CORPORATION (PURSUANT TO SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW) International Multifoods Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation, in accordance with the provisions of Section 151 of the General Corporation Law at a meeting duly called and held on September 15, 2000: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of its Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), a series of Preferred Capital Stock, par value one dollar ($1.00) per share (as such par value may be changed from time to time, the "Preferred Shares" or "Preferred Stock"), of the Corporation be, and it hereby is, created and that the designation and number of shares thereof and the relative rights, preferences and limitations of the shares of such series, are as follows: 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Capital Stock " (the "Series A Preferred Shares"), and the number of shares constituting such series shall be Five Hundred Thousand (500,000). The number of shares constituting such series may, unless prohibited by the Certificate of Incorporation or by applicable law of the State of Delaware, be increased or decreased by resolution of the Board of Directors; PROVIDED, that no decrease shall reduce the number of Series A Preferred Shares to a number less than the number of shares then outstanding plus the number of shares issuable upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Shares. 2. DIVIDENDS AND DISTRIBUTIONS. (i) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock ranking prior and superior to the Series A Preferred Shares), the holders of Series A Preferred Shares, in preference to the holders of Common Stock, par value ten cents ($0.10) per share (the "Common Shares" or "Common Stock") and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first business day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Series A Preferred Share, or fraction thereof, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, one hundred (100) times the aggregate per share amount of all cash dividends, and one hundred (100) times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Series A Preferred Share, or fraction thereof. In the event the Corporation shall at any time after October 4, 2000 declare or pay any dividend on shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend on shares of Common Stock payable in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of Series A Preferred Shares were entitled immediately before such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event. (ii) The Corporation shall declare a dividend or distribution on the Series A Preferred Shares as provided in subparagraph (i) of this paragraph 2 simultaneously with its declaration of a dividend or distribution on the shares of Common Stock (other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock); provided that, if no dividend or distribution shall have been declared on the shares of Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Shares shall nevertheless be payable, out of funds legally available for such purpose, on such subsequent Quarterly Dividend Payment Date. (iii) Dividends shall begin to accrue and be cumulative on outstanding Series A Preferred Shares from the Quarterly Dividend Payment Date immediately preceding the date of issue of such Series A Preferred Shares, unless the date of issue of such shares is before the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series A Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the Series A Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares outstanding at that time. The Board of Directors may fix a record date for the determination of holders of 2 Series A Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than sixty (60) days before the date fixed for the payment thereof. 3. VOTING RIGHTS. The holders of Series A Preferred Shares shall have the following voting rights: (i) Subject to the provision for adjustment hereinafter set forth, each Series A Preferred Share shall entitle the holder thereof to one hundred (100) votes on all matters submitted to a vote of the stockholders of the Corporation. If the Corporation shall at any time after October 4, 2000 declare or pay any dividend on Common Stock payable in Common Stock, or effect a subdivision or combination or consolidation of the outstanding Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of Series A Preferred Shares were entitled immediately before such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event. (ii) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or by law, the holders of Series A Preferred Shares and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of the stockholders of the Corporation. (iii) Except as otherwise provided herein or by law, the holders of Series A Preferred Shares shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights as set forth herein) for taking any corporate action. 4. CERTAIN RESTRICTIONS. (i) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Shares as provided in paragraph 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on Series A Preferred Shares outstanding shall have been paid in full, the Corporation shall not: (a) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares; (b) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Shares, except dividends paid ratably on 3 the Series A Preferred Shares and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (c) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares; or (d) redeem or purchase or otherwise acquire for consideration any Series A Preferred Shares, or any shares of stock ranking on a parity with the Series A Preferred Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (ii) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under subparagraph (i) of this paragraph 4, purchase or otherwise acquire such shares at such time and in such manner. 5. REACQUIRED SHARES. Any Series A Preferred Shares purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued Preferred Shares and may be reissued as part of a new series of Preferred Stock by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or as otherwise required by law. 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (a) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares unless, prior thereto, the holders of Series A Preferred Shares shall have received the greater of (i) $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to one hundred (100) times the aggregate amount to be distributed per share to holders of Common Stock, or (b) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Shares, except distributions made ratably on the Series A Preferred Shares and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. If the Corporation shall at any 4 time after October 4, 2000 declare or pay any dividend on the shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding Common Stock (by reclassification or otherwise) into a greater or lesser number of Common Stock, then in each such case the aggregate amount to which holders of Series A Preferred Stock were entitled immediately before such event under clause (a)(ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of Common Stock outstanding immediately after such event and the denominator of which is the number of Common Stock that were outstanding immediately before such event. 7. CONSOLIDATION, MERGER, EXCHANGE, ETC. If the Corporation shall enter into any consolidation, merger, combination, or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, money and/or any other property, then in any such case the Series A Preferred Shares shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to one hundred (100) times the aggregate amount of stock, securities, money and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the Corporation shall at any time after October 4, 2000 declare or pay any dividend on shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise then by payment of a dividend on shares of Common Stock payable in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Preferred Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event. 8. NO REDEMPTION. The Series A Preferred Shares shall not be redeemable. 9. RANK. The Series A Preferred Shares shall rank junior with respect to the payment of dividends and distribution of assets upon liquidation, dissolution or winding up to all other series of the Corporation's Preferred Stock hereafter issued that specifically provide that they shall rank senior to the Series A Preferred Shares. 10. FRACTIONAL SHARES. Series A Preferred Shares may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Shares. 5 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Vice President, Finance and Chief Financial Officer and attested by its Secretary, all as of the 15th day of September, 2000. By: /s/ John E. Byom ---------------------------------------- Its: Vice President, Finance and Chief Financial Officer Attest: By: /s/ Frank W. Bonvino ---------------------------------------- Its Secretary 6 EX-10.3 5 a2050336zex-10_3.txt EXHIBIT 10.3 Exhibit 10.3 SECOND AMENDMENT TO THE 1997 STOCK-BASED INCENTIVE PLAN OF INTERNATIONAL MULTIFOODS CORPORATION EFFECTIVE AS OF MARCH 23, 2001 The 1997 Stock-Based Incentive Plan of International Multifoods Corporation (the "Plan") is amended, effective as of March 23, 2001, as follows: 1. The definition of "Award" in Section 1 of the Plan is amended to read as follows: "Award" shall mean an award granted to a Participant in accordance with the provisions of the Plan in the form of Options, Stock Appreciation Rights, Restricted Stock or Restricted Stock Units, or any combination thereof. 2. The definition of "Performance Award" in Section 1 of the Plan is hereby deleted in its entirety. 3. The first and second sentences of Section 2 of the Plan are hereby amended to read as follows: Subject to adjustment as provided in Section 11 hereof, an aggregate of 2,250,000 shares of Stock shall be available to Participants under the Plan. Of such shares of Stock, a maximum of 500,000 shares shall be available for issuance pursuant to Awards of Restricted Stock and Restricted Stock Units. 4. Section 7 of the Plan entitled "Performance Award" is hereby deleted in its entirety. 5. Section 13 of the Plan entitled "Amendments" is hereby amended by adding the following new paragraph (c): (c) Any re-pricing, replacement, re-granting through cancellation, or modification of any Option awarded under this Plan is subject to the approval of the stockholders of Multifoods (except in connection with the adjustments of and changes in Stock described in Section 11 of the Plan), if the effect of such re-pricing, replacement, re-granting or modification would be to reduce the exercise price for the Stock covered by the Option. EX-11 6 a2050336zex-11.txt EXHIBIT 11 Exhibit 11 INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Computation of Earnings (Loss) Per Common Share (dollars in thousands, except per share amounts)
Fiscal Year Ended ------------------------------------------------------------------ March 3, February 29, February 28, February 28, February 28, 2001 2000 1999 1998 1997 ---------- ----------- ----------- ----------- ----------- Average shares of common stock outstanding 18,739,064 18,751,826 18,758,621 18,385,262 17,982,348 Dilutive potential common shares 134,846 34,246 144,722 233,791 - ---------- ---------- ---------- ---------- ---------- Total adjusted average shares 18,873,910 18,786,072 18,903,343 18,619,053 17,982,348 ========== ========== ========== ========== ========== Earnings (loss) from continuing operations $21,175 $ 24,695 $ 6,832 $24,674 $(11,374) Earnings (loss) from discontinued operations - (19,560) (138,702) (4,650) 14,154 ------- -------- --------- ------- -------- Net earnings (loss) $21,175 $ 5,135 $(131,870) $20,024 $ 2,780 ======= ======== ========= ======= ======== Basic earnings (loss) per share: Continuing operations $ 1.13 $ 1.32 $ 0.36 $ 1.34 $ (0.63) Discontinued operations - (1.05) (7.39) (0.25) 0.78 ------- -------- --------- -------- -------- Total $ 1.13 $ 0.27 $ (7.03) $ 1.09 $ 0.15 ======= ======== ========= ======= ======== Diluted earnings (loss) per share: Continuing operations $ 1.12 $ 1.31 $ 0.36 $ 1.33 $ (0.63) Discontinued operations - (1.04) (7.34) (0.25) 0.78 ------- -------- --------- ------- -------- Total $ 1.12 $ 0.27 $ (6.98) $ 1.08 $ 0.15 ======= ======== ========= ======= ========
Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share are computed similar to basic earnings per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the year. EX-12 7 a2050336zex-12.txt EXHIBIT 12 Exhibit 12 INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (dollars in thousands)
FISCAL YEAR ENDED --------------------------------------------------------------- March 3, February 29, February 28, February 28, February 28, 2001 2000 1999 1998 1997 ----------- ------------ ----------- ------------ ------------ Earnings (loss) from continuing operations before income taxes $39,099 $40,351 $12,266 $36,990 $(9,767) Plus: Fixed charges (1) 27,174 25,444 25,719 27,154 28,052 Less: Capitalized interest (542) (814) (196) (8) (109) ------- ------- ------- ------- ------- Earnings available to cover fixed charges $65,731 $64,981 $37,789 $64,136 $18,176 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges(2)(3) 2.42 2.55 1.47 2.36 .65 ======= ======= ======= ======= ======= (1) Fixed charges consist of the following: FISCAL YEAR ENDED --------------------------------------------------------------- March 3, February 29, February 28, February 28, February 28, 2001 2000 1999 1998 1997 ----------- ----------- ------------ ------------ ------------ Interest expense, gross $18,269 $16,397 $16,519 $17,651 $18,658 Rentals (interest factor) 8,905 9,047 9,200 9,503 9,394 ------- ------- ------- ------- ------- Total fixed charges $27,174 $25,444 $25,719 $27,154 $28,052 ======= ======= ======= ======= =======
(2) For the year ended February 28, 1997, earnings were inadequate to cover fixed charges. The deficiency of $9,876 was the result of unusual items. Exclusive of these unusual items, the ratio of earnings to fixed charges would have been 1.36 for the year ended February 28, 1997. (3) Exclusive of unusual items, the ratio of earnings to fixed charges would have been 2.29, 2.53 and 2.60, respectively for the years ended March 3, 2001, February 29, 2000 and February 28, 1999. EX-13 8 a2050336zex-13.txt EXHIBIT 13 EXHIBIT 13
FIVE-YEAR COMPARATIVE SUMMARY Fiscal Year Ended ----------------------------------------------------------------- March 3, February 29, February 28, February 28, February 28, (dollars and shares in millions, except per share data) 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED SUMMARY OF OPERATIONS Net sales $ 2,524.9 $ 2,384.7 $ 2,296.6 $ 2,251.1 $ 2,249.1 Cost of materials and production (2,151.0) (2,032.3) (1,961.5) (1,915.2) (1,918.3) Delivery and distribution (184.9) (168.4) (150.3) (145.9) (155.5) Selling, general and administrative (137.2) (132.1) (132.9) (140.5) (152.2) Unusual items 3.5 0.5 (29.0) (5.0) (20.1) Interest, net (14.8) (11.0) (10.4) (7.5) (12.3) Other income (expense), net (1.4) (1.0) (0.2) - (0.5) - ------------------------------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations before income taxes 39.1 40.4 12.3 37.0 (9.8) Income taxes (17.9) (15.7) (5.5) (12.4) (1.6) - ------------------------------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations 21.2 24.7 6.8 24.6 (11.4) - ------------------------------------------------------------------------------------------------------------------------- Discontinued operations: Operating earnings (loss), after tax - - (14.1) (4.6) 14.2 Net loss on disposition, after tax - (19.6) (124.6) - - - -------------------------------------------------------------------------------------------------------------------------- Earnings (loss) from discontinued operations - (19.6) (138.7) (4.6) 14.2 - ------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 21.2 $ 5.1 $ (131.9) $ 20.0 $ 2.8 ========================================================================================================================= Basic earnings (loss) per share: Continuing operations $ 1.13 $ 1.32 $ 0.36 $ 1.34 $ (0.63) Discontinued operations - (1.05) (7.39) (0.25) 0.78 - ------------------------------------------------------------------------------------------------------------------------- Total $ 1.13 $ 0.27 $ (7.03) $ 1.09 $ 0.15 ========================================================================================================================= Diluted earnings (loss) per share: Continuing operations $ 1.12 $ 1.31 $ 0.36 $ 1.33 $ (0.63) Discontinued Operations - (1.04) (7.34) (0.25) 0.78 - ------------------------------------------------------------------------------------------------------------------------- Total $ 1.12 $ 0.27 $ (6.98) $ 1.08 $ 0.15 ========================================================================================================================= YEAR END FINANCIAL POSITION Current assets (3) $ 378.3 $ 354.0 $ 340.1 $ 383.4 $ 439.9 Current liabilities (3) 298.9 277.5 264.2 221.8 257.6 Working capital (excluding cash and short-term debt)(3) 109.7 126.8 179.3 177.3 268.6 Property, plant and equipment, net (2) 206.2 204.9 165.2 170.0 175.4 Long-term debt (2) 145.4 147.2 121.2 121.0 200.9 Shareholders' equity 256.0 255.1 260.3 309.4 289.6 Total assets (3) 764.6 736.2 696.9 703.6 804.8 - ------------------------------------------------------------------------------------------------------------------------- DIVIDENDS PAID Common stock $ 15.0 $ 15.0 $ 15.0 $ 14.7 $ 14.5 Per share of common stock 0.80 0.80 0.80 0.80 0.80 - ------------------------------------------------------------------------------------------------------------------------- OTHER FINANCIAL DATA Current ratio 1.3:1 1.3:1 1.3:1 1.7:1 1.7:1 Equity per share of common stock $ 13.66 $ 13.62 $ 13.86 $ 16.51 $ 16.08 Debt to total capitalization (2) 42% 45% 38% 32% 43% Depreciation (2) $ 21.7 $ 18.6 $ 18.6 $ 20.3 $ 19.9 Capital expenditures, excluding acquisitions (2) $ 35.2 $ 49.4 $ 28.1 $ 18.6 $ 21.7 Average common shares outstanding: Basic 18.7 18.8 18.8 18.4 18.0 Diluted 18.9 18.8 18.9 18.6 18.0 Number of common shareholders 4,287 4,445 4,658 4,705 5,087 Number of employees (2) 4,654 4,362 4,232 4,043 4,204 Market price per share of common stock: Close $ 19.21 $ 10.94 $ 21.69 $ 27.94 $ 21.13 High $ 23.31 $ 24.19 $ 31.44 $ 32.44 $ 22.00 Low $ 9.81 $ 10.75 $ 15.38 $ 20.00 $ 15.13 - -------------------------------------------------------------------------------------------------------------------------
(1) In fiscal 1999, the Company classified its Venezuela Foods business as discontinued operations. Prior year information has been reclassified accordingly. (2) Continuing operations only. (3) Includes discontinued operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We currently operate in two business segments: Multifoods Distribution Group and North America Foods. Multifoods Distribution Group markets and distributes a broad selection of food and related products to the foodservice industry in the United States. Products are delivered from a nationwide network of distribution centers. North America Foods consists of two units, U.S. Foodservice Products and Robin Hood Multifoods. U.S. Foodservice Products produces baking mixes and frozen bakery products for foodservice operators and commercial customers. Robin Hood Multifoods, a Canadian subsidiary, processes and markets flour, baking mixes, condiments and other food products for consumers and commercial customers. In August 1999, we completed the sale of our Venezuela Foods business. The Venezuelan business is classified as discontinued operations in the consolidated financial statements and in the following management discussion and analysis. In October 1999, we completed our acquisition of Better Brands, Inc., a broadline foodservice distributor located in Windsor, Connecticut, for $29.1 million. The acquisition was accounted for using the purchase method of accounting and, accordingly, the results of operations for Better Brands have been included in our financial statements since the date of acquisition. In February 2001, we announced that we are exploring strategic alternatives for our Multifoods Distribution Group. Our review process is expected to involve evaluation of various alternative actions, some of which, if implemented, could result in a material charge to our results of operations. PENDING ACQUISITION On February 4, 2001, we entered into an asset purchase and sale agreement with The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts and specialty products business, Pillsbury's non-custom foodservice baking mix business and General Mills' Robin Hood business for approximately $304.6 million in cash. The assets we are acquiring include equipment and inventory of the Pillsbury businesses, inventory of the General Mills' Robin Hood business, and certain trademarks and trademark licenses. The acquisition is subject to a number of conditions, including the receipt of proceeds from new financing arrangements, the provisional approval by the Federal Trade Commission of the acquisition and completion of the merger of General Mills and Pillsbury. We expect to close the acquisition in the first half of fiscal year 2002. The acquisition will be accounted for using the purchase method of accounting. We expect the acquisition to increase our operating earnings and net earnings in the first full year after closing, and thereafter. The earnings contribution from the acquired businesses will be partially offset by increased amortization expense associated with intangible assets acquired, higher interest expense due to the debt we will incur to finance the acquisition and one-time transition costs. In addition, our overall effective tax rate may increase if we decide to remit dividends from our Canadian subsidiary. In connection with the acquisition we will enter into new financing arrangements, including a new senior secured credit facility and issuance of senior unsecured notes. Proceeds from the new financing arrangements will be used to pay for the acquisition and to refinance our existing debt. The acquisition and related financing will significantly increase our outstanding debt, as compared to historical levels. See further information in our discussion of Financial Condition. RESULTS OF OPERATIONS CONTINUING OPERATIONS The following table sets forth statement of operations data for each of our business segments and on a consolidated basis. Fiscal 2001 was a 53-week period. Divested Business represents our former food-exporting business.
2001 (in millions) (53 weeks) 2000 1999 - ------------------------------------------------------------------------------- NET SALES: Multifoods Distribution Group $2,042.5 $1,899.6 $1,845.8 North America Foods 482.4 485.1 450.8 - ------------------------------------------------------------------------------- TOTAL NET SALES $2,524.9 $2,384.7 $2,296.6 =============================================================================== OPERATING EARNINGS: MULTIFOODS DISTRIBUTION GROUP Operating earnings before unusual items $ 16.8 $ 20.4 $ 28.3 Unusual items (0.3) 0.5 (11.5) - ------------------------------------------------------------------------------- 16.5 20.9 16.8 - ------------------------------------------------------------------------------- NORTH AMERICA FOODS Operating earnings before unusual items 40.5 38.6 31.3 Unusual items (1.8) - (7.2) - ------------------------------------------------------------------------------- 38.7 38.6 24.1 - ------------------------------------------------------------------------------- DIVESTED BUSINESS Operating earnings before unusual items - - 0.8 Unusual items - - (10.3) - ------------------------------------------------------------------------------- - - (9.5) - ------------------------------------------------------------------------------- CORPORATE EXPENSES Operating expenses before unusual items (5.5) (7.1) (8.5) Unusual items 5.6 - - - ------------------------------------------------------------------------------- 0.1 (7.1) (8.5) - ------------------------------------------------------------------------------- CONSOLIDATED Operating earnings before unusual items 51.8 51.9 51.9 Unusual items 3.5 0.5 (29.0) - ------------------------------------------------------------------------------- TOTAL OPERATING EARNINGS $ 55.3 $ 52.4 $ 22.9 =============================================================================== CONSOLIDATED EARNINGS SUMMARY: Operating earnings $ 55.3 $ 52.4 $ 22.9 Interest, net (14.8) (11.0) (10.4) Other income (expense), net (1.4) (1.0) (0.2) - ------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 39.1 40.4 12.3 Income taxes (17.9) (15.7) (5.5) - ------------------------------------------------------------------------------- EARNINGS FROM CONTINUING OPERATIONS $ 21.2 $ 24.7 $ 6.8 ===============================================================================
FISCAL 2001 COMPARED WITH FISCAL 2000 Overview Fiscal 2001 earnings from continuing operations were $21.2 million, or $1.12 per diluted share, compared with $24.7 million, or $1.31 per diluted share, a year ago. The decline in earnings was primarily attributable to increased interest expense, lower operating earnings in Multifoods Distribution Group and tax expense associated with a dividend from our Canadian subsidiary. Our distribution business was adversely affected by higher fuel costs and wage rates, and by start-up costs associated with $150 million in annualized new business accounts that we began to serve in the fourth quarter of fiscal 2001. The decline in fiscal 2001 earnings was partially offset by higher operating earnings in North America Foods and the benefit of increased income from our defined benefit pension plans. Income from pension plans has increased due to strong investment performance in prior years that have resulted in pension assets significantly in excess of benefit obligations. Earnings were also impacted by a net pre-tax gain of $3.5 million associated with unusual items. Unusual items included a gain from the sale of our corporate headquarters building and charges for costs associated with the consolidation of our condiments processing facilities in Canada. Further information on unusual items follows in the discussion of segment results and in Note 6 to the consolidated financial statements. Segment Results Multifoods Distribution Group: Net sales increased 8% to $2,042.5 million as a result of higher sales volumes to vending operators and sandwich shops, and the full year benefit of our acquisition of Better Brands. The increase was partially offset by the impact of a decline in cheese prices and the loss of a regional foodservice account during the first quarter of fiscal 2001. Excluding the impact of the Better Brands acquisition, overall sales volumes increased 5% for the year. Operating earnings before unusual items declined 18% to $16.8 million. Higher costs and a change in customer mix adversely affected operating earnings. We were impacted by higher fuel and wage costs along with start-up costs from new business accounts. We have had to increase pay in certain job categories and in certain locations during the year because of the tight labor market. In addition, productivity issues that resulted from facility consolidations and an information systems conversion that took place last year continued to impact delivery and distribution costs. These prior year actions increased employee turnover at the consolidated facilities and caused inefficiencies as employees adjusted to new warehouse layouts and a new information system. During fiscal 2001, we reduced the excess labor and delivery costs that resulted from these productivity issues. While we continue to focus on opportunities to improve productivity and efficiency, we expect that our fiscal 2002 operating results will continue to be impacted by high energy costs and increased wage rates. In the current year, we recognized a net charge of $0.3 million from unusual items. The charge included $1.4 million for severance and lease commitment costs associated with the closure of two distribution facilities and the departure of the group's President. In addition, we reversed a liability of $1.1 million primarily for lease commitment costs for the closure of a distribution center in California that is no longer planned. North America Foods: Net sales declined 1% to $482.4 million, compared with $485.1 million last year. Sales declined due to reduced sales of consumer flour in Canada, the purchase of a customer by a competitor in the United States and the impact of unfavorable currency translation. Sales were also adversely impacted by lower raw material costs this year. The decline was partially offset by good sales growth in flour and bakery mixes to commercial customers in Canada and strong sales of thaw-and-sell bakery products in the United States. Operating earnings before unusual charges increased 5% to $40.5 million because of lower raw material costs and higher Canadian commercial sales volumes. The earnings improvement was partially offset by higher costs, the impact of lower consumer flour volumes and unfavorable currency translation. We were impacted by higher energy costs during the year, which affected our delivery and production expenses. In addition, we incurred start-up costs associated with a new customer account in the United States and one-time costs in Canada for our condiments facility consolidation project. We believe that higher energy costs, one-time project costs and unfavorable currency translation will continue to affect our operating results in fiscal 2002. We are in the process of expanding our Canadian condiments operation in Dunnville, Ontario, and consolidating the condiment processing operations into that facility. The project includes closing a facility in Scarborough, Ontario, in fiscal 2002. We expect to realize an unusual gain from the sale of this facility. In fiscal 2001, we recorded a pre-tax unusual charge of $1.8 million for severance and related benefit costs for 174 full time and seasonal employees. Certain one-time costs related to the project, including employee and equipment relocation expenses, were not included in the unusual charge. These expenses, which were recognized when incurred, totaled $0.7 million in fiscal 2001 and were included in general and administrative expenses. Our project will allow us to lower costs and increase production. We expect to realize a mid-single digit increase to earnings per share starting in fiscal 2003 from this project. Corporate: In fiscal 2001, we recognized an unusual gain of $5.8 million from the sale of our corporate headquarters building in Minnesota. We also recognized severance costs of $0.2 million for corporate staff reductions. Non-Operating Expense and Income In fiscal 2001, net interest expense was $14.8 million, compared with $11 million last year. The increase in interest expense resulted from higher interest rates and debt levels. Higher average debt levels were driven primarily by the acquisition of Better Brands late in the third quarter last year. Income Taxes In fiscal 2001, we recognized income tax expense of $3.1 million associated with a dividend from our Canadian subsidiary. The effective tax rate on earnings before the impact of the Canadian dividend and unusual items was 38% in fiscal 2001 and 2000. FISCAL 2000 COMPARED WITH FISCAL 1999 Overview Fiscal 2000 earnings from continuing operations were $24.7 million, or $1.31 per diluted share, compared with $6.8 million, or 36 cents per share, in fiscal 1999. Excluding unusual charges, fiscal 1999 earnings from continuing operations were $25.5 million, or $1.35 per diluted share. Fiscal 2000 earnings declined because of lower operating earnings in Multifoods Distribution Group, which experienced higher delivery and distribution costs. The increase in these costs was related to productivity issues associated with the distribution group's facility consolidations and information systems conversion. In order to maintain strong customer service, we added temporary employees and incurred additional freight charges. The decline in fiscal 2000 earnings, however, was partially offset by higher operating earnings in North America Foods and by lower administrative expenses, which benefited from increased pension income and reduced employee incentive compensation costs. Segment Results Multifoods Distribution Group: Net sales increased 3% to $1,899.6 million as a result of higher sales volumes to independent vending operators and the addition of Better Brands. The increase was partially offset by a significant decline in cheese prices during the last half of the fiscal year and lower sales to pizza restaurants. Excluding the impact of the acquisition of Better Brands, overall sales volumes increased 2% for the year. Operating earnings before unusual charges declined 28% to $20.4 million due to increased labor and delivery costs at our foodservice and recently consolidated distribution facilities. The increased costs at these facilities more than offset improved results achieved at our vending distribution facilities and lower administrative expenses. In fiscal 1999, we recognized an unusual charge of $11.5 million for actions associated with our plan to consolidate the vending and foodservice operations into a single business. In fiscal 2000, we recognized a gain of $0.5 million from the reversal of certain reserves established as part of the distribution group's consolidation plan and from the sale of a distribution facility. The reversal was required as management determined that four distribution centers identified for closure under the original plan would remain open. Consequently, we had fewer-than-planned work-force reductions and lower lease commitment costs. The decision to keep the four distribution centers open was based on the subsequent acquisition of Better Brands in the northeast United States, as well as strong growth potential and strategic opportunities in certain markets. North America Foods: Net sales increased 8% to $485.1 million, due to higher sales volumes. Sales of U.S. bakery products increased 14% primarily because of additional business with large in-store bakery chains. In Canada, sales increased 5% on higher volumes of bakery mixes and flour to commercial customers and condiments to foodservice customers. In addition, sales benefited from favorable currency translation because of a stronger Canadian dollar but were reduced by the impact of lower wheat costs, which affect our sales prices. Operating earnings before unusual charges increased 23% to $38.6 million because of the higher sales volumes and lower raw material costs. The improvement in operating margin resulted primarily from the effects of spreading fixed expenses over the higher sales volumes. In fiscal 1999, we recognized an unusual charge of $7.2 million for the write-down of assets and the cost of work-force reductions in our Canadian frozen bakery business. Divested Business: The divested business segment represents our former food-exporting business, which we exited in fiscal 1998. During fiscal 1999, we recognized earnings of $0.8 million from a refund of customs taxes paid in prior years. We also recognized an unusual charge of $10.3 million for the write-off of receivables from a major customer. Non-Operating Expense and Income In fiscal 2000, net interest expense was $11 million, compared with $10.4 million in fiscal 1999. The increase in interest expense resulted from higher debt levels but was partially offset by an increase in interest income. In fiscal 2000, we recognized interest income on a note from Gruma S.A. de C.V. (Gruma) that was received from the sale of our Venezuelan consumer and commercial foods business. Interest expense excludes interest that was associated with debt obligations of our discontinued Venezuela Foods business. Interest expense classified in discontinued operations for fiscal years 2000 and 1999 was $2.4 million and $4.9 million, respectively. In fiscal 1999, we recognized a gain of $0.8 million from the sale of our investment in a Mexican animal feed business. Income Taxes The effective tax rate on earnings before unusual items was 38% in fiscal 2000 and 1999. Including the effect of unusual items, our overall tax rates were 38.8% in fiscal 2000 and 44.3% in fiscal 1999. DISCONTINUED OPERATIONS In fiscal 1999, we recognized an estimated loss of $124.6 million for the planned disposition of our Venezuela Foods business. The disposition loss consisted of $93.3 million for the recognition of the unrealized foreign currency translation losses previously included as a separate component of shareholders' equity, a provision of $22 million for operating losses from the measurement date (July 31, 1998) to the expected disposal date, and a $9.3 million loss on disposal. In fiscal 2000, we completed the divestiture of our Venezuela Foods business and recorded an additional after-tax charge of $19.6 million. The charge consisted of a $4 million loss on the June 1999 sale of the Venezuelan agriculture and animal feeds business, a $3.8 million provision resulting from higher-than-expected operating losses and an $11.8 million charge from the August 1999 sale of the Venezuelan consumer and commercial foods business to Gruma. The $11.8 million charge primarily resulted from a higher-than-expected loss on the sale transaction, and a write-down of certain receivables and properties in Venezuela that we retained. During fiscal 2001, substantially all of the retained receivables and properties were collected or sold at book value. FINANCIAL CONDITION Our short-term financing is provided by borrowings against our U.S. and Canadian revolving credit agreements and uncommitted lines of credit. Our committed revolving credit agreements totaled $255 million, of which $115 million was available at March 3, 2001. Our uncommitted lines of credit totaled $40 million, none of which was outstanding at fiscal year end. We also have a medium-term note program under our shelf registration statement filed with the Securities and Exchange Commission that provides for the issuance of up to $150 million in medium-term notes in various amounts. As of March 3, 2001, $140 million was available under the medium-term note program. See Notes 10 and 11 to the consolidated financial statements for additional information on capital resources. Our debt-to-total-capitalization ratio decreased to 42% at March 3, 2001, compared with 45% at February 29, 2000. The decrease in the debt-to-total-capitalization ratio was primarily the result of cash provided by operations together with the sale of certain corporate assets. Cash flows from operations in fiscal 2001 benefited from improved cash management and year-end timing of payments to suppliers, which caused a substantial increase in accounts payable at March 3, 2001, compared to the prior year end. Cash flows from investing activities in fiscal 2001 included $12 million received from the sale of our corporate headquarters building and $7.4 million received from the sale of certain Venezuelan assets. The Venezuelan assets consisted of properties that were not included in the sale of the Venezuela Foods business. Proceeds from these dispositions were used to reduce debt obligations. Capital expenditures were $35.2 million in fiscal 2001, compared with $49.4 million in fiscal 2000. Capital expenditures in fiscal 2000 included significant amounts for facility expansion and consolidation projects at Multifoods Distribution Group. Capital expenditures in fiscal 2001 reflect amounts for completion of distribution facility projects and investments in North America Foods to accommodate volume growth. For fiscal 2002, we currently expect to spend about $30 million on capital projects. Our estimate includes expenditures associated with the expansion of our condiments operation in Dunnville, Ontario. In June 1999, we sold our Venezuelan agriculture and animal feeds business for $27.5 million in cash. Proceeds were used to reduce debt obligations of the Venezuelan business. In August 1999, we completed the sale of our Venezuelan consumer and commercial foods business to Gruma. We received a $19 million note from Gruma, payable over five years at an annual interest rate of 7.5%, and Gruma paid off or assumed the remaining debt obligations of our Venezuelan business, which totaled $55.5 million. In anticipation of the pending acquisition of assets from Pillsbury and General Mills, we announced in February 2001 that we eliminated our quarterly dividend of 20 cents per share. We believe that cash flows from operations together with available external financing will be sufficient to fund operations and capital expenditures anticipated for fiscal 2002. IMPACT OF PENDING ACQUISITION We expect to finance the pending acquisition of assets from Pillsbury and General Mills, replace existing credit facilities and refinance existing debt by entering into a $450 million senior secured credit facility and issuing $200 million of senior unsecured notes. In addition to financing a portion of the acquisition, the senior secured credit facility will be used to finance our working capital needs and for general corporate purposes. The interest rates on borrowings under the senior secured credit facility will be variable and based on market factors. We anticipate that the senior credit facility and the indenture with respect to the notes will contain a number of restrictive covenants that will restrict our corporate and business activities. These restrictions are expected to impact, among other things, our ability to incur debt, pay dividends, create liens and sell assets. In addition, we will be required to comply with financial covenant ratios and tests. We believe that cash from operations together with these contemplated financing arrangements will be sufficient to meet our liquidity needs. MARKET RISK MANAGEMENT We are exposed to market risks resulting from changes in commodity prices, foreign currency exchange rates and interest rates. Changes in these factors could adversely affect our results of operations and financial position. To minimize these risks, we utilize derivative financial instruments, such as commodity futures contracts, currency forward contracts and interest rate swaps. We use derivative financial instruments as risk management tools and not for speculative or trading purposes. See Note 9 to the consolidated financial statements for further information regarding financial instruments. Commodity Risk Management: Our Canadian operations minimize the risk associated with wheat market price fluctuations by hedging our wheat and flour inventories, open wheat purchase contracts and open flour sales contracts with wheat futures contracts. In the United States, we entered into futures contracts to reduce the risk of price fluctuations on anticipated flour purchases. The U.S. dollar-denominated futures contracts are traded on U.S. regulated exchanges. The open futures contracts mature in the period from March 2001 to July 2002 and substantially coincide with the maturities of the open wheat purchase contracts, open flour sales contracts and the anticipated timing of flour purchases. Foreign Currency Hedging: Our Canadian operations enter into foreign currency forward contracts to minimize our exposure to foreign currency fluctuations as a result of U.S. dollar-denominated sales and purchases. In addition, our Canadian operations also enter into foreign currency forward contracts that have the effect of converting the U.S. dollar-denominated grain futures contracts (see Commodity Risk Management) into Canadian dollar equivalents. Interest Rate Risk Management: Our exposure to changes in interest rates results from borrowing activities used to meet our working capital and other long-term financing needs. The borrowings are comprised of notes payable, principally to banks, which have variable interest rates, and of fixed rate medium-term notes. We used sensitivity analysis to determine the impact of market risk exposures on the fair values of our debt and financial instruments, including derivative financial instruments. Sensitivity analysis assesses the risk of loss in market risk sensitive instruments based on hypothetical changes in market prices or rates. The following tables provide information on the potential impact in fair value and pre-tax earnings assuming a 10% adverse change.
Potential Effect on Fair Value ------------------------------ (in millions) 2001 2000 - ---------------------------------------------------------------- Futures contracts $2.3 $1.1 Medium-term notes 4.2 6.2 Interest rate swap 0.1 - - ----------------------------------------------------------------
Potential Decrease in Pre-tax Earnings -------------------------------------- (in millions) 2001 2000 - ---------------------------------------------------------------- Currency forward contracts $2.9 $2.9 Notes payable 0.8 0.9 - ----------------------------------------------------------------
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may from time-to-time make written and oral forward-looking statements. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning our operations and financial performance and condition. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others, the closing of the pending acquisition and the timing of the close; actions in the financial markets; regulatory approval related to the pending acquisition; integration problems associated with the pending acquisition; the results of our review of strategic alternatives for our Multifoods Distribution Group; the impact of competitive products and pricing; market or weather conditions that may affect the costs of grain, cheese, other raw materials, fuel and labor; changes in laws and regulations; fluctuations in interest rates; the inability to collect on a $6 million insurance claim related to the theft of product in St. Petersburg, Russia; fluctuations in foreign exchange rates; risks commonly encountered in international trade; and other factors as may be discussed in our reports filed with the Securities and Exchange Commission. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of International Multifoods Corporation: We have audited the accompanying consolidated balance sheets of International Multifoods Corporation and subsidiaries as of March 3, 2001, and February 29, 2000, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended March 3, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Multifoods Corporation and subsidiaries as of March 3, 2001, and February 29, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended March 3, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota March 27, 2001 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The consolidated financial statements have been prepared by management in conformity with accounting principles generally accepted in the United States of America and include, where required, amounts based on management's best estimates and judgments. Management continues to be responsible for the integrity and objectivity of data in these consolidated financial statements, which it seeks to ensure through an extensive system of internal controls. Such controls are designed to provide reasonable, but not absolute, assurance that assets are safeguarded from unauthorized use or disposition and that financial records are sufficiently reliable to permit the preparation of consolidated financial statements. It is recognized that estimates and judgments are required to assess and balance the relative cost and expected benefits of any system of internal controls. The system of internal accounting controls is designed to provide reasonable assurance that the books and records reflect the Company's transactions and that its established policies and procedures are carefully followed. The system includes written policies and procedures, a financial reporting system, an internal audit department and careful selection and training of qualified personnel. /s/ Gary E. Costley /s/ John E. Byom Gary E. Costley John E. Byom Chairman, President Vice President, Finance, and Chief Executive Officer and Chief Financial Officer INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED --------------------------------------- MARCH 3, February 29, February 28, (IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000 1999 - ----------------------------------------------------------------------------- Net sales $ 2,524,907 $ 2,384,715 $ 2,296,550 Cost of materials and production (2,150,949) (2,032,349) (1,961,441) Delivery and distribution (184,917) (168,371) (150,310) - ----------------------------------------------------------------------------- Gross profit 189,041 183,995 184,799 Selling, general and administrative (137,283) (132,057) (132,943) Unusual items 3,488 519 (28,963) - ----------------------------------------------------------------------------- Operating earnings 55,246 52,457 22,893 Interest, net (14,801) (11,040) (10,382) Other income (expense), net (1,346) (1,066) (245) - ----------------------------------------------------------------------------- Earnings from continuing operations before income taxes 39,099 40,351 12,266 Income taxes (17,924) (15,656) (5,434) - ----------------------------------------------------------------------------- Earnings from continuing operations 21,175 24,695 6,832 - ----------------------------------------------------------------------------- Discontinued operations: Operating loss, after tax - - (14,068) Net loss on disposition, after tax - (19,560) (124,634) - ----------------------------------------------------------------------------- Loss from discontinued operations - (19,560) (138,702) - ----------------------------------------------------------------------------- NET EARNINGS (LOSS) $ 21,175 $ 5,135 $ (131,870) ============================================================================= Basic earnings (loss) per share: Continuing operations $ 1.13 $ 1.32 $ 0.36 Discontinued operations - (1.05) (7.39) - ----------------------------------------------------------------------------- TOTAL $ 1.13 $ 0.27 $ (7.03) ============================================================================= Diluted earnings (loss) per share: Continuing operations $ 1.12 $ 1.31 $ 0.36 Discontinued operations - (1.04) (7.34) - ----------------------------------------------------------------------------- TOTAL $ 1.12 $ 0.27 $ (6.98) ============================================================================= Average shares of common stock outstanding: Basic 18,739 18,752 18,759 Diluted 18,874 18,786 18,903 - -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 3, February 29, (IN THOUSANDS) 2001 2000 - ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 10,247 $ 11,224 Trade accounts receivable, net of allowance 131,780 122,638 Inventories 185,207 171,342 Deferred income taxes 10,001 9,485 Other current assets 41,082 39,299 - ------------------------------------------------------------------------- Total current assets 378,317 353,988 Property, plant and equipment, net 206,160 204,924 Goodwill, net 81,919 84,894 Other assets 98,229 92,401 - ------------------------------------------------------------------------- TOTAL ASSETS $764,625 $736,207 ========================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 39,542 $ 41,521 Current portion of long-term debt 1,000 20,000 Accounts payable 216,050 167,282 Other current liabilities 42,288 48,652 - ------------------------------------------------------------------------- Total current liabilities 298,880 277,455 Long-term debt 145,420 147,199 Deferred income taxes 32,014 23,170 Employee benefits and other liabilities 32,329 33,259 - ------------------------------------------------------------------------- Total liabilities 508,643 481,083 - ------------------------------------------------------------------------- Shareholders' equity: Preferred capital stock - - Common stock, authorized 50,000 shares; issued 21,844 shares 2,184 2,184 Capital in excess of par value 91,643 91,888 Retained earnings 248,204 242,013 Accumulated other comprehensive loss (17,670) (12,122) Treasury stock, 3,098 and 3,106 shares, at cost (68,239) (68,437) Unearned compensation (140) (402) - ------------------------------------------------------------------------- Total shareholders' equity 255,982 255,124 - ------------------------------------------------------------------------- Commitments and contingencies - ------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $764,625 $736,207 =========================================================================
See accompanying notes to consolidated financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED -------------------------------------- MARCH 3, February 29, February 28, (IN THOUSANDS) 2001 2000 1999 - ------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS: Earnings from continuing operations $ 21,175 $ 24,695 $ 6,832 Adjustments to reconcile earnings from continuing operations to cash provided by continuing operations: Depreciation and amortization 25,380 22,157 22,081 Unusual items (3,488) (519) 28,963 Deferred income tax expense (benefit) 3,829 8,443 (2,748) Increase in prepaid pension asset (14,538) (9,634) (7,678) Provision for losses on receivables 2,345 1,847 713 Changes in working capital* 11,583 (2,347) (15,582) Other, net 1,566 5,358 4,571 - ------------------------------------------------------------------------------------------- Cash provided by continuing operations 47,852 50,000 37,152 Cash provided by (used for) discontinued operations 1,194 (12,541) (39,500) - ------------------------------------------------------------------------------------------- Cash provided by (used for) operations 49,046 37,459 (2,348) - ------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (35,167) (49,438) (28,050) Acquisition of business - (27,934) - Sale (purchase) of Venezuelan operation assets 7,371 (15,799) - Proceeds from sale of investment - - 2,340 Payment received on note receivable 948 - - Proceeds from property disposals 13,325 4,405 2,010 Discontinued operations - 38,098 (6,220) - ------------------------------------------------------------------------------------------- Cash used for investing activities (13,523) (50,668) (29,920) - ------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in notes payable (622) 9,492 31,430 Additions to long-term debt - 44,921 3,157 Reductions in long-term debt (20,000) (2,750) (23,750) Dividends paid (14,958) (14,988) (14,995) Proceeds from issuance of common stock 96 1,235 4,129 Purchase of treasury stock (148) (2,598) (4,787) Discontinued operations - (26,195) 45,346 Other, net (848) 2,104 (2,133) - ------------------------------------------------------------------------------------------- Cash provided by (used for) financing activities (36,480) 11,221 38,397 - ------------------------------------------------------------------------------------------- Increase in cash from discontinued operations - (263) (1,747) - ------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (20) (20) (13) - ------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (977) (2,271) 4,369 Cash and cash equivalents at beginning of year 11,224 13,495 9,126 - ------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,247 $ 11,224 $ 13,495 =========================================================================================== *CASH FLOWS FROM CHANGES IN WORKING CAPITAL: Accounts receivable $(11,852) $ 9,325 $ (17,880) Inventories (16,760) (1,124) (8,693) Other current assets (5,620) (6,960) 5,360 Accounts payable 50,357 1,036 30,744 Other current liabilities (4,542) (4,624) (25,113) - ------------------------------------------------------------------------------------------- NET CHANGE $ 11,583 $ (2,347) $ (15,582) ===========================================================================================
See accompanying notes to consolidated financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
10 cents par value Accumulated ------------------ Capital in Other Common Treasury Excess of Retained Comprehensive Unearned (in thousands) Stock Stock Par Value Earnings Loss Compensation Total - ---------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1998 $2,184 $(67,480) $91,340 $ 398,754 $(114,311) $ (1,134) $309,353 Comprehensive loss(a) - - - (131,870) 97,096 - (34,774) Dividends declared on common stock - - - (15,010) - - (15,010) 170 shares purchased for treasury - (4,787) - - - - (4,787) 208 shares issued for employee benefit plans - 4,526 660 - - (262) 4,924 Amortization of unearned compensation - - - - - 610 610 - ---------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1999 2,184 (67,741) 92,000 251,874 (17,215) (786) 260,316 Comprehensive income(a) - - - 5,135 5,093 - 10,228 Dividends declared on common stock - - - (14,996) - - (14,996) 124 shares purchased for treasury - (2,598) - - - - (2,598) 86 shares issued for employee benefit plans - 1,902 (112) - - (226) 1,564 Amortization of unearned compensation - - - - - 610 610 - ---------------------------------------------------------------------------------------------------------------------- Balance at February 29, 2000 2,184 (68,437) 91,888 242,013 (12,122) (402) 255,124 Comprehensive income(a) - - - 21,175 (5,548) - 15,627 Dividends declared on common stock - - - (14,984) - - (14,984) 9 shares purchased for treasury - (148) - - - - (148) 17 shares issued for employee benefit plans - 346 (245) - - (131) (30) Amortization of unearned compensation - - - - - 393 393 - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT MARCH 3, 2001 $2,184 $(68,239) $91,643 $ 248,204 $ (17,670) $ (140) $255,982 ======================================================================================================================
(a) Reconciliations of net earnings (loss) to comprehensive income (loss) are as follows:
(in thousands) 2001 2000 1999 - ------------------------------------------------------------------------------------------------- Net earnings (loss) $21,175 $5,135 $(131,870) - ------------------------------------------------------------------------------------------------- Other comprehensive income (loss): Foreign currency translation adjustments (5,175) 3,600 (4,547) Reclassification adjustment due to foreign currency translation adjustments recognized - - 101,555 Minimum pension liability adjustment (net of tax of $239, $(955), and $(56), respectively) (373) 1,493 88 - ------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (5,548) 5,093 97,096 - ------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $15,627 $10,228 $(34,774) =================================================================================================
See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to consolidated financial statements. Actual results could differ from these estimates. In March 2000, the Company changed its fiscal year from the last day of February to the Saturday closest to the last day of February. Fiscal 2001 is a 53-week year. BASIS OF STATEMENT PRESENTATION The accompanying consolidated financial statements include the accounts of International Multifoods Corporation and all of its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The functional currency of the Company's Canadian operations is the Canadian dollar. Assets and liabilities are translated at current exchange rates, and results of operations are translated using the weighted average exchange rate in effect during the fiscal year. The gains or losses resulting from translation are included as a separate component of shareholders' equity. STOCK-BASED COMPENSATION The Company uses the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for employee stock options. Under the intrinsic value method, compensation expense is recorded only to the extent that the market price of the common stock exceeds the exercise price of the stock option on the date of grant. INCOME TAXES Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities. EARNINGS PER SHARE Basic earnings per share are computed by dividing net earnings by the weighted average shares outstanding during the reporting period. Diluted earnings per share are computed similar to basic earnings per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting period. The computations for basic and diluted earnings per share from continuing operations are as follows:
(in thousands, except per share data) 2001 2000 1999 - ------------------------------------------------------------------------------- Earnings from continuing operations $21,175 $24,695 $ 6,832 - ------------------------------------------------------------------------------- Average shares of common stock outstanding: Basic 18,739 18,752 18,759 Effect of stock options 135 34 144 - ------------------------------------------------------------------------------- Diluted 18,874 18,786 18,903 - ------------------------------------------------------------------------------- Earnings per share from continuing operations: Basic $ 1.13 $ 1.32 $ 0.36 Diluted 1.12 1.31 0.36 - -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS Included in cash and cash equivalents are cash on hand, time deposits and highly liquid short-term investments purchased with original maturities of three months or less. INVENTORIES Inventories, excluding grain in Canada, are valued principally at the lower of cost (first-in, first-out) or market (replacement or net realizable value). In Canada, inventories of grain are valued on the basis of replacement market prices prevailing at fiscal year-end. The Company generally minimizes risks associated with market price fluctuations by hedging those inventories with futures contracts. Therefore, included in inventories is the amount of gain or loss on open grain contracts, including futures contracts, which generally has the effect of adjusting those inventories to cost. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost, and depreciation is computed using the straight-line method for determining financial statement income. When permitted, accelerated depreciation methods are used to calculate depreciation for income tax purposes. GOODWILL AND OTHER INTANGIBLES Goodwill represents the excess of costs of businesses acquired over the fair market value of net tangible and identifiable intangible assets. Such excess costs are amortized on a straight-line basis over various periods not exceeding 40 years. Identifiable intangible assets represent costs allocated to noncompete agreements, trade names and other specifically identifiable assets arising from business acquisitions. These assets are amortized on a straight-line basis over their estimated useful lives. Accumulated amortization of goodwill and other intangibles at March 3, 2001, and February 29, 2000, was $36.5 million and $32.9 million, respectively. RECOVERABILITY OF LONG-LIVED ASSETS The Company assesses the recoverability of goodwill and other long-lived assets whenever events or changes in circumstances indicate that expected future undiscounted cash flows may not be sufficient to support the carrying amount of an asset. The Company deems an asset to be impaired if a forecast of undiscounted future operating cash flows is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying value of the asset exceeds its fair value. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that companies record derivative instruments on the consolidated balance sheet at their fair value. Changes in fair value will be recorded each period in earnings or other comprehensive income (OCI), depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in OCI will be reclassified as earnings in the period in which earnings are affected by the hedged item. In June 2000, the FASB issued SFAS 138, which amended certain guidance within SFAS 133. The Company adopted SFAS 133, as amended, effective March 4, 2001. The impact of this change was a pre-tax charge of approximately $1 million to OCI and an increase to liabilities by approximately $1 million. The above assessment is based on the fair value of an interest rate swap and currency forward exchange contracts as of March 4, 2001, that were designated as cash flow hedges. NOTE 2: PENDING ACQUISITION On February 4, 2001, the Company entered into an asset purchase and sale agreement with The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts and specialty products business, Pillsbury's non-custom foodservice baking mix business and General Mills' Robin Hood business for approximately $304.6 million in cash. The assets being acquired include equipment and inventory of the Pillsbury businesses, inventory of the General Mills' Robin Hood business, and certain trademarks and trademark licenses. The acquisition is subject to a number of conditions, including provisional approval by the Federal Trade Commission of the acquisition and completion of the merger of General Mills and Pillsbury. The Company expects to close the acquisition in the first half of fiscal year 2002. NOTE 3: BUSINESS ACQUIRED In October 1999, the Company completed its acquisition of Better Brands, Inc., a broadline foodservice distributor located in Windsor, Connecticut. The acquisition was accounted for using the purchase method, and accordingly, the results of operations for Better Brands have been included in the Company's consolidated financial statements since the date of acquisition. The purchase price of $29.1 million included goodwill of $5.1 million, which is being amortized on a straight-line basis over 20 years. The Company's fiscal 2000 results would not have been materially different had this acquisition occurred at the beginning of the fiscal year. NOTE 4: DISCONTINUED OPERATIONS In fiscal 1999, the Company recognized an estimated after-tax loss of $124.6 million (after income tax expense of $10.8 million) for the planned disposition of its Venezuela Foods business. The disposition loss consisted of $93.3 million for the recognition of the unrealized foreign currency translation losses previously included as a separate component of shareholders' equity, a provision of $22.0 million for operating losses from the measurement date (July 31, 1998) to expected disposal date, and a $9.3 million loss on disposal. In fiscal 2000, the Company completed its divestiture of the Venezuela Foods business and recorded an additional after-tax charge of $19.6 million (net of a $5.2 million tax benefit). The charge consisted of a $4.0 million loss on the June 1999 sale of the Venezuelan agriculture and animal feeds business, a $3.8 million provision resulting from higher-than-expected operating losses and an $11.8 million charge from the August 1999 sale of the Venezuelan consumer and commercial foods business to Gruma S.A. de C.V. (Gruma). The $11.8 million charge primarily resulted from a higher-than- expected loss on the sale transaction, and a write-down of certain receivables and properties in Venezuela that were retained by the Company. During fiscal 2001, substantially all of the retained receivables and properties were collected or sold at book value. Proceeds from the sale of the Venezuelan agriculture and animal feeds business were $27.5 million in cash, which was used to reduce debt obligations of the Venezuelan business. Proceeds from the sale of the Venezuelan consumer and commercial foods business consisted of a $19 million note from Gruma and the assumption of the remaining debt obligations of the Venezuelan business, which totaled $55.5 million. The note receivable is payable over five years and bears interest at an annual rate of 7.5%. NOTE 5: INTEREST, NET Interest, net consisted of the following:
(in thousands) 2001 2000 1999 - ---------------------------------------------------------------------- Interest expense $18,269 $13,902 $11,107 Capitalized interest (542) (814) (196) Non-operating interest income (2,926) (2,048) (529) - ---------------------------------------------------------------------- INTEREST, NET $14,801 $11,040 $10,382 ======================================================================
Cash payments for interest, net of amounts capitalized, totaled $19.3 million in fiscal 2001, $13.2 million in fiscal 2000 and $11.4 million in fiscal 1999. Interest expense of the Venezuela Foods business is classified in discontinued operations. NOTE 6: UNUSUAL ITEMS FISCAL 2001 The Company recognized a pre-tax unusual gain of $3.5 million as follows:
Employee Gain on Termination Lease Sale of and Other Commitment (in millions) Building Exit Costs Costs Total - --------------------------------------------------------------------------------- CONDIMENTS FACILITY CONSOLIDATION $ - $(1.8) $ - $(1.8) SALE OF HEADQUARTERS BUILDING 5.8 (0.2) - 5.6 REVERSAL OF CHARGES - 0.2 0.9 1.1 SEVERANCE AND COSTS FOR CLOSURE OF DISTRIBUTION CENTERS - (1.1) (0.3) (1.4) - --------------------------------------------------------------------------------- TOTAL UNUSUAL GAIN $5.8 $(2.9) $ 0.6 $ 3.5 =================================================================================
The Company is in the process of expanding its Canadian condiments operation in Dunnville, Ontario, and consolidating the condiment processing operations into that facility. The project includes closing a facility in Scarborough, Ontario in fiscal 2002. The Company expects to realize an unusual gain from the sale of this facility. In fiscal 2001, the Company recorded a pre-tax unusual charge of $1.8 million for severance and related benefit costs for 174 full time and seasonal employees. Certain costs related to the project, including employee and equipment relocation expenses, were not included in the unusual charge. These expenses, which were recognized when incurred, totaled $0.7 million in fiscal 2001 and were included in general and administrative expenses. The Company recognized a pre-tax unusual gain of $5.8 million from the sale of its corporate headquarters building in Minnesota. The Company also incurred severance costs of $0.2 million for corporate staff reductions that were associated with the sale. The Company decided to retain a distribution center in California that was originally scheduled to be closed as part of a fiscal 1999 consolidation plan. As a result, $1.1 million of costs were reversed, which included lease commitment and employee termination costs. Remaining actions initiated in the fiscal 1999 plan have been completed. The Company decided to close its Boise, Idaho, and West Allis, Wisconsin, distribution centers. Components of charges resulting from the closures included losses on lease commitments and employee termination costs. In addition, the Company recognized severance and related costs associated with the departure of the distribution group's President. These actions resulted in unusual charges of $1.4 million. The liability associated with unusual items as of March 3, 2001, was as follows:
Employee Termination Lease and Other Commitment (in millions) Exit Costs Costs Total - -------------------------------------------------------------------------------- Liability balance as of February 29, 2000 $ 0.7 $ 1.2 $ 1.9 ADDITION TO LIABILITY 3.1 0.3 3.4 CASH PAYMENTS (1.6) (0.6) (2.2) REVERSAL OF CHARGES (0.2) (0.9) (1.1) - -------------------------------------------------------------------------------- LIABILITY BALANCE AS OF MARCH 3, 2001 $ 2.0 $ - $ 2.0 ================================================================================
Fiscal 2000 In the third quarter of fiscal 2000, the Company recognized a gain of $0.5 million from the reversal of certain reserves established in fiscal 1999 as part of the distribution group's consolidation plan and from the sale of a distribution facility. The reversal was required as management determined that four distribution centers identified for closure under the original plan would remain open. Consequently, the Company had fewer-than-planned work-force reductions and lower lease commitment costs. The decision to keep the four distribution centers open was based on the subsequent acquisition of a foodservice distribution business in the northeast United States, as well as strong growth potential and strategic opportunities in certain markets. Fiscal 1999 The Company recognized unusual items that resulted in pre-tax charges of $29.0 million, as described below. The Company incurred a $11.5 million charge to consolidate its foodservice and vending distribution operations into a single business. The plan involved reducing the number of distribution centers by nine, reducing the size of the work force by approximately 300 people and reducing the vehicle fleet size by up to 10 percent. As a result of changes made to the plan, certain accruals were reversed. See further discussion under Fiscal 2000 and Fiscal 2001. The Company recognized a charge of $7.2 million, which consisted of a $6.1 million write-off for asset impairment and $1.1 million primarily for employee termination benefits, associated with its Canadian frozen bakery business. The charge resulted from the inability to sell the business at a price acceptable to the Company and from the loss of a major customer. The Company recognized an unusual charge of $10.3 million for the write-off of receivables from a major customer of its former food-exporting business. The Company had negotiated an exit agreement with this customer in fiscal 1998, which provided for payments to the Company for amounts due under notes and accounts receivable. The agreement was restructured on several occasions because of the customer's financial difficulties. In fiscal 1999, the Company was notified by the customer that it would not meet its obligations under the restructured exit agreement. NOTE 7: INCOME TAXES Income tax expense was as follows:
U.S. Operations ----------------- Non-U.S. (in thousands) Federal Other Operations Total - ---------------------------------------------------------------------- 2001: CURRENT EXPENSE $ 5,130 $ 102 $ 8,863 $14,095 DEFERRED EXPENSE 2,372 645 812 3,829 - ---------------------------------------------------------------------- TOTAL TAX EXPENSE $ 7,502 $ 747 $ 9,675 $17,924 ====================================================================== 2000: Current expense (benefit) $ (773) $ 93 $ 7,893 $ 7,213 Deferred expense 3,775 1,732 2,936 8,443 - ---------------------------------------------------------------------- Total tax expense $ 3,002 $1,825 $10,829 $15,656 ====================================================================== 1999: Current expense $ 356 $ 278 $ 7,548 $ 8,182 Deferred expense (benefit) (3,845) (21) 1,118 (2,748) - ---------------------------------------------------------------------- Total tax expense (benefit) $(3,489) $ 257 $ 8,666 $ 5,434 ======================================================================
Temporary differences that gave rise to deferred tax assets and liabilities as of March 3, 2001, and February 29, 2000, were as follows:
2001 2000 -------------------- -------------------- DEFERRED DEFERRED Deferred Deferred TAX TAX Tax Tax (in thousands) ASSETS LIABILITIES Assets Liabilities - -------------------------------------------------------------------------- Depreciation and amortization $ 2,389 $30,015 $ 2,247 $28,328 Prepaid pension asset - 23,744 - 16,003 Accrued expenses 18,408 54 18,192 9 Inventory valuation methods 1,488 - 537 - Provision for losses on receivables 1,274 - 1,729 - Deferred income 3,458 - 465 - Loss carryforwards 1,142 - 3,735 - Alternative minimum tax credit carryforward 1,994 - 1,142 - Foreign earnings repatriation - - - 2,676 Other 2,555 908 5,943 1,057 - -------------------------------------------------------------------------- Subtotal 32,708 54,721 33,990 48,073 Valuation allowance - - (1,249) - - -------------------------------------------------------------------------- TOTAL DEFERRED TAXES $32,708 $54,721 $32,741 $48,073 ==========================================================================
The Company's foreign operations had capital loss carryforwards of approximately $1.4 million that have no expiration date. The Company expects to fully utilize the capital loss carryforwards. In fiscal 2000, the Company had a valuation allowance for its foreign tax credit carryforwards due to uncertainty over its ability to utilize these credits before their expiration. In fiscal 2001, the Company fully utilized its foreign tax credit carryforwards and the benefit of that utilization is reflected in the taxes on U.S. Operations. Total income taxes from continuing operations differ from the amount computed by applying the U.S. federal income tax rate because of the following items: (in thousands) 2001 2000 1999 - ------------------------------------------------------------------------ Tax at U.S. federal statutory rate $13,685 $14,123 $4,293 Differences: Effect of taxes on non-U.S. earnings 3,217 379 912 State and local income taxes 485 1,216 167 Effect of intangibles 122 137 101 Other 415 (199) (39) - ------------------------------------------------------------------------ TOTAL INCOME TAXES $17,924 $15,656 $5,434 ======================================================================== No provision has been made for U.S. income taxes applicable to remittance of earnings from non-U.S. affiliates. It is not practicable to estimate the remaining deferred tax liability associated with temporary differences related to investments in non-U.S. affiliates. Earnings before income taxes from non-U.S. affiliates were $26.9 million in fiscal 2001, $29.9 million in fiscal 2000 and $20.1 million in fiscal 1999. Cash paid for income taxes totaled $10.8 million in fiscal 2001, $4.1 million in fiscal 2000 and $13.0 million in fiscal 1999. NOTE 8: SUPPLEMENTAL BALANCE SHEET INFORMATION
(in thousands) 2001 2000 - ---------------------------------------------------------------------- Trade accounts receivable, net: Trade $ 135,991 $ 127,576 Allowance for doubtful accounts (4,211) (4,938) - ---------------------------------------------------------------------- TOTAL TRADE ACCOUNTS RECEIVABLE, NET $ 131,780 $ 122,638 ====================================================================== Inventories: Raw materials, excluding grain $ 12,667 $ 12,470 Grain 3,784 2,736 Finished and in-process goods 164,600 152,493 Packages and supplies 4,156 3,643 - ---------------------------------------------------------------------- TOTAL INVENTORIES $ 185,207 $ 171,342 ====================================================================== Property, plant and equipment, net: Land $ 13,079 $ 14,938 Buildings and improvements 106,470 97,022 Machinery and equipment 234,203 221,548 Improvements in progress 14,756 20,921 - ---------------------------------------------------------------------- 368,508 354,429 Accumulated depreciation (162,348) (149,505) - ---------------------------------------------------------------------- TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 206,160 $ 204,924 ====================================================================== Other assets: Prepaid pension $ 58,100 $ 44,659 Identifiable intangible assets 11,257 12,339 Other 28,872 35,403 - ---------------------------------------------------------------------- TOTAL OTHER ASSETS $ 98,229 $ 92,401 ====================================================================== Other current liabilities: Wages and benefits $ 9,723 $ 9,424 Income taxes 7,724 8,921 Other 24,841 30,307 - ---------------------------------------------------------------------- TOTAL OTHER CURRENT LIABILITIES $ 42,288 $ 48,652 ====================================================================== Accumulated other comprehensive loss: Foreign currency translation adjustment $ (15,379) $ (10,204) Minimum pension liability adjustment (2,291) (1,918) - ---------------------------------------------------------------------- TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS $ (17,670) $ (12,122) ======================================================================
NOTE 9: FINANCIAL INSTRUMENTS The following tables provide information on the carrying amount, notional amounts and fair value of financial instruments, including derivative financial instruments. The carrying value of financial instruments classified as current assets and current liabilities, such as cash and cash equivalents, receivables, accounts payable and short-term debt, approximate fair value due to the short-term maturity of the instruments. The fair value of medium-term notes, futures contracts, currency forward contracts and interest rate swaps was based on quoted market prices. The fair value of the note receivable from Gruma was based on prevailing market conditions and available financial information.
2001 2000 ------------------- ----------------- CARRYING FAIR Carrying Fair (in thousands) AMOUNT VALUE Amount Value - --------------------------------------------------------------------------- Assets: Note receivable from Gruma $17,219 $15,128 $17,864 $16,870 Liabilities: Medium-term notes 45,000 41,923 65,000 61,907 - --------------------------------------------------------------------------- 2001 2000 ------------------- ----------------- NOTIONAL FAIR Notional Fair (in thousands) AMOUNT VALUE Amount Value - --------------------------------------------------------------------------- Derivative financial instruments: Futures contracts-buy $22,701 $ (68) $11,433 $(257) Futures contracts-sell - - 231 - Currency forward contracts-buy 23,563 287 11,027 (101) Currency forward contracts-sell 46,344 (977) 37,692 267 Interest rate swap 25,000 (293) - - - ---------------------------------------------------------------------------
COMMODITY RISK MANAGEMENT The Company utilizes commodity futures contracts, primarily wheat futures contracts, to reduce the risks associated with price fluctuations on its wheat and flour inventories. The futures contracts are marked-to-market each month and the gains and losses are recognized in earnings. FOREIGN CURRENCY HEDGING The Company's Canadian operations enter into foreign currency forward contracts to minimize exposure to foreign currency fluctuations with respect to U.S. dollar-denominated transactions. The foreign exchange forward contracts are purchased through major Canadian banking institutions. The gains and losses arising on these transactions are recognized in income at the maturity of the contracts. INTEREST RATE RISK MANAGEMENT The Company enters into interest rate swaps to reduce the impact of fluctuating interest rates. In November 2000, the Company entered into a $25 million notional amount interest rate swap agreement maturing on November 30, 2001. Under the terms of the agreement, the Company will make quarterly payments at a fixed-rate of 6.46%. In return, the Company will receive floating rate payments based on the current 3-month London Interbank Offered Rate (LIBOR). The net amount received or paid under the terms of the contract is classified as interest expense. OFF-BALANCE SHEET RISK As of March 3, 2001, and February 29, 2000, the Company had sold with limited recourse $19.8 million and $18.5 million of accounts receivable, respectively, related to its Canadian operations. To maintain the aggregate outstanding balance, collections received on these accounts may be replaced by new receivables. The credit risk of uncollectible accounts has been substantially transferred to the purchaser. Fees associated with these transactions are included in other income (expense), net, in the consolidated statements of operations. CONCENTRATIONS OF CREDIT RISK Management believes that the credit risk of exchange-traded futures contracts, foreign exchange forward contracts and interest rate contracts due to nonperformance of the counterparties is insignificant. The Company extends credit on a regular basis under various terms to customers that meet certain financial and other criteria. In general, the Company does not require collateral or security. The Company believes that its trade receivables do not represent significant concentrations of credit risk due to the large number of customers and markets into which its products are sold, as well as their dispersion across geographic areas. NOTE 10: NOTES PAYABLE Notes payable consisted of the following:
(in thousands) 2001 2000 - -------------------------------------------------------------------- Canadian bankers' acceptances $ 54,934 $ 8,938 Notes payable, principally to banks 85,028 133,782 Amounts reclassified to long-term debt (100,420) (101,199) - -------------------------------------------------------------------- TOTAL NOTES PAYABLE $ 39,542 $ 41,521 ====================================================================
The Company has a $180 million revolving credit agreement in the United States that expires in October 2005 and a $75 million 364-day revolving credit agreement in Canada. The Canadian credit agreement can be extended annually for additional 364-day terms, or if not renewed, can be converted into a two-year term loan. The Company had available $115 million under these revolving credit agreements as of March 3, 2001. The interest rates on borrowings under these agreements are variable and based on current market factors and the credit rating of the Company. These facilities are available for general corporate purposes. The credit agreements contain covenants pertaining to the maintenance of a fixed charge coverage ratio and an indebtedness to capitalization ratio. Related facility fees were $0.6 million and $0.4 million in fiscal 2001 and 2000, respectively. At March 3, 2001, the Company had total unused and uncommitted lines of credit from banks in the United States and Canada of approximately $40 million. No compensating balances were required for any of these credit lines. Notes payable totaling $100.4 million have been classified as long-term debt as a result of the Company's intent to refinance this debt on a long-term basis and the availability of such financing under the terms of the revolving credit agreements. The weighted average interest rates on notes payable outstanding at March 3, 2001, and February 29, 2000, were 5.8% and 6.1%, respectively. NOTE 11: LONG-TERM DEBT Long-term debt, net of current portion of $1.0 million in fiscal 2001 and $20.0 million in fiscal 2000, was as follows:
(in thousands) 2001 2000 - ------------------------------------------------------------- Medium-term notes $ 45,000 $ 45,000 Other - 1,000 Notes payable, reclassified 100,420 101,199 - ------------------------------------------------------------- TOTAL LONG-TERM DEBT $145,420 $147,199 =============================================================
The Company maintains a shelf registration statement with the Securities and Exchange Commission for the issuance of $150 million of debt securities, of which $140 million remained available at March 3, 2001. The Company may issue up to the entire amount as medium-term notes, Series B, in varying amounts, rates and maturities. Medium-term notes outstanding at March 3, 2001, mature in fiscal 2002 to 2007 and have a weighted average interest rate of 6.6%. Minimum principal payments totaling $145.4 million are due as follows: $33.3 million in fiscal 2003, $14.0 million in fiscal 2004, $6.0 million in fiscal 2005, $82.1 million in fiscal 2006 and $10.0 million in fiscal 2007. NOTE 12: SHAREHOLDERS' EQUITY The Company has authorized 10,000,000 shares of Preferred Capital Stock, par value $1.00 per share, which may be designated and issued as convertible into common shares. The Company has created a series of such Preferred Capital Stock, designated as Series A Junior Participating Preferred Capital Stock, consisting of 500,000 shares, par value $1.00 per share. No Preferred Capital Stock was outstanding during the three years ended March 3, 2001. The Company has a share rights plan that entitles one preferred share purchase right for each outstanding share of common stock. The rights become exercisable only after a person or group (with certain exceptions) becomes the beneficial owner of 15% or more of the Company's outstanding common stock or announces a tender offer, the consummation of which would result in beneficial ownership by a person or group of 15% or more of the Company's outstanding common stock. Each right will entitle its holder to purchase one one-hundredth share of Series A Junior Participating Preferred Capital Stock (consisting of 500,000 shares, par value $1.00 per share) at an exercise price of $70, subject to adjustment. If a person or group acquires beneficial ownership of 15% or more of the Company's outstanding common stock, each right will entitle its holder (other than such person or group) to purchase, at the then-current exercise price of the right, a number of shares of the Company's common stock having a market value of twice the then-current exercise price of the right. In addition, if the Company is acquired in a merger or other business combination transaction or if 50% or more of its consolidated assets or earnings power are acquired, each right will entitle its holder to purchase, at the then-current exercise price of the right, a number of the acquiring company's common shares having a market value of twice the then-current exercise price of the right. Following the acquisition by a person or group of beneficial ownership of 15% or more of the Company's outstanding common stock and prior to an acquisition by any person or group of 50% or more of the Company's outstanding common stock, the Board of Directors may exchange the outstanding rights (other than rights owned by such person or group), in whole or in part, for common stock or equivalent securities of the Company. Prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's outstanding common stock, the rights are redeemable for $.001 (subject to adjustment) per right at the option of the Board of Directors. In addition, prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's outstanding common stock, the Board of Directors may amend the terms of the rights to lower the 15% threshold for exercisability of the rights to not less than the greater of (i) the sum of .001% and the largest percentage of the outstanding common stock then beneficially owned by any person or group (with certain exceptions) or (ii) 10%. NOTE 13: LEASES The Company leases certain plant, office space and equipment for varying periods. Management expects that in the normal course of business, leases will be renewed or replaced by other leases. The following is a schedule of future minimum lease payments for operating leases that had initial or remaining noncancelable lease terms in excess of one year as of March 3, 2001:
Operating (in thousands) Leases - ------------------------------------------------------------ 2002 $21,030 2003 16,737 2004 13,863 2005 11,673 2006 7,698 2007 AND BEYOND 12,173 - ------------------------------------------------------------ Total minimum lease payments* $83,174 ============================================================
*Minimum payments do not include contingent rentals or vehicle lease payments based on mileage. Total net rent expense for operating leases, including those with terms of less than one year, consisted of the following:
(in thousands) 2001 2000 1999 - ------------------------------------------------------------- Minimum rentals $26,730 $26,170 $25,144 Sublease rentals (249) (488) (355) - ------------------------------------------------------------- TOTAL NET RENT EXPENSE $26,481 $25,682 $24,789 =============================================================
NOTE 14: COMMITMENTS AND CONTINGENCIES In fiscal 1998, the Company was notified that approximately $6 million in Company-owned inventory was stolen from a ship in the port of St. Petersburg, Russia. The ship had been chartered by a major customer of the Company's former food-exporting business. The Company believes, based on the facts known to date, that the loss is covered by insurance. However, following submission of a claim for indemnity, the insurance carrier denied our claim for coverage and the Company commenced a lawsuit seeking to obtain coverage under the insurance carrier's policy. If the loss from the theft of product is not covered by such insurance, the Company would recognize a material charge to its results of operations. At March 3, 2001, the estimated cost to complete improvements in progress totaled approximately $12 million. NOTE 15: STOCK PLANS The 1989 and 1997 stock-based plans of the Company permit awards of restricted stock, incentive units and stock options to directors and key employees subject to the provisions of the plans and as determined by the Compensation Committee of the Board of Directors. At March 3, 2001, a total of 186,261 common shares were available for grants. In fiscal 2001, grants of 11,941 shares of restricted stock were awarded with varying performance criteria and vesting periods. At March 3, 2001, the total number of restricted shares outstanding was 81,185. The market value of shares issued under the plans, as of the date of grant, has been recorded as unearned compensation and is shown as a separate component of shareholders' equity. Unearned compensation is expensed over the period that restrictions lapse. Stock options are granted to purchase shares of Company common stock at not less than fair market value at dates of grant. With the exception of certain options that become exercisable over a period of years based on varying performance criteria, options generally become exercisable one year after the date of grant. In addition, options generally expire 10 years after the date of grant. The per share weighted average fair values of stock options granted were $3.46 in fiscal 2001, $5.35 in fiscal 2000 and $6.91 in fiscal 1999. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The following weighted-average assumptions were used in the calculation:
Assumptions 2001 2000 1999 - -------------------------------------------------------------------- Expected dividend yield 4.4% 4.4% 3.8% Expected volatility 31.6% 27.6% 24.0% Risk-free interest rates 6.4% 5.7% 5.7% Expected life (in years) 7.3 6.9 8.2 - --------------------------------------------------------------------
The Company applies APB Opinion No. 25 in accounting for the compensation costs of employee stock options in the financial statements. Had the Company determined compensation costs based on the fair value at the date of grant for its stock options, the Company's earnings from continuing operations would have been reduced to the pro forma amounts indicated below:
(in thousands, except per share data) 2001 2000 1999 - ------------------------------------------------------------------- Earnings from continuing operations: As reported $21,175 $24,695 $6,832 Pro forma 19,805 23,968 5,944 Diluted earnings per share from continuing operations: As reported $ 1.12 $ 1.31 $ 0.36 Pro forma 1.05 1.28 0.31 - -------------------------------------------------------------------
The following table contains information on stock options:
Weighted Average Exercise Shares Price Per Share - ----------------------------------------------------------- Outstanding at February 28, 1998 1,336,496 $22.11 Granted 181,564 28.55 Exercised (191,879) 21.52 Expired or canceled (25,222) 25.75 - ----------------------------------------------------------- Outstanding at February 28, 1999 1,300,959 $23.02 Granted 141,550 22.21 Exercised (61,089) 20.21 Expired or canceled (60,700) 25.38 - ----------------------------------------------------------- Outstanding at February 29, 2000 1,320,720 $22.96 GRANTED 541,742 12.03 EXERCISED (6,000) 16.00 EXPIRED OR CANCELED (252,940) 22.37 - ----------------------------------------------------------- OUTSTANDING AT MARCH 3, 2001 1,603,522 $19.38 - ----------------------------------------------------------- Options exercisable at: February 28, 1999 875,009 $21.74 February 29, 2000 934,670 $22.58 MARCH 3, 2001 924,152 $22.22 - -----------------------------------------------------------
For options outstanding at March 3, 2001, the range of exercise price per share was $11.84 to $28.91 and the average remaining contractual life was 7.3 years. NOTE 16: RETIREMENT PLANS DEFINED BENEFIT PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS In the United States and Canada, defined benefit pension plans cover substantially all employees. Benefits are based primarily on years of credited service and average compensation or stated amounts for each year of service. These plans are generally funded by contributions to tax-exempt trusts in amounts sufficient to provide assets to cover the plans' obligations. Plan assets consist principally of listed equity securities, fixed income securities and cash equivalents. The Company also provides post-retirement health and life insurance benefits for retirees in the United States and Canada who meet minimum age and service requirements. Life insurance benefits are funded on a pay-as-you-go basis through an insurance company. Health-care benefits are provided under a self-insured program administered by an insurance company. Summaries related to the changes in benefit obligations and plan assets, and to the funded status of the plans are as follows:
Post-Retirement Pension Benefits Benefits -------------------- -------------------- (in thousands) 2001 2000 2001 2000 - ------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $182,569 $203,811 $ 13,582 $ 14,462 Service cost 3,298 3,724 171 149 Interest cost 13,597 12,358 1,081 929 Plan participants' contributions 547 600 756 668 Amendments 813 557 - - Plan expenses (706) (474) - - Actuarial (gain) loss 15,654 (24,512) 1,645 (763) Benefits payments (15,984) (15,606) (2,529) (2,040) Curtailments 405 - - - Foreign exchange adjustment (3,662) 2,111 (326) 177 - ------------------------------------------------------------------------------- BENEFIT OBLIGATION AT END OF YEAR $196,531 $182,569 $ 14,380 $ 13,582 =============================================================================== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $288,104 $257,030 $ - $ - Actual return on plan assets 11,038 42,588 - - Employer contribution 1,381 1,289 1,773 1,372 Plan participants' contributions 547 600 756 668 Benefits payments (15,984) (15,606) (2,529) (2,040) Plan expenses (659) (474) - - Foreign exchange adjustment (4,876) 2,677 - - - ------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR $279,551 $288,104 $ - $ - =============================================================================== FUNDED STATUS Funded status at end of year $ 83,020 $105,535 $(14,380) $(13,582) Unrecognized transition asset (2,804) (4,471) - - Unrecognized prior service cost 5,216 5,616 (490) (571) Unrecognized net (gain) loss (39,783) (73,921) 2,183 850 - ------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $ 45,649 $ 32,759 $(12,687) $(13,303) =============================================================================== Amounts recognized in the consolidated balance sheet consist of: Prepaid pension asset $ 58,100 $ 44,659 $ - $ - Accrued benefit liability (16,213) (15,044) (12,687) (13,303) Intangible asset 6 - - - Accumulated other comprehensive loss 3,756 3,144 - - - ------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $ 45,649 $ 32,759 $(12,687) $(13,303) =============================================================================== Post-Retirement Pension Benefits Benefits -------------------- -------------------- Weighted-average assumptions 2001 2000 2001 2000 - ------------------------------------------------------------------------------- Discount rate 7.2% 7.6% 7.2% 7.6% Expected return on plan assets 10.3% 10.3% N/A N/A Rate of compensation increase 4.0% 4.0% N/A N/A - -------------------------------------------------------------------------------
The assumed annual rate of increase in per capita costs of post-retirement health-care benefits for fiscal 2001 ranged from 4.8% to 5.8%. The rate is assumed to decrease gradually to 4% for fiscal 2004 and thereafter. Assumed health-care cost trends could have an effect on the amounts reported for the health-care plans. The effects of a one-percentage-point change in the assumed health-care cost trends are as follows:
1-Percentage-Point ------------------ (in thousands) Increase Decrease - ---------------------------------------------------------- Total of service and interest cost $ 79 $ (65) Accumulated post-retirement benefit obligation 768 (639) - ----------------------------------------------------------
Post-Retirement Pension Benefits Benefits ---------------------------- ------------------------- (in thousands) 2001 2000 1999 2001 2000 1999 - ------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 3,298 $ 3,724 $ 3,337 $ 171 $ 149 $ 101 Interest cost 13,597 12,358 12,518 1,081 929 907 Expected return on plan assets (25,697) (23,017) (20,419) - - - Amortization of transition asset (1,521) (1,539) (1,532) - - - Amortization of prior service cost 949 1,080 1,367 (34) (35) (34) Recognized actuarial (gain) loss (3,567) (45) 760 157 159 117 Curtailment loss 401 - - - - - - ------------------------------------------------------------------------------------- NET PERIODIC (BENEFIT) COST $(12,540) $ (7,439) $ (3,969) $1,375 $1,202 $1,091 =====================================================================================
The following information pertains to pension plans with accumulated benefit obligations in excess of plan assets:
Pension Benefits ------------------------ (in thousands) 2001 2000 - ------------------------------------------------------------ Projected benefit obligation $16,648 $15,564 Accumulated benefit obligation 16,420 15,336 - ------------------------------------------------------------
The minimum liability recorded for pension plans where the accumulated benefit obligation exceeded the fair market value of assets is as follows:
(in thousands) 2001 2000 - ------------------------------------------------------------ Minimum liability recognized in comprehensive loss $(3,756) $(3,144) Tax benefit 1,465 1,226 - ------------------------------------------------------------ MINIMUM LIABILITY RECOGNIZED IN COMPREHENSIVE LOSS, NET OF TAX $(2,291) $(1,918) ============================================================
DEFINED CONTRIBUTION PLANS Defined contribution plans cover substantially all salaried, sales and certain hourly employees in the United States and Canada. The Company makes contributions equal to 50% of the participating employee's contributions subject to certain limitations. Employer contributions, which are invested in shares of the Company's common stock, were $2.4 million in fiscal 2001, $2.3 million in fiscal 2000 and $2.2 million in fiscal 1999. NOTE 17: MULTIFOODS' BUSINESS SEGMENTS The Company has two reportable business segments: Multifoods Distribution Group and North America Foods. MULTIFOODS DISTRIBUTION GROUP is a distributor of food and related products to the foodservice industry in the United States. The business offers foodservice customers a broad selection of national brand-name, regional and private-label items, including food products, paper goods and cleaning supplies, through its national network of distribution centers. Customers include casual-dining, limited-menu restaurants, such as pizza, Mexican and Italian establishments, and sandwich shops; vending operators; the office coffee service market; movie theaters; fund-raising groups; commissaries; and stadium and recreational concession stands. In October 1999, the Company acquired Better Brands, Inc., a broadline foodservice distributor based in the northeast United States. The acquisition enhances the Company's position in the foodservice industry and expands its geographic reach. The Company holds leadership positions in the independent pizza restaurant, vending and office coffee service foodservice categories. NORTH AMERICA FOODS is comprised of two business units: U.S. Foodservice Products and Robin Hood Multifoods in Canada. U.S. Foodservice Products is a manufacturer and provider of baking mixes and frozen batters, doughs and desserts to foodservice operators and commercial customers. Customers include retail, wholesale and in-store bakeries, and foodservice establishments, such as restaurants and convenience stores. In Canada, Robin Hood Multifoods is a leading consumer foods manufacturer and marketer of flour and baking mixes, primarily under the Robin Hood brand name; and condiments, primarily under the Bick's brand name. The Company also is a leading provider of grain-based products and condiments to foodservice operators and commercial customers. DIVESTED BUSINESS consists of the food-exporting business, which the Company exited in fiscal 1998. The Company does not allocate interest expense, income taxes or certain corporate expenses to its business segments. The following tables set forth information by business segment:
Operating Net Operating Unusual Earnings (in millions) Sales Costs Items (Loss) - --------------------------------------------------------------------------- 2001: MULTIFOODS DISTRIBUTION GROUP $2,042.5 $(2,025.7) $ (0.3) $ 16.5 NORTH AMERICA FOODS 482.4 (441.9) (1.8) 38.7 CORPORATE EXPENSES - (5.5) 5.6 0.1 - --------------------------------------------------------------------------- TOTAL $2,524.9 $(2,473.1) $ 3.5 $ 55.3 =========================================================================== 2000: Multifoods Distribution Group $1,899.6 $(1,879.2) $ 0.5 $ 20.9 North America Foods 485.1 (446.5) - 38.6 Corporate Expenses - (7.1) - (7.1) - --------------------------------------------------------------------------- Total $2,384.7 $(2,332.8) $ 0.5 $ 52.4 =========================================================================== 1999: Multifoods Distribution Group $1,845.8 $(1,817.5) $(11.5) $ 16.8 North America Foods 450.8 (419.5) (7.2) 24.1 Divested Business - 0.8 (10.3) (9.5) Corporate Expenses - (8.5) - (8.5) - --------------------------------------------------------------------------- Total $2,296.6 $(2,244.7) $(29.0) $ 22.9 ===========================================================================
2001 2000 1999 -------------------------------- -------------------------------- -------------------------------- DEPRECIATION Depreciation Depreciation CAPITAL AND Capital and Capital and (in millions) EXPENDITURES AMORTIZATION ASSETS Expenditures Amortization Assets Expenditures Amortization Assets - ---------------------------------------------------------------------------------------------------------------------- Multifoods Distribution Group $12.4 $13.7 $424.2 $31.1 $11.0 $400.2 $13.0 $11.4 $354.3 North America Foods 22.5 11.5 243.1 18.3 10.8 232.7 14.7 10.3 215.6 Divested Business - - 6.2 - - 6.2 - - 6.7 Corporate 0.3 0.2 91.1 - 0.4 97.1 0.4 0.4 75.4 Discontinued Operations - - - - - - - - 44.9 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $35.2 $25.4 $764.6 $49.4 $22.2 $736.2 $28.1 $22.1 $696.9 ======================================================================================================================
Corporate assets include cash and cash equivalents, U.S. prepaid pension assets, and current and deferred income tax assets. Geographic Information The Company's North America Foods business segment operates in the United States and Canada. The Canadian operations had revenues of $315.0 million, $311.8 million and $297.3 million for fiscal years 2001, 2000 and 1999, respectively. In addition, long-lived assets of the Canadian operations were $86.3 million, $87.6 million and $79.3 million at March 3, 2001, February 29, 2000, and February 28, 1999, respectively. Long-lived assets consist of property, plant and equipment; goodwill; and identifiable intangible assets.
NOTE 18: QUARTERLY SUMMARY (UNAUDITED) Net Operating Unusual Operating (in millions) Sales Costs Items Earnings - ------------------------------------------------------------------------------ FIRST QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $495.9 $(490.7) $ - $ 5.2 NORTH AMERICA FOODS 114.4 (106.9) - 7.5 CORPORATE EXPENSES - (1.5) - (1.5) - ----------------------------------------------------------------------------- TOTAL $610.3 $(599.1) $ - $ 11.2 ============================================================================= First Quarter - 2000 Multifoods Distribution Group $472.0 $(465.7) $ - $ 6.3 North America Foods 116.8 (110.5) - 6.3 Corporate Expenses - (2.3) - (2.3) - ----------------------------------------------------------------------------- Total $588.8 $(578.5) $ - $ 10.3 ============================================================================= SECOND QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $468.8 $(465.0) $ (0.3) $ 3.5 NORTH AMERICA FOODS 116.5 (107.4) - 9.1 CORPORATE EXPENSES - (1.2) 5.6 4.4 - ----------------------------------------------------------------------------- TOTAL $585.3 $(573.6) $ 5.3 $ 17.0 ============================================================================= Second Quarter - 2000 Multifoods Distribution Group $452.5 $(447.7) $ - $ 4.8 North America Foods 116.2 (108.2) - 8.0 Corporate Expenses - (1.9) - (1.9) - ----------------------------------------------------------------------------- Total $568.7 $(557.8) $ - $ 10.9 ============================================================================= THIRD QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $518.7 $(512.7) $ - $ 6.0 NORTH AMERICA FOODS 131.1 (116.7) (1.5) 12.9 CORPORATE EXPENSES - (1.2) - (1.2) - ----------------------------------------------------------------------------- TOTAL $649.8 $(630.6) $ (1.5) $ 17.7 ============================================================================= Third Quarter - 2000 Multifoods Distribution Group $496.2 $(492.0) $ 0.5 $ 4.7 North America Foods 136.0 (122.1) - 13.9 Corporate Expenses - (1.9) - (1.9) - ----------------------------------------------------------------------------- Total $632.2 $(616.0) $ 0.5 $ 16.7 ============================================================================= FOURTH QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $559.1 $(557.3) $ - $ 1.8 NORTH AMERICA FOODS 120.4 (110.9) (0.3) 9.2 CORPORATE EXPENSES - (1.6) - (1.6) - ----------------------------------------------------------------------------- TOTAL $679.5 $(669.8) $ (0.3) $ 9.4 ============================================================================== Fourth Quarter - 2000 Multifoods Distribution Group $478.9 $(473.8) $ - $ 5.1 North America Foods 116.1 (105.7) - 10.4 Corporate Expenses - (1.0) - (1.0) - ----------------------------------------------------------------------------- Total $595.0 $(580.5) $ - $ 14.5 =============================================================================
NOTE 18: QUARTERLY SUMMARY (UNAUDITED) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL YEAR (in millions, --------------- ---------------- --------------- ---------------- ---------------- except per share data) 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------ Gross profit $44.7 $ 43.8 $45.0 $ 42.5 $52.6 $50.5 $46.7 $47.2 $189.0 $184.0 Earnings from continuing operations 4.8 4.6 5.2(b) 5.1 8.5(c) 8.1 2.7(d) 6.9 21.2 24.7 Loss from discontinued operations - (7.8) - (11.8) - - - - - (19.6) - ------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) 4.8 (3.2) 5.2 (6.7) 8.5 8.1 2.7 6.9 21.2 5.1 Basic earnings (loss) per share of common stock (a): Continuing operations 0.25 0.24 0.28(b) 0.27 0.45(c) 0.43 0.14(d) 0.37 1.13 1.32 Discontinued operations - (0.41) - (0.63) - - - - - (1.05) - ------------------------------------------------------------------------------------------------------------------------ Total 0.25 (0.17) 0.28 (0.36) 0.45 0.43 0.14 0.37 1.13 0.27 Diluted earnings (loss) per share of common stock (a): Continuing operations 0.25 0.24 0.28(b) 0.27 0.45(c) 0.43 0.14(d) 0.37 1.12 1.31 Discontinued operations - (0.41) - (0.62) - - - - - (1.04) - ------------------------------------------------------------------------------------------------------------------------ Total 0.25 (0.17) 0.28 (0.35) 0.45 0.43 0.14 0.37 1.12 0.27 Comprehensive income (loss) 1.0 (1.1) 6.9 (7.7) 5.6 9.6 2.1 9.4 15.6 10.2 Dividends paid per share of common stock 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.80 0.80 Market price of common stock: Close 13.44 22.00 16.88 22.69 18.63 13.94 19.21 10.94 19.21 10.94 High 14.94 24.19 18.56 24.19 18.63 23.38 23.31 14.44 23.31 24.19 Low 9.81 19.63 12.56 21.31 15.75 13.63 16.44 10.75 9.81 10.75 - ------------------------------------------------------------------------------------------------------------------------
(a) Earnings (loss) per share are computed independently for each period presented. As a result, the sum of the quarterly earnings (loss) per share in fiscal 2001 and 2000 does not equal the total computed for the year. (b) Includes a net after-tax gain of $0.2 million, or 1 cent per share, from unusual items and tax expense associated with a dividend from the Company's Canadian subsidiary. (c) Includes a net after-tax charge of $0.9 million, or 5 cents per share, from unusual items. (d) Includes a net after-tax charge of $0.2 million, or 1 cent per share, from unusual items. EX-21 9 a2050336zex-21.txt EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF INTERNATIONAL MULTIFOODS CORPORATION The following is a list of the Company's subsidiaries as of March 5, 2001, except for unnamed subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. JURISDICTION OF NAME OF SUBSIDIARY INCORPORATION - ------------------ ------------- Fantasia Confections, Inc. California Multifoods Bakery Distributors, Inc. Delaware Multifoods Bakery International, Inc. Delaware Inversiones 91060, C.A. Venezuela Multifoods Distribution Management, Inc. Delaware Better Brands, Inc. Delaware Multifoods Distribution Group, Inc. Colorado Multifoods Merchandising, Inc. Delaware Robin Hood Multifoods Inc. Ontario Multifoods Ltd. Ontario 985079 Ontario Inc. Ontario Gourmet Baker Inc. Ontario 980964 Ontario Limited Ontario EX-23 10 a2050336zex-23.txt EXHIBIT 23 EXHIBIT 23 Independent Auditors' Consent The Board of Directors International Multifoods Corporation We consent to incorporation by reference in Registration Statement No. 333-51399 on Form S-8 relating to the Employees' Voluntary Investment and Savings Plan of International Multifoods Corporation, No. 333-34173 on Form S-8 relating to the Stock Purchase Plan of Robin Hood Multifoods Inc., No 2-84236 on Form S-8 relating to the 1983 Stock Option Incentive Plan of International Multifoods Corporation, No. 33-6223 on Form S-8 relating to the 1986 Stock Option Incentive Plan of International Multifoods Corporation, No. 33-30979 on Form S-8 relating to the Amended and Restated 1989 Stock-Based Incentive Plan of International Multifoods Corporation, No. 333-34171 on Form S-8 and No. 333-69387 on Form S-8 relating to the 1997 Stock-Based Incentive Plan of International Multifoods Corporation, No.333-64075 on Form S-8 relating to the Consulting Agreement between International Multifoods Corporation and Daryl Schaller and No. 33-65221 on Form S-3 relating to certain debt securities of International Multifoods Corporation of our reports dated March 27, 2001, relating to the consolidated balance sheets of International Multifoods Corporation and subsidiaries as of March 3, 2001 and February 29, 2000 and the related consolidated statements of operations, cash flows, and shareholders' equity, and related financial statement schedule for each of the fiscal years in the three-year period ended March 3, 2001, which reports appear or are incorporated by reference in the Annual Report on Form 10-K for the fiscal year ended March 3, 2001, of International Multifoods Corporation. /s/ KPMG LLP Minneapolis, Minnesota May 25, 2001 -----END PRIVACY-ENHANCED MESSAGE-----