-----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, DR4fZQio0TQtbDlaovgMjQ5+ZQCHR7dfc4Q+lkvk6VOHRfwxObyhmGu2TBs3K/uN odISfnJQOQqOYGMC42KBGQ== 0000950144-00-004357.txt : 20000403 0000950144-00-004357.hdr.sgml : 20000403 ACCESSION NUMBER: 0000950144-00-004357 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLOWERS INDUSTRIES INC /GA CENTRAL INDEX KEY: 0000826227 STANDARD INDUSTRIAL CLASSIFICATION: BAKERY PRODUCTS [2050] IRS NUMBER: 580244940 STATE OF INCORPORATION: GA FISCAL YEAR END: 0629 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09787 FILM NUMBER: 590396 BUSINESS ADDRESS: STREET 1: 1919 FLOWERS CIRCLE STREET 2: P O BOX 1338 CITY: THOMASVILLE STATE: GA ZIP: 31799 BUSINESS PHONE: 9122269110 MAIL ADDRESS: STREET 1: 1919 FLOWERS CIRCLE STREET 2: P O BOX 1338 CITY: THOMASVILLE STATE: GA ZIP: 31799 FORMER COMPANY: FORMER CONFORMED NAME: FLOWERS INDUSTRIES OF GEORGIA INC DATE OF NAME CHANGE: 19871220 10-K 1 FLOWERS INDUSTRIES, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 1, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 1-9787 FLOWERS INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) GEORGIA 58-0244940 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1919 FLOWERS CIRCLE 31757 THOMASVILLE, GEORGIA (Zip Code) (Address of principal executive offices)
(Registrant's telephone number, including area code) (912) 226-9110 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $.625 PAR VALUE, TOGETHER WITH NEW YORK STOCK EXCHANGE PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE 7.15% DEBENTURES DUE 2028
Securities registered pursuant to Section 12(g) of the Act: None --------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing sales price on the New York Stock Exchange on March 24, 2000: $1,277,230,765 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.
TITLE OF EACH CLASS OUTSTANDING AT MARCH 24, 2000 ------------------- ----------------------------- COMMON STOCK, $.625 PAR VALUE 99,984,967
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 1, 2000 OF KEEBLER FOODS COMPANY, A DELAWARE CORPORATION, AND PORTIONS OF THE COMPANY'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 31, 2000 IN PART III. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 FORM 10-K REPORT TABLE OF CONTENTS
PAGE ---- ITEM NO. 1. BUSINESS.................................................... 1 2. PROPERTIES.................................................. 10 3. LEGAL PROCEEDINGS........................................... 10 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10 ITEM NO. 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................... 11 6. SELECTED FINANCIAL DATA..................................... 12 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.......................... 13 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................................ 24 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 25 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................... 25 ITEM NO. 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 25 11. EXECUTIVE COMPENSATION...................................... 25 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. 25 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 25 ITEM NO. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................................................... 25
i 3 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Registrant incorporates by reference into this Annual Report on Form 10-K for the fiscal year ended January 1, 2000, certain portions of the Annual Report on Form 10-K of Keebler Foods Company for its fiscal year ended January 1, 2000, filed with the Securities and Exchange Commission on March 23, 2000 (File No. 001-13705) (the "Keebler Form 10-K"), as follows:
ITEM OF KEEBLER ANNUAL REPORT ITEM OF FLOWERS ANNUAL REPORT ON FORM 10-K BEING ON FORM 10-K BEING INCORPORATED BY REFERENCE INCORPORATED BY REFERENCE ----------------------------- ----------------------------- PART II PART II Item 6. Selected Financial Data Item 6. Selected Financial Data Item 7. Management's Discussion and Item 7. Management's Discussion and Analysis of Financial Condition Analysis of Financial Condition and Results of Operations and Results of Operations Item 7a. Quantitative and Qualitative Item 7a. Quantitative and Qualitative Disclosures About Market Risk Disclosures About Market Risk
ii 4 PART I ITEM 1. BUSINESS As used herein, unless the context otherwise indicates, (i) "FII" means Flowers Industries, Inc., the publicly traded holding company, which owns all of the outstanding common stock of Flowers Bakeries, Inc. ("Flowers Bakeries") and Mrs. Smith's Bakeries, Inc. ("Mrs. Smith's Bakeries"), and owns a majority of the outstanding common stock of Keebler Foods Company; (ii) "Keebler" means Keebler Foods Company and its consolidated subsidiaries; (iii) "Flowers" means FII and its wholly owned subsidiaries, Flowers Bakeries and Mrs. Smith's Bakeries, and their respective subsidiaries, excluding Keebler, and (iv) the "Company" means Flowers and its consolidated, majority-owned subsidiary, Keebler, collectively. THE COMPANY The Company is the largest nationally branded producer and marketer of a full line of baked foods in the United States. The products of the Company's three segments include Flowers Bakeries' fresh breads and rolls, Mrs. Smith's Bakeries' fresh and frozen baked desserts, snacks, breads and rolls, as well as Keebler's cookies and crackers. Since its founding in 1919 in Thomasville, Georgia, the Company has dramatically expanded the diversity and geographic scope of its operations and is now a leader in the market for baked foods throughout the United States. In the fresh baked product line (Flowers Bakeries), the Company focuses on the production and marketing of baked foods to customers in the super-regional 16 state area in and surrounding the southeastern United States. In this effort, the Company has devoted significant resources to modernizing production facilities and improving its distribution capabilities, as well as actively marketing well-recognized brands such as Nature's Own and Cobblestone Mill bread. Since 1980, the Company has acquired 26 local bakery operations which are generally within or contiguous to its existing region and which can be served with its extensive direct store door delivery ("DSD") system. The Company's strategy is to use acquisitions to better serve new and existing customers, principally by increasing the productivity and efficiency of newly acquired plants, establishing reciprocal baking arrangements among its bakeries and by extending its DSD system. Flowers Bakeries' DSD system utilizes approximately 3,100 independent distributors who own the right to sell the Company's fresh baked products within their respective territories. The Company's frozen baked foods operations (Mrs. Smith's Bakeries) began in the mid-1970s with the acquisition of Stilwell Foods, a producer of frozen products initially marketed to customers in the southeastern and southwestern United States. In 1989, the Company entered the frozen bread and dough market in the southeastern United States with its acquisition of the bakery operations of Winn-Dixie, Inc. In 1991, the Company undertook its first significant entry into the national market for frozen baked dessert products with the acquisition of Pies, Inc., a midwest-based producer of premium desserts for the restaurant and foodservice markets, and further expanded its national presence by acquiring the Oregon Farms brand of retail frozen desserts. In 1996, the Company obtained a leading presence in the frozen baked dessert category with the acquisition of the business of Mrs. Smith's Inc., which markets the leading national brand of frozen pies sold at retail. In 1998, the Company launched "Operation 365," a strategy aimed at significantly expanding year-round sales in the frozen dessert baked product category through product line extensions designed to take advantage of nationwide consumer recognition of the Mrs. Smith's brand name. Examples of significant product line extensions include Mrs. Smith's frozen fruit cobblers and Mrs. Smith's Restaurant Classics frozen pies for retail and foodservice distribution. In 1999, Mrs. Smith's developed a new line of Mrs. Smith's Cookies and Cream frozen deserts that are co-branded with Keebler. These pies were introduced to the market during the first quarter of 2000. In a series of transactions from 1996 through 1998, the Company entered the cookie and cracker marketplace by acquiring Keebler, the number two producer and marketer of cookies and crackers in the United States. On February 3, 1998, Keebler completed its initial public offering in which Flowers' co-investors sold a portion of their shares to the public. Concurrently with that offering, Flowers purchased an 1 5 additional 11.5% of Keebler from its co-investors for approximately $309 million in cash, thereby increasing its ownership to approximately 55% of the total Keebler shares outstanding. In September, 1998, Keebler purchased all of the outstanding common stock of President International, Inc. ("President"). President was the fifth largest cookie marketer in the United States and the leading supplier of Girl Scout cookies. Its key brands include Famous Amos, Plantation and Murray. In March 2000, Keebler acquired Austin Foods, Inc. ("Austin"). Austin is a leading producer and marketer of single serve baked snacks, including cracker sandwiches and bite sized crackers and cookies. The Company has a leading presence in each of the major product categories in which it competes. Flowers Bakeries' fresh baked branded bread and roll sales rank first or second in 18 of the 22 major markets it serves. It's Nature's Own brand is the number one volume brand of wheat/variety bread in the country despite being marketed in only 40% of the United States. Mrs. Smith's Bakeries is one of the leading frozen baked dessert producers and marketers in the United States, and its Mrs. Smith's pies are the leading national brand of frozen pies sold at retail. Keebler is the number two producer and marketer of branded cookies and crackers, the number one producer and marketer of private label cookies and the number one producer and marketer of crackers for the foodservice market. The Company is committed to being the low cost producer in all of its operations and has made significant capital investments in recent years to modernize, automate and expand its production and distribution capabilities. Flowers has invested heavily over the past five years at both Flowers Bakeries and Mrs. Smith's Bakeries. Capital spending at Flowers Bakeries was primarily directed toward expanding and modernizing existing production facilities. In 1999, the most significant production facility expenditure was the installation of a fully automated wrapping system for three production lines in a new 6,000 square foot facility at its Goldsboro facility. Mrs. Smith's Bakeries has completely realigned its production capabilities over the last two years spending approximately $174.0 million. This realignment included the relocation and upgrading of 25 production lines at seven of its 10 operating facilities. When complete in 2000, Mrs. Smith's Bakeries will have significantly more capacity at fewer locations and will be operating much more efficiently. These competitive advantages will give Mrs. Smith's Bakeries the ability to exploit every opportunity in the rapidly growing foodservice segment as well as continue its growth in the retail market. With these major projects complete, capital spending in 2000 will be substantially reduced and directed toward completing 1999 carryover projects and performing normal repair and maintenance at existing facilities. Keebler has invested significantly in streamlining its operations, including the integration of the production capacity of Sunshine and President. Keebler has closed plants, consolidated production and invested in new technology to become a more efficient producer of cookies and crackers. PRODUCTS The Company produces baked foods in three segments: Flowers Bakeries (fresh baked foods), Mrs. Smith's Bakeries (frozen baked foods) and Keebler (cookies and crackers). Flowers Bakeries -- Fresh Baked Foods In 1999, Flowers Bakeries was the leading producer of fresh baked foods and ranked first or second in 18 of the 22 major markets it serves and was developing its presence in the other markets it has recently entered. Flowers Bakeries' market includes 16 states in the eastern, southeastern and south central United States. Flowers Bakeries markets its fresh soft variety and white breads under numerous brand names, including Flowers, Nature's Own, Whitewheat, Cobblestone Mill, Dandee, Evangeline Maid, Betsy Ross, ButterKrust and Purity, among others. Within licensed geographic territories, Flowers Bakeries also markets fresh bread under the Sunbeam, Roman Meal, and Bunny trademarks. Nature's Own is the best selling brand by volume of soft variety bread in the United States, despite being marketed in only 40% of the United States. Rolls and buns are marketed under the Cobblestone Mill, Breads International and other brand names. Flowers Bakeries has used its strong brand recognition to expand to new product lines, such as the successful introduction of Cobblestone Mill Breakfast Breads and in 1999, a highly successful 100% wheat, sugar free loaf under the 2 6 Natures Own brand. Fresh baked snack cakes, donuts, pastries and other sweet snacks are sold primarily under the BlueBird brand, as well as ButterKrust and Sunbeam. In addition to its branded products, Flowers Bakeries also packages baked foods under private labels for retailers. While private label products carry lower margins than branded products, Flowers Bakeries is able to use private label offerings to expand total shelf space and to effectively maximize capacity utilization. Flowers Bakeries also supplies numerous restaurants, institutions and foodservice companies, with fresh bread products, including Burger King, Wendy's, Krystal, Arby's, Outback Steakhouse, Hardees, Applebees, Dairy Queen and Chili's. Flowers Bakeries is a preferred supplier to Burger King and currently supplies baked products to approximately 2,150 Burger King restaurants in the Southeast. Flowers Bakeries also sells fresh baked products to wholesale distributors for ultimate sale to a wide variety of food outlets. Mrs. Smith's Bakeries -- Frozen Baked Foods Mrs. Smith's Bakeries and Sara Lee have the two largest shares of the frozen baked dessert market. Mrs. Smith's Bakeries' frozen baked pies were the number one retail frozen brand pies in the United States for 1999. Mrs. Smith's Bakeries' frozen baked foods are marketed throughout the United States; and, based on consumer surveys, Mrs. Smith's enjoys a 94% brand awareness in United States households. Mrs. Smith's Bakeries' frozen pies, cakes, cobblers and other baked desserts are sold under the Mrs. Smith's, Mrs. Smith's Restaurant Classics, Mrs. Smith's Special Recipe, Oregon Farms, Stilwell, Pet-Ritz, Banquet and Oronoque Orchard brand names in the frozen foods sections of supermarkets, as are Mrs. Smith's Bakeries' frozen pie shells, mixed fruits and quiche fillings. Mrs. Smith's Bakeries has also introduced a line of frozen baked desserts that feature low fat crusts and no-sugar-added fruit fillings. In the first quarter of fiscal 2000, Mrs. Smith's Bakeries introduced the Mrs. Smith's Cookies and Cream line of frozen pies that are co-branded with Keebler. Mrs. Smith's Bakeries' frozen baked products also include specialty baked and parbaked (partially baked) breads, buns and rolls marketed under the European Bakers, Ltd. and Our Special Touch brands, which are sold at retail. Mrs. Smith's Bakeries also co-packs these and other fresh bakery snack food products on behalf of other industry participants who sell these products under their own proprietary brand names. Mrs. Smith's Bakeries produces frozen pies, cakes and desserts as well as bread, rolls and buns for sale to foodservice customers and wholesalers, such as Sysco, and markets fresh and frozen hearth-baked specialty bread, breadsticks and rolls to chain restaurants such as Outback Steakhouse and Olive Garden. Traditionally, frozen pie sales are heavily concentrated throughout the year-end holiday season. In 1998, Mrs. Smith's Bakeries launched "Operation 365," a strategy aimed at significantly expanding non-seasonal sales in the frozen baked product line by introducing new products under the Mrs. Smith's brand, thereby extending the well-recognized Mrs. Smith's brand name to existing and related products. In fiscal 1998, Mrs. Smith's Bakeries' introduced Mrs. Smith's Restaurant Classics, which are frozen premium, restaurant-quality cream pies sold for retail and foodservice distribution. In the first quarter of fiscal 2000, Mrs. Smith's Bakeries introduced the Mrs. Smith's Cookies and Cream line of frozen pies that are co-branded with Keebler. Mrs. Smith's Bakeries also produces fresh baked snack products under the Mrs. Freshley's brand, such as donuts, honeybuns, cream horns, pecan spins, jelly rolls and cinnamon buns for sale as single packs in vending machines and in multi-packs marketed through grocery stores and mass merchandisers as center aisle promotions. Mrs. Smith's Bakeries produces fresh baked snack foods at some of its production facilities in order to maximize the use of capacity. Keebler -- Cookies and Crackers Keebler is the second largest cookie and cracker producer in the United States with net sales of over $2.6 billion and a 25.4% share of the United States cookie and cracker market. In the United States, Keebler is the number two producer and marketer of branded cookies and crackers, the leading licensed supplier of Girl Scout cookies, the number one producer of private label cookies and the number one producer of crackers for the foodservice market. Keebler produces cookies and crackers under well-recognized brands including, 3 7 among others, Chips Deluxe, Sandies, Fudge Shoppe, Vienna Fingers, Droxies, Famous Amos, Olde New England, Murray, Carr's, Town House, Club, Wheatables, Zesta, Cheez-It, Sunshine Krispy, Munch'ems and Ready Crust. The relative mix between cookie and cracker sales varies throughout the year with stronger cracker sales in the last quarter of the calendar year. In addition, Keebler is the number one producer and marketer of retail branded ice cream cones in the United States, and a major producer of retail branded pie crusts. Keebler also produces custom-baked products for other marketers of branded food products, including Kellogg Pop Tarts, Kellogg Nutri-Grain bars, McDonaldland cookies and Gerber Biter biscuits, as well as crackers for Oscar Mayer Lunchables, Starkist Charlie Tuna snack kits and Kraft Handi-Snacks. With the acquisition of President, Keebler also became the leading licensed supplier of cookies for the Girl Scouts of America. Keebler exclusively supplies more than one-half of the approximately 320 Girl Scout Councils in the United States and is one of only three cookie manufacturers licensed by the Girl Scouts of America to manufacture Girl Scout cookies. Keebler employs dedicated marketing personnel to assist the various Girl Scout Councils with sales, marketing and public relations. Historically, President's net sales, net income and cash flow have been higher in the first quarter than any other fiscal quarter because substantially all sales of Girl Scout cookies have occurred in that quarter. In March 2000, Keebler acquired Austin Quality Foods, Inc., a leading producer and marketer of single-serve baked snacks, including cracker sandwiches and bite-sized crackers and cookies. Austin will provide Keebler with enhanced growth opportunities in key alternate retail channels. MANUFACTURING AND DISTRIBUTION The Company designs its production facilities and distribution systems to meet the marketing and production demands of its major product lines. Through a significant program of capital improvements and careful planning of plant locations, which, among other things, allows the Company to establish reciprocal baking arrangements among its bakeries, the Company seeks to remain the country's leading low cost producer and marketer of branded fresh and frozen baked products on a national and super-regional basis and to provide the highest quality customer service. In addition to the independent distributor system for its fresh baked products and the DSD system used for Flowers Bakeries and Keebler, the Company also uses both owned and public warehouses and distribution centers in central locations for the distribution of certain of its frozen and other shelf stable products. Flowers Bakeries -- Fresh Baked Foods Flowers Bakeries owns and operates 26 fresh bread and bun bakeries in 10 states. Flowers Bakeries has invested approximately $281 million over the past five years, primarily to build new state-of-the-art baking facilities and to significantly upgrade existing facilities. During this period, Flowers Bakeries has added 13 new highly-automated production lines in eight of its facilities. In 1999, a fully automated wrapping system for three production lines was installed in a new 6,000 square foot facility at Flowers Bakeries' Goldsboro facility. The Company believes that these investments, undertaken at a time when many competitors were minimizing capital improvements due to leverage or earnings pressure, have made Flowers Bakeries the most efficient major producer of fresh baked foods in the United States. Flowers Bakeries believes that its capital investment yields long-term benefits in the form of more consistent product quality, highly sanitary processes and greater production volume at a lower cost per unit. While its major capital improvement program is largely complete, Flowers Bakeries intends to continue to invest in its plant and equipment to maintain the highest levels of efficiency. Distribution of fresh baked foods involves determining appropriate order levels, delivering the product from the plant to the customer, stocking the product on the shelves, visiting the customer one to three times daily to ensure that inventory levels remain adequate and removing stale goods. In 1986, Flowers Bakeries began converting its bakery sales routes from employees operating company-owned vehicles to a DSD system of exclusive independent distributors. Flowers Bakeries effected this change by selling its sales routes, primarily to its sales employees. Flowers Bakeries initially financed these purchases over ten years, but in 4 8 1996, these obligations were sold to a financial institution. Currently, all distributor purchase arrangements are made directly with a financial institution, and, pursuant to an agreement, Flowers Bakeries manages and services these arrangements. Management believes that Flowers Bakeries' independent distributor system is unique in the industry as to its size, with approximately 3,100 distributors, and with respect to its super-regional scope. In Flowers Bakeries' DSD system, an aggregate of over 70,000 stops are made each day. The program is designed to provide Flowers Bakeries' retailers with superior service because distributors, highly motivated by route ownership, strive to increase sales by maximizing service. In turn, distributors have the opportunity to benefit directly from the enhanced value of their routes resulting from higher sales volume. Mrs. Smith's Bakeries -- Frozen Baked Foods Mrs. Smith's Bakeries operates 10 production facilities with 44 production lines for its pies, cakes, breads, rolls and snack foods. Mrs. Smith's Bakeries maintains maximum operating efficiency by producing high volume fresh snack products on long runs to complement its branded frozen baked products, sales of which are seasonal in nature. Mrs. Smith's Bakeries completely realigned its production capabilities over the last two years, spending $174.0 million. This realignment included the relocation and upgrading of 25 production lines at seven of its 10 operating facilities. When complete in 2000, Mrs. Smith's Bakeries will have significantly more capacity at fewer locations and will be operating much more efficiently. These competitive advantages will give Mrs. Smith's Bakeries the ability to exploit every opportunity in the growing foodservice segment as well as continue its growth in the retail market. With these major projects near completion, capital spending in 2000 will be used to finish 1999 carryover projects and for normal repair and maintenance at existing facilities. Mrs. Smith's Bakeries' distribution facilities are strategically located near its production facilities to simplify distribution logistics and shorten delivery times. The plant in Stilwell, Oklahoma was the focus of a $60.0 million capital spending project to add production capacity and will be the primary producer of frozen pies. This facility also serves as a principal point of distribution for Mrs. Smith's Bakeries' products. The state-of-the-art Suwanee distribution facility is located on a major interstate corridor near four of Mrs. Smith's Bakeries' frozen dessert production facilities. This facility contains such innovations as five 78-foot tall, laser-guided cranes specifically designed for the facility, a six million cubic foot freezer, and computer-controlled bar-coding and inventorying. The automation of this facility enables Mrs. Smith's Bakeries to move extremely large volumes of product without a significant labor component and enables the facility to operate with extremely cold temperatures that preserve high product quality. In addition to cost efficiencies, these features allow the Suwanee facility to better serve customers by processing customer orders much more quickly than conventional freezer facilities. Production capacity was added to this facility as part of the realignment project, increasing Mrs. Smith's Bakeries' production capacity and enhancing operating efficiencies by having contiguous production and frozen storage. In addition to Mrs. Smith's Bakeries' two strategically-located freezer and distribution facilities in Suwanee and Stilwell, the Company leases additional freezer and distribution facilities on the West Coast to facilitate distribution of its products nationwide. These owned and leased facilities allow Mrs. Smith's Bakeries to build and store necessary inventory in seasonal products, and to expedite the national distribution of both its seasonal and non-seasonal products. Mrs. Smith's Bakeries distributes its fresh baked snack products from a centralized distribution facility located near Knoxville, Tennessee. Centralized distribution allows Mrs. Smith's Bakeries to achieve both production and distribution efficiencies. The production facilities are able to operate longer, more efficient production runs of a single product, which are then shipped to the centralized distribution facility. Products coming from different production facilities are then cross-docked and shipped directly to customer warehouses. Keebler -- Cookies and Crackers Keebler attempts to meet the changing demands of its customers by planning appropriate stock levels and optimal delivery times. To achieve these objectives, Keebler has developed a network of modern and efficient production facilities with contiguous or strategically located shipping centers and distribution warehouses. 5 9 Keebler operates 15 manufacturing facilities located throughout the United States, of which 13 are owned and two are leased. Keebler also owns and operates a dairy in Fremont, Ohio that produces cheese under a proprietary formula which is used as an ingredient in Cheez-It crackers. Keebler's distribution facilities consist of 15 shipping centers attached to its manufacturing facilities, nine stand-alone shipping centers (two owned and seven leased) and 63 distribution centers (10 owned and 53 leased) throughout the United States. Of the 63 distribution centers, 11 are subleased. Keebler also leases 100 warehouses (of which one is idle) and 20 depots that are located throughout the United States and are utilized by the sales force in the distribution of Keebler's products. Keebler distributes its retail branded cookie and cracker products through its DSD distribution system, which services substantially all supermarkets in the United States, as measured by Information Resources, Inc. ("IRI"). Members of Keebler's sales force, rather than store employees, stock and arrange Keebler's products on store shelves and build end-aisle and free-standing product displays. Frequent presence of Keebler's sales force employees provides Keebler with a high level of control over the availability and presentation of its products. Keebler believes that this control allows it to maintain shelf space, better execute in-store promotions and more effectively introduce new products. With the acquisition of President, Keebler acquired its franchised DSD system, which principally distributes products east of the Mississippi River. President's distribution system, which services both supermarkets and non-supermarket channels, is comprised of independent franchisees who purchase and resell President products. In addition to the Keebler and President DSD systems, Keebler uses a network of independent distributors and brokers to serve convenience stores and vending distributors. In the case of club stores, Keebler uses a dedicated sales force and ships products directly to the customers' warehouses. Keebler also uses a warehouse sales and distribution system to sell and distribute Keebler Ready Crust pie crusts. Carr's crackers are sold through a network of independent specialty distributors. CUSTOMERS The Company's top ten customers in 1999 accounted for 31% of sales. No single customer accounted for more than 10% of the Company's sales. COMPETITION Flowers Bakeries -- Fresh Baked Foods The United States fresh baked foods segment is intensely competitive and is comprised of large food companies, large independent bakeries with national distribution, and smaller regional and local bakeries. Primary national competitors include Interstate, Earthgrains, Bestfoods and Pepperidge Farm. Competition is based on product quality, brand loyalty, price effective promotions and the ability to target changing consumer preferences. Customer service, including frequent delivery and well-stocked shelves, is an increasingly important competitive factor. While Flowers Bakeries experiences price pressure from time to time, primarily as a result of competitors' promotional efforts, Flowers Bakeries believes that its status as the low cost producer and consumer brand loyalty, as well as Flowers Bakeries' diversity within its region in terms of geographic markets, products, and sales channels, limit the effects of such competition. Recent consolidation in the baked foods industry has reduced prior excess capacity and has further enhanced the ability of the larger firms to compete with small regional bakeries. Flowers Bakeries believes that it enjoys significant competitive advantages over smaller regional bakeries due to economies of scale in areas such as purchasing, production, advertising, marketing and distribution, and its lower production costs. Mrs. Smith's Bakeries -- Frozen Baked Foods The frozen baked foods industry is led by Mrs. Smith's Bakeries, Pillsbury and Sara Lee. Other significant competitors in the frozen baked dessert category include Rich Products, Edwards and Pepperidge Farm. Competitors for the Mrs. Freshley's brand products produced by Mrs. Smith's Bakeries include 6 10 Interstate (Hostess) and McKee (Little Debbie). Mrs. Freshley's is the country's number three fresh pastry brand sold through vending machines. Competition for branded frozen baked products depends primarily on brand recognition and loyalty, perceived product quality, effective promotions and, to a lesser extent, price. Based on consumer surveys, Mrs. Smith's has an approximate 94% brand awareness in United States households. For the nonbranded products manufactured by Mrs. Smith's Bakeries, competition is based upon high-quality products requested by foodservice customers, excellent service and price. Keebler -- Cookies and Crackers The United States branded cookie and cracker industry is led by Keebler and Nabisco, which together accounted for approximately 59.9% of total sales volume in 1999. Keebler has an approximate 25.4% share of the retail cookie and cracker market, while Nabisco, the largest manufacturer in the United States cookie and cracker industry, has an approximate 34.5% share. The remaining industry participants primarily target certain segments of the industry or focus on certain regions of the United States. Smaller competitors include numerous national, regional and local manufacturers of both branded and private label products. Competition in Keebler's markets takes many forms including establishing favorable brand recognition, developing products sought by consumers, implementing appropriate pricing, providing strong marketing support and obtaining access to retail outlets and sufficient shelf space. INTELLECTUAL PROPERTY The Company owns a number of trademarks and trade names, as well as certain patents and licenses. Flowers Bakeries' principal brand names include Flowers, Nature's Own, Whitewheat, Cobblestone Mill, Dandee, Evangeline Maid, Betsy Ross, ButterKrust, Purity, and BlueBird, among others, and its licensed trademarks include Sunbeam, Roman Meal, Country Hearth and Bunny. Mrs. Smith's Bakeries' principal brand names include Mrs. Smith's, Mrs. Smith's Restaurant Classics, Mrs. Smith's Special Recipe, Stilwell, Oregon Farms, Pet-Ritz, Banquet, Oronoque Orchard, European Bakers, Ltd., Our Special Touch, Mrs. Freshley's, Danish Kitchen and Pour-a-Quiche. Keebler's principal trademarks and trade names include Keebler, Ernie the Keebler Elf, the Hollow Tree logo, Cheez-It, Chips Deluxe, Club, Famous Amos, Fudge Shoppe, Hi-Ho, Hydrox, Sunshine Krispy, Munch'ems, Murray, Olde New England, Ready Crust, Sandies, Soft Batch, Sunshine, Toasteds, Town House, Vienna Fingers, Wheatables and Zesta. Keebler is the exclusive licensee of the Carr's brand name in the United States. Such trademarks and trade names are considered to be important to the business of the Company since they have the effect of developing brand identification and maintaining consumer loyalty. Management is not aware of any fact that would negatively impact the continuing use of any of its trademarks, trade names, patents or licenses. RAW MATERIALS The Company's primary baking ingredients are flour, sugar, shortening, fruit and dairy products. The Company also uses paper products, such as corrugated cardboard, aluminum products, such as pie plates, and films and plastics to package its baked foods. In addition, the Company is also dependent upon natural gas and propane as a fuel for firing ovens. On average, baking ingredients constitute approximately 10% to 15%, and packaging represents approximately 1% to 5%, of the wholesale selling price of the Company's baked foods. The Company maintains diversified sources for all of its baking ingredients and packaging products. Commodities, such as the Company's baking ingredients, periodically experience price fluctuations and, for that reason, the market for these commodities is continuously monitored. From time to time, the Company enters into forward purchase agreements and derivative financial instruments to reduce the impact of volatility in raw materials prices. RESEARCH AND DEVELOPMENT The Company engages in research activities, which principally involve development of new products, improvement of the quality of existing products and improvement and modernization of production processes. 7 11 The Company also carries out development and evaluation of new processing techniques for both current and proposed product lines. REGULATION As a producer and marketer of food items, the Company's operations are subject to regulation by various federal governmental agencies, including the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission (the "FTC"), the Environmental Protection Agency, and the Department of Commerce, as well as various state agencies, with respect to production processes, product quality, packaging, labeling, storage and distribution. Under various statutes and regulations, such agencies prescribe requirements and establish standards for quality, purity and labeling. The finding of a failure to comply with one or more regulatory requirements can result in a variety of sanctions, including monetary fines or compulsory withdrawal of products from store shelves. In addition, advertising of the Company's businesses is subject to regulation by the FTC, and the Company is subject to certain health and safety regulations, including those issued under the Occupational Safety and Health Act. The operations of the Company, like those of similar businesses, are subject to various Federal, state, and local laws and regulations with respect to environmental matters, including air and water quality, underground fuel storage tanks, and other regulations intended to protect public health and the environment. The operations and the products of the Company's businesses also are subject to state and local regulation through such measures as licensing of plants, enforcement by state health agencies of various state standards and inspection of the facilities. The Company believes that it is currently in material compliance with applicable laws and regulations. EMPLOYEES Flowers employs approximately 6,300 persons, approximately 500 of whom are covered by collective bargaining agreements. Keebler employs approximately 11,600 persons, of whom approximately 5,400 are covered by collective bargaining agreements. The Company believes that it has good relations with its employees. EXECUTIVE OFFICES The address and telephone number of the principal executive offices of the Company are 1919 Flowers Circle, Thomasville, Georgia 31757, (912) 226-9110. 8 12 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of the Company's Executive Officers, together with all offices held with the Company by such Executive Officers.
NAME, AGE AND OFFICE BUSINESS EXPERIENCE - -------------------- ------------------- AMOS R. MCMULLIAN Chairman of the Board of Directors of the Company since Age 62 January 1985; Chairman of the Executive Committee since Chairman of the Board and January 1984; Chief Executive Officer of the Company Chief Executive Officer since April 1981; Vice Chairman of the Board of Directors (1984-1985); Co-Chairman of the Executive Committee (1983-1984); President and Chief Operating Officer (1976-1984); Director of the Company since 1975; joined the Company in 1963; Director of Keebler since January 1996. ROBERT P. CROZER Vice Chairman of the Board of Directors of the Company Age 53 since 1989; Vice President -- Marketing (1985-1989); Vice Chairman of the Board President and Chief Operating Officer, Convenience Products Group (1979-1989); Corporate Director of Marketing Planning (1979-1985); Director of the Company since 1979; joined the Company in 1973; Director of Keebler since January 1996 and Chairman of the Board of Directors of Keebler since February 1998. G. ANTHONY CAMPBELL Secretary and General Counsel of the Company since Age 47 January 1985; Assistant General Counsel (1983-1985); Secretary and General Counsel joined the Company in 1983; Director of the Company since 1991; Director of Keebler since February 1998. GEORGE E. DEESE President and Chief Operating Officer of Flowers Age 53 Bakeries, Inc. since January 1997; President and Chief President and Chief Operating Operating Officer, Baked Products Group (1983-1997); Officer, Flowers Bakeries, Inc. Regional Vice President, Baked Products Group (1981-1983); President of Atlanta Baking Company (1980-1981); joined the Company in 1964. GARY L. HARRISON President and Chief Operating Officer of Mrs. Smith's Age 62 Bakeries, Inc., since January 1997; President and Chief President and Chief Operating Operating Officer, Specialty Foods Group (1989-1997); Officer, Mrs. Smith's Bakeries, Inc. Executive Vice President, Baked Products Group (1987-1989); Regional Vice President, Baked Products Group (1977-1987); President of Flowers Baking Company of Thomasville (1976-1977); joined the Company in 1954. JIMMY M. WOODWARD Vice President and Chief Financial Officer since Age 39 February 2000; Treasurer and Chief Accounting Officer Vice President and of the Company October 1997 to January 2000; Assistant Chief Financial Officer Treasurer, for more than five years prior to that time; joined the Company in 1985; Director of Keebler since February 1998. MARTA JONES TURNER Vice President of Public Affairs of the Company since Age 46 September 1997; Director of Public Affairs, for more Vice President of Public Affairs than five years prior to that time; joined the Company in 1978.
All Executive Officers are elected by the Board of Directors for one year terms with the exception of the positions of President, Flowers Bakeries, Inc. and President, Mrs. Smith's Bakeries, Inc., which are appointed offices. 9 ITEM 2. PROPERTIES Forty-nine of the Company's production facilities are owned, four facilities are leased and three facilities are owned by local industrial development authorities under terms of Industrial Revenue Bond ("IRB") financing agreements. The leased properties are leased for terms of ten to fifteen years with certain renewal options. Under the terms of the IRB financing agreements, title to these properties passes to the Company at maturity for little or no consideration. The Company's production plant locations are: 10 13 FLOWERS BAKERIES Birmingham, Alabama Opelika, Alabama Tuscaloosa, Alabama Ft. Smith, Arkansas Pine Bluff, Arkansas Texarkana, Arkansas Bradenton, Florida Jacksonville, Florida Miami, Florida Atlanta, Georgia Chamblee, Georgia Thomasville, Georgia Villa Rica, Georgia Baton Rouge, Louisiana Lafayette, Louisiana New Orleans, Louisiana Goldsboro, North Carolina Jamestown, North Carolina Morristown, Tennessee El Paso, Texas Houston, Texas San Antonio, Texas Tyler, Texas Lynchburg, Virginia Bluefield, West Virginia Charleston, West Virginia MRS. SMITH'S BAKERIES Montgomery, Alabama Atlanta, Georgia Forest Park, Georgia Suwannee, Georgia Tucker, Georgia London, Kentucky Pembroke, North Carolina Stilwell, Oklahoma Spartanburg, South Carolina Crossville, Tennessee KEEBLER Birmingham, Alabama North Little Rock, Arkansas Denver, Colorado Athens, Georgia Augusta, Georgia Columbus, Georgia Macon, Georgia Chicago, Illinois Des Plaines, Illinois Kansas City, Kansas Florence, Kentucky Louisville, Kentucky Grand Rapids, Michigan Charlotte, North Carolina Cincinnati, Ohio Marietta, Oklahoma Cleveland, Tennessee 11 Management considers that its properties are well maintained and sufficient for its present operations. ITEM 3. LEGAL PROCEEDINGS The Company is engaged in various legal proceedings which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to those proceedings will not be material to the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 12 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CASH DIVIDEND MARKET PRICE PER COMMON SHARE ------------------------------------ ----------------- FY 1999 FY 1998 ----------------- ----------------- QUARTER HIGH LOW HIGH LOW FY 1999 FY 1998 - ------- ------- ------- ------- ------- ------- ------- First......................................... 25 1/2 21 3/4 26 5/16 20 1/8 .1250 .1150 Second........................................ 25 1/16 16 3/8 23 7/8 19 3/8 .1275 .1175 Third......................................... 17 7/8 13 5/16 22 7/16 16 1/2 .1300 .1200 Fourth........................................ 17 5/8 14 5/16 24 3/4 18 1/2 .1325 .1225 ----- ----- Total............................... .5150 .4750 ===== =====
EQUITY SECURITY HOLDERS
NUMBER OF SHAREHOLDERS OF TITLE OF CLASS RECORD AT MARCH 24, 2000 - -------------- ------------------------- Common Stock, $.625 Par Value, Together with Preferred Share Purchase Rights............. 8,205
The preceding table presents the high and low market price and cash dividend information for each fiscal quarter as it relates to the Company's common stock, $.625 par value. The Company's common stock is traded on the New York Stock Exchange. Cash dividends have been paid on these shares every quarter since December 1971. The declaration of dividends is at the discretion of the Board of Directors of the Company and is subject to the satisfaction of covenants under its existing credit facilities. While the Company intends to continue to pay quarterly cash dividends on its Common Stock, the declaration and payment of future dividends and the amount thereof will be dependent upon the Company's financial condition, results of operations, cash requirements for its business, future prospects and other factors deemed relevant by the Board of Directors. In addition, the existing debt agreements of Keebler contain covenants which limit Keebler's ability to, among other things, pay dividends. As of January 1, 2000, Keebler was in compliance with all dividend restrictions and declared a dividend on February 23, 2000 of $0.1125 per share. Declaration and payment of future Keebler dividends and the amount thereof will be dependent upon Keebler's financial condition, results of operations and cash requirements for its business, future prospects and other factors deemed relevant by Keebler's Board of Directors. 13 15 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated historical financial data presented below as of and for the fiscal years 1999 and 1998, transition period 1998, fiscal years 1997, 1996 and 1995 have been derived from the consolidated financial statements of the Company which have been audited by PricewaterhouseCoopers LLP, independent accountants. The results of operations presented below are not necessarily indicative of results to be expected for any future period and should be read in conjunction with "Matters Affecting Analysis" included in Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition, of this Form 10-K.
FOR THE 27 FOR THE 52 WEEKS ENDED WEEKS ENDED FOR THE 52 WEEKS ENDED --------------------------------- --------------- -------------------------------------------- JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995 --------------- --------------- --------------- ------------- ------------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Sales........................ $4,236,010 $3,765,367 $ 784,097 $1,437,713 $1,238,564 $1,129,203 Materials, supplies, labor and other production costs...................... 2,001,956 1,702,581 418,926 787,799 674,762 599,416 Selling, marketing and administrative expenses.... 1,845,101 1,633,319 301,426 534,285 461,610 418,082 Depreciation and amortization............... 144,619 128,765 26,930 45,970 40,848 36,604 Non-recurring charge......... 60,355 68,313 -- -- -- -- Interest expense............. 82,565 72,840 12,144 25,691 13,004 7,086 Interest income.............. (1,700) (4,115) (348) (582) Gain on sale of distributor notes receivable........... 43,244 Income before income taxes, investment in unconsolidated affiliate, minority interest, extraordinary loss and cumulative effect of changes in accounting principles................. 103,114 163,664 25,019 87,794 48,340 68,015 Income taxes................. 56,260 74,391 9,632 33,191 18,185 25,714 Income from investment in unconsolidated affiliate... -- -- 18,061 7,721 613 -- Income before minority interest, extraordinary loss and cumulative effect of changes in accounting principles................. 46,854 89,273 33,448 62,324 30,768 42,301 Minority interest............ (39,560) (43,305) -- -- -- -- Income before extraordinary loss and cumulative effect of changes in accounting principles................. 7,294 45,968 33,448 62,324 30,768 42,301 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest...... -- (938) -- -- -- -- Cumulative effect of changes in accounting principles, net of tax benefit......... -- (3,131) (9,888) -- -- -- Net income................... $ 7,294 $ 41,899 $ 23,560 $ 62,324 $ 30,768 $ 42,301 NET INCOME PER COMMON SHARE: Basic: Income before extraordinary loss and cumulative effect of changes in accounting principles.... $ .07 $ .47 $ .38 $ .71 $ .35 $ .49 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest.... -- (.01) -- -- -- -- Cumulative effect of changes in accounting principles, net of tax benefit.................. -- (.03) (.11) -- -- -- Net income per common share.................... $ .07 $ .43 $ .27 $ .71 $ .35 $ .49 Weighted average shares outstanding.............. 100,112 96,393 88,368 88,000 86,933 86,229 Diluted: Income before extraordinary loss and cumulative effect of changes in accounting principles.... $ .07 $ .47 $ .38 $ .71 $ .35 $ .49 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest.... -- (.01) -- -- -- -- Cumulative effect of changes in accounting principles, net of tax benefit.................. -- (.03) (.11) -- -- -- Net income per common share.................... $ .07 $ .43 $ .27 $ .71 $ .35 $ .49 Weighted average shares outstanding.............. 100,420 96,801 88,773 88,401 87,211 86,438 BALANCE SHEET DATA: Total assets................. $2,900,478 $2,860,900 $ 898,880 $ 898,187 $ 849,443 $ 655,921 Long-term debt............... 1,208,630 1,038,998 276,211 275,247 274,698 120,944 Stockholders' equity......... 538,754 572,961 348,567 340,012 305,324 303,981
14 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion should be read in conjunction with "Selected Financial Data" included herein and the consolidated financial statements and the related notes thereto of the Company incorporated by reference or included elsewhere. The following information contains forward-looking statements which involve certain risks and uncertainties. See "Forward-Looking Statements." OVERVIEW General The Company produces and markets fresh baked breads, rolls and snack foods, frozen baked breads, desserts and snack foods, and cookies and crackers. Sales are principally affected by pricing, quality, brand recognition, new product introductions and product line extensions, marketing and service. The Company manages these factors to achieve a sales mix favoring its higher-margin branded products while using high-volume products to control costs and maximize use of capacity. The principal elements comprising the Company's production costs are ingredients, packaging materials, labor and overhead. The major ingredients used in the production of the Company's products are flour, sugar, shortening, fruits and dairy products. The Company also uses paper products, such as corrugated cardboard, aluminum products, such as pie plates, and plastic to package its products. The prices of these materials are subject to significant volatility. The Company has mitigated the effects of such price volatility in the past through its hedging programs, but may not be successful in protecting itself from fluctuations in the future. In addition to the foregoing factors, production costs are affected by the efficiency of production methods and capacity utilization. The Company's selling, marketing and administrative expenses are comprised mainly of distribution, logistics and advertising expenses. Distribution and logistics costs represent the largest component of the Company's cost structure, other than production costs, and are principally influenced by changes in sales volume. Depreciation and amortization expenses for the Company are comprised of depreciation of property, plant and equipment and amortization of costs in excess of net tangible assets associated with acquisitions. The Company's interest expense related to its outstanding debt is discussed in Note 4 of Notes to Consolidated Financial Statements. Matters Affecting Analysis As used herein, unless the context otherwise indicates: (i) "FII" means Flowers Industries, Inc., the publicly traded holding company, which owns all the outstanding common stock of Flowers Bakeries, Inc. ("Flowers Bakeries") and Mrs. Smith's Bakeries, Inc. ("Mrs. Smith's Bakeries"), and owns a majority of the outstanding common stock of Keebler Foods Company; (ii) "Keebler" means Keebler Foods Company and its consolidated subsidiaries; (iii) "Flowers" means FII and its wholly owned subsidiaries, Flowers Bakeries and Mrs. Smith's Bakeries, and their respective subsidiaries, excluding Keebler; and (iv) the "Company" means Flowers and its consolidated, majority-owned subsidiary, Keebler, collectively. Mrs. Smith's Bakeries experienced significant cost overruns in fiscal 1999 due primarily to the delay in completion of a major capital project involving 25 new or relocated and upgraded production lines at seven of its 10 operating facilities. Additionally, after the end of the second quarter of fiscal 1999, a review of Mrs. Smith's Bakeries business unit operations resulted in the recognition of higher reserves related to accounts receivable and inventory. These items are more fully addressed in the discussion of operating results by business segment below. On February 3, 1998, FII completed its purchase of additional shares of Keebler to increase its ownership from approximately 45% to 55% ("Keebler Acquisition"). Accordingly, the results of operations of Keebler are consolidated with those of Flowers for the fiscal years ended January 1, 2000 and January 2, 1999. From January 26, 1996, the date of FII's initial investment in Keebler, through February 3, 1998, FII accounted for its investment in Keebler using the equity method of accounting. 15 17 In January 1998, Flowers changed its fiscal year from the Saturday nearest June 30 to the Saturday nearest December 31. Unless stated otherwise, all references to: (i) "fiscal 1997" shall mean Flowers' full fiscal year ended June 28, 1997; (ii) the "twenty-seven week transition period ended January 3, 1998" shall mean Flowers' twenty-seven week transition period from June 29, 1997 through January 3, 1998; (iii) "fiscal 1998" shall mean Flowers' full fiscal year ended January 2, 1999; and (iv) "fiscal 1999" shall mean Flowers' full fiscal year ended January 1, 2000. For purposes of this analysis and in light of the change in fiscal year end discussed above, the Company has compared fiscal 1998 with the corresponding financial information for the fifty-two weeks ended January 3, 1998 which has been developed solely for comparative purposes. The Company's quarterly reporting periods for fiscal 1999 were as follows, first quarter ended April 24, 1999, second quarter ended July 17, 1999, third quarter ended October 9, 1999, and fourth quarter and fiscal year ended January 1, 2000 (the Saturday nearest December 31). Prior to September 1996, Flowers Bakeries sold certain of its territories to independent distributors and financed such sales with ten year notes. In September 1996, Flowers Bakeries sold these notes, which totaled approximately $66.0 million, to a financial institution. Approximately $43.2 million of deferred pre-tax income was recognized. Subsequent to September 1996, all distributor loans have been made directly between the distributor and a financial institution. Pursuant to an agreement, Flowers Bakeries acts as the servicing agent for the financial institution and receives a fee for these services. The Company enters into commodity future and option contracts and swap agreements for wheat and, to a lesser extent, other commodities, in an effort to provide a predictable and consistent commodity price, and thereby reduce the impact and volatility in its raw material and packaging prices. In fiscal 1999, the Company recorded a negative mark-to-market adjustment of $3.5 million related to these activities. In fiscal 1998, a gain of $1.1 million was recorded, and for the transition period ended January 3, 1998 and the fiscal year ended June 28, 1997 losses of $0.8 million and $0 were recorded, respectively. The charges are recorded as an FII expense and do not affect the results of operations on a segment basis at Flowers Bakeries, Mrs. Smith's Bakeries or Keebler. Information on Restructurings and Acquisitions The Company has undertaken a number of rationalizations and reorganizations of its operations during fiscal 1999 and fiscal 1998. As a result of these reorganizations and the resulting plant closures, production capability has been eliminated or transferred to other facilities. The purpose of the various reorganization plans was to realize long-term improved overall efficiencies and to reduce costs. However, management expects that there may continue to be short-term inefficiencies as the rationalizations and reorganizations are completed. During fiscal 1999, the Board of Directors of Keebler approved a plan to close its Sayreville, New Jersey production facility due to excess capacity within Keebler's 14-plant manufacturing network. As a result of this plan, the Company recorded a pre-tax non-recurring charge of $69.2 million. The charge included $46.1 million of non-cash asset impairments and $23.1 million of severance and other exit costs related to the Sayreville facility. As a direct result of this plan, asset impairments were recorded to write-down the closed facility to net realizable value, less cost to sell, based on management's estimate of fair value. Also, as part of this plan, asset impairments were recorded to write-off certain other machinery and equipment currently held by Keebler and to reduce goodwill acquired in the Sunshine Biscuits, Inc. acquisition in June 1996, neither of which provides any future economic benefit. Severance costs provided for the reduction of approximately 650 employees, of which 600 were represented by unions, and, as of January 1, 2000, approximately 640 employees, of which 595 were represented by unions, had been severed. This plan is substantially complete as of January 1, 2000. Accordingly, during the fourth quarter of fiscal 1999, an adjustment of $2.9 million was recorded against the original $69.2 million. The adjustment was due to lower than expected severance costs and an earlier than expected disposal of the facility as current real estate conditions resulted in a twelve month reduction in the estimated disposal period. The adjusted net charge in fiscal 1999 related to this plant closure was $66.3 million. Ongoing costs, including, but not limited to, guard service, utilities, property taxes and preparing the facility for sale, will continue for eighteen months or until the facility is disposed of, whichever occurs earlier. The amount of suspended depreciation and amortization that would have been recognized for 16 18 the year ended January 1, 2000 if prior period impairment had not been recognized was approximately $3.7 million, with $5.6 million of annualized savings anticipated in 2000. During the fourth quarter of fiscal 1998, the Board of Directors of the Company approved a plan to realign production and distribution at Flowers Bakeries and Mrs. Smith's Bakeries in order to enhance efficiency. The Company recorded a pre-tax non-recurring charge of $68.3 million ($32.2 million, $32.3 million and $3.8 million for Flowers Bakeries, Mrs. Smith's Bakeries and Keebler, respectively). The charge included $57.5 million of noncash asset impairments, $4.8 million of severance costs and $6.1 million of other related exit costs. The plan involved closing six less efficient facilities of Flowers Bakeries and Mrs. Smith's Bakeries and shifting their production and distribution to highly automated facilities. As a direct result of management's decision to implement production line rationalizations, asset impairments were recorded to write-down the closed facilities to net realizable value, less cost to sell, based on management's estimate of fair value, and the related cost in excess of net tangible assets. Also, as part of this plan, asset impairments were recorded to write-off certain duplicate machinery and equipment designated for disposal. The plan included severance costs for 695 employees, and, as of January 1, 2000, all such employees had been terminated. During fiscal 1999, Flowers Bakeries and Mrs. Smith's Bakeries recorded adjustments to the fiscal 1998 restructuring reserve of $1.1 million and $4.9 million, respectively. These adjustments are the result of reduced carrying costs of plants held for sale, an adjustment to the value of these assets due to the identification of a buyer and changes in estimates of severance and other employee termination costs. As of January 1, 2000, all significant actions related to the plans have been completed. The remaining exit costs include ongoing costs such as guard service, utilities and property taxes of closed facilities until the time of disposal. Management anticipates the charges will result in operating savings of approximately $40.0 million over the next five years, principally from reduced depreciation of approximately $13.0 million and increased efficiencies and reduced employee expense of approximately $27.0 million. During fiscal 1998, as part of accounting for the acquisition of President, Keebler recognized costs pursuant to a plan to exit certain activities and operations of President in order to rationalize productivity and reduce costs and inefficiencies. These exit costs, for which there is no anticipated future economic benefit, were provided for in the allocation of the purchase price and totaled $12.8 million. Company-wide staff reductions were initially estimated at 410 employees and $6.7 million, with the balance of the reserves allocated to costs associated with the closing of seven production, sales or distribution facilities, which principally include noncancelable lease obligations and building maintenance costs. At January 1, 2000, approximately 40 employees not under union contract had been terminated. In addition, during the year management reviewed its exit plan and made a determination that approximately 110 employees not under union contract, would not be terminated. During fiscal 1999, Keebler adjusted accruals previously established in the accounting for the President acquisition by reducing goodwill and other intangibles by $4.5 million to recognize exit costs that are now expected to be less than initially anticipated. The remainder of management's exit plan is expected to be substantially complete before the end of fiscal 2000 with only noncancelable lease obligations to be paid over the next six years, concluding in fiscal 2006. As part of the acquisition of Mrs. Smith's Inc., Flowers recorded a purchase accounting reserve of $37.1 million in order to realign production and distribution at Mrs. Smith's Bakeries to reduce inefficiencies. The realignment involved the shutdown of a leased production facility. The reserve includes $27.6 million of noncancelable lease obligations and building maintenance costs, $2.1 million of severance costs, and $7.4 million of other exit costs, including health insurance, incremental workers' compensation costs and the costs associated with dismantling and disposing of equipment, at the closed facility. Under the plan, approximately 300 employees were to be and have been terminated. With the exception of noncancelable lease obligations and building maintenance costs that continue through fiscal 2006, this plan was substantially complete as of the end of fiscal 1998. Spending against the reserve totaled $6.8 million, $4.0 million, $.6 million and $1.6 million in fiscal 1999, fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997, respectively. As part of INFLO's acquisition of Keebler and Keebler's subsequent acquisition of Sunshine, Keebler's management team adopted and began executing a plan to reduce costs and inefficiencies. Certain exit costs totaling $77.4 million were provided for in the allocation of the purchase price of both the Keebler and 17 19 Sunshine acquisitions. Management's plan included company-wide staff reductions, the closure of production, distribution and sales force facilities and information system exit costs. Severance costs were estimated at $39.4 million for the approximately 1,400 employees anticipated to be terminated. As of the end of fiscal 1998, all had been terminated. The plan included the closure of its Atlanta, Georgia and Santa Fe Springs, California, production facilities, as well as 39 sales force and distribution facilities. Costs incurred related to the closing of production, distribution and sales force facilities, other than severance costs, included primarily noncancelable lease obligations and building maintenance costs of $31.2 million. An additional $6.8 million was anticipated for lease costs related to exiting legacy information systems. As of January 4, 1998, the date FII began consolidating Keebler for financial reporting purposes, the remaining liability was $22.5 million, of which $20.2 million related to noncancelable lease obligations and building maintenance costs, $.3 million related to severance costs and $2.0 million related to other exit costs. All activity prior to that date occurred while FII accounted for its investment in Keebler in accordance with the equity method of accounting. Spending against the remaining reserves totaled $3.0 million for fiscal 1999 and $7.7 million for fiscal 1998. In addition, during fiscal 1999 and fiscal 1998, Keebler expensed $0.8 million and $2.8 million, respectively, principally for costs related to the closure of two distribution facilities not included in the original plan. During fiscal 1999, Keebler adjusted accruals previously established in the accounting for the Keebler acquisition by reducing goodwill and other intangibles by $0.5 million and reversing $1.3 million into income from operations to recognize exit costs that are now expected to be less than initially anticipated. The $1.3 million was credited to operating income as it had originally been charged to income from operations in fiscal 1999 and fiscal 1998. During fiscal 1998, Keebler also adjusted accruals previously established in the accounting for the Keebler and Sunshine acquisitions by reducing goodwill and other intangibles by $3.7 million to recognize exit costs that are now expected to be less than initially anticipated. The exit plan was substantially complete at January 1, 2000 with only noncancelable lease obligations continuing through 2006. The Company's results of operations, expressed as a percentage of sales, are set forth below:
FOR THE 52 WEEKS ENDED ----------------------------------------------- JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ---------- -------- (UNAUDITED) Sales......................................... 100.00% 100.00% 100.00% 100.00% Gross margin.................................. 52.74 54.78 47.32 45.20 Selling, marketing and administrative expenses.................................... 43.56 43.38 37.92 37.16 Depreciation and amortization................. 3.41 3.42 3.44 3.20 Non-recurring charge.......................... 1.42 1.81 Interest expense, net......................... 1.91 1.83 1.61 1.75 Income before income taxes, investment in unconsolidated affiliate, minority interest, extraordinary loss and cumulative effect of changes in accounting principles............ 2.43 4.35 4.36 6.11 Income taxes.................................. 1.33 1.98 1.66 2.31 Net income.................................... .17% 1.11% 3.74% 4.33%
FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 COMPARED TO FIFTY-TWO WEEKS ENDED JANUARY 2, 1999 Consolidated Results Sales. For the fiscal year ended January 1, 2000, sales were $4,236.0 million, or 12.5%, higher than sales for the prior year of $3,765.4 million. The effect on reported sales of businesses acquired, net of businesses sold subsequent to the start of 1999 was 8.8%. The overall sales increase, excluding acquisitions, is the result of a 5.3% increase at Keebler, a 2.4% increase at Flowers Bakeries and a 1.1% increase at Mrs. Smith's Bakeries. Gross Margin. Gross profit margin was 52.7% in fiscal 1999 as compared to 54.8% in fiscal 1998. Production difficulties and inefficiencies due to the plant realignment project at Mrs. Smith's Bakeries offset improved efficiencies and cost reduction programs at Flowers Bakeries and Keebler. 18 20 Selling, Marketing and Administrative Expenses. Selling, marketing and administrative expenses increased $211.8 million or 13.0% over fiscal 1998. These expenses were 43.6% of sales in fiscal 1999 as compared to 43.4% in fiscal 1998. Depreciation and Amortization Expense. Depreciation and amortization expense was $144.6 million for fiscal 1999, an increase of 12.3% over $128.8 million for fiscal 1998. This is primarily due to increased capital spending and a full year of amortization related to Keebler's purchase of President. Non-Recurring Charge. See discussion under the heading "Matters Affecting Analysis" above. Interest Expense. For fiscal 1999, net interest expense was $80.9 million, an increase of 17.8% over fiscal 1998 interest expense of $68.7 million. Interest expense at Keebler was $36.2 million in fiscal 1999 and $26.5 million in fiscal 1998. The increase was primarily due to the overall higher average debt balance outstanding as a result of the President acquisition in fiscal 1998. Interest expense at Flowers was $44.7 million in fiscal 1999 and $42.2 million in fiscal 1998. The increase was due to higher borrowings required to fund capital expenditures at Flowers Bakeries and Mrs. Smith's Bakeries. Income Before Income Taxes. Income before income taxes was $103.1 million for fiscal 1999, a decrease of 37.0% compared to income of $163.7 million reported in fiscal 1998. This decrease is primarily a result of losses in fiscal 1999 at Mrs. Smith's Bakeries due to costs related to a major production realignment as discussed below. Before considering non-recurring charges and credits, Mrs. Smith's Bakeries incurred an operating loss in fiscal 1999 of $53.3 million compared to operating income in fiscal 1998 of $45.9 million. Flowers Bakeries operating income, before non recurring credits, decreased $8.8 million in fiscal 1999 and unallocated expenses were higher by $12.5 million. These decreases are somewhat offset by increases in operating income of $64.0 million at Keebler. See below for further discussion of the results of operations by business segment. Income Taxes. Income taxes were provided at an effective rate of 54.6% in fiscal 1999 and 45.5% in fiscal 1998. The consolidated effective rate in fiscal 1999 is based on the interaction of the effective rate on Keebler's profits of 45.3% and the effective rate of the tax benefit on Flowers loss (excluding Keebler) of 29.0%. In each year the effective rate exceeded the statutory rate due to nondeductible expenses, principally amortization of intangibles, including trademarks, trade names, other intangibles and goodwill. During fiscal 1999, nondeductible items increased at Keebler due to inclusion of a full year of amortization for President intangibles and goodwill impairment related to the closure of the Sayreville, New Jersey facility. The effective rate on the loss at Flowers is indicative of the nondeductible charges included in the calculation of the loss. Net Income. For fiscal 1999, net income was $7.3 million, a decrease of 82.6% as compared to $41.9 million net income reported in fiscal 1998. Fiscal 1999 included a net non-recurring charge of $60.4 million and fiscal 1998 included a non-recurring charge of $68.3 million. Excluding the effect of these charges in fiscal 1999 and fiscal 1998, net income was $27.7 million in fiscal 1999 and $89.5 million in fiscal 1998. The decrease of $61.8 million is primarily attributable to production difficulties and inefficiencies at Mrs. Smith's Bakeries offset by increases at Keebler. These items are discussed in detail below. Operating Results by Business Segment Flowers Bakeries Sales at Flowers Bakeries for fiscal 1999 were $961.7 million, an increase of $22.6 million and 2.4% over sales of $939.1 million reported a year ago. Acquisitions, net of divestitures, accounted for 0.5% of the increase. The total sales increase was attributable to increases of 2.2% and 8.7% in branded retail and foodservice sales, respectively, slightly offset by a decrease of 7.0% in private label sales. Exclusive of the effect of acquisitions, the overall sales increase was a result of an increase of 4.5% in overall pricing offset by a decrease in volume of 2.2%. Gross margins increased to $515.1 million and 53.6% of sales for fiscal 1999 compared to $498.3 million and 53.1% of sales in fiscal 1998. This represents a combination of increased pricing offset by increased operating costs. While the cost of ingredients decreased during the year, the shift to sponge and dough 19 21 production methods and the accompanying change in product formulation somewhat offset these savings. Flowers Bakeries believes that the sponge and dough process produces a better tasting product that will be valued in the market. Additional incremental costs were incurred due to the production disruption at the Goldsboro facility during construction of a new bun line. Selling, marketing and administrative expenses increased 6.7% and $26.2 million to $415.3 million and 43.2% of sales in fiscal 1999 from $389.1 million and 41.4% of sales in fiscal 1998. Distribution costs in fiscal 1999 were higher due to rising fuel costs, additional miles incurred throughout the route system and incremental distribution cost due to severe hurricanes and flooding in Florida and North Carolina. Administrative costs increased as a result of incremental costs associated with realigning the northern region to consolidate the Goldsboro, North Carolina facility (acquired in 1998) and incremental costs associated with the consolidation of the accounts receivable and accounts payable functions to a central Shared Services Center. Y2K costs during fiscal 1999 were $0.6 million. Depreciation and amortization expense was $32.9 million for fiscal 1999, a decrease of 1.8% from $33.5 million for fiscal 1998. The decrease is a result of the asset impairments recorded as a part of the non-recurring charge and write-off of start-up costs recorded in the prior year, partially offset by increased depreciation associated with capital improvements. Operating income was $67.0 million in fiscal 1999, a decrease of $8.8 million and 11.6% from fiscal 1998 operating income of $75.8 million. Despite these disappointing results in fiscal 1999, management expects operations at Flowers Bakeries to return to historic growth rates in 2000. Mrs. Smith's Bakeries Sales at Mrs. Smith's Bakeries for fiscal 1999, after excluding inter-segment sales, increased 1.1% to $606.5 million from $599.8 million reported a year ago. This increase was primarily driven by increases of 6.7%, 8.5% and 1.2% in foodservice, in-store bakery and branded retail sales, respectively, partially offset by a reduction of 7.8% in non-branded retail and co-pack fresh snack products. The disappointing sales increase is attributable to production difficulties, as discussed below, resulting in product shortages. Gross margin for fiscal 1999 was $172.0 million and 28.4% of sales compared to $246.4 million and 41.1% reported a year ago. This decrease is primarily the result of costs associated with a massive production realignment project that included the installation and start-up of 25 new or relocated and upgraded production lines. Mrs. Smith's Bakeries experienced start-up costs, product damage, spoilage and unabsorbed overhead at seven of its 10 production facilities primarily in the third and fourth quarter of fiscal 1999. This project fell behind due to the delay in the receipt and installation of production equipment, and in the programming of production control software and the hiring and training of additional production employees. Traditionally, the third and fourth quarters are Mrs. Smith's Bakeries highest volume quarters. However, product shortages in these quarters hurt overall sales especially in the higher margin retail segment. Selling, marketing and administrative expenses were $205.1 million and 33.8% of sales in fiscal 1999 as compared to $181.8 million and 30.3% of sales in fiscal 1998. These costs increased primarily due to increased administrative and distribution costs associated with Mrs. Smith's Bakeries' production realignment and increased promotional expenses which were committed to the retail market based on higher expected sales. As a result of lower production, sales volume was lower than anticipated during the seasonally high sales period of the third and fourth quarters. Also, following a review of Mrs. Smith's Bakeries' business operations after the end of the second quarter of fiscal 1999, the Company determined to recognize higher reserves for customer deductions, previously believed to be collectible, and trade promotions. At the same time, the Company also revised estimates of the recoverable amount of certain out of code, damaged or discontinued inventory. The conclusions reached by the Company relative to the ultimate realization of certain accounts receivable were based upon recent trends associated with Mrs. Smith's Bakeries' promotional and discount programs. The reserves at January 1, 2000 are considered adequate, and the promotional programs have been simplified. Y2K costs during fiscal 1999 were $.4 million. 20 22 Depreciation and amortization expense was $20.1 million for fiscal 1999, an increase of 7.5% over $18.7 million for fiscal 1998. This increase is related to capital spending during the period offset by decreases in depreciation and amortization that resulted from the asset impairments recorded as a part of the non-recurring charge recorded in fiscal 1998. Depreciation and amortization expense will increase in fiscal 2000 as depreciation on the capital projects associated with the production realignment is reflected for a full year. The operating loss, excluding non-recurring charge credits, was $53.3 million in fiscal 1999, a decrease of $99.2 million from operating income, excluding non-recurring charges, of $45.9 million in fiscal 1998. As discussed above, the primary cause of this decrease was the costs associated with the production realignment and the related effect on sales. Fiscal 1999 was a year of tremendous challenges at Mrs. Smiths Bakeries. Management continues to address these production issues and expects them to be fully resolved during fiscal 2000. With the resolution of the production issues, elimination of the unusual costs that were incurred in fiscal 1999 and increased sales volume, Mrs. Smith's Bakeries is expected to have improved operating results in 2000. Keebler Sales at Keebler for fiscal 1999 increased 19.8% to $2,667.8 million from $2,226.5 million in fiscal 1998. This increase is primarily due to an increase in Keebler sales of branded products of 16.7% and an increase in the sales of specialty products of 32.8%. The acquisition of President accounted for sales of $423.3 million in fiscal 1999 as compared to sales of $95.3 million in fiscal 1998. Excluding the effects of President, sales increased 5.3% overall. Volume gains in core Keebler branded business and specialty business of 6.0% and 2.3%, respectively, accounted for this gain. Gross margins at Keebler declined slightly to 58.1% of sales during fiscal 1999 from 59.2% during the same period a year ago. This is attributable to a decrease in margins on specialty products, that was caused by a change in sales mix toward the high cost, custom-baked products. This decrease was partially offset by an increase in margins of branded products due to improved product mix and higher volume due to the inclusion of President for a full year. Excluding the impact of President, gross margins would have been 60.0% in fiscal 1999 and 58.8% in fiscal 1998. The improvement in year-over-year comparisons resulted from the benefits received on productivity and cost savings programs designed to improve efficiency at Keebler's production facilities, as well as from other cost reduction initiatives. Selling, marketing and administrative expenses increased $151.7 million in fiscal 1999, but improved 2.1% as a percent of sales. In addition to the inclusion of President expenses for a full year in fiscal 1999, as compared to only fourteen weeks in fiscal 1998, higher selling, marketing and administrative expenses were also experienced as a result of core Keebler volume growth. After removing the expenses contributed by President, selling, marketing and administrative expenses, as a percent of sales, were essentially flat year-over- year. Total marketing expenses increased as Keebler continued its focus on building brand equity and incremental trade promotion programs were instituted in support of the national distribution of Famous Amos and Murray Sugar Free cookies. Despite higher sales levels in fiscal 1999, more efficient marketing processes resulted in a lower rate of marketing expenses as a percent of sales. In addition, increased administrative expenses were incurred in fiscal 1999, due principally to higher compensation costs resulting from growth in the core Keebler business. Increases in selling and distribution expenses resulted mainly from the volume gains, as savings were achieved through a more efficient selling and distribution network. Keebler spent $2.9 million in fiscal 1999 preparing for Y2K. Depreciation and amortization expense was $84.1 million for fiscal 1999, an increase of 21.7% over $69.1 million for fiscal 1998. This increase is due primarily to increased goodwill amortization and depreciation relating to the purchase of President and increased depreciation associated with capital improvements. Operating income for fiscal 1999 was $197.6 million, an increase of $1.6 million and 0.8% over fiscal 1998 operating income of $196.0 million. Excluding the non-recurring charge in fiscal 1999, operating income was $263.9 million, an increase of $64.0 million and 32.0% over the prior year. As previously discussed, the increase in operating income before considering the non-recurring charge reflects growth due to the inclusion 21 23 of the President business for a full year, growth in the Keebler core business and the benefits of productivity and cost savings programs. FIFTY-TWO WEEKS ENDED JANUARY 2, 1999 COMPARED TO FIFTY-TWO WEEKS ENDED JANUARY 3, 1998 Consolidated Results Sales. For fiscal 1998, sales were $3,765.4 million or 163% higher than sales in the prior year, which were $1,432.2 million. A majority of the increase was due to the consolidation of Keebler's sales, following the Keebler Acquisition, in the amount of $2,226.5 million. Excluding the Keebler Acquisition, the overall sales increase is the result of a 5% increase at Flowers Bakeries and a 12% increase at Mrs. Smith's Bakeries. Gross Margin. Gross margin for fiscal 1998 was $2,062.8 million, or 204% higher than the gross margin for the prior year, for which gross margin was $677.7 million. The Company's gross margin for fiscal 1998 includes $1,319.0 million attributable to Keebler, a factor not present in the prior year. Flowers Bakeries' gross margin improved to 53% as compared to 51% of sales for fiscal 1997. Mrs. Smith's Bakeries' gross margin improved to 41% in fiscal 1998 from 37% in the prior year. Selling, Marketing and Administrative Expense. For fiscal 1998, selling, marketing and administrative expenses were $1,633.3 million, or 201% higher than expense of $543.1 million for the prior year. The increase is due primarily to the inclusion of such expenses attributable to Keebler. Depreciation and Amortization. Depreciation and amortization expense was $128.8 million for fiscal 1998, an increase of 162% over the prior year, in which it was $49.2 million. The increase was primarily a result of the consolidation of Keebler, increased goodwill amortization relating to the Keebler Acquisition and increased depreciation associated with capital improvements. Non-Recurring Charge. See discussion under the heading "Matters Affecting Analysis" above. Interest Expense. For fiscal 1998, interest expense was $68.7 million, an increase of 199% over the corresponding period in the prior year, which was $23.0 million. Approximately $26.5 million in interest expense was attributable to the consolidation of Keebler, with the remaining increase due to borrowings used to fund the Keebler Acquisition. Income Before Income Taxes. Income before income taxes was $163.7 million for fiscal 1998, an increase of 162% over the $62.5 million reported for the prior year. Approximately $169.5 million of the increase was the result of the consolidation of Keebler, which was partially offset by the $68.3 million non- recurring charge, and increased goodwill and interest expense, all of which are discussed above and in the following business segment section. Income Taxes. Income taxes for fiscal 1998 were $74.4 million, an increase of 213% over the comparable period in the prior year, in which income taxes were $23.8 million. This increase is due primarily to the inclusion of $73.0 million of income taxes attributable to the consolidation of Keebler, partially offset by a reduction of income tax expense related to the non-recurring charge. Additionally, the effective tax rate increased to 45% from 38% due primarily to increased nondeductible goodwill amortization. Net Income. Net income for fiscal 1998 was $41.9 million, a decrease of 22%, as compared to $53.6 million reported in the prior year. The decrease was attributable to the non-recurring charge, an extraordinary loss due to early extinguishment of debt and a cumulative effect of a change in accounting principle relating to the Company's adoption of SOP 98-5. These decreases were partially offset by the consolidation of Keebler, which contributed $52.4 million, net of minority interest. Operating Results by Business Segment Flowers Bakeries Fiscal 1998 sales at Flowers Bakeries increased $43.5 million, or 5% from the prior year. Of the increase, 3% was due to an acquisition, 1% due to increased volume and 1% due to pricing and product mix. Gross margin improved to 53% of sales in fiscal 1998 as compared to 51% in the prior year. Improved volume, 22 24 production efficiencies and lower ingredient costs contributed to the increase in gross margin. Selling, marketing and administrative expenses increased, primarily due to increased sales volume and expenses related to a project to improve Flowers Bakeries' information systems. Mrs. Smith's Bakeries Sales at Mrs. Smith's Bakeries increased $63.1 million, or 12%, in fiscal 1998 from the prior year. Of the increase, 8% was due to the acquisition of two businesses, 3% due to increased volume, and 1% due to pricing and product mix. Gross margin improved to 41% of sales in fiscal 1998 from 37% for the prior year. This increase was due primarily to increased volume, cost control and greater plant efficiencies. Selling, marketing and administrative expenses increased primarily due to increased sales volume and logistics costs related to the closing of its production facility in Pottstown, Pennsylvania and the shifting of its production to other Mrs. Smith's Bakeries' facilities. Keebler As discussed in matters affecting analysis, on February 3, 1998 FII increased its ownership in Keebler to 55% from 45%, Prior to that date FII accounted for its investment in Keebler under the equity method. During fiscal 1998, the first year the results of Keebler operations were consolidated, sales and gross margin were $2,226.5 million, and $1,319.0 million, respectively. Selling, marketing and administrative expenses were $1,053.8 million in fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES FII owns a majority of the outstanding stock of Keebler, and therefore is consolidating Keebler for financial reporting purposes. FII is limited in its ability to access the cash flows of Keebler to support its other operations due to the fact that Keebler is not wholly owned by FII. As a result of the consolidation of Keebler, the Company's balance sheet reflects Keebler's indebtedness of $456.4 million as of January 1, 2000; however, Flowers has not guaranteed such indebtedness and it is to be repaid solely from the cash flows of Keebler. Net cash provided by operating activities for fiscal 1999 was $243.1 million. Operating cash flows were positively affected by decreases in inventory and the timing of payments for vendor accounts. Operating cash flows were negatively affected by increases in receivables, including income tax benefits, and payments against facility closing cost reserves. Net cash disbursed for investing activities for fiscal 1999 was $273.7 million. This amount primarily consisted of $10.8 million for acquisitions and $266.6 million for capital expenditures. Capital expenditures of $73.6 million at Flowers Bakeries, $127.3 million at Mrs. Smith's Bakeries, including non-cash capital leases of $47.4 million, and $100.7 million at Keebler were made primarily to update and enhance production and distribution facilities. The remaining capital expenditures were $12.4 million at the FII corporate level. In fiscal 2000, the Company expects capital spending at Flowers Bakeries and Mrs. Smith's Bakeries to be approximately $35 million, a substantial reduction from fiscal 1999, since the production enhancement program is largely complete. Capital expenditures in fiscal 2000 will be used to finish projects that carried over from fiscal 1999 and to perform normal repair and maintenance items at existing facilities. Spending for facility closing and severance costs related to exit plans established in the acquisitions effected by Flowers and Keebler and the non-recurring charges are substantially complete as of the end of fiscal 1999, except for noncancelable lease payments and building maintenance costs that will continue through fiscal 2006. Management anticipates these cash requirements will be funded through operating cash flow. In fiscal 1999, net cash provided by financing activities was $15.4 million. Gross cash proceeds resulted from a receivable securitization at Keebler of $103.0 million, a net decrease in debt of $30.6 million and receipts from the exercise of stock compensation awards of $15.3 million. Keebler's debt decreased $198.1 million and Flowers' debt increased $214.9 million (including non cash capitalized leases of $47.4 million). Flowers' $100 million commercial paper agreement terminated on January 14, 2000 and the outstanding 23 25 balance of $25.0 million was paid with available funds under Flowers' $500 million revolving syndicated loan facility (the "Loan Facility"). For fiscal 1999, dividends paid per FII share increased 8.4% to $.515 from $.475 paid in the prior year. Dividends are declared at the discretion of the Board of Directors based on an assessment of the Company's financial position and other considerations. FII's ability to pay dividends is limited by the terms of its Loan Facility, as discussed below. Keebler declared no cash dividends during fiscal 1999 or prior thereto. Keebler's ability to pay cash dividends is limited by terms of its credit facilities. The most restrictive provision limits dividend payments by Keebler to the sum of (i) 50% of consolidated cumulative net income, (ii) net cash proceeds received from the issuance of capital stock, (iii) net cash proceeds received from the exercise of stock options and warrants, (iv) net cash proceeds received from the conversion of indebtedness into capital stock and (v) the net reduction in investments made by Keebler. Keebler is in compliance with these dividend restrictions and, accordingly, Keebler's Board declared a dividend subsequent to year end of $0.1125 per share that was paid on March 22, 2000. As a result of its 55% ownership in Keebler, FII received approximately $5.2 million from this dividend. The Company's credit facilities consist of the $500 million Loan Facility, $125 million of senior notes, a $100 million synthetic lease facility and $200 million of 7.15% debentures due 2028. Since September 1996, the Company has been a party to an $80 million loan facility agreement relating to its distributor note program (the "Distributor Facility") which is subject to the same financial covenants as the Loan Facility. This agreement provides third party credit facilities for the independent distributors serving Flowers Bakeries. The Company receives payments from the independent distributors and remits such amounts, net of certain loan servicing fees, to the financial institution. Additionally, the agreement requires amounts to be placed in escrow by the Company upon the occurrence of certain events as defined in the agreement. No events have occurred as of January 1, 2000 that would require such funding by the Company. During fiscal 1999 and subsequent to year-end, FII amended the Loan Facility and the Distributor Facility. The amendments provided for increased loan borrowing margins and facility fees and added and amended certain financial covenants. The covenants currently in effect include, among others, (i) a maximum leverage ratio of 0.65 to 1, (ii) an adjusted fixed charges coverage ratio of 1.10 to 1 for the second quarter of fiscal 2000, with increased levels for all quarters thereafter; (iii) minimum adjusted consolidated EBITDA at specified levels for each fiscal quarter, (iv) a borrowing base covenant requiring that FII's total indebtedness, measured quarterly, not exceed specified percentages of the book value of accounts receivable, inventory, property, plant and equipment and the fair market value of FII's interest in Keebler, (v) a prohibition on acquisitions, (vi) a negative pledge on all assets of the Company, (vii) a limit on Flowers capital expenditures, and (viii) limits on cash dividends unless the Company would have, following payment thereof, at least $15 million availability under the unused commitments and borrowing base tests of the Loan Facility. The amount of retained earnings available for payment of dividends at January 1, 2000 under the amendment was $125.0 million. The Company was in compliance with all covenants under its Loan Facility as in effect on January 1, 2000 and believes that, in light of its current cash position, its cash flow from operating activities and its amended credit facilities, it can comply with the current terms of its Loan Facility, Distributor Facility and other credit facilities and can meet presently foreseeable financial requirements. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 -- "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new rules for accounting for derivative instruments and hedging activities. The statement requires that all derivatives be recognized as either assets or liabilities in the balance sheet and that the instruments be measured at fair value. The accounting for changes in the fair value of a derivative depend on the intended use of the derivative and the resulting designation. The effective date for this standard has 24 26 been extended to the Company's fiscal year 2001. The Company is currently assessing the effects SFAS 133 will have on its financial position and results of operations. SEASONALITY The Company's sales, net income and cash flows are affected by the timing of new product introductions, promotional activities, price increases and a seasonal sales bias toward the first quarter and second half of the calendar year. The sales bias towards the first quarter is due primarily to Keebler being the leading supplier of Girl Scout cookies and the sales bias toward the second half of the year is primarily due to events such as back-to-school and the Thanksgiving and Christmas holidays. Sales for Mrs. Smith's Bakeries are highly seasonal since, historically, pie sales have been concentrated in the year-end holiday season. YEAR 2000 ISSUE The Company utilizes a number of computer software programs and operating systems throughout its organization, including applications used in order processing, shipping and receiving, accounts payable and receivable processing, financial reporting and in various other administrative functions. The Company recognized the need to make every effort to ensure that its operations were not adversely impacted by applications and processing issues related to the calendar year 2000 (the "Year 2000 Issue"). The Year 2000 Issue is the result of computer programs that have been written to recognize two-digit, rather than four-digit, date codes to define the applicable year. To the extent that the Company's software applications contain source codes that are unable to appropriately interpret a code using "00" as the upcoming year 2000 rather than 1900, the Company could have experienced system failures or miscalculations that could have disrupted operations and caused a temporary inability to process transactions, send and process invoices or engage in similar normal business activities. The Company did not experience any significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the Year 2000 Issue. However, it is possible that the full impact of the date change has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap year-related problems may occur with billing, payroll, or financial closings at month, quarterly, or year end. The Company believes that any such problems are likely to be minor and correctable. In addition, the Company could still be negatively affected if its customers or suppliers are adversely affected by the Year 2000 or similar issues. The Company currently is not aware of any significant Year 2000 or similar problems that have arisen for its customers and suppliers. Although a contingency plan does not exist regarding these potential problems, if significant risk is identified, the Company will develop contingency plans as deemed necessary at that time. The Company expended $6.2 million on Year 2000 readiness efforts from 1997 to 1999. These efforts included replacing some outdated, non-compliant hardware and non-compliant software as well as identifying and remediating Year 2000 problems. FORWARD-LOOKING STATEMENTS Certain statements incorporated by reference or made in this discussion are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). These statements are subject to the safe harbor provisions of the Reform Act. Such forward-looking statements include, without limitation, statements about: - the competitiveness of the baking industry; - the future availability and prices of raw and packaging materials; - potential regulatory obligations; - our strategies; - other statements that are not historical facts; and 25 27 - Year 2000 issues. When used in this discussion, the words "anticipate," "believe," "estimate" and similar expressions are generally intended to identify forward-looking statements. Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including but not limited to: - changes in general economic or business conditions (including in the baking industry); - actions of competitors; - our ability to retain capital on terms acceptable to us; - our ability to recover material costs in the pricing of our products; - the extent to which we are able to develop new products and markets for our products; - the time required for such development; - the level of demand for such products; and - changes in our business strategies. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company is exposed to commodity price and interest rate risks, primarily related to the purchase of raw materials and packaging supplies and changes in interest rates. The Company manages its exposure to these risks through the use of various financial instruments, none of which are entered into for trading purposes. The Company has established policies and procedures governing the use of financial instruments, specifically as it relates to the type and volume of financial instruments entered into. Financial instruments can only be used to hedge an economic exposure, and speculation is prohibited. The Company's accounting policy related to financial instruments is further described in Note 1 of Notes to Consolidated Financial Statements. Commodity Price Risk The Company enters into commodity future and option contracts and swap agreements for wheat and, to a lesser extent, other commodities in an effort to provide a predictable and consistent commodity price and thereby reduce the impact of volatility in its raw material and packaging prices. A sensitivity analysis has been prepared to estimate the Company's exposure to commodity price risk. Based on the Company's derivative portfolio as of January 1, 2000, a hypothetical ten percent adverse change in commodity prices under normal market conditions could potentially have a $19.5 million effect on the fair value of the derivative portfolio. Based on the Company's derivative portfolio as of January 2, 1999, a hypothetical ten percent adverse change in commodity prices under normal market conditions could potentially have a $11.6 million effect on the fair value of the derivative portfolio. The analysis disregards changes in the exposures inherent in the underlying hedged item; however, the Company expects that any loss in fair value of the portfolio would be substantially offset by reductions in raw material and packaging prices. Interest Rate Risk The Company manages its exposure to interest rate risk primarily through the use of a combination of fixed to floating rate debt, as well as interest rate swap agreements, in order to reduce overall interest costs. Keebler has entered into interest rate swap agreements on both its fixed and floating rate debt. A sensitivity analysis has been prepared to estimate the Company's exposure to interest rate risk. Based on Flowers' mix of fixed and floating rate debt at January 1, 2000, assuming a ten percent increase in interest rates, Flowers' interest cost would increase $3.3 million, while the impact of a ten percent decrease in interest rates would reduce interest expense $3.3 million. Based on Flowers' mix of fixed and floating rate debt at January 2, 1999, assuming a ten percent increase in interest rates, Flowers' interest cost would increase $1.5 million, while the impact of a ten percent decrease in interest rates would reduce interest expense $1.5 million. Assuming a ten 26 28 percent increase in market price, the fair value of Keebler's interest rate swap agreements at January 1, 2000, with a notional amount of $334.0 million, would increase the net receivable to $9.7 million, while the impact of a ten percent decrease in market price would reduce the net receivable to $6.0 million. The fair value of Keebler's interest rate swap agreements at January 2, 1999, with an assumed ten percent increase in market price and the notional amount of $527.3 million, would increase the net receivable to $3.1 million, while the impact of a ten percent decrease in market price would result in a net payable of $4.4 million. The analysis disregards changes in the exposures inherent in the underlying hedged item; however, the Company expects that any loss in fair value of the interest rate swap agreements would be substantially offset by increases in the value of those hedged items. During 1999, an interest swap that no longer served as a hedge, with a notional amount of $170.0 million, was recognized in income from operations with a marked to market fair value of $2.8 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to the Index to Financial Statements and Financial Statement Schedules for the required information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Executive Officers of the Registrant are incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on May 31, 2000. ITEM 11. EXECUTIVE COMPENSATION Executive Compensation is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on May 31, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners and Management is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on May 31, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain Relationships and Related Transactions is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on May 31, 2000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K a. List of documents filed as part of this report 1. Financial Statements of the Registrant Report of independent accountants Consolidated statement of income for the fifty-two weeks ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998 and the fifty-two weeks ended June 28, 1997 Consolidated balance sheet at January 1, 2000 and January 2, 1999 27 29 Consolidated statement of changes in stockholders' equity for the fifty-two weeks ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998 and the fifty-two weeks ended June 28, 1997 Consolidated statement of cash flows for the fifty-two weeks ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998 and the fifty-two weeks ended June 28, 1997 Notes to consolidated financial statements 2. Financial Statement Schedules of the Registrant Report of independent accountants on financial statement schedule Schedule II Valuation and Qualifying Accounts -- for the fiscal years ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998, and fiscal year ended June 28, 1997 3. Exhibits
EXHIBIT NUMBER EXHIBIT - ------- ------- 2 -- Stock Purchase and Stockholder's Agreement dated as of January 28, 1998 by and among Flowers, Bermore, Ltd, Artal Luxembourg, S.A. and Keebler (Incorporated by reference to the Company's Report on Form 8-K dated February 18, 1998, File No. 1-9787) 3.1 -- Third Restated Articles of Incorporation (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999, File No. 1-9787) 3.2 -- Restated By-Laws, as of October 20, 1989 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 1992, File No. 1-9787) 4.1 -- Rights Agreement dated as of April 2, 1999 between Flowers Industries, Inc. and First Union National Bank, as Rights Agent (Incorporated by reference to the Company's Registration Statement on Form 8-A filed April 2, 1999, File No. 1-9787) 10.1 -- Flowers Industries, Inc. Annual Executive Bonus Plan dated August 4, 1995 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1995, File No. 1-9787)* 10.2 -- First Amendment to the Flowers Industries, Inc. Annual Executive Bonus Plan (Incorporated by reference to the Company's Transition Report on Form 10-K for the fiscal year ended January 3, 1998, File No. 1-9787)* 10.3 -- Flowers Industries, Inc. 401(k) Retirement Savings Plan (as amended and restated effective as of January 1, 1997), as amended.++* 10.4 -- Severance Policy (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1989, File No. 1-9787)* 10.5 -- 1982 Incentive Stock Option Plan, as amended (Incorporated by reference to the Company's Registration Statement on Form S-3/S-8 filed May 18, 1990, File No. 33-34855)* 10.6 -- 1989 Executive Stock Incentive Plan (Incorporated by reference to the Company's Registration Statement on Form S-3/S-8 filed May 18, 1990, File No. 33-34855)* 10.7 -- Amendment to the 1989 Executive Stock Incentive Plan, dated as of August 4, 1995 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1995, File No. 1-9787)* 10.8 -- Second Amendment to Flowers Industries, Inc. 1989 Executive Stock Incentive Plan (Incorporated by reference to the Company's Transition Report on Form 10-K for the fiscal year ended January 3, 1998, File No. 1-9787)* 10.9 -- Flowers Industries, Inc. 1990 Supplemental Executive Retirement Plan (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 1-9787)*
28 30
EXHIBIT NUMBER EXHIBIT - ------- ------- 10.10 -- Flowers Industries, Inc. Nonemployee Directors' Equity Plan (Incorporated by reference to the Company's Transition Report on Form 10-K for the fiscal year ended January 3, 1998, File No. 1-9787)* 10.11 -- Form of Separation Agreement between the Company and certain members of management of the Company (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999, File No. 1-9787)* 10.12 -- Note Purchase Agreement dated as of December 20, 1995, among Flowers and the Purchasers named therein, as amended by First Amendment effective as of January 23, 1998, as further amended by Second Amendment effective as of March 12, 1998 (Incorporated by reference to the Company's Transition Report on Form 10-K for the fiscal year ended January 3, 1998, File No. 1-9787) 10.13 -- $500,000,000 Second Amended and Restated Credit Agreement dated as of March 30, 2000, among Flowers, certain Banks listed therein, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent and Bank of America, N.A., as Syndications Agent.++ 10.14 -- Indenture between Flowers Industries, Inc. and SunTrust Bank, Atlanta, as Trustee (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999, File No. 1-9787) 10.15 -- Master Lease Agreement dated as of October 20, 1995 between Wachovia Leasing Corporation and Flowers.++ 10.16 -- Loan Facility Agreement dated as of November 5, 1999, by and among Flowers, SunTrust Bank, Atlanta and each of the Participants party thereto, as amended.++ 11 -- Statement Re Computation of Per Share Earnings++ 21 -- Subsidiaries of the Registrant++ 23.1 -- Consent of PricewaterhouseCoopers LLP, Independent Accountants++ 23.2 -- Consent of PricewaterhouseCoopers LLP, Independent Accountants++ 27 -- Financial Data Schedule (for SEC use only)++ 99.1 -- Portions of the Annual Report on Form 10-K for the fiscal year ended January 1, 2000 of Keebler Foods Company (Incorporated by reference to Keebler Foods Company Annual Report on Form 10-K for the fiscal year ended January 1, 2000) 99.2 -- Financial Statements of Keebler Foods Company for the fiscal year ended January 1, 2000++
- --------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K. ++ Filed herewith. 29 31 b. Reports on Form 8-K: For purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statements on Form S-3/S-8, File No. 33-34855; and on Forms S-8, File No. 33-91198 and File No. 333-23351. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 30 32 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, Flowers Industries, Inc. has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 31st day of March, 2000. FLOWERS INDUSTRIES, INC. /s/ AMOS R. MCMULLIAN /s/ ROBERT P. CROZER /s/ JIMMY M. WOODWARD - -------------------------------- -------------------------------- -------------------------------- Amos R. McMullian Robert P. Crozer Jimmy M. Woodward Chairman of the Board, Vice Chairman of the Board Vice President Chairman of the Executive Chief Financial Officer and Committee Chief Accounting Officer and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ AMOS R. MCMULLIAN Chairman of the Board, Chairman March 31, 2000 - ----------------------------------------------------- of the Executive Committee Amos R. McMullian and Chief Executive Officer /s/ ROBERT P. CROZER Vice Chairman of the Board March 31, 2000 - ----------------------------------------------------- Robert P. Crozer /s/ JIMMY M. WOODWARD Vice President and Chief March 31, 2000 - ----------------------------------------------------- Financial Officer Jimmy M. Woodward /s/ EDWARD L. BAKER Director March 31, 2000 - ----------------------------------------------------- Edward L. Baker /s/ JOE E. BEVERLY Director March 31, 2000 - ----------------------------------------------------- Joe E. Beverly /s/ FRANKLIN L. BURKE Director March 31, 2000 - ----------------------------------------------------- Franklin L. Burke /s/ G. ANTHONY CAMPBELL General Counsel, Secretary and March 31, 2000 - ----------------------------------------------------- a Director G. Anthony Campbell /s/ LANGDON S. FLOWERS Director March 31, 2000 - ----------------------------------------------------- Langdon S. Flowers /s/ JOSEPH L. LANIER, JR. Director March 31, 2000 - ----------------------------------------------------- Joseph L. Lanier, Jr.
31 33
SIGNATURE TITLE DATE --------- ----- ---- /s/ J.V. SHIELDS, JR. Director March 31, 2000 - ----------------------------------------------------- J. V. Shields, Jr. /s/ JACKIE M. WARD Director March 31, 2000 - ----------------------------------------------------- Jackie M. Ward /s/ C. MARTIN WOOD III Director March 31, 2000 - ----------------------------------------------------- C. Martin Wood III
32 34 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of independent accountants........................... F-2 Consolidated statement of income for the fifty-two weeks ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998, and the fifty-two weeks ended June 28, 1997....................... F-3 Consolidated balance sheet at January 1, 2000 and January 2, 1999...................................................... F-4 Consolidated statement of changes in stockholders' equity for the fifty-two weeks ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998, and the fifty-two weeks ended June 28, 1997................... F-5 Consolidated statement of cash flows for the fifty-two weeks ended January 1, 2000 and January 2, 1999, the twenty-seven weeks ended January 3, 1998, and the fifty-two weeks ended June 28, 1997....................... F-6 Notes to consolidated financial statements.................. F-7
F-1 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Flowers Industries, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Flowers Industries, Inc. and its subsidiaries (the "Company") at January 1, 2000 and January 2, 1999, and the results of their operations and their cash flows for the years ended January 1, 2000 and January 2, 1999, for the twenty-seven week period ended January 3, 1998, and for the year ended June 28, 1997, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia February 3, 2000 except for Note 15 which is as of March 30, 2000 F-2 36 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 ----------------------- WEEKS ENDED WEEKS ENDED JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales.................................................. $4,236,010 $3,765,367 $784,097 $1,437,713 ---------- ---------- -------- ---------- Materials, supplies, labor and other production costs................................................ 2,001,956 1,702,581 418,926 787,799 Selling, marketing and administrative expenses......... 1,845,101 1,633,319 301,426 534,285 Depreciation and amortization.......................... 144,619 128,765 26,930 45,970 Non-recurring charge................................... 60,355 68,313 ---------- ---------- -------- ---------- Income from operations................................. 183,979 232,389 36,815 69,659 Interest expense..................................... 82,565 72,840 12,144 25,691 Interest (income).................................... (1,700) (4,115) (348) (582) ---------- ---------- -------- ---------- Interest expense, net.................................. 80,865 68,725 11,796 25,109 ---------- ---------- -------- ---------- Gain on sale of distributor notes receivable........... 43,244 ---------- ---------- -------- ---------- Income before income taxes, income from investment in unconsolidated affiliate, minority interest, extraordinary loss and cumulative effect of changes in accounting principles............................. 103,114 163,664 25,019 87,794 Income taxes........................................... 56,260 74,391 9,632 33,191 Income from investment in unconsolidated affiliate..... 18,061 7,721 ---------- ---------- -------- ---------- Income before minority interest, extraordinary loss and cumulative effect of changes in accounting principles........................................... 46,854 89,273 33,448 62,324 Minority interest...................................... (39,560) (43,305) ---------- ---------- -------- ---------- Income before extraordinary loss and cumulative effect of changes in accounting principles.................. 7,294 45,968 33,448 62,324 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest............. (938) Cumulative effect of changes in accounting principles, net of tax benefit................................... (3,131) (9,888) ---------- ---------- -------- ---------- Net income.................................... $ 7,294 $ 41,899 $ 23,560 $ 62,324 ========== ========== ======== ========== Net Income Per Common Share: Basic -- Income before extraordinary loss and cumulative effect of changes in accounting principles....... $ .07 $ .47 $ .38 $ .71 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest... (.01) Cumulative effect of changes in accounting principles, net of tax benefit................... (.03) (.11) ---------- ---------- -------- ---------- Net income per common share........................ $ .07 $ .43 $ .27 $ .71 ========== ========== ======== ========== Weighted average shares outstanding................ 100,112 96,393 88,368 88,000 ========== ========== ======== ========== Diluted -- Income before extraordinary loss and cumulative effect of changes in accounting principles....... $ .07 $ .47 $ .38 $ .71 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest... (.01) Cumulative effect of changes in accounting principles, net of tax benefit................... (.03) (.11) ---------- ---------- -------- ---------- Net income per common share........................ $ .07 $ .43 $ .27 $ .71 ========== ========== ======== ========== Weighted average shares outstanding................ 100,420 96,801 88,773 88,401 ========== ========== ======== ==========
(See Accompanying Notes to Consolidated Financial Statements) F-3 37 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents................................. $ 39,382 $ 54,542 Accounts and notes receivable, net........................ 185,939 270,507 Inventories, net: Raw materials........................................... 68,110 54,739 Packaging materials..................................... 29,855 27,056 Finished goods.......................................... 175,281 207,620 Other................................................... 7,679 8,178 ---------- ---------- 280,925 297,593 Deferred income taxes..................................... 71,498 76,327 Other..................................................... 112,794 84,276 ---------- ---------- 690,538 783,245 ---------- ---------- Property, Plant and Equipment: Land...................................................... 49,612 39,149 Buildings................................................. 386,197 350,067 Machinery and equipment................................... 958,176 816,495 Furniture, fixtures and transportation equipment.......... 148,565 116,219 Construction in progress.................................. 127,545 96,288 ---------- ---------- 1,670,095 1,418,218 Less: accumulated depreciation............................ (520,456) (430,516) ---------- ---------- 1,149,639 987,702 ---------- ---------- Other Assets................................................ 88,715 86,510 ---------- ---------- Cost in Excess of Net Tangible Assets: Cost in excess of net tangible assets..................... 1,033,272 1,033,632 Less: accumulated amortization............................ (61,686) (30,189) ---------- ---------- 971,586 1,003,443 ---------- ---------- $2,900,478 $2,860,900 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Commercial paper.......................................... $ -- $ 74,870 Current maturities of long-term debt and capital leases... 47,566 120,479 Accounts payable.......................................... 248,153 227,749 Income taxes.............................................. 23,603 -- Facility closing costs and severance...................... 16,836 23,670 Other accrued liabilities................................. 319,639 314,270 ---------- ---------- 655,797 761,038 ---------- ---------- Long-term debt and capital leases........................... 1,208,630 1,038,998 ---------- ---------- Other liabilities: Deferred income taxes..................................... 162,470 182,244 Postretirement/postemployment obligations................. 64,772 63,754 Facility closing costs and severance...................... 30,188 41,331 Other..................................................... 56,289 52,915 ---------- ---------- 313,719 340,244 ---------- ---------- Minority interest........................................... 183,578 147,659 ---------- ---------- Stockholders' Equity: Preferred stock -- $100 par value, authorized 10,467 shares and none issued.................................. Preferred stock -- $100 par value, authorized 249,533 shares and none issued.................................. Common stock -- $.625 par value, authorized 350,000,000 shares, issued 100,863,848 and 100,202,414 shares, respectively............................................ 63,040 62,627 Capital in excess of par value............................ 291,377 274,255 Retained earnings......................................... 219,279 262,531 Common stock in treasury, 567,160 and 381,366 shares, respectively............................................ (10,594) (6,762) Stock compensation related adjustments.................... (24,348) (19,690) ---------- ---------- 538,754 572,961 ---------- ---------- $2,900,478 $2,860,900 ========== ==========
(See Accompanying Notes to Consolidated Financial Statements) F-4 38 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK ----------------------- -------------------- STOCK NUMBER OF CAPITAL IN COMPENSATION SHARES EXCESS OF RETAINED NUMBER OF RELATED ISSUED PAR VALUE PAR VALUE EARNINGS SHARES COST ADJUSTMENTS ----------- --------- ---------- -------- --------- -------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Balances at June 29, 1996............... 88,636,089 $55,398 $ 40,317 $234,069 (761,010) $ (6,493) $(17,967) Stock issued for acquisitions......... 1,025 322,233 2,975 Exercise of employee stock options.... (1,017) 400,853 3,988 Purchase of treasury stock............ (19,335) (289) Net income for the year............... 62,324 Exercise of Restricted Stock Award.... 1,072 (78,106) (1,362) 1,169 Exercise of Equity Incentive Award.... 1,854 (151,469) (2,365) 1,738 Restricted Stock Award reversions..... (104) (56,430) (456) 557 Amortization of Restricted Stock Award and Equity Incentive Award.......... 2,443 Stock received from escrow............ (219,812) (2,565) Dividends paid -- $.4125 per common share............................... (36,299) ----------- ------- -------- -------- -------- -------- -------- Balances at June 28, 1997............... 88,636,089 55,398 43,147 260,094 (563,076) (6,567) (12,060) Exercise of employee stock options.... 45,000 524 Purchase of treasury stock............ (6,227) (117) Net income for the year............... 23,560 Equity from investment in unconsolidated affiliate............ 2,700 Stock issued into escrow in connection with Restricted Stock Award......... 2,118 347,609 3,965 (6,083) Restricted Stock Award reversions..... (65) (30,976) (257) 435 Amortization of Restricted Stock Award and Equity Incentive Award.......... 1,395 Dividends paid -- $.2225 per common share............................... (19,620) ----------- ------- -------- -------- -------- -------- -------- Balances at January 3, 1998............. 88,636,089 55,398 45,200 266,734 (207,670) (2,452) (16,313) Common stock offering................. 9,000,000 5,625 182,305 Stock issued for acquisition.......... 2,000,000 1,250 38,750 Exercise of employee stock options.... 225,000 141 2,797 (61,424) (2,419) Exercise of Equity Incentive Award.... 452 (44,263) (982) 524 Purchase of treasury stock............ (24,414) (532) Net income for the year............... 41,899 Adjustment for Keebler stock transactions........................ (3,677) Stock issued into escrow in connection with Restricted Stock Award......... 345,973 216 8,653 (8,869) Restricted Stock Award reversions..... (4,648) (3) (225) (43,595) (377) 513 Amortization of Restricted Stock Award and Equity Incentive Award.......... 4,455 Dividends paid -- $.4750 per common share............................... (46,102) ----------- ------- -------- -------- -------- -------- -------- Balances at January 2, 1999............. 100,202,414 62,627 274,255 262,531 (381,366) (6,762) (19,690) Net income for the year............... 7,294 Adjustment for Keebler stock transactions........................ 2,907 Exercise of employee stock options.... (750) 78,044 1,494 Exercise of Equity Incentive Award.... 1,043 (91,547) (2,161) 1,025 Exercise of Restricted Stock Award.... 1,917 (121,078) (2,497) 1,666 Purchase of treasury stock............ (15,053) (335) Stock issued into escrow in connection with Restricted Stock Award......... 673,800 420 12,376 (12,796) Restricted Stock Award reversions..... (12,366) (7) (371) (36,160) (333) 450 Amortization of Restricted Stock Award and Equity Incentive Award.......... 4,997 Dividends paid -- $.515 per common share............................... (50,546) ----------- ------- -------- -------- -------- -------- -------- Balances at January 1, 2000............. 100,863,848 $63,040 $291,377 $219,279 (567,160) $(10,594) $(24,348) =========== ======= ======== ======== ======== ======== ========
(See Accompanying Notes to Consolidated Financial Statements) F-5 39 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 ----------------------- WEEKS ENDED WEEKS ENDED JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ----------- ----------- (AMOUNTS IN THOUSANDS) Cash flows provided by operating activities: Net income.............................................. $ 7,294 $ 41,899 $ 23,560 $ 62,324 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest..................................... 39,560 42,537 Income from investment in unconsolidated affiliate.... (18,061) (7,721) Depreciation and amortization......................... 144,619 128,765 26,930 45,970 Deferred income taxes................................. (16,782) (1,504) (803) 1,506 Gain on sale of distributor notes receivable.......... (43,244) Non-recurring charge.................................. 46,071 68,313 Loss due to early extinguishment of debt.............. 1,706 Cumulative effect of changes in accounting principles.......................................... 3,131 9,888 Other................................................. 6,946 (1,486) Changes in assets and liabilities, net of acquisitions: Accounts and notes receivable, net.................... (29,803) (11,330) (3,281) 12,343 Inventories, net...................................... 16,811 (35,828) (413) (36,144) Other assets.......................................... (13,425) (53,486) (1,495) (2,242) Accounts payable and other accrued liabilities........ 60,191 27,076 (16,658) (13,199) Facility closing costs and severance.................. (18,389) (9,798) (577) (1,606) --------- --------- -------- -------- Net cash provided by operating activities............... 243,093 199,995 19,090 17,987 --------- --------- -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment............. (266,607) (140,275) (32,857) (77,510) Acquisition of majority interest in Keebler (net of cash acquired)...................................... (285,203) Acquisition of President by Keebler (net of cash acquired)........................................... (444,818) Acquisition of other businesses, net of divestitures (net of cash acquired).............................. (10,772) (28,992) (5,532) 617 Other................................................. 3,696 1,378 2,145 63 --------- --------- -------- -------- Net cash disbursed for investing activities............. (273,683) (897,910) (36,244) (76,830) --------- --------- -------- -------- Cash flows from financing activities: Common stock offering proceeds, net of underwriters' discount and offering costs......................... 187,930 Dividends paid........................................ (50,546) (46,102) (19,620) (36,299) Treasury stock purchases.............................. (21,688) (8,059) (117) (289) Proceeds from receivables securitization.............. 103,000 Stock compensation and warrants exercised............. 15,306 20,744 Debentures proceeds................................... 199,417 Debentures issuance costs............................. (1,750) Increase (decrease) in commercial paper............... (74,870) 21,364 7,713 40,792 Increase (decrease) in debt and capital lease obligations......................................... 44,228 376,913 965 (794) Distributor notes receivable proceeds................. 65,954 --------- --------- -------- -------- Net cash provided by (disbursed for) financing activities............................................ 15,430 750,457 (11,059) 69,364 --------- --------- -------- -------- Net increase (decrease) in cash and cash equivalents.... (15,160) 52,542 (28,213) 10,521 Cash and cash equivalents at beginning of period........ 54,542 2,000 30,213 19,692 --------- --------- -------- -------- Cash and cash equivalents at end of period.............. $ 39,382 $ 54,542 $ 2,000 $ 30,213 ========= ========= ======== ======== Schedule of noncash investing and financing activities: Stock compensation transactions....................... $ 4,658 $ 20,431 $ 6,355 $ 9,263 Stock issued for acquisition.......................... 40,000 4,000 Capital lease obligations............................. 47,406 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized................ $ 86,054 $ 62,982 $ 11,878 $ 25,955 Income taxes........................................ 38,281 87,063 10,867 32,729
(See Accompanying Notes to Consolidated Financial Statements) F-6 40 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DEFINITIONS As used in this filing, unless the context otherwise indicates: (i) "FII" means Flowers Industries, Inc., the publicly traded holding company, which owns all of the outstanding common stock of Flowers Bakeries, Inc. ("Flowers Bakeries") and Mrs. Smith's Bakeries, Inc. ("Mrs. Smith's Bakeries"), and owns a majority of the outstanding common stock of Keebler Foods Company; (ii) "Keebler" means Keebler Foods Company and its consolidated subsidiaries; (iii) "Flowers" means FII and its wholly owned subsidiaries, Flowers Bakeries and Mrs. Smith's Bakeries, and their respective subsidiaries, excluding Keebler; and (iv) the "Company" means Flowers and its consolidated, majority-owned subsidiary, Keebler, collectively. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company. As further described in Note 2, FII purchased an additional 11.5% of the common stock of Keebler on February 3, 1998 giving FII a majority ownership position in Keebler of approximately 55%. As a result, all amounts included herein as of January 2, 1999, for the fifty-two weeks then ended and forward, present Keebler with Flowers on a consolidated basis. All amounts included herein related to prior periods present FII's investment in Keebler under the equity method. Intercompany accounts and transactions are eliminated in consolidation. CHANGE IN FISCAL YEAR END In January 1998, Flowers changed its fiscal year end from the Saturday nearest June 30 to the Saturday nearest December 31. Unless stated otherwise, all references to: (i) "fiscal 1997" shall mean Flowers' full fiscal year ended June 28, 1997; (ii) "twenty-seven week transition period ended January 3, 1998" shall mean Flowers' twenty-seven week transition period from June 29, 1997 through January 3, 1998; (iii) "fiscal 1998" shall mean the Company's full fiscal year ended January 2, 1999; and (iv) "fiscal 1999" shall mean the Company's full fiscal year ended January 1, 2000. As a result, the Company has presented its financial position as of January 1, 2000 and January 2, 1999 and has presented its results of operations, cash flow and changes in stockholders' equity for fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997. For comparative purposes the Company has included unaudited, condensed, consolidated financial information of Flowers in Note 14 for the fifty-two weeks ended January 3, 1998 and the twenty-seven weeks ended January 4, 1997. RECLASSIFICATIONS During fiscal 1998, the Company changed its method of presenting the statement of cash flows from the direct method to the indirect method. This and certain other reclassifications of prior year information were made to conform with the current presentation. REVENUE RECOGNITION Revenue from sale of product at Flowers Bakeries is recognized at the time of shipment to its independent distributors, with a discount given the distributor recorded as an expense in selling, marketing and administrative expenses. Revenue from sale of product at Mrs. Smith's Bakeries is recognized at the time of shipment to the customer, recorded net of customer discounts. Revenue from sale of product at Keebler is recognized at the time of shipment to the customer or independent distributor, recorded net of customer and distributor discounts. Sales to a single customer were approximately $84.0 million, or 11% of sales during the twenty-seven week transition period ended January 3, 1998, and $163.0 million, or 11% of sales during fiscal 1997. During fiscal 1999 and fiscal 1998, no sales to a single customer accounted for more than 10% of sales. F-7 41 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CASH AND CASH EQUIVALENTS The Company considers deposits in banks, certificates of deposits and short-term investments with original maturities of three months or less as cash and cash equivalents for the purposes of the statement of cash flows. ACCOUNTS RECEIVABLE Accounts receivable consists of trade receivables, current portion of notes receivable and miscellaneous receivables. Allowances of $22.0 million and $7.8 million were recorded at January 1, 2000 and January 2, 1999, respectively. CONCENTRATION OF CREDIT RISK The Company grants credit to its customers and independent distributors, who are primarily in the grocery and foodservice markets. INVENTORIES Inventories are carried at the lower of cost or market. Approximately 41% and 47% of inventories at January 1, 2000 and January 2, 1999, respectively, are valued using the first-in-first-out method ("FIFO"), with Keebler's finished goods inventory valued primarily under the last-in-first-out ("LIFO") method. Inventory valued under LIFO approximates FIFO at January 1, 2000 and January 2, 1999. At January 1, 2000 and January 2, 1999, inventories are shown net of allowances for slow-moving and aged inventory of $13.0 million and $9.6 million, respectively. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment is stated at cost. Depreciation expense is computed using the straight-line method based on the estimated useful lives of the depreciable assets. Certain facilities and equipment held under capital leases are classified as property, plant and equipment and amortized using the straight-line method over the lease terms and the related obligations are recorded as liabilities. Lease amortization is included in depreciation expense. Buildings are depreciated over ten to forty years, machinery and equipment over three to twenty-five years, and furniture, fixtures and transportation equipment over three to fifteen years. Property under capital leases is amortized over the lease term. Depreciation expense for fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended January 3, 1998, and fiscal 1997 was $113.1 million, $108.5 million, $25.9 million and $44.8 million, respectively. NOTES RECEIVABLE AND DEFERRED INCOME Prior to September 1996, Flowers Bakeries sold certain of its territories to independent distributors and financed such sales with ten year notes. In September 1996, Flowers Bakeries sold these notes, which totaled approximately $66.0 million, to a financial institution. The proceeds were used to repay debt outstanding at that time. Concurrently, approximately $43.2 million of deferred pre-tax income was recognized by Flowers Bakeries during fiscal 1997. Subsequent to September 1996, all distributor arrangements are made directly between the distributor and a financial institution and, pursuant to an agreement, Flowers Bakeries acts as the servicing agent for the financial institution and receives a fee for these services. The agreement requires amounts to be placed in escrow by the Company upon the occurrence of certain events as defined in the agreement. No events have occurred as of January 1, 2000 that would require such funding by the Company. F-8 42 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COST IN EXCESS OF NET TANGIBLE ASSETS
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) Goodwill, net............................................... $731,804 $ 748,456 Trademarks and trade names, net............................. 239,782 254,987 $971,586 $1,003,443 ======== ==========
Costs in excess of the net tangible assets acquired are, in the opinion of management, attributable to long-lived intangibles having continuing value. Goodwill related to the purchases of businesses are amortized over twenty to forty years from the acquisition date using the straight-line method. Costs of purchased trademark and trade name rights are amortized over the period of expected future benefit, ranging from ten to forty years. Amortization expense for fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997 was $31.5 million, $19.6 million, $1.0 million and $1.1 million, respectively. During fiscal 1999, the Company recorded $9.8 million of goodwill and trademark adjustments related to purchase accounting and non-recurring charge reserves (Note 7). DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments as part of an overall strategy to manage market risk. The Company uses forward commodity futures and options contracts to hedge existing or future exposure to changes in commodity prices. The Company does not enter into these derivative financial instruments for trading or speculative purposes. Keebler uses interest rate swap agreements to effectively convert certain fixed rate debt to a floating rate instrument and certain floating rate debt to a fixed rate instrument. Amounts payable or receivable under the interest rate swap agreements, calculated as the difference between the fixed and floating rates multiplied by the notional amount, is recorded as an adjustment to interest expense, in accordance with hedge accounting. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" which is now effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The new statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recognized as either assets or liabilities in the statement of financial position and that the instruments be measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company is currently assessing the effects SFAS133 will have on its financial position and results of operations. TREASURY STOCK FII records acquisitions of its common stock for treasury at cost. Differences between proceeds for reissuances of treasury stock and average cost are credited or charged to capital in excess of par value to the extent of prior credits and thereafter to retained earnings. RESEARCH AND DEVELOPMENT Activities related to new product development and major improvements to existing products and processes are expensed as incurred. Amounts were $13.1 million for fiscal 1999, $11.4 million for fiscal 1998, $.7 million for the twenty-seven week transition period ended January 3, 1998 and $1.0 million for fiscal 1997. F-9 43 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ADVERTISING AND CONSUMER PROMOTION Advertising and consumer promotion costs are generally expensed as incurred or no later than when the advertisement appears or the event is run. Advertising and consumer promotion expense was approximately $111.2 million for fiscal 1999, $108.4 million for fiscal 1998, $17.0 million for the twenty-seven week transition period ended January 3, 1998 and $19.1 million for fiscal 1997. STOCK-BASED COMPENSATION The Company applies Accounting Principles Board Opinion No. 25 -- "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its plans. The excess of the market price at the date of grant over the purchase price to be paid by the grantee, if any, is recognized ratably by the Company, as compensation expense, over the vesting period. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with SFAS No. 121 -- "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company determines whether there has been an impairment of long-lived assets and the related unamortized goodwill, based on whether certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost of any long-lived assets and the related unamortized goodwill may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is required. SOFTWARE DEVELOPMENT COSTS The Company accounts for software development costs in accordance with American Institute of Certified Public Accountants Statement of Position ("SOP") 98-1, "Accounting for Cost of Computer Software Developed or Obtained for Internal Use". In accordance with SOP 98-1, the Company expenses costs incurred in the preliminary project stage, and thereafter, capitalizes costs incurred in developing or obtaining internally used software. Certain costs, such as maintenance and training, are expensed as incurred. Capitalized costs are amortized over a period of not more than five years and are subject to impairment evaluation in accordance with the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." The Company capitalized software development costs of $14.7 million and $5.6 million in fiscal 1999 and fiscal 1998, respectively. NET INCOME PER COMMON SHARE The Company computes net income per common share in accordance with SFAS No. 128 -- "Earnings Per Share." Basic net income per share is computed by dividing net income by weighted average common shares outstanding for the period. Diluted net income per share is computed by dividing net income by weighted average common and common equivalent shares outstanding for the period. Common stock equivalents consist of the incremental shares associated with the Company's stock option plans, as determined under the treasury stock method. CHANGES IN ACCOUNTING PRINCIPLES On November 20, 1997, the Emerging Issues Task Force ("EITF"), a subcommittee of the FASB, issued EITF 97-13, which requires the cost of business process reengineering activities that are part of an information systems development project be expensed as those costs are incurred. Any unamortized costs that were previously capitalized were required to be written off as a cumulative adjustment in the quarter that F-10 44 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) included November 20, 1997. During the twenty-seven week transition period ended January 3, 1998, Flowers recorded a cumulative after-tax charge of $8.8 million, or $.10 per share, as a result of its adoption of this pronouncement. The Company measures its pension plan assets three months prior to the beginning of its fiscal year. As a result of Flowers changing its fiscal year, the measurement date has changed from March 31 to September 30 for Flowers-sponsored defined benefit plans. This change resulted in a cumulative adjustment, net of tax, of $1.0 million, or $.01 per share, for the twenty-seven week transition period ended January 3, 1998. On April 3, 1998, the Accounting Standards Executive Committee, a subcommittee of the American Institute of Certified Public Accountants, issued SOP 98-5 -- "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of start-up activities and organizational costs to be expensed as incurred. As a result of adopting SOP 98-5, the Company recorded a cumulative after-tax charge of $3.1 million, or $.03 per share in fiscal 1998. COMPREHENSIVE INCOME As of January 4, 1998, the Company adopted SFAS No. 130 -- "Reporting Comprehensive Income." SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components. The adoption of this statement had no impact on the Company's net earnings or stockholders' equity. During fiscal 1999 and the prior periods presented, total comprehensive income equaled net income. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. ACQUISITIONS ACQUISITION OF KEEBLER On January 26, 1996, FII acquired a 49.6% interest in INFLO Holdings Corporation ("INFLO"), a newly formed corporation jointly owned by FII and Artal Luxembourg Corporation S.A. for $62.5 million. On January 26, 1996, INFLO acquired 100% of Keebler Corporation for an aggregate consideration of $454.9 million from United Biscuits (Holdings) plc. The acquisition of Keebler Corporation was financed through the equity of INFLO and bank borrowings. FII accounted for its investment in INFLO using the equity method of accounting from January 26, 1996 up until the time of the control purchase as further described below. On June 4, 1996, Keebler Corporation acquired 100% of Sunshine Biscuits, Inc. ("Sunshine") from G.F. Industries, Inc. ("GFI") for an aggregate purchase price of $171.6 million. The acquisition was funded by Keebler Corporation's working capital, bank financing and the issuance to GFI of $23.6 million of INFLO common stock and warrants. As a result of this transaction, FII's interest in INFLO was reduced to 45.2%. On November 20, 1997, INFLO was merged into Keebler Corporation and subsequently changed its name to Keebler Foods Company. On February 3, 1998, FII acquired an additional 11.5% of the common stock of Keebler, concurrent with Keebler's initial public offering, giving FII a majority ownership position in Keebler of approximately 55% (the "Keebler Acquisition"). The aggregate purchase price of the additional interest in Keebler was approximately $312.4 million, including transaction expenses. The Keebler Acquisition was initially financed F-11 45 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) through borrowings under FII's $500.0 million Syndicated Loan Facility. The acquisition of the additional interest in Keebler was accounted for using the purchase method of accounting, and, accordingly, Keebler's assets and liabilities are included in the consolidated balance sheet as of January 2, 1999 and January 1, 2000. The acquisition of the majority interest resulted in FII consolidating Keebler's operating results effective January 4, 1998. Keebler's operating results for the period January 4, 1998 through February 3, 1998, the date FII acquired the majority interest, were not materially different had the investment in Keebler been accounted for under the equity method, the method by which FII previously accounted for its investment in Keebler. The purchase price has been allocated to the net tangible and intangible assets acquired and liabilities assumed of Keebler's based on their respective fair values. The excess of the purchase price over the fair value of the net assets underlying the additional interest acquired, approximately $264.2 million, has been recorded as goodwill and is being amortized over forty years. ACQUISITION OF PRESIDENT INTERNATIONAL, INC. On September 28, 1998, Keebler acquired President International, Inc. ("President") from President International Trade and Investment Corporation for an aggregate purchase price of $450.6 million, including transaction expenses paid at closing. The President acquisition was funded by Keebler, with approximately $75.0 million from existing resources and the remainder from borrowings under the $700.0 million Senior Credit Facility Agreement ("Credit Facility") and a $125.0 million Bridge Facility, both dated as of September 28, 1998. The acquisition of President has been accounted for as a purchase. The purchase price has been allocated to the net tangible and intangible assets of President based on their respective fair values. The excess of the purchase price over the fair value of net assets acquired is approximately $329.2 million, of which $12.8 million represents costs pursuant to a plan to exit certain activities and operations of President. The unallocated excess purchase price is being amortized straight-line over forty years. Results of operations for President from September 28, 1998 to January 2, 1999 have been included in the consolidated statement of income for fiscal 1998. The following unaudited, condensed, combined pro forma results of operations of the Company assume the President acquisition and the Keebler Acquisition occurred as of the beginning of each period presented. Additionally, the pro forma results for the year ended January 3, 1998 give effect to (i) FII selling 9,000,000 shares of its common stock in a public offering at $22 per share on April 27, 1998 and (ii) FII selling $200.0 million of 7.15% debentures on April 27, 1998, due April 15, 2028, as if such transactions had occurred at the beginning of the period:
FOR THE 52 WEEKS ENDED FOR THE 53 WEEKS ENDED JANUARY 2, 1999 JANUARY 3, 1998 ---------------------- ---------------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) Sales........................................ $4,133,481 $3,952,547 Income before extraordinary loss and cumulative effect of changes in accounting principles................................. 50,449 56,793 Net Income................................... 46,380 42,835 Diluted Net Income Per Common Share: Income before extraordinary loss and cumulative effect of changes in accounting principles................... .52 .58 Net income................................. .48 .44
The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the transactions been consummated as of the beginning of each period presented, nor are they necessarily indicative of future operating results. F-12 46 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. OTHER ACCRUED LIABILITIES Other accrued liabilities consist of:
JANUARY 1, JANUARY 2, 2000 1999 ---------- ---------- (AMOUNTS IN THOUSANDS) Employee compensation....................................... $ 89,093 $ 93,942 Pension..................................................... 21,521 19,511 Insurance................................................... 61,268 63,551 Marketing and consumer promotions........................... 61,869 65,075 Other....................................................... 85,888 72,191 -------- -------- Total............................................. $319,639 $314,270 ======== ========
FII does not guarantee Keebler's other accrued liabilities of $237.4 million, which are included in the consolidated amount at January 1, 2000. NOTE 4. DEBT AND LEASE COMMITMENTS Long-term debt consisted of the following at January 1, 2000 and January 2, 1999:
INTEREST FINAL JANUARY 1, JANUARY 2, RATE MATURITY 2000 1999 -------- --------- ---------- ---------- (AMOUNTS IN THOUSANDS) Flowers: Syndicated Loan Facility................. 7.56% 2003 $ 350,000 $ 150,000 Senior Notes............................. 6.84% 2016 125,000 125,000 Debentures............................... 7.15% 2028 200,000 200,000 Commercial Paper......................... 5.55% 2000 25,027 74,870 Capital Lease Obligations................ 7.75% Various 51,317 2,853 Other.................................... Various 2004-2017 48,409 27,129 ---------- ---------- 799,753 579,852 ---------- ---------- Keebler: Bridge Facility.......................... 6.26% 1999 75,000 Revolving Facility....................... 5.84% 2004 85,000 Term Facility............................ 5.81% 2004 314,000 350,000 Senior Subordinated Notes................ 10.75% 2006 124,400 124,400 Capital Lease Obligations................ Various 2002-2042 7,588 8,290 Other Senior Debt........................ Various 2001-2005 10,455 11,805 ---------- ---------- 456,443 654,495 ---------- ---------- Consolidated Debt:......................... 1,256,196 1,234,347 Due within one year...................... 47,566 195,349 ---------- ---------- Due after one year....................... $1,208,630 $1,038,998 ========== ==========
FLOWERS On July 10, 1996, FII entered into a five year $300.0 million Syndicated Loan Facility. The facility was amended in January 1998, increasing the limit to $500.0 million, and extending the term to January 30, 2003. The facility was amended primarily to provide financing for the purchase of the majority interest in Keebler on February 3, 1998. At January 1, 2000 and January 2, 1999, $350.0 million and $150.0 million, respectively was outstanding. Amounts are borrowed under this facility for periods not to exceed 180 days and can be F-13 47 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reborrowed as necessary during the term of the facility. Interest under the facility is generally payable monthly and is variable based on a performance grid using a choice of LIBOR plus 1.375% or money market rates. At January 1, 2000, the commitment fee was 0.375%. On January 5, 1996, FII completed a private placement of $125.0 million of Senior Notes. These notes are due in three tranches: $100.0 million due in semiannual installments from January 5, 2004 through January 5, 2008 which bears interest at 6.80% per annum; $20.0 million due January 5, 2011 which bears interest at 6.99% per annum; and $5.0 million due January 5, 2016 which bears interest at 7.08% per annum. Interest is payable semiannually. On April 27, 1998, FII sold $200.0 million of 7.15% debentures due April 15, 2028, priced at 99.47%. Interest on the debentures is payable semiannually. Net proceeds from the offering were used to reduce borrowings under the $500.0 million Syndicated Loan Facility. On July 28, 1998, FII amended its short-term Commercial Paper Agreement to increase the limit from $75.0 million to $100.0 million. Borrowings under this agreement were used to finance inventory at Mrs. Smith's Bakeries. On January 14, 2000, this facility was terminated and repaid with borrowings from the Syndicated Loan Facility. In accordance with FASB Statement No. 6, "Classification of Short-Term Obligations Expected to be Refinanced", the outstanding balance of $25.0 million was classified as long-term debt on January 1, 2000. FII also has a $10.0 million revolving-term loan agreement with no amounts outstanding at January 1, 2000 or January 2, 1999. Several loan agreements of FII contain restrictions which, among other things, require maintenance of certain financial ratios and restrict encumbrance of assets and creation of indebtedness. At January 1, 2000, FII was in compliance with these requirements. KEEBLER At January 1, 2000, and January 2, 1999, Keebler's primary credit financing was provided by a $700.0 million Credit Facility consisting of $350.0 million under the Revolving Facility and $350.0 million under the Term Facility. At January 2, 1999, financing was also provided under a $125.0 million Bridge Facility. Outstanding balances under the Term Facility were $314.0 million and $350.0 million at January 1, 2000 and January 2, 1999, respectively. Quarterly principal payments are scheduled through the final maturity at September 2004. The Revolving Facility had outstanding balances of zero and $85.0 million and available balances of $350.0 million and $265.0 million at January 1, 2000 and January 2, 1999, respectively. The Revolving Facility has no scheduled principal payment until maturity at September 2004. Any unused borrowings under the Revolving Facility are subject to a commitment fee that will vary from 0.125% - 0.30% based on the relationship of debt to adjusted earnings. At January 1, 2000, the commitment fee was 0.125%. The $75.0 million Bridge Facility outstanding at January 2, 1999, that had a final maturity of September 1999, with no scheduled principal payments, was refinanced on January 29, 1999. Keebler entered into a Receivables Purchase Agreement ("the Agreement") to replace the $75.0 million of debt held under the Bridge Facility, allowing funds to be borrowed at a lower cost to Keebler. The accounting for this Agreement is governed by SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." Under the guidelines of SFAS No. 125, a special purpose entity was created, Keebler Funding Corporation, as a subsidiary of Keebler Foods Company. All transactions under this Agreement occur through Keebler Funding Corporation and are treated as a sale of accounts receivable and not as a debt instrument. At January 1, 2000, a net of $103.0 million of accounts receivable had been sold at fair value, which is below the maximum amount currently available under the Agreement. F-14 48 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest on the Credit Facility is calculated based on base rate plus applicable margin. The base rate can, at Keebler's option, be: (i) the higher of the base domestic lending rate as established by the administrative agent for the lender of the Credit Facility, or the Federal Funds Rate plus one-half of one percent; or (ii) a reserve percentage adjusted LIBOR as offered by the administrative agent. Interest on the Bridge Facility is calculated using the same components as the Credit Facility. In conjunction with the President acquisition on September 28, 1998, Term Loan A was extinguished by using $145.0 million of borrowings under the new Credit Facility. Keebler recorded a pre-tax extraordinary charge of $2.8 million related primarily to expensing certain bank fees which were being amortized and which were incurred at the time Term Loan A was issued. The related after-tax charge, net of minority interest, was $.9 million. On July 1, 1998, Keebler entered into a swap transaction which matures on July 1, 2001. The swap transaction had the effect of converting the fixed rate of 10.75% on $124.0 million of the Notes to a rate of 11.33% through July 3, 2000. In addition, on September 30, 1998 and October 5, 1998, Keebler entered into two swap transactions both maturing on September 30, 2004, each of which converts the base rate on $105.0 million of Credit Facility to fixed rate debt of 5.084% and 4.89%, respectively. Keebler also maintains an interest rate swap that does not qualify for hedge accounting, which has a notional amount of $170.0 million and a fixed rate obligation of 5.0185% through February 1, 2001. During fiscal 1999, $2.8 million was recognized in income from operations in order to mark-to-market the interest rate swap. The resulting receivable related to this transaction was recorded as a current receivable as part of other current assets for $0.5 million and a long-term receivable as part of other assets for $2.3 million in the statement of financial position. Several loan agreements of Keebler contain restrictions which, among other things, require maintenance of certain financial ratios and restrict encumbrance of assets and creation of indebtedness. At January 1, 2000, Keebler was in compliance with these requirements. Annual maturities of long-term debt and capital leases for each of the five years following January 1, 2000 and thereafter are as follows:
FLOWERS KEEBLER CONSOLIDATED -------- -------- ------------ (AMOUNTS IN THOUSANDS) 2000.................................................. $ 35,310 $ 37,283 $ 72,593 2001.................................................. 7,138 42,162 49,300 2002.................................................. 7,257 68,647 75,904 2003.................................................. 7,404 105,596 113,000 2004.................................................. 32,797 75,769 108,566 2005 and thereafter................................... 709,847 126,986 836,833 -------- -------- ---------- Total....................................... $799,753 $456,443 $1,256,196 ======== ======== ==========
FII has not guaranteed any of the Keebler indebtedness and it is to be repaid solely from the cash flows of Keebler. LEASES The Company leases certain property and equipment under various operating and capital lease arrangements that expire over the next 25 years. Most of these operating leases provide the Company with the option, after the initial lease term, either to purchase the property at the then fair value or renew its lease at the then fair value for periods from one month to ten years. Flowers has entered into certain capital lease obligations requiring the Company to guarantee the residual value to the lessor of approximately $29.0 million F-15 49 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) at the termination of the lease. Assets recorded under capitalized lease agreements included in property, plant and equipment consist of the following:
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) Land...................................................... $ 980 $ 980 Buildings................................................. 2,894 2,894 Machinery and Equipment................................... 54,159 4,811 Other Leased Assets....................................... 1 1 ------- ------ 58,034 8,686 Accumulated Depreciation.................................. (2,172) (242) ------- ------ $55,862 $8,444 ======= ======
Future minimum lease payments under scheduled capital and operating leases that have initial or remaining noncancelable terms in excess of one year are as follows:
CAPITAL LEASES OPERATING LEASES -------------- ---------------- (AMOUNTS IN THOUSANDS) 2000...................................................... $10,388 $ 50,655 2001...................................................... 9,452 42,664 2002...................................................... 8,462 35,324 2003...................................................... 7,187 31,919 2004...................................................... 11,230 23,266 2005 and thereafter....................................... 31,998 113,266 ------- -------- Total minimum payments.......................... $78,717 $297,094 Amount representing interest.............................. (19,812) ------- Obligations under capital leases.......................... 58,905 Obligations due within one year........................... (7,666) ======= Long-term obligations under capital leases................ $51,239 =======
Rent expense for all operating leases amounted to $96.2 million for fiscal 1999, $61.3 million for fiscal 1998, $16.2 million for the twenty-seven week transition period ended January 3, 1998 and $24.2 million for fiscal 1997. FII does not guarantee Keebler's lease obligations of $7.6 million, which are included in the consolidated amount above. NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair market value of short and long-term borrowing was estimated using discounted cash flow analysis based on current interest rates which would be obtained for similar financial instruments. The carrying value of cash and cash equivalents and short-term debt approximates fair value at January 1, 2000 and January 2, 1999, because of the short-term maturity of the instruments. The fair value of Flowers long-term debt was $712.5 million at January 1, 2000 and approximately equaled carrying value at January 2, 1999. The fair value of Keebler's long-term debt was $417.2 million and $536.6 million at January 1, 2000 and January 2, 1999, respectively. The fair value of the Company's outstanding commodity derivative financial instruments, based on the stated market value as of January 1, 2000 and January 2, 1999, was $92.0 million and $113.8 million, respectively. The fair value of Keebler's interest rate swap agreements, a net receivable of $7.9 million, was estimated based on market prices as of January 1, 2000. F-16 50 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6. COMMODITY PURCHASE AGREEMENTS The Company's primary raw materials are flour, sugar, shortening, fruits and dairy products. Amounts payable or receivable under the commodity agreements which qualify as hedges are recognized as deferred gains or losses when the positions are closed, and are charged or credited to cost of sales as the related raw materials are used in production. To qualify as a hedge, a commodity agreement must reduce the exposure of the Company to price risk and must show high correlation of changes in value with the value of the hedged item. For fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997, losses of $6.5 million, $7.9 million, $.6 million and $1.9 million, respectively, were recorded. As of January 1, 2000 and January 2, 1999, deferred losses on closed contracts accounted for as hedges were $5.8 million and $3.8 million, respectively. Gains and losses on agreements which do not qualify as hedges are marked to market and recorded immediately as other income or expense. For fiscal 1999, a loss of $3.5 million was recorded. For fiscal 1998, a gain of $1.1 million was recorded and for the twenty-seven week transition period ended January 3, 1998, a loss of $.8 million was recorded. There was no gain or loss in fiscal 1997. The Company's various commodity purchase agreements effectively commit the Company to purchase raw materials in amounts approximating $113.0 million at January 1, 2000, which will be used in production in future periods. NOTE 7. FACILITY CLOSING COSTS AND SEVERANCE NON-RECURRING CHARGES During fiscal 1999, the Board of Directors of Keebler approved a plan to close its Sayreville, New Jersey production facility due to excess capacity within Keebler's 14-plant manufacturing network. As a result of this plan, the Company recorded a pre-tax non-recurring charge of $69.2 million. The charge included $46.1 million of non-cash asset impairments and $23.1 million of severance and other exit costs related to the Sayreville facility. As a direct result of this plan, asset impairments were recorded to write-down the closed facility to net realizable value, less cost to sell, based on management's estimate of fair value. Also, as part of this plan, asset impairments were recorded to write-off certain other machinery and equipment currently held by Keebler and to reduce goodwill acquired in the Sunshine Biscuits, Inc. acquisition in June 1996, neither of which provides any future economic benefit. Severance costs provided for the reduction of approximately 650 employees, of which 600 were represented by unions. As of January 1, 2000, approximately 640 employees, of which 595 were represented by unions, had been severed. This plan is substantially complete as of January 1, 2000. Accordingly, during the fourth quarter of fiscal 1999, an adjustment of $2.9 million was recorded against the original $69.2 million. The adjustment was due to lower than expected severance costs and an earlier than expected disposal of the facility as current real estate conditions resulted in a twelve month reduction in the estimated disposal period. The adjusted net charge in fiscal 1999 related to this plant closure was $66.3 million. Ongoing costs, including but not limited to, guard service, utilities, property taxes and preparing the facility for sale, will continue for eighteen months or until the facility is disposed of, whichever occurs earlier. The amount of suspended depreciation and amortization that would have been recognized for the year ended January 1, 2000, if prior period impairment had not been recognized was approximately $3.7 million, with $5.6 million of annualized savings anticipated in 2000. During the fourth quarter of fiscal 1998, the Board of Directors of the Company approved a plan to realign production and distribution at Flowers Bakeries and Mrs. Smith's Bakeries in order to enhance efficiency. The Company recorded a pre-tax non-recurring charge of $68.3 million ($32.2 million, $32.3 million and $3.8 million for Flowers Bakeries, Mrs. Smith's Bakeries and Keebler, respectively). The charge included $57.5 million of noncash asset impairments, $4.8 million of severance costs and $6.1 million of other related exit costs. The plan involved closing six less efficient facilities of Flowers Bakeries and Mrs. Smith's Bakeries and shifting their production and distribution to highly automated facilities. As a direct result of management's decision to implement production line rationalizations, asset impairments were recorded to F-17 51 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) write-down the closed facilities to net realizable value, less cost to sell, based on management's estimate of fair value, and the related cost in excess of net tangible assets. Also, as part of this plan, asset impairments were recorded to write-off certain duplicate machinery and equipment designated for disposal. The plan included severance costs for 695 employees, and, as of January 1, 2000, all such employees had been terminated. During fiscal 1999, Flowers Bakeries and Mrs. Smith's Bakeries recorded adjustments to the fiscal 1998 restructuring reserve of $1.1 million and $4.9 million, respectively. These adjustments are the result of reduced carrying costs of plants held for sale, an adjustment to the value of these assets due to the identification of a buyer and changes in estimates of severance and other employee termination costs. As of January 1, 2000, all significant actions related to these plans have been completed. The remaining exit costs include ongoing costs such as guard service, utilities and property taxes of closed facilities until the time of disposal. Management anticipates the charges will result in operating savings of approximately $40.0 million over the next five years, principally from reduced depreciation of approximately $13.0 million and increased efficiencies and reduced employee expense of approximately $27.0 million. PURCHASE ACCOUNTING RESERVES During fiscal 1998, as part of accounting for the acquisition of President, Keebler recognized costs pursuant to a plan to exit certain activities and operations of President in order to rationalize productivity and reduce costs and inefficiencies. These exit costs, for which there is no anticipated future economic benefit, were provided for in the allocation of the purchase price and totaled $12.8 million. Company-wide staff reductions were initially estimated at 410 employees and $6.7 million, with the balance of the reserves allocated to costs associated with the closing of seven production, sales or distribution facilities, which principally include noncancelable lease obligations and building maintenance costs. At January 1, 2000, approximately 40 employees not under union contract had been terminated. In addition, during the year management reviewed its exit plan and made a determination that approximately 110 employees not under union contract, would not be terminated. During fiscal 1999, Keebler adjusted accruals previously established in the accounting for the President acquisition by reducing goodwill and other intangibles by $4.5 million to recognize exit costs that are now expected to be less than initially anticipated. The remainder of management's exit plan is expected to be substantially complete before the end of fiscal 2000 with only noncancelable lease obligations to be paid over the next six years, concluding in fiscal 2006. As part of the acquisition of Mrs. Smith's Inc. in fiscal 1996, Flowers recorded a purchase accounting reserve of $37.1 million in order to realign production and distribution at Mrs. Smith's Bakeries to reduce inefficiencies. The realignment involved the shutdown of a leased production facility. The reserve includes $27.6 million of noncancelable lease obligations and building maintenance costs, $2.1 million of severance costs, and $7.4 million of other exit costs, including health insurance, incremental workers' compensation costs and the costs associated with dismantling and disposing of equipment at the closed facility. Under the plan, approximately 300 employees were to be and have been terminated. With the exception of noncancelable lease obligations and building maintenance costs that continue through fiscal 2006, this plan was substantially complete as of the end of fiscal 1998. Spending against the reserve totaled $6.8 million, $4.0 million, $.6 million and $1.6 million in fiscal 1999, fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997, respectively. As part of INFLO's acquisition of Keebler and Keebler's subsequent acquisition of Sunshine, Keebler's management team adopted and began executing a plan to reduce costs and inefficiencies. Certain exit costs totaling $77.4 million were provided for in the allocation of the purchase price of both the Keebler and Sunshine acquisitions. Management's plan included company-wide staff reductions, the closure of production, distribution and sales force facilities and information system exit costs. Severance costs were estimated at $39.4 million for the approximately 1,400 employees anticipated to be terminated. As of the end of fiscal 1998, all had been terminated. The plan included the closure of its Atlanta, Georgia and Santa Fe Springs, California, production facilities, as well as 39 sales force and distribution facilities. Costs incurred related to F-18 52 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the closing of production, distribution and sales force facilities, other than severance costs, included primarily noncancelable lease obligations and building maintenance costs of $31.2 million. An additional $6.8 million was anticipated for lease costs related to exiting legacy information systems. As of January 4, 1998, the date FII began consolidating Keebler for financial reporting purposes, the remaining liability was $22.5 million, of which $20.2 million related to noncancelable lease obligations and building maintenance costs, $.3 million related to severance costs and $2.0 million related to other exit costs. All activity prior to that date occurred while FII accounted for its investment in Keebler in accordance with the equity method of accounting. Spending against the remaining reserves totaled $3.0 million for fiscal 1999 and $7.7 million for fiscal 1998. In addition, during fiscal 1999 and fiscal 1998, Keebler expensed $0.8 million and $2.8 million, respectively, principally for costs related to the closure of two distribution facilities not included in the original plan. During fiscal 1999, Keebler adjusted accruals previously established in the accounting for the Keebler acquisition by reducing goodwill and other intangibles by $0.5 million and reversing $1.3 million into income from operations to recognize exit costs that are now expected to be less than initially anticipated. The $1.3 million was credited to operating income as it had originally been charged to income from operations in fiscal 1999 and fiscal 1998. During fiscal 1998, Keebler also adjusted accruals previously established in the accounting for the Keebler and Sunshine acquisitions by reducing goodwill and other intangibles by $3.7 million to recognize exit costs that are now expected to be less than initially anticipated. The exit plan was substantially complete at January 1, 2000 with only noncancelable lease obligations continuing through 2006. Activity with respect to the non-recurring charges and purchase accounting reserves was as follows (amounts in thousands): Non-Recurring Charges:
BALANCE AT BALANCE AT JANUARY 3, PROVISION/ NONCASH JANUARY 2, 1998 ADJUSTMENTS REDUCTIONS SPENDING 1999 ---------- ----------- ---------- -------- ---------- Noncash impairments................. $ -- $57,489 $(57,489) $ -- $ -- Severance........................... -- 4,755 -- (3,217) 1,538 Noncancelable lease obligations and facility closure costs............ -- 3,995 -- -- 3,995 Other............................... -- 2,074 -- (94) 1,980 ------ ------- -------- -------- ------ Total..................... $ -- $68,313 $(57,489) $ (3,311) $7,513 ====== ======= ======== ======== ======
BALANCE AT BALANCE AT JANUARY 2, PROVISION/ NONCASH JANUARY 1, 1999 ADJUSTMENTS REDUCTIONS SPENDING 2000 ---------- ----------- ---------- -------- ---------- Noncash impairments................. $ -- $42,049 $(42,049) $ -- $ -- Severance........................... 1,538 14,377 -- (13,878) 2,037 Noncancelable lease obligations and facility closure costs............ 3,995 1,358 -- (2,522) 2,831 Other............................... 1,980 2,571 -- (2,089) 2,462 ------ ------- -------- -------- ------ Total..................... $7,513 $60,355 $(42,049) $(18,489) $7,330 ====== ======= ======== ======== ======
F-19 53 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Purchase Accounting Reserves:
BALANCE AT BALANCE AT JANUARY 3, PROVISION/ JANUARY 2, 1998 ADJUSTMENTS SPENDING 1999 ---------- ----------- -------- ---------- Mrs. Smith's Bakeries Severance.................................... $ 1,735 $ -- $ (388) $ 1,347 Non cancelable lease obligations and other facility closure costs..................... 27,149 -- (1,350) 25,799 Other........................................ 6,069 -- (2,308) 3,761 ------- ------- -------- ------- Total.............................. $34,953 $ -- $ (4,046) $30,907 ------- ------- -------- ------- Keebler Foods Company Severance.................................... $ 231 $ 111 $ (293) $ 49 Non cancelable lease obligations and other facility closure costs..................... 12,505 2,244 (3,265) 11,484 Other........................................ 1,895 (182) (1,689) 24 ------- ------- -------- ------- Total.............................. $14,631 $ 2,173 $ (5,247) $11,557 ------- ------- -------- ------- Sunshine Biscuits, Inc. Severance.................................... $ 112 $ -- $ (26) $ 86 Non cancelable lease obligations and other facility closure costs..................... 7,735 (3,120) (2,388) 2,227 ------- ------- -------- ------- Total.............................. $ 7,847 $(3,120) $ (2,414) $ 2,313 ------- ------- -------- ------- President International, Inc. Severance.................................... $ -- $ 6,653 $ (59) $ 6,594 Non cancelable lease obligations and other facility closure costs..................... -- 5,670 -- 5,670 Other........................................ -- 447 -- 447 ------- ------- -------- ------- Total.............................. $ -- $12,770 $ (59) $12,711 ------- ------- -------- ------- GRAND TOTAL........................ $57,431 $11,823 $(11,766) $57,488 ======= ======= ======== =======
BALANCE AT BALANCE AT JANUARY 2, PROVISION/ JANUARY 1, 1999 ADJUSTMENTS SPENDING 2000 ---------- ----------- -------- ---------- Mrs. Smith's Bakeries Severance.................................... $ 1,347 $ -- $ (1,347) $ -- Non cancelable lease obligations and other facility closure costs..................... 25,799 (1,405) (4,208) 20,186 Other........................................ 3,761 -- (1,285) 2,476 ------- ------- -------- ------- Total.............................. $30,907 $(1,405) $ (6,840) $22,662 ------- ------- -------- ------- Keebler Foods Company Severance.................................... $ 49 $ 25 $ (50) $ 24 Non cancelable lease obligations and other facility closure costs..................... 11,484 (1,009) (2,646) 7,829 Other........................................ 24 (10) (14) -- ------- ------- -------- ------- Total.............................. $11,557 $ (994) $ (2,710) $ 7,853 ------- ------- -------- -------
F-20 54 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE AT BALANCE AT JANUARY 2, PROVISION/ JANUARY 1, 1999 ADJUSTMENTS SPENDING 2000 ---------- ----------- -------- ---------- Sunshine Biscuits, Inc. Severance.................................... $ 86 $ -- $ (23) $ 63 Non cancelable lease obligations and other facility closure costs..................... 2,227 -- (265) 1,962 ------- ------- -------- ------- Total.............................. $ 2,313 $ -- $ (288) $ 2,025 ------- ------- -------- ------- President International, Inc. Severance.................................... $ 6,594 $(3,189) $ (576) $ 2,829 Non cancelable lease obligations and other facility closure costs..................... 5,670 (991) (83) 4,596 Other........................................ 447 (319) (118) 10 ------- ------- -------- ------- Total.............................. $12,711 $(4,499) $ (777) $ 7,435 ------- ------- -------- ------- GRAND TOTAL........................ $57,488 $(6,898) $(10,615) $39,975 ======= ======= ======== =======
NOTE 8. STOCKHOLDERS' EQUITY FII FII's Articles of Incorporation provide that the authorized capital of FII consists of 350,000,000 shares of common stock of $.625 par value per share (the "Common Stock"), 10,467 shares of preferred stock, par value $100 per share, convertible into Common Stock, and 249,533 shares of preferred stock, par value $100 per share that, at the discretion of the Board of Directors, may be either convertible or non-convertible, of which 100,000 shares has been designated by the Board of Directors as Series A Junior Participating Preferred Stock ("Series A Preferred Stock"). Common Stock The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Subject to preferential rights of any issued and outstanding preferred stock, including the Series A Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors of FII out of funds legally available. In the event of a liquidation, dissolution or winding-up of FII, holders of Common Stock are entitled to share ratably in all assets of FII, if any, remaining after payment of liabilities and the liquidation preferences of any issued and outstanding preferred stock, including the Series A Preferred Stock. Holders of Common Stock have no preemptive rights, no cumulative voting rights and no rights to convert their shares of Common Stock into any other securities of FII or any other person. The Common Stock is not subject to redemption or sinking fund redemption. On April 27, 1998, FII sold 9,000,000 shares of its Common Stock in a public offering at $22 per share. Net proceeds from the offering were used to reduce borrowings under the $500.0 million Syndicated Loan Facility which were primarily incurred to purchase the majority interest in Keebler. Preferred Stock The Board of Directors of FII has the authority to issue up to 249,533 shares of preferred stock in one or more series and to fix the designations, relative powers, preferences, rights, qualifications, limitations and restrictions of all shares of each such series, including without limitation, dividend rates, conversion rights, voting rights, redemption and sinking fund provisions, liquidation preferences and the number of shares constituting each such series, without any further vote or action by the holders of Common Stock. Pursuant to F-21 55 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) such authority, the Board of Directors has designated 100,000 shares of preferred stock as Series A Preferred Stock in connection with the adoption of FII's Shareholder's Rights Plan. The issuance of one or more series of preferred stock will likely decrease the amount of earnings and assets available for distribution to holders of Common Stock as dividends or upon liquidation, respectively, and may adversely affect the rights and powers, including voting rights, of the holders of Common Stock. The issuance of preferred stock also could have the effect of delaying, deterring or preventing a change in control of FII. FII SHAREHOLDER'S RIGHTS PLAN On March 19, 1999, the Company's Board of Directors declared a dividend of one preferred share purchase right (a "Right" or, collectively, the "Rights") for each share of Common Stock held of record on the close of business on April 2, 1999. Under certain circumstances, a Right may be exercised to purchase one ten-thousandth of a share of Series A Junior Participating Preferred Stock (the "Preferred Stock") at an exercise price of $90.00. The Rights become exercisable upon the earlier to occur of: (i) the tenth calendar day after a person or group acquires 15% or more of the Company's outstanding Common Stock, or (ii) the tenth business day after the commencement of a tender offer for 15% or more of the Company's outstanding Common Stock. If the Rights become exercisable, each Right will entitle the holder thereof to purchase one ten-thousandth of a share of Preferred Stock. If a person or group acquires 15% or more of the outstanding Common Stock of the Company, the holder of each Right not owned by the 15% or more shareholder would be entitled to purchase for $90.00 (the exercise price of the Right) Common Stock of the Company having market value equal to $180.00. If the Company is a party to certain mergers or business combination transactions or transfers 50% or more of its assets or earning power to another party, each Right will entitle its holder to buy a number of shares of Common Stock of the acquiring or surviving company having a market value of twice the exercise price of the Rights, or $180.00. If the Rights are fully exercised, the shares issued thereby would cause a substantial dilution to the shareholders of the acquiring or surviving company. The Company may also, under certain circumstances, exchange the Rights not owned by the 15% or more shareholder at an exchange ratio of one share of Common Stock per Right. The Rights expire April 2, 2009, and may be redeemed by the Company for $.01 per Right at any time prior to the close of business on the later of: (i) the tenth calendar day after a person or group acquires 15% or more of the Company's outstanding Common Stock, or (ii) the tenth business day after the commencement of a tender offer for 15% or more of the Company's outstanding Common Stock. STOCK INCENTIVE PLANS Flowers FII has two stock incentive plans that authorize the Compensation Committee of the Board of Directors to grant to eligible employees stock options, stock appreciation rights, restricted or deferred stock awards, stock purchase rights and other stock-based awards. The Executive Stock Incentive Plan ("ESIP"), the only plan with shares available for grant, is authorized to grant to eligible employees up to 12,050,000 shares of Common Stock, through October 17, 2007. The FII Stock Option Plan expired on October 15, 1992, therefore no additional grants will be made pursuant to this Plan. Additionally, FII has a Non-Employee Directors' Equity Plan (the "Directors' Plan") pursuant to which an aggregate of 300,000 shares of Common Stock may be issued and awarded as stock options to non-employee directors. All options granted under this plan have ten year terms and vest one year from the date of grant. During fiscal 1999, fiscal 1998 and the twenty-seven week transition period ended January 3, 1998, 673,800 shares, 345,972 shares and 347,609 shares respectively, of FII's Common Stock were issued as Restricted Stock Awards ("RSAs"). Pursuant to the ESIP, these shares are held in escrow by FII and will be F-22 56 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) released to the grantee upon the grantee's satisfaction of continued employment at the same or a higher level during the restriction periods and payment of the purchase price. During fiscal 1999, special grants were made to key executives that include the attainment of specific financial goals as a condition of vesting. The restriction periods end at various dates through June 2003. The purchase price is 50% of the mean of the high and low market value of FII's Common Stock at the date of grant. The purchase price of the shares described above and shares still outstanding granted prior to fiscal 1997 ranges from $5.11 to $12.82 per share. Compensation expense for fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997 was $4.8 million, $3.8 million, $1.1 million and $1.7 million, respectively. During fiscal 1996, 358,547 shares of FII's Common Stock were issued as Equity Incentive Awards ("EIA"). Pursuant to the ESIP, these shares are held in escrow by FII and may be released ratably to the grantee upon the grantee's satisfaction of continued employment at the same or a higher level during the restriction period which ends May 20, 1999, and upon payment of the purchase price of $5.11 per share. The purchase price is 50% of the mean of the high and low market value of FII's Common Stock on the date of grant. Compensation expense for fiscal 1999, fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997 was $.2 million, $.7 million, $.3 million and $.8 million, respectively. The awards were fully exercised in fiscal 1999. During fiscal 1998, 1,128,600 shares of FII's Common Stock were granted as non-qualified stock options ("NQSOs"). Pursuant to the ESIP, the NQSOs vest at the end of four years and expire ten years after the date of grant. The optionees are required to pay the market value of the shares, determined as of the grant date, which was $21.00 during fiscal 1998. As of January 1, 2000 and January 2, 1999, there were 1,854,000 and 1,926,000 NQSOs outstanding, respectively. During fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997, the stock option activity pursuant to the ESIP is set forth below:
FOR THE 52 FOR THE 52 FOR THE 27 FOR THE 52 WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 29, 1997 ------------------ ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- ------- -------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Outstanding at beginning of year....... 1,926 $15.34 1,165 $ 7.57 1,211 $7.52 1,664 $7.11 Granted................................ 1,129 21.00 Exercised.............................. (63) 5.50 (368) 8.10 (46) $6.06 (453) $6.03 Forfeitures............................ (9) ----- ------ ------ ------ ----- ----- ----- ----- Outstanding at end of year............. 1,854 $15.65 1,926 $15.34 1,165 $7.57 1,211 $7.52 ===== ====== ===== ===== Exercisable at end of year............. 735 798 1,165 1,211 ===== ====== ===== ===== Weighted average fair value of options granted during the year.............. N/A $ 4.37 N/A N/A ===== ====== ===== =====
F-23 57 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock options outstanding and exercisable, under the ESIP, on January 1, 2000 were as follows:
WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE REMAINING CONTRACTUAL RANGE OF EXERCISE PRICES PER SHARE SHARES PRICE PER SHARE LIFE IN YEARS ---------------------------------- --------- ---------------- --------------------- Outstanding: $ 5.50 - $ 6.06................................. 262,234 $ 5.79 1.5 $ 8.45.......................................... 472,500 8.45 5.5 $21.00.......................................... 1,119,400 $21.00 8.5 --------- ------ --- $ 5.50 - $21.00................................. 1,854,134 $15.65 6.7 ========= ====== === Exercisable: $ 5.50 - $ 6.06................................. 262,234 $ 5.79 $ 8.45.......................................... 472,500 8.45 --------- ------ $ 5.50 - $ 8.45................................. 734,734 $ 7.50 ========= ======
During fiscal 1999 and fiscal 1998, and the twenty-seven week transition period ended January 3, 1998 stock option activity pursuant to the Directors' Plan is set forth below:
FOR THE 52 FOR THE 52 FOR THE 27 WEEKS ENDED WEEKS ENDED WEEKS ENDED JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Outstanding at beginning of year............ 57 $18.51 41 $17.50 Granted..................................... 28 24.12 16 21.00 41 $17.50 Exercised................................... Forfeitures................................. ----- ----- ----- Outstanding at end of year.................. 85 $20.35 57 $18.51 41 $17.50 ===== ===== ===== Exercisable at end of year.................. 57 41 0 ===== ===== ===== Weighted average fair value of options granted during the year................... $7.60 $4.37 $4.36 ===== ===== =====
As of January 1, 2000, 57,376 of the options, under the Directors' Plan are exercisable with a weighted average price of $18.51. The weighted average remaining contractual life of options outstanding is approximately eight and one half years. The exercise price of the options range from $17.50 to $24.12. Keebler Keebler's 1996 Stock Option Plan has 9,673,594 shares of Keebler's common stock authorized for future grant. All options granted have ten year terms and, due to acceleration resulting from the achievement of certain performance measures, vest by 2001. Under this plan, at January 1, 2000, options for 5,919,629 shares were outstanding, of which 4,493,801 are exercisable with a weighted average price of $1.96. Keebler's 1998 Omnibus Stock Incentive Plan has 6,500,000 shares of Keebler's common stock authorized for future grant. All options granted generally have ten year terms and vest at the end of five years. Vesting can be accelerated if certain stock price performance measures are met. Under this plan, at January 1, 2000, options for 2,817,602 shares were outstanding, of which 899,699 are exercisable with a weighted average exercise price of $25.74. Exercise prices as of January 1, 2000, for options outstanding under the 1996 Stock Option Plan range from $1.74 to $5.23. The weighted average remaining contractual life of these options is approximately six and one-half years. Exercise prices as of January 1, 2000, for options outstanding under the 1998 Omnibus Stock F-24 58 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Incentive Plan range from $24.00 to $39.25. The weighted average remaining contractual life of these options is approximately five years. Keebler's Non-Employee Director Stock Plan has 300,000 shares of Keebler's Common Stock authorized for future grant. All options granted have ten year terms and vest automatically upon grant. Under this plan, at January 1, 2000, options for 30,000 shares were outstanding and exercisable. The exercise price of these options range from $27.44 to $30.75. The weighted average remaining contractual life of these options is approximately eight and one half years. As the Company applies APB 25 in accounting for its plans, and the option price is the market price at date of grant, no compensation expense has been recognized for options granted under the Company's plans. Had compensation expense for the options and Restricted Stock Awards under the Company's plans, inclusive of Keebler's options, been determined based on the fair value at the grant dates for the awards consistent with the methodology prescribed under SFAS No. 123 -- "Accounting for Stock-Based Compensation," the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
FOR THE 52 FOR THE 52 FOR THE 27 FOR THE 52 WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 28, 1997 --------------- --------------- --------------- ------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) As Reported: Net Income............................. $7,294 $41,899 $23,560 $62,324 Net Income Per Common Share: Basic............................... .07 .43 .27 .71 Diluted............................. .07 .43 .27 .71 Pro Forma: Net Income............................. $5,676 $38,989 $22,735 $61,716 Net Income Per Common Share: Basic............................... .06 .40 .26 .70 Diluted............................. .06 .40 .26 .70
For awards granted the following weighted average assumptions were used to determine fair value using the Black-Scholes option-pricing model:
FOR THE 52 WEEKS FOR THE 52 WEEKS FOR THE 27 ENDED ENDED WEEKS ENDED JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, ---------------- ---------------- 1998 FII KEEBLER FII KEEBLER FII ----- ------- ----- ------- ----------- Dividend Yield............................... 0.00% 0.00% 3.64% 0.00% 0.00% Expected Volatility.......................... 23.70% 24.80% 23.90% 27.20% 26.80% Risk-free Interest Rate...................... 5.80% 5.76% 5.60% 5.04% 6.31% Expected Option Life (Years)................. 4 5 5 5 4
NOTE 9. RETIREMENT PLANS DEFINED BENEFIT PLANS Flowers Flowers has a trusteed, noncontributory defined benefit pension plan covering certain employees. The benefits are based on years of service and the employee's career earnings. The plan is funded at amounts deductible for income tax purposes but not less than the minimum funding required by the Employee Retirement Income Security Act of 1974 ("ERISA"). As of January 1, 2000 and January 2, 1999, the assets F-25 59 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the plan include certificates of deposit, marketable equity securities, mutual funds, corporate and government debt securities and annuity contracts. The marketable equity securities include 916,250 and 506,250 shares of FII's Common Stock, respectively, with a fair value of approximately $14.6 million and $12.1 million at January 1, 2000 and January 2, 1999, respectively. In addition to the pension plan, Flowers also has an unfunded supplemental retirement plan for certain highly compensated employees. Benefits provided by this supplemental plan are reduced by benefits provided under the defined benefit pension plan. Keebler Keebler has a trusteed, noncontributory defined benefit pension plan covering certain employees. Benefits provided under the plan are primarily based on years of service and the employee's final level of compensation. Assets held by the pension plan consist primarily of common stocks, government securities, bonds and a real estate investment of $3.1 million in a distribution center which is under an operating lease to Keebler. Keebler contributes annually not less than the ERISA minimum funding requirements. Effective December 31, 1998, the pension plans of President were merged with Keebler's pension plan. In addition to the pension plan, Keebler also maintains an unfunded supplemental retirement plan for certain highly compensated former executives and an unfunded plan for certain highly compensated current and former executives ("the excess retirement plan"). Benefits provided are based on years of service. The net periodic pension cost for the Flowers plans that are not fully funded and Keebler's unfunded supplemental retirement plan include the following components:
FOR THE 52 FOR THE 52 FOR THE 27 FOR THE 52 WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JANUARY 1, JANUARY 2, JANUARY 1, JUNE 28, 2000 1999 1998 1997 ----------- ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Service cost.......................... $ 8,005 $ 6,268 $ 2,846 $ 5,603 Interest cost......................... 13,166 11,904 5,207 10,311 Expected return on plan assets........ (13,844) (13,635) (5,585) (10,415) Amortization of transition assets..... (841) (841) (422) (841) Prior service cost.................... 59 59 30 84 Recognized net actuarial (gain) loss................................ 448 (177) 35 118 -------- -------- ------- -------- Net periodic pension cost............. $ 6,993 $ 3,578 $ 2,111 $ 4,860 ======== ======== ======= ========
F-26 60 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The funding status and the amounts recognized in the consolidated balance sheet for the Flowers plans that are not fully funded and Keebler's unfunded supplemental retirement plan are as follows:
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year............... $(191,649) $(146,937) Acquisitions.......................................... (10,303) Service cost.......................................... (8,005) (6,268) Interest cost......................................... (13,166) (11,904) Actuarial gain (loss)................................. 24,650 (23,964) Benefits paid......................................... 8,040 7,727 --------- --------- Benefit obligation at end of year..................... (180,130) (191,649) --------- --------- Change in plan assets: Fair value of plan assets at beginning of year........ 146,793 154,828 Actual return on plan assets.......................... 14,294 (2,199) Employer contribution................................. 252 1,141 Benefits paid......................................... (7,400) (6,977) --------- --------- Fair value of plan assets at end of year.............. 153,939 146,793 --------- --------- Funded status......................................... (26,191) (44,856) Unrecognized net actuarial (gain) loss................ (2,934) 22,749 Contribution between measurement date and fiscal year end................................................ 183 185 Unrecognized prior service cost....................... 498 557 Unrecognized net transition asset..................... (2,472) (3,313) --------- --------- Net amount recognized at end of year.................. $ (30,916) $ (24,678) ========= =========
The net periodic pension cost for Keebler's unfunded excess retirement plan includes the following components:
FOR THE 52 WEEKS ENDED ----------------------- JANUARY 1, JANUARY 2, 2000 1999 ---------- ---------- (AMOUNTS IN THOUSANDS) Service cost................................................ $431 $173 Interest cost............................................... 155 78 Recognized net actuarial (gain) loss........................ 8 (47) ---- ---- Net periodic pension cost................................... $594 $204 ==== ====
F-27 61 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The unfunded status of Keebler's excess retirement plan and the amounts recognized in the consolidated balance sheet are as follows:
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year................. $(2,395) $(1,085) Service cost............................................ (431) (173) Interest cost........................................... (155) (78) Actuarial (loss)........................................ (158) (1,076) Benefits and expenses paid.............................. 31 17 ------- ------- Benefit obligation at end of year....................... (3,108) (2,395) Fair value of plan assets ------- ------- Funded status........................................... (3,108) (2,395) Unrecognized net actuarial loss......................... 501 351 Benefit paid subsequent to measurement date............. 17 ------- ------- Net amount recognized at end of year.................... $(2,590) $(2,044) ======= =======
The net amount recognized at the end of the year includes $21.5 million which is recorded in other accrued liabilities (Note 3) and the remainder is included in other long-term liabilities. Assumptions used in accounting for the Company's plans that are not fully funded at each of the respective period-ends are as follows:
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ---------- -------- Weighted average assumptions: Measurement date................... 9/30/99 9/30/98 9/30/97 3/31/97 Discount rate...................... 7.50%-7.75% 6.50%-7.50% 8.00% 8.00% Expected return on plan assets..... 9.00% 9.00% 9.00% 9.00% Rate of compensation increase...... 4.50%-5.25% 4.00%-5.00% 5.50% 5.50%
The net periodic pension cost for the Company's fully funded plan includes the following components:
FOR THE 52 WEEKS ENDED --------------------------------- JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) Service cost.............................................. $ 13,364 $ 9,040 Interest cost............................................. 32,841 31,080 Expected return on plan assets............................ (41,887) (39,352) Recognized net actuarial loss............................. 43 Prior service cost........................................ 689 689 -------- -------- Net periodic pension cost................................. $ 5,050 $ 1,457 ======== ========
F-28 62 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The funded status and the amounts recognized in the consolidated balance sheet for the Company's fully funded plan is as follows:
JANUARY 1, 2000 JANUARY 2, 2000 --------------- --------------- (AMOUNTS IN THOUSANDS) Benefit obligation at beginning of year................... $(520,312) $ 0 Acquisitions............................................ (460,139) Service cost............................................ (13,364) (9,040) Interest cost........................................... (32,841) (31,080) Amendments.............................................. 0 (4,874) Actuarial gain (loss)................................... 60,261 (45,871) Curtailment gain........................................ 897 Benefits paid........................................... 30,009 30,692 --------- --------- Benefit obligation at end of year....................... (475,350) (520,312) --------- --------- Change in plan assets: Fair value of plan assets at beginning of year.......... 581,621 Acquisitions............................................ 515,290 Actual return on plan assets............................ 2,253 77,731 Employer contribution................................... 115 19,292 Benefits paid........................................... (30,009) (30,692) --------- --------- Fair value of plan assets at end of year................ 553,980 581,621 --------- --------- Funded status........................................... 78,630 61,309 Unrecognized net actuarial gain......................... (37,209) (16,538) Contribution between measurement date and fiscal year end.................................................. 115 Unrecognized prior service cost......................... 7,730 9,230 --------- --------- Net amount recognized at end of year.................... $ 49,151 $ 54,116 ========= =========
Assumptions used in accounting for the Company's fully funded plan are as follows:
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- Weighted average assumptions: Measurement date.................................... 9/30/99 9/30/98 Discount rate....................................... 7.50% 6.50% Expected return on plan assets...................... 8.70% 9.00% Rate of compensation increase....................... 4.50% 4.00%
FII is not obligated to satisfy the pension obligations of Keebler. OTHER PLANS Flowers Flowers contributes to various multiemployer, union-administered defined benefit and defined contribution pension plans. Benefits provided under the multiemployer pension plans are generally based on years of service and employee age. Expense under these plans was $.5 million for fiscal 1999, $.3 million for fiscal 1998, $.5 million for the twenty-seven week transition period ended January 3, 1998 and $.4 million for fiscal 1997. The Flowers Industries, Inc. 401(k) Retirement Savings Plan covers substantially all Flowers employees who have completed certain service requirements. Generally, the cost and contributions for employees who participate in the defined benefit pension plan is 25% of the first $400 contributed by the employee. The costs and contributions for employees who do not participate in the defined benefit pension plan is 2% of F-29 63 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) compensation and 25% of the employees' contributions, up to 6% of compensation. During fiscal 1999 and fiscal 1998, the twenty-seven week transition period ended January 3, 1998 and fiscal 1997, the total cost and contributions were $1.9 million, $1.3 million, $.6 million and $1.4 million, respectively. Keebler Contributions are also made by Keebler to a retirement program for Grand Rapids union employees. Benefits provided under the plan are based on a flat monthly amount for each year of service and are unrelated to compensation. Contributions are made based on a negotiated hourly rate. For fiscal 1999 and fiscal 1998, Keebler expensed contributions of $2.5 million and $2.3 million, respectively. Keebler contributes to various multiemployer, union-administered defined benefit and defined contribution pension plans. Benefits provided under the multiemployer pension plans are generally based on years of service and employee age. Expense under these plans was $6.8 million and $8.9 million for fiscal 1999 and fiscal 1998, respectively. NOTE 10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Flowers FII provides certain medical and life insurance benefits for eligible retired employees. The medical plan covers eligible retirees under the active medical and dental plans. The plan incorporates an up front deductible, coinsurance payments and employee contributions at COBRA premium levels. Eligibility and maximum period of coverage is based on age and length of service. The life insurance plan offers coverage to a closed group of retirees. Keebler Keebler provides certain medical and life insurance benefits for eligible retired employees of Keebler. The medical plan, which covers nonunion and certain union employees with ten or more years of service, is a comprehensive indemnity-type plan. The plan incorporates an up-front deductible, coinsurance payments and employee contributions which are based on length of service. The life insurance plan offers a small amount of coverage versus the amount the employees had while employed. Keebler does not fund the plan. Additionally, Keebler provides postemployment medical benefits to employees on long-term disability. The plan is a comprehensive indemnity-type plan which covers nonunion employees on long-term disability. There is no length of service requirement. The plan incorporates coinsurance payments and deductibles. Keebler does not pre-fund the plan. The postemployment obligation included in the consolidated balance sheet at January 1, 2000 and January 2, 1999 was $5.5 million and $4.7 million, respectively. The plan was amended in fiscal 1999 for a change in the calculation of retiree contribution rates that resulted in an $8.5 million reduction to the benefit obligation and a corresponding decrease in unrecognized prior service cost. The net periodic postretirement benefit expense for the Company includes the following components:
52 WEEKS ENDED --------------------------------- JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) Service cost............................................. $2,348 $2,045 Interest cost............................................ 3,722 3,961 Amortization of prior service cost....................... (115) (115) Prior service cost....................................... 389 Amortization of net gain................................. (375) ------ ------ Net periodic postretirement benefit cost................. $5,969 $5,891 ====== ======
F-30 64 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The unfunded status and the amounts recognized in the balance sheet for the Company's postretirement obligation are as follows:
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- (AMOUNTS IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year................. $(60,738) Acquisitions............................................ $(58,288) Service cost............................................ (2,348) (2,045) Interest cost........................................... (3,722) (3,961) Amendments.............................................. 8,531 Participant contributions............................... 38 Actuarial gain.......................................... (21) (828) Curtailment............................................. 108 Benefits paid........................................... 5,558 4,384 -------- -------- Benefit obligation at end of year....................... $(52,594) $(60,738) Unrecognized actuarial gain.......................... (8,166) (7,856) Unrecognized prior service cost...................... (4,817) 3,895 Benefit payments subsequent to measurement date...... 880 978 -------- -------- Accrued benefit obligation........................... $(64,697) $(63,721) ======== ========
Assumptions used in accounting for the Company's postretirement benefit plans at each of the respective period ends are as follows:
JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- Weighted average assumptions: Measurement date..................................... 9/30/99 9/30/98 Discount rate........................................ 6.75%-7.50% 6.50% Rate of increase..................................... 5.50%-8.00% 6.00%
A one percent increase in the trend rate for health care costs would have increased the accumulated benefit obligation as of January 1, 2000 by $2.3 million and the net periodic benefit cost by $0.4 million. A one percent decrease in the trend rate for health care costs would have decreased the accumulated benefit obligation and net periodic benefit cost by $2.1 million and $0.3, as of January 1, 2000 and January 2, 1999, respectively. FII is not obligated to satisfy the postretirement and postemployment benefits of Keebler. F-31 65 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11. INCOME TAXES The Company's provision for income taxes consists of the following:
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 ----------------------- WEEKS ENDED WEEKS ENDED JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ----------- ----------- (AMOUNTS IN THOUSANDS) Current Taxes: Federal................................. $ 60,139 $72,121 $5,686 $26,910 State................................... 9,203 6,010 2,395 5,557 -------- ------- ------ ------- 69,342 78,131 8,081 32,467 -------- ------- ------ ------- Deferred Taxes: Federal................................. (11,228) (3,346) 2,395 1,587 State................................... (1,854) (394) (844) (863) -------- ------- ------ ------- (13,082) (3,740) 1,551 724 -------- ------- ------ ------- Provision for income taxes................ $ 56,260 $74,391 $9,632 $33,191 ======== ======= ====== =======
Deferred tax liabilities (assets) are comprised of the following:
JANUARY 1, JANUARY 2, 2000 1999 ---------- ---------- (AMOUNTS IN THOUSANDS) Depreciation................................................ $132,792 $173,610 Trademarks, trade names and intangibles..................... 64,887 49,348 Prepaid pension............................................. 13,327 14,283 Inventory valuation......................................... 559 6,779 Other....................................................... 26,053 13,816 -------- -------- Gross deferred tax liabilities.................... 237,618 257,836 -------- -------- Workers compensation........................................ (9,070) (19,891) Postretirement/postemployment benefits...................... (26,778) (26,171) Employee benefits........................................... (34,667) (33,806) Facility closing costs and severance........................ (37,342) (56,805) Loss carryforwards.......................................... (21,910) (84,447) Other....................................................... (19,891) (17,109) -------- -------- Gross deferred tax assets......................... (149,658) (238,229) Deferred tax assets valuation allowance..................... 3,012 86,310 -------- -------- $ 90,972 $105,917 ======== ========
The net change in the valuation allowance for deferred tax assets was a decrease of $83.3 million, related to net operating loss carryforwards. The decrease was primarily attributable to the utilization of the Keebler pre-acquisition net operating loss carryforwards as a result of the resolution of the uncertainty regarding the availability of these losses. F-32 66 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes differs from the amount computed by applying the U.S. federal income tax rate (35%) because of the effect of the following items:
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 ----------------------- WEEKS ENDED WEEKS ENDED JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ----------- ----------- (AMOUNTS IN THOUSANDS) Tax at U.S. federal income tax rate........ $36,090 $57,283 $8,757 $30,728 State income taxes, net of U.S. federal income tax benefit....................... 6,923 5,298 1,390 3,837 Benefit of operating loss carryforwards.... (522) (525) (1,210) Intangible amortization.................... 9,150 6,910 174 122 Other...................................... 4,619 4,900 (164) (286) ------- ------- ------ ------- Provision for income taxes....... $56,260 $74,391 $9,632 $33,191 ======= ======= ====== =======
The amount of federal net operating loss carryforwards generated by certain subsidiaries of FII prior to their acquisition is $2.8 million with expiration dates through the fiscal year 2009. The use of pre-acquisition net operating losses is subject to limitations imposed by the Internal Revenue Code. FII does not anticipate that these limitations will affect utilization of the carryforwards prior to their expiration. Various subsidiaries have state net operating loss carryforwards of $156.0 million with expiration dates through fiscal 2014. In fiscal 1998, Keebler's net operating loss carryforwards were approximately $207.1 million. All net operating loss carryforwards were used in fiscal 1999 to offset gains incurred through the Section 338 income tax election, which adjusted the tax basis of all assets and liabilities that resulted from INFLO's acquisition of Keebler. Keebler's intangible asset resulting from this transaction was reduced by a corresponding $11.8 million as a result of resolving the pre-acquisition tax basis of acquired assets and liabilities. NOTE 12. SEGMENT REPORTING In fiscal 1998, the Company adopted SFAS No. 131 -- "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). This statement establishes new standards for the manner in which companies report operating segment information, as well as disclosures about products and services and major customers. The Company has three reportable segments: Flowers Bakeries, Mrs. Smith's Bakeries and Keebler. Flowers Bakeries produces fresh breads and rolls, Mrs. Smith's Bakeries produces fresh and frozen baked desserts, snacks, breads and rolls, and Keebler produces a full line of cookies and crackers. The segments are managed as strategic business units due to their distinct production processes and marketing strategies. The accounting policies of the segments are substantially the same as those described in Note 1. The Company evaluates each segment's performance based on income or loss before interest and income taxes, F-33 67 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) excluding corporate and other unallocated expenses and non-recurring charges. Information regarding the operations in these reportable segments is as follows:
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 ----------------------- WEEKS ENDED WEEKS ENDED JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ----------- ----------- (AMOUNTS IN THOUSANDS) Sales: Flowers Bakeries............................. $ 961,699 $ 939,119 $457,803 $ 901,045 Mrs. Smith's Bakeries........................ 673,133 672,821 369,262 615,637 Keebler...................................... 2,667,771 2,226,480 Eliminations (1)............................. (66,593) (73,053) (42,968) (78,969) ---------- ---------- -------- ---------- $4,236,010 $3,765,367 $784,097 $1,437,713 ========== ========== ======== ========== Depreciation and Amortization: Flowers Bakeries............................. $ 32,865 $ 33,487 $ 16,505 $ 28,533 Mrs. Smith's Bakeries........................ 20,127 18,676 9,427 15,830 Keebler...................................... 84,125 69,125 Other........................................ 7,502 7,477 998 1,607 ---------- ---------- -------- ---------- $ 144,619 $ 128,765 $ 26,930 $ 45,970 ========== ========== ======== ========== Non-Recurring Charge: Flowers Bakeries............................. $ (1,120) $ 32,161 Mrs. Smith's Bakeries........................ (4,874) 32,300 Keebler...................................... 66,349 3,852 ---------- ---------- $ 60,355 $ 68,313 ========== ========== Income (Loss) Before Interest and Taxes: Flowers Bakeries............................. $ 66,995 $ 75,779 $ 31,388 $ 46,189 Mrs. Smith's Bakeries........................ (53,256) 45,855 20,153 40,186 Keebler...................................... 263,903 199,891 Unallocated General Expenses................. (33,308) (20,823) (14,726) (16,716) Non-Recurring Charge......................... (60,355) (68,313) ---------- ---------- -------- ---------- $ 183,979 $ 232,389 $ 36,815 $ 69,659 ========== ========== ======== ========== Interest Expense, Net.......................... $ 80,865 $ 68,725 $ 11,796 $ 25,109 ========== ========== ======== ========== Income Before Income Taxes, Investment in Unconsolidated Affiliate, Minority Interest, Extraordinary Loss and Cumulative Effect of Changes in Accounting Principles............. $ 103,114 $ 163,664 $ 25,019 $ 87,794 ========== ========== ======== ========== Capital Expenditures: Flowers Bakeries............................. $ 73,553 $ 38,573 $ 22,710 $ 48,334 Mrs. Smith's Bakeries (2).................... 127,340 34,711 9,817 28,577 Keebler...................................... 100,685 66,798 Other........................................ 12,435 193 330 599 ---------- ---------- -------- ---------- $ 314,013 $ 140,275 $ 32,857 $ 77,510 ========== ========== ======== ==========
F-34 68 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 ----------------------- WEEKS ENDED WEEKS ENDED JANUARY 1, JANUARY 2, JANUARY 3, JUNE 28, 2000 1999 1998 1997 ---------- ---------- ----------- ----------- (AMOUNTS IN THOUSANDS) Assets: Flowers Bakeries............................. $ 491,396 $ 458,966 $401,787 $ 408,815 Mrs. Smith's Bakeries........................ 506,586 459,652 366,602 361,575 Keebler...................................... 1,528,183 1,655,780 Other........................................ 374,313 286,502 130,491 127,797 ---------- ---------- -------- ---------- $2,900,478 $2,860,900 $898,880 $ 898,187 ========== ========== ======== ==========
- --------------- (1) Primarily represents elimination of intersegment sales from Mrs. Smith's Bakeries to Flowers Bakeries which are transferred at standard costs. (2) Includes noncash capital leases of $47.4 million. NOTE 13. UNAUDITED QUARTERLY FINANCIAL INFORMATION Results of operations for each of the four quarters in the respective fiscal years are as follows (each quarter represents a period of twelve weeks, except the first quarter, which includes sixteen weeks):
QUARTER FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER - ------- ------------- -------------- ------------- -------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales............................... 1999 $1,301,695 $940,334 $983,223 $1,010,759 1998 1,075,037 833,059 859,517 997,754 Gross margin........................ 1999 693,750 496,406 493,900 549,998 1998 588,747 458,007 477,311 538,721 Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles........................ 1999 24,836 (27,735) (9,103) 19,296 1998 15,028 18,467 25,555 (13,082) Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest..... 1999 -- -- -- -- 1998 -- -- (938) -- Cumulative effect of changes in accounting principles, net of tax benefit........................... 1999 -- -- -- -- 1998 ( 3,131)(1) -- -- -- Net income (loss)................... 1999 24,836 (27,735) (9,103) 19,296 1998 11,897 18,467 24,617 (13,082) Basic net income (loss) per common share............................. 1999 .25 (.28) (.09) .19 1998 .13 .19 .25 (.13) Diluted net income (loss) per common share............................. 1999 .25 (.28) (.09) .19 1998 .13 .19 .25 (.13)
- --------------- (1) During the fourth quarter of fiscal 1998, the Company adopted SOP 98-5. The cumulative effect of this change in accounting principles was retroactive to the first quarter of fiscal 1998 and does not correspond with the amounts reported in the Company's first quarter Form 10-Q for the sixteen weeks ended April 25, 1998. F-35 69 FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14. UNAUDITED OPERATING RESULTS The unaudited condensed consolidated results of operations of Flowers for the fifty-two weeks ended January 3, 1998 and the twenty-seven weeks ended January 4, 1997 are presented below. In the opinion of management, the accompanying unaudited condensed consolidated results of operations contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the results of operations:
FOR THE 52 FOR THE 27 WEEKS ENDED WEEKS ENDED JANUARY 3, 1998 JANUARY 4, 1997 --------------- --------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales................................................. $1,432,200 $774,767 Income before income taxes and cumulative effect of changes in accounting principles.................... 62,478 50,335 Income tax expense.................................... 23,796 19,027 Income (loss) from investment in unconsolidated affiliate........................................... 24,813 (195) Income before cumulative effect of changes in accounting principles............................... 63,495 31,113 Cumulative effect of changes in accounting principles.......................................... (9,888) Net income............................................ 53,607 31,113 Net Income per common share: Net income per share before cumulative effect -- basic............................................ .72 .35 Net income per share before cumulative effect -- diluted.......................................... .72 .35 Net income per share -- basic....................... .61 .35 Net income per share -- diluted..................... .61 .35
NOTE 15. SUBSEQUENT EVENTS In January 2000, Flowers Bakeries acquired The Kroger Co.'s bakery in Memphis, Tennessee ("Kroger"). The transaction was accounted for as a purchase. The Memphis Bakery has two production lines, which produce breads, buns and rolls for Kroger stores in Tennessee, northern Arkansas and southern Missouri. On March 6, 2000, Keebler acquired Austin Quality Foods, Inc. ("Austin") in a business combination that was accounted for as a purchase. Austin is a leading producer and marketer of single serve baked snacks, including cracker sandwiches and bite-sized crackers and cookies. The Austin and Kroger transactions, valued collectively at approximately $275 million, were financed with borrowings under the existing credit facilities of Keebler and Flowers, respectively. On March 30, 2000 FII amended the $500 million Syndicated Loan Facility. The amendment adjusted the applicable interest margin to 2.0 % and the commitment fee to .05%. In addition, certain financial covenants were amended while others were added. The covenants in effect currently include, among others, (1) a maximum leverage ratio, (2) a minimum fixed charge coverage ratio, (3) minimum adjusted EBITDA, as defined, (4) a borrowing base covenant requiring that FII's total indebtedness not exceed specified percentages of the book value of accounts receivable, inventory, property, plant and equipment and the fair value of FII's interest in Keebler, (5) a prohibition on acquisitions, (6) a negative pledge on all assets of the Company, (7) a limit on Flowers capital expenditures, and (8) limits on cash dividends unless the Company would have, following payment thereof, at least $15 million availability under the unused commitments and borrowing base tests of the facility. As of January 1, 2000 and the date of the amendment the Company was in compliance with all covenants. Further, the amount of retained earnings available for payment of dividends at January 1, 2000 under the amendment was $125.0 million. F-36 70 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Flowers Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated February 3, 2000 and March 30, 2000 of this Report on Form 10-K also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia March 30, 2000 F-37 71 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Those valuation and qualifying accounts which are deducted in the balance sheet from the assets to which they apply:
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - -------------- ---------- ---------- ---------- ---------- --------- (AMOUNTS IN THOUSANDS) YEAR ENDED JANUARY 1, 2000 Discounts and doubtful accounts.......... $ 7,782 $82,755 $ -- $(68,556) $21,981 Deferred taxes........................... 86,310 -- -- (83,298)(6) 3,012 Inventory reserves....................... 9,614 10,338 -- (6,965) 12,987 ------- ------- ------- -------- ------- YEAR ENDED JANUARY 2, 1999 Discounts and doubtful accounts.......... $ -- $20,148 $ 7,844(1) $ 20,210(2) $ 7,782 Deferred taxes........................... 2,119 -- 84,350(3) (159) 86,310 Inventory reserves....................... 501 7,484 8,589(4) (6,960)(5) 9,614 ------- ------- ------- -------- ------- TWENTY-SEVEN WEEKS ENDED JANUARY 3, 1998 Deferred taxes........................... $ 2,240 $ -- $ -- $ (121) $ 2,119 Inventory reserves....................... -- 501 -- -- 501 ------- ------- ------- -------- ------- YEAR ENDED JUNE 28, 1997 Deferred taxes........................... $ 2,774 $ -- $ -- $ (534) $ 2,240 ------- ------- ------- -------- -------
- --------------- (1) $4,965 and $2,879 acquired in the Keebler Acquisition and President acquisition by Keebler, respectively. (2) Primarily charges against reserves, net of recoveries. (3) Amount acquired in the Keebler Acquisition. (4) $6,782 and $1,807 acquired in the Keebler Acquisition and President acquisition by Keebler, respectively. (5) Inventory write-offs, net. (6) Primarily utilization of Keebler pre-acquisition operating loss carryforwards as a result of the resolution of the uncertainty regarding the availability of these losses. F-38 EX-10.3 2 401(K) RETIREMENT SAVINGS PLAN 1 EXHIBIT 10.3 FLOWERS INDUSTRIES, INC. 401(k) RETIREMENT SAVINGS PLAN AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1997 2 FLOWERS INDUSTRIES, INC. 401(k) RETIREMENT SAVINGS PLAN TABLE OF CONTENTS
Page ---- PREAMBLE .........................................................................................................1 ARTICLE I DEFINITIONS.......................................................................................................2 1.1 Account.........................................................................................2 1.2 ACP Contributions...............................................................................2 1.3 Actual Deferral Percentage......................................................................2 1.4 ADP Contributions...............................................................................2 1.5 Allocation Participant..........................................................................2 1.6 Annual Additions................................................................................2 1.7 Average Actual Deferral Percentage..............................................................2 1.8 Average Contribution Percentage.................................................................2 1.9 Beneficiary.....................................................................................2 1.10 Benefit Commencement Date.......................................................................2 1.11 Code............................................................................................3 1.12 Company.........................................................................................3 1.13 Company Basic Contributions.....................................................................3 1.14 Company Basic Contributions Account.............................................................3 1.15 Compensation....................................................................................3 1.16 Contribution Percentage.........................................................................5 1.17 Controlled Group................................................................................5 1.18 Defined Benefit Fraction........................................................................5 1.19 Defined Contribution Dollar Limitation..........................................................5 1.20 Defined Contribution Fraction...................................................................5 1.21 Determination Date..............................................................................5 1.22 Disabled........................................................................................5 1.23 Effective Date..................................................................................5 1.24 Election........................................................................................5 1.25 Election Period.................................................................................5 1.26 Elective Contributions..........................................................................5 1.27 Elective Contributions Account..................................................................6 1.28 Elective Deferrals..............................................................................6 1.29 Eligibility Computation Period..................................................................6 1.30 Eligible Employee...............................................................................7 1.31 Eligible Highly Compensated Employee............................................................7 1.32 Employee........................................................................................7 1.33 Employer........................................................................................7 1.34 Employment Commencement Date....................................................................7 1.35 Entry Date......................................................................................7
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Page ---- 1.36 ERISA...........................................................................................7 1.37 Excess Amount...................................................................................8 1.38 Excess Deferrals................................................................................8 1.39 Forfeitable Account.............................................................................8 1.40 Highest Average Compensation....................................................................8 1.41 Highly Compensated Employee.....................................................................8 1.42 Highly Compensated Participant..................................................................9 1.43 Hours of Service................................................................................9 1.44 Key Employee...................................................................................11 1.45 Leased Employee................................................................................11 1.46 Limitation Year................................................................................12 1.47 Matching Elective Contributions................................................................12 1.48 Matching Elective Contributions Account........................................................12 1.49 Nonforfeitable Accounts........................................................................12 1.50 Maximum Permissible Amount.....................................................................12 1.51 Normal Retirement Age..........................................................................12 1.52 Normal Retirement Date.........................................................................12 1.53 One-Year Break in Service (or Break in Service)................................................12 1.54 Participant....................................................................................13 1.55 Permissive Aggregation Group...................................................................13 1.56 Plan...........................................................................................13 1.57 Plan Administrator.............................................................................13 1.58 Plan Year......................................................................................13 1.59 Present Value..................................................................................13 1.60 Projected Annual Benefit.......................................................................13 1.61 Qualified Matching Contributions...............................................................13 1.62 Qualified Matching Contributions Account.......................................................13 1.63 Qualified Nonelective Contributions............................................................13 1.64 Qualified Nonelective Contributions Account....................................................13 1.65 Qualified Spousal Waiver.......................................................................13 1.66 Required Aggregation Group.....................................................................14 1.67 Required Beginning Date........................................................................14 1.68 Rollover Contributions.........................................................................14 1.69 Rollover Contributions Account.................................................................14 1.70 Self-Employed Individual.......................................................................14 1.71 Spouse.........................................................................................14 1.72 Surviving Spouse...............................................................................14 1.73 Top-Heavy Plan.................................................................................14 1.74 Top-Heavy Ratio................................................................................14 1.75 Trust..........................................................................................14 1.76 Trust Agreement................................................................................14 1.77 Trust Fund.....................................................................................15
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Page ---- 1.78 Trustee........................................................................................15 1.79 Valuation Date.................................................................................15 1.80 Vesting Computation Period.....................................................................15 1.81 Year of Eligibility Service....................................................................15 1.82 Year of Vesting Service........................................................................15 ARTICLE II ELIGIBILITY FOR PARTICIPATION....................................................................................17 2.1 Initial Attainment of Participation Status.....................................................17 2.2 Reemployment of Former Employees...............................................................18 2.3 Reemployment of Former Participants............................................................18 2.4 Transfers to/from Eligible Class...............................................................18 2.5 Family and Medical Leave Act...................................................................19 ARTICLE III CONTRIBUTIONS AND ALLOCATIONS....................................................................................20 3.1 Employer Contributions.........................................................................20 3.2 Employee Contributions.........................................................................22 3.3 Time of Payment of Contributions...............................................................23 3.4 Return of Contributions........................................................................23 3.5 Provisions Regarding Elective Contributions....................................................24 3.6 Limitation of Elective Deferrals...............................................................26 3.7 Limitation of Employee and Employer Matching Contributions.....................................28 3.8 Corrections Required by Discrimination Tests...................................................30 3.9 Multiple Use of Alternative Limitation.........................................................33 3.10 Discretionary Cutbacks to Satisfy Discrimination Tests.........................................35 3.11 401(k)/401(m) Testing Provision................................................................35 ARTICLE IV LIMITATION ON ALLOCATIONS........................................................................................36 4.1 General Rules..................................................................................36 4.2 Applicable Definitions.........................................................................38 4.3 Adjustments for Top Heavy Plan.................................................................42 ARTICLE V VESTING IN ACCOUNTS..............................................................................................43 5.1 Vesting of Nonforfeitable Accounts.............................................................43 5.2 Vesting of Forfeitable Account.................................................................43
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Page ---- 5.3 Forfeitures....................................................................................45 5.4 Reemployed Former Employees....................................................................45 5.5 Years of Vesting Service Disregarded...........................................................46 5.6 Vesting Upon Termination.......................................................................46 5.7 Family and Medical Leave Act...................................................................46 ARTICLE VI ACCOUNTS AND INVESTMENTS.........................................................................................47 6.1 Separate Accounts..............................................................................47 6.2 Investment of Trust Fund.......................................................................47 6.3 Trustee's Reliance.............................................................................48 ARTICLE VII ALLOCATION OF EARNINGS AND LOSSES TO ACCOUNTS OF PARTICIPANTS..................................................................................................50 7.1 Allocations of Trust Fund Earnings and Losses..................................................50 7.2 Allocations Regarding Specific Investments.....................................................50 ARTICLE VIII PAYMENT OF BENEFITS..............................................................................................51 8.1 Time of Payment of Benefits....................................................................51 8.2 Benefits Upon Death............................................................................52 8.3 Form of Payment of Benefits....................................................................54 8.4 Valuation of Accounts for Payments.............................................................54 8.5 Forfeitures....................................................................................54 8.6 Benefit Payment Commencement...................................................................55 8.7 Notice and Consent Requirements................................................................56 8.8 Restrictions on Elective Contribution Distributions............................................57 8.9 Payments to Alternate Payees...................................................................58 8.10 Hardship Distributions of Elective Contributions...............................................58 8.11 Loan of Account Balances to Participants.......................................................59 8.12 Rollover Distribution Election.................................................................64 8.13 Provision Pursuant to Code Section 401(a)(9)...................................................66 ARTICLE IX THE TRUST FUND AND THE TRUSTEE...................................................................................68 9.1 Existence of Trust.............................................................................68 9.2 Exclusive Benefit Rule.........................................................................68
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Page ---- 9.3 Removal or Resignation of Trustee..............................................................68 9.4 Powers of Trustee..............................................................................68 9.5 Integration of Trust Agreement.................................................................68 9.6 Records and Accounts...........................................................................68 9.7 Annual Reports.................................................................................69 ARTICLE X ADMINISTRATION...................................................................................................70 10.1 Allocation of Responsibility...................................................................70 10.2 Administrative Expenses........................................................................70 10.3 Plan Administrator Powers and Duties...........................................................70 10.4 Records and Reports............................................................................70 10.5 Reporting and Disclosure.......................................................................70 10.6 Named Fiduciary................................................................................70 10.7 Administrator..................................................................................70 10.8 Interpretation of the Plan and Findings of Facts...............................................71 10.9 Bonding, Insurance and Indemnity...............................................................71 ARTICLE XI AMENDMENT, TERMINATION, MERGER, CONSOLIDATION AND ADOPTION.....................................................................................................73 11.1 Permanency of Plan.............................................................................73 11.2 Right to Amend Plan............................................................................73 11.3 Right to Terminate Plan........................................................................74 11.4 Termination of Participation in Plan by Employer other than Company............................75 11.5 Merger, Consolidation, or Transfer of Assets...................................................75 11.6 Adoption of Plan by Controlled Group Members...................................................76 ARTICLE XII GENERAL PROVISIONS...............................................................................................78 12.1 Participant's Rights to Employment, Etc........................................................78 12.2 No Guarantee of Interests......................................................................78 12.3 Standard of Conduct............................................................................78 12.4 Allocation of Duties...........................................................................78 12.5 Claims Procedure...............................................................................79 12.6 Nonalienation or Assignment; QDRO's............................................................80 12.7 Plan Continuance Voluntary.....................................................................82 12.8 Payments to Minors and Others..................................................................82 12.9 Location of Payee; Unclaimed Benefits..........................................................82
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Page ---- 12.10 Governing Law..................................................................................82 12.11 Correction of Participants' Accounts...........................................................82 12.12 Action of Employer and Plan Administrator......................................................83 12.13 Employer Records...............................................................................83 12.14 Gender and Number..............................................................................83 12.15 Headings.......................................................................................83 12.16 Liability Limited..............................................................................83 12.17 Prohibited Discrimination......................................................................83 12.18 Legal References...............................................................................83 12.19 Military Service...............................................................................83 12.20 Electronic Means of Communication..............................................................83 12.21 Plan Conversions...............................................................................84 ARTICLE XIII SPECIAL RULES APPLICABLE TO TOP HEAVY PLAN YEARS.................................................................85 13.1 Top-Heavy Provisions...........................................................................85 13.2 Top-Heavy Special Definitions..................................................................86 APPENDIX I SPECIAL PROVISIONS RELATING TO ANNUITY PAYMENTS..................................................................90 1.1 Forms of Benefit for Certain Accounts..........................................................90 1.2 Annuities......................................................................................91 1.3 Death On or After Benefit Commencement Date....................................................91 1.4 Valuation of Accounts for Payments.............................................................91 1.5 Definitions....................................................................................92 APPENDIX II SPECIAL PROVISIONS REGARDING MERGER OF THE MRS. BOEHME'S HOLSUM BAKERY, INC. 401(k) RETIREMENT PLAN WITH AND INTO THE PLAN......................................................................................93 2.1 General Provisions.............................................................................93 2.2 Separate Accounting............................................................................93 2.3 Transfer of Plan Assets........................................................................93 2.4 Conditions for Merger and Transfer.............................................................93 2.5 Forms of Benefits for Boehme's Accounts........................................................94 2.6 Benefits Upon Death............................................................................95 2.7 Vesting........................................................................................95 2.8 In-Service Withdrawals.........................................................................95 2.9 Hours of Service...............................................................................96
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Page ---- APPENDIX III SPECIAL PROVISIONS REGARDING MERGER OF THE HOLSUM BAKING COMPANY RETIREMENT PLAN WITH AND INTO THE PLAN...........................................................................................97 3.1 General Provisions.............................................................................97 3.2 Separate Accounting............................................................................97 3.3 Transfer of Plan Assets........................................................................97 3.4 Conditions for Merger and Transfer.............................................................98 3.5 Additional Forms of Benefit for Holsum Accounts................................................98 3.6 Vesting........................................................................................98 3.7 In-Service Withdrawals.........................................................................98 3.8 Hours of Service...............................................................................99 APPENDIX IV SPECIAL PROVISIONS REGARDING MERGER OF THE SHIPLEY BAKING COMPANY 401(k) RETIREMENT PLAN AND TRUST WITH AND INTO THE PLAN................................................................................100 4.1 General Provisions............................................................................100 4.2 Separate Accounting...........................................................................100 4.3 Transfer of Plan Assets.......................................................................100 4.4 Conditions for Merger and Transfer............................................................101 4.5 Additional Forms of Benefit for Shipley Accounts..............................................101 4.6 Benefits Upon Death...........................................................................102 4.7 Vesting.......................................................................................102 4.8 In-Service Withdrawals........................................................................102 4.9 Hours of Service..............................................................................103 APPENDIX V SPECIAL PROVISIONS REGARDING MERGER OF THE FRANKLIN BAKING COMPANY, INC. PROFIT SHARING PLAN AND THE FRANKLIN BAKING COMPANY, INC. 401(k) RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN..................................................................104 5.1 General Provisions............................................................................104 5.2 Separate Accounting...........................................................................104 5.3 Transfer of Plan Assets.......................................................................104 5.4 Conditions for Merger and Transfer............................................................105 5.5 Additional Forms of Benefit for Franklin Accounts.............................................105 5.6 Vesting.......................................................................................105
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Page ---- 5.7 In-Service Withdrawals........................................................................105 5.8 Hours of Service..............................................................................105 APPENDIX VI SPECIAL PROVISIONS REGARDING MERGER OF THE PIES, INC. RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN.......................................................106 6.1 General Provisions............................................................................106 6.2 Separate Accounting...........................................................................106 6.3 Transfer of Plan Assets.......................................................................106 6.4 Conditions for Merger and Transfer............................................................106 6.5 Vesting.......................................................................................107 6.6 In-Service Withdrawals........................................................................107 6.7 Hours of Service..............................................................................107 EXHIBIT A TO FLOWERS INDUSTRIES, INC. 401(K) RETIREMENT SAVINGS PLAN..................................................................................108
viii 10 FLOWERS INDUSTRIES, INC. 401(k) RETIREMENT SAVINGS PLAN PREAMBLE This Flowers Industries, Inc. 401(k) Retirement Savings Plan (the "Plan") and the Trust which forms a part of the Plan, are intended to be and to remain qualified and exempt from taxation under Sections 401 and 501 of the Internal Revenue Code of 1986, and shall be interpreted and administered in such manner as shall be necessary to carry out this intention. The original effective date of the Plan was April 1, 1995. The Plan is herein amended and restated in order to comply with applicable provisions of the Uruguay Round Agreements Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring and Reform Act of 1998. The effective date of the amendment and restatement of this Plan is generally January 1, 1997, and the amendment and restatement shall apply only to a Participant who is credited with an Hour of Service on or after that date, except as may be otherwise stated herein. The rights and benefits of a Participant who is not credited with an Hour of Service on or after January 1, 1997 shall be determined in accordance with the provisions of the Plan as in effect on the Participant's termination of employment with the Employer. 11 ARTICLE I DEFINITIONS The following words and phrases as used in this Plan shall have the meanings set forth in this Article unless a different meaning is clearly required by the context: 1.1 Account shall mean a separate account which is established and maintained for a Participant (or his Beneficiary) and to which contributions made under this Plan which are allocated to such Participant, if any, and earnings or losses thereon, if any, shall be credited. See Section 6.1 herein. 1.2 ACP Contributions. See Section 3.7(b)(iii) of this Plan. 1.3 Actual Deferral Percentage. See Section 3.6(b)(ii) of this Plan. 1.4 ADP Contributions. See Section 3.6(b)(iii) of this Plan. 1.5 Allocation Participant shall, for a Plan Year, mean those Participants who are employed with the Employer on the last day of the Plan Year. 1.6 Annual Additions. See Section 4.2(a) of this Plan. 1.7 Average Actual Deferral Percentage. See Section 3.6(b)(i) of this Plan. 1.8 Average Contribution Percentage. See Section 3.7(b)(i) of this Plan. 1.9 Beneficiary shall mean any person or persons, including a trust for the benefit of individuals, last designated in writing by a Participant pursuant to the provisions and conditions of Section 8.2(c), who is or may become entitled to a benefit hereunder. If, at any time, no Beneficiary has been validly designated by the Participant, or the Beneficiary validly designated by the Participant is no longer living or no longer exists, whichever is applicable, then the Participant's Beneficiary shall be deemed to be the person or persons in the first of the following classes of beneficiaries with one or more members of such class surviving or in existence as of the Participant's death, and in the absence thereof, the Participant's estate: (a) the Participant's Surviving Spouse; or (b) the Participant's lineal descendants, per stirpes. 1.10 Benefit Commencement Date means the date of the distribution determined pursuant to the provisions of Article VIII herein. 2 12 1.11 Code shall mean the Internal Revenue Code of 1986, as the same may be amended from time to time. 1.12 Company shall mean Flowers Industries, Inc., its successors and assigns, and any other corporation, partnership or sole proprietorship into which the Company may be merged or consolidated or to which all or substantially all of its assets may be transferred unless such organization indicates in writing that it does not approve of such automatic succession. 1.13 Company Basic Contributions shall mean Employer contributions, if any, made to this Plan pursuant to Section 3.1(e) of this Plan, and shall be allocated pursuant to Section 3.1(e)(ii) hereof. 1.14 Company Basic Contributions Account shall mean the Account of a Participant to which are credited any Company Basic Contributions allocated to the Participant each Plan Year under Section 3.1(e) of this Plan. 1.15 Compensation. (a) General Definition. Subject to subsections (b) through (e) below, Compensation for a Plan Year with respect to an Employee shall mean "compensation" as that term is defined in Code ss.415(c)(3) and Treas. Reg. ss.1.415-2(d)(1) and (2) and paid by an Employer to such Employee. (b) Safe Harbor Exclusions. Notwithstanding the provisions of subsection (a) above, none of the following items shall be included in the definition of Compensation, whether or not includable in taxable gross income: (i) reimbursement or other expense allowances; (ii) fringe benefits (cash and noncash); (iii) moving expenses; (iv) deferred compensation; (v) welfare benefits; and, additionally, solely with respect to Highly Compensated Employees: (vi) amounts received from the exercise of any nonqualified stock options issued by an Employer; (vii) amounts received from the sale or exchange of stock transferred pursuant to the exercise of an incentive stock option; and 3 13 (viii) amounts required to be reported as income pursuant to Code ss.7872. (c) Non-Safe Harbor Exclusions. Notwithstanding the provisions of subsection (a) above, and in addition to those items listed in subsection (b) above, none of the following items shall also be included in the definition of Compensation, whether or not includable in taxable gross income: (i) job injury benefits pay; (ii) sales contest prizes and safety contest prizes; (iii) longevity pay; (iv) restricted stock dividends, equity incentive award dividends, and gain from purchase or receipt of stock or other property or cash pertaining to either type of award; and (v) lump sum bonus. (d) Salary Reduction Arrangements. Notwithstanding the preceding subsections of this Section, Compensation shall include any amount which is contributed by an Employer pursuant to a salary reduction agreement and which is not includable in the gross income of the Employee under Code ss.ss.125, 402(e)(3), 402(h) or 403(b). (e) Limitation. The annual Compensation of each Employee taken into account in determining contributions or benefits under the Plan for any Plan Year shall not exceed the applicable "annual compensation limit" (as defined in Code ss. 401(a)(17)) for the calendar year in which the Plan Year begins. If the Plan determines Compensation for a period of time that contains fewer than 12 calendar months, the above limitation is to be proportionately reduced; provided, however, no proration is required for Employees who are covered under the Plan for less than 1 full year if the contributions under the Plan are based on Compensation for a period of at least 12 months. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. 4 14 (f) Special Provisions. The term Compensation may be specially defined for purposes of certain provisions of this Plan. See, e.g., Sections 1.41(g)(iv), 1.45(b), 3.6(b)(iv), 3.7(b)(iv), 4.2(b), 13.1(a)(ii) and 13.2(f) of this Plan. 1.16 Contribution Percentage. See Section 3.7(b)(ii) of this Plan. 1.17 Controlled Group shall mean the Company and any other entity which is required to be aggregated with the Company pursuant to Code ss.ss.414(b), (c), (m) or (o). 1.18 Defined Benefit Fraction. See Section 4.2(c) of this Plan. 1.19 Defined Contribution Dollar Limitation. See Section 4.2(d) of this Plan. 1.20 Defined Contribution Fraction. See Section 4.2(e) of this Plan. 1.21 Determination Date. See Section 13.2(d) of this Plan. 1.22 Disabled shall mean unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment arising after an Employee has become a Participant and while employed by an Employer resulting from demonstrable injury or disease that can be expected to continue for an indefinite period of greater than 12 months or to result in death and which prevents the Participant from engaging in his occupation or performing any gainful occupation for which he is qualified by reason of education, training or experience as determined by a qualified physician selected by the Plan Administrator. 1.23 Effective Date shall mean the day on which this amended and restated Plan becomes effective, which shall be January 1, 1997. The original effective date of the Plan was April 1, 1995. 1.24 Election shall mean the election made by an Eligible Employee to have the Employer make Elective Contributions on behalf of such Employee pursuant to the provisions of Section 3.5 of this Plan. The Election may be made by means of instructions provided by the Employee pursuant to any voice-response system utilized by the Plan, and any hard copy confirmation of such verbal instructions, as well as on any written form provided by the Plan Administrator for said purpose. 1.25 Election Period shall mean, for each Participant, his payroll period. 1.26 Elective Contributions shall mean Employer contributions, if any, made to this Plan pursuant to Section 3.1(a) of this Plan that were subject to a cash or deferred election under which, pursuant to Section 3.5 of this Plan, an Eligible Employee could elect to have the Employer either contribute an amount to this Plan or provide such amount to the Eligible Employee in cash or in the form of some other taxable benefit. Elective Contributions shall be allocated to Eligible Employees pursuant to Section 3.1(a)(ii) of this Plan. 5 15 1.27 Elective Contributions Account shall mean the Account of a Participant to which are credited any Elective Contributions allocated to the Participant each Plan Year under Section 3.1(a) of this Plan. 1.28 Elective Deferrals shall mean: (a) Any elective contribution (as defined in Treas. Reg. ss.1.401(k)-1(g)(3)) by a given individual under any qualified cash or deferred arrangement (as defined in Code ss.401(k)) to the extent such contribution is not includible in the individual's gross income for the taxable year on account of Code ss.402(e)(3), including Elective Contributions to this Plan. (b) Any employer contribution on behalf of a given individual to a simplified employee pension (as defined in Code ss.408(k)) to the extent such contribution is not includible in the individual's gross income for the taxable year on account of Code ss.402(h)(1)(B). (c) Any employer contribution on behalf of a given individual to an annuity contract under Code ss.403(b) pursuant to a salary reduction agreement (within the meaning of Code ss.3121(a)(5)(D)) to the extent such contribution is not includible in the individual's gross income for the taxable year on account of Code ss.403(b). (d) Any employee contribution by a given individual which is designated as deductible under a trust described in Code ss.501(c)(18), to the extent that such contribution is deductible from such individual's income for the taxable year on account of Code ss.501(c)(18). 1.29 Eligibility Computation Period shall mean, for purposes of determining Years of Eligibility Service and One-Year Breaks in Service for eligibility, the following: (a) The initial Eligibility Computation Period is the 12 consecutive month period beginning on the Employee's Employment Commencement Date. (b) The succeeding 12-consecutive-month Eligibility Computation Periods commence with the first plan year which commences prior to the first anniversary of the Employee's employment commencement date regardless of whether the Employee is entitled to be credited with 1,000 hours of service during the initial Eligibility Computation Period. An Employee who is credited with 1,000 hours of service in both the initial Eligibility Computation Period and the first Plan Year which commences prior to the first anniversary of the Employee's initial Eligibility Computation Period will be credited with two Years of Eligibility Service. (c) In the case of a reemployed Employee, the Eligibility Computation Period of such Employee after the Employee's date of reemployment shall commence on his reemployment date. 6 16 1.30 Eligible Employee. (a) In General. Eligible Employee shall mean an Employee (i) who is employed by an Employer, and (ii) who is eligible to participate in this Plan and become a Participant for all or a portion of a Plan Year pursuant to Article II of this Plan. (Employees described in subsections (c) through (f) of Section 2.1 shall not be Eligible Employees while such description is applicable.) (b) Special Rules. Solely for purposes of applying the discrimination tests in Article III associated with ADP Contributions and ACP Contributions, an Eligible Employee generally means an Employee who is directly or indirectly eligible to make Elective Contributions and receive an allocation of Matching Elective Contributions under the Plan for a Plan Year. An Employee who would be eligible to make Elective Contributions or receive an allocation of Matching Elective Contributions but for a suspension due to a hardship withdrawal or an election not to participate in the Plan, is treated as an Eligible Employee for purposes of applying the discrimination tests in Article III associated with ADP Contributions and ACP Contributions. An Employee will also be considered an Eligible Employee for such tests even though the Employee does not receive additional Annual Additions because of an Excess Amount. 1.31 Eligible Highly Compensated Employee shall mean an Eligible Employee who is also a Highly Compensated Employee. 1.32 Employee shall mean a person who performs services for a member of the Controlled Group and who is a common law employee of such Controlled Group member and any Self-Employed Individual who is treated as an employee of a member of the Controlled Group pursuant to Code ss.401(c)(1). The term Employee shall also include any Leased Employee of a Controlled Group member. The term "Employee" shall not include an individual who provides services to the Employer or another Controlled Group member pursuant to a contractual arrangement with another entity, but who is not deemed to constitute a Leased Employee. 1.33 Employer shall mean the Company and each member of the Controlled Group which has adopted this Plan pursuant to Section 11.6 herein. See also Section 4.2(f) for a special definition applicable in Article IV. 1.34 Employment Commencement Date shall mean the date on which an Employee first performs an Hour of Service (as defined in subsection (a) of Section 1.43) for any member of the Controlled Group. 1.35 Entry Date shall mean the first day of the payroll period beginning on or after the first day of the calendar month following the Eligibility Computation Period in which an Eligible Employee first completes 1 Year of Service. 1.36 ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. 7 17 1.37 Excess Amount. See Section 4.2(g) of this Plan. 1.38 Excess Deferrals shall mean Elective Deferrals made by a Participant for a calendar year in excess of the maximum amount specified in Code ss.402(b)(1), as adjusted pursuant to Code ss.ss.402(g)(4) and (5), applicable for such calendar year. 1.39 Forfeitable Account shall mean a Participant's Matching Elective Contributions Account and/or Employer Contribution Account. 1.40 Highest Average Compensation. See Section 4.2(h) of this Plan. 1.41 Highly Compensated Employee shall mean the following: (a) An individual shall be a Highly Compensated Employee, with respect to a Plan Year, if the individual is described under either or both subsection (b) or subsection (c) below. (b) An individual is described under this subsection (b) if the individual is performing services during the determination period for the Controlled Group and: (1) the individual received compensation from the Controlled Group during the look-back year in excess of $80,000 and was a member of the top-paid group for such look-back year; or (2) the individual was a 5-percent owner at any time during either or both the look-back year or the determination period. (c) An individual is described under this subsection (c) if the individual was, at one time, an Employee of the Controlled Group and the individual separated from service (or was deemed to have separated from service pursuant to Treas. Reg. ss.1.414(q)-1T(Q&A-5)) from the Controlled Group prior to the determination period, such individual performs no service for the Controlled Group during the determination period, and such individual is a "highly compensated employee" (as defined in Code ss.414(q)) for either the determination period during which the individual separated from service with the Controlled Group or any determination period ending on or after the individual's 55th birthday. (d) For purposes of this Section, the applicable dollar amounts specified in clause (1) of subsection (b) shall be the applicable dollar amount prescribed in Code ss.ss.414(q)(1)(B) and shall be adjusted pursuant to the last sentence of Code ss.414(q)(1). (e) For purposes of this Section the term "determination period" shall mean the respective Plan Year specified in subsection (a) above, and the term "look-back year" shall mean the 12-month period immediately preceding the determination period. (f) In determining who is a Highly Compensated Employee, the following definitions shall apply: 8 18 (i) Top-paid group shall mean the top 20% of Employees of the Controlled Group ranked on the basis of compensation received during the determination period or look-back year, as applicable. For purposes of determining the number of Employees in the top-paid group, Employees described in Treas. Reg. ss.1.414(q)-1T(Q&A-9)(b) are excluded. (ii) 5-percent owner shall mean a 5-percent owner determined pursuant to Treas. Reg. ss.1.416-1(T-17) and (T-18). If an individual is a 5-percent owner at any time during a determination period or look-back year, the individual shall be considered a 5-percent owner for such period or year. (iii) Compensation shall mean compensation as defined in Section 4.2(b) herein, except that compensation shall include any amount which is contributed by the Controlled Group pursuant to a salary reduction agreement and which is not includible in the gross income of the Employee under Code ss.ss.125, 402(a)(8) or 403(b). (g) The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of the Employees in the top-paid group, the top 100 Employees, the number of individuals treated as officers and the compensation that is considered, will be made in accordance with Code ss.414(q) and the regulations thereunder. 1.42 Highly Compensated Participant shall mean a Participant who is a Highly Compensated Employee. 1.43 Hours of Service shall mean those hours calculated in accordance with the following provisions: (a) An Employee shall receive credit for an Hour of Service for each hour for which he is paid or entitled to payment by the Employer for the performance of duties. (b) An Employee shall also receive credit for an Hour of Service for each hour for which he is paid or entitled to payment by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty or military duty; provided, however, that: (i) No more than 501 Hours of Service shall be credited because of this subsection (b) to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not said period occurs in a single computation period), except as provided in subsection (d) below; (ii) An hour for which an Employee is directly or indirectly paid or entitled to payment on account of a period during which no duties are performed shall not be credited to an Employee if said payment is made or due under a plan 9 19 maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation, or disability insurance laws; and (iii) Hours of Service shall not be credited for a payment which reimburses an Employee solely for medical or medically related expenses incurred by the Employee. For purposes of subsection (b), a payment shall be deemed to be made by or due from the Employer regardless of whether said payment is made by or due from the Employer directly or indirectly through, among others, a trust fund or insurer to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. (c) An Employee shall also receive credit for an Hour of Service for each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer provided that no Hour of Service shall be credited pursuant both to this subsection (c) and subsections (a) or (b) above. Crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in subsection (b) above shall be subject to the limitations set forth in that subsection. (d) In addition to the Service for which an Hour of Service must be credited pursuant to subsections (a), (b) and (c) above, an Employee shall receive credit for an Hour of Service for: (i) Each hour, whether or not said Employee is paid therefor, during which he would otherwise perform an Hour of Service, except for the fact that he is on an approved leave of absence. If he does not return to work on or before the end of his leave, service will be deemed to have terminated as of the beginning of his leave; and (ii) Each hour for which an Employee performs no duties due to absence during any military service so long as such hours are required to be taken into account under the Selective Service and Training Act of 1940, as amended, the Military Selective Service Act of 1967, as amended, and/or the Vietnam Era Veteran's Readjustment Act of 1974, as amended, or other applicable federal law. (e) Each Employee for whom the Employer does not keep records of actual Hours of Service shall be credited with 45 Hours of Service for each week for which said Employee would be required to be credited with at least 1 Hour of Service, in accordance with this Section and applicable regulations promulgated by the Department of Labor. (f) In determining and crediting to computation periods the number of Hours of Service to be credited to an Employee, the provisions of DOL Reg. ss.ss.2530.200b-2(b) and 2(c) are incorporated herein by reference. 10 20 (g) If an Employee is absent from service with the Employer as a result of a maternity/paternity absence, then, solely for purposes of determining whether the Employee incurs a One Year Break in Service for purposes of eligibility to participate and vesting in benefits, the Employee will be credited with up to 501 Hours of Service with respect to the period of maternity/paternity absence. Such 501 Hours of Service shall be credited at the rate at which the Employee would have otherwise accrued Hours of Service but for the maternity/paternity absence, provided that, if the Plan Administrator is unable to determine the Hours of Service that would have otherwise been credited, such Hours of Service shall be credited at the rate of eight hours for each day of the maternity/paternity absence. Such 501 Hours of Service shall be credited only in the Eligibility Computation Period or Vesting Computation Period, as applicable, in which the Employee's maternity/paternity absence commences if the Employee would have incurred a One Year Break in Service in such Eligibility Computation Period or Vesting Computation Period, as applicable, but for the crediting of the additional Hours of Service. If such Hours of Service (not in excess of 501) are not credited to the Eligibility Computation Period or Vesting Computation Period, as applicable, in which the maternity/paternity absence commences pursuant to the immediately preceding sentence, such Hours of Service shall be credited to the next Eligibility Computation Period or Vesting Computation Period, as applicable, commencing after the maternity/paternity absence commences. For purposes of this subsection, the term "maternity/paternity absence" means an absence from service with the Employer by an Employee if the absence is caused: (i) By reason of the pregnancy of the Employee; (ii) By reason of the birth of a child of the Employee; (iii) By reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee; or (iv) For purposes of caring for such child for a period beginning immediately following such birth or placement. (h) For purposes of this Section, employment with other members of the Controlled Group shall be considered employment with the Employer. In addition, in the case of a Leased Employee of any member of the Controlled Group, service with such member shall be considered employment with the Employer. 1.44 Key Employee. See Section 13.2(f) of this Plan. 1.45 Leased Employee. (a) Leased Employee shall mean any person (other than a common law employee of a member of the Controlled Group) who pursuant to an agreement between a member of the Controlled Group and any other person ("leasing organization") has performed services for a member of the Controlled Group (or for a member of the Controlled Group and related 11 21 persons determined in accordance with Code ss.414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction and control of a member of the Controlled Group. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for a member of the Controlled Group shall be treated as provided by a member of the Controlled Group. (b) A Leased Employee shall not, however, be considered an Employee of a member of the Controlled Group if: (i) such Employee is covered by a money purchase pension plan of his legal employer providing: (1) a nonintegrated employer contribution rate of at least 10% of compensation (as defined in Code ss.415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee's gross income under Code ss.ss.125, 402(a)(8), 402(h) or 403(b)), (2) immediate participation, and (3) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20% of the Controlled Group's nonhighly compensated workforce. For purposes of this subsection (b), the term "nonhighly compensated workforce" means the total number of individuals (other than Highly Compensated Employees) who are either Employees of a member of the Controlled Group or Leased Employees of a member of the Controlled Group. 1.46 Limitation Year. See Section 4.2(i) of this Plan. 1.47 Matching Elective Contributions shall mean Employer contributions, if any, made to this Plan pursuant to Section 3.1(b)(i) of this Plan and allocated to all Participants pursuant to Section 3.1(b)(ii) of this Plan. 1.48 Matching Elective Contributions Account shall mean the Account of a Participant to which are credited any Matching Elective Contributions allocated to the Participant under Section 3.1(b) of this Plan. 1.49 Nonforfeitable Accounts shall mean a Participant's Elective Contributions Account, Qualified Nonelective Contributions Account, Qualified Matching Contributions Account and Rollover Contributions Account. 1.50 Maximum Permissible Amount. See Section 4.2(j) of this Plan. 1.51 Normal Retirement Age shall mean age 65. 1.52 Normal Retirement Date shall mean the first day of the calendar month coincident with or next following the date the Participant attains his Normal Retirement Age. 1.53 One-Year Break in Service (or Break in Service) shall mean a 12-consecutive-month period (the Eligibility Computation Period or the Vesting Computation Period, whichever the context requires) during which the Employee does not complete more than 500 Hours of Service with the Employer. 12 22 1.54 Participant shall mean an Eligible Employee who has met the requirements of Article II for participation in this Plan and who is potentially eligible to receive a benefit of any type from this Plan or whose Beneficiaries are potentially eligible to receive a benefit of any type from this Plan, or a former Employee who retains any Account balance in this Plan. An Eligible Employee who has not completed the eligibility service requirement of Section 2.1(b) shall be treated as a Participant solely with respect to any Rollover Contributions he made. 1.55 Permissive Aggregation Group. See Section 13.2(b) of this Plan. 1.56 Plan shall mean the Flowers Industries, Inc. 401(k) Retirement Savings Plan, and all amendments to such plan made from time to time. This Plan is intended to be a profit sharing plan within the meaning of Code ss.401(a) and Treas. Reg. ss.1.401-1 under which contributions shall be made without regard to current or accumulated profits as permitted by Code ss.401(a)(27)(A). 1.57 Plan Administrator shall mean the person or persons appointed by the President of the Company to administer the Plan pursuant to Article X herein. If no such appointment is made, the Company shall be the Plan Administrator. 1.58 Plan Year shall mean the 12 consecutive month period for keeping the books and records of the Plan, which shall be the calendar year. 1.59 Present Value. See Section 13.2(e) of this Plan. 1.60 Projected Annual Benefit. See Section 4.2(k) of this Plan. 1.61 Qualified Matching Contributions shall mean Employer contributions, if any, made to this Plan pursuant to Section 3.1(c)(i) of this Plan and allocated to a certain group of Eligible Employees pursuant to Section 3.1(c)(ii) of this Plan. 1.62 Qualified Matching Contributions Account shall mean the Account of a Participant to which are credited any Qualified Matching Contributions allocated to the Participant each Plan Year under Section 3.1(c) of this Plan. 1.63 Qualified Nonelective Contributions shall mean Employer contributions, if any, made to this Plan pursuant to Section 3.1(d)(i) of this Plan and allocated to a certain group of Eligible Employees pursuant to Section 3.1(d)(ii) of this Plan. 1.64 Qualified Nonelective Contributions Account shall mean the Account of a Participant to which are credited any Qualified Nonelective Contributions allocated to the Participant in a given Plan Year under Section 3.1(d) of this Plan. 1.65 Qualified Spousal Waiver shall mean a Participant's written election, delivered to the Plan Administrator, signed by the Participant's Spouse, and witnessed by a notary public or an authorized Plan representative, which consents to the payment of all or a specified part of the Participant's benefit to a named Beneficiary other than the Participant's Spouse. Such election may 13 23 not be changed without Spousal consent (unless the consent expressly permits designations by the Participant without further consent of the Spouse). A Participant (but not the Participant's Spouse) may, however, revoke a Qualified Spousal Waiver at any time prior to his Benefit Commencement Date by way of a written signed statement to the Plan Administrator and a Qualified Spousal Waiver shall not be effective at any time following delivery of such a revocation to the Plan Administrator provided that such revocation is received by the Plan Administrator prior to the Participant's Benefit Commencement Date. If a Participant revokes a Qualified Spousal Waiver, the Participant's benefits shall be payable under the terms and provisions of this Plan as if no Qualified Spousal Waiver had ever been in existence. 1.66 Required Aggregation Group. See Section 13.2(c) of this Plan. 1.67 Required Beginning Date shall mean, with respect to a Participant, the April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2. 1.68 Rollover Contributions shall mean contributions, if any, made by an Eligible Employee to the Plan which qualify as a "rollover contribution" within the meaning of Code ss.ss.402(c)(5), 403(a)(4) or 408(d)(3), or a direct trustee-to-trustee transfer within the meaning of Code ss. 401(a)(31). 1.69 Rollover Contributions Account shall mean the Account of a Participant to which are credited the Rollover Contributions made by the Participant in a given Plan Year pursuant to Section 3.2 of this Plan. 1.70 Self-Employed Individual shall mean an individual who has Earned Income for the taxable year from the trade or business for which the Plan is established; also an individual who would have Earned Income but for the fact that the trade or business has no net profits for the taxable year. 1.71 Spouse shall mean the legally recognized spouse of a Participant determined as of the Participant's Benefit Commencement Date, or, if earlier, determined as of the Participant's date of death. 1.72 Surviving Spouse shall mean the surviving Spouse of a deceased Participant. To the extent required by a qualified domestic relations order, an alternate payee under such order shall be treated as the Surviving Spouse of a deceased Participant. See Section 12.6 herein. 1.73 Top-Heavy Plan. See Section 13.2(g) of this Plan. 1.74 Top-Heavy Ratio. See Section 13.2(a) of this Plan. 1.75 Trust shall mean the trust accompanying the Plan hereby created. 1.76 Trust Agreement shall mean the agreement between the Trustee and the Company creating the Trust accompanying the Plan. 14 24 1.77 Trust Fund shall mean the assets of the Trust held by the Trustee pursuant to the provisions of the Trust Agreement and the Plan. 1.78 Trustee shall mean the entity, person or persons who have entered into the Trust Agreement with the Company to act as trustee(s) of the assets of the Plan. 1.79 Valuation Date shall mean each day of the Plan Year as of which Plan assets held in the Trust and the Account balances of Participants shall be valued by the Trustee. The Valuation Dates of the Plan shall be the last day of each calendar month. 1.80 Vesting Computation Period shall mean, for purposes of determining Years of Vesting Service and One-Year Breaks in Service for vesting, the 12 consecutive month period coincident with the Plan Year. 1.81 Year of Eligibility Service. (a) In General. A Year of Eligibility Service shall mean an Eligibility Computation Period during which the Employee completes 1,000 Hours of Service. (b) Other Controlled Group Service. For purposes of this Section, employment with other members of the Controlled Group shall be considered employment with the Employer. In addition, in the case of a Leased Employee of any employing person or entity described in the preceding sentence, employment with such employer shall be considered employment with the Employer. (c) Service with Predecessor Employer. For purposes of this Section, in any case in which the Employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as service for the Employer in accordance with Code ss.414(a). (d) Special Rules. See Article II for special rules relating to the determination of Years of Eligibility Service. In addition, the instrument by which an Employer adopts the Plan (in cases of adoptions subsequent to April 1, 1995) may contain special provisions with respect to credit for service rendered prior to the Employer's becoming a member of the Controlled Group. 1.82 Year of Vesting Service. (a) In General. A Year of Vesting Service shall mean a Vesting Computation Period during which an Employee completes 1,000 Hours of Service. (b) Other Controlled Group Service. For purposes of this Section, employment with other members of the Controlled Group shall be considered employment with the Employer. In addition, in the case of a Leased Employee of any employing person or entity described in the preceding sentence, employment with such employer shall be considered employment with the Employer. 15 25 (c) Service with Predecessor Employer. For purposes of this Section, in any case in which the Employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as service for the Employer in accordance with Code ss. 414(a). (d) Special Rules. See Article V for special rules relating to the determination of Years of Vesting Service. In addition, the instrument by which an Employer adopts the Plan (in cases of adoptions subsequent to April 1, 1995) may contain special provisions with respect to credit for service rendered prior to the Employer's becoming a member of the Controlled Group. 16 26 ARTICLE II ELIGIBILITY FOR PARTICIPATION 2.1 Initial Attainment of Participation Status. (a) Subject to the special rules of Sections 2.2 through 2.5 below, all Employees who are Eligible Employees shall become Participants hereunder on the first Entry Date coincident with or next following the date on which the Employee satisfies the eligibility requirements set forth in subsection (b) below, provided such Employee is still in the service of an Employer as an Eligible Employee on such Entry Date. (b) Eligibility Requirements. For purposes of this Plan, the eligibility requirements for participation in this Plan shall be as follows: (i) An Employee must complete an Eligibility Computation Period during which the Employee receives credit for 1 Year of Eligibility Service. (ii) In determining the Years of Eligibility Service completed by an Employee for purposes of paragraph (i) above, Years of Eligibility Service shall be determined pursuant to Sections 1.81, 2.2, 2.3, and 2.5 of this Plan. (c) Leased Employees and Certain Independent Contractors Excluded. Leased Employees shall not be Eligible Employees and shall not be eligible to participate in this Plan while they remain Leased Employees notwithstanding any provision of this Plan to the contrary. No individual shall be eligible to participate if he is classified by a member of the Controlled Group as an independent contractor performing services for the Controlled Group and as to whom such member or members have determined in good faith that they (i) are not required by law to, and do not pay, Federal Insurance Contributions Act taxes with respect to such individual, or (ii) are required to pay taxes only by reason of Code ss. 3121(d)(3). (d) Collective Bargaining Employees Excluded. Employees shall not be Eligible Employees if they are included in a unit of employees covered by a collective bargaining agreement between the representative of such Employees and the Employer if retirement benefits were the subject of good faith bargaining between such representative and the Employer. If, however, the collective bargaining agents of any collective bargaining unit accept the Plan, the employees who are members of such unit shall become Eligible Employees for the period of any such acceptance and until it is revoked, should that occur. (e) Nonresident Aliens. Employees who are nonresident aliens and who receive no earned income (within the meaning of Code ss.911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code ss.861(a)(3)) shall not be Eligible Employees and shall not be eligible to participate in this Plan notwithstanding any provision of this Plan to the contrary. 17 27 (f) Distributors and Thrift Store Operators. Notwithstanding any provision of the Plan to the contrary, individuals who are distributors or thrift store operators and who have executed a written agreement with a member of the Controlled Group for the distribution or sale of goods or products (and any employees, agents or independent contractors of such distributors or thrift store operators) shall not be eligible to participate in this Plan. 2.2 Reemployment of Former Employees. (a) Any former Employee who terminated employment with the Controlled Group prior to becoming a Participant hereunder shall, upon being rehired by the Controlled Group as an Eligible Employee, receive credit for purposes of Years of Eligibility Service for all service prior to his or her separation from service, subject to subsections (b) and (c) below. (b) One Year Holdout. Any former Employee who terminated employment prior to becoming a Participant hereunder and who has a One-Year Break in Service shall not receive credit for service prior to such break in service unless and until such Employee has completed a Year of Eligibility Service after his return. (c) Rule of Parity. Any former Employee (i) who terminated employment prior to becoming a Participant hereunder, (ii) who has one or more One-Year Breaks in Service and (iii) for whom the number of consecutive One-Year Breaks in Service prior to such Employee's reemployment equals or exceeds the greater of 5 or the aggregate number of Years of Eligibility Service before such One-Year Breaks in Service shall not receive credit for service prior to such One-Year Breaks in Service. 2.3 Reemployment of Former Participants. General Rule. Any former Participant who terminated employment with the Controlled Group shall, upon being rehired by the Controlled Group as an Eligible Employee, immediately become a Participant hereunder. 2.4 Transfers to/from Eligible Class. (a) Exclusion After Participation. A Participant who ceases to be an Eligible Employee, but who has not ceased to be an Employee, shall not share in any contributions under Section 3.1 of this Plan until such Participant again becomes an Eligible Employee. However, such Participant shall be entitled to benefits in accordance with the other provisions of this Plan and shall continue to earn Years of Eligibility Service and Years of Vesting Service nonetheless, and amounts previously credited to the Participant's Accounts shall continue to receive allocations of earnings and losses under Article VII of this Plan. (b) Participation After Exclusion. An Employee who has not been an Eligible Employee but who becomes an Eligible Employee shall become a Participant hereunder as 18 28 of the first Entry Date coincident with or next following the date on which the Employee becomes an Eligible Employee. 2.5 Family and Medical Leave Act. Any period while an Employee is on a leave of absence under the Family and Medical Leave Act of 1993 will be treated as continued service for the purpose of computing Years of Eligibility Service. 19 29 ARTICLE III CONTRIBUTIONS AND ALLOCATIONS 3.1 Employer Contributions. Each Employer may make contributions to the Plan (all of which are hereby expressly conditioned on their deductibility under Code ss.404) by making payments to the Trustee in one or more of the methods described in subsections (a) through (e) below. Said contributions shall be made in cash, or by payments of property acceptable to the Trustee if such payments (i) are purely voluntary, (ii) do not relieve the Employer of an obligation to make contributions to this Plan, and (iii) do not constitute prohibited exchanges under ERISA ss.406(a)(1)(A)). (a) Elective Contributions. (i) Amount. For each Election Period, the Employer shall make Elective Contributions to this Plan in an amount equal to the aggregate Elective Contributions elected by Participants pursuant to Elections consistent with the provisions of Section 3.5 of this Plan, subject to the limitation on allocations pursuant to Article IV of this Plan. (ii) Allocation. Elective Contributions elected by a Participant pursuant to Elections consistent with the provisions of Section 3.5 of this Plan shall, subject to the limitations of Sections 3.5, 3.6, 3.8, 3.9, 3.10 and Article IV of this Plan, be allocated to such Participant's Elective Contributions Account. The Participant's salary or wages from the Employer shall be reduced accordingly. (b) Matching Elective Contributions. (i) Amount. For each Election Period, the Employer shall make Matching Elective Contributions to this Plan in an amount equal to the aggregate of the amounts to be allocated to Participants under paragraph (ii) below. (ii) Allocation. Matching Elective Contributions and any forfeitures under Sections 3.5(f), 3.8(c) and 8.5 to be reallocated for a Plan Year shall be allocated as of the date contributed or for the Plan Year in which forfeited, as appropriate, so that the amount allocated shall equal that percentage, described in the relevant exhibit hereto for the Employer in question, of the Participant's Elective Contributions received during the Election Period (excluding any Qualified Nonelective Contributions or Qualified Matching Contributions treated as Elective Contributions under Section 3.6(b)(iii) of this Plan), subject to the limitations of Sections 3.7, 3.8, 3.9, 3.10 and Article IV of this Plan. A Participant need not remain employed as of the last day of the Plan Year in order to receive a Matching Elective Contribution. The stated percentage referred to in the first sentence of this subsection and any other conditions or provisions with respect to said contributions shall be set 20 30 forth in Exhibit A of this Plan with respect to each Employer which elects to make Matching Elective Contributions. (iii) Limitations Concerning Matching Elective Contributions. In addition to the other conditions and limitations set forth in this Plan, Matching Elective Contributions which are, for a Plan Year, allocated to the Matching Elective Contributions Account of a Participant who is an Eligible Highly Compensated Employee, and which cause the Plan to fail the Contribution Percentage Test of Section 3.7 of this Plan or the special limitation of Section 3.9 of this Plan for such Plan Year shall be corrected pursuant to Section 3.8. Furthermore, in the case of each Participant, no Matching Elective Contributions shall be allocated to a Participant's Matching Elective Contributions Account which would cause the Plan to fail to satisfy the limitations of Article IV of this Plan. (c) Qualified Matching Contributions. (i) Amount. For each Plan Year, the Employer may make Qualified Matching Contributions to this Plan in an amount which shall be determined solely in the discretion of the Company, and which shall be used to satisfy the Deferral Percentage Test of Section 3.6 of this Plan and/or the Contribution Percentage Test of Section 3.7 of this Plan. (ii) Allocation. Qualified Matching Contributions for a Plan Year shall be allocated as of the date contributed to the Qualified Matching Contributions Account of each Allocation Participant who is not a Highly Compensated Participant in proportion to the ratio which his or her Elective Contributions for such Plan Year bears to the total of all such contributions of all such Allocation Participants for such Plan Year, subject to the limitations of Sections 3.7 and 3.9 and Article IV of this Plan. (d) Qualified Nonelective Contributions. (i) Amount. For each Plan Year, the Employer may make Qualified Nonelective Contributions to this Plan in an amount which shall be determined solely in the discretion of the Company, and which shall be used to satisfy the Deferral Percentage Test of Section 3.6 of this Plan, the Special Limitation of Section 3.9 of this Plan and/or the Contribution Percentage Test of Section 3.7 of this Plan. (ii) Allocation. Qualified Nonelective Contributions for a Plan Year shall be allocated as of the last day of such Plan Year to the Qualified Nonelective Contributions Account of each Allocation Participant who is not a Highly Compensated Participant in proportion to the ratio which his or her Compensation during the Plan Year bears to the total Compensation during such period of all such Participants subject to the limitations of Article IV of this Plan. 21 31 (e) Company Basic Contributions. (i) Amount. Each Employer may, in lieu of or in addition to the contributions described in subsections (a) through (d) above, elect to make contributions on another legally permissible basis to the Plan for the benefit of those Participants who are employed by said Employer. In said event, the Employer shall execute a description of the special contribution formula which shall be included in its adopting resolution referred to in Section 11.6, attached hereto, and shall be reflected on Exhibit A to this Plan. (ii) Allocation. In the event that an Employer shall elect to make contributions pursuant to subparagraph (i) of this subsection (e), said contributions shall be allocated to Participants' accounts as described in each case in Exhibit A, which may contain any other special provisions or definitions relevant thereto. In no event shall the aggregate contributions made by the Employer under this Section exceed the amount deductible under Code ss.404. All allocations to be made under this Section shall be subject to the provisions of Section 13.1(a) of this Plan, if applicable. 3.2 Employee Contributions. Rollover Contributions. Each Eligible Employee may, without regard to whether such Eligible Employee is a Participant under this Plan and subject to the consent of the Plan Administrator based on satisfying the requirements of this subsection, make one or more Rollover Contributions which shall be allocated to the Eligible Employee's Rollover Contribution Account if the Rollover Contribution is: (a) all or any portion of a distribution which is an "eligible rollover distribution" within the meaning of Code ss.402(c)(4); (b) a distribution which is a "rollover contribution" within the meaning of Code ss.408(d)(3)(A)(ii) (or a "partial rollover" within the meaning of Code ss.408(d)(3)(D) and meeting the requirements therein); (c) all or any portion of a distribution which is a "rollover amount" within the meaning of Code ss.403(a)(4); or (d) in cash only, except that those Participants who direct a rollover from the Flowers Industries, Inc. Employee Stock Ownership Plan may rollover Company stock received from that plan. The Plan Administrator shall have the right to reject any Rollover Contribution which it determines in its sole judgment does not qualify under the above-referenced provisions. Any Rollover Contributions accepted by the Plan Administrator shall be promptly remitted to the Trustee to be held in a Rollover Contribution Account for the Eligible Employee's sole 22 32 benefit, and shall be nonforfeitable at all times, but otherwise subject to all of the terms and provisions of this Plan, including but not limited to, restrictions upon availability. 3.3 Time of Payment of Contributions. Employer contributions made under Section 3.1 of this Plan shall be made for each Plan Year within the time prescribed by law (including extensions thereof) for filing the Employer's federal income tax return for the Employer's taxable year ending with or within the Plan Year and shall actually be paid to the Trustee no later than the 12-month period immediately following the Plan Year to which such contributions relate. Elective Contributions and Rollover Contributions under Section 3.2 of this Plan shall be remitted to the Trustee as of the earliest date on which such amounts can reasonably be segregated from the Employer's general assets, but in any event not later than the 15th business day after the end of the calendar month in which such Contributions are withheld or would otherwise have been paid to the Participant. 3.4 Return of Contributions. All contributions made to the Trustee shall be irrevocable except as follows: (a) Mistake of Fact. If an Employer contribution is made by an Employer under a mistake of fact, the amount of such contribution described in subsection (d) below shall be returned to the Employer within one year after the payment of said contribution. (b) Deductibility Condition. All contributions of the Employer made to this Plan are hereby expressly conditioned on their deductibility under Code ss.404; if an Employer contribution is disallowed as a deduction under Code ss.404, the amount of the contribution described in subsection (d) below shall be returned to the Employer within one year after the disallowance of the deduction. (c) Initial Qualification. All contributions made to this Plan prior to the receipt of an initial determination from the Internal Revenue Service that the Plan is qualified under Code ss.401(a) are hereby expressly conditioned on the initial qualification of the Plan under Code ss.401, and if a timely application for a determination has been made to the Internal Revenue Service by the Employer, but is denied, then said contribution shall be returned to the Employer within one year after the date of said denial of qualification of the Plan. (d) Amount Returned. For purposes of subsections (a) and (b) above, the amount which may be returned to the Employer is the excess of (i) the amount contributed over (ii) the amount that would have been contributed had there not occurred a mistake of fact or a mistake in determining the deduction. Earnings attributable to such amount will not be returned to the Employer, but losses attributable thereto will reduce the amount so returned. Furthermore, if the return of an amount attributable to a mistaken contribution would cause the accrued benefit of any Participant to be reduced to less than it would have been had the mistaken amount not been contributed, then the amount to be returned to the Employer will be limited so as to avoid such reduction. 23 33 3.5 Provisions Regarding Elective Contributions. (a) Elective Contribution Elections. Each Eligible Employee may make an Election by which the Eligible Employee shall state the percentage (in whole percentages) of his Compensation which shall constitute his Elective Contribution applicable to each paycheck received within said Election Period. Said amount shall be contributed to his Elective Contribution Account by the Employer rather than paid to the Eligible Employee as taxable cash compensation. The maximum Elective Contribution that may be elected by an Eligible Employee for any Election Period shall not exceed 15% of the Eligible Employee's Compensation received during such Election Period and the minimum percentage shall be one percent (1%) of said Compensation. Any Participant who was a Highly Compensated Employee on the last day of the prior Plan Year and is a Highly Compensated Employee during the current Plan Year shall not be permitted to make Elective Contributions for a given Plan Year in excess of an amount determined by the Plan Administrator and communicated to said Employees. If an Eligible Employee has an Elective Contribution election in effect for an Election Period, such election automatically shall apply for the next succeeding Election Periods unless the Eligible Employee modifies or revokes the election in accordance with this Section. The Employer shall contribute to the Elective Contribution Account of each Eligible Employee the amount specified in an Eligible Employee's Elective Contribution election for so long as such election is in effect. (b) Effective Time of Initial Elections or Modification of Elective Contribution Elections. An Eligible Employee may make an Election which changes the percentage of the Eligible Employee's Compensation to be deferred as an Elective Contribution. Any such modification will become effective as soon as reasonably practicable after said Election is made. (c) Revocation of Elective Contribution Election. An election to revoke Elective Contributions may be made at any time, and shall be effective as soon as practicable after receipt of said election by the Plan Administrator. An Eligible Employee who revokes his Elective Contribution election may file a new Elective Contribution election to be effective prior to the first Election Period beginning after the date the Eligible Employee revoked his Elective Contribution election. (d) Procedure for Making Elections. The Plan Administrator shall have complete discretion to adopt and revise procedures to be followed in making Elective Contribution elections. Such procedures may include, but are not limited to, the format of the Election Forms, if any, the ability of Participants to make elections orally or telephonically, the deadline for making Elective Contribution elections and for requesting a modification or revocation of an Elective Contribution election, and the procedures for approval of Elective Contribution elections; provided, however, that no election may be made to defer as an Elective Contribution any amount of Compensation that has already been paid to a Eligible Employee. Any procedures adopted by the Plan Administrator which have been set forth in writing and communicated to Eligible Employees that are inconsistent with the deadlines 24 34 specified in this Section shall supersede such provisions of this Section without the necessity of a Plan amendment, and shall be applied in a uniform and nondiscriminatory manner. (e) Elective Contribution Limitations. Notwithstanding any provision of this Plan to the contrary, an Eligible Employee shall not be allowed to elect to make, and may not make, Elective Contributions which, in the aggregate during a calendar year, exceed the maximum amount specified in Code ss.402(g)(1), as adjusted pursuant to Code ss.ss.402(g)(4) and (5), applicable to such calendar year. (f) Return of Elective Deferrals; Correcting Distributions. To the extent that an Eligible Employee elects during a calendar year to make Elective Deferrals under a combination of this Plan and some other plan, arrangement or annuity in excess of the maximum amount specified in Code ss.402(g)(1), as adjusted pursuant to Code ss.402(g)(4) and (5), applicable to such calendar year, the Plan Administrator, sua sponte or upon written request of the Eligible Employee received by March 1 of the following calendar year, shall direct the Trustee to distribute, on or after January 1 of such following calendar year, but in no event later than April 15 of such following calendar year, to such Eligible Employee the portion of such Eligible Employee's Elective Contributions made during the calendar year which the Plan Administrator determines should be considered an Excess Deferral or which the Eligible Employee has designated as an Excess Deferral in such written request. Simultaneously therewith, the Matching Elective Contributions attributable to such portion of the Eligible Employee's Elective Contributions made during the calendar year shall be forfeited and held in a suspense account to be used to reduce the amount of future Matching Elective Contributions. (g) Coordination with other Provisions. Any Elective Contributions designated as an Excess Deferral under subsection (f) above which are returned to the Participant pursuant to subsection (f) shall nonetheless be included as Elective Contributions for purposes of the Deferral Percentage Test specified in Section 3.6 of this Plan unless such Participant is not a Highly Compensated Participant, and may be distributed without regard to any notice or consent otherwise required by the terms of this Plan. The portion of a Participant's Elective Contributions made during a calendar year which has been designated as an Excess Deferral and which is to be distributed under subsection (f) above shall be reduced by any excess contributions (as determined under Section 3.8(c) of this Plan) previously distributed under Section 3.8(a) of this Plan with respect to such Participant for the Plan Year beginning with or within such calendar year. (h) Other Limitations Concerning Elective Contributions. In addition to the other conditions and limitations set forth in this Plan, Elective Contributions which may, for a Plan Year, be allocated to a Participant's Account shall not be permitted, in the case of each Highly Compensated Participant, if they would cause the Plan to fail the Deferral Percentage Test specified in Section 3.6 of this Plan for such Plan Year, and, in the case of each Participant, if they would cause the Plan to fail to satisfy the limitations of Article IV of this Plan for such Plan Year. 25 35 3.6 Limitation of Elective Deferrals. (a) Deferral Percentage Test. The Deferral Percentage Test shall be satisfied for any Plan Year if the Average Actual Deferral Percentage for the Eligible Highly Compensated Employees for such Plan Year does not exceed the greater of (i) or (ii) as follows: (i) The Average Actual Deferral Percentage for the prior Plan Year for the Eligible Employees who are not Highly Compensated Employees times 1.25; or (ii) The lesser of: (A) The Average Actual Deferral Percentage for the prior Plan Year for the Eligible Employees who are not Highly Compensated Employees times 2; or (B) The Average Actual Deferral Percentage for the prior Plan Year for the Eligible Employees who are not Highly Compensated Employees plus two percentage points. (b) Definitions. (i) Average Actual Deferral Percentage. For purposes of this Section, the term "Average Actual Deferral Percentage" of a group of Eligible Employees shall, for a Plan Year, mean the numeric average of the Actual Deferral Percentages calculated separately for each Eligible Employee in the group. (ii) Actual Deferral Percentage. The Actual Deferral Percentage of an Eligible Employee shall be obtained by dividing the amount of ADP Contributions credited to the Account of such Eligible Employee during such Plan Year by the Eligible Employee's Compensation for the Plan Year, calculated to the nearest one-hundredth of one percent. The Actual Deferral Percentage of an Eligible Employee who has no ADP Contributions credited to his Account during a Plan Year shall be zero for such Plan Year. (iii) ADP Contributions. "ADP Contributions" shall mean the sum of Elective Contributions and, to the extent that the Plan Administrator elects (uniformly with respect to all Eligible Employees) to treat the following contributions as Elective Contributions under Treas. Reg. ss.1.401(k)-1(b)(3) and this paragraph (iii), Qualified Nonelective Contributions and Qualified Matching Contributions. Any Qualified Nonelective Contributions or Qualified Matching Contributions which the Plan Administrator elects to treat as Elective Contributions under the preceding sentence must not discriminate in favor of Highly Compensated Employees within the meaning of Code ss.401(a)(4). 26 36 (iv) Compensation. (A) General Definition. Subject to subparagraphs (B) through (D) below, for purposes of this Section 3.6 Compensation for a Plan Year with respect to an Employee shall mean the Employee's "wages" as defined in Code ss. 3401(a) for purposes of income tax withholding at the source paid by an Employer but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code ss. 3401(a)(2)) and all other payments of compensation (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code ss.ss. 6041(d), 6051(a)(3) and 6052 which are paid by the Employer to such Employee for such Plan Year. (B) Safe Harbor Exclusions. Notwithstanding the provisions of subparagraph (A) above, none of the following items shall be included in the definition of Compensation, whether or not includable in taxable gross income: (1) reimbursements or other expense allowances; (2) fringe benefits (cash and noncash); (3) moving expenses; (4) deferred compensation; (5) welfare benefits; and, additionally, solely with respect to Highly Compensated Employees: (6) amounts received from the exercise of any nonqualified stock options issued by an Employer; (7) amounts received from the sale or exchange of stock transferred pursuant to the exercise of an incentive stock option; and (8) amounts required to be reported as income pursuant to Code ss. 7872. (C) Salary Reduction Arrangements. Notwithstanding the preceding subparagraphs of this paragraph (iv), Compensation shall include any amount which is contributed by the Employer pursuant to a salary 27 37 reduction agreement and which is not includable in the gross income of the Employee under Code ss.ss. 125, 402(e)(3), 402(h) or 403(b). (D) Limitation. Notwithstanding any provision of this paragraph (iv) to the contrary Compensation of an Eligible Employee shall not include the Compensation of such Employee during a period that the Employee is not an Eligible Employee with respect to the Plan and shall be limited in the manner provided in Section 1.15(e). (c) Plan Aggregation Rules. In the case of an Eligible Highly Compensated Employee who is eligible to participate in more than one cash or deferred arrangement of the Controlled Group, the Actual Deferral Percentage for such Employee shall be calculated by treating all the cash or deferred arrangements in which the Eligible Highly Compensated Employee is eligible to participate (including this Plan) as one arrangement; provided, however, that plans that are not permitted to be aggregated under Treas. Reg. ss.1.401(k)-1(b)(3)(ii)(B) shall not be aggregated for this purpose. Furthermore, if any plan of the Controlled Group which is subject to Code ss.401(k) is aggregated with this Plan for purposes of Code ss.ss.401(a)(4) and 410(b), then all elective contributions (as defined in Treas. Reg. ss.1.401(k)-1(g)(3)) under such plan and this Plan shall be aggregated in applying the limitations of this Section. (d) Failure to Satisfy Test. If this Plan does not or may not satisfy the Deferral Percentage Test of subsection (a) above for a Plan Year, the Plan Administrator shall take such action permitted under Sections 3.8 and 3.10 of this Plan as the Plan Administrator, in its sole discretion, shall determine necessary in order to ensure that the Plan satisfies such test for the Plan Year. (e) Recordkeeping. The Plan Administrator shall, on behalf of the Employer, maintain such records as are necessary to demonstrate compliance with the Deferral Percentage Test of subsection (a) above for each Plan Year, including the extent to which any Qualified Nonelective Contributions and Qualified Matching Contributions are treated as Elective Contributions under paragraph (iii) of subsection (b) above. 3.7 Limitation of Employee and Employer Matching Contributions. (a) Contribution Percentage Test. The Contribution Percentage Test shall be satisfied for any Plan Year if the Average Contribution Percentage for the Eligible Highly Compensated Employees for such Plan Year does not exceed the greater of (i) or (ii) as follows: (i) The Average Contribution Percentage for the prior Plan Year for the Eligible Employees who are not Highly Compensated Employees times 1.25 for the prior Plan Year; or 28 38 (ii) The lesser of: (A) The Average Contribution Percentage for the prior Plan Year for the Eligible Employees who are not Eligible Highly Compensated Employees times 2; or (B) The Average Contribution Percentage for the prior Plan Year for the Eligible Employees who are not Eligible Highly Compensated Employees plus two percentage points. (b) Definitions. (i) Average Contribution Percentage. For purposes of this Section, the term "Average Contribution Percentage" of a group of Employees shall, for a Plan Year, mean the numeric average of the Contribution Percentages calculated separately for each Employee in the group. (ii) Contribution Percentage. The Contribution Percentage of an Eligible Employee shall be obtained by dividing the amount of ACP Contributions credited to the Account of such Employee during such Plan Year by the Eligible Employee's Compensation for the Plan Year, calculated to the nearest one-hundredth of one percent. The Contribution Percentage of an Eligible Employee who has no ACP Contributions credited to his Account during a Plan Year shall be zero for such Plan Year. (iii) ACP Contributions. "ACP Contributions" shall mean the sum of Qualified Matching Contributions to the extent that such contributions are not treated as Elective Contributions under Treas. Reg. ss.1.401(k)-1(b)(5) and Section 3.6(b)(iii) of this Plan, Matching Elective Contributions and, to the extent that the Plan Administrator elects (uniformly with respect to all Eligible Employees) to treat the following contributions as "matching contributions" under Treas. Reg. ss.1.401(m)-1(b)(5) and this paragraph (iii) and such contributions are not treated as Elective Contributions under Treas. Reg. ss.1.401(k)-1(b)(5) and Section 3.6(b)(iii) of this Plan, Qualified Nonelective Contributions, and any forfeitures which are reallocated under Sections 3.5(f) or 3.8(c) as Matching Elective Contributions. Any Qualified Nonelective Contributions which the Plan Administrator elects to treat as "matching contributions" or any Qualified Matching Contributions treated as ACP Contributions under the preceding sentence must not discriminate in favor of Highly Compensated Employees within the meaning of Code ss.401(a)(4) and must satisfy the provisions of Treas. Reg. ss.1.401(m)-1(b). (iv) Compensation. For purposes of this Section, Compensation shall mean Compensation as defined in Section 3.6(b)(iv) of this Plan. 29 39 (c) Plan Aggregation. In the case of an Eligible Highly Compensated Employee who is eligible to participate in two or more plans of the Controlled Group to which employee contributions (within the meaning of Treas. Reg. ss.1.401(m)-1(f)(7)) or matching contributions (within the meaning of Treas. Reg. ss.1.401(m)-1(f)(12)), or both are made, all such contributions on behalf of such Eligible Highly Compensated Employee must be aggregated for purposes of determining such Employee's Contribution Percentage; provided, however, that plans which are not permitted to be aggregated under Treas. Reg. ss.1.401(m)-1(b)(3)(ii) shall not be aggregated for this purpose. Furthermore, if any plan of the Controlled Group which is subject to Code ss.401(m) is aggregated with this Plan for purposes of Code ss.ss.410(b) and 401(a)(4), then all employee contributions (as defined in the preceding sentence) and all matching contributions (as defined in the preceding sentence) under such plan and this Plan shall be aggregated in applying the limitations of this Section. (d) Failure to Satisfy Test. If this Plan does not or may not satisfy the Contribution Percentage Test of subsection (a) above for a Plan Year, the Plan Administrator shall take such action permitted under Sections 3.8 and 3.10 of this Plan as the Plan Administrator, in its sole discretion, shall determine necessary in order to ensure that the Plan satisfies such test for the Plan Year. (e) Recordkeeping. The Plan Administrator shall, on behalf of the Employer, maintain such records as are necessary to demonstrate compliance with the Contribution Percentage Test of subsection (a) above for each Plan Year, including the extent to which any Qualified Nonelective Contributions and Qualified Matching Contributions are treated as ACP Contributions under paragraph (iii) of subsection (b) above. 3.8 Corrections Required by Discrimination Tests. If the Deferral Percentage Test of Section 3.6 of this Plan, the Contribution Percentage Test of Section 3.7 of this Plan and/or the special limitation of Section 3.9 of this Plan are applicable to this Plan and are not satisfied for a Plan Year, the Plan Administrator, in its discretion, may use any combination of the methods in subsections (a) and (b) below to satisfy any one or more of these tests or limitations, except as otherwise provided below: (a) Distribution. (i) Correcting Distributions. To the extent necessary to satisfy the Applicable Test for any Plan Year in which such test is not satisfied, the Plan Administrator shall direct the Trustee to distribute to Highly Compensated Participants a portion (determined in the manner set forth in subsections (c) and/or (d) below) of their Applicable Contributions, together with income allocable to such portions, after the close of such Plan Year, but in no event later than the close of the following Plan Year. 30 40 (ii) Allocable Income or Loss. (A) General Rules. For purposes of paragraph (i) above, the income or loss allocable to the portion of a Participant's Applicable Contributions made during a Plan Year shall, at any relevant time, be determined by the following formula: income or loss = E x I ------- D For purposes of applying the formula, E is the portion of such Participant's Applicable Contributions made during the Plan Year; D is the balance in the Participant's Account consisting of Applicable Contributions as of the beginning of the Plan Year increased by the Participant's Applicable Contributions for the Plan Year and I is the income for the Plan Year allocable to the Participant's total Applicable Contributions for the Plan Year. A distribution occurring on or before the fifteenth day of the month will be treated as having been made on the last day of the preceding month, and a distribution occurring after such fifteenth day will be treated as having been made on the first day of the next subsequent month. (b) Contribution. To the extent necessary to satisfy the Applicable Test for any Plan Year in which such test is not satisfied, the Plan Administrator shall direct the Trustee to contribute to nonhighly compensated Participants, to the extent necessary, Qualified Nonelective Contributions, Qualified Matching Contributions, or both. A contribution under this paragraph must occur on or before 12 months after the close of the Plan Year to which the contribution relates. (c) Determination of Excess Contributions. For purposes of paragraphs (a) and (b) above, the relevant portion of a Highly Compensated Participant's ADP Contributions for a Plan Year shall be equal to such Participant's excess contributions for such Plan Year. The excess contributions, and the portion of the excess contributions to be distributed, shall be calculated in the following manner: (i) The excess contributions with respect to a Highly Compensated Participant for a Plan Year are determined by reducing the Elective Contributions of the Highly Compensated Participant with the highest Actual Deferral Percentage by the amount required to cause the Participant's Actual Deferral Percentage to equal the Actual Deferral Percentage of the Highly Compensated Participant with the next highest such percentage. If a lesser reduction would enable the arrangement to satisfy the Deferral Percentage Test, only this lesser reduction will be made. This process must be repeated until the Deferral Percentage Test would be satisfied. (ii) The total of the reductions in the amounts of Elective Contributions, determined in accordance with (i) above, shall be determined. 31 41 (iii) After the total in (ii) above has been determined, the Elective Contributions of the Highly Compensated Participant with the highest dollar amount of Elective Contributions shall be reduced by the amount required to cause that Highly Compensated Participant's Elective Contributions to equal the dollar amount of the Elective Contributions of the Highly Compensated Participant with the next highest dollar amount of Elective Contributions. This amount is then distributed to the Highly Compensated Participant with the highest dollar amount of Elective Contributions. However, if a lesser reduction, when added to the total dollar amount already distributed under this step would equal the total excess contributions determined under (ii) above, the lesser reduction amount is distributed to the appropriate Participant. (iv) If the total amount distributed under (iii) above is less than the total excess contributions determined under (ii) above, then the procedure described in (iii) is repeated until the full amount of the excess contributions, determined under (ii) above, has been distributed to Participants. (d) Determination of Excess Aggregate Contributions. For purposes of paragraph (a) above, the relevant portion of a Highly Compensated Participant's ACP Contributions for a Plan Year shall be equal to such Participant's excess aggregate contributions for such Plan Year. The excess aggregate contributions, and the portion of such excess aggregate contributions to be distributed, shall be calculated in the following manner: (i) The excess aggregate contributions with respect to a Highly Compensated Participant for a Plan Year are determined by reducing the ACP Contributions of the Highly Compensated Participant with the highest Contribution Percentage by the amount required to cause the Participant's Contribution Percentage to equal the Contribution Percentage of the Highly Compensated Participant with the next highest such percentage. If a lesser reduction would enable the arrangement to satisfy the Contribution Percentage Test, only this lesser reduction will be made. This process must be repeated until the Contribution Percentage Test would be satisfied. (ii) The total of the reductions in the amounts of ACP Contributions, determined in accordance with (i) above, shall be determined. (iii) After the total in (ii) above has been determined, the ACP Contributions of the Highly Compensated Participant with the highest dollar amount of ACP Contributions shall be reduced by the amount required to cause that Highly Compensated Participant's ACP Contributions to equal the dollar amount of the ACP Contributions of the Highly Compensated Participant with the next highest dollar amount of ACP Contributions. This amount is then distributed to the Highly Compensated Participant with the highest dollar amount of ACP Contributions. However, if a lesser reduction, when added to the total dollar amount already distributed under this step, would equal the total excess aggregate contributions 32 42 determined under (ii) above, the lesser reduction amount is distributed to the appropriate Participant. (iv) If the total amount distributed under (iii) above is less than the total excess aggregate contributions determined under (ii) above, then the procedure described in (iii) is repeated until the full amount of the excess aggregate contributions, determined under (ii) above, has been distributed to Participants. (v) With respect to paragraphs (i) through (iii) above, any ACP Contributions which are determined to be excess aggregate contributions and which are to be reduced shall be distributed pursuant to subsection (a). (e) Coordination With Other Provisions. Excess contributions to be distributed under subsection (a) with respect to a Participant for a Plan Year shall be reduced by any correcting distributions under Section 3.5(f) of this Plan previously made to such Participant for the calendar year ending with or within such Plan Year. Distributions under subsections (a) above may be made without regard to any notice or consent otherwise required by the terms of this Plan. (f) Failure to Correct. If, for any reason, any excess contributions and/or excess aggregate contributions for a Plan Year are not distributed within two and one-half (2 1/2) months after the close of such Plan Year or corrected by a contribution under Section 3.8(b) of the Plan, then the Employer shall be liable for the Federal excise tax imposed under Code ss.4979 in the amount of 10% of such excess contributions and/or excess aggregate contributions. (g) Definitions. For purposes of subsections (a) and (b): (A) Applicable Test shall mean the Deferral Percentage Test of Section 3.6 of this Plan or the Contribution Percentage Test of Section 3.7 of this Plan, whichever is applicable. (B) Applicable Contributions shall mean: (1) if the Applicable Test is the Deferral Percentage Test, "ADP Contributions" as defined in Section 3.6(b)(iii) of this Plan, or (2) if the Applicable Test is the Contribution Percentage Test, "ACP Contributions" as defined in Section 3.7(b)(iii) of this Plan. 3.9 Multiple Use of Alternative Limitation. The provisions of this Section shall only apply if one or more Highly Compensated Employees of the Employer are Eligible Employees with respect to both a cash or deferred arrangement (including this Plan) subject to Code ss.401(k) and a plan of the Employer (including this Plan) subject to Code ss.401(m). Furthermore, for this Section 33 43 to apply, the Average Actual Deferral Percentage for the Eligible Highly Compensated Employees during the Plan Year must be greater than 125% of the Average Actual Deferral Percentage for the prior Plan Year for the Eligible Employees who are not Highly Compensated Employees, and the Average Contribution Percentage for the Eligible Highly Compensated Employees during the Plan Year must be greater than 125% of the Average Contribution Percentage for the prior Plan Year for the Eligible Employees who are not Highly Compensated Employees. (a) Special Limitation. In addition to the other conditions and limitations herein, for any Plan Year, the sum of the Average Actual Deferral Percentage for the Eligible Highly Compensated Employees and the Average Contribution Percentage for the Eligible Highly Compensated Employees shall not exceed the greater of: (i) the sum of (A) 1.25 multiplied by the greater of the relevant Average Actual Deferral Percentage or the relevant Average Contribution Percentage, and (B) 2% plus the lesser of the relevant Average Actual Deferral Percentage or the relevant Average Contribution Percentage; provided, however, this sum shall not exceed twice the lesser of the relevant Average Actual Deferral Percentage or the relevant Average Contribution Percentage; or (ii) the sum of (A) 1.25 multiplied by the lesser of the relevant Average Actual Deferral Percentage or the relevant Average Contribution Percentage, and (B) 2% plus the greater of the relevant Average Actual Deferral Percentage or the relevant Average Contribution Percentage; provided, however, this sum shall not exceed twice the greater of the relevant Average Actual Deferral Percentage or the relevant Average Contribution Percentage. For purposes of this subsection (a), the term "relevant Average Actual Deferral Percentage" means the Average Actual Deferral Percentage for the Eligible Employees who are not Highly Compensated Employees under the cash or deferred arrangement subject to Code ss.401(k) for the prior plan year, and the term "relevant Average Contribution Percentage" means the Average Contribution Percentage for the Eligible Employees who are not Highly Compensated Employees under the Plan subject to Code ss.401(m) for the prior plan year. (b) Coordination with Other Provisions. For purposes of this Section, the Actual Deferral Percentage and the Contribution Percentage of the Eligible Highly Compensated Employees shall be determined after use of any Qualified Nonelective Contributions and Qualified Matching Contributions to meet the Deferral Percentage Test pursuant to Section 3.6(b)(iii) of this Plan and after use of Qualified Nonelective Contributions to meet the Contribution Percentage Test pursuant to Section 3.7(b)(iii) of this Plan. Furthermore, the Actual Deferral Percentage and the Contribution Percentage of the Eligible Highly Compensated Employees shall be determined after any corrective distribution of excess deferrals pursuant to Section 3.5(f) of this Plan, or any corrective distribution of excess contributions and excess aggregate contributions pursuant to Section 3.8(a) of this Plan. 34 44 (c) Plan Aggregation. If the Controlled Group maintains two or more cash or deferred arrangements subject to Code ss.401(k) which are not aggregated for purposes of Section 3.6(d) of this Plan or if the Controlled Group maintains two or more plans subject to Code ss.401(m) which are not aggregated for purposes of Section 3.7(d) of this Plan, the provisions of subsection (a) above shall apply separately with respect to each such plan and cash or deferred arrangement. Furthermore, if any plan of the Controlled Group which is subject to Code ss.ss.401(k) and/or (m) is aggregated with this Plan for purposes of Code ss.ss.410(b) and 401(a)(4), then all elective contributions (as defined in Treas. Reg. ss.1.401(k)-1(g)(3)), employee contributions (as defined in Treas. Reg. ss.1.401(m)-1(f)(6)) and all matching contributions (as defined in Treas. Reg. ss.1.401(m)-1(f)(12)) under such plan and this Plan shall be aggregated in applying the limitations of this Section. (d) Correcting Distributions. To the extent necessary to satisfy the special limitation of subsection (a) above for any Plan Year in which the special limitation is not satisfied, the Plan Administrator shall first reduce the Contribution Percentage of the Eligible Highly Compensated Employees by correcting distributions in accordance with Section 3.8 of this Plan, and then shall reduce the Actual Deferral Percentages of the Eligible Highly Compensated Employees by correcting distributions in accordance with Section 3.8 of this Plan. 3.10 Discretionary Cutbacks to Satisfy Discrimination Tests. In addition to those powers granted the Plan Administrator elsewhere herein, the Plan Administrator shall have the power to reduce the Elective Contribution election of any Highly Compensated Participant at any time during a Plan Year if the Plan Administrator, in his sole discretion and based on current contribution data available, determines that the Deferral Percentage Test of Section 3.6 of this Plan, the Contribution Percentage Test of Section 3.7 of this Plan, and/or the special limitation of Section 3.9 of this Plan for such Plan Year may not be satisfied. Any such reductions shall be made to the extent necessary in the opinion of the Plan Administrator to satisfy the Deferral Percentage Test, the Contribution Percentage Test, and/or the special limitation, whichever is applicable, and shall be made by reducing the Elective Contribution election of Highly Compensated Participants. 3.11 401(k)/401(m) Testing Provision. In applying the limitations set forth in Sections 3.5(f), 3.6 and 3.7, the Plan Administrator may, at his option, utilize such testing procedures as may be permitted under Code ss.ss. 401(a)(4), 401(k), 401(m) or 410(b), including, without limitation, (a) aggregation of the Plan with one or more other qualified plans of the Controlled Group, (b) inclusion of qualified matching contributions, qualified nonelective contributions or elective deferrals described in, and meeting the requirements of, Treasury Regulations under Code ss.ss. 401(k) and 401(m) to any other qualified plan of the Controlled Group in applying the limitations set forth in Sections 3.5(f), 3.6 and 3.7, (c) effective January 1, 1999, exclusion of all Eligible Employees (other than Eligible Highly Compensated Employees) who have not met the minimum age and service requirements of Code ss. 410(a)(1)(A) in applying the limitations set forth in Sections 3.6 and 3.7, or (d) any permissible combination thereof. 35 45 ARTICLE IV LIMITATION ON ALLOCATIONS 4.1 General Rules. (a) Limitation. The Annual Additions which may be credited to a Participant's Accounts under this Plan for any Limitation Year will not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to a Participant's accounts under any other defined contribution plans (as defined in Code ss.414(i)), individual medical accounts (as defined in Code ss.415(l)(2)) and welfare benefit funds (as defined in Code ss.419(e)) maintained by the Employer for the same Limitation Year. If the Annual Additions with respect to the Participant under other defined contribution plans, individual medical accounts and welfare benefit funds maintained by the Employer, if any, are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated under this Plan to the Participant's Accounts under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated to this Plan will be reduced so that the Annual Additions under all such plans, accounts and funds for the Limitation Year (including this Plan) will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other defined contribution plans, individual medical accounts and welfare benefit funds in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's Accounts under this Plan for the Limitation Year. (b) Use of Estimated Compensation. Prior to determining the Participant's actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant's Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Compensation for the Limitation Year. (c) Allocation of Excess Amounts Among Plans, Funds and Accounts. If, pursuant to subsection (b) above or as a result of the allocation of forfeitures, a reasonable error in determining the amount of Elective Deferrals a Participant may make, or such other facts and circumstances as may be allowed by the Internal Revenue Service, a Participant's Annual Additions under this Plan and such other plans, accounts and funds (if any) would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that the Annual Additions attributable to a welfare benefit fund or an individual medical account will be deemed to have been allocated first regardless of the actual allocation date. If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of 36 46 another qualified defined contribution plan, the Excess Amount attributed to this Plan will be the product of: (i) the total Excess Amount allocated as of such date, multiplied by (ii) the ratio of (A) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (B) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all other qualified defined contribution plans. (d) Disposition of Excess Amounts. Any Excess Amount attributed to this Plan will be disposed of as follows: (i) If the Participant is covered by the Plan at the end of the Limitation Year, any Elective Contributions (and earnings thereon), to the extent they would reduce the Excess Amount, will be returned to the Participant; (ii) If, after application of paragraph (i) above, an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Matching Elective Contributions, to the extent they would reduce the Excess Amount, will be used to reduce contributions made pursuant to Section 3.1 of this Plan which would be allocated to such Participant (including any allocation of forfeitures) in the next Limitation Year, and each succeeding Limitation Year if necessary; (iii) If, after the application of the preceding paragraphs, an Excess Amount still exists and the Participant is not covered by the Plan at the end of the Limitation Year, the Matching Elective Contributions, to the extent they would reduce the Excess Amount, will be held unallocated in a suspense account. The suspense account will be applied to reduce future contributions made pursuant to Section 3.1 of this Plan which would be allocated to remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary; (iv) If a suspense account is in existence at any time during a Limitation Year pursuant to this subsection (d), it will not participate in the allocation of the Trust's investment gains and losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts before any contributions made pursuant to Section 3.1 of this Plan may be made to the Plan for that Limitation Year. Except as provided in paragraph (i) above, Excess Amounts may not be distributed from the Plan to Participants or former Participants. (e) Other Defined Benefit Plans. If the Employer maintains, or at any time maintained, one or more defined benefit plans covering any Participant in this Plan, the sum of the Participant's Defined Benefit Fraction and Defined Contribution Fraction will not 37 47 exceed 1.0 in any Limitation Year beginning on or before January 1, 1999. The foregoing limitation will be met by reducing pro rata the Projected Annual Benefit under one or more of such qualified defined benefit plans. 4.2 Applicable Definitions. For purposes of this Article, the following terms shall have the following meanings: (a) Annual Additions shall mean the sum of the following amounts allocated to a Participant's accounts for any Limitation Year: (i) contributions made by the Employer; (ii) contributions made by the Participant; (iii) forfeitures; (iv) amounts allocated to an individual medical account, as defined in Code ss.415(l)(2), which is part of a pension or annuity plan maintained by the Employer; and (v) amounts derived from contributions paid or accrued which are attributable to post-retirement medical benefits allocated to a separate account of a "key employee," as defined in Code ss.419A(d)(3), under a welfare benefit fund, as defined in Code ss.419(e), maintained by the Employer. For this purpose, any Excess Amount applied under subsection (d) of Section 4.1 above in the Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year; however, any nonvested amount restored to a Participant's Accounts following his reemployment shall not be deemed an Annual Addition, and any corrective allocation pursuant to Section 12.11 will be considered an Annual Addition for the Limitation Year to which it relates. Contributions do not fail to be Annual Additions merely because such contributions are excess deferrals (as defined in Code ss.402(g)(2)(A)), excess contributions (as defined in Code ss.401(k)(8)(B)) or excess aggregate contributions (as defined in Code ss.401(m)(6)(B)), or merely because such excess deferrals and excess contributions are corrected through distribution or recharacterization, except that excess deferrals which are timely corrected by distribution shall not be treated as Annual Additions. Excess aggregate contributions attributable to amounts other than employee contributions, including forfeited matching contributions, shall be counted as Annual Additions even if distributed. For purposes of this subsection (a), the provisions of Treas. Reg. ss.1.415-6(b) shall govern. (b) Compensation (for purposes of this Article) shall mean a Participant's Earned Income, wages, salaries, fees for professional service and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with an Employer maintaining the Plan to the extent that the 38 48 amounts are includible in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Treas. Reg. ss.1.62-2(c))), including foreign earned income (as defined in Code ss.911(b)) whether or not excludable from gross income under Code ss.911, and determined without regard to the exclusions from gross income in Code ss.ss. 931 and 933; amounts described in Code ss.ss.104(a)(3), 105(a) and 105(h), but only to the extent that these amounts are includible in the gross income of the Participant; amounts paid or reimbursed by the Employer for moving expenses incurred by the Participant, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are not deductible by the Participant under Code ss.217; the value of a non-qualified stock option granted to the Participant by the Employer, but only to the extent that the value of the option is includible in the gross income of the Participant for the taxable year in which granted; and the amount includible in the gross income of the Participant upon making a Code ss.83(b) election; and excluding the following: (i) Employer contributions to a plan of deferred compensation which are not (before the application of the Code ss.415 limitations to the plan) includible in the Participant's gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan described in Code ss.408(k), or any distributions from a plan of deferred compensation (whether or not includible in the Participant's gross income when distributed), except that amounts received by the Participant pursuant to an unfunded non-qualified plan shall be included in the year such amounts are includible in the gross income of the Participant; (ii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Participant becomes freely transferable or is no longer subject to a substantial risk of forfeiture under Code ss.83; (iii) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (iv) other amounts which received special tax benefits such as premiums for group-term life insurance (but only to the extent that the premiums are not includible in the gross income of the Participant), or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity described in Code ss.403(b) (whether or not the amounts are actually excludable from the gross income of the Participant). In addition to the amounts described above, effective for Limitation Years beginning on and after January 1, 1998, Compensation shall also include the amount of the Participant's Elective Contributions or any other contributions made by the Employer on behalf of the Employee pursuant to a deferral election under an employee benefit plan containing a cash or deferred arrangement under Code ss. 401(k) and any amounts which would have been 39 49 received as cash but for an election to receive benefits under a cafeteria plan meeting the requirements of Code ss. 125. For purposes of applying the limitations of this Article, Compensation for a Limitation Year is the Compensation actually paid, made available or includible in gross income during such year. Notwithstanding the preceding sentence, Compensation for a Participant in a defined contribution plan who is "permanently and totally disabled" (as defined in Code ss.22(e)(3)) is the compensation such Participant would have received for the Limitation Year if the Participant had been paid at the rate of compensation paid immediately before becoming permanently and totally disabled; such imputed compensation for the disabled Participant may be taken into account only if the Participant is not a Highly Compensated Employee and contributions made on behalf of such Participant are nonforfeitable when made. In interpreting this subsection (b), the provisions of Treas. Reg. ss.1.415-2(d)(1), (2) and (3) or the corresponding provisions of any future Treasury Regulations shall control. (c) Defined Benefit Fraction shall mean a fraction, the numerator of which is the sum of the Participant's Projected Annual Benefits under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of (i) 125% of the dollar limitation determined for the Limitation Year under Code ss.ss.415(b) and (d) or (ii) 140% of the Highest Average Compensation including any adjustments under Code ss.415(b). (d) Defined Contribution Dollar Limitation shall mean $30,000, as that amount may be adjusted upward for increases in the cost of living, in accordance with applicable law. (e) Defined Contribution Fraction shall mean a fraction, the numerator of which is the sum of the Annual Additions to the Participant's accounts under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years, (including the Annual Additions to this and all other qualified plans, whether or not terminated, maintained by the Employer and the Annual Additions attributable to all welfare benefit funds, as defined in Code ss.419(e), and individual medical accounts, as defined in Code ss.415(l)(2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any Limitation Year is the lesser of (i) 125% of the dollar limitation in effect under Code ss.415(c)(1)(A) or (ii) 35% of the Participant's Compensation for such year. (f) Employer shall mean, solely for purposes of this Article, the Employer and all members of a controlled group of corporations (as defined in Code ss.414(b) as modified by Code ss.415(h)), all commonly controlled trades or businesses (as defined in Code ss.414(c) as modified by Code ss.415(h)) or affiliated service groups (as defined in Code ss.414(m)) of which the Employer is a part, and any other entity required to be aggregated with the Employer pursuant to regulations under Code ss.414(o). 40 50 (g) Excess Amount shall mean the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. (h) Highest Average Compensation shall mean the average compensation for the three consecutive calendar years with the Employer that produces the highest average. In lieu of calendar years, a plan may use any 12 month period provided such period is uniformly and consistently applied. (i) Limitation Year shall mean the Plan Year. If the Limitation Year is amended to a different 12-consecutive-month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made, and the provisions of Treas. Reg. ss.1.415-2(b)(4)(iii) shall apply for the shortened Limitation Year. (j) Maximum Permissible Amount shall mean the maximum Annual Addition that may be contributed or allocated to a Participant's Account under the Plan for any Limitation Year. The Maximum Permissible Amount shall be the lesser of: (i) the Defined Contribution Dollar Limitation, or (ii) 25% of the Participant's Compensation for the Limitation Year. The compensation limitation referred to in paragraph (ii) above shall not apply to any contribution for medical benefits (within the meaning of Code ss.401(h) or Code ss.419A(f)(2)) which is otherwise treated as an annual addition under Code ss.ss.415(l)(1) or 419A(d)(2). If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12 consecutive-month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar limitation multiplied by the following fraction: number of months in the short Limitation Year 12 (k) Projected Annual Benefit shall mean the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) to which the Participant would be entitled under the terms of the Plan assuming: (i) the Participant will continue employment until normal retirement age under the Plan (or current age, if later), and (ii) the Participant's Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years. 41 51 4.3 Adjustments for Top Heavy Plan. For purposes of computing the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction, the 125% factor in subsections (c)(i) and (e)(i) of Section 4.2 shall be decreased to 100% if: (i) The Plan is Super Top-Heavy; or (ii) The Plan is Top-Heavy (whether or not Super Top-Heavy) and the Plan and any other plans maintained by the Employer do not provide the additional minimum accrued benefit described in Code ss.416(h)(2)(A). For purposes of this Section, the Plan is "Super Top-Heavy" if it would continue to be Top-Heavy if the 60% tests in the definition of Top-Heavy in Section 13.2(g) herein were changed to 90% tests. 42 52 ARTICLE V VESTING IN ACCOUNTS 5.1 Vesting of Nonforfeitable Accounts. All amounts allocated to a Participant's Elective Contributions Account, Qualified Nonelective Contributions Account, Qualified Matching Contributions Account or Rollover Contributions Account (a Participant's "Nonforfeitable Accounts") shall at all times be and remain 100% vested and nonforfeitable, except as provided in Section 12.9. 5.2 Vesting of Forfeitable Account. All amounts allocated to a Participant's Matching Elective Contributions Account, Company Basic Contributions Account, and Other Contributions Account (a Participant's "Forfeitable Accounts") shall vest in accordance with the following rules, except as provided in Section 12.9: (a) Full Vesting Events. A Participant's Forfeitable Account shall be 100% vested and nonforfeitable as of the earliest of the following dates: (i) The later of: (A) the date on which the Participant attains age 65; or (B) the date on which occurs the 5th anniversary of the date on which the Participant became a Participant hereunder; while still employed by the Employer; (ii) The date the Participant dies while still employed by the Employer; or (iii) The date the Participant becomes Disabled while still employed by the Employer. (b) Vesting Schedule. (i) Regular Schedule: An Employee whose Forfeitable Account is not 100% vested under the provisions of subsection (a) above shall be vested in such Account in accordance with the following schedule: 43 53
YEARS OF VESTING SERVICE VESTED PERCENTAGE OF EARNED BY THE THE PARTICIPANT IN SUCH PARTICIPANT ACCOUNT -------------------------------------------------------------------------------------------- Less than 5 Years 0% -------------------------------------------------------------------------------------------- 5 or more Years 100% --------------------------------------------------------------------------------------------
(ii) Alternate Schedules: Any Employer may elect a different vesting Schedule with respect to Forfeiture Accounts of Participants employed by it by designating said alternate Schedule on Exhibit B attached to and made a part of this Plan. (c) Limitations and Restrictions Regarding Vesting. (i) Nonforfeitability by Participant Conduct. No vested portion of a Participant's Account shall be forfeited as a result of conduct of the Participant (except forfeitures described in Sections 5.3 and 8.5 on account of the Participant's termination of employment). (ii) Amendments to Vesting Schedule. If the vesting schedule of this Plan is amended, the vested percentage of a Participant's Forfeitable Account, determined as of the later of the date on which the amendment to the Plan's vesting schedule is adopted or becomes effective, shall not be reduced by such amendment. Furthermore, any Participant who has at least 3 Years of Vesting Service shall: (A) automatically have his or her vesting percentage computed without regard to the change in the vesting schedule unless computing his or her vested percentage under the new vesting schedule is more favorable; or (B) have the right to elect, within 60 days of (1) the day the amendment is adopted, (2) the day the amendment becomes effective, or (3) the day the Participant is issued written notice of the amendment, whichever is latest, to have the vesting schedule in effect prior to the amendment apply in computing his vested percentage; whichever selected by the Plan Administrator applicable to all affected Participants. For purposes of this paragraph (b), an "amendment changing the vesting schedule" is any amendment which directly or indirectly affects the computation of the vested percentage of a Participant's Account balances as described in Treas. Reg. ss.1.411(a)-8(c), and Years of Vesting Service shall be determined without regard to Sections 5.4 and 5.5. 44 54 (iii) Automatic Amendments to Vesting Schedule. The rules of paragraph (ii) above shall apply to the automatic change in the vesting schedule. Furthermore, the rules of paragraph (ii) above shall apply to any automatic change in the vesting schedule caused by operation of Article XIII of this Plan. (d) Years of Vesting Service. In determining the Years of Vesting Service completed by an Employee for purposes of this Article, Years of Vesting Service shall be determined pursuant to Sections 1.82, 5.4 and 5.5 of this Plan. (e) Special Rule. In the event a Participant, prior to incurring five consecutive One-Year Breaks in Service receives a distribution of his vested Account balance and the Participant's nonvested Account balance is not forfeited, then until the Participant does incur such Breaks in Service, a separate Account shall be established for the Participant's interest in the Plan, and at any relevant time the Participant's vested portion of such Account shall not be less than an amount "X" determined by the formula: X = P (AB + (R x D)) - (R x D) where P is the vested percentage at the relevant time, AB is the Account balances at the relevant time, D is the amount of the Distribution, R is the ratio of the Account balances as of the relevant time to the Account balances after distribution, and the relevant time is the time at which the vested percentage in the Account cannot increase. 5.3 Forfeitures. Amounts in a Participant's Forfeitable Accounts which are not vested pursuant to the provisions of this Article may be forfeited by a Participant pursuant to the provisions of Sections 3.5(f), 3.8(c) and 8.5(a) of this Plan. 5.4 Reemployed Former Employees. (a) One Year Holdout. Any Employee who has a One-Year Break in Service shall not receive credit for service prior to such break in service unless and until such Employee has completed a Year of Vesting Service after his return. (b) Rule of Parity. Any former Employee (i) who does not have any nonforfeitable right under the Plan to his Forfeitable Account, and (ii) for whom the number of consecutive One-Year Breaks in Service prior to such Employee's reemployment equals or exceeds the greater of 5 or the aggregate number of Years of Vesting Service before such breaks in service shall not receive credit for service prior to such breaks in service. (c) Post Break Disregarded Service. Any Employee who has 5 consecutive One- Year Breaks in Service shall not receive credit for service after such Breaks in Service for purposes of determining such Employee's vested percentage of his or her Account balances which accrued before such 5-year period. 45 55 (d) Separate Accounting. Separate Accounts will be maintained for a Participant's pre-break and post-break Forfeitable Accounts to the extent that the Participant's vested percentage in such Accounts could differ by application of the provisions of this Section, and both such Accounts will share in earnings or losses pursuant to Article VII. 5.5 Years of Vesting Service Disregarded. Any Employee on April 1, 1995, who becomes a Participant in the Plan on said date or thereafter, shall receive credit for purposes of Section 5.2 of this Plan for Years of Vesting Service rendered to his Employer or any other member of the Controlled Group for such period of time during which said Employer (or other employer) was a member of the Controlled Group, including periods of service rendered prior to April 1, 1995. However, with respect to any person who becomes an Employee after April 1, 1995, for purposes of Section 5.2 of this Plan and notwithstanding the preceding sections of this Article, Years of Vesting Service shall be disregarded during any period for which the Employer did not maintain this Plan or a predecessor plan. For purposes of this Section 5.5, whether the Employer maintained a "predecessor plan" shall be determined in accordance with Treas. Reg. ss. 1.411(a)-5(b)(3). 5.6 Vesting Upon Termination. If, pursuant to Article XI of this Plan, this Plan is wholly or partially terminated, the rights of each "affected" Participant to his Forfeitable Account as of the date of such termination or partial termination shall be fully vested to the extent funded notwithstanding any other provision of this Article to the contrary. See Section 11.3(a) herein. 5.7 Family and Medical Leave Act. Any period while an Employee is on a leave of absence under the Family and Medical Leave Act of 1993 will be treated as continued service for the purpose of computing Years of Vesting Service. 46 56 ARTICLE VI ACCOUNTS AND INVESTMENTS 6.1 Separate Accounts. The Plan Administrator shall maintain separate Accounts for each Participant to reflect each such Participant's interest in the Plan attributable to each of the following: (a) Elective Contributions, if any, as defined in Section 1.26 of this Plan. (b) Matching Elective Contributions, if any, as defined in Section 1.47 of this Plan. (c) Qualified Matching Contributions, if any, as defined in Section 1.61 of this Plan. (d) Qualified Nonelective Contributions, if any, as defined in Section 1.63 of this Plan. (e) Company Basic Contributions, if any, as defined in Section 1.14 of this Plan. (f) Rollover Contributions, if any, as defined in Section 1.68 of this Plan. 6.2 Investment of Trust Fund. (a) General Rule. The Trust Fund, and all contributions thereto made under this Plan, shall be invested by the Trustee who shall have exclusive authority and discretion to manage and control the Trust Fund pursuant to the terms of the Trust Agreement, subject to any investment directions allowed by the Trustee under subsections (b) and (c) below, and made by the appropriate party as indicated in such subsections, as applicable. (b) Investment Manager. The Trustee may appoint one or more investment managers (as defined in ERISA ss.3(38)) to manage, acquire or dispose of all or a portion of the Trust Fund. Any such appointment shall be made in writing and shall be communicated to the Custodian, if any. A designated investment manager may certify to the Trustee in writing the name of any person, together with a specimen signature of any such person, who is authorized to communicate and implement the investment manager's respective instructions concerning the Trust Fund. The investment manager shall promptly give written notice to the Trustee of any change in any such person. The Trustee shall be subject to the directions of such investment manager(s) which are made in accordance with the terms of this Plan. 47 57 (c) Investment Funds. (i) Establishment of Funds. The Trustee shall establish three or more funds for the investment of the assets of the Trust Fund, each of which has materially different risk and return characteristics. (ii) Automatic Investment. All amounts in a Participant's Matching Elective Contributions Account shall automatically be invested in Company common stock. To the extent that shares of said stock have been allocated to a Participant's account, the Participant shall be entitled to direct the Trustee as to the exercise of any voting rights with respect to said shares, according to procedures adopted by the Plan Administrator. In the absence of any such valid instructions, the Trustee may vote said shares in its discretion. (iii) Investment Directions by Participants. Each Participant (or, in the case of the Participant's death, his Beneficiary) shall direct the investment of his Accounts (other than his Matching Elective Contributions Account) among the funds provided under paragraph (i) above. The Plan Administrator shall establish, and may alter at any time, rules and procedures which shall govern such Participant direction of investments and the timing thereof, and shall provide all necessary instructions and forms, if any, to Participants (or Beneficiaries). Such rules and procedures may restrict the frequency and timing of such Participant (or Beneficiary) directions and may also limit the amount or percentage of future contributions, and of the existing Account balance, that may be invested in Company common stock or in any other investment fund. Such rules and procedures shall be communicated to Employees (or Beneficiaries). In the absence of any valid investment direction by the Participant (or Beneficiary), the Trustee shall invest the Participant's (or Beneficiary's) Account in the discretion of the Trustee, on a consistent basis applied at the time of investment. (iv) Income or Loss. Any Account or portion thereof of a Participant (or Beneficiary) which is invested pursuant to the Participant's (or Beneficiary's) directions under paragraph (iii) above in a certain fund, or pursuant to paragraph (ii) above in Company common stock shall only share in the gains or losses of such fund or stock, and shall not share in the gains or losses of any other Trust Fund investment. (v) Expenses. Any Account or portion thereof of a Participant (or Beneficiary) which is invested pursuant to the Participant's (or Beneficiary's) directions under paragraph (iii) above shall be charged for the reasonable expenses of such directed investing. 6.3 Trustee's Reliance. The Trustee may rely and act upon any certificate, notice or direction of the Employer, Plan Administrator, investment manager, Participant or Beneficiary, or a person authorized to act on behalf of such person, that the Trustee reasonably believes to be 48 58 genuine and to have been signed by the person or persons duly authorized to sign such certificate, notice or direction. The Trustee may continue to rely upon such certificate, notice or direction until otherwise notified in writing. 49 59 ARTICLE VII ALLOCATION OF EARNINGS AND LOSSES TO ACCOUNTS OF PARTICIPANTS 7.1 Allocations of Trust Fund Earnings and Losses. As of each Valuation Date, the Trustee shall determine the fair market value of the investments of each of the funds, including the Company common stock fund, created under the Trust Fund established under Section 6.2(a) of this Plan, and shall determine the gain or loss experienced by such investments since the immediately preceding Valuation Date. Each Participant's Account or portion thereof which has been separately invested in a fund under Section 6.2(c) of this Plan shall be credited with a percentage of such gain or debited with a percentage of such loss by multiplying the aggregate gain or loss of the investments of said separate fund by a fraction, the numerator of which for each Participant is the value of the Participant's interest in the investments of said fund as of the immediately preceding Valuation Date, increased by one-half of any contributions by or on behalf of the Participant since the last Valuation Date and reduced by (i) any distribution made to the Participant, (ii) any charges for investment services, or (iii) any amounts transferred to a Participant loan account, since the last Valuation Date, and the denominator of which is the sum of the numerator amounts (as so adjusted) for all Participants, determined separately with respect to each fund. 7.2 Allocations Regarding Specific Investments. Notwithstanding any provisions of Section 7.1 of this Article to the contrary, if an Account or any portion thereof is invested in a specific fund or investment pursuant to Section 6.2, such Account or portion thereof shall not share in gains or losses of other Trust Fund investments, but shall be credited with gain or debited with loss in accordance with the proportionate amount of gain or loss of such specified fund or investment, determined in accordance with the valuation procedures described in Section 7.1 of this Article as of each Valuation Date. 50 60 ARTICLE VIII PAYMENT OF BENEFITS 8.1 Time of Payment of Benefits. If a Participant's employment with all members of the Controlled Group is terminated for any reason other than death, including becoming Disabled, retiring, or otherwise, the Participant shall receive or commence receiving the entire vested amount in his Plan Accounts (his "Benefit Amount") determined pursuant to the provisions of Section 8.4 in accordance with the following: (a) Termination Prior to Attainment of Normal Retirement Age. If the Participant terminates employment with all members of the Controlled Group prior to his attainment of his Normal Retirement Age, then the following provisions shall apply: (i) General Rule. Except as provided in paragraphs (ii) through (iv) below, the Participant may elect that his Benefit Amount shall be paid as soon as administratively practicable following any Valuation Date following the date on which the Participant has so terminated his employment, (but not later than the Participant's Required Beginning Date) in a lump sum payment valued in accordance with Section 8.4. (ii) Automatic Cash-Outs. Notwithstanding paragraph (i) above, if the value of the Participant's Benefit Amount (A) does not exceed and has never exceeded $3,500, or (B) effective as of January 1, 1998 does not exceed $5,000 on the date of the Participant's termination of employment, the Participant's Benefit Amount shall automatically be paid as soon as administratively practicable following the Participant's termination of employment with all members of the Controlled Group, in the form of a single lump sum distribution valued in accordance with Section 8.4. For purposes of the preceding sentence, if the value of the Participant's Benefit Amount is zero, the Participant shall be deemed to receive a distribution of such benefit under this paragraph (ii). (b) Termination After Attainment of Normal Retirement Age. If a Participant terminates employment with all members of the Controlled Group on or after his attainment of his Normal Retirement Age or has not terminated employment with all members of the Controlled Group as of his Required Beginning Date, then the following provisions shall apply: (i) General Rule. Except as provided in paragraphs (ii) and (iii) below, the Participant's Benefit Amount shall be paid as soon as administratively practicable following the Participant's termination of employment with all members of the Controlled Group, or, if earlier, his Required Beginning Date, in a lump sum payment valued in accordance with Section 8.4. 51 61 (ii) Later Distribution. Notwithstanding paragraph (i) above, the Participant may elect that his Benefit Amount be paid as soon as administratively practicable following any later Valuation Date elected by the Participant (but not later than the Participant's Required Beginning Date), in a lump sum payment valued in accordance with Section 8.4. The Participant's election of a Valuation Date under this paragraph (ii) must be made prior to the Valuation Date selected by the Participant under this paragraph (ii). Furthermore, a Participant's election of a Valuation Date under this paragraph (ii) must be made prior to the Valuation Date specified in paragraph (i) above. (iii) Automatic Cash-Outs. Notwithstanding paragraphs (i) and (ii) above, if the value of the Participant's Benefit Amount (A) does not exceed and has never exceeded $3,500, or (B) effective as of January 1, 1998 does not exceed $5,000 on the date of the Participant's termination of employment, the Participant's Benefit Amount shall automatically be paid as soon as administratively practicable following the Participant's termination of employment with all members of the Controlled Group, in the form of a single lump sum distribution valued in accordance with Section 8.4. For purposes of the preceding sentence, if the value of the Participant's Benefit Amount is zero, the Participant shall be deemed to receive a distribution of such benefit under this paragraph (iii). (iv) Benefits Accrued After Required Beginning Date. If a Participant has received his Benefit Amount under the preceding provisions of this subsection because his Required Beginning Date occurred prior to his termination of employment with all members of the Controlled Group, then the Participant shall receive any subsequent Account balances which he may accrue under this Plan during any Plan Year as soon as administratively practicable following the close of such Plan Year, and such distribution shall be in the same form applicable to the Participant's previous distribution. (c) Required Distributions. Notwithstanding any provision of this Plan to the contrary, the entire interest of a Participant must be distributed no later than the Participant's Required Beginning Date. All distributions required under this Section shall be determined and made in accordance with Code ss.401(a)(9) and the regulations promulgated thereunder, including the minimum distribution incidental benefit requirement of Treas. Reg. ss.1.401(a)(9)-2. 8.2 Benefits Upon Death. (a) Death Before Benefit Commencement Date. In the event of the death of a Participant prior to his Benefit Commencement Date, the Beneficiary of the Participant shall receive all or the applicable portion of the entire amount in the Participant's Plan Accounts designated for such Beneficiary under subsection (c) below (such Beneficiary's "Benefit Amount") determined pursuant to the provisions of Section 8.4 in accordance with the following: 52 62 (i) General Rule. Except as provided in paragraphs (ii) and (iii) below, the Beneficiary's Benefit Amount shall be paid as soon as administratively practicable following the date of the Participant's death and receipt by the Plan Administrator of proof thereof, in a lump sum payment valued in accordance with Section 8.4 herein. (ii) Later Distribution. Notwithstanding paragraph (i) above, the Beneficiary may elect that his Benefit Amount be paid as soon as administratively practicable following any later Valuation Date elected by the Beneficiary, in a lump sum payment valued in accordance with Section 8.4; provided, however that the Benefit Amount be paid by the date specified in Section 8.2(d). A Beneficiary's election of a Valuation Date under this paragraph (ii) must be made prior to the Valuation Date selected by the Beneficiary under this paragraph (ii). Furthermore, a Beneficiary's election of a Valuation Date under this paragraph (ii) must be made prior to the date specified in paragraph (i) above. (iii) Automatic Cash-Outs. Notwithstanding paragraphs (i) and (ii) above, if the value of such Benefit Amount (A) does not exceed and has never exceeded $3,500, or (B) effective as of January 1, 1998 does not exceed $5,000 on the date of death, the Beneficiary's Benefit Amount shall automatically be paid as soon as administratively practicable following the date the Plan Administrator receives proof of the Participant's death, in the form of a single lump sum distribution valued in accordance with Section 8.4. For purposes of the preceding sentence, if the value of the Participant's Benefit Amount is zero, the Beneficiary shall be deemed to receive a distribution of such benefit under this paragraph (iii). (b) Death On or After Benefit Commencement Date. In the event of the death of a Participant on or after his Benefit Commencement Date, there shall be no benefit payable to a Participant's Beneficiary. (c) Designation of Beneficiary. (i) General Rules. The Beneficiary of a Participant with respect to the entire vested amount in the Participant's Accounts remaining at the Participant's death shall be determined in accordance with Section 1.9 of this Plan, unless the Participant has designated a Beneficiary or Beneficiaries, which the Participant may designate pursuant to the provisions of Section 1.9 and this Section 8.2(c)(i) on a form provided by or acceptable to the Plan Administrator. However, no Beneficiary other than a Surviving Spouse designated by the Participant shall be valid unless either (1) the Participant has no Surviving Spouse (or such Spouse cannot be located), or (2) the Surviving Spouse of the Participant has consented to such designation pursuant to a Qualified Spousal Waiver. (ii) Designation of Multiple Beneficiaries. A Participant may, consistent with paragraph (i) above, designate more than one Beneficiary and, for each such 53 63 Beneficiary, may designate a percentage of the entire vested amount in his Accounts to which such Beneficiary should become entitled (such Beneficiary's "Benefit Amount") upon the Participant's death. Each such Beneficiary shall be entitled to receive his Benefit Amount determined pursuant to Section 8.4 in accordance with the provisions of subsections (a) and (b) above. Unless otherwise specified by the Participant, any designation by the Participant of multiple Beneficiaries shall be interpreted as a designation by the Participant that each such Beneficiary (if alive as of the Participant's date of death, and if not, then the contingent Beneficiary under paragraph (iii) below of such Beneficiary) should be entitled to an equal percentage of the Participant's vested Account balances upon the Participant's death. (iii) Contingent Beneficiaries. A Participant may designate contingent Beneficiaries to receive a Beneficiary's Benefit Amount in the event such Beneficiary should predecease the Participant; otherwise, in the event a Beneficiary predeceases the Participant, the person or those persons specified in Section 1.9 of the Plan shall be deemed to be the Beneficiary with respect to such deceased Beneficiary's Benefit Amount, and shall receive the Benefit Amount to which such Beneficiary would have been entitled hereunder under this Section 8.2. (d) Required Distributions and Forms of Payment. Notwithstanding any provision of this Plan to the contrary, distribution of a Beneficiary's Benefit Amount shall be made by December 31 of the calendar year containing the 5th anniversary of the Participant's death. 8.3 Form of Payment of Benefits. Benefits under this Plan shall generally be payable in the form of a single lump sum payment in cash. However, to the extent that a Participant's Accounts are invested in Company common stock, such Company common stock shall be distributed in-kind to the Participant (or the Participant's Beneficiary in the case of the Participant's Death) if requested by the Participant (or the Participant's Beneficiary in the case of the Participant's Death). See also Appendices I, II, III, IV, V, and VI. 8.4 Valuation of Accounts for Payments. The amount distributed to the Participant or Beneficiary shall be determined using the Participant's or Beneficiary's Benefit Amount valued as of the Valuation Date chosen in advance by said person in accordance with the foregoing provision of this Article VIII. In the event of automatic cash-outs paid in accordance with Section 8.1(a)(ii), 8.1(b)(iii) or 8.2(a)(iii), the relevant Valuation Date shall be the last day of the month in which the distribution event occurs. 8.5 Forfeitures. (a) Occurrence of Forfeitures. A forfeiture of the non-vested portion of a Participant's Accounts shall occur upon the earlier of the following: (i) Payment of Benefits. In the event a Participant terminates employment with the Controlled Group and receives (or is deemed to receive) a distribution of his 54 64 vested Accounts (other than a distribution under Section 8.10), the non-vested portion of his Accounts shall be forfeited as of the date of the distribution (or deemed distribution). (ii) Termination, Breaks in Service. In the event that a Participant terminates employment with all members of the Controlled Group and incurs a period of 5 consecutive One-Year Breaks in Service, the non-vested portion of his Accounts shall then be forfeited. (b) Application of Forfeited Amounts. Any forfeitures arising under paragraphs (i) and (ii) of subsection (a) above shall be used to reduce future contributions of Employers under Section 3.1 (c) Recrediting Certain Forfeitures Upon Return to Service. If a Participant incurs a forfeiture prior to incurring 5 consecutive One-Year Breaks in Service, the Participant shall have the previously forfeited amount in his Accounts (unadjusted for any gains or losses) restored if and when the Participant, after returning to service with an Employer, repays to the Trustee the entire amount of the distribution(s) he received from the Plan before the earlier of (A) 5 years after the first day on which the Participant is subsequently reemployed by the Employer, or (B) the end of the first period of 5 consecutive One-Year Breaks in Service after the distribution(s). A Participant who has been deemed to have received a distribution under this Plan and who otherwise is described in the preceding sentence shall be deemed to have repaid his deemed distribution upon his return to service with a member of the Controlled Group. The permissible sources for restoration of the Participant's previously forfeited amount in his Accounts are earnings of the Trust Fund or forfeitures arising under this Section (which shall be used for this purpose prior to the application of subsection (b) above). (d) Allocation of Forfeitures. Any forfeitures described above shall be used to offset the contribution requirements (other than for Elective Contributions) applicable to the Employer whose Participants' accounts were the source of the forfeitures in question; provided, however, that if a Participant has received contributions from more than one Employer under the Plan, his most recent Employer at the time of his severance shall be deemed to have made all such contributions for purposes of this paragraph. 8.6 Benefit Payment Commencement. Unless a Participant consents to later payment, the payment of benefits under the Plan to the Participant shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a) The attainment by the Participant of age 65; (b) The 10th anniversary of the date on which the Participant commenced participation in the Plan; or (c) The termination of the Participant's service with the Controlled Group. 55 65 The failure of a Participant to consent to a distribution when such consent is required under Section 8.6 shall be deemed to be an election to defer commencement of payment for purposes of this Section. 8.7 Notice and Consent Requirements. (a) In General. Notwithstanding any provision of this Plan to the contrary (including Section 8.6), unless one of the exceptions in subsection (c) below is satisfied, no distribution may be made or commence to a Participant unless the Participant has been provided the notification required under subsection (b) below at the time and in the manner indicated in such subsection, and has consented in writing to the distribution after receiving such notification, with such consent being given no less than 30 days and no more than 90 days prior to his Benefit Commencement Date. (b) Notification. The Plan Administrator shall notify the Participant of the right, if any, to defer any distribution. Such notification shall include a general description of the material features under the Plan and shall inform the Participant of his right to defer receipt of the distribution, and shall be provided (by mail, posting or personal delivery) no less than 30 days and no more than 90 days prior to his Benefit Commencement Date; provided, however, that a Participant may waive the right to receive the notice no less than 30 days prior to the Benefit Commencement Date; provided, further, that a Participant shall have the opportunity to consider the decision of whether or not to elect a distribution for at least 30 days after the notice is provided; provided, further, that the Plan Administrator shall provide information to the Participant clearly indicating that the Participant has the right to the 30-day period for making the decision. (c) Exceptions. This Section 8.7 shall not be applicable to the following distributions: (i) Cash-Outs. If the value of a Participant's entire vested Account balances (A) does not and has not ever exceeded $3,500 or (B) effective as of January 1, 1998 does not exceed $5,000 on the date of the Participant's termination of employment, this Section shall not be applicable to a distribution of such entire vested Account balances as a single lump sum. (ii) Immediately Distributable. If a distribution is made on or after the Participant's attainment of the later of age 62 or his Normal Retirement Age, this Section shall not be applicable to such distribution. (iii) Other Payees. If a distribution is made to an alternate payee pursuant to a qualified domestic relations order or to any other Beneficiary, this Section shall not be applicable to such distribution. 56 66 (iv) Code ss.ss.401(a)(9) and 415. If a distribution is required to satisfy the provisions of Article IV, Section 8.1(c) or Section 8.2(d), this Section shall not be applicable to such distribution. (v) Plan Termination. If a distribution is made upon termination of this Plan to the Participant and no member of the Controlled Group maintains any other defined contribution plan (other than an employee stock ownership plan as defined in Code ss.4975(e)(7)), this Section shall not be applicable to such distribution. (d) Application to Plan Provisions. To the extent that a distribution is required by the terms and provisions of this Plan, but this Section is applicable to the distribution and the distribution therefore cannot be made, such distribution shall, except as otherwise provided, be made as soon as administratively practicable following the Valuation Date coincident with the date that this Section is no longer applicable to the distribution. 8.8 Restrictions on Elective Contribution Distributions. Notwithstanding any provisions of this Plan to the contrary, a Participant's Elective Contributions Accounts shall not be distributed prior to: (a) the Participant's "separation from service" (as defined in Rev. Ruls. 79-336 and 81-141, and any subsequent guidance issued by the Internal Revenue Service), retirement, death or disability; (b) the Participant's attainment of age 59 1/2; (c) the Participant's incurrence of a "hardship" (within the meaning of Treas. Reg. ss.1.401(k)-1(d)(2)(iv)) and which meets the requirements of Section 8.10 of this Plan; (d) the termination of the Plan without establishment or maintenance by the Employer of a successor plan (within the meaning of Treas. Reg. ss.1.401(k)-1(d)(3)); (e) if the Employer is a corporation, the date of the sale or other disposition by the Employer of the Participant to an unrelated corporation of substantially all the assets used by the Employer in a trade or business (within the meaning of Treas. Reg. ss.1.401(k)-1(d)(4)); or (f) if the Employer is a subsidiary of a corporation, the date of the sale or other disposition by such corporation of its interest in the Employer of the Participant to an unrelated entity or individual (within the meaning of Treas. Reg. ss.1.401(k)-1(d)(4)). For purposes of subsections (e) and (f) above, the selling corporation must maintain this Plan after the sale or other disposition and the Participant must continue employment with the asset purchaser or subsidiary (as applicable). For purposes of subsections (d), (e) and (f) above, the distribution must be a lump sum distribution meeting the requirements of Treas. Reg. ss.1.401(k)-1(d)(5). This Section 8.8 shall not be interpreted to allow distributions at a time or in a form which is not otherwise 57 67 provided for in this Article VIII. The provisions of this Section shall be interpreted in accordance with the requirements of Code ss.401(k)(2)(B) and any regulations promulgated thereunder. 8.9 Payments to Alternate Payees. See Section 12.6(b)(iii) for special provisions which are applicable to payments to an alternate payee under a qualified domestic relations order. A qualified domestic relations order may not provide an alternate payee with a death benefit from this Plan except to the extent consistent with Section 8.2 and, if applicable, except to the extent such order requires that the alternate payee be treated as the Participant's Surviving Spouse. 8.10 Hardship Distributions of Elective Contributions. (a) General Rules. A Participant shall be entitled to apply to the Plan Administrator for a hardship distribution of all or a portion of such Participant's Elective Contributions Account balance, valued as of the Valuation Date coincident with or next following the date on which the Plan Administrator receives the Participant's application. A hardship distribution will be made to the Participant (i) only if the Plan Administrator or a person or entity designated by the Plan Administrator determines that the Participant has an immediate and heavy financial need under subsection (b) below, and (ii) only to the extent the distribution is necessary to satisfy such need under subsection (c) below. (b) Immediate and Heavy Financial Need. A distribution will be made on account of an immediate and heavy financial need of a Participant if the distribution is on account of: (i) Medical expenses described in Code ss.213(d) previously incurred by the Participant, the Participant's spouse, or any dependents of the Participant (as defined in Code ss.152) or necessary for such persons; (ii) Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) Payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant, his spouse, children or dependents; or (iv) The need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. In determining the existence of an immediate and heavy financial need, the provisions of Treas. Reg. ss.1.401(k)-1(d)(2)(iv)(A) shall govern. (c) Distribution Necessary to Satisfy Need. A distribution will be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant if all of the following requirements are satisfied: 58 68 (i) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant, including any estimated taxes which will be incurred because of said distribution; (ii) The Participant has obtained all distributions (other than hardship distributions) and all nontaxable loans available under all plans maintained by his or her Employer; (iii) After receiving the hardship distribution, the Participant shall be prohibited from making Elective Contributions under this Plan and elective contributions and employee contributions under any other plan of his Employer or under an otherwise legally enforceable agreement (including all qualified and nonqualified deferred compensation, stock option and stock purchase plans maintained by such Employer, but not including health or welfare benefit plans or the mandatory employee contribution portion of any defined benefit plan) for at least 12 months following receipt of the hardship distribution; and (iv) Notwithstanding Section 3.5(e) of this Plan, the maximum Elective Contributions pursuant to Code ss.402(g) which may be otherwise made by the Participant for the taxable year of the Participant following the taxable year in which the Participant receives the hardship distribution shall be reduced by the amount of the Participant's Elective Contributions for the taxable year in which the Participant received the hardship distribution. In determining the extent of a distribution necessary to satisfy an immediate and heavy financial need, the provisions of Treas. Reg. ss.1.401(k)-1(d)(2)(iv)(B) shall govern. (d) Taxes. The Participant shall be responsible for any excise taxes and/or any income taxes due on a hardship distribution under this Section. 8.11 Loan of Account Balances to Participants. (a) Conditions Applicable to Participant Loans. Upon the application of any Authorized Borrower filed with the Plan Administrator, the Plan Administrator shall in accordance with a uniform and nondiscriminatory policy established by it, direct the Trustee to make a loan to said Authorized Borrower. Any loans made pursuant to this Section 8.11 shall satisfy the following conditions: (i) Such loans shall be available to all Authorized Borrowers. For purposes of this Section "Authorized Borrower" shall mean any Participant or Beneficiary who is a party-in-interest within the meaning of ERISA ss. 3(14) and any Employee as defined in section 1.32 of this Plan who is not a Leased Employee or a Self-Employed Individual. 59 69 (ii) Such loans shall not be made available to Authorized Borrowers who are Highly Compensated Employees in an amount which is greater than that available to other Authorized Borrowers in accordance with United States Department of Labor Regulations ss. 2550.408b-1(c); provided, however, that loans may be permitted in an amount that bears a uniform relationship to vested Account balances. (iii) Each such loan shall bear a rate of interest so as to provide the Plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances in accordance with United States Department of Labor Regulations ss. 2550.408b-1(e). (A) The interest rate for a loan from the Plan shall be the rate which shall be selected by the Plan Administrator as of the first day of the month during which the Authorized Borrower applies for the loan. (B) The Plan Administrator shall have the responsibility on an ongoing basis to assure that the rate of interest for Authorized Borrower loans provides the plan with a rate of return which is commensurate with the interest rate charged under similar circumstances by persons in the business of lending money. If the rate described above fails to accomplish this objective, the Plan Administrator has the duty to specify in writing an alternative rate which shall be deemed to be the rate of interest for loans under this Section 8.11. (iv) The amount of any such loan, when added to the outstanding balance of all other loans, if any, from the Plan (or from any other plan maintained by the Employer) to such Authorized Borrower shall not exceed the lesser of: (A) $50,000, reduced by the excess (if any) of (1) the highest outstanding balance of loans from the Plan to such Authorized Borrower during the one-year period ending on the day before the date on which the loan was made, over (2) the outstanding balance of loans from the Plan to such Authorized Borrower on the date a new loan was made, or (B) one-half (1/2) of the value of the vested Accounts of such Authorized Borrower. (v) Each such loan, by its terms, shall be repaid within 5 years, unless such loan is used to acquire a dwelling unit which, within a reasonable time, is to be used as the principal residence of the Authorized Borrower, in which event such loan shall be repaid within 15 years. 60 70 (vi) Each loan, by its terms, shall require repayment on a substantially level amortization basis with loan repayments made not less frequently than quarterly over the term of the loan. (vii) Effective as of January 1, 1998, if a Participant is married and has an Applicable Account under Appendix I of the Plan, then prior to the making of a loan under this Section of the Plan, the spouse of the Participant must consent in writing to the use of the Account as security for the loan. Such consent must be given during the 90-day period ending on the date on which the loan is made. The consent of the spouse must acknowledge the effect of the use of the Participant's Account balance as security for a loan and must be witnessed by a representative of the Plan Administrator or a notary public. However, the consent of the spouse will not be required if it is established to the satisfaction of the Plan Administrator that such consent cannot be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may prescribe by regulations. (viii) The principal amount of any Authorized Borrower loan may not be less than $1,000. (ix) All Authorized Borrower loans will be repaid by Authorized Borrowers who are Employees or who subsequently become Employees on a payroll deduction basis. All other Authorized Borrower loans must be promptly repaid by tender of cash or check for the proper installment payment amount. Loan repayments made by an Authorized Borrower shall be allocated solely to the account of the Authorized Borrower making the repayment. (x) Each such loan shall be evidenced by a promissory note executed by such Authorized Borrower and payable to the Trustee not later than the earliest of a fixed maturity date meeting the requirements of paragraph (v) above, or the following events of default: (A) the Authorized Borrower's death, (B) the Authorized Borrower's failure to pay any amount due within 30 days after the date due, (C) the Authorized Borrower's insolvency, (D) a general assignment for the benefit of the Authorized Borrower's creditors, (E) an appointment of a receiver or trustee with respect to all or a substantial part of the Authorized Borrower's real or personal property, (F) any petition in bankruptcy by or against the Authorized Borrower, (G) any judgment against the Authorized Borrower, (H) the Authorized Borrower's retirement under the Plan, (I) any failure by the Authorized Borrower to perform any covenant, condition or agreement contained in the loan documents, (J) the Authorized Borrower's disability, (K) the termination of the Plan for any reason, or (L) the Authorized Borrower's ceasing to be an Authorized Borrower. Such promissory note shall evidence such terms as are required by this Section. (xi) For each Authorized Borrower for whom a loan is authorized pursuant to this Section, the Plan Administrator shall (1) direct the Trustee to 61 71 liquidate the Authorized Borrower's interest in his or her vested accounts to the extent necessary to provide funds for the loan, (2) direct the Trustee to disburse funds to the Authorized Borrower upon the Authorized Borrower's execution of the promissory note referred to in paragraph (x) above, (3) transmit to the Trustee such executed promissory note, and (4) establish and maintain a separate recordkeeping account (A) which initially shall be in the amount of the loan, (B) to which the funds for the loan shall be deemed to have been allocated and then disbursed to the Authorized Borrower, (C) to which the promissory note shall be allocated and (D) which shall show the unpaid principal of and interest on the note from time to time. All payments of principal and interest by an Authorized Borrower shall be credited initially to his or her separate recordkeeping loan account and applied against the Authorized Borrower's promissory note, and then invested according to the Authorized Borrower's investment directions applicable to his Elective Contributions allocated to the Authorized Borrower's accounts. (xii) Each such loan shall be adequately secured by a pledge of such Authorized Borrower's loan account referred to in paragraph (xi) above so that, in the event the Authorized Borrower defaults on such loan or fails to repay such loan in the time set forth in the promissory note, the Plan Administrator may satisfy any amount of principal or interest due and unpaid on the loan at the time of any default on the loan, and any interest accruing thereafter by deduction from the Authorized Borrower's loan account referred to in paragraph (xi) above. Such amount of principal and interest due and unpaid shall be deemed to have been deducted and distributed to the Authorized Borrower immediately upon default, unless such Authorized Borrower was not, at the time of default, eligible to receive a distribution under the provisions of this Plan, in which event such amount shall be deemed to have been deducted and distributed at such time as the Authorized Borrower first becomes eligible to receive a distribution under the provisions of this Plan. In the event that the amount so deducted and distributed is insufficient to satisfy the remaining balance of such loan, the Authorized Borrower shall be liable for, and must continue to make payments on any such balance still due to the Trust Fund, in accordance with applicable law, and interest at the rate specified in the promissory note shall continue to accrue on any outstanding amount until fully satisfied. (xiii) In the event an Authorized Borrower receives a loan from the Plan, to the extent that an amount is borrowed by an Authorized Borrower from his Account, the Authorized Borrower's Account will not share in the earnings or losses of the Trust Fund, but will only share in earnings or losses based upon the loan made to the Authorized Borrower. An Authorized Borrower who elects to receive a loan from the Plan also automatically elects to direct the investment of his or her Accounts in said loan to the extent so borrowed in accordance with the preceding sentence. 62 72 (xiv) Notwithstanding any provision of this Plan to the contrary, this Plan may distribute the promissory note of an Authorized Borrower identified in paragraph (x) above or may cancel all or a portion of the indebtedness evidenced by such note in lieu of making a cash distribution required by this Plan. (xv) Any Authorized Borrower who takes out or renews a loan from the Plan shall be restricted in the amount which the Authorized Borrower can withdraw under the preceding Sections of this Article VIII so that the Plan at all times shall retain at least 20% of an Authorized Borrower's vested Account balances. (xvi) In the event of default, foreclosure on the note and attachment of security will not occur until a distributable event occurs in the Plan. (xvii) No loans will be made to any Shareholder-Employee or Owner-Employee. For purposes of this requirement, a Shareholder-Employee means an employee or officer of an electing small business (Subchapter S) corporation who owns (or is considered as owning within the meaning of Code ss. 318(a)(1)), on any day during the taxable year of such corporation, more than 5% of the outstanding stock of the corporation. (xviii) The source of any loan shall be the Authorized Borrower's Elective Contribution Account and/or the Authorized Borrower's Rollover Contribution Account, as designated by the Authorized Borrower, and the assets of said account shall be reduced proportionately in each investment account in which they are held. (xix) Notwithstanding any other provision of the Plan, loan repayment will be suspended under the Plan as permitted under Code ss. 414(u)(4) for Participants on a leave of absence for "qualified military service" (as defined in Section 12.19 of the Plan). (b) Additional Conditions that May be Established by the Plan Administrator. The Plan Administrator shall have complete discretion to establish administrative procedures that shall be applicable to Authorized Borrower loans, without the necessity of amending the Plan, including but not limited to the following: (i) The Plan Administrator may establish an alternative minimum dollar amount that may be borrowed, provided that such amount may not exceed $1000. (ii) The Plan Administrator may require all loans to be effective only as of a Valuation Date. 63 73 (iii) The Plan Administrator may require that all Authorized Borrowers requesting a loan pay a reasonable loan origination fee. Any such administrative procedures shall be set forth in writing and communicated to Authorized Borrowers. (c) Special Effective Date. Loans shall not be permitted under this Plan until January 1, 1998. 8.12 Rollover Distribution Election. (a) General Rule. If a Participant or Surviving Spouse of a Participant (or an alternate payee pursuant to a qualified domestic relations order who is a Spouse or former Spouse of a Participant) who is to receive a payment under this Article which equals or exceeds $200 and which is an eligible rollover distribution (as defined below) elects (within the 90 day period ending on the Benefit Commencement Date) to have such distribution (or a portion of such distribution if the amount of such portion equals or exceeds $500) paid directly to an eligible retirement plan (as defined below) and specifies the eligible retirement plan to which such distribution is to be paid, such payment to be made to the Participant or Surviving Spouse (or alternate payee) of a Participant shall be made in the form of a direct lump sum transfer of cash from the Trustee to the trustee of the eligible retirement plan so specified in lieu of the payment otherwise required by this Article. The preceding sentence shall only apply to the extent that the eligible rollover distribution would be includible in the Participant's or Surviving Spouse's (or alternate payee's) gross income if not so transferred (determined without regard to Code ss.ss.402(c) and 403(a)(4)). Rollover distributions may be directed to no more than one eligible retirement plan for each distribution. (b) Definitions. For purposes of this Section, the following terms shall have the meanings indicated: (i) Eligible retirement plan shall mean: (A) with respect to a Participant (or alternate payee), an individual retirement account described in Code ss.408(a), an individual retirement annuity described in Code ss.408(b) (other than an endowment contract), a qualified trust which is a defined contribution plan and the terms of which permit the acceptance of rollover distributions, or an annuity plan described in Code ss.403(a); or (B) with respect to a Surviving Spouse of a Participant, an individual retirement account described in Code ss.408(a) or an individual retirement annuity described in Code ss.408(b) (other than an endowment contract). 64 74 (ii) Eligible rollover distribution shall mean any distribution to a Participant or Surviving Spouse (or alternate payee) of a Participant of all or any portion of the balance to the credit of such individual in this Plan; provided, however, such term shall not include: (A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Participant or his designated Beneficiary or the joint lives (or joint life expectancies) of the Participant and his designated Beneficiary, or for a specified period of 10 years or more; (B) any distribution to the extent such distribution is required by Section 8.1(c) or Section 8.2(d); (C) the portion of any distribution that is not includible in gross income; (D) effective as of January 1, 1999, any "hardship" distribution under Section 8.10; and (E) any other distribution or portion of a distribution to the extent such distribution is not considered an eligible rollover distribution under Treasury regulations or other guidance issued by the Internal Revenue Service. (c) Satisfaction of Requirements. For purposes of this Section, the Participant or Surviving Spouse (or alternate payee) of the Participant electing the transfer must present sufficient evidence in a timely manner to the Plan Administrator that the transferee plan satisfies the definition of an eligible retirement plan set forth above. At a minimum, the Participant or Surviving Spouse (or alternate payee) of the Participant must state the name of the transferee plan and represent that the transferee plan is an eligible retirement plan (as defined in paragraph (i) of subsection (b) above). The Participant or Surviving Spouse (or alternate payee) of the Participant must also present such additional documentation as the Plan Administrator may require which shall be used to verify that the requirements of this Section have been met. The Trustee, the Plan Administrator, or any Plan fiduciary shall have no duty to verify the authenticity of any such evidence or documentation, and shall be entitled to rely on any such evidence submitted by a Participant or Surviving Spouse (or alternate payee) of the Participant, without questioning the authenticity thereof, unless it is unreasonable to so rely. Furthermore, in the event that the Trustee, the Plan Administrator or any Plan fiduciary shall have actual knowledge of an issue relating to the transferee plan's ability to satisfy the definition of an eligible retirement plan, such issue must be expressly resolved in favor of the satisfaction of such definition by the transferee plan by a ruling from the Internal Revenue Service or by an opinion of legal counsel (chosen by the Participant or Surviving Spouse (or alternate payee) of the Participant, but acceptable to the Plan 65 75 Administrator) directed to the Trustee, the Plan, the Plan Administrator and any fiduciary of the Plan, before the transfer can occur. (d) Determination in the Plan Administrator's Discretion. The Plan Administrator shall have complete and absolute discretion to determine whether the proposed transferee plan selected by the distributee satisfies the requirements of this Section, and to determine whether the requirements of this Section have otherwise been satisfied by a proposed transfer. (e) Interpretation. The provisions of this Section shall be interpreted in accordance with Code ss.401(a)(31), as added by the Unemployment Compensation Amendments of 1992, and any regulations or other guidance promulgated by the Internal Revenue Service thereunder, and shall not be construed or interpreted in a manner other than strict compliance with such requirements. (f) Application of Other Rules. For all purposes of this Plan, the election by a Participant or Surviving Spouse (or alternate payee) of a Participant of a transfer under this Section shall be considered a payment or distribution under this Article as if the amount transferred were paid directly to the Participant or Surviving Spouse (or alternate payee). 8.13 Provision Pursuant to Code Section 401(a)(9). (a) In General. Notwithstanding any other provision of the Plan, to the extent required under Code ss. 401(a)(9) of the Code, the entire vested Account balance of a Participant who is a 5% owner (as defined in Code ss. 416) or who attains age 70 1/2 prior to July 1, 1999 (i) shall be distributed to him in a lump sum in cash not later than April 1 of the calendar year following the calendar year in which he attains age 70 1/2 and, with respect to such Participants who are Employees, on December 31 of such year and each succeeding year or (ii) shall commence to be distributed to him in one of the optional forms of benefit under Appendix II, III, IV or V, not later than the time specified in clause (i) of this paragraph. In addition, the vested Account balance of any other Participant must be distributed or commence to be distributed not later than the April 1 of the calendar year following the later of (i) the calendar year in which he attains age 70 1/2 or (ii) the calendar year in which he incurs a termination of employment. (b) Notwithstanding the foregoing, distributions under this Section 8.13 shall be made in accordance with the provisions of Code ss. 401(a)(9) and Treasury Regulations issued thereunder, including Treas. Reg. ss. 1.401(a)(9)-2, which provisions are hereby incorporated herein by reference, provided that such provisions shall override the other distribution provisions of the Plan only to the extent that such other Plan provisions provide for distribution that is less rapid than required under such provisions of the Code and Regulations. Nothing contained in this Section shall be construed as providing any optional form of payment that is not available under the other distribution provisions of the Plan. 66 76 (c) A Participant who attained age 70 1/2 on or before December 31, 1996 but did not retire from employment with the Employer before January 1, 1997 and who began to receive the minimum required distributions under Code ss. 401(a)(9) as in effect prior to January 1, 1997, may, in accordance with procedures to be established by the Plan Administrator, elect to stop receiving such distributions until the Participant retires from employment with the Employer. 67 77 ARTICLE IX THE TRUST FUND AND THE TRUSTEE 9.1 Existence of Trust. The Company has entered into the Trust Agreement with the Trustee designated by the Company on the Trust Agreement to hold the funds necessary to provide the benefits set forth in this Plan. 9.2 Exclusive Benefit Rule. The Trust Fund shall be received, held in trust, and disbursed by the Trustee in accordance with the provisions of the Trust Agreement and this Plan. No part of the Trust Fund shall be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries and the payment of reasonable expenses attributable to the administration of the Plan in accordance with ERISA ss.404(a)(1)(A)(ii). For purposes of the preceding sentence, the use of the Trust Fund to pay fees and expenses incurred in connection with the provision of services is not a reasonable expense of administering the Plan if the payments are made for the Employer's benefit or involve services for which the Employer could reasonably be expected to bear the cost in the normal course of such Employer's business or operations. In this regard, services provided in conjunction with the establishment, termination or design of plans relate to the business activities of the Employer and generally would not be "reasonable expenses attributable to the administration of the Plan." No person shall have any interest in, or right to, the Trust Fund or any part thereof, except as specifically provided for in this Plan or the Trust Agreement, except as provided in Section 3.4. Notwithstanding the preceding provisions of this Section, this Section shall be construed in accordance with the requirements of Code ss.401(a)(2) and ERISA ss.403(c) and any regulations or other guidance promulgated thereunder, and shall not be construed in a manner more restrictive than such requirements. 9.3 Removal or Resignation of Trustee. The Company may remove the Trustee at any time or the Trustee may resign at any time upon the notice required by the terms of the Trust Agreement, and upon such removal or upon the resignation of a Trustee, the Company shall appoint a successor Trustee. 9.4 Powers of Trustee. The Trustee shall have the power to hold, invest, reinvest, or to control and disburse the Trust Funds in accordance with the provisions of the Trust Agreement and Article VI of this Plan. If more than one person shall be designated as Trustee at any given time, any reference herein to the Trustee shall refer to all of said persons, except that the signature of only one of said persons shall be sufficient to represent the signature of all of said persons and the action of any one of them shall be deemed to be the action of the Trustee. 9.5 Integration of Trust Agreement. The Trust Agreement shall be deemed to be a part of this Plan, and all rights of Participants or others under this Plan shall be subject to the provisions of the Trust Agreement. 9.6 Records and Accounts. The Trustee shall maintain accurate and detailed records and accounts of all transactions of the Plan, which shall be available at all reasonable times for 68 78 inspection or audit by any person designated by the Employer or Plan Administrator and by any other person or entity to the extent required by law. 9.7 Annual Reports. As soon as practicable following the close of the Plan Year, the Trustee shall file with the Plan Administrator and the Employer a written report setting forth all transactions with respect to the Trust Fund during such Plan Year and listing the assets of the Trust Fund and the market value thereof at the close of the period covered by such report. The Trustee shall also provide the Plan Administrator and the Employer with such other information in its possession as may be necessary for the Plan Administrator or Employer to conform with the requirements of ERISA ss.103. 69 79 ARTICLE X ADMINISTRATION 10.1 Allocation of Responsibility. The general administration and day to day operations of the Plan and the responsibility for carrying out the provisions thereof will be placed in the Plan Administrator who shall be designated by the President of the Company or by resolution of the Executive Committee of the Board of Directors of the Company. In the absence of such a designation, the Company shall carry out the responsibilities of the Plan Administrator. 10.2 Administrative Expenses. The Plan Administrator may employ financial, legal, or other counsel and engage such clerical, financial, or other services as the Plan Administrator may deem necessary for the effective administration of the Plan and compliance with Federal and state regulations. Said operating expenses and any other reasonable administrative expenses will be paid out of the Trust Fund to the extent possible consistent with the exclusive benefit rule set forth in Section 9.2, unless the Company elects (in its sole discretion) to pay such expenses. 10.3 Plan Administrator Powers and Duties. The Plan Administrator shall have the power to interpret and construe the Plan, to settle all questions arising from the operation of the Plan, to determine all questions of eligibility and the status and rights of Participants, Beneficiaries and others, and to establish rules for the administration of the Plan and the transaction of its business. Final determinations or actions of the Plan Administrator with respect to any questions arising out of or in connection with the administration of the Plan will be final and conclusive and binding upon all persons having an interest in the Plan. The Plan Administrator may delegate to other persons, all or such portion of their duties hereunder, other than those granted to the Trustee under the Trust Agreement, as the Plan Administrator, in his sole discretion, may decide. 10.4 Records and Reports. The Plan Administrator will keep such accounts and records as he may deem necessary or proper in the performance of his duties under the Plan. 10.5 Reporting and Disclosure. The Plan Administrator shall file all reports and returns required to be filed by the Plan (other than those which are the responsibility of the Trustee) with any governmental agency, shall make all disclosures to Employees, Participants and Beneficiaries, and shall make available for examination by said persons copies of all Plan documents, descriptions, returns and reports as may be required by applicable law or as specified herein. 10.6 Named Fiduciary. The Trustee and the Plan Administrator shall be named fiduciaries under the Plan within the meaning of ERISA, with the division of responsibilities between them as set forth in this Plan and the Trust Agreement. 10.7 Administrator. The Plan Administrator shall be the "administrator," as that term is defined in ERISA ss.3(16)(A) and Code ss.414(g), of this Plan. 70 80 10.8 Interpretation of the Plan and Findings of Facts. The Plan Administrator shall have sole and absolute discretion to interpret the provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to make factual findings with respect to any issue arising under the Plan, to determine the rights and status under the Plan of Participants and other persons, to decide disputes arising under the Plan and to make any determinations and findings (including factual findings) with respect to the benefits payable thereunder and the persons entitled thereto as may be required for the purposes of the Plan. In furtherance of, but without limiting, the foregoing, the Plan Administrator is hereby granted the following specific authorities, which he shall discharge in his sole and absolute discretion in accordance with the terms of the Plan (as interpreted, to the extent necessary, by the Plan Administrator): (a) To resolve all questions (including factual questions) arising under the provisions of the Plan as to any individual's entitlement to become a Participant; (b) To determine the amount of benefits, if any, payable to any person under the Plan (including, to the extent necessary, making any factual findings with respect thereto); and (c) To conduct the review procedure specified in Section 12.5. All decisions of the Plan Administrator as to the facts of the case, as to the interpretation of any provision of the Plan or its application to any case, and as to any other interpretative matter or other determination or question under the Plan shall be final and binding on all parties affected thereby, subject to the claims and review procedures under Section 12.5 of this Plan. The Plan Administrator shall direct the Trustee relative to benefits to be paid under the Plan and shall furnish the Trustee with any information reasonably required by it for the purpose of paying benefits under the Plan. 10.9 Bonding, Insurance and Indemnity. (a) Bonding. To the extent required under ERISA, the Company will obtain, pay for and keep current a bond or bonds with respect to the Plan Administrator, and any other Employee who receives, handles, disburses, or otherwise exercises custody or control of, any of the assets of the Plan. (b) Insurance. The Company, in its discretion, may obtain, pay for and keep current a policy or policies of insurance, insuring the Plan Administrator, the members of the board of directors of the Company and other Employees to whom any fiduciary responsibility with respect to the administration of the Plan has been delegated against any and all costs, expenses and liabilities (including attorneys' fees) incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable law. (c) Indemnity. If the Company does not obtain, pay for and keep current the type of insurance policy or policies referred to in subsection (b) above, or if such insurance 71 81 is provided but any of the parties referred to in subsection (b) above incur any costs or expenses which are not covered under such policies, then the Company will indemnify and hold harmless, to the extent permitted by law, such parties against any and all costs, expenses and liabilities (including attorneys' fees) incurred by such parties in performing their duties and responsibilities under this Plan, provided that such party or parties were acting in good faith within what was reasonably believed to have been the best interests of the Plan and its Participants. 72 82 ARTICLE XI AMENDMENT, TERMINATION, MERGER, CONSOLIDATION AND ADOPTION 11.1 Permanency of Plan. It is contemplated by the Company that the Plan and Trust shall be maintained permanently and that they shall constitute a qualified plan under Code ss.401 and a tax-exempt trust under Code ss.501, or any successor provisions. Nevertheless, the Company and the Employers must necessarily reserve and do hereby reserve the rights of amendment, termination and withdrawal as set forth in this Article. 11.2 Right to Amend Plan. (a) Amendment by the Company. The Company reserves the right, at any time, to modify or amend, in whole or in part, any or all of the provisions of the Plan, including specifically the right to make such amendments effective retroactively, if necessary or desirable, to bring the Plan into conformity with Code, ERISA, and any applicable regulations promulgated so that the Plan may continue to remain qualified and the Trust may continue to remain tax-exempt, or for any other purpose, subject to subsection (c) below. Any such amendment shall be in writing and shall be executed by an authorized officer of the Company. (b) Amendment by Employer other than Company. An Employer other than the Company cannot at any time modify or amend, in whole or in part, any or all of the provisions of the Plan so long as such Employer continues to participate in this Plan. Such an Employer may, however, amend the provisions of any Exhibit to the Plan which refers specifically to said Employer, with the written approval of the Plan Administrator, or may cease to participate in this Plan at any time by giving written notice to the Company indicating the effective date of such termination of participation prior to such effective date unless waived by the Company. See Section 11.4 of this Plan. (c) Restrictions on Amendments. (i) Exclusive Benefit Rule. No modification or amendment shall make it possible for Trust assets to be used for, or diverted to, purposes other than the exclusive benefit of Participants and their Beneficiaries in accordance with the exclusive benefit rule under Section 9.2 of the Plan herein, except as provided in Section 3.4. (ii) Code ss.411(d)(6) Restrictions. No amendment to the Plan shall be permitted that would have the effect of decreasing the Account balances of any Participant. Furthermore, no amendment shall be permitted that would have the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in Treasury regulations under Code ss.411(d)(6)(B)(i)), if any, 73 83 or, except as permitted under Treasury regulations, eliminating an "optional form of benefit" as defined in Treas. Reg. ss.1.411(d)-4(Q&A-1). (iii) Code ss.411(a)(10) Vesting Restrictions. Any amendment changing the vesting schedule of this Plan shall comply with the provisions of Section 5.2(c). For purposes of this paragraph (iii), an "amendment changing the vesting schedule" is any amendment which directly or indirectly affects the computation of the vested percentage of a Participant's Account balances as described in Treas. Reg. ss.1.411(a)-8(c). 11.3 Right to Terminate Plan. (a) Termination by the Company. The Company reserves the right, at any time, to wholly or partially terminate the Plan. If the Plan is terminated by the Company, all Accounts of "affected" Participants within the meaning of Code ss.411(d)(3) as of the date of termination shall immediately become nonforfeitable and fully vested, to the extent funded. If the Plan is partially terminated by the Company or for whatever reason, all Accounts of those "affected" Participants within the meaning of Code ss.411(d)(3) shall, as of the date of partial termination, immediately become nonforfeitable and fully vested, to the extent funded. Furthermore, a "complete discontinuance of contributions" within the meaning of Treas. Reg. ss.1.411(d)-2(d) under the Plan shall be treated as a termination of the Plan for purposes of this subsection. (b) Termination by Employer Other than Company. An Employer other than the Company cannot at any time terminate this Plan. Such an Employer may, however, cease to participate in this Plan at any time by giving written notice to the Company indicating the effective date of such termination of participation prior to such effective date unless waived by the Company. See Section 11.4 of this Plan. (c) Distributions Upon Termination. If the Plan is terminated, the Account balances of affected Participants shall be either held in the Trust pursuant to the provisions of the Plan, transferred to another plan maintained by the Controlled Group which is qualified under Code ss.401(a), or distributed as soon as administratively feasible pursuant to Rev. Rul. 89-87, in the sole discretion of the Company. However, notwithstanding the preceding sentence, a distribution may not be made upon termination if the Controlled Group establishes or maintains any other defined contribution plan which is not an employee stock ownership plan. See also Sections 8.7(c)(v) for a similar restriction, and 11.5 for restrictions on transfers. Any distribution upon Plan termination must not eliminate or reduce an early retirement benefit or retirement-type subsidy, if any, (as defined in Treasury regulations under Code ss.411(d)(6)(B)(i)), or except as permitted under Treasury regulations, eliminate an optional form of benefit payment, unless the consent requirements of Section 8.7 are satisfied. (d) Consent to Distribution or Transfer. If the Plan is terminated by the Company, then the Plan may distribute a Participant's Account balances without the 74 84 Participant's consent unless a member of the Controlled Group maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code ss.4975(e)(7)), in which case, the Participant's Account balances may be transferred without the Participant's consent to such other defined contribution plan if the Participant does not consent to an immediate distribution from the Plan. (e) Other Special Rules Upon Termination. See Treas. Reg. ss.1.411(d)-4(Q&A-2)(b)(2)(iii) and (vi) for special rules regarding amendments which may be made to this Plan upon termination. 11.4 Termination of Participation in Plan by Employer other than Company. An Employer other than the Company may cease to participate in this Plan at any time by giving written notice to the Company indicating the effective date of such termination of participation prior to such effective date unless waived by the Company, and, in such event, the Account balances of Participants who are Employees of such Employer or who were Employees of such Employer and who are no longer Employees of any Employer shall be either held in the Trust for the benefit of such Participants and their Beneficiaries pursuant to the provisions of the Plan, or transferred to another plan of such Employer ceasing participation which is a qualified plan under Code ss.401(a) if the Company approves of such transfer and if the requirements of Section 11.5 of this Plan are, in the opinion of the Company in its sole discretion, satisfied. Such other plan of such Employer ceasing participation may be amended or terminated at any time and in any manner by such Employer, subject to the restrictions of subsection (b) of Section 11.2 herein. 11.5 Merger, Consolidation, or Transfer of Assets. (a) Code ss.401(a)(12) Restriction. The Plan shall not be merged or consolidated with any other plan, and its assets and liabilities may not be transferred to any other trust, unless each Participant, immediately after the merger, consolidation or transfer (if the Plan then is terminated), would receive a benefit which is equal to or greater than the benefit he would have been entitled to receive, and would be entitled to each benefit payment option to which he would have been entitled, immediately before the merger, consolidation or transfer (if the Plan is then terminated). (b) Code ss.401(a)(11) Restriction. Subject to subsection (c) below, this Plan may be the recipient of a transfer of assets from, or may transfer assets to, another plan qualified under Code ss.401(a) subject to the approval of the Company; provided, however, in no event shall this Plan be the recipient of a direct or indirect transfer of assets if such receipt would make this Plan a "transferee plan" within the meaning of Treas. Reg. ss.1.401(a)-20(Q&A-5)(a), unless such assets are separately accounted for (within the meaning of Treas. Reg. ss.1.401(a)-20(Q&A-5)(b)) and are subject to the requirements of Code ss.401(a)(11). (c) Code ss.411(d)(6) Restriction. This Plan may be the recipient of a transfer of assets from, or may transfer assets to, another plan qualified under Code ss.401(a) in 75 85 accordance with subsection (b) above only if such transfer satisfies the provisions of Treas. Reg. ss.1.411(d)-4(Q&A-3). (d) If another plan is merged into this Plan after the effective date of a change in the plan qualification requirements of the Code, then the provisions of this Plan that are intended to comply with those changed plan qualification requirements shall be deemed to relate back to, and to apply to, the plan that is merged into this Plan during periods of time from the effective date of the change in the plan qualification requirements of the Code through the date of the plan merger. 11.6 Adoption of Plan by Controlled Group Members. (a) Procedures for Adoption of Plan. This Plan may be adopted by any member of the Controlled Group if the following requirements are met: (i) The member of the Controlled Group wishing to become an Employer must adopt the Plan by the execution of a formal resolution by such member's board of directors to adopt this Plan, and such resolution or a merger amendment, as appropriate, shall indicate the effective date of such adoption; and (ii) Such document(s) evidencing the adoption of the Plan by the Controlled Group member must be delivered to and accepted in writing by the Plan Administrator or approved by resolution of the board of directors of the Company. The documents referred to in paragraphs (i) and (ii) of this Section shall be attached hereto and made a part of the Plan. Such documents may, in addition to specifying the effective date of the adoption, specify other provisions including, but not limited to, credit for service prior to the effective date for eligibility and vesting purposes, and contributions for each adopting Employer. In addition, Exhibit A hereto shall reflect any such special provisions with respect to contributions. In the absence of any such provisions, the terms and provisions of this Plan shall control. (b) Procedures for Withdrawal from Plan. Any Employer may voluntarily withdraw from participating in the Plan, provided that notice of such intent to discontinue participation is furnished to the Company prior to the effective date of the withdrawal, unless waived by the Company. The Company unilaterally may terminate an adopting Employer's participation in the Plan for: (i) failure to timely provide requested information; (ii) failure to timely make contributions; (iii) failure to cooperate with the Company in administering the Plan; or 76 86 (iv) for any other reason that the Company deems appropriate. (c) Transfer of Assets. Upon the voluntary withdrawal or involuntary termination of an Employer's participation in the Plan, the Company shall determine the amount of assets and liabilities of the Plan (if any) which shall be transferred to a qualified plan of the withdrawing Employer. This determination shall be made based upon principles set forth in Code ss.ss.401(a)(12) and 414(l) and the regulations promulgated thereunder. Any transfer of assets and liabilities under this subsection (c) shall comply with the provisions of Section 11.5. (d) Apportionment of Costs. The Company and all Employers shall share in the costs of the Plan (other than those costs paid from the Trust Fund in accordance with Section 10.2), including but not limited to, the contributions to the Plan, the costs of the Plan Administrator, the costs of the consultants (actuaries, accountants, attorneys, etc.) and various other direct and indirect costs of operating the Plan which may initially be borne by the Company or any Employer but which are determined by the Plan Administrator to be costs associated with the Plan. The Plan Administrator shall apportion these costs to the Company and each Employer as it deems to be equitable. (e) Cooperation. Each Employer shall cooperate fully with the Company and the Plan Administrator with regard to all matters pertaining to the Plan. Any failure to cooperate will be grounds for the involuntary termination of that Employer's participation in the Plan. 77 87 ARTICLE XII GENERAL PROVISIONS 12.1 Participant's Rights to Employment, Etc. Nothing contained in the Plan or the establishment of the Trust, or any modification thereof, or the creation of any fund or account, or the payment of any benefits, shall be construed to give any Employee, whether or not a Participant, or any Beneficiary, any rights to continued employment, any legal or equitable right against an Employer, or any officer or employee thereof, or the Trustee, or its agents or employees, except as herein provided. 12.2 No Guarantee of Interests. The Employer, the Plan Administrator and the Trustee do not guarantee the Trust Fund from any loss or depreciation, nor do they guarantee any payment to any person. The liability of the Trustee, the Employer, and the Plan Administrator to make payments hereunder is limited to the available assets of the Trust Fund. 12.3 Standard of Conduct. Any person who is a fiduciary with respect to this Plan shall: (i) discharge his duties solely in the interest of and for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying the reasonable administrative expenses of the Plan, and shall conduct himself with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (ii) act at all times in accordance with the documents governing the Plan and Trust as they may be amended from time to time; (iii) not engage in nor allow the Plan or Trust to engage in any transaction which is prohibited under ERISA ss.406 and which is not allowed by ERISA ss.408 or is prohibited under Code ss.4975; (iv) not knowingly participate in or conceal an act of another fiduciary under the Plan which he knows to involve a breach of fiduciary duty within the meaning ERISA; and (v) make reasonable efforts under the circumstances to remedy a breach of duty described in subsection (iv) discovered by him. 12.4 Allocation of Duties. All responsibilities for the operation and administration of the Plan shall be allocated as follows: (a) The Employer shall furnish to the Trustee information with respect to service, eligibility, compensation, termination of employment and other matters required or desirable for the purpose of enabling the Trustee to carry out its duties and responsibilities under this Plan and Trust, and the Trustee may rely upon such information as conclusive proof of any fact or matter. The Employer shall also transmit to the Trustee, all Employer and Employee contributions under the Plan, and the Company shall determine the amount of all such contributions. (b) The Plan Administrator shall have those duties and responsibilities set forth in Article X. 78 88 (c) The Trustee shall have responsibility for managing and administering the Trust Fund subject to the terms and provisions of this Plan and the Trust Agreement. The Trustee shall have responsibility for making benefit payments only upon the specific written direction of the Plan Administrator. 12.5 Claims Procedure. (a) Filing a Claim. All claims and requests for benefits under the Plan shall be directed to the attention of the Plan Administrator in writing. The writing must be reasonably calculated to bring the claim to the attention of the Plan Administrator. (b) Notification of Denial. If the Plan Administrator determines that any individual who has claimed a right to receive benefits under the Plan (the "claimant") is not entitled to receive all or any part of the benefits claimed, the claimant shall be informed in writing of the specific reason or reasons for the denial, with specific reference to pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why said material or information is necessary and a description of the review procedures set forth in subsection (d) below. (c) Timing of Notification. The claimant shall be so notified of the Plan Administrator's decision within 90 days after the receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, the Plan Administrator shall furnish the claimant written notice of the extension prior to the termination of the initial 90-day period. In no event shall said extension exceed a period of 90 days from the end of said initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render a final decision. If for any reason, the claimant is not notified within the period described above, the claim shall be deemed denied and the claimant may then request review of said denial, subject to the provisions of subsection (d) below. (d) Review Procedures. The claimant or his duly authorized representative may, within 60 days after notice of the Plan Administrator's decision, request a review of said decision, review pertinent documents and submit to the Plan Administrator such further information as will, in the claimant's opinion, establish his rights to such benefits. If upon receipt of this further information, the Plan Administrator determines that the claimant is not entitled to the benefits claimed, the Plan Administrator shall afford the claimant or his representative reasonable opportunity to submit issues and comments in writing and to review pertinent documents. If the claimant wishes, he may request in writing that the Plan Administrator hold a hearing. The Plan Administrator may, in his discretion, schedule an opportunity for a full and fair hearing on the issue as soon as is reasonably possible under the circumstances. The Plan Administrator shall render his final decision with the specific reasons therefor in writing and in a manner calculated to be understood by the claimant. 79 89 (e) Timing of Final Decision. The Plan Administrator's final decision shall include specific references to the pertinent Plan provisions on which the decision is based, and shall be transmitted to the claimant by certified mail within 60 days of receipt of claimant's request for such review, unless special circumstances require a further extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review. If such an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. 12.6 Nonalienation or Assignment; QDRO's. (a) Spendthrift Clause. Except as provided in Section 8.11 above and in subsection (b) below, (i) none of the benefits under the Plan is subject to the claims of creditors of Participants or their Beneficiaries, and will not be subject to attachment, garnishment, or any other legal process whatsoever, and (ii) neither a Participant nor his Beneficiaries may assign, sell, borrow on, or otherwise encumber any of his beneficial interest in the Plan and Trust Fund, nor shall any such benefits be in any manner liable for or subject to the deeds, contracts, liabilities, engagements, or torts of any Participant or Beneficiary. Notwithstanding any provision of the Plan to the contrary, the Plan shall honor a judgment, order, decree or settlement providing for the offset of all or a part of a Participant's benefit under the Plan, to the extent permitted under Code ss. 401(a)(13)(C); provided that the requirements of Code ss. 401(a)(13)(C)(iii) relating to the protection of the Participant's spouse (if any) are satisfied. (b) Qualified Domestic Relations Orders. (i) General Rule. The provisions of subsection (a) above shall not apply to a "qualified domestic relations order," as defined in Code ss.414(p) and ERISA ss.206(d)(3), or any other domestic relations order permitted to be treated as a "qualified domestic relations order" by the Plan Administrator under the provisions of the Retirement Equity Act of 1984. The Plan Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. To the extent provided under a "qualified domestic relations order," a former Spouse of a Participant shall be treated as the Spouse or Surviving Spouse for all purposes under the Plan. (ii) QDRO Procedures. (A) Procedure Upon Receipt. Upon receiving a domestic relations order, the Plan Administrator shall notify all affected Participants and any alternate payees (Spouse, former spouse, child or other dependent of the Participant named in the order) that the order has been received. The Plan Administrator shall also notify the affected Participants and 80 90 alternate payees of its procedure for determining whether the domestic relations order is qualified. (B) Procedure During Determination. During the period the Plan Administrator is determining the qualified status of the order, the Plan Administrator shall separately account for the amount (if any) that would be payable to an alternate payee under this order (if it were a qualified domestic relations order) during this period. If the Plan Administrator determines the order is a qualified domestic relations order during the 18-month period commencing on the date the first payment would be required under the qualified domestic relations order, then the alternate payee shall receive payment from the separate account. If the Plan Administrator cannot make a determination of the order's qualified status during this 18-month period (or determines the order is not a qualified domestic relations order), then the Trustee shall return the amounts in the separate account to the account of the affected Participant as if no court order had been received. (iii) QDRO Payouts. (A) Payment Upon Receipt of QDRO. Notwithstanding any provision of this Plan to the contrary, any amounts of a Participant's vested Account balances which, due to the receipt of a domestic relations order determined to be a qualified domestic relations order under paragraph (ii) above, become the vested Account balances of an alternate payee under such order shall be distributed in the form of a single lump-sum payment to the alternate payee as of the earliest date on which such amounts can be accurately determined and paid, subject to any provisions of the qualified domestic relations order to the contrary. No written consent of the alternate payee shall be required for this distribution pursuant to Treas. Reg. ss.1.411(a)-11(c)(6). (B) Subsequent Additional Amounts. The preceding subparagraph (A) shall apply to any amounts of a Participant's vested Account balances which, due to the receipt of a domestic relations order determined to be a qualified domestic relations under subsection (b) above, become the vested Account balances of an alternate payee under such order after a payment under subparagraph (A) above due to additional vesting, allocation of contributions or earnings, or any other reason. (iv) Status of Alternate Payee. An alternate payee under a qualified domestic relations order shall be entitled to all rights of a Beneficiary hereunder except as otherwise specified herein. 81 91 12.7 Plan Continuance Voluntary. Although it is the intention of the Employer that this Plan shall be continued and that contributions shall be made regularly, this Plan is entirely voluntary on the part of the Employer, and the continuance of the Plan and the payments hereunder are not assumed as a contractual obligation of the Employer. 12.8 Payments to Minors and Others. In making any distribution to or for the benefit of any minor or incompetent Participant or Beneficiary, or any other Participant or Beneficiary who, in the opinion of the Plan Administrator, is incapable of properly using, expending, investing, or otherwise disposing of such distribution, the Plan Administrator, in the Plan Administrator's sole and complete discretion may, but need not, order the Trustee to make such distribution to a legal or natural guardian or other relative of such minor or court appointed committee of any incompetent, or to any adult with whom such person temporarily or permanently resides; and any such guardian, committee, relative, or other person shall have full authority and discretion to expend such distribution for the use and benefit of such person; and the receipt of such guardian, committee, relative, or other person shall be a complete discharge to the Trustee, the Plan Administrator, and this Plan, without any responsibility on the part of the Plan Administrator or the Trustee to see to the application of amounts so distributed. 12.9 Location of Payee; Unclaimed Benefits. In the event that all, or any portion, of the distribution payable to a Participant or Beneficiary hereunder shall, at the expiration of a reasonable time after it has become payable, remain unpaid solely by reason of the inability of the Plan Administrator, after sending a registered letter, return receipt requested, to the last known address of such person, and after further diligent effort (including requests to the Internal Revenue Service under Policy Statement P-1-187), to ascertain the whereabouts of such person, the amount so distributable shall be paid pursuant to the terms and provisions of the Plan as if the Participant or Beneficiary is deceased. If, for any reason, no Beneficiary or contingent Beneficiary can be found, the amount so distributable shall be forfeited and shall be used to reduce the contributions to the Plan. In the event a proper payee is located subsequent to the benefit being forfeited, the benefit shall be restored, and the Employer shall make special contributions to this Plan for such purpose. 12.10 Governing Law. This Plan shall be administered in the United States of America, and its validity, construction, and all rights hereunder shall be governed by the laws of the United States under ERISA. To the extent that ERISA shall not be held to have preempted local law, the Plan shall be administered under the laws of the State of Georgia. If any provision of the Plan shall be held invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 12.11 Correction of Participants' Accounts. If an error or omission is discovered in the Accounts of a Participant, or in the amount distributed to a Participant, the Plan Administrator will make such equitable adjustments in the records of the Plan as may be necessary or appropriate to correct such error or omission as of the Plan Year in which such error or omission is discovered. Further, the Employer may, in its discretion, make a special contribution to the Plan which will be allocated by the Plan Administrator only to the Account of one or more Participants to correct such error or omission. 82 92 12.12 Action of Employer and Plan Administrator. Except as may be specifically provided, any action required or permitted to be taken by the Employer or the Plan Administrator may be taken on behalf of such person by any entity or individual who has been delegated the proper authority. 12.13 Employer Records. Records of the Employer as to an Employee's or Participant's period of employment, termination of employment and the reason therefore, leaves of absence, reemployment, compensation, and elections or designations under this Plan will be conclusive on all persons, unless determined by the Plan Administrator to be incorrect. 12.14 Gender and Number. Wherever applicable, the masculine pronoun shall include the feminine pronoun, and the singular shall include the plural. 12.15 Headings. The titles in this Plan are inserted for convenience of reference; they constitute no part of the Plan, and are not to be considered in the construction hereof. 12.16 Liability Limited. To the extent permitted by ERISA and other applicable law, neither the Plan Administrator nor the Employer shall be liable for any acts of omission or commission in administering the Plan, except for his or its own individual, willful misconduct. The Employer and the Plan Administrator shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports which shall be furnished by an actuary, accountant, trustee, insurance company, counsel or other expert who shall be employed or engaged by the Plan Administrator or the Employer. 12.17 Prohibited Discrimination. This Plan shall be operated and administered in a uniform and consistent manner with respect to all Participants and in a manner which does not discriminate in favor of Highly Compensated Employees. 12.18 Legal References. Any references in this Plan to a provision of law which is, subsequent to the Effective Date of this Plan, revised, modified, finalized or redesignated, shall automatically be deemed a reference to such revised, modified, finalized or redesignated provision of law. 12.19 Military Service. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code ss. 414(u). "Qualified military service" means any service in the uniformed services (as defined in chapter 43 of title 38 of the United States Code) by any individual if such individual is entitled to reemployment rights under such chapter with respect to such service. 12.20 Electronic Means of Communication. Whenever, under this Plan, a Participant or Beneficiary is required or permitted to make an election, provide a notice, give a consent, request a distribution, execute a promissory note or security agreement, or otherwise communicate with the Employer, the Plan Administrator, the Trustee or a delegate of any of them, to the extent permitted by law, the election, notice, consent, distribution request, promissory note or security agreement, or 83 93 other communication may be transmitted by means of telephonic or other electronic communication, if the administrative procedures under the Plan provide for such means of communication. 12.21 Plan Conversions. Notwithstanding any provision of the Plan to the contrary, during any conversion period, in accordance with procedures established by the Plan Administrator, the Plan Administrator may temporarily suspend, in whole or in part, certain provisions of the Plan, which may include, but are not limited to, a Participant's right to change his contribution election, a Participant's right to change his investment election and a Participant's right to borrow or withdraw from his Account or obtain a distribution from his Account. 84 94 ARTICLE XIII SPECIAL RULES APPLICABLE TO TOP HEAVY PLAN YEARS 13.1 Top-Heavy Provisions. If and only if, this Plan is a Top-Heavy Plan, the following provisions shall apply for such Plan Year notwithstanding any other provisions of this Plan to the contrary: (a) Minimum Allocation. (i) For any Plan Year in which this Plan is a Top-Heavy Plan, except as otherwise provided in paragraph (iii) below, the contributions and forfeitures of members of the Controlled Group allocated on behalf of any Participant (A) who is not a Key Employee and (B) who was employed by an Employer on the last day of such Plan Year shall not be less than the lesser of 3% of such Participant's Compensation or, in the case where no member of the Controlled Group has a defined benefit plan which designates this Plan to satisfy Code ss.401, the largest percentage of contributions and forfeitures of members of the Controlled Group, as a percentage of the Key Employee's Compensation, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because of (i) the Participant's failure to complete 1,000 Hours of Service (or any equivalent provided in the Plan), or (ii) the Participant's failure to make Elective Contributions to the Plan, or (iii) the Participant's Compensation is less than a stated amount. (ii) For purposes of computing the minimum allocation, Compensation shall mean Compensation as defined in Section 4.2(b) of the Plan, limited pursuant to Section 1.15(e). (iii) The provision in paragraph (i) above shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of a member of the Controlled Group and the Employer has provided that the minimum allocation or benefit requirement applicable to Top-Heavy Plans under Code ss.416(c) will be met in the other plan or plans. (iv) For purposes of this subsection (a), Elective Contributions of Key Employees shall be taken into account, but Elective Contributions of Employees who are not Key Employees shall not be taken into account. 85 95 (v) For purposes of this subsection (a), any Qualified Nonelective Contributions shall be taken into account; however, Qualified Matching Contributions, and Matching Elective Contributions shall not be taken into account. (vi) If an Employer also maintains a defined benefit plan and both this Plan and the defined benefit plan become Top-Heavy Plans, the minimum allocation provisions in this Article will not be required to be made to both plans. Thus, if both plans are Top-Heavy Plans, the requirements of this Article will be satisfied by providing the minimum required benefit under the Employer's defined benefit plan. (b) Minimum Vesting. For any Plan Year in which this Plan is a Top-Heavy Plan, the following minimum vesting schedule will automatically apply in place of the vesting schedule contained in Section 5.2(b) of the Plan:
Years of Vesting Service Earned by Vested Percentage of the the Participant Participant in Forfeitable Account ------------------------------------------------------------------------------------------------------- Less than 3 Years 0% vested ------------------------------------------------------------------------------------------------------- 3 or more Years 100% vested -------------------------------------------------------------------------------------------------------
The minimum vesting schedule applies to all accrued benefits within the meaning of Code ss.411(a)(7), including benefits accrued before the Plan became Top-Heavy, except those attributable to Rollover Contributions or Elective Contributions or those forfeited before the Plan became Top-Heavy. Further, no decrease in a Participant's nonforfeitable percentage may occur in the event the Plan's status as Top-Heavy changes for any Plan Year. However, this subsection (b) does not apply to the Account balances of any Employee who does not have an Hour of Service after the Plan has initially become Top-Heavy and such Employee's Account balance attributable to contributions and forfeitures of members of the Controlled Group will be determined without regard to this subsection (b). 13.2 Top-Heavy Special Definitions. For purposes of this Article, the following terms shall have the following meanings: (a) Top-Heavy Ratio. (i) If a member of the Controlled Group maintains one or more defined contribution plans (including any simplified employee pension plan) and a member of the Controlled Group has never maintained any defined benefit plan which during the 5 year period ending on the Determination Date(s) has or had accrued benefits, the Top-Heavy Ratio for this Plan alone, or for the Required or Permissive Aggregation Group as appropriate, is a fraction, the numerator of which is the sum of the account balances of all Key Employees under the aggregated 86 96 defined contribution plan or plans as of the Determination Date(s) (including any part of any Account balance distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all Account balances (including any part of any Account balance distributed in the 5-year period ending on the Determination Date(s)) of all Participants as of the Determination Date(s), both computed in accordance with Code ss.416 and the regulations thereunder. Both the numerator and the denominator of the Top-Heavy Ratio are adjusted to reflect any contribution not actually made as of the Determination Date but which is required to be taken into account on that date under Code ss.416 and the regulations thereunder. (ii) If a member of the Controlled Group maintains one or more defined contribution plans (including any simplified employee pension plan) and a member of the Controlled Group maintains or has maintained one or more defined benefit plans which during the 5-year period ending on the Determination Date(s) has or had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with paragraph (i) above, and the Present Value of accrued benefits under the aggregated defined benefit plans for all Key Employees, as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plans for all Participants, as determined in accordance with paragraph (i) above, and the Present Value of accrued benefits under the aggregated defined benefit plans for all Participants as of the Determination Date(s), all determined in accordance with Code ss.416 and the regulations thereunder. Both the numerator and the denominator of the Top-Heavy Ratio are adjusted by adding back the amount of any distribution of an account balance or an accrued benefit made in the 5-year period ending on the Determination Date and any contribution not actually made but required to be taken into account under Code ss.416 as of the Determination Date. (iii) For purposes of this subsection (a), the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code ss.416 and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a Participant who is not a Key Employee but who was a Key Employee in a prior year will be disregarded. If an individual has not performed an Hour of Service for any Employer maintaining the Plan at any time during the 5 year period ending on the Determination Date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account in determining the Top-Heavy Ratio. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code ss.416 and the regulations 87 97 thereunder. When aggregating plans, the value of Account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. (iv) The accrued benefit of any Employee (other than a Key Employee) shall be determined (A) under the method which is used for accrual purposes for all plans of the Controlled Group, or (B) if there is no method described in clause (A), as if such benefit accrued not more rapidly than the slowest accrual rate permitted under Code ss.411(b)(1)(C). (b) Permissive Aggregation Group. The Required Aggregation Group of plans plus any other plan or plans of the Controlled Group which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code ss.ss.401(a)(4) and 410. (c) Required Aggregation Group. (i) Each qualified plan of the Controlled Group in which at least one Key Employee participates or participated at any time during the determination period (as defined in subsection (f) below) regardless of whether the plan has terminated, and (ii) any other qualified plan of the Controlled Group which enables a plan described in (i) to meet the requirements of Code ss.ss.401(a)(4) and 410. (d) Determination Date. For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (e) Present Value. For purposes of establishing Present Value to compute the Top-Heavy Ratio, any accrued benefit in a defined benefit plan shall be discounted only for mortality and interest based on the interest rate and mortality table used by the defined benefit plan for determining the actuarial present value of actuarially equivalent benefits unless the defined benefit plan specifically defines alternative interest and mortality assumptions to be used in determining the Top-Heavy Ratio. If more than one defined benefit plan must be aggregated, the assumptions used will be the assumptions applicable to the defined benefit plan that has the greatest value of assets as of the Valuation Date coincident with the Determination Date. (f) Key Employee. Any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was an officer of a member of the Controlled Group if such individual's annual Compensation from members of the Controlled Group exceeds 50% of the dollar limitation under Code ss.415(b)(1)(A), an owner (or considered an owner under Code ss.318) of one of the 10 largest interests in the Employer if such individual's Compensation from members of the Controlled Group exceeds 100% of the dollar limitation under Code ss.415(c)(1)(A), a 5-percent owner of the Employer, or a 1-percent owner of the Employer who has an annual Compensation from members of the Controlled Group of more than $150,000. Annual Compensation means Compensation as defined in Section 4.2(b) of this Plan, but including amounts contributed by a member of 88 98 the Controlled Group pursuant to a salary reduction agreement which are excludable from gross income under Code ss.ss.125, 402(a)(8), 402(h) or 403(b). The determination period is the Plan Year containing the Determination Date and the 4 preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Code ss.416(i)(1) and the regulations thereunder. (g) Top-Heavy Plan. This Plan is a Top-Heavy Plan if any of the following conditions exist: (i) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (ii) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%. (iii) If this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%. IN WITNESS WHEREOF, this Plan has been executed by the Company this 11th day of May, 1999. COMPANY: FLOWERS INDUSTRIES, INC. By:/s/ Jimmy M. Woodward ---------------------------------- Title: TREASURER --------------------------- 89 99 APPENDIX I SPECIAL PROVISIONS RELATING TO ANNUITY PAYMENTS 1.1 Forms of Benefit for Certain Accounts. As a consequence of the merger of certain other plans into this Plan, applicable law requires that particular distribution provisions apply to certain accounts of affected Participants. Therefore, notwithstanding any provisions of this Plan to the contrary, except as noted, the following automatic forms of benefits shall apply with respect to those Accounts (but no other accounts) of Participants held under this Plan which are expressly stated to be subject to the following provisions of this Appendix (herein "Applicable Accounts"): (a) Qualified Joint and Survivor Annuity. (i) Definition. A Participant who is married as of his Annuity Starting Date shall automatically have the vested value of his Applicable Accounts applied to purchase a Qualified Joint and Survivor Annuity, unless he properly waives the Qualified Joint and Survivor Annuity. Such monthly benefit must be of equivalent actuarial value to the amount of monthly retirement benefit the Participant would receive on his Annuity Starting Date in the form of a straight life annuity with no certain period. (ii) Written Explanation. With regard to a Qualified Joint and Survivor Annuity as described above, the Plan Administrator shall, no less than thirty (30) days and no more than ninety (90) days prior to the Annuity Starting Date, provide each Participant who has an Applicable Account, within a reasonable period prior to the commencement of benefits, a written explanation of: (i) the terms and conditions of a Qualified Joint and Survivor Annuity; (ii) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Annuity form of benefit; (iii) the rights of a Participant's Spouse; and (iv) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. (iii) Waiver of Automatic Form. A Participant's election to waive the payment of his benefit in the form of a Qualified Joint and Survivor Annuity shall be effective only if all of the following requirements are met: (a) such waiver is made during the 90-day period ending on the Participant's Annuity Starting Date; (b) the election specifies a form of benefit which may not be changed without spousal consent; (c) the Participant's Spouse consents in writing to the form of benefit; (d) such selection by the Participant may not be changed without a consent of the Spouse; and (e) any such spousal consent acknowledges the effect of such election and is witnessed by a representative of the Plan Administrator or a notary public. However, spousal consent will not be required if it is established to the satisfaction of the Plan Administrator that such spousal consent cannot be obtained (i) because there is no Spouse, (ii) because the Spouse cannot be located, or (iii) 90 100 because of such other circumstances as the Secretary of the Treasury may prescribe by regulations. Any election by the Participant to waive the Qualified Joint and Survivor Annuity may be revoked by the Participant during the 90-day period ending on the Participant's Annuity Starting Date. A Participant's election to waive the Qualified Joint and Survivor Annuity and any revocation of such election may be made solely by an instrument (in a form acceptable to the Plan Administrator) signed by the Participant and filed with the Plan Administrator during such election period. The Participant or the Participant's Spouse must furnish evidence satisfactory to the Plan Administrator of their marriage and of their dates of birth. If a Participant's benefit commences under the Qualified Joint and Survivor Annuity and the Participant's Spouse dies on or after the Participant's Annuity Starting Date and while the Participant is living, the Participant's reduced benefit will not be increased thereby. (b) Life Annuity. A Participant who is not married as of his Annuity Starting Date shall automatically have the value of his vested Applicable Accounts applied to purchase a straight life annuity with no period certain, unless he elects an optional form under other provisions of this Plan. A Participant electing to receive an optional form must give written consent not more than 90 days before the Participant's Annuity Starting Date. (c) Qualified Preretirement Survivor Annuity. The Surviving Spouse of a Participant (i) who is married at the time of his death, (ii) who has a vested Applicable Account balance, and (iii) who dies before his Annuity Starting Date, shall automatically receive a Qualified Preretirement Survivor Annuity purchased with the value of the Participant's vested Applicable Accounts. A Surviving Spouse may, however, elect to receive the value of the Participant's vested Applicable Accounts in any of the optional forms allowed under other provisions of this Plan. 1.2 Annuities. If an annuity is one of the forms of payment available to Participants or Beneficiaries under this Plan, the terms of any annuity contract purchased or distributed by the Plan to a Participant or to his Beneficiary shall comply with the requirements of this Plan. Any annuity contract distributed from the Plan must be nontransferable. 1.3 Death On or After Benefit Commencement Date. In the event of the death of a Participant on or after his Benefit Commencement Date, if the Participant was receiving annuity payments, the benefit, if any, for a Beneficiary shall be determined by the form of annuity which the Participant was receiving, notwithstanding any provision of this Plan to the contrary. 1.4 Valuation of Accounts for Payments. If a Participant or Beneficiary receives his benefit available under this Plan in the form of an annuity contract under this Appendix, the amount used to purchase such contract for the Participant or Beneficiary shall be determined using the Participant's or Beneficiary's Benefit Amount valued as of the date of the distributable event. 91 101 1.5 Definitions. (a) Annuity Starting Date shall mean, with respect to a payee, (i) the first day of the first period for which an amount is payable as an annuity, or (ii) in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the payee to such benefit, in accordance with Treas. Reg. ss.1.401(a)-20(Q&A-10)(b), Code ss.417(f)(2) and Notice 93-26, and determined pursuant to the provisions of this Plan. (b) Qualified Joint and Survivor Annuity shall mean an annuity for the life of the Participant with a survivor annuity for the life of the Participant's Spouse, under which the Spouse's monthly benefit is not more than 100% and not less than 50% of the amount of the Participant's monthly benefit, purchased with the Participant's entire vested Applicable Accounts. In the case of a "Qualified Joint and 50% Survivor Annuity," the Spouse's monthly benefit shall be 50% of the amount of the Participant's monthly benefit, and in the case of a "Qualified Joint and 100% Survivor Annuity," the Spouse's monthly benefit shall be 100% of the amount of the Participant's monthly benefit. The exact percentage of the survivor benefit shall be specified under the Plan provisions expressly stating that this Appendix is applicable. (c) Qualified Preretirement Survivor Annuity shall mean, with respect to a Participant, an annuity for the life of the Participant's Surviving Spouse purchased with the Participant's entire vested Applicable Account balances. 92 102 APPENDIX II SPECIAL PROVISIONS REGARDING MERGER OF THE MRS. BOEHME'S HOLSUM BAKERY, INC. 401(k) RETIREMENT PLAN WITH AND INTO THE PLAN 2.1 General Provisions. Effective as of April 1, 1995 ("Boehme's Merger Effective Date"), the Mrs. Boehme's Holsum Bakery, Inc. 401(k) Retirement Plan ("Boehme's Plan") is merged with and into the Plan. The Plan shall, as of the Boehme's Merger Effective Date, assume all obligations of the Boehme's Plan and be responsible for payment of all vested benefits accrued under the terms and provisions of the Boehme's Plan for (i) participants participating in the Boehme's Plan immediately prior to the Boehme's Merger Effective Date, and (ii) former participants and beneficiaries with vested benefits under the Boehme's Plan immediately prior to the Boehme's Merger Effective Date. Such participants and beneficiaries shall, as of the Boehme's Merger Effective Date, automatically become Participants in the Plan with respect to such account balances. The Plan shall provide for said payment of benefits with the assets transferred to the Trust accompanying this Plan as set forth in Section 2.3 of this Appendix. 2.2 Separate Accounting. The account balances of each participant in the Boehme's Plan shall be maintained in separate accounts as follows: (a) Amounts transferred attributable to "Elective Deferral Contributions" allocated to a participant under the Boehme's Plan shall be held in a special segregated Boehme's Elective Deferral Contributions Account. (b) Amounts transferred attributable to "Matching Contributions" allocated to a participant under the Boehme's Plan shall be held in a special segregated Boehme's Matching Contributions Account. (c) Amounts transferred attributable to "Rollover Contributions" allocated to a participant under the Boehme's Plan shall be held in a special segregated Boehme's Rollover Account. All such accounts shall be collectively referred to as "Boehme's Accounts." 2.3 Transfer of Plan Assets. Effective as of the Boehme's Merger Effective Date, the assets of the Boehme's Plan which are held by the trustee of the trust accompanying the Boehme's Plan shall become assets of the Plan, and shall be held by the Trustee under the provisions of this Plan and its accompanying Trust for the exclusive benefit of Participants and Beneficiaries under the Plan, including the provisions of Appendix I and this Appendix. 2.4 Conditions for Merger and Transfer. The merger of plans and transfer of assets as provided for in this Appendix is made on the condition that subsection (a) of Section 11.5 of the Plan is satisfied. 93 103 2.5 Forms of Benefits for Boehme's Accounts. (a) In General. Notwithstanding any provisions of this Plan to the contrary except as noted, the Boehme's Accounts of Participants held under this Plan shall be "Applicable Accounts" for purposes of Appendix I, and shall be subject to the terms and provisions of Appendix I. For purposes of Appendix I, the Qualified Joint and Survivor Annuity referred to in such Appendix shall be a Qualified Joint and 50% Survivor annuity. (b) Additional Optional Methods. Subject to the requirements set forth in subsection (a) above, a Participant who has a vested Boehme's Account balance may elect by written notice to the Plan Administrator at least 31 days prior to his Annuity Starting Date that the value of his Boehme's Accounts shall be distributed in the form of a lump sum cash payment, or in the form of an annuity contract, or partly in the form of a lump sum cash payment and partly in the form of an annuity contract. The annuity contract shall provide a fixed or variable annuity benefit, or a combination of a fixed and a variable annuity benefit, as chosen by the Participant. The Plan Administrator shall select the insurance company from which the annuity contract shall be purchased. The following forms of annuity benefit are available with respect to the Boehme's Accounts: (i) Joint and 100% Survivor Annuity. An annuity benefit under which the Participant will receive fixed monthly payments for life, and upon his death monthly payments in the same amount will continue to the spouse to whom the Participant was married at the time the annuity contract was purchased, for the life of that spouse. (ii) Term Certain and Life Annuity. An annuity benefit under which the Participant will receive monthly payments for life, and upon his death prior to the receipt of either 120 or 180 monthly payments (as elected in advance by the Participant), monthly payments in the same amount will continue to the designated beneficiary for the balance of the 120-month or 180-month period (as the case may be). (iii) Contingent Annuitant - Ten Year Certain and Life Annuity. An annuity benefit under which the Participant will receive monthly payments for life. If the Participant dies before receiving 120 monthly payments, payments will continue in the same amount to a contingent annuitant until a total of 120 monthly payments have been made to the Participant and the contingent annuitant. Thereafter monthly payments equal to 50% or 100% of the monthly payments during the Participant's lifetime (as elected in advance by the Participant) will continue to the contingent annuitant for the life of the contingent annuitant. If both the Participant and the contingent annuitant die before a total of 120 monthly payments have been made, payments in the same amount that the contingent annuitant was receiving will continue to a designated beneficiary until a total of 120 monthly payments have been made. 94 104 (iv) Flexible Installment Refund Annuity. An annuity benefit under which the balance in the Boehme's Accounts will be distributed in monthly payments over the Participant's life expectancy as determined in accordance with applicable Internal Revenue Service tables. The life expectancy will be redetermined annually. If the Participant dies, the remaining balance will be distributed to a designated beneficiary in a lump sum. (v) Installment Refund Annuity. An annuity benefit under which the balance in the Boehme's Accounts will be distributed in monthly payments over a period certain of 5, 10, or 15 years, at the end of which time all payments will stop. If the Participant dies before the end of the period certain that the Participant has selected, payments will continue to a designated beneficiary for the remainder of the period certain and will then stop. 2.6 Benefits Upon Death. In the event of the death of a Participant prior to his Benefit Commencement Date, then the Participant's Boehme's Accounts will be paid to the Surviving Spouse in the form of a Qualified Preretirement Survivor Annuity in accordance with Appendix I, Sections 1.1(c) and 1.5(c). 2.7 Vesting. The portion of a Participant's Account attributable to the Boehme's Accounts, determined as of April 1, 1995, shall at all times be fully vested to such Participant. On and after April 1, 1995, the Account of a Participant who was previously a participant in the Boehme's Plan (excluding the portion of the Account attributable to the Boehme's Accounts) shall be vested in accordance with either the following vesting schedule, or the vesting provisions set forth in Section 5.2 of the Plan, whichever results in the greater vested percentage for a Participant:
Years of Vesting Service Vested Percentage Earned by the Participant of the Participant ------------------------- ------------------ Less than 3 years 0% 3 years 20% 4 years 40% 5 years 60% 6 years 80% 7 years or more 100%
2.8 In-Service Withdrawals. Amounts in the Boehme's Elective Deferral Contributions Account (excluding investment earnings attributable to periods after December 31, 1988) may be withdrawn by the Participant in accordance with the provisions of Section 8.10 of this Plan. In addition, in the case of a Participant who has a Boehme's Rollover Account, such a Participant may elect to withdraw once during each Plan Year any amount up to 100% of the value of that portion of his Account attributable to the Boehme's Rollover Account. The Participant shall notify the Plan Administrator in writing of his election to make a withdrawal from the Boehme's Rollover Account. Any such election shall be effective as of the date specified in such notice, which date must be at least 15 days after the notice is filed. 95 105 2.9 Hours of Service. Effective as of the Boehme's Merger Effective Date, service with Mrs. Boehme's Holsum Bakery, Inc. shall be treated as service with an Employer for all purposes under this Plan, even though said service may have been rendered prior to the time when said company became a member of the Controlled Group. This provision shall be effective for all employees of said company who remained or became employed by any member of the Controlled Group as of the date the company became a member of the Controlled Group. This provision shall not, however, be construed to permit participation in the Plan prior to the adoption thereof by the Employer in question. 96 106 APPENDIX III SPECIAL PROVISIONS REGARDING MERGER OF THE HOLSUM BAKING COMPANY RETIREMENT PLAN WITH AND INTO THE PLAN 3.1 General Provisions. Effective as of January 1, 1996 ("Holsum Merger Effective Date"), the Holsum Baking Company Retirement Plan ("Holsum Plan") is merged with and into the Plan. The Plan shall, as of the Holsum Merger Effective Date, assume all obligations of the Holsum Plan and be responsible for payment of all vested benefits accrued under the terms and provisions of the Holsum Plan for (i) participants participating in the Holsum Plan immediately prior to the Holsum Merger Effective Date, and (ii) former participants and beneficiaries with vested benefits under the Holsum Plan immediately prior to the Holsum Merger Effective Date. Such participants and beneficiaries shall, as of the Holsum Merger Effective Date, automatically become Participants in the Plan with respect to such account balances. The Plan shall provide for said payment of benefits with the assets transferred to the trust accompanying the Plan as set forth in Section 2.3 of this Appendix. 3.2 Separate Accounting. The account balances of each participant in the Holsum Plan shall be maintained in separate accounts as follows: (a) Amounts transferred attributable to "Deferral Contributions" allocated to a participant under the Holsum Plan shall be held in a special segregated Holsum Deferral Contributions Account. (b) Amounts transferred attributable to "Matching Contributions" allocated to a participant under the Holsum Plan shall be held in a special segregated Holsum Matching Contributions Account. (c) Amounts transferred attributable to "Qualified Nonelective Contributions" allocated to a participant under the Holsum Plan shall be held in a special segregated Holsum Qualified Nonelective Contributions Account. (d) Amounts transferred attributable to "Discretionary Contributions" allocated to a participant under the Holsum Plan shall be held in a special segregated Holsum Discretionary Contributions Account. (e) Amounts transferred attributable to "Rollover Contributions" allocated to a participant under the Holsum Plan shall be held in a special segregated Holsum Rollover Contributions Account. All such accounts shall be collectively referred to in this Appendix III as "Holsum Accounts." 3.3 Transfer of Plan Assets. Effective as of the Holsum Merger Effective Date, the assets of the Holsum Plan which are held by the trustee of the trust accompanying the Holsum Plan shall become assets of the Plan, and shall be held by the Trustee under the provisions of the Plan and its 97 107 accompanying Trust for the exclusive benefit of Participants and Beneficiaries under the Plan, including the provisions of this Appendix. 3.4 Conditions for Merger and Transfer. The merger of plans and transfer of assets as provided for in this Appendix is made on the condition that subsection (a) of Section 11.5 of the Plan is satisfied. 3.5 Additional Forms of Benefit for Holsum Accounts. A Participant who has a vested Holsum Account balance in excess of $3,500 or the surviving Beneficiary of such a Participant may elect by written notice to the Plan Administrator that the value of his Holsum Accounts shall be distributed in the form of a lump sum cash payment, or in monthly, quarterly or annual installments over a fixed period of time, not exceeding the life expectancy of the Participant, or the joint life and last survivor expectancy of Participant and his Beneficiary. 3.6 Vesting. The portion of a Participant's Account attributable to the Holsum Accounts, determined as of January 1, 1996, shall at all times be fully vested to such Participant. On and after January 1, 1996, the Account of a Participant who was previously a participant in the Holsum Plan (excluding the portion of the Account attributable to the Holsum Accounts) shall be vested in accordance with the following vesting schedule:
Years of Vesting Service Vested Percentage Earned by the Participant of the Participant ------------------------- ------------------ Less than 1 year 0% 1 year 20% 2 years 40% 3 years 60% 4 years 80% 5 years or more 100%
and in all events shall be fully vested upon the Participant's attainment of age 62 while still in the employ of an Employer. 3.7 In-Service Withdrawals. Amounts in the Holsum Deferral Contributions Account and the Holsum Qualified Nonelective Contributions Account may be withdrawn by the Participant on or after attaining age 62. Amounts in the Holsum Matching Contributions Account and the Holsum Discretionary Contributions Account may be withdrawn by the Participant on or after attaining age 62 or completing 30 years of participation in the Holsum Plan and/or the Plan. In addition, in the case of a Participant who has a Holsum Rollover Contributions Account, such a Participant may elect to withdraw once during each Plan Year any amount up to 100% of the value of that portion of his Account attributable to the Holsum Rollover Contributions Account. The Participant shall notify the Plan Administrator in writing in a form approved by the Plan Administrator of his election to make a withdrawal from his Holsum Accounts. Distributions will be made in accordance with such an election within 90 days (or as soon as administratively practicable) after the receipt by the Plan Administrator of a proper distribution request. 98 108 3.8 Hours of Service. Effective as of the Holsum Merger Effective Date, service with Holsum Baking Company shall be treated as service with an Employer for all purposes under this Plan, even though said service may have been rendered prior to the time when said company became a member of the Controlled Group. This provision shall be effective for all employees of said company who remained or became employed by any member of the Controlled Group as of the date the company became a member of the Controlled Group. This provision shall not, however, be construed to permit participation in the Plan prior to the adoption thereof by the Employer in question. 99 109 APPENDIX IV SPECIAL PROVISIONS REGARDING MERGER OF THE SHIPLEY BAKING COMPANY 401(k) RETIREMENT PLAN AND TRUST WITH AND INTO THE PLAN 4.1 General Provisions. Effective as of June 1, 1998 ("Shipley Merger Effective Date"), the Shipley Baking Company 401(k) Retirement Plan and Trust ("Shipley Plan") is merged with and into the Plan. The Plan shall, as of the Shipley Merger Effective Date, assume all obligations of the Shipley Plan and be responsible for payment of all vested benefits accrued under the terms and provisions of the Shipley Plan for (i) participants participating in the Shipley Plan immediately prior to the Shipley Merger Effective Date, and (ii) former participants and beneficiaries with vested benefits under the Shipley Plan immediately prior to the Shipley Merger Effective Date. Such participants and beneficiaries shall, as of the Shipley Merger Effective Date, automatically become Participants in the Plan with respect to such account balances. The Plan shall provide for said payment of benefits with the assets transferred to the trust accompanying the Plan as set forth in Section 4.3 of this Appendix. 4.2 Separate Accounting. The account balances of each participant in the Shipley Plan shall be maintained in separate accounts as follows: (a) Amounts transferred attributable to "Salary Deferral Contributions" allocated to a participant under the Shipley Plan shall be held in a special segregated Shipley Salary Deferral Contributions Account. (b) Amounts transferred attributable to "Employer contributions" allocated to a participant under the Shipley Plan shall be held in a special segregated Shipley Employer Contributions Account. (c) Amounts transferred attributable to "Voluntary Contributions" allocated to a participant under the Shipley Plan shall be held in a special segregated Shipley Voluntary Contributions Account. (d) Amounts transferred attributable to "Rollover Contributions" allocated to a participant under the Shipley Plan shall be held in a special segregated Shipley Rollover Contributions Account. All such accounts shall be collectively referred to in this Appendix IV as "Shipley Accounts." 4.3 Transfer of Plan Assets. Effective as of the Shipley Merger Effective Date, the assets of the Shipley Plan which are held by the trustee of the trust accompanying the Shipley Plan shall become assets of the Plan, and shall be held by the Trustee under the provisions of the Plan and its accompanying Trust for the exclusive benefit of Participants and Beneficiaries under the Plan, including the provisions of this Appendix. 100 110 4.4 Conditions for Merger and Transfer. The merger of plans and transfer of assets as provided for in this Appendix is made on the condition that subsection (a) of Section 11.5 of the Plan is satisfied. 4.5 Additional Forms of Benefit for Shipley Accounts. (a) In General. Notwithstanding any provisions of this Plan to the contrary, except as noted, the Shipley Accounts (excluding the Shipley Salary Deferral Contributions Accounts) of Participants held under this Plan shall be "Applicable Accounts" for purposes of Appendix I, and shall be subject to the terms and provisions of Appendix I. For purposes of Appendix I, the Qualified Joint and Survivor Annuity referred to in such Appendix shall be a Qualified Joint and 50% Survivor Annuity. (b) Additional Optional Methods. Subject to the requirements set forth in subsection (a) above, a Participant who has a vested Shipley Account balance (which includes amounts other than a Shipley Salary Deferral Contributions Account) may elect by written notice to the Plan Administrator at least 31 days prior to his Annuity Starting Date that the value of his Shipley Accounts (excluding the Shipley Salary Deferral Contributions Account) shall be distributed in the form of a lump sum cash payment, or in the form of an annuity contract, or partly in the form of a lump sum cash payment and partly in the form of an annuity contract. The annuity contract shall provide a fixed or variable annuity benefit, or a combination of a fixed and a variable annuity benefit, as chosen by the Participant. The Plan Administrator shall select the insurance company from which the annuity contract shall be purchased. The following forms of annuity benefit are available with respect to the Shipley Accounts (excluding the Shipley Salary Deferral Contributions Accounts): (i) Joint and Survivor Annuity. An annuity benefit under which the Participant will receive fixed monthly payments for life, and upon his death monthly payments in an amount equal to a specified percentage of the monthly amount in effect during the joint lives of the Participant and the spouse will be made to the spouse to whom the Participant was married at the time the annuity contract was purchased, for the life of that spouse. (ii) Term Certain and Life Annuity. An annuity benefit under which the Participant will receive monthly payments for life, and upon his death prior to the receipt of a specified number of monthly payments (as elected in advance by the Participant), monthly payments in the same amount will continue to the designated beneficiary for the balance of the specified period. (iii) Contingent Annuitant - Term Certain and Life Annuity. An annuity benefit under which the Participant will receive monthly payments for life. If the Participant dies before receiving a specified number of monthly payments, payments will continue in the same amount to a contingent annuitant until that specified number of monthly payments have been made to the Participant and the contingent annuitant. Thereafter monthly payments equal to a percentage of the monthly 101 111 payments during the Participant's lifetime (as elected in advance by the Participant) will continue to the contingent annuitant for the life of the contingent annuitant. If both the Participant and the contingent annuitant die before the specified number of monthly payments have been made, payments in the same amount that the contingent annuitant was receiving will continue to a designated beneficiary until the specified number of monthly payments have been made. (iv) in the form of periodic installments payable not less often than annually for a period not to exceed the joint life expectancy of the Participant and his designated beneficiary. (v) in any combination of the foregoing. 4.6 Benefits Upon Death. In the event of the death of a Participant prior to his Benefit Commencement Date, then the Participant's Shipley Accounts will be paid to the Surviving Spouse in the form of a Qualified Preretirement Survivor Annuity in accordance with Appendix I, Sections 1.1(c) and 1.5(c). 4.7 Vesting. The portion of a Participant's Account attributable to the Shipley Accounts, determined as of June 1, 1998, shall at all times be fully vested to such Participant. On and after June 1, 1998, the Account of a Participant who was previously a participant in the Shipley Plan (excluding the portion of the Account attributable to the Shipley Accounts) shall be vested in accordance with either the following vesting schedule, or the vesting provisions set forth in Section 5.2 of the Plan, whichever results in the greater vested percentage for a Participant:
Years of Vesting Service Vested Percentage Earned by the Participant of the Participant - ------------------------- ------------------ Less than 3 years 0% 3 years 20% 4 years 40% 5 years 60% 6 years 80% 7 years or more 100%
4.8 In-Service Withdrawals. (a) Amounts in the Shipley Salary Deferral Contributions Account (excluding investment earnings attributable to periods after December 31, 1988) may be withdrawn by the Participant in accordance with the provisions of Section 8.10 of this Plan. (b) A Participant who has attained the age of 59 1/2 may withdraw all or a portion of his Shipley Salary Deferral Contributions Account, including earnings, if any. 102 112 Distribution shall be made to the Participant as soon as administratively practicable after the request is received. (c) In addition, in the case of a Participant who has a Shipley Rollover Contributions Account, such a Participant may elect to withdraw any amount up to 100% of the value of that portion of his Account attributable to the Shipley Rollover Contributions Account. The Participant shall notify the Plan Administrator in writing of his election to make a withdrawal from the Shipley Rollover Contributions Account. Any such election shall be effective as of the date specified in such notice, which date must be at least 30 days after the notice is filed. Any such withdrawal shall be subject to Appendix I and Section 4.5 above. (d) In addition, in the case of a Participant who has a Shipley Voluntary Contributions Account, such a Participant may elect to withdraw all or any part of the balance of his Shipley Voluntary Contributions Account. The Participant shall notify the Plan Administrator in writing of his election to make a withdrawal from the Shipley Voluntary Contributions Account. Any such election shall be effective as of the date specified in such notice, which date must be at least 30 days after the notice is filed. Any such withdrawal shall be subject to Appendix I and Section 4.5 above. 4.9 Hours of Service. Effective as of the Shipley Merger Effective Date, service with Shipley Baking Company shall be treated as service with an Employer for all purposes under this Plan, even though said service may have been rendered prior to the time when said company became a member of the Controlled Group. This provision shall be effective for all employees of said company who remained or became employed by any member of the Controlled Group as of the date the company became a member of the Controlled Group. This provision shall not, however, be construed to permit participation in the Plan prior to the adoption thereof by the Employer in question. 103 113 APPENDIX V SPECIAL PROVISIONS REGARDING MERGER OF THE FRANKLIN BAKING COMPANY, INC. PROFIT SHARING PLAN AND THE FRANKLIN BAKING COMPANY, INC. 401(k) RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN 5.1 General Provisions. Effective as of December 31, 1998 ("Franklin Merger Effective Date"), the Franklin Baking Company, Inc. Profit Sharing Plan ("Franklin Profit Sharing Plan") and the Franklin Baking Company, Inc. 401(k) Retirement Savings Plan ("Franklin 401(k) Plan"; the Franklin Profit Sharing Plan and the Franklin 401(k) Plan are sometimes referred to collectively herein as the "Franklin Plans") are merged with and into the Plan. The Plan shall, as of the Franklin Merger Effective Date, assume all obligations of the Franklin Plans and be responsible for payment of all vested benefits accrued under the terms and provisions of the Franklin Plans for (i) participants participating in the Franklin Plans immediately prior to the Franklin Merger Effective Date, and (ii) former participants and beneficiaries with vested benefits under the Franklin Plans immediately prior to the Franklin Merger Effective Date. Such participants and beneficiaries shall, as of the Franklin Merger Effective Date, automatically become Participants in the Plan with respect to such account balances. The Plan shall provide for said payment of benefits with the assets transferred to the trust accompanying the Plan as set forth in Section 5.3 of this Appendix. 5.2 Separate Accounting. The account balances of each participant in the Franklin Plans shall be maintained in separate accounts as follows: (a) Amounts transferred attributable to "Deferral Contributions" allocated to a participant under the Franklin 401(k) Plan shall be held in a special segregated Franklin Deferral Contributions Account. (b) Amounts transferred attributable to contributions allocated to a participant under the Franklin Profit Sharing Plan shall be held in a special segregated Franklin Profit Sharing Contributions Account. (c) Amounts transferred attributable to "Rollover Contributions" allocated to a participant under the Franklin Plans shall be held in a special segregated Franklin Rollover Contributions Account. All such accounts shall be collectively referred to in this Appendix V as "Franklin Accounts." 5.3 Transfer of Plan Assets. Effective as of the Franklin Merger Effective Date, the assets of the Franklin Plans which are held by the trustees of the trusts accompanying the Franklin Plans shall become assets of the Plan, and shall be held by the Trustee under the provisions of the Plan and its accompanying Trust for the exclusive benefit of Participants and Beneficiaries under the Plan, including the provisions of this Appendix. 104 114 5.4 Conditions for Merger and Transfer. The merger of plans and transfer of assets as provided for in this Appendix is made on the condition that subsection (a) of Section 11.5 of the Plan is satisfied. 5.5 Additional Forms of Benefit for Franklin Accounts. Notwithstanding any provisions of this Plan to the contrary, the Franklin Accounts shall be distributable in the form of a single lump sum payment or in installment payments over a period certain in monthly, quarterly, semiannual, or annual cash payments. The period over which such payment is to be made shall not extend beyond the Participant's life expectancy or the joint life and last survivor expectancy of the Participant and his designated Beneficiary. 5.6 Vesting. On and after December 31, 1998, the Account of a Participant who was previously a participant in the Franklin Plans (including the portion of the Account attributable to the Franklin Accounts) shall be vested in accordance with either the following vesting schedule, or the vesting provisions set forth in Section 5.2 of the Plan, whichever results in the greater vested percentage for a Participant:
Years of Vesting Service Vested Percentage Earned by the Participant of the Participant - ------------------------- ------------------ Less than 2 years 0% 2 years 20% 3 years 40% 4 years 60% 5 years 100%
5.7 In-Service Withdrawals. Amounts in the Franklin Deferral Contributions Account (excluding investment earnings attributable to periods after December 31, 1988) may be withdrawn by the Participant in accordance with the provisions of Section 8.10 of this Plan. 5.8 Hours of Service. Effective as of the Franklin Merger Effective Date, service with Franklin Baking Company shall be treated as service with an Employer for all purposes under this Plan, even though said service may have been rendered prior to the time when said company became a member of the Controlled Group. This provision shall be effective for all employees of said company who remained or became employed by any member of the Controlled Group as of the date the company became a member of the Controlled Group. This provision shall not, however, be construed to permit participation in the Plan prior to the adoption thereof by the Employer in question. 105 115 APPENDIX VI SPECIAL PROVISIONS REGARDING MERGER OF THE PIES, INC. RETIREMENT SAVINGS PLAN WITH AND INTO THE PLAN 6.1 General Provisions. Effective as of January 1, 1997 ("Pies Merger Effective Date"), the Pies, Inc. Retirement Savings Plan ("Pies Plan") is merged with and into the Plan. The Plan shall, as of the Pies Merger Effective Date, assume all obligations of the Pies Plan and be responsible for payment of all vested benefits accrued under the terms and provisions of the Pies Plan for (i) participants participating in the Pies Plan immediately prior to the Pies Merger Effective Date, and (ii) former participants and beneficiaries with vested benefits under the Pies Plan immediately prior to the Pies Merger Effective Date. Such participants and beneficiaries shall, as of the Pies Merger Effective Date, automatically become Participants in the Plan with respect to such account balances. The Plan shall provide for said payment of benefits with the assets transferred to the trust accompanying the Plan as set forth in Section 6.3 of this Appendix. 6.2 Separate Accounting. The account balances of each participant in the Pies Plan shall be maintained in separate accounts as follows: (a) Amounts transferred attributable to "Retirement Savings Contributions" allocated to a participant under the Pies Plan shall be held in a special segregated Pies Retirement Savings Contributions Account. (b) Amounts transferred attributable to Employer Discretionary Profit Sharing Contributions allocated to a participant under the Pies Plan shall be held in a special segregated Pies Employer Discretionary Profit Sharing Contributions Account. (c) Amounts transferred attributable to "Rollover Contributions" allocated to a participant under the Pies Plan shall be held in a special segregated Pies Rollover Contributions Account. All such accounts shall be collectively referred to in this Appendix VI as "Pies Accounts." 6.3 Transfer of Plan Assets. Effective as of the Pies Merger Effective Date, the assets of the Pies Plan which are held by the trustee of the trust accompanying the Pies Plan shall become assets of the Plan, and shall be held by the Trustee under the provisions of the Plan and its accompanying Trust for the exclusive benefit of Participants and Beneficiaries under the Plan, including the provisions of this Appendix. 6.4 Conditions for Merger and Transfer. The merger of plans and transfer of assets as provided for in this Appendix is made on the condition that subsection (a) of Section 11.5 of the Plan is satisfied. 106 116 6.5 Vesting. Participants who were hired by Pies, Inc. prior to July 1, 1996 shall be fully vested at all times in their Pies Employer Discretionary Profit Sharing Contributions Account. 6.6 In-Service Withdrawals. Amounts in the Pies Retirement Savings Contributions Account (excluding investment earnings attributable to periods after December 31, 1988) may be withdrawn by the Participant in accordance with the provisions of Section 8.10 of this Plan. 6.7 Hours of Service. Effective as of the Pies Merger Effective Date, service with Pies, Inc. shall be treated as service with an Employer for all purposes under this Plan, even though said service may have been rendered prior to the time when said company became a member of the Controlled Group. This provision shall be effective for all employees of said company who remained or became employed by any member of the Controlled Group as of the date the company became a member of the Controlled Group. This provision shall not, however, be construed to permit participation in the Plan prior to the adoption thereof by the Employer in question. 107 117 EXHIBIT A TO FLOWERS INDUSTRIES, INC. 401(K) RETIREMENT SAVINGS PLAN (AS REVISED, EFFECTIVE AS OF MAY 1, 1999) Pursuant to Article III and Section 11.6 of the Plan, the Adopting Employers listed in the schedule below have elected to have the following special provisions apply to their Employees, as indicated in the second column of the schedule below. A = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer shall make Matching Elective Contributions equal to 25% of the Elective Contribution subject to a maximum Matching Elective Contribution of $100 per participant. Notwithstanding the foregoing, in the case of an Employee who is excluded from active participation in the Flowers Industries, Inc. Retirement Plan No. 1 by virtue of the Ninth Amendment to that Plan, contributions in accordance with special provision B shall be made with respect to such Employees (that is, the Adopting Employer shall make Matching Elective Contributions equal to 25% of the Elective Contribution subject to a maximum Matching Elective Contribution of 1.5% of Compensation (as defined in Section 1.15 of the Plan) per participant, with respect to such Employees; and the Adopting Employer also shall make Company Basic Contributions equal to 2% of each Participant's Compensation (as defined in Section 3.6(b)(iv) of the Plan), with respect to such Employees). B = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer shall make Matching Elective Contributions equal to 25% of the Elective Contribution subject to a maximum Matching Elective Contribution of 1.5% of Compensation (as defined in Section 1.15 of the Plan) per participant. Company Basic Contributions (Section 3.1(e)): The Adopting Employer shall make Company Basic Contributions equal to 2% of each Participant's Compensation (as defined in Section 3.6(b)(iv) of the Plan). C = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer will not make any Matching Elective Contributions. Company Basic Contributions (Section 3.1(e)): The Adopting Employer shall make Company Basic Contributions equal to 2% of each Participant's Compensation minus payments for overtime. For purposes of this Item C of this Exhibit A, the term "Compensation" shall be defined in accordance with Section 1.15 of the Plan; provided, however, that there shall be included in Compensation the gain and income (including dividend income) associated with restricted stock awards and equity incentive awards under the Company's 1989 Executive Stock Incentive Plan or any successor to that plan, to the extent that the gain or income is required to be reported under Code ss.ss. 6041(d) or 6051(a)(3). 108 118 D = Company Basic Contributions (Section 3.1(e)): The Adopting Employer shall make Company Basic Contributions on behalf of each Participant equal to 50 cents for each Hour of Service performed after such Participant meets the Eligibility Requirements in Section 2.1(b).
SPECIAL ADOPTING EMPLOYERS PROVISIONS - ------------------ ---------- Flowers Industries, Inc. A Flowers Baking Company of Miami, Inc. A Flowers Baking Company of Jacksonville, Inc. A Flowers Baking Company of Bradenton, Inc. A European Bakers, Ltd. A Dan-Co Bakery, Inc. A Table Pride, Inc. A Mrs. Smith's Sales Support Group, Inc. A Flowers Baking Company of Thomasville, Inc. A Flowers Baking Company of Opelika, Inc. A Hardin's Bakery, Incorporated A Flowers Specialty of Montgomery, Inc. A Huval Bakery, Incorporated A Bunny Bread, Inc. A Flowers Baking Company of Baton Rouge, Inc. A Flowers Baking Company of Jamestown, Inc. A Daniel's Home Bakery of North Carolina, Inc. A Flowers Baking Company of Lynchburg, Inc. A
109 119 Flowers Baking Company of South Carolina, Inc. A Flowers Baking Company of Chattanooga, Inc. A Flowers Baking Company of Morristown, Inc. A Schott's Bakery, Inc. A Flowers Baking Company of West Virginia, Inc. A Flowers Baking Company of Tyler, Inc. A El Paso Baking Company, Inc. A Flowers Baking Company of Texarkana, Inc. A Mrs. Smith's Bakeries of London, Inc. A Stilwell Foods, Inc. A Flowers Baking Company of Villa Rica, Inc. B Aunt Fanny's Bakery, Inc. C Mrs. Smith's Frozen Bakery Distributors, Inc. B Holsum Baking Company B Mrs. Smith's Bakeries, Inc. A Mrs. Smith's Foil Company, Inc. A Pies, Inc. D Midtown Bakery, Inc. B Flowers Bakeries, Inc. A Franklin Baking Company B
110 120 ButterKrust Bakeries, Inc. B Shipley Baking Company, Inc. B
APPROVED: /s/ R. Steve Kinsey --------------------------------- PLAN ADMINISTRATOR DATE: 5/18/99 --------------------------------- 111 121 FIRST AMENDMENT TO THE FLOWERS INDUSTRIES, INC. 401(K) RETIREMENT SAVINGS PLAN AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1997 THIS AMENDMENT to the Flowers Industries, Inc. 401(k) Retirement Savings Plan as amended and restated effective as of January 1, 1997 (the "Plan") made this 28th day of December, 1999, by Flowers Industries, Inc. (hereinafter referred to as the "Company"), to be effective upon signing. W I T N E S S E T H : WHEREAS, the Company sponsors and maintains the Plan for the exclusive benefit of its employees and their beneficiaries and pursuant to Section 11.2(a) thereof, the Company has the right to amend the Plan at any time; and WHEREAS, the Company wishes to amend the Plan at this time for the purpose of merging the Home Baking Company, Inc. Amended and Restated 401(k) Profit Sharing Plan and Trust with and into the Plan, and for other purposes; NOW, THEREFORE, the Plan is hereby amended as follows: 122 I. Effective as of December 31, 1999, Section 8.3 of the Plan shall be amended by deleting the last sentence and inserting in its place the following: See also Appendices I, II, III, IV, V, 9VI, and VII. II. Effective as of April 1, 1995, Section 8.10(a) is amended by deleting the first sentence and inserting in its place the following: A Participant shall be entitled to apply to the Plan Administrator for a hardship distribution of all or a portion of such Participant's Elective Contributions Account balance (excluding investment earnings attributable to periods after December 31, 1998), valued as of the Valuation Date coincident with or next following the date on which the Plan Administrator receives the Participant's application. III. Effective as of December 31, 1999, the Plan shall be amended by inserting the following Appendix VII at the end thereof: APPENDIX VII SPECIAL PROVISIONS REGARDING MERGER OF THE HOME BAKING COMPANY, INC. AMENDED AND RESTATED 401(k) PROFIT SHARING PLAN AND TRUST WITH AND INTO THE PLAN 7.1 General Provisions. Effective as of December 31, 1999 ("Home Baking Merger Effective Date"), the Home Baking Company, Inc. Amended and Restated 401(k) Profit Sharing Plan and Trust ("Home Baking Plan") is merged with and into the Plan. The Plan shall, as of the Home Baking Merger Effective Date, assume all obligations of the Home Baking Plan and be responsible for payment of all vested benefits accrued under the terms and provisions of the Home Baking Plan for (i) participants participating in the Home Baking Plan immediately prior to the Home Baking Merger Effective Date, and (ii) former participants and beneficiaries with vested benefits under the Home Baking Plan immediately prior to the Home Baking Merger Effective Date whose account balances have not been fully distributed to them. Such participants and 2 123 beneficiaries shall, as of the Home Baking Merger Effective Date, automatically become Participants in the Plan with respect to such account balances. The Plan shall provide for said payment of benefits with the assets transferred to the trust accompanying the Plan as set forth in Section 7.3 of this Appendix. 7.2 Separate Accounting. The account balances of each participant in the Home Baking Plan shall be maintained in separate accounts as follows: (a) Amounts transferred attributable to "Deferral Contributions" allocated to a participant under the Home Baking Plan shall be held in a special segregated Home Baking Deferral Contributions Account. (b) Amounts transferred attributable to nonelective contributions allocated to a participant under the Home Baking Plan shall be held in a special segregated Home Baking Profit Sharing Contributions Account. (c) Amounts transferred attributable to employer matching contributions under the Home Baking Plan shall be held in a special segregated Home Baking Matching Contributions Account. All such accounts shall be collectively referred to in this Appendix VII as "Home Baking Accounts." 7.3 Transfer of Plan Assets. Effective as of the Home Baking Merger Effective Date, the assets of the Home Baking Plan which are held by the trustee of the trust accompanying the Home Baking Plan shall become assets of the Plan, and shall be held by the Trustee under the provisions of the Plan and its accompanying Trust for the exclusive benefit of Participants and Beneficiaries under the Plan, including the provisions of this Appendix. 7.4 Conditions for Merger and Transfer. The merger of plans and transfer of assets as provided for in this Appendix is made on the condition that subsection (a) of Section 11.5 of the Plan is satisfied. 7.5 Additional Forms of Benefit for Home Baking Accounts. (a) In General. Notwithstanding any provisions of this Plan to the contrary, except as otherwise provided in this Section 7.5, the Home Baking Accounts of Participants held under this Plan shall be "Applicable Accounts" for purposes of Appendix I, and shall be subject to the terms and provisions of Appendix I. For purposes of Appendix I, the Qualified Joint and Survivor Annuity referred to in such Appendix shall be a Qualified Joint and 50% Survivor Annuity. (b) Additional Optional Methods. Subject to the requirements set forth in subsection (a) above, a Participant who has a vested Home Baking Account balance may elect by written notice to the Plan Administrator at least 31 days prior to his Annuity Starting Date that the value of his Home Baking Accounts shall be distributed in the form of a lump sum cash payment, or in the form of an annuity contract, or in the form of periodic installments payable not less often than annually for a period not to exceed the joint life expectancy of the Participant and his designated Beneficiary. The Plan Administrator shall select the insurance company from which the annuity contract shall be purchased. The following forms of annuity benefit are available with respect to the Home Baking Accounts: 3 124 (i) Joint and Survivor Annuity. An annuity benefit under which the Participant will receive fixed monthly payments for life, and upon his death monthly payments in an amount equal to 50% of the monthly amount in effect during the joint lives of the Participant and the spouse (or, if the spouse consents to another joint annuitant, during the joint lives of the Participant and another joint annuitant) will be made to the spouse to whom the Participant was married at the time the annuity contract was purchased (or, if the spouse consents to another joint annuitant, to such other joint annuitant), for the life of the spouse or other joint annuitant. (ii) Life Annuity. An annuity benefit under which the Participant will receive monthly payments for his life, and upon his death payments will stop. 7.6 Vesting. On and after December 31, 1999, the Matching Elective Contributions Account, Company Basic Contributions Account, Other Contributions Account, Home Baking Profit Sharing Contributions Account, and Home Baking Matching Contributions Account of a Participant who was previously a participant in the Home Baking Plan shall be vested in accordance with either the following vesting schedule, or the vesting provisions set forth in Section 5.2 of the Plan, whichever results in the greater vested percentage for a Participant:
Years of Vesting Service Vested Percentage Earned by the Participant of the Participant ------------------------- ------------------ Less than 2 years 0% 2 years 20% 3 years 40% 4 years 60% 5 years 80% 6 or more years 100%
7.7 In-Service Withdrawals. Amounts in the Home Baking Deferral Contributions Account (excluding investment earnings attributable to periods after December 31, 1988) and in the Home Baking Profit Sharing Contributions Account may be withdrawn by the Participant in accordance with the provisions of Section 8.10 of this Plan. 7.8 Hours of Service. Effective as of the Home Baking Merger Effective Date, service with Home Baking Company, Inc. shall be treated as service with an Employer for all purposes under this Plan, even though said service may have been rendered prior to the time when said company became a member of the Controlled Group. This provision shall be effective for all employees of said company who remained or became employed by any member of the Controlled Group as of the date the company became a member of the Controlled Group. This provision shall not, however, be construed to permit participation in the Plan prior to the adoption thereof by the Employer in question. 4 125 IV. All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified. IN WITNESS WHEREOF, this First Amendment has been executed on the day and year first above written. COMPANY: FLOWERS INDUSTRIES, INC. By: /s/ Jimmy M. Woodward ------------------------------------------ Title: V. P. & Chief Administrative Officer --------------------------------------- ATTEST: By: /s/ R. Steve Kinsey ------------------------------------------ Title: Plan Administrator --------------------------------------- 5 126 SECOND AMENDMENT TO THE FLOWERS INDUSTRIES, INC. 401(K) RETIREMENT SAVINGS PLAN AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1997 THIS AMENDMENT to the Flowers Industries, Inc. 401(k) Retirement Savings Plan, as amended and restated effective as of January 1, 1997 (the "Plan") made this 23rd day of December, 1999, by Flowers Industries, Inc. (hereinafter referred to as the "Company"), to be effective upon signing. W I T N E S S E T H : WHEREAS, the Company sponsors and maintains the Plan for the exclusive benefit of its employees and their beneficiaries and pursuant to Section 11.2 (a) thereof, the Company has the right to amend the Plan at any time; and WHEREAS, the Company wishes to amend the Plan at this time for the purpose of providing certain benefits to certain employees assigned to the Company's Aviation Department who will no longer be eligible to participate in the Flowers Industries, Inc. Retirement Plan No. 1, and for other purposes; NOW, THEREFORE, the Plan is hereby amended as follows: 1 127 I. Exhibit A to the Plan is hereby amended to provide as follows, effective as of January 1, 2000: EXHIBIT A TO FLOWERS INDUSTRIES, INC. 401(K) RETIREMENT SAVINGS PLAN (AS REVISED, EFFECTIVE AS OF JANUARY 1, 2000) Pursuant to Article III and Section 11.6 of the Plan, the Adopting Employers listed in the schedule below have elected to have the following special provisions apply to their Employees, as indicated in the second column of the schedule below. A = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer shall make Matching Elective Contributions equal to 25% of the Elective Contribution subject to a maximum Matching Elective Contribution of $100 per participant. Notwithstanding the foregoing, in the case of an Employee who is excluded from active participation in the Flowers Industries, Inc. Retirement Plan No. 1 by virtue of the Ninth Amendment to that Plan, contributions in accordance with special provision B shall be made with respect to such Employees (that is, the Adopting Employer shall make Matching Elective Contributions equal to 25% of the Elective Contribution subject to a maximum Matching Elective Contribution of 1.5% of Compensation (as defined in Section 1.15 of the Plan) per participant, with respect to such Employees; and the Adopting Employer also shall make Company Basic Contributions equal to 2% of each Participant's Compensation (as defined in Section 3.6(b)(iv) of the Plan), with respect to such Employees). B = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer shall make Matching Elective Contributions equal to 25% of the Elective Contribution subject to a maximum Matching Elective Contribution of 1.5% of Compensation (as defined in Section 1.15 of the Plan) per participant. Company Basic Contributions (Section 3.1(e)): The Adopting Employer shall make Company Basic Contributions equal to 2% of each Participant's Compensation (as defined in Section 3.6(b)(iv) of the Plan). 2 128 C = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer will not make any Matching Elective Contributions. Company Basic Contributions (Section 3.1(e)): The Adopting Employer shall make Company Basic Contributions equal to 2% of each Participant's Compensation minus payments for overtime. For purposes of this Item C of this Exhibit A, the term "Compensation" shall be defined in accordance with Section 1.15 of the Plan; provided, however, that there shall be included in Compensation the gain and income (including dividend income) associated with restricted stock awards and equity incentive awards under the Company's 1989 Executive Stock Incentive Plan or any successor to that plan, to the extent that the gain or income is required to be reported under Code ss.ss. 6041(d) or 6051(a)(3). D = Company Basic Contributions (Section 3.1(e)): The Adopting Employer shall make Company Basic Contributions on behalf of each Participant equal to 50 cents for each Hour of Service performed after such Participant meets the Eligibility Requirements in Section 2.1(b). E = Matching Elective Contributions (Section 3.1(b)): The Adopting Employer shall make Matching Elective Contributions equal to 25% of the Elective Contributions subject to a maximum Matching Elective Contribution of 1.5% of Compensation (as defined in Section 1.15 of the Plan) per Participant covered by this special provision. Company Basic Contributions (Section 3.1(e)): With respect to each Participant covered by this special provision, the Adopting Employer shall make Company Basic Contributions equal to the percentage of each Participant's Compensation (as defined in Section 3.6(b)(iv) of the Plan) determined in accordance with the following table, based upon the individual's Years of Vesting Service:
Percentage of Compensation (as defined in Section 3.6(b)(iv) Years of Vesting Service of the Plan ------------------------ -------------------------------- At least 1, but less than 6 3.00% At least 6, but less than 11 4.00% At least 11, but less than 16 5.00% At least 16, but less than 21 6.00% At least 21, but less than 26 7.00% At least 26, but less than 31 8.00%
3 129
SPECIAL ADOPTING EMPLOYERS PROVISIONS - ------------------ ---------- Flowers Industries, Inc. (except for those Employees who are excluded from active participation in the Flowers Industries, Inc. Retirement Plan No. 1 by Section 2.01(h) of that Plan) A Flowers Industries, Inc. (with respect to those Employees who are excluded from active participation in the Flowers Industries, Inc. Retirement Plan No. 1 by Section 2.01(h) of that Plan) E Flowers Baking Company of Miami, Inc. A Flowers Baking Company of Jacksonville, Inc. A Flowers Baking Company of Bradenton, Inc. A European Bakers, Ltd. A Dan-Co Bakery, Inc. A Table Pride, Inc. A Mrs. Smith's Sales Support Group, Inc. A Flowers Baking Company of Thomasville, Inc. A Flowers Baking Company of Opelika, Inc. A Hardin's Bakery, Incorporated A Flowers Specialty of Montgomery, Inc. A Huval Bakery, Incorporated A Bunny Bread, Inc. A Flowers Baking Company of Baton Rouge, Inc. A Flowers Baking Company of Jamestown, Inc. A Daniel's Home Bakery of North Carolina, Inc. A
4 130 Flowers Baking Company of Lynchburg, Inc. A Flowers Baking Company of South Carolina, Inc. A Flowers Baking Company of Chattanooga, Inc. A Flowers Baking Company of Morristown, Inc. A Schott's Bakery, Inc. A Flowers Baking Company of West Virginia, Inc. A Flowers Baking Company of Tyler, Inc. A El Paso Baking Company, Inc. A Flowers Baking Company of Texarkana, Inc. A Mrs. Smith's Bakeries of London, Inc. A Stilwell Foods, Inc. A Flowers Baking Company of Villa Rica, Inc. B Aunt Fanny's Bakery, Inc. C Mrs. Smith's Frozen Bakery Distributors, Inc. B Holsum Baking Company B Mrs. Smith's Bakeries, Inc. A Mrs. Smith's Foil Company, Inc. A Pies, Inc. D Midtown Bakery, Inc. B Flowers Bakeries, Inc. A Franklin Baking Company B
5 131 ButterKrust Bakeries, Inc. B Shipley Baking Company, Inc. B Home Baking Company, Inc. B Mrs. Smith's Bakery of Suwanee, Inc. B
APPROVED: /s/ R. Steve Kinsey -------------------------------- PLAN ADMINISTRATOR DATE: ------------------------------------ II. All other provisions of the Plan not inconsistent herewith are hereby confirmed and ratified. IN WITNESS WHEREOF, this Second Amendment has been executed on the day and year first above written. COMPANY: FLOWERS INDUSTRIES, INC. By: /s/ Jimmy M. Woodward ---------------------------------------- Title: V.P. & Chief Administrative Officer ------------------------------------- ATTEST: By: /s/ R. Steve Kinsey ---------------------------- Title: Director of Tax ------------------------- 6 EX-10.13 3 $500,000,000 SECOND AMEND. AND RESTATED CREDIT AGR 1 EXHIBIT 10.13 $500,000,000 SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 30, 2000 among FLOWERS INDUSTRIES, INC. The Banks Listed Herein WACHOVIA BANK, N.A., as Agent, THE BANK OF NOVA SCOTIA, as Documentation Agent and BANK OF AMERICA, N.A., as Syndications Agent 2 TABLE OF CONTENTS AMENDED AND RESTATED CREDIT AGREEMENT
Page - ---- ARTICLE I DEFINITIONS....................................................................................1 Section 1.01. Definitions......................................................................1 Section 1.02. Accounting Terms and Determinations.............................................16 Section 1.03. References......................................................................16 Section 1.04. Use of Defined Terms............................................................16 Section 1.05. Terminology.....................................................................16 ARTICLE II THE CREDITS..................................................................................17 Section 2.01. Commitments to Lend Syndicated Loans and Swing Loans............................17 Section 2.02. Method of Borrowing Syndicated Loans and Swing Loans............................18 Section 2.03. Money Market Loans..............................................................20 Section 2.04. Notes...........................................................................23 Section 2.05. Maturity of Loans...............................................................23 Section 2.06. Interest Rates..................................................................24 Section 2.07. Fees............................................................................25 Section 2.08. Optional Termination or Reduction of Commitments................................25 Section 2.09. Mandatory Reduction and Termination of Commitments..............................26 Section 2.10. Optional Prepayments............................................................26 Section 2.11. Mandatory Prepayments...........................................................27 Section 2.12. General Provisions as to Payments...............................................27 Section 2.13. Computation of Interest and Fees................................................28
(i) 3
ARTICLE III CONDITIONS TO BORROWINGS....................................................................29 Section 3.01. Conditions to First Borrowing...................................................29 Section 3.02. Conditions to All Borrowings....................................................30 ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................................31 Section 4.01. Corporate Existence and Power...................................................31 Section 4.02. Corporate and Governmental Authorization; No Contravention......................31 Section 4.03. Binding Effect..................................................................31 Section 4.04. Financial Information...........................................................32 Section 4.05. No Litigation...................................................................32 Section 4.06. Compliance with ERISA...........................................................32 Section 4.07. Compliance with Laws; Payment of Taxes..........................................32 Section 4.08. Subsidiaries....................................................................33 Section 4.09. Investment Company Act..........................................................33 Section 4.10. Public Utility Holding Company Act..............................................33 Section 4.11. Ownership of Property; Liens....................................................33 Section 4.12. No Default......................................................................33 Section 4.13. Full Disclosure.................................................................33 Section 4.14. Environmental Matters...........................................................34 Section 4.15. Capital Stock...................................................................34 Section 4.16. Margin Stock....................................................................34 Section 4.17. Insurance.......................................................................35 ARTICLE V COVENANTS.....................................................................................35 Section 5.01. Information.....................................................................35
(ii) 4 Section 5.02. Inspection of Property, Books and Records.......................................37 Section 5.03. Maintenance of Existence........................................................37 Section 5.04. Consolidations, Mergers and Sales of Assets.....................................37 Section 5.05. Use of Proceeds.................................................................38 Section 5.06. Compliance with Laws; Payment of Taxes..........................................38 Section 5.07. Insurance.......................................................................39 Section 5.08. Change in Fiscal Year...........................................................39 Section 5.09. Maintenance of Property.........................................................39 Section 5.10. Environmental Notices...........................................................39 Section 5.11. Environmental Matters...........................................................40 Section 5.12. Environmental Release...........................................................40 Section 5.13. Transactions with Affiliates....................................................40 Section 5.14. Loans or Advances...............................................................40 Section 5.15. Investments.....................................................................40 Section 5.16. Negative Pledge.................................................................41 Section 5.17. Adjusted Fixed Charges Coverage Ratio...........................................43 Section 5.18. Leverage Ratio..................................................................43 Section 5.19. Minimum Adjusted Consolidated Net Worth.........................................43 Section 5.20. Subsidiary Borrowings...........................................................43 Section 5.21. Separateness from Unrestricted Subsidiaries.....................................43 Section 5.22. Adjusted Consolidated EBITDA....................................................44 Section 5.23. Borrowing Base..................................................................45 Section 5.24. New Indebtedness for Money Borrowed and New Capitalized Leases..................45 Section 5.25. Capital Expenditures............................................................45 Section 5.26. Restricted Payments.............................................................46
(iii) 5 ARTICLE VI DEFAULTS.....................................................................................46 Section 6.01. Events of Default...............................................................46 Section 6.02. Notice of Default...............................................................49 ARTICLE VII THE AGENT...................................................................................49 Section 7.01. Appointment; Powers and Immunities..............................................49 Section 7.02. Reliance by Agent...............................................................50 Section 7.03. Defaults........................................................................50 Section 7.04. Rights of Agent and its Affiliates as a Bank....................................51 Section 7.05. Indemnification.................................................................51 Section 7.06. Consequential Damages...........................................................51 Section 7.07. Payee of Note Treated as Owner..................................................51 Section 7.08. Nonreliance on Agent and Other Banks............................................52 Section 7.09. Failure to Act..................................................................52 Section 7.10. Resignation or Removal of Agent.................................................52 ARTICLE VIII CHANGE IN CIRCUMSTANCES; COMPENSATION......................................................53 Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................53 Section 8.02. Illegality......................................................................53 Section 8.03. Increased Cost and Reduced Return...............................................54 Section 8.04. Base Rate Loans Substituted for Euro-Dollar Loans...............................55 Section 8.05. Compensation....................................................................55 Section 8.06. Replacement of Bank.............................................................56 ARTICLE IX MISCELLANEOUS................................................................................56 Section 9.01. Notices.........................................................................56
(iv) 6 Section 9.02. No Waivers......................................................................57 Section 9.03. Expenses; Documentary Taxes.....................................................57 Section 9.04. Indemnification.................................................................57 Section 9.05. Setoff; Sharing of Setoffs......................................................57 Section 9.06. Amendments and Waivers..........................................................58 Section 9.07. Successors and Assigns..........................................................59 Section 9.08. Confidentiality.................................................................61 Section 9.09. Representation by Banks.........................................................61 Section 9.10. Obligations Several.............................................................61 Section 9.11. Georgia Law.....................................................................62 Section 9.12. Severability....................................................................62 Section 9.13. Interest........................................................................62 Section 9.14. Interpretation..................................................................63 Section 9.15. Waiver of Jury Trial; Consent to Jurisdiction...................................63 Section 9.16. Counterparts....................................................................63 Section 9.17. Source of Funds -- ERISA........................................................63
EXHIBIT A-1 Form of Syndicated Loan Note EXHIBIT A-2 Form of Money Market Loan Note EXHIBIT A-3 Form of Swing Loan Note EXHIBIT B Form of Opinion of Counsel for the Borrower EXHIBIT C Form of Opinion of Special Counsel for the Agent EXHIBIT D Form of Assignment and Acceptance EXHIBIT E Form of Notice of Borrowing EXHIBIT F Form of Compliance Certificate EXHIBIT G Form of Closing Certificate EXHIBIT H Form of Officer's Certificate EXHIBIT I Form of Money Market Quote Request EXHIBIT J Form of Money Market Quote Schedule 4.08 Subsidiaries (v) 7 SECOND AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 30, 2000 among FLOWERS INDUSTRIES, INC., the BANKS listed on the signature pages hereof, WACHOVIA BANK, N.A., as Agent, THE BANK OF NOVA SCOTIA, as Documentation Agent, and BANK OF AMERICA, N.A., as Syndications Agent. This Second Amended and Restated Credit Agreement is an amendment and restatement of the Amended and Restated Credit Agreement by and among the Borrower, the Banks parties thereto, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent and Bank of America, N.A. (formerly Nationsbank, N.A.), as Syndications Agent, as amended by First Amendment to Credit Agreement dated as of September 24, 1998, Second Amendment to Credit Agreement dated as of July 16, 1999, Third Amendment to Credit Agreement dated as of October 8, 1999 and Fourth Amendment to Credit Agreement dated as of December 29, 1999 (as so amended, the "Original Agreement"), which is replaced and superseded hereby. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The terms as defined in this Section 1.01 shall, for all purposes of this Agreement and any amendment hereto (except as herein otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein: "Adjusted Total Capitalization" means the sum of (i) Adjusted Consolidated Total Debt and (ii) Adjusted Consolidated Net Worth. "Adjusted Consolidated EBITDA" means at any time the sum of the following, determined on a consolidated basis for the Borrower and its Restricted Subsidiaries, at the end of each Fiscal Quarter: (i) Adjusted Consolidated Net Income; plus (ii) Adjusted Consolidated Interest Expense; plus (iii) taxes on income; plus (iv) depreciation; plus (v) amortization; plus (vi) without duplication, other non-cash charges. "Adjusted Consolidated Fixed Charges" means at any date the sum of (i) Adjusted Consolidated Interest Expense for the Fiscal Year to date or 4 Fiscal Quarter period (as applicable) used in the calculation of Adjusted Consolidated Net Income for the determination of Adjusted EBILTDA, and (ii) all payment obligations of the Borrower and its Restricted Subsidiaries for such period under all operating leases and rental agreements. "Adjusted Consolidated Interest Expense" for any period means interest, whether expensed or capitalized, in respect of Indebtedness of the Borrower or any of its Restricted Subsidiaries outstanding during such period. 1 8 "Adjusted Consolidated Net Income" means, for any period, the Net Income of the Borrower and its Restricted Subsidiaries determined on a consolidated basis, including (without duplication) any cash dividends received from Keebler or any other Investment, but excluding (i) extraordinary items, (ii) any equity interests of the Borrower or any Restricted Subsidiary in the unremitted earnings of any Person that is not a Subsidiary, (iii) mark to market adjustments made in connection with the Borrower's commodities hedging program in accordance with GAAP, and (iv) gains and losses from sales of assets outside the ordinary course of business. "Adjusted Consolidated Net Worth" means the Net Worth of the Borrower and the Subsidiaries, with all Unrestricted Subsidiaries being accounted for on an equity basis of accounting, and otherwise determined on a consolidated basis in accordance with GAAP. "Adjusted Consolidated Total Assets" means, at any time, the total assets of the Borrower and its Restricted Subsidiaries, with any investments in Unrestricted Subsidiaries included as assets as if all Unrestricted Subsidiaries were being accounted for on an equity basis of accounting, determined in all other respects on a consolidated basis in accordance with GAAP. "Adjusted Consolidated Total Debt" means the aggregate of all Indebtedness (except that, for purposes of determining Adjusted Consolidated Total Debt, letters of credit and similar instruments described in clause (e) of the definition of Indebtedness shall be included only to the extent they have maturities greater than 1 year) of the Borrower and its Restricted Subsidiaries on a consolidated basis in accordance with GAAP, excluding, however, any Convertible Redeemable Capital Stock or Convertible Subordinated Debt if the current market value of an equity security into which such Convertible Redeemable Capital Stock or Convertible Subordinated Debt is convertible is greater than the conversion price for such security. "Adjusted EBILTDA" means at any date the sum of (i) Adjusted Consolidated Net Income for the Fiscal Year to date (when calculated as of the end of the second and third Fiscal Quarters of the 2000 Fiscal Year) or the 4 Fiscal Quarters ending on or prior to the date of measurement (when calculated as of the end of the fourth Fiscal Quarter of the 2000 Fiscal Year and thereafter), plus (ii) the sum of Adjusted Consolidated Fixed Charges and taxes on income (including deferred taxes), depreciation and amortization for the same Fiscal Year to date or 4 Fiscal Quarters (as applicable). "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.06(c). "Affiliate" of any relevant Person means (i) any Person that directly, or indirectly through one or more intermediaries, controls the relevant Person (a "Controlling Person"), (ii) any Person (other than the relevant Person or a Subsidiary of the relevant Person) which is controlled by or is under common control with a Controlling Person, or (iii) any Person (other than a Subsidiary of the relevant Person) of which the relevant Person owns, directly or indirectly, 20% or more of the common stock or equivalent equity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the 2 9 direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means Wachovia Bank, N.A., a national banking association organized under the laws of the United States of America, in its capacity as agent for the Banks hereunder, and its successors and permitted assigns in such capacity. "Agent's Letter Agreement" means that certain letter agreement, dated as of December 18, 1997 between the Borrower and the Agent relating to the structure of the Loans, and certain fees from time to time payable by the Borrower to the Agent, together with all amendments and supplements thereto. "Agreement" means this Second Amended and Restated Credit Agreement, together with all amendments and supplements hereto. "Applicable Margin" has the meaning set forth in Section 2.06(a). "Assignee" has the meaning set forth in Section 9.07(c). "Assignment and Acceptance" means an Assignment and Acceptance executed in accordance with Section 9.07(c) in the form attached hereto as Exhibit D. "Authority" has the meaning set forth in Section 8.02. "Bank" means each bank listed on the signature pages hereof as having a Commitment, and its successors and permitted assigns. "Base Rate" means for any Base Rate Loan for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate, or (ii) one-half of one percent above the Federal Funds Rate. For purposes of determining the Base Rate for any day, changes in the Prime Rate or the Federal Funds Rate shall be effective on the date of each such change. "Base Rate Borrowing" has the meaning set forth in the definition of Borrowing. "Base Rate Loan" means a Loan which bears or is to bear interest at a rate based upon the Base Rate, and is to be made as a Base Rate Loan pursuant to the applicable Notice of Borrowing, Section 2.02(f), or Article VIII, as applicable. "Borrower" means Flowers Industries, Inc. a Georgia corporation, and its successors and its permitted assigns. "Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower (i) at the same time by all of the Banks, in the case of a Syndicated Borrowing, or (ii) separately by one or more Banks, in the case of a Money Market Borrowing, in each case pursuant to Article II or (iii) by Wachovia, for Swing Loans. A Borrowing is a "Money Market Borrowing" if such Loans are made pursuant to Section 2.03 or a "Syndicated Borrowing" if such Loans are made pursuant to Section 2.01(a), or a "Swing Loan Borrowing" if such Loan is made pursuant to Section 2.01(b). A Borrowing is a "Base Rate Borrowing" if such Loans are 3 10 made as Base Rate Loans or a "Euro-Dollar Borrowing" if such Loans are made as Euro-Dollar Loans. "Borrowing Base" means the sum on the last day of any Fiscal Period, as shown on the balance sheet of the Borrower for such date (except as to clause (iv) below), of: (i) 80% of the net book value of all accounts receivable (net of all reserves) of the Borrower and its Restricted Subsidiaries, calculated in accordance with GAAP; (ii) 50% of the book value of all inventory of the Borrower and its Restricted Subsidiaries, calculated in accordance with GAAP; (iii) 50% of the net book value of all tangible property, plant and equipment of the Borrower and its Restricted Subsidiaries, calculated in accordance with GAAP; and (iv) 60% of the product of (a) the average per share closing price of Keebler common stock during such Fiscal Period times (b) the number of shares of such stock owned by the Borrower, as of such date. "Capital Expenditures" means for any period the sum of all capital expenditures incurred during such period by the Borrower and its Restricted Subsidiaries, as determined in accordance with GAAP. "Capital Stock" means any nonredeemable capital stock of the Borrower or any Consolidated Subsidiary (to the extent issued to a Person other than the Borrower), whether common or preferred. "Capitalized Lease" means any lease which is required to be capitalized on the balance sheet of the lessee pursuant to GAAP but shall exclude any lease which at the time of its incurrence was an operating lease for purposes of GAAP as in effect at such time. "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. ss.9601 et. seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Change of Law" shall have the meaning set forth in Section 8.02. "Closing Certificate" has the meaning set forth in Section 3.01(e). "Closing Date" means March 30, 2000. "Code" means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. "Commitment" means, with respect to each Bank, (i) the amount set forth opposite the name of such Bank on the signature pages hereof, and (ii)as to any Bank which 4 11 enters into any Assignment and Acceptance (whether as transferor Bank or as Assignee thereunder), the amount of such Bank's Commitment after giving effect to such Assignment and Acceptance, in each case as such amount may be reduced from time to time pursuant to Sections 2.08 and 2.09. "Compliance Certificate" has the meaning set forth in Section 5.01(c). "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of the Borrower in its consolidated financial statements as of such date. "Consolidated Total Assets" means, at any time, the total assets of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries, prepared in accordance with GAAP. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Convertible Redeemable Capital Stock" means any Capital Stock that by its terms (or by the terms of any agreement by which or equity security into which it is convertible or for which it is exchangeable or any other agreement) or upon the happening of any event matures or is or will become mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, or is exchangeable for or convertible into an equity security of the Borrower. "Convertible Subordinated Debt" means any Indebtedness of the Borrower (i) which is and remains subordinated in right of payment to the obligations of the Borrower on the Notes and (ii) which by its terms is exchangeable for or convertible into an equity security of the Borrower. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate" means, with respect to any Loan, on any day, the sum of 2% plus the then highest interest rate (including the Applicable Margin) which may be applicable to any Loans hereunder (irrespective of whether any such type of Loans are actually outstanding hereunder). "Dollars" or "$" means dollars in lawful currency of the United States of America. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Georgia are authorized by law to close. 5 12 "Environmental Authority" means any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Authorizations" means all licenses, permits, orders, approvals, notices, registrations or other legal prerequisites for conducting the business of the Borrower or any Restricted Subsidiary required by any Environmental Requirement. "Environmental Judgments and Orders" means all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent, or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities" means any liabilities, whether accrued, contingent or otherwise, arising from and in any way associated with any Environmental Requirements. "Environmental Notices" means notice from any Environmental Authority or by any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of any violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings" means any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" means releases as defined in CERCLA or under any applicable state or local environmental law or regulation. "Environmental Requirements" means any legal requirement relating to health, safety or the environment and applicable to the Borrower, any Restricted Subsidiary or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Euro-Dollar Borrowing" has the meaning set forth in the definition of Borrowing. "Euro-Dollar Business Day" means any Domestic Business Day on which dealings in Dollar deposits are carried out in the London interbank market. 6 13 "Euro-Dollar Loan" means a Loan which bears or is to bear interest at a rate based upon the Adjusted London Interbank Offered Rate, and to be made as a Euro-Dollar Loan pursuant to the applicable Notice of Borrowing. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.06(c). "Event of Default" has the meaning set forth in Section 6.01. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to Wachovia on such day on such transactions, as determined by the Agent. "Fiscal Period" means each fiscal period of the Borrower, consisting of approximately four weeks, the Borrower having thirteen such fiscal periods in each Fiscal Year. "Fiscal Quarter" means any fiscal quarter of the Borrower. "Fiscal Year" means any fiscal year of the Borrower. "Fixed Rate Borrowing" means a Euro-Dollar Borrowing or a Money Market Borrowing, or either of them, as the context shall require. "Fixed Rate Loans" means Euro-Dollar Loans or Money Market Loans, or either of them, as the context shall require. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.02, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividends or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property constituting security therefore; (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet 7 14 condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligations; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of any other Person to make payment of the Indebtedness or obligation; or (d) otherwise to assure the owner of such Indebtedness or obligations against loss in respect thereof. In any computation of the Indebtedness or other liabilities of the obligor under any Guaranty, the Indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Hazardous Materials" includes, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) "hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including, crude oil or any fraction thereof, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation and (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. "Indebtedness" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capitalized Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and 8 15 (g) any Guaranty of such Person with respect to liabilities of a type described in any clauses (a) through (f) hereof. "Indebtedness for Borrowed Money" means Indebtedness of the types described in clauses (a) and (d) of the definition of Indebtedness. "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the first, second, third or sixth month thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period (subject to paragraph (c) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall, subject to paragraph (c) below, end on the last Euro-Dollar Business Day of the appropriate subsequent calendar month; and (c) no Interest Period may be selected which begins before the Termination Date and would otherwise end after the Termination Date. (2) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter (or, if sooner, on the Termination Date); provided that: (a) any Interest Period (subject to paragraph (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and (b) no Interest Period which begins before the Termination Date and would otherwise end after the Termination Date may be selected. (3) with respect to each Money Market Borrowing, the period commencing on the date of such Borrowing and ending on the Stated Maturity Date specified in the applicable Money Market Quote; provided that: (a) any Interest Period (subject to clause (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and (b) no Interest Period may be selected which begins before the Termination Date and would otherwise end after the Termination Date. "Investment" means any investment in any Person, whether by means of purchase or acquisition of obligations or securities of such Person, capital contribution to such Person, 9 16 loan or advance to such Person, making of a time deposit with such Person, Guaranty or assumption of any obligation of such Person or otherwise. "Keebler" means Keebler Foods Company, a Delaware corporation with its principal place of business in Elmhurst, Illinois. "Keebler Acquisition" means, collectively, the acquisition by the Borrower (i) from Artal Luxembourg S.A., pursuant to a Stock Purchase Agreement dated as of January 28, 1998, of an aggregate of 9,581,169 shares of common capital stock in Keebler, and (ii) from Bermore Limited, pursuant to a Stock Purchase and Stockholder's Agreement dated as of January 28, 1998, of an aggregate of 1,616,691 shares of common capital stock in Keebler, as a result of which, after giving effect to the Keebler Acquisition, the Borrower will own approximately 51% of the common capital stock of Keebler, on a fully diluted basis. "Lending Office" means, as to each Bank, its office located at its address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) or such other office as such Bank may hereafter designate as its Lending Office by notice to the Borrower and the Agent. "Leverage Ratio" means the ratio of Adjusted Consolidated Total Debt to Adjusted Total Capitalization. "Lien" means, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, or encumbrance or servitude of any kind in respect of such asset to secure or assure payment of a Indebtedness or a Guaranty, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease or other title retention agreement relating to such asset. "Loan" means a Base Rate Loan, Euro-Dollar Loan, Syndicated Loan, Money Market Loan or Swing Loan, and "Loans" means Base Rate Loans, Euro-Dollar Loans, Syndicated Loans, Money Market Loans, or Swing Loans, or any or all of them, as the context shall require. "Loan Documents" means this Agreement, the Notes, any other document evidencing, relating to or securing the Loans, and any other document or instrument delivered from time to time in connection with this Agreement, the Notes or the Loans, as such documents and instruments may be amended or supplemented from time to time. "London Interbank Offered Rate" has the meaning set forth in Section 2.06(c). "Margin Stock" means "margin stock" as defined in Regulations T, U or X. "Material Adverse Effect" means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, 10 17 arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business or properties of the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Agent or the Banks under the Loan Documents, or the ability of the Borrower to perform its obligations under the Loan Documents to which it is a party, as applicable, or (c) the legality, validity or enforceability of any Loan Document. "Material Subsidiary" means, as of each date of determination, any Restricted Subsidiary that would at such time constitute a "significant subsidiary" (as such term is defined in Regulation S-X of the Securities and Exchange Commission as in effect on the Closing Date) of the Borrower. "Money Market Borrowing" has the meaning set forth in the definition of Borrowing. "Money Market Borrowing Date" has the meaning specified in Section 2.03. "Money Market Loan Notes" means the promissory notes of the Borrower, substantially in the form of Exhibit A-2, evidencing the obligation of the Borrower to repay the Money Market Loans, together with all amendments, consolidations, modifications, renewals and supplements thereto. "Money Market Quote" has the meaning specified in Section 2.03. "Money Market Quote Request" has the meaning specified in Section 2.03(b). "Money Market Rate" has the meaning specified in Section 2.03(c)(ii)(C). "Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "Net Income" means, as applied to any Person for any period, the aggregate amount of net income of such Person, after taxes, for such period, as determined in accordance with GAAP. "Net Proceeds of Capital Stock" means any cash proceeds received by the Borrower or a Restricted Subsidiary in respect of the issuance of Capital Stock, after deducting therefrom all reasonable and customary costs and expenses incurred by the Borrower or such Consolidated Subsidiary directly in connection with the issuance of such Capital Stock. "Net Worth" of any Person means the Total Assets of such Person less all liabilities of such Person which would be shown as liabilities on a balance sheet of such Person as of such time prepared in accordance with GAAP. "New Capitalized Leases" means Capitalized Leases which are entered into on or after the Closing Date, other than Permitted Refinancing Leases; provided, that any Synthetic 11 18 Lease which is in existence on the Closing Date and is not a Permitted Refinancing Lease shall not constitute a New Capitalized Lease, regardless of any classification or reclassification thereof at any time for purposes of GAAP. "New Indebtedness for Borrowed Money" means Indebtedness for Borrowed Money which is incurred on or after the Closing Date, other than Permitted Refinancing Indebtedness. "Notes" means each of the Syndicated Loan Notes, Money Market Loan Notes, Swing Loan Note, or any or all of them, as the context shall require. "Notice of Borrowing" has the meaning set forth in Section 2.02. "Officer's Certificate" has the meaning set forth in Section 3.01(f). "Operating Profits" means, as applied to any Person for any period, the operating income of such Person for such period, as determined in accordance with GAAP. "Original Agreement" has the meaning set forth in the preamble hereto. "Participant" has the meaning set forth in Section 9.07(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Keebler Investments" means: (i) the Keebler Acquisition; and (ii) additional shares of common capital stock in Keebler acquired from time to time (a) from third parties in the open market, (b) from Bermore, Limited and Artal Luxembourg S.A. in private transactions, (c) from management of Keebler in private transactions and/or (d) from Keebler as part of an offering of stock by Keebler (whether public or private), but in the case of this clause (d), only to the extent necessary for the Borrower to maintain ownership of at least 51% of the common capital stock of Keebler, on a fully diluted basis. "Permitted Refinancing Indebtedness" means Indebtedness for Borrowed Money which is incurred on or after the Closing Date solely to refinance Indebtedness for Borrowed Money which existed prior to the Closing Date, so long as the principal amount outstanding or available under the credit or other agreement governing such Indebtedness for Borrowed Money is not increased or the maturity shortened to a date prior to January 1, 2004, such Indebtedness for Borrowed Money is not secured by a Lien on any assets of the Borrower or any of its Subsidiaries, other than a Lien on assets, if any, which as of the Closing Date secured the Indebtedness for Borrowed Money being refinanced, and the credit or other agreement governing such Indebtedness for Borrowed Money does not contain any financial, negative or affirmative covenants (other than collateral related covenants, where collateral is permitted pursuant to this definition) which are more restrictive in any material respect on the Borrower or any of its Subsidiaries than those contained in this Agreement. "Permitted Refinancing Leases" means Capitalized Leases which are entered into on or after the Closing Date solely to refinance Capitalized Leases or Synthetic Leases which existed prior to the Closing Date, so long as the principal component of the base rent obligations 12 19 thereunder are not increased or the maturity shortened to a date prior to January 1, 2004, such Capitalized Leases are not secured by a Lien on any assets of the Borrower or any of its Subsidiaries, other than a Lien on assets, if any, which as of the Closing Date secured the obligations under the Capitalized Lease or Synthetic Lease being refinanced, and lease agreement, participation agreement, guaranty or other agreement governing such Capitalized Lease does not contain any financial, negative or affirmative covenants (other than collateral related covenants, where collateral is permitted pursuant to this definition)which are more restrictive in any material respect on the Borrower or any of its Subsidiaries than those contained in this Agreement. "Person" means an individual, a corporation, a partnership, an unincorporated association, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions. "Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "Prime Rate" refers to that interest rate so denominated and set by Wachovia from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by Wachovia. Wachovia lends at interest rates above and below the Prime Rate. "Properties" means all real property owned, leased or otherwise used or occupied by the Borrower or any Restricted Subsidiary, wherever located. "Refunding Loan" means a new Syndicated Loan made on the day on which an outstanding Syndicated Loan is maturing or a Base Rate Borrowing is being converted to a Fixed Rate Borrowing, if and to the extent that the proceeds thereof are used entirely for the purpose of paying such maturing Loan or Loan being converted, excluding any difference between the amount of such maturing Loan or Loan being converted and any greater amount being borrowed on such day and actually either being made available to the Borrower pursuant to Section 2.02(c) or remitted to the Agent as provided in Section 2.12, in each case as contemplated in Section 2.02(d). "Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. 13 20 "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Required Banks" means at any time Banks having at least 66 2/3% of the aggregate amount of the Commitments or, if the Commitments are no longer in effect, Banks holding at least 66 2/3% of the aggregate outstanding principal amount of the sum of the (i) Syndicated Loans and (ii) Money Market Loans. "Responsible Officer" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Borrower, and any other officer of the Borrower with responsibility for the administration of the relevant portion of this Agreement. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Borrower's Capital Stock (except dividends payable solely in shares of its Capital Stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's Capital Stock (except shares acquired upon the conversion thereof into other shares of its Capital Stock) or (b) any option, warrant or other right to acquire shares of the Borrower's Capital Stock. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. "Stated Maturity Date" means, with respect to any Money Market Loan, the Stated Maturity Date therefor specified by the Bank in the applicable Money Market Quote. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended Fiscal Quarter of such Person, based on the assumption that such Swap had terminated at the end of such Fiscal Quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. 14 21 "Swing Loan" means a Loan made by Wachovia pursuant to Section 2.01(b), which must be a Base Rate Loan. "Swing Loan Note" means the promissory note of the Borrower, substantially in the form of Exhibit A-3, evidencing the obligation of the Borrower to repay the Swing Loans, together with all amendments, consolidations, modifications, renewals, and supplements thereto. "Syndicated Borrowing" has the meaning set forth in the definition of Borrowing. "Syndicated Loans" means Base Rate Loans or Euro-Dollar Loans made pursuant to the terms and conditions set forth in Section 2.01. "Syndicated Loan Notes" means the promissory notes of the Borrower, substantially in the form of Exhibit A-1, evidencing the obligation of the Borrower to repay Syndicated Loans, together with all amendments, consolidations, modifications, renewals and supplements thereto. "Synthetic Lease" means a lease of property which is intended to be classified as an operating lease in accordance with GAAP, but with respect to which it is intended that the lessee be treated as the owner of the property subject thereto for purposes of federal income tax. "Synthetic Lease Obligations" means the principal component of the base rent obligations of a Person as lessee under a Synthetic Lease. "Taxes" has the meaning set forth in Section 2.12(c). "Termination Date" means whichever is applicable of (i) January 29, 2003, (ii) the date the Commitments are terminated pursuant to Section 6.01 following the occurrence of an Event of Default, or (iii) the date the Borrower terminates the Commitments entirely pursuant to Section 2.08. "Third Parties" means all lessees, sublessees, licensees and other users of the Properties, excluding those users of the Properties in the ordinary course of the Borrower's business and on a temporary basis. "Total Assets" means, with respect to any Person at any time, the total assets of such Person as set forth or reflected on the most recent consolidated balance sheet of such Person, prepared in accordance with GAAP. "Total Capitalization" means the sum of (i) Consolidated Total Debt and (ii) Consolidated Net Worth. "Transferee" has the meaning set forth in Section 9.07(d). "Unfunded Vested Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess 15 22 represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "Unrestricted Subsidiary" means, so long as Keebler is a Subsidiary, Keebler, or any of its Subsidiaries, and "Unrestricted Subsidiaries" means, collectively, Keebler and its Subsidiaries. "Unused Commitment" means at any date, with respect to any Bank, an amount equal to its Commitment less the aggregate outstanding principal amount of its Syndicated Loans (but not its Money Market Loans and not the Swing Loans). "Wachovia" means Wachovia Bank, N.A., a national banking association, and its successors. "Wholly Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks unless with respect to any such change concurred in by the Borrower's independent public accountants or required by GAAP, in determining compliance with any of the provisions of this Agreement or any of the other Loan Documents: (i) the Borrower shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Required Banks shall so object in writing within 30 days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.01 hereof, shall mean the financial statements referred to in Section 4.04). SECTION 1.03. References. Unless otherwise indicated, references in this Agreement to "Articles", "Exhibits", "Schedules", "Sections" and other Subdivisions are references to articles, exhibits, schedules, sections and other subdivisions hereof. SECTION 1.04. Use of Defined Terms. All terms defined in this Agreement shall have the same defined meanings when used in any of the other Loan Documents, unless otherwise defined therein or unless the context shall require otherwise. SECTION 1.05. Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. 16 23 ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend Syndicated Loans and Swing Loans (a)Each Bank severally agrees, on the terms and conditions set forth herein, to make Syndicated Loans to the Borrower from time to time before the Termination Date; provided that, (i) immediately after each such Syndicated Loan is made, the aggregate outstanding principal amount of Syndicated Loans by such Bank shall not exceed the amount of its Commitment, and (ii) the aggregate outstanding principal amount of all Syndicated Loans, Money Market Loans and Swing Loans shall not exceed the aggregate amount of the Commitments. Each Syndicated Borrowing under this Section shall be in an aggregate principal amount of (i) for Euro-Dollar Loans, $10,000,000 or any larger integral multiple of $5,000,000, and (ii) for Base Rate Loans, $5,000,000 or any larger integral multiple of $1,000,000 (except in each case that any such Syndicated Borrowing may be in the aggregate amount of the Unused Commitments), and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay or, to the extent permitted by Section 2.10, prepay Syndicated Loans and reborrow under this Section at any time before the Termination Date. (b) Swing Loans. In addition to the foregoing, Wachovia shall from time to time, upon the request of the Borrower, if the applicable conditions precedent in Article III have been satisfied, make Swing Loans to the Borrower in an aggregate principal amount at any time outstanding not exceeding $15,000,000; provided that, immediately after such Swing Loan is made, the condition set forth in clause (ii) of Section 2.01(a) shall have been satisfied. Each Swing Loan Borrowing under this Section 2.01(b) shall be in an aggregate principal amount of $500,000 or any larger multiple of $100,000. Within the foregoing limits, the Borrower may borrow under this Section 2.01(b), prepay and reborrow under this Section 2.01(b) at any time before the Termination Date. Swing Loans shall not be considered a utilization of the Commitment of Wachovia or any other Bank hereunder. All Swing Loans shall be made as Base Rate Loans. At any time, upon the request of Wachovia, each Bank other than Wachovia shall, on the third Domestic Business Day after such request is made, purchase a participating interest in Swing Loans in an amount equal to its ratable share (based upon its respective Commitment) of such Swing Loans. On such third Domestic Business Day, each Bank will immediately transfer to Wachovia, in immediately available funds, the amount of its participation. Whenever, at any time after Wachovia has received from any such Bank its participating interest in a Swing Loan, the Agent receives any payment on account thereof, the Agent will distribute to such Bank its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank's participating interest was outstanding and funded); provided, however, that in the event that such payment received by the Agent is required to be returned, such Bank will return to the Agent any portion thereof previously distributed by the Agent to it. Each Bank's obligation to purchase 17 24 such participating interests shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation: (i) any set-off, counterclaim, recoupment, defense or other right which such Bank or any other Person may have against Wachovia requesting such purchase or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the termination of the Commitments; (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any other Person; (iv) any breach of this Agreement by the Borrower or any other Bank; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 2.02. Method of Borrowing Syndicated Loans and Swing Loans. (a) The Borrower shall give the Agent notice (a "Notice of Borrowing"), which shall be substantially in the form of Exhibit E, prior to 11:00 A.M. (Atlanta, Georgia time) on the same Domestic Business Day as each Base Rate Borrowing and at least 3 Euro-Dollar Business Days before each Euro-Dollar Borrowing, specifying: (i) the date of such Syndicated Borrowing or Swing Loan Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Syndicated Borrowing or Swing Loan Borrowing, (iii) whether the Syndicated Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, or stating that such Borrowing is to be a Swing Loan Borrowing, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof (unless such Borrowing is a Swing Loan Borrowing) and of such Bank's ratable share of such Syndicated Borrowing and such Notice of Borrowing, once received by the Agent, shall not thereafter be revocable by the Borrower. (c) Not later than (i) as to Base Rate Loans, 2:00 P.M. (Atlanta, Georgia time), and (ii) as to Euro-Dollar Loans, 11:00 A.M., (Atlanta, Georgia time) on the date of each Syndicated Borrowing, each Bank shall (except as provided in paragraph (d) of this Section) make available its ratable share of such Syndicated Borrowing, in Federal or other funds immediately available in Atlanta, Georgia, to the Agent at its address determined pursuant to Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower on such date by depositing the same, in immediately available funds, not later than 4:00 p.m. (Atlanta, Georgia time), in an account of the Borrower maintained with Wachovia. Unless the Agent receives notice from a Bank, at the Agent's address referred to in or specified pursuant to Section 9.01, no later than 4:00 P.M. (local time at such address) on the Domestic Business Day before the date of a Syndicated Borrowing stating that such Bank will not make a Syndicated Loan in connection with such Syndicated Borrowing, the Agent shall be entitled to 18 25 assume that such Bank will make a Syndicated Loan in connection with such Syndicated Borrowing and, in reliance on such assumption, the Agent may (but shall not be obligated to) make available such Bank's ratable share of such Syndicated Borrowing to the Borrower for the account of such Bank. If the Agent makes such Bank's ratable share available to the Borrower and such Bank does not in fact make its ratable share of such Syndicated Borrowing available on such date, the Agent shall be entitled to recover such Bank's ratable share from such Bank or the Borrower (and for such purpose shall be entitled to charge such amount to any account of the Borrower maintained with the Agent), together with interest thereon for each day during the period from the date of such Syndicated Borrowing until such sum shall be paid in full at a rate per annum equal to the rate at which the Agent determines that it obtained (or could have obtained) overnight Federal funds to cover such amount for each such day during such period, provided that (i) any such payment by the Borrower of such Bank's ratable share and interest thereon shall be without prejudice to any rights that the Borrower may have against such Bank and (ii) until such Bank has paid its ratable share of such Syndicated Borrowing, together with interest pursuant to the foregoing, it will have no interest in or rights with respect to such Syndicated Borrowing for any purpose hereunder. If the Agent does not exercise its option to advance funds for the account of such Bank, it shall forthwith notify the Borrower of such decision. Wachovia will make available to the Borrower at Wachovia's Lending Office the amount of any such Borrowing which is a Swing Loan Borrowing not later than 2:00 P.M. (Atlanta, Georgia time). (d) If any Bank makes a new Syndicated Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Syndicated Loan from such Bank, such Bank shall apply the proceeds of its new Syndicated Loan to make such repayment as a Refunding Loan and only an amount equal to the difference (if any) between the amount being borrowed and the amount of such Refunding Loan shall be made available by such Bank to the Agent as provided in paragraph (c) of this Section, or remitted by the Borrower to the Agent as provided in Section 2.12, as the case may be. (e) Notwithstanding anything to the contrary contained in this Agreement, no Fixed Rate Borrowing may be made if there shall have occurred a Default or an Event of Default, which Default or Event of Default shall not have been cured or waived, and in such case all Refunding Loans shall be made as Base Rate Loans (but shall bear interest at the Default Rate, if applicable). (f) In the event that a Notice of Borrowing fails to specify whether the Syndicated Loans comprising such Syndicated Borrowing are to be Base Rate Loans or Euro-Dollar Loans, such Syndicated Loans shall be made as Base Rate Loans. If the Borrower is otherwise entitled under this Agreement to repay any Syndicated Loans maturing at the end of an Interest Period applicable thereto with the proceeds of a new Borrowing, and the Borrower fails to repay such Syndicated Loans using its own moneys and fails to give a Notice of Borrowing in connection with such new Syndicated Borrowing, a new Syndicated Borrowing shall be deemed to be made on the date such Syndicated Loans mature in an amount equal to the principal amount of the Syndicated Loans so maturing, and the Syndicated Loans comprising such new Syndicated Borrowing shall be Base Rate Loans. 19 26 (g) Notwithstanding anything to the contrary contained herein, there shall not be more than 10 Fixed Rate Borrowings outstanding at any given time. SECTION 2.03. Money Market Loans. (a) So long as, at the end of the immediately preceding Fiscal Quarter, the Borrower had a ratio of Adjusted EBILTDA to Adjusted Consolidated Fixed Charges of 3.50 to 1.0, in addition to making Syndicated Borrowings, the Borrower may, as set forth in this Section 2.03, request the Banks to make offers to make Money Market Borrowings available to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.03, provided that: (i) the number of Money Market Borrowings which may be outstanding at any given time is subject to the provisions of Section 2.02(g); (ii) the aggregate principal amount of all Money Market Loans, together with the aggregate principal amount of all Syndicated Loans and Swing Loans, at any one time outstanding shall not exceed the aggregate amount of the Commitments of all of the Banks at such time; and (iii) the Money Market Loans of any Bank will be deemed to be usage of the Commitments for the purpose of calculating availability pursuant to Section 2.01(ii) and 2.03(a)(ii), but will not reduce such Bank's obligation to lend its pro rata share of the remaining Unused Commitment. (b) When the Borrower wishes to request offers to make Money Market Loans, it shall give the Agent (which shall promptly notify the Banks) notice substantially in the form of Exhibit I hereto (a "Money Market Quote Request") so as to be received no later than 11:00 A.M. (Atlanta, Georgia time) at least 1 Domestic Business Day prior to the date of the Money Market Borrowing proposed therein (or such other time and date as the Borrower and the Agent, with the consent of the Required Banks, may agree), specifying: (i) the proposed date of such Money Market Borrowing, which shall be a Euro-Dollar Business Day (the "Money Market Borrowing Date"); (ii) the maturity date (or dates) (each a "Stated Maturity Date") for repayment of each Money Market Loan to be made as part of such Money Market Borrowing (which Stated Maturity Date shall be that date occurring not less than 7 days but not more than 180 days from the date of such Money Market Borrowing); provided that the Stated Maturity Date for any Money Market Loan may not extend beyond the Termination Date (as in effect on the date of such Money Market Quote Request); and (iii) the aggregate amount of principal to be requested by the Borrower as a result of such Money Market Borrowing, which shall be at least $10,000,000 (and in larger integral multiples of $5,000,000) but shall not cause the limits specified in Section 2.03(a) to be violated. The Borrower may request offers to make Money Market Loans having up to 2 different Stated Maturity Dates in a single Money Market Quote Request; provided that the request for each 20 27 separate Stated Maturity Date shall be deemed to be a separate Money Market Quote Request for a separate Money Market Borrowing. Except as otherwise provided in the immediately preceding sentence, after the first Money Market Quote Request has been given hereunder, no Money Market Quote Request shall be given until at least 5 Domestic Business Days after all prior Money Market Quote Requests have been fully processed ("fully processed" as used in this sentence shall mean the later to occur of (i) the failure of all Banks timely to offer a Money Market Quote, (ii) the failure of the Borrower timely to accept any Money Market Quote, or (iii) the timely acceptance of any Money Market Quotes) by the Agent, the Banks and the Borrower pursuant to this Section 2.03. (c)(i) Each Bank may, but shall have no obligation to, submit a response containing an offer to make a Money Market Loan substantially in the form of Exhibit J hereto (a "Money Market Quote") in response to any Money Market Quote Request; provided that, if the Borrower's request under Section 2.03(b) specified more than 1 Stated Maturity Date, such Bank may, but shall have no obligation to, make a single submission containing a separate offer for each such Stated Maturity Date and each such separate offer shall be deemed to be a separate Money Market Quote. Each Money Market Quote must be submitted to the Agent not later than 10:00 A.M. (Atlanta, Georgia time) on the Money Market Borrowing Date; provided that any Money Market Quote submitted by Wachovia may be submitted, and may only be submitted, if Wachovia notifies the Borrower of the terms of the offer contained therein not later than 9:45 A.M. (Atlanta, Georgia time) on the Money Market Borrowing Date (or 15 minutes prior to the time that the other Banks are required to have submitted their respective Money Market Quotes). Subject to Section 6.01, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall specify: (A) the proposed Money Market Borrowing Date and the Stated Maturity Date therefor; (B) the principal amounts of the Money Market Loan which the quoting Bank is willing to make for the applicable Money Market Quote, which principal amounts (x) may be greater than or less than the Commitment of the quoting Bank, (y) shall be at least $5,000,000 or a larger integral multiple of $500,000, and (z) may not exceed the principal amount of the Money Market Borrowing for which offers were requested; (C) the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) offered for each such Money Market Loan (such amounts being hereinafter referred to as the "Money Market Rate"); and (D) the identity of the quoting Bank. 21 28 Unless otherwise agreed by the Agent and the Borrower, no Money Market Quote shall contain qualifying, conditional or similar language or propose terms other than or in addition to those set forth in the applicable Money Market Quote Request (other than setting forth the principal amounts of the Money Market Loan which the quoting Bank is willing to make for the applicable Interest Period) and, in particular, no Money Market Quote may be conditioned upon acceptance by the Borrower of all (or some specified minimum) of the principal amount of the Money Market Loan for which such Money Market Quote is being made. (d) The Agent shall as promptly as practicable after the Money Market Quote is submitted (but in any event not later than 10:30 A.M. (Atlanta, Georgia time)) on the Money Market Borrowing Date, notify the Borrower of the terms (i) of any Money Market Quote submitted by a Bank that is in accordance with Section 2.03(c) and (ii) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the principal amounts of the Money Market Borrowing for which offers have been received and (B) the respective principal amounts and Money Market Rates so offered by each Bank (identifying the Bank that made each Money Market Quote). (e) Not later than 11:00 A.M. (Atlanta, Georgia time) on the Money Market Borrowing Date, the Borrower shall notify the Agent of its acceptance or nonacceptance of the offers so notified to it pursuant to Section 2.03(d) and the Agent shall promptly notify each Bank which submitted an offer. In the case of acceptance, such notice shall specify the aggregate principal amount of offers (for each Stated Maturity Date) that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request; (ii) the aggregate principal amount of each Money Market Loan comprising a Money Market Borrowing shall be at least $10,000,000 (and in larger integral multiples of $5,000,000) but shall not cause the limits specified in Section 2.03(a) to be violated; (iii) acceptance of offers may only be made in ascending order of Money Market Rates; and (iv) the Borrower may not accept any offer where the Agent has advised the Borrower that such offer fails to comply with Section 2.03(c)(ii) or otherwise fails to comply with the requirements of this Agreement (including without limitation, Section 2.03(a)). If offers are made by 2 or more Banks with the same Money Market Rates for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Stated Maturity Date, the principal amount of Money Market Loans in respect of which 22 29 such offers are accepted shall be allocated by the Borrower among such Banks as nearly as possible in proportion to the aggregate principal amount of such offers. Determinations by the Borrower of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. (f) Any Bank whose offer to make any Money Market Loan has been accepted shall, not later than 12:00 P.M. (Atlanta, Georgia time) on the Money Market Borrowing Date, make the amount of such Money Market Loan allocated to it available to the Agent at its address referred to in Section 9.01 in immediately available funds. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower on such date by depositing the same, in immediately available funds, not later than 4:00 P.M. (Atlanta, Georgia time), in an account of the Borrower maintained with Wachovia. (g) After any Money Market Loan has been funded, the Agent shall notify the Banks of the aggregate principal amount of the Money Market Quotes received and the highest and lowest rates included in such Money Market Quotes. SECTION 2.04. Notes. (a) The Syndicated Loans of each Bank shall be evidenced by a single Syndicated Loan Note payable to the order of such Bank for the account of its Lending Office in an amount equal to the original principal amount of such Bank's Commitment. The Swing Loans shall be evidenced by a single Swing Loan Note payable to the order of Wachovia in the original principal amount of $15,000,000. (b) The Money Market Loans made by any Bank to the Borrower shall be evidenced by a single Money Market Loan Note payable to the order of such Bank for the account of its Lending Office in an amount equal to the original principal amount of the aggregate Commitments. (c) Upon receipt of each Bank's Notes pursuant to Section 3.01, the Agent shall deliver such Notes to such Bank. Each Bank shall record, and prior to any transfer of its Notes shall endorse on the schedules forming a part thereof appropriate notations to evidence, the date, amount and maturity of, and effective interest rate for, each Loan made by it, the date and amount of each payment of principal made by the Borrower with respect thereto, and such schedules of each such Bank's Notes shall constitute rebuttable presumptive evidence of the respective principal amounts owing and unpaid on such Bank's Notes; provided that the failure of any Bank to make, or any error in making, any such recordation or endorsement shall not affect the obligation of the Borrower hereunder or under the Notes or the ability of any Bank to assign its Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Notes and to attach to and make a part of any Note a continuation of any such schedule as and when required. SECTION 2.05. Maturity of Loans. (a) Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. 23 30 (b) Notwithstanding the foregoing, the outstanding principal amount of the Loans, if any, together with all accrued but unpaid interest thereon, if any, shall be due and payable on January 29, 2003. SECTION 2.06. Interest Rates. (a) "Applicable Margin" means: (i) for the period commencing on the Closing Date to and including June 30, 2001, (x) for any Base Rate Loan, 0%, and (y) for any Euro-Dollar Loan, 2.00%; and (ii) from and after June 30, 2001, (x) for any Base Rate Loan, 0.50% and (y) for each Euro-Dollar Loan, 2.50. (b) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day plus the Applicable Margin. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted London Interbank Offered Rate for such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 3 months, at intervals of 3 months after the first day thereof. Any overdue principal of and, to the extent permitted by law, overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Euro-Dollar Loan means for the Interest Period of such Euro-Dollar Loan, the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Euro-Dollar Loan offered for a term comparable to such Interest Period, which rates appear on the Telerate Page 3750 effective as of 11:00 A.M., London time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, provided that if no such offered rates appear on such page, the "London Interbank Offered Rate" for such Interest Period will be the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than 2 major banks in New York City, selected by the Agent, at approximately 10:00 A.M., New York City time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, for deposits in Dollars offered by leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Euro-Dollar Loan. 24 31 "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Each Money Market Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Money Market Loan is made until it becomes due, at a rate per annum equal to the applicable Money Market Rate set forth in the relevant Money Market Quote. Such interest shall be payable on the Stated Maturity Date thereof, and, if the Stated Maturity Date occurs more than 90 days after the date of the relevant Money Market Loan, at intervals of 90 days after the first day thereof. Any overdue principal of and, to the extent permitted by law, overdue interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. (e) The Agent shall, subject to the provisions of Section 2.03 with respect to Money Market Loans, determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the Banks by telecopier of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) After the occurrence and during the continuance of an Event of Default, the principal amount of the Loans (and, to the extent permitted by applicable law, all accrued interest thereon) shall bear interest at the Default Rate and shall be payable on demand. SECTION 2.07. Fees. (a) The Borrower shall pay to the Agent, for the ratable account of each Bank, a facility fee, calculated in the manner provided in the last paragraph of Section 2.06(a)(ii), on the aggregate amount of such Bank's Commitment (without taking into account the amount of the outstanding Loans made by such Bank), at a rate per annum equal to 0.50% Such facility fees shall accrue from and including the Closing Date to but excluding the Termination Date and shall be payable in arrears on each March 31, June 30, September 30 and December 31 and on the Termination Date, commencing on March 31, 2000. (b) The Borrower shall pay to the Agent, for the account and sole benefit of the Agent, such fees and other amounts at such times as set forth in the Agent's Letter Agreement. SECTION 2.08. Optional Termination or Reduction of Commitments. The Borrower may, upon at least 3 Domestic Business Days' notice to the Agent, terminate at any time, or proportionately reduce all or any part of the Unused Commitments, after deducting therefrom the aggregate amount of any outstanding Money Market Loans, from time to time by an aggregate amount of at least $10,000,000 or any larger integral multiple of $5,000,000. If the 25 32 Commitments are terminated in their entirety, all accrued fees (as provided under Section 2.07) shall be due and payable on the effective date of such termination. SECTION 2.09. Mandatory Reduction and Termination of Commitments. (a) If, upon a transfer of assets or the discontinuance or elimination of a Restricted Subsidiary or a division thereof or of Keebler (in a single transaction or in a series of related transactions), the aggregate assets so transferred or utilized in a Restricted Subsidiary or division thereof or of Keebler to be so discontinued, when combined with all other assets transferred, and all other assets utilized in all other Restricted Subsidiaries or divisions thereof and of Keebler discontinued since the Closing Date, constitute more than 30% of Consolidated Total Assets (excluding from such calculation assets of the types described in clause (ii) of the last sentence of Section 5.04) measured as of February 3, 1998 (the amount of such excess being the "Excess Proceeds"), then the Borrower shall promptly (and in any event within 5 Domestic Business Days after such sale) notify in writing the Agent and the Banks thereof, which notice shall include the amount of the Excess Proceeds and the amount of such Excess Proceeds which the Borrower intends to invest in operating assets of the Borrower or its Restricted Subsidiaries within 90 days after such sale (the "Intended Reinvestment Amount"), and the aggregate amount of the Commitments shall be permanently reduced (i) on the date which is 5 Domestic Business Days after such sale, by an amount equal to the difference between the Excess Proceeds and the Intended Reinvestment Amount, and (ii) on the date which is 90 days after such sale, by the amount of any Excess Proceeds which was included in the Intended Reinvestment Amount but which have not been invested in operating assets of the Borrower within such 90 day period (and the Borrower shall notify the Agent and the Banks of such amount on such date), and in each case the Borrower shall make any prepayments required by Section 2.11 as a result thereof. (b) Without limiting the rights of the Banks under Section 5.24, upon the incurrence of any New Indebtedness for Borrowed Money, other than New Indebtedness for Borrowed Money permitted by clause (ii) of Section 5.24, the aggregate amount of the Commitments shall be permanently reduced by an amount equal to the net cash proceeds thereof (net of customary fees and closing costs directly incurred in connection therewith), and the Borrower shall make any prepayments required by Section 2.11 as a result thereof. (c) The Commitments shall terminate on the Termination Date and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.10. Optional Prepayments. (a) The Borrower may, upon at least 1 Domestic Business Days' notice to the Agent, prepay any Base Rate Borrowing in whole at any time, or from time to time in part in amounts aggregating at least $5,000,000 or $500,000 as to Swing Loans, or any larger integral multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Base Rate Loans of the several Banks (or of Wachovia, in the case of Swing Loans) included in such Base Rate Borrowing. (b) Subject to any payments required pursuant to the terms of Section 8.05(a) for such Fixed Rate Loan, upon 3 Domestic Business Day's prior written notice, the Borrower may prepay in minimum amounts of $10,000,000 with additional increments of $5,000,000 (or any 26 33 lesser amount equal to the outstanding balance of such Loan) all or any portion of the principal amount of any Fixed Rate Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section 2.10, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice, once received by the Agent, shall not thereafter be revocable by the Borrower. SECTION 2.11. Mandatory Prepayments. On each date on which the Commitments are reduced pursuant to Section 2.08 or Section 2.09, the Borrower shall repay or prepay such principal amount of the outstanding Loans, if any (together with interest accrued thereon and any amount due under Section 8.05(a)), as may be necessary so that after such payment the aggregate unpaid principal amount of the Loans does not exceed the aggregate amount of the Commitments as then reduced. In addition, the Borrower shall make such mandatory prepayments as may be necessary from time to time to be in compliance with the provisions of Section 5.23. Each such payment or prepayment shall be applied first to any Swing Loans outstanding, and then ratably to the Loans of the Banks outstanding on the date of payment or prepayment in the following order of priority:(i) first, to Base Rate Loans; (ii) secondly, to Euro-Dollar Loans; and (iii) lastly, to Money Market Loans. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 11:00 A.M. (Atlanta, Georgia time) on the date when due, in Federal or other funds immediately available in Atlanta, Georgia, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to Wachovia each such payment received on account of the Swing Loans and to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. (b) Whenever any payment of principal of, or interest on, the Base Rate Loans, Money Market Loans or of fees hereunder shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. (c) All payments of principal, interest and fees and all other amounts to be made by the Borrower pursuant to this Agreement with respect to any Loan or fee relating thereto shall be paid without setoff, deduction or counterclaim of any kind, including, without limitation, any deduction for, and free from, any tax, imposts, levies, duties, deductions, or withholdings of any nature now or at anytime hereafter imposed by any governmental authority or by any taxing authority thereof or therein excluding in the case of the Agent and each Bank, taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which the Agent or such Bank is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Bank's applicable Lending Office or any political subdivision thereof (all 27 34 such non-excluded taxes, imposts, levies, duties, deductions or withholdings of any nature being "Taxes"). In the event that the Borrower is required by applicable law to make any such withholding or deduction of Taxes with respect to any Loan or fee or other amount, the Borrower shall pay such deduction or withholding to the applicable taxing authority, shall promptly furnish to any Bank in respect of which such deduction or withholding is made all receipts and other documents evidencing such payment and shall pay to such Bank additional amounts as may be necessary in order that the amount received by such Bank after the required withholding or other payment shall equal the amount such Bank would have received had no such withholding or other payment been made. If no withholding or deduction of Taxes are payable in respect to any Loan or fee relating thereto, the Borrower shall furnish any Bank, at such Bank's request, either (at the option of the Borrower) a certificate from each applicable taxing authority or an opinion of counsel acceptable to such Bank, in either case stating that such payments are exempt from or not subject to withholding or deduction of Taxes. If the Borrower fails to provide such original or certified copy of a receipt evidencing payment of Taxes or certificate(s) or opinion of counsel of exemption, the Borrower hereby agrees to compensate such Bank for, and indemnify them with respect to, the tax consequences of the Borrower's failure to provide evidence of tax payments or tax exemption. Each Bank which is not organized under the laws of the United States or any state thereof agrees, as soon as practicable after receipt by it of a request by the Borrower to do so, to file all appropriate forms and take other appropriate action to obtain a certificate or other appropriate document from the appropriate governmental authority in the jurisdiction imposing the relevant Taxes, establishing that it is entitled to receive payments of principal and interest under this Agreement and the Notes without deduction and free from withholding of any Taxes imposed by such jurisdiction; provided that if it is unable, for any reason, to establish such exemption, or to file such forms and, in any event, during such period of time as such request for exemption is pending, the Borrower shall nonetheless remain obligated under the terms of the immediately preceding paragraph. In the event any Bank receives a refund of any Taxes paid by the Borrower pursuant to this Section 2.12(c), it will pay to the Borrower the amount of such refund promptly upon receipt thereof; provided that if at any time thereafter it is required to return such refund, the Borrower shall promptly repay to it the amount of such refund. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower and the Banks contained in this Section 2.12(c) shall be applicable with respect to any Participant, Assignee or other Transferee, and any calculations required by such provisions (i) shall be made based upon the circumstances of such Participant, Assignee or other Transferee, and (ii) constitute a continuing agreement and shall survive the termination of this Agreement and the payment in full or cancellation of the Notes. SECTION 2.13. Computation of Interest and Fees. Interest on Base Rate Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Interest on Euro-Dollar Loans and Money Market Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed, calculated as to each Interest Period from and including the first 28 35 day thereof to but excluding the last day thereof. Commitment fees and any other fees payable hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). ARTICLE III CONDITIONS TO BORROWINGS SECTION 3.01. Conditions to First Borrowing. The obligation of each Bank to make a Loan on the occasion of the first Borrowing is subject to the satisfaction of the conditions set forth in Section 3.02 and receipt by the Agent of the following (as to the documents described in paragraphs (a),(c), (d)and (e) below, in sufficient number of counterparts for delivery of a counterpart to each Bank and retention of one counterpart by the Agent); provided, however, that (i) this Agreement replaces and supersedes the Original Agreement, and (ii) all of the following conditions set forth in (b) through (d), inclusive, and (g) below shall be deemed to have been satisfied by the satisfaction of the same at the time of the closing of the Original Agreement (and the Notes currently held by the Banks shall continue to evidence the Syndicated Loans and Money Market Loans hereunder): (a) from the Borrower, the Agent and each of the Required Banks of either (i) a duly executed counterpart of this Agreement signed by such party or (ii) a facsimile transmission of such executed counterpart, with the original to be sent to the Agent by overnight courier); (b) a duly executed Syndicated Loan Note and a duly executed Money Market Loan Note for the account of each Bank complying with the provisions of Section 2.04; (c) an opinion letter of Stephen R. Avera, Assistant General Counsel of the Borrower, dated as of the Closing Date, substantially in the form of Exhibit B and covering such additional matters relating to the transactions contemplated hereby as the Agent or any Bank may reasonably request; (d) an opinion of Jones, Day, Reavis & Pogue, special counsel for the Agent, dated as of the Closing Date, substantially in the form of Exhibit C and covering such additional matters relating to the transactions contemplated hereby as the Agent may reasonably request; (e) a certificate (the "Closing Certificate") substantially in the form of Exhibit G), dated as of the Closing Date, signed by a principal financial officer of the Borrower, to the effect that (i) no Default has occurred and is continuing on the date of the first Borrowing and (ii) the representations and warranties of the Borrower contained in Article IV are true on and as of the date of the first Borrowing hereunder; (f) a certificate of the Borrower substantially in the form of Exhibit H (the "Officer's Certificate"), signed by the Secretary or an Assistant Secretary of the Borrower, certifying as to (i) the names, true signatures and incumbency of the officer or officers of the Borrower authorized to execute and deliver this Agreement and the Swing 29 36 Loan Note, (ii) the Borrower's Certificate of Incorporation and (iii) the Borrower's Bylaws; (g) a Notice of Borrowing or notification pursuant to Section 2.03(e) of acceptance of one or more Money Market Quotes, as applicable; (h) a duly executed Swing Loan Note for the account of Wachovia complying with the provisions of Section 2.04; (i) receipt by the Agent of (i) an amendment fee payable to the Agent for the ratable account of each of the Banks which executes this Agreement on or before the Closing Date in an amount equal to 0.25% of the Commitments on the Closing Date, and (ii) all fees payable on the Closing Date pursuant to the letter agreement dated March 23, 2000 between the Borrower, the Agent and Wachovia Securities, Inc.; (j) receipt by the Agent of a certificate showing the calculation of the Indebtedness, the Synthetic Lease Obligations and the Borrowing Base pursuant to Section 5.23, as of the Fiscal Period just ended; (k) with respect to any indenture, agreement or other instrument pertaining to Indebtedness which must be amended to prevent the occurrence of an Event of Default under Section 6.01(e) or (f), receipt by the Agent of a copy of the amendments executed in connection therewith which prevent such occurrence, and the Agents' reasonable satisfaction that such amendments do not include any financial, negative or affirmative covenants which are more restrictive in any material respect on the Borrower or any of its Subsidiaries than those contained in this Agreement; and (l) receipt by the Agent of a Federal Reserve Form FR U-1 pertaining to this Agreement and the Loans hereunder in form and substance satisfactory to the Agent, and executed by the Agent and the Borrower. SECTION 3.02. Conditions to All Borrowings. The obligation of each Bank to make a Loan on the occasion of each Borrowing or of Wachovia to make a Swing Loan is subject to the satisfaction of the following conditions except as expressly provided in the last sentence of this Section 3.02: (a) receipt by the Agent of a Notice of Borrowing or notification pursuant to Section 2.03(e) of acceptance of one or more Money Market Quotes, as applicable; (b) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; (c) the fact that the representations and warranties of the Borrower contained in Article IV of this Agreement shall be true on and as of the date of such Borrowing, except to the extent such representations and warranties relate to a prior date; and (d) the fact that, immediately after such Borrowing, the conditions set forth in clauses (i) and (ii) of Section 2.01(a) shall have been satisfied. 30 37 The acceptance by the Borrower of each Syndicated Borrowing and each Money Market Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the truth and accuracy of the facts specified in paragraphs (b), (c) and (d) of this Section; provided that: (i) if such Borrowing is a Syndicated Borrowing which consists solely of a Refunding Loan, (x) such Borrowing shall not be deemed to be such a representation and warranty as to the truth and accuracy of the fact specified in paragraph (c) of this Section, and (y) if the facts specified in paragraph (b) are not true and accurate, such Refunding Loan shall be made as a Base Rate Loan; and (ii) any representation and warranty contained in Article IV which by its terms is made as to matters as of a specified date shall when remade pursuant to this Section in connection with such Borrowing be deemed to be made as to matters as of such specified date and not any later date. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia. The Borrower is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, except for any failure to comply with the foregoing which does not have and reasonably could not be expected to cause a Material Adverse Effect, and has all corporate powers and all government authorizations, licenses, consents and approvals required to engage in its business and operations as now conducted, except for any failure to comply with the foregoing which does not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement, the Notes and the other Loan Documents (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Restricted Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Restricted Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower enforceable in accordance with its terms, and the Notes and the other Loan Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. 31 38 SECTION 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of January 2, 1999 and the related consolidated statements of income, shareholders' equity and cash flows for the Fiscal Year then ended, reported on by Price Waterhouse LLP, copies of which have been delivered to each of the Banks, and the unaudited consolidated financial statements of the Borrower for the interim period ended October 9, 1999 copies of which have been delivered to each of the Banks, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated. (b) Since January 2, 1999, there has been no event, act, condition or occurrence which has or reasonably could be expected to cause a Material Adverse Effect. SECTION 4.05. No Litigation. There is no action, suit or proceeding pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its Restricted Subsidiaries before any court or arbitrator or any governmental body, agency or official which has or reasonably could be expected to have a Material Adverse Effect or which in any manner draws into question the validity of this Agreement, the Notes or any of the other Loan Documents. SECTION 4.06. Compliance with ERISA. (a) The Borrower and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA. (b) Neither the Borrower nor any member of the Controlled Group has incurred any withdrawal liability with respect to any Multiemployer Plan under Title IV of ERISA, and no such liability is expected to be incurred. SECTION 4.07. Compliance with Laws; Payment of Taxes. The Borrower and, to the best of the Borrower's knowledge, its Material Subsidiaries, are in compliance with all applicable laws, regulations and similar requirements of governmental authorities, except where such compliance is being contested in good faith through appropriate proceedings or which does not have and reasonably could not be expected to cause a Material Adverse Effect. There have been filed on behalf of the Borrower and its Material Subsidiaries all Federal, state and local income, material excise, material property and other material tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of the Borrower or any Material Subsidiary have been paid, except where such payments are being contested in good faith through appropriate proceedings or the failure to pay does not have and reasonably could not be expected to cause a Material Adverse Effect. The charges, accruals and reserves on the books of the Borrower and its Material Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. As of the Closing Date, United States income tax returns of the Borrower and its Material Subsidiaries have been examined and closed through the 1995 Fiscal Year. 32 39 SECTION 4.08. Subsidiaries. Each of the Borrower's Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except for any failure to comply with the foregoing which does not have and reasonably could not be expected to cause a Material Adverse Effect. As of the Closing Date, the Borrower has no Subsidiaries except for those Subsidiaries listed on Schedule 4.08, which assumes the consummation of the Keebler Acquisition and which accurately sets forth each such Subsidiary's complete name and jurisdiction of incorporation. None of such Subsidiaries, other than those listed as such on Schedule 4.08, is a Material Subsidiary as of the Closing Date. Within 15 days after any Subsidiary becomes a Material Subsidiary, or the creation or acquisition of any Subsidiary which becomes a Material Subsidiary, the Borrower will send to the Agent and each of the Banks either a supplement to or replacement of Schedule 4.08 (showing such Subsidiary and indicating that it is a Material Subsidiary), or a copy of Form 8-K sent to the Securities and Exchange Commission, showing such Subsidiary as a Material Subsidiary. SECTION 4.09. Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. Public Utility Holding Company Act. Neither the Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11. Ownership of Property; Liens. Each of the Borrower and its Material Subsidiaries has title to, or leasehold or other interests in, its properties sufficient for the conduct of its business, and none of such property is subject to any Lien except as permitted in Section 5.16. SECTION 4.12. No Default. Neither the Borrower nor any of its Material Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which has or reasonably could be expected to cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 4.13. Full Disclosure. The Borrower's annual report on Form 10-K for the fiscal year ended at January 2, 1999, a copy of which has been furnished by the Borrower to the Agent and the Banks, did not, as of the date such Form 10-K was filed with the Securities and Exchange Commission, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. From the date of filing of the Borrower's quarterly report on Form 10-Q for the fiscal quarter ended on October 9, 1999 through the date hereof, the Borrower has not filed a current report on Form 8-K with the Securities and Exchange 33 40 Commission and, as of the date hereof, no event or condition exists which would require such filing by the Borrower pursuant to the Securities Exchange Act of 1934, as amended, except for any such event or condition which has heretofore been disclosed in writing to the Agent and the Banks by delivery to the Agent and the Banks of a Form 8-K. SECTION 4.14. Environmental Matters. (a) Neither the Borrower nor any Restricted Subsidiary is subject to any Environmental Liability which has or reasonably could be expected to cause a Material Adverse Effect and, to the best of the Borrower's knowledge, neither the Borrower nor any Restricted Subsidiary has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA. To the best of the Borrower's knowledge, none of the Properties has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. ss. 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA. (b) To the best of the Borrower's knowledge, no Hazardous Materials have been or are being used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed or otherwise handled at, or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties, or, to the best of the knowledge of the Borrower, at or from any adjacent site or facility, except for Hazardous Materials, such as cleaning solvents, pesticides and other materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in material compliance with all applicable Environmental Requirements. (c) To the best of the Borrower's knowledge, the Borrower, and each of its Restricted Subsidiaries and Affiliates, has procured all Environmental Authorizations necessary for the conduct of its business, and is in compliance with all Environmental Requirements in connection with the operation of the Properties and the Borrower's, and each of its Restricted Subsidiary's and Affiliate's, respective businesses, except where failure to comply does not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 4.15. Capital Stock. All Capital Stock, debentures, bonds, notes and all other securities of the Borrower presently issued and outstanding are validly and properly issued in accordance with all applicable laws in all material respects, including but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws, except to the extent any failure with respect thereto would not have and reasonably could not be expected to cause a Material Adverse Effect. The issued shares of Capital Stock of the Borrower's Wholly Owned Subsidiaries are owned by the Borrower free and clear of any Lien or adverse claim. At least a majority of the issued shares of capital stock of each of the Borrower's other Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrower free and clear of any Lien or adverse claim. SECTION 4.16. Margin Stock. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock (other than its ownership of stock in Keebler), and no part of the proceeds of any Loan will be used for any purpose in violation of the provisions of Regulation T, U or X. 34 41 SECTION 4.17. Insurance. The Borrower and each of its Material Subsidiaries has (either in the name of the Borrower or in such Material Subsidiary's own name), with financially sound and reputable insurance companies, insurance in at least such amounts (including deductibles, co-insurance and self-insurance with respect to which adequate reserves are maintained) and against at least such risks (including on all its property, and public liability and worker's compensation) as are usually insured against in the same general area by companies of established repute engaged in the same or similar business and similarly situated. ARTICLE V COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable hereunder or under any Note remains unpaid (unless the Required Banks consent in writing): SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year. (i) a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, shareholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by PricewaterhouseCoopers or other independent public accountants of nationally recognized standing, with such certification to be free of exceptions and qualifications not acceptable to the Required Banks, (ii) so long as there is an Unrestricted Subsidiary, a consolidated balance sheet and statement of income for such periods which accounts for the Unrestricted Subsidiaries using an equity basis of accounting, in each case setting forth in each case in comparative form the figures for the previous fiscal year, accompanied by a restricted use report as to such balance sheet and income statement from PricewaterhouseCoopers LLP or other nationally recognized standing, which report may be qualified on the basis that the use of the equity basis of accounting does not conform to GAAP and qualified as to the absence of a statement of cash flows and as to the absence of footnotes and otherwise to be free of exceptions and qualifications not acceptable to the Required Banks; and (iii) simultaneously with the delivery of each set of financial statements referred to in clauses (i) and (ii) above, a copy of the auditor's management letter furnished to the Borrower by such independent public accountants. (b) as soon as available and in any event within 45 days after the end of each of the first 3 Fiscal Quarters of each Fiscal Year; 35 42 (i) a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related statement of income and statement of cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Borrower; (ii) so long as there is an Unrestricted Subsidiary, a consolidated balance sheet and statement of income for such periods which accounts for the Unrestricted Subsidiaries using an equity basis of accounting, in each case setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments and to qualification based on the use of the equity basis of accounting ) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate, substantially in the form of Exhibit F (a "Compliance Certificate"), of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.13 through 5.19, inclusive, and 5.22 and 5.25 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of annual financial statements referred to in paragraph (a) above, a statement of the firm of independent public accountants which reported on such statements to the effect that nothing has come to their attention to cause them to believe that any Default under Sections 5.13 through 5.19, inclusive, and Section 5.22 existed on the date of such financial statements; (e) within 5 Domestic Business Days after the Borrower becomes aware of the occurrence of any Default, a certificate of a senior financial officer or accounting officer or the chief financial officer or the chief accounting officer or the Treasurer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual or quarterly reports which the Borrower shall have filed with the Securities and Exchange Commission; 36 43 (h) if and when any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice; (i) within 15 days after the receipt thereof, a copy of the report of Arthur Andersen Consulting to the Borrower rendered pursuant to engagement letter dated January 12, 2000; and (j) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries (other than non-public information as to the Unrestricted Subsidiaries) as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Inspection of Property, Books and Records. The Borrower will (i) keep, and cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit, and cause each Restricted Subsidiary to permit, representatives of any Bank (x) at such Bank's expense and upon reasonable notice and at a time reasonably convenient to the Borrower (but in any event within 10 days of such notice) prior to the occurrence and continuance of a Default and (y) at the Borrower's expense and without prior notice after the occurrence and continuance of a Default, to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrower agrees to cooperate and assist in such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired. SECTION 5.03. Maintenance of Existence. The Borrower will at all times preserve and keep in full force and effect its corporate existence. Subject to Section 5.04, the Borrower will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into the Borrower or a Restricted Subsidiary) and all rights and franchises of the Borrower and its Restricted Subsidiaries unless, in the good faith judgment of the Borrower, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise would not, individually or in the aggregate, have and could not reasonably be expected to cause a Material Adverse Effect. The Borrower will, and will cause each Restricted Subsidiary (subject to Section 5.04), at all times to carry on its business in the food or beverage business or any related line of business. SECTION 5.04. Consolidations, Mergers and Sales of Assets. The Borrower will not, nor will it permit any Material Subsidiary to, consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, or discontinue or eliminate any business line or segment, provided that (a) the Borrower 37 44 may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) the Borrower is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (b) Subsidiaries of the Borrower may merge with one another, provided that in the case of a merger of a Restricted Subsidiary with an Unrestricted Subsidiary, the Restricted Subsidiary is the corporation surviving such merger, (c) other Persons may merge into or with Subsidiaries to effect an acquisition permitted by Section 5.15 and (d) the foregoing limitation on the sale, lease or other transfer of assets and on the discontinuation or elimination of a Subsidiary or division shall not prohibit (x) transfers of assets (including stock of a Restricted Subsidiary) to or among Restricted Subsidiaries, (y) during any Fiscal Year, a transfer of assets other than Margin Stock or the discontinuance or elimination of a Subsidiary or division (in a single transaction or in a series of related transactions) unless the aggregate assets to be so transferred or utilized in a Restricted Subsidiary or division to be so discontinued, when combined with all other assets transferred, and all other assets utilized in all other Restricted Subsidiaries or divisions discontinued, in any Fiscal Year, constituted more than 15% of Adjusted Consolidated Total Assets measured as of the end of the immediately preceding Fiscal Year and (z) transfers of (but not Liens on) Margin Stock. Nothing in this Section 5.04 shall be interpreted to (i) limit or abridge the provisions of Section 2.09(a) or (ii) restrict the Borrower's ability to dispose of (1) vehicles, (2) delivery routes, (3) assets obtained through acquisitions of businesses or assets on or after the date hereof, provided that proceeds of any such disposition shall be reinvested in the Borrower by reducing Indebtedness or by investing in operating assets, and (4) obsolete, under-performing or non-core assets, disposition of which, in management's judgment, would enhance the Borrower's operations and profitability, and dispositions described in this sentence shall not be subject to, or included in the computations under, clause (d) above. SECTION 5.05. Use of Proceeds. The proceeds of the Loans shall be used for general corporate purposes, including the Keebler Acquisition and other acquisitions permitted by Section 5.15, and the repayment of Indebtedness; provided, that no portion of the proceeds of the Loans will be used by the Borrower or any Subsidiary (i) in connection with, whether directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such other corporation, unless such tender offer or other acquisition is to be made on a negotiated basis with the approval of the Board of Directors of the Person to be acquired, and the provisions of Section 5.16 would not be violated, (ii) in violation of Section 4.16, or (iii) for any purpose in violation of any applicable law or regulation. SECTION 5.06. Compliance with Laws; Payment of Taxes. (a) The Borrower will, and will cause each of its Material Subsidiaries and each member of the Controlled Group to, comply with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings diligently pursued or if failure to comply does not have and reasonably could not be expected to cause a Material Adverse Effect. The Borrower will, and will cause each of its Material Subsidiaries to, pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the property of the Borrower or any Restricted Subsidiary, except liabilities being contested in good faith and against which, if requested by the Agent, the Borrower will set up 38 45 reserves in accordance with GAAP and liabilities the nonpayment of which would not have and reasonably could not be expected to cause a Material Adverse Effect. (b) The Borrower shall not permit the aggregate complete or partial withdrawal liability under Title IV of ERISA with respect to Multiemployer Plans incurred by the Borrower and members of the Controlled Group to exceed $5,000,000 at any time. For purposes of this Section 5.06(b), the amount of withdrawal liability of the Borrower and members of the Controlled Group at any date shall be the aggregate present value of the amount claimed to have been incurred less any portion thereof which the Borrower and members of the Controlled Group have paid or as to which the Borrower reasonably believes, after appropriate consideration of possible adjustments arising under Sections 4219 and 4221 of ERISA, it and members of the Controlled Group will have no liability, provided that the Borrower shall obtain prompt written advice from independent actuarial consultants supporting such determination. The Borrower agrees (i) once in each year, beginning with the 1998 Fiscal Year, to request a current statement of the withdrawal liability of the Borrower and members of the Controlled Group from each Multiemployer Plan, if any, and (ii) to transmit a copy of such statement to the Agent and the Banks within 15 days after the Borrower receives the same. SECTION 5.07. Insurance. The Borrower will maintain, and will cause each of its Material Subsidiaries to maintain (either in the name of the Borrower or in such Material Subsidiary's own name), with financially sound and reputable insurance companies, insurance on all its property in at least such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) and against at least such risks (including on all its property, and public liability and worker's compensation) as are usually insured against in the same general area by companies of established repute engaged in the same or similar business and similarly situated. SECTION 5.08. Change in Fiscal Year. The Borrower will not change its Fiscal Year without the consent of the Required Banks, which shall not be unreasonably withheld (taking into consideration for such purpose the effect, if any, such change would have on the financial covenants contained in this Agreement). SECTION 5.09. Maintenance of Property. The Borrower shall, and shall cause each Restricted Subsidiary to, maintain all of its properties and assets in good condition, repair and working order, ordinary wear and tear excepted, except where any failure would not have and could not reasonably be expected to cause a Material Adverse Effect. SECTION 5.10. Environmental Notices. The Borrower shall furnish to the Banks and the Agent prompt written notice of all Environmental Liabilities, pending, threatened or anticipated Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases of which the Borrower shall have received actual notice or have actual knowledge at, on, in, under or in any way affecting the Properties, and all facts, events, or conditions that could lead to any of the foregoing, if the amount of liability or of remediation cost to the Borrower has or reasonably could be expected to cause a Material Adverse Effect. 39 46 SECTION 5.11. Environmental Matters. The Borrower and its Material Subsidiaries will not, and will not knowingly permit any Third Party to, use, produce, manufacture, process, treat, recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or transport to or from the Properties any Hazardous Materials in violation of applicable Environmental Requirements, except to the extent that failure to comply would not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 5.12. Environmental Release. The Borrower agrees that upon its becoming aware of the occurrence of an Environmental Release, except for any Environmental Release which occurred in substantial compliance with all Environmental Requirements, at or on any of the Properties it will act promptly to determine the extent of, and to take such remedial action to eliminate, any such Environmental Release, whether or not ordered or otherwise directed to do so by any Environmental Authority, except to the extent that failure to take remedial action would not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 5.13. Transactions with Affiliates. Neither the Borrower nor any of its Material Subsidiaries shall enter into, or be a party to, any transaction with any Affiliate of the Borrower or such Material Subsidiary (which Affiliate is not the Borrower or a Restricted Subsidiary, other than a Person in which the Borrower or such Material Subsidiary owns less than a majority interest and which, if it were a Restricted Subsidiary, would not be a Material Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which either (x) are no less favorable to Borrower or such Material Subsidiary than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate or (y) have been approved by a majority of the Board of Directors of the Borrower or such Material Subsidiary; provided, that the foregoing shall not affect the ability of the Borrower or any Material Subsidiary to determine, in its sole discretion, the amount or form of executive or director compensation from time to time. SECTION 5.14. Loans or Advances. Neither the Borrower nor any of its Material Subsidiaries shall make loans or advances to any Person except as permitted by Section 5.16 and except: (i) loans or advances to employees not exceeding $10,000,000 in the aggregate principal amount outstanding at any time, in each case made in the ordinary course of business and consistent with practices existing on the Closing Date; (ii) deposits required by government agencies or public utilities; (iii) loans or advances to and among Borrower and its Wholly Owned Subsidiaries; and (iv) other loans or advances, to Persons other than the Unrestricted Subsidiaries (loans and advances to Unrestricted Subsidiaries not being permitted), in an aggregate amount outstanding which do not exceed 15% of Adjusted Consolidated Total Assets as of the last day of the immediately preceding Fiscal Quarter; provided that after giving effect to the making of any loans, advances or deposits permitted by this Section, no Default shall be in existence or be created thereby. SECTION 5.15. Investments. Neither the Borrower nor any of its Restricted Subsidiaries shall make Investments in any Person except as permitted by Section 5.14 and except Investments in (i) direct obligations of the United States Government maturing within one year, (ii) certificates of deposit issued by a commercial bank whose credit is satisfactory to the Agent, (iii) commercial paper rated A1 or the equivalent thereof by Standard & Poor's Ratings 40 47 Group, a division of McGraw-Hill, Inc. or P1 or the equivalent thereof by Moody's Investors Service, Inc. and in either case maturing within 6 months after the date of acquisition; (iv) tender bonds the payment of the principal of and interest on which is fully supported by a letter of credit issued by a United States bank whose long-term certificates of deposit are rated at least AA or the equivalent thereof by Standard & Poor's Corporation and Aa or the equivalent thereof by Moody's Investors Service, Inc.; (v) Investments by the Borrower or any Restricted Subsidiary in the stock (or other ownership interests) of Persons which are Restricted Subsidiaries as of the Closing Date and/or (vi) Permitted Keebler Investments; provided, however, immediately after giving effect to the making of any Investment, no Default shall have occurred and be continuing. SECTION 5.16. Negative Pledge. Neither the Borrower nor any Restricted Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a)(i) Liens existing on the date of the Original Agreement securing Indebtedness outstanding on the date of the Original Agreement in an aggregate principal amount not exceeding $24,000,000 and (ii) Liens in favor of the Agent, for the ratable benefit of the Banks, to secure the Loans and other obligations under this Agreement and (if applicable) under any other agreement pertaining to Indebtedness which is required to be equally and ratably secured by any Lien securing the Loans; (b) any Lien existing on any specific fixed asset of any corporation at the time such corporation becomes a Restricted Subsidiary and not created in contemplation of such event; (c) any Lien on any specific fixed asset (real or personal) securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset, provided that such Lien attaches to such asset concurrently with or within 18 months after the acquisition or completion of construction thereof; (d) any Lien on any specific fixed asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower or a Restricted Subsidiary and not created in contemplation of such event; (e) any Lien existing on any specific fixed asset prior to the acquisition thereof by the Borrower or a Restricted Subsidiary and not created in contemplation of such acquisition; (f) Liens on assets of a Restricted Subsidiary securing Indebtedness owing by any Restricted Subsidiary to the Borrower or by any Restricted Subsidiary to another Restricted Subsidiary; (g) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing paragraphs of this Section, provided that (i) such Indebtedness is not secured by any additional assets, and (ii) the amount of such Indebtedness secured by any such Lien is not increased; 41 48 (h) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Indebtedness and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (i) Liens imposed by any governmental authority for taxes, assessments or charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Borrower or any of its Subsidiaries, as the case may be, in accordance with GAAP; (j) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business (whether or not statutory) which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings, for which a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made; (k) Liens, pledges or deposits to secure non-delinquent obligations under worker's compensation, unemployment insurance and other social security legislation and Liens arising from the pledge by the Borrower or any of its Subsidiaries of industrial revenue bonds or other instruments to secure reimbursement obligations under letters of credit issued to support the payment of such bonds or instruments; (l) Liens on capital stock of or other ownership interests in any Person not a Restricted Subsidiary of the Borrower securing Indebtedness of such Person; (m) Liens resulting from progress payments or partial payments under United States government contracts or subcontracts; (n) Liens arising from legal proceedings, so long as such proceedings are being contested in good faith by appropriate proceedings diligently conducted and so long as execution is stayed on all judgments resulting from any such proceedings; (o) grants of security and rights of setoff in deposit or credit accounts, including demand, savings, passbook, share draft or like accounts, certificates of deposit, money market accounts, items held for collection or deposit, commercial paper, negotiable instruments and similar accounts and instruments held at banks or financial institutions to secure the payment or reimbursement under overdraft, acceptance and similar facilities and rights of setoff, banker's liens and other similar rights arising solely by operation of law; and (p) Liens not otherwise permitted by the foregoing paragraphs of this Section securing Indebtedness (other than indebtedness represented by the Notes) in an aggregate principal amount at any time outstanding which, together with the aggregate amount of Indebtedness of Restricted Subsidiaries permitted by Section 5.20(iv), does not exceed 20% of Adjusted Consolidated Net Worth as of the last day of the immediately preceding Fiscal Quarter. 42 49 SECTION 5.17. Adjusted Fixed Charges Coverage Ratio. At the end of each Fiscal Quarter, commencing with the second Fiscal Quarter of the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted Consolidated Fixed Charges shall at all times be equal to or greater than the ratio set forth below for such Fiscal Quarter of each Fiscal Year set forth below:
Adjusted Fixed Charges Fiscal Quarter Fiscal Year Coverage Ratio -------------- ----------- -------------- Second 2000 1.10 to 1.0 Third 2000 1.15 to 1.0 Fourth 2000 1.20 to 1.0 First 2001 1.25 to 1.0 Second 2001 1.25 to 1.0 Third 2001 1.25 to 1.0 Fourth 2001 and thereafter 1.50 to 1.0
SECTION 5.18. Leverage Ratio. The Leverage Ratio shall at all times be equal to or less than 0.65 to 1.0. SECTION 5.19. Minimum Adjusted Consolidated Net Worth. Adjusted Consolidated Net Worth will at no time be less than $487,569,000, plus the sum of (x) 50% of the cumulative Net Proceeds of Capital Stock received during any period after April 27, 1998, plus (y) 50% of any equity resulting from a conversion of Indebtedness of the Borrower during any period after April 27, 1998, less (z) any amount of equity of the Borrower repurchased during any period after April 27, 1998, calculated quarterly at the end of each Fiscal Quarter. SECTION 5.20. Subsidiary Borrowings. The Borrower shall not permit any Restricted Subsidiary to become liable for any Indebtedness, whether secured or unsecured, except: (i) such of the foregoing as is owed to the Borrower or another Wholly-Owned Subsidiary; (ii) Indebtedness or obligations secured by Liens permitted by Section 5.16; (iii) Indebtedness or obligations of a Subsidiary outstanding at the time such Subsidiary becomes a Subsidiary, provided that (a) such Indebtedness shall not have been incurred in contemplation of such Subsidiary becoming a Subsidiary, and (b) immediately after such Subsidiary becomes a Subsidiary, no Default or Event of Default shall exist, and provided, further, that such Indebtedness may not be extended, renewed, or refunded except as otherwise permitted by this Agreement; and (iv) subject to the provisions of Section 5.24 (and, if applicable, Sections 2.09(b) and 2.11), other Indebtedness which, when combined with the total of the Indebtedness secured by all Liens permitted by Section 5.16(p), without duplication, does not exceed 20% of Adjusted Consolidated Net Worth as of the last day of the immediately preceding Fiscal Quarter. SECTION 5.21. Separateness from Unrestricted Subsidiaries. The Borrower shall conduct its business and operations in accordance with the following provisions: (a) maintain books and records and bank accounts separate from those of the Unrestricted Subsidiaries; 43 50 (b) maintain its bank accounts and all its other assets separate from those of the Unrestricted Subsidiaries; (c) hold itself out to creditors and the public as a legal entity separate and distinct from the Unrestricted Subsidiaries; (d) prepare separate tax returns and financial statements showing it as a separate member of a consolidated group of which the Unrestricted Subsidiaries also are members; (e) allocate and charge fairly and reasonably any common employee or overhead shared with any of the Unrestricted Subsidiaries; (f) transact all business with Unrestricted Subsidiaries on an arm's length basis and enter into transactions with Unrestricted Subsidiaries only on a commercially reasonable basis; (g) conduct business in its own name and use separate stationery, invoices and checks; (h) not commingle its assets or funds with those of any Unrestricted Subsidiary; (i) not assume, Guarantee or pay the Indebtedness of any Unrestricted Subsidiary; (j) pay its own liabilities and expenses only out of its own funds, and not pay any liabilities and expenses of any of the Unrestricted Subsidiaries; (k) pay salaries of its own employees from its own funds, and not pay salaries of the employees of any Unrestricted Subsidiary; (l) not hold out its credit as being available to satisfy the obligations of any Unrestricted Subsidiary; (m) not make loans to any Unrestricted Subsidiary or buy or hold evidence of indebtedness issued by any Unrestricted Subsidiary; (n) not pledge its assets for the benefit of any Unrestricted Subsidiary; and (o) correct any known misunderstanding regarding its identity as being separate from the Unrestricted Subsidiaries. SECTION 5.22. Adjusted Consolidated EBITDA. At the end of each Fiscal Quarter, commencing with the first Fiscal Quarter of the 2000 Fiscal Year, Adjusted Consolidated EBITDA shall at all times equal to or greater than the amount set forth below for each Fiscal Quarter of each Fiscal Year set forth below, and shall be calculated (i) at the end of 44 51 each Fiscal Quarter in the 2000 Fiscal Year, for such Fiscal Quarter only, and (ii) at the end of each Fiscal Quarter thereafter, for the 4 Fiscal Quarter period then ending.
Adjusted Fiscal Quarter Fiscal Year Consolidated EBITDA -------------- ----------- ------------------- First 2000 $ 26,500,000 Second 2000 $ 18,500,000 Third 2000 $ 24,500,000 Fourth 2000 $ 25,000,000 First 2001 $105,000,000 Second 2001 $105,000,000 Third 2001 $115,000,000 Fourth 2001 $115,000,000 First and thereafter 2002 $125,000,000
SECTION 5.23. Borrowing Base. At the end of each Fiscal Period, the sum of (i) all Indebtedness (including the Loans) of the Borrower and its Restricted Subsidiaries plus (ii) all Synthetic Lease Obligations of the Borrower and its Restricted Subsidiaries shall not exceed the Borrowing Base, and within 10 Domestic Business Days after the end of such Fiscal Period, the Borrower shall furnish to the Agent and the Banks a certificate, in reasonable detail, showing the calculations with respect thereto. SECTION 5.24. New Indebtedness for Money Borrowed and New Capitalized Leases. The Borrower shall not, and the Borrower shall not permit its Restricted Subsidiaries to, incur any New Indebtedness for Money Borrowed or New Capitalized Leases, provided, that, so long as no Default or Event of Default is in existence or would be created thereby: (i) New Indebtedness for Money Borrowed may be issued in any amount, subject to the provisions of Section 5.20 and, if applicable, Sections 2.09ba) and 2.11, so long as the indenture, agreement, instrument or other agreement related thereto does not directly or indirectly prohibit or restrain, or have the effect of prohibiting or restraining, or imposing materially adverse conditions on, the ability of the Borrower or its Restricted Subsidiaries to create any Lien on any of its assets in favor of the Agent to secure the Loans and other obligations under this Agreement and under any other agreement pertaining to Indebtedness which must be equally and ratably secured by any Lien securing the Loans (the foregoing being collectively referred to as a "Negative Pledge Clause"), or a clause which would require that such New Indebtedness for Money Borrowed be equally and ratably secured by any Lien on its assets in favor of the Agent to secure the Loans and other obligations under this Agreement (except if and to the extent that such New Indebtedness for Money Borrowed arises out of an agreement in existence on the Closing Date which contains such a clause on the Closing Date); (ii) subject to the provisions of Section 5.20 (but not Sections 2.09(b) or 2.11), New Indebtedness for Money Borrowed may be incurred pursuant to a working capital line up to $50,000,000 which does not contain a Negative Pledge Clause); and (iii) New Capitalized Leases may be entered into up to an aggregate of $25,000,000 which do not contain a Negative Pledge Clause (except as to the assets being leased pursuant thereto). SECTION 5.25. Capital Expenditures. The Borrower shall not, and the Borrower shall not permit its Restricted Subsidiaries to, incur Capital Expenditures in any Fiscal Year, except that Capital Expenditures may be incurred up to an aggregate amount not exceeding 45 52 (x) $40,000,000 in the 2000 Fiscal Year and (y) $37,500,000 in any Fiscal Year thereafter, provided that after giving effect to the incurrence of any Capital Expenditures permitted by this Section, no Default shall be in existence or be created thereby. SECTION 5.26. Restricted Payments. The Borrower will not declare any Restricted Payment during any Fiscal Year unless, as of the date of such declaration, no Default or Event of Default is in existence or would be created by the making of such payment, and: (i) with respect to Restricted Payments consisting of repurchases of stock in the Borrower from any employee of the Borrower or any Restricted Subsidiary whose such employment is being or has been terminated (whether voluntarily or involuntarily), repurchases for an aggregate amount for all such employees not exceeding $2,500,000 in any Fiscal Year; and (ii) with respect to all other Restricted Payments, on a proforma basis, based upon the Borrower's good faith estimates (taking into account circumstances then known to it), after giving effect to such declaration and the payment thereof, and taking into account any additional Indebtedness anticipated in good faith by the Borrower to be incurred in connection therewith during the relevant period and other Indebtedness anticipated in good faith by the Borrower to be incurred during the relevant period, together with interest expense during the relevant period on all such anticipated Indebtedness, both as of (x) the end of the current Fiscal Period and (y) the end of the current Fiscal Quarter, (1) no Default or Event of Default would be in existence or created thereby, (2) the sum of the Unused Commitments, less any Swing Loans and Money Market Loans then outstanding, would be at least $15,000,000 and (3) the amount by which the Borrowing Base would exceed the sum of all Indebtedness (including the Loans) plus (without duplication) all Synthetic Lease Obligations would be at least $15,000,000. Prior to declaring any Restricted Payments pursuant hereto, the Borrower shall furnish to the Agent and the Banks a certificate, in reasonable detail, showing the calculations with respect to the foregoing. ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan or shall fail to pay any interest on any Loan within 5 Domestic Business Days after such interest shall become due, or shall fail to pay any fee or other amount payable hereunder within 5 Domestic Business Days after such fee or other amount becomes due; or (b) the Borrower shall fail to observe or perform any covenant contained in: (i) Sections 5.01(e), 5.02(ii), 5.03 through 5.05, inclusive, Sections 5.17 through 5.19, inclusive, Section 5.22, Sections 5.24 through 5.26, inclusive; or (ii) Section 5.23, and, with respect to this clause (ii) such failure shall not have been cured within 10 days after the earlier to occur of (1) delivery to the Agent and the Banks of the certificate required to be furnished pursuant to Section 5.23 and (2) the date such certificate was required to be so delivered pursuant to Section 5.23; or (iii) Sections 5.14, 5.15 or 5.20, and with 46 53 respect to this clause (iii) such failure shall not have been cured within 10 days after the earlier to occur of (1) written notice thereof has been given to the Borrower by the Agent at the request of any Bank or (2) any Responsible Officer of the Borrower otherwise becomes aware of any such failure; or (c) the Borrower shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by paragraph (a) or (b) above) and such failure shall not have been cured within 30 days after the earlier to occur of (i) written notice thereof has been given to the Borrower by the Agent at the request of any Bank or (ii) any Responsible Officer of the Borrower otherwise becomes aware of any such failure; or (d) any representation, warranty, certification or statement made by the Borrower in Article IV of this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or (e) the Borrower or any Material Subsidiary shall fail to make any payment in respect of Indebtedness in an aggregate amount outstanding in excess of $10,000,000 (other than the Notes) when due or within any applicable grace period; or (f) any event or condition shall occur which results in the acceleration of the maturity of Indebtedness or, as a result of any event of default, there is a requirement for the mandatory purchase or sale of property subject to any "synthetic lease" (meaning a lease transaction under which the obligations of the Borrower are treated as debt for tax purposes but not under GAAP) and/or the payment of any final rent payment or guaranteed residual amount with respect thereto (any such obligation to purchase or sell property or pay a final rent payment or guaranteed residual amount under a synthetic lease as a result of an event of default thereunder being a "synthetic lease obligation") in an aggregate amount outstanding in excess of $10,000,000 of the Borrower or any Material Subsidiary (including, without limitation, any required mandatory prepayment or "put" of such Indebtedness or, as a result of an event of default, a synthetic lease obligation, to the Borrower or any Material Subsidiary) or enables (or, with the giving of notice or lapse of time or both, would enable) the holders of such Indebtedness or commitment therefor or lessor under any such synthetic lease or any Person acting on such holders' or lessor's behalf to accelerate the maturity thereof or terminate any such commitment or to require, as a result of an event of default, the purchase or sale of such property or the payment of any other synthetic lease obligation (including, without limitation, any required mandatory prepayment or "put" of such Indebtedness or synthetic lease obligation to the Borrower or any Material Subsidiary); or (g) the Borrower or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary 47 54 case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing its inability, to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or (i) the Borrower or any member of the Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated, in each case if the amount of Unfunded Vested Liabilities is in excess of $10,000,000; or (j) one or more judgments or orders for the payment of money in an aggregate amount in excess of $20,000,000 shall be rendered against the Borrower or any Material Subsidiary and such judgment or order shall continue unbonded, undischarged, unsatisfied and unstayed for a period of 30 days; or (k) a federal tax lien shall be filed against the Borrower or any Material Subsidiary under Section 6323 of the Code, if the amount involved is in excess of $20,000,000, or a lien of the PBGC shall be filed against the Borrower or any Material Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 25 days after the date of filing, if the amount involved is in excess of $10,000,000; or (l) in any 12 month period or less, (i) 50% or more of the members of the full Board of Directors of the Borrower shall have resigned or been removed or replaced, or (ii) any Person or "Group" (as defined in Section 2(d)(3) of the Securities Exchange Act of 1934, as amended) (other than an employee benefit or stock ownership plan of the Borrower) shall have acquired, during such period, directly or indirectly, more than 30% of the capital stock (whether common or preferred or a combination thereof) of the Borrower, provided that the Borrower's purchase of treasury shares of shares of its capital stock outstanding on the date of the Original Agreement which results in one or more of 48 55 the Borrower's shareholders of record as of the date of the Original Agreement owning 30% or more of the Borrower's Capital Stock shall not constitute an acquisition for purposes of this Section 6.01 (l); or (m) the occurrence of any event, act, occurrence, or condition which either has or which reasonably could be expected to cause a Material Adverse Effect. then, and in every such event, (i) the Agent shall, if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, (ii) any Bank may terminate its obligation to fund a Money Market Loan in connection with any relevant Money Market Quote, and (iii) the Agent shall, if requested by the Required Banks, by notice to the Borrower declare the Notes (together with accrued interest thereon), and all other amounts payable hereunder and under the other Loan Documents, to be, and the Notes, including the Swing Loan Note (together with accrued interest thereon), and all other amounts payable hereunder and under the other Loan Documents shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower together with interest at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default; provided that if any Event of Default specified in paragraph (g) or (h) above occurs with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Loan Documents shall automatically and without notice become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower together with interest thereon at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default. Notwithstanding the foregoing, the Agent shall have available to it all other remedies at law or equity, and shall exercise any one or all of them at the request of the Required Banks. SECTION 6.02. Notice of Default. The Agent shall give notice to the Borrower of any Default under Section 6.01(b) or (c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.01. Appointment; Powers and Immunities. (a) Each Bank hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Agent: (a) shall have no duties or responsibilities except as expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any Bank under, this Agreement or any other Loan Document, or for the validity, effectiveness, 49 56 genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Borrower to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by the Required Banks, and then only on terms and conditions satisfactory to the Agent, and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or wilful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The provisions of this Article VII are solely for the benefit of the Agent and the Banks, and the Borrower shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and under the other Loan Documents, the Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. The duties of the Agent shall be ministerial and administrative in nature, and the Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Bank. (b) Each Bank hereby designates The Bank of Nova Scotia as Documentation Agent and Bank of America, N.A. as Syndications Agent. The Documentation Agent and the Syndications Agent, in such capacity, shall have no duties or obligations whatsoever under this Agreement or any other Loan Document or any other document or any matter related hereto and thereto, but shall nevertheless be entitled to all the indemnities and other protection afforded to the Agent under this Article VII. SECTION 7.02. Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants or other experts selected by the Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions signed by the Required Banks, and such instructions of the Required Banks in any action taken or failure to act pursuant thereto shall be binding on all of the Banks. SECTION 7.03. Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default (other than the nonpayment of principal of or interest on the Loans) unless the Agent has received notice from a Bank or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or an Event of Default, the Agent shall give prompt notice thereof to the Banks. The Agent shall give each Bank prompt notice of each nonpayment of principal of or interest on the Loans whether or not it has received any notice of the occurrence of such nonpayment. The Agent shall (subject to Section 9.06) take such action hereunder with respect to such Default or Event of Default as shall be directed by the Required Banks, provided that, unless and until the Agent shall have received 50 57 such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. SECTION 7.04. Rights of Agent and its Affiliates as a Bank. With respect to the Loans made by the Agent and any Affiliate of the Agent, Wachovia in its capacity as a Bank hereunder and any Affiliate of the Agent or such Affiliate in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though Wachovia were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include Wachovia in its individual capacity and any Affiliate of the Agent in its individual capacity. The Agent and any Affiliate of the Agent may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of the Borrower's Affiliates) as if Wachovia were not acting as the Agent, and the Agent and any Affiliate of the Agent may accept fees and other consideration from the Borrower (in addition to any agency fees and arrangement fees heretofore agreed to between the Borrower and the Agent) for services in connection with this Agreement or any other Loan Document or otherwise without having to account for the same to the Banks. SECTION 7.05. Indemnification. Each Bank severally agrees to indemnify the Agent, to the extent the Agent shall not have been reimbursed by the Borrower, ratably in accordance with its Commitment, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, out-of-pocket costs, expenses (including, without limitation, reasonable counsel fees and disbursements actually incurred) or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (excluding, unless an Event of Default has occurred and is continuing, the normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or any such other documents; provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or wilful misconduct of the Agent. If any indemnity furnished to the Agent for any purpose shall, in the opinion of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. SECTION 7.06. Consequential Damages. THE AGENT SHALL NOT BE RESPONSIBLE OR LIABLE TO ANY BANK, THE BORROWER OR ANY OTHER PERSON OR ENTITY FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 7.07. Payee of Note Treated as Owner. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent and the provisions of Section 9.07(c) have been satisfied. Any requests, authority or consent of any 51 58 Person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange therefor or replacement thereof. SECTION 7.08. Nonreliance on Agent and Other Banks. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Agent shall not be required to keep itself (or any Bank) informed as to the performance or observance by the Borrower of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any other Person. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder or under the other Loan Documents, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Person (or any of their Affiliates) which may come into the possession of the Agent. SECTION 7.09. Failure to Act. Except for action expressly required of the Agent hereunder or under the other Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Banks of their indemnification obligations under Section 7.05 against any and all liability and expense which may be incurred by the Agent by reason of taking, continuing to take, or failing to take any such action. SECTION 7.10. Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and the Borrower and the Agent may be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent, subject to the approval of the Borrower, which shall not be unreasonably withheld or delayed; provided, that no approval of the Borrower shall be required if a Default is in existence. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, subject to the approval of the Borrower, which shall not be unreasonably withheld or delayed; provided, that no approval of the Borrower shall be required if a Default is in existence. Any successor Agent shall be a bank which has a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall continue in effect for its benefit in 52 59 respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder. ARTICLE VIII CHANGE IN CIRCUMSTANCES; COMPENSATION SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period: (a) the Agent determines that deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or (b) the Required Banks advise the Agent that the London Interbank Offered Rate, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding Euro-Dollar Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make the type of Fixed Rate Loans specified in such notice shall be suspended. Unless the Borrower notifies the Agent at least 2 Domestic Business Days before the date of any Borrowing of such type of Fixed Rate Loans for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.02. Illegality. If, after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein or any existing or future law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such agency being referred to as an "Authority" and any such event being referred to as a "Change of Law"), or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority shall make it unlawful or impossible for any Bank (or its Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall, on the later of (i) the date such notice is received by the Borrower and (ii) the date such Change of Law becomes effective, prepay in full the then outstanding principal amount of each Euro-Dollar Loan of such Bank, together with accrued interest thereon and any amount due such Bank pursuant to Section 8.05(a). Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable 53 60 contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. SECTION 8.03. Increased Cost and Reduced Return. (a) If after the date hereof, a Change of Law or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority: (i) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Lending Office); or (ii) shall impose on any Bank (or its Lending Office) or on the London interbank market any other condition affecting its Fixed Rate Loans or Money Market Loans, its Notes or its obligation to make Fixed Rate Loans; and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement or under its Notes with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction; provided, however, that the Borrower shall not be responsible to such Bank for any increased cost or reduced return under this Section 8.03(a) which accrued at any time before that date which is 90 calendar days prior to the date upon which the Borrower is notified of same. (b) If any Bank shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any Authority, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction; provided, however, that the Borrower shall not be responsible to such Bank for any increased cost or reduced return under this Section 8.03(b) which accrued at any time before that date which is 90 calendar days prior to the date upon which the Borrower is notified of same. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any 54 61 Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error, provided such certificate shall set forth the basis of such claim and shall be accompanied by a statement of an officer of such Bank certifying that such claim for compensation is being made pursuant to a policy adopted by such Bank to seek such compensation generally from customers with similar types of loans. In determining such amount, such Bank may use any reasonable averaging and attribution methods. (d) The provisions of this Section 8.03 shall be applicable with respect to any Participant, Assignee or other Transferee, and any calculations required by such provisions shall be made based upon the circumstances of such Participant, Assignee or other Transferee. SECTION 8.04. Base Rate Loans Substituted for Euro-Dollar Loans. If (i) the obligation of any Bank to make or maintain any Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03, and the Borrower shall, by at least 5 Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Loans which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Base Rate Loans, and interest and principal on such Loans shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. SECTION 8.05. Compensation. Upon the request of any Bank, delivered to the Borrower and the Agent, the Borrower shall pay to such Bank such amount or amounts as shall compensate such Bank for any loss, cost or expense (but not loss of margin or profit) incurred by such Bank as a result of: (a) any payment or prepayment (pursuant to Section 2.10, 2.11, 6.01, 8.02 or otherwise) of a Fixed Rate Loan on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Borrower to borrow a Fixed Rate Loan on the date for the Fixed Rate Borrowing of which such Fixed Rate Loan is a part specified in the applicable Notice of Borrowing delivered pursuant to Section 2.02 or notification of acceptance of Money Market Quotes pursuant to Section 2.03(e); such compensation to include, without limitation, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not prepaid or borrowed for the period from the date of such payment, prepayment or failure to prepay or borrow to the last day of the then current Interest Period for such Fixed Rate Loan (or, in the case of a failure to prepay or borrow, the Interest Period for such Fixed Rate Loan which would have 55 62 commenced on the date of such failure to prepay or borrow) at the applicable rate of interest for such Fixed Rate Loan provided for herein over (y) the amount of interest (as reasonably determined by such Bank) such Bank would have paid on deposits in Dollars of comparable amounts having terms comparable to such period placed with it by leading banks in the London interbank market (if such Fixed Rate Loan is a Euro-Dollar Loan); provided, that (i) the Borrower shall be responsible to such Bank only for its actual costs incurred in connection with same (i.e. not for any lost profits which were expected over the course of such Interest Period), (ii) such Bank shall take reasonable efforts to mitigate its damages in connection with same, and (iii) if such Fixed Rate Loan is a Euro-Dollar Loan, the Borrower shall not be responsible to such Bank for such losses in excess of those amounts as such Bank would have incurred had it funded or maintained the Euro-Dollar Loan in the London interbank market (regardless of whether it actually did so). SECTION 8.06. Replacement of Bank. In the event that any Bank (a "Subject Bank") gives any notice under Section 8.02 resulting in the suspension of its obligation to make or maintain Euro-Dollar Loans, or requests compensation pursuant to Section 8.05, or requests compensation with respect to withholding Taxes pursuant to Section 2.12, or becomes insolvent or fails to make any Syndicated Loan in response to a request for borrowing by the Borrower where the Required Banks have made the Syndicated Loans to be made by them in response to such request, then, so long as such condition exists, the Borrower may designate another bank or financial institution (a "Replacement Bank") acceptable to the Agent (which acceptance will not be unreasonably withheld) and which is not an Affiliate of the Borrower, to assume the Subject Bank's Commitment hereunder and to purchase the Loans of the Subject Bank and the Subject Bank's rights under this Agreement and the Notes held by the Subject Bank, all without recourse to or representation or warranty by, or expense to the Subject Bank for a purchase price equal to the outstanding principal amount of the Loans payable to the Subject Bank plus any accrued but unpaid interest on such Loans and accrued but unpaid fees owing to the Subject Bank plus any amounts payable to the Subject Bank under Sections 2.12 and 8.05, and upon such assumption, purchase and substitution, and subject to the execution and delivery to the Agent by the Subject Bank and the Replacement Bank of an Assignment and Acceptance, the Replacement Bank shall succeed to the rights and obligations of the Subject Bank hereunder. In the event that the Borrower exercises its rights under the preceding sentence, the Subject Bank agrees to sell its Loans and rights under this Agreement and its Notes pursuant to the foregoing, and upon such sale, it shall no longer be a party hereto or have any rights or obligations hereunder; provided that the obligations of the Borrower to the Subject Bank under Article VIII and Section 9.03 with respect to events occurring or obligations arising before or as a result of such replacement shall survive such exercise. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address or telecopier number set forth on the signature pages hereof or such other address or telecopier number as such party may hereafter specify for the purpose by notice to each other party. Each such notice, request or other communication shall be effective 56 63 (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and the confirmation is received, (ii) if given by mail, 3 Business Days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article II or Article VIII shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note or other Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Documentary Taxes. The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default or alleged Default hereunder or thereunder and (ii) if a Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and the Banks, including reasonable fees and disbursements of counsel, in connection with such Default and collection and other enforcement proceedings resulting therefrom, including reasonable out-of-pocket expenses incurred in enforcing this Agreement and the other Loan Documents. The Borrower shall indemnify the Agent and each Bank against any transfer taxes, documentary taxes, assessments or charges made by any Authority by reason of the execution and delivery of this Agreement or the other Loan Documents. SECTION 9.04. Indemnification. The Borrower shall indemnify the Agent, the Banks and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any actual or proposed use by the Borrower of the proceeds of any extension of credit by any Bank hereunder or breach by the Borrower of this Agreement or any other Loan Document or from any investigation, litigation (including, without limitation, any actions taken by the Agent or any of the Banks to enforce this Agreement or any of the other Loan Documents) or other proceeding (including, without limitation, any threatened investigation or proceeding) relating to the foregoing, and the Borrower shall reimburse the Agent and each Bank, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable expenses (including, without limitation, legal fees) incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or wilful misconduct of the Person to be indemnified. SECTION 9.05. Setoff; Sharing of Setoffs. (a) The Borrower hereby grants to the Agent and each Bank and to Wachovia as to the Swing Loan Note, and, to the fullest extent permitted by law, each Affiliate of each Bank, the right to setoff, against the obligations of the Borrower under this Agreement, upon all deposits or deposit accounts, of any kind, or any 57 64 interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to the Agent or any such Bank or Affiliate of such Bank or otherwise in the possession or control of the Agent or any such Bank or Affiliate of such Bank for any purpose for the account or benefit of the Borrower and including any balance of any deposit account or of any credit of the Borrower with the Agent or any such Bank or Affiliate of such Bank, whether now existing or hereafter established, after the occurrence and during the continuance of an Event of Default, hereby authorizing the Agent and each Bank and each Affiliate of each Bank at any time or times with or without prior notice to apply such balances or any part thereof to such of the indebtedness and obligations owing by the Borrower hereunder to the Banks or their Affiliates and/or the Agent then past due and in such amounts as they may elect, and whether or not the collateral, if any, or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this paragraph, all remittances and property shall be deemed to be in the possession of the Agent or any such Bank or its Affiliate as soon as the same may be put in transit to it by mail or carrier or by other bailee. (b) Each Bank agrees that if it or any of its Affiliates shall, by exercising any right of setoff or counterclaim or resort to collateral security or otherwise, receive payment of a proportion of the aggregate amount of principal and interest owing with respect to the Note held by it which is greater than the proportion received by any other Bank or its Affiliate in respect of the aggregate amount of all principal and interest owing with respect to the Note held by such other Bank, the Bank receiving (directly or through its Affiliate) such proportionately greater payment shall purchase such participations in the Notes held by the other Banks owing to such other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks owing to such other Banks shall be shared by the Banks pro rata; provided that (i) nothing in this Section shall impair the right of any Bank or its Affiliates to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes, and (ii) if all or any portion of such payment received by the purchasing Bank is thereafter recovered from such purchasing Bank, such purchase from each other Bank or its Affiliate shall be rescinded and such other Bank or Affiliate shall repay to the purchasing Bank the purchase price of such participation to the extent of such recovery together with an amount equal to such other Bank's ratable share (according to the proportion of (x) the amount of such other Bank's required repayment to (y) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.06. Amendments and Waivers. (a) Any provision of this Agreement, the Notes or any other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that, no such amendment or waiver shall, unless signed by all Banks, (i) increase the Commitment of any Bank or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees (other than fees payable to the Agent) hereunder, (iii) postpone 58 65 the date fixed for any payment of principal of or interest on any Loan or any fees hereunder, (iv) reduce the amount of principal, interest or fees due on any date fixed for the payment thereof, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the percentage of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, (vi) change the manner of application of any payments made under this Agreement or the Notes, (vii) release or substitute all or any substantial part of the collateral (if any) held as security for the Loans, or (viii) release any Guaranty given to support payment of the Loans. The Borrower will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement from or with any Bank, except on terms fully disclosed to the Agent (which terms the Agent shall be authorized to disclose to the Banks). Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this Agreement shall be delivered by the Borrower to the Agent (for delivery to each Bank) forthwith following the date on which the same shall have been executed and delivered by the requisite percentage of Banks. The Borrower will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Bank (in its capacity as such) as consideration for or as an inducement to the entering into by such Bank of any waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is concurrently paid, on the same terms, ratably to all such Banks. SECTION 9.07. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the Borrower may not assign or otherwise transfer any of its rights under this Agreement. (b) Any Bank may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Bank, any Note held by such Bank, any Commitment hereunder or any other interest of such Bank hereunder. In the event of any such sale by a Bank of a participating interest to a Participant, such Bank's obligations under this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. In no event shall a Bank that sells a participation be obligated to the Participant to take or refrain from taking any action hereunder except that such Bank may agree that it will not (except as provided below), without the consent of the Participant, agree to (i) the change of any date fixed for the payment of principal of or interest on the related Loan or Loans, (ii) the change of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the related Loan or Loans, (iii) the change of the principal of the related Loan or Loans, (iv) any change in the rate at which either interest is payable thereon or (if the Participant is entitled to any part thereof) fee is payable hereunder from the rate at which the Participant is entitled to receive interest or fee (as the case may be) in respect of such participation, or (v) the release of any Guaranty given to support payment of the Loans. Each Bank selling to any Person other than an Affiliate of such Bank a participating interest in any Loan, Note, Commitment or other interest under this Agreement, other than a Money Market Loan or Money Market Note or participating interest therein, shall, within 10 Domestic Business Days of such sale, provide the 59 66 Borrower and the Agent with written notification stating that such sale has occurred and identifying the Participant and the interest purchased by such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Article VIII with respect to its participation in Loans outstanding from time to time, subject to the provisions of Section 9.07(e). (c) Any Bank may at any time assign to one or more banks or financial institutions (each an "Assignee") all or a proportionate part of its rights and obligations under this Agreement, the Notes and the other Loan Documents, and such Assignee shall assume all such rights and obligations, pursuant to an Assignment and Acceptance, executed by such Assignee, such transferor Bank and the Agent (and, in the case of an Assignee that is not then a Bank, subject to clause (iii) below, by the Borrower); provided that (i) no interest may be sold by a Bank pursuant to this paragraph (c) unless the Assignee shall agree to assume ratably equivalent portions of the transferor Bank's Commitment, (ii) if a Bank is assigning only a portion of its Commitment, then, the amount of the Commitment being assigned (determined as of the effective date of the assignment) shall be in an amount not less than $15,000,000, (iii) except during the continuance of a Default, no interest may be sold by a Bank pursuant to this paragraph (c) to any Assignee that is not then a Bank (or an Affiliate of a Bank) without the consent of the Borrower and the Agent, which consent shall not be unreasonably withheld (provided that it shall not constitute the unreasonable withholding of consent if the Borrower shall decline to consent because (1) the Borrower makes a reasonable determination that it is materially more likely that the proposed Assignee will be entitled to compensation under Section 2.12 or 8.05, or to a greater amount of compensation thereunder than the transferor Bank, or (2) the proposed Assignee has a combined capital and surplus of less than $500,000,000), and (iv) a Bank may not have more than 2 Assignees that are not then Banks at any one time. Upon (A) execution of the Assignment and Acceptance by such transferor Bank, such Assignee, the Agent and (if applicable) the Borrower, (B) delivery of an executed copy of the Assignment and Acceptance to the Borrower and the Agent, (C) payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, and (D) payment of a processing and recordation fee of $2,500 to the Agent, such Assignee shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by the Borrower, the Banks or the Agent shall be required. Upon the consummation of any transfer to an Assignee pursuant to this paragraph (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to each of such Assignee and such transferor Bank. (d) Subject to the provisions of Section 9.08, the Borrower authorizes each Bank to disclose to any Participant, Assignee or other transferee (each a "Transferee") and any prospective Transferee any and all financial information in such Bank's possession concerning the Borrower which has been delivered to such Bank by the Borrower pursuant to this Agreement or which has been delivered to such Bank by the Borrower in connection with such Bank's credit evaluation prior to entering into this Agreement. (e) No Transferee shall be entitled to receive any greater payment under Section 2.12 or 8.03 than the transferor Bank would have been entitled to receive with respect to the 60 67 rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Anything in this Section 9.07 to the contrary notwithstanding, any Bank may assign and pledge all or any portion of the Loans and/or obligations owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned Loans and/or obligations made by the Borrower to the assigning and/or pledging Bank in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect of such assigned Loans and/or obligations to the extent of such payment. No such assignment shall release the assigning and/or pledging Bank from its obligations hereunder. SECTION 9.08. Confidentiality. Each Bank agrees to exercise commercially reasonable efforts to keep any information delivered or made available by the Borrower to it which is clearly indicated (orally or in writing) to be confidential information, confidential from anyone other than persons employed or retained by such Bank who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any Bank from disclosing such information (i) to any other Bank, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank, (iv) which has been publicly disclosed (unless a person responsible for administering this Agreement on behalf of such Bank has actual knowledge that such disclosure is made by a Person in violation of a confidentiality agreement with or confidentiality obligation to the Borrower or any Subsidiary), (v) to the extent reasonably required in connection with any litigation to which the Agent, any Bank or their respective Affiliates may be a party, (vi) to the extent reasonably required in connection with the exercise of any remedy hereunder, (vii) to such Bank's legal counsel and independent auditors and (viii) to any actual or proposed Participant, Assignee or other Transferee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 9.08; provided that should disclosure of any such confidential information be required by virtue of clause (ii) of the immediately preceding sentence, any relevant Bank shall promptly notify the Borrower of same so as to allow the Borrower to seek a protective order or to take any other appropriate action, unless such Bank is prohibited by law or any such order from giving such notice; provided, further, that, no Bank shall be required to delay compliance with any directive to disclose any such information so as to allow the Borrower to effect any such action. SECTION 9.09. Representation by Banks. Each Bank hereby represents that it is a commercial lender or financial institution which makes loans in the ordinary course of its business and that it will make its Loans hereunder for its own account in the ordinary course of such business; provided that, subject to Section 9.07, the disposition of the Note or Notes held by that Bank shall at all times be within its exclusive control. SECTION 9.10. Obligations Several. The obligations of each Bank hereunder are several, and no Bank shall be responsible for the obligations or commitment of any 61 68 other Bank hereunder. Nothing contained in this Agreement and no action taken by the Banks pursuant hereto shall be deemed to constitute the Banks to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement or any other Loan Document and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. SECTION 9.11. Georgia Law. This Agreement and each Note shall be construed in accordance with and governed by the law of the State of Georgia. SECTION 9.12. Severability. In case any one or more of the provisions contained in this Agreement, the Notes or any of the other Loan Documents should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby and shall be enforced to the greatest extent permitted by law. SECTION 9.13. Interest. In no event shall the amount of interest, and all charges, amounts or fees contracted for, charged or collected pursuant to this Agreement, the Notes or the other Loan Documents and deemed to be interest under applicable law (collectively, "Interest") exceed the highest rate of interest allowed by applicable law (the "Maximum Rate"), and in the event any such payment is inadvertently received by any Bank, then the excess sum (the "Excess") shall be credited as a payment of principal, unless the Borrower shall notify such Bank in writing that it elects to have the Excess returned forthwith. It is the express intent hereof that the Borrower not pay and the Banks not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may legally be paid by the Borrower under applicable law. The right to accelerate maturity of any of the Loans does not include the right to accelerate any interest that has not otherwise accrued on the date of such acceleration, and the Agent and the Banks do not intend to collect any unearned interest in the event of any such acceleration. All monies paid to the Agent or the Banks hereunder or under any of the Notes or the other Loan Documents, whether at maturity or by prepayment, shall be subject to rebate of unearned interest as and to the extent required by applicable law. By the execution of this Agreement, the Borrower covenants, to the fullest extent permitted by law, that (i) the credit or return of any Excess shall constitute the acceptance by the Borrower of such Excess, and (ii) the Borrower shall not seek or pursue any other remedy, legal or equitable , against the Agent or any Bank, based in whole or in part upon contracting for charging or receiving any Interest in excess of the Maximum Rate, other than the crediting of the Excess as set forth herein. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Agent or any Bank, all interest at any time contracted for, charged or received from the Borrower in connection with this Agreement, the Notes or any of the other Loan Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Commitments. The Borrower, the Agent and each Bank shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as Interest and (ii) exclude voluntary prepayments and the effects thereof. The provisions of this Section shall be deemed to be incorporated into each Note and each of the other Loan Documents (whether or not any provision of this Section is referred to therein). All such Loan Documents and communications relating to any Interest 62 69 owed by the Borrower and all figures set forth therein shall, for the sole purpose of computing the extent of obligations hereunder and under the Notes and the other Loan Documents be automatically recomputed by the Borrower, and by any court considering the same, to give effect to the adjustments or credits required by this Section. SECTION 9.14. Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. SECTION 9.15. Waiver of Jury Trial; Consent to Jurisdiction. The Borrower (a) and each of the Banks and the Agent irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of this Agreement, any of the other Loan Documents, or any of the transactions contemplated hereby or thereby, (b) submits to the nonexclusive personal jurisdiction in the State of Georgia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Agreement, the Notes and the other Loan Documents, (c) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the State of Georgia for the purpose of litigation to enforce this Agreement, the Notes or the other Loan Documents, and (d) agrees that service of process may be made upon it in the manner prescribed in Section 9.01 for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Agent from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction. SECTION 9.16. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 9.17. Source of Funds -- ERISA. Each of the Banks hereby severally (and not jointly) represents to the Borrower that no part of the funds to be used by such Bank to fund the Loans hereunder from time to time constitutes (i) assets allocated to any separate account maintained by such Bank in which any employee benefit plan (or its related trust) has any interest nor (ii) any other assets of any employee benefit plan. As used in this Section, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. [Signatures are contained on the following pages.] 63 70 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, under seal, by their respective authorized officers as of the day and year first above written. FLOWERS INDUSTRIES, INC. (SEAL) By: ------------------------ Name: ------------------- Title: ------------------ Flowers Industries, Inc. 1919 Flowers Circle Thomasville, Georgia 31757 Attention: Jimmy M. Woodward Telecopier number: 912-225-3808 Confirmation number: 912-227-2266 64 71 COMMITMENTS WACHOVIA BANK, N.A., $110,000,000 as Agent and as a Bank (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- Lending Office Wachovia Bank, N.A. 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Kevin B. Harrison Telecopier number: 404-332-6920 Confirmation number: 404-332-5269 $100,000,000 THE BANK OF NOVA SCOTIA, as Documentation Agent and as a Bank (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- Lending Office The Bank of Nova Scotia 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Attention: William Zarrett Telecopier number: 404-888-8998 Confirmation number: 404-877-1504 65 72 100,000,000 BANK OF AMERICA, N.A., as Syndications Agent and as a Bank (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- Lending Office Bank of America, N.A. 231 S. LaSalle Street Suite 944 Chicago, Illinois 60697 Attention: Casey Cosgrove. Telecopier number: 312-987-1276 Confirmation number: 312-828-3092 66 73 $75,000,000 FIRST UNION NATIONAL BANK as a Bank (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- Lending Office First Union National Bank 999 Peachtree Street, N.E. 9th Floor Atlanta, Georgia 30309 Attention: Michael Romanzo Telecopier number: 404-827-7199 Confirmation number: 404-827-7140 67 74 $45,000,000 BANK ONE, NA, as a Bank Chicago Main Office (f/k/a The First National Bank of Chicago) (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- Lending Office Bank One, NA c/o Bank One Capital Markets, Inc. 1 Bank One Plaza, 10th Floor Chicago, Illinois 60670 Attention: David McNeela Telecopier number: 312-732-5296 Confirmation number: 312-732-5730 68 75 $30,000,000 SUNTRUST BANK, as a Bank (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- By: ------------------------- Name: ------------------ Title: ----------------- Lending Office SunTrust Bank 25 Park Place, 23rd Floor Atlanta, Georgia 30303 Attention: Kim S. Martin Telecopier number: 404-230-5305 Confirmation number: 404-588-7883 69 76 $25,000,000 COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, as a Bank (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- By: ------------------------- Name: ------------------ Title: ----------------- Lending Office Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch 245 Park Avenue New York, New York 10157 Attention: Brenda Llew Telecopier number: 212-916-7930 Confirmation number: 212-916-7928 70 77 $15,000,000 DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK, AG, CAYMAN ISLANDS BRANCH, as a Bank (SEAL) By: ------------------------- Name: ------------------ Title: ----------------- By: ------------------------- Name: ------------------ Title: ----------------- Lending Office DG Bank, Deutsche Genossenschaftsbank, AG, Cayman Islands Branch c/o DG Bank 303 Peachtree Street, N.E. Suite 2900 Atlanta, Georgia 30308 Attention: Kurt A. Morris Telecopier number: 404-524-4006 Confirmation number: 404-524-3966 - --------------- TOTAL COMMITMENTS: $500,000,000 71 78 EXHIBIT A-1 AMENDED AND RESTATED SYNDICATED LOAN NOTE Atlanta, Georgia January 30, 1998 For value received, FLOWERS INDUSTRIES, INC., a Georgia corporation (the "Borrower"), promises to pay to the order of _________________________________________, a ____________________ (the "Bank"), for the account of its Lending Office, the principal sum of ___________________________________ AND NO/100 DOLLARS ($________ ), or such lesser amount as shall equal the unpaid principal amount of each Syndicated Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Amended and Restated Syndicated Loan Note on the dates and at the rate or rates provided for in the Credit Agreement. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the Default Rate, as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Wachovia Bank, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such other address as may be specified from time to time pursuant to the Credit Agreement. All Syndicated Loans made by the Bank, the respective maturities thereof, the interest rates from time to time applicable thereto, and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Amended and Restated Syndicated Loan Note is one of the Syndicated Loan Notes referred to in the Amended and Restated Credit Agreement dated as of January 30, 1998 among the Borrower, the Banks listed on the signature pages thereof, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and NationsBank, N.A., as Syndications Agent (as the same may be amended and modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the optional and mandatory prepayment and the repayment hereof and the acceleration of the maturity hereof, as well as the obligation of the Borrower to pay all costs of collection, including reasonable attorneys fees, in the event this Amended and Restated Syndicated Loan Note is collected by law or through an attorney at law. The Borrower hereby waives presentment, demand, protest, notice of demand, protest and nonpayment and any other notice required by law relative hereto, except to the extent as otherwise may be expressly provided for in the Credit Agreement. 72 79 IN WITNESS WHEREOF, the Borrower has caused this Amended and Restated Syndicated Loan Note to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. FLOWERS INDUSTRIES, INC. (SEAL) By: --------------------- Title: 73 80 Amended and Restated Syndicated Loan Note (cont'd) SYNDICATED LOANS AND PAYMENTS OF PRINCIPAL
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74 81 EXHIBIT A-2 AMENDED AND RESTATED MONEY MARKET LOAN NOTE As of January 30, 1998 For value received, FLOWERS INDUSTRIES, INC., a Georgia corporation (the "Borrower"), promises to pay to the order of ____________________________, a _______________ (the "Bank"), for the account of its Lending Office, the principal sum of FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000), or such lesser amount as shall equal the unpaid principal amount of each Money Market Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Amended and Restated Money Market Loan Note on the dates and at the rate or rates provided for in the Credit Agreement referred to below. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the Default Rate, as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Wachovia, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such other address as may be specified from time to time pursuant to the Credit Agreement. All Money Market Loans made by the Bank, the respective maturities thereof, the interest rates from time to time applicable thereto, and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Amended and Restated Money Market Loan Note is one of the Money Market Loan Notes referred to in the Amended and Restated Credit Agreement dated as of January 30, 1998 among the Borrower, the Banks listed on the signature pages thereof, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and NationsBank, N.A., as Syndications Agent (as the same may be amended and modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the optional and mandatory prepayment and the repayment hereof and the acceleration of the maturity hereof, as well as the obligation of the Borrower to pay all costs of collection, including reasonable attorneys fees, in the event this Amended and Restated Money Market Loan Note is collected by law or through an attorney at law. The Borrower hereby waives presentment, demand, protest, notice of demand, protest and nonpayment and any other notice required by law relative hereto, except to the extent as otherwise may be expressly provided for in the Credit Agreement. 75 82 IN WITNESS WHEREOF, the Borrower has caused this Amended and Restated Money Market Loan Note to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. FLOWERS INDUSTRIES, INC. (SEAL) By: --------------------- Title: 76 83 Amended and Restated Money Market Loan Note (cont'd) MONEY MARKET LOANS AND PAYMENTS OF PRINCIPAL
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77 84 EXHIBIT A-3 SWING LOAN NOTE Atlanta, Georgia March 30, 2000 For value received, FLOWERS INDUSTRIES, a Georgia corporation (the "Borrower"), promises to pay to the order of WACHOVIA BANK, N.A., a national banking association (the "Bank"), for the account of its Lending Office, the principal sum of Fifteen Million and No/100 Dollars ($15,000,000), or such lesser amount as shall equal the unpaid principal amount of each Swing Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Swing Loan Note at the rate provided for Base Rate Loans on the dates provided for in the Credit Agreement. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the Default Rate, as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Wachovia Bank, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such other address as may be specified from time to time pursuant to the Credit Agreement. All Swing Loans made by the Bank, the respective maturities thereof, and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Swing Loan Note is the Swing Loan Note referred to in the Second Amended and Restated Credit Agreement dated as of even date herewith among the Borrower, the Banks listed on the signature pages thereof and Wachovia Bank, N.A., as Agent (as the same may be amended and modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the optional and mandatory prepayment and the repayment hereof and the acceleration of the maturity hereof. 78 85 IN WITNESS WHEREOF, the Borrower has caused this Swing Loan Note to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. FLOWERS INDUSTRIES, INC. (SEAL) By: --------------------- Title: 79 86 Swing Loan Note (continued)
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80 87 EXHIBIT B OPINION OF COUNSEL FOR THE BORROWER [Dated as provided in Section 3.01 of the Credit Agreement] To the Banks and the Agent Referred to Below c/o Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attn: Syndications Group Dear Sirs: I am Assistant General Counsel of Flowers Industries, Inc., a Georgia corporation (the "Borrower") in connection with the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of January 30, 1998, among the Borrower, the banks listed on the signature pages thereof, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and NationsBank, N.A., as Syndications Agent. Terms defined in the Credit Agreement are used herein as therein defined. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I have assumed for purposes of my opinions set forth below that the execution and delivery of the Credit Agreement by each Bank and by the Agent have been duly authorized by each Bank and by the Agent. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Georgia and has all corporate powers required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument which to our knowledge is binding upon the Borrower and (v) except as provided in 81 88 the Credit Agreement, do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and the Notes constitute valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as such enforceability may be limited by: (i) bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 4. There is no action, suit or proceeding pending, or threatened, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner questions the validity or enforceability of the Credit Agreement or any Note. 5. Each of the Borrower's Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 6. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 7. Neither the Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. The opinion contained in Paragraph 2(iv) hereof is qualified to the effect that no opinion is given thereunder as to Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. I am qualified to practice in the State of Georgia and do not purport to be experts on any laws other than the laws of the United States and the State of Georgia and this opinion is rendered only with respect to such laws. I have made no independent investigation of the laws of any other jurisdiction. This opinion is delivered to you in connection with the transaction referenced above and may only be relied upon by you, any Assignee, Participant or other Transferee under the Credit Agreement, and Jones, Day, Reavis & Pogue without our prior written consent. Very truly yours, 82 89 EXHIBIT C OPINION OF JONES, DAY, REAVIS & POGUE, SPECIAL COUNSEL FOR THE AGENT [Dated as provided in Section 3.01 of the Credit Agreement] To the Banks and the Agent Referred to Below c/o Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attn: Syndications Group Dear Sirs: We have participated in the preparation of the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of January 30, 1998, among Flowers Industries, Inc., a Georgia corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks"), Wachovia Bank, N.A., as Agent (the "Agent"), The Bank of Nova Scotia, as Documentation Agent, and NationsBank, N.A., as Syndications Agent, and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. This opinion letter is limited by, and is in accordance with, the January 1, 1992 edition of the Interpretive Standards applicable to Legal Opinions to Third Parties in Corporate Transactions adopted by the Legal Opinion Committee of the Corporate and Banking Law Section of the State Bar of Georgia which Interpretive Standards are incorporated herein by this reference. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, and assuming the due authorization, execution and delivery of the Credit Agreement and each of the Notes by or on behalf of the Borrower, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes valid and binding obligations of the Borrower, in each case enforceable in accordance with its terms except as: (i) the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, fraudulent conveyance, voidable preference, moratorium or similar laws applicable to creditors' rights or the collection of debtors' obligations 83 90 generally; (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; and (iii) the enforceability of certain of the remedial, waiver and other provisions of the Credit Agreement and the Notes may be further limited by the laws of the State of Georgia; provided that such additional laws do not, in our opinion, substantially interfere with the practical realization of the benefits expressed in the Credit Agreement and the Notes, except for the economic consequences of any procedural delay which may result from such laws. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction except the State of Georgia. We express no opinion as to the effect of the compliance or noncompliance of the Agent or any of the Banks with any state or federal laws or regulations applicable to the Agent or any of the Banks by reason of the legal or regulatory status or the nature of the business of the Agent or any of the Banks. This opinion is delivered to you in connection with the transaction referenced above and may only be relied upon by you and any Assignee, Participant or other Transferee under the Credit Agreement without our prior written consent. Very truly yours, 84 91 EXHIBIT D ASSIGNMENT AND ACCEPTANCE Dated _______________ ____, ________ Reference is made to the Second Amended and Restated Credit Agreement dated as of March 30, 2000 (together with all amendments and modifications thereto, the "Credit Agreement") among Flowers Industries, Inc., a Georgia corporation (the "Borrower"), the Banks (as defined in the Credit Agreement), Wachovia Bank, N.A., as Agent (the "Agent"), The Bank of Nova Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications Agent. Terms defined in the Credit Agreement are used herein with the same meaning. ____________________________________________ (the "Assignor") and ____________________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse to the Assignor, and the Assignee hereby purchases and assumes from the Assignor, a _____% interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below) (including, without limitation, a _____% interest (which on the Effective Date hereof is $__________) in the Assignor's Commitment and a _____% interest (which on the Effective Date hereof is $_______________) in the Syndicated Loans [and Money Market Loans] owing to the Assignor and a _____% interest in the Note[s] held by the Assignor (which on the Effective Date hereof is $__________). 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder, that such interest is free and clear of any adverse claim and that as of the date hereof its Commitment (without giving effect to assignments thereof which have not yet become effective) is $__________ and the aggregate outstanding principal amount of Syndicated Loans [and Money Market Loans] owing to it (without giving effect to assignments thereof which have not yet become effective) is $ __________; (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) attaches the Note[s] referred to in paragraph 1 above and requests that the Agent exchange such Note[s] for [a new Syndicated Loan Note dated ________ , ______, in the principal amount of $__________ payable to the order of the Assignee and a new Money Market Loan Note dated ___________, ____ in the principal amount of $______________ payable to the order of the Assignee] [new Notes as follows: a (i) Syndicated Loan Note dated ___________ , ____ in the principal amount of $ __________ payable to the order of the Assignor (ii) Syndicated Loan Note dated __________ , _____ in the principal amount of $ ________ payable to the order of the Assignee, and (iii) and a new Money Market Loan Note dated ___________, ____ in the principal amount of $______________ payable to the order of the Assignee]. 85 92 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.04(a) thereof (or any more recent financial statements of the Borrower delivered pursuant to Section 5.01(a) or (b) thereof) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is a bank or financial institution; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; (vi) specifies as its Lending Office (and address for notices) the office set forth beneath its name on the signature pages hereof, (vii) represents and warrants that the execution, delivery and performance of this Assignment and Acceptance are within its corporate powers and have been duly authorized by all necessary corporate action, (viii) makes the representation and warranty contained in Section 9.17 of the Credit Agreement[, and (ix) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Notes or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty]. 4. The Effective Date for this Assignment and Acceptance shall be _______________, _____ (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for execution and acceptance by the Agent and to the Borrower for execution by the Borrower. 5. Upon such execution and acceptance by the Agent [and execution by the Borrower] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent rights and obligations have been transferred to it by this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent its rights and obligations have been transferred to the Assignee by this Assignment and Acceptance, relinquish its rights (other than under Sections 8.03, 9.03 and 9.04 of the Credit Agreement) and be released from its obligations under the Credit Agreement. 6. Upon such execution and acceptance by the Agent [and execution by the Borrower] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the Effective Date, the Agent shall make all payments in respect of the interest assigned hereby to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to such acceptance by the Agent directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Georgia. 86 93 [NAME OF ASSIGNOR] By: ------------------------------ Title: [NAME OF ASSIGNEE] By: ------------------------------ Title: Lending Office: [Address] WACHOVIA BANK, N.A., As Agent By: ------------------------------ Title: FLOWERS INDUSTRIES, INC. IF REQUIRED BY THE CREDIT AGREEMENT By: ------------------------------ Title: 87 94 EXHIBIT E NOTICE OF BORROWING ________________, ___ Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Syndications Group Re: Second Amended and Restated Credit Agreement (as amended and modified from time to time, the "Credit Agreement") dated as of March 30, 2000, by and among Flowers Industries, Inc., the Banks from time to time parties thereto, Wachovia Bank, as Agent, The Bank of Nova Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications Agent. Gentlemen: Unless otherwise defined herein, capitalized terms used herein shall have the meanings attributable thereto in the Credit Agreement. This Notice of Borrowing is delivered to you pursuant to Section 2.02 of the Credit Agreement. The Borrower hereby requests a [Syndicated Borrowing] [Swing Loan Borrowing] [Euro-Dollar Borrowing] [Base Rate Borrowing] in the aggregate principal amount of $_____ to be made on_____,___, and for interest to accrue thereon at the rate established by the Credit Agreement for [Euro-Dollar Loans] [Base Rate Loans]. The duration of the Interest Period with respect thereto shall be [1 month] [2 months] [3 months] [6 months] [30 days]. The Borrower has caused this Notice of Borrowing to be executed and delivered by its duly authorized officer this____ day of____,___. FLOWERS INDUSTRIES, INC. By: ---------------------- Title: 88 95 EXHIBIT F COMPLIANCE CERTIFICATE Reference is made to the Second Amended and Restated Credit Agreement dated as of March 30, 2000 (as modified and supplemented and in effect from time to time, the "Credit Agreement") among Flowers Industries, Inc., the Banks from time to time parties thereto, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications Agent. Capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. Pursuant to Section 5.01(c) of the Credit Agreement,______, the duly authorized ________ of Flowers Industries, Inc., hereby (A) certifies to the Agent and the Banks that the information contained in the Compliance Check List attached hereto is true, accurate and complete as of______,___, (B) certifies to the Agent and the Banks that no Default is in existence on and as of the date hereof and (C) restates and reaffirms that the representations and warranties contained in Article IV of the Credit Agreement are true on and as of the date hereof as though restated on and as of this date. FLOWERS INDUSTRIES, INC. By: ------------------------------ Title: 89 96 COMPLIANCE CHECK LIST Flowers Industries, Inc. ________________________ ______________, ______ 1. Loans and Advances (Section 5.14) Neither the Borrower nor any of its Material Subsidiaries shall make loans or advances to any Person except as permitted by Section 5.16 and except: (i) loans or advances to employees not exceeding $10,000,000 in the aggregate principal amount outstanding at any time, in each case made in the ordinary course of business and consistent with practices existing on the Closing Date; (ii) deposits required by government agencies or public utilities; (iii) loans or advances to and among Borrower and its Wholly Owned Subsidiaries; and (iv) other loans or advances, to Persons other than the Unrestricted Subsidiaries (loans and advances to Unrestricted Subsidiaries not being permitted), in an aggregate amount outstanding which do not exceed 15% of Adjusted Consolidated Total Assets as of the last day of the immediately preceding Fiscal Quarter; provided that after giving effect to the making of any loans, advances or deposits permitted by this Section, no Default shall be in existence or be created thereby. (a) loans and advances to employees $ ---------- (b) lesser of (a) and $10,000,000 $ ---------- (c) other loans and advances not permitted by clauses (i) through (iii), inclusive (1) $ ---------- (d) Adjusted Consolidated Total Assets $ ---------- (e) 15% of (d) $ ---------- Limitation (d) may not exceed (e) 2. Negative Pledge (Section 5.16) (a) Amount of Indebtedness secured by Liens permitted by Sections 5.1(a) through 5.16(g), inclusive, and (l) and (n) Schedule - 1 $ ---------- (b) Amount of Debt secured by Liens not - --------------- (1) Loans and advances to the Unrestricted Subsidiaries are not permitted and may not be included in this category. 90 97 permitted by Section (q) Schedule - 1 $ ---------- (c) Aggregate amount of Indebtedness of Restricted Subsidiaries permitted by Section 5.20(iv) $ ---------- (d) Sum of (b) and (c) $ ---------- (e) Adjusted Consolidated Net Worth $ ---------- (f) 20% of (e) $ ---------- Limitation (d) may not exceed (f) 3. Adjusted Fixed Charge Coverage Ratio (Section 5.17) At the end of each Fiscal Quarter, commencing with the second Fiscal Quarter of the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted Consolidated Fixed Charges shall at all times be equal to or greater than the ratio set forth below for such Fiscal Quarter of each Fiscal Year set forth below:
Adjusted Fixed Charges Fiscal Quarter Fiscal Year Coverage Ratio -------------- ----------- -------------- Second 2000 1.10 to 1.0 Third 2000 1.15 to 1.0 Fourth 2000 1.20 to 1.0 First 2001 1.25 to 1.0 Second 2001 1.25 to 1.0 Third 2001 1.25 to 1.0 Fourth 2001 and thereafter 1.50 to 1.0
(a) Adjusted Consolidated Net Income Schedule 2 $ ---------- (b) Adjusted Consolidated Interest Expense - Schedule 2 $ ---------- (c) payments on operating leases and rental agreements $ ---------- (d) taxes - Schedule 2 $ ---------- (e) depreciation - Schedule 2 $ ---------- (f) amortization - Schedule 2 $ ---------- 91 98 (g) sum of (a) plus (b) plus (c) plus (d) plus (e) plus (f) $ ---------- (h) sum of (b) plus (c) $ ---------- Ratio of (g) to (h) $ ---------- Requirement [>1.10 to 1.0] - [>1.15 to 1.0] - [>1.20 to 1.0] - [>1.25 to 1.0] - [>1.50 to 1.0] - 4. Leverage Ratio (Section 5.18) The Leverage Ratio shall at all times be equal to or less than 0.65 to 1.0. (a) Adjusted Consolidated Total Debt Schedule - 4 $ ---------- (b) Adjusted Consolidated Net Worth $ ---------- (c) Sum of (a) plus (b) $ ---------- Ratio of (a) to (c) $ ---------- Requirement > 0.65 to 1.00 - 5. Minimum Adjusted Consolidated Net Worth (Section 5.19) Adjusted Consolidated Net Worth will at no time be less than $487,569,000, plus the sum of (x) 50% of the cumulative Net Proceeds of Capital Stock received during any period after April 27, 1998, plus (y) 50% of any equity resulting from a conversion of Indebtedness of the Borrower during any period after April 27, 1998, less (z) any amount of equity of the Borrower repurchased during any period after April 27, 1998, calculated quarterly at the end of each Fiscal Quarter. (a) cumulative Net Capital Proceeds since April 27, 1998 $ ---------- (b) 50% of (a) $ ---------- (c) equity resulting from Indebtedness conversion since April 27, 1998 $ ---------- (d) amount of equity repurchased since April 27, 1998 $ ---------- (e) (c) less (d) $ ---------- 92 99 (f) 50% of (e) $ ---------- (g) sum of $487,589,000, plus (b), plus (f) $ ---------- (h) Adjusted Consolidated Net Worth $ ---------- Limitation (h) may not be less than (g) 6. Adjusted Consolidated EBITDA (Section 5.22) At the end of each Fiscal Quarter, commencing with the first Fiscal Quarter of the 2000 Fiscal Year, Adjusted Consolidated EBITDA shall at all times be equal to or greater than the amount set forth below for each Fiscal Quarter of each Fiscal Year set forth below, and shall be calculated (i) at the end of each Fiscal Quarter in the 2000 Fiscal Year, for such Fiscal Quarter only, and (ii) at the end of each Fiscal Quarter thereafter, for the 4 Fiscal Quarter period then ending.
Adjusted Fiscal Quarter Fiscal Year Consolidated - -------------- ----------- ------------ EBITDA ------ First 2000 $ 26,500,000 Second 2000 $ 18,500,000 Third 2000 $ 24,500,000 Fourth 2000 $ 25,000,000 First 2001 $105,000,000 Second 2001 $105,000,000 Third 2001 $115,000,000 Fourth 2001 $115,000,000 First and thereafter 2002 $125,000,000 Adjusted Consolidated EBITDA Schedule - 5 $
------------ 7. Capital Expenditures (Section 5.25) The Borrower shall not, and the Borrower shall not permit its Restricted Subsidiaries to, incur Capital Expenditures in any Fiscal Year, except that Capital Expenditures may be incurred up to an aggregate amount not exceeding (x) $40,000,000 in the 2000 Fiscal Year and (y) $37,500,000 in any Fiscal Year thereafter, provided that after giving effect to the incurrence of any Capital Expenditures permitted by this Section, no Default shall be in existence or be created thereby. (a) Capital Expenditures incurred in Fiscal Year $ to date: ---------- Limitation: (a) may not exceed $40,000,000 in the 2000 Fiscal Year and $37,500,000 in any Fiscal Year thereafter 93 100 Schedule - 1 (a) Liens Securing Debt In The Principal Amount of $50,000 or More which are Not Permitted by Sections 5.1(a) through 5.16(g), inclusive, and (l), (n) and (o)
Relevant Provision of Description of Lien Amount of Debt Secured Section 5.16 Permitting Same - ------------------- ---------------------- ---------------------------- 1. $ ---------------- ---------------- --------------- 2. $ ---------------- ---------------- --------------- 3. $ ---------------- ---------------- --------------- 4. $ ---------------- ---------------- --------------- 5. $ ---------------- ---------------- --------------- 6. $ ---------------- ---------------- --------------- 7. $ ---------------- ---------------- --------------- 8. $ ---------------- ---------------- --------------- 9. $ ---------------- ---------------- ---------------
(b) Aggregate Amount of Other Liens Securing Debt which are Not Permitted by Sections 5.1(a) through 5.16(g), inclusive and (l), (n) and (o) $ ---------- (c) Aggregate Amount of All Debt Secured by Liens $ ---------- 94 101 Schedule - 2 Adjusted Fixed Charge Coverage (2) Adjusted Consolidated Net Income for: quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- Total $ ---------- Adjusted Consolidated Interest Expense for: quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- Total $ ---------- Operating Leases and Rentals for: quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- quarter $ - ----- ----- ---------- Total $ ---------- Taxes for: $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ----------
Depreciation for: - --------------- (2) Include Restricted Subsidiaries Only, and include only Fiscal Year to date for calculation at end of second and third Fiscal Quarter of 2000 Fiscal Year 95 102 $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ---------- Amortization for: $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ----------
96 103 Schedule - 4 Adjusted Consolidated Total Debt
INTEREST RATE MATURITY TOTAL -------- -------- ----- (a) Unsecured Borrowed Money $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Unsecured Borrowed Money $ ---------- (b) Deferred Purchase Price $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Deferred Purchase Price $ ---------- (c) Capitalized Leases $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Capitalized Leases $ ---------- (d) Secured Borrowed Money $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Secured Borrowed Money $ ---------- (e) Letters of Credit and Similar Instruments(3) $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Letters of Credit and Similar Instruments $ ----------
- -------------- (3) Include only if have maturities of greater than 1 year 97 104 (f) Swaps $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Swaps $ ---------- (g) Guaranties $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Guaranties $ ---------- (h) Convertible Redeemable Capital Stock (4) $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Convertible Redeemable Capital Stock $ ---------- (i) Convertible Subordinated Debt (2) $ =================== ---------- ---------- ---------- $ =================== ---------- ---------- ---------- Total Convertible Subordinated Debt $ ---------- ADJUSTED CONSOLIDATED TOTAL DEBT-sum of (a) plus (b) plus (c) plus (d) plus (e) plus (f) plus (g) $ less (h) less (i) ----------
- -------------- (4) Include only if current market value of an equity security into which it is convertible is greater than the conversion price for such security. 98 105 Schedule - 5 Adjusted Consolidated EBITDA (5) Adjusted Consolidated Net Income for: $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ---------- Adjusted Consolidated Interest Expense for: $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ---------- Taxes for: $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ---------- Depreciation for: $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ----------
Amortization for: - --------------- (5) Include Restricted Subsidiaries Only and for each Fiscal Quarter of the 2000 Fiscal Year, include only calculation for such Fiscal Quarter 99 106 $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ---------- Other Non-cash Charges for: - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- $ - ----- quarter ----- ---------- Total $ ----------
100 107 EXHIBIT G FLOWERS INDUSTRIES, INC. CLOSING CERTIFICATE Reference is made to the Second Amended and Restated Credit Agreement (the "Credit Agreement") dated as of March 30, 2000, among Flowers Industries, Inc., the Banks listed therein, Wachovia Bank , N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications Agent. Capitalized terms used herein have the meanings ascribed thereto in the Credit Agreement. Pursuant to Section 3.01(e) of the Credit Agreement,________________ , the duly authorized____________ of Flowers Industries, Inc. hereby certifies to the Agent and the Banks that (i) no Default has occurred and is continuing as of the date hereof, and (ii) the representations and warranties contained in Article IV of the Credit Agreement are true on and as of the date hereof. Certified as of this March 30, 2000. By: ---------------------------------- Printed Name: --------------------- Title: ---------------------------- 101 108 EXHIBIT H FLOWERS INDUSTRIES, INC. SECRETARY'S CERTIFICATE The undersigned,_________________,_______________, Secretary of Flowers Industries, Inc., a Georgia corporation (the "Borrower"), hereby certifies that he has been duly elected, qualified and is acting in such capacity and that, as such, [s]he is familiar with the facts herein certified and is duly authorized to certify the same, and hereby further certifies, in connection with the Second Amended and Restated Credit Agreement dated as of March 30, 2000 among the Borrower, Wachovia Bank, N.A. as Agent and as a Bank, The Bank of Nova Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications Agent, and certain other Banks listed on the signature pages thereof (capitalized terms used herein without definition have the meanings given them therein), that: 1. The Certificate of Incorporation of the Borrower delivered at the closing of the Original Agreement is still in full force and effect on the date hereof [EXCEPT THAT IT HAS BEEN AMENDED BY THE AMENDMENT ATTACHED HERETO AS EXHIBIT A]. 2. The Bylaws of the Borrower delivered at the closing of the Original Agreement are still in full force and effect on the date hereof [EXCEPT THAT THEY HAVE BEEN AMENDED BY THE AMENDMENT ATTACHED HERETO AS EXHIBIT B]. 3. _____________________, who is _____________________ of the Borrower signed the Credit Agreement and the Swing Loan Note on behalf of the Borrower, was duly elected, qualified and acting as such at the time he signed the Credit Agreement and the Swing Loan Note, and his signature appearing on the Credit Agreement and the Swing Loan Note is his genuine signature. IN WITNESS WHEREOF, the undersigned has hereunto set [his/her] hand as of March 30, 2000. ------------------------------- 102 109 EXHIBIT I MONEY MARKET QUOTE REQUEST Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Syndications Group Re: Money Market Quote Request This Money Market Quote Request is given in accordance with Section 2.03 of the Second Amended and Restated Credit Agreement (as amended or modified from time to time, the "Credit Agreement") dated as of March 30, 2000, among Flowers Industries, Inc., the Banks from time to time parties thereto, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications Agent. Terms defined in the Credit Agreement are used herein as defined therein. The Borrower hereby requests that the Agent obtain quotes for a Money Market Borrowing based upon the following: 1. The proposed date of the Money Market Borrowing shall be ______________, _____ (the "Money Market Borrowing Date").1* 2. The aggregate amount of the Money Market Borrowing shall be $_____.2 3. The Stated Maturity Date(s) applicable to the Money Market Borrowing shall be days. _____(3) Very truly yours, FLOWERS INDUSTRIES, INC. By: -------------------- Title: - --------------- (1) The date must be a Euro-Dollar Business Day. (2) The amount of the Money Market Borrowing is subject to Section 2.03(a) and (b). (3) The Stated Maturity Dates are subject to Section 2.03(b)(iii). The Borrower may request that up to 2 different Stated Maturity Dates be applicable to any Money Market Borrowing, provided that (i) each such Stated Maturity Date shall be deemed to be a 103 110 separate Money Market Quote Request and (ii) the Borrower shall specify the amounts of such Money Market Borrowing to be subject to each such different Stated Maturity Date. 104 111 EXHIBIT J MONEY MARKET QUOTE Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Syndications Group Re: Money Market Quote to Flowers Industries, Inc. This Money Market Quote is given in accordance with Section 2.03(c)(ii) of the Second Amended and Restated Credit Agreement (as amended or modified from time to time, the "Credit Agreement") dated as of March 30, 2000, among Flowers Industries, Inc. (the "Borrower"), the Banks from time to time parties thereto, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Agent, and Bank of America, N.A., as Syndications Agent. Terms defined in the Credit Agreement are used herein as defined therein. In response to the Borrower's Money Market Quote Request dated _______________, _____, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: 2. Person to contact at Quoting Bank: 3. Date of Money Market Borrowing:1* 4. We hereby offer to make Money Market Loan(s) in the following maximum principal amounts for the following Interest Periods and at the following rates:
Maximum Stated Principal Maturity Amount (2) Date (3) Rate Per Annum (4)
- --------------- * All numbered footnotes appear on the last page of this Exhibit I 105 112 We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement, irrevocably obligate(s) us to make the Money Market Loan(s) for which any offer(s) [is] [are] accepted, in whole or in part (subject to the last sentence of Section 2.03(c)(i) of the Credit Agreement). Very truly yours, [Name of Bank] Dated: By: ----------------------- - ------------------------ Authorized Officer - ------------------------ - ----------------- (1) As specified in the related Money Market Quote Request. (2) The principal amount bid for each Stated Maturity Date may not exceed the principal amount requested. Money Market Quotes must be made for at least $10,000,000 or a larger integral multiple of $5,000,000. (3) The Stated Maturity Dates are subject to Section 2.03(b)(iii). (4) Subject to Section 2.03(c)(ii)(C). 106 113 SCHEDULE 4.08 Updated February 1, 2000 DOMESTIC CORPORATE STRUCTURE OF FLOWERS INDUSTRIES, INC.
F:\TAX\DATA\AMIFILES\STRUCTUR.DOC DATE AND STATE FEDERAL OF INCORPORATION I.D.# ---------------- ----- FLOWERS INDUSTRIES, INC. 11/03/87 (GA 58-0244940 S - Flowers Investments, Inc. 04/07/97 (GA) 58-2343711 S - Flowers Bakeries Brands, Inc. 05/26/98 (SC) ss - Flowers Bakeries, Inc. 05/27/98 (GA) 59-3483283 sss - Flowers Baking Company of Florida, Inc. ssss - Flowers Baking Company of Miami, Inc. 08/05/77 (FL) 59-1758784 p - Miami, Florida ssss - Flowers Baking Company of Jacksonville, Inc. 01/03/77 (FL) 59-1718773 p - Jacksonville, Florida ssss - Flowers Baking Co. of Bradenton, Inc. 10/30/84 (FL) 58-1723981 p - Bradenton, Florida sss - Flowers Baking Company of Thomasville, Inc. 06/30/78 (GA) 58-1330782 p - Thomasville, Georgia sss - Flowers Baking Co. of Villa Rica, Inc. 11/23/93 (GA) 58-2109227 p - Villa Rica, Georgia sss - Flowers Baking Company of Opelika, Inc. 06/28/78 (AL) 63-0752595 p - Opelika, Alabama sss - Hardin's Bakery, Incorporated 11/12/46 (AL) 63-0252356 p - Tuscaloosa, Alabama sss - Midtown Bakery, Inc. 10/22/96 (AL) 58-2272791 p - Atlanta, Georgia sss - Home Baking Company, Inc. 01/01/54 (AL) 63-0334970 p - Birmingham, Alabama sss - Huval Bakery, Incorporated 02/12/76 (LA) 59-1686698 p - Lafayette, Louisiana ssss - Bunny Bread, Inc. 09/28/65 (LA) 72-0500448 p - New Orleans, Louisiana sssss - Flowers Baking Co. of Baton Rouge, Inc. 07/20/87 (LA) 58-1740889 p - Baton Rouge, Inc. sss - Flowers Baking Company of Jamestown, Inc. 07/02/84 (NC) 58-1567728 p - Jamestown, North Carolina
107 114 sss - Franklin Baking Co. 1954 (NC) 56-0605051 p - Goldsboro, North Carolina sss - Flowers Baking Company of Lynchburg, Inc. 12/13/77 (VA) 58-1309193 p - Lynchburg, Virginia sss - Flowers Baking Company of Norfolk, Inc. 07/03/78 (VA) 58-1330779 p - Norfolk, Virginia sss - Flowers Baking Company of Morristown, Inc. 07/15/80 (TN) 58-1403615 p - Morristown, Tennessee sss - Flowers Baking Company of Memphis, Inc. 10/14/99 (TN) 62-1799669 p - Memphis, Tennessee sss - Schott's Bakery, Inc. 03/07/24 (TX) 74-0886850 p - Houston, Texas sss - Flowers Baking Company of West Virginia, Inc. 06/26/85 (WV) 55-0654747 p - Bluefield, West Virginia ssss - The Donut House, Inc. 11/17/69 (WV) 55-0517749 p - Charleston, West Virginia sss - Flowers Baking Company of Texas, Inc. (h) 11/05/81 (TX) 58-1453104 ssss - Flowers Baking Company of Tyler, Inc. 12/17/91 (GA) 75-1786865 p - Tyler, Texas sssss - ButterKrust Bakery, Inc. 09/21/94 (TX) 74-2720708 p - San Antonio, Texas ssss - El Paso Baking Co., Inc. 03/10/93 (TX) 74-2657988 (fna Flowers Distributing Co. of El Paso, Inc.) p - El Paso, Texas sssss - El Paso Baking Co. de Mexico, S.A. de C.V. 09/00/94 (Mexican Corp.) ssss - San Antonio Baking Co., Inc. 01/06/97 (TX) 74-2830409 ssss - Austin Baking Co., Inc. 02/03/97 (TX) 74-2830410 ssss - Corpus Christi Baking Co., Inc. 02/18/97 (TX) 74-2830414 sss - Flowers Baking Company of Fresno, Inc. 11/10/86 (CA) 77-0130552 sss - Flowers Baking Company of Texarkana, Inc. 11/10/86 (AR) 71-0638493 p - Texarkana, Arkansas sss - Holsum Baking Company 03/27/46 (AR) 71-0209537 p - Pine Bluff, Arkansas sss - Shipley Baking Company 10/01/96 (AR) 71-0254043 p - Fort Smith, Arkansas sss - Flowers Baking Co. of Ohio, Inc. 01/02/96 (OH) 55-0747366 sss - Storck Baking company f/n/a Flowers Acquisition Company 09/21/95 (WV) 55-0745937 p - Parkersburg, West Virginia sss - Flowers Baking Company of Memphis, Inc. 10/14/99 (TN) 62-1799669 p - Memphis, Tennessee S - Mrs. Smith's Bakeries, Inc. 04/28/98 (GA) 58-2392473 ss - Mrs. Smith's Bakery of Suwanee, Inc. 06/14/99 (GA) 8-2480300 ss - European Bakers, Ltd. 11/30/74 (GA) 58-0944858 p - Tucker, Georgia
108 115 sss - Aunt Fanny's Bakery, Inc. 03/28/95 (GA) 58-2168689 p - Atlanta, Georgia ss - Dan-Co Bakery, Inc. 01/31/92 (GA) 58-1989098 p - Forest Park, Georgia sss - Daniels Home Bakery of North Carolina, Inc. 04/13/93 (NC) 58-2023526 p - Lumberton, North Carolina ss - Table Pride, Inc. 05/30/89 (GA) 58-1846861 p - Chamblee, Georgia ss - Mrs. Smith's Sales Support Group, Inc.(d) 06/02/89 (GA) 58-1846859 sss - Mrs. Smith's Foil Co., Inc. 02/02/98 (GA) 23-2947803 p - Pottstown, PA ss - Broad Street Bakeries, Inc. (d) 02/07/90 (GA) 58-1910488 ss - Special Touch Bakeries, Inc. (d) 02/10/90 (GA) 58-1910485 ss - Flowers Specialty of Suwanee, Inc. (d) 08/16/94 (GA) 58-2125051 ss - Mrs. Smith's Frozen Bakery Distributors, Inc. (d) 08/16/94 (GA) 58-2125054 p - Suwanee, Georgia sss - Mrs. Smith's Bakeries of Pennsylvania, Inc. 04/30/96 (GA) 58-2236380 p - Pottstown, PA sss - Allied Frozen Food Services, Inc. (d) 09/24/98 (NY) 13-3967930 ss - Flowers Specialty Foods of Montgomery, Inc. 03/31/89 (AL) 63-0998333 p - Montgomery, Alabama ss - Flowers Baking Company of South Carolina, Inc. 08/21/69 (SC) 57-0518564 p - Spartanburg, South Carolina ss - Flowers Baking Company of Fountain Inn, Inc. 12/17/76 (SC) 57-0641441 p - Fountain Inn, South Carolina ss - Flowers Baking Company of Chattanooga, Inc. 12/30/77 (TN) 58-1333171 p - Crossville, Tennessee ss - Flowers Fresh Bakery Distributors, Inc. (d) 08/01/94 (TN) 62-1574151 ss - Aunt Fanny's Bakery of Pennsylvania, Inc. 08/14/95 (PA) 25-1770720 p - North East, Pennsylvania ss - Mrs. Smith's Bakeries of London, Inc. 05/31/83 (KY) 61-1027735 p - London, Kentucky sss - Bluebird Brands, Inc. (d) 02/10/90 (GA) 31-1307421 ss - Pies, Inc., 07/30/91 (MN) 58-1953616 p - Chaska, Minnesota sss - Mrs. Smith's Brands, Inc. (SC) 57-1069445 ss - Stilwell Foods, Inc. 04/01/74 (OK) 73-0962847 p - Stilwell, Oklahoma sss - Stilwell Foods of Texas, Inc. (i) 12/18/91 (OK) 74-1791072 (f/k/a Rio Grande Foods, Inc.) p - McAllen, Texas sss - Stilwell Foods Manpower of Texas, Inc. 12/27/82 (TX) 73-1167155 (f/k/a Rio Grande Foods Manpower) ss - Flowers Holding Co., Inc.
109 116 DOMESTIC CORPORATE STRUCTURE OF FLOWERS INDUSTRIES, INC. S - subsidiary of Flowers Industries, Inc. ss - subsidiary of a subsidiary sss - subsidiary of a subsidiary of a sub subsidiary ssss - subsidiary of a subsidiary of a subsidiary of a subsidiary sssss - subsidiary of a subsidiary of a subsidiary of a subsidiary of a subsidiary p - location (h) - holding company (i) - inactive (d) - distribution 110 EX-10.15 4 MASTER LEASE AGREEMENT 1 EXHIBIT 10.15 MASTER LEASE AGREEMENT Dated as of October 20, 1995 Between WACHOVIA LEASING CORPORATION, as the Lessor, and FLOWERS INDUSTRIES, INC., as the Lessee 2 ADDRESSES OF PARTIES: Wachovia Leasing Corporation Flowers Industries, Inc. 301 North Main Street 200 U.S. Highway 10 South P.O. Box 3099 P. O. Box 1338 Winston-Salem, NC 27150 Thomasville, GA 31799 ATTENTION: Jonathan E. Head ATTENTION: C. Martin Wood, III THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED CONSECUTIVELY FROM 1 TO 2. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN COUNTERPART NUMBER 1. This is Counterpart Number__________ 3 TABLE OF CONTENTS
PAGE Section 1. Certain Defined Terms................................................. 1 Section 2. Lease of Equipment.................................................... 1 Section 3. Payments.............................................................. 2 (a) Interim Rent.................................................. 2 (b) Basic Rent.................................................... 3 (c) Final Rent Payment............................................ 4 (d) Supplemental Rent............................................. 4 (e) Computations.................................................. 5 (f) Absolute Net Lease............................................ 5 Section 4. [ RESERVED ].......................................................... 6 Section 5. Agency Agreement...................................................... 6 Section 6. Title to Remain in the Lessor......................................... 7 Section 7. Maintenance of the Equipment; Operations.............................. 7 Section 8. Modifications......................................................... 9 Section 9. Further Assurances.................................................... 10 Section 10. Compliance with Governmental Requirements and Insurance Requirements: Related Contracts..................... 10 Section 11. Condition and Use of Equipment; Quiet Enjoyment............................................................. 10 Section 12. Liens................................................................. 12 Section 13. Permitted Contests.................................................... 13 Section 14. Insurance, etc........................................................ 13 Section 15. Termination; Cancellation; Purchase Option............................ 16
i 4 Section 16. Transfer of Title on Removal of Equipment; Expenses of Transfer.......................................... 19 Section 17. Events of Default and Remedies........................................ 21 Section 18. Change in the Lessee's Name or Structure.............................. 25 Section 19. Inspection; Right to Enter Premises of the Lessee........................................................ 25 Section 20. Right to Perform the Lessee's Covenants............................... 25 Section 21. Participation by Co-Lessees or Sublessees; Participations by Lessor...................................... 26 Section 22. Notices............................................................... 27 Section 23. Amendments and Waivers................................................ 28 Section 24. Severability.......................................................... 28 Section 25. Federal Income Tax Considerations..................................... 28 Section 26. Other Provisions...................................................... 28 Section 27. Yield Protection and Illegality....................................... 30 (a) Basis for Determining Interest Rate Inadequate or Unfair.......................................... 30 (b) Illegality.................................................... 32 (c) Increased Cost and Reduced Return............................. 32 (d) Payments and Computations..................................... 34 (e) Compensation.................................................. 34 Section 28. Conditions Precedent.................................................. 35 (a) Closing; Conditions Precedent to Effectiveness of this Lease................................... 35 (b) Conditions to Commencement of Lease for each Phase......................................................... 36 (c) Conditions to addition of any Equipment in each Phase.................................................... 36 Section 29. The Lessee's Representations and Warranties........................... 38
ii 5 (a) Corporate Existence and Power.................................... 38 (b) Corporate and Governmental Authorization......................... 38 (c) Binding Effect................................................... 39 (d) No Litigation.................................................... 39 (e) Compliance with Laws............................................. 39 (f) Ownership of Property; Liens..................................... 39 (g) No Default....................................................... 39 (h) Full Disclosure.................................................. 39 (i) Capital Stock.................................................... 40 (j) Margin Stock..................................................... 40 (k) Annual Financial Statements...................................... 40 Section 30. Covenants............................................................. 40 (a) Information................................................... 40 (b) Maintenance and Inspection of Property, Books and Records............................................. 42 (c) Maintenance of Existence...................................... 42 (d) Consolidations, Mergers and Sales of Assets................... 42 (e) Dissolution................................................... 43 (f) Use of Proceeds............................................... 43 (g) Compliance with Laws.......................................... 43 (h) Insurance..................................................... 43 (i) Change in Fiscal Year......................................... 44 (j) Maintenance of Property....................................... 44 (k) Environmental Notices......................................... 44 (l) Environmental Matters......................................... 44 (m) Environmental Release......................................... 44 (n) Transactions with Affiliates.................................. 45 (o) Further Assurances............................................ 45 (p) Liens, Etc.................................................... 45 (q) Negative Pledge............................................... 45 (r) Guarantees.................................................... 47 (s) ERISA......................................................... 47 Section 31. Miscellaneous......................................................... 47 (a) Entire Agreement.............................................. 47 (b) No Personal Liability......................................... 48 (c) Interpretation................................................ 48 (d) Governing Law................................................. 48 (e) No Third Party Beneficiaries.................................. 48 (f) Counterparts.................................................. 48 (g) Waiver of Jury Trial.......................................... 48
iii 6 (h) Invalidity.................................................. 48 (i) Usury....................................................... 49 (j) Time of the Essence......................................... 50 (k) Indemnification............................................. 50 SCHEDULE 1(b) Defined Terms............................. 56 SCHEDULE 3(b) Scheduled Amounts......................... 76 SCHEDULE 14 Insurance Requirements.................... 77 EXHIBIT A ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT..................... 80 EXHIBIT B Certificate of Acceptance................. 102 EXHIBIT C Lease Supplement.......................... 106 EXHIBIT D FORM OF LEGAL OPINION OF ASSISTANT GENERAL COUNSEL OF LESSEE................................. 111 EXHIBIT E PROGRESS PAYMENT AGREEMENT................ 115 EXHIBIT F FORM OF APPROVED SUBLEASE................. 118
iv 7 This Master Lease Agreement dated as of October 20, 1995, (as the same may be amended, modified or supplemented from time to time, this "Lease") is between WACHOVIA LEASING CORPORATION, a North Carolina corporation (together with its successors and permitted assigns, the "Lessor"), and FLOWERS INDUSTRIES, INC., a Georgia corporation (together with its successors and permitted assigns, the "Lessee"). RECITALS WHEREAS, pursuant to the Agency Agreement, Lessor has agreed to acquire Equipment for each Phase and WHEREAS, subject to the terms and conditions of this Lease, the Lessee desires to lease from the Lessor the Equipment for each Phase, to be located at the Applicable Site therefor, as described in the Lease Supplements for such Phase, beginning on the Phase Commencement Date therefor, for the purpose of occupying and using the Equipment for each Phase at the Applicable Site therefor in accordance with the terms and conditions set forth in this Lease. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Lessor and the Lessee agree as follows: Section 1. Certain Defined Terms. (a) In this lease, the terms "Lease," "Lessee," and "Lessor," shall have the meanings indicated above. (b) As used in this Lease, all other capitalized terms shall have the meanings assigned such terms in Schedule 1(b) attached hereto and by reference made a part hereof. Section 2. Lease of Equipment. (a) During the term of and subject to the terms and conditions of this Lease, the Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Equipment for each Phase for the Lease Term for such Phase to be used (i) as provided in the Agency Agreement until the Phase Completion Date 8 for such Phase and (ii) for and only for a Permitted Use with respect to the portion of the Lease Term surviving the Phase Completion Date for such Phase. (b) Unless earlier terminated in accordance with the other provisions hereof, including without limitation, Sections 15 and 17, this Lease shall terminate as to each Phase (i) on the Scheduled Lease Termination Date for such Phase or (ii) on the occurrence of a Non-Completion Event as to such Phase. (c) Not less than twelve (12) months prior to the Scheduled Lease Termination Date for each Phase, the Lessee shall notify the Lessor in writing which of the options under Section 15(a)(ii) of this Lease the Lessee intends to exercise for such Phase. In the event the Lessee fails to give timely written notice to the Lessor on or before the date herein provided for any Phase, the Lessee shall be deemed to have elected to purchase the Equipment for such Phase on the Lease Termination Date for such Phase, for the Termination Value for such Phase. Such election will be consummated upon the Scheduled Lease Termination Date for such Phase unless the Lessee thereafter elects to exercise its option under Section 15(c) of this Lease or a Cancellation Event occurs. (d) If the Lessor declares a Non-Designated Event of Default, the Lessee shall give to the Lessor written notice within 2 Business Days which of the options under Section 15(a)(ii) of this Lease the Lessee intends to exercise for all Phases upon the Lease Termination Date. In the event the Lessee fails to give timely written notice to the Lessor on or before the date herein provided, the Lessee shall be deemed to have elected to purchase the Equipment for all Phases on the Lease Termination Date for the Termination Value for all Phases. Section 3. Payments. (a) Interim Rent. For each Phase, during the period commencing on the Phase Commencement Date and ending on the Phase Completion Date for such Phase, Interim Rent with respect to such Phase shall accrue on Equipment Cost during each Interim Rental Period at a rate per annum equal to the LIBO Rate prevailing on the first day of such Interim Rental Period plus 45 basis points; provided, that if there is less than one month remaining after the end of any Interim Rental Period until the Phase Completion Date for such Phase, Interim Rent for the final Interim Rental Period 2 9 shall instead be determined on the basis of 80% of the Base Rate. Interim Rent shall be paid in arrears on the last day of the Interim Rental Period with respect thereto. In the event any Equipment Cost on which interest accrued based on the LIBO Rate is prepaid other than on the last day of the Interim Rental Period with respect thereto (including by reason of the occurrence of a Lease Termination Date for any reason), the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such prepayment. On the Phase Completion Date for each Phase, all Soft Costs incurred during the period from the Phase Commencement Date through the Phase Completion Date for such Phase shall be capitalized and added to Equipment Cost for such Phase; provided, that in no event shall the aggregate Equipment Cost for all Phases exceed $50,000,000, and to the extent any such capitalization of Soft Costs would cause the aggregate Equipment Cost for all Phases to exceed $50,000,000, the amount of the excess shall be payable to the Lessor on the Phase Completion Date on which such excess occurs. In the event any Vendor requires any advance payments, progress payments or full payments prior to the Lease Addition Date of the Equipment proposed to be added to the Lease for any Phase, the Lessee shall execute and deliver to the Lessor a Progress Payment Agreement for such Phase, and the Lessor will make available amounts pursuant thereto for such purpose. For any Equipment which is the subject of any payments made by the Lessor under a Progress Payment Agreement for any Phase, unpaid Additional Rent under such Progress Payment Agreement with respect to such Equipment shall be capitalized and, together with the amount of such payments made by the Lessor with respect to such Equipment, shall be added to and constitute part of the Equipment Cost for such Phase. (b) Basic Rent. (i) Floating Rate Payment Without Election; Election and Election Period. For each Phase, if the Lessee has not made an Election within the Election Period pursuant to the provisions and requirements of this Section 3(b)(i), after the Phase Completion Date for each Phase, the Lessee's Basic Rent during the Lease Term for such Phase shall be payable for each Rental Period in arrears on the Rent Payment Date for such Rental Period in an amount equal to the sum of (A) the amount equal to the percentage set forth in Schedule 3(b) for such Rental Period (as it may be modified pursuant hereto as a result of an Approved Appraisal), times the Equipment Cost (the "Scheduled Amount") as to such Phase (the "Scheduled Payment") plus (B) an amount accruing on the 3 10 Unrecovered Equipment Cost as to such Phase at the Floating Rate for such Rental Period (the "Floating Rate Payment"). In the event any Scheduled Amount or other amount of Equipment Cost based on the LIBO Rate is prepaid other than on the last day of the Rental Period with respect thereto (including by reason of the occurrence of a Lease Termination Date for any reason) the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such prepayment. Schedule 3(b) also sets forth the Estimated Residual as to each Phase as of the end of each Rental Period. The Lessee agrees that the Lessor reserves the right to modify the Estimated Residual or the percentage of Equipment Cost for determining the Scheduled Amount, or both, as to any Rental Period for the Equipment for any Phase as a result of the receipt of an Approved Appraisal pursuant to the Agency Agreement. With respect to any Phase, the Lessee shall have the option to convert the Basic Rent for such Phase within the Election Period from a Floating Rate Payment basis to a Fixed Rate Payment basis (any exercise of such option pursuant to the provisions and requirements of this Section 3(b)(i) for any Phase being an "Election" for such Phase). The "Election Period" with respect to each Phase shall commence on the Phase Completion Date for such Phase and terminate on the last day of the Acquisition Period. Each Election shall be made by written notice received not less than 7 days prior to the effective date of such Election (and not less than 7 days prior to the end of the relevant Election Period). (ii) Fixed Rate Payment With Election. For each Phase, if the Lessee has made an Election within the Election Period pursuant to the provisions and requirements of Section 3(b)(i), after the Phase Completion Date for each Phase, the Lessee's Basic Rent during the Lease Term for such Phase shall be payable for each Rental Period in arrears on the Rent Payment Date for such Rental Period in an amount equal to the sum of (A) the Scheduled Payment as to such Phase for such Rental Period plus (B) an amount accruing on the Unrecovered Equipment Cost as to such Phase at the Fixed Rate for such Rental Period (the "Fixed Rate Payment"). On the first Rent Payment Date after the Lessee makes an Election for a qualifying Phase, the Lessee shall make, if applicable, a Basic Rent payment consisting of the Scheduled Payment for such Phase plus a proportionate Floating Rate Payment and Fixed Rate Payment for such Phase, and the Lessee shall compensate the Lessor for any funding losses incurred by it as 4 11 a result of such change from a Floating Rate Payment to a Fixed Rate Payment prior to the end of the Rental Period. (c) Final Rent Payment. In addition to Interim Rent Basic Rent and Supplemental Rent, on the Lease Termination Date for each Phase (whether on the Scheduled Lease Termination Date or due to the occurrence of a Cancellation Event or a Termination Event or otherwise), the Lessee shall pay to Lessor the Final Rent Payment for such Phase. (d) Supplemental Rent. In addition to Interim Rent, Basic Rent and the Final Rent Payment, the Lessee will also pay to the Lessor, from time to time, upon demand by the Lessor, as additional rent ("Supplemental Rent"), the following (but without duplication of any amounts included in the calculation of Rent): (i) all out-of-pocket costs and expenses reasonably incurred by the Lessor in connection with the preparation, negotiation, execution, delivery, performance and administration of this Lease and the other Operative Documents, including, but not limited to, the following: (A) fees and expenses of the Lessor, including, without limitation, reasonable attorneys' fees and expenses and the fees and expenses for the Approved Appraisal and the Related Contracts for each Phase; (B) all other amounts, including, without limitation, fees, indemnities, expenses, compensation in respect of increased costs of any kind or description payable under this Lease or any other Operative Document; (C) all yield maintenance, capital adequacy and other costs contemplated under Section 27 of this Lease and (D) all out-of-pocket costs and expenses incurred by the Lessor after the date of this Lease (including, without limitation, reasonable attorneys' fees and expenses and other expenses and disbursements reasonably incurred) associated with (1) negotiating and entering into, or the giving or withholding of, any future amendments, supplements, waivers or consents with respect to this Lease; (2) any Loss Event, Casualty Occurrence or termination of this Lease; and (3) any Default or Event of Default and the enforcement and preservation of the rights or remedies of the Lessor under this Lease and the other Operative Documents and (4) all reasonable costs and expenses incurred by the Lessor or any of its Affiliates in initially selling participations in this Lease, including, without limitation, the related reasonable fees and out-of-pocket expenses of counsel for the Lessor or its Affiliates, travel expenses, duplication and printing costs 5 12 and courier and postage fees, and excluding any fees paid to Participants purchasing such a participation; and (ii) all other amounts that the Lessee agrees herein to pay other than Interim Rent, Basic Rent, the Final Rent Payment and amounts described in clause (i) above. (e) Computations. All computations of Interim Rent and Basic Rent shall be made by the Lessor on the basis of a year of 360 days (or, in the case of computations based on the Prime Rate, 365/366 days), in each case for the actual number of days (including the first day but excluding the last day) occurring in the Interim Rental Period or Rental Period for which such Interim Rent or Basic Rent payments are payable. Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or yield; provided, however, that if such extension would cause payment of Interim Rent or Basic Rent to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (f) Absolute Net Lease. This Lease is an absolute net lease, and Rent and all other sums payable by the Lessee hereunder shall be paid without notice except as otherwise expressly provided herein, and the Lessee shall not be entitled to any abatement, reduction, setoff, counterclaim, defense or deduction with respect to any Rent or other sums payable hereunder. The obligations of the Lessee to pay Rent and all other sums payable hereunder shall not be affected by reason of: (i) any damage to, or destruction of, the Equipment or any part thereof by any cause whatsoever (including, without limitation, fire, casualty or act of God or enemy or any other force majeure event); (ii) any condemnation, including, without limitation, a temporary condemnation of the Equipment or any portion thereof; (iii) any prohibition, limitation, restriction or prevention of the Lessee's use, occupancy or enjoyment of the Equipment or any part thereof by any Person (other than by the Lessor in violation of this Lease); (iv) any matter affecting title to the Equipment or any portion thereof (other than a defect in title caused by or through the Lessor, other than by the Lessee as the agent of the Lessor); (v) any loss of possession by the Lessee of the Equipment or any portion thereof, by reason of title paramount or otherwise (other than by the Lessor in violation of this Lease); (vi) any default by the Lessor hereunder or under any other Operative Document; (vii) the invalidity or unenforceability of any provision hereof or the 6 13 impossibility or illegality of performance by the Lessor or the Lessee or both; (viii) any action of any Governmental Authority; or (ix) any other Loss Event, Casualty Occurrence or other cause or occurrence whatsoever, whether similar or dissimilar to the foregoing. The Lessee shall remain obliged under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, except as expressly provided in Section 15 notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting the Lessor or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. The Lessee waives all rights to terminate or surrender this Lease, except as expressly provided in Section 15, or to any abatement or deferment of Rent or other sums payable hereunder. The Lessee hereby waives any and all rights now or hereafter conferred by law or otherwise to modify or to avoid strict compliance with its obligations under this Lease. All payments made to the Lessor hereunder as required hereby shall be final and irrevocable, and the Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. (g) All payments by the Lessee pursuant to this Lease shall be made by the Lessee to the Lessor. All such payments required to be made to the Lessor shall be made not later than 12:00 noon, Atlanta, Georgia time, on the date due, in immediately available funds, to such account with the Lessor as it shall specify from time to time by notice to the Lessee. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, except as otherwise expressly provided herein, such payment shall be made on the next succeeding Business Day and such extension shall be included in computing Rent, interest, yield and fees, if any, in connection with such payment. (h) The Lessee shall pay on demand to the Lessor interest at the Default Rate on all amounts payable by the Lessee to the Lessor hereunder or any of the other Operative Documents, from the due date thereof until paid in full. Section 4. [ RESERVED ]. Section 5. Agency Agreement. The Lessee is entering into the Agency Agreement with the Lessor pursuant to which the Lessee will act as the Acquisition Agent for the Lessor in causing the acquisition and installation of the Equipment and the performance of all of the Lessor's obligations to acquire the Equipment, 7 14 including negotiation and performance of all Related Contracts, obtaining all Applicable Permits and complying with all Governmental Requirements (including all Environmental Requirements) relating to the Equipment. Upon funding pursuant to the Agency Agreement, title to all Equipment purchased with such funding shall be and remain in the Lessor and, commencing with the Phase Commencement Date for the Phase to which such Equipment relates, such Equipment shall be subject to the terms and conditions of this Lease. The Equipment and all components thereof shall be purchased, manufactured, constructed, improved, renovated, assembled or installed, as applicable, in accordance with Related Contracts entered into by the Lessee pursuant to the Agency Agreement. Section 6. Title to Remain in the Lessor. The Lessor shall own 100% of the legal interest in the Equipment, including all accessions to and replacements of the Equipment added or effected from time to time by the Lessee, which shall be and become part of the Equipment, Property of the Lessor and subject to the terms of this Lease; provided that the Lessor's interest in any portion of the Equipment that is replaced by the Lessee pursuant to and as permitted by the terms of this Lease shall be deemed released from this Lease and thereupon become the Property of the Lessee automatically, without further action by the Lessor, and the Lessor shall perform all acts and execute all documents that the Lessee reasonably requests to give effect to the foregoing at the expense of the Lessee, including the execution and delivery of bills of sale and other documents of transfer. This Lease shall not give or grant to the Lessee any right, title or interest in or to the Equipment, except the rights expressly conferred by this Lease. The Equipment will remain personal property and will not be installed in any manner that will prevent it from being readily removed in a manner consistent with normal industry practices, it being the intent of the parties that the Equipment is not to constitute or be deemed to be fixtures or real property under applicable law or any lease governing the Applicable Site. The Equipment for each Phase will be marked to disclose the interest of the Lessor to the extent relevant under applicable law or to the extent deemed appropriate by the Lessor. Section 7. Maintenance of the Equipment; Operations. (a) The Lessee shall, and it shall require and cause any and all employees, contractors, subcontractors, agents, representatives, affiliates, consultants and occupants at the 8 15 Lessee's own cost and expense to: (i) cause the Equipment for each Phase to be maintained in all material respects in good operating order, repair and condition, in accordance with prudent industry practice and any applicable manufacturer's or supplier's manuals or warranties, subject to normal wear and tear, and take all action, and make all changes and repairs, structural and non-structural, foreseen and unforeseen, ordinary and extraordinary, which are required pursuant to any Governmental Requirement or Insurance Requirement at any time in effect to assure full compliance therewith in all material respects; and (ii) cause the Equipment for each Phase to continue to have at all times, in all material respects, and in material compliance with all applicable Governmental Requirements and Insurance Requirements, the capacity and functional ability to perform, on a continuing basis (subject to normal interruption in the ordinary course of business for maintenance, inspection, service, repair and testing) and in commercial operation, the functions for which it was designed and to be utilized commercially for the Permitted Use. (b) The Lessee shall, and it shall require and cause any and all employees, contractors, subcontractors, agents, representatives, affiliates, consultants and occupants at the Lessee's own cost and expense to, promptly replace, or cause to be replaced, the Equipment for each Phase or parts thereof which may from time to time be added to or substituted as replacements for parts of the Equipment for such Phase and which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair, obsolete or permanently rendered unfit for use for any reason whatsoever. All accessions and replacement parts shall be free and clear of all Liens other than Permitted Liens, and, except for temporary replacement parts utilized pending installation of permanent replacement parts, shall be of a type customarily used in the industry at such time for such purpose, shall be in as good operating condition as, and shall have a utility and useful life at least equal to, the parts replaced (assuming such replaced parts were in the condition and repair required to be maintained by the terms hereof) and shall have a value at least equal to the parts replaced (assuming such replaced parts were in the condition and repair required to be maintained by the terms hereof). (c) Notwithstanding the provisions of Section 8 and the foregoing provisions of this Section 7, the Lessee shall not (except as may be required by any Governmental Requirement) remove, replace or alter any portion of the Equipment for any 9 16 Phase or affix or place any accessory, equipment, part or device on any portion of the Equipment if such removal, replacement, alteration or addition would impair the originally intended function or use of the Equipment for such Phase so as to materially reduce the value of the Equipment taken as a whole, or materially decrease the estimated useful life of the Equipment for such Phase. (d) The Lessor shall not be required in any way to maintain, repair or rebuild the Equipment for any Phase or any portion thereof and the Lessee waives any right it may now or hereafter have to make any repairs at the expense of the Lessor pursuant to any Governmental Requirement at any time in effect or otherwise. (e) The Lessee shall, and it shall require and cause any and all employees, contractors, subcontractors, agents, representatives, affiliates, consultants and occupants at the Lessee's own cost and expense to: (i) comply with all applicable Environmental Requirements with regard to the Equipment for each Phase and all parts thereof, except where the failure to so comply would not have or cause a Material Adverse Effect; and (ii) use, employ, process, emit, generate, store, handle, transport, dispose of and/or arrange for the disposal of, any and all Hazardous Materials in, on or, directly or indirectly, related to or in connection with the Equipment for each Phase or any part thereof in a manner consistent with prudent industry practice and in compliance with any applicable Environmental Requirement, except where the failure to so comply would not have or cause a Material Adverse Effect. The Lessor and the Lessee hereby acknowledge and agree that the Lessee's obligations hereunder with respect to Environmental Requirements are intended to bind the Lessee with respect to matters and conditions involving the Equipment for each Phase or any part thereof. Section 8. Modifications. (a) Subject to the terms of Section 8(b), the Lessee shall have the right to make modifications, alterations, renovations or improvements to the Equipment for any Phase so long as such modifications, alterations, renovations or improvements do not (except as may be required by any Governmental Requirement) (i) materially reduce the value of the Equipment for such Phase as a whole; (ii) materially and adversely affect the capacity and performance of the Equipment for such Phase on a continuing basis in commercial operation of 10 17 the function for which the Equipment for such Phase was designed; or (iii) materially and adversely affect the estimated useful life of the Equipment for such Phase. Within ten (10) Business Days of the end of each calendar quarter, an Authorized Officer of the Lessee shall deliver to the Lessor a schedule certifying to the Lessor's satisfaction: (x) the nature of the repairs, replacements, modifications, alterations, renovations or improvements to the Equipment for each Phase made during such quarter having a cost of at least $25,000 at the time made, and (y) that the Equipment for each Phase continues to have, in all material respects, the capacity and functional ability to perform on a continuing basis (subject to normal interruption in the ordinary course of business for maintenance, inspection, service, repair and testing) and in commercial operation, the functions for which it was designed or, if not, specifying the reason for any such deficiency, including, without limitation, the existence and nature of any Loss Event or Casualty Occurrence with respect to the such Equipment. (b) If the Lessee determines that any part of the Equipment for any Phase is no longer necessary for the performance of the Equipment for such Phase on a continuing basis in commercial operation of the function for which the Equipment was designed, then the Lessee (except when such action or removal may be required by any applicable Governmental Requirement, in which event, the Lessee shall promptly give the Lessor notice of such action or removal) shall give the Lessor at least thirty (30) days' notice prior to taking any action as the result of such determination and shall not remove any such portion unless and until the Lessor has determined that (i) such portion is no longer necessary for the performance of the Equipment for such Phase on a continuing basis in commercial operation of the function for which such Equipment was designed in all material respects, (ii) removal of such portion does not materially reduce the value of the Equipment for such Phase as a whole, and (iii) removal of such portion does not materially decrease the estimated useful life of the Equipment for such Phase. This Section 8(b) shall not apply to worn out or obsolete Equipment or damaged Equipment (to the extent such damage does not constitute a Casualty Occurrence or Loss Event) removed and replaced by the Lessee in accordance with Section 7(b). Section 9. Further Assurances. The Lessee, at its expense, shall execute, acknowledge and deliver from time to time such further counterparts of this Lease or such affidavits, certificates, certificates of title, bills of sale, financing and 11 18 continuation statements, consents and other instruments as may be required by applicable law or reasonably requested by the Lessor in order to evidence the Lessor's title to the Equipment and the Lessor's interests in this Lease, and shall, at the Lessee's expense, cause such documents to be recorded, filed or registered in such places as the Lessor may request and to be re-recorded, refiled or re-registered in such places as may be required by applicable law or at such times as may be required by applicable law in order to maintain and continue in effect the recordation, filing or registration thereof. The Lessor shall not grant or create any Lien on the Equipment to any Person except Permitted Liens, Liens in favor of the Lessor and Liens pursuant to this Lease and the other Operative Documents. Section 10. Compliance with Governmental Requirements and Insurance Requirements: Related Contracts. The Lessee, at its expense, will comply with all Governmental Requirements applicable to the Equipment any portion thereof or the ownership, installation, operation, mortgaging, possession, use, non-use or condition of the Equipment or any portion thereof, all Insurance Requirements, and all instruments, contracts or agreements affecting title to ownership of the Equipment or any portion thereof, except, in each case, where the failure to so comply would not have or cause a Material Adverse Effect. In addition, the Lessee, so long as no Event of Default has occurred and is continuing, is hereby authorized by the Lessor to, and shall, fully and promptly keep, observe, perform and satisfy on behalf of the Lessor any and all obligations, conditions, covenants and restrictions of or on the Lessor or the Lessee under any and all Related Contracts so that there will be no default thereunder and so that the other parties thereunder shall be, and remain at all times, obliged to perform their obligations thereunder, and the Lessee, to the extent within its control, shall not permit to exist any condition, event or fact that could allow or serve as a basis or justification for any such Person to avoid such performance. Section 11. Condition and Use of Equipment; Quiet Enjoyment. (a) THE EQUIPMENT IS LEASED AS IS, WHERE IS, AND WITH ALL FAULTS AND IN THE CONDITION THEREOF AND SUBJECT TO THE STATE OF THE TITLE THERETO, AND THE RIGHTS OF OWNERSHIP THEREIN, IN EACH CASE AS IN EXISTENCE WHEN THE SAME FIRST BECOMES SUBJECT TO THIS LEASE, WITHOUT REPRESENTATIONS AND WARRANTIES OF ANY KIND AS TO TITLE BY THE LESSOR OR ANY PERSON ACTING ON ITS BEHALF. THE LESSEE ACKNOWLEDGES AND AGREES THAT THE EQUIPMENT HAS NOT BEEN SELECTED BY THE LESSOR, 12 19 THAT THE LESSOR HAS NOT SUPPLIED ANY SPECIFICATIONS WITH RESPECT TO THE EQUIPMENT AND THAT THE LESSOR (i) IS NOT A VENDOR OF, OR MERCHANT OR SUPPLIER WITH RESPECT TO, ANY OF THE EQUIPMENT OR ANY PROPERTY OF SUCH KIND, (ii) HAS NOT MADE ANY RECOMMENDATION, GIVEN ANY ADVICE OR TAKEN ANY OTHER ACTION WITH RESPECT TO THE CHOICE OF ANY MANUFACTURER, SUPPLIER OR TRANSPORTER OF, OR ANY VENDOR OF OR OTHER CONTRACTOR, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY OF THE EQUIPMENT, (iii) HAS NOT AT ANY TIME HAD PHYSICAL POSSESSION OF ANY SUCH EQUIPMENT, (iv) HAS NOT MADE OR IS NOT MAKING ANY WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION, WITH RESPECT TO TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, THE DESIGN, CONDITION, QUALITY OF MATERIAL OR WORKMANSHIP, CONFORMITY TO SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER PRESENT OR FUTURE LAW OR OTHERWISE, OR COMPLIANCE WITH APPLICABLE PERMITS OR OTHER GOVERNMENTAL REQUIREMENTS, OR (v) SHALL NOT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE). IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE EQUIPMENT OR ANY PROPERTY OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER PATENT OR LATENT, OF THE LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION 11 HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, BY THE LESSOR WITH RESPECT TO THE EQUIPMENT OR ANY PROPERTY OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT. (b) The Lessor hereby assigns to the Lessee, until the Equipment is purchased or sold in accordance with the terms hereof, the benefits in respect of any Vendor's warranties or undertakings, express or implied, relating to the Equipment (including any labor, equipment or parts supplied therewith), and, to the extent assignment of the same is prohibited or precludes enforcement of any such warranty or undertaking, the Lessor hereby subrogates the Lessee to its rights in respect thereof. The Lessor hereby authorizes the Lessee, at the Lessee's expense, to assert any and all claims and to prosecute any and all suits, actions and proceedings, in its own name or in the name of the Lessor, in respect of any such warranty or undertaking and, except during the continuance of an Event of Default, or after the occurrence of a Cancellation Event or Termination Event hereunder, to retain the proceeds received, and after the termination of this Lease or after the occurrence and during the continuation of an Event of Default, or after the occurrence of a Cancellation Event or Termination Event, to pay the same in the form received (with any necessary endorsement) to the Lessor. 13 20 (c) The Lessee may use the Equipment for any Phase for the Permitted Use provided that the value of such Equipment is not materially diminished by any such use other than as a result of normal wear and tear in the ordinary course of business. During the term of this Lease, the Lessor covenants that unless an Event of Default, a Cancellation Event or a Termination Event has occurred and is continuing, the Lessor will not, and will not permit any party claiming by, through or under the Lessor to, interfere with the peaceful and quiet possession and enjoyment of the Equipment by the Lessee; provided, however, that the Lessor and its successors, assigns, representatives and agents may, upon reasonable notice to the Lessee, enter upon and examine the Equipment or any part thereof at reasonable times, subject to the provisions of Section 19. Any failure by the Lessor to comply with the foregoing provisions of this Section 11(c) shall not give the Lessee any right to cancel or terminate this Lease, or to abate, reduce or make reduction from or offset against any Rent or other sum payable under this Lease or any other Operative Document, or to fail to perform or observe any other covenant, agreement or obligation hereunder or thereunder. The Lessee will not do, or fail to do, or permit or suffer to exist any act or thing, which action or thing or failure might impair the value, use or usefulness of the Equipment for any Phase for the Permitted Use in accordance with the design of the Equipment for such Phase, ordinary wear and tear excepted. Section 12. Liens. (a) The Lessor's interest in the Equipment is not subject to any construction, materialman's or mechanics' lien (other than Permitted Liens) for any improvements to the Equipment for any Phase or the Applicable Site thereof undertaken by the Lessee or by agents of the Lessee, whether or not such improvements are made with the consent of the Lessor. (b) The Lessee will not directly or indirectly create, or permit to be created or to remain, and at the Lessee's expense will discharge within ten (10) days of notice of the filing or assertion thereof, by bond, deposit or otherwise, any Lien upon the Lease or any of the Equipment except (i) any Lien being contested as permitted by and in accordance with Section 13, or (ii) Permitted Liens. The Lessor agrees that the Lessee shall have during the term of this Lease the exclusive right (so long as no Default has occurred and is continuing) to grant, create or suffer to exist Permitted Liens in the ordinary course of business and in accordance with prudent industry practices, 14 21 provided that the fair market value or use of the Equipment for any Phase or the applicable portion thereof for the Permitted Use is not materially lessened thereby. The Lessor agrees to execute such documents and take all other actions as shall be reasonably necessary, and otherwise to cooperate with the Lessee in connection with the matters described above, provided that all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by the Lessor in connection therewith shall be borne by the Lessee, and the Lessor shall not be required to execute any document that would, in the opinion of the Lessor, materially and adversely affect the value or use of the Equipment for any Phase or any portion thereof for the Permitted Use or otherwise materially and adversely affect the transactions contemplated by the Operative Documents or the interests of the Lessor in the Equipment for any Phase or under the Operative Documents or otherwise. (c) The Lessor will not directly or indirectly sell, transfer or otherwise dispose of, or create, or permit to be created or to remain, and will discharge, any Lien of any nature whatsoever on, in or with respect to, its interest in the Equipment arising by or through it or its actions, except Permitted Liens. (d) The Lessee will not directly or indirectly sell, transfer, or otherwise dispose of, or create, or permit to be created or to remain, and will discharge within ten (10) days of notice of the filing or assertion thereof, by bond, deposit or otherwise, any Lien of any nature whatsoever on, in or with respect to, its interest in any of the Equipment except Permitted Liens. Section 13. Permitted Contests. Notwithstanding any other provision of this Lease to the contrary, after prior written notice to the Lessor and provided there is no material risk of sale, forfeiture or loss of the Equipment for any Phase or any material part thereof, the Lessee may at its expense contest any Imposition which it is required to pay hereunder, by appropriate proceedings conducted in good faith and with due diligence, so long as such proceedings are effective to prevent the collection of such Imposition from the Lessor or against the Equipment for any Phase or any portion thereof; provided, however, that the actions of the Lessee, as authorized by this Section 13, shall be subject to the express written consent of the Lessor if such actions would subject the Lessor or the Equipment for any Phase or any portion thereof to any liability 15 22 or loss not indemnified in full by the Lessee hereunder or any sanction, criminal or otherwise, for failure to pay any such Imposition. The Lessee will pay, and save the Lessor harmless against, all losses, Judgments and reasonable costs, including attorneys' fees and expenses, in connection with any such contest and will, promptly after the final determination of such contest, pay and discharge the amounts which shall be imposed or determined to be payable therein, together with all penalties, costs and expenses incurred in connection therewith. The Lessee shall prevent any foreclosure, judicial sale, taking, loss or forfeiture of the Equipment for any Phase or any portion thereof, or any interference with or deductions from any Rent or any other sum required to be paid by the Lessee hereunder by reason of such nonpayment or nondischarge of an Imposition. The Lessor shall cooperate with the Lessee in any contest and shall allow the Lessee to conduct such contest (in the name of the Lessor, if necessary) at the Lessee's sole cost and expense. The Lessee shall notify the Lessor of each such proceeding within ten (10) days after the commencement thereof, which notice shall describe such proceeding in reasonable detail. Section 14. Insurance, etc. (a) The Lessee will, at its own expense, purchase and maintain, or cause to be purchased and maintained, throughout the term of this Lease insurance with respect to its business and the Equipment in accordance with the requirements of Schedule 14. (b) The Lessee shall bear all risk of loss (including any Loss Event or Casualty Occurrence) with respect to the Equipment for each Phase, whether by casualty, theft, taking, confiscation or otherwise, with respect to the Equipment for each Phase or any portion thereof, at all times during the term of this Lease until possession of the Equipment has been accepted by the Lessor pursuant to Section 17. (c) So long as no Termination Event or Cancellation Event shall have occurred and no Event of Default shall have occurred and be continuing, any payments, whether constituting insurance proceeds, amounts paid by any Governmental Authority or otherwise, received by the Lessee or the Lessor upon the occurrence of any loss with respect to the Equipment for each Phase or portion thereof (other than a Casualty Occurrence), whether as a result of casualty, theft, taking or other confiscation, shall be applied in payment for necessary repairs and replacement to the Equipment for such Phase in accordance 16 23 with Section 7 or, to the extent the costs of such repairs and replacement shall have been paid by the Lessee, to reimburse the Lessee. The Lessee shall be entitled to retain any excess funds remaining after necessary repairs and replacements have been completed and all costs therefor paid in full. Upon the occurrence of any Termination Event or Cancellation Event or upon the occurrence and during the continuance of any Event of Default, the Lessor shall be entitled to receive and retain any such payments for application to the obligations of the Lessee hereunder. (d) Upon a Casualty Occurrence with respect to any Phase, the Lessee shall give prompt notice thereof to the Lessor and shall within thirty (30) days of the date of such Casualty Occurrence either (i) offer to purchase the whole of the Equipment for such Phase for the Termination Value for such Phase as provided in Section 15(c) or (ii) provide the Lessor with a replacement plan acceptable to the Lessor setting forth how the Lessee shall replace, or cause to be replaced, at the Lessee's own cost and expense, within six (6) months (but in no event later than the Scheduled Lease Termination Date for such Phase) after the date of such Casualty Occurrence, such portion of the Equipment for such Phase that is the subject of a Casualty Occurrence in accordance with this Section 14(d) and Section 7. If the Lessee chooses the option set forth in clause (ii) of the preceding sentence, within the later to occur of (x) sixty (60) days after the date of the Casualty Occurrence and (y) satisfaction of all applicable Governmental Requirements, and obtaining all authorizations of Governmental Authorities, required therefor (but in no event later than ninety (90) days after the date of the Casualty Occurrence), the Lessee shall have commenced repairs or replacements as specified in the replacement plan. After completion of the repairs and replacements, the Lessee shall demonstrate to the satisfaction of the Lessor that operations, capacity and production of the Equipment for such Phase have been restored to the standards required for Completion. (e) All replacement Equipment (other than temporary replacement parts and equipment installed pending installation of permanent replacement Equipment) installed pursuant to Section 14(d) shall be free and clear of all Liens except Permitted Liens, and shall be in as good operating condition as, and shall have a value and utility at least equal to, the Equipment replaced immediately prior to the Casualty Occurrence to which such Equipment was subject. For purposes of this Lease 17 24 (including without limitation Section 14(d) and Section 7), the Funded Amount and Book Value of the replacement Equipment shall be deemed to equal the Funded Amount and Book Value of the part(s) replaced thereby. All Equipment for any Phase at any time removed from this Lease pursuant to Section 14(d) and Section 7 shall remain the property of the Lessor, no matter where located, until such time as insurance proceeds have been received by the Lessor at least equal to the Book Value of such portion of the Equipment for such Phase or such portion shall be replaced by suitable items that have been incorporated or installed on or attached to the Equipment and that meet the requirements specified above. Immediately upon any permanent replacement Equipment becoming incorporated or installed on or attached to the Equipment for any Phase as provided above, without further act, such permanent replacements shall become subject to this Lease and be deemed part of the Equipment for such Phase for all purposes hereof to the same extent as any other parts of the Equipment for such Phase. All amounts of insurance proceeds for Equipment losses and all other proceeds (whether resulting from damage or destruction or from condemnation, confiscation or seizure) relating to the Equipment for any Phase shall be deposited into the Restoration Account for such Phase and held and released, together with accrued interest thereon, as hereinafter provided. So long as a Cancellation Event or Termination Event shall not have occurred and an Event of Default shall not have occurred and be continuing, and provided that the Lessor shall have received a written application of the Lessee accompanied by a certificate of an Authorized Officer of the Lessee showing in reasonable detail the nature of any necessary repair, rebuilding and restoration, the actual cash expenditures necessary for such repair, rebuilding and restoration, the expected total expenditures required to complete such work and evidence that sufficient funds are or will be available to complete such work on a timely basis (such certificate to be acceptable to the Lessor in all respects), then the amounts available in such Restoration Account, together with accrued interest thereon, shall be released by the Lessor immediately upon receipt of such certification or, if applicable, from time to time on the last Business Day of each month during the period of repair, rebuilding and restoration in payment therefor against presentation to the Lessor of a certificate executed by an Authorized Officer of the Lessee to the effect that expenditures have been made, or costs incurred, by or for the account of the Lessee or are reasonably anticipated to be made during the immediately following one month period in a specified amount for the purposes of making repairs, rebuilding 18 25 and restoration in the amounts specified, that no Event of Default, Cancellation Event or Termination Event exists and all conditions precedent herein provided relating to such withdrawal and payment have been satisfied. Upon the occurrence of any Event of Default, Termination Event or Cancellation Event, the Lessor shall be entitled to retain all amounts in the Restoration Account for each Phase for application to the obligations of the Lessee hereunder. (f) If any Loss Event or Casualty Occurrence shall occur, the Lessee shall promptly notify the Lessor of such event in writing. Section 15. Termination; Cancellation; Purchase Option. (a) (i) The termination of this Lease (A) in accordance with Section 2(b) as to a particular Phase or (B) as a result of the declaration by the Lessor of a Non- Designated Event of Default, shall be a "Termination Event," the effect of which shall be to cause this Lease to terminate (x) if in accordance with Section 2(b), as to the relevant Phase, and (y) if as a result of the declaration by the Lessor of a Non-Designated Event of Default, as to all Phases, in each case on the applicable Lease Termination Date. (ii) If a Termination Event occurs, the Lessee, on the Lease Termination Date, shall, in accordance with the terms of Section 2(c) or (d), as applicable, without further notice or demand to the Lessee, either (A) purchase the Equipment for the relevant Phase or for all Phases, as applicable, from the Lessor for the Termination Value thereof; or (B) so long as no Designated Event of Default has occurred: (1) pay to the Lessor the Final Rent Payment for the relevant Phase or for all Phases, as applicable; and (2) attempt to sell (until such time as the Lessor shall have terminated, in accordance with the Agency Agreement, the Lessee's obligation to so attempt to sell the Equipment) subject to 19 26 the Lessor's prior written approval, the Equipment for the relevant Phase or all Phases, as applicable, as agent for the Lessor, without recourse or warranty by the Lessor, and upon any such sale, pay the net cash proceeds of such sale to the Lessor; provided, that so long as Lessee has paid the Final Rent Payment pursuant to Section 15(a)(ii)(B)(1), then if the net cash proceeds of such sale for the relevant Equipment are (x) less than the Non-Recourse Amount for such Equipment, the Lessee shall not be liable for any deficiency, or (y) greater than the Non-Recourse Amount for such Equipment, the Lessor shall remit the excess to the Lessee. The Lessor shall also have the right (but not the obligation) to sell the Equipment and/or solicit bids, each in its sole and absolute discretion. (b) (i) Each of the following events shall be a "Cancellation Event", the effect of which shall be to cause this Lease to be terminated as to the relevant Phase or as to all Phases, as specified below, in accordance with the following provisions on the "Cancellation Date" specified: (A) the existence of a Designated Event of Default and the delivery by the Lessor to the Lessee of a notice stating that the Lessor elects to terminate this Lease by reason of the existence of such Designated Event of Default, in which case the Cancellation Date will be the fifth (5th) Business Day after the date of delivery of said notice to the Lessee; or (B) the occurrence of a Loss Event with respect to any Phase, in which case the Cancellation Date for such Phase shall be the fifth (5th) Business Day after such event occurs; or (C) the occurrence of a Casualty Occurrence in respect of the Equipment for any Phase and the failure of the Lessee to purchase the Equipment for such Phase or to replace or repair the Equipment for such Phase or such portion thereof in accordance with, and within the time required by, Section 14 and the delivery by the Lessor to the Lessee of a notice after the expiration of such time stating that the Lessor 20 27 elects to terminate this Lease for all Phases by reason of the existence of such Casualty Occurrence, in which case the Cancellation Date for all Phases shall be the fifth (5th) Business Day after the date of delivery of said notice; or (ii) If a Cancellation Event occurs, the Lessee, on the Cancellation Date, shall, without further notice or demand to the Lessee purchase the Equipment for the relevant Phase or for all Phases, as the case may be, from the Lessor for the Termination Value for the relevant Phase or for all Phases, as the case may be. (c) The Lessee may, from time to time and at any time following the third (3rd) anniversary of the Phase Commencement Date for any Phase, deliver to the Lessor notice of its intent to terminate this Lease as to such Phase, in which case the Lessee shall purchase the Equipment for such Phase from the Lessor for the Termination Value for such Phase on any Business Day that is not less than thirty (30) nor more than sixty (60) days after such notice (the "Option Date"). Upon payment in full of the Termination Value for such Phase, this Lease shall terminate as to such Phase. (d) This Lease as to any Phase shall cease and terminate on the Lease Termination Date for such Phase (or for all Phases, as applicable) except with respect to (i) obligations and liabilities of the Lessee, actual or contingent, which arose under this Lease, or by reason of events or circumstances occurring or existing, on or prior to its termination, and which have not been satisfied (which obligations shall continue until satisfied and which include, but are not limited to, obligations for Rent accruing prior to the Lease Termination Date, the Final Rent Payment, and the Termination Value and amounts owing pursuant to Section 16 for all Phases), and (ii) obligations of the Lessee which by the terms of this Lease expressly survive termination. Promptly after either the Lessee or the Lessor shall learn of the happening of any Termination Event or Cancellation Event as to any Phase, such party shall give notice thereof to the other party hereto. (e) In the event the Lessee elects to purchase the Equipment for any Phase (or for all Phases, as applicable) upon the occurrence of a Termination Event (other than the expiration of this Lease on a Scheduled Lease Termination Date for such Phase) or a Cancellation Event therefor, the Lessee in its sole 21 28 discretion in order to ensure the orderly conveyance of the relevant Equipment may postpone the closing date for such conveyance (whether or not extended, the "Purchase Closing Date") to a reasonable date within sixty (60) days following the Lease Termination Date; provided however, that notwithstanding any such postponement the Lessee shall nonetheless be required to deposit on or before the Lease Termination Date, the Termination Value for such Phase (or for all Phases, as applicable) (estimated at the time of the deposit) with the Lessor to be held in escrow pending consummation of the closing on or before the extended Purchase Closing Date. The Lessee shall notify the Lessor of any such postponement and the proposed extended Purchase Closing Date in writing on or before the Lease Termination Date. Provided that the Lessee deposits the estimated Termination Value on or before the applicable Lease Termination Date, the Lessee shall be deemed to have been granted a temporary license by Lessor entitling the Lessee to retain possession of the relevant Equipment through the Purchase Closing Date, at no additional charge, provided that the Lessee complies with all obligations of the Lessee under this Lease with respect thereto as though this Lease were still in full force and effect (including without limitation, compliance with permitted use, maintenance and insurance coverage requirements, but excluding Basic Rent). In the event of an extension of the Purchase Closing Date as herein contemplated, the Termination Value (including the Final Rent Payment component thereof) will be calculated as of such extended Purchase Closing Date. This Section 15(e) shall survive the termination of this Lease as to any such Phase. Section 16. Transfer of Title on Removal of Equipment; Expenses of Transfer. (a) Upon any sale or purchase of the Equipment for any Phase permitted by Section 15, the Lessor will transfer to the Lessee or the appropriate Third Party all of its title to and legal and beneficial ownership interest in such Equipment to be transferred (i) free and clear of any Lien created by, through or under the Lessor other than Permitted Liens (except any created solely by or through the Lessor, other than by the Lessee as agent of the Lessor) or Liens created at the request of or as a result of the actions of the Lessee or anyone acting by, through or under the Lessee, or a result of the failure of the Lessee to carry out any of its obligations under this Lease or the other Operative Documents, and (ii) without recourse, representation or warranty of any nature whatsoever (except as to the absence of such Liens as aforesaid). 22 29 (b) Whenever the Lessee has the right to purchase or transfer to itself any of the Equipment pursuant to any provision of this Lease, the Lessee may cause such purchase to be effected by, or such transfer to be effected to, any other Person specified by the Lessee, but in no event shall the Lessee be relieved from any of its obligations hereunder as a result thereof. (c) Upon any sale or transfer of any of the Equipment pursuant to any provision of this Lease, the Lessee shall pay the expenses of the Lessor, including, without limitation, reasonable attorneys' fees and expenses, in connection with such sale or transfer. (d) If, with respect to any Phase (or all Phases, if applicable) on the Lease Termination Date, the Lessee or any of its Affiliates has not elected to acquire the relevant Equipment, the Lessee shall surrender the relevant Equipment to the Lessor free from all Liens except Permitted Liens (other than those described in clause (ii)(b) of the definition of Permitted Liens), in the same operating condition (except for ordinary wear and tear) with the remaining original estimated useful life intact and having in all material respects the same capacity and efficiency as such Equipment had on the Lease Commencement Date with respect thereto, and in compliance in all material respects with all Governmental Requirements and Insurance Requirements. To evidence the foregoing and accomplish the surrender of such Equipment for any Phase, the Lessee shall provide the following items (x) in the event of a Termination Event under Section 15(a)(i)(A) within nine (9) months prior to the then current Lease Termination Date for such Phase, with final confirmation of the same at least thirty (30) days but not more than sixty (60) days prior thereto and (y) in the event of a Termination Event under Section 15(a)(i)(B), as soon as practicable but in any event at least three (3) Business Days prior to the Lease Termination Date or Cancellation Date for such Phase, applicable: (i) evidence satisfactory to the Lessor that all Applicable Permits, Related Contracts, patents, trademarks and copyrights, and all other rights and services and Property reasonably required to operate the Equipment for such Phase from and after the Lease Termination Date have been, or on or prior to the Lease Termination Date therefor shall be, transferred to the Lessor (or the Lessor has been, or on or prior to the Lease Termination Date or Cancellation Date therefor, as applicable, shall be, given the right to 23 30 use each such item) and can be transferred to (or used by) any successor or assignee of the Lessor without further consent or approval by any Person (subject only to normal Governmental Requirements); (ii) conveyancing, assignment, transfer, termination and other documents that, in the sole discretion of the Lessor, are sufficient to (A) vest in the Lessor good and marketable title to the Equipment for such Phase, free and clear of all Liens except Permitted Liens (other than those described in clause (ii)(b) of the definition of Permitted Liens) and (B) terminate the rights of the Lessee and all other Persons claiming through the Lessee in and to the Equipment; (iii) evidence satisfactory to the Lessor that the Equipment for such Phase has been operated and maintained in all material respects in accordance with the requirements of the Operative Documents, all Governmental Requirements, all Applicable Permits and prudent industry practices; (iv) evidence satisfactory to the Lessor that the Equipment for such Phase is being used solely for the Permitted Use, meets or exceeds the original design specifications and is capable of operating and being used for the Permitted Use, and has the remaining original estimated useful life contemplated by the Lessee; (v) evidence satisfactory to the Lessor, in its sole discretion, that (A) no default exists under the Agency Agreement, (B) all agreements and arrangements to provide the services and rights contemplated by the Agency Agreement are in place, executed by the parties thereto, and are valid, enforceable and in full force and effect on or before the Lease Termination Date or Cancellation Date for such Phase, as applicable and (C) such agreements and arrangements adequately provide for the services and other rights contemplated by the Agency Agreement; and (vi) such other documents, instruments and other items as the Lessor may reasonably request to evidence to the satisfaction of the Lessor, in its sole discretion) that no Designated Event of Default, Loss Event or Casualty Occurrence then exists. 24 31 To the extent the Equipment for any Phase is not in the condition required by this Section 16(d), the Lessee will pay to the Lessor such additional amounts as are reasonably required to place it in compliance. The Lessee shall also pay all costs and expenses relating to the surrender and clean-up in connection with the surrender of the Equipment for such Phase as may be required by Governmental Requirements or Insurance Requirements or which are otherwise necessary to consummate the delivery of possession of the Equipment for such Phase to the Lessor hereunder. Section 17. Events of Default and Remedies. (a) Each of the following acts or occurrences shall constitute an "Event of Default" hereunder: (i) default in the payment of the Termination Value for any Phase on the relevant Option Date, or in the payment of the Termination Value for any Phase on the relevant Cancellation Date or Purchase Closing Date, as applicable, or in the payment of the Termination Value or the Final Rent Payment for any Phase on the relevant Lease Termination Date or Purchase Closing Date, as applicable or in the payment when due of the Scheduled Payment component of Basic Rent for any Phase; or in the payment when due of any Interim Rent or the Floating Rate Payment or Fixed Rate Payment component of Basic Rent for any Phase, and the continuance of such default for 10 days thereafter; or the default in the payment when due of any Supplemental Rent for any Phase, or the amount of any Indemnified Risk or of any other amount due hereunder or under any other Operative Document and the continuance of such default for thirty (30) days thereafter; or (ii) the Lessee shall fail to observe or perform any covenant contained in Sections 30(a)(vi) or (vii), 30(b)(ii), 30(c) through 30(f), inclusive, and 30(o) through 30(u), inclusive; or (iii) the Lessee shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Lease (other than those covered by any other paragraph of this Section 17(a)) and such failure shall not have been cured within thirty (30) days after the earlier to occur of (i) written notice thereof has been given to the 25 32 Lessee by the Lessor or (ii) any officer of the Lessee otherwise becomes aware of any such failure; or (iv) any representation or warranty made or deemed made by the Lessee herein, in any other Operative Document by the Lessee or otherwise in writing in connection with or pursuant to this Lease or any other Operative Document, shall be false or misleading in any material respect on the date made or deemed made; or (v) an event of default under the Agency Agreement, and such failure shall not have been cured within thirty (30) days after the earlier to occur of (i) written notice thereof has been given to the Lessee by the Lessor or (ii) any officer of the Lessee otherwise becomes aware of any such failure; or (vi) (A) the Lessee shall (1) generally not pay its debts as such debts become due; or (2) make a general assignment for the benefit of creditors; or (B) any case or proceeding shall be instituted or consented to by the Lessee seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or (C) any such case or proceeding shall have been instituted against the Lessee and either such case or proceeding shall not be stayed or dismissed for 60 consecutive days or any of the actions sought in such case or proceeding (including, without limitation, the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or any substantial part of its property) shall occur; or (vii) the Lessee permits a judgment in the amount of $1,000,000 or more to be obtained against it which is not promptly paid or promptly appealed and stayed pending appeal; or (viii) the Lessee breaches or defaults under the Existing Term Loan Agreement or any Qualified Replacement Term Loan Agreement or any other agreement involving the 26 33 borrowing of money or the extension of credit (other than trade credit incurred in the ordinary course of business) under which the Lessee may be obligated as a borrower or guarantor, if such default consists of the failure to pay any indebtedness in the aggregate principal amount of $5,000,000 or more when due or if such default permits or causes (or upon lapse of time or notice or both would permit or cause) the acceleration of any indebtedness, or the termination of any commitment to lend, in either case in the aggregate principal amount of $5,000,000 or more; provided, however, that if the Existing Term Loan Agreement is terminated and there is no Qualified Replacement Term Loan Agreement, the occurrence of any event which would have been a breach or default under the Existing Term Loan Agreement as in effect immediately prior to its termination which, but for such termination, would have permitted or caused (or upon lapse of time or notice or both would have permitted or caused) the acceleration of any indebtedness thereunder, shall constitute an Event of Default; or (ix) in any 12 month period or less, (i) 50% or more of the members of the full Board of Directors of the Lessee shall have resigned or been removed or replaced, or (ii) any Person or "Group" (as defined in Section 2(d)(3) of the Securities Exchange Act of 1934, as amended) (other than an employee benefit or stock ownership plan of the Borrower) shall have acquired, directly or indirectly, more than 50% of the capital stock (whether common or preferred or a combination thereof) of the Lessee, provided that the Lessee's purchase of treasury shares of shares of its capital stock outstanding on the date hereof which results in one or more of the Lessee's shareholders of record as of the date of this Lease owning 50% or more of the Lessee's capital stock shall not constitute an acquisition for purposes of this Section 17(a)(xi). (b) Upon the occurrence and during the continuance of any Event of Default, the Lessor may do any one or more of the following (without prejudice to the obligations of the Lessee under Section 15(b)(ii)): (i) proceed by appropriate judicial proceedings, either at law, in equity or in bankruptcy, to enforce performance or observance by the Lessee of the applicable provisions of this Lease, or to recover damages for the breach of any such provisions, or any other equitable or 27 34 legal remedy, all as the Lessor shall deem necessary or advisable; and/or (ii) by notice to the Lessee, terminate this Lease for all Phases in accordance with Section 15, whereupon the Lessee's interest and all rights of the Lessee to the use of the Equipment for any Phase shall forthwith terminate subject to the Lessee's rights under such Section 15 to acquire such Equipment on the Purchase Closing Date as provided herein, but the Lessee shall remain liable with respect to its obligations and liabilities hereunder; and/or (iii) exercise any and all other remedies available under applicable law or at equity. (c) After the occurrence and during the continuance of a Cancellation Event or Termination Event, in the event the Lessor elects not to terminate this Lease and the Lessee has not exercised its option under Section 15(c), this Lease shall continue in effect and the Lessor may enforce all of the Lessor's rights and remedies under this Lease, including, without limitation, the right to recover the Interim Rent, the Basic Rent and the Supplemental Rent for each Phase, and all other yield protection payments and other amounts with respect thereto, as it becomes due under this Lease. For the purposes hereof, the following do not constitute a cancellation or termination of this Lease as to any Phase: (i) acts of maintenance or preservation of the Equipment for such Phase or any portion thereof, (ii) efforts by the Lessor to relet the Equipment for such Phase or any portion thereof, including, without limitation, termination of any sublease of the Equipment for such Phase and removal of any tenant from the Applicable Site thereof, (iii) or the appointment of a receiver upon the initiative of the Lessor to protect the Lessor's interest under this Lease. (d) If (i) on the Lease Termination Date or the Purchase Closing Date, as the case may be, for any Phase, the Equipment for such Phase is not acquired by the Lessee or its designee by payment of the Termination Value thereof or (ii) on the Cancellation Date or Option Date for any Phase, the Lessee or its designee has defaulted in its obligation to acquire the Equipment for such Phase and pay the Termination Value for such Phase in accordance with the Lessee's election under Section 15(b)(ii), then the Lessor shall have the immediate right of possession of the Equipment for all Phases and the right to enter onto any Applicable Sites, and remove the relevant Equipment 28 35 therefrom if it so elects, and the Lessor may thenceforth hold, possess and enjoy such Equipment, free from any rights of the Lessee and any Person claiming by, through or under the Lessee, except as required by applicable law. The Lessor shall be under no liability by reason of any such repossession or entry onto the premises of the Lessee. (e) Should the Lessor elect to repossess the Equipment for any Phase or any portion thereof upon cancellation or termination of this Lease as to such Equipment or otherwise in the exercise of the Lessor's remedies, the Lessee shall peaceably quit and surrender the Equipment for such Phase or any such portion thereof to the Lessor and either (i) deliver possession of such Equipment to the Lessor or (ii) allow Lessor or its agents or assigns to enter onto the Applicable Site thereof to remove any and all of such Equipment at the expense of the Lessee, and neither the Lessee nor any Person claiming through or under the Lessee shall thereafter be entitled to possession or to remain in possession of such Equipment or any portion thereof but shall forthwith peaceably quit and surrender such Equipment to the Lessor. (f) At any time after the repossession of the Equipment for any Phase or any portion thereof, whether or not this Lease shall have been cancelled or terminated as to such Equipment, the Lessor may (but shall be under no obligation to) relet such Equipment or the applicable portion thereof on not less than 10 days notice to the Lessee, for such term or terms and on such conditions and for such usage as the Lessor in its sole and absolute discretion may determine. The Lessor may collect and receive any rents payable by reason of such reletting (subject to the provisions of Section 26(d)), and the Lessor shall not be liable for any failure to relet the Equipment or for any failure to collect any rent due upon any such reletting. (g) The remedies herein provided in case of an Event of Default are in addition to, and without prejudice to, the Lessee's continuing obligations under Section 15(b)(ii), and shall not be deemed to be exclusive, but shall be cumulative and shall be in addition to all other remedies existing at law, in equity or in bankruptcy. Lessor may exercise any remedy without waiving its right to exercise any other remedy hereunder or existing at law, in equity or in bankruptcy. (h) No waiver by the Lessor hereunder of any Default or Event of Default shall constitute a waiver of any other or 29 36 subsequent Default or Event of Default. To the extent permitted by applicable law, the Lessee waives any right it may have at any time to require the Lessor to mitigate the Lessor's damages upon the occurrence of a Default or Event of Default by taking any action or exercising any remedy that may be available to the Lessor, the exercise of remedies hereunder being at the discretion of the Lessor. Section 18. Change in the Lessee's Name or Structure. The Lessee will not change its name, identity or corporate structure (including, without limitation, by any merger, consolidation or sale of substantially all of its assets) without notifying Lessor of such change in writing at least thirty (30) days prior to the effective date of such change. Section 19. Inspection; Right to Enter Premises of the Lessee. The Lessor or its authorized representatives may (but without any obligation to do so) (i) enter upon any Applicable Site or any premises of the Lessee at reasonable times upon reasonable advance notice in order to inspect the Equipment located thereon (subject to compliance with applicable safety requirements of the Lessee and applicable Governmental Requirements) and to inspect, audit and make copies of all documents and instruments in the possession of the Lessee (including without limitation records relating to Equipment Cost and Book Value of any of the Equipment) relating to any of the Equipment that are reasonably necessary or appropriate for the Lessor or such authorized representatives to determine the truth and accuracy of any schedule, annex, exhibit or representation delivered or made hereunder or under any other Operative Document, or compliance by the Lessee with any of the agreements contained herein or in any other Operative Document, and (ii) discuss the condition, compliance with Governmental Requirements, and performance of the Equipment and the business of the Lessee with the Authorized Officers of the Lessee. Section 20. Right to Perform the Lessee's Covenants. Subject to Section 13, if the Lessee shall fail to make any payment or perform any act required to be made or performed by it hereunder, the Lessor, upon notice to or demand upon the Lessee but without waiving or releasing any obligation or Default or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Lessee as, at the Lessor's sole discretion, may be necessary or appropriate therefor and, upon the occurrence and during the continuance of a Cancellation Event 30 37 or Termination Event with respect to any Phase, may enter upon the Applicable Site thereof for such purpose and take all such action thereon as, at the Lessor's sole discretion, may be necessary or appropriate therefor. No such entry shall be deemed a repossession by the Lessor. All sums so paid by the Lessor and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses so incurred) shall be paid by the Lessee to the Lessor on demand as Supplemental Rent. Section 21. Participation by Co-Lessees or Sublessees; Participations by Lessor. (a) Except as otherwise permitted in this Section 21, the Lessee may not assign its rights or obligations under this Lease without the prior consent of the Lessor. (b) The Lessee may, so long as no Default, Event of Default, Cancellation Event or Termination Event shall have occurred and be continuing, enter into documentation assigning all or any part of this Lease and, as necessary, the other Operative Documents, to another Person, so long as (i) such documentation evidences the undertaking of such Person (a "Co-Lessee") to be responsible for all or certain obligations of the Lessee and, if approval of the Lessor is granted as contemplated in clause (iii) below, the attendant reduction in the obligations of the Lessee hereunder, (ii) such documentation expressly states that such assignment is subject and subordinate to the terms of this Lease and the Liens created hereby and (iii) unless the Lessor has granted its prior written approval, acting in its sole discretion, of such assignment to said Co-Lessee and such documentation (it being understood that the Lessor may for any reason whatsoever elect not to grant such approval), the Lessee shall remain primarily liable for all obligations of the tenant of all of the Equipment under this Lease. The Lessee will furnish promptly to the Lessor copies of all such documentation entered into by the Lessee from time to time. Any assignment made otherwise than as expressly permitted by this Section 21(b) shall be null and void and of no force and effect. (c) The Lessee may, from time to time, (i) pursuant to a sublease in substantially the form of Exhibit F, which hereby is approved by the Lessee, and subject to the terms and conditions contained therein, or (ii) otherwise so long as no Default, Event of Default, Cancellation Event or Termination Event shall have occurred and be continuing, enter into a sublease as to any Phase and such other documentation as may be 31 38 necessary with one or more Persons (each a "Sublessee"). In any event, any documentation executed by the Lessee in connection with the subletting of any of the Equipment (A) shall expressly state that such sublease is subject and subordinate to the terms of this Lease and the Liens created hereby and (B) shall not provide for a sublease term ending after the then current Scheduled Lease Termination Date for such Phase. The Lessee will furnish promptly to the Lessor copies of all subleases and related documentation entered into by the Lessee from time to time. No sublease permitted by the terms hereof will reduce in any respect the obligations of the Lessee hereunder, it being the intent of the Lessee and the Lessor that the Lessee be and remain directly and primarily liable as a principal for its obligations hereunder. Any sublease not complying with clauses (A) and (B) above shall be null and void and of no force or effect. (d) The Lessor may from time to time, without consent of or notice to the Lessee, sell participations in the interests of the Lessor in this Lease and the other Operative Documents to one or more Participants upon such terms and conditions as it shall determine; provided, that: (i) no Participant shall be entitled to receive any greater payment under Section 27(c) than the Lessor would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Lessee's prior written consent or by reason of the provisions of Section 27(b) or (c) requiring the Lessor to designate a different Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist; (ii) the Lessor shall include in the participation agreement with each Participant the covenant of each Participant to take no position in conflict with the statements of the intent of the Lessor and the Lessee in Section 25 of this Lease or otherwise in conflict with the provisions thereof; and (iii) in no event shall the Lessor be obligated to the Participant under the participation agreement to take or refrain from taking any action hereunder except that the Lessor may agree in the participation agreement that it will not, without the consent of the Participant, agree to (A) the increase or extension of the term of the Lease as to any Phase, (B) the extension of any date fixed for the payment of Rent, (C) the reduction of any payment of Rent or (D) the release of any Equipment, except as specifically provided by this Lease. Section 22. Notices. Except as otherwise provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier and other 32 39 readable communication) and mailed by certified mail, return receipt requested, telecopied or otherwise transmitted or delivered, if to the Lessee, Flowers Industries, Inc., 200 U.S. Highway 10 South, P. O. Box 1338, Thomasville, GA 31799, Attention: C. Martin Wood, III, Telecopier: (912) 225-3808; if to the Lessor, at 301 North Main Street, P.O. Box 3099, Winston-Salem, NC 27150, Attention: Jonathan E. Head, Vice President/Operations Manager, Telecopier: (910) 770-6033; or, as to either party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall, if so mailed, telecopied or otherwise transmitted, be effective when received, if mailed, or when the appropriate answer back or other evidence of receipt is given, if telecopied or otherwise transmitted, respectively. A notice received by the Lessor by telephone shall be effective if the Lessor believes in good faith that it was given by an authorized representative of the Lessee and acts pursuant thereto, notwithstanding the absence of written confirmation or any contradictory provision thereof. Section 23. Amendments and Waivers. The provisions of this Lease may from time to time be amended, modified or waived only if such amendment, modification or waiver is in writing and consented to by the Lessee and the Lessor and, if applicable, in accordance with Section 22. Section 24. Severability. Any provision of this Lease which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 25. Federal Income Tax Considerations. It is the understanding of the parties that for income tax purposes this transaction will be treated as a financing and the Lessee will be treated as the owner of all of the Equipment and the Lessee and the Lessor agree not to take any action inconsistent with such treatment, subject to the following sentence. Notwithstanding anything in this Section to the contrary, the Lessor retains the right to assert that it is the owner of the Equipment subject to this Lease for income tax purposes in the event that there is a determination (within the meaning of Section 1313 of the Internal Revenue Code of 1986, as amended, or with respect to state or local income tax, a comparable determination under state or local 33 40 law) that the Lessee is not to be treated as the owner of the Equipment. Section 26. Other Provisions. In order to protect the rights and remedies of the Lessor and the Lessee both during the term of this Lease and following a Default, an Event of Default, a Termination Event or a Cancellation Event, and for the purposes of Federal, state and local income and ad valorem taxes, state and local sales taxes, documentary stamp and intangibles taxes and other taxes relating to or assessable as a result of the execution, delivery or recording of any of the Operational Documents and for purposes of Title 11 of the United States Code (or any other applicable Federal, state or local insolvency, reorganization, moratorium, fraudulent conveyance or similar law now or hereafter in effect for the relief of debtors), the parties hereto intend that (i) this Lease be treated as the repayment and security provisions of a loan by the Lessor to the Lessee in the face amount of the Equipment Cost for all Phases, (ii) all payments of Rent and the Termination Value for any Phase be treated as payments of principal, interest and other amounts owing with respect to such loan, respectively, (iii) the Lessee should be treated as entitled to all benefits of ownership of the Equipment or any part thereof, (iv) this Lease be treated as a security agreement or other similar instrument (the "Security Agreement") from the Lessee, as debtor to the Lessor, as secured party, encumbering the Equipment and all personal property comprising the Equipment and that the Lessee, as debtor, hereby grants to the Lessor, as secured party (the "Secured Party") a first and prior Lien on and security interest in the Equipment and all proceeds therefrom, in each case being effective as of the date of this Lease. In such event, the Lessor shall have all of the rights, powers and remedies of a secured party available under applicable law, including, without limitation, judicial or nonjudicial foreclosure or power of sale, as and to the extent available under applicable law, and the amounts secured by the Liens and security interests shall be the Basic Rent, Supplemental Rent, Termination Value and Final Rent Payment, and all indemnification and other amounts payable under this Lease or any of the other Operative Documents. The filing of any financing statement in connection with this Lease shall be deemed to constitute the filing of a financing statement to perfect the security interests in the Equipment as aforesaid to secure the payment of all amounts due from time to time from the Lessee to the Lessor under this Lease and the other Operative Documents. To the fullest extent permitted by applicable law, the Lessor and the Lessee intend that the Equipment be and remain at all times 34 41 personal property regardless of the manner or extent to which any of the Equipment may be attached or affixed to any real property. This Security Agreement secures and shall be security for any and all future advances made by Secured Party to the Lessee with respect to this Lease or any of the other Operative Documents or the Equipment. Nothing contained herein shall be deemed an obligation on the part of the Lessor to make any further advances. In order to preserve the security interest provided for herein, each of the Lessor and the Lessee agrees to abide by the following provisions with regard to the Equipment (for purposes of this Section, hereinafter referred to as "Collateral"): (a) Change in Location of Collateral or the Lessee. The Lessee will notify the Secured Party on or before the date of any change in location of the Collateral and will, on or before the date of any change in location of the Collateral, prepare and file new or amended financing statements as necessary so that the Secured Party shall continue to have a first and prior perfected Lien (subject only to Permitted Liens) in such Collateral after such change in location. The Lessee will give the Secured Party thirty (30) days' prior written notice of any change in the location of the Lessee's chief executive office or address. (b) Documents; Collateral in Possession of Third Parties. If certificates of title or other documents evidencing ownership or possession of the Collateral are issued or outstanding, the Lessee will cause the interest of the Secured Party to be properly noted thereon and will, forthwith upon receipt, deliver same to the Secured Party. If any Collateral is at any time in the possession or control of any warehouseman, bailee, agent or independent contractor, the Lessee shall notify such Person of the Secured Party's security interest in such Collateral. Upon the Secured Party's request, the Lessee shall instruct any such Person to hold all such Collateral for the Secured Party's account subject to the Lessee's instructions, or, if an Event of Default shall have occurred and be continuing, subject to the Secured Party's instructions. (c) Sale, Disposition or Encumbrance of Collateral. Except for Permitted Liens, as permitted by any of the Operative Documents or with the Secured Party's prior written consent, the Lessee will not in any way encumber any of the Collateral (or permit or suffer any of the Collateral to be encumbered) except 35 42 for Permitted Liens or sell, assign, lend, rent, lease or otherwise dispose of or transfer any of the Collateral to or in favor of any Person other than the Secured Party. (d) Proceeds of Collateral. Except as permitted by any of the Operative Documents, the Lessee will deliver to the Secured Party promptly upon receipt all proceeds delivered to the Lessee from the sale or disposition of any Collateral. Upon any such sale or disposition, the Lessee shall be entitled to (i) in the circumstances described in Section 15 (a)(ii)(B)(2)(y), the amount determined pursuant thereto or (ii) in any other circumstances, any surplus remaining after the payment of the Termination Value and the payment of all expenses pursuant to Section 16. This Section shall not be construed to permit sales or dispositions of the Collateral except as may be elsewhere expressly permitted by this Lease or the other Operative Documents. (e) Further Assurances. Upon the request of the Secured Party, the Lessee shall (at the Lessee's expense) execute and deliver all such assignments, certificates, financing statements or other documents and give further assurances and do all other acts and things as the Secured Party may reasonably request to perfect the Secured Party's interest in the Collateral or to protect, enforce or otherwise effect the Secured Party's rights and remedies hereunder, all in form and substance satisfactory to the Secured Party. (f) Lease. The Lease will not be amended, supplemented or modified without the written consent of the Secured Party. All payments under the Lease shall be made only to such account as specified by the Secured Party. Section 27. Yield Protection and Illegality (a) Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Rental Period or Interim Rental Period with respect to any Basic Rent or Interim Rent which is determined on the basis of the LIBO Rate: (i) the Lessor determines that deposits in Dollars (in the applicable amounts), are not being offered in the relevant market for such Rental Period or Interim Rental Period, or 36 43 (ii) the Lessor determines and give notice to the Lessee that, as a result of conditions in or generally affecting the London interbank eurodollar market, the rates for Basic Rent or Interim Rent, as applicable, determined on the basis of the LIBO Rate for any Rental Period or Interim Rental Period will not adequately and fairly reflect the cost to the Lessor of making, funding or maintaining the Equipment Cost giving rise to such Basic Rent or Interim Rent for any Equipment for such Rental Period or Interim Rental Period, the Lessor shall forthwith so notify the Lessee, whereupon, (A) the Basic Rent or Interim Rent, as applicable, for such Equipment for such Rental Period or Interim Rental Period shall be determined on the basis of the Base Rate, (B) the obligation of the Lessor to fund any Equipment Cost having Basic Rent or Interim Rent, as applicable, or to continue to accrue Basic Rent or Interim Rent, as applicable, based on the LIBO Rate shall be suspended until the Lessor shall notify the Lessee that the circumstances causing such suspension no longer exist, and (C) unless the Lessee notifies the Lessor at least two (2) Business Days before the date of funding of any Equipment Cost for which notice has previously been given that it elects not to cause the related Equipment to be purchased on such date, Basic Rent or Interim Rent, as applicable, relating to such Equipment Cost shall be determined at a rate of interest equal to the Base Rate. Upon the written request of the Lessee, the Lessor shall negotiate with the Lessee for a reasonable period of time, as determined in the Lessor's discretion, to develop a substitute interest rate basis hereunder; provided, however, (x) the Lessor and the Lessee make no representation, warranty or covenant that any such agreement will be made, and (y) any relevant Basic Rent or Interim Rent shall continue to be determined based on the Base Rate during the continuance of any such negotiations and thereafter should no alternate interest rate be agreed to by the necessary parties. 37 44 (b) Illegality. If, after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such agency being referred to as a "Banking Authority" and any such event being referred to as a "Change of Law"), or compliance by the Lessor (or its Applicable Funding Office) with any request or directive (whether or not having the force of law) of any Banking Authority shall make it unlawful or impossible for the Lessor (or its Applicable Funding Office) to determine Basic Rent or Interim Rent for the making, maintaining or funding of the Equipment Cost for any Equipment based on the LIBO Rate, the Lessor shall forthwith give notice thereof to the Lessee, whereupon until the Lessor notifies the Lessee that the circumstances giving rise to such suspension no longer exist, the obligation of the Lessor determine Basic Rent or Interim Rent for the making, maintaining or funding of the Equipment Cost for any Equipment based on LIBO Rate shall be suspended. Before giving any notice to the Lessee pursuant to this Section, the Lessor shall designate a different Applicable Funding Office if such designation will avoid the need for giving such notice and will not, in the judgment of the Lessor, be otherwise disadvantageous to the Lessor. If the Lessor shall determine that it may not lawfully continue to determine Basic Rent or Interim Rent for the making, maintaining or funding of any Equipment Cost for any Equipment based on the LIBO Rate to the end of the Rental Period or Interim Rental Period and shall so specify in such notice, the Basic Rent or Interim Rent for such Rental Period or Interim Rental Period shall immediately be converted to and be determined based on the Base Rate, and the Lessee shall immediately pay to the Lessor any amounts payable pursuant to Section 27(c). (c) Increased Cost and Reduced Return. (i) If after the date hereof, a Change of Law or compliance by the Lessor (or its Applicable Funding Office) with any request or directive (whether or not having the force of law) of any Banking Authority: (A) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System (including any Euro-Dollar Reserve Requirement) against assets of, deposits with or for 38 45 the account of, or credit extended by, the Lessor (or its Applicable Funding Office); or (B) shall impose on the Lessor (or its Applicable Funding Office) or on the relevant interbank market any other condition affecting the Basic Rent or Interim Rent, to the extent it is determined based on the LIBO Rate; and the result of any of the foregoing is to increase the cost to the Lessor (or its Applicable Funding Office) of determining Basic Rent or Interim Rent based on the LIBO Rate, or to reduce the amount of any sum received or receivable by the Lessor (or its Applicable Funding Office) under this Lease or under any other Operative Document with respect thereto, by an amount deemed by the Lessor to be material, then, within 15 days after demand by the Lessor, the Lessee shall pay to the Lessor such additional amount or amounts as will compensate the Lessor for such increased cost or reduction; provided, however, that the Lessee shall not be responsible to the Lessor for any increased cost or reduced return under this Section 27(c)(i) which accrued at any time before that date which is 90 calendar days prior to the date upon which the Lessee is notified of same. (ii) If the Lessor shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by the Lessor (or its Applicable Funding Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any Banking Authority, has or would have the effect of reducing the rate of return on the Lessor's capital as a consequence of its obligations hereunder to a level below that which the Lessor could have achieved but for such adoption, change or compliance (taking into consideration the Lessor's policies with respect to capital adequacy) by an amount deemed by the Lessor to be material, then from time to time, within 15 days after demand by the Lessor, the Lessee shall pay to the Lessor such additional amount or amounts as will compensate the Lessor for such reduction, subject to the proviso at the end of Section 27(c)(i); provided, however, that the Lessee shall not be responsible to the Lessor for any additional amount under this Section 27(c)(ii) which accrued at any time before that 39 46 date which is 90 calendar days prior to the date upon which the Lessee is notified of same. (iii) The Lessor will promptly notify the Lessee of any event of which it has knowledge, occurring after the date hereof, which will entitle the Lessor to compensation pursuant to and subject to the limitations contained in this Section 27(c) and will designate a different Applicable Funding Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of the Lessor be otherwise disadvantageous to the Lessor. A certificate of the Lessor claiming compensation under this Section 27(c) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Lessor may use any reasonable averaging and attribution methods. Nothing in this Section 27(c) shall require the Lessor to disclose any information about its tax affairs or interfere with, limit or abridge the right of the Lessor to arrange its tax affairs in any manner in which it desires. (iv) The Lessor, in claiming increased costs or other amounts under this Section 27(c), shall, at the time of making any claim for such increased cost or other amount and as a condition precedent to the obligation of the Lessee to reimburse the same, certify to the Lessee in writing that the Lessor, as a matter of policy, is seeking reimbursement of similar increased costs and other amounts from its credit obligors generally for similar types of credits. (v) The provisions of this Section 27(c) shall (i) subject to the provisions of Section 21(d)(i), be applicable with respect to any Participant, assignee or other transferee, and any calculations required by such provisions shall be made based upon the circumstances of such Participant, assignee or other transferee and (ii) constitute a continuing agreement and shall survive for a period of one year after the termination of this Agreement and the payment in full all Rent. (d) Payments and Computations. Each determination by the Lessor of an interest rate or yield with respect to Basic Rent or Interim Rent, or an increased cost or increased capital or of illegality hereunder shall be conclusive and binding for 40 47 all purposes (absent manifest error) if made reasonably and in good faith. (e) Compensation. Upon the request of the Lessor, delivered to the Lessee, the Lessee shall pay to the Lessor such amount or amounts as shall compensate the Lessor for any loss, cost or expense (but not loss of margin or profit) incurred by the Lessor as a result of: (i) any payment or prepayment (including by reason of the occurrence of a Lease Termination Date) of a Scheduled Amount or other Equipment Cost or Termination Value on a date other than the last day of a Rental Period or Interim Rental Period, or any failure to prepay a Scheduled Amount or other Equipment Cost on the date specified for such prepayment by the Lessee in a notice to the Lessor; or (ii) any failure by the Lessee to cause the funding of the purchase of Equipment pursuant to the Agency Agreement to occur on the date for such funding as specified in the applicable notice delivered pursuant to the Agency Agreement (other than by reason of a default by the Lessor); such compensation to include, without limitation, as applicable: an amount equal to the excess, if any, of (x) the amount of Basic Rent or Interim Rent which would have accrued on the amount so paid or prepaid or not prepaid or with respect to which such funding did not occur for the period from the date of such payment, prepayment or failure to prepay or fund to the last day of the then current Rental Period or Interim Rental Period for such payment of Basic Rent or Interim Rent, in the case of a failure to prepay or cause such funding, the Rental Period or Interim Rental Period for such Basic Rent or Interim Rent which would have commenced on the date of such failure to prepay or cause such funding) determined based on the applicable rate for Basic Rent or Interim Rent provided for herein over (y) the rate relating to such Basic Rent or Interim Rent (as reasonably determined by the Lessor), the Lessor would have paid on deposits in Dollars of comparable amounts having terms comparable to such period placed with it by leading banks in the London interbank market; provided, that (i) the Lessee shall be responsible to the Lessor only for its actual costs incurred in connection with same (i.e. not for any lost profits which were expected over the course of such Rental Period or Interim Rental Period), (ii) the Lessor shall take reasonable efforts to mitigate its damages in 41 48 connection with same, and (iii) the Lessee shall not be responsible to the Lessor for such losses in excess of those amounts as the Lessor would have incurred had it funded or maintained the related Equipment Cost in the London interbank market. Section 28. Conditions Precedent (a) Closing; Conditions Precedent to Effectiveness of this Lease. On the Closing Date, at such place as the parties hereto shall agree, this Lease and each of the Operative Documents shall be duly executed and delivered by the parties to such documents. This Lease shall become effective when (i) it shall have been executed by the Lessor and the Lessee, and (ii) the Lessor shall, on or before October 20, 1995, have received the following, each being in form and substance satisfactory to the Lessor; provided, that the Lessee may deliver the insurance certification referred to in clause (iv) below by October 27, 1995 (which must be reasonably satisfactory in form and substance to the Lessor), and failure to deliver such certification on or before October 20, 1995 shall not prevent this Lease from becoming effective: (i) Certificates of the Lessee. A Certificate of the Secretary or Assistant Secretary of the Lessee setting forth (i) resolutions of its board of directors authorizing the execution, delivery and performance of the obligations contained in this Lease and the other Operative Documents to which it is a party, (ii) the officers of the Lessee specified in such Secretary's Certificates that are authorized to sign this Lease and the other Operative Documents to which the Lessee is a party and, until replaced by another officer or officers duly authorized for that purpose, to act as its respective representative for the purposes of signing documents and giving notices and other communications in connection with this Lease and the Operative Documents to which it is a party and (iii) true and correct copies of the articles or certificate of incorporation and the bylaws of the Lessee. The Lessor may conclusively rely on such certificate until the Lessor receives notice in writing from the Lessee to the contrary. (ii) Opinion of the Lessee's Counsel. A favorable opinion or opinions of Assistant General Counsel to the Lessee, in substantially the form of Exhibit D, and 42 49 as to such other matters as the Lessor may reasonably request. (iii) Execution and Delivery of Operative Documents. Each of the other Operative Documents. (iv) Insurance Certification. The Lessor shall have received a certificate by a firm of independent insurance brokers or consultants chosen by the Lessee setting forth the insurance obtained, and to be obtained pursuant to this Lease, with respect to the Equipment and the Lessee's operations with respect thereto. (v) Annual Financial Statements. The Lessor shall have received the financial statements described in Section 29(k). (vi) Other. Such other documents as the Lessor or special counsel to the Lessor may reasonably request. (b) Conditions to Commencement of Lease for each Phase. The commencement of this Lease as to each Phase is subject to (i) the occurrence of the Acquisition Date as to the first item of Equipment in such Phase, (ii) there being no more than 8 Phases under this Lease, (iii) the anticipated actual Equipment Cost (not including Soft Costs) for any Phase not being less than $2,000,000, and (iv) the satisfaction of the other conditions set forth in Section 28(c) as to such first item of Equipment (such date being the "Phase Commencement Date" as to such Phase. (c) Conditions to addition of any Equipment in each Phase. The addition of any Equipment to this Lease is subject to the satisfaction of each of the following conditions as to such Equipment: (i) Acquisition Date. The Acquisition Date shall have occurred as to such Equipment. The term "Acquisition Date" with respect to any item of Equipment shall mean the date on which each of such conditions has been satisfied (A) the Lessor shall have paid the Equipment Cost therefor and shall have received bills of sale or other evidence of ownership thereof, taking good and marketable title thereto, free and clear of all liens and encumbrances of third parties, pursuant to the Agency Agreement, (B) the Lessor shall have received copies of all Related Contracts, and all 43 50 other contracts entered into in connection with the acquisition, development and installation of the Equipment, pursuant to the Agency Agreement (C) all Permits that are or will become Applicable Permits with respect to such Phase and the Applicable Site shall have been obtained, except Applicable Permits customarily obtained or which are permitted by Governmental Requirements to be obtained after the acquisition of the Equipment (in which case the Lessee, having completed all appropriate due diligence in connection therewith pursuant to the Agency Agreement, shall have no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Governmental Requirements), and such obtained Permits shall be in proper form, in full force and effect and not subject to any appeal or other unsatisfied contest that may allow modification or revocation thereof, (D) the Lessor shall have received evidence of perfection under local law of its ownership of the Equipment subject to a Lease intended as security and of filing of protective financing statements under applicable local law, properly executed by the Lessee, evidencing a first priority, perfected interest in the Equipment in favor of the Lessor as security for payment by the Lessee of all amounts, and the performance of all obligations, of the Lessee under the Lease, (E) the Lessor shall have received a Certificate of Acceptance in substantially the form of Exhibit B attached hereto and by reference made a part hereof from the Lessee with respect to such Equipment and (F) the Lessor shall have received a Lease Supplement in substantially the form of Exhibit C attached hereto and by reference made a part hereof from the Lessee with respect to such Equipment. (ii) No Default. The fact that immediately before and after the Acquisition Date for such Equipment, no Default or Event of Default shall have occurred and be continuing. (iii) Accuracy of Representations, etc. The representations and warranties of the Lessee contained in this Lease and the other Operative Documents to which it is a party, are true and correct in all material respects on and as of the Acquisition Date for such Equipment (except for any representations which were correct on the date of this Lease but are not correct on such Acquisition Date because of a change permitted by the terms of this Lease or the Operative Documents). 44 51 (iv) Casualties. Neither the Equipment in such Phase nor the Applicable Site thereof shall have suffered (A) a Loss Event or (B) a Casualty Occurrence other than a Casualty Occurrence for which a plan acceptable to the Lessor for replacing, or causing to be replaced, the portions of Equipment that are the subject of such Casualty Occurrence has been provided to the Lessor. (v) No Material Adverse Change or Effect. No material adverse change shall have occurred in the financial condition of the Lessee and its Subsidiaries on a consolidated basis since the date of the most recent Fiscal Quarter for which a financial statement of the Lessee was delivered to the Lessor and no event, act, condition or occurrence shall exist or have occurred that has had, or would reasonably be expected to have, a Material Adverse Effect. (vi) Taxes, Filings, Recordings. All filings or recordings reasonably considered necessary or desirable by the Lessor have been completed and all taxes and fees in connection therewith, and all Impositions with respect to the Equipment that are then due and payable, shall have been paid by the Lessee. Each presentation of a Lease Supplement hereunder shall be deemed to be a representation and warranty by the Lessee on the Acquisition Date relating thereto as to the facts specified in paragraphs (ii), (iii), (iv), (v), and (vi) of this Section 28(b). Section 29. The Lessee's Representations and Warranties The Lessee represents and warrants to the Lessor that: (a) Corporate Existence and Power. The Lessee is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia. The Lessee is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, except for any failure to comply with the foregoing which does not have a Material Adverse Effect, and has all corporate powers and all government authorizations, licenses, consents and approvals required to engage in its business and operations as now conducted, except for any failure to comply with the foregoing which does not have a Material Adverse Effect. 45 52 (b) Corporate and Governmental Authorization. The execution, delivery and performance by the Lessee of this Lease and the other Operative Documents to which it is a party (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or respect of or filing with, any governmental body, agency or official, (iv) do not contravene or constitute a default under, any material provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Lessee or, to the best of the Lessee's knowledge, any material agreement relating to Debt, judgment, injunction, order, decree or other instrument relating to Debt binding upon the Lessee or any Subsidiary of the Lessee and (v) do not result in the creation or imposition of any Lien on any asset of the Lessee or any Subsidiary of the Lessee or on any of the Equipment, except in favor of the Lessor. (c) Binding Effect. This Lease and the Operative Documents to which it is a party constitutes a valid and binding agreement of the Lessee, enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditor's rights generally. (d) No Litigation. Except as may be disclosed in any annual, quarterly or monthly reports which the Lessee has filed with the Securities and Exchange Commission, there is no action, suit or proceeding pending, or to the knowledge of the Lessee, threatened, against or affecting the Lessee or any Subsidiary of the Lessee before any court or arbitrator or any governmental body, agency or official which could have a Material Adverse Effect or which in any manner draws into question the validity of or could impair in any material respect the ability of the Lessee to perform its obligations under this Agreement or any of the Operative Documents executed by the Lessee. (e) Compliance with Laws. The Lessee and, to the best of the Lessee's knowledge, each Material Subsidiary, is in compliance with all applicable laws, regulations and similar requirements of governmental authorities, including, without limitation, ERISA, Environmental Requirements and payments of taxes, except where such compliance is being contested in good faith through appropriate proceedings or does not have a Material Adverse Effect. 46 53 (f) Ownership of Property; Liens. The Lessee has title to or leasehold or other interests in its material properties sufficient for the conduct of its business, and none of such property is subject to any Lien except Permitted Liens. (g) No Default. Neither the Lessee nor any of the Lessee's Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which could have or cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. (h) Full Disclosure. The Lessee's annual report on Form 10-K for the fiscal year ended at June 30, 1995, a copy of which has been furnished by the Lessee to the Lessor, did not, as of the date such Form 10-K was filed with the Securities and Exchange Commission, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) from the date of filing of the Lessee's annual report on Form 10-K for the fiscal year ended on June 30, 1995 through the date hereof, the Lessee has not filed a current report on Form 8-K with the Securities and Exchange Commission and, as of the date hereof, no event or condition exists which would require such filing by the Lessee pursuant to the Securities Exchange Act of 1934, as amended, except for any such event or condition which has heretofore been disclosed in writing to the Lessor by delivery to the Lessor of a Form 8-K. (i) Capital Stock. All Capital Stock, debentures, bonds, notes and all other securities of the Lessee presently issued and outstanding are validly and properly issued in accordance with all applicable laws in all material respects, including but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws, except to the extent any failure with respect thereto would not have or cause a Material Adverse Effect. (j) Margin Stock. The Lessee is not engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock. (k) Annual Financial Statements. The audited consolidated financial statements of the Lessee for its Fiscal Year ended July 1, 1995 fairly present, as of the date thereof, 47 54 in conformity with GAAP, the consolidated financial position of the Lessee and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such period stated. Section 30. Covenants The Lessee covenants and agrees with the Lessor to comply with the following covenants until either (i) the Equipment for all Phases has been purchased by the Lessee (or one of its Affiliates) for the Termination Value therefor, (ii) this Lease has been terminated, the Equipment for all Phases has been returned to the Lessor and the Termination Value or the Final Rent Payment, as the case may be, and all other amounts payable under this Lease and the other Operative Documents upon such occurrence have been paid in full: (a) Information. The Lessee will deliver to the Lessor: (i) as soon as available and in any event within 120 days after the end of each Fiscal Year, a consolidated balance sheet of the Lessee and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, shareholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by Price Waterhouse LLP or other independent public accountants of nationally recognized standing, with such certification to be free of exceptions and qualifications not acceptable to the Lessor; (ii) as soon as available and in any event within 60 days after the end of each of the first 3 Fiscal Quarters of each Fiscal Year, a consolidated balance sheet of the Lessee and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related statement of income and statement of cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Lessee; 48 55 (iii) promptly upon the mailing thereof to the shareholders of the Lessee generally, copies of all financial statements, reports and proxy statements so mailed; (iv) promptly after request by the Lessor therefor, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) filed with the Securities and Exchange Commissions, and promptly upon the filing thereof, annual or quarterly reports which the Lessee shall have filed with the Securities and Exchange Commission; (v) if and when any member of the Controlled Group (x) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (y) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (z) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice; (vi) promptly, and, in any event, within 15 Business Days after any officer of the Lessee becomes aware of any Default or Event of Default, a certificate of a senior financial or accounting officer or the chief financial officer or the chief accounting officer or the Treasurer of the Lessee setting forth the details thereof and the action which the Lessee is taking or proposes to take with respect thereto; (vii) promptly upon becoming aware of the occurrence of either a Loss Event or a Casualty Occurrence, or any other event or condition requiring notice under either Section 7 or Section 8 of this Lease, the Lessee shall give the Lessor written notice thereof, which notice shall specify the damage or loss to the Equipment in reasonable detail; and (viii) from time to time such additional information regarding the financial position or business of Lessor and 49 56 the Subsidiaries of Lessor as the Lessor may reasonably request. (b) Maintenance and Inspection of Property, Books and Records. The Lessee will keep books of record and account regarding this Lease and shall maintain, on a current basis, books of proper record and account in conformity with GAAP, consistently applied (to the extent applicable, and the rules of the Security and Exchange Commission and the Financial Accounting Standards Board), and keep copies of all Related Contracts and any amendments thereto and the Equipment Cost of the Equipment for each Phase and of each material item of Property comprising or included in the Equipment for each Phase, and shall provide copies of the foregoing to the Lessor from time to time on request at the Lessee's expense. The Lessee will permit representatives of the Lessor (x) at the Lessor's expense and upon reasonable notice and at a time reasonably convenient to the Lessee (but in any event within 10 days of such notice) prior to the occurrence of a Default and (y) at the Lessee's expense after the occurrence of a Default, to visit and inspect the Equipment for any Phase and any Applicable Site and any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, employees and independent public accountants. The Lessee agrees to cooperate and assist in such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired. (c) Maintenance of Existence. The Lessee shall maintain its existence and carry on the major part of its business in substantially the same fields as such business is now carried on and maintained. (d) Consolidations, Mergers and Sales of Assets. The Lessee will not consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its Consolidated Total Assets to, any other Person; provided that (a) the Lessee may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) the Lessee is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (b) without limiting any other transfer of assets which may not constitute a "substantial part" of the Consolidated Total Assets of the Lessee, during any Fiscal Quarter, no transfer of assets of the Lessee shall constitute a "substantial part" of the assets of the 50 57 Lessee if, on the date of such transfer either (A) (1) the aggregate assets to be so transferred, when combined with all other assets transferred during such Fiscal Quarter and the immediately preceding 7 Fiscal Quarters (the "Sold Assets"), less the aggregate assets of the Lessee acquired during the same period (the "Purchased Assets") constituted more than 25% of Consolidated Total Assets at the end of the eighth Fiscal Quarter immediately preceding such Fiscal Quarter; or (2) the Consolidated operating Profits during the 8 Fiscal Quarters immediately preceding such Fiscal Quarter (the "Calculation Period") contributed by the Sold Assets less the Consolidated Operating Profits contributed by the Purchased Assets during the Calculation Period (calculated as if the Purchased Assets had been acquired on the first day of the Calculation Period) did not represent more than 25% of the Consolidated Operating Profits during the Calculation Period; or (B) giving effect to the disposition of such assets, (1) the book value of the Consolidated Total Assets of the Lessee is not less than seventy-five percent (75%) of the book value of the Consolidated Total Assets of the Lessee on July 1, 1995 and (2) the Consolidated Operating Profits of the Lessee for the four Fiscal Quarter period most recently ended prior to the date of such transfer are not less than seventy-five percent (75%) of the Consolidated Operating Profits of the Lessee for its Fiscal Year ending July 1, 1995. (e) Dissolution. The Lessee shall not be permitted to be dissolved or liquidated, except through corporate reorganization to the extent permitted by Section 30(d). (f) Use of Proceeds. The proceeds of fundings of the Equipment Cost by the Lessor will be used solely to finance the acquisition of the Equipment by the Lessor pursuant to the Agency Agreement, including the enhancements and improvements to be made thereto and the design, renovation, construction and installation thereof. (g) Compliance with Laws. The Lessee will comply in all material respects with applicable laws (including but not limited to ERISA, Environmental Requirements and payments of taxes), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings or if failure to comply does not have a Material Adverse Effect. 51 58 (h) Insurance. The Lessee will maintain (either in the name of the Lessor or the Lessee, as applicable), with financially sound and reputable insurance companies, insurance on such of its property in at least such amounts, and with such deductibles, and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar businesses. The Lessee will deliver or cause to be delivered to the Lessor promptly upon request the Lessor, and in any event on January 1st of each calendar year, commencing with July 1, 1996, a certificate by a firm of independent insurance brokers or consultants chosen by the Lessee and acceptable to the Lessor setting forth the insurance or self-insurance obtained pursuant to Section 14, including, without limitation, the amounts thereof, the names of the insurers and the property, hazards and risks covered thereby, and certifying that all premiums then due and payable thereon have been paid and that the same are in full force and effect, that the Lessor has been named as additional insureds and loss payees, as their interests may appear, under each such policy, and are not liable for payment of premiums thereunder, that such policies may not be cancelled without at least thirty (30) days prior notice to the Lessor with an opportunity to cure any default thereunder. (i) Change in Fiscal Year. The Lessee will not change its Fiscal Year without the consent of the Lessor, which shall not be unreasonably withheld. (j) Maintenance of Property. The Lessee shall maintain and preserve the Equipment in accordance with the requirements of this Lease. The Lessee shall maintain and preserve all of its properties and assets, in good operating condition, ordinary wear and tear excepted, except where any failure would not have or cause a Material Adverse Effect. (k) Environmental Notices. The Lessee shall furnish to the Lessor prompt written notice of all Environmental Liabilities, pending or overtly threatened Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases of which the Lessee shall have received actual notice or have actual knowledge at, on, in, under or in any way affecting any of the Equipment or Applicable Sites, if the amount of liability or of remediation cost to the Lessor or the Lessee is or could reasonably be expected to have a Material Adverse Effect. 2 59 (l) Environmental Matters. The Lessee shall, and shall not knowingly permit any Third Party to, use, produce, manufacture, process, treat, recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or transport to or from any of the Equipment or Applicable Sites any Hazardous Materials except for Hazardous Materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled amounts in the ordinary course of business or of management or maintenance of the Equipment or the Applicable Sites in compliance with all applicable Environmental Requirements, except to the extent that failure to comply would not have a Material Adverse Effect. (m) Environmental Release. The Lessee agree that upon its becoming aware of the occurrence of an Environmental Release, except for any Environmental Release which occurred in substantial compliance with all Environmental Requirements, at or on the Equipment for any Phase or any Applicable Site, it will act promptly to determine the extent of, and to take such remedial action to eliminate, any such Environmental Release, whether or not ordered or otherwise directed to do so by any Environmental Authority, except to the extent that failure to take remedial action would not have a Material Adverse Effect. (n) Transactions with Affiliates. The Lessee shall not enter into, or be a party to, any transaction with any Affiliate of the Lessee (which Affiliate is not a Subsidiary, other than a Person in which the Lessee or such Subsidiary owns less than a majority interest and which, if it were a Subsidiary, would not be a Material Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which either (x) are no less favorable to the Lessee than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate or (y) have been approved by a majority of the disinterested members of the Board of Directors of the Lessee; provided, that the foregoing shall not affect the ability of the Lessee to determine, in its sole discretion, the amount or form of executive or directors compensation from time to time. (o) Further Assurances. The Lessee will, upon request of the Lessor, cure promptly any defects in the due execution and delivery by it of the Operative Documents, including this Lease. The Lessee at its expense will promptly execute and deliver to the Lessor upon request all such other and further documents, agreements and instruments in compliance with or accomplishment 53 60 of the covenants and agreements of the Lessee in the Operative Documents, including this Lease, or to further evidence and more fully describe the Equipment, or to correct any item that the Lessee and the Lessor agree constitutes an omission or error in the Operative Documents, or more fully to state the existing security obligations set out herein or in any of the Operative Documents, or to perfect, protect or preserve any Liens created pursuant to any of the Operative Documents, or to make any recordings, to file any notices, or obtain any consents, required by the terms of the Operative Documents, all as may be reasonably necessary or appropriate in connection therewith. (p) Liens, Etc. The Lessee covenants and agrees that it shall not create, assume or suffer to exist, any Liens upon the Equipment for any Phase, other than Permitted Liens. (q) Negative Pledge. Neither the Lessee nor any Consolidated Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (i) Liens existing on the date of this Lease securing Debt outstanding on the date of this Lease; (ii) any Lien existing on any asset of any corporation at the time such corporation becomes a Consolidated Subsidiary and not created in contemplation of such event; (iii) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset, provided that such Lien attaches to such asset concurrently with or within 18 months after the acquisition or completion of construction thereof; (iv) any Lien on any specific fixed asset of any corporation existing at the time such corporation is merged or consolidated with or into the Lessee or a Consolidated Subsidiary and not created in contemplation of such event; (v) any Lien existing on any specific fixed asset prior to the acquisition thereof by the Lessee or a Consolidated Subsidiary and not created in contemplation of such acquisition; 54 61 (vi) Liens securing Debt owing by any Subsidiary to the Lessee; (vii) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing paragraphs of this Section 30(q), provided that (x) such Debt is not secured by any additional assets, and (y) the amount of such Debt secured by any such Lien is not increased; (viii) Liens imposed by any governmental authority for taxes, assessments or charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Lessee or any of its Subsidiaries, as the case may be, in accordance with GAAP; (ix) carriers', warehousemen's, mechanics', materialmen's repairmen's or other like Liens arising in the ordinary course of business (whether or not statutory) which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings, for which a reserve or other appropriate provisions, if any, as shall be require by GAAP shall have been made; (x) pledges or deposits to secure non-delinquent obligations under worker's compensation, unemployment insurance and other social security legislation; (xi) Liens on capital stock of or other ownership interests in any Person not a Subsidiary of the Lessee securing Indebtedness of such Person; (xii) Liens resulting from progress payments or partial payments under United States government contracts or subcontracts; (xiii) Liens arising from legal proceedings, so long as such proceedings are being contested in good faith by appropriate proceedings diligently conducted and so long as execution is stayed on all judgments resulting from any such proceedings; (xiv) Liens on real Property; 55 62 (xv) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Debt and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; and (xvi) Liens not otherwise permitted by the foregoing paragraphs of this Section 30(q) securing Debt (other than indebtedness under this Lease or the other Operative Documents) in an aggregate principal amount at any time outstanding not to exceed 5% of Tangible Net Worth. Provided Liens permitted by the foregoing paragraphs (i) through (xvi) shall at no time secure Debt in an aggregate amount greater than 25% of Tangible Net Worth. (r) Guarantees. The Lessee shall not, except for Guarantees related to Debt Liens expressly permitted by Section 30(q), after the Closing Date incur or become liable on (whether by Guarantee or otherwise) any Debt of another Person in excess of $20,000,000 except for (i) any Guarantee of any of its Subsidiaries' obligations, (ii) endorsement of negotiable instruments payable at sight for deposit or collection or similar banking transactions in the usual course of business, (iii) Guarantees, endorsements or other similar arrangements made by the Lessee to facilitate the sale of loans made by the Lessee or any of its Subsidiaries to independent contractors for the sale of distribution rights to distribute the Lessee's or any of its Subsidiaries' products. (s) ERISA. The Lessee will comply with the requirements of ERISA with respect to each Plan and promptly notify the Lessor (i) of the occurrence of any event which could cause the termination, in whole or in part, of any Plan; (ii) of any violation of ERISA with respect to any Plan; and (iii) of the occurrence of any reportable event as defined by ERISA. Section 31. Miscellaneous. (a) Entire Agreement. THIS LEASE AND THE OTHER OPERATIVE DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LESSEE AND THE LESSOR AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF. THIS WRITTEN LEASE AND THE OTHER OPERATIVE DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL 56 63 AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. (b) No Personal Liability. Notwithstanding anything to the contrary contained in this Lease, the execution of this Lease and any other instrument or document executed in connection herewith shall not impose upon any director, officer or employee of the Lessee or the Lessor personal liability for the Lessee's and the Lessor's respective obligations under this Lease or any other instrument or document executed in connection herewith; provided the foregoing shall not relieve any such director, officer or employee of personal liability for his or her fraud or intentional misconduct. (c) Interpretation. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. (d) Governing Law. THIS LEASE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO RELATING TO THE EQUIPMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, BUT EXCLUDING ALL CONFLICT-OF-LAWS RULES; EXCEPT THAT, AS TO ANY PHASE, TO THE EXTENT REQUIRED BY THE LAWS OF THE STATE IN WHICH THE APPLICABLE SITE FOR SUCH PHASE IS LOCATED, THE LAWS OF THE STATE OF IN WHICH SUCH APPLICABLE SITE IS LOCATED SHALL GOVERN (I) THE CREATION AND EXISTENCE OF THIS LEASE, (II) SECTION 26 OF THIS LEASE, AND (III) THE ENFORCEMENT OF THE RIGHTS OF LESSOR TO REPOSSESS THE EQUIPMENT FOR SUCH PHASE FROM THE LESSEE AFTER THE EARLIER OF THE TERMINATION OF THIS LEASE OR THE TERMINATION OF THE LESSEE'S RIGHT TO POSSESSION OF THE EQUIPMENT FOR SUCH PHASE. (e) No Third Party Beneficiaries. Nothing in this Lease, express or implied, shall give to any Person, other than the parties hereto and the Participants and their respective successors and permitted assigns, any benefit or any legal or equitable right, remedy or claim under this Lease including, without limitation, under any provision of this Lease regarding the priority or application of any amounts payable hereunder. (f) Counterparts. This Lease may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 57 64 (g) Waiver of Jury Trial. EACH OF THE PARTIES HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR TO DEFEND ANY RIGHTS UNDER THIS LEASE OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS LEASE, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. (h) Invalidity. In the event that any one or more of the provisions contained in this Lease shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Lease. (i) Usury. Notwithstanding anything to the contrary contained in this Lease or any of the Operative Documents, the amounts which the Lessee is obliged to pay pursuant to this Lease and the other Operative Documents, and the amounts which the Lessor is entitled to receive pursuant to this Lease and the other Operative Documents, are subject to the following limitations. It is the intention of the parties hereto that the Lessor shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to the Lessor under laws applicable to it (including the laws of the United States of America and the State of Georgia or any other jurisdiction whose laws may be mandatorily applicable to the Lessor notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in this Lease or in any other Operative Document, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to the Lessor that is contracted for, taken, reserved, charged or received by the Lessor under this Lease or under any of the other aforesaid Operative Documents or other agreements or otherwise in connec tion with this Lease shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be cancelled automatically and if theretofore paid shall be credited by the Lessor on the amounts paid by the Lessee, to the extent that the obligations with respect thereto shall have been or would thereby be paid in full, refunded by the Lessor to the Lessee and (ii) in the event that any amounts hereunder become due and payable prior to the regularly scheduled maturity (whether by reason of the occurrence of a Cancellation Event or a Termination Event or otherwise, or in the event of any required 58 65 or permitted prepayment, then such consideration that constitutes interest under law applicable to the Lessor may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Lease or otherwise shall be cancelled automatically by the Lessor as of the date of such prepayment and, if theretofore paid, shall be credited by the Lessor on the amounts payable hereunder (or, to the extent that the amounts payable hereunder shall have been or would thereby be paid in full, refunded by the Lessor to the Lessee). All sums paid or agreed to be paid to the Lessor for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to the Lessor, be amortized, prorated, allocated and spread in equal parts throughout the full term of this Lease until payment in full so that the rate or amount of interest on account of any amounts payable hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest or yield payable to the Lessor on any date shall be computed at the Highest Lawful Rate applicable to the Lessor pursuant to this Section 31(i) and (ii) in respect of any subse quent interest or yield computation period the amount of interest or yield otherwise payable to the Lessor would be less than the amount of interest or yield payable to the Lessor computed at the Highest Lawful Rate applicable to the Lessor, then the amount of interest or yield payable to the Lessor in respect of such subsequent interest or yield computation period shall continue to be computed at the Highest Lawful Rate applicable to the Lessor until the total amount of interest or yield payable to Lessor shall equal the total amount of interest or yield which would have been payable to the Lessor if the total amount of interest or yield had been computed without giving effect to this Section. (j) Time of the Essence. Time is of the essence in connection with the payment of Rent and all other amounts payable hereunder and the performance of the Lessee's other obligations hereunder. (k) Indemnification. The Lessee agrees: (i) in addition to any other indemnity obligations set forth in any Operative Document, to indemnify and save harmless, the Lessor and any of its successors and assigns, and their respective officers, directors, incorporators, shareholders, employees, agents, partners, attorneys, affiliates and servants (individually an "Indemnified Party" and collectively the "Indemnified 59 66 Parties") from and against all liabilities, Liens, losses, obligations, claims, damages (including, without limitation, penalties, fines, court costs and administrative service fees), penalties, demands, causes of action, suits, proceedings (including any investigations, litigation or inquiries), judgments, orders, sums paid in settlement of claims, and costs and expenses of any kind or nature whatsoever, including, without limitation, reasonable attorneys' fees and expenses and all other expenses incurred in connection with investigating, defending or preparing to defend any cause of action, suit or proceeding (including any investigations, litigation or inquiries) or claim which may be incurred by or asserted against or involve any of them (whether or not any of them is named as a party thereto) as a result of, arising directly or indirectly out of or in any way related to (A) any actual or proposed use by the Lessee of the amounts funded as Equipment Cost, (B) any other aspect of this Lease and the other Operative Documents, (C) the operations of the business of the Lessee, (D) the failure of the Lessee to comply with any Governmental Requirement in connection with the purchase, design, construction, manufacture, engineering, assembly, installation, use, operation or ownership of the Equipment or any portion thereof, (E) the breach of any representation or warranty set forth herein regarding Environmental Laws, (F) the failure of the Lessee as agent for the Lessor under the Agency Agreement to pay any amount required to be paid hereunder, (G) the failure of the Lessee to perform any obligation herein required to be performed pursuant to Environmental Laws, or any act or omission which occurred or will occur at any prior or subsequent time, or any condition or state of facts in existence at any prior or subsequent time relating in any way to any of the Equipment or any Applicable Site the failure of which gives rise to any liability or obligation under any Environmental Requirement or gives rise to any Environmental Damages, (H) the Lessee's ownership and leasing of the Equipment pursuant to this Lease, (I) the sale of any portion of the Equipment either to the Lessee or any other Person pursuant to the provisions of this Lease, (J) all acts or omissions of the Lessee or any Sublessee, (K) any Imposition, Lien, judgment, order, tax, or other payment owing in respect of any of the Equipment or which the Lessee is obligated to discharge or pay to any Person, (L) any action or omission of the Lessee pursuant to the Agency Agreement, (M) any injury to, or death of, any Person, or damage to or loss of Property to 60 67 the extent not reimbursed by insurance prior to the Indemnified Party having to make any payment in respect thereof, or any other thing occurring on or resulting from activities involving any of the Equipment or on any Applicable Site or any portion thereof, (N) the renovation, construction, leasing, subleasing, operation, occupancy, possession, use or non-use by the Lessee (whether in its individual capacity or as agent for the Lessor) of any of the Equipment or any Applicable Site or any portion thereof, or the condition of the Equipment or any portion thereof, (O) any Default or Event of Default under this Lease, (P) any act or omission of the Lessee or its agents, contractors, licensees, Sublessees, invitees, representatives or any other Person on or relating to, or in connection with, the ownership, renovation, construction, leasing, subleasing, operation, management, maintenance, occupancy, possession, use, non-use or condition of any of the Equipment or any Applicable Site or any portion thereof, (Q) performance of any labor or services or furnishing of any materials or other Property in respect of any of the Equipment or any Applicable Site or any portion thereof, (R) any permitted contest referred to in Section 13 hereof, (S) any claims for patent, trademark, trade name or copyright infringement or (T) any violation by the Lessee of any Operative Document or any Related Contracts or any other contract or agreement to which the Lessee is a party, or of any Insurance Requirement, in each case affecting any Indemnified Party, any of the Equipment or any Applicable Site or any portion thereof or the ownership, operation, occupancy, possession, use, non-use or condition thereof, in each case regardless of the acts, omissions or negligence of any Indemnified Party, it being the intent of the Lessee to indemnify the Indemnified Parties for their own negligent acts or omissions (other than gross negligence or wilful misconduct) in connection with any of the foregoing (collectively, the "Indemnified Risks"); provided, however, that no Indemnified Party shall be entitled to indemnity (or any other payment or reimbursement) for any Indemnified Risks to the extent such Indemnified Risks result from or arise out of one or more of the following: (1) any representation or warranty by such Indemnified Party in the Operative Documents being incorrect; (2) the willful misconduct or gross negligence of such Indemnified Party; and (3) any claim for economic losses based upon the rate of return under this Lease. 61 68 (ii) If any cause of action, suit, proceeding or claim arising from any of the foregoing is brought against any Indemnified Party, whether such action, proceeding, suit or claim shall be actual or threatened, or in preparation therefor, the Lessee will have the right, at its expense, to assume the resistance and defense of such cause of action, suit, proceeding or claim or cause the same to be resisted and defended; provided that such Indemnified Party shall be entitled (but not obligated) to participate jointly in such defense, in which case such Indemnified Party will be responsible for its own legal fees or other expenses, if any, related to such defense incurred subsequent to the joint participation by such party in such defense. Notwithstanding the foregoing, if any Indemnified Party shall have been advised by counsel chosen by it that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Lessee, the Indemnified Party may assume the defense of such action and the Lessee agrees to reimburse such Indemnified Party for the reasonable fees and expenses of any counsel retained by the Indemnified Party. the Lessee may settle any action which it defends hereunder on such terms as it may deem advisable in its sole discretion, subject to its ability promptly to perform in full the terms of such settlement. No Indemnified Party may seek indemnification or other reimbursement or payment, including attorneys' fees or expenses, from the Lessee for any cause of action, suit, proceeding or claim settled, compromised or in any way disposed of by the Indemnified Party without the Lessor's prior written consent, which will not be unreasonably withheld. (iii) The obligations of the Lessee under this Section 31(k) shall survive the expiration or any termination of this Lease (whether by operation of law or otherwise) and the payment of amounts owed by the Lessee under this Lease and the other Operative Documents. (iv) Upon demand for payment by any Indemnified Party of any Indemnified Risks incurred by it for which indemnification is sought, the Lessee shall pay when due and payable the full amount of such Indemnified Risks to the appropriate party, unless and only so long as: (A) the Lessee shall have assumed the defense of such action and is diligently prosecuting the same; (B) the Lessee is financially able to pay all its obligations outstanding and 62 69 asserted against the Lessee at that time, including the full amount of the Indemnified Risks; and (C) the Lessee has taken all action as may be reasonably necessary to prevent (1) the collection of such Indemnified Risks from the Indemnified Party; (2) the sale, forfeiture or loss of the Equipment or any portion thereof during such defense of such action; and (3) the imposition of any civil or criminal liability for failure to pay such Indemnified Risks when due and payable. (v) The Lessee acknowledges and agrees that its obligations under this Section 31(k) are intended to include and extend to any and all liabilities, Liens, losses, obligations, claims, damages (including, without limitation, penalties, fines, court costs and administrative service fees), penalties, demands, causes of action, suits, proceedings (including any investigations, litigation or inquiries), judgments, orders, sums paid in settlement of claims, costs and expenses (including, without limitation, response and remediation costs, stabilization costs, encapsulation costs, and treatment, storage or disposal costs), imposed upon or incurred by or asserted at any time against any Indemnified Party (whether or not indemnified against by any other party) as a result of, arising directly or indirectly out of or in any way related to (1) the treatment, storage, disposal, generation, use, transport, movement, presence, release, threatened release, spill, installation, sale, emission, injection, leaching, dumping, escaping or seeping of any hazardous substance or material containing or alleged to contain hazardous substance at or from any of the Equipment or any Applicable Site or any part thereof; (2) the violation or alleged violation of any Environmental Laws relating to or in connection with any of the Equipment or any Applicable Site or any part thereof or any acts or omissions thereon or relating thereto; (3) all other federal, state and local laws designed to protect the environment or persons or property therein, whether now existing or hereinafter enacted, promulgated or issued by any governmental authority relating to or in connection with any of the Equipment or any Applicable Site or any part thereof or any acts or omissions thereon or relating thereto; (4) the Lessee's failure to comply with its obligations under Section 7 hereof; and (5) any abandonment of any of the Equipment or any Applicable Sites by the Lessee; provided, however that no Indemnified Party shall be entitled to indemnity or any other payment or reimbursement 63 70 for any of the types of claims enumerated in this Section 31(k) to the extent such claims result from or arise out of the willful misconduct or gross negligence of such Indemnified Party; and (ii) the indemnification provided for under this Section 31(k)(v) shall be governed by the procedures set forth in Sections 31(k)(ii)-(iv) above. (vi) Without limiting the generality of the foregoing provisions of this Section 31(k), the Lessee agrees to pay or reimburse, promptly upon demand, and protect, indemnify and save harmless, the Lessor, following the occurrence of a Termination Event, from any action by any Sublessee or other owner of an interest in the Equipment (other than a Co-Lessee) which causes the Lessor any delay in exercising its remedies, or results in the reduction of the Lessor's remedies hereunder. (vii) In case any action shall be brought against any Indemnified Party in respect of which indemnity may be sought against the Lessee, such Indemnified Party shall promptly notify the Lessee in writing, but the failure to give such prompt notice shall not relieve the Lessee from liability hereunder. 64 71 IN WITNESS WHEREOF, the parties have caused this Lease to be executed by their respective officers thereunto duly authorized as of the date first above written. LESSOR: WACHOVIA LEASING CORPORATION By: ---------------------------- Title: LESSEE: FLOWERS INDUSTRIES, INC. By: ---------------------------- Title: 65 72 SCHEDULE 1(b) Defined Terms The following terms shall have the following meanings (all terms defined in the singular to have the same meanings when used in the plural and vice versa): "Acquisition Agent": Lessee, in its capacity as Acquisition Agent for the Lessor under the Agency Agreement. "Acquisition Date": as to each Phase, as defined in Section 28(c)(i) of the Lease. "Acquisition Period": a period commencing on the Closing Date and ending 12 months after the Closing Date. "Additional Rent": as to any Phase as to which a Progress Payment Agreement has been executed, as defined in such Progress Payment Agreement. "Affiliate": with respect to the Lessor, (i) any Person that, directly or indirectly, through one or more intermediaries, controls the Lessor (a "Controlling Person"), (ii) any Person (other than the Lessor or a Subsidiary) which is controlled by or is under common control with a Controlling Person, or (iii) any Person (other than a Subsidiary) of which the Lessor owns, directly or indirectly, 20% of more of the common stock or equivalent equity interests. As used herein, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agency Agreement": the Acquisition, Agency, Indemnity and Support Agreement, of even date with the Lease, between the Lessor and the Lessee, as Acquisition Agent, substantially in the form of Exhibit A to the Lease, as amended, supplemented or otherwise modified from time to time. "Applicable Funding Office": for each Participant, the funding office of such Participant (or an affiliate of such Participant) designated for any interest of such Participant in Interim Rent or Basic Rent in the participation agreement with the Lessor or such other offices of such Participant (or of an 66 73 affiliate of such Participant) as such Participant may from time to time specify to the Lessor as the office by which its interest in Interim Rent and Basic Rent, as applicable, are to be made and maintained. "Applicable Permit": for each Phase, any Permit that is or may be necessary to own, renovate, install, start-up, test, maintain, operate, lease or use all or any part of the Equipment for such Phase or any portion thereof in accordance with the Operative Documents, and the failure to obtain or maintain which would have a Material Adverse Effect. "Applicable Site": with respect to any Phase, the manufacturing site or facility on which the Equipment subject to this Lease for such Phase is to be located, as identified in the Lease Supplements pertaining to such Phase. "Approved Appraisal": any appraisal, obtained on behalf of the Lessor by the Acquisition Agent pursuant to the Agency Agreement, but at the Lessee's cost, from an appraiser or appraisers reasonably acceptable to the Lessor and the Lessee, which: (i) is performed by an equipment appraiser experienced in the appraisal of manufacturing equipment similar in type to the Equipment, (ii) reflects the fair market value of the Equipment for each Phase as of the end of the Acquisition Period on an "as installed" basis, (iii) forecasts the Estimated Residual of the Equipment for each Phase as of the end of each Rental Period for such Phase and (iv) has been approved in all respects by the Lessor. "Authorized Officers": relative to the Lessee, the officers whose signatures and incumbency shall have been certified to the Lessor in a certificate certified by its Secretary in form and substance satisfactory to the Lessor. "Banking Authority": as defined in Section 27(b) of the Lease. "Base Rate": for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate, and (ii) one-half of one percent above the Federal Funds Rate. For purposes of determining the Base Rate for any day, changes in the Prime Rate shall be effective on the date of each such change. "Basic Rent": for each Phase, with respect to any Rental Period, the amounts payable for such Phase as Basic Rent 67 74 for such Rental Period pursuant to Section 3(b) of the Lease, consisting of the sum of the Scheduled Payment and either the Floating Rate Payment or, if the Election has been made, the Fixed Rate Payment. "Book Net Worth": the book value of the Lessee's and its Subsidiaries' total assets (exclusive of any indebtedness owned to the Lessee or its Consolidated Subsidiaries by any affiliates of the Lessee), plus Convertible Subordinated Debt, minus the Lessee's and its Consolidated Subsidiaries' total liabilities. "Book Value": for each Phase, as at any date of determination with respect to the Equipment for such Phase or any Property comprising or included in the Equipment for such Phase, the aggregate Funded Amount through such date of determination to purchase, manufacture, construct, assemble or install the Equipment for such Phase or any portion thereof. "Business Day": (a) for all purposes other than as covered by clause (b) below, any day except Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia are authorized or required by law or other government action to close, and (b) with respect to all notices and determinations in connection with Interim Rental Periods and Rental Periods, and payments of Interim Rent or Basic Rent, any day that is a Business Day described in clause (a) above and that is also a day for trading by and between banks in the London interbank eurodollar market. "Cancellation Date": as defined in Section 15(b) of the Lease. "Cancellation Event": as defined in Section 15(b) of the Lease, and shall include a Loss Event. "Capital Stock": any nonredeemable capital stock of the Lessee or any Consolidated Subsidiary (to the extent issued to a Person other than the Lessee) whether common or preferred. "Casualty Occurrence": for each Phase, any of the following events in respect of the Equipment for such Phase (i) any material loss of the Equipment for such Phase or material loss of use thereof which does not constitute a Loss Event, or (ii) the condemnation, confiscation, condemnation or seizure of, or requisition of title to or use of, any material part of the 68 75 Equipment for such Phase which action does not constitute a Loss Event. "CERCLIS": the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Change of Law": as defined in Section 27(b) of the Lease. "Closing Date": October 20, 1995. "Code": the Internal Revenue Code of 1986, as amended, and any successor Federal tax code. "Collateral": as defined in Section 26 of the Lease. "Co-Lessee": as defined in Section 21(b) of the Lease. "Completion": for each Phase, the occurrence and satisfaction of all of the events and conditions described on Schedule 1.3(b) to the Agency Agreement on a single date to the reasonable satisfaction of the Lessor. "Completion Certificate": for each Phase, a certificate of the Acquisition Agent in substantially the form of Exhibit A to the Agency Agreement, certifying that Completion of the Equipment for such Phase has occurred. "Consolidated Operating Profits": for any period, the Operating Profits of the Lessee and its Consolidated Subsidiaries. "Consolidated Subsidiary": a Subsidiary, the accounts of which are customarily consolidated with those of the Lessee for the purpose of reporting to stockholders of the Lessee or, in the case of a recently acquired Subsidiary, the accounts of which would, in accordance with the Lessee's regular practice, be so consolidated for that purpose. "Consolidated Total Assets": at any time, the total assets of the Lessee and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Lessee and its Consolidated Subsidiaries, prepared in accordance with GAAP and 69 76 delivered to the Lessor pursuant to Section 30(a)(i) or (ii) of the Lease. "Controlled Group": all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee, are treated as a single employer under Section 414 of the Code. "Debt": at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, even though such Debt is not assumed by such Person, (ix) all Debt of others Guaranteed by such Person, and (x) amounts of any reserves for doubtful accounts recorded on the books of such Person for leases, receivables and other accounts sold, factored or otherwise disposed of by such Person; provided, that in no event shall "Debt" include any Factored Receivables Obligations. "Default": any condition or event that constitutes an Event of Default or that with the giving of notice or the lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate": with respect to any amount payable under the Lease or under any of the other Operative Documents on any day, the sum of 2% plus the greater of (i) the then highest rate (for determining Interim Rent, or the Floating Rate or the Fixed Rate, as applicable) that may be applicable to the amount payable or (ii) if no such rate exists, the Prime Rate in effect from time to time. "Designated Event of Default": any of the Events of Default specified in Section 17(a) of the Lease, other than an 70 77 Event of Default described in (x) clause (ii) thereof, insofar as it relates to Section 30(d) of the Lease, and (y) clause (viii) thereof. "Dollars" and "$": dollars in lawful currency of the United States of America. "Election": for each Phase, as defined in Section 3(b)(i) of the Lease. "Election Period": for each Phase, as defined in Section 3(b)(i) of the Lease. "Environmental Authority": any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Damages": any and all losses, costs, damages, penalties and expenses which are incurred at any prior or subsequent time as a result of the existence of Hazardous Materials upon, about or beneath the Equipment for any Phase or any Applicable Site or migrating or threatening to migrate to or from the Equipment for any Phase or any Applicable Site or the existence of a violation of Environmental Requirements pertaining to the Equipment for any Phase or any Applicable Site, regardless of whether the existence of such Hazardous Materials or the violation of Environmental Requirements arose prior to the present ownership or operation of the Equipment for any Phase or any Applicable Site. "Environmental Judgments and Orders": all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities": any liabilities, whether accrued, contingent or otherwise, arising from and in any way associated with any Environmental Requirements. "Environmental Notices": notice from any Environmental Authority of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any 71 78 Environmental Authority for correction of any violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings": any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases": any actual or threatened spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Material into the environment, including, but not limited to any releases defined in CERCLA or under any state or local environmental law or regulation. "Environmental Requirements": any and all federal, state, local, and foreign laws, statutes, ordinances, orders, codes, rules, regulations, policies, guidance documents, judgments, decrees, injunctions, decisions, determinations, or agreements by any judicial, legislative or executive body of any governmental or quasi-governmental entity, whether in the past, the present or the future, with respect to: (1) the protection of the environment; (2) the existence, handling, use, generation, treatment, storage, packaging, labelling, removal or Environmental Release of Hazardous Materials on, under, about and/or from the Equipment or Applicable Site for any Phase; and (3) the effects on the environment of the Equipment or Applicable Site for any Phase or of any activity now, previously, or hereinafter conducted on the Equipment or Applicable Site for any Phase. The Environmental Requirements shall include, but not be limited to, the following: the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.ss. 9601, et seq.)("CERCLA"); the Superfund Amendments and Reauthorization Act, Public Law 99-499, 100 Stat. 1613; the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601, et seq.; the Federal Water Pollution Control Act, 33 U.S.C. ss.ss. 1251, et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401, et seq.; the state and local analogies thereto, all as amended or superseded from time to time; and any common-law doctrine, including but not limited to, negligence, nuisance, trespass, personal injury, or property damage related to or arising out of the presence, Environmental Release or exposure to a Hazardous Material. "Equipment": individually, as to each Phase, the Equipment described in each Lease Supplement pertaining to such 72 79 Phase, together with all plans, specifications, warranties and related rights and operating, maintenance and repair manuals related thereto and all replacements of any of the foregoing, and collectively, all such Equipment. "Equipment Cost": with respect to each Phase, an aggregate amount equal to the sum of (i) all costs associated with the Lessor's acquisition of title to the Equipment for such Phase, (ii) all of the Soft Costs incurred in connection with such Phase and (iii) all Interim Rent accrued prior to the Phase Completion Date for such Phase. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law and the regulations promulgated and rulings issued from time to time thereunder. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Estimated Residual": the estimated fair market value of the Equipment for each Phase as of the end of each Rental Period for such Phase, as set forth on Schedule 3(b) to the Lease, as it may be modified pursuant to Section 3(b) of the Lease as a result of an Approved Appraisal. "Eurocurrency Liabilities": as defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Reserve Requirement": any reserve requirement prescribed by the Board of Governors of the Federal Reserve System (or any successor) for a member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on loans made at the LIBO Rate) is determined or any category of extensions of credit or other assets. "Event of Default": as defined in Section 17 of the Lease. "Existing Term Loan Agreement" means the Term Loan Agreement between Wachovia and the Lessee dated July 1, 1995. "Factored Receivables Obligations": any recourse or non-recourse obligation, guarantee or other contractual 73 80 undertaking of the Lessee or any Subsidiary arising in connection with the sale, factoring or other disposition of leases, receivables or other accounts, if such sale, factoring or disposition, whether with or without recourse, is for a fair price (on the basis of the face amount of the respective item, on the basis of the present value or its income stream or on the basis of another arms' length determination) together with the interests of the seller of such lease, receivable or other account in the equipment or other property related to such lease, receivable or other account, and not at a distress sale or other "deep" discount. "Federal Funds Rate": for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Lessor on such day on such transactions, as determined by the Lessor. "Final Rent Payment": for each Phase, an amount determined as of the date payment thereof is required equal to the sum of (i) the Recourse Amount for such Phase, plus (ii) all other amounts owing by the Lessee under the Operative Documents (including in any event all unpaid Impositions accrued, arising or payable in connection with the Equipment for such Phase or otherwise pursuant to the Lease through or as at the end of the Lease Term, and all unpaid Supplemental Rent, but excluding in any event the Non-Recourse Amount). "Fiscal Quarter": any fiscal quarter of the Lessee. "Fiscal Year": any fiscal year of the Lessee. "Fixed Rate": with respect to Basic Rent for each Phase, if the Election has been made for such Phase, for each Rental Period, a rate per annum equal to the sum of (i) the prevailing 5 year U.S. Treasury Rate as defined on page 500 of the Telerate Screen at 11:00 A.M., Atlanta time, on the date of the Election for such Phase, plus (ii) the lesser of (A) the 74 81 corresponding ask side of the 5 year swap rate as defined on page 19901 of the Telerate Screen at 11:00 A.M., Atlanta time, on such date, and (B) 0.55%, plus (ii) 0.45%. "Fixed Rate Payment": for each Phase, as defined in Section 3(b)(ii) of the Lease. "Floating Rate": with respect to Basic Rent for each Phase, if the Election has not been made or become effective for such Phase, for each Rental Period, a rate per annum equal to the sum of (i) the LIBO Rate prevailing on the first day of such Rental Period, plus (ii) 0.45%. "Floating Rate Payment": for each Phase, as defined in Section 3(b)(i) of the Lease. "Funded Amount": for each Phase, the aggregate amount of Equipment Cost for such Phase, accrued and unpaid Rent for such Phase and all other amounts owed by the Lessee to the Lessor with respect to such Phase pursuant to this Lease or any other Operative Document. "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time; provided that for purposes of determining compliance with the terms of the Lease, the Lessee and the Lessor agree that in the event of any change in GAAP from that in effect on the date of the financial statements referred to in Section 30(a) of the Lease which has the effect of weakening the protection afforded the Lessor by the Lessee's covenants in the Lease, the Lessee and the Lessor shall amend the Lease and such covenants in order to provide the Lessor an equivalent level of protection, in a manner satisfactory to the Lessor. "Governmental Authority": to include the country, state, county, city and political subdivisions in which any Person or any such Person's property is located or that exercises valid jurisdiction over any such Person or any such Person's property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities that exercise valid jurisdiction over any such Person or any such Person's property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, the Lessee, any Applicable Site, the Equipment for 75 82 any Phase, the Lessee, any Participant, any Applicable Funding Office or any Operative Document. "Governmental Requirement": any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other direction or requirement (whether or not having the force of law), including, without limitation, Environmental Requirements, and occupational, safety and health standards or controls, of any Governmental Authority. "Guarantee": with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Materials": to include, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) "hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including, crude oil or any fraction thereof, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation, (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time, or (f) any toxic or hazardous materials, wastes, polychlorinated 76 83 biphenyls ("PCBs"), lead-containing materials, urea formaldehyde, radioactive materials, pesticides, the discharge of sewage or effluent, or any other materials or substances defined as or included in the definition of "hazardous materials," "hazardous waste," "contaminants" or similar terms under any Environmental Requirement. "Highest Lawful Rate": with respect to the Lessor, the maximum non-usurious interest rate or yield, as applicable, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received with respect to any amounts owing hereunder under laws applicable to the Lessor which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. "Impositions": without duplication, as to any Person, (i) all taxes, assessments, levies, fees, inspection fees and other authorization fees and all other governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of every character (including all penalties and interest thereon) that, at any time prior or subsequent to the Closing Date, are imposed or levied upon or assessed against or may be or constitute a Lien upon such Person or such Person's Property, or that arise in respect of the ownership, operation, possession, use, non-use, condition, leasing or subleasing of such Person's Property; (ii) all charges, levies, fees, rents or assessments for or in respect of utilities, communications and other services rendered or used on or about such Person's Property; (iii) payments required in lieu of any of the foregoing; but excluding any penalties or fines imposed on the Lessor for violation by it of any banking laws or securities law; and (iv) any and all taxes, recording fees and other charges (including penalties and interest) relating to or arising out of the execution, delivery or recording of any of the Operative Documents for the amounts evidenced, secured or referred to be paid thereby, including without limitation, documentary stamp taxes, intangible taxes, recording fees and sales, rent and other Taxes. "Indemnified Party": as defined in Section 31(k)(i) of the Lease. "Indemnified Risks": as defined in Section 31(k)(i) of the Lease. 77 84 "Insurance Requirements": all terms of any insurance policy (including, without limitation, casualty and general liability) covering or applicable to the Equipment for any Phase or any portion thereof maintained in accordance with Section 14 of the Lease, and all requirements of the issuer of any such policy. "Interim Rent": for each Phase, with respect to any Interim Rental Period, the amounts payable for such Phase as Interim Rent for such Interim Rental Period pursuant to Section 3(a) of the Lease. "Interim Rental Period": with respect to Interim Rent pertaining to any Phase, the period beginning on the Phase Commencement Date for such Phase and ending on the numerically corresponding date (or, if applicable, last calendar date) which is either one, two or three months thereafter, as selected by the Lessee upon at least 3 Business Days notice and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interim Rental Period and ending on the numerically corresponding date (or, if applicable, last calendar date) which is either one, two or three months thereafter, as selected by the Lessee upon at least 3 Business Days notice; provided, however, that: (i) no Interim Rental Period may be selected which commences before the Phase Completion Date and would otherwise end after the Phase Completion Date; (ii) if the last day of such Interim Rental Period would otherwise occur on a day which is not a Business Day, such last day shall be extended to the next succeeding Business Day, except if such extension would cause such last day to occur in a new calendar month, then such last day shall occur on the next preceding Business Day. "Judgment": any judgement, decree, writ, order, rule or other requirement of any arbitrator or any court, tribunal or other Governmental Authority. "Lease": the Master Lease Agreement to which this Schedule 1(b) is attached (as the same may be amended, modified or supplemented from time to time, between the Lessee and the Lessor. "Lease Commencement Date": the Closing Date. 78 85 "Lease Addition Date": with respect to the Equipment for any Phase, the date of satisfaction of the conditions set forth in Section 28(c) of the Lease with respect thereto. "Lease Supplement" with respect to each Phase, a Lease Supplement in substantially the form of Exhibit C to the Lease, and containing the information required thereby. "Lease Term": for each Phase, the period of time commencing on the Phase Commencement Date for such Phase and ending on the Lease Termination Date for such Phase. "Lease Termination Date": for each Phase, the earlier to occur of (i) the Option Date for such Phase, (ii) the Cancellation Date (iii) the date of termination for such Phase as a result of a Termination Event and (iv) the Scheduled Lease Termination Date for such Phase. "Lessee": Flowers Industries, Inc., a Georgia corporation, together with its successors and permitted assigns. "Lessor": Wachovia Leasing Corporation, a North Carolina corporation, together with its successors and permitted assigns. "LIBO Rate": with respect to any Interim Rent or Basic Rent for the applicable Interim Rental Period or Rental Period therefor, the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the amount of such Interim Rent or Basic Rent offered for a term comparable to such Interim Rental Period or Rental Period, which rates appear on the Reuters Screen LIBO Page as of 11:00 A.M., London time, two Business Days prior to the first day of such Interim Rental Period or Rental Period, provided that (i) if more than one such offered rate appears on the Reuters Screen LIBO Page, the "LIBO Rate" will be the arithmetic average of such offered rates; (ii) if no such offered rates appear on such page, the "LIBO Rate" for such Interim Rental Period or Rental Period will be the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than two major banks in New York City, selected by the Lessee, at approximately 10:00 A.M., New York City time, two Business Days prior to the first day of such Interim Rental Period or Rental Period, for deposits in Dollars offered to leading European banks for a period comparable to such 79 86 Interim Rental Period or Rental Period in an amount comparable to the amount of such Interim Rent or Basic Rent. "Lien": with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, or encumbrance or servitude of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this definition, the Lessee or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. Notwithstanding the foregoing, in no event shall any of the following be deemed to be a "Lien" on any assets or other properties of any Person: (1) filings of financing statements in respect of operating leases of such Person, sales of (and not merely security interests in) leases, receivables and other accounts and of the equipment or other property related to such accounts, and other similar filings of a precautionary nature, (2) the interest of a lessee in the property subject to a lease under which such Person is the lessor, or (3) the interest of the purchaser or factor of leases, receivables or other accounts of such Person in the leases, receivables or accounts sold, factored or otherwise disposed of, or in the related equipment or other property that is the subject of such lease, receivable or account, even if described as a Lien in the instrument pursuant to which such sale, factoring or other disposition is effected. "Loss Event": for each Phase, any of the following events in respect of the Equipment for such Phase: (i) the total loss of the Equipment for such Phase or the total loss of use thereof due to theft, disappearance, destruction, damage beyond repair or rendition of the Equipment for such Phase permanently unfit for normal use for any reason whatsoever; (ii) any damage to the Equipment for such Phase which results in an insurance settlement with respect to the Equipment for such Phase on the basis of a total loss; (iii) the permanent condemnation, confiscation or seizure of, or requisition of title to or use of, all or substantially all of the Equipment for such Phase including, but not limited to, a permanent taking by eminent domain of such scope that the untaken portion of the Equipment 80 87 for such Phase is insufficient to permit the restoration of the Equipment for such Phase for such Phase for continued use in the Lessee's business or that causes the remaining portion of the Equipment for such Phase to be incapable of being restored to a condition that would permit the remaining portion of the Equipment for such Phase (without the portion of the Equipment for such Phase taken by eminent domain) to continue to have the capacity and functional ability to perform on a continuing basis (subject to normal interruptions in the ordinary course of business for maintenance, inspection, service, repair and testing) and in commercial operation, the function for which the Equipment for such Phase (as a whole) was designed or a temporary taking of such nature for a period exceeding 180 consecutive days; or (iv) the occurrence of any event or the discovery of any condition in, on, beneath or involving the Equipment for such Phase or any portion thereof (including, but not limited to the presence of hazardous substances or the violation of any applicable Environmental Requirement) that would have a material adverse effect on the use, occupancy, possession, condition, value or operation of the Equipment for such Phase or any portion thereof, which event or condition requires remediation (A) the cost of which is anticipated, in the opinion of the Lessor, in consultation with an independent environmental engineering firm, to exceed 16% of the Termination Value, and (B) that could not reasonably be expected to be completed substantially in its entirety prior to the date that is 30 days prior to the Scheduled Lease Termination Date for such Phase or is not actually completed substantially in its entirety on or before the date that is 30 days prior to the Scheduled Lease Termination Date for such Phase. "Margin Stock": "margin stock" as defined in Regulations U or G of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Material Adverse Effect": with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business, or properties which are central to the business at such time, of the Lessee and its Consolidated Subsidiaries taken as a whole, (b) the ability of the Lessee (in its capacity as such or 81 88 in its capacity as Acquisition Agent) to perform its respective obligations under the Operative Documents to which it is a party, as applicable, (c) the legality, validity or enforceability of any Operative Document, or (d) the use, possession, condition, value or operation of the Equipment for any Phase. "Material Subsidiary": as of each date of determination, any Consolidated Subsidiary (i) whose consolidated total assets exceed 5% of Consolidated Total Assets or (ii) whose consolidated total revenues exceed 5% of the consolidated revenues of the Lessee and its Consolidated Subsidiaries determined in accordance with GAAP as of the last day of the Fiscal Quarter of the Lessee most recently ended as of such date of determination and for which financial statements have been delivered to the Lessor pursuant to Section 30(a)(i) and (ii) of the Lease. "Non-Completion Event": as to any Phase, the failure of Completion to occur on or before the earlier of (i) the date which is six months after the Phase Commencement Date for such Phase and (ii) the last day of the Acquisition Period. "Non-Designated Event of Default": any Event of Default other than a Designated Event of Default. "Non-Recourse Amount": for each Phase, means at any time an amount equal to 16.0% of the aggregate original Equipment Cost for such Phase, as such amount may be modified pursuant to Section 3(b) of the Lease as a result of an Approved Appraisal. "Operative Documents": collectively, the Lease, the Agency Agreement, each Progress Payment Agreement and any and all other agreements or instruments now or hereafter executed and delivered, or required to be executed and delivered, by the Lessor or the Lessee in connection with the Lease or the Agency Agreement, as such agreements or instruments may be amended, supplemented, renewed, extended, increased or otherwise modified from time to time. "Operating Profits": as applied to any Person for any period, the operating income of such Person for such period, as determined in accordance with GAAP. "Option Date": as defined in Section 15(c) of the Lease. 82 89 "Participant": as defined in Section 21(d) of the Lease, collectively, as the context shall require, "Participants". "PBGC": the Pension Benefit Guaranty Corporation or any successor thereto. "Permit": any approval, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority or other Person. "Permitted Insurers": insurers with ratings of A or better and Class VIII or better according to Best's Insurance Reports, or other insurers acceptable to the Lessor. "Permitted Liens": (i) with respect to any Property other than the Equipment, any of the Liens permitted by the terms of Section 30(q), and (ii) with respect to the Equipment or any Property included in or comprising the Equipment or any portion thereof, any of the following: (a) rights reserved to or vested in any Governmental Authority by the terms of any right, power, franchise, grant, license, permit or provision of law affecting the Equipment to (1) terminate, or take any other action which has the effect of modifying, such right, power, franchise, grant, license, permit or provision of law, provided that such termination or other action, when taken, shall not have resulted in a Loss Event and shall not have had a Material Adverse Effect, or (2) purchase, condemn, appropriate or recapture, or designate a purchaser of, the Equipment; (b) any Liens thereon for Impositions and any Liens of mechanics, materialmen and laborers for work or services performed or materials furnished which (1) are not overdue, or (2) are being contested in good faith in the manner described in Section 13 of the Lease; (c) rights reserved to or vested in any Governmental Authority to control or regulate the use of such Property or to use the Equipment in any manner; (d) in the case of real property, encumbrances, easements, and other similar rights existing on the Closing 83 90 Date the exercise of which shall not have had a Material Adverse Effect; (e) any Liens created under the Operative Documents and any financing statements filed in connection therewith (f) pledges or deposits to secure non-delinquent obligations under worker's compensation, unemployment insurance and other social security legislation; and (g) Liens arising from legal proceedings, so long as such proceedings are being contested in good faith by appropriate proceedings diligently conducted and so long as execution is stayed on all judgments resulting from any such proceedings. "Permitted Use": with respect to the Equipment as to any Phase, the use of the Equipment in connection with its manufacturing operations on the Applicable Site for such Phase in compliance with all applicable Governmental Requirements and Insurance Requirements, the failure of which to comply would have or cause a Material Adverse Effect. "Person": an individual, a corporation, a partnership,an unincorporated association, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or other Governmental Authority. "Phase": the acquisition and installation of any and all Equipment that is to be subject to this Lease and located at a single Applicable Site. "Phase Commencement Date": as defined in Section 28(b)of the Lease. "Phase Completion Date": with respect to each Phase, the earlier to occur of (i) Completion of such Phase, (ii) the date which is six months after the Phase Commencement Date for such Phase, and (iii) the last day of the Acquisition Period. "Plan": at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to 84 91 a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions but shall not include any plan which is maintained under the laws of Puerto Rico, is covered by Section 4(b)(4) of ERISA, or is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management, key executives or highly compensated employees. "Prime Rate": that rate of interest so denominated and set by Wachovia from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by Wachovia, and is set by Wachovia as a general reference rate of interest, taking into account such factors as Wachovia may deem appropriate, it being understood that many of Wachovia's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that Wachovia may make various commercial or other loans at rates of interest having no relationship to such rate. "Progress Payment Agreement": an agreement substantially in the form of Exhibit E, as amended, supplemented or otherwise modified from time to time, which may be executed as to any one, more or all Phases pursuant to Section 3(a) of the Lease. "Property": any kind of property or asset, whether real, personal or mixed, or tangible or intangible, and any interest therein. "Purchase Closing Date": as defined in Section 15(e) of the Lease. "Qualified Replacement Term Loan Agreement" means: (i) either (x) any amendment, renewal or extension of the Existing Term Loan Agreement or (y) any other term loan agreement between Wachovia and the Lessee, the proceeds of which are used to refinance the Existing Term Loan Agreement; and (ii) in either case, which has a final maturity no earlier than the latest Scheduled Lease Termination Date for any Phase, as it may be amended, renewed or extended from time to time (so long as the foregoing clause (ii) is satisfied). 85 92 "Recourse Amount": for each Phase, means at any time the excess of (i) the Unrecovered Equipment Cost for such Phase over (ii) the Non-Recourse Amount for such Phase. "Redeemable Preferred Stock": of any Person means any preferred stock issued by such Person which is at any time prior to the Scheduled Lease Termination Date for the Phase having the latest Acquisition Date during the Acquisition Period either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof. "Related Contract": for each Phase, any agreement for the purchase, manufacture, assembly, or installation of the Equipment for such Phase or any portion thereof or the provision of enhancements and improvements to the Equipment for such Phase or any portion thereof or otherwise in connection with the acquisition, ownership, use, operation or sale or other disposition of the Equipment for such Phase or any portion thereof made pursuant to the Agency Agreement by the Lessee as Acquisition Agent on behalf of the Lessor, with one or more Vendors, including, without limitation, all contracts, bills of sale, receipts and Vendor's warranties. "Rent": Basic Rent, Interim Special Rent, Supplemental Rent and the Final Rent Payment, collectively. "Rental Period": with respect to Basic Rent pertaining to any Phase, the period beginning on the Phase Completion Date for such Phase and ending on the first Rent Payment Date occurring after the Phase Completion Date and, thereafter, each subsequent period commencing on each Rent Payment Date and ending on the next Rent Payment Date or on the Lease Termination Date for such Phase. "Rent Payment Date": with respect to Basic Rent pertaining to any Phase, each March 31st, June 30th, September 30th and December 31st of each year, commencing on the first such date occurring after the Phase Commencement Date for such Phase, and the Lease Termination Date for such Phase. "Restoration Account": for any Phase, the interest bearing account maintained with the Lessor pursuant to Section 14(e) of the Lease and styled the "Restoration Account" for such Phase. 86 93 "Scheduled Amount": with respect to each Phase, as defined in Section 3(b)(i) of the Lease. "Scheduled Lease Termination Date": with respect to each Phase, the date that is seven (7) years after the Phase Completion Date for such Phase. "Scheduled Payment": with respect to each Phase, as defined in Section 3(b)(i) of the Lease. "Secured Party": as defined in Section 26 of the Lease. "Soft Costs": with respect to each Phase, all of the capitalized costs and expenses of any kind or character incurred to design, install, complete and implement the Equipment for such Phase, including, without limitation, all professional fees and expenses, and other "soft costs" of a nature ordinarily and reasonably incurred in connection with the installation, completion and implementation of the Equipment for such Phase. "Sublessee": as defined in Section 21(c) of the Lease. "Subsidiary": any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Lessee. "Supplemental Rent": as defined in Section 3(d) of the Lease. "Tangible Net Worth": Book Net Worth minus (i) the amount, if any, of the Lessee's and its Subsidiaries' assets which would be treated as intangible under GAAP, (ii) any write up in the book value of any fixed asset resulting from re-evaluation thereof, and (iii) the amount, if any, at which share of the Lessee appears on the asset side of the Lessee's balance sheet. "Taxes": any taxes, imposts, levies, duties, deductions or withholdings of any nature now or at any time hereafter imposed by any Governmental Authority or by any taxing authority thereof or therein imposed or levied upon, assessed against or measured by any Rent or other sums payable hereunder. 87 94 "Termination Event": as defined in Section 15(a) of the Lease. "Termination Value": as to any Phase, at any time of determination, the sum of (i) the excess of (a) the aggregate Equipment Cost for all Equipment allocable to such Phase over (b) the sum of all Scheduled Payments for such Phase theretofore made to the Lessor, if any, plus (ii) all accrued, unpaid Interim Rent Payments, Floating Rate Payments and, if applicable, Fixed Rate Payments for such Phase, all accrued and unpaid Supplemental Rent through the date of payment of the Termination Value, plus (iii) all unpaid Impositions through the date of payment of the Termination Value, plus, (iv) any amounts payable pursuant to Section 27(e)(i) hereof in connection with the payment of Termination Value, plus (v) as to any Phase as to which Completion has not occurred, the sum of (a) the aggregate amount of costs (including acquisition costs and Soft Costs) which it will be necessary to expend in order to achieve Completion for such Phase plus (b) all Impositions thereon. "Third Party": any Person other than (i) the Lessor, (ii) the Lessee or (iii) any Affiliate of either of them. "Unrecovered Equipment Cost": for each Phase, means at any time the sum of (i) the aggregate original Equipment Cost for such Phase, less (ii) the aggregate amount of Scheduled Payments for such Phase received by the Lessor. "UCC": the Uniform Commercial Code as enacted in the State of Georgia and any other jurisdiction whose laws may be mandatorily applicable. "Vendor": any designer, supplier, manufacturer or installer of, or provider of Property or services with respect to, the Equipment or any Property included therein or any part thereof. "Wachovia": Wachovia Bank of Georgia, N.A., a national banking association, in its individual capacity, and its successors. 88 95 SCHEDULE 3(b) Scheduled Amounts
Rental Estimated Scheduled Period Residual Amount as a percentage of Equipment Cost 1 100.00% 0.00% 2 97.22% 2.28% 3 95.50% 2.22% 4 93.28% 2.22% 5 91.06% 2.22% 6 88.84% 2.22% 7 86.62% 2.22% 8 84.40% 2.22% 9 82.18% 2.22% 10 79.96% 2.22% 11 77.74% 2.22% 12 75.52% 2.22% 13 73.30% 2.22% 14 71.08% 2.22% 15 68.86% 2.22% 16 66.64% 2.22% 17 64.42% 2.22% 18 62.20% 2.22% 19 59.98% 2.22% 20 57.76% 2.22% 21 55.54% 2.22% 22 53.32% 2.22% 23 51.10% 2.22% 24 48.88% 2.22% 25 46.66% 2.22% 26 44.44% 2.22% 27 42.22% 2.22% 28 40.00% 2.22%
89 96 SCHEDULE 14 Insurance Requirements The Lessee will provide, or cause to be provided, insurance in accordance with the terms of this Schedule as to each Phase, which insurance shall be placed and maintained with Permitted Insurers. (a) Insurance Coverages and Limits At all times subsequent to the Phase Commencement Date for such Phase, the Lessee shall provide, or cause to be provided, the following property and liability coverages with respect to the Equipment: (i) all-risk property coverage, with limits of coverage at least equal to the replacement cost (which limits shall be not less than $_____________ for the Equipment, which insurance coverage may, at the Lessee's option, be included under any "blanket" policy maintained by Guarantor so long as such "blanket" policy provides for all-risk property coverage with respect to the Equipment and any other Property covered thereby, with limits of coverage at least equal to the aggregate replacement cost of the Equipment (provided, however, that such insurance, in either case, shall provide for replacement cost coverage, provided that the insured property is replaced, and, provided further, that the insurance shall not have the effect of causing the Lessee or any of its Affiliates to be deemed a co-insurer), with respect to the Lessee and any Affiliate of the Lessee providing services with respect to the Equipment, or if the Lessee elects to effect the coverage required by this Paragraph under a "blanket" policy, the Lessee, Guarantor and its Affiliates insured thereby, such insurance to include, coverage for (x) floods, windstorms, hurricanes, tornados, earthquakes, collapse and other perils (including debris removal and cleanup) and such insurance to cover equipment separated from the Equipment, transit of equipment and consumables to and from the Applicable Site, labor claims, in each case with respect to the Equipment, and such insurance to include coverage for all other risks and occurrences customarily included under all-risk policies available with respect to Property similar in installation, location and operation to the Equipment (or the Equipment 90 97 and all other Property insured thereby if all are covered under a "blanket" policy), and (y) "boiler and machinery" property damage insurance on a comprehensive basis with respect to damage to the machinery, plants, equipment or similar apparatus (including production machinery) included in the Equipment (or the Equipment and all other Property insured thereby if all are covered under a "blanket" policy), from risks and in amounts normally insured against under machinery policies. (ii) (1) statutory workers' compensation and occupational disease insurance in accordance with applicable state and federal law, and employer's liability insurance with primary and excess coverage limits of not less than $____________; (2) commercial general liability insurance covering operations of the Lessee, contractual liability coverage, contingent liability coverage arising out of the operations of the Equipment, cross-liabilities coverage, sudden and accidental seepage and pollution coverage, and other coverage for hazards customarily insured with respect to Property similar in construction, location, occupancy and operation to the Equipment, with limits complying with the underlying requirements of the excess liability policy described in Paragraph (a)(ii)(3); (3) excess commercial liability insurance in excess of the liability policies described in Paragraphs (a)(ii)(1) and (2) to bring to limits of not less than $______________ for each occurrence and in the aggregate per year with respect to the Lessee, Guarantor and its Affiliates. (iii) The policy or policies providing the coverage required by paragraphs (a)(i) and (a)(ii)(2) and (a)(ii)(3) may include deductible amounts for the account of the Lessee or its Affiliates, as the case may be, not to exceed $_____________ in the aggregate for all such coverages. (b) Insurance Endorsements - Any insurance carried in accordance herewith shall, except as hereinafter permitted, provide or be endorsed to provide that: 91 98 (i) the Lessor, as its interests may appear, shall be included as additional insureds or named as loss payees but only with respects coverages required by Paragraphs (a)(i), with the understanding that any obligation imposed upon the insured (including, without limitation, the liability to pay premiums) under any policy required by this Schedule shall be the obligation of the Lessee and its Affiliates) and not that of the Lessor; (ii) except with respect to the coverage required by Paragraphs (a)(i) and (a)(ii), there shall be a cross-liability and severability of interest endorsement providing that to the extent the policy is written to cover more than one insured, all terms, conditions, insuring agreements and endorsements, with the exception of limits of liability and deductibles shall operate in the same manner as if there were a separate policy covering each insured; (iii) the insurer thereunder waives all rights of subrogation against the Lessor; (iv) such insurance shall be primary without right of contribution of any other insurance carried by or on behalf of the Lessor with respect to its interests in the Equipment; and (v) if such insurance is cancelled for any reason whatsoever (including, without limitation, nonpayment of premium) or any material change is made in the coverage that affects the interests of the Lessor, such cancellation or change shall not be effective as to the Lessor for 10 days for nonpayment of premiums and otherwise for 45 days, in both cases after receipt by the Lessor (at the address provided pursuant to Section 22 of the Lease) of written notice sent by certified mail from such insurer of such cancellation or change. (c) Adjustment of Property Losses - After the occurrence and during the continuation of an Event of Default or after the occurrence of a Cancellation Event or Termination Event, the loss, if any, under any property insurance covering the Equipment required to be carried by this Schedule shall be adjusted with the insurance companies or otherwise collected, including, without limitation, the filing of appropriate proceedings, by the Lessee in consultation with the Lessor. 92 99 (d) Reinstatement of Limits - The Lessee shall, or shall cause its insurance broker to, notify promptly the Lessor at any time when the limits of the excess commercial liability insurance required by Paragraph (a)(ii)(3) shall have been reduced, either by reason of payments of, or the establishment of reserves for the ultimate payment of, claims which have been asserted during the term of such insurance, by an aggregate amount in excess of $____________. At such time, the Lessee shall, if so requested by the Lessor, use its best efforts to reinstate such insurance so as to comply with the requisite limits prescribed herein. (e) Upon request, the Lessee will furnish the Lessor evidence of such insurance relating to the Equipment. (f) Additional Insurance by the Lessor or the Lessee Nothing in this Schedule shall prohibit the Lessor or the Lessee, as their respective interests may appear, from maintaining for its own account, at the expense of the Person purchasing such insurance, additional insurance on or with respect to the Equipment, or any part thereof, with coverage exceeding that otherwise required under this Schedule, unless such insurance would conflict with or limit the insurance otherwise required under this Schedule. 93 100 EXHIBIT A ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT Between FLOWERS INDUSTRIES, INC. and WACHOVIA LEASING CORPORATION Dated as of October 20, 1995 94 101 ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT dated as of October 20, 1995 (as it may be amended or supplemented from time to time, this "Agreement"), by and between FLOWERS INDUSTRIES, INC., a Georgia corporation (the "Company"), and WACHOVIA LEASING CORPORATION, a North Carolina corporation (the "Lessor"). All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in Schedule 1(b) to that certain Master Lease Agreement dated of even date herewith (as amended, supplemented or otherwise modified, the "Lease") by and between the Company, in its capacity as the Lessee, and the Lessor, in its capacity as the Lessor. RECITALS A. Pursuant to the Lease, the Company, in its capacity as the Lessee, has agreed to lease the Equipment for all Phases for the Permitted Use in accordance with the terms and conditions set forth in the Lease. B. To induce the Lessor to enter into the Lease and the other Operative Documents, the Company has agreed to provide, or cause to be provided, to the Lessor all the rights, services, and other matters as may be necessary from time to time for the design, acquisition, installation, assembly, maintenance and operation of the Equipment, and has agreed to indemnify the Lessor for certain environmental and other risks relating to the Equipment, all as hereinafter provided. NOW, THEREFORE, in consideration of the premises and intending to be legally bound by this Agreement, the Company and the Lessor hereby agree as follows: ARTICLE I. Agency Appointment Section A. Appointment of Acquisition Agent. The Lessor hereby appoints the Acquisition Agent as its agent and attorney-in-fact with respect to each Phase (the Company in such capacity is herein called the "Acquisition Agent"), and the Acquisition Agent hereby agrees to act as the Lessor's agent and attorney-in-fact, to perform certain of the obligations and responsibilities of the Lessor under the Lease, to cause, and to be solely responsible for causing, the Equipment for each Phase to be 95 102 purchased and designed and to be installed and assembled substantially in accordance with all Governmental Requirements and Insurance Requirements and to undertake such other powers, duties and obligations as are set forth herein. Section B. Term of Agency Relationship. The agency relationship created herein between the Acquisition Agent and the Lessor shall commence as of the date hereof and shall end on the sooner to occur of: (a) with respect to any particular Phase, the date that the Lessor no longer owns any of the Equipment for such Phase, (b) with respect to all Phases, the occurrence of a default by the Lessee in the payment of the Final Rent Payment or the Termination Value for all Phases in accordance with the terms of Section 15 of the Lease, and (c) with respect to any particular Phase, the date the Lessee gives the Lessor notice that it will not exercise the option to purchase any of the Equipment for such Phase pursuant to the terms of the Lease, and on the date any such event occurs the Lessor revokes the Company's right to act as Acquisition Agent hereunder for such Phase or for all Phases, as applicable. The Lessor may, but is not obligated to, revoke the Company's right and obligation to act as Acquisition Agent hereunder (x) with respect to any Phase, any time after a Lease Termination Date or Option Date for such Phase, and (y) with respect to all Phases, any time after a Cancellation Event. Section C. Powers, Duties and Obligations. The Acquisition Agent shall have the following powers, duties and obligations with respect to each Phase: 1. To take the following actions to cause the Acquisition Date to occur with respect to each item of Equipment in each Phase: (i) To furnish to the Lessor, as soon as available, a detailed list of the Equipment to be acquired for and included in each Phase, and to acquire the Equipment for such Phase in the name of the Lessor, and obtain and furnish to the Lessor bills of sale or other evidence of ownership thereof in the Lessor's name, taking good and marketable title thereto, free and clear of all liens and encumbrances of third parties, and to obtain and furnish to the Lessor full releases of all seller's mechanic's and other similar liens (a) as of each payment date for an item of the Equipment or service in respect thereof, to the extent of 96 103 such item or service and (b) as of the Acquisition Date therefor; (ii) In the name and for the benefit of the Lessor, to negotiate, enter into and perform, and furnish to the Lessor the originals of, all Related Contracts and all other contracts which are necessary or desirable in connection with the acquisition, development and installation of the Equipment for such Phase, including contracts with all Vendors and contractors for supplies, equipment, materials and services, including, without limitation, necessary design work affecting the Equipment and to cause all such Related Contracts and other contracts to be assignable; (iii) To obtain and furnish to the Lessor all Permits that are or will become Applicable Permits with respect to such Phase and the Applicable Site by the Acquisition Date for such Phase, except Applicable Permits customarily obtained or which are permitted by Governmental Requirements to be obtained after the acquisition of the Equipment for such Phase (in which case the Acquisition Agent, having completed all appropriate due diligence in connection therewith pursuant hereto, shall certify to the Lessor that it has no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Governmental Requirements), which such obtained Permits shall be in proper form, in full force and effect and not subject to any appeal or other unsatisfied contest that may allow modification or revocation thereof; (iv) To obtain and furnish to the Lessor evidence of perfection under local law of the Lessor's ownership of the Equipment for each Phase subject to a lease intended as security and file protective financing statements under applicable local law, in each case properly executed by the Lessee, evidencing a first priority, perfected interest in the Equipment for such Phase in favor of the Lessor as security for payment by the Lessee of all amounts, and the performance of all obligations, of the Lessee under the Lease; (v) To obtain and furnish to the Lessor a Certificate of Acceptance in substantially the form of Exhibit B attached to the Lease from the Lessee with respect to the Equipment for each Phase; 97 104 (vi) To obtain and furnish to the Lessor a Lease Supplement in substantially the form of Exhibit C attached to the Lease from the Lessee with respect to such Equipment for each Phase; and (vii) Upon completion of each of the foregoing with respect to any item of Equipment, to notify the Lessor thereof and that the Acquisition Date has occurred with respect to such item of Equipment; (b) To perform all acts which the Acquisition Agent may deem necessary on behalf of the Lessor, but only in the name of the Acquisition Agent, in connection with Completion, including, without limitation, (i) performing or arranging the purchasing, designing, construction, engineering, assembling, installing and testing of the Equipment for such Phase in accordance with the requirements for Completion set forth on Schedule 1(3)(b) attached hereto and by reference made a part hereof; (ii) completing the installation and testing of all Equipment in a manner necessary to meet Completion for such Phase on or before the Phase Completion Date for such Phase; (iii) performing or causing to be performed all work in connection with Completion to be done in a good and workmanlike manner and in compliance with all Governmental Requirements and Insurance Requirements; and (iv) paying, or causing to be paid, in accordance with prudent industry practices in substantial compliance with applicable Governmental Requirements all costs and expenses of Completion for such Phase and performing all obligations of such Completion, and performing or causing to be performed all contracts and other agreements, including without limitation all Related Contracts, entered into by or on behalf of the Lessor with respect to such Phase, and for any Phase, advancing to any Vendor any advance payments, progress payments and full payments required thereby, using funds obtained from the Lessor pursuant to the Progress Payment Agreement for such Phase; (v) if and to the extent that the aggregate Equipment Costs for all Phases exceeds $50,000,000, use the Acquisition Agent's own funds to obtain Completion for all 98 105 Phases, and assign all Property necessary for Completion of the Equipment and purchased with the funds of the Acquisition Agent or its Affiliates to the Lessor to be owned as part of the Equipment provided, however, only such Property as is necessary to fulfill the requirements of Completion shall be assigned to the Lessor; and (vi) executing and delivering to the Lessor a Completion Certificate for such Phase in the form of Exhibit A attached hereto and by reference made a part hereof upon Completion of such Phase; (c) To take all actions in operating and managing the Equipment for each Phase as it would take as a reasonably prudent operator in the management and operation of its own Properties consistent with applicable Governmental Requirements, including, without limitation: (i) marking the Equipment for each Phase to disclose the interest of the Lessor to the extent relevant under applicable law or to the extent deemed appropriate by the Lessor; and (ii) preserving the Lessor's rights in the Equipment for such Phase and under all Related Contracts pertaining to such Equipment; (d) To keep the Equipment for each Phase free of all Liens except Permitted Liens, provided that the Lessee shall have the right to contest Impositions in accordance with Section 13 of the Lease; (e) To transfer and hold all of the evidence of ownership of the Equipment for each Phase in the name of the Lessor; (f) To avoid purchasing Property from or entering into any agreement with Affiliates of the Acquisition Agent in connection with the Equipment (except as expressly permitted by the Lease) for any Phase unless upon fair and reasonable terms that are not less favorable to the Lessor than those which might be obtained in an arm's-length transaction between unaffiliated Persons in the same business at the time such terms are agreed upon; 99 106 (g) Prior to the end of the Acquisition Period, to obtain and submit to the Lessor for its approval an appraisal as to each Phase (which may be a global appraisal as to all Phases) which, upon approval by the Lessor, satisfies the requirements for and will constitute an Approved Appraisal. (h) To attempt to sell the Equipment for each Phase for cash on the Lease Termination Date for such Phase (unless such date also constitutes the Option Date for such Phase), subject to the Lessor's prior written approval of the terms of the sale, and to grant, bargain, sell, convey or contract for the sale or conveyance of the Equipment for such Phase in connection with the duties in this paragraph; (i) To keep and maintain proper books and records relating to the accounts of the Equipment for each Phase and the Book Value of the Equipment for each Phase and the Property comprising the Equipment for each Phase; (j) To pay for, exchange or otherwise settle accounts for the acquisition of supplies, equipment, materials or services affecting the Equipment for each Phase; (k) To ask for, demand, collect, recover, and receive all moneys which may become due and owing by reason of conveyances, whether by contract, bill of sale or other instruments or to pay for, exchange or otherwise settle accounts for the acquisition of supplies, equipment, materials or services affecting the Equipment for each Phase; provided however, the Acquisition Agent shall have the right in its reasonable discretion to settle or waive claims in an aggregate amounts less than $100,000.00 for any Phase. (l) To ask for, demand, collect, and recover, each in the name of the Lessee, any and all sums that may be due on account of any damage to any of the Equipment for an Phase; and (m) To manage correspondence and conduct communications with all Governmental Authorities with regard to matters affecting the Equipment for each Phase, including, but not limited to, the acquisition of all Permits and satisfaction of all Governmental Requirements and Insurance Requirements and with regard to rights of way and easements, if any, affecting the Equipment for each Phase. 100 107 Section D. Disclosure. The Acquisition Agent shall act in its sole discretion in choosing materials for the Equipment for each Phase and hiring any contractors and subcontractors to work on the Equipment for each Phase. The Lessor has no liability for or in respect of the Equipment for any Phase as provided in Section 11 of the Lease and shall be indemnified and held harmless by the Acquisition Agent as provided herein, in the Lease and the other Operative Documents. ARTICLE II. Basic Services, Contracts and Rights, Etc. Section A. Plans and Design Specifications. As soon as available, the Company, at no cost to the Lessor, shall deliver, or cause to be delivered, to the Lessor a complete set of all "as-built" plans, drawings and specifications for the Equipment for each Phase, including all design information, safety systems, and associated improvements which comprise a portion of the Equipment, which items and information to the best of the Company's knowledge shall be true, correct and complete. Section B. [RESERVED] Section C. Utilities, Services and Contracts. Within 120 days prior to the Scheduled Lease Termination Date for each Phase (or immediately if the Lease terminates as to any Phase on any Cancellation Date or Lease Termination Date which is not a Scheduled Lease Termination Date for such Phase), and provided that the Company shall not have elected to purchase, or purchased, the Equipment for such Phase pursuant to the terms of the Lease, at all times thereafter until such Equipment is purchased by a Third Party, the Company, at no cost to the Lessor (with the Company's costs to be reimbursed out of any excess of the net proceeds of such sale over the Non-Recourse Amount for such Equipment, pursuant to Section 15(a)(ii)(B)(2) of the Lease, provided that the Final Rent Payment has been made, pursuant to Section 15(a)(ii)(B)(1) of the Lease), shall provide, either directly or indirectly, to the Lessor, in substantial compliance with all Governmental Requirements (including, without limitation, all Environmental Requirements, Environmental Authorizations and Environment Judgments and Orders and Insurance Requirements), as confirmed by the Lessor, (a) access to Equipment for such Phase and the Applicable Site therefor, and to storage, transportation and maintenance facilities (including 101 108 maintenance equipment and supplies for the Equipment), storage, security, licenses, rights, permits, reports and other general items that are identified in due diligence, in each case necessary or appropriate for the continued preservation and maintenance of the Equipment for such Phase pending such sale and delivery of the Equipment to the purchaser thereof (or as directed by the Lessor), (b) an inventory of supplies necessary for the full and efficient operation of the Equipment for such Phase and (c) services (whether on or off the Applicable Site, including any shared off-site facilities), including, without limitation, water, electricity, heating, ventilation, air conditioning, lighting, security, steam, waste water treatment and sanitation, receiving and shipping facilities as such rights, licenses, easements, services and utilities are or may be necessary for the full and efficient operation of the Equipment for such Phase. Section D. Equipment and Other Rights. Within 120 days prior to the Scheduled Lease Termination Date for each Phase (or immediately if the Lease terminates on any Cancellation Date or Lease Termination Date which is not a Scheduled Lease Termination Date for such Phase), and provided that the Company shall not have elected to purchase, or purchased, the Equipment for such Phase pursuant to the Lease, at all times thereafter for the Term of this Agreement, the Company shall provide to the Lessor, by rent-free lease or other similar arrangement, any and all equipment and maintenance tools, and, for a price equal to the Company's cost therefor if not included in Equipment Cost, all spare parts (including, without limitation, rebuilt parts and major components) and maintenance equipment not covered by the services provided, or caused to be provided, pursuant to Section 3.2(a), as are or may be customarily maintained on the Applicable Site for such Phase by the Company for the operation of the Equipment for such Phase in the manner described in Article III. Within the period set forth above (or immediately in the circumstance contemplated above) the Company, in compliance with all Governmental Requirements, shall also transfer, or cause to be transferred, to the Lessor any and all equipment inspection reports and maintenance records and all licenses and Applicable Permits required to operate the Equipment for such Phase and all such equipment located on the Applicable Site as confirmed by the Lessor. Within the period set forth above (or immediately in the circumstance contemplated above), the Company shall provide, or cause to be provided, to the Lessor, by non-exclusive, royalty free license or other similar arrangement, rights to all patents, patent applications, proprietary computer software, operating and 102 109 other manuals, "know-how," copyrights or other intellectual property (excluding trade names and trademarks) as are or may be necessary for the operation of the Equipment for such Phase in the manner described in Article III. The Company represents and warrants to the Lessor that as of the Closing Date, and the Phase Completion Date for such Phase, and at all times thereafter during the term of this Agreement, the construction, assembly, installation, ownership, use, maintenance and operation of the Equipment for each Phase and Property included therein in accordance with the uses permitted by any necessary licenses and Applicable Permits held by the Company does not and will not cause a violation of any Governmental Requirements or Insurance Requirements. Section E. Cost of Services and Rights. 1. Any and all services described in Section 2.3(c) and all other rights existing or necessary for the full and efficient operation of the Equipment for each Phase during the term of this Agreement shall be provided to the Lessor at the cost specified in Section 3.2. 2. Unless otherwise provided herein, any and all supplies provided by the Company pursuant to this Article II after the Lease Termination Date for each Phase (or any earlier date on which the Lease terminates as provided therein) and for so long as this Agreement remains in effect (i) which are generally commercially available shall be priced at fair market value, and on arms-length terms and conditions subject to applicable provisions of agreements with producers, shippers and suppliers and Governmental Requirements, or (ii) which are not generally commercially available shall be priced at an amount equal to the Company's cost (excluding any profit margin). 3. At the Company's expense, after any Lease Termination Date or Cancellation Date, as applicable, for any Phase, so long as this Agreement then remains in effect, the Company and the Lessor shall select a third party to review, on an annual basis, the books and records of the Company's operation of the Equipment and the Company hereby agrees to permit access to such books and records, in order to verify that the charges paid by the Lessor for such supplies during the immediately preceding twelve (12) month period reflect the costs incurred by the Company in supplying the same (exclusive of any profit margin). 103 110 ARTICLE III. Operation and Management of the Equipment Following Lease Termination. Section A. Engagement. From the Lease Termination Date for each Phase (or any earlier date on which the Lease terminates as provided therein) through the date this Agreement terminates with respect to such Phase in accordance with Section 8.4, the Company hereby agrees to (a) provide and perform, or cause to be provided or performed, all services, labor, supervision, management, maintenance, repairs, common facilities and consumables necessary for the operation of the Equipment for such Phase for the Permitted Use, in accordance with all Governmental Requirements and Insurance Requirements, and (b) to perform the additional duties as set forth in this Agreement. Section B. Duties and Responsibilities of the Company as Operator of the Equipment. During the period specified in Section 3.1: 1. Services. The Company shall (i) perform, or cause to be performed on behalf of the Lessor, all operation and maintenance whatsoever of the Equipment for each Phase, (ii) supply, or cause to be supplied, all services, goods and materials required to operate and maintain the Equipment for each Phase, including without limitation, those services, goods and materials referenced in Article II, and (iii) provide such additional services as may be reasonably requested by the Lessor for the full and efficient operation of the Equipment for each Phase, all of the foregoing to be done or performed in accordance with the terms and conditions set forth herein. 2. Standard of Care. The Company shall perform all of its duties and obligations under Article II and this Article III in accordance with the standards mandated under Section 7 of the Lease as if fully set forth herein (which standards are hereby incorporated, mutatis mutandis, herein by reference) and in a good, workmanlike and commercially reasonable manner. The Company shall exercise such care and shall in the same manner as a prudent Person engaged in the business of managing and operating Property similar to the Equipment for each Phase and used in a similar location for the Permitted Use would in the advancement and protection of such Person's own economic interests and the maximization of such Person's profits 104 111 therefrom. Maintenance shall be scheduled so as to minimize interference with the use operation of the Equipment for each Phase and cost consistent with good industry operating and safety standards and all Governmental Requirements and Insurance Requirements. 3. Compliance with Governmental Requirements and Insurance Requirements. The Company shall comply with, and cause the Equipment for each Phase (including the maintenance, use and operation thereof) and all personnel of the Company to comply with, the Insurance Requirements (which Insurance Requirements are hereby incorporated, mutatis mutandis, herein by reference as if fully set forth herein) and all Governmental Requirements in effect from time to time. 4. Personnel. The Company shall at all times employ, or cause to be employed, qualified and properly trained personnel to perform the Company's obligations under this Agreement, and shall pay all wages and benefits required by law or contract. The Company shall be responsible for all matters relating to labor relations, working conditions, training, employee benefits, safety programs and related matters pertaining to such employees. The Lessor shall have the right to request the removal from the operation or maintenance of the Equipment for any Phase of any personnel deemed unqualified by the Lessor. 5. Warranties and Guarantees. The Company shall use its best reasonable efforts consistent with good industry practices to obtain warranties for the Lessor for parts, equipment, materials or services provided by third-party suppliers in fulfilling the Company's obligations under this Agreement. The Company shall comply with all applicable warranties and guarantees presented by Vendors or contractors, and shall take no action that in any way impairs any rights or claims of the Lessor under this Agreement or any Vendor's or other Person's warranty. Without limiting the foregoing, the Company shall use spare parts that will not adversely affect the Lessor's protection or rights under such warranties or guarantees. 6. Consultations. Notwithstanding any other provision of this Agreement, the Company will consult with the Lessor and any other independent experts appointed by or on behalf of the Lessor to review any matter pertaining directly or indirectly to the performance of the Company's obligations under this Agreement and the Company shall provide them with access, 105 112 during normal business hours and upon no less than two (2) days' prior written notice, to the Equipment for any Phase and the Applicable Site therefor and shall make available to such experts, at the Company's expense, all information, reports, logs and other documents, and shall make the Company's personnel available for consultation with such experts, all as requested by the Lessor. 7. Permits. The Company shall apply for and maintain in full force and effect, at the cost and expense of the Company, any and all Applicable Permits required to be obtained, maintained or held by either the Company or the Lessor as and when required by law to be obtained and in proper form therefor and maintain all such Applicable Permits in full force and effect. 8. Compliance with Law; Certain Agreements. a. The Company shall also comply with, and cause the Equipment for each Phase (and its operation) to comply with, the various requirements imposed on the Lessee set forth in Sections 7, 9, 10, 12, 13, 14, 16 and 20 of the Lease (which sections are hereby incorporated mutatis mutandis herein by reference as if fully set forth herein). b. The Company shall also not take or fail to take any action which would result in the failure of the Equipment for any Phase to be operated on a continuing basis for the Permitted Use in accordance with in the design therefor. 9. Removal. The Lessor may at any time, upon five (5) days written notice, terminate its engagement of the Company under this Agreement without terminating this Agreement pursuant to Section 8.4; provided, however, that the Lessor shall, upon two week's written notice to the Company, be entitled to request the Company to resume its duties under this Agreement for the duration of the term of this Agreement and the Company shall comply with such request. 10. Independent Contractor Status. The Lessor acknowledges that the Company, in performing its duties under this Article III to maintain and operate the Equipment for each Phase, is acting as an independent contractor and except as otherwise expressly provided by this Agreement, the Lessor shall have no right to control the conduct of the Company or its personnel in the proper performance of the obligations of the 106 113 Company under this Agreement. The Company acknowledges that the Lessor is the owner of the Equipment for each Phase and, as such, is entitled to control such Equipment and its use, subject to the provisions of this Agreement and of the Lease. 11. Payment of Costs. All reasonable and necessary costs associated with the continued normal operation, preservation and maintenance of the Equipment for each Phase during the period and in the manner specified by this Article III ("Support Expenses") shall be timely advanced by the Company on behalf of the Lessor subject to reimbursement as hereafter set forth. All such Support Expenses advanced by the Company shall be accounted for by the Company and reported to the Lessor pursuant to monthly written operating reports certified by an authorized officer of the Company. The Lessor shall reimburse the Company for support expenses actually advanced by the Company with respect to any Phase, together with simple interest thereon at a rate per annum equal to 80% of the Base Rate, on the earlier to occur of the date following (i) the termination of this Agreement as to such Phase in accordance with Section 8.4 hereof, or (ii) the date which is three (3) years following the Lease Termination Date or Cancellation Date for such Phase giving rise to the engagement established under Section 3.1. Reimbursement under subsection (i) of this Section 3.2(l) with respect to any Phase shall be made by the Lessor out of any excess of the net proceeds of the sale of the Equipment for such Phase to a Third Party over the Non-Recourse Amount for such Equipment, pursuant to Section 15(a)(ii)(B)(2) of the Lease, provided that the Final Rent Payment has been made, pursuant to Section 15(a)(ii)(B)(1) of the Lease); provided that should such proceeds be insufficient to cover the Lessor's obligation hereunder to reimburse the Company for Support Expenses (plus interest) in full, the balance of such Support Expenses (and interest) shall be payable on the date set forth in subsection (ii) above. The Company's right to reimbursement pursuant to (i) above shall at all times and in all respects be subject and subordinate to the rights of the Lessor to receive full repayment of the Final Rent Payment and all other amounts payable to the Lessor under the Lease. Notwithstanding anything to the contrary contained herein, the Lessor shall not be entitled to reimbursement for any costs expended or incurred from the Lease Termination Date or Cancellation Date, as applicable, for any Phase through the Purchase Closing Date for such Phase, if extended by the Lessor under Section 15(e) of the Lease, in the event that the Company elects to purchase the Equipment for such Phase and elects to remain in possession of such Equipment pursuant to the license referenced in Section 107 114 15(e) of the Lease. All such costs shall be the responsibility of the Company and shall represent the license fee payable in consideration of the rights afforded under such license. ARTICLE IV. Indemnification Section A. Indemnities. The Company agrees, in addition to any other indemnity obligations set forth in the Lease and any other Operative Document, to indemnify and save harmless, the Lessor and any of its successors and assigns, and its officers, directors, incorporators, shareholders, employees, agents, partners, attorneys, affiliates and servants (individually an "Indemnified Party" and collectively the "Indemnified Parties") from and against all liabilities, Liens, Impositions, losses, obligations, claims, damages (including, without limitation, penalties, fines, court costs and administrative service fees), penalties, demands, causes of action, suits, proceedings (including any investigations, litigation or inquiries), judgments, orders, sums paid in settlement of claims, and costs and expenses of any kind or nature whatsoever, including, without limitation, reasonable attorneys' fees and expenses and all other expenses incurred in connection with investigating, defending or preparing to defend any cause of action, suit or proceeding (including any investigations, litigation or inquiries) or claim which may be incurred by or asserted against or involve any of them (whether or not any of them is named as a party thereto) as a result of, arising directly or indirectly out of or in any way related to (a) the failure of the Company to perform or caused to be performed, or the inadequacy of, the environmental due diligence required under Article IV above, (b) the breach of any representation or warranty set forth under the Lease or any of the other Operative Documents regarding Environmental Requirements, (c) the failure of the Company to perform any obligation required to be performed under the Lease or any other Operative Documents pursuant to Environmental Requirements, and (d) all acts or omissions by or on behalf of the Company (both in its individual capacity and in its capacity as Acquisition Agent), its contractors, employees, agents, licensees, representatives or any other Person for whose conduct the Company is responsible in connection herewith under this Agreement (collectively, the "Indemnified Risks"); provided, however, that no Indemnified Party shall be entitled to indemnity (or any other payment or reimbursement) for any Indemnified Risks to the extent 108 115 such Indemnified Risks result from or arise out of the willful misconduct or gross negligence of such Indemnified Party. Section B. Defending Claims. If any cause of action, suit, proceeding or claim arising from any of the foregoing is brought against any Indemnified Party, whether such action, proceeding, suit or claim shall be actual or threatened, or in preparation therefor, the Company will have the right, at its expense, to assume the resistance and defense of such cause of action, suit, proceeding or claim or cause the same to be resisted and defended; provided that such Indemnified Party shall be entitled (but not obligated) to participate jointly in such defense, in which case such Indemnified Party will be responsible for its own legal fees or other expenses, if any, related to such defense incurred subsequent to the joint participation by such party in such defense. Notwithstanding the foregoing, if any Indemnified Party shall have been advised by counsel chosen by it that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Company, the Indemnified Party may assume the defense of such action and the Company agrees to reimburse such Indemnified Party for the reasonable fees and expenses of any counsel retained by the Indemnified Party. The Company may settle any action which it defends hereunder on such terms as it may deem advisable in its sole discretion, subject to its ability promptly to perform in full the terms of such settlement. No Indemnified Party may seek indemnification or other reimbursement or payment, including attorneys' fees or expenses, from the Company for any cause of action, suit, proceeding or claim settled, compromised or in any way disposed of by the Indemnified Party without the Company's prior written consent, which will not be unreasonably withheld. Section C. Survival. The obligations of the Company under this Article V shall survive the expiration or any termination of this Agreement (whether by operation of law or otherwise) and the payment of amounts owed by the Lessor and the Company under this Agreement, the Lease and the other Operative Documents. Section D. Payment upon Demand. Upon demand for payment by any Indemnified Party of any Indemnified Risks incurred by it for which indemnification is sought, the Company shall pay when due and payable the full amount of such Indemnified Risks to the 109 116 appropriate party, unless and only so long as: (a) the Company shall have assumed the defense of such action and is diligently prosecuting the same; (b) the Company is financially able to pay all its obligations outstanding and asserted against the Company at that time, including the full amount of the Indemnified Risks; and (c) the Company has taken all action as may be necessary to prevent (i) the collection of such Indemnified Risks from the Indemnified Party; (ii) the sale, forfeiture or loss of the Equipment for any Phase to which such Indemnified Risk relates or any portion thereof during such defense of such action; and (iii) the imposition of any civil or criminal liability for failure to pay such Indemnified Risks when due and payable. Section E. Acknowledgement of Scope of Indemnity. The Company acknowledges and agrees that (a) its obligations under this Article V are intended to include and extend to any and all liabilities, Liens, Taxes, losses, obligations, claims, damages (including, without limitation, penalties, fines, court costs and administrative service fees), penalties, demands, causes of action, suits, proceedings (including any investigations, litigation or inquiries), judgments, orders, sums paid in settlement of claims, costs and expenses (including, without limitation, response and mediation costs, stabilization costs, encapsulation costs, and treatment, storage or disposal costs), imposed upon or incurred by or asserted at any time against any Indemnified Party (whether or not indemnified against by any other party) as a result of, arising directly or indirectly out of or in any way related to (i) the treatment, storage, disposal, generation, use, transport, movement, presence, release, threatened release, spill, installation, sale, emission, injection, leaching, dumping, escaping or seeping of any hazardous substance or material containing or alleged to contain hazardous substance at or from the Equipment for any Phase or the Applicable Site therefor or any part thereof; (ii) the violation or alleged violation of any Environmental Requirements relating to or in connection with the Equipment for any Phase or the Applicable Site therefor or any part thereof or any acts or omissions thereon or relating thereto; (iii) all other federal, state and local laws designed to protect the environment or persons or property therein, whether now existing or hereinafter enacted, promulgated or issued by any governmental authority relating to or in connection with the Equipment for any Phase or the Applicable Site therefor or any part thereof or any acts or omissions thereon or relating thereto; (iv) the Company's failure 110 117 to comply with its obligations under Section 7 of the Lease; and (v) any abandonment of the Equipment for any Phase by the Company. Section F. Best Efforts Notice. In case any action shall be brought against any Indemnified Party in respect of which indemnity may be sought against the Company, such Indemnified Party shall use best efforts to promptly notify the Company in writing, but the failure to give such prompt notice shall not relieve the Company from liability hereunder. ARTICLE V. Reversion of Rights and Contracts. Upon payment of the Termination Value for any Phase (or for all Phases, as applicable) on the Purchase Closing Date therefor as provided in Section 15 of the Lease: (a) the various agreements, licenses, Applicable Permits and contracts, including without limitation Related Contracts, to be provided hereunder by Company to the Lessor shall revert to the Company (or be transferred to the Company), (b) service contracts with the Company, property rights and licenses granted by the Company to the Lessor shall terminate or be transferred to the Company, and (c) Third Party service contracts shall be assigned by the Lessor to the Company, without recourse and without any representation or warranty whatsoever. Upon the termination of the Lease as to any Phase and the failure of the Company or one of its Affiliates to purchase the Equipment for such Phase as provided in Section 15 of the Lease, all such agreements, Applicable Permits, contracts, property rights and licenses and Third Party service contracts pertaining to such Phase, including without limitation Related Contracts, shall remain in place unless terminated by the Lessor. ARTICLE VI. Additional Support. In the event that neither the Company nor any of its Affiliates purchases the Equipment for any Phase from the Lessor pursuant to the Lease, the parties hereto agree to negotiate in 111 118 good faith to provide to the Lessor such support in addition to that provided for in this Agreement as the Lessor may deem necessary to maintain, use and operate the Equipment for such Phase for the Permitted Use or any other purpose requested by the Lessor. ARTICLE VII. Miscellaneous. Section A. Governing Law; Assignability, etc. THIS AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. This Agreement supersedes all prior agreements among or between the parties with respect to the matters addressed herein and shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. After the expiration or the termination of the Lease as to any Phase, and provided that the Company (or an Affiliate thereof) shall not have purchased the Equipment for such Phase in accordance with the terms of the Lease, the Lessor may, at any time, assign its rights hereunder to any permitted assignee of the Lessor under the Lease, without the prior written consent of the Company. The Company may not delegate all or any part of its obligations or assign any of its rights hereunder without the prior written consent of the Lessor. Section B. [Reserved] Section C. Amendments. No change, waiver, amendment or modification of any of the provisions of this Agreement shall be valid unless set forth in a written instrument signed by the parties hereto, in compliance with the requirements set forth in the Lease. Section D. Term; Option. Except as otherwise expressly provided herein, this Agreement and the parties' obligations hereunder shall commence on the date hereof and shall terminate as to each Phase upon the expiration or other termination of the Lease as to such Phase and consummation of the purchase by the Company (or an Affiliate thereof) of the Equipment for such Phase for the Termination Value therefor in accordance with the Lease; provided, however, that upon the termination of the Lease for any 112 119 Phase, and provided that the Company (or an Affiliate thereof) shall not have purchased the Equipment for such Phase and paid the Termination Value therefor in accordance with the terms of the Lease, this Agreement shall continue in full force and effect as to such Phase until the date the Equipment for such Phase is sold to a Third Party or any earlier written notice from the Lessor of its election to terminate this Agreement as to such Phase. Section E. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which together shall constitute but one and the same instrument. This Agreement may be delivered by facsimile transmission of the relevant signature pages hereof. Section F. Further Assurances. The Company shall take all appropriate actions and shall execute any documents, instruments or conveyances of any kind which may be necessary or advisable to carry out the provisions hereof, including, without limitation, all documents required by Governmental Authorities, and respond to all inquiries of Governmental Authorities concerning the Equipment for any Phase. 113 120 IN WITNESS WHEREOF, the parties hereto have caused this Agreement hereto to be entered into by one of its officers thereunto duly authorized. LESSOR: WACHOVIA LEASING CORPORATION By: ---------------------------------- Title: COMPANY: FLOWERS INDUSTRIES, INC. By: ---------------------------------- Title: 114 121 Schedule 1.3(b) Requirements for Completion for each Phase Completion shall occur as to any Phase when each of the following requirements has been satisfied: 1. The Acquisition Date shall have occurred for each item of Equipment in such Phase, with all of the actions set forth in Section 1.3(a)(i) through (vii), inclusive, of the Agency Agreement having been taken for all such items. 2. All installation and testing of all Equipment for such Phase shall have been completed satisfactorily, and all of such Equipment shall be subject to the Lease. 3. No Loss Event or Casualty Event shall have occurred with respect to such Phase. 4. No Default or Event of Default shall have occurred. 5. The Acquisition Agent shall have furnished to the Lessor a Completion Certificate with respect to such Phase. 115 122 EXHIBIT A Form of Completion Certificate COMPLETION CERTIFICATE [LOCATION OF APPLICABLE SITE] The undersigned, the ___________________ of FLOWERS INDUSTRIES, INC., a Georgia corporation, in its capacity as Acquisition Agent (the "Acquisition Agent") for WACHOVIA LEASING CORPORATION, a North Carolina corporation ("Lessor") under that certain Acquisition, Agency, Indemnity and Support Agreement dated as of October 20, 1995 (the "Agency Agreement"), hereby certifies to Lessor as follows: 1. Reference is hereby made to the Master Lease Agreement, dated as of October 20, 1995 (the "Lease") by and among Flowers Industries, Inc. in its individual capacity (the "Company"), as Lessee, and Lessor. Unless otherwise defined herein, capitalized terms used herein have the respective meanings set forth in the Lease. 2. The Acquisition Agent has acted as agent and attorney-in-fact for the Lessor with respect to the purchase, design, installation and assembly of the Equipment more particularly described on Schedule I attached hereto (the "Added Equipment") for and on the manufacturing facility located at __________________________ (the "Applicable Site"), and with respect to certain other powers, duties and obligations as are more particularly set forth in the Agency Agreement. 3. An acceptance of the Added Equipment by the Lessee has occurred, and Lessee has issued its Certificate of Acceptance with respect to the Added Equipment. 4. Upon delivery of this Certificate to Lessor, all of the events and conditions precedent for Completion listed in Schedule 1.3(b) to the Agency Agreement will have been satisfied as to the Applicable Site and the Phase relating thereto. 116 123 IN WITNESS WHEREOF, the undersigned has executed and delivered this certificate the _____ day of ________, 19___. ----------------------------------------- Name: Title: 117 124 SCHEDULE I [LIST OF ADDED EQUIPMENT] 118 125 EXHIBIT B Certificate of Acceptance [LOCATION OF APPLICABLE SITE] FLOWERS INDUSTRIES, INC., a Georgia corporation ("Lessee") hereby represents, acknowledges, warrants and agrees as follows (all terms used herein without definition have the meanings ascribed thereto in the Master Lease Agreement between WACHOVIA LEASING CORPORATION, a North Carolina corporation ("Lessor") and Lessee, dated as of October 20, 1995 (the "Lease")): 1. Lessee has received from Lessor as of the ____ day of__________, 199_, at ________________ (the "Applicable Site") possession of that certain equipment more particularly described on Schedule 1 hereto, together with all Vendor's warranties and service contracts with respect thereto (the foregoing equipment and other items being hereinafter collectively referred to as the "Equipment"). 2. The Equipment was delivered to, and fully examined and accepted by, Lessee at the Applicable Site pursuant to the terms and provisions of the Lease. The Equipment was received in a condition fully satisfactory to the Lessee and in full conformity with the Lease in every respect [except as set forth in Schedule 2 hereto, and was accepted by Lessee subject to such non-conformity]. 4. The Lease is in full force and effect, Lessor has fully, duly and timely performed all of its obligations of every kind or nature thereunder, and Lessee has no claims, deductions, set-offs or defenses of any kind or nature in connection with the Lease. 5. Lessee has obtained all Permits that are or will become Applicable Permits with respect to the Equipment and the Applicable Site, except for such Applicable Permits customarily obtained or which are permitted by Governmental Requirements to be obtained after the acquisition of the Equipment and which Lessee, having completed all appropriate due diligence in connection therewith pursuant to the Agency Agreement, has no reason to believe will not be granted in the usual course of business prior to the date that such Permits are required by Governmental Requirements. All Applicable Permits heretofore obtained are in proper form, in full 119 126 force and effect and not subject to any appeal or other unsatisfied contest that may allow modification or revocation thereof. Dated as of the_____day of __________________, 199_. FLOWERS INDUSTRIES, INC. (Lessee) By: ------------------------------------ Name: Title: 120 127 SCHEDULE 1 TO CERTIFICATE OF ACCEPTANCE [DESCRIPTION OF EQUIPMENT] 121 128 SCHEDULE 2 TO CERTIFICATE OF ACCEPTANCE [DISCREPANCIES] 122 129 EXHIBIT C Lease Supplement [LOCATION OF APPLICABLE SITE] THIS SUPPLEMENT is hereby added, as of the ___ day of ________, 199_, to that certain Master Lease Agreement (the "Lease") dated as of October 20, 1995 by and between WACHOVIA LEASING CORPORATION, a North Carolina corporation, as lessor ("Lessor") and FLOWERS INDUSTRIES, INC., as lessee ("Lessee") with respect to the manufacturing site or facility located at __________________ (the "Applicable Site"). Upon execution hereof by Lessor and Lessee, this Supplement shall be included in and shall be a part of the Lease for all purposes. Terms used but not otherwise defined herein shall have the meanings given to such terms in the Lease. The parties hereto acknowledge and agree as follows: 1. The equipment (the "Added Equipment") more particularly described on Schedule "A" attached hereto and located at the Applicable Site is hereby added by this Supplement to the Lease and shall hereafter constitute a part of the "Equipment" (as defined in the Lease) leased by Lessee pursuant to the Lease. 2. The Equipment Cost for the Added Equipment is as reflected on Schedule "B" attached hereto, and has been paid in full by Lessor. Lessor has received bills of sale or other evidence of ownership of the Added Equipment, free and clear of all liens and encumbrances of third parties. Such amounts shall be used in the computation of Interim Rent, Basic Rent, the Final Rent Payment or the Termination Value with respect to the Added Equipment. 3. By the addition of the Equipment Cost for the Added Equipment hereby, the aggregate Equipment Cost for the Phase relating to the Applicable Site under the Lease has been increased to $______ . 4. Lessee certifies that: 123 130 (a) copies of all Related Contracts, and all other contracts entered into in connection with the acquisition, development and installation of the Added Equipment pursuant to the Agency Agreement have been delivered to Lessor; (b) all Permits that are or will become Applicable Permits with respect to the Added Equipment and the Applicable Site have been obtained, except Applicable Permits customarily obtained or which are permitted by Governmental Requirements to be obtained after the acquisition of the Added Equipment (and Lessee, having completed all appropriate due diligence in connection therewith pursuant to the Agency Agreement, has no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Governmental Requirements), and such obtained Permits are in proper form, in full force and effect and not subject to any appeal or other unsatisfied contest that may allow modification or revocation thereof; and (c) Lessor's ownership interest in the Added Equipment, subject to a Lease intended as security, has been perfected under local law, and protective financing statements evidencing a first priority, perfected interest in the Added Equipment in favor of the Lessor as security for payment by Lessee of all amounts and the performance of all obligations of Lessee under the Lease have been duly filed. 4. The parties hereto represent and warrant as to the facts specified in subparagraphs (ii), (iii), (iv), (v), and (vi) of Section 28(b) of the Lease. 5. The parties hereto confirm, as of the date hereof, that all representations and warranties made in the Lease with respect to the Equipment heretofore covered by the Lease remain true and correct in all material respects; that all representations and warranties made in the Lease with respect to the Equipment are, as of the date hereof, true and correct as to the Added Equipment as if such Added Equipment originally had been included within the term "Equipment"; and that no Event of Default or even which 124 131 with notice and/or the passage of time might ripen into an Event of Default exists under the Lease. 6. Lessee acknowledges and confirms that as of the date hereof, it has no defenses to the payment or performance of the parties' obligations under the Lease and that no claims, counterclaims, affirmative defenses or other such affirmation rights exist against Lessor with respect to the Lease including, without limitation, any claims relating to the amounts charged as Interim Rent, Basic Rent, the Final Rent Payment or Termination Value or otherwise. Lessee has examined the Added Equipment and accepts and approves the Added Equipment as suitable and satisfactory for inclusion in the Lease, and has executed a Certificate of Acceptance dated as of even date herewith with respect to the Added Equipment. 125 132 EXECUTED as of the _____day of ____________, 199__. LESSOR: WACHOVIA LEASING CORPORATION By: ----------------------------------- Name: Title: LESSEE: [CORPORATE SEAL] FLOWERS INDUSTRIES, INC. By: ----------------------------------- Name: Title: 126 133 SCHEDULE A TO LEASE SUPPLEMENT [LIST OF ADDED EQUIPMENT] 127 134 SCHEDULE B TO LEASE SUPPLEMENT [EQUIPMENT COST FOR ADDED EQUIPMENT] 128 135 EXHIBIT D FORM OF LEGAL OPINION OF ASSISTANT GENERAL COUNSEL OF LESSEE [LESSEE LETTERHEAD] October 20, 1995 Wachovia Leasing Corporation 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Dear Sirs: I am the Assistant General Counsel for Flowers Industries, Inc., a Georgia corporation ("Lessee"). This opinion is being delivered pursuant to Section 28(a)(ii) of that certain Master Lease Agreement (the "Lease") dated as of even date herewith between Lessee and Wachovia Leasing Corporation, a North Carolina corporation ("Lessor"), and in connection with the execution and delivery of the other "Operative Documents," as defined in the Lease. Terms defined in the Lease or in Schedule 1(b) to the Lease are used herein as therein defined, unless otherwise indicated. I have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. 129 136 Upon the basis of the foregoing, I am of the opinion that: 1. Lessee is a corporation duly incorporated, and, based solely on the Good Standing Certificate (as hereinafter defined), validly existing under the laws of the State of Georgia and has all corporate powers required to carry on its business as it is now conducted. The "Good Standing Certificate" is the certificate of valid existence dated October 18, 1995 issued by the Secretary of State of the State of Georgia with respect to Lessee. 2. The execution, delivery and performance by Lessee of the Lease, the Agency Agreement, the Progress Payment Agreement and the other Operative Documents to which Lessee is a party, (a) are within Lessee's corporate powers, (b) have been duly authorized by all necessary corporate action, (c) require no action by or in respect of, or filing with, any governmental body, agency or official, except for filings as contemplated by the Lease, (d) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of Lessee or of any material agreement, judgment, injunction, order, decree or other instrument relating to Debt which is binding upon Lessee, and (e) do not result in the creation or imposition of any Lien on any asset of Lessee (other than the security interest in the Equipment created by the Lease in the event that the Lease is recharacterized as a financing transaction). 3. The Lease, the Agency Agreement, the Progress Payment Agreement and the other Operative Documents to which Lessee is a party and the obligations of Lessee with respect to the payment of Basic Rent, Interim Rent, the Final Rent Payment and the Supplemental Rent and all other payment obligations of Lessee under the Lease including without limitation the payment of the Termination Value by Lessee or its designee pursuant to the exercise or deemed exercise of Lessee's option under Section 15 of the Lease or pursuant to any other provisions of the Lease, constitute the valid and binding obligations of Lessee enforceable against Lessee in accordance with their respective terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' 130 137 rights generally and (b) general principles of equity (including, without limitation, the availability or non-availability of equitable remedies), whether considered in a proceeding at law or in equity; provided that the foregoing shall not, in my opinion, substantially interfere with the practical realization of the benefits expressed in the Lease and the other Operative Documents, except for the economic consequences of any procedural delay which may result therefrom. 4. There is no action, suit or proceeding pending for which process has been served, or, to the best of my knowledge, threatened, against or affecting Lessee or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of Lessee and its Consolidated Subsidiaries, considered as a whole, or which in any manner questions the validity or enforceability of any of the Operative Documents. 5. Neither Lessee nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. Neither Lessee nor any of its respective Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Company Act of 1935, as amended. 7. If a Georgia court held the Lease to be a financing transaction instead of a true lease, (a) the Lease, and the obligations of Lessee under the Lease with respect to the payment of Base Rent, Interim Rent, the Final Rent Payment and Supplemental Rent and all other payment obligations of Lessee under the Lease including without limitation the payment of the Termination Value by Lessee or its designee pursuant to the exercise of Lessee's option under Section 15 of the Lease or pursuant to any other provision of the Lease, would constitute the valid and binding obligations of Lessee and would be enforceable against Lessee in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, 131 138 reorganization or other similar laws affecting creditors' rights and general principles of equity, (b) the "loan" to Lessee evidenced by the Lease would not be contractually usurious under the laws of the State of Georgia provided that any effective rate of interest (including, without limitation, any charge, fee, premium or minimum balance requirement) deemed earned by Lessor under the Lease and the other Operative Documents does not exceed 5.0% per month at any time, and (c) the Lease would be enforceable as a security agreement under the laws of the State of Georgia and Lessor would be entitled to foreclose the Liens granted under the Lease following an Event of Default in accordance with the power of sale therein granted. 8. The execution, delivery and performance by Lessee of the Operative Documents do not conflict with or result in a violation of any law, statute, rule or regulation of the State of Georgia (or any subdivision thereof), or, except for the filing of appropriate financing statements, require any consent of or filing or registration with an Governmental Authority of the State of Georgia (or any subdivision thereof) or pursuant to the UCC which has not been obtained or completed and which is necessary for the validity and enforceability thereof. I am qualified to practice in the State of Georgia and do not purport to be expert on any laws other than the laws of the State of Georgia, the federal laws of the United States, and the UCC, and this opinion is rendered only with respect to such laws. I have made no independent investigation of the laws of any other jurisdiction (except with respect to the UCC). In rendering the opinions above, I have assumed, with your permission, that each of the Operative Documents has been duly authorized, executed and delivered by Lessor and, to the extent provided therein, constitutes the legal, valid and binding obligation of Lessor enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (including, without limitation, the availability or non-availability of equitable remedies), whether considered in a proceeding at law or in equity. 132 139 This opinion is delivered to you at the request of Lessee in connection with the transaction referenced above and may not, without my prior written consent, be communicated to or relied upon by anyone other than you, your successors and assigns, except that it may be communicated to Jones, Day, Reavis & Pogue, your special counsel. This opinion speaks only as of the date hereof, and I do not undertake any duty to advise you of any change herein. Very truly yours, ----------------------------------- Stephen R. Avera, Esq. Assistant General Counsel Flowers Industries, Inc. 133 140 EXHIBIT E PROGRESS PAYMENT AGREEMENT This Progress Payment Agreement ("Agreement") is made this ____ day of _______________, 1995 in conjunction with the Master Lease Agreement dated October 20, 1995 (the "Lease"), between Wachovia Leasing Corporation (the "Lessor") and Flowers Industries, Inc. (the "Lessee"). All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in Schedule 1(b) to the Lease. Pursuant to the Master Lease Agreement, the Lessee intends to request from time to time that the Lessor acquire and lease to the Lessee items of Equipment for a Phase to be located at the following Applicable Site: _______________ (the "Proposed Equipment"), and that the Lessor purchase the Proposed Equipment from Vendors designated by the Lessee. The Vendors may require advance payments, progress payments, or full payment for the Proposed Equipment prior to delivery and acceptance of the Proposed Equipment by the Lessee. To induce the Lessor to make such payments for the Proposed Equipment, the Lessee agrees as follows: 1. All Proposed Equipment purchased by Lessor pursuant to this Agreement will be the Lessor's property and on the Lease Addition Date will be Equipment leased under the Lease. 2. The term of the Lease with respect to the Proposed Equipment will not commence until the Lease Addition Date with respect thereto. Until the Lease Addition Date as to the Proposed Equipment, a charge shall accrue on all such advances, progress or other payments made by the Lessor equal to an amount per annum which is the product of (i) advances or payment outstanding from the date any such advances are outstanding, (ii) 80% of the Base Rate and (iii) the actual number days in the period/360 (such amount being so determined being "Additional Rent"). Such Additional Rent shall accrue until the Lease Addition Date, whereupon it shall be capitalized and added to Equipment Cost for such Phase pursuant to Section 3(a) of the Lease. 3. Lessee shall obtain and maintain insurance in form and substance satisfactory Lessor insuring Lessor's interest in the 134 141 Equipment to the extent of the advance or progress payments made by Lessor. 4. Upon delivery and acceptance of the Equipment by the Lessee, the Lessee will execute and deliver to the Lessor the Lease Supplement, and satisfy the other conditions set forth in Section 28(c), with respect to the Proposed Equipment, commencing the Lease with respect thereto. 5. If for any reason whatsoever the Lessee fails to comply with any of the terms hereof or of the Lease or if the Lease Addition Date has not occurred as to any unit of Proposed Equipment by _________________, the Lessee will reimburse the Lessor, on demand, and at the Lessor's option, for all amounts advanced or paid by the Lessor with respect to such unit of Proposed Equipment, plus the unpaid Additional Rent in accordance with Paragraph 2, and the Lessor will assign to the Lessee all of the Lessor's right, title and interest in and to the Proposed Equipment. 6. In the event a Vendor of Proposed Equipment covered hereunder fails to perform all of the covenants, conditions, stipulations, and agreements to manufacture, ship, or deliver (collectively referred to as the "Terms"), or for any reason whatsoever does not perform the Terms, after advance payments, progress payments, or full payments have been made by the Lessor with respect to the Proposed Equipment, the Lessee will reimburse the Lessor on demand, for all amounts advanced or paid by the Lessor with respect to the Proposed Equipment, plus the unpaid Additional Rent in accordance with Paragraph 2, and the Lessor will assign to the Lessee every right, title and interest the Lessor may have in and to the Proposed Equipment. 7. A waiver of a specific default shall not be a waiver of subsequent or any other default. No waiver of any provision of the Lease or this Agreement shall be a waiver of any other provision or matter. No delay or failure of the Lessor in exercising any right hereunder shall affect such right, nor shall any single or partial exercise preclude any further exercise thereof or the exercise of any other rights hereunder. 8. Except as herein and heretofore modified, the Lease shall continue in full force and effect in accordance with its terms. 135 142 9. No modifications to this Agreement shall be binding upon the parties unless agreed to by each and every party in writing. 10. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one 136 143 and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. LESSOR: WACHOVIA LEASING CORPORATION By: ----------------------------------- Title: LESSEE: [CORPORATE SEAL] FLOWERS INDUSTRIES, INC. By: ----------------------------------- Title: 137 144 EXHIBIT F FORM OF APPROVED SUBLEASE SUBLEASE THIS SUBLEASE AGREEMENT is made as of the_____, day of ______________________, ______, by and between FLOWERS INDUSTRIES, INC. a Georgia corporation ("Sublessor"), and ______________________ ("Sublessee"). WITNESSETH: WHEREAS, the Sublessor is a party to that certain Master Lease Agreement, dated as October 20, 1995 (as from time to time amended, modified or supplemented, the "Primary Lease") between Sublessor, as lessee, and Wachovia Leasing Corporation ("Wachovia"), as lessor, pursuant to which Sublessor leased from Wachovia certain equipment (the "Equipment"), including, but not limited to, the Equipment described on Schedule 1 attached hereto and incorporated herein by reference the "Subleased Equipment"); WHEREAS, the Sublessee wishes to lease the Subleased Equipment from the Sublessor, subject to the terms and conditions of the Lease; NOW THEREFORE, in consideration of the foregoing, and in consideration of the mutual covenants and agreements set forth herein, the parties hereto hereby agree as follows: 1. Terms. The Sublessor hereby agrees to lease to the Sublessee the Subleased Equipment for a lease term of this Sublease commencing on ________________ and ending on the earlier to occur of (a) ________________ and (b) the Scheduled Lease Termination Date (as such term in defined in the Primary Lease) application to the Subleased Equipment. 2. Rent. The Sublessee hereby agrees to pay rental for the Equipment in the amounts and on the date set forth on Schedule 2 hereto. 3. Compliance with the Primary Lease. During the term of this Sublease, the Sublessee shall comply with and perform all 138 145 requirements, duties and obligations of the lessee under the Primary Lease in respect of the Subleased Equipment. 4. Subordinate to the Primary Lease. This sublease subject and subordinate to the terms of the Primary Lease and the liens created thereby. 5. Events of Default. Any "Event of Default," as such term is defined int he Primary Lease, in respect of the Subleased Equipment shall be an Event of Default hereunder. Upon the occurrence of any such Event of Default, the Sublessor shall have, in respect of the Sublessee and the Subleased Equipment, all the rights and remedies which would be available to Wachovia int he event of the occurrence of an Designated Event of Default under, and as such term is defined in, the Primary Lease, which rights and remedies are hereby incorporated herein by reference. 6. Governing Law. This Sublease shall be governed by the laws of the State of Georgia, without regard to conflicts of law principles. IN WITNESS THEREOF, the parties hereto have executed this Sublease as of the date and year first above written. "Sublessor" FLOWERS INDUSTRIES By: -------------------------------------- Name: Title: "Sublessee" [NAME OF SUBLESSEE] By: -------------------------------------- Name: Title: 139 146 FIRST AMENDMENT TO MASTER LEASE AGREEMENT THIS FIRST AMENDMENT TO MASTER LEASE AGREEMENT (this "First Amendment") is dated as of the 20th day of October, 1996 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the "Lessor"). WITNESSETH: WHEREAS, the Lessee and the Lessor executed and delivered that certain Master Lease Agreement, dated as of the 20th day of October, 1995 (the "Lease"); WHEREAS, contemporaneously herewith, the Lessee has furnished the Lessor a Completion Certificate with respect to the Phase for the Applicable Site located in Jamestown, North Carolina, but has acknowledged that it was unable to achieve Completion with respect to the Phases for the Applicable Sites located in Miami, Florida (the "Miami Phase") and in San Antonio, Texas (the "San Antonio Phase") by the date which is six months from the respective Phase Commencement Dates for such Phases, and has requested that the Lessor grant an appropriate extension of time and other amendments to the Lease and the Lessor has agreed to such amendments to the Lease, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Lease shall have the meaning assigned to such term in the Lease. Each 147 reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Lease shall from and after the date hereof refer to the Lease as amended hereby. 2. Amendments to the Lease. The Lease hereby is amended by (A) deleting the words "Scheduled Amount" in the second line of of Section 3(b)(i)(B) of the Lease and in the second line of Section 3(b)(ii)(B) of the Lease, and substituting therefor the words "Unrecovered Equipment Cost"), and (B) amending certain defined terms contained in Schedule 1(b) thereto: (i) the term "Acquisition Period" hereby is amended by deleting it in its entirety and substituting therefor the following: "Acquisition Period": a period commencing on the Closing Date and ending (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, April 21, 1997, and (y) as to all other Phases, 12 months after the Closing Date. (ii) the term "Non-Completion Event" hereby is amended by deleting clause (i) thereof and substituting therefor the following: (i) (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, April 21, 1997, and (y) as to all other Phases, the date which is six months after the Phase Commencement Date for such Phase, and (iii) the term "Phase Completion Date" hereby is amended by deleting clause (ii) thereof and substituting therefor the following: (ii) (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, April 21, 1997, and (y) as to all other Phases, 148 the date which is six months after the Phase Commencement Date for such Phase, and 3. Waiver by the Lessor. The Lessor hereby waives the right to terminate the Lease as to the Miami Phase and the San Antonio Phase as a result of the failure to achieve Completion by the date which is six months after the respective Phase Commencement Date for such Phases (but does not waive such right if Completion has not occurred by April 21, 1997). 4. Restatement of Representations and Warranties. The Lessor hereby restates and renews each and every representation and warranty heretofore made by it in the Lease and the other Operative Documents as fully as if made on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents) and with specific reference to this First Amendment and all other documents executed and/or delivered in connection herewith. 5. Effect of Amendment. Except as set forth expressly hereinabove, all terms of the Lease and the other Operative Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Lessee. 6, Ratification. The Lessee hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth in the Lease and the other Operative Documents effective as of the date hereof. 7. Counterparts. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 8. Section References. Section titles and references used in this First Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 3 149 9. No Default. To induce the Lessor to enter into this First Amendment and to continue to make advances of Facility Cost for the Miami Phase and the San Antonio Phase pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Lessee arising out of or with respect to the Lease or other Operative Documents. 10. Further Assurances. The Lessee agrees to take such further actions as the Lessor shall reasonably request in connection herewith to evidence the amendments herein contained to the Lessee. 11. Governing Law. This First Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 4 150 IN WITNESS WHEREOF, the Lessee and the Lessor have caused this First Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. LESSEE: FLOWERS INDUSTRIES, INC. (SEAL) By: ------------------------------------- Title: LESSOR: WACHOVIA LEASING CORPORATION (SEAL) By: ------------------------------------- Title: 5 151 SECOND AMENDMENT TO MASTER LEASE AGREEMENT THIS SECOND AMENDMENT TO MASTER LEASE AGREEMENT (this "Second Amendment") is dated as of the 20th day of April, 1997 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the "Lessor"). WITNESSETH: WHEREAS, the Lessee and the Lessor executed and delivered that certain Master Lease Agreement, dated as of the 20th day of October, 1995, as amended by First Amendment to Master Lease Agreement dated as of October 20, 1996 (as so amended, the "Lease"); WHEREAS, the Lessee has furnished the Lessor a Completion Certificate with respect to the Phase for the Applicable Site located in Jamestown, North Carolina, but has acknowledged that it was unable to achieve Completion with respect to the Phases for the Applicable Sites located in Miami, Florida (the "Miami Phase") and in San Antonio, Texas (the "San Antonio Phase") by the date required for such Phases, and has requested that the Lessor grant an appropriate extension of time and other amendments to the Lease and the Lessor has agreed to such amendments to the Lease, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Lease shall 152 have the meaning assigned to such term in the Lease. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Lease shall from and after the date hereof refer to the Lease as amended hereby. 2. Amendments to the Lease. The Lease hereby is amended by amending certain defined terms contained in Schedule 1(b) thereto: (i) the term "Acquisition Period" hereby is amended by deleting it in its entirety and substituting therefor the following: "Acquisition Period": a period commencing on the Closing Date and ending (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, and (y) as to all other Phases, 12 months after the Closing Date. (ii) the term "Non-Completion Event" hereby is amended by deleting clause (i) thereof and substituting therefor the following: (i) (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, and (y) as to all other Phases, the date which is six months after the Phase Commencement Date for such Phase, and (iii) the term "Phase Completion Date" hereby is amended by deleting clause (ii) thereof and substituting therefor the following: (ii) (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, and (y) as to all other Phases, the date which is six months after the Phase Commencement Date for such Phase, and 153 3. Waiver by the Lessor. The Lessor hereby waives the right to terminate the Lease as to the Miami Phase and the San Antonio Phase as a result of the failure to achieve Completion by the date originally required by the Lease (but does not waive such right if Completion has not occurred by October 21, 1997). 4. Restatement of Representations and Warranties. The Lessor hereby restates and renews each and every representation and warranty heretofore made by it in the Lease and the other Operative Documents as fully as if made on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents) and with specific reference to this Second Amendment and all other documents executed and/or delivered in connection herewith. 5. Effect of Amendment. Except as set forth expressly hereinabove, all terms of the Lease and the other Operative Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Lessee. 6, Ratification. The Lessee hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth in the Lease and the other Operative Documents effective as of the date hereof. 7. Counterparts. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 8. Section References. Section titles and references used in this Second Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 9. No Default. To induce the Lessor to enter into this Second Amendment and to continue to make advances of Facility Cost for the Miami Phase and the San Antonio Phase pursuant to 3 154 the Lease, the Lessee hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Lessee arising out of or with respect to the Lease or other Operative Documents. 10. Further Assurances. The Lessee agrees to take such further actions as the Lessor shall reasonably request in connection herewith to evidence the amendments herein contained to the Lessee. 11. Governing Law. This Second Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 4 155 IN WITNESS WHEREOF, the Lessee and the Lessor have caused this Second Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. LESSEE: FLOWERS INDUSTRIES, INC. (SEAL) By: ------------------------------------- Title: LESSOR: WACHOVIA LEASING CORPORATION (SEAL) By: ------------------------------------- Title: 5 156 THIRD AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT THIS THIRD AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT(this "Amendment") is dated as of June 10, 1998 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the "Lessor"). WITNESSETH: WHEREAS, the Lessee and the Lessor executed and delivered that certain Master Lease Agreement, dated as of the 20th day of October, 1995, as amended by First Amendment to Master Lease Agreement dated as of October 20, 1996 and by Second Amendment to Master Lease Agreement dated as of April 20, 1997 (as so amended, the "Lease"); WHEREAS, Completion has been achieved, and the Phase Commencement Date has occurred, with respect to the Applicable Sites located in Miami, Florida, Jamestown, North Carolina and San Antonio, Texas, and the Lease provides for up to 5 additional Phases, but the Acquisition Period has terminated under the Lease; and WHEREAS, The Lessee has requested that the Lease be amended to (i) provide for a new Acquisition Period for 5 additional Phases (the "Subsequent Phases"), including Phases in Spartanburg, South Carolina, Stilwell, Oklahoma and Suwanee, Georgia, and 2 other Phases not yet identified, and (ii) increase the maximum aggregate Equipment Cost from $50,000,000 to $80,000,000, and the Lessor has agreed to such amendments to the Lease, as well as an amendment to the Agency Agreement to reflect the increase described in clause (ii), subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby covenant and agree as follows: 157 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Lease shall have the meaning assigned to such term in the Lease. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Lease shall from and after the date hereof refer to the Lease as amended hereby. 2. Amendments to Section 3(a) of the Lease. Section 3(a) of the Lease hereby is amended by deleting the figure "$50,000,000" in the 23rd and 25th lines thereof, and substituting therefor the figure "$80,000,000". 3. Amendment to Section 29 of the Lease. Section 29 of the Lease hereby is amended by adding a new paragraph (l) thereto, as follows: (l) Year 2000 Compliance. All computer systems used by the Lessee and the Lessee's Subsidiaries will be, on or prior to December 31, 1999, capable of the following: (i) handling date information involving all and any dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part; (ii) operating, accurately without interruption on and in respect of any and all dates before, during and/or after January 1, 2000 and without any change in performance; (iii) responding to and processing two digit year input without creating any ambiguity as to the century; and (iv) storing and providing date input information without creating any ambiguity as to the century; except where the failure to be so capable would not reasonably be expected to have a Material Adverse Effect. 4. Amendments to Schedule 1(b) to the Lease. The Schedule 1(b) of the Lease hereby is amended as follows: (i) the term "Acquisition Period" hereby is amended by deleting it in its entirety and substituting therefor the following: "Acquisition Period": (i) as to the Initial Phases, a period commencing on the Closing Date 2 158 and ending (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, and (y) as to the Phase for the Applicable Site located in Jamestown, North Carolina, 12 months after the Closing Date; and (ii) as to each of the Subsequent Phases, 15 months after the Third Amendment Date. (ii) the following new definitions hereby are added in appropriate alphabetical sequence: "Initial Phases" means the Phases for the Applicable Sites located in Miami, Florida, Jamestown, North Carolina and San Antonio, Texas, as to which Completion and the Phase Commencement Date occurred prior to the Third Amendment Date. "Subsequent Phases" means the following Phases, as to which Completion and the Phase Commencement Date has not occurred prior to the Third Amendment Date: (i) Phases for Applicable Sites to be located in Spartanburg, South Carolina, Stilwell, Oklahoma and Suwanee, Georgia; and (ii) 2 other Phases for Applicable Sites not identified at the time of the Third Amendment. "Third Amendment Date" means June 10, 1998. 5. Amendment to Agency Agreement. Section C.1.(b)(v) of Article 1 of the Agency Agreement hereby is amended by deleting the figure "$50,000,000" in the 2nd line thereof, and substituting therefor the figure "$80,000,000". 6. Restatement of Representations and Warranties. The Lessor hereby restates and renews each and every representation and warranty heretofore made by it in the Lease and the other Operative Documents as fully as if made on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents) and with specific reference to this Amendment and all other documents executed and/or delivered in connection herewith. 7. Effect of Amendments. Except as set forth expressly hereinabove, all terms of the Lease, the Agency Agreement and the other Operative Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Lessee. 8. Ratification. The Lessee hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth 3 159 in the Lease, the Agency Agreement and the other Operative Documents effective as of the date hereof. 9. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 10. Section References. Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 11. No Default. To induce the Lessor to enter into this Amendment and to continue to make advances of Facility Cost for the Subsequent Phases pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Lessee arising out of or with respect to the Lease or other Operative Documents. 12. Further Assurances. The Lessee agrees to take such further actions as the Lessor shall reasonably request in connection herewith to evidence the amendments herein contained to the Lessee. 13. Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 14. Conditions Precedent. This Amendment shall become effective only upon: (i) execution and delivery of this Amendment by each of the parties hereto; (ii) receipt by the Lessor of a favorable opinion or opinions of Assistant General Counsel to the Lessee, dated as of the date hereof, substantially in the form of Exhibit A hereto; (iii) receipt by the Lessor of a certificate substantially in the form of Exhibit B hereto, dated as of the date hereof, signed by an authorized officer of the Lessee to the effect that (i) no Default has occurred and is continuing on the date hereof and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the 4 160 date hereof because of a change permitted by the Lease or the Operative Documents); (iv) receipt by the Lessor of a certificate of the Secretary or Assistant Secretary of the Lessee substantially in the form of Exhibit C hereto, dated as of the date hereof, setting forth (i) resolutions of its board of directors authorizing the execution,delivery and performance of the obligations contained in this Amendment, (ii) the officers of the Lessee specified in such Secretary's Certificates that are authorized to sign this Amendment and (iii) a statement that there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee since the Closing Date or, if there have been any such amendments attaching such amendments; and (v) receipt by the Lessor of a structuring fee in the amount of $40,000. 5 161 IN WITNESS WHEREOF, the Lessee and the Lessor have caused this Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. LESSEE: FLOWERS INDUSTRIES, INC. (SEAL) By: -------------------------------------- Title: LESSOR: WACHOVIA LEASING CORPORATION (SEAL) By: -------------------------------------- Title: 6 162 EXHIBIT A [NOTE: THE ENFORCEABILITY PORTION OF THIS OPINION MAY BE GIVEN BY TROUTMAN SANDERS LLP] FORM OF LEGAL OPINION OF GENERAL COUNSEL OF LESSEE [LESSEE LETTERHEAD] June 10, 1998 Wachovia Leasing Corporation 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Dear Sirs: I am the Assistant General Counsel for Flowers Industries, Inc., a Georgia corporation ("Lessee"). This opinion is being delivered pursuant to Section 12(ii) of that certain Third Amendment to Master Lease Agreement and Amendment to Acquisition, Agency, Indemnity and Support Agreement dated as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment"). Capitalized terms used but not defined herein have the meanings set forth in the Amendment or in the Lease referred to therein or in Schedule 1(b) to the Lease. I have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The execution, delivery and performance by Lessee of the Amendment is within the Lessee's corporate powers, has been duly authorized by all necessary corporate action, requires no action by or in respect of, or filing with, any governmental body, agency or official, does not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of Lessee or of any material agreement, judgment, injunction, order, decree or other instrument relating to Debt which is binding upon Lessee, and does not result in the creation or imposition of any Lien on any asset of Lessee (other than the 7 163 security interest in the Equipment created by the Lease in the event that the Lease is recharacterized as a financing transaction). 2. The Amendment constitutes the valid and binding obligations of Lessee enforceable against Lessee in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (including, without limitation, the availability or non-availability of equitable remedies), whether considered in a proceeding at law or in equity; provided that the foregoing shall not, in my opinion, substantially interfere with the practical realization of the benefits expressed in the Amendment, except for the economic consequences of any procedural delay which may result therefrom. 3. There is no action, suit or proceeding pending for which process has been served, or, to the best of my knowledge, threatened, against or affecting Lessee or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of Lessee and its Consolidated Subsidiaries, considered as a whole, or which in any manner questions the validity or enforceability of the Amendment. 4. The execution, delivery and performance by Lessee of the Amendment does not conflict with or result in a violation of any law, statute, rule or regulation of the State of Georgia (or any subdivision thereof), or require any consent of or filing or registration with an Governmental Authority of the State of Georgia (or any subdivision thereof) or pursuant to the UCC which has not been obtained or completed and which is necessary for the validity and enforceability thereof. I am qualified to practice in the State of Georgia and do not purport to be expert on any laws other than the laws of the State of Georgia, the federal laws of the United States, and the UCC, and this opinion is rendered only with respect to such laws. I have made no independent investigation of the laws of any other jurisdiction (except with respect to the UCC). In rendering the opinions above, I have assumed, with your permission, that Amendment has been duly authorized, executed and delivered by Lessor and, to the extent provided therein, constitutes the legal, valid and binding obligation of Lessor enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (including, without limitation, the availability or non-availability of equitable remedies), whether considered in a proceeding at law or in equity. 8 164 This opinion is delivered to you at the request of Lessee in connection with the transaction referenced above and may not, without my prior written consent, be communicated to or relied upon by anyone other than you, your successors and assigns, except that it may be communicated to Jones, Day, Reavis & Pogue, your special counsel. This opinion speaks only as of the date hereof, and I do not undertake any duty to advise you of any change herein. Very truly yours, ------------------------------------ Stephen R. Avera, Esq. Assistant General Counsel Flowers Industries, Inc. 9 165 EXHIBIT B CLOSING CERTIFICATE Reference is made to the Third Amendment to Master Lease Agreement and Amendment to Acquisition, Agency, Indemnity and Support Agreement as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment"). Capitalized terms used but not defined herein have the meanings set forth in the Amendment or in the Lease referred to therein or in Schedule 1(b) to the Lease. Pursuant to Section 12(iii) of the Amendment, ____________________, the duly authorized ____________________ of the Lessee, hereby certifies to the Lessor that (i) no Default has occurred and is continuing as of the date hereof, and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents). Certified as of June 10, 1998. FLOWERS INDUSTRIES, INC. (SEAL) By: ------------------------------------ Title: 10 166 EXHIBIT C SECRETARY'S CERTIFICATE The undersigned, ______________________, [Secretary/Assistant Secretary] of Flowers Industries, Inc. (the "Lessee"), hereby certifies that he has been duly elected, qualified and is acting in such capacity and that, as such, he is familiar with the facts herein certified and is duly authorized to certify the same, and hereby further certifies, in connection with the Third Amendment to Master Lease Agreement and Amendment to Acquisition, Agency, Indemnity and Support Agreement dated as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment") that: 1. Attached hereto as Annex 1 is a complete and correct copy of the resolutions duly adopted by the Board of Directors of the Lessee on _________________, 1998 approving, and authorizing the execution and delivery of, the Amendment. Such resolutions have not been repealed or amended and are in full force and effect, and no other resolutions or consents have been adopted by the Board of Directors of the Lessee in connection therewith. 2. _____________________, who is _________________ of the Lessee, signed the Amendment, was duly elected, qualified and acting as such at the time he signed the Amendment, and his signature appearing on the Amendment is his genuine signature. 3. Since October 20, 1995, there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT , COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES] ]. IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the day of June, 1998. -------------------------------------- Name: Title: [Secretary/Assistant Secretary] 11 167 FOURTH AMENDMENT TO MASTER LEASE AGREEMENT THIS FOURTH AMENDMENT TO MASTER LEASE AGREEMENT(this "Amendment") is dated as of January 15, 1999 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the "Lessor"). W I T N E S S E T H: WHEREAS, the Lessee and the Lessor executed and delivered that certain Master Lease Agreement, dated as of the 20th day of October, 1995, as amended by that certain First Amendment to Master Lease Agreement dated as of October 20, 1996, by that certain Second Amendment to Master Lease Agreement dated as of April 20, 1997, and by that certain Third Amendment to Master Lease Agreement dated as of June 10, 1998 (as so amended, the "Lease"); and WHEREAS, the Lessee and the Lessor have agreed to amend certain provisions of the Lease as set forth below; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Lease shall have the meaning assigned to such term in the Lease. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Lease shall from and after the date hereof refer to the Lease as amended hereby. 168 2. Amendments to Lease. (a) A new definition, "Designated Sites," is hereby added to Schedule 1(b) of the Lease in proper alphabetical order as follows: "Designated Sites": Jamestown, North Carolina; Miami, Florida; and San Antonio, Texas. (b) The definition of "Basic Rent" set forth in Schedule 1(b) to the Lease is amended and restated in its entirety as set forth below: "Basic Rent": (a) after January 15, 1999, for each Phase at the Designated Sites, with respect to any Rental Period, the amounts payable for such Phase as Basic Rent for such Rental Period pursuant to Section 3(b) of the Lease, consisting of the sum of the Scheduled Payment therefor and 5.77% per annum. (b) for each Phase at all Applicable Sites other than the Designated Sites, with respect to any Rental Period, the amounts payable for such Phase as Basic Rent for such Rental Period pursuant to Section 3(b) of the Lease, consisting of the sum of the Scheduled Payment therefor and either the Floating Rate Payment or, if the Election has been made, the Fixed Rate Payment. (c) Section 3(b) of the Lease is amended and restated in its entirety as follows: (b) Basic Rent (i) Floating Rate Payment Without Election; Election and Election Period. Subject to clause (iii) below), for each Phase, if the Lessee has not made an Election within the Election Period pursuant to the provisions and requirements of this Section 3(b)(i), after the Phase Completion Date for each Phase, the Lessee's Basic Rent during the Lease Term for such Phase shall be payable for each Rental Period in arrears on the Rent Payment Date for such Rental Period in an amount equal to the sum of (A) the amount equal to the percentage set forth in 2 169 Schedule 3(b) for such Rental Period (as it may be modified pursuant hereto as a result of an Approval Appraisal), times the Equipment Cost (the "Scheduled Amount") as to such Phase (the "Scheduled Payment") plus (B) an amount accruing on the Scheduled Amount as to such Phase at the Floating Rate for such Rental Period (the "Floating Rate Payment"). In the event any Scheduled Amount or other amount of Equipment Cost based on the LIBO Rate is prepaid other than on the last day of the Rental Period with respect thereto (including by reason of the occurrence of a Lease Termination Date for any reason) the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such prepayment. Schedule 3(b) also sets forth the Estimated Residual as to each Phase as of the end of each Rental Period. The Lessee agrees that the Lessor reserves the right to modify the Estimated Residual or the percentage of Equipment Cost for determining the Scheduled Amount, or both, as to any Rental Period for the Equipment for any Phase as a result of the receipt of an Approval Appraisal pursuant to the Agency Agreement. With respect to any Phase, the Lessee shall have the option to convert the Basic Rent for such Phase within the Election Period from a Floating Rate Payment basis to a Fixed Rate Payment basis (any exercise of such option pursuant to the provisions and requirements of this Section 3(b)(i) for any Phase being an "Election" for such Phase). The "Election Period" with respect to each Phase shall commence on the Phase Completion Date for such Phase and terminate on the last day of the Acquisition Period. Each Election shall be made by written notice received not less than 7 days prior to the effective date of such Election (and not less than 7 days prior to the end of the relevant Election Period). (ii) Fixed Rate Payment With Election. Subject to clause (iii) below, for each Phase, if the Lessee has made an Election within the Election Period pursuant to the provision and requirements of Section 3(b)(i), after the Phase Completion Date for each Phase, the Lessee's Basic Rent during the Lease 3 170 Term for such Phase shall be payable for each Rental Period in arrears on the Rent Payment Date for such Rental Period in an amount equal to the sum of (A) the Scheduled Payment as to such Phase for such Rental Period plus (B) an amount accruing on the Scheduled Amount as to such Phase at the Fixed Rate for such Rental Period (the "Fixed Rate Payment"). On the first Rent Payment Date after the Lessee makes an Election for a qualifying Phase, the Lessee shall make, if applicable, a Basic Rent payment consisting of the Schedule Payment for such Phase plus a proportionate Floating Rate Payment and Fixed Rate Payment for such Phase, and the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such change from a Floating Rate Payment to a Fixed Rate Payment prior to the end of the Rental Period. (iii) Designated Sites. For each Phase at a Designated Site, after January 15, 1999, for each Phase, the Lessee's Basic Rent during the Lease Term for such Phase shall be payable for each Rental Period in arrears on the Rent Payment Date for such Rental Period in an amount equal to the sum of (A) the Scheduled Payment as to such Phase for such Rental Period plus (B) an amount accruing on the Scheduled Amount as to such Phase at the rate of 5.77% per annum for such Rental Period. No Election may be made with respect to a Designated Phase. (d) Section 3(d) of the Lease is amended and restated in its entirety as follows: (d) Supplemental Rent. In addition to Interim Rent, Basic Rent and the Final Rent Payment, the Lessee will also pay to the Lessor, from time to time, upon demand by the Lessor, as additional rent ("Supplemental Rent"), the following (but without duplication of any amounts included in the calculation of Rent): (i) all out-of-pocket costs and expenses reasonably incurred by the Lessor in connection with the preparation, negotiation, execution, delivery, 4 171 performance and administration of this Lease and the other Operative Documents, including, but not limited to, the following: (A) fees and expenses of the Lessor, including, without limitation, reasonable attorneys' fees and expenses and the fees and expenses for the Approved Appraisal and the Related Contracts for each Phase; (B) all other amounts, including, without limitation, fees, indemnities, expenses, compensation in respect of increased costs of any kind or description payable under this Lease or any other Operative Document; (C) all yield maintenance, capital adequacy and other costs contemplated under Section 27 of this Lease and (D) all out-of-pocket costs and expenses incurred by the Lessor after the date of this Lease (including, without limitation, reasonable attorneys' fees and expenses and other expenses and disbursements reasonably incurred) associated with (1) negotiating and entering into, or the giving or withholding of, any future amendments, supplements, waivers or consents with respect to this Lease; (2) any Loss Event, Casualty Occurrence or termination of this Lease; and (3) any Default or Event of Default and the enforcement and preservation of the rights or remedies of the Lessor under this Lease and the other Operative Documents and (4) all reasonable costs and expenses incurred by the Lessor or any of its Affiliates in initially selling participations in this Lease, including, without limitation, the related reasonable fees and out-of-pocket expenses of counsel for the Lessor or its Affiliates, travel expenses, duplication and printing costs and courier and postage fees, and excluding any fees paid to Participants purchasing such a participation; (ii) the amount that the Lessor determines, in the exercise of its sole good faith discretion, to be its total losses and costs incurred in connection with Basic Rent under clause (a) of the definition of "Basic Rent" as a result of the termination of this Lease prior to the end of the Basic Term, such losses and costs to include, without limitation, cost of funding, or, at the election of the Lessor (but without duplication), losses or costs incurred as a result of 5 172 the Lessor's terminating, liquidating, obtaining or re-establishing any hedge, interest rate swap, or similar or related trade position obtained by the Lessor with respect to its costs to fund and refund Equipment Costs with respect to the Designated Sites but excluding any loss of margin or profit; and (iii) all other amounts that the Lessee agrees herein to pay other than Interim Rent, Basic Rent, the Final Rent Payment and amounts described in clause (i) above. 6. Restatement of Representations and Warranties. The Lessor hereby restates and renews each and every representation and warranty heretofore made by it in the Lease and the other Operative Documents as fully as if made on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents) and with specific reference to this Amendment and all other documents executed and/or delivered in connection herewith. 7. Effect of Amendments. Except as set forth expressly hereinabove, all terms of the Lease and the other Operative Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Lessee. 8. Ratification. The Lessee hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth in the Lease, the Agency Agreement and the other Operative Documents effective as of the date hereof. 9. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 10. Section References. Section titles and references used in this Amendment shall be without substantive meaning or content 6 173 of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 11. No Default. To induce the Lessor to enter into this Amendment and to continue to make advances of Facility Cost for the Subsequent Phases pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Lessee arising out of or with respect to the Lease or other Operative Documents. 12. Further Assurances. The Lessee agrees to take such further actions as the Lessor shall reasonably request in connection herewith to evidence the amendments herein contained to the Lessee. 13. Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 14. Conditions Precedent. This Amendment shall become effective only upon: (i) execution and delivery of this Amendment by each of the parties hereto; (ii) receipt by the Lessor of a certificate substantially in the form of Exhibit A hereto, dated as of the date hereof, signed by an authorized officer of the Lessee to the effect that (i) no Default has occurred and is continuing on the date hereof and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents); and (iii) receipt by the Lessor of a certificate of the Secretary or Assistant Secretary of the Lessee substantially in the form of Exhibit B hereto, dated as of the date hereof, setting forth (i) resolutions of its board of directors authorizing the execution, delivery and performance of the 7 174 obligations contained in this Amendment, (ii) the officers of the Lessee specified in such Secretary's Certificates that are authorized to sign this Amendment and (iii) a statement that there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee since the Closing Date or, if there have been any such amendments attaching such amendments. IN WITNESS WHEREOF, the Lessee and the Lessor have caused this Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. LESSEE: FLOWERS INDUSTRIES, INC. (SEAL) By: ---------------------------------- Title: LESSOR: WACHOVIA LEASING CORPORATION (SEAL) By: ---------------------------------- Title: 8 175 EXHIBIT A CLOSING CERTIFICATE Reference is made to the Fourth Amendment to Master Lease Agreement and Amendment to Acquisition, Agency, Indemnity and Support Agreement as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment"). Capitalized terms used but not defined herein have the meanings set forth in the Amendment or in the Lease referred to therein or in Schedule 1(b) to the Lease. Pursuant to Section 12(iii) of the Amendment, _____________________ _______________, the duly authorized _________________________ of the Lessee, hereby certifies to the Lessor that (i) no Default has occurred and is continuing as of the date hereof, and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents). Certified as of January 15, 1999. FLOWERS INDUSTRIES, INC. (SEAL) By: ---------------------------------- Title: 9 176 EXHIBIT B SECRETARY'S CERTIFICATE The undersigned, _________________, [Secretary/Assistant Secretary] of Flowers Industries, Inc. (the "Lessee"), hereby certifies that he has been duly elected, qualified and is acting in such capacity and that, as such, he is familiar with the facts herein certified and is duly authorized to certify the same, and hereby further certifies, in connection with the Fourth Amendment to Master Lease Agreement and Amendment to Acquisition, Agency, Indemnity and Support Agreement dated as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment") that: 1. Attached hereto as Annex 1 is a complete and correct copy of the resolutions duly adopted by the Board of Directors of the Lessee on ______________ ____, 199__ approving, and authorizing the execution and delivery of, the Amendment. Such resolutions have not been repealed or amended and are in full force and effect, and no other resolutions or consents have been adopted by the Board of Directors of the Lessee in connection therewith. 2. ___________________, who is ____________ of the Lessee, signed the Amendment, was duly elected, qualified and acting as such at the time he signed the Amendment, and his signature appearing on the Amendment is his genuine signature. 3. Since October 20, 1995, there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT ___________________, COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES]______]. IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the 15th day of January, 1999. ------------------------------------------ Name: Title: [Secretary/Assistant Secretary] 10 177 FIFTH AMENDMENT TO MASTER LEASE AGREEMENT AND SECOND AMENDMENT TO ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT THIS FIFTH AMENDMENT TO MASTER LEASE AGREEMENT AND SECOND AMENDMENT TO ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT(this "Amendment") is dated as of May 20, 1999 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the "Lessor"). WITNESSETH: WHEREAS, the Lessee and the Lessor executed and delivered that certain Master Lease Agreement, dated as of the 20th day of October, 1995, as amended by First Amendment to Master Lease Agreement dated as of October 20, 1996, by Second Amendment to Master Lease Agreement dated as of April 20, 1997, by Third Amendment to Master Lease Agreement dated as of June 10, 1998, and by Fourth Amendment to Master Lease Agreement dated as of January 15, 1999 (as so amended, the "Lease"); WHEREAS, the Lessee and the Lessor have agreed that the Lease and Agency Agreement be amended, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Lease shall have the meaning assigned to such term in the Lease. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this 178 Agreement" and each other similar reference contained in the Lease shall from and after the date hereof refer to the Lease as amended hereby. 2. Amendments to the Lease. (a) The following definitions set forth in Schedule 1(b) are amended and restated in their entirety as follows in proper alphabetical order: "Acquisition Period": (i) as to the Initial Phases, a period commencing on the Closing Date and ending (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, and (y) as to the Phase for the Applicable Site located in Jamestown, North Carolina, 12 months after the Closing Date; and (ii) as to each of the Subsequent Phases, January 31, 2000. "Fixed Rate": with respect to Basic Rent for each Phase, if the Election has been made for such Phase, for each Rental Period, a rate per annum equal to either: (a) with respect to any portion of the Equipment Cost for any Phase funded before the aggregate funded Equipment Cost equals $80,000,000, the sum of (i) the prevailing 5 year U.S. Treasury Rate as defined on page 500 of the Telerate Screen at 11:00 A.M., Atlanta time, on the date of the Election for such Phase, plus (ii) the lesser of (A) the corresponding ask side of the 5 year swap rate as defined on page 19901 of the Telerate Screen at 11:00 A.M., Atlanta time, on such date, and (B) 0.55%, plus (iii) 0.45%, and (b) with respect to any portion of the Equipment Cost for any Phase funded after the aggregate funded Equipment Cost equals or exceeds $80,000,000, the sum of (i) the prevailing 5 year U.S. Treasury Rate as defined on page 500 of the Telerate Screen at 11:00 A.M., Atlanta time, on the date of the Election for such Phase, plus (ii) the corresponding ask side of the 5 year swap rate as defined on page 19901 of the Telerate Screen at 11:00 A.M., Atlanta time, on such date, plus (iii) 0.60%. 2 179 "Floating Rate": with respect to Basic Rent for each Phase, if the Election has not been made or become effective for such Phase, for each Rental Period, a rate per annum equal to either: (a) with respect to any portion of the Equipment Cost for any Phase funded before the aggregate funded Equipment Cost equals $80,000,000, the sum of (i) the LIBO Rate prevailing on the first day of such Rental Period, plus (ii) 0.45%, and (b) with respect to any portion of the Equipment Cost for any Phase funded after the aggregate funded Equipment Cost equals or exceeds $80,000,000, the sum of (i) the LIBO Rate prevailing on the first day of such Rental Period, plus (ii) 0.60%. "Non-Completion Event": as to any Phase, the failure of Completion to occur on or before the earlier of (i) (x) as to the Initial Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, (y) as to all other Initial Phases, the date which is six months after the Phase Commencement Date for such Phase, and (z) as to all Subsequent Phases, January 21, 2000, and (ii) the last day of the Acquisition Period. "Phase Completion Date": with respect to each Phase, the earlier to occur of (i) Completion of such Phase, (ii) (x) as to the Initial Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, (y) as to all other Initial Phases, the date which is six months after the Phase Commencement Date for such Phase, and (z) as to all Subsequent Phases, January 21, 2000, and (iii) the last day of the Acquisition Period. (b) Section 3(a) of the Lease is amended and restated in its entirety as follows: Section 3. Payments. (a) Interim Rent. For each Phase, during the period commencing on the Phase Commencement Date and ending on the Phase Completion Date for such Phase, Interim Rent with 3 180 respect to such Phase shall accrue on Equipment Cost during each Interim Rental Period at a rate per annum equal to the LIBO Rate prevailing on the first day of such Interim Rental Period plus (a) with respect to any portion of the Equipment Cost for any Phase funded before the aggregate funded Equipment Cost equals $80,000,000, 45 basis points, and (b) with respect to any portion of the Equipment Cost for any Phase funded after the aggregate funded Equipment Cost equals or exceeds $80,000,000, 60 basis points; provided, that if there is less than one month remaining after the end of any Interim Rental Period until the Phase Completion Date for such Phase, Interim Rent for the final Interim Rental Period shall instead be determined on the basis of 80% of the Base Rate. Interim Rent shall be paid in arrears on the last day of the Interim Rental Period with respect thereto. In the event any Equipment Cost on which interest accrued based on the LIBO Rate is prepaid other than on the last day of the Interim Rental Period with respect thereto (including by reason of the occurrence of a Lease Termination Date for any reason), the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such prepayment. On the Phase Completion Date for each Phase, all Soft Costs incurred during the period from the Phase Commencement Date through the Phase Completion Date for such Phase shall be capitalized and added to Equipment Cost for such Phase; provided, that in no event shall the aggregate Equipment Cost for all Phases exceed $100,000,000, and to the extent any such capitalization of Soft Costs would cause the aggregate Equipment Cost for all Phases to exceed $100,000,000, the amount of the excess shall be payable to the Lessor on the Phase Completion Date on which such excess occurs. In the event any Vendor requires any advance payments, progress payments or full payments prior to the Lease Addition Date of the Equipment proposed to be added to the Lease for any Phase, the Lessee shall execute and deliver to the Lessor a Progress Payment Agreement for such Phase, and the Lessor will make available amounts pursuant thereto for such purpose. For any Equipment which is the subject of any payments made by the Lessor under a Progress Payment Agreement for any Phase, unpaid Additional Rent under such Progress Payment Agreement with respect to such Equipment shall be capitalized and, together with the amount of such payments made by the Lessor with respect to such 4 181 Equipment, shall be added to and constitute part of the Equipment Cost for such Phase. 3. Amendment to Agency Agreement. Section C.1.(b)(v) of Article 1 of the Agency Agreement hereby is amended by deleting the figure "$80,000,000" in the 2nd line thereof, and substituting therefor the figure "$100,000,000". 4. Restatement of Representations and Warranties. The Lessor hereby restates and renews each and every representation and warranty heretofore made by it in the Lease and the other Operative Documents as fully as if made on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents) and with specific reference to this Amendment and all other documents executed and/or delivered in connection herewith. 5. Effect of Amendments. Except as set forth expressly hereinabove, all terms of the Lease, the Agency Agreement and the other Operative Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Lessee. 6. Ratification. The Lessee hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth in the Lease, the Agency Agreement and the other Operative Documents effective as of the date hereof. 7. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 8. Section References. Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 9. No Default. To induce the Lessor to enter into this Amendment and to continue to make advances of Facility Cost for 5 182 the Subsequent Phases pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Lessee arising out of or with respect to the Lease or other Operative Documents. 10. Further Assurances. The Lessee agrees to take such further actions as the Lessor shall reasonably request in connection herewith to evidence the amendments herein contained to the Lessee. 11. Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 12. Conditions Precedent. This Amendment shall become effective only upon: (i) execution and delivery of this Amendment by each of the parties hereto; (ii) receipt by the Lessor of a favorable opinion or opinions of counsel to the Lessee, dated as of the date hereof, substantially in the form of Exhibit A hereto; (iii) receipt by the Lessor of a certificate substantially in the form of Exhibit B hereto, dated as of the date hereof, signed by an authorized officer of the Lessee to the effect that (i) no Default has occurred and is continuing on the date hereof and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents); (iv) receipt by the Lessor of a certificate of the Secretary or Assistant Secretary of the Lessee substantially in the form of Exhibit C hereto, dated as of the date hereof, setting forth (i) resolutions of its board of directors authorizing the execution, delivery and 6 183 performance of the obligations contained in this Amendment, (ii) the officers of the Lessee specified in such Secretary's Certificates that are authorized to sign this Amendment and (iii) a statement that there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee since the Closing Date or, if there have been any such amendments attaching such amendments; and (v) receipt by the Lessor of a structuring fee in the amount of $20,000. IN WITNESS WHEREOF, the Lessee and the Lessor have caused this Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. LESSEE: FLOWERS INDUSTRIES, INC. (SEAL) By: --------------------------------------- Title: LESSOR: WACHOVIA LEASING CORPORATION (SEAL) By: --------------------------------------- Title: 7 184 EXHIBIT A [NOTE: THE ENFORCEABILITY PORTION OF THIS OPINION MAY BE GIVEN BY TROUTMAN SANDERS LLP] FORM OF LEGAL OPINION OF GENERAL COUNSEL OF LESSEE [LESSEE LETTERHEAD] [__________], 1999 Wachovia Leasing Corporation 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Dear Sirs: I am the General Counsel for Flowers Industries, Inc., a Georgia corporation ("Lessee"). This opinion is being delivered pursuant to Section 12(ii) of that certain Fifth Amendment to Master Lease Agreement and Second Amendment to Acquisition, Agency, Indemnity and Support Agreement dated as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment"). Capitalized terms used but not defined herein have the meanings set forth in the Amendment or in the Lease referred to therein or in Schedule 1(b) to the Lease. I have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The execution, delivery and performance by Lessee of the Amendment is within the Lessee's corporate powers, has been duly 8 185 authorized by all necessary corporate action, requires no action by or in respect of, or filing with, any governmental body, agency or official, does not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of Lessee or of any material agreement, judgment, injunction, order, decree or other instrument relating to Debt which is binding upon Lessee, and does not result in the creation or imposition of any Lien on any asset of Lessee (other than the security interest in the Equipment created by the Lease in the event that the Lease is recharacterized as a financing transaction). 2. The Amendment constitutes the valid and binding obligations of Lessee enforceable against Lessee in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (including, without limitation, the availability or non-availability of equitable remedies), whether considered in a proceeding at law or in equity; provided that the foregoing shall not, in my opinion, substantially interfere with the practical realization of the benefits expressed in the Amendment, except for the economic consequences of any procedural delay which may result therefrom. 3. There is no action, suit or proceeding pending for which process has been served, or, to the best of my knowledge, threatened, against or affecting Lessee or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of Lessee and its Consolidated Subsidiaries, considered as a whole, or which in any manner questions the validity or enforceability of the Amendment. 4. The execution, delivery and performance by Lessee of the Amendment does not conflict with or result in a violation of any law, statute, rule or regulation of the State of Georgia (or any subdivision thereof), or require any consent of or filing or registration with an Governmental Authority of the State of Georgia (or any subdivision thereof) or pursuant to the UCC which has not been obtained or completed and which is necessary for the validity and enforceability thereof. 9 186 I am qualified to practice in the State of Georgia and do not purport to be expert on any laws other than the laws of the State of Georgia, the federal laws of the United States, and the UCC, and this opinion is rendered only with respect to such laws. I have made no independent investigation of the laws of any other jurisdiction (except with respect to the UCC). In rendering the opinions above, I have assumed, with your permission, that Amendment has been duly authorized, executed and delivered by Lessor and, to the extent provided therein, constitutes the legal, valid and binding obligation of Lessor enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (including, without limitation, the availability or non-availability of equitable remedies), whether considered in a proceeding at law or in equity. This opinion is delivered to you at the request of Lessee in connection with the transaction referenced above and may not, without my prior written consent, be communicated to or relied upon by anyone other than you, your successors and assigns, except that it may be communicated to Jones, Day, Reavis & Pogue, your special counsel. This opinion speaks only as of the date hereof, and I do not undertake any duty to advise you of any change herein. Very truly yours, ----------------------------------- Tony Campbell, Esq. General Counsel Flowers Industries, Inc. 10 187 EXHIBIT B CLOSING CERTIFICATE Reference is made to the Fifth Amendment to Master Lease Agreement and Second Amendment to Acquisition, Agency, Indemnity and Support Agreement as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment"). Capitalized terms used but not defined herein have the meanings set forth in the Amendment or in the Lease referred to therein or in Schedule 1(b) to the Lease. Pursuant to Section 14(iii) of the Amendment, _________________ _________________, the duly authorized __________________ of the Lessee, hereby certifies to the Lessor that (i) no Default has occurred and is continuing as of the date hereof, and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents). Certified as of [__________], 1999. FLOWERS INDUSTRIES, INC. (SEAL) By: ---------------------------------- Title: 11 188 EXHIBIT C SECRETARY'S CERTIFICATE The undersigned, ________________, [Secretary/Assistant Secretary] of Flowers Industries, Inc. (the "Lessee"), hereby certifies that he has been duly elected, qualified and is acting in such capacity and that, as such, he is familiar with the facts herein certified and is duly authorized to certify the same, and hereby further certifies, in connection with the Fifth Amendment to Master Lease Agreement and Second Amendment to Acquisition, Agency, Indemnity and Support Agreement dated as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment") that: 1. Attached hereto as Annex 1 is a complete and correct copy of the resolutions duly adopted by the Board of Directors of the Lessee on ____________, _____, 1999 approving, and authorizing the execution and delivery of, the Amendment. Such resolutions have not been repealed or amended and are in full force and effect, and no other resolutions or consents have been adopted by the Board of Directors of the Lessee in connection therewith. 2. _____________, who is ______________ of the Lessee, signed the Amendment, was duly elected, qualified and acting as such at the time he signed the Amendment, and his signature appearing on the Amendment is his genuine signature. 3. Since October 20, 1995, there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT ___________________, COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES] ]. IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of [____________], 1999. ------------------------------------------ Name: Title: [Secretary/Assistant Secretary] 12 189 SIXTH AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO OTHER OPERATIVE DOCUMENTS THIS SIXTH AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO OTHER OPERATIVE DOCUMENTS (this "Amendment") is dated as of January 21, 2000 between FLOWERS INDUSTRIES, INC. (the "Lessee"), and WACHOVIA LEASING CORPORATION (the "Lessor"). WITNESSETH: WHEREAS, the Lessee and the Lessor executed and delivered that certain Master Lease Agreement, dated as of the 20th day of October, 1995, as amended by First Amendment to Master Lease Agreement dated as of October 20, 1996, by Second Amendment to Master Lease Agreement dated as of April 20, 1997, by Third Amendment to Master Lease Agreement dated as of June 10, 1998, by Fourth Amendment to Master Lease Agreement dated as of January 15, 1999, and by Fifth Amendment to Master Lease Agreement dated as of May 20, 1999 (as so amended, the "Lease"); WHEREAS, the Lessee and the Lessor have agreed that the Lease and certain other Operative Documents be amended, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Lessee and the Lessor hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Lease shall have the meaning assigned to such term in the Lease. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Lease shall from and after the date hereof refer to the Lease as amended hereby. 2. Amendments to the Lease. (a) The following new definitions are hereby added to Schedule 1(b) as follows in proper alphabetical order: 190 "Applicable Margin": (i) for the period commencing on January 21, 2000, to and including the first Performance Pricing Determination Date following December 30, 2000, 1.75%, unless during such period the Debt Rating is BB and Ba2 or lower, in which case the Applicable Margin shall be based upon the table set forth below; and (ii) from and after the first Performance Pricing Determination Date after December 30, 2000, the percentage determined on each Performance Pricing Determination Date by reference to the table set forth below and the Debt Rating on such Performance Pricing Determination Date; provided, that if there is no Debt Rating, the Applicable Margin shall be based upon Level V of the table below.
-------------------------------------------------------------------------------- Level Level Level Level Level I II III IV V -------------------------------------------------------------------------------- BBB BBB- >BB+ >BB - - - and and and Baa3 Ba1 Ba2 -------------------------------------------------------------------------------- Applicable Margin 1.00% 1.25% 1.50% 2.00% 2.50% --------------------------------------------------------------------------------
In determining the Applicable Margin, the Lessor shall refer to the Lessee's Debt Rating from time to time. For purposes hereof, "Performance Pricing Determination Date" shall mean each date on which the Debt Rating changes. Each change in the Applicable Margin as a result of a change in Debt Rating shall be effective on or after the relevant Performance Pricing Determination Date. All determinations hereunder shall be made by Lessor. The Lessee shall promptly notify the Lessor of any change in the Debt Rating. "Credit Agreement": that certain $500,000,000 Amended and Restated Credit Agreement (the "Facility") dated as of January 30, 1998, as amended or otherwise modified from time to time (except as otherwise set forth in the Lease), with Wachovia Securities, Inc. as Lead Arranger, Wachovia as Administrative Agent and as a Bank, and certain other Banks, in favor of the Lessee. "Debt Rating": at any time whichever is the higher of the rating of the Lessee's senior unsecured, unenhanced debt (or, if no such debt exists, its issuer credit rating for debt of such type) by Moody's and S&P (as such rating may change from time to time) (provided, that in the event of a double or greater split rating, the rating immediately above the lowest rating shall apply), or if only one of them rates the Borrower's senior unsecured, unenhanced debt, such rating. 2 191 "Moody's": Moody's Investors Service, Inc. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. (b) The following definitions set forth in Schedule 1(b) are amended and restated in their entirety as follows in proper alphabetical order: "Acquisition Period": (i) as to the Initial Phases, a period commencing on the Closing Date and ending (x) as to the Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, and (y) as to the Phase for the Applicable Site located in Jamestown, North Carolina, 12 months after the Closing Date; and (ii) as to each of the Subsequent Phases, June 30, 2000. "Basic Rent": (a) after January 21, 2000, for each Phase at the Designated Sites, with respect to any Rental Period, the amounts payable for such Phase as Basic Rent for such Rental Period pursuant to Section 3(b) of the Lease, consisting of the sum of the Scheduled Payment therefor and the sum of (i) 5.77%, plus (ii) the Applicable Margin minus 0.45%. (b) for each Phase at all Applicable Sites other than the Designated Sites, with respect to any Rental Period, the amounts payable for such Phase as Basic Rent for such Rental Period pursuant to Section 3(b) of the Lease, consisting of the sum of the Scheduled Payment therefor and either the Floating Rate Payment or, if the Election has been made, the Fixed Rate Payment. "Fixed Rate": with respect to Basic Rent for each Phase, if the Lessee's Election request has been approved by the Lessor in writing for such Phase, for each Rental Period, a rate per annum equal to either: (a) with respect to each Phase at each Designated Site, the sum of (i) 5.77%, plus (ii) the Applicable Margin minus 0.45%, and (b) with respect to each Phase other than at a Designated Site, an amount equal to (i) a market rate mutually agreed to by the Lessee and Lessor in writing, plus (ii) the Applicable Margin. "Floating Rate": with respect to Basic Rent for each Phase, if the Election has not been made or become effective for such Phase, for each Rental Period, a rate per annum equal to the sum of (i) the LIBO Rate prevailing on the first day of such Rental Period, plus (ii) the Applicable Margin. "Interim Rental Period": with respect to Interim Rent pertaining to any Phase, the period beginning on the Phase Commencement Date for such Phase and ending on the numerically corresponding date (or, if applicable, last calendar date) which is either one, two or three months thereafter, as selected by the Lessee upon at least 3 Business Days notice and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interim Rental Period and ending on the numerically 3 192 corresponding date (or, if applicable, last calendar date) which is three months thereafter, as selected by the Lessee upon at least 3 Business Days notice; provided, however, that: (i) no Interim Rental Period may be selected which commences before the Phase Completion Date and would otherwise end after the Phase Completion Date; (ii) if the last day of such Interim Rental Period would otherwise occur on a day which is not a Business Day, such last day shall be extended to the next succeeding Business Day, except if such extension would cause such last day to occur in a new calendar month, then such last day shall occur on the next preceding Business Day. "Non-Completion Event": as to any Phase, the failure of Completion to occur on or before the earlier of (i) (x) as to the Initial Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, (y) as to all other Initial Phases, the date which is six months after the Phase Commencement Date for such Phase, and (z) as to all Subsequent Phases, June 30, 2000, and (ii) the last day of the Acquisition Period. "Non-Recourse Amount": as to any Phase, at any time an amount equal to a percentage of the aggregate original Equipment Cost for such Phase which shall be not less than 16% nor more than 23%, which percentage shall be determined by the Lessor in its sole discretion (after consultation with the Company) and notified to the Company on or promptly after the relevant Phase Completion Date, after identification of the aggregate amount of the Equipment Cost for such Phase as of such time. "Phase Completion Date": with respect to each Phase, the earlier to occur of (i) Completion of such Phase, (ii) (x) as to the Initial Phases for the Applicable Sites located in Miami, Florida and San Antonio, Texas, October 21, 1997, (y) as to all other Initial Phases, the date which is six months after the Phase Commencement Date for such Phase, and (z) as to all Subsequent Phases, June 30, 2000, and (iii) the last day of the Acquisition Period. (c) Section 3(a) of the Lease is amended and restated in its entirety as follows: Section 3. Payments. (a) Interim Rent. For each Phase, during the period commencing on the Phase Commencement Date and ending on the Phase Completion Date for such Phase, Interim Rent with respect to such Phase shall accrue on Equipment Cost during each Interim Rental Period at a rate per annum equal to the LIBO Rate prevailing on the first day of such Interim Rental Period plus the Applicable Margin; provided, that if there is less than one month remaining after the end of any Interim Rental Period until the Phase Completion Date for such Phase, Interim Rent for the final Interim Rental Period shall instead be the Base Rate. Interim Rent shall be paid in arrears on the last day of the Interim Rental Period with respect thereto. In the event any Equipment Cost on which interest accrued based on the LIBO Rate is prepaid other than on the last day of the Interim Rental Period with respect thereto (including by reason of the occurrence of a 4 193 Lease Termination Date for any reason), the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such prepayment. On the Phase Completion Date for each Phase, all Soft Costs incurred during the period from the Phase Commencement Date through the Phase Completion Date for such Phase shall be capitalized and added to Equipment Cost for such Phase; provided, that in no event shall the aggregate Equipment Cost for all Phases exceed $103,000,000, and to the extent any such capitalization of Soft Costs would cause the aggregate Equipment Cost for all Phases to exceed $103,000,000, the amount of the excess shall be payable to the Lessor on the Phase Completion Date on which such excess occurs. In the event any Vendor requires any advance payments, progress payments or full payments prior to the Lease Addition Date of the Equipment proposed to be added to the Lease for any Phase, the Lessee shall execute and deliver to the Lessor a Progress Payment Agreement for such Phase, and the Lessor will make available amounts pursuant thereto for such purpose. For any Equipment which is the subject of any payments made by the Lessor under a Progress Payment Agreement for any Phase, unpaid Additional Rent under such Progress Payment Agreement with respect to such Equipment shall be capitalized and, together with the amount of such payments made by the Lessor with respect to such Equipment, shall be added to and constitute part of the Equipment Cost for such Phase. (d) Section 3(b) of the Lease is amended and restated in its entirety as follows: (b) Basic Rent (i) Floating Rate Payment Without Election; Election and Election Period. Subject to clause (iii) below), for each Phase, if the Lessee has not been granted an Election by the Lessor within the Election Period pursuant to the provisions and requirements of this Section 3(b)(i), after the Phase Completion Date for each Phase, the Lessee's Basic Rent during the Lease Term for such Phase shall be payable for each Rental Period in arrears on the Rent Payment Date for such Rental Period in an amount equal to the sum of (A) the amount equal to the percentage set forth in Schedule 3(b) for such Rental Period (as it may be modified pursuant hereto as a result of an Approval Appraisal), times the Equipment Cost (the "Scheduled Amount") as to such Phase (the "Scheduled Payment") plus (B) an amount accruing on the Scheduled Amount as to such Phase at the Floating Rate for such Rental Period (the "Floating Rate Payment"). In the event any Scheduled Amount or other amount of Equipment Cost based on the LIBO Rate is prepaid other than on the last day of the Rental Period with respect thereto (including by reason of the occurrence of a Lease Termination Date for any reason) the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such prepayment. Schedule 3(b) also sets forth the Estimated Residual as to each Phase as of the end of each Rental Period. The Lessee agrees that the Lessor reserves the right to modify the Estimated Residual or the percentage of Equipment Cost for determining the Scheduled Amount, or both, as to any Rental Period for the Equipment for any Phase as a result of the receipt of an Approval Appraisal pursuant to the Agency Agreement. With 5 194 respect to any Phase, the Lessee shall have the right to request that the Lessor agree, in the exercise of its sole discretion, to convert the Basic Rent for such Phase within the Election Period from a Floating Rate Payment basis to a Fixed Rate Payment basis (any such request by the Lessee that is approved by the Lessor in writing pursuant to the provisions and requirements of this Section 3(b)(i) for any Phase being an "Election" for such Phase). The "Election Period" with respect to each Phase shall commence on the Phase Completion Date for such Phase and terminate on the last day of the Acquisition Period. Each Election shall be requested by the Lessee by written notice received not less than 7 days prior to the effective date of such Election (and not less than 7 days prior to the end of the relevant Election Period). Lessor shall be deemed to have disapproved such Election request unless the Lessee receives a written approval of such request from the Lessor within 14 days after such notice requesting such Election has been sent by the Lessee. (ii) Fixed Rate Payment With Election. Subject to clause (iii) below, for each Phase, if the Lessee has requested an Election within the Election Period pursuant to the provision and requirements of Section 3(b)(i) and Lessor shall have approved such Election request in writing, after the Phase Completion Date for each Phase, the Lessee's Basic Rent during the Lease Term for such Phase shall be payable for each Rental Period in arrears on the Rent Payment Date for such Rental Period in an amount equal to the sum of (A) the Scheduled Payment as to such Phase for such Rental Period plus (B) an amount accruing on the Scheduled Amount as to such Phase at the Fixed Rate for such Rental Period (the "Fixed Rate Payment"). On the first Rent Payment Date after the Lessee obtains from the Lessor an approved Election for a qualifying Phase, the Lessee shall make, if applicable, a Basic Rent payment consisting of the Schedule Payment for such Phase plus a proportionate Floating Rate Payment and Fixed Rate Payment for such Phase, and the Lessee shall compensate the Lessor for any funding losses incurred by it as a result of such change from a Floating Rate Payment to a Fixed Rate Payment prior to the end of the Rental Period. (e) Section 4 of the Lease is amended and restated in its entirety as follows: Section 4. Incorporation of Credit Agreement Representations, Warranties and Covenants; Other Restrictive Agreements. (a) The Lessee's representations, warranties and covenants contained in the Credit Agreement (excluding therefrom, however, Section 5.05 of the Credit Agreement), as the same are amended or otherwise modified from time to time (except as provided in Section 4(b) below), along with all necessary definitions and other provisions from the Credit Agreement necessary in order to effect the same (collectively, the "Credit Agreement Provisions"), are incorporated by reference into this Section 4 as if fully set forth herein and the Lessee makes, undertakes, and agrees Lessee is obligated hereunder with respect to, such representations, warranties and covenants in favor of the Lessor. A 6 195 Default or Event of Default by the Lessee with respect to the Credit Agreement Provisions (other than under Section 5.04 of the Credit Agreement Provisions) shall be a Designated Event of Default, and a Default or Event of Default by the Lessee with respect to Section 5.04 of the Credit Agreement Provisions shall be a Non-Designated Event of Default. With respect to cure periods set forth in Section 17(a)(iii) of the Lease and the Credit Agreement Provisions, the Lessee shall have a 10 day cure period with respect to Sections 5.01(e), 5.02(ii), 5.03 through 5.05, inclusive, Sections 5.17 through 5.19, inclusive, and Section 5.21 of the Credit Agreement Provisions, and with respect to all other Credit Agreement Provisions, a 30 day cure period. References in the Credit Agreement Provisions to (i) the "Agent", the "Banks" or the "Required Banks" shall mean the Lessor hereunder, (ii) the "Loans" shall mean Rent hereunder, (iii) this "Agreement" shall mean this Agreement, and (iv) the "Loan Documents" shall mean the Operative Documents. (b) In the event that either (i) Wachovia is no longer a party to the Credit Agreement, or (ii) the Credit Agreement has terminated, or (iii) Wachovia is a party to the Credit Agreement and the Credit Agreement has been amended or modified, or any provision thereof has been waived and Wachovia has not consented to (ie., executed and delivered) such amendment or modification or waiver, then, in any such event, the Credit Agreement Provisions as incorporated in Section 4(a) of this Agreement shall be the Credit Agreement Provisions as in effect on the date prior to and shall at all times thereafter so remain as in effect on such date prior to (unless amended in writing as mutually agreed between the Lessor and the Lessee), respectively, (x) Wachovia no longer being a party to the Credit Agreement, or (y) the termination of the Credit Agreement, or (z) the execution and delivery of any such amendment, modification or waiver to which Wachovia has not so consented, as the case may be. (c) The Lessee will not permit any amendment or modification of the Credit Agreement, or become a party to any other credit facility or other agreement relating to the incurrence of indebtedness, which provides for representations, warranties, covenants, events of default or other provisions which are more restrictive against the Lessee than the representations, warranties, covenants, events of default and other provisions contained in this Agreement without (i) the Lessor's prior written consent, or (ii) if requested by the Lessor, executing and delivering an amendment to this Agreement and, if necessary, to the other Operative Documents, in order to provide the same more restrictive representations, warranties, covenants or events of default and other provisions against the Lessee in favor of the Lessor, as may be requested. (f) In the event that any provision of the Lease conflicts with the Credit Agreement Provisions, then, in such event, the provisions of the Credit Agreement Provisions shall supercede any such conflicting provision of the Lease. (g) Paragraph 2 of the form of Progress Payment Agreement set forth on Exhibit E to the Lease is amended and restated in its entirety as follows: 2. The term of the Lease with respect to the Proposed Equipment will not commence until the Lease Addition 7 196 Date with respect thereto. Until the Lease Addition Date as to the Proposed Equipment, a charge shall accrue on all such advances, progress or other payments made by the Lessor equal to an amount per annum which is the product of (i) advances or payment outstanding from the date any such advances are outstanding, (ii) the LIBO Rate plus the Applicable Margin, and (iii) the actual number days in the period/360 (such amount being so determined being "Additional Rent"). Such Additional Rent shall accrue until the Lease Addition Date, whereupon it shall be capitalized and added to Equipment Cost for such Phase pursuant to Section 3(a) of the Lease. 3. Amendment to Agency Agreement. Section C.1.(b)(v) of Article 1 of the Agency Agreement hereby is amended by deleting the figure "$100,000,000" in the 2nd line thereof, and substituting therefor the figure "$103,000,000". 4. Amendment to Progress Payment Agreements. Paragraph 2 of each Progress Payment Agreement is amended and restated in its entirety as follows: 2. The term of the Lease with respect to the Proposed Equipment will not commence until the Lease Addition Date with respect thereto. Until the Lease Addition Date as to the Proposed Equipment, a charge shall accrue on all such advances, progress or other payments made by the Lessor equal to an amount per annum which is the product of (i) advances or payment outstanding from the date any such advances are outstanding, (ii) the LIBO Rate plus the Applicable Margin, and (iii) the actual number days in the period/360 (such amount being so determined being "Additional Rent"). Such Additional Rent shall accrue until the Lease Addition Date, whereupon it shall be capitalized and added to Equipment Cost for such Phase pursuant to Section 3(a) of the Lease. 5. Restatement of Representations and Warranties. The Lessor hereby restates and renews each and every representation and warranty heretofore made by it in the Lease and the other Operative Documents (as the same are amended by this Amendment) as fully as if made on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents) and with specific reference to this Amendment and all other documents executed and/or delivered in connection herewith. 6. Effect of Amendments; Default Under this Amendment. Except as set forth expressly hereinabove, all terms of the Lease, the Agency Agreement and the other Operative Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Lessee. A default by the Lessee under this Amendment shall be an Event of Default under the Lease. 7. Ratification. The Lessee hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth in the Lease, the Agency Agreement and the other Operative Documents effective as of the date hereof. 8. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and 8 197 delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 9. Section References. Section titles and references used in this Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 10. No Default. To induce the Lessor to enter into this Amendment and to continue to make advances of Facility Cost for the Subsequent Phases pursuant to the Lease, the Lessee hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Lessee arising out of or with respect to the Lease or other Operative Documents. 11. Further Assurances. The Lessee agrees to take such further actions as the Lessor shall reasonably request in connection herewith to evidence the amendments herein contained to the Lessee. 12. Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 13. Conditions Precedent. This Amendment shall become effective only upon: (i) execution and delivery of this Amendment by each of the parties hereto; (ii) receipt by the Lessor of a certificate substantially in the form of Exhibit A hereto, dated as of the date hereof, signed by an authorized officer of the Lessee to the effect that (i) no Default has occurred and is continuing on the date hereof and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents); and (iii) receipt by the Lessor of a certificate of the Secretary or Assistant Secretary of the Lessee substantially in the form of Exhibit B hereto, dated as of the date hereof, setting forth (i) resolutions of its board of directors authorizing the execution, delivery and performance of the obligations contained in this Amendment, (ii) the officers of the Lessee specified in such Secretary's Certificates that are authorized to sign this Amendment and (iii) a statement that there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee since the Closing Date or, if there have been any such amendments attaching such amendments. 9 198 IN WITNESS WHEREOF, the Lessee and the Lessor have caused this Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. LESSEE: FLOWERS INDUSTRIES, INC. (SEAL) By: --------------------------------------- Title: LESSOR: WACHOVIA LEASING CORPORATION (SEAL) By: --------------------------------------- Title: 10 199 EXHIBIT A CLOSING CERTIFICATE Reference is made to the Sixth Amendment to Master Lease Agreement and Amendment to Other Operative Documents as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment"). Capitalized terms used but not defined herein have the meanings set forth in the Amendment or in the Lease referred to therein or in Schedule 1(b) to the Lease. Pursuant to Section 13(ii) of the Amendment, _______________ , the duly authorized of ___________________ the Lessee, hereby certifies to the Lessor that (i) no Default has occurred and is continuing as of the date hereof, and (ii) the representations and warranties of Lessee contained in the Lease and the other Operative Documents are true and correct on the date hereof (except for any representations which were correct on the date of the Lease but are not correct on the date hereof because of a change permitted by the Lease or the Operative Documents). Certified as of January ___, 2000. FLOWERS INDUSTRIES, INC. (SEAL) By: --------------------------------------- Title: 11 200 EXHIBIT B SECRETARY'S CERTIFICATE The undersigned,_____________ , [Secretary/Assistant Secretary] of Flowers Industries, Inc. (the "Lessee"), hereby certifies that he has been duly elected, qualified and is acting in such capacity and that, as such, he is familiar with the facts herein certified and is duly authorized to certify the same, and hereby further certifies, in connection with the Sixth Amendment to Master Lease Agreement and Amendment to Other Operative Documents dated as of even date herewith between Lessee and Wachovia Leasing Corporation (the "Amendment") that: 1. Attached hereto as Annex 1 is a complete and correct copy of the resolutions duly adopted by the Board of Directors of the Lessee on , 2000, approving, and authorizing the execution and delivery of, the Amendment. Such resolutions have not been repealed or amended and are in full force and effect, and no other resolutions or consents have been adopted by the Board of Directors of the Lessee in connection therewith. 2. ______________, who is ____________ of the Lessee, signed the Amendment, was duly elected, qualified and acting as such at the time he signed the Amendment, and his signature appearing on the Amendment is his genuine signature. 3. Since October 20, 1995, there have been no amendments to the articles or certificate of incorporation and the bylaws of the Lessee [EXCEPT __________, COPIES OF WHICH ARE ATTACHED HERETO AS ANNEX[ES]___]. IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of January ___, 2000. --------------------------------------- Name: Title: [Secretary/Assistant Secretary] 12 EX-10.16 5 LOAN FACILITY AGREEMENT 1 EXHIBIT 10.16 LOAN FACILITY AGREEMENT BY AND AMONG FLOWERS INDUSTRIES, INC., SUNTRUST BANK, ATLANTA AND EACH OF THE PARTICIPANTS PARTY HERETO DATED AS OF NOVEMBER 5, 1999 2 AMENDED AND RESTATED LOAN FACILITY AGREEMENT Table of Contents
PAGE ARTICLE I. DEFINITIONS.................................................................................2 SECTION 1.01. Definitions...............................................................................2 SECTION 1.02. Accounting Terms.........................................................................18 ARTICLE II. LOAN FACILITY; COMMITMENT TO MAKE LOANS....................................................18 SECTION 2.01. Loan Facility............................................................................18 SECTION 2.02. Conveyance of Participant's Interest.....................................................19 SECTION 2.03. Funding of Loans; Swing Line; Funding of Participant's Interest in Loans.................20 SECTION 2.04. Fees ....................................................................................22 SECTION 2.05. Interest on Funded Participant's Interest................................................22 SECTION 2.06. Payments and Computations, Etc...........................................................23 SECTION 2.07. Voluntary Reduction of the Unutilized Commitment.........................................24 SECTION 2.08. Extension of Commitment..................................................................24 SECTION 2.09. Pro Rata Treatment.......................................................................25 SECTION 2.10. Sharing of Setoffs.......................................................................25 ARTICLE III DISTRIBUTION OF PAYMENTS...................................................................26 SECTION 3.01. Flowers' Servicing Obligations with Respect to Loans; Collateral; Non-Recourse...........26 SECTION 3.02. Bank's Obligations with Respect to Loans and Collateral..................................27 SECTION 3.03. Application of Payments..................................................................27 SECTION 3.04. Servicing Report and Distributor Status Report...........................................28 ARTICLE IV. REQUIREMENTS OF NOTES......................................................................28 SECTION 4.01. Notes....................................................................................28 SECTION 4.02. Repurchase of Ineligible Notes...........................................................30 ARTICLE V. REPURCHASE OBLIGATION OF FLOWERS WITH RESPECT TO DEFAULTED LOANS...........................31 SECTION 5.01. Repurchase Obligation of Flowers.........................................................31 SECTION 5.02. Transfer of Notes........................................................................31 SECTION 5.03. Reliance on Repurchase Obligation........................................................32 SECTION 5.04. Certain Waivers..........................................................................32 SECTION 5.05. Bankruptcy Rescission....................................................................33 ARTICLE VI. CONDITIONS OF LOANS........................................................................33
3 ARTICLE VII. REPRESENTATIONS AND WARRANTIES.............................................................34 SECTION 7.01. Corporate Existence and Power............................................................34 SECTION 7.02. Corporate and Governmental Authorization; No Contravention...............................34 SECTION 7.03. Binding Effect...........................................................................35 SECTION 7.04. Financial Information....................................................................35 SECTION 7.05. No Litigation............................................................................35 SECTION 7.06. Compliance with ERISA....................................................................35 SECTION 7.07. Compliance with Laws; Payment of Taxes...................................................35 SECTION 7.08. Subsidiaries.............................................................................36 SECTION 7.09. Investment Company Act...................................................................36 SECTION 7.10. Public Utility Holding Company Act.......................................................36 SECTION 7.11. Ownership of Property; Liens.............................................................37 SECTION 7.12. No Default...............................................................................37 SECTION 7.13. Full Disclosure..........................................................................37 SECTION 7.14. Environmental Matters....................................................................37 SECTION 7.15. Capital Stock............................................................................38 SECTION 7.16. Margin Stock.............................................................................38 SECTION 7.17. Insurance................................................................................38 SECTION 7.18. Notes; Books and Records.................................................................38 SECTION 7.19. Y2K Plan.................................................................................39 ARTICLE VIII. COVENANTS..................................................................................39 SECTION 8.01. Information..............................................................................39 SECTION 8.02. Inspection of Property, Books and Records................................................41 SECTION 8.03. Maintenance of Existence.................................................................42 SECTION 8.04. Consolidations, Mergers and Sales of Assets..............................................42 SECTION 8.05. Use of Proceeds..........................................................................43 SECTION 8.06. Compliance with Laws; Payment of Taxes...................................................43 SECTION 8.07. Insurance................................................................................44 SECTION 8.08. Change in Fiscal Year....................................................................44 SECTION 8.09. Maintenance of Property..................................................................44 SECTION 8.10. Environmental Notices....................................................................44 SECTION 8.11. Environmental Matters....................................................................44 SECTION 8.12. Environmental Release....................................................................45 SECTION 8.13. Transactions with Affiliates.............................................................45 SECTION 8.14. Loans or Advances........................................................................45 SECTION 8.15. Investments..............................................................................46 SECTION 8.16. Negative Pledge..........................................................................46 SECTION 8.17. Adjusted Fixed Charges Coverage Ratio....................................................48 SECTION 8.18. Leverage Ratio...........................................................................48 SECTION 8.19. Minimum Consolidated Net Worth...........................................................49 SECTION 8.20. Minimum Adjusted Consolidated EBDITA.....................................................49 SECTION 8.21. Subsidiary Borrowings....................................................................49
iii 4 SECTION 8.22. Collateral Protection Covenants..........................................................49 SECTION 8.23. Separateness from Unrestricted Subsidiaries..............................................50 SECTION 8.24. Year 2000 Compliance.....................................................................51 ARTICLE IX. EVENTS OF DEFAULT AND ESCROW FUNDING OBLIGATION............................................52 SECTION 9.01. Events of Default........................................................................52 SECTION 9.02. Remedies on Default......................................................................54 ARTICLE X. ESCROW FUNDING OBLIGATION AND ESCROW.......................................................56 SECTION 10.01 Appointment of Escrow Agent..............................................................56 SECTION 10.02 Deposit of Escrow Funds..................................................................56 SECTION 10.03 The Escrow Account.......................................................................56 SECTION 10.04 Payments of Repurchase Price for Defaulted Loans.........................................56 SECTION 10.05 Reduction of Amount in Escrow............................................................56 SECTION 10.06 Fees and Expenses of Escrow Agent........................................................57 SECTION 10.07 Liability of Escrow Agent................................................................57 ARTICLE XI. THE BANK...................................................................................58 SECTION 11.01. Appointment of the Bank as Agent.........................................................58 SECTION 11.02. Nature of Duties of the Bank.............................................................58 SECTION 11.03. Lack of Reliance on the Bank.............................................................59 SECTION 11.04. Certain Rights of the Bank...............................................................59 SECTION 11.05. Reliance by the Bank.....................................................................59 SECTION 11.06. Indemnification of the Bank..............................................................60 SECTION 11.07. The Bank in its Individual Capacity......................................................60 SECTION 11.08. Holders of Participation Certificates....................................................60 ARTICLE XII. MISCELLANEOUS..............................................................................60 SECTION 12.01. No Waiver................................................................................60 SECTION 12.02. Notices..................................................................................61 SECTION 12.03. Governing Law............................................................................61 SECTION 12.04. Survival of Representations and Warranties...............................................62 SECTION 12.05. Descriptive Headings.....................................................................62 SECTION 12.06. Severability.............................................................................62 SECTION 12.07. Time is of the Essence...................................................................62 SECTION 12.08. Counterparts.............................................................................62 SECTION 12.09. Payment of Costs.........................................................................62 SECTION 12.10. Benefit of Agreement; Assignments; Participations........................................63 SECTION 12.11. Third Party Beneficiaries................................................................64 SECTION 12.12. Cumulative Remedies; No Waiver...........................................................64 SECTION 12.13. Amendments; Consents.....................................................................64 SECTION 12.14. Set-Off..................................................................................65 SECTION 12.15. Indemnity................................................................................65 SECTION 12.16. Jurisdiction and Venue...................................................................65
iv 5 SECTION 12.17. Waiver of Jury Trial.....................................................................66 SECTION 12.18. Effect on Existing Loan Facility Agreement; Execution of New Loan Documents..............66 SECTION 12.19. Termination of Agreement.................................................................66
Exhibits: Exhibit "A" - Form of Bank Note Exhibit "B" - Form of Distributor's Agreement Exhibit "C" - Form of Funding Approval Notice Exhibit "D" - Form of Participation Certificate Exhibit "E" - Form of Weekly Statement Exhibit "F" - Form of Weekly Servicing Report to Participants Exhibit "G" - Form of Opinion Exhibit "H" - Form of Compliance Certificate Schedules: Schedule 5.01 - Quarterly Threshold Amount and Non-Guaranteed Amount Schedule 7.08 - Subsidiaries v 6 LOAN FACILITY AGREEMENT THIS LOAN FACILITY AGREEMENT ("Agreement") is entered into as of the 5th day of November, 1999, by and among FLOWERS INDUSTRIES, INC. ("Flowers"), a Georgia corporation having its principal office at 1919 Flowers Circle, Thomasville, Georgia 31757, SUNTRUST BANK, ATLANTA a Georgia banking corporation (the "Bank"), and SunTrust Bank, Atlanta and each of the other lending institutions listed on the signature pages hereto (SunTrust Bank, Atlanta and such lenders, together with any assignees thereof becoming "Participants" pursuant to the terms of this Agreement, the "Participants"). WITNESSETH: WHEREAS, Flowers has established a loan program with the Bank pursuant to that certain Note Purchase, Loan Commitment and Servicing Agreement dated as of September 20, 1996, as amended by that First Amendment to Note Purchase, Loan Commitment and Servicing Agreement, dated as of January 2, 1997, as amended by the Second Amendment to Note Purchase, Loan Commitment and Servicing Agreement, dated as of January 15, 1997, as amended by the Third Amendment to Note Purchase, Loan Commitment and Servicing Agreement, dated as of August 17, 1998, as amended by the Fourth Amendment to Note Purchase, Loan Commitment and Servicing Agreement, dated as of September 25, 1998, by the Bank and as amended by the Fifth Amendment to Note Purchase, Loan Commitment and Servicing Agreement, dated as of July 16, 1999, by and among Flowers and the Bank, and as amended by the Sixth Amendment to Note Purchase Loan Commitment and Servicing Agreement, dated as of October 8, 1999, by and among Flowers and the Bank (the "Existing Loan Facility Agreement") to provide loans to certain distributors of Flowers and its Subsidiaries; WHEREAS, Flowers has requested that the Bank increase its Commitment (as defined under the Existing Loan Facility Agreement) and make certain other changes to the Existing Loan Facility Agreement, and the Bank is willing to do so subject to the replacement of the Existing Loan Facility Agreement with this Agreement, pursuant to which the Participants shall purchase participations in the Commitment and the loans to distributors of Flowers and its Subsidiaries outstanding thereunder, and subject to the other terms and conditions hereof; WHEREAS, the Participants and the Bank desire Flowers to service all such loans upon the terms and conditions set forth in the Servicing Agreement, dated as of the date hereof, by and between Flowers and the Bank, as the same may be amended, restated, supplemented or otherwise modified from time to time (the "Servicing Agreement"); and WHEREAS, Flowers is willing, subject to the limitations set forth herein, to repurchase such loans upon the occurrence of certain events, and is willing to escrow funds for such repurchase, all as more fully set forth below; NOW, THEREFORE, upon the terms and conditions hereinafter stated, and in consideration of the mutual premises set forth above and other adequate consideration, the receipt 7 and sufficiency of which is hereby acknowledged, Flowers and the Bank agree that the Existing Loan Facility Agreement is hereby replaced in its entirety by this Agreement, and Flowers, the Bank and the Participants, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS SECTION 1.01. Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adjusted Consolidated EBITDA" means at any time the sum of the following, determined on a consolidated basis for Flowers and its Restricted Subsidiaries, at the end of each Fiscal Quarter: (i) Adjusted Consolidated Net Income; plus (ii) Adjusted Consolidated Interest Expense; plus (iii) taxes on income; plus (iv) depreciation; plus (v) amortization; plus (vi) without duplication, other non-cash charges. "Adjusted Consolidated Fixed Charges" means at any date the sum of (i) Adjusted Consolidated Interest Expense for the 4 Fiscal Quarter period used in the calculation of Adjusted Consolidated Net Income for the determination of Adjusted EBILT, and (ii) all payment obligations of Flowers and the Restricted Subsidiaries for such period under all operating leases and rental agreements. "Adjusted Consolidated Interest Expense" for any period means interest, whether expensed or capitalized, in respect of Indebtedness of Flowers or any of the Restricted Subsidiaries outstanding during such period. "Adjusted Consolidated Net Income" means, for any period, the Net Income of Flowers and its Restricted Subsidiaries determined on a consolidated basis, but excluding (i) extraordinary items, (ii) any equity interests of Flowers or any Restricted Subsidiary in the unremitted earnings of any Person that is not a Subsidiary, (iii) mark to market adjustments made in connection with Flowers' commodities hedging program in accordance with GAAP and (iv) non-recurring charges of $64,461,000 incurred in the 4th Fiscal Quarter of the 1998 Fiscal Year. "Adjusted Consolidated Net Worth" means the Net Worth of Flowers and the Subsidiaries, with all Unrestricted Subsidiaries being accounted for on an equity basis of accounting, and otherwise determined on a consolidated basis in accordance with GAAP. "Adjusted Consolidated Total Assets" means, at any time, the total assets of Flowers and its Restricted Subsidiaries, with any investments in Unrestricted Subsidiaries included as assets as 2 8 if all Unrestricted Subsidiaries were being accounted for on an equity basis of accounting, determined in all other respects on a consolidated basis in accordance with GAAP. "Adjusted Consolidated Total Debt" means the aggregate of all Indebtedness (except that, for purposes of determining Adjusted Consolidated Total Debt, letters of credit and similar instruments described in clause (e) of the definition of Indebtedness shall be included only to the extent they have maturities greater than 1 year) of Flowers and the Restricted Subsidiaries on a consolidated basis in accordance with GAAP, excluding, however, any Convertible Redeemable Capital Stock or Convertible Subordinated Debt if the current market value of an equity security into which such Convertible Redeemable Capital Stock or Convertible Subordinated Debt is convertible is greater than the conversion price for such security. "Adjusted EBILT" means at any date the sum of (i) Adjusted Consolidated Net Income for any 4 of the last 6 Fiscal Quarters ending prior to the date of measurement, such 4 Fiscal Quarters to be selected by Flowers, plus (ii) the sum of Adjusted Consolidated Fixed Charges and taxes on income (including deferred taxes) for the same 4 Fiscal Quarters. "Adjusted Total Capitalization" means the sum of (i) Adjusted Consolidated Total Debt and (ii) Adjusted Consolidated Net Worth. "Affiliate" of any relevant Person means (i) any Person that directly, or indirectly through one or more intermediaries, controls the relevant Person (a "Controlling Person"), (ii) any Person (other than the relevant Person or a Subsidiary of the relevant Person) which is controlled by or is under common control with a Controlling Person, or (iii) any Person (other than a Subsidiary of the relevant Person) of which the relevant Person owns, directly or indirectly, 20% or more of the common stock or equivalent equity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Loan Facility Agreement, either as originally executed or as it may be from time to time supplemented, amended, renewed, extended or otherwise modified. "Authorized Signatory" means an officer of Flowers named in the most recent Certificate Regarding Authorized Signatories delivered to the Bank. "Business Day" means a day of the year on which commercial banks are not required or authorized to close in Atlanta, Georgia. "Capital Stock" means any nonredeemable capital stock of Flowers or any Consolidated Subsidiary (to the extent issued to a Person other than Flowers), whether common or preferred. 3 9 "Capitalized Lease" means any lease which is required to be capitalized on the balance sheet of the lessee pursuant to GAAP but shall exclude any lease which at the time of its incurrence was an operating lease for purposes of GAAP as in effect at such time. "CERCLA" means the Comprehensive Environmental Response compensation and Liability Act, 42 U.S.C.ss.9601 et. seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Closing Certificate" means a certificate of an officer of Flowers delivered pursuant to Section 6(g). "Closing Date" means November 5, 1999. "Code" means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. "Collateral" means the property of a Distributor subject to a security interest or lien which secures a Loan, which shall include all accounts receivable, inventory and other business assets of the Distributor, and all property and assets of any guarantor subject to such a security interest or lien in favor of the Bank as security for obligations incurred pursuant to its guaranty. "Collections" means, with respect to any Loan, all cash collections and other cash proceeds received in connection therewith, including without limitation, all Payments, Insurance Proceeds and Liquidation Proceeds. "Commitment" has the meaning set forth in Section 2.01(b). "Commitment Fee" has the meaning set forth in Section 2.04. "Commitment Termination Date" has the meaning set forth in Section 2.01(b). "Compliance Certificate" has the meaning set forth in Section 8.01(c). "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of Flowers in its consolidated financial statements as of such date. "Consolidated Total Assets" means, at any time, the total assets of Flowers and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of Flowers and its Consolidated Subsidiaries, prepared in accordance with GAAP. 4 10 "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Flowers, are treated as a single employer under Section 414 of the Code. "Convertible Redeemable Capital Stock" means any Capital Stock that by its terms (or by the terms of any agreement by which, or equity security into which, it is convertible or for which it is exchangeable or any other agreement) or upon the happening of any event matures or is or will become mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, or is exchangeable for or convertible into an equity security of Flowers. "Convertible Subordinated Debt" means any Indebtedness of Flowers (i) which is and remains subordinated in right of payment to the obligations of Flowers hereunder and (ii) which by its terms is exchangeable for or convertible into an equity security of Flowers. "Customary Practices" means Flowers' or any of the Selling Subsidiaries' normal and customary practices with respect to the approval, servicing and administration of the Loans, as in effect from time to time, which practices shall be consistent with the standard approval, servicing and administration policies employed by Flowers with respect to all Loans held by it in its own portfolio as of the Closing Date, including without limitation, the policies and procedures set forth in the Policies and Procedures Manual delivered to the Bank on the Closing Date. "Cut-Off Date" means (i) as of the Closing Date, November 5, 1999 and (ii) with respect to each Statement delivered after the Closing Date, the second preceding Saturday to the relevant Payment Date. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Interest" has the meaning set forth in Section 2.06(b). "Defaulted Loan" has the meaning set forth in Section 5.01. "Distributor" means a Person or Persons obligated on an outstanding Loan, whether the Person that originally executed and delivered the Note and the Distributor's Agreement underlying such Loan, or any Person or Persons that assumes such Loan. "Distributor Loan Documents" means (i) with respect to each Purchased Loan, a loan application, a Note duly endorsed to the order of the Bank, a recorded UCC-1 financing statement, a guaranty, if any, and a Distributor's Agreement containing a security interest securing the Note, assigned to the Bank, (ii) with respect to each Existing Loan, other than a Purchased Loan, a loan application, a Note in favor of the Bank, a security agreement, a recorded UCC-1 financing statement, a guaranty, if any, and a disbursement and set-off authorization and (iii) with respect to 5 11 each Loan made on or after the Closing Date, a Note in favor of the Bank, and a recorded UCC-1 financing statement. "Distributor Loan File" means the files maintained by Flowers, which shall include true and correct copies of the Distributor Loan Documents pertaining to a particular Loan and any additional documents required to be added to the Distributor Loan File pursuant to this Agreement. "Distributor Loan Interest Rate" means the annual rate at which interest accrues on any Loan, which rate shall be, in the case of any Purchased Loan, the rate set forth in the Purchased Note and, in the case of any other Loan, twelve percent (12.0%) per annum, calculated on the basis of a 360-day year for the actual number of days elapsed (or 12.1667% per annum calculated on the basis of a 365-day year for the actual number of days elapsed). "Distributor Route" means, in respect of a Distributor for whom a Loan is outstanding, the contractual right of such Distributor to distribute products of Flowers or its Subsidiaries in a specified geographic location set forth in a Distributor's Agreement, together with all "Distributor's Rights" (as such term is defined therein) and the related accounts receivable, inventory and equipment securing a Loan. "Distributor's Agreement" means the contractual arrangement between Flowers or one of the Selling Subsidiaries with a Distributor for whom a Loan is outstanding whereby such Distributor agrees to distribute Flowers' product in a specified geographic location and Flowers or one of its Subsidiaries agrees to provide the Distributor with product and other services, including its Proprietary Administrative Services, such agreement to be substantially in the form of Exhibit "B" attached hereto. "Dollars" or "$" means dollars in lawful currency of the United States of America. "Eligible Assignee" shall mean (i) a commercial bank organized under the laws of the United States or any state thereof having total assets in excess of $1,000,000,000.00 or any commercial finance or asset-based lending Affiliate of any such commercial bank and (ii) any Participant. "Environmental Authority" means any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Authorizations" means all licenses, permits, orders, approvals, notices, registrations or other legal prerequisites for conducting the business of Flowers or any Restricted Subsidiary required by any Environmental Requirement. "Environmental Judgments and Orders" means all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent, or written agreements with an Environmental Agency or other entity arising from or in 6 12 any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities" means any liabilities, whether accrued, contingent or otherwise, arising from and in any way associated with any Environmental Requirements. "Environmental Notices" means notice from any Environmental Authority or by any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of any violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings" means any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" means releases as defined in CERCLA or under any applicable state or local environmental law or regulation. "Environmental Requirements" means any legal requirement relating to health, safety or the environment and applicable to Flowers, any Restricted Subsidiary or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Escrow Account" shall have the meaning set forth in Section 10.02. "Escrow Agent" shall have the meaning set forth in Section 10.01. "Escrow Funding Obligation" shall mean Flowers' obligation to put immediately available funds in escrow described in Article X in the amount of the Maximum Recourse Amount at the time such escrow is required to be funded, and the ongoing obligation of Flowers to increase such funds on the first day of each Fiscal Quarter as set forth in Section 10.02. "Event of Default" has the meaning set forth in Section 9.01. "Existing Loan Facility Agreement" has the meaning set forth in the Recital paragraphs to this Agreement. "Existing Loan" means any of the Purchased Loans and the loans to Distributors made by the Bank pursuant to the Existing Loan Facility Agreement as in effect from time to time. 7 13 "Existing Note" means any of the Purchased Notes or the promissory notes from the Distributors to the Bank substantially in the form attached to the Existing Loan Facility Agreement as in effect from time to time. "Federal Funds Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of Atlanta, or, if such rate is not so published for any day that is a Business Day, the average quotations for the day of such transactions received by the Bank from three federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means any fiscal quarter of Flowers. "Fiscal Year" means any fiscal year of Flowers. "Flower's Credit Agreement" means that certain $500,000,000 Amended and Restated Credit Agreement, dated as of January 30, 1998, among Flowers, the Banks listed therein, Wachovia Bank, N.A., as Bank, Bank of Nova Scotia, as Documentation Bank and NationsBank, N.A., as Syndications Bank, as from time to time in effect. "Flowers Security Agreement" means the Security Agreement, dated as of September 20, 1996, executed by Flowers and certain of its Subsidiaries in favor of the Bank, as amended by that certain First Amendment to Security Agreement, dated as of the date hereof, by and among Flowers, such Subsidiaries and the Bank. "Funded Participant's Interest" means the aggregate outstanding amount of Participant Fundings made by a Participant hereunder with respect to the Loans, and shall include, with respect to the Bank, the aggregate outstanding amount of Swing Line Loans made with respect to Loans. "Funding Approval Notice" means a written notice from Flowers or a Selling Subsidiary to the Bank setting forth an authorization for a Loan, containing such information required by, and in substantially the form of, Exhibit "C" attached hereto, appropriately completed. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.02, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "General Assignment" shall mean, collectively, each assignment from each of Flowers and the Selling Subsidiaries, dated as of the Note Purchase Date, assigning and transferring to the Bank each of the Purchased Loans and collateral therefor owned by such Person. 8 14 "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividends or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property constituting security therefore; (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligations; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of any other Person to make payment of the Indebtedness or obligation; or (d) otherwise to assure the owner of such Indebtedness or obligations against loss in respect thereof. In any computation of the Indebtedness or other liabilities of the obligor under any Guaranty, the Indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Hazardous Materials" includes, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) "hazardous substance", pollutant", or "contaminant" as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including, crude oil or any fraction thereof, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation and (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. "Indebtedness" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but 9 15 including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capitalized Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any clauses (a) through (f) hereof. "Ineligible Note" has the meaning set forth in Section 4.02. "Insurance Proceeds" means proceeds of any insurance payable to Flowers or a Selling Subsidiary in connection with a Distribution Route securing a Loan unless such proceeds are released to the Distributor in accordance with Customary Practices or are paid to Flowers or a Selling Subsidiary pursuant to a liability policy. "Interest Period" means, with respect to the calculation of LIBOR hereunder, a period of one month, initially commencing on July 20, 1999; provided that, (i) the first day of any Interest Period must be a Business Day, (ii) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case the Interest Period shall end on the next preceding Business Day, and (iii) the first day of each succeeding Interest Period shall be the last day of the preceding Interest Period. "Investment" means any investment in any Person, whether by means of purchase or acquisition of obligations or securities of such Person, capital contribution to such Person, loan or advance to such Person, making of a time deposit with such Person, Guaranty or assumption of any obligation of such Person or otherwise. "Keebler" means Keebler Foods Company, a Delaware corporation with its principal place of business in Elmhurst, Illinois. "Keebler Acquisition" means, collectively, the acquisition by Flowers (i) from Artal Luxemburg S.A., pursuant to a Stock Purchase Agreement dated as of January 28, 1998, of an 10 16 aggregate of 9,581,169 shares of common capital stock in Keebler, and (ii) from Bermore Limited, pursuant to a Stock Purchase and Stockholder's Agreement dated as of January 28, 1998, of an aggregate of 1,616,691 shares of common capital stock in Keebler, as a result of which, after giving effect to the Keebler Accession, Flowers will own approximately 51% of the common capital stock of Keebler, on a fully-diluted basis. "Leverage Ratio" means the ratio of Adjusted Consolidated Total Debt to Adjusted Total Capitalization. "LIBOR" means, for each Interest Period, the offered rate for deposits in Dollars determined by the Bank for the Interest Period appearing on Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day that is two Business Days prior to the first day of such Interest Period. If the foregoing rate is unavailable from the Telerate for any reason, then such rate shall be determined by the Bank from the Reuters Screen LIBO Page as of 11:00 a.m. (London, England time) on the day that is two Business Days prior to the first day of such Interest Period; if two or more of such rates appear on the Reuters Screen LIBO Page, the rate shall be the arithmetic mean of such rates. If the foregoing rate is also unavailable from the Reuters Screen for any reason, then such rate shall be determined by the Bank on any other interest rate reporting service of recognized standing designated in writing by the Bank to Flowers, in any such case rounded, if necessary, to the next higher 1/16 of 1.0%, if the rate is not such a multiple. If a Reserve Percentage becomes applicable, LIBOR shall be appropriately adjusted. "Lien" means, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, or encumbrance or servitude of any kind in respect of such asset to secure or assure payment of a Indebtedness or a Guaranty, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, Flowers or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease or other title retention agreement relating to such asset. "Liquidation Proceeds" means all amounts collected by Flowers or a Selling Subsidiary, individually or as agent for the Bank, with respect to a Defaulted Loan (other than Insurance Proceeds). "Loan" means any of the Existing Loans or the New Loans. "Loan Closing Date" means, with respect to any Loan, the date on which the documents governing such Loan are executed and delivered and such Loan is funded. "Loan Default" means an occurrence with respect to a Loan which is defined by the applicable Distributor Loan Documents to be an event of default. 11 17 "Loan Indebtedness" means all amounts due and payable by a Distributor under the terms of the Distributor Loan Documents for a given Loan, including, without limitation, outstanding principal, accrued interest, any commitment fees, and all reasonable costs and expenses of any legal proceeding brought by the Bank to collect any of the foregoing (including without limitation, reasonable attorneys' fees actually incurred). "Loan Payment Default" means the failure of a Distributor to make a payment of principal, accrued interest thereon or any other amounts, within the cure period following the due date therefor, as provided under the applicable Loan Documents. "Margin Stock" means "margin stock" as defined in Regulations T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Material Adverse Effect" means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business or properties of Flowers and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Bank under the Distributor Loan Documents generally, this Agreement, the Servicing Agreement or the Flowers Security Agreement or the ability of Flowers or any Selling Subsidiary to perform its obligations under the Distributor Loan Documents generally, this Agreement, the Servicing Agreement or the Flowers Security Agreement, as applicable, or (c) the legality, validity or enforceability of the Distributor Loan Documents generally, this Agreement, the Servicing Agreement or the Flowers Security Agreement. "Material Subsidiary" means, as of each date of determination, any Restricted Subsidiary that would at such time constitute a "significant subsidiary" (as such term is defined in Regulation S-X of the Securities and Exchange Commission as in effect on the Closing Date) of the Company. "Maximum Commitment Amount" means $80,000,000, as such amount may be reduced pursuant to Section 2.07. "Maximum Recourse Amount" means, as of any date of determination, the greater of (i) the Quarterly Threshold Amount in effect as of such date, and (ii) (x) the aggregate Principal Balance of the Loans outstanding hereunder on such date minus (y) the applicable Non-Guaranteed Amount as of such date. "Mission Critical Systems and Equipment" means Flowers and its Subsidiaries' hardware and software systems, and equipment relating to the operation of its business and its general business plan, including, without limitation, equipment in addition to computers, and with respect to which, the failure to properly function would have a Material Adverse Effect. 12 18 "Multiemployer Plan" has the meaning set forth in Section 4001(a) (3) of ERISA. "Net Income" means, as applied to any Person for any Period the aggregate amount of net income of such Person, after taxes, for such period, as determined in accordance with GAAP. "Net Proceeds of Capital Stock" means any proceeds received by Flowers or a Consolidated Subsidiary in respect of the issuance of Capital Stock, after deducting therefrom all reasonable and customary costs and expenses incurred by Flowers or such Consolidated Subsidiary directly in connection with the issuance of such Capital Stock. "Net Worth" of any Person means the Total Assets of such Person less all liabilities of such Person which would be shown as liabilities on a balance sheet of such Person as of such time prepared in accordance with GAAP. "New Loan" means any loan made by the Bank to a Distributor pursuant to the terms hereof and of the Servicing Agreement, on or after the Closing Date. "New Note" means a promissory note from a Distributor to the Bank substantially in the form of Exhibit "A" attached hereto, evidencing a New Loan. "Non-Guaranteed Amount" means, for any period, the amount set forth on Schedule 5.01 for such period. "Note Purchase Date" means September 20, 1996, the date on which the Bank purchased the Purchased Notes from Flowers and the Selling Subsidiaries. "Notes" means, collectively, the Existing Notes and the New Notes. "Operating Profits" means, as applied to any Person for any period, the operating income of such Person for such period, as determined in accordance with GAAP. "Participating Commitment" means the amount set forth opposite each Participant's name on the signature pages hereof, as such amount may be modified by assignment pursuant to the terms hereof; provided that, following the termination of the Commitment, each Participant's Participating Commitment shall be deemed to be its Pro Rata Share of the aggregate Loans. "Participant Funding" means a funding by the Participants of their Pro Rata Share of Loans. "Participant Funding Request" has the meaning set forth in Section 2.03(b). "Participant's Interest" has the meaning set forth in Section 2.02. 13 19 "Participant's Unused Commitment" means, with respect to any Participant, the difference between such Participant's Participating Commitment and such Participant's Funded Participant's Interest. "Participation Certificate" means, a certificate issued by the Bank to a Participant, substantially in the form of Exhibit "D" attached hereto, evidencing such Participant's ownership interest conveyed hereunder. "Payment" means any Scheduled Payment or Prepayment of a Loan. "Payment Date" means the first Business Day of each calendar week. "Payment Period" means (i) initially, the period commencing on the Closing Date and ending on the date immediately prior to the next Payment Date and (ii) thereafter, the period commencing on each Payment Date and ending on the next Payment Date. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Investments" means commercial paper, certificates of deposit or repurchase agreements of banks organized under the laws of the United States with a long term debt rating of A+ or better by Standard & Poor's, a division of McGraw-Hill, Inc. or Moody's Investors Services, Inc., United States Treasury bills and other obligations of the United States government, each with a term of one year or less. "Permitted Keebler Investments" means: (i) the Keebler Acquisition; and (ii) additional shares of common capital stock in Keebler acquired from time to time (a) from third parties in the open market, (b) from Bermore Limited and Artal Luxemburg S.A. in private transactions, (c) from management of Keebler in private transactions and/or (d) from Keebler as part of an offering of stock by Keebler (whether public or private), but in the case of this clause (d), only to the extent necessary for Flowers to maintain ownership of at least 51% of the common capital stock of Keebler, on a fully-diluted basis. "Person" means an individual, a corporation, a partnership, an unincorporated association, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions. 14 20 "Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the Payment of any amount upon liquidation or dissolution of such corporation. "Prepayment" means any full or partial prepayment of principal together with accrued and unpaid interest thereon any Loan. "Principal Balance" means, with respect to any Loan, the outstanding principal balance of such Loan after application of any Payment, Insurance Proceeds or Liquidation Proceeds received as of such date. "Program Documents" means and include, as the context requires, this Agreement, the Servicing Agreement, the Flowers Security Agreement, the General Assignment, the Distributor Loan Documents and any and all other instruments, agreements, documents and writings contemplated hereby or executed in connection herewith or the Notes. "Properties" means all real property owned, leased or otherwise used or occupied by Flowers or any Restricted Subsidiary, wherever located. "Proprietary Administrative Services" means all right, title and interest of the Flowers and its Subsidiaries in and to all books, records, computer software, customer lists, computer equipment and other personal property used in connection with the proprietary administrative services provided to the Distributors. "Pro Rata Share" means, with respect to each of the Participants, the percentage designated as such Participant's Pro Rata Share on the signature pages hereof, as such percentage may change from time to time as a result of assignments or amendments pursuant to this Agreement. "Purchased Loans" shall mean all loans made by Flowers or any Selling Subsidiary to their Distributors to finance the purchase of Distributor Routes secured by a first priority lien on such Distributor Routes, and conveyed, assigned and sold to Bank pursuant to the Existing Loan Facility Agreement. "Purchased Notes" shall mean all promissory notes of Distributors initially owned and held by Flowers and the Selling Subsidiaries evidencing Purchased Loans. "Quarterly Payment Date" means the last day of each calendar quarter. "Quarterly Threshold Amount" means, for any period, the amount set forth on Schedule 5.01 for such period. "Repurchase Price" has the meaning set forth in Section 5.01. 15 21 "Required Participants" means, at any time, the Participants holding at least 66 2/3% of the sum of (x) aggregate Funded Participant's Interests, plus (y) the Participant's Unused Commitments, or, following the termination of the Commitment, the Participants holding at least 66 2/3% of the aggregate outstanding Funded Participant's Interests at such time. "Reserve Percentage" means, for any day, the stated maximum rate (expressed as a decimal) of all reserves required to be maintained with respect to liabilities or assets consisting of or including "Eurocurrency liabilities," as prescribed by Regulation D of the Board of Governors of the Federal Reserve System (or by any other governmental body having jurisdiction with respect thereto), including, without limitation, any basic, marginal, emergency, supplemental, special, transitional or other reserves, the rate so determined to be rounded upward to the nearest whole multiple of 1/100 of 1%. "Responsible Officer" means the chief financial officer, principal accounting officer, treasurer or comptroller of Flowers, and any other officer of Flowers with responsibility for the administration of the relevant portion of this Agreement or the Distributor Loan Documents. "Restricted Subsidiary" of a Person means any Subsidiary of the referenced Person that is not an Unrestricted Subsidiary. "Reuters Screen" means, when used in connection with any designated page and LIBOR, the display page so designated on the Reuter Monitor Money Rates Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to LIBOR). "Scheduled Payment" means the weekly payment of principal and interest which is payable by a Distributor from time to time with respect to a Loan. "Selling Subsidiary" means, on any date, each Subsidiary of Flowers in respect of which there is outstanding on such date a Loan to one or more Distributors of such Selling Subsidiary. "Servicer" means Flowers unless and until Flowers is removed as Servicer pursuant to the Servicing Agreement. "Servicer Advance" has the meaning set forth in the Servicing Agreement "Servicing Agreement" means that certain Servicing Agreement, dated as of the date hereof, by and between Flowers and the Bank, as amended, restated, supplemented or otherwise modified from time to time. "Statement" means the weekly report prepared for the Bank by the Servicer, substantially in the form of Exhibit "E" attached hereto. 16 22 "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by Flowers. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended Fiscal Quarter of such Person, based on the assumption that such Swap had terminated at the end of such Fiscal Quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Swing Line Loan" has the meaning set forth in Section 2.03(a). "Telerate" means, when used in connection with any designated page and LIBOR, the display page so designated on the Telerate, Inc. Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to LIBOR). "Third Parties" means all lessees, sublessees, licensees and other users of the Properties, excluding those users of the Properties in the ordinary course of Flowers' business and on a temporary basis. "Total Assets" means, with respect to any Person at any time, the total assets of such Person as set forth or reflected on the most recent consolidated balance sheet of such Person, prepared in accordance with GAAP. "Total Capitalization" means the sum of (i) Consolidated Total Debt and (ii) Consolidated Net Worth. "Unfunded Vested Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under such Plan exceeds (ii) the fair market value of all Plan assets applicable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "Unrestricted Subsidiary" means, so long as Keebler is a Subsidiary, Keebler, or any of its Subsidiaries, and "Unrestricted Subsidiaries" means, collectively, Keebler and its Subsidiaries. "Upfront Fee" has the meaning set forth in Section 2.4(a). 17 23 "Wholly Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by Flowers. "Y2K Plan" has the meaning set forth in Section 7.19. "Year 2000 Compliant and Ready" means that (a) Flowers and its Subsidiaries hardware and software systems with respect to the operation of its business will, in all material respects: (i) handle date information involving any and all dates before, during and after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part; (ii) operate, accurately without unscheduled interruption on and in respect of any and all dates before, during and after January 1, 2000 and without any change in performance; and (iii) store and provide date input information without creating any ambiguity as to the century; and (b) Flowers has developed alternative plans to ensure business continuity in the event of the failure of any or all of items (i) through (iii) in clause (a) above in this definition. SECTION 1.02. Accounting Terms. All accounting terms not specifically defined herein shall be construed as having the respective meanings customary under GAAP consistently applied from and after the date of this Agreement. ARTICLE II. LOAN FACILITY; COMMITMENT TO MAKE LOANS SECTION 2.01. Loan Facility (a) Subject to this Agreement becoming effective, all Existing Loans are hereby deemed to be outstanding as Loans under the Commitment and this Agreement. (b) Subject to and upon the terms and conditions set forth in this Agreement, the Bank hereby agrees to make Loans to such Distributors as may be named by Flowers or any Selling Subsidiary in its Funding Approval Notices received during the period on or after the Closing Date but prior to November 3, 2000 (as such period may be extended pursuant to Section 2.08 hereto, the "Commitment Termination Date"), in an aggregate principal amount at any one time outstanding not to exceed an amount equal to the Maximum Commitment Amount (the "Commitment"). (c) Within the limits of the Commitment and in accordance with the procedures set forth in the Servicing Agreement, Flowers may authorize the Bank to make Loans under the terms of this Agreement for its Distributors in accordance with its Customary Practices. Each Loan shall be for a term of not more than ten (10) years, to be amortized in equal weekly payments of principal and interest. Each Loan shall bear interest at a fixed rate per annum equal to the 18 24 Distributor Loan Interest Rate. Each Loan may be prepaid at any time by the Distributor without penalty or premium, but with interest accrued thereon on the amount prepaid. (d) The Bank's obligation to make a Loan under the Distributor Loan Documents is subject to the fulfillment of the following conditions as of the Loan Closing Date of such Loan: (i) this Agreement and each of the other Program Documents shall be in full force and effect; (ii) the representations and warranties of Flowers contained in Article VII hereof shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the Loan Closing Date of such Loan; (iii) the Bank shall have received a Funding Approval Notice executed by Flowers or the appropriate Selling Subsidiary authorizing such Loan, the original Note evidencing such Loan executed by the Distributor and a copy of the UCC-1 Financing Statement executed by the Distributor; (iv) all precedents and conditions to the Loan specified in the Servicing Agreement shall have been satisfied or waived by the Bank; and (v) no Event of Default or Default exists or would result therefrom. In addition, if the Subsidiary of Flowers which is party to the Distributor's Agreement is not a Selling Subsidiary, Flowers shall cause such Subsidiary to become a party to the Flowers Security Agreement and to execute such UCC-1 financing statements as the Bank shall reasonably require in connection therewith. SECTION 2.02. Conveyance of Participant's Interest. (a) The Bank hereby sells, assigns, transfers and conveys to the Participants, without recourse or warranty, and each Participant hereby purchases from the Bank, an undivided percentage ownership interest (which percentage shall be equal to each Participant's Pro Rata Share) in (i) the Commitment, (ii) the Loans, including, without limitation, the Existing Loans, (iii) the benefit of the Collateral, (iv) all rights against any guarantor of any Loan, including Flowers, (v) the Distributor Loan Documents, (vi) all rights pursuant to any guaranty of the obligations of Flowers hereunder and (viii) all right, title and interest to any payment or right to receive payment with respect to the foregoing (collectively, the "Participant's Interest"). Notwithstanding the foregoing, each Participant's right to receive payments of interest, commitment fees or other fees with respect to the Commitment and the Loans shall not exceed the amounts which such Participant is entitled to receive pursuant to the terms of this Agreement. (b) In consideration of the entry by each Participant into this Agreement and the obligation of each Participant hereunder, the Bank shall issue a Participation Certificate to each 19 25 Participant on the Closing Date. Each Participation Certificate shall evidence such Participant's Participating Commitment, and the Funded Participant's Interest outstanding thereunder shall bear interest as hereinafter set forth and shall be payable as hereinafter set forth. (c) In accordance with the terms and conditions hereof, and in consideration of the sale of the Participant's Interest to such Participant, each Participant severally agrees from time to time, during the period commencing on the Closing Date and ending on the Commitment Termination Date to fund its Pro Rata Share of outstanding Loans made by the Bank to the Distributors in an aggregate amount at any one time outstanding not to exceed such Participant's Participating Commitment (subject to each Participant's obligations pursuant to Section 2.03(d) hereof). (d) The Bank (i) represents and warrants to each Participant that it is the legal and beneficial owner of the Participant's Interest being conveyed to such Participant, and that such Participant's Interest is free and clear of any lien or other encumbrance; (ii) makes no representation or warranty to any Participant, and assumes no responsibility with respect to, any statements, warranties or representations made by Flowers or any of its Subsidiaries in or in connection with this Agreement and the other Program Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (iii) makes no representation or warranty to any Participant, and assumes no responsibility, with respect to the financial condition of the Flowers, any of its Subsidiaries or any of the Distributors, or the performance or observance by the Flowers, any of its Subsidiaries or any of the Distributors of any of their obligations under this Agreement, any other Program Documents, any of the Distributor Loan Documents or any other instrument or document furnished pursuant hereto or thereto. (e) Each Participant (i) confirms that it has received a copy of this Agreement and the other Program Documents, together with copies of the financial statements referred to in Section 7.04 of this Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; and (ii) agrees that it will, independently and without reliance upon the Bank or any other Participant and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Program Documents. SECTION 2.03. Funding of Loans; Swing Line; Funding of Participant's Interest in Loans. (a) The Bank shall fund Loans requested by Flowers in accordance with the terms of the Funding Approval Notice, the applicable Distributor Loan Documents and the Servicing Agreement. On the date of any such funding, the Bank shall elect whether or not to require the Participants to fund their respective Pro Rata Share of such Loan or Loans to be made on such date. In the event that the Bank elects not to require the Participants to fund their Pro Rata Share of the Loans on such date, the Bank shall make such Loans (each, a "Swing Line Loan") to the 20 26 Distributors for the account of the Bank; provided that, the aggregate amount of Swing Line Loans outstanding on any date shall not exceed $10,000,000 and further provided that the sum of (x) the aggregate outstanding Swing Line Loans plus (y) the aggregate outstanding Funded Participant's Interests (exclusive of the Swing Line Loans) shall not exceed the Maximum Commitment Amount. If (i) any Event of Default shall have occurred, (ii) after giving effect to any requested Loan, the aggregate Swing Line Loans outstanding hereunder would exceed $10,000,000, or (iii) the Bank otherwise determines in its sole discretion to request a Participant Funding hereunder, then the Bank shall notify the Participants pursuant to subsection (b) requesting a Participant Funding. (b) In the event that the Bank desires that the Participants fund their respective Pro Rata Shares of Loans made or outstanding pursuant to the Distributor Loan Documents, the Bank shall deliver written or telecopy notice to the Participants (or telephonic notice promptly confirmed in writing or by telecopy) (a "Participant Funding Request") by no later than 10:00 a.m. (Atlanta, Georgia time) on the date which is the requested date of the Participant Funding which shall specify (x) the date of the Participant Funding, which shall be a Business Day, and (y) each Participant's Pro Rata Share of the Loans outstanding to be funded in connection with such Participant Funding. (c) Each Participant shall make its Participant Funding in the amount of its Pro Rata Share on the proposed date thereof by wire transfer of immediately available funds to the Bank in Atlanta, Georgia by not later than 2:00 P.M. (Atlanta, Georgia time). Unless the Bank shall have received notice from a Participant prior to the date of any Participant Funding that such Participant will not make available to the Bank such Participant's Pro Rata Share of such Participant Funding, the Bank may assume that the Participant has made such portion available to the Bank on the date of such Participant Funding in accordance with this subsection (c) and the Bank may, in reliance on such assumption, make available to the Distributors a corresponding amount. If and to the extent that such Participant shall not have made such portion available to the Bank, such Participant and Flowers shall severally agree to repay the Bank forthwith (on demand in the case of the Participant and within three (3) days of such demand in the case of Flowers), without duplication, such amount with interest at the Federal Funds Rate plus 2% per annum and, until such time as such Participant has repaid to the Bank such amount, such Participant shall (i) have no right to vote regarding any issue on which voting is required or advisable under this Agreement or the other Program Documents, and (ii) shall not be entitled to receive any payments of interest, fees or repayment of the principal amount of such Loans which the Participant has failed to pay to the Bank. If such Participant repays such amount to the Bank, then such amount shall constitute part of such Participant's Funded Participant's Interest. If Flowers repays such amount to the Bank, the Bank shall assign Notes back to Flowers in accordance with Section 5.02 hereof in an aggregate principal amount as close to, but not exceeding, the amount of such payment, and Flowers will be deemed to have purchased a participation in the Funded Participant's Interest of the non-paying Participant to the extent of the excess. (d) Each Participant's obligations to fund its Pro Rata Share of any requested Participant Funding shall be absolute and unconditional and shall not be affected by any 21 27 circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense, or other right which such Participant may have against the Bank, Flowers or any Distributor or any other Person for any reason whatsoever, (ii) the occurrence of any Default or Event of Default, (iii) the occurrence of any Loan Default, (iv) the occurrence of any Repurchase Obligation pursuant to Section 5.01 hereof, (v) any adverse change in the condition (financial or otherwise) of Flowers or any other Subsidiary or any Distributor, (vi) the acceleration or maturity of any Loan or Flowers' obligations hereunder or the termination of the Commitment or the Participating Commitments after the making of any Swing Line Loans, (vii) any breach of this Agreement by Flowers or any other Participant, or (viii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. (e) Notwithstanding the foregoing provisions of this Section 2.03, no Participant shall be required to fund its Pro Rata Share of any requested Participant Funding for purposes of refunding a Swing Line Loan pursuant to subsection (d) above if a Loan Default with respect to the relevant Loan has occurred and is continuing and, prior to the making by the Bank of such Swing Line Loan, the Bank had received written notice from Flowers, the relevant Distributor or any Participant specifying that such Loan Default had occurred and was continuing (and identifying the same as a Loan Default, as the case may be) which has not been cured or waived; provided that, in the case of a Loan Default arising from a Default or Event of Default where the Participants are not pursuing remedies, the Participants will be obligated to fund their respective Pro Rata Shares of Swing Line Loans as long as the aggregate amount of such Swing Line Loans does not exceed $5,000,000. SECTION 2.04. Fees. (a) Flowers shall pay to the Bank, for the ratable benefit of the Participants, on the Closing Date, an upfront fee (the "Upfront Fee") in an amount equal to $400,000. Promptly upon the Bank's receipt thereof, the Bank shall promptly pay the Upfront Fee to the Participants, pro rata based on their respective Pro Rata Shares. (b) Flowers shall pay to the Bank, for the ratable benefit of the Participants, quarterly in arrears on each Quarterly Payment Date, commencing on September 30, 1999 and continuing thereafter, a commitment fee (the "Commitment Fee") in an amount equal to one eighth of one percent per annum (0.125%) per annum multiplied by the average daily amount of the Participant's Unused Commitments during the calendar quarter ending on such Quarterly Payment Date, for the period commencing on the Closing Date and ending on the Commitment Termination Date, or such earlier date as the Participating Commitments shall expire or terminate. Promptly upon the Bank's receipt thereof, the Bank shall promptly pay the Commitment Fee to the Participants, pro rata based on their respective Pro Rata Shares. SECTION 2.05. Interest on Funded Participant's Interest. (a) Subject to Section 2.06, the Bank shall pay to the Participants, pro rata based upon their respective Pro Rata Shares, weekly in arrears on each Payment Date, interest on the 22 28 Participant's Funded Participant's Interests in an amount equal to the sum of (a) with respect to the average daily Maximum Recourse Amount for the week ending on such Payment Date, the amount of interest which would have accrued thereon during such week at a rate of interest equal to LIBOR plus one and one-eighth of one percent (1.125%) per annum and (b) with respect to the remaining aggregate Principal Balance of the Loans, the amount of interest which would have accrued thereon during such week at a rate of interest equal to LIBOR plus one and five-eighths of one percent (1.625%) per annum. (b) Interest on the Participant's Funded Participant's Interests shall be payable in arrears by the Bank to the Participants on each Payment Date, commencing on November 8, 1999 and continuing thereafter, from and to the extent of the sum of (x) interest payments received by the Bank on the Loans during the week ending on such Payment Date and (y) other amounts received by the Bank hereunder. (c) In the event that the interest and other amounts received by the Bank from Flowers and the Distributors during any week are insufficient to pay the interest to the Participants required to be paid on any Payment Date pursuant hereto and all other amounts required to be paid to the Bank and the Participants during such week, Flowers shall, upon demand of the Bank, immediately fund such difference to the Bank (with such payment allocated to specific Loan Payment Defaults as agreed by Flowers and Bank) and if such shortfall results from Loan Payment Defaults rather than interest rate variances, either, at the election of the Flowers, (x) Flowers shall be reimbursed by the Bank upon receipt of such amount from the applicable Distributor, (y) the Loan Indebtedness of such Distributor shall be deemed to be reduced by such amount for purposes of a repayment or purchase of such Defaulted Loan by Flowers in accordance with the terms of this Agreement or (z) if elected by Flowers and if such amount is sufficient to cure any Loan Payment Default, such amount shall be deemed to have satisfied Flower's obligation to cure such Loan Payment Default hereunder. SECTION 2.06. Payments and Computations, Etc. (a) All amounts to be paid by Flowers hereunder shall be paid no later than 2:00 P.M. (Atlanta, Georgia time) on the day when due in same day funds to office of the Bank located in Atlanta, Georgia. (b) Flowers shall, to the extent permitted by law, pay to the Bank on demand from time to time interest on any amount not paid by Flowers when due hereunder (including its Escrow Funding Obligation) at an interest rate per annum equal to two percent (2%) per annum above the otherwise applicable rate of interest per annum (the "Default Interest"). (c) All computations of interest and other amounts due hereunder shall be made on the basis of a year of 360 days and the actual number of days elapsed. Whenever a payment which is to be made hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. 23 29 SECTION 2.07. Voluntary Reduction of the Unutilized Commitment . Upon at least three (3) Business Days' prior telephonic notice (promptly confirmed in writing) to the Bank, Flowers shall have the right, without premium or penalty, to terminate the Commitment, in part or in whole, provided that (i) any such termination shall apply to permanently reduce the Commitment, (ii) any such termination shall apply to proportionately and permanently reduce the Participating Commitments of each of the Participants, (ii) any partial termination pursuant to this Section 2.07 shall be in an amount of at least $5,000,000 and integral multiples of $1,000,000, and (iii) the Commitment may not be reduced if, as a result thereof, the amount of the Commitment would be less than the aggregate sum of all outstanding Loans pursuant to such the Commitment. SECTION 2.08. Extension of Commitment. (a) Flowers may, by written notice to the Bank (which shall promptly deliver a copy to each Participant), given not more than sixty (60) days prior to any anniversary to the date of this Agreement while the Commitment is in effect, request that the Participants extend the then scheduled Commitment Termination Date (the "Existing Date") for an additional 364-day period. Each Participant shall, by notice to the Bank given within 15 days after receipt of such request, advise Flowers and the Bank whether or not such Participant consents to the extension request (and any Participant which does not respond during such 15-day period shall be deemed to have advised Flowers and the Bank that it will not agree to such extension.) (b) In the event that on the 15th Business Day after receipt of the notice delivered pursuant to subsection (a) above, all of the Participants shall have agreed to extend their respective Participating Commitments, the Commitment Termination Date shall be deemed to have been extended, effective as of the Existing Date, to the date which is 364 days thereafter. (c) In the event that, on the 15th Business Day after receipt of the notice delivered pursuant to subsection (a) above, all of the Participants shall not have agreed to extend their respective Participating Commitments, Flowers and the Bank shall notify the consenting Participants ("Consenting Participants") of the amount of the Participating Commitments of the non-extending Participants ("Non-Consenting Participants") and such Consenting Participants shall, by notice to Flowers and the Bank given within ten (10) Business Days after receipt of such notice, advise Flowers and Bank whether or not such Participant wishes to purchase all or a portion of the Participating Commitments of the Non-Consenting Participants (and any Participant which does not respond during such 10-Business Day period shall be deemed to have rejected such offer). In the event that more than one Consenting Participant agrees to purchase all or a portion of such Participating Commitments, Flowers and the Bank shall allocate such Participating Commitments among such Consenting Participants so as to preserve, to the extent possible, the relative pro rata shares of the Consenting Participants of the Participating Commitments prior to such extension request. If Consenting Participants do not elect to assume all of the Participating Commitments of the Non-Consenting Participants, Flowers shall have the right, subject to the terms and conditions of Section 12.10, to arrange for one or more banks (any such bank being called a "New Participant"), to purchase the Participating Commitment of any Non-Consenting 24 30 Participant. Each Non-Consenting Participant shall assign its Participating Commitment and its Participant's Interest outstanding hereunder to the Consenting Participant or New Participant purchasing such Participating Commitment in accordance with Section 12.10, in return for payment in full of all principal, interest and other amounts owing to such Non-Consenting Participant hereunder, on or before the Existing Date and, as of the effective date of such assignment, shall no longer be a party hereto, provided that each New Participant shall be subject to the approval of the Bank (which approval shall not be unreasonably withheld). If (and only if) Participants (including New Participants) holding Participating Commitments representing at least an amount equal to the greater of (x) the sum of all outstanding Loans and (y) 85% of the aggregate Participating Commitments on the date of such extension request shall have agreed to such extension by the Existing Date (the "Continuing Participants"), then (i) the Commitment Termination Date shall be extended for an additional 364-day period and (ii) the Participating Commitment of any Non-Consenting Participant which has not been assigned to a Consenting Participant or a New Participant shall terminate (with the result that the amount of the Commitments shall be decreased proportionately by the amount of such Participating Commitment), and all amounts owing to such Non-Consenting Participant shall become due and payable, together with all interest accrued thereon and all other amounts owed to such Non-Consenting Participant hereunder, on the Existing Date applicable to such Participant without giving effect to any extension of the Commitment Termination Date. SECTION 2.09. Pro Rata Treatment. Subject to the application of payments pursuant to Article III and except as specifically provided therein, each payment of principal of any Funded Participant's Interest, each payment of interest with respect to the Funded Participant's Interest, each payment of the Commitment Fee and each reduction of the Commitment shall be allocated pro rata among the Participants in accordance with their respective applicable Pro Rata Share of the Commitment. Each Participant agrees that in computing such Participant's portion of any Funded Participant's Interest to be made hereunder, the Bank may, in its discretion, round each Participant's percentage of such Participant Funding Request to the next higher or lower whole dollar amount. SECTION 2.10. Sharing of Setoffs. Each Participant agrees that if it shall, in accordance with applicable law, through the exercise of a right of banker's lien, setoff or counterclaim against Flowers or any Distributor, or pursuant to a secured claim under Section 506 or Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by the Participant under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Funded Participant's Interest under this Agreement as a result of which the unpaid principal portion of its Funded Participant's Interest shall be proportionately less than the unpaid principal portion of the Funded Participant's Interest of any other Participant, it shall be deemed simultaneously to have purchased from such other Participant at face value, and shall promptly pay to such other Participant the purchase price for, a participation in the Funded Participant's Interest of such other Participant, so that the aggregate 25 31 unpaid principal amount of the Funded Participant's Interest and participations in Funded Participant's Interests held by each Participant shall be in the same proportion to the aggregate unpaid principal amount of all Funded Participant's Interests then outstanding as the principal amount of its Purchases prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Funded Participant's Interests outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustments shall be made pursuant to this Section and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. Flowers expressly consents to the foregoing arrangements and agrees, to the extent permitted by applicable law, that any Participant holding a Funded Participant's Interest or a participation in a Funded Participant's Interest deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by Flowers to such Participant by reason thereof. ARTICLE III. FLOWERS' SERVICING OBLIGATIONS; BANK'S OBLIGATIONS; DISTRIBUTION OF PAYMENTS SECTION 3.01. Flowers' Servicing Obligations with Respect to Loans; Collateral; Non-Recourse. (a) Each of the Bank and the Participants acknowledges and agrees that Flowers shall, for itself and for the benefit of the Bank and all Participants, (i) document, close, manage, service, administer and collect the Loans in accordance with the terms of this Agreement, the Servicing Agreement and its Customary Practices, and shall have full power and authority to do or cause to be done any and all things in connection with such management, servicing, administration and collection which it may deem necessary or desirable and (ii) distribute all funds collected with respect to the Loans. (b) Notwithstanding anything in this Agreement to the contrary, each of the Bank and the Participants acknowledges and agrees that Flowers shall have no obligation to the Bank or the Participants with respect to (i) the creation, perfection, priority or continuation of any Lien on any Collateral obtained by the Bank with respect to the Loans at the request of Flowers or (ii) the obtaining or retention of any guaranties of the Loans (other than to distribute any proceeds therefrom in accordance with the terms of this Article III). Each of the Bank and the Participants acknowledges and agrees that Flowers has the right to release or modify the terms of, any Collateral or any guaranty of any Loan. (c) Each of the Bank and the Participants acknowledges and agrees that Flowers, in accordance with its Customary Practices, is authorized to permit the assumption of any Distributor Loan by a transferee of the Distributor's interest in the related Distributor Route, pursuant to which such transferee becomes liable under such Distributor Loan and reaffirms and assumes all 26 32 of the obligations of the Distributor under all of the Distributor Loan Documents. In connection with any such assumption, none of the payment terms of such Distributor Loan may be changed. SECTION 3.02. Bank's Obligations with Respect to Loans and Collateral. (a) Each of the Participants acknowledges and agrees that all payments made to the Participants pursuant to this Agreement by the Bank shall be made solely from amounts received by the Bank from Flowers, the Distributors and other obligors or Collateral under the applicable Loan Documents, and the Bank shall have no personal liability for any amounts payable to the Participants hereunder. (b) Each of the Participants acknowledges and agrees that the Bank shall be relying solely upon Flowers for purposes of documenting, closing, managing, servicing, administering and collecting the Loans in accordance with the terms of this Agreement and the Servicing Agreement and exercising all discretionary powers involved in such management, servicing, administration and collection, and that the Bank shall have no personal liability for any of such activities. Each of the Participants further acknowledges and agrees that the Bank has no obligation to the Participants with respect to the creation, perfection, priority or continuation of any Lien on any Collateral or with respect to any guaranties requested by Flowers (other than to distribute the proceeds received by the Bank therefrom to the Participants). (c) Each of the Participants acknowledges and agrees that any payments of delinquent payment fees received from the Distributors pursuant to the Distributor Loan Agreements shall be for the sole account of the Bank and that the Participants shall have no right to receive such payments unless an Event of Default has occurred and is continuing; provided that, with respect to any payments received from a Distributor, such payments shall be first applied to pay all accrued but unpaid interest and principal and other fees due and owing from such Distributor before application of such payment to any delinquent payment fees. (d) Each of the Participants acknowledges and agrees that all Liens granted under the Distributor Loan Documents are granted to the Bank and that only the Bank, with the consent of the Required Participants, has the right to foreclose on any collateral for, or exercise any remedies under, the Distributor Loan Documents. SECTION 3.03. Application of Payments. (a) Flowers shall collect all payments directly from the Distributors and shall forward such payments to the Bank on each Payment Date, net of the servicing fee owed under the terms of the Servicing Agreement. Each of the Participants acknowledges and agrees that amounts received by the Bank are not capable of being allocated to any specific Loan, and that the Bank shall apply the amounts it receives as follows: (i) first, to the payment of accrued interest on the Funded Participant's Interests hereunder, (ii) second, to the payment of the fees owing to the Bank under the Servicing Agreement, (iii) third, to the repayment of the Funded Participant's Interests 27 33 outstanding hereunder, and (iv) fourth, to the payment of all other amounts owing to the Bank or any Participant hereunder. (b) On each Quarterly Payment Date, Flowers shall pay the Commitment Fee to the Bank, and the Bank shall distribute such amount to the Participants pro rata in accordance with Section 2.04 hereof, with any remainder to be applied as set forth in the Servicing Agreement. (c) If not sooner repaid, all amounts due and payable to the Bank and the Participants under the Program Documents shall be due and payable in full on the Commitment Termination Date. SECTION 3.04. Servicing Report and Distributor Status Report. On each Payment Date, the Bank shall telecopy to the Participants, a servicing report in the form of Exhibit "F" attached hereto (the "Servicing Report"). ARTICLE IV. REQUIREMENTS OF NOTES SECTION 4.01. Notes. Each of the Purchased Notes purchased by the Bank on the Note Purchase Date, each Note tendered by Flowers or a Selling Subsidiary to the Bank as a condition precedent to an Existing Loan and each Note tendered by Flowers or a Selling Subsidiary to the Bank hereunder as a condition precedent to a Loan to be made on or after the Closing Date, shall meet on the date of such tender each of the following applicable requirements: (a) Each Purchased Note was originated by Flowers or the applicable Selling Subsidiary in the ordinary course of business and in accordance with all applicable laws; (b) Each Note other than a Purchased Note was approved by Flowers or the applicable Selling Subsidiary in accordance with its Customary Practices; (c) Each Note provides for payment of interest at the Distributor Loan Interest Rate; (d) Each Note, by its terms, matures not more than ten years after the date thereof; (e) Each Note provides for weekly even amortization of principal and interest; (f) Each Loan and each of the related Distributor Loan Documents is a legal, valid and binding obligation of the Distributor thereunder and is enforceable in accordance with its terms by the holder thereof, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights in general and 28 34 by general principles of equity, whether such enforcement is considered in a proceeding at equity or in law; (g) As to each Distributor Route underlying a Purchased Note, immediately prior to assignment to the Bank, Flowers or the applicable Selling Subsidiary had a first priority perfected security interest therein and had legal title to and was the sole beneficial owner of the related Distributor Loan Documents and the assignment to the Bank of the Purchased Loan and the Distributor Loan Documents validly transferred the Purchased Loan, Distributor Loan Documents and the first priority lien and security interest thereunder to the Bank, free and clear of any Lien and it is not necessary under the laws of the applicable jurisdiction to file notice of assignment of such Lien to the Bank in the UCC records in order to maintain the perfection or priority thereof; (h) Each Note is secured by a fully perfected, first priority security interest in favor of the Bank in the Distributor Route of the Distributor; (i) No Note or other Distributor Loan Document is subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury; the operation of the terms of the Distributor Loan Documents or the exercise of any right thereunder will not render such Note unenforceable in whole or in part or subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto; (j) Each Note and related Distributor Loan Documents are the only contracts evidencing the transaction described therein and constitute the entire agreement of the parties thereto with respect to such transaction and the original of the Note, all Distributor Loan Documents, and other collateral documents have been, or will be, upon request of the Bank, delivered to the Bank, properly assigned, in the case of a Purchased Note; (k) Each Note and related Distributor Loan Documents are genuine and all signatures, names, descriptions of collateral, amounts and other facts and statements therein and thereon are true and correct (including the applicable Distributor Route number set forth on the Note); (l) In the case of each Purchased Note, Flowers or the applicable Selling Subsidiary has full power and authority to sell each Purchased Note and the accompanying security therefor to the Bank and is not prohibited by applicable law from making such a valid sale and assignment; (m) No party is in default under any Note or any related Distributor Loan Document; (n) All disclosures required to be made under applicable federal and state law have been properly and completely made with respect to each Note and each Note is in full compliance with all applicable federal and state laws, including without limitation, applicable state usury laws; (o) Flowers has not consented to a sale, lease, transfer or encumbrance of the collateral securing any Note or to any material adverse alteration in the Distributor Route securing the same; 29 35 (p) Each Purchased Note has been endorsed to the order of the Bank, and each Purchased Note allows for assignment thereof and accompanying security therefor without notice to or consent from the Distributor; (q) The proceeds of each Note has been used for commercial purposes and not for the purchase of consumer and household goods; (r) The Principal Balance of each Note does not exceed the "first original purchase price" as such term is used in Section 3.01 of the Distributor's Agreements; and (s) In the case of each Note evidencing an Existing Loan, Flowers maintains a Distributor Loan File containing one of each of the Distributor Loan Documents, duly executed by the Distributor and each other party thereto, substantially in the form of the Distributor Loan Documents attached as an Exhibit to the Existing Loan Facility Agreement as in effect immediately prior to the replacement thereof by this Agreement, and in the case of each Note evidencing a Loan to be made on or after the Closing Date, Flowers maintains a Distributor Loan File containing one of each of the Distributor Loan Documents, duly executed by the Distributor and each other party thereto, substantially in the form attached hereto as Exhibits. SECTION 4.02. Repurchase of Ineligible Notes. Flowers hereby acknowledges and agrees that the representation and warranty that each of the Notes satisfies the applicable requirements of Section 4.01 shall survive the purchase of the Purchased Notes by the Bank on the Note Purchase Date and the making of any other Loan by the Bank either under the Existing Loan Facility Agreement or hereunder and, in the case of the Purchased Notes, shall inure to the benefit of the Bank regardless of any restrictive endorsement or assignment. Flowers shall promptly give the Bank notice of any discovery that a Note failed on the date of tender to the Bank (whether or not Flowers knew or could have known of such failure at such date) to meet the applicable requirements set forth above and if such failure is not remedied within thirty (30) days after discovery thereof, Flowers shall, on the next Payment Date, repurchase such Note (an "Ineligible Note") for the Repurchase Price thereof and the Bank shall assign such Note to Flowers in accordance with Section 5.02 hereof. The Bank acknowledges and agrees that a misrepresentation by Flowers pursuant to Section 7.18(a) or (b) shall not be a Default or Event of Default under Section 9.01(d) hereof but shall only trigger Flowers' repurchase obligation under this Section 4.02 (with the understanding that any misrepresentation as to the Principal Balance of a Purchased Note pursuant to Section 7.18(a) or (b) shall obligate Flowers to repurchase such Note at such Principal Balance less any Payments received by the Bank with respect thereto). Notwithstanding the foregoing, the obligation of Flowers set forth in this Section 4.02 is separate and independent of the obligation of Flowers to purchase Defaulted Loans pursuant to Article V and is not subject to the limitations set forth therein. Moreover, any Repurchase Price paid by Flowers pursuant hereto with respect to an Ineligible Loan (whether or not such Ineligible Loan also constitutes a Defaulted Loan) shall not be included for purposes of determining whether or not Flowers has paid the Maximum Recourse Amount. Furthermore, 30 36 nothing in this Section 4.02 shall be deemed to limit Flowers' obligations pursuant to any indemnity set forth herein. ARTICLE V. REPURCHASE OBLIGATION OF FLOWERS WITH RESPECT TO DEFAULTED LOANS SECTION 5.01. Repurchase Obligation of Flowers. Subject to the limitation set forth below, in the event that (a) any installment of principal or interest on any Loan is not paid by the Distributor within sixty (60) days after its due date (regardless of whether Flowers makes any Servicer Advance with respect to such defaulted payment), or (b) any other event of default as defined in any Note shall occur, then upon demand by the Bank, Flowers shall repurchase said Loan (herein called a "Defaulted Loan" provided that, if an Event of Default exists or Flowers has no current obligation to repurchase Defaulted Loans hereunder, the term "Defaulted Loan" shall include any Loan for which a payment event of default has occurred) for an amount equal to the Principal Balance of such Defaulted Loan, plus accrued but unpaid interest thereon (the "Repurchase Price") within three (3) Business Days after demand by the Bank. Notwithstanding the foregoing, the payments made by Flowers pursuant hereto to repurchase Defaulted Loans pursuant to this Section 5.01 shall not at any time exceed the Maximum Recourse Amount. The parties expressly acknowledge and agree that the Maximum Recourse Amount shall equal an increasing percentage of the aggregate Principal Balance of the Loans during the term of this Agreement and that the parties shall recalculate the Maximum Recourse Amount as of the first day of each Fiscal Quarter and Flowers shall, (i) in the event that the Escrow Funding Obligation is in effect, deposit any increased amount of the Maximum Recourse Amount into the Escrow Account, or (ii) in the event that any Defaulted Loan has not been repurchased hereunder due to Flowers having paid in full the Maximum Recourse Amount as of an earlier date, repurchase any such Defaulted Loan up to such increased Maximum Recourse Amount; provided that, Flowers shall not have any obligation to purchase any such previously Defaulted Loan unless such Loan became a Defaulted Loan within 180 days prior to such increase in the Maximum Recourse Amount and was scheduled as a Defaulted Loan to the Bank in compliance with the Servicing Agreement. SECTION 5.02. Transfer of Notes. Upon payment to the Bank of the Repurchase Price for each of the Notes to be repurchased pursuant to Section 5.01, the Bank shall endorse the repurchased Notes to Flowers without recourse or warranty of any nature, express or implied and shall reassign to Flowers any Security Agreement, Uniform Commercial Code Financing Statement or other collateral for such Note 31 37 being repurchased. The obligation of Flowers (as provided below) to repurchase a Defaulted Loan or to fund the Escrow Account in the amount of all of the Notes upon an Escrow Funding Obligation shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any Note to be repurchased hereunder, or any other agreement or instrument relating thereto (including, but not limited to, any guaranty thereof or any Security Agreement), (b) any bankruptcy or insolvency of the Distributor or other obligor; (c) any change in the time, manner or place of payment of, or in any other term of, such Note, or any other amendment or waiver of, a consent to departure from, such Defaulted Loan, (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, Flowers, in respect of its obligations hereunder, (e) the particular manner in which the Bank deals with the Distributor or other endorsers or guarantors of the Notes, or (f) any action taken by the Bank with respect to the security for the Notes. The parties hereby expressly agree that any action taken by the Bank in violation of the Servicing Agreement will not limit, vitiate or otherwise affect Flowers' obligations hereunder but the waivers set forth above shall not affect Flowers' ability to bring a separate action at law to recover any actual damages suffered by Flowers as a result of such breach by the Bank. SECTION 5.03. Reliance on Repurchase Obligation. Flowers expressly acknowledges and agrees that the Bank, in making its credit decision with regard to the purchase of the Notes on the Note Purchase Date and the establishment of the Commitment, and the Participants in making their respective credit decisions with regard to the purchase of participations in the Commitment and the Loans, have relied solely upon the repurchase obligation of Flowers set forth above and the other obligations of Flowers hereunder and that neither the Bank nor any Participant is under any obligation or duty to perform any credit analysis or investigation with regard to the creditworthiness of any Distributor. SECTION 5.04. Certain Waivers. Flowers hereby expressly waives, with respect to each of the Notes: (a) presentment, protest, and notice of dishonor, (b) promptness, diligence, notice of acceptance and any other notice, 32 38 (c) any defense to recovery by the Bank of deficiency after nonjudicial sale of any Note, and (d) any requirement that the Bank proceed against the Distributor, any other obligor with respect to a Defaulted Loan or any collateral therefor prior to making a repurchase demand hereunder. SECTION 5.05. Bankruptcy Rescission. If claim is ever made upon the Bank for repayment or recovery of any amount or amounts received in payment or on account of any of the amounts paid by any Distributor or Flowers hereunder, and the Bank repays all or part of said amount by reason of any judgment, decree or order of any court or administrative body having jurisdiction over the Bank or any of its property, then and in such event Flowers shall be and remain liable to the Bank for the amounts so repaid or recovered to the same extent as if such amount had never originally been paid to the Bank. ARTICLE VI. CONDITIONS OF LOANS The obligation of the Bank to establish the Commitment pursuant to this Agreement is subject to the Bank having received the following, each dated as of the Closing Date, in form and substance satisfactory to the Bank and (except as to the Servicing Agreement) the Participants: (a) A duly executed counterpart of this Agreement; (b) A duly executed amendment to the Flowers Security Agreement; (c) Duly executed amendments to the UCC-1 financing statements with respect to Flowers and each of the Selling Subsidiaries, as appropriate; (d) Copies of the organizational papers of Flowers and each of the Selling Subsidiaries certified as true and correct by the Secretary of State of the State of its incorporation (in the case of Flowers) or its Secretary or Assistant Secretary (in the case of a Selling Subsidiary) and a certificate of good standing from the Secretary of State of the State of its incorporation; (e) A certificate of the Secretary or Assistant Secretary of Flowers and each of the Selling Subsidiaries certifying (i) the names and true signatures of the officers of Flowers, and each of the Selling Subsidiaries authorized to execute this Agreement and the other documents to be delivered hereunder, (ii) the bylaws of such Person, and (iii) the resolutions of the Boards of Directors of such Person approving this Agreement and the transactions contemplated hereby; 33 39 (f) A favorable written opinion of each of G. Anthony Campbell, Esquire and Troutman Sanders LLP, counsel for Flowers and the Selling Subsidiaries, substantially in the form of Exhibit "G" hereto, addressing the transactions contemplated hereby and such other matters as the Bank may reasonably request; (g) A duly executed Closing Certificate of Flowers; (h) A duly executed certificate of Flowers identifying the Authorized Signatories for each such Person, in form and substance satisfactory to the Bank; and (i) All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident hereto or delivered in connection therewith shall be satisfactory in form and substance to the Bank. ARTICLE VII. REPRESENTATIONS AND WARRANTIES Flowers represents and warrants to the Bank and each Participant that: SECTION 7.01. Corporate Existence and Power. Flowers is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia. Flowers is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, except for any failure to comply with the foregoing which does not have and reasonably could not be expected to cause a Material Adverse Effect, and has all corporate powers and all government authorizations, licenses, consents and approvals required to engage in its business and operations as now conducted, except for any failure to comply with the foregoing which does not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 7.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by Flowers and each of the Selling Subsidiaries of this Agreement and the other Program Documents (i) are within such entity's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of such entity or of any material agreement, judgment, injunction, order, decree or other instrument binding upon Flowers, any Selling Subsidiary or any other Restricted Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of Flowers, any Selling Subsidiary or any other Restricted Subsidiaries (other than a Lien in favor of the Bank). 34 40 SECTION 7.03. Binding Effect. This Agreement constitutes a valid and binding agreement of Flowers enforceable in accordance with its terms, and the Flowers Security Agreement and the other Program Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of Flowers and each of the Selling Subsidiaries party thereto, enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. SECTION 7.04. Financial Information. (a) The consolidated balance sheet of Flowers and its Consolidated Subsidiaries as of January 2, 1999 and the related consolidated statements of income, shareholders' equity and cash flows for the Fiscal Year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to the Bank fairly present, in conformity with GAAP, the consolidated financial position of Flowers and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such period stated. (b) Since January 2, 1999, there has been no event, act, condition or occurrence which has or reasonably could be expected to cause a Material Adverse Effect. SECTION 7.05. No Litigation. There is no action, suit or proceeding pending, or to the knowledge of Flowers threatened, against or affecting Flowers or any of its Restricted Subsidiaries before any court or arbitrator or any governmental body, agency or official which has or reasonably could be expected to have a Material Adverse Effect or which in any manner draws into question the validity of this Agreement or the Flowers Security Agreement or which in any manners draws into question the validity of Distributor Loan Documents generally, whether directly, or by a cause of action which could potentially be asserted against a significant portion of the Distributor Loan Documents. SECTION 7.06. Compliance with ERISA. (a) Flowers and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA. (b) Neither Flowers nor any member of the Controlled Group has incurred any withdrawal liability with respect to any Multiemployer Plan under Title IV of ERISA, and no such liability is expected to be incurred. SECTION 7.07. Compliance with Laws; Payment of Taxes. 35 41 Flowers and, to the best of Flowers' knowledge, its Material Subsidiaries, are in compliance with all applicable laws, regulations and similar requirements of governmental authorities, except where such compliance is being contested in good faith through appropriate proceedings or which does not have and reasonably could not be expected to cause a Material Adverse Effect. There have been filed on behalf of Flowers and its Material Subsidiaries all Federal, state and local income, material excise, material property and other material tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of Flowers or any Material Subsidiary have been paid, except where such payments are being contested in good faith through appropriate proceedings or the failure to pay does not have and reasonably could not be expected to cause a Material Adverse Effect. The charges, accruals and reserves on the books of Flowers and its Material Subsidiaries in respect of taxes or other governmental charges are, in the opinion of Flowers, adequate. As of the Closing Date, United States income tax returns of Flowers and its Material Subsidiaries have been examined and closed through the 1996 Fiscal Year. SECTION 7.08. Subsidiaries. Each of Flowers' Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except for any failure to comply with the foregoing which does not have and reasonably could not be expected to cause a Material Adverse Effect. As of the Closing Date, Flowers has no Subsidiaries except for those Subsidiaries listed on Schedule 7.08, which accurately sets forth each such Subsidiary's complete name and jurisdiction of incorporation. None of such Subsidiaries, other than those listed as such on Schedule 7.08, is a Material Subsidiary as of the Closing Date. Within (15) fifteen days after any Subsidiary becomes a Material Subsidiary, or the creation or acquisition of any Subsidiary which becomes a Material Subsidiary, Flowers will send to the Bank either a supplement to or replacement of Schedule 7.08 (showing such Subsidiary and indicating that it is a Material Subsidiary), or a copy of Form 8-K sent to the Securities and Exchange Commission, showing such Subsidiary as a Material Subsidiary. SECTION 7.09. Investment Company Act. Neither Flowers nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 7.10. Public Utility Holding Company Act. Neither Flowers nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a 36 42 "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. SECTION 7.11. Ownership of Property; Liens. Each of Flowers and its Material Subsidiaries has title to, or leasehold or other interests in, its properties sufficient for the conduct of its business, and none of such property is subject to any Lien except as permitted in Section 8.16. SECTION 7.12. No Default. Neither Flowers nor any of its Material Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which has or reasonably could be expected to cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 7.13. Full Disclosure. Flowers' annual report on Form 10-K for the fiscal year ended at January 2, 1999 and quarterly report on Form 10-Q for the fiscal quarter ended at April 24, 1999, copies of which have been furnished by Flowers to the Bank, did not, as of the dates such Form 10-K and Form 10-Q were filed with the Securities and Exchange Commission, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. From the date of filing of such quarterly report through the date hereof, except for the Form 8-K filed on July 29, 1999 with the Securities and Exchange Commission, Flowers has not filed a current report on Form 8-K with the Securities and Exchange Commission and, as of the date hereof, no event or condition exists which would require such filing by Flowers pursuant to the Securities Exchange Act of 1934, as amended, except for any such event or condition which has heretofore been disclosed in writing to the Bank by delivery to the Bank of a Form 8-K. SECTION 7.14. Environmental Matters. (a) Neither Flowers nor any Restricted Subsidiary is subject to any Environmental Liability which has or reasonably could be expected to cause a Material Adverse Effect and, to the best of Flowers' knowledge, neither Flowers nor any Restricted Subsidiary has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA. To the best of Flowers' knowledge, none of the Properties has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA. (b) To the best of Flowers' knowledge, no Hazardous Materials have been or are being used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed or otherwise handled at, or shipped or transported to or from the Properties or are 37 43 otherwise present at, on, in or under the Properties, or, to the best of the knowledge of Flowers, at or from any adjacent site or facility, except for Hazardous Materials, such as cleaning solvents, pesticides and other materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in material compliance with all applicable Environmental Requirements. (c) To the best of Flowers' knowledge, Flowers, and each of its Restricted Subsidiaries and Affiliates, has procured all Environmental Authorizations necessary for the conduct of its business, and is in compliance with all Environmental Requirements in connection with the operation of the Properties and Flowers', and each of its Restricted Subsidiary's and Affiliate's, respective businesses, except where failure to comply does not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 7.15. Capital Stock. All Capital Stock, debentures, bonds, notes and all other securities of Flowers presently issued and outstanding are validly and properly issued in accordance with all applicable laws in all material respects, including but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws, except to the extent any failure with respect thereto would not have and reasonably could not be expected to cause a Material Adverse Effect. The issued shares of Capital Stock of Flowers' Wholly Owned Subsidiaries are owned by Flowers free and clear of any Lien or adverse claim. At least a majority of the issued shares of capital stock of each of Flowers' other Subsidiaries (other than Wholly Owned Subsidiaries) is owned by Flowers free and clear of any Lien or adverse claim. SECTION 7.16. Margin Stock. Neither Flowers nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan made hereunder will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation T, U or X. SECTION 7.17. Insurance. Flowers and each of its Material Subsidiaries has (either in the name of Flowers or in such Material Subsidiary's own name), with financially sound and reputable insurance companies, insurance in at least such amounts (including deductibles, co-insurance and self-insurance with respect to which adequate reserves are maintained) and against at least such risks (including on all its property, and public liability and worker's compensation) as are usually insured against in the same general area by companies of established repute engaged in the same or similar business and similarly situated. SECTION 7.18. Notes; Books and Records. 38 44 (a) Each Purchased Note purchased by the Bank on September 20, 1996 and each other Note tendered by Flowers under the Existing Loan Facility Agreement or this Agreement as a condition precedent for a Loan satisfies all of the applicable requirements of Article IX of this Agreement. (b) The information set forth on the "Distributor Loan Schedule" delivered in connection with the Existing Loan Facility Agreement with respect to the Principal Balance of each Purchased Note, all other such information was true and correct in all material respects as of September 20, 1996. (c) Flowers has marked, and has caused each of the Selling Subsidiaries to mark, their respective books and records to evidence that the Purchased Loans were sold to the Bank as of September 20, 1996. SECTION 7.19. Y2K Plan. Flowers has developed its plan (the "Y2K Plan") for making the Mission Critical Systems and Equipment Year 2000 Compliant and Ready. Flowers and its Subsidiaries' have met the Y2K Plan milestones in all material respects such that Flowers reasonably believes, after due diligence, that all Mission Critical Systems and Equipment will be Year 2000 Compliant and Ready in accordance with the Y2K Plan. ARTICLE VIII. COVENANTS Until such time as the Commitment has been terminated or is no longer in effect and the Bank no longer owns any Notes, Flowers will, unless the Required Participants shall otherwise consent in writing: SECTION 8.01. Information. Deliver to the Bank: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, (i) a consolidated balance sheet of Flowers and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, shareholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by PricewaterhouseCoopers LLP or other independent public accountants of nationally 39 45 recognized standing, with such certification to be free of exceptions and qualifications not acceptable to the Participants; and (ii) so long as there is an Unrestricted Subsidiary, a consolidated balance sheet and statement of income for such periods which accounts for the Unrestricted Subsidiaries using an equity basis of accounting, in each case setting forth in each case in comparative form the figures for the previous fiscal year, accompanied by a restricted use report as to such balance sheet and income statement from PricewaterhouseCoopers LLP or other independent public accountants of nationally recognized standing, which report may be qualified on the basis that the use of the equity basis of accounting does not conform to GAAP and qualified as to the absence of a statement of cash flows and as to the absence of footnotes and otherwise to be free of exceptions and qualifications not acceptable to the Required Banks; (b) as soon as available and in any event within 45 days after the end of each of the first 3 Fiscal Quarters of each Fiscal Year: (i) a consolidated balance sheet of the Flowers and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related statement of income and statement of cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Flowers; (ii) so long as there is an Unrestricted Subsidiary, a consolidated balance sheet and statement of income for such periods which accounts for the Unrestricted Subsidiaries using an equity basis of accounting, in each case setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments and to qualification based on the use of the equity basis of accounting) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Flowers; (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate, substantially in the form of Exhibit H (a "Compliance Certificate"), of the chief financial officer or the chief accounting officer of Flowers (i) setting forth in reasonable detail the calculations required to establish whether Flowers was in compliance with the requirements of Sections 8.13 through 8.20, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which Flowers is taking or proposes to take with respect thereto; 40 46 (d) simultaneously with the delivery of each set of annual financial statements referred to in paragraph (a) above, a statement of the firm of independent public accountants which reported on such statements to the effect that nothing has come to their attention to cause them to believe that any Default under Sections 8.13 through 8.20, inclusive, existed on the date of such financial statements; (e) within five (5) Business Days after Flowers becomes aware of the occurrence of any Default, a certificate of a senior financial officer or accounting officer or the chief financial officer or the chief accounting officer or the Treasurer of Flowers setting forth the details thereof and the action which Flowers is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of Flowers generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual or quarterly reports which Flowers shall have filed with the Securities and Exchange Commission; (h) if and when any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice; and (i) at any time prior to January 1, 2000, within 5 Domestic Business Days after Flowers becomes aware of any deviations from the Y2K Plan which would cause compliance with the Y2K Plan to be delayed or not achieved, which delay or failure to achieve would have or could reasonably be expected to cause a Material Adverse Effect, a statement of the Chief Executive Officer, Chief Financial Officer, or Chief Technology Officer setting forth the details thereof and the action which Flowers is taking or proposes to take with respect thereto; (j) promptly upon the receipt thereof at any time prior to January 1, 2000, a copy of any third party assessments of Flowers Y2K Plan together with any recommendations made by such third party with respect to Year 2000 compliance; and (k) from time to time such additional information regarding the financial position or business of Flowers and its Subsidiaries (other than non-public information as to the Unrestricted Subsidiaries) as the Bank, at the request of any Participant, may reasonably request. SECTION 8.02. Inspection of Property, Books and Records. 41 47 Flowers will (i) keep, and cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit, and cause each Restricted Subsidiary to permit, representatives of the Bank (x) at the Bank's expense and upon reasonable notice and at a time reasonably convenient to Flowers (but in any event within 10 days of such notice) prior to the occurrence and continuance of a Default and (y) at Flowers' expense and without prior notice after the occurrence and continuance of a Default, to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. Flowers agrees to cooperate and assist in such visits and inspections, in each case. SECTION 8.03. Maintenance of Existence. Flowers will at all times preserve and keep in full force and effect its corporate existence. Subject to Section 8.04, Flowers will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into Flowers or a Restricted Subsidiary) and all rights and franchises of Flowers and its Restricted Subsidiaries unless, in the good faith judgment of Flowers, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise would not, individually or in the aggregate, have and could not reasonably be expected to cause a Material Adverse Effect. Flowers will, and will cause each Restricted Subsidiary (subject to Section 8.04), at all times to carry on its business in the food or beverage business or any related line of business. SECTION 8.04. Consolidations, Mergers and Sales of Assets. Flowers will not, nor will it permit any Material Subsidiary to, consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, or discontinue or eliminate any business line or segment, provided that (a) Flowers may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) Flowers is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (b) Subsidiaries of Flowers may merge with one another, provided that in the case of a merger of a Restricted Subsidiary with an Unrestricted Subsidiary, the Restricted Subsidiary is the corporation surviving such merger, (c) other Persons may merge into or with Subsidiaries to effect an acquisition permitted by Section 8.15 and (d) the foregoing limitation on the sale, lease or other transfer of assets and on the discontinuation or elimination of a Subsidiary or division shall not prohibit (x) transfers of assets (including stock of a Restricted Subsidiary) to or among Restricted Subsidiaries, (y) during any Fiscal Year, a transfer of assets other than Margin Stock or the discontinuance or elimination of a Subsidiary or division (in a single transaction or in a series of related transactions) unless the aggregate assets to be so transferred or utilized in a Restricted Subsidiary or division to be so discontinued, when combined with all other assets transferred, and all other assets utilized in all other Restricted Subsidiaries or divisions discontinued, in any Fiscal Year, constituted more than 15% of Adjusted Consolidated Total Assets measured as of the end of the immediately 42 48 preceding Fiscal Year and (z) transfers of Margin Stock. Nothing in this Section 8.04 shall be interpreted to (i) limit or abridge the provisions of Section 2.09(a) of the Flowers Credit Agreement or (ii) restrict Flowers' ability to dispose of (1) vehicles, (2) delivery routes, (3) assets obtained through acquisitions of businesses or assets on or after the date hereof, provided that proceeds of any such disposition shall be reinvested in Flowers by reducing Indebtedness or by investing in operating assets, and (4) obsolete, under-performing or non-core assets, disposition of which, in management's judgment, would enhance the Flowers' operations and profitability, and dispositions described in this sentence shall not be subject to, or included in the computations under, clause (d) above. SECTION 8.05. Use of Proceeds. In the event that the transactions hereunder should be recharacterized as a secured loan, the proceeds of the Purchase Price shall be used for general corporate purposes, provided, that no portion of the proceeds of the Loans will be used by Flowers or any Subsidiary (i) in connection with, whether directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such other corporation, unless such tender offer or other acquisition is to be made on a negotiated basis with the approval of the Board of Directors of the Person to be acquired, and the provisions of Section 8.16 would not be violated, (ii) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock (other than the repurchase by Flowers of its own Capital Stock), or (iii) for any purpose in violation of any applicable law or regulation. SECTION 8.06. Compliance with Laws; Payment of Taxes. (a) Flowers will, and will cause each of its Material Subsidiaries and each member of the Controlled Group to, comply with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings diligently pursued or if failure to comply does not have and reasonably could not be expected to cause a Material Adverse Effect. Flowers will, and will cause each of its Material Subsidiaries to, pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the property of Flowers or any Restricted Subsidiary, except liabilities being contested in good faith and against which, if requested by the Bank, Flowers will set up reserves in accordance with GAAP and liabilities the nonpayment of which would not have and reasonably could not be expected to cause a Material Adverse Effect. (b) Flowers shall not permit the aggregate complete or partial withdrawal liability under Title IV of ERISA with respect to Multiemployer Plans incurred by Flowers and members of the Controlled Group to exceed $5,000,000 at any time. For purposes of this Section 8.06(b), the amount of withdrawal liability of Flowers and members of the Controlled Group at any date shall be the aggregate present value of the amount claimed to have been incurred less any portion thereof which Flowers and members of the Controlled Group have paid or as to which Flowers 43 49 reasonably believes, after appropriate consideration of possible adjustments arising under Sections 4219 and 4221 of ERISA, it and members of the Controlled Group will have no liability, provided that Flowers shall obtain prompt written advice from independent actuarial consultants supporting such determination. Flowers agrees (i) once in each year, beginning with the 1999 Fiscal Year, to request a current statement of the withdrawal liability of Flowers and members of the Controlled Group from each Multiemployer Plan, if any, and (ii) to transmit a copy of such statement to the Bank within fifteen (15) days after Flowers receives the same. SECTION 8.07. Insurance. Flowers will maintain, and will cause each of its Material Subsidiaries to maintain (either in the name of Flowers or in such Material Subsidiary's own name), with financially sound and reputable insurance companies, insurance on all its property in at least such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) and against at least such risks (including on all its property, and public liability and worker's compensation) as are usually insured against in the same general area by companies of established repute engaged in the same or similar business and similarly situated. SECTION 8.08. Change in Fiscal Year. Flowers will not change its Fiscal Year without the consent of the Bank, which shall not be unreasonably withheld (taking into consideration for such purpose the effect, if any, such change would have on the financial covenants contained in this Agreement). SECTION 8.09. Maintenance of Property. Flowers shall, and shall cause each Restricted Subsidiary to, maintain all of its properties and assets in good condition, repair and working order, ordinary wear and tear excepted, except where any failure would not have and could not reasonably be expected to cause a Material Adverse Effect. SECTION 8.10. Environmental Notices. Flowers shall furnish to the Bank prompt written notice of all Environmental Liabilities, pending, threatened or anticipated Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases of which Flowers shall have received actual notice or have actual knowledge at, on, in, under or in any way affecting the Properties, and all facts, events, or conditions that could lead to any of the foregoing, if the amount of liability or of remediation cost to Flowers has or reasonably could be expected to cause a Material Adverse Effect. SECTION 8.11. Environmental Matters. 44 50 Flowers and its Material Subsidiaries will not, and will not knowingly permit any Third Party to, use, produce, manufacture, process, treat, recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or transport to or from the Properties any Hazardous Materials in violation of applicable Environmental Requirements, except to the extent that failure to comply would not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 8.12. Environmental Release. Flowers agrees that upon its becoming aware of the occurrence of an Environmental Release, except for any Environmental Release which occurred in substantial compliance with all Environmental Requirements, at or on any of the Properties it will act promptly to determine the extent of, and to take such remedial action to eliminate, any such Environmental Release, whether or not ordered or otherwise directed to do so by any Environmental Authority, except to the extent that failure to take remedial action would not have and reasonably could not be expected to cause a Material Adverse Effect. SECTION 8.13. Transactions with Affiliates. Neither Flowers nor any of its Material Subsidiaries shall enter into, or be a party to, any transaction with any Affiliate of Flowers or such Material Subsidiary (which Affiliate is not Flowers or a Restricted Subsidiary, other than a Person in which Flowers or such Material Subsidiary owns less than a majority interest and which, if it were a Restricted Subsidiary, would not be a Material Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which either (x) are no less favorable to Flowers or such Material Subsidiary than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate or (y) have been approved by a majority of the Board of Directors of Flowers or such Material Subsidiary; provided, that the foregoing shall not affect the ability of Flowers or any Material Subsidiary to determine, in its sole discretion, the amount or form of executive or director compensation from time to time. SECTION 8.14. Loans or Advances. Neither Flowers nor any of its Material Subsidiaries shall make loans or advances to any Person except as permitted by Section 8.16 and except: (i) loans or advances to employees not exceeding $10,000,000 in the aggregate principal amount outstanding at any time, in each case made in the ordinary course of business and consistent with practices existing on the Closing Date; (ii) deposits required by government agencies or public utilities; (iii) loans or advances to and among Flowers and its Wholly Owned Subsidiaries; and (iv) other loans or advances in an aggregate amount outstanding which, together with Investments permitted by clause (vi) other loans or advances, to Persons other than the Unrestricted Subsidiaries (loans and advances to Unrestricted Subsidiaries not being permitted), in an aggregate amount outstanding which, together with Investments permitted by clause (vi) of Section 8.15 do not exceed 15% of Adjusted Consolidated Total Assets as of the last day of the immediately preceding Fiscal Quarter; provided that after 45 51 giving effect to the making of any loans, advances, or deposits permitted by this Section, no Default shall be in existence or be created thereby. SECTION 8.15. Investments. Neither Flowers nor any of its Restricted Subsidiaries shall make Investments in any Person except as permitted by Section 8.14 and except Investments in (i) direct obligations of the United States Government maturing within one year, (ii) certificates of deposit issued by a commercial bank whose credit is satisfactory to the Bank, (iii) commercial paper rated A1 or the equivalent thereof by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. or P1 or the equivalent thereof by Moody's Investors Service, Inc. and in either case maturing within 6 months after the date of acquisition; (iv) tender bonds the payment of the principal of and interest on which is fully supported by a letter of credit issued by a United States bank whose long-term certificates of deposit are rated at least AA or the equivalent thereof by Standard & Poor's Corporation and Aa or the equivalent thereof by Moody's Investors Service, Inc.; (v) Investments by Flowers or any Restricted Subsidiary in the stock (or other ownership interests) or assets of any Person in the food or beverage business or any related line of business and/or (vi) other Investments in an aggregate amount outstanding which, together with loans and advances permitted by clause (iv) of Section 8.14, do not exceed 15% of Adjusted Consolidated Total Assets as of the last day of the immediately preceding Fiscal Quarter, and which, as to Investments in Keebler, constitute Permitted Keebler Investments; provided, however, immediately after giving effect to the making of any Investment, no Default shall have occurred and be continuing. SECTION 8.16. Negative Pledge. Neither Flowers nor any Restricted Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on January 30, 1998, securing Indebtedness outstanding on such date in an aggregate principal amount not exceeding $24,000,000; (b) any Lien existing on any specific fixed asset of any corporation at the time such corporation becomes a Restricted Subsidiary and not created in contemplation of such event; (c) any Lien on any specific fixed asset (real or personal) securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset, provided that such Lien attaches to such asset concurrently with or within 18 months after the acquisition or completion of construction thereof; (d) any Lien on any specific fixed asset of any corporation existing at the time such corporation is merged or consolidated with or into Flowers or a Restricted Subsidiary and not created in contemplation of such event; 46 52 (e) any Lien existing on any specific fixed asset prior to the acquisition thereof by Flowers or a Restricted Subsidiary and not created in contemplation of such acquisition; (f) Liens on assets of a Restricted Subsidiary securing Indebtedness owing by any Restricted Subsidiary to Flowers or by any Restricted Subsidiary to another Restricted Subsidiary; (g) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing paragraphs of this Section, provided that (i) such Indebtedness is not secured by any additional assets, and (ii) the amount of such Indebtedness secured by any such Lien is not increased; (h) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Indebtedness and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (i) Liens imposed by any governmental authority for taxes, assessments or charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Flowers or any of its Subsidiaries, as the case may be, in accordance with GAAP; (j) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business (whether or not statutory) which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings, for which a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made; (k) Liens, pledges or deposits to secure non-delinquent obligations under worker's compensation, unemployment insurance and other social security legislation and Liens arising from the pledge by Flowers or any of its Subsidiaries of industrial revenue bonds or other instruments to secure reimbursement obligations under letters of credit issued to support the payment of such bonds or instruments; (1) Liens on capital stock of or other ownership interests in any Person not a Restricted Subsidiary of Flowers securing Indebtedness of such Person; (m) Liens resulting from progress payments or partial payments under United States government contracts or subcontracts; (n) Liens arising from legal proceedings, so long as such proceedings are being contested in good faith by appropriate proceedings diligently conducted and so long as execution is stayed on all judgments resulting from any such proceedings; (o) any Lien on Margin Stock; 47 53 (p) grants of security and rights of setoff in deposit or credit accounts, including demand, savings, passbook, share draft or like accounts, certificates of deposit, money market accounts, items held for collection or deposit, commercial paper, negotiable instruments and similar accounts and instruments held at banks or financial institutions to secure the payment or reimbursement under overdraft, acceptance and similar facilities and rights of setoff, banker's liens and other similar rights arising solely by operation of law; (q) Liens arising from the pledge by Flowers or any of its Subsidiaries of industrial revenue bonds or similar instruments to secure reimbursement obligations under letters of credit issued to support the payment of such bonds; and (r) Liens not otherwise permitted by the foregoing paragraphs of this Section securing Indebtedness (other than indebtedness represented by the Notes) in an aggregate principal amount at any time outstanding which, together with the aggregate amount of Indebtedness of Restricted Subsidiaries permitted by Section 8.20(iv), does not exceed 20% of Adjusted Consolidated Net Worth as of the last day of the immediately preceding Fiscal Quarter. SECTION 8.17. Adjusted Fixed Charges Coverage Ratio. At the end of each Fiscal Quarter, commencing with the third Fiscal Quarter of the 1999 Fiscal Year, the ratio of Adjusted EBILT to Adjusted Consolidated Fixed Charges shall at all times be greater than ratio set forth below for each Fiscal Quarter of each Fiscal Year set forth below:
Adjusted Fixed Charges Fiscal Quarter Fiscal Year Coverage Ratio Third 1999 1.50 to 1.0 Fourth 1999 1.45 to 1.0 First 2000 1.20 to 1.0 Second 2000 1.10 to 1.0 Third 2000 1.20 to 1.0 Fourth 2000 1.50 to 1.0 First 2001 1.65 to 1.0 Second 2001 1.65 to 1.0 Third 2001 1.75 to 1.0 Fourth 2001 and thereafter 2.00 to 1.0
SECTION 8.18. Leverage Ratio. The Leverage Ratio shall at all times be less than (i) through and including the third Fiscal Quarter of Fiscal Year 2000, 0.65 to 1.0 and (ii) during and after the fourth Fiscal Quarter of Fiscal Year 2000, 0.60 to 1.0. 48 54 SECTION 8.19. Minimum Consolidated Net Worth. Adjusted Consolidated Net Worth will at no time be less than $487,569,000, plus the sum of (x) 50% of the cumulative Net Proceeds of Capital Stock received during any period after April 27, 1998, plus (y) 50% of any equity resulting from a conversion of Indebtedness of Flowers during any period after April 27, 1998, less (z) any amount of equity of Flowers repurchased during any period after April 27, 1998, calculated quarterly at the end of each Fiscal Quarter. SECTION 8.20. Minimum Adjusted Consolidated EBIDTA. At the end of each Fiscal Quarter, commencing with the Fourth Fiscal Quarter of Fiscal Year 1999, Adjusted Consolidated EBITDA shall at all times be greater than amount set forth below for each Fiscal Quarter of each Fiscal Year set forth below:
Fiscal Quarter Fiscal Year Adjusted Consolidated EBITDA Fourth 1999 $32,000,000 First 2000 $32,000,000 Second 2000 $29,000,000 Third 2000 $44,000,000 Fourth 2000 $63,000,000
SECTION 8.21. Subsidiary Borrowings. Flowers shall not permit any Restricted Subsidiary to become liable for any Indebtedness, whether secured or unsecured, except: (i) such of the foregoing as is owed to Flowers or another Wholly-Owned Subsidiary; (ii) Indebtedness or obligations secured by Liens permitted by Section 8.16; (iii) Indebtedness or obligations of a Subsidiary outstanding at the time such Subsidiary becomes a Subsidiary, provided that (a) such Indebtedness shall not have been incurred in contemplation of such Subsidiary becoming a Subsidiary, and (b) immediately after such Subsidiary becomes a Subsidiary, no Default or Event of Default shall exist, and provided, further, that such Indebtedness may not be extended, renewed, or refunded except as otherwise permitted by this Agreement; and (iv) other Indebtedness which, when combined with the total of the Indebtedness secured by all Liens permitted by Section 8.16(r), without duplication, does not exceed 20% of Adjusted Consolidated Net Worth as of the last day of the immediately preceding Fiscal Quarter. SECTION 8.22. Collateral Protection Covenants. In addition to the covenants set forth above, and notwithstanding whether or not any of the following would be otherwise permitted thereby, Flowers, in express acknowledgment that the Bank and each Participant has entered into this Agreement and the transactions contemplated hereby in express reliance upon Flowers covenants set forth herein to continue to administer and 49 55 operate the Distributor Routes in accordance with its Customary Practices, Flowers hereby covenants and agrees that it shall, and shall cause each of its Subsidiaries to: (a) Not in any Fiscal Year, terminate or discontinue more than one-third of the Distributor Routes for which there is an outstanding Loan hereunder; (b) Comply in all material respects with the terms of the Distributor's Agreement and administer the terms thereof in good faith and in accordance with Flowers' Customary Practices; (c) Not amend or materially modify the terms of the Distributor's Agreements or any other Distributor Loan Document without the prior written consent of the Bank; provided that, unless an Event of Default has occurred and is continuing or Flowers has no current liability under the repurchase obligation set forth in Section 4.01, Flowers may terminate any Distributor Route in accordance with its Customary Practices as long as Flowers provides the Bank written notice thereof within sixty (60) days thereafter and Flowers otherwise acts in good faith to sell the Distributor Route in accordance with its Customary Practices; if an Event of Default has occurred and is continuing or Flowers has no repurchase obligation pursuant to Section 4.01, Flowers shall not terminate any Distributor Route without the prior written consent of the Bank; (d) Not sell, transfer, lease or otherwise dispose of any of its right, title and interest in and to the Distributor's Agreements or other Distributor Loan Documents, the Proprietary Administrative Services, the trademarks used in connection with the Distributor's Agreements, or the stock of any Selling Subsidiary who is party to a Distribution Agreement pledged to the Bank pursuant to the Program Documents; (e) Not offer, directly or indirectly, any competing loan facility for the purposes of refinancing the Loans hereunder unless such refinancing opportunity is offered to all Distributors on an equal basis; (f) With respect to a Defaulted Loan, where an Event of Default has occurred and is continuing or Flowers has no current repurchase obligation pursuant to Section 4.01, waive any right of first refusal with respect to a sale of the Distributor Route by the Bank in a public foreclosure sale (provided Flowers is provided notice and an opportunity to appear at the sale) or any right to approve or otherwise block a sale of the Distributor Route by the Bank. Without otherwise limiting the remedies of the Bank upon an Event of Default, including, without limitation, the right to bring a breach of contract action for failure of Flowers to comply with any other provision of this Section 8.21, the Bank acknowledges and agrees that any breach by Flowers of the covenant set forth in Section 8.21(a) above shall not provide the Bank with any claim for damages against Flowers or any Selling Subsidiary in respect of any Loan once Flowers no longer has the obligation hereunder to repurchase Defaulted Loans. SECTION 8.23. Separateness from Unrestricted Subsidiaries. 50 56 Flowers shall conduct its business and operations in accordance with the following provisions: (a) maintain books and records and bank accounts separate from those of the Unrestricted Subsidiaries; (b) maintain its bank accounts and all its other assets separate from those of the Unrestricted Subsidiaries; (c) hold itself out to creditors and the public as a legal entity separate and distinct from the Unrestricted Subsidiaries; (d) prepare separate tax returns and financial statements showing it as a separate member of a consolidated group of which the Unrestricted Subsidiaries also are members; (e) allocate and charge fairly and reasonably any common employee or overhead shared with any of the Unrestricted Subsidiaries; (f) transact all business with Unrestricted Subsidiaries on an arm's length basis and enter into transactions with Unrestricted Subsidiaries only on a commercially reasonable basis; (g) conduct business in its own name and use separate stationery, invoices and checks; (h) not commingle its assets or funds with those of any Unrestricted Subsidiary; (i) not assume, Guarantee or pay the Indebtedness of any Unrestricted Subsidiary; (j) pay its own liabilities and expenses only out of its own funds, and not pay any liabilities and expenses of any of the Unrestricted Subsidiaries; (k) pay salaries of its own employees from its own funds, and not pay salaries of the employees of any Unrestricted Subsidiary; (l) not hold out its credit as being available to satisfy the obligations of any Unrestricted Subsidiary; (m) not make loans to any Unrestricted Subsidiary or buy or hold evidence of indebtedness issued by any Unrestricted Subsidiary; (n) not pledge its assets for the benefit of any Unrestricted Subsidiary; and (o) correct any known misunderstanding regarding its identity as being separate from the Unrestricted Subsidiaries. SECTION 8.24. Year 2000 Compliance. 51 57 Flowers will meet the milestones as to all Mission Critical Systems and Equipment contained in the Y2K Plan (other than testing) on or before October 15, 1999, and will have all Mission Critical Systems and Equipment Year 2000 Compliant and Ready (including all internal and external testing), on or before November 1, 1999, except where failure to meet the milestones would not have or could not reasonably be expected to cause a Material Adverse Effect. ARTICLE IX. EVENTS OF DEFAULT AND ESCROW FUNDING OBLIGATION SECTION 9.01. Events of Default. Any one or more of the following shall constitute an Event of Default hereunder: (a) Flowers fails to pay when due any repurchase obligation, Servicer Advance, or its Escrow Funding Obligation, or other payment due and payable hereunder within five (5) days of its due date; or (b) Flowers shall fail to observe or perform any covenant contained in: (i) Sections 8.01(e), 8.01(i), 8.01(j), 8.02(ii), 8.03 through 8.05, inclusive, Sections 8.17 through 8.19, inclusive, and Sections 8.20 or 8.24; or (ii) Sections 8.14, 8.15 or 8.21, and with respect to this clause (ii) such failure shall not have been cured within 10 days after the earlier to occur of (1) written notice thereof has been given to Flowers by the Bank at the request of any Participant or (2) any Responsible Officer of Flowers otherwise becomes aware of any such failure; or (c) Flowers shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by paragraph (a) or (b) above) or the Servicing Agreement and such failure shall not have been cured within 30 days after the earlier to occur of (i) written notice thereof has been given to Flowers by the Bank or (ii) any Responsible Officer of Flowers otherwise becomes aware of any such failure; or (d) any representation, warranty, certification or statement made by Flowers or any Selling Subsidiary in Article VII of this Agreement, in the Servicing Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement (other than any representation, warranty, certification or statement set forth in Section 7.18(a) or (b) hereof or which relates, and to the extent it relates, to a Distributor or the Distributor Loan Documents of a Distributor, the breach of which shall be governed by Section 4.02 hereof) shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or (e) Flowers or any Material Subsidiary shall fail to make any payment in respect of Indebtedness in an aggregate amount outstanding in excess of $10,000,000 (other than hereunder) when due or within any applicable grace period; or 52 58 (f) any event or condition shall occur which results in the acceleration of the maturity of Indebtedness or, as a result of any event of default, there is a requirement for the mandatory purchase or sale of property subject to any "synthetic lease" (meaning a lease transaction under which the obligations of Flowers are treated as debt for tax purposes but not under GAAP) and/or the payment of any final rent payment or guaranteed residual amount with respect thereto (any such obligation to purchase or sell property or pay a final rent payment or guaranteed residual amount under a synthetic lease as a result of an event of default thereunder being a "synthetic lease obligation") in an aggregate amount outstanding in excess of $10,000,000 of Flowers or any Material Subsidiary (including, without limitation, any required mandatory prepayment or "put" of such Indebtedness or, as a result of an event of default, a synthetic lease obligation, to Flowers or any Material Subsidiary) or enables (or, with the giving of notice or lapse of time or both, would enable) the holders of such Indebtedness or commitment therefor or lessor under any such synthetic lease or any Person acting on such holders' or lessor's behalf to accelerate the maturity thereof or terminate any such commitment or to require, as a result of an event of default, the purchase or sale of such property or the payment of any other synthetic lease obligation (including, without limitation, any required mandatory prepayment or "put" of such Indebtedness or synthetic lease obligation to Flowers or any Material Subsidiary); or (g) Flowers or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing its inability, to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against Flowers or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against Flowers or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or (i) Flowers or any member of the Controlled Group shall fail to pay when due any amount of $2,000,000 or greater which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by Flowers, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 53 59 4219 (c) (5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated, in each case if the amount of Unfunded Vested Liabilities is in excess of $10,000,000; or (j) one or more judgments or orders for the payment of money in an aggregate amount in excess of $20,000,000 shall be rendered against Flowers or any Material Subsidiary and such judgment or order shall continue unbonded, undischarged, unsatisfied and unstayed for a period of 30 days; or (k) a federal tax lien shall be filed against Flowers or any Material Subsidiary under Section 6323 of the Code, if the amount involved is in excess of $20,000,000, or a lien of the PBGC shall be filed against Flowers or any Material Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 25 days after the date of filing, if the amount involved is in excess of $10,000,000; or (1) in any 12 month period or less, (i) 50% or more of the members of the full Board of Directors of Flowers shall have resigned or been removed or replaced, or (ii) any Person or "Group" (as defined in Section 2(d) (3) of the Securities Exchange Act of 1934, as amended) (other than an employee benefit or stock ownership plan of Flowers) shall have acquired, during such period, directly or indirectly, more than 30% of the capital stock (whether common or preferred or a combination thereof) of Flowers, provided that Flowers' purchase of treasury shares of shares of its capital stock outstanding on the date hereof which results in one or more of Flowers' shareholders of record as of the date of this Agreement owning 30% or more of Flowers' Capital Stock shall not constitute an acquisition for purposes of this Section 9.01(l); or (m) the occurrence of any event, act, occurrence, or condition which either has or which reasonably could be expected to cause a Material Adverse Effect; or (n) in the event that this Agreement is deemed to constitute a security agreement, any security interest granted to the Bank herein or therein is invalid or unenforceable; or (o) the Flowers Security Agreement shall fail to grant a valid, enforceable first priority security interest in the collateral described herein. SECTION 9.02. Remedies on Default. (a) Upon the occurrence and during the continuation of an Event of Default (other than an Event of Default described in Section 9.01(g) or (h)), the Bank may, with the consent of the Required Participants, and upon the written request of the Required Participants, shall, take any or all of the following actions, without prejudice to the rights of the Servicer or any Participant to enforce its claims against Flowers, any other Credit Party, any Distributor or other obligor with respect to any Loan: (i) declare the Commitment terminated, whereupon the Commitment shall terminate immediately and any unpaid Commitment Fee shall forthwith become due and payable 54 60 without any other notice of any kind (with the express understanding that such termination of the Commitment shall not result in a termination of the Participating Commitments of each Participant), (ii) demand that Flowers honor its Escrow Funding Obligation, by placing in escrow with the Bank the Repurchase Price for each of the Notes then held by the Bank (subject to the limitations of the Maximum Recourse Amount), without presentment, demand, protest or any other notice of any kind, all of which are expressly waived, (iii) replace Flowers as the Servicer of the Notes under the Servicing Agreement with the Bank or any of its agents, representatives or appointees and (iv) take any other action and exercise any other remedy available by contract or at law, all of which shall be cumulative. (b) Upon the occurrence of an Event of Default under Section 9.01(g) or (h), (i) all obligations of the Bank to Flowers, including, without limitation, the Commitment shall automatically terminate and any unpaid Commitment Fee shall forthwith become due and payable without any other notice of any kind with the express understanding that such termination of the Commitment shall not result in a termination of the Participating Commitments of each Participant), (ii) the obligation of Flowers to honor its Escrow Funding Obligation, by placing in escrow with the Bank the Repurchase Price for each of the Notes then held by the Bank (subject to the limitations of the Maximum Recourse Amount) hereof, shall be immediately due and payable, without presentment, demand, protest, or any other notice of any kind, all of which are expressly waived, (iii) the Bank shall automatically replace Flowers as the Servicer with respect to the Notes under the Servicing Agreement and (iv) the Bank may take any other action and exercise any other remedy available by contract or at law, all of which shall be cumulative. (c) Upon the occurrence of an Event of Default and acceleration of the Escrow Funding Obligation as provided in (a) or (b) above, the Bank may pursue any remedy available under this Agreement or any other Program Document, or available at law or in equity, all of which shall be cumulative. (d) All payments with respect to this Agreement received by the Bank or any after the occurrence of an Event of Default and acceleration of the repurchase obligation, shall be applied (i) first to the costs and expenses (including attorneys' fees and disbursements) incurred by the Bank as a result of the Event of Default and to the payment of any fees owing to the Bank as Servicer under the Servicing Agreement, (ii) second, to the payment of Commitment Fee, if any, owing to the Participants hereunder, (iii) third, to the payment of accrued interest on the Funded Participant's Interests hereunder, (iv) fourth, to the payment of the fees owing to the Bank under the Servicing Agreement, (v) fifth, to the payment of the fees owing to the Servicer under the Servicing Agreement, (vi) sixth to the repayment of the Funded Participant's Interests outstanding hereunder, (vii) seventh, to the payment of all other amounts owing to the Bank or any Participant hereunder, and (viii) eighth, to such Persons as may be legally entitled thereto. 55 61 ARTICLE X. ESCROW FUNDING OBLIGATION AND ESCROW SECTION 10.01 Appointment of Escrow Agent. Flowers hereby appoints, authorizes and directs the Bank, as Escrow Agent (in such capacity herein called the "Escrow Agent,") to act as escrow agent to receive, hold, invest and distribute the escrow funds deposited with the Escrow Agent pursuant to the terms and conditions hereof. SECTION 10.02 Deposit of Escrow Funds. In the event Flowers has an obligation to comply with its Escrow Funding Obligation, Flowers will deposit immediately available funds, in an amount not to exceed the Maximum Recourse Amount, with the Escrow Agent in an escrow account established by the Escrow Agent for the purposes of this Agreement (the "Escrow Account"). On the first day of each Fiscal Quarter, Flowers shall recalculate the Maximum Recourse Amount in accordance with Section 5.01 and deposit any increased amount of the Maximum Recourse Amount resulting from such calculation with the Escrow Agent on such date, together with any amounts used by the Bank to satisfy the repurchase obligation of Flowers with respect to any Ineligible Note. SECTION 10.03 The Escrow Account. All escrow funds delivered to the Escrow Agent pursuant hereto shall be held by the Escrow Agent in the Escrow Account, and the Escrow Agent shall invest any cash held by it in Permitted Investments for the benefit of Flowers. SECTION 10.04 Payments of Repurchase Price for Defaulted Loans. The Escrow Agent is authorized to pay the Bank from the escrowed funds all amounts due on Defaulted Loans and, to the extent not paid by Flowers in accordance with Section 4.02, Ineligible Notes. SECTION 10.05 Reduction of Amount in Escrow. (a) Quarterly, beginning 90 days after Flowers complies with its Escrow Funding Obligation, the Escrow Agent will pay to Flowers all amounts in the Escrow Account in excess of the then outstanding Maximum Recourse Amount. (b) After all the Notes have been paid in full and this Agreement terminated, the Escrow Agent shall pay all amounts contained in the Escrow Account to Flowers, after deducting any fees payable for its escrow services. 56 62 SECTION 10.06 Fees and Expenses of Escrow Agent. The customary fees and expenses of the Escrow Agent shall be paid by Flowers, and the Escrow Agent is authorized to deduct such fees and expenses from the funds in the Escrow Account prior to making any other payments permitted hereunder. SECTION 10.07 Liability of Escrow Agent. (a) Liability Limitations. In performing any of its duties under this Agreement, or upon the claimed failure to perform its duties hereunder, Escrow Agent shall not be liable to anyone for any damages, losses, or expenses which any of them may incur as a result of the Escrow Agent so acting, or failing to act; provided, however, Escrow Agent shall be liable for damages arising out of its willful default or gross negligence under this Agreement. Accordingly, Escrow Agent shall not incur any such liability with respect to (i) any action taken or omitted to be taken in good faith upon advice of its counsel given with respect to any questions relating to the duties and responsibilities of the Escrow Agent hereunder or (ii) to any action taken or omitted to be taken in reliance upon any document; including any written notice or instructions provided for in this Agreement, not only as to its due execution and to the validity and effectiveness of its provisions but also as to the truth and accuracy of any information contained therein, which the Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by the purported proper person or persons and to conform with the provisions of this Agreement. Written instructions provided to Escrow Agent hereunder by the Bank shall be signed by an authorized representative(s) of the Bank. The Escrow Agent makes no representations and shall not be liable for any deficiencies in any deposit made under the Agreement. The Escrow Agent shall make no disbursement, investment or other use of funds until and unless it has collected funds. The Escrow Agent shall not be liable for collection items until the proceeds of the same in actual cash have been received or the Federal Reserve has given the Escrow Agent credit for the funds. (b) Indemnification. Flowers hereby agrees to indemnify and hold harmless the Escrow Agent from and against any and all losses, claims, damages, liabilities and expenses, including without limitations, reasonable costs of investigation and counsel fees and disbursements (both at the trial and appellate levels) which may be imposed on the Escrow Agent or incurred by it in connection with its acceptance of its appointment as Escrow Agent hereunder or the performance of its duties hereunder, including, without limitation, any litigation arising from this Agreement or involving the subject matter thereof. The indemnity provisions of this paragraph (b) shall survive the termination of this Agreement and the resignation or removal of the Escrow Agent. (c) Disputes. In the event of a dispute between any of the parties hereto as to the proper disposition of funds or other property held by the Escrow Agent, the Escrow Agent shall continue to hold the same undisbursed until such time as the disputing parties agree in writing as to a proper disposition of such funds or the property. If such arrangement is not forthcoming, the Escrow Agent shall be entitled to tender into the registry or custody of any court 57 63 of competent jurisdiction all money or property in its hands under the terms of this agreement, whereupon the parties hereto agree the Escrow Agent shall be discharged from all further duties under this Agreement. The filing of any such legal proceedings shall not deprive the Escrow Agent of its compensation earned prior to such filing. (d) Duties and Responsibilities. The duties and responsibilities of the Escrow Agent hereunder shall be limited to those expressly set forth in this Agreement, and the Escrow Agent shall not be bound in any way by any other contract or agreement by or among the Bank, the Participants and Flowers whether or not the Escrow Agent has knowledge of any such contract or agreement or the terms and conditions thereof. (e) Attachment. If all or any part of the escrowed funds is attached, garnished or levied upon, pursuant to any court order, or if the delivery thereof shall be stayed or enjoined by a court order, or any other order, judgment or decree shall be made or entered by any court of competent jurisdiction effecting the escrowed funds or any part thereof or any act of the Escrow Agent, then the Escrow Agent is hereby authorized to obey and comply with such writ, order, judgment or decree so entered or issued; and if the Escrow Agent obeys or complies with any such writ, order, judgment or decree, then it shall not be liable to any other party hereto or any other person by reason of such compliance. ARTICLE XI. THE BANK SECTION 11.01. Appointment of the Bank as Agent. To the extent of its ownership interest in the Loans, each Participant hereby designates Bank as its agent to administer all matters concerning the Loans and to act as herein specified. Each Participant hereby irrevocably authorizes the Bank to take such actions on its behalf under the provisions of this Agreement, the other Program Documents, and all other instruments and agreements referred to herein or therein, and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Bank by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Bank may perform any of its duties hereunder by or through its agents or employees. SECTION 11.02. Nature of Duties of the Bank. The Bank shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Program Documents. None of the Bank nor any of its respective officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its or their gross negligence or willful misconduct. The Bank shall not have by reason of this Agreement a fiduciary relationship in respect of any Participant; and nothing in this Agreement, express or implied, is intended to or 58 64 shall be so construed as to impose upon the Bank any obligations in respect of this Agreement or the other Program Documents except as expressly set forth herein. SECTION 11.03. Lack of Reliance on the Bank (a) Independently and without reliance upon the Bank, each Participant, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of Flowers and its Subsidiaries in connection with the taking or not taking of any action in connection herewith, and (ii) its own appraisal of the creditworthiness of Flowers and its Subsidiaries, and, except as expressly provided in this Agreement, the Bank shall have no duty or responsibility, either initially or on a continuing basis, to provide any Participant with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. (b) The Bank shall not be responsible to any Participant for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement, any Program Document, any Distributor Loan Document or any other documents contemplated hereby or thereby, or the financial condition of Flowers, any of its Subsidiaries or any Distributor, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or the other documents contemplated hereby or thereby, or the financial condition of Flowers, any of its Subsidiaries or any Distributor, or the existence or possible existence of any Default or Event of Default. SECTION 11.04. Certain Rights of the Bank. If the Bank shall request instructions from the Required Participants with respect to any action or actions (including the failure to act) in connection with this Agreement, the Bank shall be entitled to refrain from such act or taking such act, unless and until the Bank shall have received instructions from the Required Participants; and the Bank shall not incur liability in any Person by reason of so refraining. Without limiting the foregoing, no Participant shall have any right of action whatsoever against the Bank as a result of the Bank acting or refraining from acting hereunder in accordance with the instructions of the Required Participants. SECTION 11.05. Reliance by the Bank. The Bank shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cable gram, radiogram, order or other documentary, teletransmission or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person. The Bank may consult with legal counsel (including counsel for any Credit Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted 59 65 to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 11.06. Indemnification of the Bank. To the extent the Bank is not reimbursed and indemnified by Flowers, each Participant will reimburse and indemnify the Bank, ratably according to the respective Pro Rata Shares, in either case, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Bank in performing its duties hereunder, in any way relating to or arising out of this Agreement or the other Program Documents; provided that no Participant shall be liable to the Bank for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Bank's gross negligence or willful misconduct. SECTION 11.07. The Bank in its Individual Capacity. With respect to its obligations under this Agreement and the amounts advanced by it, the Bank shall have the same rights and powers hereunder as any other Participant and may exercise the same as though it were not performing the duties specified herein; and the terms "Participants", "Required Participants", or any similar terms shall, unless the context clearly otherwise indicates, include the Bank in its individual capacity. The Bank may accept deposits from, lend money to, and generally engage in any kind of banking, trust, financial advisory or other business with Flowers or its Subsidiaries or any affiliate of Flowers and its Subsidiaries as if it were not performing the duties specified herein, and may accept fees and other consideration from Flowers and its Subsidiaries for services in connection with this Agreement and otherwise without having to account for the same to the Participants. SECTION 11.08. Holders of Participation Certificates. The Bank may deem and treat the payee of any Participation Certificate as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Bank. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Participation Certificate shall be conclusive and binding on any subsequent holder, transferee or assignee of such Participation Certificate or of any Participation Certificate or Certificates issued in exchange therefor. ARTICLE XII. MISCELLANEOUS SECTION 12.01. No Waiver. 60 66 No delay or failure on the part of the Bank in the exercise of any right, power or privilege granted under this Agreement, under any other Program Document, or available at law or in equity, shall impair any such right, power or privilege or be construed as a waiver of any Event of Default or any acquiescence therein. No single or partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege. No waiver shall be valid against the Bank unless made in writing and signed by the Bank, and then only to the extent expressly specified therein. SECTION 12.02. Notices. Unless otherwise provided herein, all notices, requests and other communications provided for hereunder shall be in writing (including bank wire, telex, telecopy or similar teletransmission or writing) and shall be given at the following addresses: (1) If to the Bank, SunTrust Bank, Atlanta 303 Peachtree St. NE, 2nd Floor Atlanta, Georgia 30308 Attention: Strategic Partner Programs Center Code 1923 Telephone: (404) 724-3320 Telecopy: (404) 724-3716 (2) If to Flowers, Flowers Industries, Inc. 11796 U.S. Highway 19 South 1919 Flowers Circle Thomasville, Georgia 31757 Attention: Mr. Kirk Tolbert Telephone: (912) 227-2278 Telecopy: (912) 225-5435 Any such notice, request or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified above and the appropriate answerback is received, (ii) if given by mail, upon the earlier of receipt or the third Business Day after such communication is deposited in the United States mails, registered or certified, with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means (including, without limitation, by air courier), when delivered at the address specified herein. Flowers or the Bank may change its address for notice purposes by notice to the other parties in the manner provided herein. SECTION 12.03. Governing Law. 61 67 This Agreement and all other Loan Documents shall be governed by and interpreted in accordance with the laws of the State of Georgia. SECTION 12.04. Survival of Representations and Warranties. All representations and warranties contained herein or made by or furnished on behalf of Flowers or the Selling Subsidiaries in connection herewith shall survive the execution and delivery of this Agreement and all other Program Documents. SECTION 12.05. Descriptive Headings. The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. SECTION 12.06. Severability. If any part of any provision contained in this Agreement or in any other Loan Document shall be invalid or unenforceable under applicable law, said part shall be ineffective to the extent of such invalidity only, without in any way affecting the remaining parts of said provision or the remaining provisions. SECTION 12.07. Time is of the Essence. Time is of the essence in interpreting and performing this Agreement and all other Loan Documents. SECTION 12.08. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same instrument. SECTION 12.09. Payment of Costs. Flowers shall pay all costs, expenses, taxes and fees (i) incurred by the Bank in connection with the preparation, execution and delivery of this Agreement and all other Program Documents including, without limitation, the costs and professional fees of counsel for the Bank, Messrs. King & Spalding, whether or not the transaction contemplated hereby shall be consummated, and any and all stamp, intangible or other taxes that may be payable or determined in the future to be payable in connection therewith; (ii) incurred by the Bank in connection with the preparation, execution and delivery of any waiver, amendment or consent by the Bank relating to the Program Documents, including, without limitation, the costs and professional fees of counsel for the Bank; and (iii) incurred by the Bank and the Participants in enforcing the Program Documents at any time that an Event of Default has occurred and is continuing, including, without limitation, attorneys' fees and expenses of counsel for the Bank and the Participants. 62 68 SECTION 12.10. Benefit of Agreement; Assignments; Participations. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that Flowers may not assign or transfer any of its interest hereunder without the prior written consent of the Participants. (b) Any Participant may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an Affiliate of such Participant. (c) Each Participant may assign all of its interests, rights and obligations under this Agreement (including all of its Participating Commitments and the Funded Participant's Interest at the time owing to it and the Participation Certificates held by it) to any Eligible Assignee; provided, however, that (i) the Flowers and the Bank shall each have given its prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed) unless such assignment is an Affiliate of the assigning Participant or, in the case of the Flowers, unless an Event of Default has occurred and is continuing hereunder, (ii) unless the Participant is assigning its entire Participating Commitment, the amount of the Participating Commitment of the assigning Participant subject to each assignment (determined as of the date the assignment and acceptance with respect to such assignment is delivered to the Bank) shall not be less than the lesser of (x) 50% of its original Participating Commitment or (y) $5,000,000 and (iii) the parties to each such assignment shall execute and deliver to the Bank an Assignment and Acceptance, together with the Participation Certificate subject to such assignment and, unless such assignment is to an Affiliate of such Participant, a processing and recordation fee of $3,000. Within ten (10) Business Days after receipt of the notice and the Assignment and Acceptance, Bank shall execute and deliver, in exchange for the surrendered Participation Certificate, a new Participation Certificate to the order of the assignor and such assignee in a principal amount equal to the applicable Participating Commitment retained and assumed by it, respectively, pursuant to such Assignment and Acceptance. Such new Participation Certificate shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Participation Certificate, shall be dated the date of the surrendered Participation Certificate which it replaces, and shall otherwise be in substantially the form attached hereto. (d) Each Participant may, without the consent of Flowers or the Bank, sell sub-participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Participating Commitment and the Funded Participant's Interest owing to it), provided, however, that (i) no Participant may sell a sub-participation in its Participating Commitment (after giving effect to any permitted assignment hereof) unless it retains an aggregate exposure of 25% of its original Participating Commitment; provided, however, sales of sub-participations to an Affiliate of such Participant shall not be included in such calculation; provided, further, however, no such maximum amount shall be applicable to any such sub-participation sold at any time there exists an Event of Default hereunder, (ii) such Participant's obligations under this Agreement shall remain unchanged, (iii) 63 69 such Participant shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iv) the sub-participating bank or other entity shall not be entitled to the benefit (except through its selling Participant) of the cost protection provisions contained in Article II of this Agreement, (v) Flowers, Bank and the other Participants shall continue to deal solely and directly with each Participant in connection with such Participant's rights and obligations under this Agreement and the other Program Documents, and (vi) in no event shall a selling Participant be obligated to the sub-participant to take or refrain from taking any action hereunder except that such Participant may agree that it will not (except as provided below), without the consent of the sub-participant, agree to (A) the extension of any date fixed for the payment of principal of or interest on the Funded Participant's Interests, (B) the decrease of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the Funded Participant's Interests; (C) the increase in the committed amount of the Funded Participant's Interests; (D) any decrease in the rate at which either interest is payable thereon or (if the Participant is entitled to any part thereof) fee is payable hereunder from the rate at which the Participant is entitled to receive interest or fee (as the case may be) in respect of such participation, or (E) the release of any guaranty given to support payment of Funded Participant's Interests (but excluding any guaranty which is a Distributor Loan Document). Each Participant shall promptly notify in writing the Bank and the Flowers of any sale of a sub-participation hereunder and shall certify to Flowers and Bank its compliance with the terms hereof. SECTION 12.11. Third Party Beneficiaries. No persons shall be deemed to be third party beneficiaries of this Agreement. Except as otherwise expressly provided for in this Agreement, this Agreement is solely for the benefit of Flowers and the Bank and their respective successors and assigns, and no other person shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement. SECTION 12.12. Cumulative Remedies; No Waiver. The rights, powers, and remedies of the Bank provided herein or in any other Program Document are cumulative and not exclusive of any right, power, or remedy provided by law or equity. SECTION 12.13. Amendments; Consents. No amendment, modification, supplement, termination, or waiver of any provision of this Agreement or any other Program Document, and no consent to any departure by Flowers or any of their respective Subsidiaries therefrom, may in any event be effective unless in writing signed by the Required Participants, and then only in the specific instance and for the specific purpose given; provided that no amendment, waiver or consent shall, unless in writing and signed by all the Participants do any of the following: (i) waive any of the conditions specified in Section 2.1 or Article IV, (ii) increase the Participating Commitments or contractual obligations of the Participants to the Bank or Flowers under this Agreement, (iii) reduce the principal of, or interest on, the Participation Certificates or any fees hereunder, (iv) postpone any date fixed for the payment in respect of principal of, or interest on, the Participation Certificates or any fees 64 70 hereunder, (v) agree to release Flowers from its Escrow Funding Obligation, (vi) modify the definition of "Required Participants," or (vii) modify this Section 12.13. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Bank in addition to the Participants required hereinabove to take such action, affect the rights or duties of the Bank under this Agreement or under any other Program Document or Distributor Loan Document. In addition, notwithstanding the foregoing, the Bank and Flowers may, without the consent of or notice to the Participants, enter into amendments, modifications or waivers with respect to the Servicing Agreement as long as such amendments or modifications do not conflict with the terms of this Agreement. SECTION 12.14. Set-Off. Upon the occurrence and during the continuation of an Event of Default, Flowers authorizes each Participant, without notice or demand, to apply any indebtedness due or to become due to Flowers from such Participant in satisfaction of any of the indebtedness, liabilities or obligations of Flowers under this Agreement or under any other Program Document, including, without limitation, the right to set-off against any deposits or other cash collateral of Flowers held by Participant. SECTION 12.15. Indemnity. Flowers agrees to protect, indemnify and save harmless the Bank and each Participant (but not any sub-participants purchasing sub-participations pursuant to Section 12.10(d) hereof) and all directors, officers, employees and agents of the Bank and each Participant ( the "Indemnified Parties"), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to or in connection with the execution and delivery of this Agreement, the purchase or the making of the Loans or any of them or the purchase of the Participant's Interests or any of them, the enforcement, performance and administration of this Agreement or any powers granted to the Bank or any Participant hereunder or under any Program Documents, any failure of any representation and warranty of Flowers hereunder, any failure of Flowers or any Selling Subsidiary to comply with the covenants set forth herein or the terms of the Distributor Loan Documents, arising out of the relationship between Flowers and its Subsidiaries and the Distributors or otherwise unless arising solely from the gross negligence or willful or intentional misconduct of such Indemnified Party as determined by a court of competent jurisdiction. The indemnity contained in this section shall survive the termination of this Agreement. SECTION 12.16. Jurisdiction and Venue. Flowers agrees, without power of revocation, that any civil suit or action brought against it as a result of any of its obligations under this Agreement or under any other Program Document may be brought against it either in the Superior Court of Fulton County, Georgia, or in the United States District Court for the Northern District of Georgia, and Flowers hereby irrevocably submits to the jurisdiction of such courts and irrevocably waives, to the fullest extent permitted by law, 65 71 any objections that it may now or hereafter have to the laying of the venue of such civil suit or action and any claim that such civil suit or action has been brought in an inconvenient forum, and Flowers agrees that final judgment in any such civil suit or action shall be conclusive and binding upon it and shall be enforceable against it by suit upon such judgment in any court of competent jurisdiction. SECTION 12.17. Waiver of Jury Trial. To the extent permitted by applicable law, Flowers hereby waives the right to trial by jury. SECTION 12.18. Effect on Existing Loan Facility Agreement; Execution of New Loan Documents. Upon the Closing Date, all "Loans" (as defined under the Existing Loan Facility Agreement) outstanding pursuant to the Existing Loan Facility Agreement shall be deemed to be Loans outstanding hereunder, and the Existing Loan Facility Agreement shall be of no further force and effect, except to the extent that all indemnities set forth therein are deemed to expressly survive the termination thereof. SECTION 12.19. Termination of Agreement. This Agreement shall terminate, except as otherwise provided herein, upon the indefeasible payment in full of all amounts owing to the Bank pursuant to the Program Documents and the termination of the Commitment. 66 72 WITNESS the hand and seal of the parties hereto through their duly authorized officers, as of the date first above written. FLOWERS INDUSTRIES, INC. By: ----------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Attest: ------------------------------------- [Corporate Seal] Name: -------------------------------- Title: ------------------------------- 73 Address for Notices: SUNTRUST BANK, ATLANTA, as the Bank and as a Participant 303 Peachtree St., N.E., 3rd Floor Atlanta, GA 30303 Attention: Ms. Kim Martin By: Telecopy No.: (404) 230-5305 -------------------------------- Name: --------------------------- Title: ------------------------- Participating Commitment: $60,000,000 Pro Rata Share: 75% [SIGNATURE PAGE TO LOAN FACILITY AGREEMENT] 74 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., Rabobank Nederland "RABOBANK NEDERLAND," 245 Park Avenue NEW YORK BRANCH, as a Participant New York, New York 10167 Attention: Corporate Services Department Telecopy No.: (212) 818-0233 By: ----------------------------- with a copy to: Name: ------------------------ Title: ----------------------- Rabobank Nederland One Atlantic Center, Suite 3450 By: 1201 W. Peachtree Street ----------------------------- Atlanta, Georgia 30309-3400 Name: Attention: Mr. Theodore Cox ------------------------ Telecopy No.: (404) 877-9150 Title: ----------------------- Participating Commitment: $20,000,000 Pro Rata Share: 25% [SIGNATURE PAGE TO LOAN FACILITY AGREEMENT] 75 SCHEDULE 5.01 Quarterly Threshold Amount and Non-Guaranteed Amount
QUARTERLY QUARTERLY NON- STEP UP THRESHOLD GUARANTEED QUARTER, YEAR & DATE AMOUNT AMOUNT AMOUNT 4th FY 1999 (1/1/00) $ 36,620,000 $ 43,380,000 Total FY 1999 5,520,000 $ 36,620,000 $ 43,380,000 1st FY 2000 (4/22/00) 1,520,000 $ 38,140,000 $ 41,860,000 2nd FY 2000 (7/15/00) 1,520,000 $ 39,660,000 $ 40,340,000 3rd FY 2000 (10/7/00) 1,520,000 $ 41,180,000 $ 38,820,000 4th FY 2000 (12/30/00) 1,520,000 $ 42,700,000 $ 37,300,000 Total FY 2000 6,080,000 $ 42,700,000 $ 37,300,000 1st FY 2001 (4/21/01) 1,620,000 $ 44,320,000 $ 35,680,000 2nd FY 2001 (7/14/01) 1,620,000 $ 45,940,000 $ 34,060,000 3rd FY 2001 (10/6/01) 1,620,000 $ 47,560,000 $ 32,440,000 4th FY 2001 (12/29/01) 1,620,000 $ 49,180,000 $ 30,820,000 Total FY 2001 6,480,000 $ 49,180,000 $ 30,820,000 1st FY 2002 (4/20/02) 1,720,000 $ 50,900,000 $ 29,100,000 2nd FY 2002 (7/13/02) 1,720,000 $ 52,620,000 $ 27,380,000 3rd FY 2002 (10/5/02) 1,720,000 $ 54,340,000 $ 25,660,000 4th FY 2002 (12/28/02) 1,720,000 $ 56,060,000 $ 23,940,000 Total FY 2002 6,880,000 $ 56,060,000 $ 23,940,000 1st FY 2003 (4/19/03) 1,820,000 $ 57,880,000 $ 22,120,000 2nd FY 2003 (7/12/03) 1,820,000 $ 59,700,000 $ 20,300,000 3rd FY 2003 (10/4/03) 1,820,000 $ 61,520,000 $ 18,480,000 4th FY 2003 (1/3/04) 1,820,000 $ 63,340,000 $ 16,660,000 Total FY 2003 7,280,000 $ 63,340,000 $ 16,660,000
76 1st FY 2004 (4/24/04) 1,820,000 $ 65,160,000 $ 14,840,000 2nd FY 2004 (7/17/04) 1,820,000 $ 66,980,000 $ 13,020,000 3rd FY 2004 (10/9/04) 1,820,000 $ 68,800,000 $ 11,200,000 4th FY 2004 (1/1/05) 1,820,000 $ 70,620,000 $ 9,380,000 Total FY 2004 7,280,000 $ 70,620,000 $ 9,380,000 1st FY 2005 (4/23/05) 845,000 $ 71,465,000 $ 8,535,000 2nd FY 2005 (7/16/05) 845,000 $ 72,310,000 $ 7,690,000 3rd FY 2005 (10/8/05) 845,000 $ 73,155,000 $ 6,845,000 4th FY 2005 (12/31/05) 845,000 $ 74,000,000 $ 6,000,000 Total FY 2005 3,380,000 $ 74,000,000 $ 6,000,000 Total 74,000,000
77 SCHEDULE 7.08 Subsidiaries [To be provided by Flowers] 78 FIRST AMENDMENT TO LOAN FACILITY AGREEMENT THIS FIRST AMENDMENT TO LOAN FACILITY AGREEMENT ("Amendment") made as of this 29th day of December, 1999, by and between FLOWERS INDUSTRIES, INC., a Georgia corporation having its principal office in Thomasville, Georgia ("Flowers"), and SUNTRUST BANK, ATLANTA, a Georgia banking corporation, having its principal office in Atlanta, Georgia ("SunTrust") and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," New York Branch ("Rabobank") (SunTrust and Rabobank, together with any assignees thereof becoming "Participants" pursuant to the terms of the Loan Facility Agreement, the "Participants"). W I T N E S S E T H : WHEREAS, Flowers and the Participants are parties to that certain Loan Facility Agreement dated as of November 5, 1999 (as heretofore amended or modified, the "Agreement"; all terms used herein without definition shall have the meanings set forth in the Agreement); and WHEREAS, Flowers has requested that the Participants amend the Agreement as set forth herein, and the Participants are willing to so agree, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, the parties hereby agree that the Agreement is hereby amended as follows: 1. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. 2. Section 8.01 (a)of the Agreement is hereby amended by adding the following new clause (iii) to the end thereof; (iii) simultaneously with the delivery of each set of financial statements referred to in clauses (i) and (ii) above, a copy of the auditor's management letter furnished to Flowers by such independent public accountants; and 3. Section 8.17 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.17. Adjusted Fixed Charges Coverage Ratio 79 At the end of each Fiscal Quarter, commencing with the third Fiscal Quarter of the 1999 Fiscal Year, the ratio of Adjusted EBILT to Adjusted Consolidated Fixed Charges shall at all times be greater than the ratio set forth below for each Fiscal Quarter of each Fiscal Year set forth below:
Adjusted Fixed Charges Fiscal Quarter Fiscal Year Coverage Ratio -------------- ----------- -------------- Third 1999 1.50 to 1.0 Fourth 1999 1.30 to 1.0 First 2000 1.20 to 1.0 Second 2000 1.10 to 1.0 Third 2000 1.20 to 1.0 Fourth 2000 1.50 to 1.0 First 2001 1.65 to 1.0 Second 2001 1.65 to 1.0 Third 2001 1.75 to 1.0 Fourth 2001 and thereafter 2.00 to 1.0
4. Section 8.20 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.20. Minimum Adjusted Consolidated EBIDTA. At the end of each Fiscal Quarter, commencing with the Fourth Fiscal Quarter of Fiscal Year 1999, Adjusted Consolidated EBITDA shall at all times be greater than the amount set forth below for each Fiscal Quarter of each Fiscal Year set forth below:
Fiscal Quarter Fiscal Year Adjusted Consolidated EBITDA -------------- ----------- ---------------------------- Fourth 1999 $15,000,000 First 2000 $32,000,000 Second 2000 $29,000,000 Third 2000 $44,000,000 Fourth 2000 $63,000,000
5. Except for the amendments and agreements expressly set forth above, the Agreement shall remain unchanged and in full force and effect. Flowers acknowledges and expressly agrees that the Participants reserve the right to, and do in fact, require strict compliance with the terms and provisions of the Agreement, as amended by this Amendment. 6. Flowers hereby affirms and restates as of the date hereof all covenants set forth in 80 the Agreement, as amended hereby, and such covenants are incorporated by reference herein as if set forth herein directly. 7. Except as expressly amended herein, all terms, covenants and conditions of the Agreement and all other Loan Documents shall remain in full force and effect. The parties hereto do expressly ratify and confirm the Agreement as amended herein. 8. Flowers hereby agrees that nothing herein shall constitute a waiver by the Participants of any Default or Event of Default, whether known or unknown, which may exist under the Agreement. Flowers hereby further agrees that no action, inaction or agreement by the Participants, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Agreement which may have occurred with respect to the non-payment of any obligation during the terms of the Agreement or any portion thereof, or any other matter relating to the Agreement, shall require or imply any future indulgence, waiver, or agreement by the Participants. In addition, Flowers acknowledges and agrees that it has no knowledge of any defenses, counterclaims, offsets or objections in its favor against the Participants with regard to any of the obligations due under the terms of the Agreement or any other Program Document as of the date of this Amendment. 9. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns. 10. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 11. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. 12. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. 81 IN WITNESS WHEREOF, the parties hereto have executed this Amendment through their authorized officers as of the date first above written. FLOWERS INDUSTRIES, INC. By: Name: -------------------------- Title: ------------------------- Attest: Name: -------------------------- Title: ------------------------- [CORPORATE SEAL] 82 Address for Notices: SUNTRUST BANK, ATLANTA, as the Bank and as a Participant 303 Peachtree St., N.E., 3rd Floor Atlanta, GA 30303 Attention: Ms. Kim Martin By: Telecopy No.: (404) 230-5305 ----------------------------- Name: Title: Participating Commitment: $60,000,000 Pro Rata Share: 75% 83 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., Rabobank Nederland "RABOBANK NEDERLAND," 245 Park Avenue NEW YORK BRANCH, as a Participant New York, New York 10167 Attention: Corporate Services Department Telecopy No.: (212) 818-0233 By: ------------------------------ Name: with a copy to: Title: Rabobank Nederland One Atlantic Center, Suite 3450 By: 1201 W. Peachtree Street ----------------------------- Atlanta, Georgia 30309-3400 Name: Attention: Mr. Theodore Cox Title: Telecopy No.: (404) 877-9150 Participating Commitment: $20,000,000 Pro Rata Share: 25% L-6 84 SECOND AMENDMENT TO LOAN FACILITY AGREEMENT THIS SECOND AMENDMENT TO LOAN FACILITY AGREEMENT ("Amendment") made as of this 30th day of March, 2000, by and among FLOWERS INDUSTRIES, INC., a Georgia corporation having its principal office in Thomasville, Georgia ("Flowers"), SUNTRUST BANK, formerly known as SunTrust Bank, Atlanta, a Georgia banking corporation, having its principal office in Atlanta, Georgia ("SunTrust") and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," New York Branch ("Rabobank", together with SunTrust, the "Participants"). W I T N E S S E T H : WHEREAS, Flowers and the Participants are parties to that certain Loan Facility Agreement dated as of November 5, 1999, as amended by that certain First Amendment to Loan Facility Agreement dated as of December 29, 1999 (as so amended, the "Agreement"; all terms used herein without definition shall have the meanings set forth in the Agreement); and WHEREAS, Flowers has requested that the Participants amend the Agreement as set forth herein, and the Participants are willing to so agree, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, the parties hereby agree that the Agreement is hereby amended as follows: 1. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. 2. Section 1.01 of the Agreement hereby is amended by deleting the definitions of "Adjusted Consolidated Fixed Charges", "Adjusted Consolidated Net Income", "Adjusted EBILT", "Flower's Credit Agreement", and "Net Proceeds of Capital Stock" in their entirety and replacing such definitions in Section 1.01 with the following definitions in the appropriate alphabetical order: "Adjusted Consolidated Fixed Charges" means at any date the sum of (i) Adjusted Consolidated Interest Expense for the Fiscal Year to date or 4 Fiscal Quarter period (as applicable) used in the calculation of Adjusted Consolidated Net Income for the determination of Adjusted EBILTDA, and (ii) all payment obligations of Flowers and its Restricted Subsidiaries for such period under all operating leases and rental agreements. 85 "Adjusted Consolidated Net Income" means, for any period, the Net Income of Flowers and its Restricted Subsidiaries determined on a consolidated basis, including (without duplication) any cash dividends received from Keebler or any other Investment, but excluding (i) extraordinary items, (ii) any equity interests of Flowers or any Restricted Subsidiary in the unremitted earnings of any Person that is not a Subsidiary, (iii) mark-to-market adjustments made in connection with Flowers' commodities hedging program in accordance with GAAP, and (iv) gains and losses from sales of assets outside the ordinary course of business. "Adjusted EBILTDA" means at any date the sum of (i) Adjusted Consolidated Net Income for the Fiscal Year to date (when calculated as of the end of the second and third Fiscal Quarters of the 2000 Fiscal Year) or the 4 Fiscal Quarters ending on or prior to the date of measurement (when calculated as of the end of the fourth Fiscal Quarter of the 2000 Fiscal Year and thereafter), plus (ii) the sum of Adjusted Consolidated Fixed Charges and taxes on income (including deferred taxes), depreciation and amortization for the same Fiscal Year to date or 4 Fiscal Quarters (as applicable). "Flowers Credit Agreement" means that certain $500,000,000 Second Amended and Restated Credit Agreement, dated as of March 30, 2000, among Flowers, the banks listed therein, Wachovia Bank, N.A., as Agent, The Bank of Nova Scotia, as Documentation Bank and Bank of America, N.A., as Syndications Agent, as from time to time in effect. "Net Proceeds of Capital Stock" means any cash proceeds received by Flowers or a Restricted Subsidiary in respect of the issuance of Capital Stock, after deducting therefrom all reasonable and customary costs and expenses incurred by Flowers or such Consolidated Subsidiary directly in connection with the issuance of such Capital Stock. 3. Section 1.01 of the Credit Agreement hereby is amended by adding the following new definitions of "Borrowing Base", "Capital Expenditures", "Fiscal Period", "Indebtedness for Borrowed Money", "New Capitalized Lease Obligations", "New Indebtedness for Borrowed Money", "Permitted Refinancing Indebtedness", "Permitted Refinancing Leases", "Restricted Payments", "Second Amendment Effective Date", "Synthetic Lease" and "Synthetic Lease Obligations" in appropriate alphabetical order: "Borrowing Base" means the sum on the last day of any Fiscal Period, as shown on the balance sheet of Flowers for such date (except as to clause (iv) below), of: (i) 80% of the net book value of all accounts receivable (net of all reserves) of Flowers and its Restricted Subsidiaries, calculated in accordance with GAAP; -2- 86 (ii) 50% of the book value of all inventory of Flowers and its Restricted Subsidiaries, calculated in accordance with GAAP; (iii) 50% of the net book value of all tangible property, plant and equipment of Flowers and its Restricted Subsidiaries, calculated in accordance with GAAP; and (iv) 60% of the product of (a) the average per share closing price of Keebler common stock during such Fiscal Period times (b) the number of shares of such stock owned by Flowers, as of such date. "Capital Expenditures" means for any period the sum of all capital expenditures incurred during such period by Flowers and its Restricted Subsidiaries, as determined in accordance with GAAP. "Fiscal Period" means each fiscal period of Flowers, consisting of approximately four weeks, Flowers having thirteen such fiscal periods in each Fiscal Year. "Indebtedness for Borrowed Money" means Indebtedness of the types described in clauses (a) and (d) of the definition of Indebtedness. "New Capitalized Leases" means Capitalized Leases which are entered into on or after the Second Amendment Effective Date, other than Permitted Refinancing Leases; provided, that any Synthetic Lease which is in existence on the Second Amendment Effective Date and is not a Permitted Refinancing Lease shall not constitute a New Capitalized Lease, regardless of any classification or reclassification thereof at any time for purposes of GAAP. "New Indebtedness for Borrowed Money" means Indebtedness for Borrowed Money which is incurred on or after the Second Amendment Effective Date, other than Permitted Refinancing Indebtedness. "Permitted Refinancing Indebtedness" means Indebtedness for Borrowed Money which is incurred on or after the Second Amendment Effective Date solely to refinance Indebtedness for Borrowed Money which existed prior to the Second Amendment Effective Date, so long as the principal amount is not increased or the maturity shortened to a date prior to January 1, 2004, such Indebtedness for Borrowed Money is not secured by a Lien on any assets of Flowers or any of its Subsidiaries, other than a Lien on assets, if any, which as of the Second Amendment Effective Date secured the Indebtedness for Borrowed Money being refinanced, and the credit or other agreement governing such Indebtedness for Borrowed Money does not contain any financial, negative or affirmative covenants (other than collateral related covenants, where collateral is permitted -3- 87 pursuant to this definition) which are more restrictive in any material respect on Flowers or any of its Subsidiaries than those contained in this Agreement. "Permitted Refinancing Leases" means Capitalized Leases which are entered into on or after the Second Amendment Effective Date solely to refinance Capitalized Leases or Synthetic Leases which existed prior to the Second Amendment Effective Date, so long as the principal component of the base rent obligations thereunder are not increased or the maturity shortened to a date prior to January 1, 2004, such Capitalized Leases are not secured by a Lien on any assets of Flowers or any of its Subsidiaries, other than a Lien on assets, if any, which as of the Second Amendment Effective Date secured the obligations under the Capitalized Lease or Synthetic Lease being refinanced, and lease agreement, participation agreement, guaranty or other agreement governing such Capitalized Lease does not contain any financial, negative or affirmative covenants (other than collateral related covenants, where collateral is permitted pursuant to this definition) which are more restrictive in any material respect on Flowers or any of its Subsidiaries than those contained in this Agreement. "Restricted Payment" means (i) any dividend or other distribution on any shares of Flowers' Capital Stock (except dividends payable solely in shares of its Capital Stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of Flowers' Capital Stock (except shares acquired upon the conversion thereof into other shares of its Capital Stock) or (b) any option, warrant or other right to acquire shares of Flowers Capital Stock. "Second Amendment Effective Date" means March 30, 2000. "Synthetic Lease" means a lease of property which is intended to be classified as an operating lease in accordance with GAAP, but with respect to which it is intended that the lessee be treated as the owner of the property subject thereto for purposes of federal income tax. "Synthetic Lease Obligations" means the principal component of the base rent obligations of a Person as lessee under a Synthetic Lease. 4. Section 1.01 of the Agreement is further amended by deleting the definitions of "Mission Critical Systems and Equipment," "Y2K Plan" and "Year 2000 Compliant and Ready." 5. Section 7.16 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 7.16 Margin Stock. -4- 88 Neither Flowers nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock (other than its ownership stock in Keebler), and no part of the proceeds of any Loan made hereunder will be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation T, U or X. 6. Section 7.19 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 7.19 INTENTIONALLY OMITTED 7. Section 8.01(c) of the Agreement hereby is deleted in its entirety and the following is substituted therefor: (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate, substantially in the form of Exhibit H (a "Compliance Certificate"), of the chief financial officer or the chief accounting officer of Flowers (i) setting forth in reasonable detail the calculations required to establish whether Flowers was in compliance with the requirements of Sections 8.13 through 8.20, inclusive, and Section 8.26 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which Flowers is taking or proposes to take with respect thereto; 8. Section 8.01(i) of the Agreement hereby is deleted in its entirety and the following is substituted therefor: (i) INTENTIONALLY OMITTED. -5- 89 9. Section 8.01(j) of the Agreement hereby is deleted in its entirety and the following is substituted therefor: (j) within 15 days after the receipt thereof, a copy of the report of Arthur Andersen Consulting to Flowers rendered pursuant to engagement letter dated January 12, 2000; and 10. Section 8.04 of the Agreement is hereby amended by deleting subsection 8.04(d)(z) in its entirety and replacing said subsection with the following: (z) transfers of (but not Liens on) Margin Stock. 11. Section 8.14 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.14 Loans or Advances. Neither Flowers nor any of its Material Subsidiaries shall make loans or advances to any Person except as permitted by Section 8.16 and except: (i) loans or advances to employees not exceeding $10,000,000 in the aggregate principal amount outstanding at any time, in each case made in the ordinary course of business and consistent with practices existing on the Second Amendment Effective Date; (ii) deposits required by government agencies or public utilities; (iii) loans or advances to and among Flowers and its Wholly Owned Subsidiaries; and (iv) other loans or advances, to Persons other than the Unrestricted Subsidiaries (loans and advances to Unrestricted Subsidiaries not being permitted), in an aggregate amount outstanding which do not exceed 15% of Adjusted Consolidated Total Assets as of the last day of the immediately preceding Fiscal Quarter; provided that after giving effect to the making of any loans, advances or deposits permitted by this Section, no Default shall be in existence or be created thereby. 12. Section 8.15 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.15 Investments. Neither Flowers nor any of its Restricted Subsidiaries shall make Investments in any Person except as permitted by Section 8.14 and except Investments in (i) direct obligations of the United States Government maturing within one year, (ii) certificates of deposit issued by a commercial bank whose credit is satisfactory to the Agent, (iii) commercial paper rated A1 or the equivalent thereof by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. or P1 or the equivalent thereof by Moody's Investors Service, Inc. and in either case maturing within 6 months after the date of acquisition; (iv) tender -6- 90 bonds the payment of the principal of and interest on which is fully supported by a letter of credit issued by a United States bank whose long-term certificates of deposit are rated at least AA or the equivalent thereof by Standard & Poor's Corporation and Aa or the equivalent thereof by Moody's Investors Service, Inc.; (v) Investments by Flowers or any Restricted Subsidiary in the stock (or other ownership interests) of Persons which are Restricted Subsidiaries as of the Second Amendment Effective Date and/or (vi) Permitted Keebler Investments; provided, however, immediately after giving effect to the making of any Investment, no Default shall have occurred and be continuing. 13. Section 8.16(o) of the Agreement hereby is deleted in its entirety and the following is substituted therefor: (o) Liens in favor of the Participants to secure the Escrow Funding Obligation and other obligations of Flowers under this Agreement and (if applicable) under any other agreement pertaining to Indebtedness which is required to be equally and ratably secured by any Lien securing the Escrow Funding Obligation and such other obligations; 14. Section 8.17 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.17. Adjusted Fixed Charges Coverage Ratio At the end of each Fiscal Quarter, commencing with the second Fiscal Quarter of the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted Consolidated Fixed Charges shall at all times be equal to or greater than the ratio set forth below for such Fiscal Quarter of each Fiscal Year set forth below:
Adjusted Fixed Charges Fiscal Quarter Fiscal Year Coverage Ratio -------------- ----------- -------------- Second 2000 1.10 to 1.0 Third 2000 1.15 to 1.0 Fourth 2000 1.20 to 1.0 First 2001 1.25 to 1.0 Second 2001 1.25 to 1.0 Third 2001 1.25 to 1.0 Fourth 2001 and thereafter 1.50 to 1.0
15. Section 8.18 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.18 Leverage Ratio. The Leverage Ratio shall at all times be equal to or less than 0.65 to 1.0. -7- 91 16. Section 8.20 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.20 Adjusted Consolidated EBITDA. At the end of each Fiscal Quarter, commencing with the first Fiscal Quarter of the 2000 Fiscal Year, Adjusted Consolidated EBITDA shall at all times be equal to or greater than the amount set forth below for each Fiscal Quarter of each Fiscal Year set forth below, and shall be calculated (i) at the end of each Fiscal Quarter in the 2000 Fiscal Year, for such Fiscal Quarter only, and (ii) at the end of each Fiscal Quarter thereafter, for the 4 Fiscal Quarter period then ending.
Adjusted Fiscal Quarter Fiscal Year Consolidated EBITDA -------------- ----------- ------------------- First 2000 $ 26,500,000 Second 2000 $ 18,500,000 Third 2000 $ 24,500,000 Fourth 2000 $ 25,000,000 First 2001 $105,000,000 Second 2001 $105,000,000 Third 2001 $115,000,000 Fourth 2001 $115,000,000 First and thereafter 2002 $125,000,000
17. Section 8.21 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.21 Subsidiary Borrowings. Flowers shall not permit any Restricted Subsidiary to become liable for any Indebtedness, whether secured or unsecured, except: (i) such of the foregoing as is owed to Flowers or another Wholly-Owned Subsidiary; (ii) Indebtedness or obligations secured by Liens permitted by Section 8.16; (iii) Indebtedness or obligations of a Subsidiary outstanding at the time such Subsidiary becomes a Subsidiary, provided that (a) such Indebtedness shall not have been incurred in contemplation of such Subsidiary becoming a Subsidiary, and (b) immediately after such Subsidiary becomes a Subsidiary, no Default or Event of Default shall exist, and provided, further, that such Indebtedness may not be extended, renewed, or refunded except as otherwise permitted by this Agreement; and (iv) subject to the provisions of Section 8.25, other Indebtedness which, when combined with the total of the Indebtedness secured by all Liens permitted by Section 8.16(r), without duplication, does not exceed 20% of Adjusted -8- 92 Consolidated Net Worth as of the last day of the immediately preceding Fiscal Quarter. 18. Section 8.24 of the Agreement hereby is deleted in its entirety and the following is substituted therefor: SECTION 8.24 Borrowing Base. At the end of each Fiscal Period, the sum of (i) all Indebtedness (including the Loans under the Flowers Credit Agreement and the obligations of Flowers under this Agreement in an amount equal to the Maximum Recourse Amount) of Flowers and its Restricted Subsidiaries plus (ii) all Synthetic Lease Obligations of Flowers and its Restricted Subsidiaries shall not exceed the Borrowing Base, and within 10 Domestic Business Days after the end of such Fiscal Period, Flowers shall furnish to the Bank a certificate, in reasonable detail, showing the calculations with respect thereto. 19. A new Section 8.25 hereby is added, as follows: SECTION 8.25 New Indebtedness for Money Borrowed and New Capitalized Leases. Flowers shall not, and Flowers shall not permit its Restricted Subsidiaries to, incur any New Indebtedness for Money Borrowed or New Capitalized Leases, provided, that, so long as no Default or Event of Default is in existence or would be created thereby: (i) New Indebtedness for Money Borrowed may be issued in any amount, subject to the provisions of Section 8.21, so long as the indenture, agreement, instrument or other agreement related thereto does not directly or indirectly prohibit or restrain, or have the effect of prohibiting or restraining, or imposing materially adverse conditions on, the ability of Flowers or its Restricted Subsidiaries to create any Lien on any of its assets in favor of the Participants to secure the Escrow Funding Obligation and other obligations owed by Flowers to the Participants under this Agreement and under any other agreement pertaining to Indebtedness which must be equally and ratably secured by any Lien securing the Escrow Funding Obligation and such other obligations (the foregoing being collectively referred to as a "Negative Pledge Clause"); (ii) subject to the provisions of Section 8.21, New Indebtedness for Money Borrowed may be incurred pursuant to a working capital line up to $50,000,000 (which does not contain a Negative Pledge Clause); and (iii) New Capitalized Leases may be entered into up to an aggregate of $25,000,000 which do not contain a Negative Pledge Clause (except as to the assets being leased pursuant thereto). 20. A new Section 8.26 hereby is added, as follows: SECTION 8.26 Capital Expenditures. -9- 93 Flowers shall not, and Flowers shall not permit its Restricted Subsidiaries to, incur Capital Expenditures in any Fiscal Year, except that Capital Expenditures may be incurred up to an aggregate amount not exceeding (x) $40,000,000 in the 2000 Fiscal Year and (y) $37,500,000 in any Fiscal Year thereafter, provided that after giving effect to the incurrence of any Capital Expenditures permitted by this Section, no Default shall be in existence or be created thereby. 21. A new Section 8.27 hereby is added, as follows: SECTION 8.27 Restricted Payments. Flowers will not declare any Restricted Payment during any Fiscal Year unless, as of the date of such declaration, no Default or Event of Default is in existence or would be created thereby by the making of such payment, and: (i) with respect to Restricted Payments consisting of repurchases of stock in Flowers from any employee of Flowers or any Restricted Subsidiary whose such employment is being or has been terminated (whether voluntarily or involuntarily), repurchases for an aggregate amount for all such employees not exceeding $2,500,000 in any Fiscal Year; and (ii) with respect to all other Restricted Payments, on a pro forma basis, based upon Flowers' good faith estimates (taking into account circumstances then known to it), after giving effect to such declaration and the payment thereof, and taking into account any additional Indebtedness anticipated in good faith by Flowers to be incurred in connection therewith during the relevant period and other Indebtedness anticipated in good faith by Flowers to be incurred during the relevant period, together with interest expense during the relevant period on all such anticipated Indebtedness, both as of (x) the end of the current Fiscal Period and (y) the end of the current Fiscal Quarter, (1) no Default or Event of Default would be in existence or created thereby, (2) the sum of the Unused Commitments less any Swing Loans and Money Market Loans then outstanding, (as such terms are defined in the Flowers Credit Agreement) would be at least $15,000,000 and (3) the amount by which the Borrowing Base would exceed the sum of all Indebtedness plus (without duplication) all Synthetic Lease Obligations would be at least $15,000,000. Prior to declaring any Restricted Payments pursuant hereto, Flowers shall furnish to the Bank a certificate, in reasonable detail, showing the calculations with respect to the foregoing. 22. Section 9.01(b) of the Agreement hereby is deleted in its entirety and the following is substituted therefor: (b) Flowers shall fail to observe or perform any covenant contained in: (i) Sections 8.01(e), 8.02(ii), 8.03 through 8.05, inclusive, Sections 8.17 through 8.19, inclusive, Sections 8.20 or 8.25 through 8.27, inclusive; or (ii) Section 8.24, and, with respect to this clause (ii) such failure shall not have been cured within 10 days after the earlier to occur of (1) delivery to the Bank of the certificate -10- 94 required to be furnished pursuant to Section 8.24 and (2) the date such certificate was required to be so delivered pursuant to Section 8.24; or (ii) Sections 8.14, 8.15 or 8.21, and with respect to this clause (ii) such failure shall not have been cured within 10 days after the earlier to occur of (1) written notice thereof has been given to Flowers by the Bank at the request of any Participant or (2) any Responsible Officer of Flowers otherwise becomes aware of any such failure; or 23. Exhibit H, Compliance Certificate to the Agreement, is hereby deleted in its entirety and Exhibit H attached hereto is substituted therefor. 24. Upon SunTrust's receipt of (i) executed signature pages from all parties to this Amendment, and (ii) an amendment fee in the amount of $420,000, all amendments to the Participation Agreement made herein shall become effective as of the Second Amendment Effective Date, unless expressly stated to become effective as of any other date. Such amendment fee shall be distributed to all Participants that execute this Amendment pro rata based on their respective interests. 25. Except for the amendments and agreements expressly set forth above, the Agreement shall remain unchanged and in full force and effect. Flowers acknowledges and expressly agrees that the Participants reserve the right to, and do in fact, require strict compliance with the terms and provisions of the Agreement, as amended by this Amendment. 26. Flowers hereby affirms and restates as of the date hereof all covenants set forth in the Agreement, as amended hereby, and such covenants are incorporated by reference herein as if set forth herein directly. 27. Except as expressly amended herein, all terms, covenants and conditions of the Agreement and all other Loan Documents shall remain in full force and effect. The parties hereto do expressly ratify and confirm the Agreement as amended herein. 28. Flowers hereby agrees that nothing herein shall constitute a waiver by the Participants of any Default or Event of Default, whether known or unknown, which may exist under the Agreement. Flowers hereby further agrees that no action, inaction or agreement by the Participants, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Agreement which may have occurred with respect to the non-payment of any obligation during the terms of the Agreement or any portion thereof, or any other matter relating to the Agreement, shall require or imply any future indulgence, waiver, or agreement by the Participants. In addition, Flowers acknowledges and agrees that it has no knowledge of any defenses, counterclaims, offsets or objections in its favor against the Participants with regard to any of the obligations due under the terms of the Agreement or any other Program Document as of the date of this Amendment. 29. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns. -11- 95 30. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 31. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. 32. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. -12- 96 IN WITNESS WHEREOF, the parties hereto have executed this Amendment through their authorized officers as of the date first above written. FLOWERS INDUSTRIES, INC. By: -------------------------------- Name: --------------------------- Title: --------------------------- Attest: ----------------------------- Name: ------------------------- Title: ------------------------- [CORPORATE SEAL] 97 Address for Notices: SUNTRUST BANK, formerly known as SunTrust Bank, Atlanta, as the Bank and as a Participant 303 Peachtree St., N.E., 3rd Floor Atlanta, GA 30308 Attention: Ms. Kim Martin By: Telecopy No.: (404) 230-5305 ------------------------------- Name: Participating Commitment: $60,000,000 Title: Pro Rata Share: 75% 98 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., Rabobank Nederland "RABOBANK NEDERLAND," 245 Park Avenue NEW YORK BRANCH, as a Participant New York, New York 10167 Attention: Corporate Services Department Telecopy No.: (212) 818-0233 By: ---------------------------- with a copy to: Name: Title: Rabobank Nederland One Atlantic Center, Suite 3450 By: 1201 W. Peachtree Street ---------------------------- Atlanta, Georgia 30309-3400 Name: Attention: Mr. Theodore Cox Title: Telecopy No.: (404) 877-9150 Participating Commitment: $20,000,000 Pro Rata Share: 25% 99 EXHIBIT H COMPLIANCE CERTIFICATE Reference is made to the Loan Facility Agreement dated as of November 5, 1999, and as amended by that certain First Amendment to Loan Facility Agreement dated as of December 29, 1999 (among Flowers Industries, Inc., SunTrust Bank, formerly known as SunTrust Bank, Atlanta a Georgia banking corporation (the "Bank"), and SunTrust Bank and each of the other lending institutions listed on the signature pages thereto (SunTrust Bank, Atlanta and such lenders, together with any assignees thereof becoming "Participants" pursuant to the terms of the Loan Facility Agreement, the "Participants"). Capitalized terms used herein shall have the meanings ascribed thereto in the Loan Facility Agreement. Pursuant to Section 8.01(c) of the Loan Facility Agreement, , the duly authorized of Flowers Industries, Inc., hereby (A) certifies to the Agent and the Banks that the information contained in the Compliance Check List attached hereto is true, accurate and complete as of , , (B) certifies to the Bank that no Default is in existence on and as of the date hereof and (C) restates and reaffirms that the representations and warranties contained in Article VII of the Loan Facility Agreement are true on and as of the date hereof as though restated on and as of this date. FLOWERS INDUSTRIES, INC. By: ---------------------------------------- Title: 100 COMPLIANCE CHECK LIST Flowers Industries, Inc. ------------------------- --------------, ----- 1. Loans and Advances (Section 8.14) Neither Flowers nor any of its Material Subsidiaries shall make loans or advances to any Person except as permitted by Section 5.16 and except: (i) loans or advances to employees not exceeding $10,000,000 in the aggregate principal amount outstanding at any time, in each case made in the ordinary course of business and consistent with practices existing on the Closing Date; (ii) deposits required by government agencies or public utilities; (iii) loans or advances to and among Flowers and its Wholly Owned Subsidiaries; and (iv) other loans or advances, to Persons other than the Unrestricted Subsidiaries (loans and advances to Unrestricted Subsidiaries not being permitted), in an aggregate amount outstanding which do not exceed 15% of Adjusted Consolidated Total Assets as of the last day of the immediately preceding Fiscal Quarter; provided that after giving effect to the making of any loans, advances or deposits permitted by this Section, no Default shall be in existence or be created thereby. (a) loans and advances to employees $ -------------- (b) lesser of (a) and $10,000,000 $ -------------- (c) other loans and advances not permitted by clauses (i) through (iii), inclusive(1) $ -------------- (d) Adjusted Consolidated Total Assets $ -------------- (e) 15% of (d) $ -------------- Limitation (d) may not exceed (e) - -------- (1) Loans and advances to the Unrestricted Subsidiaries are not permitted and may not be included in this category. 101 2. Negative Pledge (Section 8.16) (a) Amount of Indebtedness secured by Liens permitted by Sections 8.16(a) through 8.16(g), inclusive, and (l) and (n) Schedule - 1 $ ----------- (b) Amount of Debt secured by Liens not permitted by Section (q) Schedule - 1 $ ----------- (c) Aggregate amount of Indebtedness of Restricted Subsidiaries permitted by Section 8.20(iv) $ ----------- (d) Sum of (b) and (c) $ ----------- (e) Adjusted Consolidated Net Worth $ ----------- (f) 20% of (e) $ ----------- Limitation (d) may not exceed (f) 102 3. Adjusted Fixed Charge Coverage Ratio (Section 8.17) At the end of each Fiscal Quarter, commencing with the second Fiscal Quarter of the 2000 Fiscal Year, the ratio of Adjusted EBILTDA to Adjusted Consolidated Fixed Charges shall at all times be equal to or greater than the ratio set forth below for such Fiscal Quarter of each Fiscal Year set forth below:
Adjusted Fixed Charges Fiscal Quarter Fiscal Year Coverage Ratio - -------------- ----------- -------------- Second 2000 1.10 to 1.0 Third 2000 1.15 to 1.0 Fourth 2000 1.20 to 1.0 First 2001 1.25 to 1.0 Second 2001 1.25 to 1.0 Third 2001 1.25 to 1.0 Fourth 2001 and thereafter 1.50 to 1.0
(a) Adjusted Consolidated Net Income Schedule 2 $ -------------- (b) Adjusted Consolidated Interest Expense - Schedule 2 $ -------------- (c) payments on operating leases and rental agreements $ -------------- (d) taxes - Schedule 2 $ -------------- (e) depreciation - Schedule 2 $ -------------- (f) amortization - Schedule 2 $ -------------- (g) sum of (a) plus (b) plus (c) plus (d) plus (e) plus (f) $ -------------- $ (h) sum of (b) plus (c) -------------- Ratio of (g) to (h) -------------- Requirement [> 1.10 to 1.0] [> 1.15 to 1.0] [> 1.20 to 1.0] [> 1.25 to 1.0] [> 1.50 to 1.0] 103 4. Leverage Ratio (Section 8.18) The Leverage Ratio shall at all times be equal to or less than 0.65 to 1.0. (a) Adjusted Consolidated Total Debt Schedule - 4 $ -------------- (b) Adjusted Consolidated Net Worth $ -------------- (c) Sum of (a) plus (b) $ -------------- Ratio of (a) to (c) -------------- Requirement 0.65 to 1.00 104 5. Minimum Adjusted Consolidated Net Worth (Section 8.19) Adjusted Consolidated Net Worth will at no time be less than $487,569,000, plus the sum of (x) 50% of the cumulative Net Proceeds of Capital Stock received during any period after April 27, 1998, plus (y) 50% of any equity resulting from a conversion of Indebtedness of Flowers during any period after April 27, 1998, less (z) any amount of equity of Flowers repurchased during any period after April 27, 1998, calculated quarterly at the end of each Fiscal Quarter. (a) cumulative Net Capital Proceeds since April 27, 1998 $__________ (b) 50% of (a) $__________ (c) equity resulting from Indebtedness conversion since April 27, 1998 $__________ (d) amount of equity repurchased since April 27, 1998 $__________ (e) (c) less (d) $__________ (f) 50% of (e) $__________ (g) sum of $487,589,000, plus (b), plus (f) $__________ (h) Adjusted Consolidated Net Worth $__________ Limitation (h) may not be less than (g) 105 6. Adjusted Consolidated EBITDA (Section 8.20) At the end of each Fiscal Quarter, commencing with the first Fiscal Quarter of the 2000 Fiscal Year, Adjusted Consolidated EBITDA shall at all times be equal to or greater than the amount set forth below for each Fiscal Quarter of each Fiscal Year set forth below, and shall be calculated (i) at the end of each Fiscal Quarter in the 2000 Fiscal Year, for such Fiscal Quarter only, and (ii) at the end of each Fiscal Quarter thereafter, for the 4 Fiscal Quarter period then ending.
Adjusted Fiscal Quarter Fiscal Year Consolidated - -------------- ----------- ------------ EBITDA ------ First 2000 $ 26,500,000 Second 2000 $ 18,500,000 Third 2000 $ 24,500,000 Fourth 2000 $ 25,000,000 First 2001 $105,000,000 Second 2001 $105,000,000 Third 2001 $115,000,000 Fourth 2001 $115,000,000 First and thereafter 2002 $125,000,000 Adjusted Consolidated EBITDA Schedule - 5 $__________
7. Capital Expenditures (Section 8.26) Flowers shall not, and Flowers shall not permit its Restricted Subsidiaries to, incur Capital Expenditures in any Fiscal Year, except that Capital Expenditures may be incurred up to an aggregate amount not exceeding (x) $40,000,000 in the 2000 Fiscal Year and (y) $37,500,000 in any Fiscal Year thereafter, provided that after giving effect to the incurrence of any Capital Expenditures permitted by this Section, no Default shall be in existence or be created thereby. (a) Capital Expenditures incurred in Fiscal Year to date: $_______ Limitation: (a) may not exceed $25,000,000 in the 2000 Fiscal Year and $37,500,000 in any Fiscal Year thereafter 106 Schedule - 1 (a) Liens Securing Debt In The Principal Amount of $50,000 or More which are Not Permitted by Sections 8.16(a) through 8.16(g), inclusive, and (l), (n) and (p)
Relevant Provision of Description of Lien Amount of Debt Secured Section 8.16 Permitting Same - ------------------- ---------------------- ---------------------------- 1. $ ---------------- -------------------- --------------------- 2. $ ---------------- -------------------- --------------------- 3. $ ---------------- -------------------- --------------------- 4. $ ---------------- -------------------- --------------------- 5. $ ---------------- -------------------- --------------------- 6. $ ---------------- -------------------- --------------------- 7. $ ---------------- -------------------- --------------------- 8. $ ---------------- -------------------- --------------------- 9. $ ---------------- -------------------- ---------------------
(b) Aggregate Amount of Other Liens Securing Debt which are Not Permitted by Sections 8.16(a) through 8.16(g), inclusive and (l), (n) and (p) $__________ (c) Aggregate Amount of All Debt Secured by Liens $__________ 107 Schedule - 2 Adjusted Fixed Charge Coverage(2) Adjusted Consolidated Net Income for: _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ Total $__________ Adjusted Consolidated Interest Expense for: _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ Total $__________ Operating Leases and Rentals for: _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ Total $__________ Taxes for: _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ Total $__________ Depreciation for: - -------------------- 2 Include Restricted Subsidiaries Only, and include only Fiscal Year to date for calculation at end of second and third Fiscal Quarter of 2000 Fiscal Year 108 _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ Total $__________ Amortization for: _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ _____ quarter _____ $__________ Total $__________ 109 Schedule - 4 Adjusted Consolidated Total Debt
INTEREST RATE MATURITY TOTAL -------- -------- ----- (a) Unsecured Borrowed Money ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Unsecured Borrowed Money $__________ (b) Deferred Purchase Price ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Deferred Purchase Price $__________ (c) Capitalized Leases ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Capitalized Leases $__________ (d) Secured Borrowed Money ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Secured Borrowed Money $__________ (e) Letters of Credit and Similar Instruments(3) ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Letters of Credit and Similar Instruments $__________ (f) Swaps
- ---------------- (3) Include only if have maturities of greater than 1 year 110 ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Swaps $__________ (g) Guaranties ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Guaranties $__________ (h) Convertible Redeemable Capital Stock(4) ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Convertible Redeemable Capital Stock $__________ (i) Convertible Subordinated Debt(2) ==================== ---------- ---------- $__________ ==================== ---------- ---------- $__________ Total Convertible Subordinated Debt $__________ ADJUSTED CONSOLIDATED TOTAL DEBT-sum of (a) plus (b) plus (c) plus (d) plus (e) plus (f) plus (g) less (h) less (i) $__________
- ---------------- (4) Include only if current market value of an equity security into which it is convertible is greater than the conversion price for such security. 111 Schedule - 5 Adjusted Consolidated EBITDA (5) Adjusted Consolidated Net Income for: __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ Total $__________ Adjusted Consolidated Interest Expense for: __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ Total $__________ Taxes for: __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ Total $__________ Depreciation for: __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ Total $__________ Amortization for: __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ Total $__________ Other Non-cash Charges for: __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ __________ quarter __________ $__________ Total (5) Include Restricted Subsidiaries Only and for each Fiscal Quarter of the 2000 Fiscal Year, include only calculation for such Fiscal Quarter EX-11 6 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON SHARE
FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 --------------------------------- WEEKS ENDED WEEKS ENDED JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 28, 1997 ------------------------------------------------------------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Numerator: Income before extraordinary loss and cumulative effect of changes in accounting principles............... $ 7,294 $ 45,968 $33,448 $62,324 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest....... (938) Cumulative effect of changes in accounting principles, net of tax benefit............................. (3,131) (9,888) -------- ------- ------- ------- Net income............................. $ 7,294 $41,899 $23,560 $62,324 ======== ======= ======= ======= Denominator: Basic weighted average shares.......... 100,112 96,393 88,368 88,000 Effect of dilutive securities: Stock options....................... 308 408 405 401 -------- ------- ------- ------- Diluted weighted average shares........ 100,420 96,801 88,773 88,401 ======== ======= ======= ======= Net Income Per Common Share: Basic -- Income before extraordinary loss and cumulative effect of changes in accounting principles............. $ .07 $ .47 $ .38 $ .71 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest. (.01) Cumulative effect of changes in accounting principles, net of tax benefit........................... (.03) (.11) -------- ------- ------- ------- Net income per common share......... $ .07 $ .43 $ .27 $ .71 ======== ======= ======= ======= Diluted -- Income before extraordinary loss and cumulative effect of changes in accounting principles............... $ .07 $ .47 $ .38 $ .71 Extraordinary loss due to early extinguishment of debt, net of tax benefit and minority interest....... (.01) Cumulative effect of changes in accounting principles, net of tax benefit............................. (.03) (.11) -------- ------- ------- ------- Net income per common share............ $ .07 $ .43 $ .27 $ .71 ======== ======= ======= =======
EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT There is no parent of the Registrant. The Registrant owns 100% of the voting securities of each subsidiary listed below, with the exception of Keebler Foods Company, of which the Registrant owns 55%, except that each subsidiary marked with an asterisk owns 100% of the voting securities of the subsidiary or subsidiaries indented immediately below such marked subsidiary. All subsidiaries listed below are included in the consolidated financial statements of the Registrant. Flowers Industries, Inc...................................... Georgia Flowers Investments, Inc.................................... Georgia *Flowers Bakeries Brands, Inc............................... South Carolina *Flowers Bakeries, Inc..................................... Georgia *Flowers Baking Company of Florida, Inc.................. Florida Flowers Baking Company of Miami, Inc................... Florida Flowers Baking Company of Jacksonville, Inc............ Florida Flowers Baking Company of Bradenton, Inc............... Florida Flowers Baking Company of Thomasville, Inc.............. Georgia Flowers Baking Company of Villa Rica, Inc............... Georgia Flowers Baking Company of Opelika, Inc.................. Alabama Hardin's Bakery, Inc.................................... Alabama Midtown Bakery, Inc..................................... Alabama Home Baking Company, Inc................................ Alabama *Huval Bakery, Inc...................................... Louisiana *Bunny Bread, Inc...................................... Louisiana Flowers Baking Company of Baton Rouge, Inc........... Louisiana Flowers Baking Company of Jamestown, Inc................ North Carolina Franklin Baking Co...................................... North Carolina Flowers Baking Company of Lynchburg, Inc................ Virginia Flowers Baking Company of Norfolk, Inc.................. Virginia Flowers Baking Company of Morristown, Inc............... Tennessee Schott's Bakery, Inc.................................... Texas *Flowers Baking Company of West Virginia, Inc........... West Virginia The Donut House, Inc................................. West Virginia *Flowers Baking Company of Texas, Inc................... Texas *Flowers Baking Company of Tyler...................... Georgia Butterkrust Bakery, Inc............................. Texas El Paso Baking Company, Inc........................... Texas El Paso Baking Co. de Mexico, S.A. de C.V........... Mexico San Angelo Distributing Co., Inc...................... Texas San Antonio Baking Co., Inc........................... Texas Austin Baking Co., Inc................................ Texas Corpus Christi Baking Co., Inc........................ Texas Flowers Holding Co. of Texas, Inc..................... Texas Flowers Baking Company of Fresno, Inc................. California Flowers Baking Company of Texarkana..................... Arkansas Holsum Baking Company................................... Arkansas Shipley Baking Company.................................. Arkansas Flowers Baking Company of Ohio, Inc..................... Ohio Storck Baking Company................................... West Virginia *Mrs. Smith's Bakeries, Inc.................................. Georgia Mrs. Smith's Bakery of Suwanee, Inc..................... Georgia *European Bakers, Ltd................................... Georgia Aunt Fanny's Bakery, Inc............................. Georgia *Dan-co Bakery, Inc.................................... Georgia Daniels Home Bakery of North Carolina, Inc........... North Carolina Table Pride, Inc........................................ Georgia *Mrs. Smith's Sales Support Group, Inc.................. Georgia Mrs. Smith's Foil Company, Inc......................... Georgia Broad Street Bakeries, Inc.............................. Georgia Special Touch Bakeries, Inc............................. Georgia Flowers Specialty of Suwanee, Inc....................... Georgia Mrs. Smith's Frozen Bakery Distributors, Inc............. Georgia Mrs. Smith's Bakeries of Pennsylvania, Inc............. Georgia Allied Frozen Food Services, Inc....................... New York Flowers Specialty Foods of Montgomery, Inc.............. Alabama Flowers Baking Company of South Carolina, Inc........... South Carolina Flowers Baking Company of Fountain Inn, Inc............. South Carolina Flowers Baking Company of Chattanooga, Inc.............. Tennessee Flowers Fresh Bakery Distributors, Inc.................. Tennessee Aunt Fanny's Bakery of Pennsylvania, Inc................ Pennsylvania *Mrs. Smith's Bakeries of London, Inc................... Kentucky Bluebird Brands, Inc.................................. Georgia *Pies, Inc.............................................. Minnesota Mrs. Smith's Brands, Inc............................... South Carolina *Stilwell Foods, Inc................................... Oklahoma Stilwell Foods of Texas, Inc......................... Oklahoma Stilwell Foods Manpower of Texas, Inc................ Texas Flowers Holding Company................................ Delaware *Keebler Foods Company....................................... Delaware *Keebler Company........................................... Delaware Steamboat Corporation................................ Georgia Illinois Baking Corporation.......................... Delaware Keebler Cookie & Cracker Company..................... Nevada Hollow Tree Company, L.L.C........................... Delaware Keebler Co./Puerto Rico, Inc......................... Delaware Keebler H.C., Inc.................................... Illinois Keebler-Georgia, Inc................................. Georgia Keebler Foreign Sales Corporation.................... Virgin Islands Hollow Tree Financial Company, L.L.C................. Delaware Godfrey Transport, Inc............................... Delaware Bishop Baking Company, Inc........................... Delaware Famous Amos Chocolate Chip Cookie Company, L.L.C..... Delaware Mother's Cookie Company, L.L.C....................... Delaware Murray Biscuit Company, L.L.C........................ Delaware Barbara Dee Cookie Company, L.L.C.................... Delaware Little Brownie Bakers, L.L.C......................... Delaware President Baking Company, L.L.C...................... Delaware Sunny Cookie Company, L.L.C.......................... Delaware Sunshine Biscuits, L.L.C............................. Delaware Elfin Equity Co., L.L.C.(1).......................... Delaware Keebler Assets Company(2)............................ Delaware Keebler Funding Corp....................................... Delaware Keebler Leasing Corp....................................... Delaware Shaffer, Clarke & Co., Inc................................. Delaware Johnston's Ready-Crust Company............................. Delaware Bake-Line Products, Inc.................................... Illinois - ------------------- (1) 64.6% owned by Keebler Company and 35.4% owned by Sunshine Biscuits, Inc. (2) 34% owned by Keebler Company, 33% owned Keebler-Georgia, Inc. and 33% owned by Keebler Leasing Corp. EX-23.1 8 CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-34855, No. 33-91198 and No. 333-23351) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No.33-34855) of our report dated February 3, 2000 on page F-2 of this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule of this Form 10-K. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia March 30, 2000 EX-23.2 9 CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 of Flowers Industries, Inc.(No. 33-34855, No. 33-91198 and No. 333-23351) and in the Prospectus constituting part of the Registration Statement on Form S-3 of Flowers Industries, Inc.(No.33-34855) of our report dated February 1, 2000 on page F-2 of the Keebler Foods Company Form 10-K included as Exhibit 99 of this Form 10-K. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois March 30, 2000 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FLOWERS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE FIFTY-TWO WEEKS ENDED JANUARY 1, 2000, AND THE FLOWERS INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET AT JANUARY 1, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-01-2000 JAN-03-1999 DEC-31-1999 39,382 0 207,900 21,981 280,925 690,538 1,670,095 520,456 2,900,478 655,797 0 0 0 63,040 475,714 2,900,478 4,236,010 4,236,010 2,001,956 4,052,031 0 0 80,865 103,114 56,260 7,294 0 0 0 7,294 .07 .07
EX-99.2 11 FINANCIAL STATEMENTS OF KEEBLER FOODS COMPANY 1 EXHIBIT 99.2 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Keebler Foods Company and Subsidiaries
FINANCIAL STATEMENTS: PAGE ---- Report of Independent Accountants....................................... F-2 Consolidated Balance Sheets at January 1, 2000 and January 2, 1999...... F-3 Consolidated Statements of Operations for the years ended January 1, 2000, January 2, 1999 and January 3, 1998.................. F-5 Consolidated Statements of Shareholders' Equity for the years ended January 1, 2000, January 2, 1999 and January 3, 1998.................. F-6 Consolidated Statements of Cash Flows for the years ended January 1, 2000, January 2, 1999 and January 3, 1998.................. F-7 Notes to Consolidated Financial Statements.............................. F-8 FINANCIAL STATEMENT SCHEDULE: Report of Independent Accountants....................................... S-1 Schedule II - Valuation and Qualifying Accounts......................... S-2
F-1 2 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KEEBLER FOODS COMPANY: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Keebler Foods Company and Subsidiaries at January 1, 2000 and January 2, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois February 1, 2000, except note 18, as to which the date is March 6, 2000 F-2 3 KEEBLER FOODS COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JANUARY 1, 2000 January 2, 1999 --------------- --------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 20,717 $ 23,515 Trade accounts and notes receivable, net 65,052 141,077 Inventories, net: Raw materials 34,243 31,722 Package materials 13,907 13,081 Finished goods 126,954 120,550 Other 1,176 1,024 ---------- ---------- 176,280 166,377 Deferred income taxes 46,252 57,713 Other 27,278 26,636 ---------- ---------- Total current assets 335,579 415,318 PROPERTY, PLANT AND EQUIPMENT, NET 553,031 564,524 GOODWILL, NET 370,188 391,449 TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES, NET 211,790 226,084 PREPAID PENSION 33,240 38,205 ASSETS HELD FOR SALE 6,662 2,972 OTHER ASSETS 17,693 17,228 ---------- ---------- Total assets $1,528,183 $1,655,780 ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-3 4 KEEBLER FOODS COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JANUARY 1, 2000 January 2, 1999 --------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 37,283 $ 112,730 Trade accounts payable 147,862 143,572 Other liabilities and accruals 237,447 232,087 Income taxes payable 23,603 10,779 Plant and facility closing costs and severance 11,290 11,018 ----------- ----------- Total current liabilities 457,485 510,186 LONG-TERM DEBT 419,160 541,765 OTHER LIABILITIES: Deferred income taxes 124,389 147,098 Postretirement/postemployment obligations 64,383 63,754 Plant and facility closing costs and severance 12,062 15,563 Deferred compensation 24,581 19,368 Other 16,808 28,745 ----------- ----------- Total other liabilities 242,223 274,528 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock ($.01 par value; 100,000,000 shares authorized and none issued) -- -- Common stock ($.01 par value; 500,000,000 shares authorized and 84,655,874 and 84,125,164 shares issued, respectively) 846 841 Additional paid-in capital 182,686 169,532 Retained earnings 255,813 167,608 Treasury stock (30,030) (8,680) ----------- ----------- Total shareholders' equity 409,315 329,301 ----------- ----------- Total liabilities and shareholders' equity $ 1,528,183 $ 1,655,780 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-4 5 KEEBLER FOODS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Years Ended ------------------------------------------------------- JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- NET SALES $ 2,667,771 $ 2,226,480 $ 2,065,184 COSTS AND EXPENSES: Cost of sales 1,150,553 938,896 888,031 Selling, marketing and administrative expenses 1,227,481 1,080,044 1,026,245 Other 25,834 11,501 9,511 Restructuring and impairment charge 66,349 -- -- ----------- ----------- ----------- INCOME FROM OPERATIONS 197,554 196,039 141,397 Interest (income) (1,700) (3,763) (1,191) Interest expense 37,874 30,263 35,038 ----------- ----------- ----------- INTEREST EXPENSE, NET 36,174 26,500 33,847 ----------- ----------- ----------- INCOME BEFORE INCOME TAX EXPENSE 161,380 169,539 107,550 Income tax expense 73,175 72,962 45,169 ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 88,205 96,577 62,381 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax -- 1,706 5,396 ----------- ----------- ----------- NET INCOME $ 88,205 $ 94,871 $ 56,985 =========== =========== =========== BASIC NET INCOME PER SHARE: Income before extraordinary item $ 1.05 $ 1.16 $ 0.80 Extraordinary item -- 0.02 0.07 ----------- ----------- ----------- Net income $ 1.05 $ 1.14 $ 0.73 =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 83,759 83,254 77,604 =========== =========== =========== DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 1.01 $ 1.10 $ 0.77 Extraordinary item -- 0.02 0.07 ----------- ----------- ----------- Net income $ 1.01 $ 1.08 $ 0.70 =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 87,645 87,486 80,562 =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-5 6 KEEBLER FOODS COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK ----------------- PAID-IN EARNINGS ------------------- SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL ------ ------ ---------- --------- ------ -------- -------- BALANCE AT DECEMBER 28, 1996 77,638 $776 $148,613 $ 15,752 -- $ -- $165,141 Purchase of treasury shares -- -- -- -- (43) (75) (75) Net income -- -- -- 56,985 -- -- 56,985 ------ ---- -------- -------- ---- -------- -------- BALANCE AT JANUARY 3, 1998 77,638 776 148,613 72,737 (43) (75) 222,051 Exercise of Bermore warrant 6,136 61 19,740 -- -- -- 19,801 Purchase of treasury shares -- -- -- -- (292) (8,605) (8,605) Exercise of employee stock options 351 4 1,179 -- -- -- 1,183 Net income -- -- -- 94,871 -- -- 94,871 ------ ---- -------- -------- ---- -------- -------- BALANCE AT JANUARY 2, 1999 84,125 841 169,532 167,608 (335) (8,680) 329,301 Purchase of treasury shares -- -- -- -- (646) (21,350) (21,350) Exercise of employee stock options 531 5 13,154 -- -- -- 13,159 Net income -- -- -- 88,205 -- -- 88,205 ------ ---- -------- -------- ---- -------- -------- BALANCE AT JANUARY 1, 2000 84,656 $846 $182,686 $255,813 (981) $(30,030) $409,315 ====== ==== ======== ======== ==== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-6 7 KEEBLER FOODS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended ------------------------------------------------------- JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES Net income $ 88,205 $ 94,871 $ 56,985 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 84,125 69,125 60,708 Deferred income taxes (11,248) 10,075 18,548 Accretion on Seller Note -- -- 2,376 Loss on early extinguishment of debt, net of tax -- 1,706 3,761 Loss (gain) on sale of property, plant and equipment 1,799 424 (358) Restructuring and impairment charge 46,071 -- -- Other -- 1,460 -- Changes in assets and liabilities: Trade accounts and notes receivable, net (26,975) (5,082) 38,187 Inventories, net (9,903) (13,830) 203 Income taxes payable 12,824 (4,556) 16,113 Other current assets (642) (2,845) (966) Trade accounts payable and other current liabilities 9,840 869 36,806 Plant and facility closing costs and severance (3,641) (5,373) (13,715) Other, net 6,771 (2,319) 1,044 --------- --------- --------- Cash provided from operating activities 197,226 144,525 219,692 CASH FLOWS USED BY INVESTING ACTIVITIES Capital expenditures (100,685) (66,798) (48,429) Proceeds from property disposals 3,904 917 6,950 Purchase of President International, Inc., net of cash acquired -- (444,818) -- --------- --------- --------- Cash used by investing activities (96,781) (510,699) (41,479) CASH FLOWS (USED BY) PROVIDED FROM FINANCING ACTIVITIES Purchase of treasury stock (21,350) (8,605) (75) Exercise of options and warrant 3,203 20,577 -- Proceeds from receivables securitization 103,000 -- -- Deferred debt issue costs -- (1,845) (1,344) Long-term debt borrowings -- 425,000 109,750 Long-term debt repayments (113,052) (157,626) (271,310) Revolving facility, net (85,000) 85,000 -- Income tax benefit related to stock options exercised 9,956 -- -- --------- --------- --------- Cash (used by) provided from financing activities (103,243) 362,501 (162,979) --------- --------- --------- (Decrease) increase in cash and cash equivalents (2,798) (3,673) 15,234 Cash and cash equivalents at beginning of period 23,515 27,188 11,954 --------- --------- --------- Cash and cash equivalents at end of period $ 20,717 $ 23,515 $ 27,188 ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-7 8 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION BUSINESS AND OWNERSHIP Keebler Foods Company ("the Company" or "Keebler"), a manufacturer and distributor of food products, was acquired by INFLO Holdings Corporation ("INFLO") on January 26, 1996. INFLO was owned by Artal Luxembourg S. A. ("Artal"), a private investment company, Flowers Industries, Inc. ("Flowers"), a New York Stock Exchange-listed company, Bermore, Limited ("Bermore"), a privately held corporation and the parent of G.F. Industries, Inc. ("GFI") and certain members of Keebler's current management. On November 20, 1997, INFLO was merged into Keebler Corporation (the "Merger"), and subsequently changed its name to Keebler Foods Company. The financial statements as of and for all periods subsequent to January 26, 1996 have been restated to reflect the Merger as if it had been effective January 26, 1996. On January 29, 1998, Keebler made an initial public offering of 13,386,661 shares of common stock ("the Offering"). As part of the transaction, Flowers acquired additional shares of common stock from Artal and Bermore so that its ownership of outstanding stock increased to approximately 55%. Concurrent with the Offering, Bermore exercised a warrant to purchase 6,135,781 shares of common stock that had been issued in conjunction with the acquisition of Sunshine Biscuits, Inc. ("Sunshine"). The exercise of the warrant resulted in Keebler receiving $19.8 million of cash proceeds. Artal and Bermore sold all of the shares in the Offering, with none of the proceeds going to Keebler. In addition, during 1998, Bermore, through a series of transactions, transferred its shares held to Claremont Enterprises, Limited ("Claremont"), a privately held Bahamian limited company. On January 21, 1999, Keebler made a secondary public offering of 16,200,000 shares of common stock. Artal and Claremont sold all of the shares, with no proceeds going to Keebler. As a result, Artal's ownership percentage decreased from approximately 21% to 2% and Claremont's ownership percentage was reduced from approximately 6% to 5% of the outstanding common stock. Management's ownership remained at approximately 2% and Flowers' ownership remained at approximately 55%. During 1999, all remaining shares owned by both Artal and Claremont were sold in the open market. Keebler is comprised of primarily the following wholly-owned subsidiaries: Keebler Company, Bake-Line Products, Inc. ("Bake-Line"), Sunshine, President International, Inc. ("President"), Keebler Leasing Corp., Keebler Funding Corporation and Johnston's Ready Crust Company. On January 4, 1999, Keebler engaged in a series of corporate-entity transactions that resulted in Sunshine and President being merged into Keebler Company. Consequently, these former subsidiaries of Keebler Foods Company are currently wholly-owned subsidiaries of Keebler Company. Additional operating subsidiaries of Keebler Company include Elfin Equity Company, L.L.C., Hollow Tree Company, L.L.C., Hollow Tree Financial Company, L.L.C. and Godfrey Transport, Inc. FISCAL YEAR Keebler's fiscal year consists of thirteen four week periods (fifty-two or fifty-three weeks) and ends on the Saturday nearest December 31. The 1999 and 1998 fiscal years consisted of fifty-two weeks and the 1997 fiscal year consisted of fifty-three weeks. PRINCIPLES OF CONSOLIDATION All subsidiaries are wholly-owned and included in the consolidated financial statements of Keebler. Intercompany accounts and transactions have been eliminated. GUARANTEES OF NOTES The subsidiaries of Keebler that are not Guarantors of the Senior Subordinated Notes are inconsequential (which means that the total assets, revenues, income or equity of such non-guarantors, both individually and on a combined basis, is less than 3% of Keebler's consolidated assets, revenues, income or equity), individually and in the aggregate, to the consolidated financial statements of Keebler. The guarantees are full, unconditional and joint and several. Separate financial statements of the Guarantors are not presented because management has determined that they would not be material to investors in the Senior Subordinated Notes. F-8 9 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION (CONTINUED) RECLASSIFICATIONS Certain reclassifications of prior years' data have been made to conform with the current year reporting. 2. ACQUISITION OF PRESIDENT INTERNATIONAL, INC. On September 28, 1998, Keebler acquired President International, Inc. from President International Trade and Investment Corporation, a company limited by shares under the International Business Companies Ordinance of the British Virgin Islands, for an aggregate purchase price of $446.1 million, excluding related fees and expenses paid of $4.5 million. The acquisition of President was a cash transaction funded with approximately $75.0 million from existing resources and the remainder from borrowings under the $700.0 million Senior Credit Facility Agreement ("Credit Facility") and a $125.0 million Bridge Facility, both dated as of September 28, 1998. The acquisition of President by Keebler has been accounted for as a purchase. The total purchase price and the fair value of liabilities assumed have been allocated to the tangible and intangible assets of President based on respective fair values. The acquisition has resulted in an unallocated excess purchase price over fair value of net assets acquired of $329.2 million, which is being amortized on a straight-line basis over a forty year period. Results of operations for President from September 28, 1998, have been included in the consolidated statements of operations. The following unaudited pro forma information has been prepared assuming the acquisition had taken place at the beginning of fiscal year 1997. The unaudited pro forma information includes adjustments for interest expense that would have been incurred related to financing the purchase, additional depreciation of the property, plant and equipment acquired and amortization of the trademarks, trade names, other intangibles and goodwill arising from the acquisition. The unaudited pro forma consolidated results of operations are not necessarily indicative of the results that would have been reported had the President acquisition been effected on the assumed date.
Unaudited (IN THOUSANDS, EXCEPT PER SHARE DATA) For the Years Ended ------------------------------------ January 2, 1999 January 3, 1998 ----------------- ----------------- Net sales.............................. $2,583.5 $2,501.5 Income before extraordinary item....... $ 104.7 $ 56.7 Net income............................. $ 102.7 $ 49.3 Diluted net income per share: Income before extraordinary item... $ 1.20 $ 0.70 Net income......................... $ 1.18 $ 0.61
3. RESTRUCTURING AND IMPAIRMENT CHARGE As part of the continuing process of integrating the business of President into the Company's operations, on May 14, 1999, Keebler announced the decision to close its manufacturing facility in Sayreville, New Jersey due to excess capacity within the Company's 15-plant manufacturing network. As a result, a pre-tax restructuring and impairment charge to operating income of $66.3 million was recorded in 1999. The restructuring and impairment charge included $20.2 million for cash costs related to severance and other exit costs from the Sayreville facility. The remaining $46.1 million was non-cash charges for asset impairments related to the Sayreville closing, including write-downs of property, plant and equipment at Sayreville and equipment at other locations, and a proportionate reduction of goodwill acquired in the acquisition of Sunshine in June 1996. The impairment charge for equipment at other locations resulted from a combination of factors. The acquisition of President brought a new capability to Keebler's production network. The President baking process is principally based on shorter, more flexible ovens compared to the larger ovens common to Keebler and Sunshine bakeries. This new capability resulted in a comprehensive analysis of system-wide production needs. The acquisition and resulting exit plans of Keebler, Sunshine and President, when considered together, resulted in redundant productive equipment, which ultimately became idle. F-9 10 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. RESTRUCTURING AND IMPAIRMENT CHARGE (CONTINUED) The original $69.2 million charge recorded in the second quarter of 1999 was reduced by a fourth quarter adjustment of $2.9 million. The adjustment was for costs related to severance and other exit costs from the facility due to lower-than-expected severance costs and an earlier-than-expected disposal of the facility. Of the total $66.3 million charge, approximately $65.6 million was recorded as plant and facility closing costs and severance, with the remaining $0.7 million recorded as other liabilities and accruals. Approximately 650 employees were expected to be terminated as a result of the closing of the Sayreville facility, of which approximately 600 employees were represented by unions. At January 1, 2000, approximately 595 employees under union contract and approximately 45 employees not under union contract had been terminated. The following table sets forth the activity related to the liabilities accrued in conjunction with the restructuring and impairment charge:
January 2, JANUARY 1, (IN THOUSANDS) 1999 Provision Spending Adjustment 2000 -------------- -------------- -------------- -------------- -------------- Severance............... $ - $ 15,564 $ (12,442) $ (1,085) $ 2,037 Facility closure........ - 4,570 (438) (1,565) 2,567 Fixed asset impairment.. - 37,824 (37,824) - - Goodwill impairment..... - 7,600 (7,600) - - Other................... - 3,650 (1,724) (209) 1,717 ----------- ------------ ----------- ----------- ----------- Total............... $ - $ 69,208 $ (60,028) $ (2,859) $ 6,321 =========== ============ =========== =========== ===========
At January 1, 2000, $6.0 million remained for plant and facility closing costs and severance accruals and $0.3 million for other liabilities and accruals. Substantially all of the remaining severance liability is expected to be spent in 2000, as nearly all employees have been terminated. Production at the Sayreville, New Jersey manufacturing facility ceased on September 3, 1999. Spending for exit costs associated with the closure of the facility will continue into the year 2000 as the facility is prepared for sale. Spending for exit costs related to the facility closure is expected to continue for eighteen months or until the facility is disposed of, whichever occurs earlier. The majority of the remaining reserves are cash costs. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS All highly liquid instruments purchased with an original maturity of three months or less are classified as cash equivalents. The carrying amount of cash equivalents approximates fair value due to the relatively short maturity of these investments. TRADE ACCOUNTS RECEIVABLE Substantially all of Keebler's trade accounts receivable are from retail dealers and wholesale distributors. Keebler performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Trade accounts receivable, as shown on the consolidated balance sheets, were net of allowances of $8.6 million as of January 1, 2000 and $7.8 million as of January 2, 1999. INVENTORIES Inventories are stated at the lower of cost or market with cost determined principally by the last-in, first-out ("LIFO") method. Inventories stated under the LIFO method represent approximately 94% of total inventories at both January 1, 2000 and at January 2, 1999. Because Keebler has adopted a natural business unit single pool approach to determining LIFO inventory cost, classification of the LIFO reserve by inventory component is impractical. There was no reserve required at January 1, 2000 or January 2, 1999 to state the inventory on a LIFO basis. F-10 11 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) At January 1, 2000 and January 2, 1999, inventories are shown net of an allowance for slow-moving and aged inventory of $6.7 million and $9.6 million, respectively. Keebler often enters into exchange traded commodity futures and options contracts to protect or hedge against adverse raw material price movements related to anticipated inventory purchases. Realized gains or losses on contracts are determined based on the stated market value at the time the contracts are liquidated or expire and are deferred in inventory until the underlying raw material is purchased. Gains or losses realized from the liquidation or expiration of the contracts are recognized as part of the cost of raw materials. Cost of sales was increased by losses on futures and options transactions of $9.2 million, $7.1 million and $3.8 million in the years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. The notional amount of open futures and options contracts at January 1, 2000 and January 2, 1999 was $48.7 million and $61.7 million, respectively. The fair values of the open futures and options contracts at January 1, 2000 and January 2, 1999, based on the stated market value at those dates, were $44.1 million and $57.9 million, respectively. The open contracts at January 1, 2000, will expire between March 2000 and December 2000. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation expense is computed using the straight-line method based on the estimated useful lives of the depreciable assets. Certain facilities and equipment held under capital leases are classified as property, plant and equipment and amortized using the straight-line method over the lease terms, and the related obligations are recorded as liabilities. Lease amortization is included in depreciation expense. TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES Trademarks, trade names and other intangibles are stated at cost and are amortized on a straight-line basis over a period of twenty to forty years. Accumulated amortization of trademarks, trade names and other intangibles was $18.9 million and $11.8 million at January 1, 2000 and January 2, 1999, respectively. GOODWILL Goodwill represents the excess cost over the fair value of the tangible and identifiable intangible net assets of acquired businesses. Goodwill is amortized on a straight-line basis over a period of forty years. Accumulated amortization of goodwill was $14.7 million and $4.9 million at January 1, 2000 and January 2, 1999, respectively. REVENUE RECOGNITION Revenue from the sale of products is recognized at the time of the shipment to customers. RESEARCH AND DEVELOPMENT Activities related to new product development and major improvements to existing products and processes are expensed as incurred and were $13.1 million for the year ended January 1, 2000, and $10.2 million for the years ended January 2, 1999 and January 3, 1998, respectively. ADVERTISING AND CONSUMER PROMOTION Advertising and consumer promotion costs are generally expensed when incurred or no later than when the advertisement appears or the event is run. Advertising and consumer promotion expense was $87.3 million, $87.2 million and $67.6 million for the years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. There were no deferred advertising costs at January 1, 2000 or January 2, 1999. F-11 12 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DERIVATIVE FINANCIAL INSTRUMENTS Keebler uses derivative financial instruments as part of an overall strategy to manage market risk. Keebler uses forward commodity futures and options contracts to hedge existing or future exposures to changes in commodity prices. Interest rate swap agreements are used to reduce the impact of changes in interest rates. Keebler does not enter into these derivative financial instruments for trading or speculative purposes (See Note 8). INCOME TAXES The consolidated financial statements reflect the application of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting For Income Taxes." Keebler files a consolidated federal income tax return. IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the determination as to whether there has been an impairment of long-lived assets and the related unamortized goodwill, is based on whether certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost of any long-lived assets and the related unamortized goodwill may be impaired, an evaluation of recoverability would be performed. If an evaluation were required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is required. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The new statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recognized as either assets or liabilities in the statement of financial position and that the instruments be measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. However, in June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133 - an amendment to FASB Statement No. 133." Citing concerns about companies' ability to both modify their information systems for year 2000 readiness and become educated with the new derivatives and hedging standard, the FASB has delayed the effective date on SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. We have not yet determined the impact SFAS No. 133 may have on the consolidated financial statements. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. F-12 13 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment, including related accumulated depreciation follows:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 ----------------- ----------------- Land................................ $ 16,290 $ 18,374 Buildings........................... 138,288 140,907 Machinery and equipment............. 437,032 424,574 Office furniture and fixtures....... 90,266 76,447 Delivery equipment.................. 6,689 7,208 Construction in progress............ 68,156 51,717 ------------ ------------ 756,721 719,227 Accumulated depreciation............ (203,690) (154,703) ------------ ------------ Total.......................... $ 553,031 $ 564,524 ============ ============
Property, plant and equipment is depreciated on a straight-line basis over the estimated useful lives of the depreciable assets. Buildings are depreciated over a useful life of ten to forty years. Machinery and equipment is depreciated over a useful life of three to twenty-five years. Office furniture and fixtures are depreciated over a useful life of three to fifteen years. Delivery equipment is depreciated over a useful life of two to twelve years. 6. ASSETS HELD FOR SALE On May 14, 1999, management announced the closure of the Sayreville, New Jersey manufacturing facility in order to eliminate excess capacity within Keebler's manufacturing network. As part of the total restructuring and impairment charge, the Sayreville facility was placed for sale together with other idle machinery and equipment held at various Keebler facilities. Disposition of the remaining assets held for sale is expected to occur within the next eighteen months without a significant gain or loss. Also in 1999, land in Fort Worth, Texas, which had been acquired in conjunction with the President acquisition in 1998, was placed for sale. This land, along with a warehouse in Houston, Texas and a distribution center in Kensington, Connecticut, which had both been held for sale during 1998, were disposed of in the current year without a significant gain or loss. Additionally, in June 1999, the Atlanta, Georgia manufacturing facility, which had been held for sale, was sold for $1.2 million with a realized loss of approximately $0.6 million. During 1998, Keebler had recognized an impairment charge of $0.9 million in order to reflect the Atlanta, Georgia manufacturing facility at fair value. 7. OTHER CURRENT LIABILITIES AND ACCRUALS Other current liabilities and accruals consisted of the following at January 1, 2000 and January 2, 1999:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 ----------------- ----------------- Self insurance reserves............. $ 52,266 $ 52,202 Employee compensation............... 72,527 73,017 Marketing and consumer promotions... 60,954 53,027 Other............................... 51,700 53,841 ------------ ------------ Total.......................... $ 237,447 $ 232,087 ============ ============
F-13 14 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. OTHER CURRENT LIABILITIES AND ACCRUALS (CONTINUED) Keebler obtains insurance to manage potential losses and liabilities related to workers' compensation, health and welfare claims and general, product and vehicle liability. Keebler has elected to retain a significant portion of the expected losses through the use of deductibles and stop-loss limitations. Provisions for losses expected under these programs are recorded based on Keebler's estimates of aggregate liability for claims incurred. These estimates utilize Keebler's prior experience and actuarial assumptions provided by the Company's insurance carrier. The total estimated liability for these losses at January 1, 2000 and January 2, 1999 was $52.3 million and $52.2 million, respectively, and is included in other current liabilities and accruals. Keebler has collateralized its liability for potential self-insurance losses in several states by obtaining standby letters of credit which aggregate to approximately $18.6 million. 8. DEBT AND LEASE COMMITMENTS DEBT Long-term debt consisted of the following at January 1, 2000 and January 2, 1999:
(IN THOUSANDS) Interest Rate Final Maturity JANUARY 1, 2000 January 2, 1999 --------------- ------------------- ----------------- ----------------- Bridge Facility................ 6.263% September 26, 1999 $ - $ 75,000 Revolving Facility............. 5.843% September 28, 2004 - 85,000 Term Facility.................. 5.814% September 28, 2004 314,000 350,000 Senior Subordinated Notes...... 10.750% July 1, 2006 124,400 124,400 Other Senior Debt.............. Various 2001-2005 10,455 11,805 Capital Lease Obligations...... Various 2002-2042 7,588 8,290 ------------- ------------- 456,443 654,495 Less: Current maturities....... 37,283 112,730 ------------- ------------- Total..................... $ 419,160 $ 541,765 ============= =============
At January 1, 2000 and January 2, 1999, Keebler's primary credit financing was provided by a $700.0 million Credit Facility, consisting of $350.0 million under the Revolving Facility and $350.0 million under the Term Facility. At January 2, 1999, financing was also provided under a $125.0 million Bridge Facility. The current outstanding balance on the Term Facility at January 1, 2000, was $314.0 million, with quarterly scheduled principal payments through the final maturity of September 2004. The Revolving Facility, with no outstanding balance and an available balance of $350.0 million at January 1, 2000, also has a final maturity of September 2004, but with no scheduled principal payments. Certain letters of credit totaling $28.7 million reduce the available balance on the Revolving Facility. Any unused borrowings under the Revolving Facility are subject to a commitment fee. The current commitment fee will vary from 0.125% - 0.30% based on the relationship of debt to adjusted earnings. At January 1, 2000, the commitment fee was 0.125%. At January 2, 1999, the outstanding balance on the Term Facility was $350.0 million and the Revolving Facility had an outstanding balance of $85.0 million and an available balance of $265.0 million. Certain letters of credit totaling $42.2 million reduced the available balance on the Revolving Facility and any unused borrowings under the Revolving Facility were subject to a commitment fee. The commitment fee varied from 0.125% - 0.30% based on the relationship of debt to adjusted earnings with a minimum commitment fee of 0.20% required through March 28, 1999. The outstanding balance on the Bridge Facility at January 2, 1999, was $75.0 million, with an additional $50.0 million in available borrowings. Interest on the Credit Facility is calculated based on a base rate plus applicable margin. The base rate can, at Keebler's option, be: i) the higher of the base domestic lending rate as established by the administrative agent for the lender of the Credit Facility, or the Federal Funds Rate plus one-half of one percent or ii) a reserve percentage adjusted LIBO Rate as offered by the administrative agent. The Credit Facility requires Keebler to meet certain financial covenants including debt to earnings before interest, taxes, depreciation and amortization ratio and cash flow coverage ratios. Interest on the Bridge Facility was calculated in the same manner as the Credit Facility and also was restricted by the same financial covenants. F-14 15 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. DEBT AND LEASE COMMITMENTS (CONTINUED) The $75.0 million Bridge Facility outstanding at January 2, 1999, that had a final maturity of September 1999, with no scheduled principal payments, was refinanced on January 29, 1999. Keebler entered into a Receivables Purchase Agreement ("Agreement") to replace the $75.0 million of debt held under the Bridge Facility, allowing funds to be borrowed at a lower cost to the Company. The accounting for this Agreement is governed by SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Under the guidelines of SFAS No. 125, a special-purpose entity was created, Keebler Funding Corporation, as a subsidiary of Keebler Foods Company. All transactions under this Agreement occur through Keebler Funding Corporation and are treated as a sale of accounts receivable and not as a debt instrument. At January 1, 2000, a net $103.0 million of accounts receivable had been sold at fair value, which is below the maximum amount currently available under the Agreement. In conjunction with the President acquisition on September 28, 1998, Term Loan A was extinguished by using $145.0 million of borrowings under the new Credit Facility. Keebler recorded a before-tax extraordinary charge of $2.8 million related primarily to expensing certain bank fees which were being amortized and which were incurred at the time Term Loan A was issued. The related after-tax charge was $1.7 million. At January 3, 1998, Keebler's primary credit financing was provided by a $380.0 million Second Amended and Restated Credit Agreement ("Credit Agreement") consisting of a $140.0 million Revolving Loan facility and a $240.0 million Term Loan of which the outstanding balance at January 3, 1998 was $156.0 million. The amendment to the Credit Agreement was entered into on April 8, 1997, to obtain more favorable terms, fees and interest rates. The interest expense, including commitment fee, on the Credit Agreement was calculated in substantially the same manner as is done under the current Credit Facility. During the fourth quarter of 1997, using existing cash resources, Keebler pre-paid $70.0 million of principal on Term Loan A; $30.0 million on December 8, 1997 and $40.0 million on November 10, 1997. The pre-payments resulted in the recognition of a $1.1 million after-tax extraordinary charge related to the expensing of certain unamortized bank fees which were incurred at the time Term Loan A was issued. On November 21, 1997, Keebler settled a Seller Note with a payment of $31.7 million funded through working capital. Keebler assumed the $32.5 million Seller Note, previously held by INFLO, as a result of the Merger. The Seller Note did not bear interest until January 26, 1999 and was recorded at a discounted value of $24.4 million on January 26, 1996. The discount was being amortized over three years at an effective interest rate of 10.0%. Keebler recorded a before-tax extraordinary charge of $2.6 million on the early extinguishment of debt. The related after-tax charge was $1.6 million. In conjunction with the amendment to the Credit Agreement on April 8, 1997, Term Loans B and C were extinguished using $40.0 million of borrowings under the Revolving Loan facility, $109.8 million of increased borrowings against Term Loan A and $3.8 million from cash resources. Keebler recorded a before-tax extraordinary charge of $4.6 million related primarily to expensing certain unamortized bank fees which were incurred at the time Term Loans B and C were issued. The related after-tax charge was $2.7 million. Interest of $37.5 million, $24.0 million and $39.0 million was paid on debt for the years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. Aggregate scheduled annual maturities of long-term debt as of January 1, 2000 are as follows:
(IN THOUSANDS) 2000....................................... $ 37,283 2001....................................... 42,162 2002....................................... 68,647 2003....................................... 105,596 2004....................................... 75,769 2005 and thereafter........................ 126,986 ----------- Total................................. $ 456,443 ===========
F-15 16 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. DEBT AND LEASE COMMITMENTS (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair market value of financial instruments, which includes short- and long-term borrowings, was estimated using discounted cash flow analyses based on current interest rates which would be obtained for similar financial instruments. The carrying value of cash and cash equivalents and short-term debt approximates fair value because of the short-term maturity of the instruments. The fair value of long-term debt was $417.2 million and $536.6 million at January 1, 2000 and January 2, 1999, respectively, which was based on current rates offered to Keebler for similar debt with the same maturities. Keebler uses interest-rate swap agreements to effectively convert certain fixed rate debt to a floating rate instrument and certain floating rate debt to a fixed rate instrument. The interest rate swap agreements result in Keebler paying or receiving the difference between the fixed and floating rates at specified intervals calculated based on the notional amounts. The interest rate differential to be paid or received is accrued as interest rates change and is recorded as interest expense. The fair values of the swap agreements were obtained from the Bank of Nova Scotia and were estimated using market prices at each respective year end. The fair values of the swap agreements are typically not recognized in the financial statements as Keebler accounts for the agreements as hedges. In 1998, Keebler had entered into four swap transactions expiring between 2001 and 2004. There were no new swap transactions entered into during 1999. On July 1, 1998, Keebler entered into a swap transaction with the Bank of Nova Scotia, who also serves as the administrative agent for the lenders under the Credit Facility, which matures on July 1, 2001. The swap transaction had the effect of converting the fixed rate of 10.75% on $124.0 million of the Notes to a rate of 11.33% through July 3, 2000. In addition, on September 30, 1998 and October 5, 1998, Keebler entered into two swap transactions with the Bank of Nova Scotia both maturing on September 30, 2004. Each swap transaction converts the base rate on $105.0 million of the Credit Facility to fixed rate debt of 5.084% and 4.89%, respectively. The estimated fair values of the hedged swap agreements at January 1, 2000 and January 2, 1999, were a net receivable of $7.9 million and $1.1 million, respectively. In 1999, Keebler also maintained an interest rate swap that no longer served as a hedge with the Bank of Nova Scotia, which has a notional amount of $170.0 million and a fixed rate obligation of 5.0185% through February 1, 2001. During the year, $2.8 million was recognized in income from operations in order to mark-to-market the interest rate swap. The receivable resulting from this transaction was recorded as a $0.5 million current receivable in other current assets and a $2.3 million long-term receivable in other assets in the consolidated balance sheet. LEASE COMMITMENTS Assets recorded under capitalized lease agreements included in property, plant and equipment consist of the following:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 --------------- --------------- Land.......................... $ 980 $ 980 Buildings..................... 2,894 2,894 Machinery and equipment....... 2,842 2,853 Other leased assets........... 1 1 ------------- ------------- 6,717 6,728 Accumulated depreciation...... (417) (242) ------------- ------------- Total.................... $ 6,300 $ 6,486 ============= =============
F-16 17 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. DEBT AND LEASE COMMITMENTS (CONTINUED) Future minimum lease payments under scheduled capital and operating leases that have initial or remaining noncancelable terms in excess of one year are as follows:
Capital Operating (IN THOUSANDS) Leases Leases ----------- ----------- 2000.......................................... $ 1,046 $ 32,230 2001.......................................... 1,063 26,690 2002.......................................... 1,390 21,375 2003.......................................... 449 18,725 2004.......................................... 4,827 11,152 2005 and thereafter........................... 1,324 24,312 ----------- ----------- Total minimum payments........................ 10,099 $ 134,484 =========== Amount representing interest.................. (2,511) ----------- Obligations under capital lease............... 7,588 Obligations due within one year............... (670) ----------- Long-term obligations under capital leases.... $ 6,918 ===========
Rent expense for all operating leases was $50.1 million, $38.7 million and $36.1 million for the years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. 9. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE During 1998, as part of accounting for the acquisition of President, Keebler recognized costs pursuant to a plan to exit certain activities and operations of the acquired company. These exit costs, for which there is no future economic benefit, were provided for in the allocation of the purchase price and totaled $12.8 million. Staff reductions were estimated at $6.7 million, with the balance of the reserves allocated to costs associated with manufacturing, sales and distribution facility closings, which principally include lease termination and carrying costs. Initially, it was estimated that 410 employees were to be terminated as a result of this plan, of which approximately 175 employees were represented by a union. At January 1, 2000, approximately 40 employees not under union contract had been terminated. In addition, during the year management reviewed its exit plan and made a determination that approximately 110 employees not under union contract, would not be terminated. During the year ended January 1, 2000, Keebler adjusted accruals previously established in the accounting for the President acquisition by reducing goodwill and other intangibles by $4.5 million to recognize exit costs that are now expected to be less than initially anticipated. The remainder of management's exit plan is expected to be substantially complete before the end of 2000, with only noncancelable lease obligations to be paid over the next six years concluding in 2006. During 1996, as part of acquiring Keebler and Sunshine, management adopted and began executing a plan to reduce costs and inefficiencies. Certain exit costs totaling $77.4 million were provided for in the allocation of the purchase price of both the Keebler and Sunshine acquisitions. Management's plan included company-wide staff reductions, the closure of manufacturing, distribution and sales force facilities and information system exit costs. Severance, outplacement and other related costs associated with staff reductions were initially estimated at $30.7 million. Costs incurred related to the closing of manufacturing, distribution and sales force facilities, which include primarily severance and lease termination and carrying costs, were expected to total $39.9 million. Approximately 1,420 employees were terminated as a result of this plan. An additional $6.8 million was anticipated for lease costs related to exiting legacy information systems. During the year ended January 1, 2000, Keebler adjusted accruals previously established in the accounting for the Keebler acquisition by reducing goodwill and other intangibles by $0.5 million and reversing $1.3 million into income from operations to recognize exit costs that are now expected to be less than initially anticipated. The $1.3 million was credited to operating income as it had originally been charged to income from operations in the year ended January 3, 1998, January 2, 1999 or January 1, 2000. During the year ended January 2, 1999, Keebler also adjusted accruals previously established in the accounting for the Keebler and Sunshine acquisitions by reducing goodwill and other intangibles by $3.7 million to recognize exit costs that are now expected to be less than initially anticipated. Only noncancelable lease obligations are anticipated to extend beyond 2000, to be paid over the next six years concluding in 2006. F-17 18 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED) In addition, during the years ended January 1, 2000, January 2, 1999 and January 3, 1998, Keebler expensed an additional $0.8 million, $2.8 million and $2.7 million, respectively. These charges were principally for costs related to the closure of distribution facilities not included in the original plan adopted by management for the acquisition of Keebler Company. The following table sets forth the activity in Keebler's plant and facility closing costs and severance liabilities exclusive of the liabilities resulting from the restructuring and impairment charge recorded in 1999:
(IN THOUSANDS) December 28, 1996 Provision Spending Adjustment January 3, 1998 ----------------- -------------- -------------- -------------- ----------------- KEEBLER COMPANY - --------------- Severance .................. $ 3,293 $ 85 $(3,147) $ -- $ 231 Facility closure ........... 13,933 2,482 (3,910) -- 12,505 Other ...................... 3,771 100 (1,976) -- 1,895 ------- ------ ------- --------- ------- Subtotal ................. 20,997 2,667 (9,033) -- 14,631 ------- ------ ------- --------- ------- SUNSHINE BISCUITS, INC. - ----------------------- Severance .................. $ 3,114 $ -- $(3,002) $ -- $ 112 Facility closure ........... 11,873 -- (4,138) -- 7,735 Other ...................... -- -- -- -- -- ------- ------ ------- --------- ------- Subtotal ................. 14,987 -- (7,140) -- 7,847 ------- ------ ------- --------- ------- TOTAL .................. $35,984 $2,667 $(16,173) $ -- $22,478 ======= ====== ======= ========= =======
(IN THOUSANDS) January 3, 1998 Provision Spending Adjustment January 2, 1999 --------------- --------- -------- ---------- --------------- KEEBLER COMPANY - --------------- Severance .................. $ 231 $ 139 $ (293) $ (28) $ 49 Facility closure ........... 12,505 2,662 (3,265) (418) 11,484 Other ...................... 1,895 -- (1,689) (182) 24 ------- ------ ------- --------- ------- Subtotal ................. 14,631 2,801 (5,247) (628) 11,557 ------- ------ ------- --------- ------- SUNSHINE BISCUITS, INC. - ----------------------- Severance .................. $ 112 $ -- $ (26) $ -- $ 86 Facility closure ........... 7,735 -- (2,388) (3,120) 2,227 Other ...................... -- -- -- -- -- ------- ------ ------- --------- ------- Subtotal ................. 7,847 -- (2,414) (3,120) 2,313 ------- ------ ------- --------- ------- PRESIDENT INTERNATIONAL, INC. - ----------------------------- Severance .................. $ -- $ 6,653 $ (59) $ -- $ 6,594 Facility closure ........... -- 5,670 -- -- 5,670 Other ...................... -- 447 -- -- 447 ------- ------- ------- ------- ------- Subtotal ................. -- 12,770 (59) -- 12,711 ------- ------- ------- ------- ------- TOTAL .................. $22,478 $15,571 $(7,720) $(3,748) $26,581 ======= ======= ======= ======= =======
F-18 19 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED)
(IN THOUSANDS) January 2, 1999 Provision Spending Adjustment JANUARY 1, 2000 --------------- -------------- -------------- -------------- --------------- KEEBLER COMPANY - --------------- Severance .......... $ 49 $ 25 $ (50) $ -- $ 24 Facility closure ... 11,484 751 (2,646) (1,760) 7,829 Other .............. 24 -- (14) (10) -- -------------- -------------- -------------- -------------- -------------- Subtotal ....... 11,557 776 (2,710) (1,770) 7,853 -------------- -------------- -------------- -------------- -------------- SUNSHINE BISCUITS, INC. - ----------------------- Severance .......... $ 86 $ -- $ (23) $ -- $ 63 Facility closure ... 2,227 -- (265) -- 1,962 Other .............. -- -- -- -- -- -------------- -------------- -------------- -------------- Subtotal ....... 2,313 -- (288) -- 2,025 -------------- -------------- -------------- -------------- PRESIDENT INTERNATIONAL, INC. - ----------------------------- Severance ....... $ 6,594 $ -- $ (576) $ (3,189) $ 2,829 Facility closure 5,670 -- (83) (991) 4,596 Other ........... 447 -- (118) (319) 10 -------------- -------------- -------------- -------------- Subtotal .... 12,711 -- (777) (4,499) 7,435 -------------- -------------- -------------- -------------- TOTAL ..... $ 26,581 $ 776 $ (3,775) $ (6,269) $ 17,313 ============== ============== ============== ============== ==============
10. EMPLOYEE BENEFIT PLANS The Retirement Plan for Salaried and Certain Hourly--Paid Employees of Keebler Company (the "pension plan") is a trusteed, noncontributory, defined--benefit, pension plan. The pension plan covers certain salaried and hourly--paid employees. Assets held by the pension plan consist primarily of common stocks, government securities, bonds, mortgages and money market funds. Benefits provided under the pension plan are primarily based on years of service and the employee's final level of compensation. Keebler's funding policy is to contribute annually not less than the ERISA minimum funding requirements. Effective December 31, 1998, the pension plans of President were merged with Keebler's pension plan. Pension expense included the following components:
Years Ended -------------------------------------------------------- (IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998 ---------------- --------------- --------------- Service cost .................................................... $ 13,364 $ 9,040 $ 8,560 Interest cost ................................................... 32,841 31,080 29,673 Expected return on plan assets .................................. (41,887) (39,352) (37,935) Amortization of prior service cost .............................. 689 689 -- Amortization of net loss ........................................ 43 -- -- -------------- -------------- -------------- Pension expense ................................................. $ 5,050 $ 1,457 $ 298 ============== ============== ==============
The expected long--term rate of return on plan assets was 8.7% for the year ended January 1, 2000 and 9.0% for the years ended January 2, 1999 and January 3, 1998, respectively. F-19 20 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. EMPLOYEE BENEFIT PLANS (CONTINUED) The funded status of Keebler's pension plan and amounts recognized in the consolidated balance sheets are as follows:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 --------------- --------------- Change in projected benefit obligation: Benefit obligation at beginning of year ....................... $ (520,312) $ (437,334) Service cost .................................................. (13,364) (9,040) Interest cost ................................................. (32,841) (31,080) Amendments .................................................... -- (4,874 Actuarial gain (loss) ......................................... 60,261 (45,871) Acquisition ................................................... -- (22,805 Benefits and expenses paid .................................... 30,009 30,692 Curtailment gain .............................................. 897 -- -------------- -------------- Benefit obligation at year end ................................ (475,350) (520,312) -------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year ................ 565,710 499,379 Actual return on plan assets .................................. 2,253 77,731 Employer contributions ........................................ 115 -- Acquisition ................................................... -- 19,292 Benefits and expenses paid .................................... (30,009) (30,692) -------------- -------------- Fair value of plan assets at year end ......................... 538,069 565,710 -------------- -------------- Funded status ................................................. 62,719 45,398 Unrecognized actuarial gain ................................... (37,209) (16,538) Unrecognized prior service cost ............................... 7,730 9,230 Contributions subsequent to measurement date .................. -- 115 -------------- -------------- Prepaid pension ............................................... $ 33,240 $ 38,205 ============== ==============
The pension plan uses the September 30 preceding the fiscal year end as the measurement date. Assumptions used in accounting for the pension plan at each of the respective year ends are as follows:
Years Ended ------------------------------------------------------- JANUARY 1, 2000 January 2, 1999 January 3, 1998 ------------------------------------------------------- Discount rate......................................... 7.5% 6.5% 7.3% Rate of compensation level increases.................. 4.5 4.0 4.0
As a result of the closure of the Sayreville, New Jersey manufacturing facility in 1999, the plan recognized a net curtailment gain of $0.1 million resulting from a liability gain of $0.9 million offset by the recognition of $0.8 million of unrecognized prior service cost. The plan assets, as of January 1, 2000 and January 2, 1999, include a real estate investment of $3.1 million in a distribution center which is under an operating lease to Keebler. In addition to the pension plan, Keebler also maintains an unfunded supplemental retirement plan for certain highly compensated former executives and an unfunded plan for certain highly compensated current and former executives ("the excess retirement plan"). Benefits provided are based on years of service. F-20 21 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. EMPLOYEE BENEFIT PLANS (CONTINUED) The supplemental retirement plan expense includes the following components:
Years Ended -------------------------------------------------------- (IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998 -------------------------------------------------------- Interest cost ................................................... $ 698 $ 722 $ 732 -------------- -------------- Plan expense .................................................... $ 698 $ 722 $ 732 ============== ============== ==============
The unfunded status of the supplemental retirement plan and the amounts recognized in the consolidated balance sheets are as follows:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 --------------- --------------- Change in projected benefit obligation: Benefit obligation at beginning of year ....................... $ (11,119) $ (10,303) Interest cost ................................................. (698) (722) Actuarial gain (loss) ......................................... 944 (844) Benefits and expenses paid .................................... 640 750 -------------- -------------- Benefit obligation at year end ................................ (10,233) (11,119) Fair value of plan assets ..................................... -- -- -------------- -------------- Funded status ................................................. (10,233) (11,119) Unrecognized actuarial loss (gain) ............................ (558) 387 Benefit payments subsequent to measurement date ............... 168 109 -------------- -------------- Accrued obligation ............................................ $ (10,623) $ (10,623) ============== ==============
The excess retirement plan expense includes the following components:
Years Ended -------------------------------------------------------- (IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- Service cost .................................................... $ 431 $ 173 $ 306 Interest cost ................................................... 155 78 43 Amortization of net loss (gain) ................................. 8 (47) (84) -------------- -------------- -------------- Pension expense ................................................. $ 594 $ 204 $ 265 ============== ============== ==============
The unfunded status of the excess retirement plan and the amounts recognized in the consolidated balance sheets are as follows:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 --------------- --------------- Change in projected benefit obligation: Benefit obligation at beginning of year ....................... $ (2,395) $ (1,085) Service cost .................................................. (431) (173) Interest cost ................................................. (155) (78) Actuarial loss ................................................ (158) (1,076) Benefits and expenses paid .................................... 31 17 -------------- -------------- Benefit obligation at year end ................................ (3,108) (2,395) Fair value of plan assets ..................................... -- -- -------------- -------------- Funded status ................................................. (3,108) (2,395) Unrecognized actuarial loss ................................... 501 351 Benefit payments subsequent to measurement date ............... 17 -- -------------- -------------- Accrued obligation ............................................ $ (2,590) $ (2,044) ============== ==============
F-21 22 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. EMPLOYEE BENEFIT PLANS (CONTINUED) The supplemental and excess retirement plans use the September 30 preceding the fiscal year end as the measurement date. Assumptions used in accounting for the supplemental and excess retirement plans for each of the respective year ends are as follows:
Years Ended ----------------------------------------------------------- JANUARY 1, 2000 January 2, 1999 January 3, 1998 ----------------- ----------------- ----------------- Discount rate......................................... 7.5% 6.5% 7.3% Rate of compensation level increase................... 4.5 4.0 4.0
Contributions are also made by Keebler to a retirement program for Grand Rapids union employees. Benefits provided under the plan are based on a flat monthly amount for each year of service and are unrelated to compensation. Contributions are made based on a negotiated hourly rate. For the years ended January 1, 2000, January 2, 1999 and January 3, 1998, Keebler expensed contributions of $2.5 million, $2.3 million and $2.6 million, respectively. Keebler contributes to various multiemployer union administered defined--benefit and defined--contribution pension plans. Benefits provided under the multiemployer pension plans are generally based on years of service and employee age. Expense under these plans was $6.8 million, $8.9 million and $10.5 million for the years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. 11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Keebler provides certain medical and life insurance benefits for eligible retired employees. The medical plan, which covers nonunion and certain union employees with ten or more years of service, is a comprehensive indemnity--type plan. The plan incorporates an up--front deductible, coinsurance payments and employee contributions which are based on length of service. The life insurance plan offers a small amount of coverage versus the amount the employees had while employed. Keebler does not fund the plan. The net periodic postretirement benefit expense includes the following components:
(IN THOUSANDS) Years Ended ------------------------------------------------------- JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- Service cost .................................................... $ 2,178 $ 2,045 $ 2,242 Interest cost ................................................... 3,424 3,961 3,888 Amortization of prior service cost .............................. (115) (115) -- Amortization of net gain ........................................ (375) -- -- -------------- -------------- -------------- Net periodic postretirement benefit cost ........................ $ 5,112 $ 5,891 $ 6,130 ============== ============== ==============
F-22 23 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED) The unfunded status of the plan reconciled to the postretirement obligation in Keebler's consolidated balance sheets is as follows:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 ----------------- --------------- Change in accumulated postretirement benefit obligation: Benefit obligation at beginning of year ....................... $ (56,269) $ (56,690) Service cost .................................................. (2,178) (2,045) Interest cost ................................................. (3,424) (3,961) Amendments .................................................... 8,531 -- Actuarial gain ................................................ 717 3,641 Acquisition ................................................... -- (1,598) Curtailment gain .............................................. 108 -- Benefits and expenses paid .................................... 4,411 4,384 -------------- -------------- Benefit obligation at year end ................................ (48,104) (56,269) Fair value of plan assets ..................................... -- -- -------------- -------------- Funded status ................................................. (48,104) (56,269) Unrecognized actuarial gain ................................... (8,187) (7,856) Unrecognized prior service cost ............................... (8,897) (574) Benefit payments subsequent to measurement date ............... 880 978 -------------- -------------- Postretirement obligation ..................................... $ (64,308) $ (63,721) ============== ==============
The plan was amended in 1999 for a change in the calculation of retiree contribution rates that resulted in an $8.5 million reduction to the benefit obligation and a corresponding decrease in unrecognized prior service cost. In addition, as a result of the closure of the Sayreville, New Jersey manufacturing facility in 1999, the plan also recognized a net curtailment gain of $0.2 million resulting in a liability reduction of $0.1 million plus the recognition of $0.1 million of unrecognized prior service credit. The accumulated postretirement benefit obligation was determined using a weighted average discount rate of 7.5%, 6.5% and 7.3% for the years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. The plan uses the September 30 preceding the fiscal year end as the measurement date. The weighted average annual assumed rate of increase in the cost of covered benefits was 8.0% for 1999 declining to an ultimate trend rate of 5.0% in 2002. A 1% increase in the trend rate for health care costs would have increased the accumulated benefit obligation for the year ended January 1, 2000 by $1.9 million and the net periodic benefit cost by $0.3 million. A 1% decrease in the trend rate for health care costs would have decreased the accumulated benefit obligation and net periodic benefit cost by $1.8 million and $0.3 million, respectively, for the year ended January 1, 2000. Keebler also provides postemployment medical benefits to employees on long--term disability. The plan is a comprehensive indemnity--type plan which covers nonunion employees on long--term disability. There is no length of service requirement. The plan incorporates coinsurance payments and deductibles. Keebler does not fund the plan. The postemployment obligation included in the consolidated balance sheets at January 1, 2000 and January 2, 1999 was $5.5 million and $4.7 million, respectively. F-23 24 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. INCOME TAXES The components of income tax expense were as shown below:
Years Ended ------------------------------------------------------- (IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- Current: Federal ....................................................... $ 71,794 $ 58,269 $ 22,172 State ......................................................... 6,739 4,618 3,840 -------------- -------------- -------------- Current provision for income taxes .............................. 78,533 62,887 26,012 Deferred: Federal ....................................................... (4,837) 8,494 17,203 State ......................................................... (521) 1,581 1,954 -------------- -------------- -------------- Deferred provision for income taxes ............................. (5,358) 10,075 19,157 -------------- -------------- -------------- $ 73,175 $ 72,962 $ 45,169 ============== ============== ==============
The differences between the income tax expense calculated at the federal statutory income tax rate and Keebler's consolidated income tax expense are as follows:
Years Ended ------------------------------------------------------- (IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- State income taxes (net of federal benefit) ..................... 5,849 5,813 3,766 Intangible amortization ......................................... 6,306 3,160 1,836 All others ...................................................... 4,537 4,650 1,924 -------------- -------------- -------------- $ 73,175 $ 72,962 $ 45,169 ============== ============== ==============
The deferred tax assets and deferred tax (liabilities) recorded on the consolidated balance sheets consist of the following:
(IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 --------------- --------------- Depreciation .................................................... $ (57,604) $ (108,866) Trademarks, trade names and intangibles ......................... (64,887) (49,348) Prepaid pension ................................................. (13,327) (14,283) Inventory valuation ............................................. (559) (6,779) Other ........................................................... (10,503) -- -------------- -------------- (146,880) (179,276) -------------- -------------- Net operating loss carryforwards ................................ -- 80,195 Postretirement/postemployment benefits .......................... 26,778 26,171 Plant and facility closing costs and severance .................. 17,469 23,728 Workers' compensation ........................................... 5,695 14,769 Incentives and deferred compensation ............................ 7,801 12,063 Employee benefits ............................................... 11,000 10,879 Other ........................................................... -- 6,436 -------------- -------------- 68,743 174,241 Valuation allowance ............................................. -- (84,350) -------------- -------------- $ (78,137) $ (89,385) ============== ==============
F-24 25 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. INCOME TAXES (CONTINUED) In 1998, net operating loss carryforwards were approximately $207.1 million. All net operating loss carryforwards were used in 1999 to offset gains incurred through the Section 338 income tax election, which adjusted the tax basis of all assets and liabilities that resulted from the Keebler acquisition. The intangible asset related to the Keebler acquisition was reduced by $11.8 million as a result of resolving the preacquisition tax basis of acquired assets and liabilities. In 1999, the previously established valuation allowance on deferred tax assets of $84.4 million was eliminated due to the resolution of the uncertainty regarding the availability of preacquisition net operating losses. Income taxes paid, net of refunds, were approximately $49.6 million, $67.1 million and $9.9 million for the years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. 13. SHAREHOLDERS' EQUITY COMMON STOCK There were no cash dividends declared for the years ended January 1, 2000, January 2, 1999 or January 3, 1998. Keebler's ability to pay cash dividends is limited by the Credit Facility and the Senior Subordinated Notes. The most limiting dividend restriction exists under the Senior Subordinated Notes, which limits dividend payments to the sum of: (i) 50% of consolidated cumulative net income, (ii) net cash proceeds received from the issuance of capital stock, (iii) net cash proceeds received from the exercise of stock options and warrants, (iv) net cash proceeds received from the conversion of indebtedness into capital stock and (v) the net reduction in investments made by Keebler. TREASURY STOCK In March 1998, Keebler's Board of Directors authorized the repurchase, at management's discretion, of up to $30.0 million of shares of the Company's common stock. Keebler repurchased the remaining authorized shares in 1999, which fulfilled the treasury stock plan. The share repurchase program was primarily instituted to offset dilution, which may result from the exercise and sale of shares related to employee stock options. The repurchases of shares of common stock are recorded as treasury stock using the cost method and result in a reduction of shareholders' equity. Should the treasury shares be reissued, Keebler intends to use a first-in, first-out method of reissuance. 14. STOCK OPTION PLAN Keebler has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for employee stock options. Under APB 25, no compensation expense is recognized when the exercise price of options equals the fair value (market value) of the underlying stock options at the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, "Accounting for Stock--Based Compensation," and has been determined as if Keebler had accounted for its employee stock options under the fair value method of that Statement. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The following table summarizes the pro forma disclosures regarding net income and earnings per share for the years ended January 1, 2000, January 2, 1999 and January 3, 1998: F-25 26 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. STOCK OPTION PLAN (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA) YEARS ENDED - ------------------------------------ -------------------------------------------------------------- JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- Net income: As reported ...................................... $ 88,205 $ 94,871 $ 56,985 Pro forma ........................................ $ 86,890 $ 91,032 $ 55,032 Basic net income per share: As reported ...................................... $ 1.05 $ 1.14 $ 0.73 Pro forma ........................................ $ 1.04 $ 1.09 $ 0.71 Diluted net income per share: As reported ...................................... $ 1.01 $ 1.08 $ 0.70 Pro forma ........................................ $ 0.99 $ 1.04 $ 0.68 Weighted average grant date fair value of options granted during the year .......................... $ 11.88 $ 8.53 $ 8.09
These pro forma amounts may not be representative of future disclosures because the estimated fair value of stock options is amortized to expense over the vesting period, which is variable, and additional options may be granted in future years. In 1999 and 1998, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective input assumptions including the expected stock price volatility. Because Keebler's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of the pro forma disclosures for 1997, the fair value for the options was estimated at the date of grant using a present value approach as Keebler was not a public company. For options granted, the following weighted average assumptions were used to determine the fair value:
YEARS ENDED ----------------------------------------------------------- JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- ----------------- Dividend yield........................................ 0.0% 0.0% 0.0% Expected volatility................................... 24.8% 27.2% 0.0% Risk-free interest rate............................... 5.76% 5.04% 6.00% Expected option life (years).......................... 5 5 5
Under Keebler's 1996 Stock Option Plan, 9,673,594 shares of Keebler's stock were authorized for future grant. All options granted have ten year terms and, due to acceleration resulting from the achievement of certain performance measures, vest by 2001. The following table summarizes the 1996 Stock Option Plan activity:
YEAR ENDED JANUARY 3, 1998 ------------------------------- Weighted Average Options Exercise Price --------- -------------- Outstanding at the beginning of the period .... 6,802,471 $ 1.98 Granted ....................................... 49,873 5.23 Exercised ..................................... -- -- Forfeited ..................................... -- -- Expired ....................................... -- -- --------- Outstanding at the end of the period .......... 6,852,344 $ 2.01 ========= Exercisable at the period end ................. 1,587,243 $ 1.98 ========= - -----------------------------------------------------------------------------------
F-26 27 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. STOCK OPTION PLAN (CONTINUED)
YEAR ENDED JANUARY 2, 1999 ------------------------------- Weighted Average Options Exercise Price ------------ -------------- Outstanding at the beginning of the period .... 6,852,344 $ 2.01 Granted ....................................... -- -- Exercised ..................................... 351,177 2.21 Forfeited ..................................... 44,887 3.23 Expired ....................................... -- -- --------- Outstanding at the end of the period .......... 6,456,280 $ 1.99 ========= Exercisable at the period end ................. 4,433,774 $ 1.98 - -----------------------------------------------------------------------------------
YEAR ENDED JANUARY 1, 2000 ------------------------------- Weighted Average Options Exercise Price ------------ -------------- Outstanding at the beginning of the period .... 6,456,280 $ 1.99 Granted ....................................... -- -- Exercised ..................................... 491,570 2.23 Forfeited ..................................... 45,081 1.93 Expired ....................................... -- -- --------- Outstanding at the end of the period .......... 5,919,629 $ 1.97 ========= Exercisable at the period end ................. 4,493,801 $ 1.96 - -----------------------------------------------------------------------------------
Exercise prices as of January 1, 2000, for options outstanding under the 1996 Stock Option Plan ranged from $1.74 to $5.23. The weighted average remaining contractual life of these options is approximately six and one-half years. Under Keebler's 1998 Omnibus Stock Incentive Plan, 6,500,000 shares of Keebler's stock were authorized for future grant. All options granted generally have ten year terms and vest at the end of five years. Vesting can be accelerated if certain stock price performance measures are met. The following table summarizes the 1998 Omnibus Stock Incentive Plan activity:
YEAR ENDED JANUARY 2, 1999 ------------------------------- Weighted Average Options Exercise Price ------------ -------------- Outstanding at the beginning of the period .... -- $ -- Granted ....................................... 2,737,836 25.03 Exercised ..................................... -- -- Forfeited ..................................... 22,200 27.31 Expired ....................................... -- -- --------- Outstanding at the end of the period .......... 2,715,636 $ 25.01 ========= Exercisable at the period end ................. -- -- - -----------------------------------------------------------------------------------
F-27 28 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. STOCK OPTION PLAN (CONTINUED)
YEAR ENDED JANUARY 1, 2000 ------------------------------- WEIGHTED AVERAGE OPTIONS EXERCISE PRICE --------- -------------- Outstanding at the beginning of the period .... 2,715,636 $ 25.01 Granted ....................................... 270,234 34.98 Exercised ..................................... 39,140 24.82 Forfeited ..................................... 123,634 25.27 Expired ....................................... 5,494 27.31 --------- Outstanding at the end of the period .......... 2,817,602 $ 25.96 ========= Exercisable at the period end ................. 899,699 $ 25.74 - -----------------------------------------------------------------------------------
Exercise prices as of January 1, 2000, for options outstanding under the 1998 Omnibus Stock Incentive Plan ranged from $24.00 to $39.25. The weighted average remaining contractual life of these options is approximately five years. Under Keebler's Non-Employee Director Stock Plan, 300,000 shares of Keebler's stock were authorized for future grant. All options granted have ten year terms and vest automatically upon grant. The following table summarizes the Non-Employee Director Stock Plan activity:
YEAR ENDED JANUARY 2, 1999 ------------------------------- WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ------------ -------------- Outstanding at the beginning of the period .... -- $ -- Granted ....................................... 22,500 27.44 Exercised ..................................... -- -- Forfeited ..................................... -- -- Expired ....................................... -- -- --------- Outstanding at the end of the period .......... 22,500 $ 27.44 ========= Exercisable at the period end ................. 22,500 $ 27.44 - -----------------------------------------------------------------------------------
YEAR ENDED JANUARY 1, 2000 ------------------------------- WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ------------ -------------- Outstanding at the beginning of the period .... 22,500 $ 27.44 Granted ....................................... 7,500 30.75 Exercised ..................................... -- -- Forfeited ..................................... -- -- Expired ....................................... -- -- --------- Outstanding at the end of the period .......... 30,000 $ 28.27 ========= Exercisable at the period end ................. 30,000 $ 28.27 - -----------------------------------------------------------------------------------
Exercise prices as of January 1, 2000 for options outstanding under the Non-Employee Director Stock Plan ranged from $27.44 to $30.75. The weighted average remaining contractual life of these options is approximately eight and one-half years. F-28 29 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. NET INCOME PER SHARE Basic net income per share is calculated using the weighted average number of common shares outstanding during each period. Diluted net income per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding during each period. The common equivalent shares arise from the 1996 Stock Option Plan, the 1998 Omnibus Stock Incentive Plan, the Non-Employee Director Stock Plan and the warrant issued in connection with the Sunshine acquisition and are calculated using the treasury stock method. The following table sets forth the computation of basic and diluted net income per share:
Years Ended ------------------------------------------------------- (IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- NUMERATOR: Income before extraordinary item...................................... $ 88,205 $ 96,577 $ 62,381 Extraordinary item, net of tax........................................ -- 1,706 5,396 ---------- ---------- ---------- Net income............................................................ $ 88,205 $ 94,871 $ 56,985 ========== ========== ========== DENOMINATOR: Denominator for Basic Net Income Per Share Weighted Average Shares.......................................... 83,759 83,254 77,604 Effect of Dilutive Securities: Stock options.................................................... 3,886 3,992 2,168 Warrants......................................................... -- 240 790 ---------- ---------- ---------- Diluted potential common shares.................................. 3,886 4,232 2,958 ---------- ---------- ---------- Denominator for Diluted Net Income Per Share.......................... 87,645 87,486 80,562 ========== ========== ==========
For the year ended January 1, 2000, there were weighted average options to purchase 143,122 shares of common stock at an exercise price ranging from $32.13 to $39.25, which were excluded from the computation of diluted net income per share as the exercise price of the options exceeded the average market price of common shares; and therefore, the effect would have been antidilutive. For the year ended January 2, 1999, there were weighted average options to purchase 96,478 shares of common stock at an exercise price ranging from $28.88 to $32.13, which were excluded from the computation of diluted net income per share as the exercise price of the options exceeded the average market price of common shares; and therefore, the effect would have been antidilutive. There were no antidilutive securities for the year ended January 3, 1998. 16. SEGMENT INFORMATION In 1998, Keebler adopted SFAS 131 "Disclosures about Segments of an Enterprise and Related Information." Keebler's reportable segments are Branded and Specialty. The reportable segments were determined using Keebler's method of internal reporting, which divides and analyzes the business by sales channel. The nature of the customers, products and method of distribution can vary by sales channel. The reportable segments represent an aggregation of similar sales channels. The Branded segment is comprised of sales channels that principally market brand name cookie, cracker and brownie products to retail outlets, as well as private label biscuit products. Either a Keebler sales employee or a distributor sells products in the Branded segment. The sales channels in the Specialty segment primarily sell cookie and cracker products that are manufactured on a made-to-order basis or that are produced in individual packs to be used in various institutions (i.e., restaurants, hospitals, etc.), as well as cookies manufactured for the Girl Scouts of the U.S.A. Many of the products sold by the Specialty segment are done so through the use of brokers. Keebler evaluates the performance of the reportable segments and allocates resources based on the segment's profit contribution, defined as earnings before certain functional support costs, amortization, interest and income taxes. The accounting policies for each reportable segment are the same as those described for the total company in Note 4 "Summary of Significant Accounting Policies." The cost of sales, however, used to determine a segment's profit contribution is calculated using standard costs for each product, whereas actual cost of sales is used to determine consolidated income from operations. F-29 30 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. SEGMENT INFORMATION (CONTINUED) There are no intersegment transactions that result in revenue or profit (loss). Asset information by reportable segment is not presented, as Keebler does not report or generate such information internally. However, depreciation expense included in the determination of a segment's profit contribution has been presented. The depreciation expense for each reportable segment reflects the amount absorbed in the standard cost of products sold, as well as the depreciation that relates to assets used entirely by the respective segment. The following table presents certain information included in the profit contribution of each segment for the years ended January 1, 2000, January 2, 1999 and January 3, 1998. Prior year numbers have been restated for reclassifications between reportable segments.
Branded Specialty (IN THOUSANDS) Segment Segment Other (1) Total ---------- --------- --------- ---------- YEAR ENDED JANUARY 1, 2000: - --------------------------- NET SALES TO EXTERNAL CUSTOMERS............................... $2,099,257 $568,514 $ -- $2,667,771 DEPRECIATION EXPENSE.......................................... 22,820 6,700 35,014 64,534 PROFIT CONTRIBUTION........................................... 339,847 119,705 -- 459,552 Year Ended January 2, 1999: - --------------------------- Net sales to external customers............................... $1,798,347 $428,133 $ -- $2,226,480 Depreciation expense.......................................... 24,457 6,563 28,383 59,403 Profit contribution........................................... 277,791 90,746 -- 368,537 Year Ended January 3, 1998: - --------------------------- Net sales to external customers............................... $1,646,627 $418,557 $ -- $2,065,184 Depreciation expense.......................................... 20,798 5,602 27,331 53,731 Profit contribution........................................... 223,437 83,795 -- 307,232
(1) Represents expenses incurred by the functional support departments that are not allocated to the reportable segments. The net sales to external customers from the reportable segments equal the consolidated net sales of Keebler. A reconciliation of segment profit contribution to total consolidated income from continuing operations before income tax expense for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 is as follows:
Years Ended ------------------------------------------------------ (IN THOUSANDS) JANUARY 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- INCOME BEFORE INCOME TAX EXPENSE: Reportable segment's profit contribution................. $ 459,552 $ 368,537 $ 307,232 Unallocated functional support costs (1)................. 195,649 172,498 165,835 Restructuring and impairment charge...................... 66,349 -- -- Interest expense, net.................................... 36,174 26,500 33,847 ---------- ---------- ---------- Income before Income Tax Expense...................... $ 161,380 $ 169,539 $ 107,550 ========== ========== ==========
(1) Includes support costs such as distribution, research and development, corporate administration and other (income) expense, which are not allocated internally to reportable segments. Net sales to external customers consist of cookies, crackers and other baked goods for all periods presented. All long-lived assets at January 1, 2000 and January 2, 1999 are located in the United States. Net sales to external customers made outside the United States, as well as to any single customer, are not material to consolidated net sales for the years ended January 1, 2000, January 2, 1999 and January 3, 1998. F-30 31 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. UNAUDITED QUARTERLY FINANCIAL DATA Results of operations for each of the four quarters of the fiscal years ended January 1, 2000 and January 2, 1999 follow. Each quarter represents a period of twelve weeks except the first quarter which includes sixteen weeks.
Quarter 1 Quarter 2 Quarter 3 Quarter 4 ------------------ ------------------ ------------------ ------------------ (IN MILLIONS EXCEPT PER SHARE DATA) 1999 1998 1999 1998 1999 1998 1999 1998* -------- -------- -------- -------- -------- -------- -------- -------- Net sales............................... $852.0 $636.8 $587.9 $490.0 $615.8 $499.9 $612.1 $599.8 Gross profit............................ 471.3 372.7 330.5 281.3 354.6 294.4 360.8 339.2 Restructuring and impairment charge..... - - 69.2 - - - (2.9) - Income before extraordinary item........ 32.7 14.1 (21.4) 19.4 32.1 29.0 44.8 34.1 Extraordinary item...................... - - - - - 1.7 - - Net income (loss)....................... 32.7 14.1 (21.4) 19.4 32.1 27.3 44.8 34.1 Basic net income per share: Income before extraordinary item..... $0.39 $0.17 $(0.25) $0.23 $0.38 $0.35 $0.53 $0.41 Extraordinary item................... - - - - - 0.02 - - -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss).................... $0.39 $0.17 $(0.25) $0.23 $0.38 $0.33 $0.53 $0.41 ======== ======== ======== ======== ======== ======== ======== ======== Diluted net income per share: Income before extraordinary item..... $0.37 $0.16 $(0.24) $0.22 $0.37 $0.33 $0.51 $0.39 Extraordinary item................... - - - - - 0.02 - - -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss).................... $0.37 $0.16 $(0.24) $0.22 $0.37 $0.31 $0.51 $0.39 ======== ======== ======== ======== ======== ======== ======== ========
- ---------- * Quarter 4, 1998 includes the operating results of President from the acquisition date of September 28, 1998 through January 2, 1999. 18. SUBSEQUENT EVENTS On March 6, 2000, Keebler acquired Austin Quality Foods, Inc. ("Austin"), for $252.4 million, in a business combination that will be accounted for as a purchase. Austin is a leading producer and marketer of single serve baked snacks, including cracker sandwiches and bite-sized crackers and cookies. Keebler will finance the acquisition with borrowings under its existing credit facilities. On February 23, 2000, the Board of Directors declared an initial quarterly cash dividend of $0.1125 per common share payable on March 22, 2000, to stockholders of record on March 8, 2000. On February 2, 2000, Keebler's Board of Directors authorized the repurchase, at management's discretion, of up to an additional $30.0 million in shares of Keebler common stock. Purchases will be made through the open market or through private transactions. The share repurchase program was approved primarily to offset future dilution, which may result from the exercise and sale of shares related to employee stock options. On January 4, 2000, Keebler sold its Birmingham, Alabama and North Little Rock, Arkansas bakeries and the SUNNY and GREGS brands to Consolidated Biscuit Company ("Consolidated"). Keebler received $17.0 million from Consolidated, which is estimated to result in an after-tax gain of approximately $3.5 million that will be included in income from operations during the first quarter of fiscal 2000. F-31 32 REPORT OF INDEPENDENT ACCOUNTANTS THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KEEBLER FOODS COMPANY Our report on the consolidated financial statements of Keebler Foods Company and Subsidiaries is included on page F-2 of the Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page F-1 of the Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP Chicago, Illinois February 1, 2000 S-1 33 ITEM 14 (D). FINANCIAL STATEMENT SCHEDULE SCHEDULE II KEEBLER FOODS COMPANY SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - --------------------------------------------------------------------------------------------------------------------- ADDITIONS ------------------------ BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS/ OTHER END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - -------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Those valuation and qualifying accounts which are deducted in the balance sheet from the assets to which they apply: YEAR ENDED JANUARY 1, 2000 For discounts and doubtful accounts $ 7,782 $ 22,474 $ - $(21,688)(2) $ 8,568 ========== ========== ========== ========== ========== For deferred taxes $ 84,350 $ - $(84,350)(4) $ - $ - ========== ========== ========== ========== ========== For inventory reserves $ 9,614 $ 4,026 $ - $ (6,965)(3) $ 6,675 ========== ========== ========== ========== ========== YEAR ENDED JANUARY 2, 1999 For discounts and doubtful accounts $ 4,965 $ 20,148 $ 2,879 (1) $(20,210)(2) $ 7,782 ========== ========== ========== ========== ========== For deferred taxes $ 84,350 $ - $ - $ - $ 84,350 ========== ========== ========== ========== ========== For inventory reserves $ 6,782 $ 7,484 $ 1,807 (1) $ (6,459)(3) $ 9,614 ========== ========== ========== ========== ========== YEAR ENDED JANUARY 3, 1998 For discounts and doubtful accounts $ 5,390 $ 18,970 $ - $(19,395)(2) $ 4,965 ========== ========== ========== ========== ========== For deferred taxes $ 84,350 $ - $ - $ - $ 84,350 ========== ========== ========== ========== ========== For inventory reserves $ 5,508 $ 9,716 $ - $ (8,442)(3) $ 6,782 ========== ========== ========== ========== ==========
(1) Amount acquired in the acquisition of President International, Inc. (2) Primarily charges against reserves, net of recoveries. (3) Inventory write-offs, net. (4) Amount eliminated due to the resolution of a pre-acquisition contingency. S-2 -----END PRIVACY-ENHANCED MESSAGE-----