-----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, Hiqdi30oJybY68NejSGDxnxgiofPhv4qiFfBWy8HrMCJNpDQKOJS5J4kdO8F1dr5 W1NA5H9d1yYPS/9iEy92XQ== /in/edgar/work/0000950144-00-012973/0000950144-00-012973.txt : 20001107 0000950144-00-012973.hdr.sgml : 20001107 ACCESSION NUMBER: 0000950144-00-012973 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001026 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20001106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLOWERS INDUSTRIES INC /GA CENTRAL INDEX KEY: 0000826227 STANDARD INDUSTRIAL CLASSIFICATION: [2050 ] IRS NUMBER: 580244940 STATE OF INCORPORATION: GA FISCAL YEAR END: 0629 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09787 FILM NUMBER: 753916 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 8-K 1 g65066e8-k.txt FLOWERS INDUSTRIES, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): October 26, 2000 FLOWERS INDUSTRIES, INC. Georgia 1-9787 58-0244940 - ------------------ ---------------- ------------------ (State or Other (Commission (IRS Employer Jurisdiction of File Number) Identification No.) Incorporation) 1919 Flowers Circle, Thomasville, GA 31757 - ------------------------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (229) 226-9110 2 ITEM 5. OTHER EVENTS. On October 26, 2000, Flowers Industries, Inc. ("Flowers") issued a press release announcing that Flowers, Kellogg Company ("Kellogg") and Keebler Foods Company ("Keebler") had entered into certain agreements which provide for Kellogg to acquire Keebler through cash mergers with each of Keebler and Flowers, the majority stockholder of Keebler, and for Flowers to make a pro rata distribution to its shareholders, immediately prior to completion of the mergers, of its bakery operations. These agreements include (1) a distribution agreement dated as of October 26, 2000 between Flowers and Flowers Foods, Inc., a wholly owned subsidiary of Flowers ("Flowers Foods"), pursuant to which certain assets and liabilities comprising Flowers' bakery operations will be assigned to, and assumed by, Flowers Foods and the common stock of Flowers Foods will be distributed pro rata to Flowers shareholders, (2) an agreement and plan of restructuring and merger dated as of October 26, 2000 between Kellogg and Flowers pursuant to which Kansas Merger Subsidiary, Inc., a newly formed wholly owned subsidiary of Kellogg, will be merged with and into Flowers (the "Flowers Merger Agreement") and (3) an agreement and plan of merger dated as of October 26, 2000 between Kellogg and Keebler pursuant to which FK Acquisition Corp., a newly formed wholly owned subsidiary of Flowers, will be merged with and into Keebler (the "Keebler Merger Agreement"). In connection with the foregoing transactions, Kellogg and Flowers entered into a voting agreement dated as of October 26, 2000 (the "Voting Agreement" and collectively with the Distribution Agreement, the Flowers Merger Agreement and the Keebler Merger Agreement, the "Agreements") whereby Flowers executed a written consent to vote its shares of Keebler common stock in favor of the Keebler Merger Agreement and against any competing business combination and to grant an irrevocable proxy to Kellogg in support of its agreements in the Voting Agreement. The Agreements and the press release announcing the entering into of the Agreements are attached hereto as exhibits and are incorporated herein by reference. The foregoing descriptions of the Agreements are qualified in their entirety by reference to the attached exhibits. Item 7(c) - Exhibits 2.1 Distribution Agreement dated as of October 26, 2000 between Flowers Industries, Inc. and Flowers Foods, Inc. 2.2 Agreement and Plan of Restructuring and Merger dated as of October 26, 2000 between Flowers Industries, Inc., Kellogg Company and Kansas Merger Subsidiary, Inc. 2.3 Agreement and Plan of Merger dated as of October 26, 2000 between Keebler Foods Company, Kellogg Company and FK Acquisition Corp. 2.4 Voting Agreement dated as of October 26, 2000 between Flowers Industries, Inc. and Kellogg Company. 99.1 Press Release by Flowers Industries, Inc., dated October 26, 2000. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FLOWERS INDUSTRIES, INC. By: /s/ G. A. Campbell ------------------------------------- Name: G. Anthony Campbell --------------------------------- Title: General Counsel --------------------------------- Date: November 6, 2000 4 EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT 2.1 Distribution Agreement dated as of October 26, 2000 between Flowers Industries, Inc. and Flowers Foods, Inc. 2.2 Agreement and Plan of Restructuring and Merger dated as of October 26, 2000 between Flowers Industries, Inc., Kellogg Company and Kansas Merger Subsidiary, Inc. 2.3 Agreement and Plan of Merger dated as of October 26, 2000 between Keebler Foods Company, Kellogg Company and FK Acquisition Corp. 2.4 Voting Agreement dated as of October 26, 2000 between Flowers Industries, Inc. and Kellogg Company. 99.1 Press Release by Flowers Industries, Inc., dated October 26, 2000. EX-2.1 2 g65066ex2-1.txt DISTRIBUTION AGREEMENT 1 Exhibit 2.1 DISTRIBUTION AGREEMENT between FLOWERS INDUSTRIES, INC. and FLOWERS FOODS, INC. DATED AS OF OCTOBER 26, 2000 2 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions....................................................1 ARTICLE 2 CONTRIBUTIONS AND ASSUMPTION OF LIABILITIES SECTION 2.01. Contribution of Contributed Subsidiaries......................12 SECTION 2.02. Transfers of Certain Assets to Spinco Group...................13 SECTION 2.03. Assumption of Certain Liabilities.............................13 SECTION 2.04. Agreement Relating to Consents Necessary to Transfer Assets...13 ARTICLE 3 THE DISTRIBUTION SECTION 3.01. Cooperation Prior to the Distribution.........................14 SECTION 3.02. Tulip Board Action; Conditions Precedent to the Distribution..................................................14 SECTION 3.03. The Distribution..............................................15 SECTION 3.04. Stock Dividend................................................15 SECTION 3.05. Fractional Shares.............................................15 SECTION 3.06. Representations of Spinco; Release............................15 ARTICLE 4 INDEMNIFICATION AND OTHER MATTERS SECTION 4.01. Spinco Indemnification of Tulip...............................16 SECTION 4.02. Tulip Indemnification of Spinco Group.........................16 SECTION 4.03. Insurance and Third Party Obligations; Limitation on Liability.....................................................17 SECTION 4.04. Notice and Payment of Claims..................................17 SECTION 4.05. Notice and Defense of Third-Party Claims......................17 SECTION 4.06 Adjustment in Indemnity Payment for Tax Consequences..........20 SECTION 4.07. Non-Exclusivity of Remedies...................................20 ARTICLE 5 EMPLOYEE MATTERS SECTION 5.01. Employee Matters Generally....................................20
i 3 ARTICLE 6 ACCESS TO INFORMATION SECTION 6.01. Provision of Corporate Records...............................21 SECTION 6.02. Access to Information........................................21 SECTION 6.03 Litigation Cooperation.......................................21 SECTION 6.04. Reimbursement................................................22 SECTION 6.05. Retention of Records.........................................22 SECTION 6.06. Confidentiality..............................................22 SECTION 6.07. Right of Inquiry.............................................23 ARTICLE 7 CERTAIN OTHER AGREEMENTS SECTION 7.01. Intercompany Accounts; Services; Guaranties..................24 SECTION 7.02. Trademarks; Trade Names......................................25 SECTION 7.03. Further Assurances and Consents..............................25 SECTION 7.04 Non-Solicitation.............................................25 SECTION 7.05. Third Party Beneficiaries....................................26 SECTION 7.06. Intellectual Property Rights and Licenses....................26 SECTION 7.07. Insurance....................................................26 ARTICLE 8 TAXES SECTION 8.01. Liability for Taxes..........................................28 SECTION 8.02. Tax Returns..................................................29 SECTION 8.03. Distribution.................................................30 SECTION 8.04. Tax Refunds and Benefits.....................................30 SECTION 8.05. Tax Sharing Arrangements.....................................31 SECTION 8.06. Contest Provisions...........................................32 SECTION 8.07. Cooperation on Tax Matters; Other Tax Matters................33 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices......................................................34 SECTION 9.02. Amendments; No Waivers.......................................35 SECTION 9.03. Expenses.....................................................35 SECTION 9.04. Successors and Assigns.......................................35 SECTION 9.05. Governing Law................................................35 SECTION 9.06. Counterparts; Effectiveness..................................35 SECTION 9.07. Entire Agreement.............................................36 SECTION 9.08. Certain Transfer Taxes.......................................36 SECTION 9.09. Jurisdiction.................................................36 SECTION 9.10. Pre-Litigation Dispute Resolution............................36 SECTION 9.11. Severability.................................................37
ii 4 SECTION 9.12. Survival......................................................37 SECTION 9.13. Captions......................................................37 SECTION 9.14. Specific Performance..........................................37
Schedule A -- Spinco Assets - Contracts Schedule B -- Spinco Assets - Other Assets, Properties and Business Schedule C -- Spinco Group Liabilities Schedule D -- Spinco Intellectual Property Rights Schedule E -- Spinco Litigation Schedule F -- Assumed Debt Schedule G -- Company Debt Schedule H -- Restated Spinco Charter Schedule 2.01 -- Contribution of Contributed Subsidiaries Schedule 7.01 -- Existing Arrangements Schedule 7.07 -- Group Policies Exhibit A -- Employee Benefits Agreement iii 5 DISTRIBUTION AGREEMENT This DISTRIBUTION AGREEMENT dated as of October 26, 2000 (this "AGREEMENT") between Flowers Industries, Inc., a Georgia corporation ("TULIP"), and Flowers Foods, Inc., a Georgia corporation ("SPINCO"). W I T N E S S E T H: WHEREAS, Spinco is presently a wholly-owned subsidiary of Tulip; WHEREAS, the Board of Directors of Tulip has determined that it is in the best interests of Tulip, its shareholders and Spinco that all outstanding shares of Spinco Common Stock (as defined below) be distributed pro rata to Tulip's shareholders (provided that all conditions precedent to the Distribution have been satisfied) and that, pursuant to an Agreement and Plan of Restructuring and Merger dated as of October 26, 2000 ("MERGER AGREEMENT") among Tulip, Kellogg Company, a Delaware corporation ("PARENT"), and Kansas Merger Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUBSIDIARY"), immediately after the Distribution Merger Subsidiary be merged with and into Tulip, as a result of which Tulip will become a wholly-owned subsidiary of Parent (the "MERGER"); WHEREAS, for United States federal income Tax (as defined below) purposes, it is intended that the holders of Tulip Common Stock be treated as having received cash consideration from Parent and the Spinco Common Stock in redemption and disposition of the outstanding Tulip Common Stock (as defined below); WHEREAS, Tulip is concurrently herewith entering into, or proposes to enter into prior to the Distribution Date (as defined below), the Ancillary Agreements (as defined below); and WHEREAS, the parties hereto desire to set forth herein the principal corporate transactions to be effected in connection with the Distribution and certain other matters relating to the relationship and the respective rights and obligations of the parties following the Distribution. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ACTION" means any claim, suit, action, arbitration, inquiry, investigation or other proceeding of any nature (whether criminal, civil, legislative, administrative, regulatory, 6 prosecutorial or otherwise) by or before any arbitrator or Governmental Entity or similar Person or body. "AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2 of the Exchange Act (as defined herein) as of the date hereof. "AGREEMENT" has the meaning set forth in the recitals. "ANCILLARY AGREEMENTS" means the Employee Benefits Agreement and any additional agreement entered into between Tulip and Spinco, which shall not be entered into without the prior written consent of Parent (which shall not be unreasonably withheld to the extent any such agreement does not adversely affect Tulip or any of its Affiliates, including Parent, or the financial strength or creditworthiness of Spinco, in each case, following the Distribution Time). "ASSUMED DEBT" means all debt and similar obligations of Tulip immediately prior to the Distribution, all of which shall be assumed by Spinco pursuant to this Agreement (except for the Company Debt which shall remain an obligation of Tulip following the Distribution) including as set forth on Schedule F. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close. "COMMISSION" means the Securities and Exchange Commission. "COMPANY DEBT" means the debt of Tulip as set forth on Schedule G, including without limitation any other debt or similar obligations of Tulip immediately prior to the Distribution to the extent such debt is not expressly assumed by Spinco in accordance with the terms of such debt or similar obligations or otherwise refinanced, repaid or satisfied by Spinco, including, without limitation, if applicable, Tulip's 7.15% Debentures due 2028 and the Loan Facility Agreement by and among Tulip, Suntrust Bank, Atlanta and each of the participants party thereto, dated as of November 5, 1999, and all other agreements referenced in Section 4.04(1) of the Company Disclosure Schedule (as defined in the Merger Agreement). "CONFIDENTIAL INFORMATION" has the meaning set forth in Section 6.06. "CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated as of July 24, 2000 between Parent and Tulip. "CONTRACTS" means any agreement, lease, license, contract, treaty, note, mortgage, indenture, franchise, permit, concession, arrangement or other obligation. "CONTRIBUTED SUBSIDIARIES" means (i) Flowers Bakeries Brands, Inc., a Georgia corporation, Mrs. Smith's Bakeries, Inc., a Georgia corporation, and Flowers Investments, Inc., a Georgia corporation, (ii) any subsidiaries formed for the purpose of effecting the Restructuring, and (iii) the respective direct and indirect Subsidiaries of the Persons referred to in clauses (i) and (ii). -2- 7 "CONTRIBUTION" has the meaning set forth in Section 2.01. "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. "CONTROLLING PARTY" has the meaning set forth in Section 8.06(b). "CURRENT PERIOD" means, in the case of a Straddle Period, that portion of the Straddle Period that ends, with respect to Tulip, on and includes the Distribution Date. "DAMAGES" means, with respect to any Person, any and all damages (including punitive and consequential damages), losses, Liabilities and expenses incurred or suffered by such Person (including all expenses of investigation, all attorneys' and expert witnesses' fees and all other out-of-pocket expenses incurred in connection with any Action or threatened Action). "DISCONTINUED BUSINESS" means any assets, business or operations of Tulip, Spinco, their respective Subsidiaries or the Contributed Subsidiaries that are or have been discontinued, sold or otherwise divested prior to or on the Distribution Date. "DISTRIBUTION" means the distribution by Tulip, pursuant to the terms and subject to the conditions hereof, of all of the outstanding shares of Spinco Common Stock to the Tulip Shareholders of record as of the Record Date. "DISTRIBUTION AGENT" means First Union National Bank, or such other nationally recognized banking institution as mutually agreed upon by Parent and Spinco. "DISTRIBUTION DATE" means the Business Day on which the Distribution is effected. "DISTRIBUTION DOCUMENTS" means this Agreement and the Ancillary Agreements and any other agreements or documents entered into, with Parent's prior written consent (which shall not be unreasonably withheld to the extent such other agreements or documents do not adversely affect Tulip or any of its Affiliates, including Parent, or the financial strength or creditworthiness of Spinco, in each case, following the Distribution Time) to effect the transactions contemplated hereby or by the Ancillary Agreements (but excluding the Confidentiality Agreement and the Merger Agreement). "DISTRIBUTION TIME" means the time immediately before the Merger Effective Time (as defined below). "DRAFT RETURN" has the meaning set forth in Section 8.02(b). "ELF" means Keebler Foods Company, a Delaware corporation. "ELF INTELLECTUAL PROPERTY RIGHTS" means all Intellectual Property Rights (i) owned by ELF or (ii) owned by a third party and licensed or sublicensed to ELF. -3- 8 "ELF MERGER" means the merger provided for in the Agreement and Plan of Merger, dated as of October 26, 2000, among ELF, Flowers Industries, Inc. and FK Acquisition Corp. (the "ELF MERGER AGREEMENT"). "ELF MERGER DATE" means the date as of which the Effective Time (as defined in the ELF Merger Agreement) of the ELF Merger occurs. "EMPLOYEE BENEFITS AGREEMENT" means the Employee Benefits Agreement in the form attached as Exhibit A hereto to be entered into before the Distribution Date between Tulip and Spinco, with only those amendments or modifications made with Parent's prior written consent (which shall not be unreasonably withheld to the extent such amendments or modifications do not adversely affect Tulip or any of its Affiliates, including Parent, or the financial strength or creditworthiness of Spinco in each case following the Distribution Time). "ENVIRONMENTAL LAWS" means all Laws or any agreements with any Governmental Entity or other third party relating to human health, safety or the environment, including laws and agreements relating to emissions, discharges, Releases or threatened Releases of Hazardous Substances, or otherwise relating to the manufacture, generation, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Substances, including the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act, and the Occupational Safety and Health Act. "EXCHANGE ACT" means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder. "FINALLY DETERMINED" means, with respect to any Action, threatened Action or other matter, that the outcome or resolution of that Action, threatened Action or other matter either (i) has been decided through binding arbitration or by a Governmental Entity of competent jurisdiction by judgment, order, award, or other ruling or (ii) has been settled or voluntarily dismissed by the parties pursuant to the dispute resolution procedure set forth in Section 9.10 or otherwise and, in the case of each of clauses (i) and (ii), the claimants' rights to maintain that Action, threatened Action or other matter have been finally adjudicated, waived, discharged or extinguished, and that judgment, order, ruling, award, settlement or dismissal (whether mandatory or voluntary, but if voluntary that dismissal must be final, binding and with prejudice as to all claims specifically pleaded in that Action, threatened Action or other matter) is subject to no further appeal, vacatur proceeding or discretionary review. "FINALLY SETTLED" has the meaning set forth in Section 8.04(c). "GOVERNMENTAL ENTITY" means any federal, state, local or foreign government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational. "GROUP" means, as the context requires, the Spinco Group (as defined below) or Tulip. -4- 9 "GROUP POLICIES" means all Policies, current or past, which prior to the Distribution Time are or at any time were maintained by or on behalf of or for the benefit or protection of Tulip or any Affiliate (or any of their predecessors) and/or one or more of the current or past directors, officers, employees or agents of any of the foregoing including, without limitation, the Policies identified on Schedule 7.07 hereto. "HAZARDOUS SUBSTANCE" means (i) chemicals, pollutants, contaminants, hazardous wastes, toxic substances, and oil and petroleum products, (ii) any substance that is or contains friable asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum-derived substances or wastes, radon gas or related materials, (iii) any substance that requires removal or remediation under any Environmental Law, or is defined, listed or identified as a "hazardous waste" or "hazardous substance" thereunder, or (iv) any substance that is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous. "INDEMNIFIED PARTY" has the meaning set forth in Section 4.04. "INDEMNIFYING PARTY" has the meaning set forth in Section 4.04. "INFORMATION STATEMENT" means the information statement to be sent to each Tulip Shareholder of record as of the Record Date in connection with the Distribution. "INSURANCE PROCEEDS" shall mean those monies (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of an insured, in either case net of any applicable premium adjustment, retrospectively-rated premium, deductible, retention, or cost of reserve paid or held by or for the benefit of such insured. "INSURED CLAIMS" shall mean those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Group Policies, whether or not subject to premium adjustments, deductibles, retentions, co-insurance, cost of reserve paid or held by or for the benefit of the applicable insured(s), uncollectability or retrospectively-rated premiums, but only to the extent that such Liabilities (i) are within applicable Group Policy limits, including aggregates and (ii) are actually paid. "INTELLECTUAL PROPERTY RIGHTS" means (i) inventions, whether or not patentable, reduced to practice or made the subject of one or more pending patent applications, (ii) national and multinational statutory invention registrations, patents and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof) registered or applied for in the United States and all other nations throughout the world, and all improvements to the inventions disclosed in each such registration, patent or patent application, (iii) trademarks, service marks, trade dress, logos, domain names, trade names and corporate names (whether or not registered) in the United States and all other nations throughout the world, including all variations, derivations, combinations, registrations and applications for registration of the foregoing and all goodwill associated therewith, (iv) copyrights (whether or not registered) and registrations and applications for registration thereof in the United States and all other nations throughout the world, including all derivative works, moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or -5- 10 hereafter provided by law, regardless of the medium of fixation or means of expression, (v) computer software (including source code, object code, firmware, operating systems and specifications), (vi) trade secrets and, whether or not confidential, business information (including pricing and cost information, business and marketing plans and customer and supplier lists) and know-how (including manufacturing and production processes and techniques and research and development information), (vii) industrial designs (whether or not registered), (viii) databases and data collections, (ix) copies and tangible embodiments of any of the foregoing, in whatever form or medium, (x) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, (xi) all rights in all of the foregoing provided by treaties, conventions and common law and (xii) all rights to sue or recover and retain damages and costs and attorneys' fees for past, present and future infringement or misappropriation of any of the foregoing. "IRS" means the Internal Revenue Service. "LAW" means any applicable federal, state, local or foreign law, statute, common law, ordinance, directive, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity. "LIABILITY" or "LIABILITIES" means any and all claims, debts, liabilities, assessments, costs (including, with respect to matters under Environmental Laws, removal costs, remediation costs, closure costs and expenses of investigation and ongoing monitoring), deficiencies, charges, demands, fines, penalties, damages, losses, Taxes, disgorgements and obligations, of any kind, character or description (whether absolute, contingent, matured, not matured, liquidated, unliquidated, accrued, known, unknown, direct, indirect, derivative or otherwise) whenever arising, including, but not limited to, all costs, interest and expenses relating thereto (including, but not limited to, all expenses of investigation, all attorneys' and expert witnesses' fees and all other out-of-pocket expenses in connection with any Action or threatened Action) and expressly including those relating to an Indemnified Party's own negligence or other misconduct. "MERGER" has the meaning set forth in the recitals. "MERGER AGREEMENT" has the meaning set forth in the recitals. "MERGER EFFECTIVE TIME" shall have the meaning assigned to the term Effective Time in the Merger Agreement. "MERGER SUBSIDIARY" has the meaning set forth in the recitals. "NONCONTROLLING PARTY" has the meaning set forth in Section 8.06(b). "NYSE" has the meaning set forth in Section 3.01(d). "OFFSET AMOUNT" has the meaning set forth in Section 8.04(c). "OFFSET DATE" has the meaning set forth in Section 8.04(c). "PARENT" has the meaning set forth in the recitals. -6- 11 "PARENT-DIRECTED TRANSACTIONS" means any transactions that occur at the direction of Parent on the Distribution Date after the consummation of the Merger (other than any transaction contemplated by this Agreement, any restructuring undertaken in anticipation thereof and any transactions which occur in the ordinary course of business). For the absence of doubt, neither the Distribution, the Restructuring, the Merger, the ELF Merger or any transaction undertaken in anticipation thereof shall be considered a Parent-Directed Transaction. "PERSON" means any individual, corporation (including not-for-profit corporations), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature. "POLICIES" means insurance policies and insurance contracts of any kind, including, without limitation, primary, excess and umbrella policies, directors and officers', errors and omissions, commercial general liability policies, life and benefits policies and contracts, fiduciary liability, automobile, aircraft, property and casualty, workers' compensation and employee dishonesty insurance policies, bonds and ELF-insurance together with the rights, benefits and privileges thereunder. "PROXY STATEMENT" means the proxy statement of Tulip to be filed with the Commission pursuant to the Exchange Act in connection with the Merger. "RECORD DATE" means the date determined by Tulip's Board of Directors (or by a committee of that board or any other Person acting under authority duly delegated to that committee or Person by Tulip's Board of Directors or a committee of that Board) as the record date for determining the Tulip Shareholders of record entitled to receive the Distribution. "REGISTRATION STATEMENT" means the registration statement on Form 10, Form S-1, or Form S-4 to be filed by Spinco with the Commission to effect the registration of Spinco Common Stock (as defined below) pursuant to the Exchange Act or the Securities Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time. "RELEASES" means any releasing, disposing, discharging, injecting, spilling, leaking, pumping, dumping, emitting, escaping, emptying, migrating, transporting, placing, including into or upon, any land, soil, surface water, ground water or air, or otherwise entering into the environment, that is not authorized by a Governmental Entity. "REPRESENTATIVES" has the meaning set forth in Section 6.06. "REQUEST" has the meaning set forth in Section 6.03. "RESTATED SPINCO CHARTER" means the restated articles of incorporation of Spinco, which shall be in the form attached hereto as Schedule H, with such changes as the Board of Directors of Spinco reasonably determines, subject to the prior written approval of Parent (such approval not to be unreasonably withheld). "RESTRUCTURING" means the contributions pursuant to Section 2.01 hereof, the settlement of intercompany accounts prior to or as of the Distribution Time, the Distribution -7- 12 and the other transactions contemplated by this Agreement and the Ancillary Agreements (other than the Merger). "SECURITIES ACT" means the Securities Act of 1933, and the rules and regulations promulgated thereunder. "SERVICES" has the meaning set forth in Section 7.01(c). "SPINCO" has the meaning set forth in the recitals. "SPINCO AFFILIATED GROUP" has the meaning set forth in Section 8.01(a). "SPINCO ASSETS" means all assets, leases, properties and businesses, of every kind and description, wherever located, real, personal or mixed, tangible or intangible, owned, held or used by Tulip or any member of the Spinco Group, excluding the Tulip Assets. Without limitation and for the avoidance of doubt, the following items are, and shall be, "SPINCO ASSETS" (and are not, and shall not be, Tulip Assets): (a) all right, title and interest in the real property situated at 1919 Flowers Circle, Thomasville, Georgia 31757, together with all buildings, fixtures, and improvements erected thereon; (b) all rights of the Spinco Group (but excluding any and all rights of Tulip) under the Distribution Documents; (c) to the extent relating to the business, assets or employees of any member of the Spinco Group, all rights of Tulip under the Confidentiality Agreement and the confidentiality agreements entered into by Tulip with potential purchasers of Tulip or certain of Tulip's businesses prior to the date hereof; (d) all cash and cash equivalents, including all bank account balances and petty cash, of Tulip (provided, however, that the cash positions of Tulip cannot be increased or decreased in a manner that violates the Merger Agreement); (e) all Spinco Intellectual Property Rights; (f) all the rights to the contracts listed on Schedule A hereto to the extent such contracts have not been entered into by or for the benefit of ELF; (g) the other assets, properties and businesses listed on Schedule B hereto; (h) all goodwill associated with the Spinco Group, Tulip or the Spinco Assets prior to the Distribution Time (excluding goodwill associated with the Tulip Assets), together with the right to represent to third parties that the Spinco Group is the successor to all businesses and operations of the Spinco Group and Tulip (other than ELF). -8- 13 "SPINCO BUSINESS" means the businesses and operations of Spinco, its Subsidiaries and the Contributed Subsidiaries, as conducted on the date hereof, but taking into account the Restructuring. "SPINCO COMMON STOCK" means the common stock, par value $.01 per share, of Spinco. "SPINCO ENVIRONMENTAL LIABILITIES" means any and all Liabilities of or relating to (i) Tulip (including any Discontinued Business) or any member of the Spinco Group or (ii) the Spinco Business or the Spinco Assets, which, in either case, arise under or relate to Environmental Laws. "SPINCO GROUP" means Spinco, its direct and indirect Subsidiaries and the Contributed Subsidiaries (including all successors to each of those Persons). "SPINCO GROUP LIABILITIES" means, except as otherwise specifically provided in the Merger Agreement or any Distribution Document, all Liabilities (including Liabilities arising out of any litigation), whether arising before, at or after the Distribution Time, of or relating to Tulip or any member of the Spinco Group whether arising from the conduct of, in connection with or relating to the Spinco Assets or the Spinco Business or the ownership or use thereof or the Discontinued Business or otherwise; in each case excluding the Tulip Liabilities. Without limiting the generality of the foregoing, "SPINCO GROUP LIABILITIES" shall include the following Liabilities (a) whether arising before, at or after the Distribution Time: (i) any Liabilities arising out of, in connection with or related to the Spinco Assets, the Spinco Business or the Discontinued Business, (ii) the Spinco Environmental Liabilities, (iii) the Assumed Debt, (iv) the Spinco Litigation, (v) the Liabilities set forth on Schedule C hereto, (vi) the contracts set forth on Schedule A, (vii) all other Liabilities of the Spinco Group under any Distribution Document, (viii) except to the extent otherwise expressly provided in this Agreement or the Merger Agreement, all Liabilities of the Spinco Group or Tulip arising out of, or in connection with or related to the Distribution and any of the other transactions contemplated by this Agreement or any of the Ancillary Agreements, including any advisory fees for the Merger and the Distribution to the extent such fees exceed $16 million, (ix) (1) any Taxes imposed upon or relating to Spinco, the Spinco Assets, the Spinco Business, the Discontinued Business or the Contributed Subsidiaries and (2) any Taxes for which Spinco is liable pursuant to Article 8 hereof, or (x) any and all Liabilities (A) arising out of, in connection with or relating to any of the Benefit Arrangements and Employee Plans (as defined in the Tulip Merger Agreement), or (B) otherwise arising out of, in connection with or relating to the employment of any individual by Tulip, Spinco or any of their respective Affiliates (whether relating to periods before, including or after the Distribution Time), including without limitation Liabilities for compensation and benefits, other than employment of Elf Employees (as defined in the Elf Merger Agreement) by ELF and its Subsidiaries after the Distribution Time, and (b) to the extent arising prior to or at the Distribution Date, any Liabilities for any accounts payable of Tulip or the Spinco Group, unless expressly a Tulip Liability. Nothing in this Agreement shall be interpreted to mean that the obligations of Surviving Corporation (as defined in the Merger Agreement) under Section 7.02 of the Merger Agreement constitute Spinco Group Liabilities. "SPINCO INDEMNITEE" has the meaning set forth in Section 4.02(a). -9- 14 "SPINCO INTELLECTUAL PROPERTY RIGHTS" means all Intellectual Property Rights (i) owned by a member of the Spinco Group or Tulip or (ii) owned by a third party and licensed or sublicensed to a member of the Spinco Group or Tulip, including without limitation: (i) all Tulip Name Rights, other than ELF Intellectual Property Rights; and (ii) the Intellectual Property Rights listed on Schedule D hereto, it being expressly understood that no Intellectual Property Rights owned by, licensed to, sublicensed to, used by or related to ELF or any of its Subsidiaries constitute Spinco Intellectual Property Rights. "SPINCO LITIGATION" means (i) any litigation in which Tulip or one or more of its officers, directors or employees is named a defendant (x) relating to, involving or arising out of the Spinco Assets, the Spinco Business or Tulip, including any Discontinued Business, (y) alleging violations of federal or state securities laws by Tulip or (z) alleging breaches of fiduciary duties of the Tulip directors under state law (in the case of clauses (y) and (z), including the cases set forth on Schedule E); and (ii) any litigation in which Tulip (or one or more of its officers, directors or employees) is named a defendant on or after the date hereof alleging violations of federal or state securities laws or breaches of fiduciary duties of the Tulip directors at or prior to the Merger Effective Time under state law, in each case described in this clause (ii) (x) relating to or arising out of the Merger or the Restructuring or (y) arising out of matters occurring before the Merger Effective Time. "STRADDLE PERIOD" means any taxable year or period beginning on or before and ending after, with respect to Tulip, the Distribution Date. "STRADDLE PERIOD TAX PROCEEDING" has the meaning set forth in Section 8.06(b). "SUBSIDIARY" means, with respect to any Person, any entity of which at least a majority of the securities or other ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned or controlled by such Person or by one or more of its respective Subsidiaries or by such Person and any one or more of its respective Subsidiaries. "TAX" or "TAXES" means (i) any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, goods and services, service use, license, value added, capital, net worth, payroll, profits, withholding, franchise, transfer and recording taxes, fees and charges, and any other taxes, assessment or similar charges imposed by the IRS or any taxing authority (whether domestic or foreign including any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)) (a "TAXING AUTHORITY"), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments, (ii) any liability for the payment of any -10- 15 amount of the type described in clause (i) as a result of being or having been a member of an affiliated, consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability to a Taxing Authority is determined or taken into account with reference to the liability of any other Person (including, e.g., liability under Treasury Regulation 1.1502-6 or similar liability under any other Law), and (iii) any liability with respect to the payment of any amount of the type described in (i) or (ii) as a result of any existing express or implied obligation (including, but not limited to, an indemnification obligation). "TAX AMOUNT" has the meaning set forth in the Merger Agreement. "TAX PROCEEDING" has the meaning set forth in Section 8.06(a). "TAX REPORTING STANDARD" has the meaning set forth in Section 8.02(b). "TAX RETURN" shall mean any report, return, document, declaration or other information or filing required to be supplied to any Taxing Authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. "TAXING AUTHORITY" has the meaning set forth in the definition of "Tax". "THIRD-PARTY CLAIM" has the meaning set forth in Section 4.05. "TRANSFER" has the meaning set forth in Section 2.02. "TULIP" has the meaning set forth in the recitals. "TULIP ASSETS" means all assets as reflected in the unaudited pro forma consolidated balance sheet as of July 15, 2000 of Tulip set forth in Section 4.08 of the Company Disclosure Schedule accompanying the Merger Agreement and the after-tax proceeds of the special dividend contemplated by Section 6.06 of the ELF Merger Agreement to be received by Tulip. Without limitation and for the avoidance of doubt, the following items are, and shall be, "TULIP ASSETS" (and are not, and shall not be, Spinco Assets): (b) all rights of Tulip (but excluding any and all rights of the Spinco Group) under the Merger Agreement, the Confidentiality Agreement and the Distribution Documents; and (c) all capital stock of ELF owned by Tulip and any rights related to its ownership interest in ELF. "TULIP COMMON STOCK" means the common stock, par value $0.625 per share, of Tulip. "TULIP INDEMNITEE" has the meaning set forth in Section 4.01(a). -11- 16 "TULIP LIABILITIES" means only the following Liabilities, whether arising before, at or after the Distribution Time: (i) the Company Debt but not any claim, action or litigation arising from the decision to pursue the transactions contemplated by this Agreement, the Merger Agreement, the Ancillary Agreements or the treatment in the transactions contemplated hereby of any third party debt and (ii) any advisory fees relating to the Merger and/or Distribution not to exceed $16 million, it being agreed that notwithstanding the structuring of the transaction as a merger between Tulip and Merger Subsidiary, it is the intention of the parties to place Parent and, after the Merger, Tulip, in the same position, with respect to assumption of or responsibility for Liabilities, as would occur if, instead of consummating the Merger, Parent were only to purchase the capital stock Tulip owns in ELF directly from Tulip (subject to clauses (i) and (ii) above of this definition). For the avoidance of doubt, "TULIP LIABILITIES" shall exclude among other matters (i) any and all Liabilities to the extent specifically retained or assumed by the Spinco Group under this Agreement or otherwise, (ii) any Taxes imposed upon or relating to Spinco, the Spinco Assets, the Spinco Business, the Discontinued Business or the Contributed Subsidiaries and (iii) any Taxes for which Spinco is liable pursuant to Article 8 hereof. "TULIP NAME RIGHTS" means all right, title and interest in and use of the "Tulip" name and any derivative thereof including, without limitation, all trademarks, service marks, trade dress, logos, domain names, trade names and corporate names (whether or not registered) in the United States and all other nations throughout the world, including all variations, derivations, combinations, registrations and applications for registration of the foregoing and all goodwill associated therewith. "TULIP SHAREHOLDERS" means the holders of the Tulip Common Stock. Any reference in this Agreement to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder. Any reference to "including" or "include" means "including, without limitation" or "include, without limitation," respectively. ARTICLE 2 CONTRIBUTIONS AND ASSUMPTION OF LIABILITIES SECTION 2.01. Contribution of Contributed Subsidiaries. Upon the terms and subject to the conditions set forth in the Merger Agreement and the Distribution Documents, effective prior to the Distribution Time, Tulip shall contribute to Spinco all of the outstanding shares of capital stock of, or other ownership interests in, each of the Subsidiaries in clause (i) and clause (ii) of the definition of Contributed Subsidiaries in the manner described in Schedule 2.01, subject to receipt of any necessary consents or approvals of third parties or of Governmental Entities and subject to Section 7.03. SECTION 2.02. Transfers of Certain Assets to Spinco Group. Upon the terms and subject to the conditions set forth in the Merger Agreement or any Distribution Document, except as otherwise expressly set forth therein, effective prior to or as of the Distribution Time, -12- 17 subject to receipt of any necessary consents or approvals of third parties or of Governmental Entities, Tulip shall assign, contribute, convey, transfer and deliver ("TRANSFER") to Spinco or to one or more of Spinco's wholly-owned Subsidiaries all of the right, title and interest of Tulip in and to all Spinco Assets that are not owned, held or used by a Contributed Subsidiary, if any, as the same shall exist on the Distribution Date immediately prior to the Distribution Time. SECTION 2.03. Assumption of Certain Liabilities. Upon the terms and subject to the conditions set forth in the Merger Agreement or any Distribution Document, effective as of the Distribution Time (or of the time of Transfer, if earlier, of the assets to which such Liabilities are attributable), Spinco hereby unconditionally (i) assumes all Spinco Group Liabilities to the extent not then an existing obligation of the Spinco Group and (ii) undertakes to pay, satisfy and discharge when due in accordance with their terms all Spinco Group Liabilities. SECTION 2.04. Agreement Relating to Consents Necessary to Transfer Assets. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to transfer or assign any asset or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the necessary consent of a third party, would constitute a breach or other contravention thereof or in any way adversely affect the rights of Spinco, or any member of the Spinco Group, or Tulip thereunder. Spinco and Tulip shall cooperate with each other, keep each other informed and will, subject to Section 7.03, use their reasonable best efforts to obtain the consent of any third party or any Governmental Entity, if any, required in connection with the transfer or assignment pursuant to Sections 2.02, 2.03 or 2.04 of any such asset or any claim or right or any benefit arising thereunder. Until such required consent is obtained, or if such consent cannot be obtained or an attempted assignment thereof would be ineffective or would adversely affect the rights of the transferor thereunder so that the intended transferee would not in fact receive substantially all such rights, Spinco and Tulip will use reasonable efforts to cooperate in a mutually agreeable arrangement under which the intended transferee would obtain (at the transferee's expense and at no cost to the transferor) the benefits and assume the obligations thereunder in accordance with this Agreement, including (but not limited to) sub-contracting, sub-licensing or sub-leasing to such transferee, or under which the transferor would enforce for the benefit of the transferee and (except as otherwise provided herein or in any Ancillary Agreement) at the transferee's expense any and all rights of the transferor against, with the transferee assuming the transferor's obligations to, each third party thereto. ARTICLE 3 THE DISTRIBUTION SECTION 3.01. Cooperation Prior to the Distribution. (a) As promptly as practicable after the date of this Agreement, Parent, Tulip and Spinco shall prepare, and Spinco shall file with the Commission, the Registration Statement, which shall include or incorporate by reference the Information Statement. Parent, Tulip and Spinco shall use their reasonable best efforts to cause the Registration Statement to become effective under the Exchange Act or Securities Act as soon as practicable. After the Registration Statement has become effective, Tulip shall mail the Information Statement as promptly as practicable to the Tulip Shareholders of record as of the Record Date. -13- 18 (b) Parent, Tulip and Spinco shall cooperate in preparing, filing with the Commission and causing to become effective any registration statements or amendments or supplements thereto that are appropriate to reflect the establishment of or amendments to any employee benefit and other plans contemplated by the Ancillary Agreements. (c) Tulip and Spinco shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the transactions contemplated hereby or by the Ancillary Agreements. (d) Spinco shall prepare, file and pursue an application to permit the listing of the Spinco Common Stock on the New York Stock Exchange ("NYSE"). SECTION 3.02. Tulip Board Action; Conditions Precedent to the Distribution. Tulip's Board of Directors shall establish (or delegate authority to establish) the Record Date and the Distribution Date and any appropriate procedures in connection with the Distribution. In no event shall the Distribution occur unless the following conditions shall have been satisfied or, to the extent permitted, waived: (a) the Registration Statement shall have become effective with the Commission under the Exchange Act or Securities Act and shall have been mailed to all Tulip shareholders of record on the Record Date; (b) the Spinco Common Stock to be delivered in the Distribution shall have been approved for listing on the NYSE, subject to official notice of issuance; (c) the Restated Spinco Charter shall be in effect; (d) the contributions referred to in Section 2.01, the transfers referred to in Section 2.02, and the assumptions of Liabilities referred to in Section 2.03 of this Agreement shall have been effected; (e) the Employee Benefits Agreement shall have been duly executed and delivered by the parties thereto; and (f) each condition to the Merger set forth in Sections 9.01, 9.02 and 9.03 of the Merger Agreement shall have been satisfied or waived. SECTION 3.03. The Distribution. Subject to the terms and conditions set forth in this Agreement, (i) immediately prior to the Distribution Time, Tulip shall deliver to the Distribution Agent, for the benefit of the Tulip Shareholders of record on the Record Date, a stock certificate or certificates, endorsed by Tulip in blank, representing all of the then-outstanding shares of Spinco Common Stock owned by Tulip, (ii) the Distribution shall be effective as of the Distribution Time and (iii) Tulip shall instruct the Distribution Agent to distribute, on or as soon as practicable after the Distribution Date, to each Tulip Shareholder of record as of the Record Date one share of Spinco Common Stock (together with the associated preferred share purchase rights), for that certain number of shares (as determined by the Tulip Board of Directors) of Tulip Common Stock so held. Spinco agrees to provide all certificates for shares of Spinco Common Stock that Tulip shall require (after giving effect to Sections 3.04 and 3.05) in order to -14- 19 effect the Distribution. The Merger and Distribution shall be effected such that the Merger Consideration (as defined in the Merger Agreement) and the shares of Spinco Common Stock to be distributed in the Distribution are payable and distributable, as applicable, only to the same Tulip Shareholders, it being understood that the Distribution shall be effective immediately before the Merger Effective Time. SECTION 3.04. Stock Dividend. On or before the Distribution Date, Spinco shall issue to Tulip as a stock dividend the number of shares of Spinco Common Stock (together with the associated preferred share purchase rights) that are required to effect the Distribution, as certified by the Distribution Agent. In connection with the Distribution, Tulip shall deliver to Spinco for cancellation all of the share certificates currently held by it representing Spinco Common Stock. SECTION 3.05. Fractional Shares. No certificates representing fractional shares of Spinco Common Stock will be distributed in the Distribution. The Distribution Agent will be directed to determine the number of whole shares and fractional shares of Spinco Common Stock allocable to each Tulip Shareholder of record as of the Record Date. Upon the determination by the Distribution Agent of such number of fractional shares, as soon as practicable after the Distribution Date, the Distribution Agent, acting on behalf of the holders thereof, shall sell such fractional shares for cash on the open market in each case at the then prevailing market prices and shall disburse to each holder entitled thereto, in lieu of any fractional share, without interest, that holder's ratable share of the proceeds of that sale, after making appropriate deductions of the amount required, if any, to be withheld for United States federal income Tax purposes. SECTION 3.06. Representations of Spinco; Release. Spinco represents and warrants to Tulip that at and following the Distribution Time Tulip has no Liabilities other than the Tulip Liabilities. Tulip is hereby unconditionally released, from and after the Distribution Time, from all Spinco Group Liabilities. ARTICLE 4 INDEMNIFICATION AND OTHER MATTERS SECTION 4.01. Spinco Indemnification of Tulip. (a) Subject to Section 4.03, from and after the Distribution Date, Spinco shall indemnify, defend and hold harmless each of Tulip, its Affiliates (including, for the avoidance of doubt, Parent) and their respective officers, directors, employees, successors and assigns (each, a "TULIP INDEMNITEE") from and against any and all Damages incurred or suffered by any Tulip Indemnitee arising out of, in connection with or relating to (i) any and all Spinco Group Liabilities, and (ii) the breach by any member of the Spinco Group of any obligation under any Distribution Document (subject to any limitation set forth therein), including Damages reasonably incurred, arising out of the enforcement of this Section 4.01. (b) Subject to Section 4.03, from and after the Distribution Date, Spinco shall indemnify, defend and hold harmless each Tulip Indemnitee and each Person, if any, who controls any Tulip Indemnitee within the meaning of either Section 15 of the Securities Act or -15- 20 Section 20 of the Exchange Act from and against any and all Damages caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof or the Information Statement (in each case as amended or supplemented if Spinco shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except to the extent that those Damages are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information that is furnished to Spinco by Parent or any of its Affiliates (other than Tulip) in writing specifically for use therein. SECTION 4.02. Tulip Indemnification of Spinco Group. (a) Subject to Section 4.03, from and after the Distribution Date, Tulip shall indemnify, defend and hold harmless each member of the Spinco Group, their Affiliates and their respective officers, directors, employees, successors and assigns (each, a "SPINCO INDEMNITEE") from and against any and all Damages incurred or suffered by any Spinco Indemnitee arising out of, in connection with or relating to (i) any and all Tulip Liabilities and (ii) the breach by Tulip after the Distribution Date of any obligation of Tulip under any Distribution Document (subject to any limitation set forth therein), including Damages reasonably incurred, arising out of the enforcement of this Section 4.02. (b) Subject to Section 4.03, from and after the Distribution Date, Tulip shall indemnify, defend and hold harmless each Spinco Indemnitee and each Person, if any, who controls any Spinco Indemnitee within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all Damages caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof or the Information Statement (in each case as amended or supplemented if Spinco shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that those Damages are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information that is furnished by Parent in writing to Spinco or Tulip or any of their Affiliates specifically for use therein. SECTION 4.03. Insurance and Third Party Obligations; Limitation on Liability. If an Indemnified Party shall receive any amount of Insurance Proceeds or any other amount from a third party in compensation for a specific Liability giving rise to indemnification hereunder (i) at any time subsequent to the actual receipt of a payment in full of indemnification of such Liability hereunder, then such Indemnified Party shall reimburse the Indemnifying Party for any such indemnification payment made up to the amount of such Insurance Proceeds or other amounts actually received or (ii) at any time prior to the receipt of any indemnification payment in respect of such Liability hereunder, then the indemnification to be paid under Section 4.01 or 4.02 shall be paid net of the amount of any such Insurance Proceeds or other amounts actually received. Notwithstanding this Section 4.03, (x) in no event shall any Indemnified Party be required (i) to take any action, or forebear from exercising any right, under the Merger Agreement or any Distribution Document or (ii) to take any action with respect to, make any demand under or claim any coverage in connection with, any Policy, and (y) nothing herein shall -16- 21 permit any Indemnifying Party to delay or refrain from making any payment to any Indemnified Party because of the availability or alleged availability of any Policy or Insurance Proceeds. SECTION 4.04. Notice and Payment of Claims. If any Tulip Indemnitee or Spinco Indemnitee (the "INDEMNIFIED PARTY") determines that it is or may be entitled to indemnification by any party (the "INDEMNIFYING PARTY") under this Article 4 (other than in connection with any Action subject to Section 4.05), the Indemnified Party shall deliver to the Indemnifying Party a written notice specifying, to the extent reasonably practicable, the basis for its claim for indemnification and the amount for which the Indemnified Party reasonably believes it is entitled to be indemnified. Within 30 calendar days after receipt of such notice, the Indemnifying Party shall pay the Indemnified Party such amount in cash or other immediately available funds unless the Indemnifying Party objects in writing to the claim for indemnification or the amount thereof. In the event of such an objection or failure to pay by the Indemnifying Party, the amount, if any, that is Finally Determined to be required to be paid by the Indemnifying Party in respect of such indemnity claim shall be paid by the Indemnifying Party to the Indemnified Party in cash within 15 calendar days after such indemnity claim has been so Finally Determined, with interest thereon at the prime rate of SunTrust Bank, Atlanta in effect from time to time for the period commencing on the 30th day following receipt of the initial notice of the claim from the Indemnified Party until the date of actual payment (inclusive). SECTION 4.05. Notice and Defense of Third-Party Claims. (a) Promptly (and in any event within 10 Business Days) following the earlier of (i) receipt of notice, whether by service of process or otherwise, of the commencement by a third party of any Action against or otherwise involving any Indemnified Party or (ii) receipt of information from a third party alleging the existence of a claim against an Indemnified Party, in either case, with respect to which indemnification may be sought pursuant to this Agreement (a "THIRD-PARTY CLAIM"), the Indemnified Party shall give the Indemnifying Party written notice thereof. The failure of the Indemnified Party to give notice as provided in this Section 4.05 shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnifying Party is actually and materially prejudiced by such failure to give notice. (b) Within 30 calendar days after receipt of notice from the Indemnified Party pursuant to Section 4.05(a), the Indemnifying Party may (by giving written notice thereof to the Indemnified Party) elect at its option to, and shall at the request of the Indemnified Party, assume the defense of such Third-Party Claim at the Indemnifying Party's sole cost and expense unless the Indemnifying Party objects in writing to such indemnification claim (in which case the Indemnified Party may not require the Indemnifying Party to assume the defense and the Indemnifying Party shall only assume the defense with the consent of the Indemnified Party). During such 30-calendar day period, unless and until the Indemnifying Party assumes the defense of a Third-Party Claim or objects in writing, the Indemnified Party shall take such action as it deems appropriate, acting in good faith, in connection with the Third-Party Claim; provided, however, that the Indemnified Party shall not settle or compromise, or make any offer to settle or compromise, the Third-Party Claim without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld). (c) If the Indemnifying Party assumes the defense of a Third-Party Claim, (w) it shall keep the Indemnified Party timely informed of all significant developments in connection -17- 22 therewith, (x) the defense shall be conducted by counsel retained by the Indemnifying Party, provided that the Indemnified Party shall have the right to participate in such proceedings and to be represented by counsel of its own choosing at the Indemnified Party's sole cost and expense, unless a conflict of interest is reasonably likely to exist if the Indemnifying Party's counsel represents the interests of the Indemnified Party in which case the Indemnified Party's counsel's fees shall be at the Indemnifying Party's sole cost and expense; and (y) the Indemnifying Party may settle or compromise the Third-Party Claim without the prior written consent of the Indemnified Party so long as such settlement or compromise includes an unconditional release of the Indemnified Party from all claims that are or could be the subject of such Third-Party Claim, provided that the Indemnifying Party may not agree to any such settlement or compromise pursuant to which there is any finding or admission of any violation of Law or pursuant to which any remedy or relief (including but not limited to the imposition of a consent order, injunction or decree which would restrict the future activity or conduct of the Indemnified Party or any Subsidiary or Affiliate thereof), other than monetary damages for which the Indemnifying Party shall be fully responsible hereunder, shall be applied to or against the Indemnified Party, without the prior written consent of the Indemnified Party (which shall not be unreasonably withheld). (d) If the Indemnifying Party has not objected in writing to such indemnification claim, and, if at the end of the 30-calendar day period referred to in Section 4.05(b) the Indemnifying Party has not assumed the defense of such claim, or, if earlier, beginning at such time as the Indemnifying Party has declined in writing to assume the defense of a Third-Party Claim, (x) the Indemnified Party will take such steps as it deems appropriate to defend that Third-Party Claim and the defense shall be conducted by counsel retained by the Indemnified Party, provided that the Indemnifying Party shall have the right to participate in such proceedings and to be represented by counsel of its own choosing at the Indemnifying Party's sole cost and expense; and (y) the Indemnifying Party shall reimburse the Indemnified Party on a current basis (and in any event within 30-calendar days after the submission of invoices and bills by an Indemnified Party) for its expenses of investigation, attorneys' and expert witnesses' fees and other out-of-pocket expenses incurred in defending against such Third-Party Claim and the Indemnifying Party shall be bound by the result obtained with respect thereto by the Indemnified Party; provided further, that the Indemnified Party shall not settle or compromise, or make any offer to settle or compromise, the Third-Party Claim unless such settlement or compromise includes an unconditional release of the Indemnifying Party from all claims that are or could be the subject of such Third-Party Claim, provided that the Indemnified Party may not agree to any such settlement or compromise pursuant to which there is any finding or admission of any violation of Law or pursuant to which any remedy or relief (including but not limited to the imposition of a consent order, injunction or decree which would restrict the future activity or conduct of the Indemnifying Party or any Subsidiary or Affiliate thereof), other than monetary damages for which the Indemnifying Party shall be fully responsible hereunder, shall be applied to or against the Indemnifying Party without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld). (e) The Indemnifying Party shall pay to (or at the direction of) the Indemnified Party in cash the amount, if any, for which the Indemnified Party is entitled to be indemnified hereunder within 15 calendar days after such Third Party Claim has been Finally Determined, in the case of an indemnity claim as to which the Indemnifying Party has acknowledged liability or, in the case of any indemnity claim as to which the Indemnifying Party has not -18- 23 acknowledged liability, within 15 calendar days after such Indemnifying Party's liability, if any, hereunder has been Finally Determined. (f) Notwithstanding any other provision of this Agreement, Tulip acknowledges and agrees that Spinco shall (solely at its own cost and expense) assume and continue the defense of all the Spinco Litigation and that, as long as such settlement or compromise includes an unconditional release of all Tulip Indemnitees, Spinco shall be permitted to settle or compromise such Actions without the consent of Tulip or any of its Affiliates (including, after the Merger Effective Time, Parent) provided that Spinco may not agree to any such settlement or compromise pursuant to which there is any finding or admission of any violation of Law or pursuant to which any remedy or relief (including but not limited to the imposition of a consent order, injunction or decree which would restrict the future activity or conduct of the Tulip Indemnitees), other than monetary damages for which Spinco shall be responsible hereunder, shall be applied to or against such Tulip Indemnitee, and which shall not jeopardize Spinco's ability to pay, perform or indemnify against other Spinco Group Liabilities without the prior written consent of such Tulip Indemnitee (which shall not be unreasonably withheld); provided, further, that Spinco shall use its reasonable best efforts to defend any Tulip Indemnitee and to cause any Tulip Indemnitee to be dismissed with prejudice as a party to any pending or future Spinco Litigation and, to the extent any Tulip Indemnitee believes, in its reasonable judgment, that Spinco has failed to diligently pursue such defense or dismissal, the Tulip Indemnitee shall be entitled (at its own cost and expense) to independently move for or otherwise pursue such defense or dismissal and to take such related actions as it may deem necessary or appropriate in connection therewith. Spinco shall keep Tulip timely informed of all significant developments with respect to the Spinco Litigation to which any Tulip Indemnitee is a party and Tulip may, at any time, at its option and expense, participate in the defense of all the Spinco Litigation with representatives of its own choosing. (g) Subject to Article 6, each party shall cooperate, and cause their respective Representatives to cooperate, in the defense or prosecution of any Third-Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested in connection therewith. (h) Notwithstanding anything to the contrary in this Section 4.05, the above provisions of this Section 4.05 shall not apply to Tax Proceedings, which matters shall instead be governed by Section 8.06. SECTION 4.06. Adjustment in Indemnity Payment for Tax Consequences. Notwithstanding any other provision, any indemnity payment hereunder shall be increased or decreased at the time such indemnity payment is made (and at any relevant later date) by such amount as is necessary to make the Indemnified Party whole, but not greater than whole, for any Tax consequences to such party or its Affiliates (including, with respect to Tulip, Parent after the Merger Effective Time) arising in connection with such indemnity payment. -19- 24 SECTION 4.07. Non-Exclusivity of Remedies. The remedies provided for in this Article 4 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Party at law or in equity. ARTICLE 5 EMPLOYEE MATTERS SECTION 5.01. Employee Matters Generally. With respect to employee matters and employee benefits arrangements, the parties hereto agree as set forth herein and in the Employee Benefits Agreement. The parties hereto agree to execute and deliver the Employee Benefits Agreement prior to the Distribution Date. ARTICLE 6 ACCESS TO INFORMATION SECTION 6.01. Provision of Corporate Records. Except as otherwise specifically set forth in this Agreement or any Ancillary Agreement, immediately prior to or as soon as practicable following the Distribution Date, each Group shall provide to the other Group all documents, Contracts, books, records and data (including but not limited to minute books, stock registers, stock certificates and documents of title) in its possession relating primarily to the other Group or its business, assets and affairs (after giving effect to the transactions contemplated hereby); provided that if any such documents, Contracts, books, records or data relate to both Groups or the business and operations of both Groups, each such Group shall provide to the other Group true and complete copies of such documents, Contracts, books, records or data. Data stored in electronic form shall be provided in the format in which it existed at the Distribution Date, except as otherwise specifically set forth in this Agreement or any Ancillary Agreement. SECTION 6.02. Access to Information. From and after the Distribution Date, each Group shall, for a reasonable period of time, afford promptly to the other Group and its accountants, counsel and other designated representatives reasonable access during normal business hours to all documents, Contracts, books, records, computer data and other data in such Group's possession relating to such other Group or the business and affairs of such other Group (after giving effect to the transactions contemplated hereby) (other than data and information subject to in the case of access provisions in any joint defense arrangements between a member or members of one Group and a member or members of the other Group, the terms of the relevant joint defense agreement), insofar as such access is reasonably required by such other Group, including, without limitation, for audit, accounting, litigation, regulatory compliance and disclosure and reporting purposes. SECTION 6.03. Litigation Cooperation. From and after the Distribution Date: (a) Each Group shall use all reasonable best efforts to make available to the other Group and its accountants, counsel, and other designated representatives, upon written request, its current and former directors, officers, employees and representatives as witnesses, and shall otherwise cooperate with the other Group, to the extent reasonably required in connection -20- 25 with any Action or threatened Action arising out of either Group's business and operations in which the requesting party may from time to time be involved. (b) Each Group shall promptly notify the other Group hereto, upon its receipt or the receipt by any of its members, of a request or requirement (by oral questions, interrogatories, requests for information or documents, subpoenas, civil investigative demands or other similar processes) which relates to the business and operations of the other party (a "REQUEST") reasonably regarded as calling for the inspection or production of any documents or other information in its possession, custody or control, as received from any Person that is a party in any Action, or, in the event the Person delivering the Request is not a party to such Action, as received from such Person. In addition to complying with the applicable provisions of Section 6.06, each Group shall assert and maintain, or cause its members to assert and maintain, any applicable claim to privilege, immunity, confidentiality or protection in order to protect such documents and other information from disclosure, and shall seek to condition any disclosure which may be required on such protective terms as may be appropriate. No Group may waive, undermine or fail to take any action necessary to preserve an applicable privilege without the prior written consent of the affected party hereto (or any affected Group member or Affiliates of any such party) except, in the opinion of such party's counsel, as required by law. (c) Tulip hereby waives any conflict which might preclude counsel currently representing Tulip, Spinco or any of their respective Affiliates from representing Spinco and/or any of its Affiliates following the Distribution Date in connection with the Spinco Litigation existing at the Merger Effective Time. (d) Tulip and Spinco shall enter into such joint defense agreements, in customary form, as Tulip and Spinco shall determine are advisable. SECTION 6.04. Reimbursement. Except to the extent that any member of one Group is obligated to indemnify any member of the other Group under Article 4, each Group providing information or witnesses to the other Group, or otherwise incurring any expense in connection with cooperating, under Sections 6.01, 6.02 or 6.03, shall be entitled to receive from the recipient thereof, upon the presentation of invoices therefor, payment for all out-of-pocket costs and expenses that may reasonably be incurred in providing such information, witnesses or cooperation. SECTION 6.05. Retention of Records. From and after the Distribution Date, except as otherwise required by law or agreed to in writing, each party shall, and shall cause the members of its respective Group to, retain all information relating to the other Group's business and operations in accordance with the then general practice of such party with respect to information relating to its own business and operations. Notwithstanding the foregoing, any party may destroy or otherwise dispose of any such information at any time, provided that, prior to such destruction or disposal, (i) such party shall provide not less than 90 or more than 120 calendar days' prior written notice to the other party, specifying the information proposed to be destroyed or disposed of and the scheduled date for such destruction or disposal, and (ii) if the recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the information proposed to be destroyed or disposed of be delivered to such -21- 26 requesting party, the party proposing the destruction or disposal shall promptly arrange for the delivery of such of the information as was requested at the expense of the requesting party. SECTION 6.06. Confidentiality. From and after the Distribution Date, each party shall hold and shall cause its Affiliates and their respective directors, officers, employees, counsel, accountants, agents, consultants, advisors and other authorized representatives ("REPRESENTATIVES") to hold in strict confidence all documents and other information (other than any such documents and other information relating solely to the business or affairs of such party) concerning the other party and/or its Affiliates ("CONFIDENTIAL INFORMATION") unless such party is compelled to disclose such documents and/or other information by judicial or administrative process or, in the opinion of its counsel, by other requirements of law or the rules of any applicable stock exchange. Confidential Information shall not include such documents and/or other information which can be shown to have been (A) in the public domain through no fault of such party, (B) lawfully acquired after the Distribution Date on a non-confidential basis from other sources or (C) acquired or developed independently by such party without violating this Section 6.06 or the Confidentiality Agreement. Notwithstanding the foregoing, such party may disclose such Confidential Information to its Representatives so long as such Persons are informed by such party of the confidential nature of such Confidential Information and are directed by such party to treat such documents and/or other information confidentially. In the event that such party or any of its Representatives is requested or required (by oral questions, interrogatories, requests for information or documents, subpoenas, civil investigative demands or other similar processes) to disclose any of the Confidential Information, such party will promptly notify the other party so that the other party may seek a protective order or other remedy or waive such party's compliance with this Section 6.06. Such party shall exercise reasonable efforts to preserve the confidentiality of the Confidential Information, including, but not limited to, by cooperating with the other party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, in the absence of a protective order or other remedy or the absence of receipt of a waiver of the other party, such party or any of its Representatives is nonetheless legally compelled to disclose any of the Confidential Information, such party or such Representative may disclose only that portion of the Confidential Information which is legally required to be disclosed. Such party agrees to be responsible for any breach of this Section 6.06 by it and/or its Representatives. SECTION 6.07. Right of Inquiry. (a) In the event of a material adverse change after the Distribution Date in the financial condition of Spinco, which change creates a substantial risk that Spinco will not be able to satisfy or otherwise settle, when due, its indemnification obligations to the Tulip Indemnitees under this Agreement and the Ancillary Agreements. Parent shall have the right, at its own expense, subject to entering into an agreement with Spinco to preserve confidentiality and any applicable privilege for the benefit of Spinco, upon consultation with Spinco, to have limited access on reasonable prior notice to Spinco's senior management in order to monitor the status of pending and anticipated litigation and governmental investigations or proceedings for which Parent would reasonably be expected to have contingent liability. Such right of inquiry shall terminate at such time as there is no longer a substantial risk that Spinco will not be able to satisfy its indemnification obligations under this Agreement and the Ancillary Agreements. -22- 27 (b) In addition to the provisions of paragraph (a) above, Parent shall have the right on an annual basis and subject to reasonable prior notice to meet with the General Counsel of Spinco (or such corporate officer or employee who performs the responsibilities and duties of a general counsel) and receive an oral report, in a forum in which Parent may ask questions regarding the status of pending and threatened litigation and governmental investigations or proceedings for which Parent may reasonably be expected to have contingent liability. For the avoidance of doubt, no such right shall require Spinco to (i) provide confidential information, or (ii) jeopardize the benefit of any applicable privilege. In addition, Parent shall have the further right to request one additional meeting per year in connection with the public disclosure by Spinco during such year of a material adverse development in any pending or threatened litigation or governmental investigation or proceeding for which Parent may reasonably be expected to have contingent liability. Such meeting will be on the same terms as set forth in this Section 6.07(b). ARTICLE 7 CERTAIN OTHER AGREEMENTS SECTION 7.01. Intercompany Accounts; Services; Guaranties. (a) Except as otherwise specifically set forth herein or in any of the Ancillary Agreements or in the Merger Agreement, (i) all intercompany loan balances in existence as of the Distribution Time between Tulip and any member of the Spinco Group will be settled or paid in cash or other immediately available funds prior to or as of the Distribution Time and (ii) all intercompany accounts receivable and accounts payable between Tulip and any member of the Spinco Group in existence at the Distribution Time shall be paid in full, in cash or other immediately available funds, by the party or parties owing such obligations prior to Distribution Time. (b) Except as otherwise contemplated hereby or as set forth on Schedule 7.01 or in any Ancillary Agreements or in the Merger Agreement, all prior agreements and arrangements, including those relating to goods, rights or services provided or licensed, between any member of the Spinco Group and Tulip shall be terminated effective as of the Distribution Time, if not previously terminated. No such agreements or arrangements shall be in effect after the Distribution Time unless embodied in this Agreement, the Ancillary Agreements or set forth on Schedule 7.01. (c) In addition to any services contemplated to be provided following the Distribution Date pursuant to any Ancillary Agreement, each party, upon written request of the other party, shall make available to the other party, during normal business hours and in a manner that will not unreasonably interfere with such party's business, its financial, tax, accounting, legal, employee benefits and similar staff and services (collectively "SERVICES") whenever and to the extent that they may be reasonably required in connection with the preparation of tax returns, audits, claims, litigation or administration of employee benefit plans, and otherwise to assist in effecting an orderly transition following the Distribution Date. (d) Spinco shall use its reasonable best efforts to cause itself or one or more of its Affiliates to be substituted in all respects for Tulip or any of its Affiliates, effective as of the Distribution Date, in respect of all obligations of Tulip or any of its Affiliates under any -23- 28 guaranties, letters of credit or letters of comfort obtained by Tulip or any such Affiliates for the benefit of the Spinco Group, any of its Affiliates or the Spinco Business (the "GUARANTIES"). If Spinco is unable to effect such a substitution with respect to any such Guaranty after using its reasonable best efforts to do so, Spinco shall obtain letters of credit, on terms and from financial institutions reasonably satisfactory to Parent, with respect to the obligations covered by each of the Guaranties for which Spinco does not effect such substitution. Subsequent to the Distribution Date, with respect to any uncancelled Guaranty for which no substitution is effected or letter of credit is provided, Spinco shall, pursuant to Section 4.01, indemnify each Tulip Indemnitee against any Liability under any such Guaranty. SECTION 7.02. Trademarks; Trade Names. (a) From and after the Distribution Date, Tulip will not, and will not permit any of its Affiliates to, use any of the Spinco Intellectual Property Rights. (b) As promptly as practicable following the Distribution Time, and as contemplated by the Merger Agreement, Tulip will file with the applicable Governmental Entity amendments to its articles of incorporation or otherwise take all action necessary to delete from their name the word "Tulip" or any marks and names derived therefrom and shall do or cause to be done all other acts, including the payment of any fees required in connection therewith, to cause such amendments or other actions to become effective. (c) Tulip acknowledges that from and after the Distribution Date, the Tulip Name Rights will remain an asset of the Spinco Group and shall include any goodwill associated with the use of the "Tulip" name, and any derivative thereof. SECTION 7.03. Further Assurances and Consents. In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including, using its reasonable best efforts to obtain any consents and approvals and to make any filings and applications necessary or desirable in order to consummate the transactions contemplated by this Agreement; provided that no party hereto shall be obligated to take any action or omit to take any action if the taking of or the omission to take such action would be unreasonably burdensome to the party, its Group or its Group's business. The parties agree to enter into and execute such additional Distribution Documents as may be reasonably necessary, proper or advisable to effect the transactions contemplated by this Agreement or the Ancillary Agreements, provided, however that such additional Distribution Documents shall not diminish any of the rights granted or increase any of the Liabilities assumed under this Agreement or the Ancillary Agreements, or otherwise adversely affect Tulip or any of its Affiliates following the Distribution Time, and shall not be entered into without the prior written consent of Parent, which shall not be unreasonably withheld. SECTION 7.04. Non-Solicitation. (a) Except as otherwise permitted by any Ancillary Agreement, for a period of two years from the Merger Effective Time, neither Group nor any of its Affiliates shall, directly or indirectly, solicit any employee of the other Group. Notwithstanding the foregoing, the restriction set forth in the immediately preceding sentence -24- 29 shall not apply to (i) Person who contacts such Group or any of its Affiliates in response to general advertisements or searches or other broad-based hiring methods or (ii) individuals who choose to leave for Good Reason the employment of, or are terminated by, a Group without the other Group having taken any action otherwise prohibited by this Section 7.04(a) . "GOOD REASON" for the purposes of this Section 7.04(a) shall mean reduction in compensation, a relocation of more than 25 miles from the employee's current place of employment or a diminution of the employee's duties and responsibilities. (b) If any provision contained in this Section 7.04 shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Section, but this Section shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. It is the intention of the parties that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable law, a court of competent jurisdiction shall construe and interpret or reform this Section to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such applicable law. In addition to and not in limitation of the parties' obligations under Section 9.14, each of the parties hereto acknowledges that the other party would be irreparably harmed by any breach of this Section and that there would be no adequate remedy at law or in damages to compensate such party for any such breach. Each of the parties hereto agrees that the other party shall be entitled to injunctive relief requiring specific performance by such party of this Section, and consents to the entry thereof. SECTION 7.05. Third Party Beneficiaries. Parent shall be a third party beneficiary of this Agreement. Except as contemplated in the preceding sentence, nothing contained in this Agreement is intended to confer upon any Person or entity other than the parties hereto and their respective successors and permitted assigns and Parent, any benefit, right or remedies under or by reason of this Agreement, except that the provisions of Article 4 shall inure to the benefit of the Spinco Indemnitees and the Tulip Indemnitees. SECTION 7.06. Intellectual Property Rights and Licenses. Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreements, neither Group shall have any right or license in or to any technology, software, Intellectual Property Right or other proprietary right owned, licensed or held for use by the other Group. SECTION 7.07. Insurance. (a) The Spinco Assets shall include any and all rights of an insured party under each of the Group Policies, subject to the terms of such Group Policies and any limitations or obligations of Spinco contemplated by this Section 7.07, specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all Actions and Liabilities incurred or claimed to have been incurred prior to the Distribution Date by any party in or in connection with the conduct of any of the Spinco Group or Tulip or their respective businesses and operations, and which Actions and Liabilities may arise out of an insured or insurable occurrence under one or more of such Group Policies. With respect to all of the applicable Group Policies, Spinco shall use its reasonable best efforts, -25- 30 at its option, either (x) to cause Tulip and its Affiliates to be named or maintained as additional insured parties thereunder to the extent of, or (y) to obtain (at Spinco's expense at no cost to Tulip or any of its Affiliates) a run-off or tail coverage policy with respect to, in each case, their respective insurable interests in respect of Tulip Liabilities incurred or claimed to have been incurred prior to the Distribution Date and insured thereunder, and the Tulip Assets shall include such rights, to the extent they relate to Tulip Liabilities, of an additional insured party under each such Group Policy or under such run-off or tail policy, as applicable, subject to the terms of such policy which shall include a term of no less than six years. (b) Spinco shall administer all Group Policies. In the event Tulip Liabilities are covered under the Group Policies for periods prior to the Distribution Date, or under any Group Policy covering claims made after the Distribution Date with respect to an action, error, omission or occurrence prior to the Distribution Date, then from and after the Distribution Date, upon request from Tulip, Spinco shall claim coverage for Insured Claims under such Group Policy as and to the extent that such insurance is available (subject to Section 7.07(c)) up to the full extent of the applicable limits of liability of such Group Policy. (c) Spinco shall use its reasonable best efforts to cause Insurance Proceeds received with respect to claims, costs and expenses under the Group Policies (i) relating to Tulip Liabilities, to be paid directly to Tulip and (ii) relating to the Spinco Group Liabilities to be paid directly to Spinco (or the applicable member of the Spinco Group). In the event Spinco has been unable to cause Insurance Proceeds to be paid directly to Tulip in accordance with the preceding sentence, or to cause Tulip and its Affiliates to be named or maintained as additional insureds or to obtain run-off or tail policies in accordance with the last sentence of Section 7.07(a), Spinco shall inform Tulip of the reasons therefor and Tulip shall be entitled, at Spinco's cost and expense, to take such actions as may be necessary to (A) achieve such payment or (B) achieve such additional insured status or (C) obtain such run-off or tail policy, so long as the actions referenced in (B) and (C) are not materially adverse to Spinco. Payment of the allocable portions of indemnity costs out of Insurance Proceeds resulting from such Group Policies will be made by Spinco to the appropriate party upon receipt from the insurance carrier (to the extent not paid directly to Tulip pursuant to the first sentence of this Section 7.07(c)). In the event that the aggregate limits on any Group Policies are exceeded by the aggregate of outstanding Insured Claims by the parties hereto, the parties shall agree on an equitable allocation of Insurance Proceeds based upon their respective bona fide claims. Each party agrees to use reasonable best efforts to maximize available coverage under those Group Policies applicable to such party, and to take all reasonable steps to recover from all other responsible parties in respect of an Insured Claim to the extent coverage limits under a Group Policy have been exceeded or would be exceeded as a result of such Insured Claim. Notwithstanding any other provision of this Agreement, Spinco shall not be required to renew, extend or expand the coverage available under any of the Group Policies provided, that prior to any termination (or failure to reinstate) such Group Policies with respect to coverage of any Tulip Liabilities insured thereunder, Spinco shall afford Tulip the opportunity of taking such commercially reasonable steps as may be necessary to maintain such coverage in place. (d) Spinco shall maintain insurance policies issued in favor of Spinco or its Subsidiaries that are customary and appropriate for a company in its industry for a period of not less than six years from and after the Distribution Time. -26- 31 ARTICLE 8 TAXES SECTION 8.01. Liability for Taxes. (a) Spinco shall be liable for and Spinco shall indemnify Tulip and its Affiliates for, all Taxes (A) imposed on or with respect to Tulip (or any consolidated, combined or unitary group of which Tulip was a member prior to the Distribution (each a "SPINCO AFFILIATED GROUP")) (i) for any taxable year or period that ends, with respect to Tulip, on or before the Distribution Date; (ii) for the Current Period; (iii) resulting solely from Tulip's inclusion in any Spinco Affiliated Group pursuant to Treasury Regulation Section 1.1502-6 (or comparable provision of state, local or foreign law); or (iv) resulting from any adjustment pursuant to Section 481(a) of the Code (or comparable provision of state, local or foreign law) by reason of a change in the method of accounting or other change with respect to any taxable year or period that ends with respect to Tulip on or before the Distribution Date or with respect to the Current Period or (B) resulting from a breach of the representation set forth in Section 8.07(b); provided, however, that Spinco shall not be liable and shall not indemnify Tulip for any Taxes imposed on Tulip as a result of any Parent-Directed Transaction. Notwithstanding any other provision, Spinco shall be liable for any Tax imposed on Tulip, any Spinco Affiliated Group, any member of the Spinco Group or any Tulip Affiliate as a result of the Merger or the ELF Merger. Any reference in this Section 8.01(a) to Tulip shall include a reference to any Tulip predecessor entity or any entity as to which Tulip is the successor. (b) Tulip shall be liable for, and Tulip shall indemnify Spinco and its Affiliates for, all Taxes (other than any Taxes relating to Spinco, the Spinco Assets, the Spinco Business, the Discontinued Business or the Contributed Subsidiaries or otherwise the responsibility of Spinco under Section 4.01, 8.01(a) or 8.03) imposed on or with respect to Tulip (i) for any taxable year or period that begins, with respect to Tulip, after the Distribution Date and (ii) with respect to the Straddle Period, for the portion of such Straddle Period beginning, with respect to Tulip after the Distribution Date. (c) For purposes of Sections 8.01(a) and 8.01(b), whenever it is necessary to determine the liability for Taxes of Tulip for the Current Period or for the portion of the Straddle Period beginning on the day following the Distribution Date, such Taxes shall be determined on the basis of a closing of the books of Tulip at the close of the Distribution Date except that any such Tax imposed annually based on the ownership of assets on a particular date shall be determined by prorating such Taxes, on a daily basis, to the period to and including the Distribution Date and the period thereafter; provided, however, that (i) Taxes imposed on Tulip as a result of any Parent-Directed Transactions shall be allocated to the taxable year or period that is deemed to begin at the beginning of the day following the Distribution Date, and (ii) Taxes imposed on Tulip that relate to Spinco, the Spinco Assets, the Spinco Business, the Discontinued Business or the Contributed Subsidiaries shall be allocated to the Current Period. SECTION 8.02. Tax Returns. (a) Spinco shall cause to be prepared and timely filed all Tax Returns that are required to be filed by or with respect to Tulip for taxable years or periods ending on or before the Distribution Date for which the Tax Return is due on or before the Distribution Date and shall timely pay in full any Taxes due in respect of such Tax Returns. All such Tax Returns shall be prepared and filed in accordance with the Tax Reporting Standard. -27- 32 (b) Spinco shall cause to be prepared all Tax Returns that are required to be filed by or with respect to Tulip (i) for the Current Period and (ii) for any taxable years or periods ending, with respect to Tulip, on or before the Distribution Date for which the Tax Return is due after the Distribution Date. At least 45 days before the due date of any such Tax Return, Spinco agrees to provide Tulip a draft copy (the "DRAFT RETURN") of such Tax Return. Each such Tax Return shall not report any item in a manner that is inconsistent with the manner in which any corresponding item has been previously reported in any such Tax Return already filed, unless such inconsistent treatment is (w) required by law or due to a change in circumstances, or (x) is permitted by law, either Tulip or Spinco elects to make such change in treatment and such change would not be prejudicial to Spinco or Tulip (the "TAX REPORTING STANDARD"). In the case of Tax Returns described in clause (i) or (ii) of this Section 8.02(b), (y) unless (A) Tulip believes that the proposed Tax Return does not comply with the Tax Reporting Standard or (B) Tulip disagrees with the manner in which the matters set forth in Section 8.03(a), (b), (c), (d) or (e) or the matters set forth in the definition of "Tax Amount" (as defined in the Merger Agreement) (or items affecting any Tax resulting from such matters) are treated on such Draft Return on the basis that such matters or items are calculated inconsistently with the definition of the Tax Amount, the Tax Return shall be filed as set forth in the Draft Return and (z) to the extent necessary for such Tax Return to be duly filed, Tulip shall cause an officer or other authorized person to execute such Tax Returns and Tulip agrees to cause such Tax Returns to be filed. In the event that Tulip believes that the proposed Tax Return does not comply with the Tax Reporting Standard or Tulip disagrees with such Draft Return as set forth in clause (B) above, the parties shall endeavor to resolve their disagreement over this matter, and failing that a neutral accountant mutually acceptable to Tulip and Spinco shall resolve the disagreement (consistent with the definition of Tax Amount, including the Reasonably Expected By The Accountants standard set forth therein) prior to the date the Tax Return is due. Tulip shall cause an officer or other authorized person to execute such Tax Return reflecting the resolution by the neutral accountants and Tulip agrees to cause such Tax Return to be filed. Spinco shall determine (subject to any audit adjustment and subject to the consent of Tulip (which consent shall not be unreasonably withheld)) the allocation and apportionment of any unused net operating losses and credits of Tulip or the Spinco Affiliated Group and Spinco and Tulip shall report consistently with such determination. (c) Tulip shall prepare and timely file or shall cause to be prepared and timely filed all Tax Returns that are required to be filed by it for taxable years or periods beginning, with respect to Tulip, after the Distribution Date and shall timely pay in full any Taxes due in respect of such Tax Returns. (d) Spinco shall pay Tulip, no later than two Business Days prior to the date such Taxes are due to the applicable Taxing Authority, the amount of any Taxes that (i) Tulip or any Tulip Affiliate is required to pay to the applicable Taxing Authority and (ii) are either Taxes for which Spinco is liable pursuant to Section 8.01(a) or 8.03 or are Spinco Group Liabilities. Spinco shall pay, or cause to be paid, directly to the applicable Taxing Authority any other Taxes that are Spinco Group Liabilities. SECTION 8.03. Distribution. Notwithstanding any other provision, Spinco shall be liable for any Taxes that are imposed on Tulip, any Spinco Affiliated Group, any member of the Spinco Group, any Tulip Affiliate or any other Person as a result (in whole or in part) -28- 33 of (a) the Distribution, (b) the Restructuring, (c) any transaction undertaken in anticipation of the Distribution or the Restructuring, (d) any reduction in Tulip's basis in Spinco by reason of an indemnity payment or otherwise, or (e) any election made in connection with any of the above (it being understood that, to the extent required to avoid double-counting, the dollar amount of the reduction in the Merger Consideration (as defined in the Merger Agreement) by reason of paragraph (a) (6) of Schedule I to the Merger Agreement shall reduce such indemnification obligation (except to the extent that Spinco receives a refund, credit or other recovery of, or relating to, such amount)). SECTION 8.04. Tax Refunds and Benefits. (a) Spinco shall be entitled to any refund of any Taxes of Tulip, which Taxes are for taxable years or periods (or portions thereof) ending, with respect to Tulip, on or before the Distribution Date, including any interest paid by the applicable Governmental Entity thereon (net of any Tax on such interest), received by Tulip, Parent, or any of their respective Affiliates, and any amounts credited against Taxes of Tulip, which Taxes are for taxable years or periods (or portions thereof) ending, with respect to Tulip, on or before the Distribution Date, to which Tulip, Parent, or any of their respective Affiliates becomes entitled. Spinco shall have the right to determine whether any claim for refund of such Taxes to which Spinco is entitled shall be made on behalf of Spinco by Tulip, Parent or any of their respective Affiliates. If Spinco elects to make a claim for refund of such Taxes to which Spinco is entitled, Tulip and Parent shall cooperate fully in connection therewith. Without the prior written consent of Spinco, neither Tulip, Parent nor any of their respective Affiliates shall (i) make any election or (ii) file any amended Tax Return or propose or agree to any adjustment of any item with the IRS or any other taxing authority with respect to any taxable year or period of Tulip ending, with respect to Tulip, on or before the Distribution Date that would have the effect of increasing the Taxes of Tulip for any taxable year or period ending, with respect to Tulip, on or before the Distribution Date. Notwithstanding any other provision: Spinco shall not (and Tulip shall) be entitled to any refunds (and interest thereon) or credits (A) that result from a carryback of any Tax item (other than a Tax item relating to the Spinco Assets, the Spinco Business or the Discontinued Business), (B) of or against Taxes resulting from a Parent-Directed Transaction or (C) of or against Taxes (to the extent such refunds and credits do not exceed the Tax Amount) imposed as a result of any of the matters set forth in Section 8.03(a), (b), (c), (d) or (e), in the case of this clause (C), prior to the date on which all relevant Tax years have been Finally Settled. (b) Tulip shall be entitled to any refund of any Taxes of Tulip, which Taxes are for taxable years or periods (or portions thereof) beginning, with respect to Tulip, after the Distribution Date, including any interest paid thereon, received by Tulip, Parent, or any of their respective Affiliates or any member of the Spinco Group, and any amounts credited against Taxes of Tulip, which Taxes are for taxable years or periods (or portions thereof) beginning, with respect to Tulip, after the Distribution Date, to which Tulip, Parent, or any of their respective Affiliates or any member of the Spinco Group becomes entitled. Tulip shall have the right to determine whether any claim for refund of Taxes of Tulip for taxable years or periods (or portions thereof) beginning, with respect to Tulip, after the Distribution Date (and any other claim for refund of Taxes to which Tulip is entitled) shall be made. -29- 34 (c) Spinco and Tulip agree to determine (subject to any audit adjustment) the unused net operating losses of Tulip (or any consolidated, combined or unitary group of which Tulip was a member prior to the Closing Date) as of the close of the Distribution Date in a manner consistent with the closing of the books methodology described in Section 8.01(c) and applicable Tax law; provided, however, that any deductions or losses allowed under the Code that would not have arisen but for any obligations listed in paragraph (a) (1), (2), (4), (5) or (7) of Schedule I to the Merger Agreement for which Spinco or the shareholders of Tulip, immediately prior to the Distribution, are directly or indirectly responsible shall be allocated (subject to any audit adjustment) to the Current Period. Spinco and Tulip agree that, to the extent that under applicable Tax rules, such unused net operating loss is apportioned to Tulip, Spinco shall be entitled, from and after the Offset Date, to offset its indemnity obligations hereunder by an aggregate amount equal to the Offset Amount. The "Offset Amount" shall mean the dollar amount of any tax benefit (that is a reduction in taxes payable or is a refund, but not any deemed or actual interest on any amount) that Tulip (or any consolidated, combined or unitary group of which Tulip is a member after the Distribution Date) actually derives after the Distribution Date (taking into account all facts and circumstances as of the Offset Date) in cash from (but not in excess of the amount of any such tax benefit that Spinco and its Subsidiaries would have derived on or prior to the Offset Date if the net operating loss had been apportioned to Spinco), and would not have derived but for, the utilization of such losses. The "Offset Date" shall mean the latest of (i) the date on which the taxable year of Tulip in which such utilization occurs is Finally Settled, (ii) the date on which the taxable year of Tulip ending on the Distribution Date is Finally Settled and (iii) the date on which Spinco or its Subsidiaries would have derived such tax benefit if the net operating loss had been apportioned to Spinco. "Finally Settled" shall mean, with respect to a taxable year or period, finally and conclusively settled with the Internal Revenue Service or, if such year or period is not audited by the Internal Revenue Service, the date on which all applicable statutes of limitations with respect to such year or period have expired. For purposes of determining utilization and the benefit derived from utilization, such net operating losses shall be the last item to be taken into account for any taxable year or period. In the event that facts or circumstances arise or come to light after the Offset Date which would reduce the Offset Amount (treating references in the definition of Offset Amount to such later date), then the Offset Amount shall be reduced to such revised amount, and Spinco shall immediately remit to Tulip in cash the amount by which the reduction in the Offset Amount has reduced any indemnification obligation of Spinco hereunder. SECTION 8.05. Tax Sharing Arrangements. Any Tax allocation or sharing agreement or arrangement, whether or not written, that may have been entered into by Spinco, Tulip or any of their respective Affiliates shall be terminated as to Tulip and its Affiliates as of the Distribution Date, and no payments which are owed by or to Tulip or any of its Affiliates pursuant thereto shall be made thereunder. SECTION 8.06. Contest Provisions. (a) Spinco shall have the sole right to represent Tulip's interests in any Tax audit or administrative or court proceeding (a "TAX PROCEEDING") of Tulip (or any consolidated, combined or unitary group of which Tulip is the common parent) for taxable periods ending, with respect to Tulip, on or before the Distribution Date, and to employ counsel of its choice at its expense; provided, however, that (i) Spinco shall provide Tulip with a timely and reasonably detailed account of each stage of such Tax Proceeding and a copy of all documents relating to such Tax Proceeding, (ii) Spinco shall consult with -30- 35 Tulip before taking any significant action in connection with such Tax Proceeding, (iii) Spinco shall consult with Tulip and offer Tulip an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Proceeding, (iv) Spinco shall defend such Tax Proceeding diligently and in good faith as if it were the only party in interest in connection with such Tax Proceeding and (v) Spinco shall not settle, compromise or abandon any such Tax Proceeding without obtaining the prior written consent, which consent shall not be unreasonably withheld, of Tulip if such settlement, compromise or abandonment could reasonably be expected to adversely affect Tulip. (b) In the case of a Tax Proceeding for a Straddle Period of Tulip (a "STRADDLE PERIOD TAX PROCEEDING") (i) Spinco shall control such proceeding if the claims for which Spinco is responsible exceed the claims for which Tulip is responsible, and Tulip shall control such Tax Proceeding if the claims for which Tulip is responsible exceed the claims for which Spinco is responsible (Spinco or Tulip respectively, the "CONTROLLING PARTY," and Tulip or Spinco, respectively, the "NONCONTROLLING PARTY"), (ii) the Controlling Party shall provide the Noncontrolling Party with a timely and reasonably detailed account of each stage of such Straddle Period Tax Proceeding and a copy of all documents (or portions thereof) relating to such Straddle Period Tax Proceeding, (iii) the Controlling Party shall consult with the Noncontrolling Party before taking any significant action in connection with such Straddle Period Tax Proceeding and shall consult with the Noncontrolling Party and offer the Noncontrolling Party an opportunity to comment before submitting any written materials prepared or furnished in connection with such Straddle Period Tax Proceeding, (iv) the Controlling Party shall defend such Straddle Period Tax Proceeding diligently and in good faith as if the taxpayer whose Tax Return is at issue were the only party in interest in connection with such Straddle Period Tax Proceeding, (v) the Noncontrolling Party shall have the right to participate in any conference with any Tax authority regarding any Tax for which the Noncontrolling Party may be required to indemnify the Controlling Party or any Affiliate of the Controlling Party or may otherwise be liable, and (vi) the Controlling Party shall not settle, compromise or abandon any such Straddle Period Tax Proceeding without obtaining the prior written consent, which consent shall not be unreasonably withheld, of the Noncontrolling Party. In the event that the Noncontrolling Party reasonably withholds consent pursuant to clause (vi) above, the Noncontrolling Party shall be entitled to assume the defense of the Straddle Period Tax Proceeding; provided that the Controlling Party's liability in connection with the Straddle Period Tax Proceeding shall be limited to the amount such liability would have been under the proposed settlement. (c) Tulip shall have the sole right to control (including as to settlement) any other Tax Proceeding of Tulip. (d) Except to the extent set forth in Section 8.06(a), (b) or (c), Spinco shall have the sole right to control (including as to settlement) any Tax Proceeding of Spinco or any of the Contributed Subsidiaries. (e) Tulip (or its Affiliate) shall have the sole right to control (including as to settlement) any Tax Proceeding of ELF or any of its Subsidiaries. (f) Notwithstanding any other provision of this Agreement, Tulip and its Affiliates shall be entitled to (i) control (including as to settlement), and Spinco and its Affiliates -31- 36 shall not be entitled to participate in, any Tax Proceeding with respect to any consolidated, combined or unitary Tax Return that includes ELF, Parent or any of their respective Subsidiaries for any taxable period, or Tulip for any taxable period (or portion thereof) beginning, with respect to Tulip, after the Distribution Date and (ii) file in such manner as it chooses in its sole discretion any Tax Return described in clause (i) above (and neither Spinco nor any of its Affiliates shall be entitled to any copy of or information from any Tax Return described in clause (i) above (other than information relating solely to ELF, its Subsidiaries or Tulip)). (g) Notwithstanding any other provision of this Agreement, Spinco and its Affiliates shall be entitled to (i) control (including as to settlement), and Tulip and its Affiliates shall not be entitled to participate in, any Tax Proceeding with respect to any consolidated, combined or unitary Tax Return that includes Spinco for any taxable period (or portion thereof) beginning, with respect to Spinco, after the Distribution Date, and (ii) file in such manner as it chooses in its sole discretion any Tax Return described in clause (i) above (and neither Tulip nor any of its Affiliates shall be entitled to any copy of or information from any Tax Return described in clause (i) above). SECTION 8.07. Cooperation on Tax Matters; Other Tax Matters. (a) Each of Tulip, Spinco or any of their respective Affiliates shall provide the others with such assistance as may reasonably be requested by each of them in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and each shall provide the others with any records or information which may be relevant to such Tax Return, audit or examination, proceedings or determination. (b) Spinco hereby represents and warrants to Tulip and its Affiliates that there is no agreement or transaction pursuant to which ELF or any of its Subsidiaries will pay or will become obligated to pay Taxes of Tulip or any Person owned directly or indirectly by Tulip at any time (other than Taxes imposed directly (and not by reason of any such agreement or transaction) by the applicable Governmental Entity on ELF or any Person owned directly or indirectly by ELF at any time). Such representation shall survive until the end of the applicable statute of limitations (or such later time as all claims in respect thereof are resolved). (c) In the event that the Distribution occurs on a different date from the date of the ELF Merger, references above in this Article 8 (or any definition used in this Article 8 for purposes of this Article 8) to "Distribution Date" shall instead refer to the ELF Merger Date. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be deemed given when received addressed as follows: If to Tulip to: -32- 37 Keebler Holding Corp. c/o Kellogg Company One Kellogg Square Battle Creek, Michigan 49016 Telecopy: (616) 961-6598 Attention: Janet L. Kelly With copies to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Telecopy: (212) 403-2000 Attention: Daniel A. Neff If to Spinco, to: Flowers Foods, Inc. 1919 Flowers Circle Thomasville, Georgia 31757 Telecopy: (912) 225-5433 Attention: G. Anthony Campbell With a copy to: Jones, Day, Reavis & Pogue 3500 SunTrust Plaza 303 Peachtree Street, N.E. Atlanta, Georgia 30308-3242 Telecopy: (404) 581-8330 Attention: Robert W. Smith Lizanne Thomas Any party may, by written notice so delivered to the other parties, change the address to which delivery of any notice shall thereafter be made. SECTION 9.02. Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Tulip and Spinco, or in the case of a waiver, by the party against whom the waiver that is materially adverse is to be effective. In addition, unless the Merger Agreement shall have been terminated in accordance with its terms, any such amendment or waiver shall be subject to the prior written consent of Parent. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. -33- 38 The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses. All costs and expenses incurred by Tulip or Spinco in connection with the preparation, execution and delivery of the Ancillary Agreements and the consummation of the Merger, the Distribution and the other transactions contemplated hereby and therein (including the fees (other than up to $16 million in advisory fees) and expenses of all counsel, accountants and financial and other advisors of both Groups in connection therewith, and all expenses in connection with preparation, filing and printing of the Registration Statement) shall be paid by Spinco; provided that Parent and its Affiliates shall pay their own expenses, if any, incurred in connection with the Distribution, and Spinco shall pay all other expenses of Tulip or Spinco or any of their respective Subsidiaries, in connection with the Transaction Agreements (as defined in the Merger Agreement), in each case except as specifically provided otherwise herein, in the Merger Agreement or any Ancillary Agreement. SECTION 9.04. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that neither party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of Parent and the other party hereto. If any party or any of its successors or assigns (i) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any Person, then, and in each such case, proper provisions shall be made so that the successors and assigns of such party shall assume all of the obligations of such party under the Distribution Documents. SECTION 9.05. Governing Law. Subject to the provisions of the Georgia Business Corporation Code applicable to the Distribution, this Agreement shall be construed in accordance with and governed by the law of the State of Delaware, without regard to the conflict of laws rules thereof. SECTION 9.06. Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. SECTION 9.07. Entire Agreement. This Agreement, the Merger Agreement, the Confidentiality Agreement, the Ancillary Agreements and the other Distribution Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter hereof and thereof. No representation, inducement, promise, understanding, condition or warranty not set forth herein or in the Confidentiality Agreement, the Merger Agreement, the Ancillary Agreements or the other Distribution Documents has been made or relied upon by any party hereto. To the extent that the provisions of this Agreement are inconsistent with the provisions of any Ancillary Agreement, the provisions of such Ancillary Agreement shall prevail. -34- 39 SECTION 9.08. Certain Transfer Taxes. Except as otherwise provided in the Ancillary Agreements, all transfer, documentary, sales, use, stamp and registration taxes and fees (including any penalties and interest) incurred in connection with any of the transactions described in Article 2 or 3 of this Agreement shall be borne and paid by Spinco. Subject to the following sentence, the party that is required by applicable law to file any return or make any payment with respect to any of those Taxes shall do so, and the other party shall cooperate with respect to that filing or payment as necessary. To the extent that Tulip is required to pay such Taxes to the applicable Governmental Entity, Spinco shall pay Tulip the amount of such Taxes in accordance with this Section 9.08, no later than two Business Days prior to the date such Taxes are due. SECTION 9.09. Jurisdiction. Except as otherwise expressly provided in this Agreement, any Action seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal court located in the State of Delaware or any Delaware State court, and each of the parties hereby consents to the jurisdiction of such court (and of the appropriate appellate courts therefrom) in any such Action and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such Action in any such court or that any such Action brought in any such court has been brought in an inconvenient forum. Process in any such Action may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 9.01 shall be deemed effective service of process on such party. SECTION 9.10. Pre-Litigation Dispute Resolution. Prior to the bringing of any Action against the other, senior officers of Tulip and Spinco shall confer, consult and in good faith attempt for a period of 30 calendar days to resolve any dispute between such parties relating to this Agreement or any of the Ancillary Agreements without resort to legal remedies. SECTION 9.11. Severability. If any one or more of the provisions contained in this Agreement should be declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained in this Agreement shall not in any way be affected or impaired thereby so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such a declaration, the parties shall modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are consummated as originally contemplated to the fullest extent possible. SECTION 9.12. Survival. All covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date indefinitely, unless a specific survival or other applicable period is expressly set forth therein. SECTION 9.13. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. SECTION 9.14. Specific Performance. Each party to this Agreement acknowledges and agrees that damages for a breach or threatened breach of any of the provisions of this -35- 40 Agreement would be inadequate and irreparable harm would occur. In recognition of this fact, each party agrees that, if there is a breach or threatened breach, in addition to any damages, the other non-breaching party to this Agreement, without posting any bond, shall be entitled to seek and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction, attachment, or any other equitable remedy which may then be available to obligate the breaching party (i) to perform its obligations under this Agreement or (ii) if the breaching party is unable, for whatever reason, to perform those obligations, to take any other actions as are necessary, advisable or appropriate to give the other party to this Agreement the economic effect which comes as close as possible to the performance of those obligations (including, but not limited to, transferring, or granting liens on the assets of the breaching party to secure the performance by the breaching party of those obligations). -36- 41 IN WITNESS WHEREOF the parties hereto have caused this Distribution Agreement to be duly executed by their respective authorized officers as of the date first above written. FLOWERS INDUSTRIES, INC. By: /s/ G. A. Campbell -------------------------------- Name: --------------------------- Title: -------------------------- FLOWERS FOODS, INC. By: /s/ G. A. Campbell -------------------------------- Name: --------------------------- Title: -------------------------- -37- EX-2.2 3 g65066ex2-2.txt AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER 1 Exhibit 2.2 AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER dated as of October 26, 2000 among FLOWERS INDUSTRIES, INC., KELLOGG COMPANY and KANSAS MERGER SUBSIDIARY, INC. 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS.....................................................................................2 Section 1.01. Definitions.................................................................2 ARTICLE 2 THE TRANSACTION.................................................................................6 Section 2.01. The Spin-Off................................................................6 Section 2.02. The Merger..................................................................6 Section 2.03. Conversion of Shares........................................................7 Section 2.04. Surrender and Payment.......................................................8 Section 2.05. Dissenting Shares...........................................................9 Section 2.06. Equity Compensation Arrangements; Share Equivalents.........................9 Section 2.07. Adjustments.................................................................9 Section 2.08. Withholding Rights.........................................................10 Section 2.09. Lost Certificates..........................................................10 Section 2.10. Associated Rights..........................................................10 Section 2.11. Calculation of Adjustment Amount...........................................10 ARTICLE 3 THE SURVIVING CORPORATION......................................................................10 Section 3.01. Articles of Incorporation..................................................11 Section 3.02. Bylaws.....................................................................11 Section 3.03. Directors and Officers.....................................................11 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................11 Section 4.01. Corporate Existence and Power..............................................11 Section 4.02. Corporate Authorization....................................................12 Section 4.03. Governmental Authorization.................................................12 Section 4.04. Non-Contravention..........................................................13 Section 4.05. Capitalization.............................................................13 Section 4.06. SEC Filings................................................................14 Section 4.07. Financial Statements.......................................................14 Section 4.08. Disclosure Documents.......................................................16 Section 4.09. Absence of Certain Changes.................................................16 Section 4.10. No Undisclosed Material Liabilities........................................18 Section 4.11. Compliance with Laws and Court Orders......................................18 Section 4.12. Litigation.................................................................18 Section 4.13. Finders' Fees..............................................................18 Section 4.14. Opinion of Financial Advisers..............................................19 Section 4.15. Taxes......................................................................19 Section 4.16. Employee Benefit Plans.....................................................20 Section 4.17. Environmental Matters......................................................23 Section 4.18. Antitakeover Statute and Rights Agreement..................................24 Section 4.19. Insurance..................................................................24 Section 4.20. Certain Contracts; Indemnities; Indebtedness...............................24
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT.......................................................25 Section 5.01. Corporate Existence and Power..............................................25 Section 5.02. Corporate Authorization....................................................25 Section 5.03. Governmental Authorization.................................................26 Section 5.04. Non-Contravention..........................................................26 Section 5.05. Disclosure Documents.......................................................26 Section 5.06. Finders' Fees..............................................................26 Section 5.07. Adequate Funds.............................................................26 ARTICLE 6 COVENANTS OF THE COMPANY.......................................................................27 Section 6.01. Conduct of the Company.....................................................27 Section 6.02. Shareholder Meeting; SEC Filings...........................................29 Section 6.03. Access to Information......................................................30 Section 6.04. No Solicitation............................................................30 Section 6.05. Third Party Standstill Agreements..........................................33 Section 6.06. Rights Agreement...........................................................33 Section 6.07. Spin-Off...................................................................33 ARTICLE 7 COVENANTS OF PARENT............................................................................34 Section 7.01. Obligations of Merger Subsidiary...........................................34 Section 7.02. Director and Officer Liability.............................................34 ARTICLE 8 COVENANTS OF PARENT AND THE COMPANY............................................................35 Section 8.01. Reasonable Efforts.........................................................35 Section 8.02. Certain Filings............................................................36 Section 8.03. Public Announcement........................................................36 Section 8.04. Further Assurances.........................................................37 Section 8.05. Notices of Certain Events..................................................37 ARTICLE 9 CONDITIONS TO THE MERGER.......................................................................37 Section 9.01. Conditions to Obligations of Each Party....................................37 Section 9.02. Conditions to the Obligations of Parent and Merger Subsidiary..............38 Section 9.03. Conditions to the Obligations of the Company...............................38 ARTICLE 10 TERMINATION....................................................................................39 Section 10.01. Termination................................................................39 Section 10.02. Effect of Termination......................................................40 ARTICLE 11 MISCELLANEOUS..................................................................................41 Section 11.01. Notices....................................................................41 Section 11.02. Survival of Representations and Warranties; Indemnification................42 Section 11.03. Amendments; No Waivers.....................................................42 Section 11.04. Expenses...................................................................42
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Section 11.05. Successors and Assigns.....................................................43 Section 11.06. Governing Law..............................................................44 Section 11.07. Jurisdiction...............................................................44 Section 11.08. Waiver of Jury Trial.......................................................44 Section 11.09. Counterparts; Effectiveness; Benefit.......................................44 Section 11.10. Entire Agreement...........................................................44 Section 11.11. Captions...................................................................45 Section 11.12. Severability...............................................................45 Section 11.13. Specific Performance.......................................................45
ANNEX A Distribution Agreement SCHEDULE I Per Share Adjustment Amount -iii- 5 AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER dated as of October 26, 2000, (this "Agreement") among Flowers Industries, Inc., a Georgia corporation (the "Company"), Kellogg Company, a Delaware corporation ("Parent"), and Kansas Merger Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Subsidiary"). WHEREAS, prior to the Effective Time (as defined below), the assets of the Company will consist of (i) 100% of the shares of Common Stock of Flowers Foods, Inc., a Georgia corporation ("Spinco") and (ii) 46,197,466 shares of common stock, $0.01 par value of Keebler Foods Company, a Delaware corporation ("ELF"), representing a majority of the outstanding voting power of ELF on a fully diluted basis (the "ELF Shares") and the liabilities of the Company will consist of certain of the Company's debt; WHEREAS, the Company and Spinco are simultaneously herewith entering into a Distribution Agreement (the "Distribution Agreement") in the form of ANNEX A hereto pursuant to which all of the outstanding shares of Spinco common stock will be distributed to the Company's shareholders (the "Distribution"), and to effect the various transactions contemplated thereby and, with the exception of this Agreement, by the other Transaction Agreements (as defined below) provided that all conditions precedent to the Distribution set forth in the Distribution Agreement have been satisfied, immediately prior to the Effective Time (all such transactions being referred to collectively as the "Spin-Off"); WHEREAS, (i) Parent, FK Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company ("Newco") and ELF have entered into an Agreement and Plan of Merger dated the date hereof (the "ELF Merger Agreement") pursuant to which Newco will merge with and into ELF (the "ELF Merger") on the terms and conditions set forth therein; (ii) Parent and the Company have entered into a Voting Agreement (the "ELF Voting Agreement") pursuant to which the Company has agreed to execute a written consent with respect to the ELF Shares in favor of the approval of the ELF Merger and adoption of the ELF Merger Agreement; and (iii) in the ELF Merger, each share of Common Stock of ELF, other than the ELF Shares and any Common Stock of ELF held by ELF or Parent, will be converted into the right to receive $42.00 in cash; WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary and the Company have approved this Agreement, and deem it advisable and in the best interests of their respective shareholders to consummate the merger of Merger Subsidiary with and into the Company on the terms and conditions set forth herein (the "Merger;" the Spin-Off, the Merger and the other transactions contemplated by the Transaction Agreements sometimes being hereinafter collectively referred to as the "Transaction"); WHEREAS, the Company, Parent and Merger Subsidiary desire to make certain representations, warranties, covenants and agreements in connection with this Agreement and the Distribution Agreement (this Agreement, the Distribution Agreement and the other agreements 6 attached hereto or thereto sometimes being hereinafter collectively referred to as the "Transaction Agreements"); WHEREAS, the Merger will occur only after and conditioned upon the Spin-Off; and WHEREAS, for federal income Tax (as defined below) purposes, it is intended that the Transaction will be treated at the Company's shareholder level as an integrated transaction in redemption and disposition of the Company's outstanding capital stock. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.01. DEFINITIONS. (a) The following terms, as used herein, have the following meanings: "Adjustment Amount" has the meaning ascribed to that term in Schedule I. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person except that ELF shall not be considered an Affiliate of the Company for purposes of Section 4.16. "Antitrust Division" means the Antitrust Division of the United States Department of Justice. "Benefit Arrangement" means any employment, severance or similar contract or arrangement (oral or written) providing for compensation, bonus, profit-sharing, stock option, or other stock-related rights or other forms of incentive or deferred compensation, perquisites, vacation benefits, insurance coverage (including any self-insured arrangements), health or medical benefits, disability benefits, worker's compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits) that on or after January 1, 1994 (i) is not and was not an Employee Plan, (ii) is or was entered into, maintained, administered or contributed to, as the case may be, by the Company or any of its Affiliates and (iii) is not an Employee Arrangement (as defined in the ELF Merger Agreement). "Business Day" means a day other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close. "Code" means the Internal Revenue Code of 1986. "Company Balance Sheet" means the consolidated balance sheet of the Company as of January 1, 2000 and the footnotes thereto set forth in the Company 10-K. -2- 7 "Company 10-K" means the Company's annual report on Form 10-K for the fiscal year ended January 1, 2000. "Controlled Group Liability" means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code and (v) under corresponding or similar provisions of foreign laws or regulations, other than such liabilities that arise solely out of, or relate solely to, the Employee Arrangements listed in the Company Disclosure Schedule. "Delaware Law" means the General Corporation Law of the State of Delaware. "Employee Arrangement" means any Benefit Arrangement or Employee Plan. "Employee Plan" means any "employee benefit plan," as defined in Section 3(3) of ERISA, that on or after January 1, 1994 (i) is or was subject to any provision of ERISA, (ii) is or was maintained, administered or contributed to by the Company or any of its Affiliates and (iii) is not an Employee Arrangement (as defined in the ELF Merger Agreement). "Environmental Claims" means any written, or to the Company's knowledge, threatened claim, demand, or notice to or other suit, action, proceeding, investigation of the Company or any of its Subsidiaries by any person alleging any potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, or penalties) arising out of, based on, or resulting from the presence, or Release into the environment, of any Hazardous Substance at any location, whether or not owned, leased, operated or used by the Company or any of its Subsidiaries. "Environmental Laws" means in each case as in effect on the date hereof all Laws of any Governmental Entity or agreements with any Governmental Authority or other third party relating to human health, safety or the environment, including relating to emissions, discharges, Releases or threatened Releases of Hazardous Substances, or otherwise relating to the manufacture, generation, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Substances, including the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act and the Occupational Safety and Health Act. "Environmental Permits" means all permits, licenses, certificates or approvals necessary for the operation of the Company as currently conducted to comply with all applicable Environmental Laws. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA Affiliate" of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code. "FTC" means the United States Federal Trade Commission. "Georgia Law" means the Georgia Business Corporation Code. -3- 8 "Governmental Entity" means any federal, state, local or foreign government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational. "Hazardous Substance" means (i) chemicals, pollutants, contaminants, hazardous wastes, toxic substances, and oil and petroleum products, (ii) any substance that is or contains friable asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum-derived substances or wastes, radon gas or related materials, (iii) any substance that requires removal or remediation under any Environmental Law, or is defined, listed or identified as a "hazardous waste" or "hazardous substance" thereunder, or (iv) any substance that is toxic, explosive, corrosive, flammable, radioactive, or otherwise hazardous. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976. "Law" means any applicable federal, state, local or foreign law, statute, common law, ordinance, directive, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity. "Lien" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien, any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "Material Adverse Effect" means, with respect to any Person, a material adverse effect on the financial condition, business, assets, or results of operations of such Person and its Subsidiaries, taken as a whole. "Multiemployer Plan" means a multiemployer plan, as defined in Section 3(37) of ERISA. "1933 Act" means the Securities Act of 1933. "1934 Act" means the Securities Exchange Act of 1934. "Per Share Adjustment Amount" has the meaning ascribed to that term in Schedule I. "Person" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Releases" means any releasing, disposing, discharging, injecting, spilling, leaking, pumping, dumping, emitting, escaping, emptying, migration, transporting, placing, including into or upon, any land, soil, surface water, ground water or air, or otherwise entering into the environment, that is not in compliance with Environmental Laws. -4- 9 "Rights" means the preferred stock purchase rights issued pursuant to the terms of the Rights Agreement. "Rights Agreement" means the agreement dated as of April 2, 1999 between the Company and First Union National Bank, as Rights Agent. "SEC" means the Securities and Exchange Commission. "Share Equivalent" means any stock option, warrant, performance share or right of conversion issued pursuant to a stock option, compensatory plan, or similar arrangements. "Shares" means the shares of common stock, $0.625 par value, of the Company. "Subsidiary" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person. For purposes of this Agreement, except in the context of references in Sections 4.07(a), and 4.07(b) to the Company and its Subsidiaries, ELF shall not be deemed to be a Subsidiary of the Company. "Title IV Plan" means a plan subject to Title IV of ERISA, other than any Multiemployer Plan. "Withdrawal Liability" means liability to or with respect to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA. Any reference in this Agreement to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder. Any reference to "including" or "include" means "including, without limitation" or "include, without limitation." (b) Each of the following terms is defined in the Section set forth opposite such term: TERM SECTION ---- ------- Acquisition Agreement............................... 6.04 Adverse Recommendation Change....................... 6.04 Arbitrator.......................................... 2.11 Certificates........................................ 2.04 Company Disclosure Schedule......................... Article 4 Company Proxy Statement............................. 4.08 Company SEC Documents............................... 4.06 Company Securities.................................. 4.05 Company Shareholder Meeting......................... 6.02 Confidentiality Agreement........................... 6.03 -5- 10 Distribution........................................ Recitals Distribution Agreement.............................. Recitals Effective Time...................................... 2.02 ELF................................................. Recitals ELF Merger.......................................... Recitals ELF Merger Agreement................................ Recitals ELF Shares.......................................... Recitals ELF Voting Agreement................................ Recitals Exchange Agent...................................... 2.04 Excluded Employee................................... 4.09 GAAP................................................ 4.07 Indemnified Person.................................. 7.03 IRS................................................. 4.15 Merger.............................................. Recitals Merger Consideration................................ 2.03 Newco............................................... Recitals Notice of Superior Proposal......................... 6.04 Parent.............................................. Recitals Preferred Shares.................................... 4.05 Registration Statement ............................. 4.08 Series A Preferred Stock............................ 4.05 Spinco.............................................. Recitals Superior Proposal................................... 6.04 Surviving Corporation............................... 2.02 Takeover Proposal................................... 6.04 Tax or Taxes........................................ 4.15 Tax Return.......................................... 4.15 Taxing Authority.................................... 4.15 Transaction......................................... Recitals Transaction Agreements.............................. Recitals ARTICLE 2 THE TRANSACTION Section 2.01. THE SPIN-OFF. Provided that all conditions precedent to the Spin-Off set forth in the Distribution Agreement have been satisfied, prior to the Effective Time, the Company will cause each Person that is intended to be a party to any Transaction Agreement (other than the Merger Agreement) to enter into each such Transaction Agreement, and, on the terms and subject to the conditions of the Transaction Agreements, immediately prior to the Effective Time, the Company shall effect, and cause Spinco to effect, the Spin-Off. Section 2.02. THE MERGER. (a) At the Effective Time, Merger Subsidiary shall be merged with and into the Company in accordance with Delaware Law and Georgia Law, whereupon the separate exis- -6- 11 tence of Merger Subsidiary shall cease, and the Company shall be the surviving corporation (the "Surviving Corporation"). (b) As soon as practicable after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger, the Company and Merger Subsidiary will file a certificate of merger with each of the Delaware Secretary of State and the Georgia Secretary of State and make all other filings or recordings required by Delaware Law and Georgia Law in connection with the Merger. The Merger shall become effective at such time (the "Effective Time") as the certificates of merger are duly filed with the Georgia Secretary of State and Delaware Secretary of State or at such later time as is specified in the certificates of merger provided that the Effective Time shall not occur unless and until the Spin-Off shall have occurred. (c) From and after the Effective Time, the Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of the Company and Merger Subsidiary, all as provided under Georgia Law. Section 2.03. CONVERSION OF SHARES. (a) At the Effective Time: (i) except as otherwise provided in Section 2.03(a)(ii) or Section 2.05, each Share outstanding immediately prior to the Effective Time other than any Shares that are Share Equivalents, together with the associated Right, shall be converted into the right to receive an amount equal to (1) $42.00 multiplied by 46,197,466, divided by (2) the number of Shares issued and outstanding immediately prior to the Effective Time, less (3) the Per Share Adjustment Amount, in cash per share, without interest (the "Merger Consideration"); (ii) each Share held by the Company as treasury stock or owned by Parent or any of its Subsidiaries immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto; and (iii) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation. (b) The Merger and the Spin-Off shall be effected such that the shares of Spinco to be distributed in the Spin-Off and the Merger Consideration are distributed or paid, as the case may be, only to the same holders of Shares provided that the Spin-Off shall occur prior to the Merger. Section 2.04. SURRENDER AND PAYMENT. (a) Prior to the Effective Time, Parent shall appoint an agent (the "Exchange Agent") reasonably acceptable to the Company for the purpose of exchanging certificates repre- -7- 12 senting Shares (the "Certificates") for the Merger Consideration. Promptly after the Effective Time, Parent will cause to be deposited with the Exchange Agent the Merger Consideration to be paid in respect of the Shares converted pursuant to Section 2.03(a)(i). Promptly after the Effective Time, Parent will send, or will cause the Exchange Agent to send, to each holder of record of Shares at the Effective Time a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates to the Exchange Agent) for use in such exchange. (b) Each holder of Shares that have been converted into the right to receive the Merger Consideration pursuant to Section 2.03(a)(i) will be entitled to receive, upon surrender to the Exchange Agent of a Certificate, together with a properly completed letter of transmittal, and all other documents the Exchange Agent may reasonably require, the Merger Consideration payable for each Share represented by such Certificate. Until so surrendered, each such Certificate shall represent after the Effective Time for all purposes only the right to receive such Merger Consideration. No interest shall be paid or will accrue on the Merger Consideration payable pursuant to the provisions of this Article 2. (c) If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such tax has been paid or is not payable. (d) At the Effective Time, the stock transfer books of the Company will be closed and there shall be no further registration or transfers of Shares. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article 2. (e) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.04(a) (and any interest or other income earned thereon) that remains unclaimed by the holders of Shares six months after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged Shares for the Merger Consideration in accordance with this Section 2.04 prior to that time shall thereafter look only to Parent for payment of the Merger Consideration in respect of such Shares without any interest thereon. Notwithstanding the foregoing, Parent shall not be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property, escheat or similar Laws. Any amounts remaining unclaimed by holders of Shares three years after the Effective Time (or such earlier date immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Entity) shall become, to the extent permitted by applicable Law, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto. -8- 13 (f) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.04(a) to pay for Shares for which appraisal rights have been requested shall be returned to Parent, upon demand. Section 2.05. DISSENTING SHARES. Notwithstanding Section 2.03, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with Georgia Law shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect, withdraws or otherwise loses its right to appraisal. If, after the Effective Time, such holder fails to perfect, withdraws or loses its right to appraisal, such Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares. Except as required by applicable Law or with the prior written consent of Parent, the Company shall not make any payment with respect to, or settle or offer to settle, any such demands. The exercise of appraisal rights under Georgia Law whether or not perfected shall not affect any holder's right to receive a pro-rata share of the Spin-Off. Section 2.06. EQUITY COMPENSATION ARRANGEMENTS; SHARE EQUIVALENTS. (a) At or immediately prior to the Effective Time, each Share Equivalent outstanding under any stock option or equity compensation plan or arrangement of the Company, whether or not vested or exercisable, shall be canceled, and the Company shall pay each holder of any such Share Equivalent which shall have been granted or issued under the 1989 Executive Stock Incentive Plan at or promptly after the Effective Time for each such Share Equivalent an amount in cash determined by multiplying (i) the excess, if any, of the Change in Control Price (as defined in the 1989 Executive Stock Incentive Plan) per Share over the applicable exercise price of such Share Equivalent, if any, by (ii) the number of Shares such holder could have purchased (assuming full vesting of all Share Equivalents) had such holder exercised or converted such Share Equivalent into Shares immediately prior to the Effective Time. (b) Prior to the Effective Time, the Company shall (i) obtain any consents from holders of Share Equivalents granted under the Company's stock option or equity compensation plans or arrangements and (ii) make any amendments to the terms of such stock option or compensation plans or arrangements that, in the case of either clauses (i) or (ii), the Company deems reasonably necessary to give effect to the transactions contemplated by Section 2.06(a). Notwithstanding any other provision of this Section, payment may be withheld in respect of any such plans or arrangements until such necessary consents are obtained, and the Company shall withhold from such payments all amounts required by applicable Law or regulation to be withheld for taxes or otherwise. Section 2.07. ADJUSTMENTS. If, during the period between the date of this Agreement and the Effective Time, any change in the outstanding Shares shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of Shares, or stock dividend thereon (but excluding the Spin-Off) with a record date during such period, the Merger Consideration and any other amounts payable pursuant to Section 2.06 -9- 14 shall be appropriately adjusted to provide to the holders of Shares the same economic effect as contemplated by this Agreement prior to such event. Section 2.08. WITHHOLDING RIGHTS. Each of the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article 2 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax Law. If the Surviving Corporation or Parent, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which the Surviving Corporation or Parent, as the case may be, made such deduction and withholding. Section 2.09. LOST CERTIFICATES. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the Shares represented by such Certificate, as contemplated by this Article. Section 2.10. ASSOCIATED RIGHTS. References in this Agreement to Shares shall include, unless the context requires otherwise, the associated Rights. Section 2.11. CALCULATION OF ADJUSTMENT AMOUNT. At least 15 Business Days prior to the Effective Time, the Company shall prepare in good faith and deliver to Parent an estimate of the Adjustment Amount, calculated in accordance with Schedule I. The Company and Parent agree to negotiate in good faith and to use reasonable best efforts to agree on the Adjustment Amount at least 10 Business Days prior to the Effective Time. If the Company and Parent agree on the amount of the Adjustment Amount, then the Adjustment Amount shall equal such agreed amount. In the event that the Company and Parent do not agree on the Adjustment Amount at least 10 Business Days prior to the Effective Time, the parties may jointly engage Morgan Stanley Dean Witter, or the parties may mutually agree to engage another nationally recognized investment banking firm or accounting firm (the "Arbitrator"), to calculate the Adjustment Amount. If the Adjustment Amount is not mutually agreed by the Company and Parent, at least two Business Days prior to the Effective Time, the Arbitrator shall calculate the Adjustment Amount in accordance with Schedule I and shall deliver such amount to the Company and Parent, and the Adjustment Amount shall equal the amount so calculated and delivered. The fees and expenses of the Arbitrator shall be shared equally between Spinco and Parent. ARTICLE 3 THE SURVIVING CORPORATION Section 3.01. ARTICLES OF INCORPORATION. The articles of incorporation of the Company in effect at the Effective Time shall be the articles of incorporation of the Surviving Corporation until amended in accordance with applicable Law, provided that, at the Effective -10- 15 Time, Article First of such articles of incorporation shall be amended to read as follows: "The name of the Corporation is Keebler Holding Corp." Section 3.02. BYLAWS. The bylaws of Merger Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable Law. Section 3.03. DIRECTORS AND OFFICERS. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable Law, (i) the directors of Merger Subsidiary at the Effective Time shall be the directors of the Surviving Corporation and (ii) the officers of Merger Subsidiary at the Effective Time shall be the officers of the Surviving Corporation. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the corresponding sections or subsections of the disclosure schedule delivered by the Company to Parent on or prior to the date hereof (the "Company Disclosure Schedule") the Company represents and warrants to Parent that: Section 4.01. CORPORATE EXISTENCE AND POWER. (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company. The Company has heretofore made available to Parent true and complete copies of the articles of incorporation and bylaws of the Company as currently in effect. (b) Spinco is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not materially impair, delay or prevent the ability of Spinco to consummate the transactions contemplated by the Transaction Agreements. Spinco is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not materially impair, delay or prevent the ability of Spinco to consummate the transactions contemplated by the Transaction Agreements. Spinco has heretofore made available to Parent true and complete copies of the articles of incorporation and bylaws of Spinco as currently in effect. -11- 16 Section 4.02. CORPORATE AUTHORIZATION. (a) The execution, delivery and performance by the Company and Spinco of the Transaction Agreements and the consummation by the Company and Spinco of the transactions contemplated by such Transaction Agreements are within the Company's and Spinco's corporate powers and, except for the affirmative vote of the holders of a majority of the outstanding Shares in connection with the consummation of the Merger, have been duly authorized by all necessary corporate action on the part of the Company and will be duly authorized by all necessary corporate action on the part of Spinco prior to the Effective Time. The affirmative vote of the holders of a majority of the outstanding Shares is the only vote of the holders of any of the Company's capital stock necessary in connection with the consummation of the Merger. Each Transaction Agreement to which the Company or Spinco is or will be a party is or when executed by such party, will constitute, a valid and binding agreement of such party, each enforceable in accordance with its terms. (b) The Company's Board of Directors has (i) determined that the Transaction Agreements, including this Agreement and the transactions contemplated hereby, taken as a whole, are fair to and in the best interests of the Company's shareholders, (ii) declared advisable and approved the Transaction Agreements and the transactions contemplated hereby and thereby and (iii) resolved (subject to Section 6.04(c)) to recommend approval and adoption of this Agreement and the Merger by its shareholders. Prior to the Effective Time, Spinco's Board of Directors will have approved the Transaction Agreements and the transactions contemplated hereby and thereby. Section 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by the Company and Spinco of the Transaction Agreements and the consummation by the Company and Spinco of the transactions contemplated hereby and thereby require no action by or in respect of, or filing with, any Governmental Entity, other than (i) the filing of certificates of merger with respect to the Merger with the Delaware Secretary of State and the Georgia Secretary of State, (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable securities or takeover laws, (iv) the filing of listing applications with respect to the Spinco shares to be distributed in the Spin-Off, and (v) any actions or filings the absence of which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company or materially impair, delay or prevent the ability of the Company or Spinco to consummate the transactions contemplated by the Transaction Agreements. Section 4.04. NON-CONTRAVENTION. The execution, delivery and performance by each of the Company and Spinco of the Transaction Agreements to which each is a party and the consummation of the transactions contemplated hereby and thereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the articles of incorporation or bylaws of the Company or Spinco, (ii) contravene, conflict with, or result in a violation or breach of any provision of any Law, (iii) require any consent or other action by any Person under, constitute (with or without notice or lapse of time or both) a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which the Company or Spinco is entitled under, any provision of any agreement or other instrument binding upon the Company or Spinco or their respective -12- 17 properties, or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of the Company or Spinco or (iv) result in the creation or imposition of any Lien on any asset of the Company or Spinco, except, in the case of clauses (ii), (iii) and (iv), for such matters as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company or materially impair, delay or prevent the consummation of the transactions contemplated by the Transaction Agreements by the Company or Spinco. Section 4.05. CAPITALIZATION. (a) The authorized capital stock of the Company consists of 350,000,000 Shares, par value $0.625 per share and 249,523 shares of preferred stock, par value $100.00 per share (the "Preferred Shares"), of which 100,000 shares are designated Series A Junior Participating Cumulative Preferred Stock ("Series A Preferred Stock"). As of October 25, 2000, there were: 100,085,442 Shares (excluding 2,728,794 Share Equivalents payable in cash or Shares) outstanding and 442,451 Shares held in the Company's treasury. The Company has no shares of Series A Preferred Stock outstanding nor any Shares or Series A Preferred Stock reserved for or otherwise subject to issuance, except that as of October 25, 2000 there were (i) 12,350,000 Shares reserved for issuance pursuant to those Employee Plans and Benefit Arrangements listed in Section 4.16 of the Company's Disclosure Schedule and (ii) 10,467 shares of Series A Preferred Stock reserved for issuance pursuant to the Rights Agreement. All shares of capital stock of the Company outstanding have been duly authorized and validly issued and are fully paid and nonassessable. Section 4.05 of the Company Disclosure Schedule sets forth a complete and accurate list of all outstanding Share Equivalents by grantee (together with the exercise prices therefor). All Shares issuable upon exercise of Share Equivalents have been duly authorized and, when issued in accordance with the terms thereof, will be validly issued and will be fully paid and nonassessable. (b) Except as set forth in this Section 4.05 and for changes since October 25, 2000 resulting from the exercise of Share Equivalents outstanding on such date, there are no outstanding (i) shares of capital stock or equity, debt or other securities of the Company, (ii) securities of the Company or any other issuer convertible into or exchangeable for shares of capital stock, equity, debt or other securities of the Company or (iii) options or other rights to acquire from the Company or any of its Affiliates or other obligation of the Company or any of its Affiliates to issue any capital stock, equity, debt or other securities or securities convertible into or exchangeable for capital stock or voting equity, debt or other securities of the Company (the items in clauses (i), (ii) and (iii) being referred to collectively as the "Company Securities"). There are no outstanding obligations of the Company to (i) repurchase, redeem or otherwise acquire any of the Company Securities, (ii) to register any Company Securities under the 1933 Act or any state securities law, (iii) to grant preemptive or antidilutive rights with respect to any Company Securities or (iv) to grant any stock options (either upon the exercise of any option or otherwise). (c) Immediately following the Effective Time, the Company will not own any equity, debt or other securities of any Person other than ELF. -13- 18 Section 4.06. SEC FILINGS. (a) The Company has made available to Parent (i) the Company's annual reports on Form 10-K for its fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998, (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended April 22, 2000 and July 15, 2000, (iii) its proxy statements relating to meetings of the shareholders of the Company held since January 3, 1998 and (iv) all of its other reports, statements, schedules and registration statements filed with the SEC since January 3, 1998 (the documents referred to in this Section 4.06(a), collectively, the "Company SEC Documents"). (b) As of its filing date, each Company SEC Document complied as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as the case may be. (c) As of its filing date each Company SEC Document, including each amendment or supplement thereto, filed pursuant to the 1934 Act did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (d) Each Company SEC Document that is a registration statement, as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Section 4.07. FINANCIAL STATEMENTS. (a) The audited consolidated financial statements and unaudited consolidated interim financial statements (including the related notes) of the Company included in the Company SEC Documents fairly present in all material respects, in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject to normal year-end adjustments, that are not expected to be material in amount in the case of any unaudited interim financial statements except for any non-recurring non-cash changes, which may be required relating to impaired assets). (b) Section 4.07(b) of the Company Disclosure Schedule contains the unaudited pro forma consolidated balance sheet of Spinco and its Subsidiaries as of July 15, 2000, together with the related unaudited pro forma consolidated statement of income for the six-month period then ended, and the unaudited pro forma consolidated statement of income of Spinco and its Subsidiaries for the year ended January 1, 2000. Such statements present information as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) as of July 15, 2000 or, with respect to the income statements, as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) as of the beginning of the period presented. Such statements are based on, and -14- 19 should be read in conjunction with, the historical consolidated financial statements included in the Company SEC Documents. Such balance sheet fairly presents in all material respects the consolidated financial position of Spinco and its Subsidiaries as of its date, as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) on such date, and each such consolidated statement of income, fairly presents in all material respects the results of operations of Spinco and its Subsidiaries for the periods set forth therein, as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) as of the beginning of such period (subject to notes and normal year-end adjustments that are not expected to be material in amount). The accounts reflected in the unaudited pro forma consolidated financial statements referred to in this subsection have been prepared in accordance with GAAP on a basis consistent with the historical audited consolidated financial statements of the Company and its Subsidiaries (including Spinco and its Subsidiaries) and were prepared in accordance with the requirements of SEC Regulation S-X as it relates to pro forma financial statements. (c) Section 4.07(c)(i) of the Company Disclosure Schedule contains the unaudited pro forma consolidated balance sheet of the Company and ELF as of July 15, 2000, together with the related unaudited pro forma consolidated statement of income, for the six-month period then ended, and the unaudited pro forma consolidated statement of income of the Company and ELF for the year ended January 1, 2000. Such statements present information as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) as of July 15, 2000 or, with respect to the income statements, as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) as of the beginning of the period presented. Such statements are based on, and should be read in conjunction with, the historical consolidated financial statements included in the Company SEC Documents. Such balance sheet fairly presents in all material respects the consolidated financial position of the Company and ELF as of its date, as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) on such date, and each such consolidated statement of income fairly presents in all material respects the results of operations of the Company and ELF for the periods set forth therein, as if the Spin-Off had occurred (on the terms and subject to the conditions set forth in the Transaction Agreements) as of the beginning of such period (subject to notes and normal year-end adjustments that are not expected to be material in amount). The accounts reflected in the unaudited pro forma financial statements referred to in this subsection have been prepared in accordance with GAAP on a basis consistent with the historical audited consolidated financial statements of the Company and its Subsidiaries (including Spinco and its Subsidiaries) and were prepared in accordance with the requirements of SEC Regulation S-X as it relates to pro forma financial statements. Except for liabilities or obligations of the Company under the Transaction Agreements as set forth in Section 4.07(c)(ii) of the Company Disclosure Schedule, the balance sheet referred to in this subsection does not reflect any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) of the Company and immediately following the Effective Time, the Company and its Subsidiaries will not have any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise). Section 4.08. DISCLOSURE DOCUMENTS. The proxy statement of the Company to be filed with the SEC in connection with the Merger (the "Company Proxy Statement"), the registration statement on Form 10, Form S-1 or Form S-4 relating to the Spin-Off (the "Registration -15- 20 Statement") and any amendments or supplements thereto will, when filed, comply as to form in all material respects with the applicable requirements of the 1934 Act and the 1933 Act. At the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to shareholders of the Company, and at the time such shareholders vote on adoption of this Agreement, the Company Proxy Statement, as supplemented or amended, if applicable, and the Registration Statement at the time it becomes effective and at the time the Registration Statement is mailed to stockholders of the Company, will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in this Section 4.08 will not apply to statements or omissions included in the Company Proxy Statement or the Registration Statement based upon information furnished to the Company by Parent specifically for use therein. Section 4.09. ABSENCE OF CERTAIN CHANGES. Except (i) as disclosed in the Company SEC Documents filed after January 1, 2000 and prior to the date hereof, or (ii) as expressly contemplated by the Transaction Agreements or (iii) as disclosed in Section 4.09 of the Company Disclosure Schedule, since January 1, 2000, the business of the Company has been conducted in the ordinary course consistent with past practices and there has not been: (a) any event, occurrence, development or state of circumstances or facts that, either individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on the Company; (b) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company that has had or would reasonably be expected to have a Material Adverse Effect on the Company; (c) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company (other than quarterly cash dividends on the Shares on customary record and payment dates in an amount not greater than $0.1325 per Share per quarter), or any repurchase, redemption or other acquisition by the Company of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company; (d) any amendment of any material term of any outstanding security of the Company or any amendment of the Company's Articles of Incorporation or By-Laws; (e) any incurrence, assumption or guarantee by the Company of any indebtedness for borrowed money other than borrowings made in the ordinary course of business and in amounts and on terms consistent with past practices under the Company's revolving credit agreement; (f) any creation or other incurrence by the Company of any Lien on any material asset other than in the ordinary course of business consistent with past practices and other than those that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company; -16- 21 (g) any making of any material loan, advance or capital contributions to or investment in any Person not wholly-owned, directly or indirectly, by the Company, other than immaterial amounts in the ordinary course of business consistent with past practices; (h) any change in any method of accounting, method of tax accounting or accounting principles or practice by the Company, except for any such change which is required by reason of a concurrent change in GAAP or Regulation S-X under the 1934 Act; (i) any (i) grant of any bonus, severance or termination pay or award under a long term incentive plan to (or amendment to any existing arrangement with) any director, officer or (to the extent material in the aggregate) employees of the Company, (ii) establishment, adoption or amendment (except as required by applicable law) of any collective bargaining, bonus, profit-sharing, thrift, pension, retirement or other benefit plan or arrangement covering any director, officer or employee of the Company, (iii) increase in compensation, bonus or other benefits payable to any director, or executive officer of the Company (other than changes made applicable to Company employees generally); or (iv) other than in the ordinary course of business, consistent with past practices, increase in compensation bonus or other benefits payable to any employee of the Company not described in clause (iii); (j) any material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company, or any material lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; (k) any agreement to do any of the foregoing; PROVIDED, HOWEVER, that the limitations of this Section 4.09 shall not apply to any actions taken in respect of (i) any individual who, after giving effect to the Spin-Off, will be an executive officer, director or employee of Spinco or any of its Subsidiaries (an "Excluded Employee") or (ii) any other individual so long as, in any such instance, any liabilities resulting from such actions are the responsibility of Spinco or any of its Subsidiaries, do not result in any direct or indirect obligations or liabilities on the part of the Company and such actions do not and would not have a Material Adverse Effect on the Company or materially impair, delay or prevent the consummation of the transactions contemplated by the Transaction Agreements. Section 4.10. NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities or obligations of the Company or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, other than: (a) liabilities or obligations disclosed in the Company Balance Sheet or in the notes thereto or in the Company SEC Documents filed prior to the date hereof; (b) liabilities or obligations incurred in the ordinary course of business consistent with past practice that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company; (c) liabilities or obligations under the Transaction Agreements, or in connection with the transactions contemplated hereby or thereby; and -17- 22 (d) liabilities or obligations disclosed in the Company Disclosure Schedule. Section 4.11. COMPLIANCE WITH LAWS AND COURT ORDERS. Neither the Company nor Spinco or any of their respective Subsidiaries nor any of their respective properties is in violation of, or has since January 1, 2000 violated, any applicable Law, except for violations that have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company or materially impair, delay or prevent the consummation of the transactions contemplated by the Transaction Agreements. The Company and Spinco are in compliance with the terms of all required governmental licenses, authorizations, permits, consents and approvals, except where the failure to so comply would not, individually or in the aggregate, have a Material Adverse Effect on the Company or materially impair, delay or prevent the consummation of the transactions contemplated by the Transaction Agreements. Section 4.12. LITIGATION. Except as disclosed in Section 4.12 of the Company Disclosure Schedule, there is no action, suit, investigation or proceeding pending, or, to the knowledge of the Company, threatened, against the Company, or against Spinco or any of its their respective Subsidiaries before any court or arbitrator or before or by any Governmental Entity, that, if determined or resolved adversely, would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company or materially impair, delay or prevent the consummation of the transactions contemplated by the Transaction Agreements. Neither the Company nor Spinco is subject to any outstanding order, writ, injunction or decree that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company or materially impair, delay or prevent the consummation of the transactions contemplated by the Transaction Agreements. Section 4.13. FINDERS' FEES. Except for UBS Warburg LLC and Morgan Stanley & Co. Incorporated, copies of whose engagement agreements have been provided to Parent, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Company in connection with the transactions contemplated by the Transaction Agreements. Section 4.14. OPINION OF FINANCIAL ADVISERS. The Company has received an opinion of each of UBS Warburg LLC and Morgan Stanley & Co. Incorporated each dated as of the date of this Agreement and each to the effect that, as of the date of such opinion, the Merger Consideration to be received by the Company's shareholders is fair from a financial point of view. Complete and correct signed copies of such opinions will be delivered to Parent as soon as practicable after the date of this Agreement. Section 4.15. TAXES. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company: (a) The Company and each of its Subsidiaries has timely filed (or has had timely filed on its behalf) or will timely file or cause to be timely filed all Tax Returns required by applicable Law to be filed by it prior to or as of the Effective Time, and all such Tax Returns are, or will be at the time of filing, true and complete in all respects. -18- 23 (b) The Company and each of its Subsidiaries has timely paid (or has had timely paid on its behalf), or, where payment is not yet due, has established (or has had established on its behalf and for its sole benefit and recourse) or (with respect to new Taxes for periods, or portions thereof, beginning after the date hereof) will establish or cause to be established in accordance with GAAP on or before the Effective Time, an adequate accrual for the payment of, all Taxes and interest due with respect to any period or portion thereof ending prior to or as of the Effective Time. (c) The federal income Tax Returns filed with respect to the Company have been examined and settled with the Internal Revenue Service (the "IRS") (or the applicable statutes of limitation for the assessment of federal income Taxes for such periods have expired) for all years through fiscal year 1995. (d) There are no Liens or encumbrances for Taxes on any of the assets of the Company, other than those for taxes not yet due and payable. Neither the Company nor any of its Subsidiaries is a party to any Tax sharing or indemnification agreement. (e) The Company and each of its Subsidiaries has complied with all applicable Laws, rules and regulations relating to the reporting, payment and withholding of Taxes. (f) Except as set forth in Section 4.15 of the Company Disclosure Schedule, no federal, state, local or foreign audits or administrative proceedings are pending with regard to any Taxes or Tax Return of the Company and the Company has not received a written notice of any proposed audit or proceeding regarding any pending audit or proceeding. (g) Neither the Company nor any of its Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" within the meaning of Section 355(a)(1)(A) of the Code in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement (nor will it constitute such a corporation in the two years prior to the date of the Effective Time) or (B) in a distribution which otherwise constitutes part of a "plan" or "series of related transactions" within the meaning of Section 355(e) of the Code in conjunction with the Merger. (h) "Tax" or "Taxes" shall mean (i) any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, goods and services, service use, license, value added, capital, net worth, payroll, profits, withholding, franchise, transfer and recording taxes, fees and charges, and any other taxes, assessment or similar charges imposed by the IRS or any taxing authority (whether domestic or foreign including any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)) (a "Taxing Authority"), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments, (ii) any liability for the payment of any amount of the type described in clause (i) as a result of being or having been, before the Effective Time, a member of an affiliated, consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability of the Company and each -19- 24 of its subsidiaries to a Taxing Authority is determined or taken into account with reference to the liability of any other Person (including, e.g., liability under Treasury Regulation 1.1502-6 or similar liability under any other Law), and (iii) any liability with respect to the payment of any amount of the type described in (i) or (ii) as a result of any existing express or implied obligation (including, but not limited to, an indemnification obligation). "Tax Return" shall mean any report, return, document, declaration or other information or filing required to be supplied to any Taxing Authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. Section 4.16. EMPLOYEE BENEFIT PLANS. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company: (a) Section 4.16 of the Company Disclosure Schedule includes the name of, and the Company has made available to Parent copies of each material Employee Plan (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto) and actuarial valuation report prepared in connection with any such Employee Plan. Section 4.16 of the Company Disclosure Schedule identifies each such Employee Plan that is (i) a Multiemployer Plan, (ii) a Title IV Plan or (iii) maintained in connection with any trust described in Section 501(c)(9) of the Code. (b) Each Employee Plan that is intended to be qualified under Section 401(a) of the Code has received from the IRS a favorable determination letter stating that the Employee Plan is so qualified; the Company is not aware of any facts or circumstances which would jeopardize the qualified status of the Employee Plan if not cured; each trust created under any Employee Plan has been determined by the IRS to be exempt from tax under Section 501(a) of the Code as of and since its creation. The Company has made available to Parent the most recent determination letter of the Internal Revenue Service relating to each such Employee Plan. Each Employee Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including ERISA and the Code. (c) Section 4.16 of the Company Disclosure Schedule includes the name of, and the Company has made available to Parent copies or descriptions of, each Benefit Arrangement (and, if applicable, related trust agreements) and all amendments thereto and summary plan descriptions thereof, if applicable. Each such Benefit Arrangement has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations and has been maintained in good standing with applicable regulatory authorities. (d) There has been no failure of a group health plan (as defined in Section 5000(b)(1) of the Code) to meet the requirements of Code Sections 4980B(f), 9801 or 9802 with respect to a qualified beneficiary (as defined in Section 4980B(g)) or other individual. Neither the Company nor any of its ERISA Affiliates has contributed to a nonconforming group health plan (as defined in Section 5000(c)) and neither the Company nor any ERISA Affiliate of -20- 25 the Company has incurred a tax under Section 5000(a) that is or could become a liability of the Company. (e) No Title IV Plan has or has incurred an accumulated funding deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code, nor has any waiver of the minimum funding standards of Section 302 of ERISA and Section 412 of the Code been requested of or granted by the IRS with respect to any Title IV Plan, nor has any lien in favor of any Title IV Plan arisen under Section 412(n) of the Code or Section 302(f) of ERISA. (f) There does not now exist, nor, to the Company's knowledge, do any circumstances exist that could result in, any Controlled Group Liability that would be a liability of the Company or any of its ERISA Affiliates following the Effective Time. None of the Company and its ERISA Affiliates has incurred any Withdrawal Liability that has not been satisfied in full. With respect to each Employee Plan that is a Multiemployer Plan, none of the Company and its ERISA Affiliates has received any notification, nor has reasonable cause to believe, that any such Employee Plan is in reorganization, has been terminated, is insolvent, or may reasonably be expected to be in reorganization, to be insolvent, or to be terminated. If the Company and its ERISA Affiliates were to experience a complete withdrawal from all such Multiemployer Plans, the total withdrawal liability would not exceed the amount set forth in Section 4.16(f) of the Company Disclosure Schedule. The transactions contemplated by this Agreement, including the Transaction, will not result in partial or complete withdrawal from any such Multiemployer Plan. (g) All material contributions required to be made to any Employee Arrangement or any trust or other arrangement funding any Employee Arrangement by applicable Law or regulation or by any plan document or other contractual undertaking, and all material premiums due or payable with respect to insurance policies funding any Employee Arrangement, for any period have been timely made or paid in full. (h) With respect to each Employee Plan that is a Title IV Plan: (i) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived and for which a prior notice requirement exists has occurred, and the consummation of the transactions contemplated by this Agreement, including the Transaction, will not result in the occurrence of any such reportable event; (ii) all premiums to the Pension Benefit Guaranty Corporation ("PBGC") have been timely paid in full; (iii) no material liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by the Company or any of its ERISA Affiliates; (iv) the unfunded current liability of each such Employee Plan does not exceed the amount set forth in Section 4.16(h) of the Company Disclosure Schedule for such Plan, based on the assumptions used for the most recent actuarial valuation of such Plans, a copy of which has been made available to Parent; and (v) the PBGC has not instituted proceedings to terminate any such Employee Plan and, to the Company's knowledge, no condition exists that presents a risk that such proceedings will be instituted or which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such Employee Plan. (i) The Company Disclosure Schedule sets forth: (i) an accurate and complete list of each material Employee Arrangement under which the execution and delivery of this -21- 26 Agreement or the Transaction Agreements or the consummation of the transactions contemplated hereby, including the Transaction, could (either alone or in conjunction with any other event such as termination of employment) result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any payment or benefit to any employee, officer or director of the Company or any of its Subsidiaries, or for which the Company or any of its Subsidiaries could be liable, or would limit the right of the Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any material Employee Arrangement or related trust; (ii) the aggregate liabilities of the Company and its Subsidiaries with respect to bonuses and other incentive compensation in connection with or as a result of the consummation of the transactions contemplated hereby, including the Transaction, (iii) the aggregate liabilities of the Company and its ERISA Affiliates, together with any corresponding assets held in any grantor trust of the Company and its ERISA Affiliates, pursuant to each Employee Arrangement (other than Employee Plans that are qualified under Section 401(a) of the Code) providing any supplemental or excess retirement benefits or other deferred compensation (whether elective or non-elective), in each case determined as of the date set forth in the Company Disclosure Schedule, and (iv) the estimated maximum amount of the "excess parachute payments" within the meaning of Section 280G of the Code that could become payable by the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement or the Transaction Agreements and the consummation of the transactions contemplated hereby, including the Transaction. No outstanding options to purchase Shares granted to any current or former employee or director of the Company or any of its ERISA Affiliates contain any provision that would entitle the holder to receive any cash payment with respect thereto in connection with the consummation of the transactions contemplated hereby except as provided for in Section 2.06 hereof. (j) There are no pending or threatened claims (other than claims for benefits in the ordinary course), investigations, lawsuits or arbitrations which have been asserted or instituted, and, to the Company's knowledge, no set of circumstances exists which may give rise to a claim or lawsuits, against the Employee Arrangements, any fiduciaries thereof with respect to their duties to such Employee Arrangements or the assets of any of the trusts under any of such Employee Arrangements which could result in any liability of the Company or any of its ERISA Affiliates to the PBGC, the Department of Treasury, the Department of Labor, or any other U.S. or foreign governmental authority, or to any of such Employee Arrangements, any participant in any such Employee Arrangement, or any other party. Without limiting the generality of the foregoing, neither the Company nor any of its ERISA Affiliates has any actual or contingent liability under any such Employee Arrangement or under any applicable Law or regulation for pay or benefits incurred as a result of corporate restructuring, downsizing, layoffs or similar events that has not been fully satisfied or adequately reserved for in the audited consolidated financial statements (including the related notes) and unaudited consolidated financial statements (including the related notes) of the Company included in the Company SEC Documents. Section 4.17. ENVIRONMENTAL MATTERS. (a) Except as disclosed in the Company SEC Documents or as set forth in Section 4.17 of the Company Disclosure Schedule, except where noncompliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the -22- 27 Company, the Company is in compliance with all applicable Environmental Laws and Environmental Permits. (b) Except as disclosed in the Company SEC Documents or as disclosed in Section 4.17 of the Company Disclosure Schedule, there are no written (or, to the knowledge of the Company, other) Environmental Claims pending or, to the knowledge; of the Company threatened, against the Company that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company. (c) The Company has made available to Parent all material information, including such studies, analyses and test results, in the possession, custody or control of or otherwise known and available to the Company or its Subsidiaries relating to the environmental conditions on, under or about any of the properties or assets owned, leased, or operated by the Company at any time or for which the Company is responsible under any Environmental Law. (d) Except as disclosed in the Company SEC Documents or as disclosed in Section 4.17 of the Company Disclosure Schedule, prior to and during the period of ownership or operation by the Company, in each case to the knowledge of the Company, no Hazardous Substance was generated, treated, stored, disposed of, used, handled or manufactured at, or transported, shipped or disposed of from, currently or previously owned or leased properties that could result in Liability for the Company or its Subsidiaries that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and there were no conditions or Releases of Hazardous Substance in, on, under or affecting any currently or previously owned or leased properties that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company. (e) Except as disclosed in the Company SEC Documents, or as set forth in Section 4.17 of the Company Disclosure Schedule, none of the Company or its Subsidiaries in each case has received from any Governmental Entity or other third party any written (or, to the knowledge of the Company, other) notice that the Company or its predecessors is or may be a potentially responsible party in respect of or may otherwise bear liability for any actual or threatened Release of Hazardous Substance at any site or facility that is, has been or would be listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar or analogous federal, state, provincial, territorial, municipal, county, local or other domestic or foreign list, schedule, inventory or database of Hazardous Substance sites or facilities, except where such notice or the circumstances referred to therein would not, individually or in aggregate, reasonably be expected to have a Material Adverse Effect on the Company. Section 4.18. ANTITAKEOVER STATUTE AND RIGHTS AGREEMENT. (a) No "fair price," "interested shareholder," "business combination," or similar antitakeover statute or regulation enacted under Georgia or other Law applicable to the Company is applicable to the transactions contemplated by the Merger and the Transaction Agreements. -23- 28 (b) The Board of Directors of the Company has approved an amendment to the Rights Agreement which is, and at the Effective Time shall be, effective, and has taken all other action necessary to render the Rights inapplicable to the Merger, this Agreement and the transactions contemplated hereby. The Company has delivered to Parent a true and correct copy of the Rights Agreement in effect as of the execution and delivery of this Agreement, including a copy of such amendment. Section 4.19. INSURANCE. Section 4.19 of the Company Disclosure Schedule contains a complete and accurate list in all material respects of all policies of directors' and officers' liability insurance and fiduciary insurance owned or held by, or the premiums and the brokerage fees of which are paid by, the Company. The Company, Spinco and Spinco's Subsidiaries are covered by valid and currently effective insurance policies issued in favor of the Company or Spinco or Spinco's Subsidiaries, respectively, that are customary and appropriate under the circumstances. All such policies are in full force and effect, all premiums due thereon have been paid, and the Company has complied with the provisions of such policies. Section 4.20. CERTAIN CONTRACTS; INDEMNITIES; INDEBTEDNESS. (a) Except for assets or properties to be transferred to Spinco or its Subsidiaries pursuant to the Transaction Agreements, none of Spinco or any of its Subsidiaries presently uses in the conduct of its business any assets or properties, whether tangible, intangible or mixed, which are also utilized by the Company (after giving pro-forma effect to the Spin-Off), and, other than the contracts, arrangements or understandings which are set forth in Section 4.20(a) of the Company Disclosure Schedule, which in each instance are ordinary course commercial arrangements on arms-length terms, none of Spinco or any of its Subsidiaries is presently directly or indirectly a party to any contract, arrangement or understanding with the Company (other than the Transaction Agreements). After giving effect to the Spin-Off, the Company will include all of the Company's direct or indirect right, title and interest in and to (i) the ELF Shares, and (ii) all assets reflected on the unaudited pro forma consolidated balance sheet of the Company and ELF as of July 15, 2000 referred to in Section 4.07(c) of this Agreement. The termination of all contracts, arrangements and understandings between the Company on the one hand and Spinco and its Subsidiaries on the other hand, to the extent contemplated by the Distribution Agreement would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The unaudited pro forma consolidated balance sheet of the Company and ELF as of July 15, 2000 referred to in Section 4.07(c) of this Agreement reflects all assets of the Company principally used in the business of the Company as of July 15, 2000, other than assets or properties of the Company that will be transferred to Spinco or its Subsidiaries. (b) Except as set forth in Section 4.20(b) of the Company Disclosure Schedule, there are no outstanding claims for indemnification against the Company or any of its Subsidiaries under any written contract, agreement or understanding or, to the knowledge of the Company, under any oral contract, agreement or understanding. (c) Except (i) as set forth in Section 4.20(c) of the Company Disclosure Schedule and (ii) as expressly contemplated by the Transaction Agreements immediately following the Effective Time, the Company will not be party to any oral or written contract, agreement or understanding. -24- 29 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT Parent represents and warrants to the Company that: Section 5.01. CORPORATE EXISTENCE AND POWER. Each of Parent and Merger Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not reasonably be expected to materially impair, delay or prevent the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by the Transaction Agreements. Since the date of its incorporation, Merger Subsidiary has not engaged in any activities other than in connection with or as contemplated by this Agreement or in connection with arranging any financing required to consummate the transactions contemplated by the Merger or the Transaction Agreements. Section 5.02. CORPORATE AUTHORIZATION. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby are within the corporate powers of Parent and Merger Subsidiary and have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Parent and Merger Subsidiary and constitutes a valid and binding agreement of each of Parent and Merger Subsidiary, enforceable against it in accordance with its terms. Section 5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity, other than (i) the filing of certificates of merger with respect to the Merger with the Delaware Secretary of State and the Georgia Secretary of State, (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable securities or takeover laws, whether state or foreign and (iv) any actions or filings the absence of which would not reasonably be expected to materially impair, delay or prevent the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by the Transaction Agreements. Section 5.04. NON-CONTRAVENTION. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of Parent or Merger Subsidiary, (ii) contravene, conflict with, or result in any violation or breach of any provision of any Law or (iii) require any consent or other action by any Person under, constitute (with or without notice or lapse of time or both) a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which Parent or Merger Subsidiary is entitled under, any provision of any agreement or other instrument binding upon Parent or Merger Subsidiary, except, in the case of clauses (ii) and (iii), for such matters as would not reasonably be expected to materially impair, -25- 30 delay or prevent the consummation of the transactions contemplated by the Transaction Agreements. Section 5.05. DISCLOSURE DOCUMENTS. The information with respect to Parent and any of its Subsidiaries that Parent furnishes to the Company specifically for use in the Company Proxy Statement will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading at the time such Company Proxy Statement, or any amendment or supplement thereto, is first mailed to shareholders of the Company and the time such shareholders vote on adoption of this Agreement. Section 5.06. FINDERS' FEES. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Parent which might be entitled to any fee or commission from the Company upon consummation of the transactions contemplated by this Agreement. Section 5.07. ADEQUATE FUNDS. Parent has commitment letters in customary form from nationally-recognized lending institutions for and will have at the Effective Time sufficient funds for the payment of the aggregate Merger Consideration and to perform its obligations under the Transaction Agreements and under the ELF Merger Agreement. ARTICLE 6 COVENANTS OF THE COMPANY The Company agrees that: Section 6.01. CONDUCT OF THE COMPANY. From the date hereof until the Effective Time, the Company shall conduct its business in the ordinary course consistent with past practices and shall use its reasonable best efforts to preserve intact its business organizations and relationships with third parties and to keep available the services of its present officers and employees. Without limiting the generality of the foregoing, except with the prior written consent of Parent (which shall not be unreasonably withheld) as provided by this Agreement, the Transaction Agreements, or as set forth in Section 6.01 the Company Disclosure Schedule, from the date hereof until the Effective Time, the Company shall not: (a) declare, set aside or pay any dividend or other distribution with respect to any share of its capital stock, other than quarterly cash dividends on customary record and payment dates on the Shares not to exceed $0.1325 per Share per quarter; (b) repurchase, redeem or otherwise acquire or offer to acquire any shares of capital stock or other securities of, or other ownership interests in, the Company; (c) issue, deliver, pledge, encumber or sell any Shares, or any securities convertible into Shares, or any Share Equivalents or other rights, warrants or options to acquire any Shares, other than issuances of shares pursuant to Share Equivalents that are outstanding on the date hereof; -26- 31 (d) amend its Articles of Incorporation or By-Laws or other comparable organizational documents or amend any material terms of the outstanding securities of the Company; (e) merge or consolidate with any other Person, make any investment in any other Person, including any joint venture, or acquire the stock or assets or rights of any other Person other than (i) pursuant to existing contracts or commitments as set forth in the Company Disclosure Schedule, (ii) in each case in the ordinary course of business consistent with past practices, purchases of raw materials, services and items used or consumed in the manufacturing process, or (iii) capital expenditures made consistent with the Company's capital expenditure program, in an amount not to exceed $40 million in the aggregate for 2000 and $38.5 million in the aggregate for 2001; (f) incur any indebtedness (whether or not reflected on the Company Balance Sheet) for borrowed money, guarantee any such indebtedness, enter into any new or amend existing facilities relating to indebtedness, issue or sell any debt securities or warrants or other rights to acquire any debt securities or guarantee any debt securities, other than any indebtedness incurred in the ordinary course of business consistent with past practices under the Company's revolving credit agreement; (g) except as required under Section 2.06 or by applicable Law, or as may be mutually agreed upon between Parent and the Company, enter into or adopt any new, or amend any existing, Employee Plan or Benefit Arrangement, or materially change any actuarial or other assumption used to calculate funding obligations with respect to any Employee Plan or Benefit Arrangement, or change the manner in which contributions to any pension plan are made or the basis on which such contributions are determined, except for amendments or changes in the ordinary course of business consistent with past practices solely to reflect any administrative or other non-substantive changes to any Benefit Plan or Employee Arrangement and which do not increase the liability of the Company therefor; (h) except to the extent required by written employment agreements existing on the date of this Agreement, or by applicable Law, increase the compensation payable or to become payable to its directors, officers or employees (excluding (i) raises for hourly employees of the Company in the ordinary course consistent with past practice and (ii) raises in the ordinary course consistent with past practice for salaried employees scheduled to be effective January 1, 2000) or pay any benefit or amount to any such person that is not otherwise required by an Employee Plan or Benefit Arrangement as in effect on the date of this Agreement; (i) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties or assets (including securitizations) except pursuant to the ELF Merger and except for transactions involving immaterial properties or assets that are in the ordinary course of business consistent with past practices; (j) make any tax election that has, or fail to make any tax election which failure would have, individually or in the aggregate, a material effect on the tax liability or tax attributes of the Company or settle or compromise any material income tax liability of the -27- 32 Company or file any Tax Return (other than in a manner consistent with past practice) or change any method of Tax accounting; (k) take any action to cause ELF to pay any dividend or make any distribution to its stockholders other than the payment of quarterly cash dividends on customary record and payment dates not to exceed $0.1125 per share of ELF Common Stock per quarter and the special dividend as permitted by Section 6.06 of the ELF Merger Agreement; (l) (i) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization for the Company or (ii) enter into any material agreement or exercise any discretion providing for acceleration of any material payment or performance as a result of a change of control of the Company or take any action which would give rise to any liability or obligation of the Company following the Effective Time for which the Company will not be indemnified by Spinco under the Distribution Agreement; (m) engage in or allow any transfer of assets or liabilities or other transactions between the Company, on the one hand, and Spinco and any of its Subsidiaries, on the other hand, except (i) payments in the ordinary course of its business consistent with past practice or (ii) as expressly contemplated by the Transaction Agreements to occur prior to the Effective Time; (n) sell, assign, encumber, pledge, hypothecate or otherwise dispose of any of the ELF Shares or any interest therein or enter into any voting agreement or grant any proxy or consent with respect thereto, except for the ELF Voting Agreement; (o) renew any collective bargaining agreement or enter into any new collective bargaining agreement; (p) renew or enter into any non-compete, exclusivity or similar material agreement that would restrict or limit the operations of the Company, or, after the Effective Time, of Parent; (q) renew, enter into, amend or waive any right under any material contract with or loan to any Affiliate of the Company, other than as expressly contemplated by the Transaction Agreements; (r) make any loan, advance or capital contributions to or investment in any Person, other than immaterial amounts in the ordinary course of business consistent with past practices; (s) enter into, modify or amend in any material respect, or terminate any contract filed as an exhibit to any Company SEC Document or any other contract to which the Company is a party which is or would be required to be filed as an exhibit to the Company SEC Documents; (t) settle or compromise any material litigation, or waive, release or assign any material claims; -28- 33 (u) adopt any change, other than as required by the SEC or by GAAP, in its accounting policies, procedures or practices; or (v) agree or commit to do any of the foregoing. The parties agree that the provisions of Section 6.01, shall apply to Spinco and its Subsidiaries as well as to the Company; provided, however, that Parent agrees to grant its approval to any of the foregoing actions involving solely Spinco or its Subsidiaries so long as such action would not (x) give rise to any liability or obligation on the part of the Company following the Effective Time, (y) adversely affect the credit quality or financial strength of the parties which will indemnify the Company after the Effective Time pursuant to the Distribution Agreement or (z) interfere with the timely consummation of the Merger. Subject to the foregoing, the Company agrees to use its best efforts to operate the business of Spinco and its Subsidiaries in a manner that minimizes the liabilities incurred within the Company. Section 6.02. SHAREHOLDER MEETING; SEC FILINGS. The Company shall cause a meeting of its shareholders (the "Company Shareholder Meeting") to be duly called and held as soon as reasonably practicable for the purpose of voting on the approval and adoption of this Agreement and the Merger. In connection with such meeting and the transactions contemplated by the Transaction Agreements, the Company will (i) promptly prepare and file with the SEC, use its best efforts to have cleared or declared effective by the SEC, as the case may be, and thereafter mail to its shareholders as promptly as practicable the Company Proxy Statement and the Registration Statement and any amendments or supplements thereto and all other proxy materials for such meeting, (ii) use its reasonable best efforts (including postponing or adjourning the Company Shareholder Meeting to solicit additional proxies) to obtain the necessary approvals by its shareholders of this Agreement and the transactions contemplated hereby and (iii) otherwise comply with all legal requirements applicable to such meeting. The Company shall provide Parent and its legal counsel with sufficient opportunity to comment upon the form and substance of the Company Proxy Statement (including any amendments or supplements thereto) prior to filing such with the SEC and the Company shall use its reasonable efforts to incorporate Parent's reasonable comments into the Company Proxy Statement (including any amendments or supplements thereto). The Company shall provide to Parent copies of any comments received from the SEC in connection therewith and shall consult with Parent in responding to the SEC. Subject to Section 6.04, the Company Proxy Statement shall contain the unqualified recommendation of the Board of Directors of the Company that its shareholders vote in favor of the approval and adoption of this Agreement and the Merger. Section 6.03. ACCESS TO INFORMATION. From the date hereof until the Effective Time and subject to applicable Law and the Confidentiality Agreement dated as of July 24, 2000 between the Company and Parent (the "Confidentiality Agreement"), the Company shall (i) give Parent, its counsel, financial advisors, auditors, lenders and other authorized representatives reasonable access to the offices, properties, books and records of the Company, (ii) furnish to Parent, its counsel, financial advisors, auditors and other authorized representatives such financial, operating data and other information as such Persons may reasonably request, (iii) instruct its employees, counsel, financial advisors, auditors and other authorized representatives of the Company to cooperate with Parent in its investigation of the Company and (iv) promptly advise Parent orally and in writing of any fact or circumstances reasonably likely to have a Material -29- 34 Adverse Effect on the Company or to cause a condition contained in Article 9 not to be satisfied. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the Company and Spinco and its Subsidiaries. No information or knowledge obtained by Parent in any investigation pursuant to this Section shall affect or be deemed to modify any representation or warranty made by the Company hereunder. Without limiting the generality of the foregoing, as soon as reasonably practicable after the date hereof, the Company shall provide to Parent a copy of the most recent statement of withdrawal liability that it or any of its Affiliates has obtained from each Employee Plan that is a Multiemployer Plan and, to the extent that such a statement has not yet been obtained for any such Employee Plan, or to the extent such a statement has been obtained but reflects withdrawal liability as of a date earlier than July 1, 2000 with respect to any such Employee Plan, the Company shall use, and shall cause its Affiliates to use, its reasonable best efforts to obtain a current withdrawal liability statement from such Employee Plan and provide it to Parent. Section 6.04. NO SOLICITATION. (a) The Company shall not, nor shall it permit any of its Subsidiaries to, or authorize or permit any director, officer or employee of the Company or any of its Subsidiaries or any investment banker, attorney, accountant or other advisor or representative of the Company or any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate, negotiate or encourage, or take any other action knowingly to facilitate, any Takeover Proposal (as defined below) or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or otherwise cooperate in any way with, any Takeover Proposal, in each case other than a Takeover Proposal made by Parent; provided, however, that at any time prior to obtaining approval of the Company's shareholders as contemplated by Section 6.02 hereof, the Board of Directors of the Company may, in response to a bona fide written Takeover Proposal that such Board of Directors reasonably determines in good faith is reasonably likely to result in an Adverse Recommendation Change (as defined below) or, after consultation with its independent financial advisors, constitutes a Superior Proposal (as defined below), and which Takeover Proposal was unsolicited and did not otherwise result from a breach of this Section 6.04, (x) furnish information with respect to the Company and its Subsidiaries to the person making such Takeover Proposal (and its representatives) pursuant to a confidentiality agreement with terms not more favorable to such person than the Confidentiality Agreement, provided that all such information is provided on a prior or substantially concurrent basis to Parent, and (y) participate in discussions or negotiations with the person making such Takeover Proposal (and its representatives) regarding such Takeover Proposal, provided that the Company shall have delivered to Parent prior written notice advising Parent that it intends to participate in such discussions or negotiations. The Company will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any Takeover Proposal and request the return of all confidential information regarding the Company and ELF provided to any such parties prior to the date hereof pursuant to the terms of any confidentiality agreements or otherwise. The term "Takeover Proposal" means any inquiry, proposal or offer from any person relating to, or that is reasonably likely to lead to, any direct or indirect acquisition, in one -30- 35 transaction or a series of transactions, including any merger, consolidation, tender offer, exchange offer, binding share exchange, business combination, recapitalization, liquidation, dissolution, joint venture, purchase or similar transaction, of (A) assets or businesses that constitute or represent 20% or more of the total revenue, operating income or assets of the Company and its Subsidiaries, taken as a whole, (B) 20% or more of the outstanding shares of the Company's common stock or capital stock of, or other equity or voting interests in, any of the Company's Subsidiaries directly or indirectly holding the assets or businesses referred to in clause (A) above or (C) any or all of the ELF Shares. (b) Neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw (or modify in a manner adverse to Parent or Merger Subsidiary) or propose publicly to withdraw (or modify in a manner adverse to Parent or Merger Subsidiary) the recommendation or declaration of advisability by such Board of Directors or any such committee of this Agreement or the Merger, provided, that in the event that prior to the approval of the Merger by the shareholders of the Company, the Board of Directors of the Company receives a Superior Proposal (as determined in accordance with Section 6.04(b)) that is unsolicited and did not result from a breach of Section 6.04(a), the Board of Directors of the Company may, if it believes in good faith such action is required under Georgia law to avoid a breach of its fiduciary duties, after receipt of advice from its outside legal counsel, withdraw or modify in a manner adverse to Parent or Merger Subsidiary the recommendation or declaration of advisability of this Agreement or the Merger (each such action being referred to herein as an "Adverse Recommendation Change"), (ii) adopt or approve, or recommend or propose publicly to adopt or approve, or recommend any Takeover Proposal, or withdraw its approval of the Merger, or propose publicly to withdraw its approval of the Merger, (iii) cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement (each, an "Acquisition Agreement") constituting or related to, or which is intended to or is reasonably likely to lead to, any Takeover Proposal (other than a confidentiality agreement referred to in Section 6.04(a)) or (iv) agree or resolve to take any of the actions prohibited by clauses (i), (ii) or (iii) of this sentence; and provided, however, that the Company shall not exercise its right to make an Adverse Recommendation Change until after the fifth Business Day following Parent's receipt of written notice (a "Notice of Superior Proposal") from the Company advising Parent that the Board of Directors of the Company has received a Superior Proposal and specifying the terms and conditions of the Superior Proposal and identifying the Person making such Superior Proposal (it being understood and agreed that any amendment to the price or any other material term of a Superior Proposal shall require a new Notice of Superior Proposal and a new five Business Day period). Any such Adverse Recommendation Change shall not change the approval by the Board of Directors of the Company of the Merger and this Agreement under Georgia law or for purposes of causing any state takeover statute or other state law to be inapplicable to the transactions contemplated hereby, including the Merger. The Company shall submit this Agreement to its shareholders at a duly held meeting of shareholders even if the Board of Directors of the Company shall have made an Adverse Recommendation Change. Nothing in this Section 6.04 shall (x) permit the Company to terminate this Agreement, (y) permit the Company to enter into any agreement with respect to any Takeover Proposal or (z) affect any other obligation of the Company under this Agreement. -31- 36 The term "Superior Proposal" means any bona fide binding written offer not solicited by or on behalf of the Company or any of its Subsidiaries made by a third party that, if consummated, would result in such third party (or in the case of a direct merger between such third party and the Company, the shareholders of such third party) acquiring, directly or indirectly, (i) more than 50% of the voting power of the Company's common stock, (ii) all or substantially all the assets of the Company and its Subsidiaries or (iii) all or substantially all of the ELF Shares, taken as a whole, for consideration consisting of cash and/or securities that the Board of Directors of the Company determines in its reasonable good faith judgment (after consultation with a financial advisor of nationally recognized reputation) to be superior from a financial point of view to the shareholders of the Company, taking into account, among other things, any changes to the terms of this Agreement proposed by Parent in response to such Superior Proposal or otherwise. (c) In addition to the obligations of the Company set forth in paragraphs (a) and (b) of this Section 6.04, the Company promptly shall advise Parent in writing of any request for information that the Company reasonably believes could lead to or contemplates a Takeover Proposal or of any Takeover Proposal together with a copy of such Takeover Proposal, or any inquiry the Company reasonably believes could lead to any Takeover Proposal. (d) Nothing contained in this Section 6.04 or elsewhere in this Agreement shall prohibit the Company from (i) taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the 1934 Act or (ii) making a disclosure to the Company's shareholders if outside legal counsel advises that failure so to disclose would be inconsistent with applicable Law; provided, however, that in no event shall the Company or its Board of Directors or any committee thereof take, agree or resolve to take any action prohibited by Section 6.04(b)(i) or 6.04(b)(ii). Section 6.05. THIRD PARTY STANDSTILL AGREEMENTS. During the period from the date of this Agreement until the Effective Time or earlier termination of this Agreement, the Company shall not terminate, amend, modify or waive any provision of any confidentiality or standstill agreement relating to the making of a Takeover Proposal to which it is a party (other than any involving Parent or its Subsidiaries). During such period, the Company agrees to use all reasonable efforts to enforce, to the fullest extent permitted under applicable Law, the provisions of any such agreements, including seeking injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court of the United States or any state thereof having jurisdiction. Section 6.06. RIGHTS AGREEMENT. The Board of Directors of the Company shall take all further action (in addition to that referred to in Section 4.18(b)) reasonably requested in writing by Parent in order to render the Rights inapplicable to the transactions contemplated by this Agreement. Except as provided with respect to the transactions contemplated by this Agreement and the Transaction Agreements, the Board of Directors of the Company shall not, without the prior written consent of Parent, (a) amend the Rights Agreement or (b) take any action with respect to, or make any determinations under, the Rights Agreement, including a redemption of the Rights or any action to facilitate a Takeover Proposal. -32- 37 Section 6.07. SPIN-OFF. (a) The Company shall use its best efforts to satisfy the conditions to the Spin-Off set forth in Section 3.02 of the Distribution Agreement and shall effect the Spin-Off if such conditions have been satisfied. The Company shall cause Spinco to comply with its obligations under the Distribution Agreement. Notwithstanding anything in this Section 6.07 to the contrary, the parties acknowledge and agree that this Section 6.07 shall not require the Company or Spinco, to waive any condition to the Spin-Off set forth in Section 3.02 of the Distribution Agreement. At or prior to the Spin-Off, the Company shall take those actions required by Section 3.02 of the Distribution Agreement to be taken at or prior to the Spin-Off. (b) The Company shall keep Parent informed on a regular basis concerning the developments in the transactions contemplated by the Transaction Agreements and the means by which such transactions are effected and, subject to any existing agreements as to the means of effecting the transactions that are reflected in the Distribution Agreement, the Company shall give reasonable consideration to Parent's views on the means by which such transactions are effected. ARTICLE 7 COVENANTS OF PARENT Parent agrees that: Section 7.01. OBLIGATIONS OF MERGER SUBSIDIARY. Parent will take all action necessary to cause Merger Subsidiary to perform its obligations under this Agreement. Section 7.02. DIRECTOR AND OFFICER LIABILITY. Parent shall cause the Surviving Corporation, and the Surviving Corporation hereby agrees, to do the following: (a) For six years after the Effective Time, the Surviving Corporation shall indemnify and hold harmless each present officer and director of the Company (each an "Indemnified Person") to the fullest extent permitted by Georgia Law or any other applicable laws or provided under the Company's articles of incorporation and bylaws in effect on the date hereof in respect of its decision to vote for the approval of the ELF Merger and the implementation of such decision, provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law. (b) The Surviving Corporation shall be entitled to control the defense of any action, suit, investigation or proceeding with counsel of its own choosing reasonably acceptable to the Indemnified Person and the Indemnified Person shall cooperate in the defense thereof. The Surviving Corporation shall not be liable for the fees, costs or expenses of any other counsel for an Indemnified Person, other than local counsel, unless a conflict of interest shall be caused thereby in which case the Surviving Corporation shall pay the fees, costs and expenses of one additional counsel of the Indemnified Person's choosing but reasonably acceptable to the Surviving Corporation, provided that the Surviving Corporation shall not be liable for (i) the fees of more than one counsel for all Indemnified Persons or (ii) any settlement effected without its written consent (which consent shall not be unreasonably withheld). -33- 38 (c) For six years after the Effective Time, the Surviving Corporation shall provide officers' and directors' liability insurance in respect of acts or omissions occurring prior to the Effective Time covering each such Indemnified Person currently covered by the Company's officers' and directors' liability insurance policy on terms with respect to coverage and amount no less favorable than those of such policy in effect on the date hereof; provided if the aggregate annual premiums for such insurance at any time during such period shall exceed 200% of the per annum rate of premium and brokerage costs paid by the Company as of the date hereof for such insurance, then the Surviving Corporation shall provide only such coverage as shall then be available at an annual premium equal to 200% of such rate. (d) If Parent, the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, shall assume the obligations set forth in this Section 7.02. (e) The rights of each Indemnified Person under this Section 7.02 shall be in addition to any rights such Person may have under the articles of incorporation or bylaws of the Company or any of its Subsidiaries, under Georgia Law or any other applicable laws or under any agreement of any Indemnified Person with the Company. These rights shall survive consummation of the Merger and are intended to benefit, and shall be enforceable by, each Indemnified Person. (f) Notwithstanding any provision of this Section 7.02 to the contrary, to the extent any obligation is also a Spinco Group Liability (as defined in the Distribution Agreement) such matter shall be addressed as a Spinco Group Liability pursuant to the Distribution Agreement rather than this Section 7.02. In the event of a conflict between the Distribution Agreement and this Section 7.02 with respect to the subject matter of Section 7.02(a), this Section 7.02 shall govern. ARTICLE 8 COVENANTS OF PARENT AND THE COMPANY The parties hereto agree that: Section 8.01. REASONABLE EFFORTS. (a) Subject to the terms and conditions of this Agreement, the Company and Parent will use their reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other parties in doing all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, each of Parent and the Company agrees (i) to make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as reasonably practicable after the date hereof and to supply as promptly as reasonably practicable -34- 39 any additional information and documentary material that may be requested by the FTC or the Antitrust Division or any other Governmental Entity pursuant to the HSR Act and (ii) to use reasonable efforts to cause the expiration or termination of the applicable waiting periods under the HSR Act (and to obtain the necessary approvals under any foreign laws, rules or regulations) as soon as reasonably practicable; provided, that Parent shall not be required to agree, and the Company shall not agree without Parent's consent, to waive any rights or to accept any limitation on its operations or to dispose of any assets in connection with obtaining any such consent or authorization, but at Parent's written request the Company shall agree to any such waiver, limitation or disposal, which agreement may, at the Company's option, be conditioned upon and effective only as of the Effective Time. Each party shall: (1) promptly notify the other party of any communication from the FTC, the Antitrust Division or any State Attorney General or any other Governmental Entity, and subject to applicable Law, permit the other party to review in advance any proposed written communication to any of the foregoing and to accept all reasonable additions, deletions or changes suggested in connection therewith; (2) with respect to this Transaction not agree to participate in any substantive meetings or discussions with any Governmental Entity in respect of any filings, investigations, or inquiry concerning the transactions contemplated by this Agreement unless it consults with the other party in advance and, to the extent permitted by such Governmental Entity, gives the other party the opportunity to attend and participate thereat; and (3) with respect to this Transaction furnish the other party's counsel, subject to appropriate confidentiality procedures, with copies of all correspondence, filings, and communications (and memoranda setting forth the substance thereof) between them and their respective representatives and any Governmental Entity or their respective staffs. (b) In connection with obtaining financing in connection with the transactions contemplated by this Agreement, at the reasonable request of Parent, the Company (i) agrees to enter into such agreements, agrees to use reasonable best efforts to deliver such officers certificates and opinions as are customary in a financing and as are, in the good faith determination of the persons executing such officers' certificates or opinions, accurate, and agrees to pledge, grant security interests in, and otherwise grant liens on, its assets pursuant to such agreements as may be reasonably requested, provided that no obligation of the Company under any such agreement, pledge, or grant shall be effective until the Effective Time; provided, that, all expenses, liabilities or costs of the Company incurred in connection herewith shall be the responsibility of Parent and any obligations entered into in connection herewith are terminated in the event this Agreement is terminated in accordance with its terms and (ii) with reasonable assurances of confidentiality acceptable to the Company will provide to the lenders specified by Parent financial and other information in the Company's possession with respect to the Company, Spinco, the Merger and the Transaction, will make the Company's senior officers and financial and accounting personnel reasonably available to assist such lenders, and otherwise will cooperate in connection with the consummation of such financing. Section 8.02. CERTAIN FILINGS. The Company and Parent shall cooperate with one another and use their reasonable best efforts (i) in connection with the preparation of the Company Proxy Statement and the Registration Statement, (ii) in determining whether any action by or in respect of, or filing with, any Governmental Entity is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by the Merger and the Transaction Agreements and (iii) in taking such actions or making any such filings, furnishing information -35- 40 required in connection therewith or with the Company Proxy Statement and Registration Statement and seeking timely to obtain any such actions, consents, approvals or waivers. Section 8.03. PUBLIC ANNOUNCEMENT. The initial press release concerning this Agreement and the Transaction shall be a joint release. Thereafter Parent and the Company will consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and, except as may be required by applicable Law or any listing agreement with any national securities exchange, will not issue any such press release or make any such public statement prior to such consultation. Section 8.04. FURTHER ASSURANCES. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of the Company or Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Merger Subsidiary, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of the Company acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. Section 8.05. NOTICES OF CERTAIN EVENTS. Each of the Company and Parent shall promptly notify the other of: (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; and (c) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting the Company, Parent, Spinco or any of their respective Subsidiaries that relate to the consummation of the transactions contemplated by the Merger or the Transaction Agreements. ARTICLE 9 CONDITIONS TO THE MERGER Section 9.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of the Company, Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following conditions: (a) this Agreement and the transactions contemplated hereby shall have been approved and adopted by the shareholders of the Company in accordance with Georgia Law; (b) no federal, state or foreign statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated or enforced by any Governmental Entity which has the effect of making the Merger or the transactions contemplated hereby illegal -36- 41 or otherwise prohibiting the consummation of the Merger or the transactions contemplated hereby; (c) any applicable waiting period under the HSR Act relating to the Merger shall have expired or been terminated; and (d) the Distribution (as defined in the Distribution Agreement) shall have been consummated in accordance with the terms and subject to the conditions set forth in the Distribution Agreement. Section 9.02. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. The obligations of Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following further conditions: (a) the Company shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time; (b) the representations and warranties of the Company contained in Section 4.05 shall be true in all respects (except for any de minimis inaccuracy) both when made and as of the Effective Time as though made at and as of the Effective Time, and all other representations and warranties of the Company contained in this Agreement and in any certificate or other writing delivered by the Company pursuant hereto, disregarding all qualifications and exceptions contained therein relating to materiality or Material Adverse Effect or any similar standard or qualification, shall be true when made and at and as of the Effective Time as if made at and as of such time (or, if given as of a specific date, at and as of such date) with only such exceptions as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company; (c) Parent shall have received a certificate signed by an executive officer of the Company to the foregoing effect; (d) all consents and approvals of any Governmental Entity required in connection with the consummation of the transactions contemplated by the Transaction Agreements shall have been obtained, except for such consents or approvals which, if not obtained, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company or a Material Adverse Effect on Parent or result in criminal liability or material fines; (e) as of immediately prior to the Effective Time, holders of no more than 10% of the outstanding Shares shall have taken actions to assert appraisal rights under Georgia Law; and (f) the ELF Merger Agreement shall have been approved and adopted by the stockholders of ELF in accordance with Delaware Law whether by consent or otherwise and all other conditions to consummation of the ELF Merger (other than the consummation of the Merger), shall have been satisfied or, to the extent permitted, waived. -37- 42 Section 9.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the Merger are subject to the satisfaction of the following further conditions: (a) each of Parent and Merger Subsidiary shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time; (b) the representations and warranties of Parent and Merger Subsidiary contained in this Agreement and in any certificate or other writing delivered by Parent or Merger Subsidiary pursuant hereto, disregarding all qualifications and exceptions contained therein relating to materiality or Material Adverse Effect or any similar standard or qualification, shall be true when made and at and as of the Effective Time as if made at and as of such time (or, if given as of a specific date, at and as of such date) with only such exceptions as would not reasonably be expected to materially impair, delay or prevent the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by this Agreement; and (c) the Company shall have received a certificate signed by an executive officer of Parent and Merger Subsidiary to the foregoing effect. ARTICLE 10 TERMINATION Section 10.01. TERMINATION. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the shareholders of the Company): (a) by mutual written agreement of the Company and Parent; (b) by either the Company or Parent, if: (i) the Merger has not been consummated on or before June 30, 2001, provided that the right to terminate this Agreement pursuant to this Section 10.01(b)(i) shall not be available to any party whose breach of any provision of this Agreement results in the failure of the Merger to be consummated by such time; (ii) there shall be any Law or regulation that makes consummation of the Merger illegal or otherwise prohibited or any judgment, injunction, order or decree of any Governmental Entity having competent jurisdiction enjoining Company or Parent from consummating the Merger is entered and such judgment, injunction, order or decree shall have become final and nonappealable; or (iii) this Agreement shall not have been approved and adopted in accordance with Georgia Law by the Company's shareholders by reason of the failure to obtain the required vote at a duly held meeting of shareholders (including any adjournment thereto); -38- 43 (c) by Parent, if (i) the Board of Directors of the Company shall have failed to recommend or shall have withdrawn, or modified in a manner adverse to Parent, its approval or recommendation of this Agreement or the Merger, shall have approved or recommended a Superior Proposal, or shall have resolved to do any of the foregoing; (ii) the Company shall have (1) failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of the Company to be performed or complied with by it under this Agreement, such that the conditions set forth in Sections 9.02(a) or 9.02(c) cannot be satisfied or (2) breached any of its representations or warranties such that the conditions set forth in Sections 9.02(b) or 9.02(c) cannot be satisfied, which failure under clause (1) or (2) shall not be cured within 15 Business Days of notice from Parent (or such longer period during which the Company exercises reasonable best efforts to cure and reasonably expects to accomplish such cure); or (iii) the ELF Voting Agreement or the ELF Merger Agreement is terminated for any reason, or the Company is in breach of or fails to perform its obligations thereunder, or the ELF Merger Agreement is consummated pursuant to the proviso to Section 9.01(d) of such Agreement; (d) by the Company, if Parent or Merger Subsidiary shall have (i) failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of Parent or Merger Subsidiary to be performed or complied with by it under this Agreement such that the condition set forth in Section 9.03(a) cannot be satisfied or (ii) breached any of such party's representations or warranties contained in this Agreement such that the condition set forth in Section 9.03(b) cannot be satisfied, which failure or breach described in such clause (i) or (ii) shall not be cured within 15 Business Days of notice from the Company (or such longer period during which Parent exercises reasonable best efforts to cure and reasonably expects to accomplish such cure). The party desiring to terminate this Agreement pursuant to this Section 10.01 (other than pursuant to Section 10.01(a)) shall give notice of such termination to the other party. Section 10.02. EFFECT OF TERMINATION. If this Agreement is terminated pursuant to Section 10.01, this Agreement shall become void and of no effect with no liability on the part of any party (or any shareholder, director, officer, employee, agent, consultant or representative of such party) to the other party hereto, provided that, if such termination shall result from the willful (i) failure of either party to fulfill a condition to the performance of the obligations of the other party or (ii) failure of either party to perform a covenant hereof, such party shall be fully liable for any and all liabilities and damages incurred or suffered by the other party as a result of such failure. The provisions of Sections 11.04, 11.06, 11.07, 11.08 and this Section 10.02 shall survive any termination hereof pursuant to Section 10.01. -39- 44 ARTICLE 11 MISCELLANEOUS Section 11.01. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, if to Parent or Merger Subsidiary, to: Kellogg Company One Kellogg Square Battle Creek, Michigan 49016 Attention: Janet L. Kelly Fax: (616) 961-6598 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Daniel A. Neff Fax: (212) 403-2000 if to the Company, to: Flowers Industries, Inc. 1919 Flowers Circle Thomasville, Georgia 31757 Attention: G. Anthony Campbell Fax: (912) 225-5433 with a copy to: Jones, Day, Reavis & Pogue 3500 SunTrust Plaza 303 Peachtree Street Atlanta, Georgia 30308-3242 Attention: Robert W. Smith Lizanne Thomas Fax: (404) 581-8330 or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such -40- 45 notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Section 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. The representations and warranties contained in Article 4 and in any certificate or other writing delivered pursuant to Section 9.02(c) shall survive the Effective Time for a period of two years (or, in the case of the representations and warranties contained in Section 4.15, until the expiration of the applicable statutes of limitations), and Spinco shall indemnify and hold harmless Parent, its Affiliates (including the Company) and their respective directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Parent Indemnitees") from and against all Damages (as defined in the Distribution Agreement) asserted against or incurred or suffered by any Parent Indemnitee in any way, directly or indirectly arising out of, relating to or resulting from the failure of any representation or warranty of the Company contained in this Agreement to have been true and correct when made or as of the Effective Time (or at and as of such different date or period specified for such representation and warranty) as though such representation and warranty were made at and as of the Effective Time (or such different date or period) without giving effect to any materiality or Material Adverse Effect or knowledge qualification. The procedures set forth in Sections 4.05 and 4.06 of the Distribution Agreement shall apply to any claims made by any Parent Indemnitee under this Section 11.02. Section 11.03. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective, provided that, after the adoption of this Agreement by the shareholders of the Company and without their further approval, no such amendment or waiver shall reduce the amount or change the kind of consideration to be received in exchange for the Shares. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Law. Section 11.04. EXPENSES. (a) Except as otherwise provided in this Section, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. (b) If: (i) Parent shall terminate this Agreement pursuant to Section 10.01(c)(i); -41- 46 (ii) either the Company or Parent shall terminate this Agreement pursuant to Section 10.01(b)(iii) and prior to the Company Shareholder Meeting a third party or the Company shall have publicly announced a Takeover Proposal or a Takeover Proposal shall have been made known to the Company (other than a Takeover Proposal by Parent); (iii) either Parent or the Company shall terminate this Agreement pursuant to Section 10.01(b)(i) and prior to June 30, 2001 a third party or the Company shall have publicly announced a Takeover Proposal, or a Takeover Proposal shall have been made known to the Company (other than a Takeover Proposal by Parent); or (iv) Parent is entitled to receive, or has received, a payment from ELF pursuant to Section 11.04(b) of the ELF Merger Agreement and (A) the conditions set forth in Section 9.02 of this Agreement have been satisfied, (B) Parent has not (1) failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of Parent to be performed or complied with by it under this Agreement or (2) breached any of its representations or warranties contained in this Agreement such that this Agreement may be terminated by the Company pursuant to Section 10.01(d) hereof and (C) ELF has not (1) failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of ELF to be performed or complied with by it under the ELF Merger Agreement or (2) breached any of its representations or warranties such that the ELF Merger Agreement has been or may be terminated pursuant to Section 10.01(d) thereof; then, in the case of a termination by the Company pursuant to clause (ii) or (iii), the Company shall pay to Parent (by wire transfer of immediately available funds not later than the date of termination or, in the case of termination by Parent pursuant to clause (i), (ii) or (iii), one Business Day after such termination of this Agreement or, in the case of clause (iv), on the date such payment is, or was, due from ELF) an amount equal to $58.2 million. Notwithstanding the preceding provisions of this Section 11.04(b), such amount shall not be paid to Parent if the ELF Merger shall have been consummated. The Company shall be entitled to deduct and withhold from any payments made to Parent under this Section 11.04(b) such amounts as may be required to be deducted or withheld therefrom under the Code or under any applicable provisions of state or local tax Law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for purposes of this Section 11.04(b) as having been paid to Parent. Section 11.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto, except that Parent or Merger Subsidiary may transfer or assign, in whole or from time to time in part, to one or more of its Affiliates and the corresponding obligations, the right to enter into the transactions contemplated by this Agreement, but no such transfer or assignment will relieve Parent or Merger Subsidiary of its obligations hereunder. -42- 47 Section 11.06. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, without regard to the conflicts of law rules of such state. Section 11.07. JURISDICTION. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal court located in the State of Delaware or any Delaware state court, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.01 shall be deemed effective service of process on such party. Section 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 11.09. COUNTERPARTS; EFFECTIVENESS; BENEFIT. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Except as provided in Sections 2.03, 2.06, 7.02 and 11.02, no provision of this Agreement is intended to confer any rights, benefits, remedies, obligations, or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns. Section 11.10. ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. Section 11.11. CAPTIONS. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 11.12. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of -43- 48 the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. Section 11.13. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled (without posting a bond or similar indemnity) to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at law or in equity. -44- 49 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FLOWERS INDUSTRIES, INC. By: /s/ G. A. Campbell ------------------------------- Name: ----------------------------- Title: ---------------------------- KELLOGG COMPANY By: /s/ Carlos M. Gutierrez ------------------------------- Name: ----------------------------- Title: ---------------------------- KANSAS MERGER SUBSIDIARY, INC. By: /s/ Janet Langford Kelly ------------------------------- Name: ----------------------------- Title: ---------------------------- FLOWERS FOODS, INC. (for purposes of Section 11.02 only) By: /s/ G. A. Campbell ------------------------------- Name: ----------------------------- Title: ---------------------------- -45- 50 SCHEDULE I Capitalized terms used but not defined in paragraphs (a) or (c) of this Schedule I shall have the meanings ascribed to them in the Agreement and Plan of Restructuring and Merger to which this Schedule I is attached (the "AGREEMENT"). (a) "PER SHARE ADJUSTMENT AMOUNT" shall mean an amount equal to the Adjustment Amount divided by the Outstanding Shares (as defined below). "ADJUSTMENT AMOUNT" shall mean an amount, reasonably estimated, equal to the sum of the following items (each, an "ITEM"): 1. All advisory fees and expenses payable by the Company in connection with the transactions contemplated by the Agreement or the other Transaction Agreements, to the extent such fees and expenses exceed $16 million; 2. All Liabilities (as defined in the Distribution Agreement) payable by the Company under the Company's 1989 Executive Stock Incentive Plan, 1982 Incentive Stock Option Plan, Non-Employee Director Stock Option Plan or any other compensation plan, program or arrangement of the Company, including as set forth on Section 4.16(i) of the Company Disclosure Schedule as a result of the transactions contemplated by the Agreement or the Distribution Agreement; 3. The principal amount of all Company Debt (as defined in the Distribution Agreement) plus the principal amount of any other debt or similar obligations of the Company immediately prior to the Distribution (as defined in the Distribution Agreement) to the extent such debt is not expressly assumed by Spinco in accordance with the terms of such debt or similar obligations or otherwise refinanced, prepaid or satisfied by Spinco, including, without limitation, if applicable, the Company's 7.15% Debentures due 2028 and the Loan Facility Agreement by and among the Company, Suntrust Bank, Atlanta and each of the participants party thereto, dated as of November 5, 1999, and all other agreements referenced in section 4.04(1) of the Company Disclosure Schedule; 4. Accrued interest on all amounts referred to in Item 3, in each case, as of the Effective Time; 5. All costs and expenses related to the immediate retirement of any amount referred to in Item 3 (other than, to the extent not assumed by Spinco and to the extent not declared due and payable, the Company's 7.15% Debentures due 2028), including, without limitation, prepayment penalties, and make-whole and gross-up provisions; 6. The Tax Amount (as defined below); and 7. The aggregate amount necessary to satisfy all Liabilities (as defined in the Distribution Agreement) of the Company and its Affiliates pursuant to the Agreements listed as items (a) through (l) of Section 4.04(2) of the Company Disclosure Schedule. (b) The parties acknowledge and agree that the Adjustment Amount constitutes a Spinco Group Liability (as defined in the Distribution Agreement). In the event that an Item, that has been conclusively determined in accordance with the procedure set forth in Article 4 of the Distribution Agreement, exceeds or is less than the amount reflected in the Adjustment Amount for such Item, the Company or Spinco, as the case may be, shall be entitled to indemnification from the other for such excess amount or deficiency, as applicable, pursuant to such Article 4. 51 (c) For purposes of this Schedule I, the following terms shall have the following meanings: "ESTIMATED GAIN" shall mean the excess, if any, of (I) the sum of (a) the Estimated 311(b) Gain, (b) the amount of any deferred intercompany income or gain within the meaning of Treasury Regulation Section 1.1502-13 that is Reasonably Expected By The Accountants to be required to be taken into account as a result of the Transaction (or any transaction undertaken in anticipation thereof) and the amount of any excess loss account Reasonably Expected By The Accountants to be required to be taken into income under Treasury Regulation Section 1.1502-19 as a result of the Transaction (or any transaction undertaken in anticipation thereof) and (c) the amount of any other income or gain of the Company or any of its Subsidiaries that is Reasonably Expected By The Accountants to be required to be recognized for federal income Tax purposes (including pursuant to Code Section 355(e) and (f)) as a result of the Transaction (or any transaction undertaken in anticipation thereof) over (II) the amount of any net operating loss (in excess of the amount of any income or gain of the Company or any of its Subsidiaries for the Pre-Closing Period, other than the income or gain set forth in clause (I) above) of the Company or any of its Subsidiaries arising in the Pre-Closing Period that is Reasonably Expected By The Accountants to be allowable (without restriction or limitation) under federal income Tax law to offset the income or gain set forth in clause (I) above for the taxable period of the Company ending on the date of the Merger. "ESTIMATED 311(b) GAIN" shall mean the excess, if any, of (a) the sum of (i) the product of the number of shares of Spinco stock outstanding on the Distribution Date after the Distribution and the Spinco Stock Price and (ii) the product of (A) the number of Share Equivalents or other equity-based derivatives in Spinco outstanding on the date of the Distribution after the Distribution and (B) the excess, if any, of the Spinco Stock Price over the exercise price of such Share Equivalents or derivatives over (b) the federal income Tax basis (other than any basis in respect of which loss is Reasonably Expected By The Accountants to be disallowed under Treasury Regulation Section 1.1502-20), as Reasonably Expected By The Accountants, of the Company in the stock of Spinco (provided that such basis shall have been reduced by the amount, as Reasonably Expected By The Accountants, of any liability for federal income Tax purposes (or any capital lease obligation) of the Company that is assumed by Spinco or any Subsidiary of Spinco, or to which assets received by Spinco or any Subsidiary of Spinco are taken subject to). "EXCHANGE" shall mean the New York Stock Exchange or such other national securities exchange or automated quotation system of a registered securities association as the Spinco stock is to be traded on. "OUTSTANDING SHARES" shall mean the number of Shares issued and outstanding immediately prior to the Effective Time, excluding all Shares constituting Restricted Stock Awards pursuant to the 1989 Executive Stock Incentive Plan. "PRE-CLOSING PERIOD" shall mean the taxable periods (or portions thereof) ending, with respect to the Company, on or prior to the date of the Distribution. "RATE" shall mean the sum of the highest federal income Tax rate applicable to corporations under the Code on the date of the Distribution and four percent. "REASONABLY EXPECTED BY THE ACCOUNTANTS" shall mean that the taxpayer's position is "more likely than not" to prevail under the Code, as mutually agreed by (a) accountants designated by the Company and (b) at the election of the Company, either -2- 52 PricewaterhouseCoopers, LLP, Detroit, or a Big Five accounting firm mutually selected by the Company and Parent. "RELEVANT DATE" shall mean the date of the Distribution, or if Spinco stock is not traded on the Exchange on such date, then the first date following the date of the Distribution on which the Spinco stock is so traded. "SPINCO STOCK PRICE" shall mean the average of the high and the low trading prices on the Relevant Date of Spinco stock on the Exchange, as reported in The Wall Street Journal. "TAX AMOUNT" shall mean the product of the Rate and the Estimated Gain. -3- EX-2.3 4 g65066ex2-3.txt AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 2.3 AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER 26, 2000 AMONG KEEBLER FOODS COMPANY, KELLOGG COMPANY AND FK ACQUISITION CORP. 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS..................................................................................... 2 Section 1.01. Definitions................................................................... 2 ARTICLE 2 THE MERGER...................................................................................... 6 Section 2.01. The Merger.................................................................... 6 Section 2.02. Conversion of Shares.......................................................... 6 Section 2.03. Surrender and Payment......................................................... 7 Section 2.04. Dissenting Shares............................................................. 8 Section 2.05. Stock Options................................................................. 8 Section 2.06. Adjustments................................................................... 9 Section 2.07. Withholding Rights............................................................ 9 Section 2.08. Lost Certificates............................................................. 9 ARTICLE 3 THE SURVIVING CORPORATION....................................................................... 9 Section 3.01. Certificate of Incorporation.................................................. 9 Section 3.02. Bylaws........................................................................ 9 Section 3.03. Directors and Officers........................................................ 9 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ELF.......................................................... 10 Section 4.01. Corporate Existence and Power................................................ 10 Section 4.02. Corporate Authorization...................................................... 10 Section 4.03. Governmental Authorization................................................... 10 Section 4.04. Non-Contravention............................................................ 11 Section 4.05. Capitalization............................................................... 11 Section 4.06. Subsidiaries................................................................. 12 Section 4.07. SEC Filings.................................................................. 12 Section 4.08. Financial Statements......................................................... 13 Section 4.09. Disclosure Documents......................................................... 13 Section 4.10. Absence of Certain Changes................................................... 13 Section 4.11. No Undisclosed Material Liabilities.......................................... 15 Section 4.12. Compliance with Laws and Court Orders........................................ 15 Section 4.13. Litigation................................................................... 15 Section 4.14. Finders' Fees................................................................ 16 Section 4.15. Opinion of Financial Advisors................................................ 16 Section 4.16. Taxes........................................................................ 16 Section 4.17. Employee Benefit Plans....................................................... 17 Section 4.18. Environmental Matters........................................................ 20 Section 4.19. Intellectual Property........................................................ 21 Section 4.20. Material Contracts; Joint Ventures........................................... 21 Section 4.21. Insurance.................................................................... 22 Section 4.22. Indebtedness................................................................. 22
-i- 3 Section 4.23. Real Property................................................................ 22 Section 4.24. Transactions with Affiliates................................................. 22 Section 4.25. Customers.................................................................... 22 Section 4.26. Antitakeover Statute......................................................... 23 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT....................................................... 23 Section 5.01. Corporate Existence and Power................................................ 23 Section 5.02. Corporate Authorization...................................................... 23 Section 5.03. Governmental Authorization................................................... 23 Section 5.04. Non-Contravention............................................................ 24 Section 5.05. Disclosure Documents......................................................... 24 Section 5.06. Finders' Fees................................................................ 24 Section 5.07. Adequate Funds............................................................... 24 ARTICLE 6 COVENANTS OF ELF............................................................................... 24 Section 6.01. Conduct of Elf............................................................... 24 Section 6.02. Stockholder Action by Written Consent; Information Statement................. 27 Section 6.03. Access to Information........................................................ 27 Section 6.04. No Solicitation.............................................................. 28 Section 6.05. Third Party Standstill Agreements............................................ 30 Section 6.06. Special Dividend............................................................. 30 ARTICLE 7 COVENANTS OF PARENT............................................................................ 30 Section 7.01. Obligations of Merger Subsidiary............................................. 30 Section 7.02. Director and Officer Liability............................................... 31 Section 7.03. Employee Matters............................................................. 32 ARTICLE 8 COVENANTS OF PARENT AND ELF.................................................................... 32 Section 8.01. Reasonable Efforts........................................................... 32 Section 8.02. Certain Filings.............................................................. 33 Section 8.03. Public Announcements......................................................... 33 Section 8.04. Further Assurances........................................................... 34 Section 8.05. Notices of Certain Events.................................................... 34 ARTICLE 9 CONDITIONS TO THE MERGER....................................................................... 34 Section 9.01. Conditions to Obligations of Each Party...................................... 34 Section 9.02. Conditions to the Obligations of Parent and Merger Subsidiary................ 35 Section 9.03. Conditions to the Obligations of Elf......................................... 35 ARTICLE 10 TERMINATION.................................................................................... 36 Section 10.01. Termination.................................................................. 36 Section 10.02. Effect of Termination........................................................ 37 ARTICLE 11 MISCELLANEOUS.................................................................................. 37 Section 11.01. Notices...................................................................... 37 Section 11.02. Non-Survival of Representations and Warranties............................... 39 Section 11.03. Amendments; No Waivers....................................................... 39
-ii- 4 Section 11.04. Expenses..................................................................... 39 Section 11.05. Successors and Assigns....................................................... 40 Section 11.06. Governing Law................................................................ 40 Section 11.07. Jurisdiction................................................................. 40 Section 11.08. WAIVER OF JURY TRIAL......................................................... 40 Section 11.09. Counterparts; Effectiveness; Benefit......................................... 40 Section 11.10. Entire Agreement............................................................. 41 Section 11.11. Captions..................................................................... 41 Section 11.12. Severability................................................................. 41 Section 11.13. Specific Performance......................................................... 41
-iii- 5 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of October 26, 2000 (this "Agreement"), among KEEBLER FOODS COMPANY, a Delaware corporation ("Elf"), KELLOGG COMPANY, a Delaware corporation ("Parent"), and FK ACQUISITION CORP., a Georgia corporation and a wholly-owned subsidiary ("Merger Subsidiary") of FLOWERS INDUSTRIES, INC., a Georgia corporation ("TULIP"). WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary and Elf have approved this Agreement, and deem it advisable, fair to and in the best interests of their respective stockholders to consummate the merger of Merger Subsidiary or another corporation directly or indirectly wholly-owned by Parent with and into Elf on the terms and conditions set forth herein (the "Merger"); WHEREAS, the Board of Directors of Elf (the "Elf Board"), by resolution adopted in accordance with Delaware Law, has appointed a special committee of independent members of the Elf Board (the "Special Committee") which has determined that the Merger and this Agreement is fair to and in the best interests of Elf's stockholders (other than TULIP); WHEREAS, as a condition and inducement to Parent entering this Agreement, concurrently with the execution and delivery of this Agreement, Parent and TULIP, a majority stockholder of Elf, are entering into a voting agreement (the "TULIP Voting Agreement") pursuant to which, among other things, TULIP has agreed to execute a written consent with respect to all of its shares of Elf common stock, $0.01 par value, in favor of the approval of the above-described Merger and adoption of this Merger Agreement; WHEREAS, (i) Parent, Kansas Merger Subsidiary, Inc., a Delaware corporation and wholly-owned subsidiary of Parent ("TULIP Merger Sub") and TULIP have entered into an Agreement and Plan of Restructuring and Merger dated as of the date hereof (the "TULIP Merger Agreement") pursuant to which TULIP Merger Sub will merge with and into TULIP (the "TULIP Merger") on the terms and conditions set forth therein and (ii) in the TULIP Merger each share of common stock, $0.625 par value, of TULIP ("TULIP Common Stock") will be converted into the right to receive an amount per share in cash determined as set forth in the TULIP Merger Agreement; WHEREAS, the Merger contemplated by this Agreement will occur only if the condition set forth in Section 9.01(d) is satisfied; and WHEREAS, Parent, TULIP and Elf intend that as a result of the TULIP Merger and the Merger, Elf will be a direct wholly-owned subsidiary of TULIP, and TULIP will be a direct wholly-owned subsidiary of Parent or, if the TULIP Merger is not consummated, then as a result of the Merger, Elf will be a direct wholly-owned subsidiary of Parent. NOW, THEREFORE, the parties hereto agree as follows: 6 ARTICLE 1 DEFINITIONS Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. "Antitrust Division" means the Antitrust Division of the United States Department of Justice. "Benefit Arrangement" means any employment, severance or similar contract, plan, policy, fund or arrangement (oral or written) providing for compensation, bonus, profit-sharing, stock option, or other stock-related rights or other forms of incentive or deferred compensation, perquisites, vacation benefits, insurance coverage (including any self-insured arrangements), health or medical benefits, disability benefits, worker's compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits) that (i) is not and was not an Employee Plan, (ii) is or has been entered into, maintained, administered or contributed to, as the case may be, by Elf or any of its ERISA Affiliates and (iii) covers any Elf Employee. "Business Day" means a day other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close. "Code" means the Internal Revenue Code of 1986, as amended. "Controlled Group Liability" means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code and (v) under corresponding or similar provisions of foreign laws or regulations, other than such liabilities that arise solely out of, or relate solely to, the Employee Arrangements listed in the Elf Disclosure Schedule. "Delaware Law" means the General Corporation Law of the State of Delaware. "Elf Balance Sheet" means the consolidated balance sheet of Elf as of January 1, 2000 and the footnotes thereto set forth in the Elf 10-K. "Elf Employees" means all current and former employees of Elf and its Subsidiaries. "Elf Intellectual Property Rights" means all material Intellectual Property Rights owned or licensed and used or held for use by Elf or any of its Subsidiaries. -2- 7 "Elf 10-K" means Elf's annual report on Form 10-K for the fiscal year ended January 1, 2000. "Employee Arrangement" means any Benefit Arrangement or Employee Plan. "Employee Plan" means any "employee benefit plan", as defined in Section 3(3) of ERISA that (i) is or was subject to any provision of ERISA, (ii) is or was maintained, administered or contributed to by Elf or any of its ERISA Affiliates and (iii) covers or covered any Elf Employee. "Environmental Claims" means any written or, to Elf's knowledge, threatened claim, demand, or notice to, or other suit, action, proceeding or investigation of, Elf or any of its Subsidiaries by any person alleging any potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, or penalties) arising out of, based on, or resulting from the presence, or Release into the environment, of any Hazardous Substance at any location, whether or not owned, leased, operated or used by Elf or any of its Subsidiaries. "Environmental Laws" means in each case as in effect on the date hereof and for purposes of Section 9.02(b) on the date of the consummation of the Merger all Laws of, or agreements with, any Governmental Entity or other third party relating to human health, safety or the environment, including relating to emissions, discharges, Releases or threatened Releases of Hazardous Substances, or otherwise relating to the manufacture, generation, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Substances, including the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, and the Occupational Safety and Health Act. "Environmental Permits" means all permits, licenses, certificates or approvals necessary for the operation of Elf or any of its Subsidiaries as currently conducted to comply with all applicable Environmental Laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414(b), (c) or (m) of the Code. "FTC" means the United States Federal Trade Commission. "Governmental Entity" means any federal, state, local or foreign government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational. "Hazardous Substance" means (i) chemicals, pollutants, contaminants, hazardous wastes, toxic substances, and oil and petroleum products, (ii) any substance that is or contains friable asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum-derived substances or wastes, radon gas or related materials, (iii) any substance that requires removal or remediation under any Environmental Law, or is defined, listed or identified -3- 8 as a "hazardous waste" or "hazardous substance" thereunder, or (iv) any substance that is toxic, explosive, corrosive, flammable, radioactive, carcinogenic, mutagenic, or otherwise hazardous. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976. "Intellectual Property Right" means any trademark, service mark, trade name, mask work, invention, patent, trade secret, copyright, know-how or proprietary information (including with respect to any website), processes, formulae, products, technologies, discoveries, apparatus, Internet domain names, trade dress and general intangibles of like nature (together with goodwill), customer lists, confidential information, licenses, software, databases and compilations including any and all collections of data and all documentation thereof (including any registrations or applications for registration of any of the foregoing) or any other similar type of intellectual property right. "Law" means any applicable federal, state, local or foreign law, statute, common law, ordinance, directive, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity. "Lien" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien, any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "Material Adverse Effect" means, with respect to any Person, a material adverse effect on the condition (financial or otherwise), business, assets, or results of operations of such Person and its Subsidiaries, taken as a whole. "Multiemployer Plan" means a multiemployer plan, as defined in Section 3(37) of ERISA. "1933 Act" means the Securities Act of 1933. "1934 Act" means the Securities Exchange Act of 1934. "PBGC" means the Pension Benefit Guaranty Corporation. "Person" means an individual, corporation, partnership, limited liability company, association, trust, Governmental Entity or other entity or organization. "Releases" means any releasing, disposing, discharging, injecting, spilling, leaking, pumping, dumping, emitting, escaping, emptying, migrating, placing and the like, including into or upon, any land, soil, surface water, ground water or air, or otherwise entering into the environment, that is not in compliance with Environmental Laws. "SEC" means the Securities and Exchange Commission. -4- 9 "Shares" means the shares of common stock, $0.01 par value, of Elf. "Subsidiary" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person. "Title IV Plan" means an Employee Plan subject to Title IV of ERISA, other than any Multiemployer Plan. "Withdrawal Liability" means liability to or with respect to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA. Any reference in this Agreement to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder. Any reference to "including" or "include" means "including, without limitation" or "include, without limitation," respectively. (b) Each of the following terms is defined in the Section set forth opposite such term: Acquisition Agreement............................................................ 6.04 Contracts........................................................................ 4.20 Certificates..................................................................... 2.03 Confidentiality Agreement........................................................ 6.03 Effective Time................................................................... 2.01 Elf Disclosure Schedule.......................................................... Article 4 Elf Information Statement........................................................ 4.09 Elf Properties................................................................... 4.22 Elf SEC Documents................................................................ 4.07 Elf Securities................................................................... 4.05 Elf Subsidiary Securities........................................................ 4.06 Exchange Agent................................................................... 2.03 GAAP............................................................................. 4.08 Indemnified Person............................................................... 7.03 IRS.............................................................................. 4.16 Joint Venture.................................................................... 4.20 JV Agreement..................................................................... 4.20 Merger........................................................................... Recitals Merger Consideration............................................................. 2.02 Options.......................................................................... 4.05 Preferred Shares................................................................. 4.05 Surviving Corporation............................................................ 2.01 Takeover Proposal................................................................ 6.04 Tax Return....................................................................... 4.16
-5- 10 Tax or Taxes..................................................................... 4.16 Taxing Authority................................................................. 4.16 Trigger Date..................................................................... 11.04 TULIP............................................................................ Recitals TULIP Common Stock............................................................... Recitals TULIP Merger..................................................................... Recitals TULIP Merger Agreement........................................................... Recitals TULIP Merger Sub................................................................. Recitals TULIP Voting Agreement........................................................... Recitals
ARTICLE 2 THE MERGER Section 2.01. The Merger. (a) At the Effective Time, Merger Subsidiary, or, at the option of Parent and subject to Section 11.05, a newly-formed wholly-owned Subsidiary of Parent, shall be merged with and into Elf in accordance with Delaware Law, whereupon the separate existence of Merger Subsidiary (or such other wholly-owned Subsidiary of Parent, as the case may be) shall cease, and Elf shall be the surviving corporation (the "Surviving Corporation"). (b) As soon as practicable after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger, Elf and Merger Subsidiary will file a certificate of merger with the Delaware Secretary of State and make all other filings or recordings required by Delaware Law in connection with the Merger. The Merger shall become effective at such time (the "Effective Time") as the certificate of merger is duly filed with the Delaware Secretary of State or at such later time as is specified in the certificate of merger, provided that, so long as the condition set forth in Section 9.01(d) shall have been satisfied by consummation of the Tulip Merger, the Effective Time shall not occur unless and until the effective time of the TULIP Merger shall have previously occurred. (c) From and after the Effective Time, the Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of Elf and Merger Subsidiary (or such other subsidiary referenced in Section 2.01(a), as the case may be), all as provided under Section 259 of the Delaware Law. Section 2.02. Conversion of Shares. At the Effective Time: (a) except as otherwise provided in Section 2.02(b) or Section 2.04, each Share outstanding immediately prior to the Effective Time shall be converted into the right to receive $42 in cash, without interest (the "Merger Consideration"); (b) each Share held by Elf as treasury stock or owned by Parent, TULIP or any of their Subsidiaries immediately prior to the Effective Time shall remain outstanding after the Merger, and no payment shall be made with respect thereto and all such shares shall thereafter constitute shares of capital stock of the Surviving Corporation; provided that if the -6- 11 TULIP Merger is not consummated and the condition set forth in Section 9.01(d) is satisfied, each Share held by TULIP or any of its subsidiaries shall not remain outstanding but instead shall be converted into the right to receive the Merger Consideration; (c) the shares of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become that number of shares of common stock of the Surviving Corporation equal to the number of Shares converted pursuant to Section 2.02(a); provided that if the TULIP Merger is not consummated and the condition set forth in Section 9.01(d) is satisfied, each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation; and (d) the shares of capital stock of the Surviving Corporation outstanding after the Effective Time pursuant to Sections 2.02(b) and 2.02(c) shall constitute the only shares of capital stock of the Surviving Corporation outstanding immediately after the Effective Time. Section 2.03. Surrender and Payment. (a) Prior to the Effective Time, Parent shall appoint an agent (the "Exchange Agent") reasonably acceptable to Elf for the purpose of exchanging certificates representing Shares (the "Certificates") for the Merger Consideration. Promptly after the Effective Time, Parent will cause to be deposited with the Exchange Agent the Merger Consideration to be paid in respect of the Shares converted pursuant to Section 2.02(a) and pursuant to Section 2.02(b), if applicable. Promptly after the Effective Time, Parent will send, or will cause the Exchange Agent to send, to each holder of Shares at the Effective Time a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates to the Exchange Agent) for use in such exchange. (b) Each holder of Shares that have been converted into the right to receive the Merger Consideration pursuant to Section 2.02(a) and pursuant to Section 2.02(b), if applicable, will be entitled to receive, upon surrender to the Exchange Agent of a Certificate, together with a properly completed letter of transmittal, the Merger Consideration payable for each Share represented by such Certificate. Until so surrendered, each such Certificate shall represent after the Effective Time for all purposes only the right to receive such Merger Consideration. No interest shall be paid or will accrue on the Merger Consideration payable pursuant to the provisions of this Article 2. (c) If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. -7- 12 (d) After the Effective Time, the stock transfer books of Elf will be closed and there shall be no further registration or transfers of Shares. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article 2. (e) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.03(a) that remains unclaimed by the holders of Shares six months after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged Shares for the Merger Consideration in accordance with this Section 2.03 prior to that time shall thereafter look only to Parent for payment of the Merger Consideration in respect of such Shares without any interest thereon. Notwithstanding the foregoing, Parent shall not be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property, escheat or similar Laws. Any amounts remaining unclaimed by holders of Shares three years after the Effective Time (or such earlier date immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Entity) shall become, to the extent permitted by applicable Law, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto. (f) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.03(a) to pay for Shares for which appraisal rights have been requested shall be returned to Parent, upon demand. Section 2.04. Dissenting Shares. Notwithstanding Section 2.02, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with Delaware Law shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect, withdraws or otherwise loses its right to appraisal. If, after the Effective Time, such holder fails to perfect, withdraws or loses its right to appraisal, such Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. Elf shall give Parent prompt notice of any demands received by Elf for appraisal of Shares. Except as required by applicable law or with the prior written consent of Parent, Elf shall not make any payment with respect to, or settle or offer to settle, any such demands. Section 2.05. Stock Options. (a) At or immediately prior to the Effective Time, each Option, whether or not vested or exercisable, shall be canceled, and Elf shall pay each holder of any such Option at or promptly after the Effective Time for each such Option an amount in cash determined by multiplying (i) the excess, if any, of the Merger Consideration per Share over the applicable exercise price of such Option by (ii) the number of Shares such holder could have purchased (assuming full vesting of all Options) had such holder exercised such Option in full immediately prior to the Effective Time. (b) Prior to the Effective Time, Elf shall (i) obtain any consents from holders of options to purchase Shares granted under Elf's stock option or compensation plans or -8- 13 arrangements and (ii) make any amendments to the terms of such stock option or compensation plans or arrangements that, in the case of either clauses (i) or (ii), Elf deems reasonably necessary to give effect to the transactions contemplated by Section 2.05(a). Notwithstanding any other provision of this Agreement, payment may be withheld in respect of any employee or director stock option until such necessary consents are obtained, and Elf shall withhold from such payments all amounts required by applicable Law or regulation to be withheld for taxes or otherwise. Section 2.06. Adjustments. If, during the period between the date of this Agreement and the Effective Time, any change in the outstanding Shares shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of Shares, or stock dividend thereon with a record date during such period, the Merger Consideration and any other amounts payable pursuant to Section 2.05 shall be appropriately adjusted to provide to the holders of Shares the same economic effect as contemplated by this Agreement prior to such event. Section 2.07. Withholding Rights. Each of the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article 2 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax Law. If the Surviving Corporation or Parent, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which the Surviving Corporation or Parent, as the case may be, made such deduction and withholding. Section 2.08. Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the Shares represented by such Certificate, as contemplated by this Article. ARTICLE 3 THE SURVIVING CORPORATION Section 3.01. Certificate of Incorporation. The certificate of incorporation of Elf in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable Law. Section 3.02. Bylaws. The bylaws of Merger Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable Law. Section 3.03. Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable Law, (i) the -9- 14 directors of Merger Subsidiary at the Effective Time shall be the directors of the Surviving Corporation and (ii) the officers of Merger Subsidiary at the Effective Time shall be the officers of the Surviving Corporation. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ELF Except as set forth in the corresponding sections or subsections of the disclosure schedule delivered by Elf to Parent on or prior to the date hereof (the "Elf Disclosure Schedule"), Elf represents and warrants to Parent that: Section 4.01. Corporate Existence and Power. Elf is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf. Elf is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf. Elf has heretofore made available to Parent true and complete copies of the certificate of incorporation and bylaws of Elf as currently in effect. Section 4.02. Corporate Authorization. (a) The execution, delivery and performance by Elf of this Agreement and the consummation by Elf of the transactions contemplated hereby are within Elf's corporate powers and, except for the affirmative vote of the holders of a majority of the outstanding Shares in connection with the consummation of the Merger, have been duly authorized by all necessary corporate action on the part of Elf. The affirmative vote of the holders of a majority of the outstanding Shares is the only vote of the holders of any of Elf's capital stock necessary in connection with the consummation of the Merger. This Agreement has been duly executed and delivered by Elf and constitutes a valid and binding agreement of Elf, enforceable against it in accordance with its terms. (b) The Elf Board of Directors has (i) determined that this Agreement and the transactions contemplated hereby are fair to and in the best interests of Elf's stockholders, (ii) declared advisable and approved this Agreement and the transactions contemplated hereby and (iii) resolved (subject to Section 6.04(b)) to recommend approval and adoption of this Agreement and the Merger by its stockholders. Section 4.03. Governmental Authorization. The execution, delivery and performance by Elf of this Agreement and the consummation by Elf of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity, other than (i) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other -10- 15 applicable securities or takeover laws and (iv) any actions or filings the absence of which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf or materially impair, delay or prevent the ability of Elf to consummate the transactions contemplated by this Agreement. Section 4.04. Non-Contravention. Except as set forth in Section 4.04 of the Elf Disclosure Schedule, the execution, delivery and performance by Elf of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of Elf or of the similar organizational documents of any of its material Subsidiaries, (ii) assuming compliance with the matters referred to in Section 4.03, contravene, conflict with, or result in a violation or breach of any provision of any applicable Law, (iii) require any consent or other action by any Person under, constitute (with or without notice or lapse of time or both) a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which Elf or any of its Subsidiaries is entitled under, any provision of any agreement or other instrument binding upon Elf or any of its Subsidiaries (or their respective properties) or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of Elf and its Subsidiaries or (iv) result in the creation or imposition of any Lien on any asset of Elf or any of its Subsidiaries, except, in the case of clauses (ii), (iii) and (iv), for such matters as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf or materially impair, delay or prevent the consummation of the Merger. Section 4.05. Capitalization. (a) The authorized capital stock of Elf consists of (i) 500,000,000 shares of common stock, $0.01 par value per share, and (ii) 100,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Shares"). As of October 18, 2000, there were outstanding 85,013,619 Shares (excluding 1,334,382 Shares held in Elf's treasury), (ii) employee and director stock options to purchase an aggregate of 7,079,142 Shares ("Options") and (iii) no Preferred Shares. As of October 18, 2000, TULIP owned, beneficially and of record, 46,197,466 Shares. All shares of capital stock of Elf outstanding have been duly authorized and validly issued and are fully paid and nonassessable. Section 4.05 of the Elf Disclosure Schedule sets forth a complete and accurate list of all outstanding employee and director stock options to purchase Shares and sets forth each price at which an option is exercisable and the corresponding number of options exercisable at such price. All Shares issuable upon exercise of outstanding employee or director stock options have been duly authorized and, when issued in accordance with the terms thereof, will be validly issued and will be fully paid and nonassessable. (b) Except as set forth in this Section 4.05 and for changes since October 18, 2000 resulting from the exercise of employee or director stock options outstanding on such date, there are no outstanding (i) shares of capital stock or voting equity, debt or other securities of Elf, (ii) securities of Elf or any other issuer convertible into or exchangeable for shares of capital stock or equity, debt or other securities of Elf or (iii) options or other rights to acquire from Elf or any of its Affiliates or other obligation of Elf or any of its Affiliates to issue, any capital stock, equity, debt or other securities or securities convertible into or exchangeable for capital stock or -11- 16 equity, debt or other securities of Elf (the items in clauses (i), (ii) and (iii) being referred to collectively as the "Elf Securities"). There are no outstanding obligations of Elf or any of its Affiliates (i) to repurchase, redeem or otherwise acquire any of the Elf Securities, (ii) to register any Elf Securities under the 1933 Act or any state securities law, (iii) to grant preemptive or antidilutive rights with respect to any Elf Securities or (iv) to grant any stock options (either upon the exercise of any option or otherwise). Section 4.06. Subsidiaries. (a) Each Subsidiary of Elf is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, has all powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf. Each such Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf. All material Subsidiaries of Elf and their respective jurisdictions of incorporation are identified in the Elf 10-K. Section 4.06 of the Elf Disclosure Schedule identifies Elf's direct and indirect percentage ownership of each Subsidiary. (b) All of the outstanding capital stock of, or other voting securities or ownership interests in, each Subsidiary of Elf, is owned by Elf, directly or indirectly (except for any director's qualifying shares in foreign jurisdictions), free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other securities or ownership interests). There are no outstanding (i) securities of Elf or any of its Subsidiaries or any other issuer convertible into or exchangeable for shares of capital stock or other securities or ownership interests in any Subsidiary of Elf or (ii) options or other rights to acquire from Elf or any of its Subsidiaries, or other obligation of Elf or any of its Subsidiaries to issue, any capital stock or other securities or ownership interests in, or any securities convertible into or exchangeable for, any capital stock or other securities or ownership interests in, any Subsidiary of Elf (the items in clauses (i) and (ii) being referred to collectively as the "Elf Subsidiary Securities"). There are no outstanding obligations of Elf or any of its Subsidiaries (i) to repurchase, redeem or otherwise acquire any of the Elf Subsidiary Securities, (ii) to register any Elf Subsidiary Securities under the 1933 Act or any state securities law or (iii) to grant preemptive or antidilutive rights with respect to any Elf Subsidiary Securities. Section 4.07. SEC Filings. (a) Elf has made available to Parent (i) Elf's annual reports on Form 10-K for its fiscal years ended January 1, 2000 and January 2, 1999, (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended April 22, 2000 and July 15, 2000, (iii) its proxy or information statements relating to meetings of, or actions taken without a meeting by, the stockholders of Elf held since February 3, 1998 and (iv) all of its other reports, statements, schedules and registration -12- 17 statements filed with the SEC since February 3, 1998 (the documents referred to in this Section 4.07(a), collectively, the "Elf SEC Documents"). (b) As of its filing date, each Elf SEC Document complied as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as the case may be. (c) As of its filing date, each Elf SEC Document, including each amendment or supplement thereto, filed pursuant to the 1934 Act did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (d) Each Elf SEC Document that is a registration statement, as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Section 4.08. Financial Statements. The audited consolidated financial statements and unaudited consolidated interim financial statements (including the related notes) of Elf included in the Elf SEC Documents fairly present in all material respects, in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of Elf and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject to normal year-end adjustments that are not expected to be material in amount, in the case of any unaudited interim financial statements). Section 4.09. Disclosure Documents. The information statement of Elf to be filed with the SEC in connection with the Merger (the "Elf Information Statement") and any amendments or supplements thereto will, when filed, comply as to form in all material respects with the applicable requirements of the 1934 Act. At the time the Elf Information Statement or any amendment or supplement thereto is first mailed to the Elf stockholders, the Elf Information Statement, as supplemented or amended, if applicable, will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in this Section 4.09 will not apply to statements or omissions included in the Elf Information Statement based upon information furnished to Elf by Parent specifically for use therein. Section 4.10. Absence of Certain Changes. Except (i) as disclosed in the Elf SEC Documents filed after January 1, 2000 and prior to the date hereof, (ii) as expressly contemplated by this Agreement, or (iii) as disclosed in Section 4.10 of the Elf Disclosure Schedule or (iv) as permitted by Section 6.01 hereof, since January 1, 2000, the business of Elf and its Subsidiaries has been conducted in the ordinary course consistent with past practices and there has not been: -13- 18 (a) any event, occurrence, development or state of circumstances or facts that, either individually or in the aggregate, has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf; (b) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of Elf or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on Elf; (c) any declaration, setting aside or payment of any dividend or other distribution with respect to any Shares (other than quarterly cash dividends on the Shares on customary record and payment dates in an amount not greater than $0.1125 per Share per quarter), or any repurchase, redemption or other acquisition by Elf or any of its Subsidiaries of any outstanding shares of capital stock or other securities of, or other ownership interests in, Elf or any of its Subsidiaries; (d) any amendment of any material term of any outstanding security of Elf or any of its Subsidiaries or any amendment to Elf's Certificate of Incorporation or By-Laws; (e) any incurrence, assumption or guarantee by Elf or any of its Subsidiaries of any indebtedness for borrowed money other than in the ordinary course of business and in amounts and on terms consistent with past practices and pursuant to existing agreements; (f) any creation or other incurrence by Elf or any of its Subsidiaries of any Lien on any material asset other than in the ordinary course of business consistent with past practices; (g) any making of any loan, advance or capital contributions to or investment in any Person not wholly owned, directly or indirectly, by Elf, other than immaterial amounts in the ordinary course of business consistent with past practices; (h) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of Elf or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on Elf; (i) any change in any method of accounting, method of tax accounting or accounting principles or material change in practice by Elf or any of its Subsidiaries, except for any such change which is required by reason of a concurrent change in GAAP or Regulation S-X under the 1934 Act; (j) any (i) grant of any bonus, severance or termination pay or award under a long term incentive plan to (or amendment to any existing arrangement with) any director, officer or (to the extent material in the aggregate) employee of Elf or any of its Subsidiaries, (ii) establishment, adoption or amendment (except as required by applicable law) of any collective bargaining, bonus, profit-sharing, thrift, pension, retirement or other benefit plan or arrangement covering any director, officer or employee of Elf or any of its Subsidiaries, (iii) increase in compensation, bonus or other benefits payable to any director or executive officer of Elf (other than changes made applicable to Elf employees generally), or (iv) other than in the ordinary -14- 19 course of business consistent with past practices, increase in compensation, bonus or other benefits payable to any employee of Elf or any of its Subsidiaries not described in clause (iii); (k) any material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of Elf or any of its Subsidiaries, or any material lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; (l) any pledge or encumbrance by Elf or any of its Subsidiaries of any Shares, or any securities convertible into Shares, or any Option or other rights, warrants or options to acquire any Shares, other than issuances of Shares pursuant to stock-based awards or options that are outstanding at the date hereof; or (m) any agreement to do any of the foregoing. Section 4.11. No Undisclosed Material Liabilities. There are no liabilities or obligations of Elf or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, other than: (a) liabilities or obligations disclosed in the Elf Balance Sheet or in the notes thereto or in the Elf SEC Documents filed prior to the date hereof, (b) liabilities or obligations that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf, (c) liabilities or obligations under this Agreement including advisory fees in connection with the transactions contemplated hereby, or (d) liabilities or obligations disclosed in the Elf Disclosure Schedule. Section 4.12. Compliance with Laws and Court Orders. Neither Elf nor any of its Subsidiaries nor any of their respective properties is in violation of, or has since January 1, 2000 violated, any applicable Law, except for violations that have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf or materially impair, delay or prevent the consummation of the transactions contemplated by the Merger. Elf and its Subsidiaries are in compliance with the terms of all required governmental licenses, authorizations, permits, consents and approvals, except where the failure so to comply would not reasonably be expected to have, individually or in the aggregate, Material Adverse Effect on Elf or materially impair, delay or prevent the consummation of the transactions contemplated by the Merger. Section 4.13. Litigation. Other than as disclosed in Section 4.13(a) of the Elf Disclosure Schedule, there is no action, suit, investigation or proceeding pending, or, to the knowledge of Elf, threatened, against Elf or any of its Subsidiaries, or any of their respective properties before any court or arbitrator or before or by any Governmental Entity, that, if determined or resolved adversely would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Elf or materially impair, delay or prevent the consummation of the Merger. Neither Elf nor any of its Subsidiaries is subject to any -15- 20 outstanding order, writ, injunction or decree that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Elf or materially impair, delay or prevent the consummation of the Merger. Section 4.14. Finders' Fees. Except for Merrill Lynch & Co., a copy of whose engagement agreement has been provided to Parent, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Elf or any of its Subsidiaries in connection with the transactions contemplated by this Agreement. Section 4.15. Opinion of Financial Advisors. The special committee of the Board of Directors of Elf has received an opinion of Merrill Lynch & Co. dated as of the date of this Agreement to the effect that, as of the date of such opinion, the Merger Consideration is fair to Elf's stockholders from a financial point of view (other than TULIP). Complete and correct signed copies of such opinion will be delivered to Parent as soon as practicable after the date of this Agreement. Section 4.16. Taxes. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf: (a) Elf and each of its Subsidiaries has timely filed (or has had timely filed on its behalf) or will timely file or cause to be timely filed all Tax Returns required by applicable Law to be filed by it or on its behalf prior to or as of the Effective Time, and all such Tax Returns are, or will be at the time of filing, true and complete in all respects. (b) Elf and each of its Subsidiaries has timely paid (or has had timely paid on its behalf), or, where payment is not yet due, has established (or has had established on its behalf and for its sole benefit and recourse) or (with respect to new Taxes for periods, or portions thereof, beginning after the date hereof) will establish or cause to be established in accordance with GAAP on or before the Effective Time, an adequate accrual for the payment of, all Taxes due with respect to any period ending prior to or as of the Effective Time. (c) The federal income Tax Returns filed with respect to Elf and its Subsidiaries have been examined and settled with the Internal Revenue Service (the "IRS") (or the applicable statutes of limitation for the assessment of federal income Taxes for such periods have expired) for all years through 1990. (d) There are no Liens or encumbrances for Taxes on any of the assets of Elf or any of its Subsidiaries other than those for Taxes not yet due and payable. Neither Elf nor any of its Subsidiaries is a party to any Tax sharing or indemnification agreement (other than such agreements solely between or among Elf and its Subsidiaries). (e) Elf and its Subsidiaries have complied with all applicable Laws, rules and regulations relating to the payment and withholding of Taxes. (f) No federal, state, local or foreign audits or administrative proceedings are pending with regard to any Taxes or Tax Return of Elf or its Subsidiaries and none of them has received a written notice of any proposed audit or proceeding regarding any pending audit or proceeding. - 16 - 21 (g) Neither Elf nor any of its Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" within the meaning of Section 355(a)(1)(A) of the Code in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement (or will constitute such a corporation in the two years prior to the date of the Effective Time of the Merger) or (B) in a distribution which otherwise constitutes part of a "plan" or "series of related transactions" within the meaning of Section 355(e) of the Code in conjunction with the Merger. (h) "Tax" or "Taxes" shall mean (i) any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, goods and services, service use, license, value added, capital, net worth, payroll, profits, withholding, franchise, transfer and recording taxes, fees and charges, and any other taxes, assessment or similar charges imposed by the IRS or any taxing authority (whether domestic or foreign including any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)) (a "Taxing Authority"), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments, (ii) any liability for the payment of any amount of the type described in clause (i) as a result of being or having been before the Effective Time a member of an affiliated, consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability of Elf or any of its subsidiaries to a Taxing Authority is determined or taken into account with reference to the liability of any other Person (including, e.g., liability under Treasury Regulation 1.1502-6 or similar liability under any other Law), and (iii) any liability with respect to the payment of any amount of the type described in (i) or (ii) as a result of any existing express or implied obligation (including, but not limited to, an indemnification obligation). "Tax Return" shall mean any report, return, document, declaration or other information or filing required to be supplied to any Taxing Authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. Section 4.17. Employee Benefit Plans. Other than Employee Plans that are insignificant in scope or amount and except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf: (a) Elf has made available to Parent copies of each material Employee Plan and all amendments thereto and written interpretations thereof, together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto), summary plan description and summary of material modifications, if any, annual financial report and actuarial valuation report prepared in connection with any such Employee Plan and all trust agreements, insurance contracts and other funding vehicles relating thereto. The Elf Disclosure Schedule identifies each such Employee Plan that is (i) a Multiemployer Plan, (ii) a Title IV Plan or (iii) maintained in connection with any trust described in Section 501(c)(9) of the Code. - 17 - 22 (b) Except as set forth on Section 4.17(b) of the Elf Disclosure Schedule, each Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter as to its qualified status from the IRS, and Elf is not aware of any facts or circumstances that would jeopardize the qualified status of any such Employee Plan, if not cured; on that basis, and to Elf's knowledge, each trust created under any such Employee Plan is exempt from tax under Section 501(a) of the Code and has been so exempt since its creation. Except as set forth on Section 4.17(b) of the Elf Disclosure Schedule, Elf has made available to Parent the most recent determination letter of the Internal Revenue Service relating to each such Employee Plan. Each material Employee Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including ERISA and the Code. (c) Elf has made available to Parent copies (or if there is no written plan document, written descriptions) of each material Benefit Arrangement (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof and summary plan descriptions, if applicable. Each such Benefit Arrangement has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, and has been maintained in good standing with applicable regulatory authorities. (d) There has been no failure of a group health plan (as defined in Section 5000(b)(1) of the Code) to meet the requirements of Code Section 4980B(f) with respect to a qualified beneficiary (as defined in Section 4980B(g)). Neither Elf nor any of its ERISA Affiliates has contributed to a nonconforming group health plan (as defined in Section 5000(c)) and neither Elf nor any ERISA Affiliate of Elf has incurred a tax under Section 5000(a) that is or could become a liability of Elf. (e) The Elf Disclosure Schedule contains a complete list of all material Employee Arrangements. Except as specifically provided in the foregoing documents made available to Parent, no amendments to any such Employee Arrangement have been adopted or approved nor has Elf or any of its ERISA Affiliates undertaken to make any such amendments or to adopt or approve any new material Employee Arrangement. (f) All material contributions required to be made to any Employee Arrangement or any trust or other arrangement funding any Employee Arrangement by applicable Law or regulation or by any plan document or other contractual undertaking, and all material premiums due or payable with respect to insurance policies funding any Employee Arrangement, for any period have been timely made or paid in full. (g) Except as set forth on Section 4.17(g) of the Elf Disclosure Schedule, with respect to each Title IV Plan: (i) there does not exist any accumulated funding deficiency within the meaning of Code Section 412 or Section 302 of ERISA, whether or not waived; (ii) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived has occurred, and the consummation of the transactions contemplated by this Agreement will not result in the occurrence of any such reportable event; (iii) all premiums to the PBGC have been timely paid in full; (iv) no material liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by - 18 - 23 Elf or any of its ERISA Affiliates; and (v) the PBGC has not instituted proceedings to terminate any such Title IV Plan and, to Elf's knowledge, no condition exists that presents a risk that such proceedings will be instituted or which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such Title IV Plan. (h) There does not now exist, nor, to Elf's knowledge, do any circumstances exist that could result in, any Controlled Group Liability that would be a liability of Elf or any of its ERISA Affiliates following the Effective Time. None of Elf and its ERISA Affiliates has incurred any Withdrawal Liability that has not been satisfied in full. With respect to each Employee Plan that is a Multiemployer Plan, none of Elf and its ERISA Affiliates has received any notification, nor has reasonable cause to believe, that any such Employee Plan is in reorganization, has been terminated, is insolvent, or may reasonably be expected to be in reorganization, to be insolvent, or to be terminated. If Elf and its ERISA Affiliates were to experience a complete withdrawal from all such Multiemployer Plans, the total withdrawal liability would not exceed the amount set forth in Section 4.17(h) of the Elf Disclosure Schedule. The transactions contemplated by this Agreement, including the Transaction (as defined in the TULIP Merger Agreement), will not result in partial or complete withdrawal from any such Multiemployer Plan. (i) The Elf Disclosure Schedule sets forth: (i) an accurate and complete list of each material Employee Arrangement under which the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby could (either alone or in conjunction with any other event such as termination of employment) result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any payment or benefit to any employee, officer or director of Elf or any of its Subsidiaries, or for which Elf or any of its Subsidiaries could be liable, or would limit the right of Elf or any of its Subsidiaries to amend, merger, terminate or receive a reversion of assets from any material Employee Arrangement or related trust; (ii) the aggregate liabilities of Elf and its ERISA Affiliates, together with any corresponding assets held in any grantor trust of Elf and its ERISA Affiliates, pursuant to each Employee Arrangement (other than Employee Plans that are qualified under Section 401(a) of the Code) providing any supplemental or excess retirement benefits or other deferred compensation (whether elective or nonelective), in each case determined as of the date set forth in the Elf Disclosure Schedule, and (iii) the maximum amount of the "excess parachute payments" within the meaning of Section 280G of the Code that could become payable by Elf or any of its Subsidiaries in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. No outstanding options to purchase Shares granted to any current or former employee or director of Elf or any of its ERISA Affiliates (other than TULIP) contain any provision that would entitle the holder to receive any cash payment with respect thereto in connection with the consummation of the transactions contemplated hereby in excess of the amounts provided for in Section 2.05 hereof. (j) There are no pending or threatened claims (other than claims for benefits in the ordinary course), investigations, lawsuits or arbitrations which have been asserted or instituted, and, to Elf's knowledge, no set of circumstances exists which may give rise to a claim or lawsuits, against the Employee Arrangements, any fiduciaries thereof with respect to their duties to such Employee Arrangements or the assets of any of the trusts under any of such Employee Arrangements which could result in any liability of Elf or any of its ERISA Affiliates - 19 - 24 to the PBGC, the Department of Treasury, the Department of Labor, or any other U.S. or foreign governmental authority, or to any of such Employee Arrangements, any participant in any such Employee Arrangement, or any other Person. Without limiting the generality of the foregoing, neither Elf nor any of its ERISA Affiliates has any actual or contingent liability under any such Employee Arrangement or under any applicable Law or regulation for pay or benefits incurred as a result of corporate restructuring, downsizing, layoffs, plant closings or similar events occurring before the Effective Time that has not been fully satisfied or adequately reserved for in the audited consolidated financial statements (including the related notes) and unaudited consolidated financial statements (including the related notes) of Elf included in the Elf SEC Documents. Section 4.18. Environmental Matters. (a) Except as disclosed in the Elf SEC Documents or as set forth in Section 4.18 of the Elf Disclosure Schedule, and except where noncompliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Elf, Elf and its Subsidiaries are in compliance with all applicable Environmental Laws and Environmental Permits. (b) Except as disclosed in the Elf SEC Documents or as disclosed in Section 4.18 of the Elf Disclosure Schedule, there are no written (or, to the knowledge of Elf, other) Environmental Claims pending or, to the knowledge of Elf, threatened against Elf or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Elf. (c) Elf has made available to Parent all known material facts regarding all known or reasonably suspected material liabilities under any Environmental Law with respect to any Releases of Hazardous Substances or conditions, in, on, under or about any of the properties or assets owned, leased, or operated by Elf or its Subsidiaries at any time or for which Elf or its Subsidiaries is responsible under any Environmental Law. (d) Except as disclosed in the Elf SEC Documents or as disclosed in Section 4.18 of the Elf Disclosure Schedule, prior to and during the period of ownership or operation by Elf or its Subsidiaries, in each case, to the knowledge of Elf, no Hazardous Substance was generated, treated, stored, disposed of, used, handled or manufactured at, or transported, shipped or disposed of from, currently or previously owned or leased properties that could result in Liability for Elf or its Subsidiaries that would have a Material Adverse Effect on Elf and there were no conditions or Releases of Hazardous Substance in, on, under or affecting any currently or previously owned or leased properties that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Elf. (e) Except as disclosed in the Elf SEC Documents, or as set forth in Section 4.18 of the Elf Disclosure Schedule, none of Elf or its Subsidiaries has received from any Governmental Entity or other third party any written (or, to the knowledge of Elf, other) notice that any of them or any of their predecessors is or may be a potentially responsible party in respect of or may otherwise bear liability for any actual or threatened Release of Hazardous Substance at any site or facility that is, has been or could reasonably be expected to be listed on - 20 - 25 the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar or analogous federal, state, provincial, territorial, municipal, county, local or other domestic or foreign list, schedule, inventory or database of Hazardous Substance sites or facilities, except where such notice or the circumstances referred to therein would not, individually or in aggregate, reasonably be expected to have a Material Adverse Effect on Elf. Section 4.19. Intellectual Property. Except as set forth on the Elf Disclosure Schedule, Elf and its Subsidiaries own, or are validly licensed or otherwise have the right to use, all Elf Intellectual Property Rights used in the conduct of their businesses, except where the failure to own or possess valid rights to such Elf Intellectual Property Rights would not have, individually or in the aggregate, a Material Adverse Effect on Elf. No Elf Intellectual Property Right is subject to any outstanding judgment, injunction, order, decree or agreement restricting the use thereof by Elf or any of its Subsidiaries or restricting the licensing thereof by Elf or any of its Subsidiaries to any Person, except for any judgment, injunction, order, decree or agreement which would not have, individually or in the aggregate, a Material Adverse Effect on Elf. To the knowledge of Elf, neither Elf nor any of its Subsidiaries is infringing on any other Person's Intellectual Property Rights and to the knowledge of Elf no Person is infringing on any Elf Intellectual Property Rights, except, in either case, as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf. Except for such matters as would not reasonably be expected to have a Material Adverse Effect on Elf, (i) neither Elf nor any of its Subsidiaries was a defendant in any action, suit, investigation or proceeding relating to, or otherwise was notified of, any alleged claim of infringement of any Intellectual Property Right and (ii) Elf and its Subsidiaries had no outstanding claim or suit for any continuing infringement by any other Person of any Elf Intellectual Property Rights. Section 4.20. Material Contracts; Joint Ventures. (a) All of the material contracts of Elf and its Subsidiaries that are required to be described in the Elf SEC Documents or listed or filed as exhibits to the Elf Form 10-K for its fiscal year ended January 1, 2000 or the Elf quarterly report on Form 10-Q for its fiscal quarter ended July 15, 2000 (the "Contracts") are described in such Elf SEC Documents or listed or filed as exhibits thereto, respectively, and are valid and binding and are in full force and effect, and neither Elf nor any of its Subsidiaries is in breach of or in default (nor does there exist any condition which with the passage of time or the giving of notice, or both, would cause such a violation of or default) under any Contract, except for such failures to be valid and binding, breaches and defaults as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf. Elf and its Subsidiaries are not, and after the Effective Time neither the Surviving Corporation nor Parent (or any of their respective Subsidiaries) will (by reason of any agreement to which Elf or any of its Subsidiaries is a party) be subject to any material noncompetition or similar restriction on their respective businesses. (b) Elf has made available to Parent complete and correct copies of all agreements, which are set forth in Section 4.20(b)(i) of the Elf Disclosure Schedule, relating to the formation and governance of all material joint ventures or partnerships arrangements ("Joint Ventures") to which Elf or any of its Subsidiaries is a party (the "JV Agreements"). Other than as set forth in Section 4.20(b)(ii) of the Elf Disclosure Schedule, Elf and its Subsidiaries have no obligations of any kind whatsoever, whether accrued, contingent, absolute, determined, - 21 - 26 determinable or otherwise, to loan funds to, make capital contributions to, or guarantee indebtedness or other obligations of, such Joint Ventures. Section 4.21. Insurance. Elf and its Subsidiaries are covered by valid and currently effective insurance policies issued in favor of Elf or its Subsidiaries that are customary and appropriate under the circumstances. All such policies are in full force and effect, all premiums due thereon have been paid, and Elf and its Subsidiaries have complied with the provisions of such policies. Section 4.22. Indebtedness. As of October 7, 2000, Elf and its Subsidiaries have outstanding indebtedness for borrowed money (including, without limitation, off-balance sheet indebtedness, guarantees of third party indebtedness and capitalized lease obligations) in an aggregate principal amount not greater than $774 million. Section 4.23. Real Property. (a) Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on Elf: (i) Elf or its Subsidiaries have good and marketable fee title to, or a valid leasehold interest in, all of the real property and related equipment used by Elf or its Subsidiaries or otherwise reflected in Elf's financial statements identified in Section 4.08 above (collectively, the "Elf Properties"), in each case free and clear of any Liens or rights of third parties and (ii) the Elf Properties (taking into account, without limitation, all Liens related thereto, all zoning and other restrictions applicable thereto and the condition thereof) are suitable and adequate for the conduct of the businesses of Elf and its Subsidiaries as currently conducted. (b) Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on Elf, Elf and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, or right to use, the other assets used by them, or shown on the financial statements included in the Elf SEC Documents or acquired after the date thereof, free and clear of all Liens, except for assets disposed of in the ordinary course of business consistent with past practices. Section 4.24. Transactions with Affiliates. Neither TULIP nor any of its Subsidiaries (excluding Elf and its Subsidiaries) owns, leases or licenses any of the buildings, machinery, equipment or other tangible or intangible assets used in the businesses of Elf or its Subsidiaries as currently conducted. Neither Elf nor any of its Subsidiaries (a) has any outstanding contract, agreement or other arrangement with TULIP or any of its Affiliates (other than Elf or any of its Subsidiaries) or provides or receives goods or services to or from TULIP or any of its Affiliates (other than Elf or any of its Subsidiaries), other than the sale of products or ingredients on an arms' length basis in the ordinary course of business consistent with past practice or (b) has engaged in any transaction outside of the ordinary course of business consistent with past practice with TULIP or any of its Affiliates (other than Elf or any of its Subsidiaries) since January 1, 1998. Section 4.25. Customers. Neither Elf nor any of its Subsidiaries has received any notice or has any reason to believe that any significant customer of Elf or any of its Subsidiaries (i) has ceased, or will cease, to use the products, goods or services of Elf or any of its Subsidiaries, (ii) has substantially reduced or will substantially reduce, the use of products, - 22 - 27 goods or services of Elf or any of its Subsidiaries or (iii) has sought, or is seeking, to reduce the price it will pay for products, goods or services of Elf or any of its Subsidiaries, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Elf and except for any such effect resulting from or arising in connection with this Agreement or the transactions contemplated hereby or the announcement thereof. As of the date of this Agreement, to Elf's knowledge, no customer of Elf or any of its Subsidiaries described in clause (i) of the first sentence of this paragraph has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement that would have a Material Adverse Effect on Elf. Section 4.26. Antitakeover Statute. Elf has taken all action necessary to exempt the Merger and this Agreement and all transactions contemplated hereby from the provisions of Section 203 of Delaware Law. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT Parent represents and warrants to Elf that: Section 5.01. Corporate Existence and Power. Each of Parent and Merger Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not reasonably be expected to materially impair, delay or prevent the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by this Agreement. Since the date of its incorporation, Merger Subsidiary has not engaged in any activities other than in connection with or as contemplated by this Agreement or in connection with arranging any financing required to consummate the transactions contemplated by the Merger. Section 5.02. Corporate Authorization. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby are within the corporate powers of Parent and Merger Subsidiary and have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Parent and Merger Subsidiary and constitutes a valid and binding agreement of each of Parent and Merger Subsidiary, enforceable against it in accordance with its terms. Section 5.03. Governmental Authorization. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity, other than (i) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State, (ii) compliance with any applicable requirements of the HSR Act, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable securities or takeover laws and (iv) any actions or filings the absence of which would reasonably be expected to materially impair, delay or - 23 - 28 prevent the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by this Agreement. Section 5.04. Non-Contravention. The execution, delivery and performance by Parent and Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of Parent or Merger Subsidiary, (ii) assuming compliance with the matters referred to in Section 5.03, contravene, conflict with, or result in any violation or breach of any provision of any Law or (iii) require any consent or other action by any Person under, constitute (with or without notice or lapse of time or both) a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which Parent or Merger Subsidiary is entitled under, any provision of any agreement or other instrument binding upon Parent or Merger Subsidiary, except, in the case of clauses (ii) and (iii), for such matters as would reasonably be expected to materially impair, delay or prevent the consummation of the Merger. Section 5.05. Disclosure Documents. The written information with respect to Parent and any of its Subsidiaries that Parent furnishes to Elf specifically for use in the Elf Information Statement will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading at the time such Elf Information Statement, or any amendment or supplement thereto, is first mailed to stockholders of Elf. Section 5.06. Finders' Fees. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Parent which might be entitled to any fee or commission from Elf or any of its Affiliates upon consummation of the transactions contemplated by this Agreement. Section 5.07. Adequate Funds. Parent has commitment letters in customary form from nationally-recognized lending institutions for and will have at the Effective Time sufficient funds for the payment of the Merger Consideration and to perform its obligations with respect to the Merger transactions contemplated by this Agreement and the TULIP Merger Agreement. ARTICLE 6 COVENANTS OF ELF Elf agrees that: Section 6.01. Conduct of Elf. From the date hereof until the Effective Time, Elf and its Subsidiaries shall conduct their business and operate their properties in the ordinary course consistent with past practices and shall use their reasonable best efforts to preserve intact their business organizations and relationships with third parties and to keep available the services of their present officers and employees. Without limiting the generality of the foregoing, except with the prior written consent of Parent or as provided by this Agreement or as set forth in - 24 - 29 Section 6.01 of the Elf Disclosure Schedule, from the date hereof until the Effective Time neither Elf nor any of its Subsidiaries shall: (a) except as permitted under Section 6.06, declare, set aside or pay any dividend or other distribution with respect to any share of its capital stock, other than quarterly cash dividends on customary record and payment dates on the Shares not to exceed $0.1125 per quarter; (b) repurchase, redeem or otherwise acquire or offer to acquire any shares of capital stock or other securities of, or other ownership interests in, Elf or any of its Subsidiaries; (c) issue, deliver, pledge, encumber or sell any Shares, or any securities convertible into Shares, or any Options or other rights, warrants or options to acquire any Shares, other than issuances of Shares pursuant to stock-based awards or options that are outstanding on the date hereof; (d) amend its Certificate of Incorporation or By-Laws or other comparable organizational documents or amend any terms of the outstanding securities of Elf or its Subsidiaries; (e) merge or consolidate with any other Person, make any investment in any other Person, including any joint venture, or acquire the stock or assets or rights of any other Person other than (i) pursuant to existing contracts or commitments as set forth in Section 6.01 of the Elf Disclosure Schedule, (ii) in each case in the ordinary course of business consistent with past practice, purchases of raw materials, services and items used or consumed in the manufacturing process, (iii) capital expenditures made consistent with Elf's current capital expenditure program, in an amount not to exceed $100 million in the aggregate for 2000 and $90 million in the aggregate for 2001; (f) sell, lease, license, mortgage or otherwise dispose of any Subsidiary or any assets, securities, rights or property other than (i) pursuant to existing contracts or commitments as set forth in Section 6.01(f) of the Elf Disclosure Schedule, (ii) sales of inventory and equipment in the ordinary course of business consistent with past practices; (g) incur any indebtedness (whether or not reflected on the Elf Balance Sheet) for borrowed money, guarantee any such indebtedness, enter into any new or amend existing facilities relating to indebtedness, issue or sell any debt securities or warrants or other rights to acquire any debt securities or guarantee any debt securities other than borrowings under Elf's revolving credit agreement in the ordinary course of business and in amounts consistent with past practices; (h) except as required under any collective bargaining agreement in effect as of the date hereof, by applicable Law or under Section 2.05 or as may be mutually agreed upon between Parent and Elf, enter into or adopt any new, or amend any existing, Employee Arrangement which would materially increase the costs or obligations of Elf or any of its Subsidiaries; - 25 - 30 (i) except to the extent required under any collective bargaining agreement in effect as of the date hereof, by applicable Law, or by written employment agreements existing on the date of this Agreement and listed in the Elf Disclosure Schedule, increase the compensation payable or to become payable to its officers, directors or employees, or pay any benefit or amount to any such person that is not otherwise required by an Employee Arrangement as in effect on the date hereof, other than to employees in the ordinary course of business who are not officers, directors or holders of Options; (j) (i) renew any material collective bargaining agreement or enter into any new material collective bargaining agreement or (ii) renew any collective bargaining agreement or enter into any new collective bargaining agreement which would materially increase the costs or obligations of Elf or any of its Subsidiaries; (k) contribute any amount to any Employee Arrangement or any trust or other arrangement funding any Employee Arrangement, except to the extent required by the existing terms of such Employee Arrangement, trust or other funding arrangement, by any collective bargaining agreement now in effect, by any written employment agreement existing on the date of this Agreement and listed in the Elf Disclosure Schedule, or by applicable Law; (l) (i) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization or (ii) enter into any agreement or exercise any discretion providing for acceleration of any material payment or performance as a result of a change of control of Elf or its Subsidiaries; (m) renew or enter into any non-compete, exclusivity or similar agreement that would restrict or limit the operations of Elf or its Subsidiaries, or, after the Effective Time, of Parent (other than indirectly by virtue of its ownership of Elf) or its Subsidiaries other than exclusivity or similar agreements regarding the sale of specialty products that are renewed or entered into in the ordinary course of business consistent with past practices; (n) renew, enter into, amend or waive any material right under any contract with or loan to any Affiliate of Elf (other than its wholly-owned Subsidiaries); (o) create or incur any Lien on any asset (other than Elf Intellectual Property Rights) which could materially detract from the value of the property to which it relates or interfere with the use thereof; (p) make any loan, advance or capital contribution to or investment in any Person not wholly owned, directly or indirectly, by Elf, other than immaterial amounts in the ordinary course of business consistent with past practices; (q) enter into, modify or amend in any material respect, or terminate any (i) contract filed as an exhibit to any Elf SEC Document or any other contract to which Elf or any of its Subsidiaries is a party which is or would be required to be filed as an exhibit to the Elf SEC Documents or (ii) agreement involving payments or receipts over its terms greater than $10 million; - 26 - 31 (r) sell, license, lease or otherwise dispose of, or create or incur any Lien on, any Elf Intellectual Property Rights or any brand or line of business, other than pursuant to agreements in place on the date hereof and disclosed in Section 6.01(r) of the Elf Disclosure Schedule other than in the ordinary course of business consistent with past practices in connection with the sale of products from Elf; (s) settle or compromise any material litigation of Elf or any of its Subsidiaries for an amount in excess of the reserves established therefor, or waive, release or assign any material claims of Elf or any of its Subsidiaries; (t) adopt any material change, other than as required by the SEC or by GAAP, in its accounting policies, procedures or practices; (u) except as otherwise required by Law, make any material Tax election, settle or compromise any material Tax claim, file any Tax Return (other than in a manner consistent with past practice) or change any method of Tax accounting; or (v) agree or commit to do any of the foregoing. Section 6.02. Stockholder Action by Written Consent; Information Statement. In lieu of calling a meeting of Elf's stockholders, Elf will seek approval and adoption of this Agreement and the Merger by written consent of TULIP. Such approval will be sought so that such consent shall be obtained and shall be effective on the 21st day after the date the Elf Information Statement is first sent or given to the Elf stockholders. Subject to Section 6.04, the Board of Directors of Elf shall recommend approval and adoption of this Agreement and the Merger by Elf's stockholders. In connection with such action by written consent, Elf will (i) promptly prepare and file with the SEC, use its best efforts to have cleared by the SEC and thereafter mail to its stockholders as promptly as practicable the Elf Information Statement, and (ii) otherwise comply with all legal requirements applicable to approvals by its stockholders of this Agreement and the transactions contemplated hereby. Elf shall provide Parent, TULIP and their respective counsel with sufficient opportunity to comment upon the form and substance of the Elf Information Statement (including any amendments or supplements thereto) prior to filing such with the SEC and Elf shall use its reasonable best efforts to incorporate Parent's and TULIP's reasonable comments into the Elf Information Statement (including any amendments or supplements thereto). Elf shall promptly provide to Parent and TULIP copies of any comments received from the SEC in connection therewith and shall consult with Parent and TULIP in responding to the SEC. Section 6.03. Access to Information. (a) From the date hereof until the Effective Time and subject to applicable Law and the Confidentiality Agreement dated as of July 24, 2000 between TULIP and Parent (the "Confidentiality Agreement"), Elf shall (i) give Parent, its counsel, financial advisors, auditors and other authorized representatives reasonable access to the offices, properties, books and records of Elf and its Subsidiaries, (ii) furnish to Parent, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such Persons may reasonably request, (iii) cause the employees, counsel, financial advisors, auditors and other authorized representatives of Elf and its Subsidiaries to cooperate with Parent in its investigation of Elf and - 27 - 32 its Subsidiaries and (iv) promptly advise Parent orally and in writing of any fact or circumstance reasonably likely to have a Material Adverse Effect on Elf or to cause a condition contained in Article 9 not to be satisfied. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of Elf and its Subsidiaries. No information or knowledge obtained by Parent in any investigation pursuant to this Section shall affect or be deemed to modify any representation or warranty made by Elf hereunder. (b) Without limiting the generality of the foregoing, as soon as reasonably practicable after the date hereof, Elf shall provide to Parent a copy of the most recent statement of withdrawal liability that it or any of its Affiliates has obtained from each Employee Plan that is a Multiemployer Plan and, to the extent that such a statement has not yet been obtained for any such Employee Plan, or to the extent such a statement has been obtained but reflects withdrawal liability as of a date earlier than July 1, 2000 with respect to any such Employee Plan, Elf shall use, and shall cause its Affiliates to use, its reasonable best efforts to obtain a current withdrawal liability statement from such Employee Plan and provide it to Parent. Section 6.04. No Solicitation. (a) Elf shall not, nor shall it permit any of its Subsidiaries to, or authorize or permit any director, officer or employee of Elf or any of its Subsidiaries or any investment banker, attorney, accountant or other advisor or representative of Elf or any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate, negotiate or encourage, or take any other action knowingly to facilitate, any Takeover Proposal (as defined below) or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or otherwise cooperate in any way with, any Takeover Proposal, in each case other than a Takeover Proposal made by Parent; provided, however, that at any time prior to obtaining the written consent of TULIP as contemplated by Section 6.02 hereof, the Board of Directors of Elf may, in response to a bona fide written Takeover Proposal that such Board of Directors reasonably determines in good faith, after consultation with its independent financial advisors, constitutes a Superior Proposal (as defined below), and which Takeover Proposal was unsolicited and did not otherwise result from a breach of this Section 6.04, (x) furnish information with respect to Elf and its Subsidiaries to the person making such Takeover Proposal (and its representatives) pursuant to a confidentiality agreement with terms not more favorable to such person than the Confidentiality Agreement, provided that all such information is provided on a prior or substantially concurrent basis to Parent, and (y) participate in discussions or negotiations with the person making such Takeover Proposal (and its representatives) regarding such Takeover Proposal, provided that Elf shall have delivered to Parent prior written notice advising Parent that it intends to participate in such discussions or negotiations. Elf will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any Takeover Proposal and request the return of all confidential information regarding Elf provided to any such parties prior to the date hereof pursuant to the terms of any confidentiality agreements or otherwise. The term "Takeover Proposal" means any inquiry, proposal or offer from any person relating to, or that is reasonably likely to lead to, any direct or indirect acquisition, in one transaction or a series of transactions, including any merger, consolidation, tender offer, - 28 - 33 exchange offer, binding share exchange, business combination, recapitalization, liquidation, dissolution, joint venture, purchase or similar transaction, of (A) assets or businesses that constitute or represent 20% or more of the total revenue, operating income or assets of Elf and its Subsidiaries, taken as a whole, or (B) 20% or more of the outstanding shares of Elf common stock or capital stock of, or other equity or voting interests in, any of Elf's Subsidiaries directly or indirectly holding the assets or businesses referred to in clause (A) above. (b) Neither the Board of Directors of Elf nor any committee thereof shall (i) withdraw (or modify in a manner adverse to Parent or Merger Subsidiary) or propose publicly to withdraw (or modify in a manner adverse to Parent or Merger Subsidiary) the recommendation or declaration of advisability by such Board of Directors or any such committee of this Agreement or the Merger, provided, that in the event that prior to receiving the written consent of TULIP as contemplated by Section 6.02, the Board of Directors of Elf receives a Superior Proposal (as determined in accordance with Section 6.04(a)) that is unsolicited and did not result from a breach of Section 6.04(a), the Board of Directors of Elf may, if it believes in good faith such action is required under Delaware law to avoid a breach of its fiduciary duties, after receipt of advice from its outside legal counsel, withdraw or modify in a manner adverse to Parent or Merger Subsidiary the recommendation or declaration of advisability of this Agreement or the Merger (each such action being referred to herein as an "Adverse Recommendation Change"), (ii) adopt or approve, or recommend or propose publicly to adopt or approve or recommend, any Takeover Proposal, or withdraw its approval of the Merger, or propose publicly to withdraw its approval of the Merger, (iii) cause or permit Elf to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement (each, an "Acquisition Agreement") constituting or related to, or which is intended to or is reasonably likely to lead to, any Takeover Proposal (other than a confidentiality agreement referred to in Section 6.04(a)) or (iv) agree or resolve to take any of the actions prohibited by clauses (i), (ii) or (iii) of this sentence; provided, however, that Elf shall not exercise its right to make an Adverse Recommendation Change until after the fifth business day following Parent's receipt of written notice (a "Notice of Superior Proposal") from Elf advising Parent that the Board of Directors of Elf has received a Superior Proposal and specifying the terms and conditions of the Superior Proposal and identifying the person making such Superior Proposal (it being understood and agreed that any amendment to the price or any other material term of a Superior Proposal shall require a new Notice of Superior Proposal and a new five business day period). The foregoing shall in no way limit or otherwise affect Parent's right to terminate this Agreement pursuant to Section 10.01(c) at such time as the requirements of such subsection have been met. Any such Adverse Recommendation Change shall not change the approval of the Board of Directors of Elf for purposes of causing any state takeover statute or other state law to be inapplicable to the transactions contemplated hereby, including the Merger. Elf shall seek the written consent of TULIP contemplated by Section 6.02 even if the Board of Directors of Elf shall have made an Adverse Recommendation Change. Nothing in this Section 6.04 shall (x) permit Elf to terminate this Agreement, (y) permit Elf to enter into any agreement with respect to any Takeover Proposal or (z) affect any other obligation of Elf under this Agreement. The term "Superior Proposal" means any bona fide binding written offer not solicited by or on behalf of Elf or any of its Subsidiaries made by a third party that if - 29 - 34 consummated would result in such third party (or in the case of a direct merger between such third party and Elf, the stockholders of such third party) acquiring, directly or indirectly, more than 50% of the voting power of Elf Common Stock or all or substantially all the assets of Elf and its Subsidiaries, taken as a whole, for consideration consisting of cash and/or securities that the Board of Directors of Elf determines in its reasonable good faith judgment (after consultation with a financial advisor of nationally recognized reputation) to be superior from a financial point of view to the stockholders of Elf, and taking into account, among other things, any changes to the terms of this Agreement proposed by Parent in response to such Superior Proposal or otherwise. (c) In addition to the obligations of Elf set forth in paragraphs (a) and (b) of this Section 6.04, Elf promptly shall advise Parent in writing of any request for information that Elf reasonably believes could lead to or contemplates a Takeover Proposal or of any Takeover Proposal together with a copy of such Takeover Proposal, or any inquiry Elf reasonably believes could lead to any Takeover Proposal. (d) Nothing contained in this Section 6.04 or elsewhere in this Agreement shall prohibit Elf from (i) taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the 1934 Act or (ii) making a disclosure to Elf's stockholders if outside legal counsel advises that failure so to disclose would be inconsistent with applicable Law; provided, however, that in no event shall Elf or its Board of Directors or any committee thereof take, agree or resolve to take any action prohibited by Section 6.04(b). Section 6.05. Third Party Standstill Agreements. During the period from the date of this Agreement until the Effective Time or earlier termination of this Agreement, Elf shall not terminate, amend, modify or waive any provision of any confidentiality or standstill agreement relating to the making of a Takeover Proposal to which it or any of its Subsidiaries is a party (other than any involving Parent or its Subsidiaries). During such period, Elf agrees to use all reasonable efforts to enforce, to the fullest extent permitted under applicable Law, the provisions of any such agreements, including seeking injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court of the United States or any state thereof having jurisdiction. Section 6.06. Special Dividend. Immediately prior to the Effective Time, Elf shall declare and pay a special cash dividend on the Shares in the aggregate amount of $16 million, which amount shall be paid pro rata to all holders of Shares. Such special dividend shall be in addition to any regular dividends declared and paid as permitted by this Agreement. ARTICLE 7 COVENANTS OF PARENT Parent agrees that: Section 7.01. Obligations of Merger Subsidiary. Parent will take all action necessary to cause Merger Subsidiary to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. - 30 - 35 Section 7.02. Director and Officer Liability. Parent shall cause the Surviving Corporation, and the Surviving Corporation hereby agrees, to do the following: (a) For six years after the Effective Time, the Surviving Corporation shall indemnify and hold harmless each present and former officer and director of Elf (each an "Indemnified Person") in respect of acts or omissions occurring at or prior to the Effective Time to the fullest extent permitted by Delaware Law (including with respect to the advancement of expenses) or any other applicable Laws or provided under Elf's certificate of incorporation and bylaws in effect on the date hereof, provided that such indemnification shall be subject to any limitation imposed from time to time under applicable Law. (b) The Surviving Corporation shall be entitled to control the defense of any action, suit, investigation or proceeding with counsel of its own choosing reasonably acceptable to the Indemnified Person and the Indemnified Person shall cooperate in the defense thereof. The Surviving Corporation shall not be liable for the fees, costs or expenses of any other counsel for an Indemnified Person, other than local counsel, unless a conflict of interest shall be caused thereby in which case the Surviving Corporation shall pay the fees, costs and expenses of one additional counsel of the Indemnified Person's choosing but reasonably acceptable to the Surviving Corporation, provided that the Surviving Corporation shall not be liable for (i) the fees of more than one counsel for all Indemnified Persons (other than as required as a result of a conflict of interest between such Indemnified Persons) or (ii) any settlement effected without its written consent (which consent shall not be unreasonably withheld). (c) For six years after the Effective Time, the Surviving Corporation shall use its reasonable efforts to provide officers' and directors' liability insurance in respect of acts or omissions occurring prior to the Effective Time covering each such Indemnified Person currently covered by Elf's officers' and directors' liability insurance policy on terms with respect to coverage and amount no less favorable than those of such policy in effect on the date hereof; provided if the aggregate annual premiums for such insurance at any time during such period shall exceed 200% of the per annum rate of premium paid by Elf and its Subsidiaries as of the date hereof for such insurance, then Parent shall, or shall cause its Subsidiaries to, provide only such coverage as shall then be available at an annual premium equal to 200% of such rate. (d) If Parent, the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Parent or Surviving Corporation, as the case may be, shall assume the obligations set forth in this Section 7.02. (e) The rights of each Indemnified Person under this Section 7.02 shall be in addition to any rights such Person may have under the certificate of incorporation or bylaws of Elf or any of its Subsidiaries, under Delaware Law or any other applicable Laws or under any agreement of any Indemnified Person with Elf or any of its Subsidiaries. These rights shall survive consummation of the Merger and are intended to benefit, and shall be enforceable by, each Indemnified Person. - 31 - 36 Section 7.03. Employee Matters. (a) Parent shall honor, and shall cause the Surviving Corporation to honor, the following in accordance with their terms as in effect on the date hereof: (i) the change-of-control payments pursuant to the 2000 Keebler Incentive Plan, as amended, to the extent triggered by the consummation of the transactions contemplated hereby; (ii) the Revised Policy Regarding Termination Benefits for Certain Executives in the Event of a Change of Control (the "Revised Policy"), with respect to the Change of Control (as defined therein) resulting from the transactions contemplated hereby; and (iii) the Change of Control Severance Policy applicable to non-officers and non-union employees, with respect to the Change of Control (as defined therein) resulting from the transactions contemplated hereby. (b) The Surviving Corporation shall give Elf Employees full credit for purposes of eligibility, early-retirement and vesting under any such plans or arrangements maintained by the Parent or Surviving Corporation for their respective subsidiaries for such employees' service recognized for such purposes under the Employee Arrangements. (c) Parent shall, and shall cause the Surviving Corporation to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Elf Employees under any welfare benefit plans in which such employees may be eligible to participate after the Effective Time and (ii) provide each Elf Employee with credit for any co-payments and deductibles paid prior to the Effective Time in the calendar year in which the Effective Time occurs in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans in which the Elf Employees are eligible to participate after the Effective Time. ARTICLE 8 COVENANTS OF PARENT AND ELF The parties hereto agree that: Section 8.01. Reasonable Efforts. (a) Subject to the terms and conditions of this Agreement, Elf and Parent will use their reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other parties in doing all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, each of Parent and Elf agrees (i) to make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as reasonably practicable after the date hereof and to supply as promptly as reasonably practicable any additional information and documentary material that may be requested by the FTC or the Antitrust Division or any other Governmental Entity pursuant to the HSR Act and (ii) to use reasonable efforts to cause the expiration or termination of the applicable waiting periods under the HSR Act (and to obtain the necessary approvals under any foreign laws, rules or regulations) as soon as reasonably practicable; provided, that, Parent shall not be required to agree, and Elf shall not agree without Parent's consent, to waive any rights or to accept any limitation on its operations - 32 - 37 or to dispose of any assets in connection with obtaining any such consent or authorization, but at Parent's written request, Elf shall agree to any such waiver, limitation or disposal, which agreement may, at Elf's option, be conditioned upon and effective only as of the Effective Time. Each party shall: (1) promptly notify the other party of any communication from the FTC, the Antitrust Division or any State Attorney General or any other Governmental Entity, and subject to applicable Law, permit the other party to review in advance any proposed written communication to any of the foregoing and to accept all reasonable additions, deletions or changes suggested in connection therewith; (2) not agree to participate in any substantive meetings or discussions with any Governmental Entity in respect of any filings, investigations, or inquiry concerning the transactions contemplated by this Agreement unless it consults with the other party in advance and, to the extent permitted by such Governmental Entity, gives the other party the opportunity to attend and participate thereat; and (3) furnish the other party's counsel, subject to appropriate confidentiality procedures, with copies of all correspondence, filings, and communications (and memoranda setting forth the substance thereof) between them and their respective representatives and any Governmental Entity or their respective staffs. (b) In connection with obtaining financing in connection with the transactions contemplated by this Agreement, at the reasonable request of Parent, Elf (i) agrees to enter into such agreements, agrees to use reasonable best efforts to deliver such officers certificates and opinions as are customary in a financing and as are, in the good faith determination of the persons executing such officers certificates or opinions, accurate, and agrees to pledge, grant security interests in, and otherwise grant liens on, its assets pursuant to such agreements as may be reasonably requested, provided that no obligation of Elf under any such agreement, pledge, or grant shall be effective until the Effective Time; provided, further, that all expenses, liabilities or costs of Elf reasonably incurred in connection herewith shall be the responsibility of Parent and any obligations entered into in connection herewith shall be terminated with no liability to Elf or its Subsidiaries in the event this Agreement is terminated in accordance with its terms and (ii) in each case, with such assurances of confidentiality reasonably acceptable to Elf, will provide to the lenders specified by Parent financial and other information in Elf's possession with respect to Elf and the Merger and the Transaction (as defined in the TULIP Merger Agreement), will make Elf's senior officers and financial and accounting personnel available to assist such lenders, and otherwise will cooperate in connection with the consummation of such financing. Section 8.02. Certain Filings. Elf and Parent shall cooperate with one another and use their reasonable best efforts (i) in connection with the preparation of the Elf Information Statement, (ii) in determining whether any action by or in respect of, or filing with, any governmental body, agency, official, or authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any contracts, in connection with the consummation of the transactions contemplated by this Agreement, and (iii) in taking such actions or making any such filings, furnishing information required in connection therewith or with the Elf Information Statement and seeking timely to obtain any such actions, consents, approvals or waivers. Section 8.03. Public Announcements. The initial press release concerning this Agreement and the transactions contemplated hereby shall be a joint release. Thereafter Parent and Elf will consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and, except as - 33 - 38 may be required by applicable Law or any listing agreement with any national securities exchange, will not issue any such press release or make any such public statement prior to such consultation. Section 8.04. Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of Elf or Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of Elf or Merger Subsidiary, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of Elf acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. Section 8.05. Notices of Certain Events. Each of Elf and Parent shall promptly notify the other of: (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; and (c) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting Elf, Parent or any of their respective Subsidiaries that relate to the consummation of the transactions contemplated by this Agreement. ARTICLE 9 CONDITIONS TO THE MERGER Section 9.01. Conditions to Obligations of Each Party. The obligations of Elf, Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following conditions: (a) this Agreement shall have been approved and adopted by the stockholders of Elf in accordance with Delaware Law; (b) no federal, state or foreign statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated or enforced by any Governmental Entity which has the effect of making the Merger or the transactions contemplated hereby illegal or otherwise prohibiting the consummation of the Merger or the transactions contemplated hereby; (c) any applicable waiting period under the HSR Act or any foreign competition law or regulation relating to the Merger shall have expired or been terminated; and -34- 39 (d) the TULIP Merger shall have been consummated; provided that this condition shall be deemed to have been satisfied for all purposes of this Agreement if (i) TULIP shareholder approval of the TULIP Merger shall not have been obtained on or before June 15, 2001, (ii) the meeting of TULIP shareholders (including any adjournment thereto) shall have concluded without the approval of the TULIP Merger Agreement from the TULIP shareholders having been obtained, or (iii) TULIP shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of TULIP to be performed or complied with by it under the TULIP Merger Agreement, such that the conditions set forth in Section 9.02(a) or 9.02(c) of the TULIP Merger Agreement cannot be satisfied. Section 9.02. Conditions to the Obligations of Parent and Merger Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following further conditions: (a) Elf shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time; (b) the representations and warranties of Elf contained in Sections 4.05 and 4.26 shall be true in all respects (except for any de minimus inaccuracy), both when made and as of the Effective Time as though made at and as of the Effective Time, and all other representations and warranties of Elf contained in this Agreement and in any certificate or other writing delivered by Elf pursuant hereto, disregarding all qualifications and exceptions contained therein relating to materiality or Material Adverse Effect or any similar standard or qualification, shall be true when made and at and as of the Effective Time as if made at and as of such time (or, if given as of a specific date, at and as of such date) with only such exceptions as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Elf or Parent; (c) Parent shall have received a certificate signed by an executive officer of Elf to the foregoing effect; (d) all consents or approvals of any Governmental Entity required in connection with the consummation of the transactions contemplated hereby shall have been obtained, except for such consents or approvals which, if not obtained, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Elf or Parent; (e) the employment agreements with the individuals listed in Exhibit A, in the forms entered into in connection with this Agreement, shall have been entered into by the parties thereto, and shall be in full force and effect (except for any failure to be in full force and effect resulting from unenforceability of the employment agreement or death of the individual); and (f) as of immediately prior to the Effective Time, holders of no more than 10% of the outstanding Shares shall have taken actions to assert appraisal rights under Section 262 of the Delaware Law. Section 9.03. Conditions to the Obligations of Elf. The obligations of Elf to consummate the Merger are subject to the satisfaction of the following further conditions: -35- 40 (a) each of Parent and Merger Subsidiary shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time; (b) the representations and warranties of Parent and Merger Subsidiary contained in this Agreement and in any certificate or other writing delivered by Parent or Merger Subsidiary pursuant hereto, disregarding all qualifications and exceptions contained therein relating to materiality or Material Adverse Effect or any similar standard or qualification, shall be true in all material respects when made and at and as of the Effective Time as if made at and as of such time (or, if given as of a specific date, at and as of such date) with only such exceptions as would not reasonably be expected to materially impair, delay or prevent the ability of Parent and Merger Subsidiary to consummate the transactions contemplated by this Agreement; and (c) Elf shall have received a certificate signed by an executive officer of Parent and Merger Subsidiary to the foregoing effect. ARTICLE 10 TERMINATION Section 10.01. Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the stockholders of Elf): (a) by mutual written agreement of Elf and Parent; (b) by either Elf or Parent, if: (i) the Merger has not been consummated on or before June 30, 2001, provided that the right to terminate this Agreement pursuant to this Section 10.01(b)(i) shall not be available to any party whose breach of any provision of this Agreement or the TULIP Voting Agreement results in the failure of the Merger to be consummated by such time; or (ii) there shall be any Law or regulation that makes consummation of the Merger illegal or otherwise prohibited or any judgment, injunction, order or decree of any Governmental Entity enjoining Elf or Parent from consummating the Merger is entered and such judgment, injunction, decree or order shall have become final and non-appealable; or (iii) this Agreement shall not have been approved and adopted in accordance with Delaware Law by Elf's stockholders by reason of the failure to obtain the required vote of Elf's stockholders; (c) by Parent, if Elf shall have (1) failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of Elf to be performed or complied with by it under this Agreement such that the conditions set forth in -36- 41 Sections 9.02(a) or 9.02(c) cannot be satisfied or (2) breached any of its representations or warranties such that the conditions set forth in Sections 9.02(b) or 9.02(c) cannot be satisfied, which failure under clause (1) or (2) shall not be cured within 15 Business Days of notice from Parent; or (d) by Elf, if Parent or Merger Subsidiary shall have (i) failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of Parent or Merger Subsidiary to be performed or complied with by it under this Agreement such that the conditions set forth in Section 9.03(a) or 9.03(c) cannot be satisfied or (ii) breached any of such party's representations or warranties contained in this Agreement such that the condition set forth in Section 9.03(b) cannot be satisfied, which failure or breach described in such clause (i) or (ii) shall not be cured within 15 Business Days of notice from Elf. The party desiring to terminate this Agreement pursuant to this Section 10.01 (other than pursuant to Section 10.01(a)) shall give notice of such termination to the other party. Section 10.02. Effect of Termination. If this Agreement is terminated pursuant to Section 10.01, this Agreement shall become void and of no effect with no liability on the part of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other party hereto, provided that, if such termination shall result from the willful (i) failure of either party to fulfill a condition to the performance of the obligations of the other party or (ii) failure of either party to perform a covenant hereof, such party shall be fully liable for any and all liabilities and damages incurred or suffered by the other party as a result of such failure. The provisions of Sections 11.04, 11.06, 11.07 and 11.08 shall survive any termination hereof pursuant to Section 10.01. ARTICLE 11 MISCELLANEOUS Section 11.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, if to Parent or Merger Subsidiary, to: Kellogg Company One Kellogg Square Battle Creek, Michigan 49016 Attention: Janet L. Kelly, Fax: (616) 961-6598 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Daniel A. Neff Fax: (212) 403-2000 -37- 42 if to Elf, to: Keebler Foods Company 677 Larch Avenue Elmhurst, Illinois 60126 Attention: Thomas E. O'Neill Fax: (630) 782-2132 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: Phillip R. Mills Fax: (212) 450-4800 and Winston & Strawn 35 W. Wacker Drive Chicago, Illinois 60601-9703 Attention: Robert F. Wall Fax: (312) 558-5700 and Flowers Industries, Inc. 1919 Flowers Circle Thomasville, Georgia 31757 Attention: G. Anthony Campbell, Fax: (912) 225-5433 and Jones, Day, Reavis & Pogue 3500 SunTrust Plaza 303 Peachtree Street Atlanta, Georgia 30308-3242 Attention: Robert W. Smith Lizanne Thomas Fax: (404) 581-8330 or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. -38- 43 Section 11.02. Non-Survival of Representations and Warranties. Other than as provided in Section 10.02, the representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time or the termination of this Agreement. Section 11.03. Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective, provided that, after the adoption of this Agreement by the stockholders of Elf and without their further approval, no such amendment or waiver shall reduce the amount or change the kind of consideration to be received in exchange for the Shares and provided, further, that any amendment or waiver of this Agreement which adversely affects the rights of the stockholders of Elf (other than TULIP) shall also require the authorization or recommendation of the Special Committee. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Law. Section 11.04. Expenses. (a) Except as otherwise provided in this Section, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. (b) If: (i) either Elf or Parent shall terminate this Agreement pursuant to Section 10.01(b)(iii) and prior to such termination a third party or Elf shall have publicly announced a Takeover Proposal, or a Takeover Proposal shall have been made known to Elf (other than a Takeover Proposal by Parent); or (ii) either Parent or Elf shall terminate this Agreement pursuant to Section 10.01(b)(i) without the approval by Elf's stockholders of this Agreement having been obtained prior to such termination and prior to June 30, 2001 a third party or Elf shall have publicly announced a Takeover Proposal, or a Takeover Proposal shall have been made known to Elf (other than a Takeover Proposal by Parent) and within twelve months after the termination of this Agreement, Elf enters into a definitive agreement, agreement in principle or letter of intent, in each case in writing, with any Person (other than Parent) with respect to a Takeover Proposal or any Person shall acquire beneficial ownership of at least 50% of the outstanding Shares (the earliest date when such agreement, agreement in principle or letter of intent is entered into or such acquisition of beneficial ownership shall occur is referred to herein as the "Trigger Date"); -39- 44 then in the case of a termination by Elf or Parent pursuant to clause (i), Elf shall pay to Parent (by wire transfer of immediately available funds not later than the date of such termination of this Agreement by Elf or in the case of such termination by Parent, one Business Day after such termination of this Agreement, or, in the case where clause (ii) applies, on the Trigger Date) an amount equal to $57.8 million. Elf shall be entitled to deduct and withhold from any payments made to Parent under this Section 11.04(b) such amounts as may be required to be deducted or withheld therefrom under the Code or under any applicable provisions of state or local tax Law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for purposes of this Section 11.04(b) as having been paid to Parent. Section 11.05. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto, except that Parent or Merger Subsidiary may transfer or assign, in whole or from time to time in part, to one or more of its Affiliates, and, with respect to Merger Subsidiary, to a newly-formed wholly-owned Subsidiary of Parent, the right to enter into the transactions contemplated by this Agreement and the corresponding obligations, but no such transfer or assignment will relieve Parent or Merger Subsidiary of its obligations hereunder. Section 11.06. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, without regard to the conflicts of law rules of such state. Section 11.07. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal court located in the State of Delaware or any Delaware state court, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.01 shall be deemed effective service of process on such party. Section 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 11.09. Counterparts; Effectiveness; Benefit. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Except as provided in Sections 2.02, 2.05 and 7.02, no provision of this -40- 45 Agreement is intended to confer any rights, benefits, remedies, obligations, or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns. Section 11.10. Entire Agreement. This Agreement, the TULIP Voting Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. Section 11.11. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 11.12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. Section 11.13. Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled, without posting a bond or similar indemnity, to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at law or in equity. -41- 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. KEEBLER FOODS COMPANY By: /s/ Sam K. Reed ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- KELLOGG COMPANY By: /s/ Carlos M. Gutierrez ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- FK ACQUISITION CORP. By: /s/ G.A. Campbell ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- FLOWERS INDUSTRIES, INC. solely for the purposes of Sections 6.02, 6.03, and 11.01 By: /s/ G.A. Campbell ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- 47 EXHIBIT A William Britenbach Sam Reed Richard Robertson Harold Shei Jr. David Vermylen James Willard David Troester EX-2.4 5 g65066ex2-4.txt VOTING AGREEMENT 1 EXHIBIT 2.4 VOTING AGREEMENT This Voting Agreement (the "Agreement") dated as of October 26, 2000 between Flowers Industries, Inc., a Georgia corporation ("TULIP"), and Kellogg Company, a Delaware corporation ("Parent"). WHEREAS, Keebler Foods Company, a Delaware corporation ("Elf"), Parent and FK Acquisition Corp., a Delaware corporation ("Merger Subsidiary") are concurrently with the execution and delivery of this Agreement entering into an Agreement and Plan of Merger (the "Elf Merger Agreement") pursuant to which Merger Subsidiary will merge with and into Elf (the "Elf Merger") on the terms and conditions set forth therein; WHEREAS, TULIP is concurrently with the execution and delivery of the Elf Merger Agreement hereby agreeing to approve and adopt the Elf Merger Agreement and the Elf Merger as the owner of the Shares (as defined below) by Written Consent (as defined below); and WHEREAS, in order to induce Parent to enter into the Elf Merger Agreement, Parent has requested TULIP, and TULIP has agreed, to enter into this Agreement. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions. Capitalized terms used and not defined herein shall have the meaning assigned to such terms in the Elf Merger Agreement. SECTION 2. Agreement to Vote. TULIP irrevocably agrees to vote all Shares pursuant to an action by written consent (the "Written Consent"), to be taken as promptly as permissible under applicable Law (which shall be the 21st day after that date on which the Elf Information Statement is mailed to the Elf stockholders in accordance with Section 6.02 of the Elf Merger Agreement), (a) in favor of the adoption of the Elf Merger Agreement and each of the transactions contemplated thereby, including the Elf Merger and (b) against (i) any proposal made in opposition to or in competition with the Elf Merger and the Elf Merger Agreement and the transactions contemplated by the Elf Merger Agreement, (ii) any merger, reorganization, consolidation, share exchange, business combination, sale of assets, recapitalization, liquidation, winding up, extraordinary dividend or distribution, significant share repurchase or other similar transaction with or involving Elf and any party other than Parent, or (iii) any other action the consummation of which would reasonably be expected to impede, frustrate, interfere with, impair, delay or prevent consummation of the transactions contemplated by the Elf Merger Agreement. The obligation of TULIP specified in this Section 2 shall apply whether or not the Board of Directors of Elf makes an Adverse Recommendation Change. In furtherance of this Section 2 and as security for the agreements set forth herein, TULIP has granted a proxy to Parent pursuant to Section 3. SECTION 3. Irrevocable Proxy. (a) In furtherance of the agreements contained in Section 2 hereof and as security for such agreements, TULIP hereby irrevocable grants to, and appoints, Carlos M. 2 Gutierrez, Chairman and Chief Executive Officer of Parent, and Janet L. Kelly, Executive Vice President - Corporate Development, General Counsel and Secretary (Mr. Gutierrez and Ms. Kelly, the "Grantees") in their respective capacities as officers of Parent, and any individual who shall hereafter succeed to any such office of Parent, and each of them individually, TULIP's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of TULIP, to vote all Shares Beneficially Owned by TULIP, or grant a consent or approval in respect of such Shares, or execute and deliver a proxy to vote such Shares, (i) in favor of the adoption of the Elf Merger and the Elf Merger Agreement and approval of the terms thereof and each of the other transactions contemplated by the Elf Merger Agreement; provided that the Grantees shall not have authority to grant any such consent prior to 21 calendar days after the Elf Information Statement is distributed to Elf's stockholders, (ii) against any Takeover Proposal or any other matter referred to in Section 2(b) hereof, except as otherwise specified in Section 2 hereof and (iii) in the discretion of the Grantees, with respect to any proposed postponements or adjournments of any annual or special meeting of the stockholders of Elf. (b) TULIP represents and warrants to Parent that any proxies heretofore given in respect of any or all of its Shares are not irrevocable, and that any such proxies are hereby revoked, except for the Written Consent. (c) TULIP hereby affirms that the irrevocable proxy set forth in this Section 3 is given in connection with, and in consideration of, the execution of the Elf Merger Agreement by Parent, and that such irrevocable proxy is given to secure the performance of the duties of TULIP under this Agreement. TULIP hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances by revoked. TULIP hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. The irrevocable proxy contained herein is intended to be irrevocable in accordance with the provisions of Section 212(e) of the Delaware Law. SECTION 4. Representations and Warranties of TULIP. TULIP hereby represents and warrants to Parent that: (a) Ownership of Shares. TULIP is the sole Beneficial Owner, and sole owner of record, of 46,197,466 shares (the "Shares") of common stock, $0.01 par value per share, of Elf. TULIP has good and marketable title to the Shares, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote or otherwise dispose of the Shares). TULIP has, and will have at any time from the date hereof until the date that Section 2 is no longer in effect, sole voting power, sole power of disposition and sole power to issue instructions with respect to the matters set forth in Section 2 hereof with no limitations, qualifications or restrictions on such rights. Without limiting the foregoing, none of the Shares is subject to any voting trust or other agreement, proxy (except for the Written Consent and as provided in Section 3 hereof) or other arrangement with respect to the voting of such Shares. From and after the date hereof, TULIP will not commit or omit to take any action if such action or omission could restrict or otherwise affect TULIP's legal power, authority and right to vote all the Shares as provided in Section 2 hereof or (ii) affect the validity or effectiveness of the Written Consent. Without limiting the foregoing, from and after the date hereof, TULIP will not enter into any voting agreement with any Person with respect to any of the Shares, grant any Person any proxy (revocable or irrevocable) or power-of-attorney with respect -2- 3 to any of the Shares, deposit any of the Shares in a voting trust or otherwise enter into any agreement or arrangement limiting or affecting TULIP's legal power, authority or right to vote the Shares as provided in Section 2 hereof. Except for the Shares, TULIP does not Beneficially Own any (x) shares of capital stock or voting securities of Elf, (y) securities of Elf convertible into or exchangeable for shares of capital stock or voting securities of Elf or (z) options or other rights to acquire from Elf any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Elf. "Beneficially Owned" or "Beneficial Ownership" with respect to any securities means having beneficial ownership of such securities (as determined pursuant to Rule 13d-3 under the 1934 Act, disregarding the phrase "within 60 days" in paragraph (d)(1)(i) thereof), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all Affiliates of such Person and all other Persons with whom such Person would constitute a "Group" within the meaning of Section 13(d) of the 1934 Act and the rules promulgated thereunder. "Beneficial Owner" with respect to any securities means a Person that has Beneficial Ownership of such securities. (b) Corporate Authorization. The execution, delivery and performance by TULIP of this Agreement and the consummation by TULIP of the transactions contemplated hereby are within TULIP's corporate powers and have been duly authorized by all necessary corporate action on the part of TULIP. This Agreement has been duly executed and delivered by TULIP and constitutes a valid and binding Agreement of TULIP, enforceable against it in accordance with its terms. (c) Non-Contravention. The action to be taken in the Written Consent and the execution, delivery and performance by TULIP of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the articles of incorporation or bylaws of TULIP or Elf, (ii) contravene, conflict with, or result in any violation or breach of any applicable law, rule, regulation, judgment, injunction, order or decree, (iii) require any consent by any Person under, constitute (with or without notice or lapse of time or both) a default under, or cause or permit the termination, cancellation or acceleration or other change of any right or obligation or the loss of any benefit to which TULIP is entitled under any provision of any agreement or other instrument binding on TULIP. (d) Opinion of Financial Advisors. TULIP has received an opinion of each of UBS Warburg LLC and Morgan Stanley & Co. Incorporated, each dated as of the date of this Agreement and each to the effect that, as of the date of such opinion, the Merger Consideration to be received by TULIP's shareholders under the Agreement and Plan of Restructuring and Merger dated as of October 26, 2000 among TULIP, Parent and Merger Subsidiary (the "TULIP Merger Agreement) is fair from a financial point of view to Tulip's stockholders. Complete and correct signed copies of such opinions will be delivered to Parent as soon as practicable after the date of this Agreement. (e) Parent's Reliance. TULIP understands and acknowledges that Parent is entering into the TULIP Merger Agreement and the Elf Merger Agreement in reliance upon TULIP's execution, delivery and performance of this Agreement. TULIP acknowledges that the - 3 - 4 Written Consent to be delivered and the proxy granted in Section 3 hereof is granted in consideration of the execution and delivery of the TULIP Merger Agreement and the Elf Merger Agreement by Parent. SECTION 5. TULIP Covenant as to the Shares. TULIP shall not, without the prior written consent of Parent, directly or indirectly (a) except for the Written Consent, the agreement to vote pursuant to Section 2 hereof and the proxy granted under Section 3 hereof, each of which are contemplated by the Elf Merger Agreement and the TULIP Merger Agreement, grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any Shares or (b) acquire, sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect acquisition or sale, assignment, transfer, encumbrance or other disposition of, any Shares during the term of this Agreement. SECTION 6. No Solicitation. TULIP shall not, nor shall it permit any of its Subsidiaries to, or authorize or permit any director, officer or employee of TULIP or any of its Subsidiaries or any investment banker, attorney, accountant or other advisor or representative of TULIP or any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate, negotiate or encourage, or take any other action knowingly to facilitate, any Takeover Proposal or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or otherwise cooperate in any way with, any Takeover Proposal, in each case other than a Takeover Proposal made by Parent, except as required to comply with fiduciary duties under Delaware law. TULIP will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any Takeover Proposal and request the return of all confidential information regarding TULIP or Elf provided to any such parties prior to the date hereof pursuant to the terms of any confidentiality agreements or otherwise. SECTION 7. Third Party Standstill Agreements; Rights Agreement. (a) During the period from the date of this Agreement until the termination of this Agreement, TULIP shall not terminate, amend, modify or waive any provision of any confidentiality or standstill agreement relating to the making of a Takeover Proposal to which it is a party (other than any involving Parent or its Subsidiaries). During such period, TULIP agrees to use all reasonable efforts to enforce, to the fullest extent permitted under applicable law, the provisions of any such agreements, including seeking injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court of the United States or any state thereof having jurisdiction. (b) Except as provided with respect to the transactions contemplated by the TULIP Merger Agreement, the Board of Directors of TULIP shall not, without the prior written consent of Parent (a) amend the Rights Agreement (as defined in the TULIP Merger Agreement) or (b) take any action with respect to, or make any determinations under, the Rights Agreement, including a redemption of the Rights or any action to facilitate a Takeover Proposal. - 4 - 5 SECTION 8. Termination. (a) Unless earlier terminated pursuant to this Section 8, this Agreement will terminate on the earlier to occur of (i) the consummation of the Elf Merger and (ii) the termination of the Elf Merger Agreement in accordance with its terms. (b) This Agreement may be terminated at any time prior to the effectiveness of any approval of the Elf Merger Agreement by the stockholders of Elf by mutual written agreement of Parent and TULIP. (c) The provisions of Sections 9, 13, 14, 15 and 16 will survive any termination of this Agreement pursuant to Section 8. The provisions of Section 12 will survive termination of this Agreement pursuant to Section 8(a)(i). SECTION 9. Expenses. Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. SECTION 10. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, if to Parent, to: Kellogg Company One Kellogg Square Battle Creek, Michigan 49016 Attention: Janet L. Kelly Fax: (616) 961-6598 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Daniel A. Neff Fax: (212) 403-2000 if to TULIP, to: Flowers Industries, Inc. 1919 Flowers Circle Thomasville, Georgia 31757 Attention: G. Anthony Campbell Fax: (912) 225-5433 - 5 - 6 with a copy to: Jones, Day, Reavis & Pogue 3500 SunTrust Plaza 303 Peachtree Street Atlanta, Georgia 30308-3242 Attention: Robert W. Smith Lizanne Thomas Fax: (404) 581-8330 or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. SECTION 11. Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 12. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer, whether by operation or law or otherwise, any of its rights or obligations under this Agreement without the consent of each other party hereto. SECTION 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws rules of such state. SECTION 14. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal court located in the State of Delaware or any Delaware state court, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been - 6 - 7 brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 10 shall be deemed effective service of process on such party. SECTION 15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 16. Counterparts; Effectiveness; Benefit. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. No provision of this Agreement is intended to confer any rights, benefits, remedies, obligations, or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns. SECTION 17. Entire Agreement. This Agreement, the Confidentiality Agreement, the Elf Merger Agreement, and the TULIP Merger Agreement entered into by the parties concurrently with the execution and delivery of this Agreement constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. SECTION 18. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. SECTION 19. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. SECTION 20. Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled, without posting a bond or similar indemnity, to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at law or in equity. - 7 - 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. Kellogg Company By: /s/ Carlos M. Gutierrez ------------------------------------- Name: Title: Flowers Industries, Inc. By: /s/ G.A. Campbell ------------------------------------- Name: Title: EX-99.1 6 g65066ex99-1.txt PRESS RELEASE 1 EXHIBIT 99.1 DEFINITIVE AGREEMENTS SIGNED FOR SALE OF KEEBLER TO KELLOGG AND SPIN-OFF OF FLOWERS FOODS THOMASVILLE, GA--Flowers Industries, Inc. (NYSE: FLO) announced today that it has reached agreement for a series of transactions that will result in the sale of Keebler Foods Company (NYSE: KBL) to Kellogg Company (NYSE: K) and the spin-off to Flowers shareholders of a new company, Flowers Foods, Inc., which will consist of its Flowers Bakeries and Mrs. Smith's Bakeries businesses. Flowers has agreed to sell its controlling stake in Keebler to Kellogg for $42.00 per share. After deducting certain liabilities at Flowers, management estimates that cash proceeds of approximately $12.50 will be paid to Flowers shareholders. In addition to these proceeds, each Flowers shareholder will receive shares representing a proportionate interest in Flowers Foods. Kellogg has also reached agreement to acquire the remaining Keebler shares held by the public for $42.00 per share. Simultaneously with the sale of the Keebler controlling stake, Flowers will spin-off to its shareholders the new company, Flowers Foods, Inc., which is anticipated to trade on the New York Stock Exchange under the original symbol FLO. Flowers Foods will include the bakery businesses and approximately $250 million in debt. The company will be headquartered in Thomasville, Georgia and will be led by the Flowers Industries management team. "These related transactions deliver excellent value to our shareholders from our Keebler investment and at the same time enable Flowers Foods to continue as a financially stronger entity focused on Flowers' core strengths," said Amos R. McMullian, Flowers Industries' chairman of the board and chief executive officer. "We believe Flowers Foods will be well-positioned to create value for shareholders by continuing to grow in the baked foods market." The transactions are subject to customary regulatory approvals and approval by the shareholders of Flowers and Keebler and are expected to close in the first quarter of 2001. USB Warburg LLC and Morgan Stanley Dean Witter served as financial advisors to Flowers in the transactions. Company Information Flowers Industries, headquartered in Thomasville, Ga., is a national branded baked foods company that produces and markets a full line of fresh and frozen packaged baked foods for retail, foodservice, deli-bakery, institutional and vend customers through its businesses--Keebler Foods, Flowers Bakeries, and Mrs. Smith's Bakeries. Keebler Foods Company, headquartered in Elmhurst, Illinois, is the second-largest cookie and cracker marketer and manufacturer in the United States and is also a leading manufacturer for both private label and foodservice markets. Keebler markets is products under well-recognized brands, such as Keebler, Cheez-It, Carr's, Ready Crust, Famous Amos, Murray, Plantation and Austin. Keebler is the licensed supplier with the Children's Television Workshop of Sesame Street Muppet characters and educational games on a broad range of snack category products. Through its Little Brownie Bakers subsidiary, Keebler is the leading licensed supplier of Girl Scout Cookies. Contact: Marta Jones Turner, Vice President of Communications and Investor Relations (912) 227-2348 Mary Krier, Director of Communications (912) 227-2333 -----END PRIVACY-ENHANCED MESSAGE-----